Good morning. Good morning to Talanx's Capital Markets Day 2022. We released last night our dividend proposal for the coming years. Today we wanted to give you an overview of our updated strategy for the next strategy cycle for the years 2023-2025. We have a day of full of information for you, and we will start with our CEO, Torsten Leue, who gives a summary of the strategy for the next cycle, followed by Jan Wicke. Jan Wicke will not only focus on what IFRS 17 and 9 mean to the Talanx's accounts, but also introduce you on how we deliver on our dividend strategy. After a Q&A and a coffee break, we will follow with our business divisions. Each of the divisional heads will explain to you how to unchain our primary divisions.
We will start with Edgar Puls for our industrial divisions, followed by Ralph Beutter for HDI Global Specialty. Initially, we wanted to have Ulrich Wallin here. Unfortunately, Ulrich caught a flu. I'm sure he's watching. Ulrich, get well soon. Ralph is also well-equipped to explain to you specialty business. He's the CFO of our HDI Global Specialty business. Thereafter, we'll turn to our retail operations. That'll be done by Jens Wartenberg, our recently appointed CEO for Retail Germany. We'll have Wilm Langenbach for Retail International. Each session will be followed by a short Q&A. We also have a few participants on the screens. We'll make sure that those will have the opportunity to ask questions again. I wish you a pleasant day. Enjoy the flight through our strategy, and I hand over to Torsten Leue.
Thank you, Bernd. Welcome as well from my side, and welcome in name of my team here. You see two people not here. This is J.J. Henchoz. Yesterday evening, you know him as the CEO of Hannover Re. It makes no sense to have him here on stage. He has his own capital market day. Caroline Schlienkamp , the new HR board member, who really focus on the talent management and other things in HR. You have seen her yesterday as well, evening. The team, you know them. Jens Wartenberg, you don't know yet. He's a marathon man. He knows operation financials really very good. Was a CFO in Germany. As we need in Retail Germany marathons, he's the right man to do. Actually, we're the winner of the marathon of the category over 50 or something, right?
Welcome Jens on board and he will present Germany. Good. Thank you all as well in front of the screen that you have interest in our stock and the capital market day. We would like to show you two things. Basically, promise is a promise. What we have delivered, what we promised. Second, what we will promise until 2025. We call it stabilization, what was in the past, and now acceleration, what will be in the future. These are the three, and I'll talk to you about the past, the three indicators we have given our KPIs the last three, four years. The 800 basis points was the 8% return equity. Basically, it was 8% because there was no interest above risk-free that was not existing, was even negative.
Earning per share growth was at least 5%, dividend payout ratio 35%-45%. What have we delivered? Return equity is always the most important things are in the footnotes, you know. That is a thing I've learned in my life. You see there the roughly 9% we will do. I think it will be above 9% because at the end of this year, we expect significantly higher than 10% return equity. The 800 basis points is the average over the year. In spite of Corona, we achieved return equity. We again don't adjust our return equity like in the market sometimes. This is really the pure IFRS accounting, not adjusted return equity.
If you would adjust it, we would be far above even taking the OCI out because mainly it was driven by the high OCI jumping into the equity. We account for that, others don't, and therefore we'll be for sure high double-digit return on equity if you would adjust it as well. Net income, it was driven by net income, not by the equity, as I said, because the OCI was significantly increasing the equity. It was driven by the strong EPS growth. We are here on the baseline of 850, coming up to the range of 1,050-1,150. Here's the first message. In the range, we believe we will come out in the upper range of this range we've given.
Basically, more closer to 115 than to 105. This is the first message. Taking this into account, if you go to the upper range, we will not have, and you see again the footnote, around 7%-8% EPS growth. It will be rather than 9%, 10%, let's say. Depends what we come up with the upper range. Here, taking just to account that the EUR 850 was then the the basis of this. When you just say at EUR 850 was, we had a profit warning in that year. Industrial portfolio, we had to clean up, and it was the EUR 703 was the real figures, which we have said.
At the real figures of EUR 703, what was real is the value of the portfolio at that time. If you take the EPS growth, we talk about 10%-13% EPS growth. It was a real one, around 13% coming from EUR 703 and now for EUR 850. Whatever I crunch the numbers, we have achieved the 5% at least EPS growth. The dividends as well, we had a payout ratio of 35%-45%, and some of you said it's low, but we were 47%, so at least above what we have promised. We promised as well to increase our cash pool, where we can pay dividends out from, I think, 0.8, let's say below 1, up to 1.5, and we have achieved it.
Jan will tell you more about it. We are above 1.5, so in that moment, we always said we will revise our dividend strategy, what we have published yesterday evening. I will tell you more about it in a second. Dividend was a big issue that we are catching up here with the market, and I think with this, what we published yesterday evening, we are there. When you just summarizing the figures, I always find astonishing to say that, yes, we are not considered as a growth stock or let's say as a market which growth stock is more dividends. You see here that we grow from EUR 34.9 billion to over EUR 50 billion, and we will say significantly over EUR 50 billion on the figure we will publish that at the end of the year.
That means at least 43%, I would say closer to 50% growth. Top line was 50%, roughly 50% growth, which will come out probably end of the year. We are by far, roughly not close to 3x faster growing than the peers on the top line. You see it again, the numbers in the footnotes. We only can compare until 2021, because 2022 we don't have yet for sure. Fast-growing and much faster than the peers. Net income, which is more important, is growing by 50% at least. If you take the upper range, when it comes out there, it will be close to or above even 60%. Since 2018, half of top line, 50% and even 60% bottom line, more or less, could be the message next year.
This is, I would say, a growth stock, if you really to add half of your company in just this couple of years. This is driven by the prime insurance. Reinsurance was performing always as a machine, and you know all the figures of Hannover Re. But as we had in 2018, we had this prime insurance, especially industrial portfolio of Edgar, ailing. It was not good. Not a good shape. We really turned it around, and now the share of the prime insurance is not 31%, but 40%, and we're aiming for more here. Basically, primary is 40% of everything, and the profit is primary insurance. You see it quarter by quarter. We are around even above this year, 40% in the quarters.
This in spite of, and the whole market has it for sure, the Corona issue and as well Ukraine. It's about EUR 2 billion we have to absorb in our figures. And, it shows as well that Ukraine, we always, as we always did in the past, we learned it from Hannover Re, want to be very conservative when it comes to the reserving. When we have close to 400, I think 361 or whatever was the figure, in Ukraine reserved, 70% is still IBNR. There's nothing happened yet. It shows you just a figure how we try really to keep this culture of conservative reserving. EUR 2 billion headwinds we had. Just to show you the quality of the results, especially in the prime insurance, we publish always, Towers Watson results once a year.
We learned a lot from him in Hannover Re. They have EUR 1.7 billion, basically stable reserving, they're growing. Basically the percentage-wise is decreasing still. The primary is the contrary. Significantly increase of the resiliency reserve published or accounted by Towers Watson of EUR 800 million more, resiliency was in the best estimate reserve. This shows you that we showed not these results in the profits. We showed it in the resiliency reserves. This is now published. Basically on the way since 2018, EUR 800 million additionally reservation, which significantly gives us resiliency for whatever comes in the future. Proportionally, we are even higher reserved in the resiliency than Hannover Re, if you compare to the total reserves. That shows again, quality of the prime insurance. It was not really hard calculating.
It was very conservative, seeing our reserve situation. Overall, it brought you 69% total share return, which is an upper range of the peers we compare with each other. Basically 69% is what at the end counts for you as shareholders. That was the past. We stabilized, I think, the company. Prime insurance, and we call it even unchained Prime insurance, is basically moving ahead to 40% of the company. It's visible. You know, it's not something we have just by the way. It's a major part of our company. The 40%, nearly half of it comes from primary. Going forward, we say acceleration. Acceleration means for sure everybody wants to have more and higher and faster. We as well. Therefore, we have the Strategic House 25. This house has four ingredients. Capital management, A. People management, B. Focus divisions strategy, C. Sustainability, D.
Probably the main part is the capital management. I start now running you through it about these four letters. A, capital management. We will increase our remittance ratio from average 44% in the time 2019-2022 until 60%. Jan will tell you more about it, what we will do, the measurements we do in the capital management. One thing we did as well, we changed completely our incentive systems. Basically, the focus on return equity and the remittance ratio is for each CEO in the company there as the main focus. Incentivized and measurements you can do, I think we can do here more. We basically saved a lot of money already, we can be very, I mean, saved in sense of cash pool.
We know that we can do more here, and we will do, and Jan Wicke will tell you. 60% is now the message. Always having in mind 60% while having in mind that we are fast-growing, a very fast-growing company. You know? I mean, 3x faster than the peers. This was the message we gave yesterday, we play a bit with number 25. Just maybe to explain you, since 2013, when we went the IPO, we started with EUR 1.20. We brought the dividends every year EUR 0.05 more or less up, or stable one year with Corona. We catched an up in 2021 from EUR 1.50 to EUR 1.60. You can say over the period, always EUR 0.05 basically up.
The difference was in 2013 to 2021, EUR 0.40 per share. We will now increase one step, proposed already next year for this year dividend, 2022, 25% up. The dividend we will propose is EUR 2. Basically we did in one year now what we have done in the last eight years. We are there starting with the EUR 2, and then we say we don't wanna have any more stable message. We only go upwards. We go upwards with 25% until 2025. The figure will be EUR 2.50 in 2025. The steps are upwards. We don't concrete the steps. We decide year by year. It's sure at the end of the year, EUR 2.50 will be there, and we'll be only going upwards.
This is a dividend message due to a more accelerating capital management, I would say, in our company. Having in mind, again, we are fast-growing company. Good. First, capital management. Second, B, is the people management. Here we basically have a new board member. Yesterday, you have seen her, Caroline, and I think it's very important and major parts are about culture in the company, how we can achieve this fast growth. It's about structure, but mainly it's about people, and about the business model we have. This is driven by many ingredients, but by people and as well by cost efficiency, how we approach the markets. It's really different approach.
Hannover Re is always somewhat different, I would say the prime insurance gets as well, somewhat different in many things, what they are doing, and we see it in the numbers. That basically is what she's working around, and the first results are there. I always say a healthy company, healthy people run faster. You see that, the organized health check we have, again, in the footnote, you see the 800 companies we compare to each other. It's an external survey. Interesting in the numbers, 86% of our people answered it worldwide. It's a huge participation rate. Normally in surveys, you know, from your own company, if you achieve 86% of all employees answering a survey, it's I think, a good figure. You see engagement here worldwide.
Over 2,000 people answered. The numbers here, we started with the third quartile. Basically, really at the bottom, nearly, yeah. We are now the top quartile is 77. Just to give you a figure, because it doesn't mean much to you, but top quartile means something. 80, if you achieve 80, you're really top in class. We are really not that far of a culture, which at the end, there are questions like motivation, leadership, innovation, all these typical questions you can have, that people feel as well, you know, give us a rather positive signal that we're on the right way. We're not there where we wanna be because we're not top. We are just top quartile. The way is a target.
For me, it's always important that people work with the culture and that we see leaders in the company who really believe this is important, especially in these times of today. The letter C, focus division strategies. Here, we want to have, let's say, a more primary insurance share, which is strategic ambition is 50%. We don't say yet the date here. It's not 2025 because Hannover Re has a good run now. As you know, the whole reinsurance market is really in a very hard cycle. We allow as well for sure Hannover Re to be outperforming. Still, as primary insurance is catching up, this is our ambition, to come close to 50% as a strategy, timing again, especially it's not here, there, but we will be there. This is basically the 50/50.
My colleagues will tell you much more. I just make very small summary what they will tell you. Edgar will tell you he wants to have at least above 10%, which in Industrial really has never seen without playing with reserves. This is really a clear commitment. What he says as well to you is, 2018, he started with 4.7, so roughly five. He will be above 10, I would say significantly above EUR 10 billion in 2025 with a CAGR of 12%. Be sure, when you have seen the resiliency, the EUR 800 million we built up in the primary insurance, main part comes from Industrial. We don't publish the segments, but I just tell the main part comes from the Industrial portfolio. You see that it's not growth.
It should be profitable growth, you see it at least a 10% return equity reflecting this one. This Edgar Puls will tell you in a second. Retail Germany, our marathon man, Jens Warkentin will tell you as well. I would like to have at least 10%. Above 10% again, which Germany never have seen. He will tell as well that yes, cash is important, profit transfer is important, and we need it. They give us 44%, which means EUR 650 million more cash contribution to the group. Overall, you see that with EUR 300 million above EBIT, this again, Retail Germany never have seen. Retail International, Dr. Wilm Langenbach will tell you again, "I want to have at least 10%." Again, International was very fast-growing in the past years. You have seen it, he will as well now.
You know, it's always when you acquire, when you grow organically, you get a steady state. Not steady state, but a state where you really can work with the mass you have acquired. It will be above 10% here as well. His message will be that in 2021, today, we are number five in the five markets in the motor business we carved out. We wanna be in 2025, not just in the motor, but in the whole non-life business, number five, which is a huge step. Because the whole non-life market is much bigger than just the motor market. Motor is the core of each market in emerging markets, but he wanna be top five in all non-life market. JJ will tell you nothing because he told you already that at least he wanna have 10%.
You know that Hannover Re always is far above 10% return equity, and the market is below 10% of equity, far below. I always say internally, "Just go on. Don't talk about it, just go on." With a clean operating model, which is again, we have the most segment as well, and the primary insurance is just a winning model, and the valuation is justifying it, I would say, or approving it. These are the segments my colleague will tell you in a second. The last one was the sustainability, the D. Here we have the targets published. No change here. We always each year revise our targets. It will be again the first quarter next year. The main targets are the same like the market.
We are basically on track compared to the market, the ratings are proving it. Again, in these times, it's always moving targets. We don't make, let's say, much marketing around it. We just work on what is necessary here. This basically was just in a nutshell. I think you're probably much more interested in the numbers and our colleagues about the details. We wanna accelerate. We feel comfortable with that one. The team can run faster, I believe. These are the three commitments. The return equity, at least the 10%, and I would rather say significantly above 10%. Jan will give you a nutshell what it means, significantly above 10%.
We wanna stick to the 10% first because Hannover Re did it always in the past, and they were much higher. The volatility you feel probably in the IFRS 17. Let's see. We always say significantly above 10% return on equity. Net income, and here we will show you that will be improvement of 25% in the real result if you compare apple with apple. Jan will tell you that this basis is one to 50, 1.250. On that basis, we grow 25% to 1.6 until 2025.
How we come to the EUR 1,250 million, is that we take the upper range, the EUR 1,150 million I told you in our guidance as an example, then we take the EUR 100 million on top of this. The EUR 100 million is only the accounting effect due to IFRS 17. It's 1% ROE effect. It's only accounting effect. Roughly EUR 100 million is net income effect, half from it real Hannover Re, half from primary insurance. We cannot take it into account. Therefore, EUR 1,150 million upper range or let's say the high point of our range, plus the EUR 100 million only accounting effect, EUR 1,250 million, then the 25% to the EUR 1.6 billion.
The message to you is only whatever happens with accounting, and we need probably some time that we all get more comfortable with that, we wanna improve our business really operational by 25%. The shareholder should participate in that one. First, now the 25% immediately up, and then the 25% until 2025 as well up and only upwards. These are the next year's promises to you. We basically can count what it means for EPS growth and so on. I think here we are quite at least within the market or even above. These are my promises, and Jan will tell you more about the details.
Warm welcome from my side. I'm happy to share a few things from the CFO desk with you. To start with, as Torsten Leue just has mentioned, with regard to the past strategic cycle, we have set out three targets: return on equity, EPS growth, dividend payout. We are to outperform in all three categories. We are doing this while in parallel consistently managing our resilience, what you see reflected in the chart in both, the solvency ratio, which stands above 200%, as well in our external ratings. If we are to announce a new strategy, obviously one question arises, which is what remain unchanged. I want to focus you on three topics here. First of all, Talanx will to continue to focus on insurance risk.
There will be a limit that from the risk capacity usage, the market risk, which always goes along with insurance risk, will be below 50%. This rule will remain in place. This translates into a quite conservative low beta investment strategy, which we'll continue to have. Second, we will actively manage our resiliency also going forward. What does it mean in the light of inflation? I will explain later in a little bit more detail. Third, seems to be like a no-brainer, but the Talanx focus is really on profitable growth. If you see the growth number, which Torsten just has shown, and you see also that we always align this growth ambition with cost efficiency ambition. We are market in terms of cost efficiency.
We are cost leader in the most markets we are operating in. This is a pure focus on profitable growth in insurance. This is more or less the headline of our business model. What will change now? First of all, we will have to change the language, how we communicate with each other. The underlying cash flows of our business will remain the same, but the language, how we translate that into P&Ls, into equity, and so on, this is what's changing. Second, if we look into the market, I think the most obvious challenge currently is the inflation environment. I just want to focus on the two things, first on the accounting language and then on inflation.
To start with the accounting language, for those of you who were attending our educational session to IFRS 17, 9, you already are aware that we are fans of the new accounting standard. It provides a more consistent treatment of assets and liabilities. The life insurance business is reflected much more in an economic sense. That's really useful for all of the external audience and our shareholders that they can better distinguish between good and bad business. This should result in an equity which is much more stable, and for you, much more meaningful as an indicator for the economic development. We will have a somewhat stricter fair value approach for investments. A larger proportion of our investment portfolio will be related fair value through P&L. This will cause some volatility, yeah?
All in all, I think it's a real positive that this new accounting standard is not only more economic, it's also much more linked to Solvency II, which will facilitate always also the communication to the market. All in all, we are very, very positive with regard to the new standards. Provide some uncertainty, and this is why we focus on this capital market today on the dividend announcement a little bit because cash is easy to understand. Nevertheless, we are positive as that one. I know that you have to do your calculations going forward. We thought about giving you some numbers also in order that you can do your calculations. Please notice that the numbers I will show to you are unaudited. Yeah, they are preliminary, yeah?
They should serve as a good proxy also. To start with the top line. As Torsten has said, we are expecting above EUR 50 billion gross written premiums for the current year. If you are to translate that into insurance revenues, then we have to deduct the investment component in the life insurance, so the saving parts of it, as well as the investment component in reinsurance, which is the commission, the cost commission the reinsurer pays to the insurer, for instance. This makes the vast majority of this change because the figure is EUR 38 billion or above EUR 38 billion if you translate it one to one. Second, the equity. We will have to start with the equity of roughly EUR 8.5 billion, which is lower than the equity under IFRS 4.
The equity development is growing and not shrinking, what you see currently under IFRS 4, IAS 39 due to the accounting mismatch. I want to keep you in mind that at the end of the year, we will expect in shareholders' equity of clearly above EUR 9 billion, so growing from the starting point, despite dividend payment, to be in our accounts. If you go have a deeper look into the balance sheet, then obviously the question arises, what is the financing headroom we have? The new accounting standard does provide more insights to the risk-bearing capacity of a company. It's not only the equity. You find here now EUR 15 billion. This is due to the fact that this is total equity, including the minorities also from Hannover Re.
You can add the CSM, the contractual service margin, which you can look at as being a present value of future gross profits. You can add the risk margin with the risk adjustment, which is also risk-bearing. Obviously, you have to deduct, these are both pre-tax numbers, the tax effect on it. You will end up with this being roughly EUR 24 billion risk-bearing capacity. If you then add also the subordinated debt which we have on the balance sheet, then you are EUR 29 billion as a whole risk-bearing capacity. Out of that, you can also figure out the debt leverage to EUR 24 billion compared to the EUR 6.6 billion, which we had a leverage at the beginning of the year.
This is 22%. The clear message here is, we have plenty of room for financing activities. What I want to do next is I want to give you some important insights for both P&C and for the life insurance. To start with P&C. In P&C, the real news is that we have to discount, the claims reserves. If you see here in the waterfall chart, first you have to adjust the current EUR 47 billion P&C reserves, by certain things because, the netting is slightly different under IFRS 17. Then you have EUR 43 billion if you compare apples and apples. Then you have a discounting effect, which is partly offset by the risk adjustment. The discounting effect, if you look at it, is rather small. Why is that so?
At the beginning of the year, the interest rates were very low. Please expect for the end of the year, this will be a higher discounting number, not just this EUR 2 billion going forward. There will be some change in that, but this is what you can see here. Coming to life, where we see the most significant changes. We've taken here the example of Retail Germany. It's just Retail Germany. It's not Hannover Re or Retail International. To start with, once again, with the insurance revenue. In Jan's business unit, they're expecting clearly above EUR 4 billion revenues in or gross written premiums in life for the end of this year.
If we then deduct the investment component and also the Unit-Linked business, it's just EUR 1.5 billion insurance revenue left. If you take this as a proxy also for our peers, 1/3, that would be maybe not the right proxy because we have much more biometric business than our peers. I think this relation is even a good one in terms of in between gross written premium insurance revenues for life. Second, with regard to the balance sheet. There will be a stochastic valuation, which really makes sense, in particular for the profit participation business where we have given out guarantees in the past also. Because it shows the asymmetric profit sharing, which is if the guarantee is deep in the money.
Obviously, the shareholder has to pay, whereas you have to do profit sharing when you're in the positives here. This will be reflected in the initial balance sheet of the life entities, yeah? The third thing to keep in mind is that the profit distribution over lifetime, if a contract in a life insurance develops according to plan, will be different from IFRS 4, because you have a later profit recognition if you compare that to IFRS 4, where we had more upfront profit recognition. To go even deeper, what you can see here on the chart is that, first of all, the equity where we start with for the life entities is much lower than the equity which we had under IFRS 4.
If you then add the contractual service margin, which is the present value of future profits, and deduct the taxes because it's a pre-tax number, then you end up at EUR 1.8 billion here for the German life entities, which translates nearly one-to-one to the Solvency II own funds. Which is very much linked to the Solvency II own funds. Just keep in mind solvency ratios in Jens' units on average above, clearly above 300%. It's an adequate risk capacity for the business we are doing there. This also provides and it, in addition, it provides some headroom for dividend payments upwards, this nice thing.
What you can see here also is that this business model in life is very little shareholders equity, a lot of risk capacity provided by the money from the shareholders, yeah. No, from the shareholder, from the policyholders. Sorry for that. From the policyholder. This is what also is reflected here in the chart. With regard to the new accounting standard, there's just one thing I do want to draw your attention to, which comes a little bit as a negative. We will have slightly more volatility, and this is due to the investment accounting, IFRS 9. The vast majority of our balance sheet, of our assets, will be accounted for fair value through OCI, the bonds and so on. They are fine. A very thin proportion amortized cost.
We have this EUR 12.9 billion so-called SPPI failed assets like private equity funds, like mutual funds which are not consolidated in it, which will fluctuate through the P&L. It's fair value through P&L. Out of that, due to the accounting in life, EUR 5.4 billion doesn't matter for the volatility in the end. We have EUR 7.5 billion EBIT, which is exposed to this volatility. If you then were to deduct taxes and also the minorities from Hannover Re, then we have EUR 3.9 billion exposed to the volatility of market change. What does it mean? Let's assume we have a 10% increase in the portfolio, then we will have EUR 390 million more profit net income, yeah? If it's the other way around, it's the other way around.
Obviously we have had some internal discussions whether we should get rid of this assets. We looked in our portfolio, and if you look at it in the past and also what we expect for the future, we have always achieved a very nice yield pickup on this part of the portfolio. Yeah. This translates on average, and this is maybe important also for your calculation, to one percentage point return on equity, which is for us derived from this part of the assets. In particular, in the area of private equity, we are a very well experienced investor, and we have seen nice profits. We decided to keep it and to accept the volatility which goes along with these assets because it will provide additional return for the shareholders and for us.
Let me now come to how we translate that in our future plan. Torsten already has mentioned that we expect under the old accounting standards, the results for 2022 to be in the upper half of the range of EUR 1.05 billion-EUR 1.15 billion. Upper half in the range. We have this accounting effect, which is the release of the CSM in both life and health reinsurance and life in the primary insurance. We have adjusted our target. We have increased the baseline by this 100%. We are providing here you with figure EUR 1.25 billion as a baseline. This is not our expected result for 2022. I want, for a second, I want to draw your attention to that fact.
We are currently steering our results after IFRS 4, IAS 39. In next year, if you, and this doesn't fit 100% to steering under IFRS 17 and 9. In next year, if you have a prior year comparison, I believe this comparison won't be very meaningful, yeah. Because the results are steered from a different angle. This will not only be true for us, it will be also true for others. This is why we decided to provide you here with a normalized figure on which you can base your calculations as plus or above 25%. For those of you who have done the maths, it's 28% if we increase it to EUR 1.6 billion.
It's above 25% how we want to increase our operational profit base. Having said that, let's go to the most important KPI for the future, which is the return on equity, which remains return on equity. As Torsten told you, it's clearly above 10%. If you now do the maths yourself, I've given you the number equity clearly above EUR 9 billion. Let's take EUR 9.5 billion, EUR 1.25 billion net income, then you can do the maths yourself. This ambition is above 10%, and it's clearly above 10% going forward. We have consistently reflected the new accounting standard in all compensation schemes of the group. We have increased the hurdle rates from 800 basis points to 900 basis points going forward.
Given that risk-free rate, which is calculated as a five-year rolling average of 10-year German bunds, will increase. That will be in the very soon future above 10%, also the threshold what we have to achieve. It's very consistent. Next to the return on equity, which is the most prominent factor in the compensation schemes, not only of the executive board, but also of the managing directors, we have the dividend payment. These are the two factors which really matters in order to get the remittance ratio up out of the group and in order to give incentives to do capital efficient business within the group, because we want to have the buffers in the holding.
Going forward, we will not only provide you with a return on equity figure like this. With all the volatility which is embedded due to this IFRS 9 accounting, the fair value through P&L accounting. We will also provide you with an adjusted return on equity. I know adjusted and so on, that doesn't sound so good. We will adjust this return on equity for the development, and it will be just an additional information for the SPPI fail assets movement. This should provide you with a better feeling on the underlying performance without this volatile movement of the investments. If you then keep in mind that on average we had one percentage point increase of the return on equity by the SPPI fail assets.
On average, this gives you a feeling of the development of the operational performance over time. At least where I thought it could be helpful for you to provide you with these two proxies here. Let's now come from the language to the real business, to the underlying cash flows. A lot of investors are concerned about inflation. If you see here the IMF outlook, they expect inflation to peak in this year and then to drop sharply over the next years. Obviously, questions arise. The business model of insurance, collecting premium first, paying out claims later, is exposed to inflation because you have to put in inflation assumptions first when you calculate your premium, and then you will have to pay out later, then obviously it's expected inflation versus real inflation which matters.
Therefore, this peak in inflation, obviously has caused a lot of management action also in our company. The countermeasures which were taken in all business units will be explained by my colleague in more details in their presentation. I would like to give you more analytical framework. First of all, we have the pricing for the new business, which will be explained by my colleagues in more detail. Second, we have the effect on the claims reserves, yeah, which we manage with our active resiliency management. Finally, we have an outlook which does not only reflect the happened inflation, but the future inflation to take place and how this will impact the profitability. I will focus on the active resiliency management and the real interest rate, which really matter for the last point, now in a second.
Let's start with this chart, which is a conceptual chart. Yeah. As you're aware of, we are booking best estimates, and these are the best estimate provided by our actuaries, which you find in our balance sheet. Given that we are a decentralized group, we have a second opinion by an external actuary, by Willis Towers Watson. If their best estimate is below our best estimate, we call the difference being the resiliency embedded in our best estimate. This is what we publish. Now let's assume we were to do nothing about inflation. What would happen if inflation exceeds the initial expectation? Obviously, the external actuary will adapt his claims calculation and the resiliency will shrink. Yeah. If we were to do nothing. We are not doing nothing.
First of all, we immediately have installed a very conservative reserving for every new claim. Second, you will see by nature lower run of profits, if you have to pay out higher claims. Those is already reflected in the combined ratio of the current year. If you take a duration of five years as a good proxy for our liabilities, 1/5 more or less is already reflected. It differs a little bit from business to business, and I tell you, we have maybe done a little bit even more than this one-fifth. On top of that, we have, as we are always aware in our risk management that inflation matters and that you can miss with your inflation expectation, real expectation, we have in our asset portfolio inflation linkers.
This is the only thing I have to correct. I hope it's right in the printout. Later, there is something about the investment portfolio. The right number is we have EUR 6.7 billion, so close to EUR 7 billion, inflation linkers in our portfolio. Just to give you a number, we are expecting an additional return during the course of this year in between EUR 400 million-EUR 500 million related to this inflation linker, which also helps us to manage resiliency. But now, I told you at the beginning, we are positive about this inflation environment, and we see opportunities. Why is that so? First of all, my colleagues will explain you that we are very confident that we can increase the prices according to inflation or even above.
Second, if you go look for the future inflation, I want to have your attention for this chart. What you can see here is the inflation expectation, which is derived out of the inflation linkers we are buying. The five-year inflation expectation in the United States from the beginning of the year to this end of third quarter dropped. It didn't increase, it dropped by 80 basis points. The implicit inflation, which is in the inflation linker. For Europe, it's the other way around. We have a drop of 80 basis points for the U.S., and we have a increase of 40 basis points for the average five-year inflation, which is embedded in the inflation linker. There we have inflation swaps.
If you go then in parallel to the interest rate development, there we see an increase of 280 basis points for the dollar environment and 300 basis points for the euro environment, always measured with Treasury and the equivalent in the Eurozone. This really matters because we are investors in parallel. I'm talking about here risk-free rates. If you combine the two, then you see that the real yield development, nominal interest minus inflation, has increased by more than 300 basis points for the dollar, for the United States, and 260 basis points for the Eurozone. Also to give you a rough feeling, I told that in the third quarter, we had 32% of our premiums related to the dollar, 29% to the Eurozone. This is why we focus on these numbers here.
This positive real yield development provides a nice upside to you, to our future profit expectations. Therefore, we are very confident that we can deliver this 25% increase in profitability from 2023 to 2025. This confidence is also underlined by our dividend policy. 25% up for the current year, another 25% up till 2025. Just remember 25%, 2025. This is our new dividend strategy on which we will deliver. We will do that by consistently managing our resilience. The Solvency II target will be in the upper range or even above of the target range of the solvency numbers. We will remain our strong financial ratings.
We have a very well-diversified earnings mix, with the majority of our business being in the wholesale markets, which are quite hard currently. Also, as Torsten has mentioned, we are without changing our dividend policy, the dividend reserve factor. I changed the wording from cash flow factor to dividend reserve factor, which is the statutory profit distribution pool, Gewinnvortrag in German, divided by the dividend, would have been at 1.6. Due to the increase in the dividend, it now will drop to 1.2, but it will then develop and increase over time again, so that we are confident that at the end of the new strategic cycle, we will then have a reassessment of the dividend strategy again.
To sum it up, we expect our profits to go to more than EUR 1.6 billion by 2025. I'm so used to the word more than, that's to EUR 1.6 billion by 2025. We will continue to manage our resiliency actively. Last but not least, given that we are growing much faster than our peers, we will monetize these profits and deliver steadily rising dividends to our shareholders. Thank you for attention. Now we are ready to take your questions.
I would like to encourage our participants on the screens, Darius, James, and Saurabh, if you would like to raise questions too, just activate your camera, and we put you on the screen for you to be able to pose some questions too. Michael first. We probably have a mic so that everyone can understand you well.
In primary, you said 60% is, sorry, 50% is the target profit. You're currently at 40% at the target of in midterm, you said not 2025, because reinsurance is also growing. I just wondered if you can give us an indication of how much the profit growth is in primary standalone. The second is on the, you're talking about the benefit of higher interest rates in your profit outlook. I just wondered if maybe you could give us a figure of how much of the EUR 1.6 comes from interest rates. I know we could work it out, anyway. The last question is previously you had an EPS target, now you have a net income target.
My question here is how much of that EUR 1.6 billion could be, I'm being a little bit difficult here, could be from M&A? Thank you.
Okay. I will start, and Jan will continue.
We will not give more indication than 40%-50% primary insurance until 2025. Because again, as I told you, the market is so hard in industrial and as well in Hannover Re, just look. What the message is 40%-50%. More, no more indication under 25. The last question is the EPS target. We don't plan with M&A in our planning. This is all the questions as generally we don't plan with some M&A. Regarding the second question, interest rates, Jan, maybe you can provide something. How much is the 1.6 from interest rates increase?
Well, I think that's a very good question. The new accounting language we are currently learning to use, splits the investment income between the risk-free income, which is embedded in the insurance service result and the investment income from own risk. It's a little bit difficult to answer because the interest rate effect I've mentioned, you will see in the insurance service result. I focus here on the risky one. Well, I will come with that. I have to look, give a more detailed look in the numbers. What you can take as an assumption, if you do the maths yourself, maybe this is helpful.
This is what he said.
yourself. We used to take the capital market assumptions by forward rates at the beginning of June as a basis of our planning. This is normal. Our, we don't take owner assumptions, we take the capital markets ones. Yeah
Good morning. Thomas Fossard from HSBC. A question on your dividend policy, which is 25% growth. What about the dividend if you were to miss or to significantly overachieved your net income t arget? I mean, working out the numbers, it's looks like as if you were still shooting implicitly for a 40% payout ratio, implicitly. Also, you dropped the guidance or the reference to any payout ratio. Could you clarify exactly what will be the outcome regarding the dividend? The second question would be around the reinsurance and, you know, how you are willing to structure your insurance in the context of hard market cycles. Anything to have in mind regarding changing the structure or the level of your attachment points? Thank you.
First of all, we haven't linked our dividend policy to payout ratio or the like, given that we expect higher volatility of the net income due to the SPPI sale. This is first of all. We have given you, I think, the most clear guidance you can give, which are real numbers. EUR 2 at the beginning, EUR 2.50 at the end of the strategic cycle. In between, yes, it depends on the development, what we will see. And we will link that a little bit to that one in between. We haven't thought so deeply about payout ratios yet. We thought a lot about how to provide for the stability for you as shareholders that we can provide this dividend.
We had a lot of contingency plans also in terms of that we can, even in every market condition, deliver on that one. This is why we still continue to have a focus on the dividend reserve factor within the holding and have additional buffers to play the game here.
Regarding the second question is, how we change reinsurance structure. I would say that we postpone the question a bit to Edgar, because it's mainly about industrial portfolio. Sure, there is changes where regarding attachment points and others, I would just postpone to Edgar the question. Is this okay for you? Because retail is really a small part in the whole reinsurance game. It's about industrial portfolio.
Roland.
Yes. Good morning. Roland Pfaender, Oddo BHF . Two questions from my side. Looking at your redundancies, which increased nicely to EUR 1.3 billion end of 2021, do you have a rough estimate where this might land in the current year? Secondly, your opening balance sheet, German Life, this is also pinned down at a time where interest rates were very low. What would have been the moves looking maybe also at year-end? Also looking at the loss component, for example.
Yeah. I think I will take both questions. First, with regard to the resiliency embedded in our best estimate, I want to set out the expectation that they will be lower for, at the end of 2022 compared to the EUR 3 billion which you've seen before. This is due to the inflation effect. We are balancing here. Yes, we are. But you shouldn't have any worries because it will be just a bounce, and then it will be rebound due to the setup measures I already mentioned. No worries about it. Second, with regards to the development of the CSM, it's more or less a question with higher interest rates. Yes. The overall picture will show a nice impact on the CSM at the year-end. Yes.
I expect the CSM to be higher than this EUR 2.5 billion in Retail Germany at the year-end. Yeah.
Regarding the first one, redundancy, that's seen over the cycle. It's good to have this kind of resilience reserve in any case. We make sure that this will be, you know, going forward, balance out again back.
Any other questions? Michael.
On the resiliency and to link it to your, I think you said you adjust to inflation over five years. I just wondered if it's the same thing you talk, that you were mentioning. I think you were saying that you adjust for the inflation. You did a bit more than 1/5 this year. I just wondered if, how that links to these redundancies. Just on the redundancies, can you have redundancies on the system which is supposed to be even, which is to be all best estimates? It's a puzzle. Just going back to the dividend payout. You're saying people will be incentivized to pay out more.
Can you give us a better feel for what the numbers are or what the benefits are? You know, do I get EUR 1 million if I pay you 41% instead of 40%? Or do I get EUR 10,000? I mean, how big a driver is this?
I will start with the first two one. With this regard to resilient, how resiliency. I really, I try to avoid the word redundancies, because these are resiliencies which are embedded in our best estimate. The wording is quite important also for our auditors. What is the reality? Let's face it. You have a theoretical standard like IFRS, where we have to book best estimates. If you ask two actuaries, you will receive two different number on what the best estimate is. It has to do with culture. It has to do with future assumption setting, yeah. If you compare the figures over various geographies.
For instance, I have my prejudices with regard to some Anglo-American actuaries, which are a little bit sharper than the typical German one. but it's just a prejudice, so don't take it too serious. What I want to bring across is you will always have more than one view on the best estimate. This is why we have implemented this additional guidance, this additional governance with an external view on our actuarial reserves. It's about, for about 95% of our claims reserve, we have the second view. This provides us also an internal management with much more comfort. We, we see what's going on in the various business unit. It's more a concept of managing our accounts than of steering balance sheet.
We have this positive resiliency, which really helps to manage inflation shocks like we had in this current year. It's helpful, yeah. We believe in that. We are, yes, we are conservative. This gives me also, we are quite cost efficient. The bonus numbers, but this is up to Torsten, if you deliver more dividend payments. Yeah.
Again, I will answer. Regarding the dividends, no, we will not get millionaires here. It's about culture. Let's give you an example. In the board, we have always the same target. There's no separate target for Industrial or same for Retail International. We all remunerated the same way. Yeah. Therefore, the culture-wise, nobody's playing against the others, and there's no egoism in that because we all play the same game. Group re-return equity, it's a group cash coming up and so on. If you form that kind of things, it is automatic, decentralized push to the others. The culture should be the money has to be with mummy, yeah. If you implement that culture, there's for sure as well some remuneration behind this and target setting.
You know, this is just a secondary. The culture is important. When people don't feel that money belongs, money belongs to mummy, these are not the right managers for us. Very simple. Then they should expect if some investments are coming, yes, we are ready to help. Yeah. This is really, you always have the issue of getting the money into the holding, yeah. I rather prefer it not by paying more money. I mean, we pay something, but it's not a money question, it's a culture question. We need the characters of people who understand how we want to play together. That we implemented, I think, at least in the board, and I can say more and more in the company. It's much easier and much less stress.
Maybe another example to give you, we don't talk too much about plan versus actual. We just say the more, the better. You know? I don't like having a culture of discussing a sandbagging, you know, lower plan to outperform your plan and make the 1% more to your plan and so on. Much stress, you know. Much number crunching for nothing, you know. We learned this as well from Hannover Re, because they always say, "The more, the better." You know? People have totally different behavior, and we lose not so much energy of just talking about the plan figures. We have a plan, it is clear, but remuneration is the more, the better, and reflected as well. Relative performance counts.
For me, it's much more interesting if you have a local entity in Poland that they perform better than the market. You can be an excellent manager having low results as a market disaster. You know? Always make sure relative performance counts. Sometimes you do mistakes overachieving a plan, and it seems to be a great manager. Sometimes it's because you have a conservative plan or you're just lucky, and the whole market is even more lucky than you know. This is all not really how you measure performance in my way. Relative performance counts, and the more, the better. Different culture.
Okay. Thanks, Torsten.
Any other questions? Okay. If there are no questions, I mean, we are still around anyhow for a bit. I suggest that we break for quick coffee. Given that we are ahead of time, we would reconvene at 10:30 A.M. 30 minutes coffee break. We continue with Edgar Puls for industrial lines, and thereafter Ralph Beutter for specialty lines. Thank you.
Okay, we are back. Given that it's Saint Nicholas Day, Saint Nicholas is in attendance too, and you find a little present. The story is, we actually cool down our office buildings these days and had a bit of difficulty to calibrate it correctly. Assuming that some of you experience the same, we thought a bit of socks would help you to survive these days. Now over to Edgar and Ralph, who will tell you how they unchain primary insurance in Industrial and Specialty Lines. Edgar, the floor is yours.
Bernd, hopefully, I hope the socks are not the introduction to me with getting cold feet or something. I think it's just about Christmas and the room temperature. You know, when I, when I entered the stage two minutes ago, I just had a kind of a deja vu, I have to say, because when I, when I think back only three years, 2019, I remember that I was standing here on the stage and telling you something about the turnaround we are planning in Industrial Lines. I was telling you a story. I remember that I was looking into quite some doubtful faces.
Honestly, I won't ask, you know, who trusted the story and who did believe that we'll make the turnaround, but I'm more than happy to stand here today as we and the core team has been totally convinced three years ago that we will make the turnaround. Today I can tell you that we did it. Torsten already showed you this slide. You know, we changed our ROE, the entire profit, from a negative profit in 2018 within three years only, 2019, 2020, 2021 to now, into a positive profit. What I will tell you now that we made the turnaround, that we will continue the path we have chosen, and then we will continue to scaling our quality to the power of three. That's how we name it.
The third thing is that we will, of course, in the future, also deliver stable results. What does that mean in KPIs? You know, let's start with one of our most important KPIs, besides ROE, of course, the EBIT. You can see that in 2022, we expect something like more than EUR 200 million EBIT. This is a growth path since we started the turnaround. When you have a look how we combine this EBIT coming from a financial result and coming, of course, from an underwriting result, I can tell you that this, what we expect until the end of the year, is the best underwriting result ever in the history of Industrial Lines in Talanx. This is what we already deliver in 2022.
When we talked about the future in 2019, also, at the coffee break and somewhere else, you always told me that you hate volatility. Of course, who loves volatility? We all hate volatility, and we love stability. One of our second tasks was to reduce the volatility we had in the past years prior to the turnaround in 2019 and change this into stability. Here we can tick the box. We delivered that. We intensively reduced our volatility by, at the same time, significantly decreasing our combined ratio. In the last years, we are very, very often asked, well, in a way, do you shrink by, you know, cleaning up a book? It's easy. Do you shrink to beauty, to a good combined ratio? The answer is clearly, no, we didn't.
The starting point, January 1st, 2019, the joint venture, HDI Global Specialty, with taking over the Inter Hannover business from Hannover Re, was EUR 5.6 billion gross written premium. We expect at the end of the year something like EUR 8.7 billion. Actually, within four years, we grew organically by EUR 3 billion. EUR 3 billion in four years means three times the size of a mid-size European insurance company, and this pure organically. How did we do that? The next question coming to growth was very often, well, is this sustainable, the growth, and do we make profit, the growth? Can tell you when we just compare that on the year change 2021 to 2022, 40% of this growth is rate change and 60% is new business.
Also here, believe me, you can feel the underwriting culture we have implemented in the entire company that the new business we write is profitable business. You can feel that at the underwriting culture, but at the same time, we monitor this very closely, and we dig into each and every portfolio and new business we write to check if it's really profitable. Growing was one task, but the question was, where do we grow and how do we grow? One of our main tasks was to grow also in specialty. When we looked at growth specialties, we started with something like 20% of our book of business, and by the end of this year, we expect roughly one-third of our business being specialty business. The entire growth-In those four years, we're more or less 50% from specialty and 50% from commercial.
It's more or less half from both segments. The second task we set ourselves 2019 in respect of growth was to grow also outside Germany. We always said, "If we want to be HDI Global, what our name is, if you want to be a global company, we want to and we must become a more global player." On the one-hand side, we have proven that by growth, but at the same time, even though we grew in Germany, we grew much faster outside Germany. Actually we expect by the end of this year, 25% of the business coming from Germany and 75% from other countries. In comparison to 2018, where roughly half of the business was still German business.
One of the structural changes we made by the mid of this year, also to become a more global player, is that we changed our board structure. You know, until mid of this year, we had one board member responsible for Germany only. We said we will treat Germany more like one country in the world, so we have now a managing director for Germany. By the way, she's a great person. You should meet her one day, Barbara Klimaszewski. She still has EUR 2.2 billion premium and more than 1,000 people working in Germany. She's pushing the transformation and really to become a more global and modern commercial insurer. 25% is Germany only. At the same time, where did we grow?
I presented you in the last years that we have our core markets and developed two core markets, those three pots. We also managed to grow exactly in the markets where we wanted to grow and those markets which we want to develop to core markets outside Germany. Can we measure that we are a more global player? That's hard to measure, honestly. You can see that on the gross written premium. We perceive a lot of feedback from international globally acting clients and also from the global brokers, who see us now as one of the real global players in the market. What is the future? In the future, what we plan is scaling quality to the power of three. We will continue working in a lean underwriting operation to become a lean underwriting champion.
That means combining the underwriting culture we have developed, we've proven in the past, with the lean operating model we have. This makes us very fast and flexible on the markets. The second thing is leading, becoming a leading IP and captive insurance provider. This is also one of our strengths already right now, we will continue pushing that. The third one is specialty powerhouse. Of course, we won't lose track on specialty. Specialty, we really call it powerhouse because you can feel the power. Whenever you enter one of the locations, you will feel the willingness of each and every colleague to make the business and to make profitable business. No one, you know, is keen on top line, but everyone is focusing on growth and profitable growth because we are fully focused on bottom line. What does that mean?
Let me start with the underwriting culture and giving you an example. I don't want to bore you with the decreasing of attritional loss ratios or any technical things like that. I can tell you that we have implemented in the last three years a lot of additional tools. Tools to be, to have a better underwriting. You know, using the data we get from risk engineering, from claims, using this for underwriting. Those are still tools. If you want to be an underwriting champion, you need the underwriting mindset. A colleague of mine always says, "You know, a fool with a tool is still a fool." Actually, you can have some fools, but you won't change the mindset.
We invested a lot in the last three years to have the right mindset and the results, the combined ratio going down, attritional losses going down, all the things where we can really measure the success of the turnaround is an output of all the input, starting with the culture and the underwriting culture. The eagerness to get the right business for an adequate price. How did we reduce volatility? There are a lot of things behind it, but just let me give you one example. We always said that we are too highly exposed to some NatCat risks. You may remember this disastrous year, 2017, with Harvey, Irma, Maria, the three NatCat events in U.S. Our market share of the market loss at this time was far more than two per mil on the market share.
When I compare this now with Ian, we are below one per mil. Actually, also this proves not only the theoretical figures, but also this proves that we managed the de-risking, and we are still using the cat capacity we want to give for our core clients to be in the areas, but we stop underwriting any kind of not necessary, not profitable business in this region. You know, the second advantage we have, and this is still comparable to Hannover Re, is our cost advantage. I know that everyone usually hates to talk about costs, but in a way we love it. I'm sorry to say so, but we love it. You know, it's in our genes. We have been cost leader, since years, and we will continue doing that because for us it's a real game changer.
That's a real differentiator to be best in class. All those are competitive differentiators for us, which give us the advantage to be faster and more flexible on the market. That we are fast, you can, for example, see on the inflation issue. We already had the discussion also in some areas in the last weeks and months. You know, everyone talks about inflation. I can tell you since half a year, we don't talk about it, we just manage it. That's crucial. You know, we have 4,500 people all across the world working with us in HDI Global. We need to be fast in whatever we decide. We cannot afford with a usually 12 years contract period that it takes six or nine months until everyone knows what to do in the organization.
That's why being fast and having a lean operating model is a differentiator. How are we reacting to that? Jan already promised that I would give you some more details. Of course, for the long tail business, we have rate changed. We started to implement the rate changes to keep and to improve our results already mid of this year in the first renewals, mid of 2022. You can see that right now our rate change, we are on average across the lines of business of about 11% pure rate change. In property, it's slightly different. In property, you know, you have the sums insured.
If a client may have had last year sums insured of, let's say, EUR 10 million, and may have had a loss of EUR 10 million, this EUR 10 million loss would have cost last year EUR 10 million, but this year EUR 11 million. Actually we consult and we discuss this with our clients that they have to adapt their total sums insured also not to run into an under insurance. That's also part of our obligation to have a consultant function with our clients. Finally, of course, cost reduction is not only looking to the outside world, but even improving the cost ratio we have of being leaner and being faster in the market. Besides that, our claims maturity on the inflation side, we are also quite relaxed there because roughly half of our claims are closed after less than two years.
In addition, in the underwriting part, we improve digitalization and we transform our underwriting into a more digital world. I will give you just some examples. You can see here a map of the world. One example is on the NatCat side. We improve our models. You know, we have this NatCat modeling, and we have more than 1.6 million locations of our clients in this NatCat model. You know, when Hurricane Ian had landfall this year, I was just in Israel. Friday night, we made the first model runs with the team, and we call again on Saturday morning, Saturday night.
We were more or less on track how this impact could hit us and if it fits with the models. What I told you, we are far below. We more than halved our exposure in relation to the market share in comparison to previous events. Also there, it's pure data management, data quality utilization. Also in, let's say, our core business risk engineering, you know, we want to improve the risks with our clients. That's one of our obligations. We have nearly 200 risk engineers all across the world. We digitalize this too as giving our clients platforms and systems.
You know, when you, when you make recommendations for the clients with the loss experience we have, it's nice to have it in paper and put it into a drawer or have it in a PDF and just store it in your file system. You need to monitor that those recommendations are permanently closed and that the risk of a client also improves. Our clients are interested in that. That's something what we put as a service for our clients. The next generation of insurance, I think we've been talking about that also three years ago, is the Internet of Things. Also here we see a lot of people and companies talking about the Internet of Things. You can see it here. It's the II to the Industrial Internet of Things. I would say we just do it, we don't talk about that.
We have one example where we can talk about because this was public. We have something like 20 MVPs, which we drive with our clients. We have a co-creation lab, the HDI TH!NX in Berlin with roughly 10 people all across the world. A limited number of people, but economics, engineers, IT people, sitting together with our clients and developing tangible cases where we can make money with. I would like to give you just one example. You know, we are all talking about batteries. Yesterday night, we also talked about some, you know, solar panels and how to store the energy, because usually you need the energy when the wind is not there, when the sun is not there. We talk about motor vehicles, electrical vehicles, and there are some risks of course with charging and recharging the batteries.
We are using data together with a battery intelligence company called ACCURE. Took us one and a half years to check all the data we received during the charging process. What kind of data can prevent a loss? We are now there that we brought it down to something like 10 KPIs we are measuring. With this, we can reduce losses. We made a kind of back testing last month with a couple of losses which occurred on the market, and we would not have only prevented those losses and foreseen the losses. We would have foreseen them already three to six months before they occurred. This back test shows that meanwhile we have an insurance product on that, and we can insure those battery charging together with some professionals.
You see, this is what we are talking about, the next level also of insurance, also to prevent losses. Leveraging skills means also focusing on our strengths. We have HDI Risk Consulting, but also talking about IP fronting and captive services. You know, this is for us, and this is for everyone, for every global player, that's the ticket to play as a global player. You need to be in the top 25 percentile of IP fronting and captive services. You read a lot that more and more companies in the world go to own risk-carrying. You know, they're shifting to captives, mainly due to lack of capacity in some areas, NatCat exposure and so on. Actually we have those skills, and we will accelerate that.
When you see here the numbers that we expect something like EUR 20 million more EBIT, yeah, that doesn't move the needle, I know that. This is just, let's say, the service revenue we generate. We expect in the next years more than EUR 400 million more gross written premium. We boost our premium income, and we want to focus to make money with our insurance business, and that's behind the EUR 400 million we will boost with that. You see that in the last two years, we intensively grew with captive business. Two things I would like to share with you. First of all, last month, we won one of the largest, worldwide largest captive and IP fronting programs in the world.
We did not get the lead on this program because we were the cheapest on the insurance side. You have to be competitive, of course. We are competitive, but we are not cheap. It was because we are making a great job in captive services and IP fronting. That's why also this client, you see the growth story, trusted us and say, "Okay, you're one of the players I trust to do that." The next thing, by the way, we have quite a young captive manager, and also last month, he won at the Luxembourg Captive Forum the prize of in one category of being the captive manager of the year 2022. Congratulation to the colleague again, that was a great move. This is how we use our core business and our core strengths is to accelerate also our growth.
The third thing is transforming the specialty powerhouse. You know, we had three phases. 2019, I was standing here, and I was talking about a kind of a startup. You know, we had the founding phase. You see the EBIT was very low, gross written premium, more or less stable, but we grew this very fast in this growing phase of the last two to three years to those EUR 2.8 billion in average, and we increased the EBIT. Now in the next three years, we will come into the performing phase, means slowing down the growth, but fully focusing on performance. That means we will have an EBIT of more than EUR 100 million in average in the last three years. Are we already there? No, we are not.
You can see that we are better than average with specialty, we always said that we want to be in the top quartile of our peers. That also the next level where we want to get into the next quartile, into the top quartile. Usually, I would have stated now that Ulrich Wallin will make a deep dive on that in a couple of minutes. I know that I introduced something like also three years ago when we started with specialty, Ulrich Wallin to you as the legend as in insurance business, managing Hannover Re for 10 years with outstanding results, always outperforming business. Since yesterday, I thought that Ulrich is unstoppable. Yesterday I learned that you need a very aggressive virus to stop him and quite some high fever.
Ulrich, when you're watching us, all the best for you and hope you will recover fast. Ulrich is the Chairman of Specialty, and I'm more than happy to welcome Ralph, introduce Ralph through. Ralph is the CEO. He is also on global board since January 1st of this year. 35 years in the industry, 35 years working with Ulrich. You started as a student from Ulrich, and then you became the, let's say, the secret joker of Ulrich. Whenever there was some Hannover Re trouble in the world, you were sent out to fix it in Hannover abroad, couple of years in London. Then you started some growth stories and finally, the Specialty story is the story with you and your team. As said, Ralph will give you some insights on that later.
Actually, what are my ambitions and what are the promises for the next years? Gross written premium will be above EUR 10 billion. As promised, we will continue the path we promised 2019 to be at 95% over the cycle. If you may have read the documents from 2019, you will have seen that we are already one year ahead in our combined ratio path to what we have promised 2019. Return on equity, Torsten, some clear words from you. Of course, we will deliver more than 10%, and we are already this year with more than 8%, close to that. All in all, I'm very proud with the entire team that I can say now that we delivered what we have promised three years ago.
Once again, I won't ask you here who has trusted that. We delivered. I was always convinced that we will deliver because we have the spirit in the company. We will also deliver the next path, the scaling quality. For the future, for sure we will have those strong and stable future results. With this, Ralph, I will hand over to you, and you will make the deep dive into the specialty story. Floor is yours.
Thanks. Thanks very much, Edgar. Yeah, a warm and friendly welcome from my side as well. I'm more than happy to be here today, even on short notice, I have to admit. As you rightly said, Edgar, HDI Global Specialty is, you know, also sort of my baby to a certain degree. I remember four years ago when I was called in a meeting, Torsten said, "We've decided we want to set up a dedicated specialty lines carrier to with a global footprint," we put together the, yeah, the specialty business written in the group under one roof. I looked at it, then I thought, you know, am I really up for the challenge? Decided, yeah.
I mean, that's probably a once-in-a-lifetime opportunity to have something which is rather small, working reasonably okay-ish, and try to make something special out of that. I'm very grateful that also we have had the support from the Talanx organization. They clearly said it's an investment initiative, and together with HDI Global, I think we have come a long way. The idea was build this U.S. or this global-acting specialty lines carrier with profitable growth. Let's look on how we have been doing in the last couple of years. If you look at the numbers, you will clearly see there is a nice growth rate in the business when it was set up in 2019.
It's I think also fair to say that we had favored market conditions from the very beginning. In hindsight, it was a perfect strategic move from the Talanx board to say that is the right time to set up this dedicated specialty lines carrier. I think over the last three and a half, four years, we have actually delivered. You also can see that the growth plans have been not that ambitious looking back, and we have clearly outperformed when it comes to growth. We have grown from EUR 1.2 billion roughly to EUR 3.2 billion, hopefully by the end of this year. That's down to, of course, also the support we had from our two shareholders at the time, Hannover Re and HDI Global.
We had good market conditions, as I already said. The competition was struggling, but we also had a great team in place. We had people from... In the Hannover Re, we had people from Global coming together. We put them under, into one company, and they have shown a lot of courage in developing the business. That's, it's clearly, for me it's a sign that if you put all the right ingredients together, you can cook a really good meal, and I strongly believe we have been doing this in the last four years. We, as I said, we had favored market conditions. We have, you know, taken the complexity out of the structure, and we have focused on core activities, and I think that's, that is the difference.
Before 2019, specialty business was done as non-core business in various parts of the Talanx organization, and now we had one entity concentrating on specialty business being the being its core business. If we then look at the results, again, a brief looking back, you can see between 2015 and 2018, the results have not been that great. In between 2019 and 2022, in average, it's looking much better. We have reduced the combined ratio by more than 10%. I've already alluded to the fact why in between 2015 and 2018, the results have not been that good. It was a lack of focus, but it was also the balance in the portfolio. We had more delegated sort of business, less single risk business.
We were more long tail than short tail. That is what we've changed in the last years. The quality in the portfolio is much better. We have a set of experts looking into the business. They had the courage to take advantage of the favored market conditions. We had a clear strategy and a focus. If I look back, in three out of four years, Edgar, we hit our bottom line results or targets. Just in one year, we have not been able to do that. I will explain why this, why that has not been possible in a minute. From my perspective, it was the right decision from the Talanx board. Torsten, Jan, Jens, Wilm, Edgar, you know, a brilliant decision at the time.
Now let's look at the underwriting results. Or yeah, how have we been doing on a financial year, but also an underwriting year basis. On a financial year basis, if you look at our loss ratios, you will see they're relatively stable. There's just one year where we have not been able to hit our financial targets, our bottom line target. That is the year 2020. That was due to COVID and Corona. A big chunk of what we do is also sport, leisure and entertainment, contingency business. Virtually all those events came to a standstill. They had been canceled, and you see that in our results. Nonetheless, we have been outperforming our peers for the most part in 2020. Torsten always says relative performance counts. Absolutely right.
Nonetheless, it's also clear that we have not hit our target in 2020. Of course, looking forward, no matter what happens, we wanna achieve our financial targets anyway. We have already alluded to the fact that we have changed the composition of the portfolio. We are now much more short tail and more single risk than before. We've reduced the weight of delegated authority, and we have moved away from the long tail side of things. If you look at the underwriting year view, what you will see is, of course, in the younger years, a fair chunk of our reserves are still, or of our, yeah, reserves are still reserves. They are not paid on our outstanding claims. That on a growing proportion of a short tail book.
I think that underlines that we believe that the quality of our book has improved, that also there's a high likelihood that we will see positive results from those years going forward. The portfolio characteristics also in combination with inflation. We do quite a few things on the Specialty Lines. We had a discussion yesterday, Edgar, about pet insurance, which is covered under property. We do EUR 150 million pet insurance. The good news is that that is not that volatile. It doesn't also offer not a huge margin potential. Nonetheless, it's worthwhile doing it. We do snowmobiles in Sweden. You will find that under motor. We do a bit of cyber.
We do space fine arts, sport, leisure, and entertainment covers. It's not the traditional type of covers we do. If we then look at inflation, if we look at aviation, we have agreed values, so inflation wouldn't kind of do much to agreed values of an airplane. That has less of an impact. If we look at financial lines, we don't have the property damage, we don't have the bodily injury claims, so there's also a limited impact. On the short tail classes, it's different, but it's three years till usually the underwriting years are being run off. You can take that into consideration when you price it appropriately. Of course, we take inflation on the property classes into account.
We price it properly, we increase the pricing where possible, of course. Always an increase in pricing, we attempt to be ahead or above the inflation. Then we have the long tail classes where we might see more of an inflationary impact. Overall, I would say we have a good balance with different lines of business, only in parts more affected by inflation, and that is overall under control. Probably a topic you also like to hear about is, you know, how are we affected by the Ukraine war related exposures. For Specialty, we have three lines of business which at the very beginning was sort of a concern to us was marine hull. So far we have not a single claims notification.
Even if we would get some claims, we have an external reinsurance in place which protects us excess EUR 5 million. We have political violence, political risk. That is. There are some claims, outstandings. You know, it's a EUR 1 million digit number, so relatively minor, to be honest. That, of course, then leaves the aviation side of things. We traditionally are a very strong aviation insurer. Having said all of that, I think we have done a very good job in underwriting. We clearly see that with the restrictions we have in our policy wordings, we believe that the impact on us on aviation will not be too severe.
With the provision we've taken into our balance sheet with EUR 30 million for the industrial segment, we believe that we're on the safe side with that. Overall, much less of an impact so far than initially thought. Nonetheless, it's also fair to say on the aviation side, there is a bit of uncertainty because as you might have seen or surely have read, there is some litigation going on already in the courts in the U.K. and the U.S. We believe that we are at a reasonably safe place. Looking forward, what is coming next in the next three years? In the past, we were able to grab the low-hanging fruit. We set up a couple of branches.
We were taking advantage of the favorable market conditions. Now I think or well, I know we want to have a more systematic approach on how we wanna develop our portfolios further. We have a lot of mandates we are not using on a worldwide basis so far, which means that we will go out and try to sell our products through the HDI Global network. There are geographical areas where we can improve our footprint, so it's South America, Southeast Asia, but also in the U.S. We will not lose the underwriting discipline. I think it is key that we stay disciplined and look, also when it comes to the risk selection that we take the right decisions.
The plan is by 2025, 2026, to have something more closer to EUR 5 billion. We organically will probably not achieve that on our own, we are open, of course, to look into merchant acquisitions. Which means that with an organic growth, we're extremely confident to hit the EUR 5 billion premium number in the future till 2025, 2026. I've already said underwriting discipline is key. Our combined ratio ambitions so far have been around the 95% mark. We believe that we can do better than that. Again, relative performance counts. Some of our peers are better than us. At the same time, we want to show sustainable profits with low volatility.
That, of course, means that we will not be able to write business which is extremely volatile to a larger degree. Talking about NatCat, Edgar has already alluded to that. We are cutting back. We are not overexposed in cyber. If it comes to systemic risks, we always try to limit that clearly. That, of course, means that we give some sort of profit potential away in the good years, but we should have more stable results in the future or going forward. Of course, we also withdraw the same risk side of things and give the delegated authority less of weight. We continue to focus on a diversified portfolio. I've given you some examples about what we are doing that will continue.
We want to go in a stable way through the market cycle, and I'm convinced we will be able to do that. Of course, the growth and the underwriting discipline are leading to another profit level, surely. We also will raise the ambition. Edgar has already mentioned it. You know, our EBIT contribution, we clearly want and will double the EBIT contribution in industrial segments. I've talked about increasing same-risk business and leveraging or selling our products through the HDI Global Network, whilst we continue to reduce our systemic risk. We are extremely confident that the next three years will continue to be a success story for the Specialty Lines business, contributing to the industrial segment, of course, also contributing to the Talanx Group.
What are the three points to summarize at the very end? I'm extremely proud that we have mastered the ramp-up phase. It wasn't an easy ride. We've heard this morning, or Edgar said it's, it felt like a startup company. I think we managed extremely well in challenging conditions. We have outperformed when it comes to growth targets. We have virtually hit the bottom line targets. Now we want to lift up to the next level and continue to become even more profitable for the benefit of the Talanx Group. Of course, Edgar said it as well, you know, I think one, two, three times, we wanna become a top-tier powerhouse in Specialty Lines business. I think we are in a good way. We are not there yet.
It will take some time, but I'm extremely convinced that we will be there in three years' time. By 2025, I might be standing here or Ulrich, depending, if Ulrich has a flu or not. And then we hopefully can just confirm that we've been able to keep our promise. Thank you.
Okay. Thanks, Ralf. Thanks, Edgar. Again, you have the opportunity to ask Edgar and Ralph questions. Roland first, please.
Yes, thank you. Maybe a general question. Could you comment on the pricing cycle, how you expected in terms of peak pricing in Industrial Lines and, maybe thereafter? You highlighted that Germany has still, I think, 25% of your business. Could you maybe compare the technical profitability of Germany to the rest of the book, how that plays out? On the over the cycle combined ratio of 95% target for 2025, you again highlighted that you are a cost leader. I think the specialty business is maturing, getting better also in terms of combined ratio. Is that too conservative or what am I missing here?
Thanks a lot, Roland, for the question. Let me start with the pricing cycle. What I also showed you that, this year in average over the lines of business, we have achieved again 11% increase. We see at the moment that trends like inflation, for example, supply chain issues, they're not stopping that, because we also see the loss trends and we monitor the loss trends, and we are fully focused on the profitability of the book. Actually, this is something which goes in line, and it's still doable on the market. That's very important. The German results are fully in line with the international results.
I think we discussed it also three years ago that Germany was the country where we had the highest losses at those times. Actually, we catched up. Also until now, Germany looks pretty good result-wise, as said, in comparison to the others. Your last question about the ambition. Yeah, we want to achieve the 95% over the cycle. You know, what we had in the past is that we may have had something like 95%, 96%, but then next year is also 98% or something. This is what we want to avoid. 95% are our target to have this stable over the cycle. Yeah. Maybe sometimes below, sometimes a bit above, but not this fluctuation in the amplitude anymore. Does this answer your question, Roland, or?
Sorry. How would you define the cycle? I mean, it's a three-year target.
Yeah.
A cycle is not necessarily negative going forward, at least, what we can see in the market.
Yeah. Well, you know, we have those cycles, especially in commercial lines. We had them in the past quite intensively. The last softening market was something like
12, 13, 14 years lasting. For that reason, we are very much interested in stable results. Yeah, we don't go into fluctuation anymore. If we will be below 95% in three years, we will see, but that's the minimum promise we give.
Okay.
Michael.
Michael, we have a mic for you.
Mike with the mic.
Mike squared. Thank you. Can you talk a little bit about the competitive environment? I know you're trying to avoid the cycle and saying you're steady, et cetera, but we're actually interested as well to understand the environment you're operating in, whether your peers at the moment are still raising prices above lost cost inflation or not. The second question, your 95% target, and I think the 93% also for specialty under IFRS 17 and the 2022 numbers under IFRS 4. I wonder if you can give us a kind of like for like feel for things. Going back to the captives. It was a lovely slide, there were no...
It's I think it was the first slide I've seen in your really lovely presentation pack, where there are no numbers. I just wondered whether you can give us a feel for captives, but also a general feel for this trend maybe to self-insure, given how quickly price is rising. Thank you.
Yeah, sure, Michael. Thank you very much. Let me start with the competitive environment. Yes, of course, we are competing with our peers, right? Actually, it's not that we're in a standalone market. I think in the last three years, we have proven pretty well that we can ride this cycle. You know, others just stopped doing business because it wasn't profitable. We used then also, in a way, not only the knowledge we have, what Ralf also elaborated on in some specific lines, but the market contact we have. We have a strong relationship with the local brokers. More than that, you know, when the prices are adequate, then you can use the tailwind of growing.
You know, it's just really using the cycle how you should do that. That's what we also emphasize on the specialty lines, that the point to start specialty was a perfect one, was a perfect timing, because then market started to harden, yeah. It could be, of course, that in some areas, we see that some lines of business in some areas in the world may start to soften. When they are not profitable, then we will step out of this business or at least shrink our books. Yeah, that's how we manage it. Underwriting rational and underwriting discipline first, and that's key.
May I just add perhaps to that? For the most part, we still see favorable market conditions, although with rate increases above inflation. As you rightly say, Edgar, I mean, we already see pockets like D&O, excess D&O, where you see rate reductions. There's, you know, these areas are still very limited for the most part. I've, you know, it's just my personal opinion, I believe the next 18-24 months, we still will see very good trading conditions, both for commercial and specialty lines.
Yes, that's what we expect, definitely. Your second question, Michael, was about combined ratio, IFRS 4 and IFRS 17. The shift from 4 to 17 is very limited on the Industrial Lines book. It's around, you know, we don't have final figures yet, but it will be around 0.3%, 0.4% something. It's more or less like for like. The main impact we see in Industrial Lines is on the gross written premium shifting that to the insurance revenue. There you will see a decrease. That's the main accounting shift, but not on the combined ratio. The last thing, the captive trade. Yes, we are one of the largest IP providers in the world.
You know, we are acting in all countries all across the world. Just to give you some numbers, and I don't want to give you the numbers of our peers, but we are leading. You know, it's not about participating in an international program, but it's about leading the program, because then you have to make the policy country by country. You have to do the claims handling and also link to captive fronting. Then you have to serve the captive also in claims handling, bring the premium from the countries to the captive local tax, local obligatory things like that. We are leading around 5,000 international programs worldwide, and as far as we know, that's within the top 25% of the market. Yeah.
It's hard to get detailed figures there. Okay.
Okay. What else would you like to know, Roland?
Could you maybe speak about reinsurance protection you are buying, maybe for both segments?
Yeah.
At least from my point of view, reinsurers might change their underwriting style. Are you exposed to the lower layers and higher frequency or something like this?
Yeah.
maybe the pricing you see you have to put on the table.
Yeah. It's a good point, Roland. Thank you very much. That pretty much links to the question, Thomas, you raised, which Torsten forwarded to me. Of course, we see that, and we have anticipated that in our plan. We do see increasing reinsurance costs. In some area, they are significantly increasing, but mainly when you have a look to NatCat exposure. I would really at the moment, Ralph, you can add something on that later, segregate NatCat exposure reinsurance from the standard reinsurance, yeah. What helps us, first of all, we combine, we have one HDI Global book, and we, for example, all the NatCat reinsurance, we do that together, and we buy it together for one book of business.
The shrinking of exposure. You may remember the slide, it was more than 50% our exposure shrink. This pays out now in buying reinsurance. Yeah, there will be a rate increase, but in overall numbers, it won't hurt us significantly, and we've already planned it. For all the other lines of business, it's still a question of profitability. When you have a look to our other results, we are very much profitable. Also, reinsurers are still interested in participating in those reinsurance program because also in the last years, they made money with that. Right, Ralph?
I mean, there's just no, not more to add, Edgar. I mean, on the NatCat, I think we have taken the right course of action in the last 18-24 months by reducing our exposure substantially. As you rightly say, even if the rate moves up with a lower exposure base, I mean, it's of course still more expensive, but in absolute terms, it's, you know, we are of the opinion that it's something we can live with.
There was also, Thomas from your side, the question about the higher net exposure. Of course, we check our net exposure year by year. In the last years, we already increased our net exposure, but not due to reinsurance pricings, but due to our overall amount. As when you remember just gross written wise, when we started with 5.6 and we end up now close to nine, of course, we will also increase our net exposure because we can balance it out much better in the group and try to keep as much profit as possible within HDI Global and then finally also within the group.
Okay, further question. Let me first check whether there is someone on the screens who would like to raise a question. Does not look like that. Encouraging them as well before I hand over to Michael again.
Thomas.
Michael.
It was just two little questions. One is on the growth and one is on... You've shown numbers for specialty and for the total. On the growth, it looks, reading the numbers like an analyst being really nasty, that's the global is shrinking and the specialty is growing because you're going from EUR 3.2 billion-EUR 5 billion, whereas the total is going from EUR 8.7-EUR 10. It's a bit of a funny question because you said there's M&A, but maybe it opens the road to explaining a little bit where you could potentially see this M&A in specialty. The other question, you gave very precise numbers in terms of underwriting profits for the specialties. It goes from EUR 55 to over EUR 100.
On my very rough math, and I'm not particularly good at this, the underwriting profit in the total would go from EUR 340- EUR 500. Effectively, specialty is a third of the increase. Is that about right? Am I missing something as a...
Sorry, the last part, specialty is going to what?
If you go from 96.5% of EUR 8.7 billion to 95% of over EUR 10 billion, go from EUR 340 million to EUR 500 million, that's an extra EUR 160 million. Whereas in specialty on slide 76, you see the EBIT going up by about EUR 50 million. Specialty is about 1/3 , and I'm just checking. It's just to check if that's about the right way of thinking.
Let me start, Michael, with the first question. Yeah, the growth, we said that we will be above EUR 10 billion, right? Actually in the past, in the last years, we grew 50% in commercial and 50% in specialty the last years. In absolute number, relatively, it's of course, the growth in specialty is higher as the starting point was much lower. It was 50/50 in the past, and it will be roughly in this area what we plan also for the future.
Regarding the underwriting profit, you've seen that in the past years, especially in the starting years, with something like EUR 3 million EBIT in average for the years 2019 and 2020, you know, specialty was really lacking behind when you've looked the share on the gross written premium to EBIT, and they are now catching up. When you have something like one-third of the gross written premium, we expect to level that out, that we will have overall to one-third of the profit then. Let's see, I did find it.
Okay. Thomas.
Yeah. Thanks. Two questions. The first one would be on the gross pass for commercial and specialty. Thing that in the U.S. there is a big deal currently around growing into MGAs. Actually, there has been a quite successful startups which have been created over the past years. Is it something that you're looking at? Thing that you've mentioned that you have sort of scaled down your dedicated authorities. You know, when you are aiming to grow, you know, U.S. maybe through M&A, I mean, does that mean as well going through distribution, acquisition of MGAs or something like that? Anything that you could say on that in order to reassure us that actually you are not giving the pen to other people.
Maybe one thing as well related to the combined ratio. Actually, you're shooting for 90s%. Well, you're shooting for 95% compared to 96.5%, which looks again a bit conservative, having in mind the 93% on the Specialty. We've got the feeling that a lot of economic profits are going to be generated over the past, over the next two or three years. I mean, how are you going to manage your resiliency reserves? Because it seems to me that you're still willing to build up the buffer. I.e., as if you are going to create the economic earnings, but you are likely to be unwilling to show everything down to the bottom line. Where are you going to set the balance between both? Thank you.
Yeah, thanks a lot, Thomas. Maybe when we start with the MGA question as all the delegated authorities with specialty. Ralph, maybe you can start.
I'm more than happy to answer that, Thomas. I mean, even if I said, you know, we put more emphasis to single risk and less to delegate authority. If you just look at it, you know, then I know the plan is that we wanna have 60% single risk business, 40% delegate authority business by 2025. If you work that on increased turnover or premium volume basis, then we also will continue to grow the delegate authority business, but at a lower speed than on the single risk side of things. The U.S. has always been one of the large delegate authority markets, and we are present there. We're extremely cautious. We rather look at specialty segments and a bit of short tail.
We also do a bit of exit, accident-prone liability business in the U.S. The U.S. is clearly a market where we want to have a larger footprint also going forward in single risk, but also in delegate authority.
Coming, Thomas, to your second question about building up the resiliency buffer. I think Jan also elaborated quite some things on that, and we showed you the figures for the primary group. As said, we won't make a deep dive into the segments. When you have a look to the last two years, we had quite some hits. I think about inflation and all the other things, and we have been in the situation that we could stably follow the path we have promised. For that you need, of course, a bit of resiliency, but also in the range, Jan, I think you showed it last year at the capital markets day, Jan, that there will be also a top seeding.
It's not that we put, let's say, a too high amount of profit in the resiliency. Yeah.
Okay. Final call for questions for Edgar and Ralph. Any further questions? Michael.
Michael.
I was really asking the Thomas question, excellent question. The 95% versus 93%, does it mean that it's roughly 2/3, 1/3. The industrial must be at 96%. Is that right? That's your target. If your if one is much better, the other one must be a little bit worse, no? What, what's happening there?
You're absolutely right, Michael. When you take the 95% on the point 2025, the Specialty has a 93%, that would mean actually, you said you're not good in calculation, but I see that you're very good in calculation on things. That it would be a 96%, you know. The 95% is just over the cycle, so it can be that we are also below. We don't plan a worse combined ratio in commercial than in Specialty. The 95%, as I said, over the cycle that the average as from 25 over the years.
Okay. There's one urgent question. That's the final question from Thomas.
Thomas.
I just wanted to speak about, you know, the recessionary environment, because, I mean, it's pretty clear that we're gonna have, you know, economic slowdown ahead of us, probably mild recession in Europe. Who knows? How is your book currently structured to absorb this kind of recessionary environment in terms of, you know, claims or anything that is, I mean, is making you confident that actually you're not too macroeconomic exposed?
Yeah. Well, that's a great question, Thomas, and we are thinking about that, of course, every day. On the one hand side, when we talk about the pure inflation, I think we have well managed so far to compensate the inflation forward-looking but also backward-looking. Jan also told you something about that when you talk about the claims reserves. Of course, also there inflation hits you, but also here we are pretty well settled. Looking forward, I'm not scared about that because we started to manage inflation pretty fast and pretty early already in this year. Also all of our clients are dealing with that. You know, they're also dealing with higher inflations, with energy costs and so on. That's something what we are discussing with them.
Looking a bit more to a potential slowdown of economics, Thomas, that's hard to forecast, honestly. That's for me, more or less looking into a crystal ball. You know, we have a great regional split. We have a regional split all across the world that we are not dependent on one economic anymore, right? That would have been different in 2018. Then we have a great line of business split. We also checked our industry split, yeah. Is there any industry where we were at very high share? It's very well balanced in the book. Then coming also to specialty with the 36% of our gross written by the end of the year.
Ralph gave you some insights about the lines of business which are written there, and they are also, in some areas, far less sensitive to a slowdown of economics. All in all, we think that we have broadened the book. We have it over the industries and also segments in the world that we think we are at least well prepared, yeah.
Good late morning together and welcome to Retail Germany. Some of you I already met last night. I'm Jens Warkentin, the new CEO of HDI Germany. On the screen, you see the team I brought with me. All of them are senior leaders within their segments within the group within their particular markets. Two of them are the market guys
That's Holm and Thomas for the bancassurance and from the broker part, they are really within the market. Thorsten Pauls is following me as CFO. He's been my risk manager for a long period of time, and he's an IFRS 17 native. That helps nowadays. Torsten and Jan already said something about me, about marathon, et cetera. I'm still the acting CFO till year-end, and I've been chief operating officer for many, many years. My passion is not only marathon, it's processes and operations as well. That's all you need for retail. Retail is in the end, a cost play, therefore, you need to get operations under control, and you need to command over it. That's my passion. Marathon is about, in retail, it's all about keeping pace. In particular, in the 13 km onwards, I don't lose pace.
What's our strategy? What are our goals? The Go25 strategy, as presented in the last year, still remains unchanged. I've been involved. I've been part in the strategy team. Therefore, our Go25 strategy is the right one, and we're gonna execute it. You see on the right, on the right part, our ambition is achieving a return on equity, which is in line with the group's ambition. In the last two years, this year and last year, we had a return on equity between 5% and 6%. That does not at all fulfill our ambition. Therefore, we will double it at least to 10% or more, and at latest, at 2025. Regarding supporting the 25, 2025 dividend strategy. Retail is cash strong.
Therefore, you can see the numbers on a later slide as well. We generate cash, and that is the strength of our retail business. For a period of three years, we're gonna increase our dividends capacity and capital upstream to the group by 44%. That is a remittance ratio of 90% at least. That is the core, and that is the strength of retail. We're gonna provide stable dividends. Coming to the segments which we have. You see on the slide already the number under the new regime, IFRS 17, where part of the saving component in the life insurance goes out compared to IFRS 4, and we are still a strong and large life insurance carrier.
55% of our business is life insurance, and 44% is about the P&C insurance. Those are the headline numbers. The good thing about it, since we've accomplished our de-risking mission for German Life, we can ride the wave of interest, and life is not a burden anymore in the current market environment. As I said to some of you last night, life is fun. That is what we do. In life insurance, we can get money out of it, so we are very happy having this life book in our portfolio. Why is life fun? We can start two things. We can start releasing the ZZR.
We have a big stock of the ZZR, additional premium provision or Zinszusatzreserve , which we've explained in the last year or years. I will not further elaborate on that. We can start releasing the ZZR. The ZZR belongs mostly to the policyholder, that's clear. However, of course, it was a burden, building up EUR 5 billion or exactly EUR 4.8 billion. Releasing that increases our financial flexibility in finding pockets for the shareholder. Even more important, we have always a spread over the current yield, over the guaranteed yield. We have risk is over or much lower. Fun with our capital-light products, which we offer in a very focused manner, is our future.
Talking about risk, one thing in life insurance, you can see here the number of the, of the Solvency II. We, as said, we rigidly worked on improving the risk profile of German Life and de-risked the entire book substantially. That results in a Solvency II ratio of 380% per September this year. That's one thing regarding risk. Regarding fun, dividend capacity. You can see here on the slide only our largest carrier, the HDI Lebensversicherung AG, which has retained earnings of EUR 174 million, ready to be distributed to the shareholders.
We have substantial volume in our balance sheet as retained earnings to support the 25, 2025 strategy Jan and Torsten just laid out. This year, the HDI Leben will according to current plan, will about to distribute EUR 60 million this year and contribute to the dividend of the group. There's still remaining a significant number for the coming years. Talking about growth. In bancassurance, we've always been successful with a long-standing track record in industry. You can see here the new business numbers. We are sure that we can further build on this long-term success and keep on growing in this very profitable segment. An example we have, we're just gonna start in first January 2023, our new partnership with Deutsche Bank and Postbank.
We're gonna provide payment protection to this partner. This will add up nicely to our top and bottom line. On top of that, we do have a very well market position in the Sparkassen sector, that ensures our top line and bottom line as well. Our goal is clear. At the moment, we are top five. We will not stop fighting before being top three in this particular segment. Having talked about fun, that was life insurance. Now we come to P&C, the hard work section. Here what we see, we see some headwinds. We had not cut events in the P&C part. That we're gonna manage as well as inflation. Plus we're gonna grow in particular in the SME segment.
NatCat, last year everyone talked about NatCat because we had this huge Bernd event. What we did was we had, we increased our retention. We had a number of storms in February, plus the one known, Antonia, which did fall completely into our retention. We have about 36 million EUR NatCat gross equal to net this year in our account, which you've already seen in our Q3 numbers. That's about 2% of the combined ratio. Plus, we put aside about 30 million EUR additional inflation reserve this year. NatCat is one thing. We've had very calm NatCat years in the last years.
This year was, for our book, was about double compared to our experience. That is one thing we're gonna attack and address. Next thing is about inflation, where we've had many questions from you last night and prior to that. How to tackle inflation for German Retail? That you can see on the right part of the chart. The advantage is for German Retailers, inflation can be managed on a portfolio basis and not on a contract-by-contract basis. We have for 76% of our book, it's been, it can be managed on a portfolio basis. That is what we called built-in stabilizers. Those are indexed linked policies which we have. The next is the normal price increase we have in motor, et cetera.
That's, that's gonna be attacked on a portfolio basis. The rest is contract by contract as known for the corporate business as well. How to do it and how to push through prices. That is, I'm an operations guy, and I'm a bottom line guy. Pushing through prices is just a matter of consequence. The top line is more or less the variable, the bottom line is fixed. We, we push through the pricing with proper processes and operations, with no room to maneuver on a local level to bypass pricing or to bypass the price requirements we had from headquarter. That's more, that's done more or less for the, for the change of the year.
We are quite happy what we've pushed through in the pricing for the coming years. Inflation as such, from a process point of view, does not cause us headaches because we do not leave any room for losing pace, pushing through the prices in German retail. Now we are coming to my passion part. Retail is a cost play. In the end, it's a cost play. Products you can copy. Pricing and the underwriting technique you need to control, you need to have proper processes and tools. We are part of a big group, so we know how to do pricing. We have the best actuaries in the market, we believe.
Being successful in the end is managing the costs. Came some way, we had, you see here the number of 830, 38, and 21. Coming down to 775 in 2022, resulting in a cost ratio of 35% for the P&C book. We have at the moment in the plan 32%. 35% does not fulfill at all my personal ambitions and requirements for a retail organization. That is being an operations guy, that's the first and the last thing I'm gonna attack and address, because that is the basis for everything for being competitive in the retail segment. No way that we're gonna stop and stay by the 35% cost ratio. Coming to top line, the SME segment. We've had a nice growth in the SME segment.
We have from the tradition of our sales force, we have a good position in SME, and we're gonna continue our growth path in the SME segment. However, bottom line first. We believe we have with our bottom line requirements, we can still grow nicely with a CAGR of 7% given our market position. We're gonna continue in particular on short tail business, and that will then add up nicely to our top and of course the bottom line. Talking about retail, the private segment. I'm proud serving two and a half million customers, and I'm happy the private retail segment is a very profitable one.
Here is the strategy quite straightforward and clear. Keeping the number of contracts steady and stable, because that is the segment, which is very cash and profit positive. We want to keep that segment stable. The core strategy has been accomplished fine. We have, we want to keep that portfolio stable. Having said that, the result is then cash. Here you can see, our ambition having stable processes, having a good cost position, then the nature of the retail business is providing dividends. Here you have, you see the number, that we have accumulated cash upstream of EUR 650 million from 2022-2025, for this three years period, which is a remittance ratio of 90%.
We are very certain reaching that number since we have strong balance sheet and the nature of the business gives us a very good outlook for this. Summing that up, profit transfer I already mentioned. Combined ratio. Bottom line first, we will reach a combined ratio of 94% by 2025. We're gonna continue the path making sure that we reach the combined ratio. I must say, it's not on the slide, but life is still fun, as I said in the beginning of the presentation. That in particular in the life business will end up in having a return on equity by 10%, as I said, at least 10%, at latest 2025. Summing that up, the key messages, the Go25 strategy, 10% at least return on equity.
The growth focus in SME on a very focused approach in the SME and in the bancassurance world, with a very focused and capital light product approach in the in the life insurance. Therefore, our position within the group is supporting the 25, 2025 strategy since we will be, and we already are, a significant cash contributor to the group. Thanks for your attention.
Thanks, Jens. We have 15 minutes, Q&A for Jens before we start with Retail International. Thomas, what is your question to Jens? Do we have a microphone for Thomas?
Yes, thank you. Two questions. The first one would be on pricing. Can you be a bit more specific on what kind of pricing you're pushing through at the present time? I think that we're close to the end of the renewal period in Germany. What the outcome and what have you seen in your book? Any lapse rates coming up and how the competition as well has been moving in these last few weeks? That will be the first question. On the cost side, I think that it's been years that actually the German P&C business has been trying to improve the cost. We've been hearing in the past about data centers, about decommissioning IT software, something like that.
Again, a lot of the low-hanging fruits have been already done. You know, what give you confidence that actually you can, you know, shoot for the 32%, and where this is going to come from? Thank you.
Okay. Starting with the renewal of the prices. You're completely right, Thomas, the renewal for the next year, I mean, is done. We do not provide detailed numbers on a segment by segment. I mean, you've heard from the market what are the average price increase which we have. We're gonna attack at least the inflation segment by segment. Regarding what is the lapse experience we have at the moment. I'm talking about market-wise, we still see a quite calm market. It's not this huge change and movement insurer to insurer. Therefore we do not see, I would say, exceptional lapse rates at the moment.
It's quite calm. Surprisingly. Surprisingly calm. Therefore, that gives us confidence in keeping a profitable portfolio together. Regarding costs, it's exactly as you'd said. I wouldn't say the low-hanging fruits are done. The big things like decommissioning IT. The big investments in IT have been done. Jan has in, within the course initiatives, I think has, a number of years ago, has presented that. The rest is what needs to be done. Retail operations is a big number of many small things, and pushing that through, throughout a decentral organization. It's like getting processes detail by detail in order, and then thinking about how to automate it. Complicated processes, to be complicated in IT is an expensive IT. That is, we don't do.
What gives me confidence, I've done it before, and I would say in much larger operations.
Roland.
Could you elaborate a little bit more on your experience you made growing the SME business? How profitable was it? Looking at your current plans for growth, I remember that growing this business line gives you additional expenses on top of the average. That might be in contrast to bringing down the costs from my point of view. That's one point. The second one, you're managing your other Retail P&C lines as a cash cow, not really growing it, but is it long-term an option? The segment per se is not the biggest and if you're not trying to improve it and to grow it, where should it head to?
Yeah. Coming to a fourth question, I missed out one from Thomas regarding the commission rates. We, commission rates are in line with the market, I would say. We are broker segment, we are in line, we don't see any exceptionalities in there. Roland, you're completely right. The business mix, the SME segment is per se, is a bit more manual compared to the private ones. You need to be competitive in each segment. A change of business mix would, per mechanics, would change in an average cost ratio. I said I need to push down the 35% on a ceteris paribus level.
You need to get the costs under control in both segments. In the SME segment, the cost ratio is per se a bit higher. There, I'm not worried about it. Regarding the private segment. You're right, it's keeping it stable. Keeping the number of contracts stable. That is the target in a mature market. Gaining market share, I've not seen it often or actually never, that you gain market share in a, in this very competitive, mature market, without doing compromises on the pricings. That we won't do. We wanna keep the number of contracts stable.
For the foreseeable future, we believe that provides good profitability as long as the German economy is going forward as it as it does. Regarding the prices, it's clear, 95%, 94% combined ratio is the target. In the SME segment as well, we don't do any compromises on that.
What was the experience like?
That depends. We have, we had a very good book, for example, in the Betriebsschließungsversicherung, and there we had the hit regarding Corona. I mean, that's been done. Overall, in the last years, we were happy with the SME business, that is clear. Otherwise, we wouldn't be trying to grow in this segment.
Michael?
On the dividend, EUR 450 becomes EUR 650, of which EUR 174 is the Life bit. The other bit grows by EUR 24 million. Effectively, there's no growth from the other. That would be my question. The second, pretty much Roland's question, but is there a demographic cliff? In other words, you're keeping these people, and it's lovely that you're keeping them, but they're probably getting older, right? At some stage, you won't have them anymore. I just wondered, what's that? Then on the cost, you gave us precise numbers, EUR 775 becomes EUR 675. You said that the mix changes a little bit, but it's not a big problem. We've got inflation, so are these real, are these nominal numbers?
In other words, excluding inflation, the EUR 775 becomes like EUR 500 or something.
Yeah. Starting with your last question. You're right. Those are gross numbers. The costs we need to reduce are on top of inflation. That is clear. The reduction number is already including inflation. The real numbers to be safe is a bigger one. You're completely right. And I mean, but 32% cost ratio is not like rocket science. Has been done, and I have it already done. That's gonna happen. Regarding the dividends you said, it's all the business segments do contribute to that. I mean, it's not only Life. The HDI Versicherung, the retail carrier is providing profits as well. There we are.
Those profits are this dividends are very sure because we already have an exact plan how to do it. The HDI Versicherung will contribute to the dividend as well. As well as the small P&C carriers, which we have Targo, et cetera. If you take a look at local accounts, you see, they are quite profitable as well. Okay. That would be Pami?
Demographic.
Oh, yeah. Sorry. You're right. If I say the number of contracts and clients will stay stable, it won't be 100% the same clients. Keeping the numbers stable is from the growth perspective is more ambitious as it looks on the first glance. You need to have a hard-hitting distribution force doing so. We have about, in the tied agent force, we have about 1,000 salespeople out there. Keeping, it's always a number of having boots on the ground. That is the point, keeping the distribution force stable. That is, it's fun as well, but that is busy work.
There will be opportunity for final question. Checking out the screens. Roland. Final question goes to Roland.
Maybe coming back to reinsurance. I think you managed, you mentioned that you had some NatCat frequency losses or losses coming in as you reduced, you covered this year. Is there any change to this?
No, we, I mean, we do not, we will not change the reinsurance strategy or structure. We did so last year. We increased the retention, and that is the structure we are, we are moving forward as well. This increased retention this year hit us for this 36%, but is per se is the right strategy because reinsurance does cost money. Therefore, the higher retention is the rational reinstructure we already put in place this year, and we will move forward with it.
Let me start to go in with the slide that Torsten has already presented. The overall ambition, the overall targets do remain the same. Double-digit ROE, as well as becoming top five, not only in motor, but also in P&C in our core markets. Please allow me to go a little bit more deeply into the four key areas, the four key strategic pillars on which we have built our strategy to achieve the profitability levels and the strategic positioning in our core markets. On the technical excellence side, which is even more important now than when we presented to you last time, we do continue to progress and invest. We are a little bit above the 95% combined ratio ambition that we told you that we want to achieve by 2025.
As I will show you later on, we are on a good track there overall, mitigating the inflation impacts, which have been quite significant throughout this year. On the diversification side, we have not only in 2021, but also in 2022, made significant progress of increasing our non-motor business. Which is, if you remember, the second pillar, continuing to grow motor business, but also strengthening our diversification into the non-motor business overall, reaching roughly EUR 550 million additional business, Therefore, well on the track to the EUR 900 million that we want to achieve. The third pillar, which is crucial for us in retail, beyond the technical excellence and a somewhat diversified book, is as well continuing the digital transformation.
One key thing, also in our retail markets and especially in our core markets, is expanding our reach to our clients digitally. We are now able to reach about 30 million more clients through our specialty banking partners with Banco Estado, but also now with FIBA. You've just seen that we are entering also the bank insurance business in Turkey, starting next year. Finally, we said we want to work heavily organically, but we also want to continue to invest in a diligent way on M&A and partnerships, and you see that we have been quite active. Last time I told you that we have signed Banco Estado. We have started that now. This year we've further made moves also in Latin America with Sompo in Brazil, and with FIBA in Turkey overall.
The ROE, we're not quite there yet, with a 10% profitability level, but we are pretty sure to be above 9% at the end of this year. We've also made a further step in our strategic positioning, reaching now in three markets, a top five position in P&C of the core markets that we're having. One further, that is especially Turkey. Let me go into one each one of those four pillars. When you look at what we have been in retail internationally, we have always been a pretty stable retail insurer with a portfolio that has always delivered around 95%, 96% combined ratios, and we intend to do that also going forward. We have a very high resiliency overall. We have already talked about the resiliency reserves.
I think overall it's fair to say that also Retail International is probably at the upper end of what we have in the group overall, and we want to continue to outperform our peers in our combined ratios, and therefore the ambition to be below 95% will absolutely remain the same for 2025. The inflation impact, how did we manage that? If you look at that, the most exposed segment has been the motor insurance business. There you can see that we have worked heavily on that, also in relation to the market overall. Yes, we did see some impacts of that, but what did we do? We worked through inflation-adjusted repricing of our portfolio. We are rather short tail. Motor, especially in Latin America, is very short tail, one to two years.
If you look at our portfolio overall, we have not only increased our prices, but we've also worked heavily on selecting better our clients. If you have a lower frequency, that helps in an inflationary environment, of course, as well very much. Overall, we have been able to increase through the whole book of our motor business, which is close to 68% of our total portfolio, price increases of about 30%. We did not only start at the middle of this year, we actually started at the end of last year, and so we are starting to see the earning impact of that also very nicely in our P&L. Beyond the pricing, what's critical, of course, as well, is optimizing our claims handling.
We are working, for example, very heavily about accelerating the claim settlement, which helps in an inflationary environment as well. The claim steering, leveraging our repair networks that we have, where we have lower prices for labor as well as for parts, and therefore can manage the claims also comparatively to our competitors in a good way. Final point, let's not forget that it's all also about cost. The digitalization that we are driving forward helps in that way as well, to manage our expense ratios in a better way than our competitors.
If you go to the diversification side, we told you on non-motor, we wanted to reach roughly EUR 2 billion by 2025, or more than EUR 2 billion by 2025. We started from EUR 1.1 billion. It's roughly EUR 900 million that we wanted to add. We are now roughly at EUR 1.7 billion, already a good more than halfway through that, with a growth of roughly 20% in non-motor. Driven partially, of course, also by the acquisition, which we call now HDI Italia, which was former Amissima, as well as the Banco Estado business has actually come to a good start. We expect roughly EUR 100 million, EUR 95 million of premiums already throughout 2022. On life protection and health, you remember maybe last time I showed you two bars for that.
Given that we're looking forward to IFRS 17, it didn't make so much sense to have a life revenue perspective alone, because the savings business, of course, is gonna be accounted insurance revenues differently than it used to be with the premiums. What we've done here is putting this both together, also because we see that the business actually is oftentimes sold conjointly, life protection and health in the portfolios that we are driving. We have done a bit of de-risking. You remember that we sold our Russian business, which was mainly a life savings business with CiV Life. We've also reduced our exposure a little bit on the life savings side in Italy, and therefore managing very carefully also our capital efficiency in the environment that we're currently working in.
The focus is on building life protection growth. We are there off to a good start. Sompo is gonna add to that. FIBA is also gonna add to that. The Warta transformation that we've done over a couple of years continues to show also very nice growth. Also the health cooperation that we've started with Bupa is starting to take hold, so that we do expect roughly half a billion or more in terms of insurance revenues for 2025 in this business of life protection and health. I should say we're not targeting pure growth. We do expect more profitable business from this.
This is in general more profitable than motor business in the markets, and that's why we do like to grow in this, in this area. In terms of digital transformation, we have three elements that are critical for us. I mentioned already expanding our customer reach, not only Banco Estado and FIBA adding to that. You might know that we also have a very digital business with Santander in Brazil, which is also off to a good start, and especially also very profitable even in this environment, adding very good combined ratios, and we will continue on that. We will also leverage, continue to leverage digitalization, for especially advancing in our risk selection, pricing, and claims management practices, by leveraging data in the best possible way.
I think we have some companies like Warta, also the Brazilian entities, the Mexican entities. All of us, we're working very heavily on not only leveraging our own proprietary data, but also non-proprietary data to have the best pricing and best selection that we can have and to be at the forefront of that. That not only in motor, but more and more so also in non-motor. We do leverage as well digitalization, as I said, for the expense ratio. It's critical for us. We have been a cost leader in our markets and want to continue to be so. What we've shown here is only the admin ratio because it, of course, depends a little bit on the distribution structure that you have, what you pay in terms of commissions.
That's why we also do look at this overall admin cost ratio, and we are continuously improving that over time, and we want to stay as well, better than our peers. So relative performance does count here very much, and we have been also doing that, throughout 2022, improving our cost ratios in that sense. In terms of M&A, as I said, we have been quite active. We have a very clear strategy. We're very much focused, on our core markets to improve our positions in those growth regions and to strengthen our competitive position. We are especially also focused on strengthening our non-life and life protection business, as I said before.
When you look at it, we had a couple of bolt-on acquisitions with Amissima in 2020, with Sompo now in 2022, FIBA coming also, and Banco Estado for the local partnership in Chile. Overall, this roughly adds EUR 650 million in gross written premium if you were to take the 2022 numbers. Of course, you need to wait for the closing of Sompo and FIBA. EUR 650 million in terms of non-life premiums and roughly EUR 100 million of profitable life protection and health business. At the same time, a relatively minor impact in terms of volumes that we have been losing by selling CiV Life. At the same time, of course, we are very happy that we were able to do that and close that before the Russian war on Ukraine.
What does Sompo add? Just to give a little bit of a highlight because this is one of the larger transactions or midsize transactions, where basically it helps us to get closer to a top five position in Brazil. We will be in P&C number seven if you take the 2021 numbers. Beyond that, what is helpful is it's helping us to strengthen first our motor business in the geographical areas where we have been a little bit weaker. We have our stronghold in the south of Brazil with the Sompo business. We will add especially São Paulo, which is the largest region in terms of population, and we will gain a lot of share there, which is for us very helpful to get further cloud and distribution capabilities, but also pricing capabilities in those regions.
Geographically, it adds not only scale overall, but also especially in those areas where we wanted to also further grow. Secondly, it adds, as I said, diversification because it will build up our non-motor business. We have been a very much focused motor business in Brazil. This will add a good chunk of non-motor business as well as allow us to get into the life protection business, which is mainly group life. So really risk protection business that we are gonna be doing there. We are very happy and disciplined in the execution of this transaction. We do expect it to close between Q2, Q3 next year. It's a very diligent process that we need to run through with the regulators, but we are well on track to achieve those steps so far.
Our ambitions do remain the same. We have the ambition to get to the ROE above 10%, a combined ratio below 95. As I said, we want to outperform our peers and get into the top 5 position in our 5 core markets in Latin America and Europe. To sum it all up, I think overall we made good progress. Happy to say so, and a big thank you to all the teams that have been working very heavily on this in a very intensive year, 2022, to implement the strategy and to reach those two ambitions of profitability and strategic advancements that we want to have, while very diligently focusing on technical excellence, especially in this environment, where it's very, very crucial. Thank you very much, and I'm happy to take your questions.
Okay. Thanks, Wilm. Next round of question, Roland.
Could you help me to better understand the current challenges you have regarding the technical profitability? Could you provide us a more clean combined ratio ex reserve releases for the current situation? I would be interested, how fast can you turn this around? What is the outlook for next year, actually? A second question on Sompo. I think I remember that once there was mentioned as the São Paulo area is a little bit more difficult in terms of motor underwriting competitive environment. What's the technical profitability currently in this situation for this company you're integrating?
Roland, thanks very much for those questions. First, as I said, the motor business is especially a short-tailed business that we have, and we have been working very, very diligently. You remember that especially, for example, in Brazil, but also in Turkey, also in Poland, the inflation has been increasing much earlier than what we have seen here in maybe continental Europe, Germany, and similar. We have already been taking pricing measures very early. However, as you've seen, the markets in Turkey or in Brazil has been suffering throughout this year because the claims impact is immediate, while the prices you can increase, but you still need to earn them over time.
I would say that we are roughly 75% through in earning that inflation impact throughout this year already. Therefore, we are very confident that in 2023, we will be on good terms in not only the markets in Brazil and Turkey, but also the others, where we continue to show very good profitability, as you've seen also in the nine-month results. With regards to Sompo, we have been in the very profitable parts of the southern business, southern regions of Brazil. That is absolutely true. Nevertheless, São Paulo and also Rio de Janeiro, you can do very good profitable motor business in those areas, but you need a certain scale. That was a bit more difficult for us in the past.
With the addition of Sompo, we, as you have seen on the chart as well, we will have much more scale, much more clout with the distributors there as well, and therefore, the ability to price also better. We will remain very diligent in improving that and focusing on the technical excellence in Brazil. What is good to say as well, I think, is that you've seen that the market overall has reacted. It has not been only us. The whole market has been under pressure, not only because inflation has come up, but also because frequency has come up much faster, for example, in Brazil. That has led to the fact that everybody has been starting to increase prices, even the ones that you might have thought maybe can wait a little longer, but they did not.
I think that's very positive to see.
Michael, with next questions.
I have three. One is on cash upstreaming, the second is on deals, and the third is a bit of a surprise on Santander. On cash upstreaming, at the beginning, we heard that all the operating units are supposed to send up more. Maybe you can talk a little bit about how what it looks like, what the numbers look like. We had some numbers from Retail Germany. On deals, I imagine the deals, the obvious ones would be just to get to the number five position in P&C overall. Maybe, but maybe you can talk a little bit about that and give us a more precise feeling. Because the impression I get is that your neighbor is giving you cash to do deals.
If it's EUR 650 million or is it more? I don't know. The last question is on Santander. I thought Zurich was a Santander partner, I was a bit surprised to hear the name.
Sure. Well, let me start with the capital part. First of all, as I said, our focus is on also further increasing our profitability and our profit contribution to the group. This shall also translate then in higher cash remittances to the group. Even on relative terms, also there, our cash remittance, for Retail International will also, in percentage-wise, compared to the local results, also increase. That said, it's not gonna be at the same level as for Germany because we are a high-growth, division business segment. Therefore, yes, we do balance our overall contribution to the group, with the opportunities that we have at hand in our, in our markets. As to the deals, we don't have an exact figure in mind that we're gonna be investing.
We are looking very diligently at what the opportunities are and how they can help us in our strategy, not only to reach a top five position, but also strengthening our business. As you've seen, be it with Banco Estado, Sompo or FIBA, they do add capabilities and strength in the market, not only in terms of scale, but overall to the business. I think maybe Torsten and Jan can add. I think we have enough firepower if we wanted to do also these kinds of midterm deals like Sompo. We are very happy to continue to do that. On Santander in Brazil, you are right. Zurich has a cooperation with Santander. We do as well.
We have a joint venture on the Santander auto business, so it's a pure motor, purely digital business, that we have started around 2019 and is now, starting to bear fruits. It's a pure greenfield in their consumer, finance business, that we're working under, and this, is a lot of fun for actually to see, what we have, started to build there.
Okay. Are there any... Thomas? Thomas has a question.
Just a question on M&A. When you're thinking about further M&A deals, I mean, how are you balancing the strategic opportunity versus the disciplined financial valuation KPIs that Jan will be looking at? Can you remind us what are the, you know, hurdle that you have to cross from a financial point of view?
It's actually relatively simple. It needs to be ROE enhancing, earnings per share accretive, and we need to earn our cost of capital. There is no trade-off being made. We're looking at it from does it strengthen us strategically, as well, does it fulfill those hurdles?
With thank you for your questions to Wilm and also, earlier to Jens, and hand over to our CEO, Torsten Leue, for concluding remarks.
Good. Thank you very much. Let me make one slide more to get to concluding remarks. Thank you for being here with us and sharing a bit the perspective until 2025. Before I conclude, really I'm so fortunate in this company. It's so much fun to work with such a team, and I include here Carlo, who's not here. He's head of HR, as you have seen. As well, JJ. It's really atmosphere where I'd say it's just a pleasure really to come to work. We are more healthy than before. It means that we can run even faster and accelerate our development. The message we want to transform to you that it's really authentic here. It's not just some game or shows what we own here. It's about prime insurance, really unchained.
It was a title that we believe is now a run. We really can catch up, let's say, with a Henry Pass in the same development we do with the prime insurance. The 10% we wanna give to you is significantly above 10% as a message. We played a bit around with the 25 numbers. Income has increased 25% and the dividends immediately and plus the booster until 2025, another 25%. If we liked it, we're even better in time than we thought. This is good message because we should not talk much around. We just should deliver. Promise is a promise we did in the past, and we are sure and confident we do it in the future as well. Promise is a promise. Thank you very much for participating.
The lunch is waiting outside for you. Unfortunately, the screen, there's a screen I guess, not for you. Thank you for watching and hearing us as well. Thank you very much.