Good morning from the Swiss Re Nxt Auditorium here in Zurich. My name is Thomas Bowen, and I'm the Head of Investor Relations. I would like to welcome you to our Swiss Re Investors Day. We have a full agenda today. We will start with Christian Mumenthaler, our Group CEO followed by John Dacey, our Group CFO and Guido Fuhrer, our Chief Investment Officer.
We will then open up for a Q and A session. Registered participants, please note that to ask questions you have to use the course call line in line with our regular earnings calls. We will then break for an hour before we return with Thierry Leger, our Group Chief Underwriting Officer our Reinsurance CEO, Moses Ojeosi Hober and Andreas Berger, our CEO of Corporate Solutions. We will then have another Q and A session before we close for the day. And with that, I would like to welcome our Group CEO, Christian Mumenthaler.
Thank you very much, Thomas, and warm welcome also from my side. Good morning, good afternoon, good evening, depending on where you are all across the world. I hope you're safe and healthy in this quite challenging times. So looking forward to a slightly different Investor Day. I hope everything will work fine today and that technology, I think we get all used to that, will work fine.
I'll give an overview of where we are before handing over to our Chief Financial Officer. So first, what are the key messages for the day? So the first one is clearly that our balance sheet is very strong and that we're well positioned for growth. We see positive rate momentum in P and C Re and targeted combined ratio normalized combined ratio next year of below or equal to 96% from what we can see at this stage. In Life and Health, we continue to focus on profitable growth, but at the same time put a lot of effort in managing the in force.
As you know, in GAAP, this plays a very big role. Corporate Solutions is well on track to achieve the goals for next year normalized combined ratio of 98% or below. IPTQ continues to show very strong growth trajectory and we now have this year a few data points from markets from similar ventures in the insurer tax space and so we see a market implied valuation of about $2,000,000,000 Swiss's investment portfolio is well positioned in this current low rate environment. And I'm thrilled that later on Kito Fuhrer, our Chief Investment Officer, will have an opportunity to show what they've done. I think their team is stellar and has navigated extremely well through the crisis this year.
We continue to be committed to our capital management priorities that I guess all of you know very well. The first two of those are 1, to have very strong balance sheet and 2, to pay an equal or increasing dividend over time. And finally, obviously in times like that, there's a lot of focus on the short term. But rest assured that we continue to also think about the long term. We continue to have significant investments into the long term.
And we believe that to be successful long term, it's going to be a mixture of being a risk taker, which we obviously are today, but also a provider of some risk insights, a good partner to help other people to take risk. And therefore, we continue to invest significantly in all of those areas. This is not the focus of today's presentation, but I'm going to talk to that a little bit later on one slide. So that's the key messages today. And I guess the most natural start will be COVID-nineteen, which is on everybody's minds today.
So what do we see in terms of impact on the insurance and reinsurance industry? And what is Swiss Reals' response to that? So the first one, I think, there's no question there's less capital around. Obviously, Q2 was worse. Q3, Q4, you see some better ratios probably due to financial markets getting back.
But overall, this year will leave its mark on the capitalization level of the insurance and reinsurance industry. And in that context for us, it's really important to have this strong balance sheet, but also to reserve appropriately for COVID-nineteen to be on the safe side. Then we see the global protection gap further increasing in this difficult times, which plays into the hand of our public private partnership solutions. We have now for more than 10 years. That's the team that looks with of the governments and see what can be done to mitigate the risk at governmental level.
We see increasing reinsurance demand with accelerated shift to digital channels, which helps us and is a reinforcement of our strategy on the IPTQ side, our B2B2C digital white labeling platform. And then obviously unprecedented low interest rates, which we expect to stay there for longer, which means there must be a total focus on underwriting margins, foremost on underwriting margins. Obviously, the fact that we had a sale of ReAssure, it massively reduced our asset risk. It means that we have a bit of space to re risk and have a more balanced asset allocation going forward also in the other business units. So that's a bit the situation overall.
I'm now getting to the main drivers for the losses for the insurance and reinsurance industry, which I showed I think at the end of Q2. So here you have an update. The first driver is here business closings in Europe. So they find their way in the insurance industry through policy wordings in primary companies, in which case some of them are not being very clear because it's clear the intent was never to cover something like that. But clearly we see particularly in Europe some unclear languages which means that these losses go into the primary level and then through some reinsurance treaties to the reinsurers.
So if you look at the underlying driver here, this is data from Oxford, University of Oxford and then we reworked it a bit at the Swiss Re Institute. You can see that the biggest business closures and the strictest ones were in Q2. So this is where we expect the majority of the losses to materialize. Q3 was quieter and you noticed that we didn't increase our reserves in Q3. And then Q4 now clearly more activities.
Again, this is a cutoff date of 9th November. We see more closures. But we at Swiss Re, we don't believe it's going to get anywhere close to where it was in Q2 in terms of actual closures, but time will tell. Hopefully, everybody has learned from the 1st wave and you can see that in the detail, the restrictions are less strict. And then the other driver for insurance and reinsurance losses are of the excess mortality for us mostly U.
S. And England Wales. You can see here the light blue is England Wales excess mortality with a huge peak in Q2 and then some normalization back to normal levels. And then the U. S.
Obviously had these several waves you're aware of. Q2 was the biggest one, but also in Q3, so some losses which we have booked in our GAAP accounts. And Q4 is a question mark how high will that be. As we get to Q4, obviously the underlying mortality expectation also goes up as you enter normally the flu season at that time. So it's going to be interesting to see how much of what we see now is going to be actual excess mortality.
But clearly, I think we would expect some losses also in Q4 from the U. S. So these are the main drivers. We can see Hopefully, they give you a little bit of insight into how we see things. And then I go to the Q3 numbers in some details.
This is a chart we showed at Q2 and so we updated it for Q3 and gives you a bit more insight into where we booked the additional reserves. So you see the total of about SEK 3,000,000,000 on the right side and you see the majority was booked in Q2 and then Q1, Q3 also some bookings there. You go one to the left, you can see the split between IBNR and paid and case reserves. I noticed there's a lot of attention to that split in the analyst community. I just issue a health warning here that this is it depends a bit how you define things.
So I don't think you can just compare across different peers and I'll come back to that in the individual buckets. So if I start on the left side, event cancellation, it's clear many events have been canceled. We have SEK681,000,000 reserved. This is probably the one of the easiest part to estimate. Then we have business interruption, the hardest part to estimate.
We still have a huge part in IBNR here. We haven't touched that in Q3. Credit Insurity, SEK 175,000,000 smaller pockets. Mortality, SEK667,000,000. I think here it's important to notice that there's 2 different ways you can define the COVID losses.
You can on one hand, you could take all the people who have died where it's explicitly written that it's due to COVID-nineteen and that would be a smaller figure, but that's a definition you can take and some peers have taken. Or as we have done, we assume that deviations from base mortality, negative ones, will probably also be due to COVID, to under reporting of COVID cases. And therefore, our figure here is the deviation from what we expected. Obviously, the total will be the same, but this is more a definition of what falls into mortality bucket here. And obviously, in our definition, you will then see a higher proportion of paid and case reserves because we sort of go ground up than if you just used the cases that have that where it's explicitly clear it's from COVID-nineteen.
And then you have other lines SEK 427 1,000,000, that's a mixture of casualty, other lines, marine engineering, etcetera, very difficult to estimate, although there are no or very little movement in Q3. So that's a bit the composition of where we are today. I know there's a lot of interest to know what does it mean going forward Q4, Q1 next year, etcetera. As we have reported for our SST ratio and SST ratio, we had to make an assumption for the next few quarters. But in that and we haven't disclosed that because it's highly uncertain.
We don't know yet how many claims you're going to have in next year. But this SEK3 billion here represents clearly the majority of this ultimate loss. So maybe one word around the future. So I cannot give you figures, but maybe some sense of how we see things and how it's going to be evaluated. So you can see here 4 categories.
You can see how much we have booked by Q3 of this year. So €700,000,000 event cancellation. The majority of the Q4 events was already booked in 9 months of or 9 months figures in GAAP, which means that in Q4, we'll obviously look at events for next year and how much we have to take there. Corporate Solutions, Andreas Berger, when he came mid of 2020 decided to exit that business. So there's limited exposure in Corporate Solutions.
Obviously, there's still some in reinsurance in next year. And then in our ultimate assumption we have in our SSD ratio, we assumed that larger sport events will go ahead, take place without spectators, which is what has happened this year. So I think we have a sense of the type of losses we have to expect visavis the policy limits. Business interruption. This is quite complex because it has these 3 layers, right?
You have the underlying risk, so what is going to happen in terms of business interruption, then you have to transfer to the primary industry and then you have to transfer to the reinsurance industry. And I guess the biggest factor here is actually the second bullet point is the one we control most is to transfer then to the reinsurance industry. We have already since about April started to have all renewals including some exclusions for that. But this means that Europe, which is a oneone renewal is not covered yet or is still covered this year. So the biggest risk mitigant here is going to be the oneone renewal.
We expect all or nearly all of these contracts to be renewed with an exclusion. So this would sort of cut off the losses at the level between primary and reinsurance. But obviously, our own clients are also doing their work. They don't have oneone renewals necessarily, so it goes through all the year. So they have also worked on changing the wordings as they renew policies at the primary level.
There's also some sub limits there that will be used up by now. So there's mitigants at all the different levels. So it's going to be a combination, I think, from lower lockdowns than in Q2, some policy wordings or some mitigation happening between the businesses and the primary layer and then the mitigations we put in reinsurance between the primary insurance and reinsurance. Mortality, I think very hard to predict, entirely depends on the development across the world, but we gave you the sensitivity of €200,000,000 pretax losses per 100,000 excess death in the U. S, which hopefully helps you through the quarter to estimate make your own estimate.
And then finally, the highest uncertainty bucket, credit surety and other lines. This is very difficult to say because to a certain extent you could even argue it's not a COVID loss. These are losses that could materialize as a consequence of the economic meltdown. That was a consequence of COVID. So credit and surety very much depends on economic factors and disability business in the past in other countries also saw the impact from economic crisis.
But how much this will be the case this time is very hard to say at this point in time. So this is more risks to flag and it will all depend on economic factors, vaccine deployment, etcetera, etcetera. So hopefully, while this is not fixed figures that will have to be reviewed anyway, this gives you a bit of a sense of the underlying risks and where they're going. So with that, I close with the topic of COVID-nineteen and I come to the different businesses we have and how I see them at this stage. So the disposal or the sale of ReAssure to Phoenix, obviously, was a good point in time to rethink how we want to operate as a group, because it was a big part of the Life Capital business unit.
We had since 2012 created very separately business units with separate legal entities, etcetera. So a system that is quite separate that allows entrepreneurship in all of these business units. In view of this disposal, we came to the conclusion as an executive board and together with the board that we should look at getting more synergies between those to be less extreme and having them separate. So we can clearly start to see some benefits of these 3 business units or businesses helping each other and trying to capture some synergies. So go closer to what we call a 1 Swiss Re approach.
So in this 1 Swiss Re approach, we have clearly reinsurance in the center as the core business, then we believe it makes sense to have a corporate solutions. In the past, goals in corporate solutions were more to grow, to become big, to have economies of scale, ultimately maybe do an acquisition, be a big player. I think this is unrealistic in the current environment and also longer term with the situation that we're in. So Corporate Solution is going to be much more specialized and focused and the main strategic assets they bring to the group is their very strong relation to clients, to the corporate world, which otherwise we don't touch. And we see more and more touch points between the different business units.
So for example, Corporate Solutions gave access through their long term relationships to BMW, Daimler, etcetera, for reinsurance solutions or the deal we have with IKEA, with IKEA also came only because Corporate Solutions knew the people very well that it was a trusted relationship. So we see these 3 business units that we see more synergies between them and that's the direction we're going to take. And all of that is going to be supported by what we call the foundation, the group foundation where we try to get some synergies. We think certainly people are should be freely floating between these business units. People are huge assets in a company like Swiss Re.
And then in terms of strategic assets there, I think that's the same as in the past. We always stress risk knowledge, leadership is extremely important and embodied by the Swiss Re Institute and Thierry Leger will talk to you later. Then we have this whole client access and image where we have clients, which is unique, including to the corporate world, as I said, and then the capital strengths And what synergies can we get there? You've heard about our efforts to minimize the number of legal entities, put them together, get some synergies. This is not a big project, but we had to publish that, but just that you understand the context of all of that is trying to get some synergies between these businesses.
So now let me go quickly through these businesses and start obviously with reinsurance. So reinsurance in my view has some 4 extremely strong competitive advantage. This scale is just a very big competitive advantage. And as Moses will talk to you later, they've done a great effort and had great success in scaling up the business without scaling up the costs. And you just get significant benefits from doing that in the last few years.
So scale is hugely important. And then risk diversification mathematically basically needs that you need less capital for the same amount of risk. So you get some benefit if somebody would have a certain return, your return on the capital will be higher if you have this kind of diversification, which is very large in particular between P and C and Life and Health. And then you could say 2 softer factors, which are huge client access. Yes, of course, we have brokers in all of that, and that's perfectly fine.
The clients choose that, about half of the clients have brokers. But in all cases, as if there are brokers, we have more triangle relationship with clients. We know the clients. We know dozens, sometimes hundreds of people at the client organizations. We're deeply embedded.
There's a trust relationship in this triangle between us brokers and the clients. And we see this as a huge, huge asset also for solutions and for other things to be done, not just pure reinsurance transactions. And then we through the size and scale and everything, we can afford to have our own risk knowledge, which in my view is a strong differentiator. So these four elements play a big role in terms of competitive advantage and where Swiss Re is. In all of that, as I mentioned, the deconsolidation of ReAssure reduces the financial market risk of Swiss Re very significantly and gives us also a bit of financial flexibility in terms of, a, growing continue to grow reinsurance, but also to rethink about rebalancing the asset side, make it more comparable to some of its peers.
So within reinsurance P and C, when discussing with analysts and I mean this community investors, I often get the sense that people say, okay, the market is not hard enough, it's not moving enough, there's some impatience, it's not good. But actually if you look at the underlying figures, I'm not sure everybody is aware of where it is. I think thanks to this enormous scale and diversification, actually if you look at this year, the underlying business is really good. So I show here on this chart the normalized combined ratio, which is by now 9 months between 96% 97% and then a normalized return on equity, this is obviously without COVID, but also looking at the ROI in a slightly normalized fashion. And you can see that the underlying will be about 16% ROE today with current in the current rate environment, that's what we would have.
So and I think that's not that picture is not the same for if you're a smaller scale reinsurer, if you don't have life and health, etcetera, etcetera. So this is part of this competitive advantage. Now there is concern obviously on the ROI, the pressure that the reinvestment rate has on the ROI. It's clear that it's going to create pressure on that. And therefore, here on this chart, I also show the stress scenario if the ROI was 100 basis points lower.
And you can see it would still be within the range or vice versa, we would have to decrease combined ratio by 2.5 points to get back to the 16% we have. And obviously, since this asset liability duration is about 6 years in P and C Re, this reinvestment risk will only eat into the ROI over time, about 6 years. So this is the period over which you need to compensate with 2.5 points. And I definitely think this is extremely feasible. So I'm very optimistic about this picture.
And as I said, as we said, what we expect next year to be below 96% in terms of combined ratio. So we think P and C in this environment, thanks also to scale, diversification, etcetera, can actually live in the current environment. And the interest rate environment means we just need to push for further decreases in the combined ratio and higher underwriting margins. Life and Health, obviously, we had a good track record now since all the remediation actions we took a long while ago now. Even this year, we're just below 10% ROE excluding COVID at 9 months.
Obviously, it has to be said that in Life and Health the difference is pandemics are part of the risk profile. They're thought about, they're in the risk models, they're in the costing. So this is sort of the natural catastrophe for life and health. There's nothing to be ashamed of here to have some losses here. This is paying families to continue for what they have paid.
So this is in my view a different quality problem than what we have in P and C. Obviously, Life and Health is slightly stressed in the next few years in this very low interest rate environment. It means the R is very high, so the ROE is under pressure. But we believe we can stay within this 10% to 12% range in the next few years. You could also see that reinsurance has done a good job in terms of growing without growing the cost line, which means they have an actually 2 points lower operational cost ratio than they had in 2015.
So this is a massive strengthening of the competitive position. Corporate Solutions, I tried to find a simple picture to explain a little bit the repositioning. So we have two dimensions here. 1 is how many products you offer. So on the right side, it's extremely comprehensive.
Left side will be very specialized. And then from bottom to top, bottom will be capacity focused, you could say opportunistic, this is more the excess layer business. And on top is expertise focused, you could also say client centric, it's more the primary lead type activities where you have a relationship with the client, which is much stronger. So in the past from pre-twenty 12 to this period of 'twelve to 'nineteen, CorSo moved very much to the right, so much more comprehensive product offering, but also moving with the creation of a platform, a primary platform closer to the client. And the move now is clearly to go back on the comprehensive offering to get back to just the lines we feel very comfortable we have a competitive advantage.
So this is the whole portfolio pruning that is taking place and this is where we want to be only if we have a competitive advantage or we see particular knowledge we have that allows us to operate do we want to be in that line. But the push towards the client is continued, right? This is very important and I think all the growth we see now going forward must come from this primary lead. It's not just from opportunistic deals we can see in the markets. And that is as I said, this is I guess the strategic attraction of CorSo for the Swiss Re Group.
So being close to these customers, allowing the whole group of Swiss Re access to these corporate clients. Chorus is well on track. I repeat it every time, but for me it's a pleasure to continue to repeat that. The portfolio pruning is on track as they had promised last year. The cost savings are on track as they had promised.
They bought more reinsurance to manage volatility. Price momentum is higher than we thought a year ago, so 15% year to date. Nothing has changed. You still see very strong momentum in the corporate world. Probably also, I think, in part because Swiss Re was quite early, but others followed 6 months, 9 months later.
So there's still a lot of noise in the market, a lot of stress, a lot of bad results also frankly that need to be compensated over the next few years. So I feel very comfortable about the development of this whole corporate market at this stage. You could also see some favorable PRU development now. So we seem to be in a good position in CorSo. If you look at these normalized combined ratio and you can see 9 months 2020 at nearly at 98%, the obvious question we will get is, okay, why don't we lower the target for next year?
And I guess I answered already here, but still okay to ask the question to maybe get more information from our CFO. But basically, this year, there's a lot of uncertainty around claims. There's a very low claims activity, possibly because of COVID. We think it's due to COVID. This normalization here is without man made.
So there's some good luck in man made. So that's one factor. And the other factor is all the economic uncertainties next year in terms of also the credit and surety business, what does it mean, etcetera. So there's a few factors that make us a little bit cautious here. But overall, I would say I'm very, very bullish about this business and where it's going for the next few years.
I come to IptiQ, our B2B2C digital insurance platform. 40 partners in 5 markets. So it's basically life and health in the EU. It's life and health in the U. S.
And now we have also launched and worked on since 2, 3 years on P and C insurance in Europe. So these are the 3 main businesses we have. And we can clearly see how the interest throughout this year is this push towards more digital. People are more buying online. And so we see this as a further encouragement for us to continue on this path.
As I said, we also saw some valuations this year, some IPOs of the biggest insurtech players. They have figures that are remarkably close to what you can see here. There's no pure life and health player. They're also not B2B2C. They're mostly B2C directly.
But you can see here the premiums will be over €300,000,000 towards the end of the year, a CAGR of 75% over the last few years. Again, very similar to figures you can see in some of these peers, I would say. And then on the right side, you see the valuations have been really high in the IPOs, the listed peers 5 to 7 times premium. And then in terms of the unlisted peers, even a bigger range. So obviously, you can make your own calculation.
This is just making a trial on our side to estimate the value for this IptiQ franchise, which at this stage is $2,000,000,000 So I went through all the different businesses. Today's focus is a lot around fixing things, where are we now, what we need to do. I think that fits where we are now and what we need to talk about. But I just want to have at least one slide to talk about the longer term because there's always the risk in situations like that to just focus on the immediate and forget to invest for the long term future. And we're not doing that.
We're thinking a lot about the future, where we'll go. We see the purpose of Swiss Re to make the world more resilient and there's obviously no lack of need for that kind of purpose in today's world. And we intend to do make them more resilient by putting clients and partners at the center, by offering them risk transfer solutions as all reinsurers do. That's the classical way we help them. But we see other ways to help them take risk as we did in the past through risk insights and also more and more through partnering with them to take the risk.
And you can see some of these names in terms of risk insights, tools we have talked about for a long time like CatNet, Magnum, LifeGuide, etcetera, they're all here. They're all there to provide to help our clients basically take some risks. And on the left side, I think you've seen a flurry of announcements through the last year or 2, where we have partnered up with some of these big corporates to help them take risk or together take some risk or improve the value chain in the insurance. So probably for our next Investor Day, but I just wanted to give you this glimpse into what we're doing and put this in the context of a longer term value creation for Swiss
Re.
So my last two slides around ESG. I think you're all aware how this has become hugely important. It actually comes a lot from the investment community. I've been active in the field for 15 years. I remember making speeches in 2004, 2005 with very limited resonance to be fair.
But this has changed massively and you're probably even more aware than I am that in particular through pension funds, long term investors, stakeholders in those, the pressure of all of that has led to a complete change of thinking around some of these factors, put a huge amount of pressure on businesses. Obviously, some businesses are further ahead, but I can see now a lot of businesses who probably on their own wouldn't have moved, they're moving now rapidly or some of them are moving rapidly. So there's a really huge movement in the whole corporate world around sustainability. And so we have a certain number of commitments we have made. So I think we always strive to be at the forefront of things.
On the operations, we have this net zero commitment by 2,030. We actually buy certificates, carbon certificates since 2003. So we're in that sense carbon neutral, But certificates are not probably the best way of doing things. It's just that there's some question marks around that. It's not ideal.
So this net zero actually means we commit to pay the price to extract the CO2 from the atmosphere because ultimately there will be no other way to get to 0 than to have a significant huge industry around CO2 extraction from the atmosphere. Otherwise, we'll never get to 0. So we estimate this is going to be much more expensive than the certificates are right now, probably $100 per tonne is more realistic over time. And that's an industry that is not yet built. So net zero, that's why it's 2,030.
We bet there will be possibilities to offset it and we're going to pay for that. And then indirectly through the influence we have, both on the asset side and the underwriting side, we have commitments net 0 on the underwriting side and asset side by 2,050. So it's basically everything we influence will be touched. So you know that on the asset side, we have switched to ESG standards, but this goes much further. This goes into looking at the footprint of the companies we have invested in and going to net 0 for the sum of these companies.
So these companies will have to get net 0 otherwise they won't be in this portfolio or you need companies with some negative, if that's possible, contribution to have some which still have some emissions. On the underwriting side, this is not this is a long term pledge, but obviously we take actions in between. So you probably read around our efforts or our new policies starting this year to exclude some players in the oil and gas industry who have the highest intensity of CO2 they use per gallon of oil produced, for example, so the biggest polluters in the creation. So we try to encourage those who have better processes and lower emissions. And then 2 concrete examples that we have done recently.
So as far as we know, we're the 1st multinational company to announce a triple digit real carbon levy internally. It starts at 100 dollars per tonne, but will go up to $200 per tonne by 2,030. That's because we estimate that at 2,030, that's about the price we'll have to pay for extraction from the atmosphere of CO2. So this is going to be, for example, charged for flights. Every flight will have this additional charge.
So it's going to be embedded in a system where managers make decisions whether to fly or not. These costs will be fully embedded in their decisions. And then biodiversity, a big topic. I think a lot of people are aware that this is a huge challenge, but it's also a huge challenge to make it more visible, tangible and linkage to the economy. So we have put a lot of effort into this.
We basically looked at the whole world. This is geocoded. So in the whole world for our cat net, I mentioned before, you can see at the different services that nature basically brings to you. So water quality or pollination service as they call them or soil quality, you can see that in a 1 kilometer resolution across the world. And then based on those, we're able to make some correlations to the economic side and we were able to create some indices in countries and make some link it so that you can have a reasonable dialogue with governments or other companies around the risk that is in biodiversity and the loss of biodiversity and these losses can be huge.
So hopefully, this gives you a sense of what we're doing in this very important topic of ESG. A lot of you show always a lot of interest, so I thought it would be valuable to spend a little bit time on this. And with this, I'd like to hand over to my CFO, John Dacey, who will lead you more through the capital side of things.
Thank you, Christian, thanks very much. I'd like to go through about a dozen slides where we'll talk mostly about the capital generation and the strength of the balance sheet, a little bit of a highlight on the alternative capital partners team and the great work that they are doing both in supporting our capital management, but also in supporting the growth of our businesses across multiple dimensions. And lastly, some information which might be useful for some of our analysts on thinking about the future reporting for the group. On capital management, I think we've managed the COVID crisis extraordinarily well in our ability to maintain what is truly a industry leading capital position. And we are very proud of that, but proud of that also to the degree that allows us to move forward to grow in what are some very interesting market conditions that both Moses and Andreas will speak about this afternoon.
But maybe a little bit of history. Let's go back 5 years and talk about where our SST has come from and remains. The SST that we reported at the 1st July is a rate of $223,000,000 that's above our target of $220,000,000 and I just would reiterate that $220,000,000 is a target, it's not an limit. We'll see in a moment that we've done a nice glide path down to that target as we've continued to be able to build some important parts of our business. But on this slide, I'd like to point out a couple of things.
First is the economic earnings over this period, what's in the pillar number 1 here. Over $12,000,000,000 in this period in spite of the very difficult years we've had with natural catastrophes, some adjustments to our reserving and most recently here in 2020 the COVID losses. And just to reiterate the positions that Christian mentioned, in the SST calculation that we have as of July 1, we've included not only the COVID losses booked in the first half of the year, the $2,500,000,000 but also projection that we've made internally for what we think this is going to cost us into 2021. The second thing is, while we've repaid created more capital, a lot of that repatriation was done in the earlier years with share buybacks. The reality is our actual economic earnings have been more than 130% of the dividends that we paid.
And when I talk about our capital objectives, you'll see that that dividend coverage by economic earnings remains absolutely critical for us and we are very comfortable with where we stand on it. Lastly, as Christian said, in the context of the ReAssure sale, we've done 2 things. 1 is we've been able to free up a material capital need overall and then specifically in the finance portfolio that we have on investments. I'll also give you some more details of that in a moment. But that's been able then to bring down the required capital.
I'd say that as we continue to own a significant portion of Phoenix Group shares. We are frankly very pleased with the performance of those shares this year since we have had them since July. Over time we'll see how big of a shareholding we'll like to own in the future. But for now, we've got the shares on our balance sheet and they are part of this risk calculation. Again, a historical view, the capital generation, we've been able then to see some very strong dividends from our subsidiary businesses up to the group.
And the main part of the chart, what you see is reinsurance over the years, especially in the earlier years before we saw the large increase in nat cat losses sent over $2,500,000,000 per year up to the group in their dividends. We also received substantial dividends from Life Capital. And yes, those will not be there in the future, but I think we expect our friends in Corporate Solutions as that business comes back on track to become a more material part of the dividend policy as well as our ability for the reinsurance businesses, life and health and P and C to maintain a strong contribution as we go forward. On the right side of this page, some information which we have not disclosed previously, but I just thought it was important after the Q3 results to reiterate. We did get a dividend up on the sale of ReAssure from the Life Capital segment of US1.5 billion dollars But that's on top of an existing free liquidity at the group level of 2.7.
So we've got a total today or as of 9 months and nothing bad has happened to it, of $4,100,000,000 of liquidity available at the group level, which not incidentally is at least twice times what the dividend we paid this year for the full group out to our shareholders. I mentioned the glide path of our SST ratio. I reiterate that we've brought this down. We've told you back in 2016, 2017, 2018 that the position of the group's capital seemed overly strong to us and that we would bring it down. A combination of share buybacks, which we executed over this period and the increase of the ordinary dividend has allowed us to come closer to our target.
We are very comfortable with where we are at the moment. I will also observe that the MVM identified in the bubbles in the bottom have increased materially since 2019. This is largely due to the reduction of interest rates in the last 9 months in particular, we've been able to manage through that and maintain this very strong SST ratio. If I want to focus on what's happened in the last 9 months, we started out with an available SST capital of R42 $1,000,000,000 at the beginning of the year and a required economic target capital of $18,000,000,000 I've mentioned the ReAssurance sale, which has reduced that required target. The series of items, especially the losses that we've endured on COVID itself, the payment of the dividend was already in there.
So that's not a reduction here, have brought us over to a reduced available capital, but also materially reduced required capital. The other piece I'd mention here on the capital repatriation, you might be surprised in that we've only got a 0.1 negative amount here. The calculation of that is a combination of the abrogation of the 2nd tranche of the share buyback, which is offsetting the reserving that we've already done for 50% of the dividend paid this year in anticipation of 2021. So as of July 1, we've already on a pro form a basis booked 50% of at least that figure. We'll see again the dividends decisions will remain in the hands of our Board of Directors and then ultimately the shareholders.
But for now in this calculation 50% of that dividend is already been accrued. The light blue line on the left side of this chart. We've been able to reduce our letters and credits utilized in life and health is one of the reasons for that. We've also been able to take out the debt associated with the ReAssure business. At the same time, during the course of 20 20, we were able to access the market at what we think are very interesting rates.
We did earlier subordinated instrument of €800,000,000 and we've also accessed the Singapore dollar market later in the year with another S350 $1,000,000 I think our funding capacity remains robust. The market is very interested in supporting us in any debt issues that we might have. But right now, again, we're very comfortable with the capital structure. I note the big blue bubble in the middle, I talk about this often. We continue to have $2,700,000,000 of contingent capital available to us.
It's not part of the SST calculations, but there is no requirements for us to be able to draw this down should we see an appropriate need and utilization of it. With that flexibility, I'd like to talk for give a little bit into the alternative capital partners whose growth has provided additional flexibility for our capital structures. First, just to remind you a little bit of the history, Swiss Re Group has been active in the alternative capital market for more than 20 years. We were a ranger in the structure of the first cat bond in 1997 and we were a principal investor. On this chart, we talk about 2 pieces that continue in our book.
In the first case, we have an inventory for a portfolio of securities in the ILS marketplace that's grown during the course of this year as we've seen some interesting price opportunities for us up to about 1,000,000,000 maybe even a little above 1,000,000,000 dollars mid year of 2020. Most of these are tradable securities 70%. We do this business in the first case where it's positive economic return, but this likely structuring on the right side of this chart also provides the opportunity for us to gain market insights. We pay a lot of attention to the Chinese walls we have to pay attention to, but we're able as a group to be much better informed about the dynamics of the market, especially around the U. S.
Natural catastrophe market. In terms of ILS structuring and book running, again, we continue to be a major player in this space. I'd note, for example, in October, we did a big placement for the California earthquake authority, I think about US775 $1,000,000 Again, the total for the year at the first half was up to almost US9 $1,000,000,000 of structuring and placements. So this is a core activity that the group of ACP continues on and is actually as you see growing. In addition to these, we've got an ability that's increased materially for our own management of risk within the group.
And so what you see here is between 2018 2020, a significant increase both in our sidecar platform, but also the issuance of our own cat bonds to help support the growth, the profitable growth that we've seen on the nat cat side of Swiss Re Group. This is largely for the reinsurance P and C teams. But I think what you see on the right side is the shortfall relief for the North American hurricane, which is the main focus of this team to date has been material is approaching US3 $1,000,000,000 In the middle of this, we talk about the development work that the team is doing to look to even expand the risk sharing platform. We've got the sidecar. We've got some great partners that have invested significant amounts in that sidecar.
We are looking to see if there might be some opportunities for more durable sourcing of capital to support these activities for the Swiss Re Group and an extended partnership. So over the next quarters, I would hope to be able to explain that we've been able to find some success in some of these additional capabilities. Last, when we talk about the capital structure, the ACP team again has been able to help us think through the broader capital structure and the total capital relief that we've seen is increased by 75% over these last few years up to close to US2.5 billion dollars So what's required on an SST basis for what is a set of peak risks has been substantially adjusted downward, thanks to the success of the retro activities of this team. And as I said, we should expect that they will continue to grow to support in a very symbiotic relationship with our reinsurance team and potentially eventually with the CorSo team as well. If I can then bring you back to the group.
Christian mentioned in his comments the reduction of financial market risk related to the ReAssure transaction. Here we give you some additional and new figures to be very clear on that of what's happened. If you look at the gray bar in the middle, when we think about the SST economic target capital on a pre diversification and post diversification, what you see is the change between the 1st January 2020 and the 1st July 2020 adjusted for the ReAssure sale is a major reduction in financial market risk of $2,300,000,000 and of credit risk of another $500,000,000 The colors are a little tough to see here, but that's what the numbers are. If you then go to the pie chart on the right side and look across the total shortfall by line of business, what you see is financial market risk plus the credit and surety plus other credit added altogether total only 31% of the total shortfall risk that we're running in the group. Now in some ways we're happy with the growth of the underwriting risk we've got in our business.
But I will say that this 31% is probably at a low end of any historical range that we've had. It also frankly as of the 1st July reflects some of the caution that we've had given the market volatility in financial markets in the first half of twenty twenty. So I'm not suggesting that this is a predictive of where the future is. We'd likely to be more balanced in the risk we take, but we do have considerable room when and if our asset management team finds it appropriate to bring on additional risk, which by the way will be a nice balance to the insurance risk that we think we can continue to grow in the markets. An additional piece of information related to ReAssure is the structure of where the bits of life capital are landing in a post ReAssure world.
In the first case, I mentioned the Phoenix shares, they will be managed by our principal investment team that held at the group level. In addition, the IptiQ business, which Christian talked about, will also be a group item. We expect to be able to provide you some adequate information to understand the dynamics of that business at least on a semester basis and we'll update you on IPTAQ itself at the full year results and certainly at 6 months on the first half of twenty twenty one. In addition, there's a small business admin re U. S, which is in runoff.
If you remember in 2012, the group sold the majority of Admin Re U. S. To Jackson National. There was an additional small sale I think in 2017 to RGA of another piece. What we've got left is a business in runoff that currently accrues about $150,000,000 a year in premium.
On average, it's looking to have about $25,000,000 of profits with shareholders' equity of about 700,000,000 dollars Those will be part of the group items, not broken out in any material way. And lastly, we mentioned some quarters ago that Ellipse Life with the business related to some of the activities that we've currently gotten CorSo on the with the IHC acquisition done 4 years ago will be contributed. The Ellipse Life portfolio is in the midst of a repricing and restructuring is too strong for the world, but adjustments of some of its activities. What we've suggested here is in the near term, the earnings are probably going to be modest. We simply put down 0 for your models for the near term.
But over time, I think you should expect that under CorSo's leadership, this will return to an interesting and clearly profitable business. And then on I2C, what we've given you for the first time is a clear sense on sort of near to mid term expectations of the new business strain for IptiQ, which will be booked in group items of about US200 $1,000,000 So as we continue to build that business, as we continue to sell new policies and expand it to Q that will be a cost, a running cost. As Christian mentioned, we've got different maturities of different parts of that business, some will be breaking in sooner than others. But for the near term modeling, the $200,000,000 new business strain is an appropriate charge that you should expect in group items. Otherwise, the rest of group items, which is the combination of the profits coming out of the principal investment portfolio, the costs that are amalgamated at the group level and some licensing fees probably would bring you to somewhere close to 0 for that piece.
So on balance what you see here, the earnings before taxes of minus 200 plus 25 is not a bad starting point for estimating what group items might look like in the near future. My last and final slide, two messages I just want to reiterate. 1 is our group financial targets remain in place 700 basis points over the risk free for return on equity, 10% economic net worth growth per share. You might we've heard people say that these don't seem very aggressive given the ReAssure transaction. I hear that, but you'll appreciate that in the context of working through the pandemic and actually missing these targets for the last couple of years, We'd rather have the ability to meet or beat these targets in 2021 and move forward.
The other thing I would say with the targets is we've announced that we are going to be moving from U. S. GAAP reporting to IFRS in 2024. We'll have to think about our targets in the context of a new reporting GAAP as we go forward. But again, that's not a near term issue that's going to be for 2024.
Equally important on the right side of the capital management priorities, these have not changed, but simply to reiterate the first priority is to ensure superior capitalization. I think you should that we believe we're there with the 2.23 SST ratio. Again, anywhere around the target of 2.20 would be a superior capitalization. To grow the regular dividend where possible and if not at least sustain it, that's the second priority. The third priority is to be sure that we're taking advantage of growth opportunities in the marketplace where we think we can continue to build value.
And then finally, if we cannot put the capital that we have excess capital to work, then we repatriate further. That's been the basis for the share buybacks that we were doing up through last year. I think what we see right now in the market opportunities both for corporate solutions and for reinsurance, you should expect us to be focused on certainly on priority 1, priority 2 and priority 3, we'll see what happens in terms of our ability to get to priority 4, but it comes after the first three. I think that's my last slide. And with that, I'd like to be able to turn over to Guido.
Thank you very much, Sean. It's a big pleasure to talk about asset management as that last section of this morning before we go to Q and A. No doubt 2020 was a very special year and kept us as a manager clearly on the edges of our chairs with unprecedented volatility, which goes in both ways up and down. I thought it makes sense to give you give a high level overview of what happened in our portfolio expressed by these 5 KPIs. Starting with the return on investment for the 1st 9 months of this year of 3.4%.
But this is also coupled with a very low impairment. You see it's just SEK 27,000,000 for the full year. Now it goes without saying we wouldn't have achieved those figure without very severe action in the portfolio. It was portfolio restructuring, but it was also coupled with a very dynamically managed 50% of what the market experienced. Again, Fallen Angel is an important constituent for insurance industry because it's the bridge between investment grade versus non investment grade.
We continue to serve on the ESG and again coming back in a bit more detail later on, it produced another outperformance this year. Ultimately, we have a running yield. Yes, it's lower than last year. The 2 obvious reasons are lower interest rate. The 10 year U.
S. Treasury dropped by another 123 basis points in the 1st 9 months of this year, but also we exited certain sensitive sectors, which also led to slightly lower running yield. But if we look on the summary on these 5 KPIs, I think it's fair to say this is a high quality portfolio, which again produced a stable return in very choppy, very difficult markets. This was thanks to active portfolio action, but it's also thanks to an ESG implementation, which really works. We have used new technology this year and we work on a few other topics, which I'm super happy to report over the next 15 minutes.
We discussed about the 1st 9 months of this year, but I think it's fair to say we should look as a long term investor. That's why it's also good to have a long term perspective about some of the performance figure. We're all familiar with the return on investment and very happy to report back the last 5 years we could produce 3.6% on an annual basis. Now that's an accounting figure and we know the debate what is the right measurement and probably the total return one is a good one. That's why we took the analysis and looked how much basically we produced in our performance compared to so called risk free portfolio.
A risk free portfolio in asset management context, managing insurance asset is probably you look at the duration of your liabilities and also look at which currencies those liabilities are and take this as a risk free benchmark. Now Swiss Re could produce 1.9% per annum over those kind of risk free portfolios and benchmarks. Now again, this is an annual figure and it's the average of the last 5 years. We also compared it to our peers and very happy to say we are considerably above. Now how much risk we have taken for that outperformance?
I think a very familiar figure for the investment market is a sharp ratio as we measured this excess return of 1.9% over its volatility and we derived with a sharp ratio of 0.8%. That means we haven't produced a lot of additional volatility that nevertheless could achieve a very solid basically excess return. These are 2 kind of KPIs, which I thought it's worthwhile to put into context. 1 is an accounting one and the other one is basically a total return, but adjusted for different currencies, but also adjusted for different duration with respect of our peers. Now the question is how does this go forward?
And we had a few references by Christian, but also by John. Yields will stay low. This is also our conviction. There's no way that we go back to something which is normalized in the short term. That's why it's so important to understand how you're currently positioned in the market.
And we took the liberty to show you the split of our fixed income portfolio. And the nice thing is and you see this on this slide represented by the blue bar chart, most of our fixed income is at the long end, so almost 44% of our duration is placed in the 10 plus year. Now if you couple this with the unrealized gain which we have in the fixed income, again, per 30th September this year, we could show SEK6.7 billion unrealized gain in exactly this fixed income book. Now the logical question which I have and probably you as well, when those unrealized gains basically matures and the very good news is we have to wait for many, many years because 72% of those is in the long pocket. That means about 2 thirds, even slightly more of the current annualized gain, they will not mature in the next 10 plus year in respect of duration.
That means the reinvestment risk, now we know we have very low yields, that reinvestment risk is considerable lower in our balance sheet compared to others. Again, this gives us a lot of comfort that we don't see a sharp drop on the investment side because that piece is very, very stable and will last for many additional years. We also thought how we can enrich kind of the information to the market. And we will next year, 2021 onwards, come up with a new figure, which is called recurring income yield. Again, this gives you a forward guidance, which is broader than the running yield, which we expand in respect of asset classes.
Again, it should help you how the portfolio basically will develop just from a sustainability point of view. But let me move on and look at the current portfolio. And we mentioned the point, yes, it's a diversified portfolio. However, no doubt we have a very high cash position. And this is liquidity expressed in this SEK21 billion.
This is cash and short term investment. Now there are two reasons why it has grown. 1 is clear. This was the derisking which we have done. End of last year, we started in Q4, but continued, of course, in Q1.
This also led to the very low impairment figure. This was one reason for the high cash position, but of course, also the partial proceeds from the ReAssure transaction also added to that one. I consider this as a strength in the current environment because it gives you a lot of opportunity and optionality, which was referred before by my colleagues. Now how looks the quality? Again, we make the mentioning for unrealized gain in the portfolio, but has the quality really deteriorated in the last 9 months?
The answer is no. You still see 95% of our fixed income instruments are investment grade and this is pretty much unchanged. You see a very low portion to the below investment grade allocation of just 3%. 2% is basically not traded, but we talk about cat bonds and also some of the loans which don't have a rating, but quite often are investment grade like. This remains a very solid portfolio.
Now what else helped us in the past and I'm pretty sure this will also be supporting going forward is ESG. We do it as a company. Christian has referred to in quite different context. I can look it from a poor investment point of view. And we want to show you what ESG means in an implemented way.
And 3.3 has ESG implemented to 100% on the asset side. And as you know, we were an early mover and clearly one which went furthest. Now the portfolio which you see here is equity. This is the dark blue line and we also show credit, which is another very important asset class for Swiss Re in a 5 year context. And you see both have produced on a cumulative basis outperformance.
Now, it's very clear if you look at the picture, the biggest outperformance comes from the most toughest time. And we had very choppy market back in 2015, beginning of 2016, kind of was talk about default of certain sovereigns. We had the sell off in China, etcetera. But of course, the other key example, which is much closer are the last 9 months and you see the sheer outperformance of ESG. That's why I can claim ESG is probably one of the strongest risk mitigation factors and we have done this since already a while.
You can express it in Sharpe ratio. Again, you find a few interesting figures on this table. But ultimately, it's not only a better risk adjusted portfolio, it led once more to an outperformance. This year, the 1st 9 months, we could produce an outperformance of 1.1% in our equity portfolio, thanks to ESG. And a similar effect, of course, not to the same extent, but the similar effect also on credit.
It's a 20 basis point outperformance in an investment grade portfolio. This is thanks to ESG. Now how should we go forward? And to be sure, we don't rest on what we have achieved. We want to share with you key initiatives where we make sure that we continue the strong performance on the asset side of Swiss Re.
The buildup which has started in private market will continue. We have built up a very high quality portfolio the last few years. If I talk about our infrastructure portfolio, which we have started in 2012, 2013, we constantly grew it to a very high quality aspect. We will continue that track because, again, we have preferred access to the market and we have established a unique network, which allow us to really kind of capture the most interesting transaction in the private market space. Geographic diversification, that's kind of a natural DNA for Swiss Re.
We are truly global. We have been global on the reinsurance side. We have been global on the asset side. I personally believe that's a strength. We have a footprint which goes across Europe.
This helps us to capture attractive investment opportunity in other parts of the market. We clearly see very different market development, very different outlook, and we know some of the markets look much more promising than in the past. This helps us to take part of that. I think about high growth market. China is an important market for us.
We have a presence. This is just one example, which clearly allows to capture some of the more opportune outlooks. Swiss Re has started to work with so called thematic in massing. And thematic investment means you kind of move away from the asset allocation thinking or the asset class thinking. We started with that a while back.
Infrastructure is a good example where you're somehow asset class agnostic, but we did the same on ESG. When I say we implemented ESG across the full portfolio, this is true for all asset classes and it was a theme which we believed in and we were able to implement it in an institution portfolio like Swiss Re successfully. There are other themes. And again, we are now in the deep dives and preparing for the next big waves. We clearly will focus on things where we believe we have proprietary insights.
Swiss Re is one of the biggest life and health carrier global. It's clear that we see things earlier than other investor. And again, this should be leveraged also on the asset side. That's why one of the themes which we identify is health care, but for sure also digital infrastructure. This was successful so far that we kind of picked long term trends early on and try to implement an institutional portfolio in a successful way.
Technology, yes, it's a big investment topic, but we know this is also a great tool. It enables our performance. We make heavy use of it. Again, it helps us to digest big data, but also see trends much earlier, which is important signal for making investment decision. Let me show you an example.
Early this year, we developed a so called, of course, what you expect else, so called COVID-nineteen tracker. And you see just kind of an excerpt, the zoomed in area with a few colored quadrants. And those colors show you it's quite some fragmentation. It's fragmentation about beyond the different areas. You see much more radish in the China kind of APAC area, but also very different size of the quadrant is fact of sector.
This was one of the tool which we developed. It helped us to see not only the wave, which of course started in China, but also we saw where it arrives at which point in time. This was in February, the screenshot, and you saw U. S. Was pretty much green.
And of course, we knew this is probably temporary because this wave we saw going through the whole globe. But also we saw which sector mostly suffered. This was a perfect management information system, which we used to make decision, both in the underlying portfolio, but also how we structured the overlay, both in respect of timing, but also in respect of sectors. These are examples which we didn't have 5 years ago, and it's clearly an advancement, thanks to technology, but also to understand how you basically want to implement and how you apply it to institutional investor context. Now I can't leave you, of course, without an outlook.
I think that probably it's expected. Now the world, it's not easy. That's an obvious one. Uncertainty remains. However, we believe there's some recovery on the way.
It's a choppy recovery and we still see considerable downside as well as upside risk. However, it's a more balanced upside and downside risk aspect. This is clearly also thanks to advances which you have seen not only on the vaccine side, but also on the policy side. Monetary and fiscal policy is bigger than ever and we talk about 10 times on the fiscal side compared to 2008, 2009, which is also not a good example, 10 times biggest And also on the monetary side, this will not disappear. All signals which we hear suggest this will stay.
That means this kind of backstop is probably a factor which has been complemented by other slight positive development. Now what we will continue to focus on is the quality of the portfolio. Again, we want to be a reliable investment portfolio provider, but also we want to make sure that we use the sustainability and the power of the balance sheet. We know that differentiation is always important. I'm convinced differentiation is becoming even more important in every respect.
It's not only geographically, it's clearly also the way how we approach things. Now how I go with this outlook? I start with a high quality portfolio. Again, it has been shown this year, the last 9 months, but it has been shown the last 5 years. I believe we are perfectly positioned for a more constructive outlook.
We have a lot of optionality in our portfolio. We have 21% cash and short term investment, which is as liquid as it can be. This coupled with a constructive investment outlook, I believe we can capture some of the value drivers which we have identified, value drivers which are true differentiating both the way how we position the portfolio, but basically also the tool which we apply. And hopefully, the themes which have been worked in the past with respect to semantic investment will continue to pay his part to the outperformance, which we could show the last few years. With that, I would like to hand over to Thomas for the Q and A.
Thank you
much.
Thank you
very much, Christian, John and Guido. We will now open up the lines for the Q and A session, and we'll just have to wait a few seconds for that. Please restrict yourself to 2 questions. Looks like we have a first question from Kamran Hossain from RBC. Kamran, please go ahead.
Any. Mr. Hossein, your line is open. You may ask the question.
Hi, sorry about that. The yes, a big picture question for Christian.
I guess, for the last
few years, you focused on divesting ReAssure, fixing CorSo. What's your number one priority at the moment? You did mention fixing during your session, but what's your number one priority there? And the second question, I guess, thinking very long term about Ip2Q, it definitely feels like there's a different pool of investors between insurance and what is perceived to be tech. What's the intention for I2Q?
Kind of crystalline value via some kind of spin off in the future, kind of realize that CHF 2,000,000,000 or is this developing economic value or earnings going forward? Thank you.
Okay. Thank you, Cameron. Good questions, right? I think absolute priority for me is on the underwriting side and the fixing of the underwriting or get CorSo and P and C Reinsurance back in better territory. Clearly, there have been issues there.
I feel extremely comfortable about where they are, but that must be the number one attention. I personally think CorSo is going to surprise on the upside over the next few years. You can see the markets going up higher than what we thought. But you have to stay on top of that, right, in a very obsessed way. So to me, that's really the number one.
And you could say this is short term, but for me, that's the next 2, 3 years, right? It's super important. There's other priorities, but to me, that's the main focus. IPDQ, yes, I think now it is in a phase where you're absolutely right, right, it's a completely different profile. And obviously, we sort of count on that our investors will have the patience and will understand that this will add to the economic valuation and later to the GAAP of the Swiss Re Group.
So you obviously have the investment phase, then I think the first thing that's going to happen is going to create economic values, it's going to be accretive for SST dividend etcetera. That's going to be first. And then over time, inevitably, right, if you even if I run it off, it will create some GAAP profit. So I think the opportunity is so large that certainly at this point in time it will be crazy to give up on it, right? I think there's no I can't see any theoretical limit to what they can achieve.
This is basically there's all these brands out there. There's a lot of clients who cannot invest 100 of 1,000,000 in creating a digital platform. It might change in terms of strategy. But I think at this point in time, it would not be attractive to even that €2,000,000,000 right to sell it or IPO it. So to me, it's just having this long term perspective and then step by step, certainly convincing our investors that this is a good thing.
Also there's some growth in the portfolio and becoming part of the group. Now I cannot exclude, right, that at some stage we might have co investors in it or so, but at this stage that's not the plan.
Thank you, Kamran. Next, we have Vikram Gandhi from Societe Generale. Please go ahead.
Hi, good morning everybody. It's Vic from SocGen. Got one question. The second one on Iqtu was answered. So looking at Slide 22, it's really impressive to have €4,100,000,000 of central liquidity.
And it's great to note the reinsurance business has been upstream into the group consistently. My question really is, if there is a risk that a part of the central liquidity has to be downstreamed in the reinsurance business to some extent to support the growth in the hardening market? Of course, there's some spare capacity available, but I guess you wouldn't want to leave it up beyond the point. So that's my only question. Thank you.
So Vikram, hi, it's John Dacey. I think I'd suggest it's a fairly hypothetical question. Our view is that we have the ability to support a strong growth in the reinsurance business, both Life and Health and P and C with the balance sheet of reinsurance today. And it strikes me as unlikely that we would see a need to downstream. Now the exception to that, of course, would be if there's some massive natural catastrophe that would occur in the next quarters on top of COVID.
We've always said that we have the capability to manage that. And then I'd go back to the $2,700,000,000 of contingent capital that we would have accessible to us to be able to fund both the hypothetical losses that might occur with some extraordinary event and continue to grow the business in what would be an even hardening harder hard market for reinsurance. So I think the view should be that this capital is already at the group and a reverse flow into reinsurance strikes me as highly unlikely absent a major catastrophe.
We have Andrew Ritchie from Autonomous.
Sorry to go back to this topic, which was, I think, John, you were trying to skip over possibly, which is the target ROE. It strikes me the group has gone through quite a lot of introspection this year. You've obviously disposed of ReAssure. You've decided to more systematically use retro, which is a form of leverage. You've decided to more systematically exploit synergies between the business units, which should enhance group ROE.
You said you're happy with the absolute 10% to 12% ROE of your core divisions. And yet we end up with this unambitious, unchanged target spread of ROE at group level. And I get you're sort of saying, well, yes, but we haven't achieved it. But I still just want to get some sense that you feel that when I put all those ingredients together, there's no reason why that target spread should have gone up, particularly because we need compensation as shareholders for potential volatility. And I'm not sure that is sufficient compensation.
The second question linked to that, Christian, you have in previous Investor Days, I think almost all of them actually always referred to sort of the underlying efficiency stroke expense drive. I can't remember the form that you used, but you have a desire I think to keep the ongoing expenses down or even fall and reinvest some of that savings in technology. What's your thinking on that now? It still strikes me the group is quite overly complex. You've got a lot of risk carriers in all the divisions.
I just wonder if there's been any thought of a more radical approach to further simplification.
So Andrew, let me try your first question. I actually don't think I tried to gloss over it. I was very specific in saying for the moment we're holding on to these. I would suggest that those are targets which we refer to as over the cycle. So if you want to be ambitious and suggest where we've been for the last 3 years, the bogey puts out for us in 2021 2022 to reach that over a recent cycle, I think would be pretty high.
What I think I can say is your comments were all there's nothing I would disagree with your points on why we should be more optimistic about the return capabilities of the group. I simply would say in the context of an ongoing pandemic, we've got enough balls in motion without changing this target. We'll be very, very pleased to significantly outperform it if the rate environment and a normal loss load in 2021 comes our way. And in that case, I think we can, during the course of 2021, reevaluate whether we want to reset something for them the next 2 years before we go to IFRS. But overall, I think you'll appreciate that our goal is not necessarily to meet that target, but to beat it.
And that remains intact for us in 2021.
Yes. Happy to take the cost question, Andrew. I can see you have a very good memory. This is many, many years, right? The philosophy has been, I think, since 2012 or so to try to take out 3% everywhere in terms of cost and then reinvest it somewhere else, which I think we have done for several years.
Then came a phase in particular where reinsurance and also part of operations have actually cut it without reinvesting it, right? We still have reinvestment, which means the cuts have been more significant. And then obviously, we grew without adding too much resources. So all of that has really helped. I'm as you might remember, right, I'm not a believer in this 10% or 15% cuts in one go.
It's different if you have to restructure CorSo, right, and exit lines of business. It makes perfect sense. But if you do it to an otherwise healthy organization, you get all these yo yo effects, right? You cut long term investments, you do lots of mistakes and then inevitably 3, 4 years later you add it back on and it's unsustainable. So I really believe and that's also what I think the GE people came to us 2007 that kind of philosophy they brought is just to the harder work of identifying every year something you can cut, right, and always work on that.
And the pressure hasn't taken hasn't been taken off at all, right, and we continue with that. And these things you're seeing here, I think they're all pieces that would help us to continue on that track rather than having a big one off. But you have to come up every year with these 3%, which is a lot. You have also inflation of salaries and so on. So I'd say we just try to think over a longer period of time what are elements we can do, how can we further simplify.
We now have Anne de Brundre who comes to Deutsche Telekom as our COO. She definitely comes to a different type of environment, has a lot of experience in that and is helping us so that we can continue on this pathway. So I think that's what you should expect, right? Trying to be sustainable, do the right thing and yet have a higher and higher hopefully competitive advantage over time through scale.
Thank you, Andrew. We have James Shuck from Citigroup. Hi, James.
So a couple of things from me. Tom, I'm looking at the SST sensitivities because the since the ratio sale, I was expecting those to have come down a fair bit year on year. If I look at the credit spread sensitivity, it's come down a bit from 8 points to 6 points to 50 bps increase. Interest rates has actually gone up quite significantly. That's presumably because of the lower interest rate environment.
Real estate has gone up. The hurricane exposure of 1 in 200 years has gone up to 42 points. If I put all of that together, I mean, the SST ratio, 2.23, you got the target level of 2.20 and the floor of 2 100. It doesn't take much to start hitting that floor. I'd just be interested to get some of your comments around how you manage that volatility and particularly in the context of any reassurance you can give over the dividend outlook?
2nd question is around the capital deployed in P&C.
So I think
the $700,000,000 earmarked for growth, that's forward looking under the SST. So that takes us through the next January and the new period. But in that $700,000,000 I think there's an increase for COVID reserving as well. So perhaps ex FAS it's even less. Last year it was $800,000,000 Obviously, we have a hardening rate environment and I'd be expecting you to deploy more capital into nat cat both on a gross and net basis.
So just intrigued to see any comments around the P and C Re growth outlook into 2021 because it doesn't look like you're expecting to grow that much. Thank you.
James, so maybe on the second question, I can encourage you this afternoon to maybe repeat the question to Moses who can give you a little more color. What I can say is 2 things. 1, we do expect a strong growth into a hardening market place and we will find the opportunities, I think, to deploy capital in the P and C Re as we go forward and exactly how much of that we're successful at will be included in the January 1 renewal numbers, which will be the 1, 1, 2021 SST number. But we will not constrain that growth if we think it's value creating for the group. We'll manage the peak risk also with the continued success of the ACP team to be able to find partners to accept some of that.
I think on your first question on the sensitivities, the yes, I mean the financial market activities as well as potential large liability events do have a significant influence in the SST. It's one of the reasons why frankly we've struggled a little bit with point estimate we've got out there as a target of 220 when you correctly identify that the things can bounce us around up and down. And so over the period, I think as we've included a good chunk of our potential dividend in 2021 as we've included the in SST the COVID losses that we expect to come through next year? Have we included material growth in risk, which is, by the way, not necessarily the same as growth in premiums in some of these lines and CorSo in particular, but also reinsurance where we think we're getting excess revenues for the risk taken. We're pretty comfortable and never say never about fluctuations.
But we've said in the Q3 where there was still a lot of volatility, we managed to stay above 220, not that that's a limit for us, but that's just a fact. And if for some reasons we're dropping below 220, it's no cause for alarm. Over time, we wanted to come back towards that target. But the reality is we're thinking about this as a bit of a range with 20 as a target part of that range.
Thank you, James. We have Vinit Malhotra from Mediobanca. Hi, Vinit. Go ahead.
Yes. Good morning. Thank you very
much. Just so one for Christian, one for John. One is the the first one, Krishna, is the you mentioned about the pandemic exclusions, which will kind of draw a line or just cut off at this. This never happens next year. I'm just curious how much is the pushback you're expecting or you think will be important from government, from other stakeholders?
I mean, can we really just say, hey, on 1st January, we'll wake up and no more losses, we close our eyes and we just be allowed to live like that? So I'm just curious, a little more theoretical question, but I would appreciate any thoughts on that. 2nd question is for John. Just on the ACP, slide 26, 27. Thanks for sharing all that.
I mean, I'm just curious, you did mention the benefits of market knowledge, but they seem to be coming at a cost. So when I see Slide 27 and I see a comment that your actions are helping increasing permanency of third party capital. I mean how does Phase 3, the whole reinsurance operation view these activities? I mean you're literally helping the competition. I know you're not the only people, but I think it's just I'm curious to understand if there was any debate in the company on ACP versus reinsurance and how this actually is net positive
for the group? Thank you.
So, Witte, let me obviously take the first one, right? So it would be totally against the principles of insurability if you were forced to insure a burning house, right? The risk has already materialized. So I have not seen any person in the whole market suggesting we should ensure a risk that is already here. So I think there's total agreement in principle that this has to be excluded.
And obviously, our clients do the same at the front, right, because they had not foreseen this to be a key risk. They know this is something that shouldn't be in their portfolio. The timing is not exactly the same. They obviously move they can move quicker, but maybe they're not finished by oneone. But I don't see any pushback on that.
The pushback is usually around the exact wording and what it means and do you start to exclude other things with it, etcetera, etcetera, etcetera. So that's then the challenge in the detail. But I think from a principles perspective, there's no disagreement, no pushback. And obviously, maybe Moses can also give us a glimpse on the front maybe in the Q and A session this afternoon.
And then on the ACP slide, thanks for the question, because apparently I wasn't clear in my own description of what we're trying to explain here. In this light blue box, we're not talking about the market. We're talking about Swiss Re Group's ambitions. And so the idea of increasing the permanency of capital says in addition to the levers that we have today, the sidecar, which works very well for us and for the investors, the cat bonds, which we had very little trouble placing at rates which work for us and support the reinsurance team's business, right? So none of this has been done at a loss for us.
We're looking for options ourselves for Swiss Re Group to have some more permanent capital structure in place. And we don't have that today, but we think supporting Swiss Re's business with something that is more permanent with a potential additional set of investors would be in our interest. And so what we mean here is not that we're helping our competition. We look to invest and build capabilities inside Swiss Re.
Thank you, Vinit. We have Michel Haidt from Commerzbank. Michel, go ahead.
Thank you very much. Good afternoon. Two questions. First, on the combined ratio below 96% target for next year. You appear to be very happy with that and you achieved a return on equity of 16%.
But just to be clear, as the low interest rate environment progresses, is a combined ratio of, say, 96% you say below, but let's say 96%, is that sufficient? Or should it not go down further to a level of, I don't know, 92% or something like that? That's my first question. 2nd question on Ellipse Life. You sounded like Ellipse Life is currently or does currently go through a kind of a restructuring, maybe that's 2 halves of a word, repositioning.
What exactly did go wrong, if anything did go wrong? And what do you exactly do?
So on the combined ratio, I think you're probably referring to Slide 11 that Christian used where we said the 96% with the current investment return is plus or minus 16%. Our view is, and you'll hear from Moses, that trying to predict next year's normalized ratio today before we finalize the oneone renewals is a little challenging. But everything we see in the market says that we should be able to get to a point where 90 6% is achievable. I'd encourage you to note that and I can say that as a CFO, not the head of the unit, that both for ReAssure and for Corporate Solutions, we say less than or equal to the expected numbers. And so if we find ourselves in a situation where the market rates actually allow us to come in better, that will be great and we'll update you on in February.
But for now, as Christian said, what we see in the market allows us to be fairly comfortable that we're on target to get to or below a 96%. And yes, if interest rates continue to remain low for longer, the kind of positive momentum we've had in reinsurance combined ratio over the last 3 years, we would expect to continue. What we do see is in the primary market, especially for the commercial rates, which make up the bulk of our reinsurance activities outside of nat cat, a continued very strong price improvement. And the fact that the primary companies, including CorSo, are able to capture that means that their ability to afford reinsurance at price levels, which will improve reinsurance's combined ratio should continue beyond this oneone renewal. So we're optimistic for the near term.
We're also frankly optimistic for the midterm. It won't last forever, but the momentum continues to be very strong.
Maybe I'll just add to that. Don't forget that in GAAP, premiums is earned over 2 years, two and a half years or so. So that means the combined ratio that's going to be booked in GAAP next year is half of that comes from the business we have already written this year and only half comes from the business that we'll write next year. So that gives a bit of a time delay of recognition. But I think it's fair to say what I said is, if interest rates remain as low and you have a gradual lowering of the ROI of 1 point, you need to get 2.5 points to compensate for that.
And I think the environment I'm seeing is definitely possible. It's a high likelihood. So, Elix Life, I think there's 2 elements there. 1 is low interest rates creates stress in particularly in Switzerland with some products. So there's a bit of a restructuring happening there.
But the other one which is very big is that it was part of a growth push. So within Life Capital both IftyQ and Luxe Life were in a high growth trajectory, which means you had some profitable operations, but then you start in different countries, other operations. As we did the strategic review and you compare the 2, we can see that IptiQ has a higher strategic importance because the scalability is much higher. In Elix Life, you can scale, but it's more scaling with number of people you have and the broker contacts you have, etcetera, etcetera. So we felt there's a different the difference going forward.
TQ is really at the center of the strategy, something we need to develop very quickly. In Elip's life, we think that it's more important to instead of continue to invest and have this very high combined rate, it's better to focus on the profitability, have less growth, less scale and then deal with this Swiss problem. So I think it's a combination of these two things and that's what's going to happen within the CorSo umbrella. Hopefully, that explains a bit.
Thank you, Mittel. We have Thomas Fossard from HSBC. Go ahead, Thomas.
First one would be on the pricing outlook. I think that in the past you mentioned that 6% pricing was equals to 0 on an economic profit basis. So I was more interested to understand what was your thinking regarding the upcoming renewals and if you were shooting for something above 6% at the original level. And also connected to that, I think that clearly, you're the market leader with Munich Re at the present time. And so you've got the real capacity to lead the market, the 2 of you, to get your reinsurance capacity being repriced to adequate level.
And maybe this year is the one time opportunity to get that. So can I ask where 3 is going to put the cursor in between, I would say, pricing and growth? Is it going to be a mixture of both? Or are you going to shoot for more pricing than growth? Just better to understand how the market is likely to shed up in the next 6 to 9 months.
And the second question would be really for Guido. On the 2.4% earning yield, can you give us a bit also of a view of how we should think about the attrition of these running yields? You still have a lot of cash assets, probably yielding negative rates at the present time. So should we expect you as your for your peers something which is around 15 to 20 bps attritional attrition per annum? Or is it going to be bigger in the short term?
Any guidance would be interesting. Thank you.
Okay. Thomas, thanks for the question. I'll take the first one and a half question, I guess. So obviously, I wish it was true, right? I wish we could just say what the price should be and then the market will follow.
I just remind you that after 2017, where we had very big natural catastrophes, we pushed very hard, but we were alone and we were not able to have any influence in the market. So I think you could on a positive way for the market, you could say competition is working extremely well. But certainly, I think that will be an illusion to think that we can just steer the market as we like, right? There was just too much appetite, too much capital inflowing after 'seventeen. And so the question is, is it different this time?
Yes or no. But this has certainly made us cautious. I'm also cautious in just listening to competition, you can see a marked difference between the corporate solutions market where you hear everybody saying we're going to cut, it's not profitable, new management, we change everything, etcetera. So and there's a massive price increase, a massive hardening happening and reinsurance where the tone seems to be we see massive opportunity, we want to grow. That's what I'm hearing from the rest.
And if that's what I'm hearing from the market, it doesn't make me as bullish as I am on Corporate Solutions. But I hope reason will prevail. The group wants reinsurance to push profitability. So there's no particular push on growth. There's a lot of focus on profitability.
I think still work to do on casualty. We think that we're going to see good rate increases on the nat cat side, which obviously we have to hedge a lot of. So I'm positive mildly positive about where we're going to go, but we're going to go in with caution. And we're certainly going to be pushing having a focus on margins. And by the way, just to correct, right, you said you're right, right, 6% increase, 0% economic increase, but in terms of combined ratio, some of it goes through the combined ratio, right, 4 points.
The ones that are related to discounting, they go through combined ratio. So we had improvements in the combined ratio and we certainly expect further improvements in combined ratio. I think it's highly likely.
Okay. Maybe, Thomas, a very good question on the running yield. Thank you very much. Running yield is a very particular KPI, and that's why also I announced early on that we move to something which is closer to our peers in 2021. We will call it incurring investment yield, which again should give a better guidance because it adds additional asset classes.
For example, real estate is a good example, but also some of the dividend which we got out of equity. That's probably a much better, I guess, cockpit to anticipate what this kind of recurring with a relatively high likelihood. Now if I look at the current running yield, and again, that's kind of 3.3 percent version, which will be adjusted so that we can move closer to what our peers kind of present under this recurring piece. It was mainly impacted by 2 things this year. 1 was lower yield.
Again, we dropped 120 basis points in the 10 year and that, of course, has an impact on the denominator. It was a big one if you calculate this times the duration. Then we have portfolio action, which was another piece, which again led to a reduction in the so called running yield. But of course, the result was a much better kind of quality. And I think a portfolio which is much more fit for even turmoil and more volatile time.
Now how does it look going forward? I showed you where our unrealized gain is and that I still believe is probably one of the biggest kind of safety piece, which makes us less vulnerable than most of our peers. And for that piece, which is big, as you have seen, from a duration point of view, 44% in the 10 plus year and then another probably close to 20% in the 5 plus year. That means the bulk is out 5 year plus. I don't need to reinvest.
And with that, then somehow immune in respect of the current yield environment. Now the rest, of course, yes, we need to reinvest. Now the good thing is we have 21 percent in cash and I don't have to tell you cash doesn't earn a lot of money. We avoid the negative currency. Again, Swiss Re is mainly a U.
S. Dollar company There we don't have negative yield, but it's low. But as soon as I deploy that piece, even if it's high quality investment grade, short term, I can add considerable additional spread income. That's why in our case, because we have so much optionality in the book, it's very hard to say what the kind of the threat is of yields which staying very low. If you look at the markets, they have much more kind of deployed capital in financial market, a less kind of allocation to cash.
That means they face much more the current reinvestment risk, which of course is lower than it used to be. We are different. And that's why if rates are staying as they are and not further drop, I think we will have a completely different track on the recurring investment income compared to our peers. That's why I feel comfortable that the action which we have taken then should allow us to really serve through very choppy market because it's highest quality of the portfolio. I have cash allocation, which, of course, we will deploy.
And you heard Christian, but also you heard John now is here for this creates a lot of optionality. Financial market risk right now is a very low shortfall capital user Again, it's in the area of 24%. And if we add credit risk on the insurance side, we are close to 31%. This is clearly below market. And I think that's a great option.
And again, we have the option to deploy that capital in an area where we earn a bit more than just kind of 0 interest rate. This will be a big mitigation against that low yield environment. Thank you.
Thank you, Thomas. James from Citigroup. Please go ahead.
Hi. Thanks for taking my follow-up. First question, just on the COVID losses. Thank you for that update. Just keen to know whether there's any impact from the Australian adverse judgment on the test case, whether you can quantify that for us whether you feel you've completed anything in your reserving?
Secondly, the sustainability side of things, which was interesting and thank you for the insight into what you're doing on the underwriting side in terms of limiting some of your exposure to oil and gas.
I'm just interested to know how you actually integrate sustainability more holistically into your underwriting
processes when it comes to actually allocating capital to the potential areas that may not fit within that framework. How do you think about your premium that's exposed in that area and particularly in vulnerable areas over the medium term? Thank you.
So maybe I'll take the question on the Australian ruling. As we mentioned before, visavis the lockdown as the triggering event for most of the what we believe are covered business interruption losses on properties portfolios. We did book considerable positions in the 2nd quarter. You see that these remained as of Q3, largely IBNRs, and that included some losses that we expected would migrate up from Australia. The specific ruling, I think, I'd say was probably a little more negative than the industry might have thought.
I think it's uncertain exactly what it means for the industry more broadly. There's some other test cases which will come. And so we'll wait and see. What I can say is that there's we saw no reason to immediately jump to a change of view of what our exposures and ultimate losses might be. We'll continue to evaluate this.
And as we get a better sense of what this means for some of our specific clients and our specific shares, we might or might not adjust it. But right now, in the IBNR, there is a piece that's related to Australia as well as a piece related to the U. K, where we saw exposures already in the second quarter and exactly whether those assumptions remain valid, we'll see over time and probably update on Q4.
Yes. I'll take the second question. It is really interesting and extremely timely what you asked because on the underwriting side, I think we started more than 10 years ago with some exclusions, 15 years ago maybe exclusions. We went to exclude the very delicate industries also like tar sands, etcetera. And then last year we started with a main industry oil and gas which is one we support overall but trying to find out how we can encourage, let's say, those who put the least attention to these topics to become more like some of the others.
But you're right, we need something much more holistic. On the asset side, we are referring to ESG scores, which are by no means perfect, but at least they give you a sense and a unified way of measuring it. Ultimately, us on the underwriting side, we'll have to find a way to measure the footprint, right, the carbon footprint, for example, or the ESG footprint of all of our clients and think about ways in a holistic way and then measure how much or what's basically the carbon footprint of the sum of our clients we have and how much we support them to have quantitative measures so that we can start to measure it down, right, this footprint of these clients we have. And actually we have started to develop these measures. We're going to use them internally next year.
It's going to be part of the objectives also set by the Comm Committee for the executive team and it's broken down and it's very timely. But we haven't disclosed the details and obviously still some of these methods are still in flux. So I guess like everybody else we're trying to find ways to make it as rational as possible.
Thank you, James. Emanuele Muzio from Morgan Stanley. Go ahead, Emanuele.
Hello. Hi. Thanks for taking my question. It is a big question on rates. So this year, prices have gone up across many lines of business and momentum seems to continue into 2021.
So my question is, there are some players in reinsurance that are focusing on a very limited number of lines of business, not really monoline, but very limited focus. Do you think that as a growing number of these players may decide to enter center line of business, this might slow down rate improvements? For example, let's say a startup in the casualty space with the crane balance sheet is not exposed to some of the legacy issues, for example, reserving DAPS that are one of the components in the current actually in prices. Do you think that this could be something leading to a slowdown in pricing improvement or maybe a deterioration again in certain amount of business?
Yes. Maybe I'll take that, right? I think every time a market hardened, you had new players come in. I think that's a natural process. Actually in some of the past, it was much, much bigger.
Now of course, as in this environment, you see some players come in, but their overall capital is relatively small compared to the overall industry. So even if they have €1,000,000,000 or 2 of capital, it's relatively small. So it's going to be more it's going to be it's not going to be positive. I agree, right? Obviously, every time capacity comes in, it's not.
But I don't think it's going to compensate for the gap. So if you take on the reinsurance side, I think for any client of ours to certainly try to switch to smaller place, it's totally impossible, right? If you think how much has been placed over the last 50 years with some of the major players. So I think it's going to be used for leverage and negotiation or something like that, but it's not going to be a major factor. And I think in the corporate space, the issues in the past loss have been so large that I think all really all the major players are extremely disciplined right now.
And I don't think that the entrance of 1 or 2 smaller plays is going to change that significantly. So I'd say, yes, it's certainly not helpful, but it's not at a scale or size that I think is going to derail the momentum.
Maybe, Ben, if I could just add to that. We've the CorSo team has been tracking very closely various lines of business, including the lines that they've exited. And what I can say is where you might see some new people or new entrants say they're going to focus on excess surplus lines or umbrella casualty or other parts of the liability portfolio, CorSo is out of those lines. And soon after CorSo made that decision, a series of other important players in the market have also decided to either scale back materially or completely exit these positions. And so what you're seeing, I think, is as much some backfill of capacity to replace a greater amount that's been taken out rather than a net new capacity when you look at what's happened.
So again, I credit Andreas and the team for moving aggressively and moving early compared to lots of people in this space. But you continue to read about reports of people that are basically coming to the conclusion that even current rates for some of these liability lines are challenging and will be exiting if they've not already exited. So that's the dynamic on that side. I think on the reinsurance side, yes, there's going to be some people trying to be opportunistic, but that's especially what Christian was saying. Their relative size is not going to influence, I don't think pricing that Swiss Re Group sees it might influence what some of the other small players who normally take a 2% share might look at.
Thank you, Manuela. We'll take one last question from Ian Pierce, Credit Suisse. Go ahead, Ian.
Hi. Thanks for taking my questions. Just two quite quick ones hopefully. On the liquidity buffer at Group, I'm just wondering what the normal level of liquidity you'd aim to hold at group would be. So what sort of the €4,100,000,000 how much of that is an excess buffer would sort of be implied in that number?
And then also on the liquidity, you seem relatively optimistic on the outlook for investment markets. I'm just wondering why that liquidity hasn't been deployed into investments as yet and when we can expect that to be deployed into better returning assets?
So I'll leave the second one. To Guido on the first one, we don't necessarily have a target liquidity for at group level. What I can say is the overall liquidity position of the group is not just for the what we're holding at the group level, but also in the various subsidiaries is probably a little higher than we've had in recent years. And it doesn't mean that I'm necessarily focused on moving this down, but I'd say that there's no view that says we need to grow the liquidity that we currently have at the group level. So that's the a little bit of guidance I can give you there.
I think over time, we expect the businesses to return on a post COVID world to strong earnings, return the dividend capacity and a normal flow of funds up the ladder. And in that context, we'll see where we can deploy it.
Okay. Thank you. Ian, on your second question, it's a fair challenge. With this more constructive outlook, why we haven't yet moved? I have to say this more constructive outlook clearly is not born 3 months ago.
It was born after the U. S. Election. But clearly also since you have some very positive news on the vaccine development. I think these were kind of the right trigger moments to become more constructive.
The policy, both fiscal monetary, that whatever we hear, it's confirmation, this will continue. Know it's a political discussion on some of the emergency program, but ultimately, everyone expect this holds up, which gives the perfect base to find the right entrance point. We started to deploy the capital. As you know, we have a dynamic kind of hedging program on the balance sheet. The good thing is on the equity side, I mentioned this also at the last call, we have a lot of upside.
That means we mainly worked with option. That means we could profit from the rally. Now the CHF 21,000,000,000 cash, it's no doubt this is too big with this outlook and we used at the right moment to further deploy the capital. Thank you.
Thank you, Guido, Christian and John. Thank you for all the questions. This ends our morning session and we'll reconvene in an hour. Thank you, everyone. Good afternoon, and welcome to the second half of our Investor Day.
Without much delay, I would like to welcome Thierry Leger, our Chief Underwriting Officer, who will kick us off this afternoon.
Thank you, Thomas. Welcome back, everyone. Good afternoon, ladies and gentlemen. As Christian, John and Guido have laid out in the first session, the insurance and reinsurance industry are living very difficult times. After years of net cat, property and casualty losses, COVID-nineteen and the very low interest rate environment has made the situation even worse.
On this background, Swiss Re has decided to take very decisive action to increase its margin and adjust its portfolio. As a result of that, we expect this portfolio to withstand future volatility much better than in the past and deliver attractive returns to our shareholders. This slide shows the environment in which we are in currently really well in my view. You can see the gray shaded area, which is the capital inflow into the reinsurance industry over the last 20, 30 years. You can also see the dark shaded part, which is the alternative capital that actually flew into the reinsurance industry on top of the growth in the traditional area.
As a result, the offer side has been outstripping the demand side. And you can see at the example of the yellow line that the prices, for example, in Nat Cat, but across all lines of business, have been reducing since 2012. They have seen we have seen slight increases over the last 1 to 2 years that, of course, is nowhere enough to compensate for the reductions in the years before. And all of this happened on the background of very active Nat Cat seasons with huge losses, but also in man made losses. It couldn't stop the influx of capital.
And on top of it, as I mentioned already, we can see the decline in interest rates for now almost 30 years from 7% in 1994 to below 1% in 2020. And you can see that the reduction in interest rates between 'eighteen and 'twenty has been almost vertical on this slide. So a very difficult environment, almost toxic cocktail for the insurance and reinsurance industry. But out of this difficult situation, there are as well opportunities for us, and I will come back to that in a few minutes. Let me start with a few actions that we have taken.
Interest rates, obviously, is a concern to the insurance industry. In our costing, you know that we have the economic value management as our costing and steering metric at Swiss Re. In that costing, we discount future cash flows at risk free rates. This means that with every costing, we take into account the actual interest rate environment. By doing so, we actually force the sales channel to sell the product at a higher price to compensate for that lower discount rate.
On the GAAP side, you can see the impact this has. If in 2018, we required 40% of U. S. GAAP earnings to come from underwriting income, that underwriting technical underwriting contribution in 2020 has to be 60% just to compensate for the reduction in interest rates. That means that 50% price increases has been required just for that 50% increase in contribution has been required just to compensate for the reduction in interest rates.
So you can see that, therefore, some of the price increases we have seen lately has been required just to compensate for this. So this is why price increases are now happening across the industry and why also Swiss Re is pushing very hard. COVID-nineteen, as I said, made the whole situation even worse. The particularity about COVID-nineteen was that it impacted the industry simultaneously globally and across all lines of business. It has led to huge losses, and it's not over yet.
COVID-nineteen is still ongoing. Swiss Re estimates that the COVID crisis will cost the industry USD 50,000,000,000 to USD 80,000,000,000 This number is a gross number. Obviously, there are some positive elements as well, for example, in the motor insurance from COVID, but this is a gross number. €50,000,000,000 to €80,000,000,000 would make it one of the largest events ever in the insurance industry. Christian mentioned the impact this does have across all lines of business and how this actually comes through the different layers in insurance and reinsurance.
First, it reminded everyone in P and C to review their wording. It was it became very clear and the court's decisions show it to us every week that there have been weaknesses in the way the primary insurers have defined their covers. And as these covers now roll up into the reinsurance programs, particularly on the accumulation programs, the cat net programs, we see that we also have some learnings from this event. And there are, beyond the exclusion of infectious diseases, other clarifications that need to be done. And we are obviously in discussion with our clients to discuss those and close those.
On the
Life and Health side, the pandemic has always been part of our models. It has always been part of what we expect to happen from time to time. So the impact there was more that we had to differentiate between the health impact of COVID-nineteen and the economic impact of COVID-nineteen. And I will let you know later what actions we have taken in those areas. I mentioned opportunities coming out of this very challenging situation.
You can see here the Global Resilience Index as published by the Swiss Re Institute. And you can see that the macro index has been reducing between 2,008 2020 from 63 to 50. This shows that the resilience in our societies has reduced. This shows that the resilience of governments, societies, companies, people has reduced. And it has impacted obviously also the insurance companies, our clients.
We can see therefore an increase in demand to cover, for example, for their earnings volatility. We can see demand increasing for balance sheet protection or capital protection. And we can see demands to optimize their portfolio mix, for example. So three areas where we see an increased demand. And we think that with our superior capital base, our client relationships, but also with our underwriting and our solutions, we are extremely well placed to help our clients through these difficult times, which would allow us to grow our portfolio at profitable terms.
We have taken further focused areas, and I would like to mention 4 of the most impactful ones. This is our an overview of our portfolio. CEC has developed a strategic target liability portfolio steering. In this, we split our overall portfolio into 45 different portfolios. We developed a forward looking view for each of these portfolios.
These forward looking views are developed on the back of many different data points, the economy, the competition around the client, the quality of underwriting of the client and so on. We then classify those different areas into portfolios we want to grow, those we want to shrink and those where we need to improve the margins. And you can see the impact this had over the last 18 months. So the chart to the right shows how the portfolio has been moving over the last 18 months. So you can see that we have been growing the blue bubbles that were supposed to grow.
You can see that we have been shrinking the portfolios that we wanted to shrink strategically, and you can see that we have improved the margins on those portfolios that needed an improvement in margin. So this strategic target liability portfolio management for us, we feel, is a real differentiator and should lead to outperformance in the long term. The second significant action we have taken is on the Nat Cat side. Nat Cat is our most profitable and most important line of business for many decades already. It's a line of business we understand extremely well.
We have our own proprietary models. We model 180 perils. And we have demonstrated that over 5, 10, 15, 20 years, the expected to or the actual to expected loss actually is excellent. So actual equals expected. So we have
a lot of
confidence in our Nat Cat models and underwriting. Despite that, we have observed over the last years that in the space of secondary perils, particularly those that are driven by climate change, there has been an increased loss activity as laid out on this slide. You must imagine that every loss represents another data point in our model. And each time it will influence the model, sometimes to the better, sometimes to the worse, sometimes the changes can be bigger, sometimes smaller. So it's a very normal standard procedure of the losses that we review our models.
In this case, the changes were a bit larger, and we have updated our models in Australia, Japan and California for wildfires, for example. They're already in production and have been already used in the renewals. So we remain very confident in our models also talking about climate change. The 3rd area of action we took was in the space of U. S.
Casualty. Obviously, on the back of some difficult years with heavy loss load, we have been investigating the space to understand the root causes of that development. And we found out that the combination of large corporate risk exposure and social inflation was one to watch. Indeed, we think that with the rise of plaintiff bars, we can see more and more money, funding, moving into the area of plaintiff bars. We can see the new techniques and strategy they are utilizing.
And we can see that they are going particularly after the deep top pockets of the large corporate risks. And we find this combination a very difficult one. So have decided to take very drastic actions. Accordingly, in CorSo, we have reduced our exposure to U. S.
General liability to 0 in 2020 already. On the reinsurance side, we will, by next year, reduce our exposure to large corporate risks by 50%. The other 50% will remain with some key clients of ours that are leading players in the U. S. Casualty space that we continue to support, but also on some treaties where beside the LCR risks, we get actually a significant proportion of non LCR risks.
I feel very positive about our portfolios that we will be left with in 2021 and think that's a portfolio we can build on and certainly also steer through the uncertainties ahead. On top of it, we obviously, particularly in the space of U. S. Casualty, have increased prices. And you can see that we have been able in July this year to decrease the commission level on our reinsurance treaties by around 5 percentage points.
Considering that the reinsurance commission is around 25%, 30%, a 5% reduction is obviously very significant. Overall, we have seen at the July renewals an 11% nominal rate increase across all of casualty and 20% for U. S. Liability. So you can see that the actions of resizing and redirecting our U.
S. Casualty portfolio together with strong rate actions will position us very favorably in the years to come. Let me switch to Life and Health. I haven't said much about Life and Health, but obviously strongly impacted by COVID-two. We have strong confidence in our Life and Health underwriting.
We think we have a very, very strong global team in life and health. We have a very large in force book. We have an excellent understanding of our in force book and how we can extract value from this in force book. On the new business, however, we have to react to what Christian called a burning house to the ongoing COVID crisis, and we have adjusted and we still ensure people, consumers out there and we still ensure people, consumers out there that need protection. On the impact, more economic impact on COVID-nineteen on Life and Health, it is very clear that the line of business such as disability has experienced historically loss peaks after economic crisis.
So this is certainly not the time to increase our capital allocated to this line of business. To the contrary, if there are possibilities, we will reduce our exposure to this line of business in the 1 to 2 years to come. But overall, we remain very confident in our Life and Health underwriting also during these very difficult times. Whilst we have a very strong focus on the here and now and the improvement of our portfolio overall, but also on adjusting the portfolio to the new realities that there are, we keep an eye on the future and on the long term. And there are really three things that are top on our mind.
One is improving the underwriting process. We see today that there is technology around that is helping us to process underwriting in a different way. It enables us to enhance the underwriting process with data and analytics in the way it hasn't been able before. So it really leads to some sort of a machine enhanced underwriter, if you want, and putting the underwriter in a much better position to underwrite risks in going forward, so make better decisions and faster. The second thing we are doing, we continue to invest in our strategic target liability portfolio steering capabilities.
I told you that there is a lot of data flowing into this steering tool, and we are convinced that more is possible. More is possible, there is more data around and there are better ways even to use all that data to lead to even better forward looking views for the portfolios. But also we need to put all these portfolios in context to each other to make sure that these individual forward looking use also make sense as a whole. So there is lots of efforts and investments done in that space. The 3rd area I wanted to mention is contracts.
Contracts actually are our products, and we are looking at ways how we can improve, but again here with technology today available, how we can improve our contracts management end to end. We think there is a way to actually improve that quite dramatically, improve the quality, but also the efficiency of those processes and ultimately leads to a position where we will have much better understanding insights into our wording. This will enable us to become even more proactive than we are today in addressing emerging issues around our products. So very exciting outlook into what I call the future of underwriting at Swiss Re and something we feel very strongly about and will help us to differentiate in going forward. In conclusion, just these two graphs.
On the left, you can see our underwriting portfolio in 2017 at the bottom of the soft market. You can see that about half of our portfolios were not earning its cost of capital, and the other half obviously was above that line. That was in 2017. Next year, the portfolio will have shifted to the right side. So we can see that with the exception of just 1 or 2 smaller portfolios, all the other portfolios would have moved above cost of capital.
And you can also see that the average profitability of the portfolio to the right, the one we will be in next year, is significantly higher than the return we had in 2017. So this makes me feel very optimistic about the portfolio that we will have built by next year. It's a portfolio again that will help us to withstand future volatility in a much stronger way than before. It's a portfolio that will deliver higher margins to our shareholders. And it's a portfolio that positions us extremely well to help our clients through these difficult times, which in turn will enable us to grow our business further at very profitable terms.
Moses, please.
Thank you very much, Thierry.
Good afternoon, everyone. And following on with what Thierry said, from a reinsurance standpoint, our focus clearly is on increasing the earnings power of the reinsurance business, Leveraging the assets that Christian showed on his chart, so you'll see it recall on a number of the charts, our global scale and presence, the diversification that we have as an organization, the knowledge that we bring and of course, the strong franchise value that the organization itself has. You are familiar with the fact that we have 3 pillars in our strategy, solutions, transactions and core, where we see room for us to be able to drive this sort of differentiation that we feel the franchise Swiss Re deserves in the marketplace. In solutions, since we showed you this framework over the last year, more clients have come to us seeking to partner with us in the areas of solutions. So we feel very strongly that this is an area that will continue to penetrate and will represent a greater proportion of the income that comes from the reinsurance business.
In the transaction space, demand is fairly stable and diversified. So we see large and small transactions and we also see transactions across the entire world as well. And in the core of our business over the midterm, we expect that this is a business that will continue to grow, in line with expectations of growth for GDP. We see opportunities specifically in the regional and national space and I'll come back to that particular point in a little bit. But I think it's sort of good to reflect on the portfolio we've been able to build and the performance of the portfolio over the last 4 years.
The charts here that I show you are driven by are presented on economic terms and you can clearly see that we've grown the premiums by almost 40% over this 4 year period. And that growth is done in a fairly diversified way across lines of business, across client segments, and you also see that across geographies as well. From an economic profit standpoint, you also see clearly that we've grown the economic profit, which is super important. And as I think as John mentioned to you earlier today, that allows us to still be able to pay dividends even in times where you have significant natural catastrophes or losses as we experienced during this period of time, if you also include something like COVID in 2020 as well. So the economic profit has systematically grown as a function of some of the elements that I will talk to you a little bit later in terms of the portfolios where a number of this growth is coming from.
But it gives us a great amount of confidence to continue to cultivate this portfolio, look for opportunities to continue to grow it and even areas that have detracted or deviated from the main, which is mostly nat cat and things like COVID, over the long term, we are hopeful that they will revert back to the main and the earnings that you see in economic terms will translate also to U. S. GAAP. We're able to grow the business as a function of one of the key assets we talked about, which is a client franchise that we've built and which we continue to develop. As of today, we have just over 2,300 active clients and not all of them are the same.
They require different modes of service depending on their needs, depending on the complexity of the underlying business. And we also ensure that we shape ourselves in a way that allows us to be able to serve this customer set. Those customers and depending on which line of business that they prosecute also in terms of how we access them in the life and health business. Almost all of that business is done on a direct basis because most of the customers in the life and health business also require considerable services and solutions, which means that it's far better if you interact on a direct basis rather than if it's intermediated. In every instance, we always go with the preference of the client rather than having a preference on our own in terms of the model that we prosecute, we go with the preference of the client.
On the P and C side, you can see that that's almost half and half with half of the clients dealing with us direct and the other half intermediating through brokers. And given the scale of our P and C business, if half of it is going through brokers, it also clearly means that the partnerships that we construct with brokers is super important for us as a company. And you can see that in terms of how the brokers also look at us. If you look at the right hand side of the chart, which looks at MMG, they do client satisfaction service for the industry overall for P&C as well as for life and health. And you can see that the brokers rank us number 1.
That's on P&C, they don't rank on life and health. And then the other two bars are what we call target market and total market. And target market simply are the set of clients that we serve. Those clients in both life and health and P and C, they rank Swiss Re also as number 1. The total market encompasses the target clients that we serve, but also the broader set of markets, including clients that we do not serve.
And here in P and C, you see that we are ranked number 1 and in life and health, we are ranked number 2. So overall, from a client satisfaction standpoint, Swiss Re is ranked fairly highly. There are some areas that our clients are critical of us and we continue to work in those areas to ensure that we continue to build this franchise. One area that we've also spent a considerable amount of time, Christian sort of alluded to this in his presentation, is in making sure that we are more competitive. So you can see over this 5 year period for both Life and Health and P and C, we've moved away from being an outlier in terms of total costs from a U.
S. GAAP standpoint and total cost in this case is operating expenses plus acquisition costs to being more in line with our peers, which makes us far more competitive. And we've done that by making sure that we allocate resources to areas that are going to grow, by also ensuring that for our clients, we provide the right service to the right clients. So not the same exact set of services to everybody and those the services that we provide are aligned completely with also the economic returns that we expect to generate from a particular client. In addition to the various efficiency initiatives that we undertake as well, Christian mentioned the whole productivity metric that we pursue every single year.
But in addition to that, we deploy technology, as well as ensuring that the footprints that we have around the world, we optimize that working together with our colleagues in the group operations space. I also thought it was important to talk about the diversification benefit that we generate in terms of from our capital as well looking at the scale of business that we write, which comes in very handy from a competitive standpoint when you're writing certain peak risk like nat cat as well as mortality. But the overall message is we are far more competitive and we've worked hard at that and clearly we'll continue to do exactly the same moving forward. I'll turn my attention for me to solutions. And in solutions, as I mentioned, the demand continues to grow.
Where today we have roughly 40% of our clients who use 1 or more solutions that we provide and it generates over $300,000,000 of economic profit to us, more than double what it was just 4 years ago and our expectation is that this will continue to grow. And we develop solutions across the entire value chain from product development all the way to in force management. And I give a few examples on product development as an example. If we take the year 2019, we co created, co developed with our clients over 200 products, which generated over $5,000,000,000 in premiums to these clients, which is material and we will continue to do that. This is where the knowledge and the data that we have puts us in a good place to be able to partner our clients because all of them are looking for different products to be able to try and increase their growth rates and also to try and improve profitability as well.
And in the area of improving profitability when it comes to both underwriting as well as efficiency, we have underwriting platforms that we have built. You've always heard us talk about Magnum and I just put some data and statistics around Magnum. Again, taking 2019 over 13,000,000 applications processed in Magnum and the straight through processing metric for that improved by almost 100%. So meaning we're processing faster, less intervention, which from the client standpoint improves their profitability, but also improves their efficiency as well. And the equivalent for Magnum in our P and C business is Suite 3 for single risk business, so not treaties, but for single risk, where our clients want to place certain pieces of business with us, they use our SwiftFree platform.
And here, the average time for processing application in Swift 3 is now 5 minutes, which ordinarily before they would have had to make a call or send an email, takes lots of time. And you can then see the reduced timing on the writing is over 90%. So there are series of solutions that we're developing to try to enable our clients again, help their profitability, help improve efficiency, but also target the areas of growth that they're trying to pursue. I won't spend too much time on this because you've just seen the chart from Thierry, the target liability portfolio, which is a framework we use to steer where we want to place capital, where we want to grow, where we want to receive. So I'll focus much more on the chart on the right hand side because it looks at the main portfolios that we have or the lines of business in reinsurance and what we expect to do going into 2021.
And you can see across most lines of business with the exception of a few, the ones with the exception of a few, we expect pricing to go up. But the fact that pricing goes up on the line of business is not sufficient or the only determinant factor that says we then expect to increase exposure. We take pricing with a host of other factors, combine them and ultimately decide whether that's a portfolio we should be growing or whether that's a portfolio we should be reducing. The sole focus we have is trying to improve margin and make sure that at the end of the year we have a portfolio that has a far greater pricing adequacy or rate adequacy than the one we started the year out with. And given the profile that we've set up, we feel relatively confident going into next year that we should have a much better portfolio constructed than the one that we're sitting on today.
So I'll probably now delve into certain areas in P and C. And the focus on P&C is to try and demonstrate that over time, we've been able to grow the economic earnings power of the P and C franchise in a fairly strong way as you would see in terms of the data that we should end. Even though we've done that, we see opportunities to still be able to grow the portfolio and areas where there have been a detraction or deviation from the expected, we're also addressing those areas. The first is on nat cat, which Thierry also touched on. This relates to the reinsurance portfolio and you can see how nicely we've been able to grow the premiums and also the capital that we've dedicated to the Nat Cat business.
Clearly, the growth that we've embarked on since 2017, which was the bottom of the cycle, you remember the chart again that was in Terry's slide around the pricing adequacy for nat cat globally or the index rather for nat cat globally, you can see the shift in 2017. That's when we began to grow the portfolio. And you will also see from the bottom half of the left hand chart that we've grown the portfolio mostly in areas where the price adjusted the price index on an adjusted basis has increased the most. And since 2014, as a result of that, the expected U. S.
GAAP earnings from the Nat Cat portfolio has grown by over $400,000,000 So quite a significant way in terms of staring the portfolio, picking the right area we want to be and doing that mainly driven by margins. And the next area which we tend not to talk a lot about is our specialty portfolio. But this is a really solid portfolio that has been grown in a very disciplined way. Since 2017, with rate increases, you also see material growth in the specialty portfolio. And you also see over the period of time since we've been measuring for the specialty portfolio, which is 2014, the amount of profits that's generated on a U.
S. GAAP basis, the average over the period since 2014 is over $300,000,000 and this is on an actual basis. So not adjusted in any way or not on the basis of expected, but on actual basis. And this is despite the fact that during this period, you had clearly lots of significant events throughout the entire year, but the portfolio delivered for us on average significant profits. And since 2017, when we increased our participation in this space, the amount of economic profits we expect to generate from this portfolio has also grown at almost 10% per year.
We're able to do this because we've got a fantastic team around the entire world of professionals who use extensively innovation and technology to ensure that they're coming up with new products to aid our customers, but also to ensure that they're using innovation and technology to assess exposure very well. Those teams are local, so they have a good sense of what's happening in the local environment and know which clients and which risk they should be on and which clients or which risk they should not be on. We remain optimistic that this is an area that will continue to grow. But as the TLP framework also shows you, we don't just try to grow every single thing. We take a view on a line by line basis.
Certain lines are clearly attractive, while you look at a credit insurity going into 2021, that's an area that we do not see as an area we should be deploying more capital at this particular time of the cycle. And I come to regionals and nationals, which I mentioned in the strategic framework, which again from our perspective, we see as an attractive client segment that we have grown between 2017 and now. But if you look at the distinguishment between our global clients and our regional and national clients, we clearly have a higher market share with our global clients. And in our view, this gives us opportunity and potential for growth with the R and N segment where we see our portfolio as quite profitable and also less volatile. To grow in the regional international space, it will require us to partner with brokers who have penetration in this particular space to be able to access a number of clients that today we do not access.
We see opportunity for growth across the entire globe, which is represented by the chart in the middle, where in the midterm, we expect this line of this segment to grow in line with our GDP overall. Clearly, part of what also enables us to grow in R and N is the fact that over time we have become more competitive as a company because this is a segment where the ticket size is smaller. So you have to be able to process this in a much more efficient way and your cost base also has to be in line with that with the goal of being able to deliver a price point that customers in this segment find attractive. But it's an area that we clearly see as having opportunity for us to grow at really, really good margins. And I come to this slide, which looks at the performance of the P and C business over a longer period split almost into 2 segments, which is the 2 periods, the chart on the left hand side.
Looking at sort of like the long term normalized combined ratio for the P and C business versus the actual. And when we look at the actual and the expected and the deviation, it's driven in recent times by 2 main things. One is the performance of the nat cat portfolio and the other is U. S. Liability.
In the nat cap portfolio, I think if you look over the entire period of time, the 2 dark blue bars over the entire period of time. So that tells you that our performance over the entire period of time is not far from what we expected, mostly in line with what we expected. And when we look at the recent period, which is since 2017, in reality, the performance of our Nat Cat portfolio is largely in line with that of our competitors. So it's not out of line. So I think it's important when we look at Nat Cat to look over the cycle.
Now having said that, clearly a number of lessons that we've learned. And in the areas that we've learned lessons, we are making adjustments to our model as Thierry mentioned, adjustments to the assumptions that we make and sort of like the guidelines to ensure that the performance of Nat Cat is in line with exactly what we expect. The order which is U. S. Casualty with the chart, the light blue, you see in the earlier parts of the period significant reserve releases in more recent time driven by the loss trends, which were clearly worse than what we expected.
We clearly were not able to offset the worse than expected loss trends in U. S. Casualty from other parts of the portfolio, which is why in the latter part you see a little bit of reserve strengthening. And we've tried to address that through a combination of factors. Thierry mentioned some of them, which is what we do in terms of reduction of exposure in areas that we feel we cannot generate these other returns that we should be generating.
But also in the other parts of the portfolio, increasing significantly the reserves that sit there and also shifting some of the initial loss peaks higher to give us far greater confidence about the performance of that part of the portfolio. So it's something that we feel we are addressing very strongly and comprehensively. I'll now shift to life and health, which has delivered solid returns for us Since we did the fix in 2014, the ROE that's been delivered by Life and Health, our portfolio is in the target range that we've indicated between 10% 12%. And that's by generating good new business, but also actively managing the in force portfolio as well. And talking about the new business, again here you see in terms of growth of the life and health business, economic premiums more than 50% growth since 2017, but also in terms of the economic profits that we expect from the business over $1,000,000,000 each year with the ROE, as I mentioned, at over at the top end of the range, so over 12%.
And we expect that we will continue to see opportunities to grow our life and health business. We do that carefully, especially in an environment where interest rates are lower. But even with the lower interest rates, I think it creates challenges for a number of our clients, which by its very nature spells opportunity for us and we will walk alongside them and ensure that we're able to support them and at the same time find a way to try and grow our own portfolio. It's similar to the other areas we look at each element of life and health, certain risk pools are far more attractive than others. And in certain risk pools where we've seen significant growth, if I take critical illness as an example, and we now have good market share, We move to an environment where we focus on trying to move away from hard guarantees to soft guarantees and make a number of other adjustments.
It's why we place the portfolio in the enhanced category in our steering framework. The growth, as I mentioned, if you sort of like look at the in force sorry, the new business as well as in force, the profile since 2012, material change in that profile. The first element you see is the quantum of economic profits that were generated in 2012 versus 2020, much more than 50% growth in the absolute number. And then the second is the composition of the economic profits that we generate, where before it was dominated by North America. Now you see greater balance around the entire world.
And you also see greater contribution coming out of health as well as longevity compared to 8 years ago. This element from a new business standpoint clearly has an impact on the in force portfolio as well. So you now see a situation where Asia represents 16% of the In force portfolio in 2012 that number would have been close to 5%. And the same thing for EMEA. So Americas no longer dominates the portfolio overall.
And when it comes to the U. S, that means the pre-two thousand and four element of the portfolio, which was over 50% of the in force business in 2012 is now less than 20%. And we expect that that number will continue to fall And by 2023, the drag that we experienced from the pre-two thousand and four on our U. S. GAAP earnings will also significantly reduce.
In the Infos business, we actively manage. We make sure that the motivation for managing that and doing transactions, so in the form of recaptures is an alignment of interest between the clients and us. And from the client standpoint, their motivations are generally because they're trying to rebalance their portfolio, they are trying to manage their balance sheet or looking at different ways of earnings recognition. And from our perspective, we look at how we generate economic value out of this recaptures. And if we look at the last 2 years, roughly look starting from Q4 of 2018, we have allowed clients to recapture roughly $1,300,000,000 of liabilities.
This is still a small, very small percentage of our in force liabilities, but those recaptures generated roughly $150,000,000 for us on the U. S. GAAP from a U. S. GAAP standpoint.
And the bottom half part of the chart just shows you two examples of this recaptures and you can see clearly the motivation of the clients and us, while sometimes they're slightly different, there's benefits for both organizations in the recaptures, which is why we allow those recaptures and we'll continue to do so. It's just a healthy part of ensuring that we manage the in force, which is generally very stable. And the left hand side of this chart puts some numbers behind the concept that Thierry showed in his own slide, where you can see for 2020 the earnings that we expect from our business, looking at it from a EVM standpoint and looking at the commensurate U. S. GAAP impact when you look at both components and then trying to translate that to the emergence of the earnings in U.
S. GAAP overall. And over time, our clear expectation is that the economic profits that we generate on an EVM basis will slowly sort of like confluence with the earnings that we declare on a U. S. GAAP basis.
And the chart shows you exactly why that's the case in terms of the profile of U. S. GAAP earnings. And when you look at U. S.
GAAP earnings, the in force business and overlaying each year, the new business that you write on an economic value basis. So over time, our clear expectation is that the growth that we have seen in economic profits in the life and health business that will begin to emerge and show through in U. S. GAAP, especially when the new business sort of replaces sort of like a low less performing or non performing prior business in the in force business. So this leads us to we try very hard not to sort of like give any sort of forward looking statements, but we give you a sense of assumptions that we make and those assumptions what they lead to or what they will become for us.
And on the P and C from a P and C standpoint, we expect to continue the downward decline of our combined ratio. Christian already mentioned this, so he stole my thunder or I guess the press release stole my thunder on this one. So at the end of the day, we would expect combined ratio in the P and C business to be 96% or below. In February, we'll give you the exact number for 'ninety for 2021 because then we will have gone through renewals for oneone. We get a good sense of the business mix of the portfolio and then we can give a more specific number.
But for now, we are comfortable saying that that number will be 96 or below for P and C. So continue the exact trend that we have been on the last 5 years. From a life and health standpoint, we stay absolutely committed to the 10% to 12% ROE in terms of the expectation for the business. For 2021 2022, we expect that the ROE will probably be towards the lower end of the range. But it's important when I talk about the lower end of the range to also match the ROE up with the shareholders' equity.
The shareholders' equity that we see for the business at this particular point is now over $8,000,000,000 driven by unrealized gains and driven by the interest rate environment that we happen to be in. As we have the crossover of the pre-two thousand and four business in 2023 and the drag, the earnings drag reduces, we expect the ROE to move more towards the upper end of that range. So I sort of conclude with a few things. 1, reiterating the targets that we have put out before, so the 10% to 12% for life and health and 10% to 15% for P and C over the cycle, but also introducing the 96% or below combined ratio targets in 2021 for the P and C business. But fundamentally, we focus on differentiation in the three pillars for the reinsurance business.
That is a strategy. It has worked well for us, and we believe very strongly that it will continue to work for us moving forward. We think the business environment is very constructive for us to deploy more capital. So we would expect to grow our business in 2021. And especially in the nat cat space and as I mentioned in R and N, we see good opportunity to be able to penetrate since we're underweight in that segment, also addressing areas that have created deviations in the past in U.
S. Casualty. We're clearly taking action in this space. And Life and Health, which has produced which has had a solid track record, we expect that to continue to be the case, continue to generate really good new business, which we expect to translate to the earnings that we see in U. S.
GAAP and also making sure that we actively manage the in force portfolio. From a solution standpoint, the demand that our clients show tells us that this will continue to be the main area that drives differentiation for us and will increase economic power for the reinsurance business. So overall, we continue to focus very strongly on increasing the earnings power of reinsurance business. We will do that through improving margins and focusing on profitability and making sure that we have the right portfolio mix overall. So that's the story for reinsurance.
And now I'll hand over to my colleague Andreas on CorSo.
Thank you very much. Thank you, Moses. Yes, last but not least, CorSo. CorSo has come a long way, had made strong progress addressing not only the shortcomings from within the business, but also at the same time starting to implement a strategy for the future. And I think this is something that is very dear to our heart.
We said right from the outset that we're not only addressing the fix it part of the business, creating the foundations for the growth. We at the same time said we're going to look at the customer needs, we're going to look at customer pain points and also at industry inefficiencies. So now is the moment really to address it, as Christian already said and a lot of people prior to my presentation now. We make good strides, positive strides, but I'm well aware of the old saying, one swallow does not make a summer. Perseverance, hard work, disciplined implementation and have a clear conviction.
This all came together and you could have seen it already. Q1 showed very small already positive trends that it was more pronounced in Q2 and Q3, and we're very confident that we're moving on and making a very positive stride towards the end of the year. Now I want you to take away 3 things today. Number 1, corporate solutions is core to the Swiss Re Group strategy. Number 2, we are operating in a scaled, attractive commercial insurance market.
And number 3, I'd like to talk you through the update on the turnaround story of CorSo. But let me build on what Christian said before. As CorSo is an integral part of the Swiss Re Group strategy, the profitable growth ambition of the Swiss Re Group, We can very clearly repeat again that we're very well on track with our turnaround story to achieve the 98% or better. That's the new announcement basically. And this we will do because we will have access to and we've got a strategic engagement with corporates and this differentiates us to other groups, reinsurance groups, but also in the combination also of the overall corporate market.
More and more, we will be basing our strategy on refined and forward looking data and technology infrastructure and supported by capabilities and new capabilities in the underwriting. Thierry was talking about the future of underwriting. CorSo is a very good example and we can come to this a bit later. All in all, this will lead to us being much more customer focused, better diversified and more cycle resilient as a company in this market. I referenced the scale of the market.
We are working in billion market when we talk about the commercial insurance space and the Swiss Re Institute has projected a growth in this market and they are predicting a +1.2 billion dollars market in the next decade, although very fragmented. But this is just too big to be ignored from our perspective. If you look at the addressable market for Corporate Solutions, then it's divided 30%, 70%, 30% is really in the space, the large corporate bespoke midcorp space. And remember, we have separated our Chief Underwriting Officer and a bespoke Chief Underwriting Officer. That's the space that the bespoke Chief Underwriting Officer is operating in.
And we're not ignoring the other part of the market here. We're operating with much more specialized targeted standard propositions, also very much through partnerships, distribution partnerships and also in particular through joint ventures. Bradesco in Brazil is one very good example where we get access to this midcorp and SME market with very clear, very broad branch networks from Bradesco. This expansion into the 70% will obviously diversify our portfolio much better and will bring us also to a lower average expense ratio in our overall portfolio. Now if we look at the access to the customer value, we've done an exercise to really identify who really the corporates the target market really is.
We identified 40,000 corporates. Those are groups. Obviously, they've got affiliates and branch offices and subsidiaries. That numbers exponentially would go up. But if you look at corporates, we're talking about $40,000,000 They represent US230 $1,000,000,000 of gross written premium.
And the good news is, 11,000 of those 40,000 already are in force businesses for us. Now if you look at this 11,000 and then you can imagine there's substantial growth potential, penetration potential in this customer universe. If you look at our gross premium written, then it's subdivided in 2 camps basically, 55% is large corporates and the rest is midsized and others. Amongst the large corporates, and that's the good news, 35% is really where we have a very strong almost direct relationship, at least a tripart relationship with brokers, but very often also a direct relationship. And those direct relationships are very profitable.
If you look at 123 key account managed accounts, those are the most high touch accounts where we bring distinct value propositions to the customer. Over the cycle, they have outperformed very strongly even in the soft market cycle. So it's a very sticky business, very profitable business, and this will lead obviously to us being a specialized risk partner for those corporates with good close relationship and that obviously provides also the entry point into the Swiss Re Group for IptiQ and other parts, for instance, P and C solutions that we have mentioned already. Now let me talk to the turnaround story. We have already said that we will focus on technical excellence and this will set the foundation to pursue future opportunities, opportunities we mean by growth, profitable growth opportunities.
Now let me start with Exel with the basics. This is what we call our fix it program. We were revisiting the portfolio. We were strengthening the underwriting discipline. We were looking at a stronger operational excellence and productivity.
And this altogether, in turn, provided opportunities to capture market growth within what we labeled our decommoditized core business, meaning businesses or lines of businesses or segments where we knew we were strong, where we had assets that we could bring to the party. Secondly, we would grow with our differentiated primary lead propositions. And lastly, we are very aware of the fact that more and more beyond risk transfer, the service part of business is playing a role. And here, we're advancing also the business model and this obviously underlying with much more technical and data infrastructure and the capabilities that I just mentioned. Now let me talk about Excel, the basics.
And here, this is something that we have mentioned a few times. The implementation of our management actions that we started in 2019 are already ahead of plan. And this is what I call the walk to the underwriting profitability. We are starting with 110% normalized combined ratio in 2018. We had to increase our initial loss picks.
We have spoken about it, and this added another 8 percentage points on our combined ratio. We then looked at the pruning of the portfolio. We were addressing earmarking €900,000,000 of gross written premium that were not strategically core to us, where we were underperforming, where we had structural cost disadvantages or where we believed the market per se will not turn into profitability. We have mentioned U. S.
Casualty as one element, but that wasn't the only one. We also had addressed marine cargo, general aviation and in those event cancellation, we have mentioned it in the context of COVID. This was a very brave move, but it paid off. Here, we can say now with conviction that towards the end of the year, we will have accomplished 85% of it. The rest will obviously come a bit later.
And also due to the earning patterns in U. S. GAAP, you will obviously see it over time. And this is the good news here. A very, very strong part, a substantial part driver for the combined ratio improvement was the rate increases.
Here you could see 12% positive effect on our combined ratio. We have seen 3% rate increases in 2018. And then suddenly already in 2019, we could generate 12% across all portfolios, all lines of businesses. Year to date, we stand at 15%, and we're very, very confident that this is going to continue, not only due to low interest rate environments, but the market and all participants in the market show that upward trend. 2% net expense savings, they were offset obviously by increased reinsurance protection, and then we had a positive impact by lower than expected man made claims activities.
And this factors here for 4 percentage points in our combined ratio. So all in all, this led us to the 98% combined ratio on a normalized basis, obviously excluding COVID for 9 months in 2020. If you now add the man made losses on a normalized basis, we would have been then at 102%. And this is definitely significantly better than the communicated 105% combined ratio towards the end of 2020. That's why we are very comfortable and confident that we will achieve our target.
Now we have spoken about the outlook and we have listened to the Q and As before. People are saying, okay, what does that then mean to your target? We set out 98% for 2021. We nevertheless see impacts still coming our way that makes us a bit more prudent. We see that the main made claims activities, that's at least what we expect, will come back to normal.
That's one aspect. Secondly, the economic downturn due to the pandemic will have an impact on our credit insurity book. This is also a factor that we have to take into consideration. Thirdly, we are investing into business. We are investing into growth and I'll talk about a few areas a bit later.
Those investments are initial costs, the ramp up costs, and they go against a contracted net premium earned base because of the pruning of the portfolio. So it is revenue generating. It's a positive growth, but this is also investments that we have to factor in and additional reinsurance protection also mentioned. One aspect that is not mentioned here and you have asked it in your Q and As is the Ellipse Life portfolio. This is not factored in the numbers here yet, but for 2021, it's included into our business.
So if you take all of these aspects together, we feel comfortable to be at a 98% or better. That's what we lay out for the 2021 outlook. The good news is that when we decided the pruning, we were obviously the intent was really to rebalance our portfolio. On the one hand, on the geographical side and on the other hand, on the product split. So if you look at the geographical side, you see definitely a decrease in the North American share from 50 4 percent to 48%.
North America share is mainly U. S. Canada is one very profitable market and we're very happy with our position there. It's growing. But U.
S, obviously, we had to do some derisking in particular on the U. S. Casualty side. You see that EMEA grew from 22% to 26% in the mix. This is intended growth and that was exactly the rebalancing of the portfolio that we wanted to see And we continue to grow in this market and we'll see it also with the rate increases that are very pronounced in EMEA in particular and also in the property line of business.
Just a word on Latin America. Latin America is going down here. Latin America started a bit later with the turnaround program. And the rate increases that you see in Latin America are not as pronounced as in other markets. So there is a time lag here.
So only now you see really the rate increases coming through also in Latin America. So we expect Latin America to be much stronger going forward and it's a market that we have a great interest in. Now on the product split, you see very clearly we're growing where we want to grow, 30% to 40% increase in the share of our portfolio in property. And remember, in property, we have included the event cancellation. So all the pruning is already factored in.
So 40% of the total share in property is very healthy. That's what we like. We also look at other lines of businesses like credit and surety where we see then that the cycle management is working. So we already noticed in 2019 that we were in a downward cycle. In Q3 2019, we started to reduce the exposures and the capacity in credit and surety.
And now this is a line of business that we're watching very closely, in particular in context of the economic downturn. But also, we will definitely see a moment when we're ready to benefit from the growth in this market. We're very strong and the teams are waiting and managing the cycle management very well here. So this is the portfolio side. On the right hand side, on the top, you see that the gross written premium that we lost is not significant because it was counterbalanced by the price increases.
So that's the good news here. So price increases we factored in, but not to the extent that we could actually get it through in the market. And on the lower right, you see that on the net exposure, we have been very prudent. We're protecting our balance sheet here by reducing our net share of the risk. And here, you can see to what degree.
So overall, we feel that we're very well positioned in this market. Our capital allocation is going in the right direction in the right portfolios, and this is the positive news. Now how can we ensure that we're not falling into the commodity trap again of a future software cycle and address the unprofitability in this market. It's on the left hand side, the technical excellence and on the right hand side, it's the cost element. So both parts of the combined ratio we're addressing.
Costing accuracy, reserving accuracy, profitability, those elements are key. Remember, Thierry already mentioned it, technical excellence. And here you can see it live in action. At CorSo, we have a systematic steering and performance management framework called CorSo Smart Circle. And this here is really addressing closing the loop all elements, addressing the costing and the underwriting, addressing the claims and the reserving side.
And most importantly, on a quarterly basis, we look at all the trends and we look at costing gaps. And as soon as we identify them, it goes into the costing tools, into the underwriting behavior and then we get we close the loop again. And this is a continuous circle so that we avoid that we're falling into that commoditized gap trap again in this market. Now I have to say this is all based on state of the art data modeling. We have created the analytical data model for the CorSo portfolio.
This is a single version of truth, leveraging the group with the Stargate program. And this is a treasury data lake that we use with very clear analytics that give us decision informed decision making on data. On the right hand side, you can see that we have strengthened our cost discipline in the company. We have addressed the organizational structure. We delay at the organization.
We looked at the footprint, and we looked at improving our underwriting processes to increase the productivity. We're using state of the art infrastructure and we're also looking at the operating model. As I mentioned before, we've got the Chief Underwriting Officer standard. And there's the area where we look at the small tickets, the small average premiums per policy are going through the small standard automated or semi automated way of underwriting. The expense ratio has improved by 2%, and this is a very good sign.
I'm not hiding that we want to improve it further. We need to improve it. In particular, as we have heard, underwriting margin is key in a low interest rate environment. So you will see more efforts. And this is a continuous expense management exercise.
It's not a cost cutting, it's an expense management exercise where we want to improve. CHF 120,000,000 or more than CHF 120,000,000 gross savings we've achieved. Obviously, we also have then used some of it to reinvest into our business. We were talking about rate increases and hardening of markets. And here you can see how the situation looked like at CorSo.
You see the compound price quality increase and we also laid out the separately the property increase. This is a very, very interesting one. You can see that in the CorSo portfolio, we have a much more pronounced rate increase in comparison to some of our peers because we are very much operating in the large corporate end of the market where the rate increases were much more severe or steeper than in other markets. We still believe that there will be upward pressure on rates that will continue. And we see this not only through loss inflation, but also the low yield environment, as we said, and also in total, the whole COVID market environment is supporting this rate upward pressure.
We're using this for opportunity to grow too. We have now agreed on a business case and we're implementing it as we speak to grow in property. Yes, so we received so many submissions, asked for capacity and good quality capacity that we couldn't work on it anymore. So we're hiring more than 30 people just in EMEA to address this growth opportunity. Now is the opportunity.
Now is the window that's open, and we're capturing this growth, and we're very well positioned to do so and increase our technical margin. Primary lead initiatives and proposition, you have heard many times in many years this. This is something that started quite early already. And here you can see that we started from an access and follow business and the 20% lead business we started with in 2014 have increased to 45%, and we see it increasing in our plans to more than 50% going forward. This is an area, the sweet spot we feel comfortable with.
And here on the right hand side, you can see 3 initiatives that are part of our growth initiative. Let me single out the middle one, the captive solutions, because in particular with the hardening of the market, the customers are looking for capacity. They can't fill their capacity gaps anymore. And the rate increases increased their budget capabilities internally. So what are they doing?
They're obviously looking at alternative risk financing instruments. Captive solutions is a very strong instrument, high in demand at the moment and this is not geographically focused in one area. This is a global phenomenon. We are extremely well positioned with our innovative risk solutions team. We have added to the team.
We have invested into a captive solutions team. And what the customers want, they want obviously the structuring capability of a partner like Swiss Rec Group Solutions. But at the same time, they need the infrastructure for fronting. So that's why we also can make use of our fronting capabilities of our infrastructure and of our technical platform that is state of the art. So fronting and captive solutions goes together and this forms the international programs.
So on the top, you see international programs and the traditional form, but in particular now in this market environment, particularly for captives. That's quite important to note. And now in order to balance the portfolio to take the volatility out and also to reduce the expense base, we have the standard proposition. So those three elements we're focusing on and will put us in a position not only to excel now with the decommoditized core, but also in the future capture market opportunity. Innovation.
Innovation in particular is pronounced in the area where we talk about initiatives beyond risk transfer. The international program platform I have mentioned already. This is something that we collaborate very closely with reinsurance. So our reinsurance colleagues, as part of solutions, can offer it to their Siemens customer base. We have brokers who use it and we've got a very strong pipeline of customers who really would like to have this fee based business.
This is very important because we're addressing an industry inefficiency. We had very clumsy frictional processes, costs in the process and this is something we can address and it has the potential to be one of the standards in the market to administer international programs. At the lower end, that's a very exciting innovative part. We are forward integrating into our customer base the corporates and we're teaming up with corporates and integrating into their products here with Hitachi in particular. We have announced it.
We're fully integrating and integrating into their software maintenance program that they offer to their end customers to machinery machine manufacturers, OEMs. The interesting part here is that we are not working on historic underwriting data to do our underwriting. Here, we're using sensor based real time information and offer protection to those to Hitachi so that this is an integral part of their software program. It's not a stand alone insurance program as we know it traditionally. Now all of that is leading to our position in the Swiss Re Group.
We're using our long standing years of relationships with those customers and opening them up to the Swiss Re Group. Here you have three examples where we could open up 13 years of Microsoft relationships on the primary corporate insurance side and open them up for the B2B proposition with IptiQ and others. Daimler, we have with IptiQ that has been announced a joint venture. And Verily, that's an Alphabet company. We're working on the A and H space where the P and I was supporting us on the investment side.
So this is more and more becoming an integral part, an important part of our group. We have created one specific unit. It's a corporate partnership unit. The corporate partnership unit is reporting to me, but not necessarily as a CEO for Corporate Solutions, but as a member of the Group Executive Committee because this is the entity that navigates the customer through Swiss Re and vice versa. It helps Swiss Re to be much more effective in capturing those opportunities in the markets.
In summary, we're becoming a specialized risk partner with deep capabilities in selective lines of businesses and segments. We're confirming our target 98% or better as we said. This is the new part. And we're very confident that we're adding value also to the group. Thank you very much.
And I think we're going to the Q and A now.
Thank you, Terry. Thank you, Moses. Thank you, Andreas. Like in the morning, we'll just wait a few seconds for the lines to open. So again, if you could restrict yourself to 2 questions.
And we have the first one coming from Kamran Hussain from RBC. Kamran, please go ahead.
Hi. Good afternoon, everyone. Two questions. The first one is just around Nat Catu. I guess there's some indication that some secondary payrolls especially have increased all your expectation of losses there.
What do you think the outlook is for nat cat ratios? I know you've kind of given us a steer on the overall combined, but what's the expectation there? And the second question, maybe a longer term question. When you think about Swiss Re, I mean, you've heard about 1 Swiss Re moving people around the business, which I think makes for excellent kind of careers and kind of motivated staff within the company. But what does that do to underwriting expertise?
Do you think that kind of career paths need to change in that respect to develop kind of deeper expertise? Or is that kind of already thought through? Any kind of color on that would be really very interesting. Thank you.
Good. I'll take the first question around expectations around Nat Cat's risk, Cameron. I think from our perspective, we continue to view this risk as extremely attractive. I think as I mentioned in my session, we sort of look at the performance, look at areas where we feel we need to make adjustments. I mean, so you mentioned some of the secondary perils or the climatic perils.
So those are things that we've looked at and said, okay, we need to model them to with a greater degree of proficiency and we then make adjustments to the model, to the pricing, to the guidelines, both in terms of the cat tech sales or the aggregate contracts that we put in place. But we remain extremely comfortable with nat cat risk. We feel we are one of the foremost experts in the entire marketplace. And when we look at our A versus E, I think as Thierry mentioned, over the long term, it's point on, right? So there's nothing there that gives us a sense that we need to worry more than we should.
If anything at all, we are deploying more capacity to the nat cat space.
And if I may just build on that, in climate change, we have been observing climate change already since 10, 15 years, and we thought about the impact it could have on some of our major perils and there wasn't really much movement. So what actually was new is that we finally could observe the impact of what we think is climate change. We shouldn't overestimate, however, the climate change impact as such. There have always been many other things impacting these secondary periods. And climate change, as I tried to point out, was just one of the drivers.
And again, we can adjust our models. It's our proprietary models. We did adjust these models. And because these covers are yearly renewable, we actually can adjust very quickly for the new models that to implement them. So if you're asking about the impact on the combined ratio, we expect that to have a positive impact on the combined ratio.
On the second one, on the Carewir and I'll ask my colleagues to add if they wish. Underwriting is really the soul of Swiss Re. It's I mean Swiss Re has always been for more than 150 years a underwriting company. So it's certainly very attractive to be an underwriter at Swiss Re. It's the core business of what we are doing.
We have always been able to attract excellent talents in life and health, in P and C, in the space. Of course, we train them, we nurture them, they become experts, they become to our clients. That's the name of the game. But we continue to be attractive. We continue to invest in our underwriting expertise.
And certainly, talking of underwriting of the future, we realize that there will be different skills required in addition to the traditional underwriting skills more in the space of data analytics, for example, but also understanding technology. And as the world becomes more and more connected, technology is also more of a driver on the exposure side. So we will need people coming from those spaces much more than in the past.
Let me add to that. And the 1 Swiss Re as you mentioned and Cameron you were referring to moving people around the organization. CorSo has been benefiting from this, by the way, yes? So we are a pretty fluid organization. We have people moving from asset management now to the Chief Operating Officer.
But in the business, we have started CorSo with reinsurance colleagues primarily. Over time now, we had to revisit the situation because we had to add more talent to the mix. And what we have done, we've conducted a capability model exercise coming from who do we want to be in this market, want to be a market leader, a thought leader and first mover in the market. So we needed to identify what are the capabilities that we need also for the future, for the database and technology based solutions and find the right mix between the traditional underwriting and then the underwriting of the future claims is the same story. We had to add a lot of expertise, in particular for the claims analytical piece.
So we recognize that we are becoming also very attractive in addition to the attractiveness that we already had in the past. That's something that we saw in CorSo. We have had a tremendous intake of people. We did not only reduce the staff. Our net was a 10% reduction, but we had a lot of intakes from external.
And this mix now is a much healthier, much more resilient mix, in particular, when we talk about the challenges.
Thomas, I think the only thing I would just add is I think maybe to change the perception slightly, we have far less people that move than you seem to indicate, right? So we have a few people that move here, but in the core, in underwriting, in actuarial, in business management, in claims, these are professionals, are career people in that space. And as is the case when you have people who are ambitious, some of the population move, but in the core, most of them do not move. I just wanted to reiterate that point.
Thank you. Thank you, Kamran. Andrew Ritchie from Autonomous. Hi, Andrew. Please go ahead.
Hi, there. I wonder if you could just give us an assessment of how you feel the buffer in the casualty large corporate risk reserves have developed over the year? Or is it hard to say because I presume new loss notifications and not much loss development that occurred because obviously courts have been out of action. But maybe just give us an update, I guess, from Thierry on the status of the in force reserves on the large corporate casualty? Second question, there's reports in the trade press of Swiss Re providing capacity to a new broker facility focused on property cat.
I'm not asking you to comment on that specific facility, but in principle, why would Swiss Re give its pen to a facility when you are so focused on your own underwriting and your own value add rather than giving it to a disciplined facility?
I will take the first question, Andrew. So on the casualty reserve side, I'm afraid I will have to defer to the February reserve announcements, where we will talk about our reserves. So you will hear more then, but we remain confident in our reserves, in our processes around the reserves and in the best estimates that we establish. It's obviously an environment that is a very dynamic one. So we are observing the space very closely, but you will hear more in February.
Okay. Andrew, I'll take the second question, which will remain nameless. And here, I think 2 things, right? Why would we consider something of this sort when we do? For two reasons.
1, to access a group of customers that we don't access to today, we don't write today. So it gives us access to those customers, that's 1. The second would be also because you do something like that if you're quite clear and sure that it will not have an impact on momentum in the market due to its size, which is why we would also do it. And the 3rd, I'm sure Thierry has a point here on profitability on such things. Thierry?
Yes. So this is typically Andrew the type of business we would like to grow into. Moses mentioned it in his part, the smolder type segment, mid type segment, where we have observed good margins over the years. We had an excellent track record in the space and we have an underweight position in the market. So also from an underwriting perspective, we view it as very attractive and desirable to grow that space.
Thank you, Andrew. We have James Shuck from Citigroup. Hi, James, go ahead.
Hi. Good afternoon.
I'm going to
try with this question, but it might be a bit tricky. But if I look over the last 3 or 4 years, the reason why your profits haven't been as strong is due to abnormal nat cats, let's say. You do show a slide that shows over the longer term that the nat cats are kind of coming out where you would have modeled them to come out to. My question is really is when you look back over those losses and you think about how you use data and the predictability within those models, when
it comes to the nat cats, how much
of those nat cats are actually predictable and modelable as opposed to just random chance? And how is that percentage, if you're able to tell me, how do you think that percentage of predictability has increased over time? That's my first somewhat tricky question. Secondly, just intrigued to know about the strategic asset allocation. You haven't updated for this for many years now.
You've obviously had the disposal of ReAssure. Interested to know you had €21,000,000,000 of cash equivalents in the context of €117,000,000,000 of assets. What should we be thinking about in terms of that asset allocation, particularly with the liquidity element over time, please?
Okay. Thank you.
Maybe on the asset allocation, we can take that off line as Guy de Fuehrer was here this morning and then we can try to answer that after this meeting. But for the other question? Okay.
So James, I will start with your question around net cat. We have our proprietary model. So as I said, we have a high very high confidence into these models. We model 100 and 80 different perils. And as I said, each event is a new learning point for us.
So we are not arrogant in believing our models are telling us always the truth and the models can look 10 years out there. But our models have actually proven together with our underwriting judgment and our capability to adjust the models every year again and put them into the re underwriting of our portfolio is very fast. That combination has actually proven really valuable. You had a more precise question around how much actually is it just waiting for something to happen and then increase prices and somewhat follow the market? How much is really model driven and how much is more experience driven.
I think that on the main perils, I can say with confidence that the majority of what of our price costing is actually really coming from the models. They have a forward looking view in the models. So it's only partially what we observe every year that's going to influence obviously more so over time our models.
Yeah. Maybe the only thing to add on, I mean, on Thierry's slide you could see it, right? So if you look back and say what was it that was maybe slightly different from what we expected, it's mostly around the secondary perils. Bushfires in California or Australia flooding and elements like you have multiple events, an Olympic bin built in Japan with a Nat Cat, which means that there's social inflation on costs as well. So some of these things are probably 1 or 2 of the learnings when you sort of look back.
But I think Thierry's comment on the models being accurate is something that I completely agree with you.
Thank you, James. We have Vikram Gandhi from Societe Generale. Vikram, please go ahead.
Hello. Good afternoon, everybody. Just one question from me. Looking at Slide 62, I'm looking at how the expected nat cat budget versus expected premium has developed and it I think the numbers imply that the expected loss ratio has improved from 57% in 2018 to 42% in 2020, if that's a right way to look at it. So that's about 15% risk adjusted price improvement.
So the question I really have is, given that you are at 42% or about 70% to 73% on the combined, which doesn't certainly look like a skinny margin at all, how much room for improvement is left from here on? And how much push can you give towards the interest rate erosion since I think MatCap business is also quite less sensitive to interest movement because of its duration? So that's my only question. Thank you.
Okay. I'll start and Thierry will say a few other things about this. I mean, so I don't think it's the right way to look at it by just simply taking the expected nat cat budget into the expected nat cat premium and say that's the loss ratio that you expect because this is across there are different ways in which we also look at that. So that's one. The second is in terms your second question around the expectation for price movements in the market, if indeed it's already at very attractive levels.
I think all you have to do is go back to I don't know which slide it is on Thierry's deck, which shows the nat cat index overall. I think that's the first slide that Thierry used, which was Slide 41. And I think you look between 2011 2016 and see the rapid decline in pricing in the marketplace. So you don't get to 100% or 110% and say you stop because we know we run through cycles. And those cycles, the down cycles also tend to be relatively long.
So when there's a pricing across the entire portfolio, you move to try and move the price to a point that gives you rate adequacy and try and build an element of some margin so that when prices begin to come down, you have some rooms. It's not every single year that you have to make the adjustment. Thierry?
Yes. There's not much I can eat actually. I can add, Moses, to what you said. I fully agree with that. I mean, historically, and if I say historically, I'm talking of the last 15 years, we had periods with far higher price levels or price adequacy levels than we have today.
So I believe there is, in theory, a lot of room upwards. And it is actually very much a question of demand and offers. So it's going to depend, in my view, on how quickly the offer on the capital side is going to go into the reinsurance business. Right now, as you can see on the same slide, Page 41, we have seen some stabilization of the capital in the reinsurance space, which indicates some hesitation. And my personal view is that COVID-nineteen will probably prolong that for a little, maybe my hope rather than my belief, will prolong this for a while just given the uncertainty it creates.
Thank you, Vikram. We have Vinit Malhotra from Mediobanca. Vinit, go ahead.
Yes. Good afternoon. And so I'll take 2 follow-up, please. I'm just on the Slide 62 again, if you don't mind. I mean, I'm just trying to understand how much of this is Swissy's own book and how much is the ACP business here in the 3,300,000,000 and maybe that explains some of the gap in the loss ratio we just talked about.
So if you could just comment a bit more on how much is your own and how much is ATP? That's the first question. 2nd question is for Andreas. We talk about international programs and a few many years ago maybe I was at another large commercial insurance company we invested in. We heard about how international programs are linked to trade and how later on that became an issue.
I mean, trade these days may or may not be very strong. How are you comfortable in the economic uncertainty to push the international programs? Or maybe the answer is that the large corporates seem to be faring better. So but I'd be glad to hear
your thoughts Andreas. Thank you very much.
So to your first question, Vinit, I think Thierry and I are standing here looking at John whether wondering whether we disclose how much of that is ACP. John is in the audience shaking his head saying, no, we don't, which is what we thought the answer would be. We do not disclose that unfortunately, Vinit.
Okay. So on the second question, international program and how does the current economic environment impact sort of the future of international programs or whether it's just large corporates that are asking for it. We see international programs actually growing not only with large corporates in the context of captives, we also see growing now in the mid market space. And you don't have to look at it from a global expansion perspective, but also regional expensing perspective. So you see European programs, you see programs slightly going beyond Europe in the mid market space.
So we're very comfortable. It's an area where you don't have a lot of competition. It's probably maybe maximum a handful who can do this. And we think that due to the IT legacy and the clumsy processes, we are in a pole position to benefit from the future trends in this market. We can really address exactly this problem, which makes international programs potentially uneconomical if you workarounds and expenses are growing.
So I'm positive. That's what the numbers show. And you were probably referring to the supply chain topic. And that's another area where we're very much focusing on to get much more transparency in the supply chain, but that obviously is linked to the contingent business interruption business on the property side. But obviously, also in international programs, you will see it.
But per se, programs international programs are very attractive for us.
Thank you, Vinit. We have Ed Morris from JPMorgan. Ed, please go ahead.
Hi, everyone. Thank you for taking my questions. First question is on casualty. I'm just trying to understand a little bit more where you sort of see yourself in the general management of this portfolio. On the one hand, you had a slide which showed that it's really only a few portfolios in reinsurance that you think are below your economic profit threshold.
I think from one of the other slides, we can infer that one of those is large corporate risks. But just for the broader casualty portfolio, in light of the price changes that we've seen, should we now expect that portfolio to stabilize? Or will it continue to shrink from here? Just general thoughts around that would be helpful. And second question, maybe just on Life and Health.
I think there was a comment earlier in the day that the COVID pandemic is almost like a nat cat for the Life and Health business. Obviously, extremely unfortunate, but not beyond the realms of possibility. And I just wonder if you could talk a little bit about how you expect the market to react in terms of pricing on the Life and Health side. So are there would you expect there to be changes to pricing for life and health type products? And similarly, exclusions, etcetera, is there a significant change in the market likely to happen as a result of this?
Thierry, maybe I start on casualty. So Ed, I think going into certainly 2021 for us in casualty, think you could see that right on Slide 60, if you take a combination of liability and motor U. S. Casualty. So I think it's super important to focus on the U.
S. Part. You see the arrows pointing towards exposure is down. So our clear view here is with large corporate risk in 1 or 2 other areas we feel we need to reduce our share in that space because we also see that our market share is higher than what would be ideal. So we're overweight the market and we will move towards market weight in the U.
S. In other parts of the world, in Europe, in Asia, we continue to we see pockets of casualty that are attractive even in the U. S. In the RNN space and we would look to grow that. In terms of the actions that we are taking, it would also be somewhat similar to CorSo.
I mean, I think we expect the majority we started already by the way. So it's not new. It's not just a 2021 action. We started as Thierry Chad showed you from Q1 2019 and even before through 2021 and we would expect the majority of the actions to be taken in 2021 that's left. Thierry?
Not much to add, Moses. I think, Ed, that casualty is not just U. S. Casualty is also not just U. S.
General liability. So I think that we have been focused in rightsizing particularly the general liability of large corporate risks. In the other areas, there are portfolios that we just needed to adjust for price. And again, further away from the U. S, they have been pretty stable portfolios where there is not much action to be taken.
As an example, Asia, we feel very comfortable. And if at all, we would actually love to grow that portfolio there further. That's for casualty, unless, Andreas, you want to add something?
Nothing to add.
Then let me switch to Life and Health. Yes, indeed, it's COVID is a pandemic. Pandemic is, if you want, the Nat Cat event in life and health. However, it as we said, it was priced into our models already. So I think I alluded to the fact that we therefore do not expect drastic adjustments to the price, but certainly, we will push for higher prices for two reasons.
1 is because of COVID and because of the losses that we have seen. Certainly, there will be more fear in the market and therefore an opportunity to increase the prices. And there are the low interest rates, which also need to be compensated for by increasing sorry, increasing the prices.
Thank you, Ed. We have Ian Pierce from Credit Suisse. Ian, go ahead.
Hi. Thanks for taking my questions. First one is on the nat cat budget again. I'm just wondering if you talk a little bit around the sort of assumed loss cost increases in terms of the increased frequency of events, secondary perils, these sorts of things. What's assumed in terms of that growth from 2017 to 2020?
Trying to understand really the increase in severity versus the increase in exposure you've had there. And then second one on Slide 76. I might have misinterpreted this chart, but is this chart saying that you are you have clients in 1 in 3 of the large corporate risks? Because I'm just trying to understand how if you're trying to reduce commoditization within the business, having that proportion of clients in the target market and then looking to grow that number reduces commoditization rather than increases it as you're trying to do?
Okay. Now we take the Nat Cat part. So I you know, when it's actually also a good line of business because there are so many headlines created around it. And each time there is a very large loss, it surprises people, it shocks people, there are big headlines. So there's also, if you want, what we call headline risk involved here.
So our models, obviously, are completely unimpacted by this. Our experts try to look through all these emotions and really look at what actually is happening behind. And there, we can say also in secondary panels, actually, the largest movements have not been in on the exposure side. So climate change does have more of an impact on secondary barriers than it has on some of the main barriers, but that has not been the main driver for the increase in losses we have seen. So generally, the increase in losses are coming from more of the values that are actually moving to those exposed areas.
So more people moving to areas that are, for example, exposed to secondary perils that are obviously we see growing values in those areas. And then when climate change moves actually the perils upwards, it's a little bit like a tidal wave the moment it derives. And at that point in time, surprises everyone. Also a little bit our models, but we can adjust for that actually quite quickly.
Maybe on the second question, I mean, the point we're trying to make here is number 1, we are already operating in the large corporate market space. Remember, I said that we were coming from an excess and follow-up position mainly. This is a very transactional market trading relationships through brokers. What we try to say is that the market is attractive, yes, but it's even more attractive the closer you are to the risk. So here, we're saying that we the direct relationships that we have translate into an outperformance.
And in particular, when you have key account managed accounts, not everybody will be a key account managed account. But if you have those, they definitely are in the retention ratio much higher than the traditional transactional business, the excess and follow business because you're not so exchangeable so easily. And secondly, you can really determine how the risk will be managed as you are much closer to the risk. And that's the message we wanted to send here. So large corporate is an attractive market.
We have addressed the unattractive parts of the market, in particular, on the U. S. Casualty side. So that was clearly an action point that we took. And this improved the overall profitability of the U.
S. Based large corporates on the Care Care management side as well.
Thank you, Ian. We have Thomas Fossard from HSBC. Thomas, please go ahead.
Yes. Thanks for taking my questions. Two questions for Andreas on the cost side. The first thing is on the combined ratio for 2021, it looks like you're pretty comfortable with 98,000,000, but still remaining cautious for the reasons you've explained. But let me try, I mean, what would be your rational goal in terms of combined ratio, maybe on a 3 to 5 years view with how you are willing to shed the book in terms of risk?
What would be desire in terms of long term or combined ratio? Maybe that would be an easy one to answer rather than you're shooting for 2021 combined ratio target. And the second question would be, I'm just trying to better understand, as an example of your partnership, you've highlight Verily. I'm just trying to better understand what CorSo is bringing to the table in this partnership. Maybe you can shed a bit more light on this.
Thank you.
Yes. I hope I understood the second one because the line was not very good, but I'll come to it now in a second. So the combined ratio, look, I find it feels like I'm discussing with our CFO, John Dacey, who is asking exactly the same question. Now, look, we are pretty granular in our walk. When we went through the pruning, when we look at rate increases and how that's earning through on a U.
S. GAAP basis. So we know actually pretty well where we end up and we know the aspects and I've mentioned 4 of it. Now Ellipse Life is the 5th element that came to the party. So we are pretty transparent internally, but we can't neglect the uncertainty in the market.
So what we said to ourselves, look, let's see how the renewals go this year and we'll come up with the year end results. And then in February, we know more and I think you will probably be in a situation again to ask the question and maybe you get a clearer answer from me. But I think we feel very comfortable here. We don't think we're overly conservative. We want to be as realistic as possible.
Obviously, we wish to be better. That's why we said we're not sticking to the €98,000,000 We say €98,000,000 or better. So I think that should give you a clear indication that we always try to fight very hard to improve it. The second one on the partnerships, I hope I understood. Your question was probably if we can if CorSo can what CorSo can contribute
our What do you bring in the airline? What does CorSo bring to the partnerships? What does CorSo bring to
the partnerships, yes. I mean, you just have to imagine, yes, those are large corporates and usually we don't have on a day to day basis contact to them. So what CorSo does through their normal trading relationships over 13 years to provide parametric solutions to companies for instance like Microsoft, there is an established relationship with those corporates and that deepens obviously over time. And as it deepens then you understand what are the needs that those corporates have either closer to their core, for instance, like a Daimler as an OEM or Verily in new spaces where they suddenly bring in their data analytics capabilities and they look for a risk insights partnership and that's where CorSo can join. And if there's need to bring in other parts, meaning the best of Swiss Re to the party like IptiQ with their platforms on a B2B2C basis, then that's the entry point orchestrated by this corporate partnership unit.
Thank you, Thomas. We have Paris Hadjantonis from Exane BNP Paribas. Please go ahead, Paris.
Yes. Hi, from my side. I hope everyone is keeping well. Two questions. Firstly, on Life 3 and the comments around pre-two thousand and four U.
S. Business. Obviously, this is not something new. So I'm just trying to understand, are you seeing any adverse development there? Or are you just trying to remind us that this is a drag on earnings currently?
And as it goes away, you are more optimistic about the future? And then secondly, it's probably too early to ask this question, but I would go ahead anyway. So as you transition from U. S. GAAP to IFRS, how do you think about impact on reserving that?
I mean, previously, you were taking probably a more best estimate view versus some of your European peers and U. S. GAAP was always part of the explanation. Now going forward, how do you think about reserving? And I'm also trying maybe I'm thinking too much into this, but I'm trying to square the comments that Thierry had about reducing volatility.
So is changes in deserving part of the way you can't reduce volatility? Thank you.
Paris, on pre-two thousand and four, no, we're not trying to give you any of warning signals that it's getting any worse. If anything at all, it's the opposite, right? What we try to tell you is that in 2023, there is a crossover for certain parts of the portfolio, which is significant from the pre-two thousand and four. And as a result of that, the earnings drag that we see would be significantly less. So that's more the message that we try to give not that it's worse.
And on the reserving question, John, this is in the audience. He's winking at me saying you're too early with the question. But let's see whether Thierry wants to answer it.
I think we very much like the question, Paris. But if you find, we prefer to defer to later on this question.
Thank you very much. We take one last question from Ivan Bokhmat from Barclays.
Hi, good afternoon. A few questions for me, please. So first one, maybe to Moses. On the Life and Health slide, and you've indicated that you might be below 10% ROE hurdle in 2022 as well. I'm just trying to understand the drivers behind that.
Wondering if there's any carryover from COVID or the disability mention that you've made or just purely the low interest rates. The second question, it's on the P and C side. Just ahead of oneone renewals, you mentioned that there is more demand for reinsurance solutions. But thinking about your core business, we obviously know primary rates are rising. So there possibly would be slightly higher retentions at the ceded level.
And of course, the economy is not in a great shape. So I'm just wondering what's happening with the demand for the underlying business. And then maybe if I could squeeze in the final question, just about the 2021 guidance of 96 or better. Why wait until February? I think most of the book has already been written for what you're going to earn in 2021.
So maybe you could just tell us what's the range of outcomes that we could brace ourselves for? Thanks.
Okay. So, Ivana, I'll try and get through those rapidly. So on the life and health, 22% below 10%, no. I mean, I think what I said is we expect to continue to deliver between 10% 12%. I think the arrow just shows you naturally if you say 10% to 12%, here is a chance that you may be slightly below, but we expect for '21 and 'twenty two to be on the lower end of the 10% to 12%, not below 10% and from 'twenty three when the drag disappears, we expect that to go up.
On the 'twenty one, why not make a commitment now below 96? The reality, I think as Christian mentioned to you in 2021, you earn half of the business you wrote in 2020 and half of the business you wrote in 2021. In January, where we write a significant proportion of the business we write in 2021, we get a sense of the portfolio mix, which gives us a far greater sense of the accuracy of the prediction that we will need to make around what the combined ratio would look like for P and C. And since I'm a bit of a scatterbrain, I can't remember your second question. So my friend here Thierry will take it.
It was Moses. It's maybe for you still, but it was around the demand, whether clients confident in the higher prices actually would rather increase their retentions. I'll It's for you
because it's on slide 44, it's your session. Yes. Thank you.
So I think there are anecdotal evidences for clients to retain more, but the vast majority of what we're seeing is demand for more protection across the board, across the lines of business. So demand is up very clearly. And as I said, the offer is not yet at least catching up with that one. Again, added to that uncertainty of COVID and the environment it creates, I do not expect that to return too quickly.
Thank you very much Thierry, Moses and Andreas. Thank you for the questions. We'll now end the Q and A. And to close the day, we hand back to Christian Mumenthalen.
So thank you, Thomas. Thanks, everyone. I have the honor to close this Investor Day just repeating some of the key messages, which hopefully came through relatively clearly through the day. So it's about the strong balance sheet. We feel extremely comfortable with where we are with the balance sheet.
It definitely also helps us to position us for growth. As you have heard, I think we're all positive on the growth opportunities next year. But I also said that margin is more important than growth. So we think it's going to be possible to have both, but the priority will be on the margin. Consequently, I think both P and C business, we've given some targets with some slight updates today.
So P and C, we believe can be 96% combined ratio or lower, quarters of 98% or lower. I hope we're going to be able to beat that, but only there's some factors that might make it more difficult, which is why we remain cautious and we stick with these two figures here. Life and Health is going to be about growing on one hand, continue the trajectory we have, but also manage the in force, which is super important in life and health. On IPTQ, we intend to continue the strong growth trajectory, hopefully add further value to this particular business. The investment portfolio, we think, is extremely well positioned.
Hopefully, you got a sense from Guido earlier today of how we're positioned and also the flexibility and possibilities and options we have going forward since we have derisked quite substantially due to the sale of ReAssure to Pfenex. In terms of capital management parties, it remains they remain always the same. The first two are having a strong balance sheet, which clearly is the case, but also to make sure we have a stable or increasing dividend. That remains the same. And then hopefully, at least you got a little glimpse around the long term investments we're doing.
As I said this morning, I think it's important to repeat it. In times like that, there's always a risk of focusing just on the short term, and yet we think there's also some significant long term changes and long term opportunities. And so be assured that we continue to invest also in the long term. So with that, I thank you very much for your patience, for staying so long. I hope this format worked for you.
Please stay healthy and safe. And I hope that next time for the Investor Day, we'll be able to all have you here physically with us. Thank you very much.