Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome, and thank you for joining the Talanx analyst call 9 months 2021 results conference call. Throughout the recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you've dialed in by telephone, you can press star followed by one on your telephone to register for a question. Questions can also be raised by using the ask a question chat box on the webcast page at any point during the session. Kindly add your name, function, and email to be identified. The Q&A session will begin with the questions asked by telephone. I would now like to turn the conference over to Bernd Sablowsky. Please go ahead.
Yes, thanks, Stuart, and a warm welcome from Hannover. My name is Bernd Sablowsky. Not all of you know me yet, but we'll have the chance, hopefully, to meet and get known to each other on Wednesday when we host our Capital Markets Day in Frankfurt. I am together here with Jan Wicke, our CFO, and we are happy to take you through our nine months results and the outlook. Jan will give a presentation, and thereafter you will have the chance to enter into a Q&A with Jan. You will find all the documents on our webpage. Now I hand over to Jan. Jan, over to you.
Well, thank you, Bernd. Good morning, everybody, and thanks for dialing in. We hope you're all in good health, and I'm looking forward to meeting you in person this Wednesday at our Capital Markets Day in Frankfurt. You may wonder how we are organizing this event given the uncertainty provided by the Corona situation. Well, we have decided to have a so-called 2G plus Capital Markets Day. This is a German expression, so what does it mean? Even if you are vaccinated against or recovered from Corona, we would please you to take out a rapid antigen test. We will provide you with self-tests at the Capital Markets Day so that all participants who are joining are tested. We want our event to be safe for everyone, and we are really looking forward to have discussions with you in person about the perspective of Talanx.
What I'm going to do as of today, and if we could go now into the presentation on page 2, I would like to give you an overview about the first nine months, which have been quite eventful, and also describe the outlook not only for 2021 but also for 2022, when for the first time in Talanx history, we are to beat the EUR 1 billion in group net income. We do not want to beat this billion slightly. We want to have a result in 2022 in between EUR 1 .05 0 billion and EUR 1. 150 billion as a target range for the next year. But now let's start with the first nine months. The first thing I want to draw your attention to is our growth.
Gross written premiums are up 10.2%, and if we adjust for currency effects, it would be even above 12%. We have growth momentum in all segments, and we are growing stronger than most of our peers. Second, the combined ratio is down compared to previous year to 97.6%, and this is despite a series of nat cat events and large losses, large man-made losses, which we had in the third quarter. Overall, we were able to show a result of EUR 723 million as a group net income. 46% of it derived from primary insurance, whereas reinsurance was hit a little bit more by the nat cat events.
The return on equity on a group level is at 9.2%, which is clearly above our internal target, which is 800 basis points above risk-free. Let's now come a little bit to the outlook. First of all, I'm sure you're already aware of it, we have announced that this Industrial Lines is taking over the residual stake in HDI Global Specialty from Hannover Re. On the Capital Markets Day, Edgar Puls and Ulrich Wallin will explain the rationale in more detail, so I will just mention it here and do not explain that further. With regard to the outlook for 2021, we now expect it to be at the upper end of the range of EUR 900 million-EUR 950 million.
I will explain later a little bit more in detail why we are optimistic to reach the upper end. Second, we have the outlook for 2022, which needs further explanation. We want to achieve between EUR 1.050 billion and EUR 1.150 billion net income for 2022. To give you an overview, I would now like to go to the P&L for the first nine months. Bernd, if you could go to page 4, please. And just highlight a few things in the P&L statement, what you see on this page. First of all, the growth was already mentioned, 10% all segments, and in particular is strong in P&C reinsurance. Second, the net technical result. There we can observe two things.
The first thing is in the technical result of the P&C insurance, where we see a swing from the negative to the positive. Last year was impacted by the Corona claims from business closure to event cancellation, credit insurance, and so on, where the effect in the current year was rather positive on that front. The opposite is true for the life business, where we nearly had just a little number of claims in 2020, and now have significant claims due to excess mortality, which we see in both life and health reinsurance, where we see a negative impact of more than EUR 400 million. As well as in Retail International, where we see excess mortality amounting to EUR 12 million negative impact.
The last thing I want to mention on this page is the return on investment, where you see very pleasing 3.3% return on investment. This is the good news. The bad news is, it's heavily driven by one-offs. We have realized gains in German Life in order to fund the ZZR. For regulatory purposes, we need to fund this year close to EUR 500 million. In addition, we had, and I already mentioned that in the Q2 call, additional private equity gains, which unfortunately will not repeat quarter on quarter. Therefore, the return on investment will not remain in such level going forward.
If we take a look at the standalone Q3 figures, there I would like just to mention one thing, which is the net technical result in P&C. Where we had a negative technical result in the third quarter due to the nat cat events, which I will explain later a little bit more in detail. I just want you to keep that in mind when it comes to this explanation. On page 6, you see our normalization waterfall, which attempts to give you a better impression of what the underlying performance in the first nine months was. What you can see here is that we had two special effects. One is Corona, that's the obvious one.
Second, we had also positive one-offs, both in reinsurance, which amounted to a positive bottom line contribution of EUR 89 million. I just want to highlight those two effects because, unfortunately, they do not repeat every year. First of all, in the first quarter, we've already shown the positive impact of a restructuring of a huge life portfolio in the United States in reinsurance. Which brought a EUR 129 million one-time gain, EBIT contribution, so-called Voya deal. Second, we had in this quarter, another EUR 99 million special gain in the longevity book. Following data updates, which we received from clients of Hannover Re. Which recorded higher mortality rates in younger ages, and this has led to a release of reserves.
This is also one of those that add up to a bottom line effect of EUR 89 million. Only EUR 89 million, given that we just own slightly more than 50% of Hannover Re, and therefore the minority benefit also from this one-off effect. This is the one big one-off effect. The other one-off effect is a negative one. This is related to Corona. The overall negative impact of Corona is EUR 81 million, and is explained on the next page, please. I think you're all familiar with this page, given that we have showed it to you now, I think, for at least six or seven analyst calls. We show you both the positive bottom line contribution of Corona, as well as the negative one. I just want to explain you three figures here.
First of all, life and health reinsurance, where you see, due to excess mortality, a burden of EUR 404 million. Where does it come from? More than half of it is related to the United States. What we've seen also during the course of the first two quarters. With regard to the current situation, we have to notice that there's still a small increase in death rates again in the United States. The second biggest impact is from South Africa, which accounts for more than EUR 100 million in those EUR 404 million, and the rest is related to Latin America and the rest of the world. Overall, the negative impact of corona is really related to excess mortality. What you can see also with this figure is that corona is not a European issue.
It's a worldwide pandemic situation, and it's not over. We see it every month when we receive the notices from the insurers in the world. Second, we have also positive effects related to Corona. There are two to mention. One, what you can see is the 111 offsetting effects. They are related to lower claims frequency due to lockdown phases, and we benefit from it both in Germany as well in Retail International. In addition, we have some additional runoffs from claims. EUR 41 million are mentioned here. As we have reserved quite conservatively the claims in 2020, and therefore had some profits from winding up those outstanding claims. All in all, the picture regarding Corona is that the net income was impacted negatively with EUR 81 million during the first nine months.
If you look into it in more detail, then you see a major negative impact in the reinsurance, whereas in the primary insurance, we have a positive impact related to Corona. If you go to the next page, there you can see the effect stand alone for the third quarter. It's just EUR 9 million. So the Corona effect in total is fading out. If you look at it in detail, then again, you have this positive impact in the primary insurance and the negative one in the reinsurance. Let's now go to what was really eventful during the course of the third quarter, which was a large loss event. What you can see here is that after nine months, large losses have amounted to roughly EUR 1.5 billion.
We had an excess usage of our nat cat and man-made budget of 128%. In other words, we really exceeded the budget by 28%. To have now on the next page, I can give you some insight what was the most harmful events which took place. The most expensive was the Hurricane Ida, with close to EUR 350 million. The second biggest event was the heavy rain Bernd in Germany, where we had a net burden after our own reinsurance of EUR 320 million.
I just want to mention that in a little bit more detail because this gives you some insight on our risk management and how much we focus ourselves also to have our own very good risk protection by reinsurance. Because if you look at the claims on a gross basis at Bernd, then Bernd is the second largest single nat cat event Talanx ever has experienced. It was only exceeded by the Hurricane Katrina in 2005, and the amount of the gross claims is above EUR 1 billion. We were able to cede more than EUR 700 million to external markets. We have a very good protection in place which helps us to show stable, a relatively stable results despite such nat cat events.
With regard to the man-made large losses, I want to draw your attention to EUR 310 million in fire and property, which might raise questions, but one-third of it is related to the riots in South Africa, which hit the reinsurance. The rest, there are the obvious claims included, like a big event in the chemical industry in Germany, for instance, where, of course, we had to take care of our part of the claim. On the next page, we provide you with an overview about the combined ratios in the group. I already mentioned that on a group level, the technical result was positive with 97.6%.
In Retail Germany, you can see in the third quarter this 108 combined ratio. I will explain that in more detail, because this already has an impact on the P&C result in Retail Germany. Then what's also worthwhile mentioning that Industrial Lines is able to manage a positive technical results despite a huge nat cat burden, what we've seen in the third quarter, due to the volatility management we are able to execute now after some years of building up volatility buffers. Let's now dig into the segments, and let me start with Industrial Lines first. What are the key messages here? First of all, we see continued growth and a positive momentum, in particular, the specialty lines.
For nine months, the growth rate is 12%, and if we focus just on the third quarter, it's even 20%. This very positive growth is driven by both market share expansion, but in particular rate changes as well. The quality of the book is improvement, but it has also to improve given that we have inflation out there, and we have to deal with inflation when setting the prices for Industrial Lines insurance. Second, there is a negative one in these figures here, which are the large losses which amounted to EUR 340 million and which are exceeding the pro rata net cat budget of EUR 248 million. It's 37% above the pro rata budget, what we've seen here in Industrial Lines.
The Industrial Lines business was hit hardest by Bernd with EUR 81 million. The winter storm in Texas contributed EUR 66 million and Ida, EUR 44 million, to give you some impression what was here. Nevertheless, Industrial Lines was able to manage to keep the combined ratio below 100%. This shows that Edgar and his team really have cleaned up the portfolio, that the overall claims frequency and the overall portfolio is on very adequate levels, that we also have gained some strengths which will help us to manage this volatile business in the future. Edgar will explain some more on this in the Capital Markets Day. I do not want to explain everything right now.
With regard to the investment income in Industrial Lines, I've already mentioned that we have some one-off effects due to private equity gains, which will be coming down going forward. If we now go to Retail Germany, then the overall target for Retail Germany for this year was to achieve an EBIT above EUR 240 million. Given that after nine months, we already have EUR 234 million, and given the fact that the company is growing after Christopher Lohmann have set some impulses there, again, we are very, very confident that we will not only achieve the target of EUR 240 million, but we will exceed it. This is quite safe.
If you go into further detail with regard to Retail Germany on the next page, let me go to the P&C business first. First of all, it is worth to mention that we have significant growth in the segment of small and medium-sized enterprises and self-employed professionals. We have here an increase in the gross written premium of 9% during the course of the first nine months, which is a very good figure compared to the market. It shows that the customers and also the brokers are rewarding our claims regulation policy with regard to Corona, the business closure claims what we did in the last year. Second, what you see as a negative impact here in the result in the third quarter is the impact of Bernd, the flood event in Germany.
In total, we had a burden of EUR 34 million. EUR 16 million you will find in the large loss list, but you have to add also EUR 18 million reimbursement premiums for reinsurers to reinstall our reinsurance protection here. In total, it's EUR 34 million reduction in the EBIT simply related to this one event. Second, we've seen a certain kind of normalization in the frequency losses here, so that the combined ratio for the third quarter standalone has reached, due to this Bernd event, 108%. If we then go to Retail Germany Life, then I would like to first of all note that the overall target, of course, was to de-risk Life. That was the top one target.
What you can see is if you have a look at the Solvency II capital adequacy ratios for the four German Life entities, they have reached 269% end of the third quarter, which clearly shows that the process of de-risking was very successful. We have now stabilized this business significantly with regard to growth. We are focusing the growth more on capital light products with low guarantees included. This is the second thing which is to be mentioned.
You see here a very strong EBIT contribution during for the first nine months, and this is due to the fact that we have realized capital gains in order to fund the ZZR, and we already realized capital gains for the full year of the ZZR, which is close to EUR 500 million reserving needs. This is what you can see, and this leads to the situation that you see up front, somewhat higher profit, which will then come down a little bit in the fourth quarter. Let me now come to Retail International. First of all, what's worth mentioning is that we see strong business growth in Retail International. 12% is a really strong figure. This is really a positive.
The technical results are, as you are used to it, always very good. We have to admit that if you look more into the details, with regard to the combined ratio, then you see that for nine months, we had a combined ratio of 94.3% and for in the Q3 standalone, 97%. What we see here is the first effect of significant claims inflation taking part, and therefore we need to adapt that in our prices, which is a challenge going forward. Wilm Langenbach will explain his strategy on the Capital Markets Day in more detail, and he will also address this issue. We are very confident that even going forward, we are able to deliver a combined ratio significantly below 100%. Finally, a few remarks to reinsurance.
Given that you had a Capital Markets Day information from the colleagues in Hannover, we already, I just want to repeat, given the growth, given the combined ratio and the operating profitability, we are really happy to be the majority shareholder of Hannover Re. We are really pleased with the development there. Let me now come to the investment income and also elaborate a little bit on the solvency ratio. First of all, if we look at our asset management on page 20, I want to highlight that the assets under management are growing by 6%, so we have a very positive cash flow given the growth of our entities.
Second, with regard to the ordinary income, there is an increase which is even higher, but which is also impacted by one-offs in the private equity book and in addition, a positive impact of the inflation linkers. We have a portfolio of roughly EUR 5.5 billion inflation linkers, which are not there as we believe that we can assess inflation rates better than central banks or the capital market. They are there for a risk management purpose that we better cope with inflationary pressure, and therefore we have those EUR 5.5 billion. Given that inflation rates have increased, the value of this inflation linker has increased too, and this is a positive effect which we can see.
Second worth to mention is that, in order to guide you a little bit, that the current net returns on investment, which are pretty high with 3.3%, will come down, unfortunately, quite significantly. For the next year, we plan them to be around 2.4%. Let's now go to page 21 to give you a brief overview of the book value per share, which is up 2% despite that we paid dividend. On the next page, there you can see our solvency ratio, which stands after three quarters at 204%. So above is even above the target range, has come down a little bit. There was an intense discussion at the analyst call of Hannover Re.
The reduction is due to the growth which we have. You always have to keep in mind if our SCR, so the solvency capital requirement is growing, we have to grow the eligible own funds twice the number. Twofold, if you have a solvency ratio above 200 in order to keep it stable. Given our strong growth, yes, we have to admit there was a small reduction in the solvency ratio, but we are still very happy with the solvency ratio, which we can show to you here. We are happy also with the growth which we can achieve because it's a clear message of the market that we can offer trusted insurance solutions. Let us now come to the outlook.
First off, I really would like to focus on the outlook on the Group net income. For this year, we expect to be at the upper end of EUR 900 million-EUR 950 million. If you take our normalized underwriting power with a result of EUR 750 million divided by three and multiply it by four, you will have something like a rule or some calculation in order to find out why we come to such a conclusion. For the next year, we expect our result to hit the EUR 1 billion threshold for the first time in Talanx's history, and we want to achieve EUR 1.050 billion-EUR 1.150 billion. What is happening here is rather simple. We are monetizing the growth which we have shown in the past.
We are technically disciplined, and this will finally result in higher returns. As you are all experts, you know that I have to also mention some risks for our outlook because the outlook is and the guidance for 2022 is quite ambitious. The risks are quite clear, the ongoing capital market development with the low interest rates. Second, the risk is inflation, which we whether we can cope with as adequately. Third, I want to mention the obvious one, there can be nat cat events around there which could harm us also in 2022.
Overall, given that we have increased our large loss budget quite significantly by 13% to EUR 1.7 billion for the next year, I'm quite confident that we can make it, that we will make it EUR 1.050 billion-EUR 1.150 billion. This is despite a calculated much lower net return on investment of 2.5%. Having said that, I'm really ready to take your questions now. I hope it was an insightful overview about the first nine months and some arguments with regard to the outlook on both for 2021 and for 2022.
Ladies and gentlemen, we will now begin with the question- and- answer session. If you have dialed in by telephone, please press star followed by one on your telephone to register for a question. If you wish to remove yourself from the question queue, please press star followed by two. Questions can also be raised using the ask a question chat box on the webcast page at any point during the session. Kindly add your name, function, and email to be identified. The Q&A session will begin with the questions asked by telephone. If you're using speaker equipment today, please lift the handset before making your selections. Anyone who has a question now may press star followed by one on the telephone or type a question in the ask a question chat box. First question is from the line of Thomas Fossard from HSBC. Please go ahead.
Oh, hi, good morning, everyone. Good morning, Jan. Three questions for me. The first one will be on the dividend outlook. Can you explain why it's been withheld and postponed to CMD? I admit it's only in two days time, but just wondering what were the reason behind. The second question would be related to Industrial Lines, and I would say again, to the strong growth in GWP. Can you maybe shed a bit some light on, you know, what is coming from rates? What is going from market share? What is coming from exposure growth?
Maybe if you could indicate so far into the year, how much rates were above claims inflation that you see coming in your books, and how we should think about the underwriting margin improvement for the coming years. The third and last question would be related to claims inflation. I think that you mentioned that this was maybe something which was a bit more present in Q3 international rather than in the previous quarters. Maybe you can here as well shed some light on, you know, what is driving that. Is it, I would say spare parts? Is it FX rates? Is it maybe wages pressure going up? Just looking to see. Thank you.
Yeah. Thank you, Thomas. First of all, the dividend outlook. Well, when we had to discuss the communication policy for both, for today's call and for the Capital Markets Day, we've decided to explain the dividend policy on the Capital Markets Day a little bit more. I do not want your expectations now to go up to certain things. We will act within the framework you are used to. What you can see here is also the dividend policy, and we will explain this a little bit more on the Capital Markets Day. Second, I hope to see you then on Wednesday. It's worth joining the event. Second, with regards to the growth rates.
What does the growth rate reflect adequate rate changes, which can cope with a rising inflation? I think this is the basis of your question. I think you have to answer it line by line and segment by segment. The colleagues will do so also on the Capital Markets Day. Overall, I just want to bring across, we are very happy with the overall development, and yes, we believe we can keep the combined ratio in levels where we have technical profitability. This is what I want to answer right now. If you go then more into details, you really have to look at the inflation line by line. The good news is, in our technical underwriting, we have already included that.
Inflation is really a major topic which we need to manage, and which we manage also. We manage it with regard to the underwriting policy. We manage it with regard to the reserving policy. Finally, we manage it also with regard to asset management. Inflation is really a major topic. The current assumption of our thoughts is that we have a transitory inflation environment, that inflation will come down in the second half of the next year, significantly, but will remain at a higher level than what we've seen in the past. This inflation assumption is also included in our pricing. The third thing, where do we see claims inflation? In particular in Retail International, first of all, in the spare parts development.
FX rate also contributes in countries like Turkey and Brazil negatively to the development. Finally, I want to draw your attention on the supply chain problems, which also have an impact on claims costs, where we have to live with currently, and what we have to adapt in our future pricing and also in future reserving. I hope, Thomas, that has given you a brief overview on your question. Has it?
Yeah. Thank you. Thank you, Jan.
Yeah.
As a reminder, if you'd like to ask a telephone question, please press star followed by one on your touch tone telephone. Next question is from Roland Pfänder from Oddo BHF AG. Please go ahead.
Yes, good morning. Two questions from my side. First of all, could you speak a little bit about the reserve buffers, which you are building up in Industrial Lines? Will this end of 2022, or do you need more time actually, looking at the releases of this quarter? Secondly, obviously you need some price increases in Retail International. How fast can this be implemented, and when do you think you can cope with this claims inflation in this segment? Thank you.
Okay. With regard to the first question, I again would like to invite you to the Capital Markets Day. We will provide you with some very insightful additional information about the resiliency, both buffers, in the group. Your concrete question was, with regard to Industrial Lines. In Industrial Lines, I just can say we have built up resiliency, in our reserving. What you can see also in the third quarter, we have not yet fully achieved the level we would like to have in Industrial Lines. We are on a very good path so that we are confident that we can deliver every year, one percentage point reduction in the combined ratio going forward. Edgar Puls will explain that in a little bit more detail.
I will explain on the Capital Markets Day our resiliencies which are embedded in our reserving also in more details. This is to come. Second, with regard to Retail International. In Retail International, we have very flexible pricing and really the abilities to adapt for price changes pretty fast. I'm confident that the colleagues there are able to reflect it and will also show in the future very good technical results in their books. But we have to obviously always have a close look at the current developments.
Okay, thank you.
There are no further telephone questions at this time, and I would like to turn it over to Bernd to read out the web questions. Please go ahead.
Hi, it's me again. Just checking out the tool. We don't know. We don't see any.
There's one question on the web. Would you like me to read it?
Yes, please.
It's from Dominic O’Mahony from Exane BNP Paribas. Says, "Thank you for taking questions. You mentioned you are seeing claims inflation in Retail International. Could you specify which geographies and which types of claims are seeing this increase? And are you seeing any inflation pressure in Retail Germany or Industrial Lines?
Okay. Dominic, I think I have answered this question already when Thomas mentioned that. I will give once again a little bit more details on the inflation pressure. First of all, by geography, in the INT regions, we see the claims inflation in Poland, in Brazil, in Turkey. It's really in several jurisdictions where we have to cope with this in Retail International. We also have to cope with it in Industrial Lines, yeah. The good news in Industrial Lines is we have claims inflation there in the range in between 4% and 8%, depending on the lines of business. Rate changes in Industrial Lines are about 10% plus.
The rate changes are higher than the inflation we have to cope with. As the driver of the inflation are next to social inflation, you're well aware of this one, also general costs and shortages in raw materials due to the supply chain problems which we have in the world. Yeah. Currently it has become more expensive to repair claims. I hope that this. Retail Germany. I got to get in with Retail Germany. Yes, we also see claims inflation in Retail Germany. In Retail Germany, the inflation rates are lower compared to Industrial Lines. They are more in between 2%-6%, depending on the line of business. I hope this answers your question, Dominic.
Okay, there is one more web question from Vikram Gandhi from Societe Generale. Why is the other result being guided to EUR 110 million from full year 2022 onwards? Is it because of the planned acquisition of 100% of the specialty business?
Well, therefore, I have to have a closer look to my colleague here. What is the main driver? I think the main driver is the growth in specialty business. Which goes along with the growth in this line in the P&L. Yeah. That's the case. That's driving it. Okay.
There are no more web questions and telephone questions at this time, and I would like to hand back to Bernd Sablowsky for closing comments. Oh, I'm sorry. We've had a last second registration. A follow-up question from Thomas Fossard from HSBC. Please go ahead.
Oh, yes, an additional question. Sorry for making this call longer. Retail Germany Life. The Q3 EBIT is reported at EUR 79 million. I think that in Q2 standalone, you had some reserve strengthening, making the EBIT contribution around zero. I mean, there is big swings. Is the EUR 79 million EBIT contribution in Q3 a kind of normal run rate going forward?
No. In the third quarter on a regular basis, we have an assumption resetting, and you can see it in both the improved solvency ratio as well as here in the P&L. This is always the quarter where you have the assumption reset included in our figures, and therefore we see also some, next to the net realized capital gains. We see some positive effects related to that one. Those together contributed to the positive EBIT in the third quarter in Retail Germany Life. Once a year, you have an assumption resetting in Retail Life, where this is normal on the course of business.
Okay. Thank you.
There are no further questions, and I would like to hand back to Bernd Sablowsky for closing comments. Please go ahead.
All right. Thanks, Stuart. Thanks for everyone joining in to our today's nine-month earnings call. As Jan indicated at the beginning, we still have something to tell on Wednesday. We will monitor the Corona situation very closely. We will do 2G plus, as Jan mentioned. We have self-test kits there, and we hope to see you there on Wednesday for some other news to come. Thanks, and see you on Wednesday. Bye-bye.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.