Talanx AG

XETRA:TLX

Earnings Call Transcript 2022-Q1

[Bernd Sablowsky, executive]

Good morning, Bernd Sablowsky speaking. Good morning from Hanover. Ahead of our today's AGM and Jan, our CFO, would like to give you an update on our Q1 numbers. After the presentation, as Stuart just announced, we will be taking questions. You can raise them via the webcast or via the phone. Obviously, as always, all documents you'll find on the IR section of our web page. So Jan, over to you.

[Jan Wicke, executive]

Thank you, Bernd, and good morning, everybody. I hope you're all fine, and here in Hanover, we have together unusually good weather. So it's really a pity that we cannot meet in person. But let's start now with the summary of the first quarter.

First of all, I believe we had a very strong start in the first quarter. And why do I believe that? We are -- we can show continued strong growth. The gross written premiums up 16.5%, and this provides for future opportunities to grow earnings as well. If we adjust this fantastic growth to currencies, in local currency, it would be just 13% due to the weakening of the euro, and all segments are contributing to that growth. So we have growth across all business units.

The combined ratio stands at 98.3%. So it's below 100%. And I think it's quite a solid result, keeping in mind that we had 2 headwinds there. One headwind is related to large losses, which I will explain in more detail. So we were exceeding the large loss budget by EUR 71 million in the first quarter. And second, we have already booked for book reserves related to the Ukraine situation of EUR 150 million, which accounts for, if you look at it from a combined ratio point of view, 2 percentage points in the combined ratio.

So overall, we are able to show a net income of EUR 256 million, which equals to a return on equity of 10%, which is well in line with our ambitions for the current year and well above our strategic target, which is 800 basis points above risk-free.

From a capital point of view, Talanx is very resilient. Solvency II ratio at the year-end was 208%. I expect the solvency ratio after the first quarter also to be around 200 or slightly above 200 so still very, very stable. We can deal with the current uncertainty.

Second, we promised to you at the Capital Markets Day that we will be transparent on the resiliency, which is embedded in our best estimate reserving, and I will dig into that a little bit deeper later, but what you can see already on the first -- on the second slide is that we've increased our resiliency reserves to EUR 3 billion. So -- which gives some color also to the results which we have shown in 2021.

The outlook and our earnings guidance will remain stable, so we expect a result in between EUR 1.05 billion and EUR 1.15 billion for 2022. That would equal to a return on equity of around 10%. But I have to acknowledge that, yes, there is some higher uncertainty due to the Russian war in the Ukraine. I think everybody will tell you because we do not know what the future development of this war will bring to us, and so there's higher uncertainty compared to previous years.

If we now dig into more details with regard to the group financials, I first want to dig into the large loss development. What you can see on Page #4 is the development of large losses during the first quarter for the past 10 years. And what you can easily find out is that this first quarter with a large loss amount of EUR 458 million was the highest large loss amount which we've seen during the past 10 years, both in absolute as well as in relative terms.

If we look more into the details, what has driven this development then we have 2 events. One is the Australian floods, and the other are the storms in Europe. The Australian floods contributed EUR 235 million to this EUR 458 million and European winter storms EUR 164 million, what we have to account for during the first quarter. So 2 events which impacted us and which led in the end to EUR 71 million more large losses than budgeted. Over the full year, we expect to normalize it, but you never know. That's the nature of our business that we have to cope with this development.

If we then go to the technical results in the various business units on the next page, there, you can see, first of all, that Industry Lines, despite being affected by the Australian floods, can show a 97.1%, which is well in line to improve the combined ratio every year by 1 percentage point. Retail Germany is just 97.8%, was heavily affected by the winter storms. I will explain that later in more detail. And there's a second effect, which I want to draw your attention to, which is that we have normalized claims frequency in the other business. Last year, in the first quarter, we had a lockdown still in Germany and, therefore, quite low claims frequency, which were reflected in this fantastic combined ratio last year.

Retail International. The CEO just told me, I should highlight his figure as well, but it's quite boring. It's consistently very good, 94%, and we are very happy with the development, what we can see there.

With regard to the reinsurance, we have highlighted this 99.5%, and the colleagues from Hannover already have explained that to you. So it is roughly 3 percentage points within this combined ratio are related to a bulk reserve, which was set up for the Ukraine. And so -- and this bulk reserves affect also the Talanx Group combined ratio in total by 2 percentage points. So if you exclude the extraordinary effects, we have 2 percentage points for [indiscernible]. We have 1 percentage point for exceeding the large loss budget to give you or to draw your attention a little bit to the extraordinary effects.

On the next page, for the first time during the Q1 reporting, we show now the development of the net resiliency reserves, which are embedded in our best estimates. It's an indicator to show the strength of our balance sheet. As I have explained during the Capital Markets Day, what do we do? On the one hand, our actuaries set up the reserves for our IFRS accounting. Second, as part of our governance -- internal governance systems, we take external actuaries to provide us with a second opinion. The difference between what our own actuaries have set up as claims reserves compared to what the external actuaries have calculated is what we call resiliency embedded in our best estimates. And as you can see here, we have further strengthened our resiliency level. Talanx in total now has more than EUR 3 billion more claims -- net claims reserves compared to what Towers Watson would have calculated -- would have set up. So this provides me with a good feeling because this resiliency gives you some opportunities in those showing results at the year-end and paying dividends on the other hand. So it's -- so we are very stable, very resilient within Talanx.

If we then go to the segments. I would like to start with the Industrial Lines as usual. In Industrial Lines, we see a fantastic gross written premium development, 11%, but even better is the earned premium development. The earned premiums are up 21%. This is due to the effect that we fully consolidate the HDI Global Specialty business now and that we have a higher retention in this business. So we are very happy with this growth.

The operating result is slightly down. This is on the one hand related to the Australian floods, given that, not only is Reinsurance but also Industrial Lines is affected with EUR 50 million from that one. So we have an overshooting of the large loss budget also in this segment.

And second, we have lower return on equity. As you can recall from previous calls, we have always mentioned that the private equity returns which we have seen in 2021 were outstanding and unusually high. And now we have a normalized result from private equity here. So this also is then reflected in the net income. And if you see the net income, please keep in mind that we also did some reserving here for the Ukraine. So all in all, we are quite happy with the development of Industrial Lines.

We then go to Retail Germany, on the next page, first, to provide you with an overview. Overall, the segment is growing, 8% growth. And if you look into more details, which we can see on the next page, we start with P/C. Go to Page 10, directly, please. Then we see that in P/P, the growth is even 12%, and it's in particular driven by the growth in the small and medium-sized enterprise business, which is the strategic direction of the unit.

We are very proud on this growth because it outperforms our market peers by far. And it's also a signal from the market that we have built up trust in the segment, and we are quite happy with it. And even in the Motor business, we are growing given that we had a strong renewal season, which is now starting to monetize.

With regard to the net investment income in retail P&C, we had a slight decrease to 2.3%, which is then also reflected in the net income, but I think what is really worth mentioning here is that there are 2 effects in the P/C business in Retail Germany, which explains the development from past year's quarter to this year's quarter. One is that we have a normal raising of the claims frequency due to the fact that, in the first quarter in 2021, there was a lockdown still in Germany; and second, more than EUR 20 million, or to be exact, EUR 21.2 million was the net cut effect from the winter storms, which also affected the P&C result.

So let's go then to Retail Germany Life. In Retail Germany Life, we see gross was 6%. And given that the interest rates have increased, this is profitable growth. So we are very happy with that. And so this is a positive one.

Second, with regards to net investment income, we see a decrease -- a significant decrease, and this is due to the fact that we have provided for the Zinszusatzreserve, ZZR, in the past, enough reserves so that we do not have to fill up so much in this year. So in the last year, in the first quarter, we have more or less realized a lot of extraordinary investment income gains in order to provide for the funding of the ZZR. That's no longer needed, given the increase in the interest rate. And therefore, the net investment income is significantly down.

The operating results given that it's relatively stable here, and the good news also, which I really want to draw your attention to that with regard to the Solvency II capital adequacy ratio for German Life entities, they are standing at 291% at year-end, and I've just seen the figures for the third quarter. They are even better. So for the first quarter in this year, they are even better. We are now approaching on average 300%. So with regard to the risk of strategy in Germany Life, we are fully satisfied with the development as already mentioned.

Let's then now go to Retail International. In Retail International, we have an increase in the gross written premium of 10%, and there are 2 extraordinary effects in it. One extraordinary effect that we bought in Italy, Amissima, which contributes EUR 60 million to the premium development. The other one, I think, is really worth mentioning is the sale of the Russian Life entity, which leads to EUR 20 million deduction in the premium.

So all in all, a slightly positive effect due to M&A. And we are so happy that we sold the Russian Life entity. We did that -- we signed the contract in December last year, and we were able to close the deal and have the money on our German accounts by the 16th of February so well in time. And this is reflected here in the development.

If you go more into the details here, then you see a fantastic growth in the P/C business of Retail International, 27.8% up, which is really great currency adjusted. It's even close to 34%. So we are very happy because it direct, it matches 100% our strategy in that segment.

The operating result is rather stable. The net income is slightly down. This is mainly driven by the effect that we had a deconsolidation loss for the sale of the Russian Life entity of EUR 23 million. If you adjust for that, obviously, that would be a positive development. All in all, in this segment, whereas in other segments, we are building up resiliencies, we have to release some resiliencies given that the resiliency is embedded in this segment. They are so strong that the auditor do not like to have so much -- it's close to excess reserving and for capital efficiency purposes, we have released a little bit of reserves here.

So let's now come to Reinsurance, but I just want to give you a brief overview given that the colleagues of Hannover Re yesterday have explained it in all details. All in all, we are extremely happy with the growth in this entity, which we will provide for future earnings. We are happy with the solid result. And so all in all, it's our most valuable subsidiary

Let's now come to 3 specific topics. One is investment; second is the capital base; and third, our way on enhancing sustainability within the group. Let me start with the investment income. First of all, the ordinary investment income is growing. And within this growth, it's really worth mentioning that, for our risk management purposes, we have roughly 5.5 billion bonds -- inflation-linked bonds within our portfolio. They have contributed EUR 95 million gains during the first quarter. It's quite substantial what we see here.

And I just want to highlight that, yes, we do have them for risk management purpose. We are not betting on higher or lower inflation rate. It's just to compensate of potential negative effects, which you would see in the technical result if inflation is increasing and exceeding our own inflation expectations, which we use for calculating the premiums -- the risk premiums. Then this inflation income provide for certain -- for hedging. And maybe we can -- we have some views on the future inflation. Maybe they're even better than the [ UCB ]. But here, what is set up here in our portfolio is really for risk management purposes.

Second, I'd want to draw your attention to the extraordinary investment income, which is significantly down compared to the previous first quarter, and this is due to the already explained effect in German Life, where we didn't have to fund that set that out. And therefore, we have significant less-realized gains.

Finally, here, marked with number 3, are the assets under our own management at period end. We have an increase by 2%, and this is despite the significant increase in interest rates, which have a negative impact on the market value of our fixed income portfolio. And what you can see here is the strong, strong cash flow and growth of our group so that we are growing despite this effect, which is a positive, and which also indicates the future potential for earnings.

On the next page, you see the current structure of our investment portfolio. It's Page #16. If you could go to Page #16. Yes, thank you. So we still are mainly a fixed income investor. And within the fixed income portfolio, 95% out of it is investment grade so quite conservative approach here. We continue to be a little better liability-driven investor who predominantly wants to earn money in the insurance result and not on the capital markets.

This is also reflected on the next page in our solvency position, which stands at 208%. And I also wanted to set out the expectation that, after the first quarter, the solvency ratio should be also around 200%. Slightly above would be my personal expectation.

And on the next page, you can see the sensitivities for our Solvency II ratios with some explanation. I think the first view which you might have on this one is pretty right. We are not really exposed to specific risks. Significantly, we have a very well-diversified risk within the group, and this is really reflected also in what you can see here.

And on the next page, we see the development of the book value, and I think this is worth to be explained a little bit more into detail because we see quite a decrease in the shareholders equity or in the book value per share, 9.1% if we are including the goodwill and 10% excluding the goodwill.

And why is that? I think what you can see here is the accounting mismatch of IFRS 4, where we have to account for a large part of our asset mark-to-market. And there, we see the effect of the rising interest rate on our fixed income portfolio. This is what we see here. Whereas on the liability side, we do not have a discounting effect, which is mark-to-market. The good news is, we have to -- we are going to introduce IFRS 17 for the next year, then we do not have to explain such effects because then we have a consistent discounting on both on assets and on liabilities and, therefore, a better reflection of the development of the equity from quarter-to-quarter.

Having said that, let's go to the sustainability. Well, with regard to the sustainability, first of all, is worth mentioning that we have done things. We are not only announcing things, we have done things. We have reduced already the carbon intensity of our liquid asset portfolio by 15%. The overall target is a little bit higher, but we are well on track to achieve our targets here.

Second, with regard to sustainable investments, we had increased in the past our target from EUR 5 billion to EUR 8 billion sustainable investments. We are already at EUR 7.2 billion. So we have quite increased our investments in sustainability investment. And with regard to the indirect effects of our business, which mean on investment and underwriting, we have set out the target to be net zero by 2050.

With regard to our own operations, we were able to reduce carbon emissions by 18% during the course of the last year. We want to become net zero in the operations till 2030. And finally, we have issued, as you're all aware of -- a green bond last year in December was a very good timing that we did that, as we did prefinancing of the subordinated loan, which is expiring during the course of the summer that we did prefunding here. And the second thing, which is really worth mentioning, we have now a broader investor base that we can also reach green investors for financing the company.

With regard to the EUR 7.2 billion sustainable investments. There, you can see how they are invested. This is to provide you a little bit an overview and some more details on what we are doing there. And so having said that, I would now like to summarize a little bit what we've seen during the first quarter and where the outlook stands. Let's start with the outlook first. I think that's what you're interested most.

First of all, we expect to grow. We have not decided yet to change the growth outlook for mid-single digit, but maybe it's a little bit conservative. It could come at the high single digit as well. The net return on investment stands at 2.4%, which is lower than the 3.0%, which we have seen in the first quarter. I just want to mention that. And I think it's really realistic that we have a lower figure than in the first figure. The group net income is unchanged, EUR 1.05 billion to EUR 1.15 billion, which equals to 10% return on equity. And with regard to the dividend strategy, we already said that on the Capital Markets Day, we are reassessing our dividend policy, but you should expect will be stable or upwards, and I just want to underline [indiscernible].

Having said that, let's summarize the first quarter. On my point of view, we have seen a very strong first quarter given the growth, which we could throw 16.5% that are really strong numbers. We are very happy with it because this will provide for future earnings potential.

Second, we have made some provisions. One, obviously, for the NatCat development in Australia and the winter storms in Europe. Second, but also for the Ukraine, where we have set up a book reserve of EUR 150 million. We do not know exactly what will be the final outcome of the Ukraine and I think nobody can tell you that. But we had the feeling that it's right to make the first step here. So it's not related to specific claims notifications or something like that. It's really the book reserve what we have set up.

So all in all, I think it's a very solid result. And I'm now happy to answer your questions.

[Operator]

[Operator Instructions] The first question is from the line of Michael Huttner from Berenberg. .

[Michael Huttner, analyst]

And yes, well done to these lovely results. And basically, I want to know how much more you can make this year and next? No, but I'll ask it in detailed way, if I may. The first one is on the Motor pricing. So I understand that the number of contracts in Retail Germany is up 60,000, but thanks to November news, and I just wondered, was that you buying market share by cutting rates? Or what is happening to pricing here I would be real interested?

Then a similar question for Industrial Lines. What is the rate rise in Q1? And how does that compare with claims inflation? Maybe you could talk a bit about claims inflation, how you see it. I was speaking to one of your French peers, and they said, the peak is yet to come. In other words, whatever we see today will be exceeded in the next few quarters.

On the -- on COVID, I think Hannover said that some of these result could be released, and I just wondered separately from Hannover within Talanx, what is the IBNR ratio and all the IBNR relating to COVID just to have a sense of flexibility there. And then I'm really sorry, too many questions. But on solvency, I noticed the sensitivity to interest rates is negative, whether interest rates go up or down. And I just wondered if you can comment on that.

[Jan Wicke, executive]

Thank you, Michael. There's quite a number of questions. I'll try to answer them. And if I forget one, just ask again, so I'll try to answer all of them. Michael, with regard to the 60,000 new contracts in the Motor business, which is a very positive result, the business unit has set up a certain behavioral-oriented pricing. So it's not the cheapest price, but they're targeting as a specific customer group which wants to have value for money. But it's due to other criteria should be more a stable customer base, not those who are hopping from one insurance provider to another from year to year. So this is driving the very positive development at Retail Germany.

Second, with regard to the pricing in Industrial Lines, whether it's met claims inflation? Yes, we are positive that the renewal in Industrial Lines will meet the needs of the inflation which we calculated at that point in time. Currently, what we see, and therefore, I can understand the French colleagues you mentioned, is a significant extraordinary cost, but due to the Ukraine-Russia war. And so it will be -- we will have to make up our minds at the end of the year whether everything is included also this extraordinary development. But all in all, we are quite positive that the price increase what we have seen at the beginning of the year can cope with inflation which we have seen so far. So we are positive here.

The third question was with regard to the COVID reserve, where the colleagues of Hannover Re have mentioned the high IBNR in certain lines like credit and so on, which we may now be used in the future also for Ukraine. So in the primary group, we have -- we have significantly less IBNR left, yes, given that we are paying out the claims faster than the regions who are because we are closer to the customers. So I do not expect too big effects out of the release of COVID's IBNR as a primary.

Finally, you had the question with regards to the interest rate sensitivity under Solvency II. And you mentioned so there are 2 effects. So if we have an increase in the interest rate, then we have one effect -- positive effect on the German Life books, which you can see, and a negative effect on the Hannover Re book due to those effects. And given that the positive effect to a certain extent has to be calculated with policyholder participation, this positive effect is more for the Life entity. If you now turn it around and say you have a reduction in interest rates, then you have a negative impact in life, which to a certain extent cannot be shared with the policyholder. And therefore, then there is certain kind of complexity coming into play via the German Life book. I hope this explanation helps you a little bit. If not, I will give it another try.

[Operator]

[Operator Instructions] Next question is from the line of Thomas Fossard from HSBC.

[Thomas Fossard, analyst]

I've got a couple of questions. The first one would be related to just a follow-up to a Michael question on your Solvency II sensitivities regarding to interest rates. Can you speak a bit about the sensitivity to inflation? I mean, is your disclosed sensitivity to interest rates net of inflation? How inflation of CPI parameters will play a role in the Solvency II work?

The second question would be related to your -- to slide -- are you showing the solvency II work -- think it's on Slide -- sorry, yes, 30. If you could comment on the EUR 1.3 billion of increase in SCR in 2021? Just wanted to better understand where this is coming from. I know this is probably a combination of Hannover Re and Talanx, but if you could maybe disclose a bit more what took place last year in terms of additional capital required for the primary lines?

One additional question related to Industrial Lines. If you could provide a bit more color on the reserving you've made for Ukraine in the Industrial Lines. And also, it could be helpful if you could quantify the impact on the combined ratio. And I think that if we are doing some calculation on the adjusted combined ratio for our industry lines for higher NatCat and reserve related to Ukraine, it looks like the normalized combined ratio for Industrial Lines is currently running at 97%. Would you confirm this number? And how should we think about the normalized combined ratio for the segment for the rest of the year? I will stop there and queue further questions.

[Jan Wicke, executive]

Okay. I try to answer your questions as well, Thomas. And if I forget one, once again, then ask, please again. First, to start with the inflation effects. The inflation effects are not the ceteris paribus calculation, so solvency sensitivity. So they are in the interest rate change. There's no inflation change embedded. So this is the first thing which is to be mentioned.

What would happen if inflation exceeds our own estimates? We would see an effect in the claims reserving. So what we have also shown in the resiliencies which are embedded in our best estimate calculation, that would decrease what you can see, and this would also have a negative impact on the own funds. And therefore, inflation is really something which could have a higher-than-expected inflation, I really have to mention, which could have a slightly negative impact on than the solvency ratio. So therefore, inflation is a topic where we draw a lot of attention to. Maybe I should just mention what we are doing because we are quite positive that we can manage this in a very good way for the company. First of all, obviously, the most important thing is the debt pricing to inflation and to get the prices where they have to be due to inflation. Second, with regard to our reserving, you can really see that we have built up resiliency, which will help us to cope with that second aspect as well. And thirdly, with regards to the unexpected effects due to the course of the year, we will continue to have a hedge portfolio of inflation linkers in place so that we can also deal with extreme inflation scenarios in a better way than our peers. So this is that with regard to inflation.

Second, with regards to the development of the solvency capital requirements. What you can see here is, I think, Bernd and his colleagues will provide you later then with some more information. I do not have everything right here at the table. But what you can see is that we are growing. Talanx is a fast-growing group. And therefore, the solvency capital requirements are increasing. And so all in all, it's more a sign of a very positive development rather than a sign of that we are exposing ourselves to specific new or unusual risks. So we have -- we are just growing.

Third, you had a question with regard to the bulk reserving for Ukraine. What I really want to mention here, and it's important, at this point in time, nobody can tell you in detail what will be the final ultimate which have to be booked for the Ukraine, and nor can we. We can't do that. We just have set up a bulk reserve and which is not related to a specific claims picture or something like that. On a group level, it's accounting for 2 percentage points of the combined ratio on -- for Reinsurance is 3%. For Industrial Lines, it's roughly 1.2% to 1.3%, something like that in that area to give you some number in order to normalize the development. Please keep in mind that we have also built up resiliency reserves in Industrial Lines during the first quarter. So all in all, the normalized combined ratio is even better than the 97% what you currently see. We want to show this year 97%. This is a promise of the business unit, and this is what we are going to do. But the current development in the frequency is even better. So I hope this answers your question.

[Operator]

Okay. I would like to now turn it over to Bernd for a question from the webcast. .

[Bernd Sablowsky, executive]

Yes. Vikram Gandhi from Societe Generale is sharing with us this morning, and he has 2 questions. He wants to know what the quantum of loss booked for Russia-Ukraine in Industrial is. I guess, you elaborated a bit on that, but maybe just refresh that. And for Retail International, also the Retail International segment saw a positive runoff result. The strong inflation impact is notable in the combined ratio for Brazil and Turkey. Is it fair to say that the group is pushing for strong price increases as well as selling very conservative initial loss pick for reserving? That are the 2 questions from Vikram.

[Jan Wicke, executive]

Very good questions. And Vikram, you're absolutely right. We are pushing for strong price increases in both entities like the whole market in those markets is doing, yes. And we are very confident that we can achieve that, so that we will bring that back to better profitability.

And with regard to the first question, I think I already answered it when I answered Thomas's question with regard to Industrial Lines and the book reserving for Ukraine.

[Operator]

We now have another question from the telephone line from Dominic O'Mahony from BNP Paribas Exane.

[Dominic O''mahony, analyst]

Can I just follow up on Michael's earlier question on German Motor. Really very helpful comment on your sort of targeting of customers. Can you just give us a sense of how you see the pricing environment in German personal lines? Has the flooding, for instance, last year for stock pricing in property, has there been more take-up of flood cover, and how is Motor pricing?

And the second question, I wonder if you could just remind me, forgive me if we're not knowing this inside out, but the resiliency reserve, which is very substantial, and of course, a big increase in '21, does that impact the German GAAP result for the entities as well as the IFRS? Or is this -- was this just an IFRS item?

[Jan Wicke, executive]

Okay. Well, Dominic, first of all, with regard to the pricing in Motor, what we see, obviously, is that the whole market will have to cope with the inflation what we see. We have currently an inflation in Germany close to 7%. What we also see in prices here. And therefore, I would expect the next pricing around that there will be price increases simply to match the inflation. This is what I would expect.

Second -- and you asked also for what we've learned with the floods and so on. With regard to the floods last year with Bernd, we learned that we had certain -- well, if you have a cumulative scenarios, you are also taking into account when you do your reserving that you will have specific inflation if, for instance, there is a flood then, obviously, people who can fix the problems will charge you higher prices. It is already included in the way how we set up our reserves there. So this was included. But we have really observed quite some huge inflationary impacts due to the floods. We see the same currently in Australia. So it's quite a factor which we are used to. And this obviously needs to be included in the pricing going forward in Personal Lines also as well as in Motor. So this is with regard to the first question.

With regard to the second one, the resiliency reserve is a concept which fits only to IFRS. So the local statutory accounting in Germany is even more conservative than that one. And the only restriction which you have there is the tax authorities, which do not like us to have so much resiliency in the buffers and, therefore, that you have some additional tax calculations to perform if we are quite conservative in reserving. I hope, Dominic, that answers your question.

[Operator]

Next telephone question is from the line of Roland Pfänder from ODDO BHF.

[Roland Pfänder, analyst]

Two questions from my side. Could you explain the runoff impact in Retail International, how much it moved the combined ratio in the quarter?

Then secondly, maybe you could remind us of the retention moving in Industrial Lines regarding the Specialty business, which is already up to 100%, the move? Or will there be more to come in the next quarters just to understand the structure going forward?

And maybe a last question, what is the current reinvestment here in the primary insurance business?

[Jan Wicke, executive]

Thank you, Roland, for your questions. First, with regard to the runoff impact at Retail International, it compensates for the deconsolidation. But please keep in mind that, in this segment, we always had a very, very high resiliency embedded into our best estimate accounts. And due to the adoption of IFRS 17 -- 9, we will have to realize on a planned basis, some more runoffs in order to bring it into the IFRS 17 framework of estimate accounting. So just keep that in mind. So the extraordinary effect what we've seen compensated for the deconsolidation effect.

Second, with regard to the retention development at Industrial Lines due to the full consolidation of HGS, we currently have now new in place starting from the 1st of January that Hannover Re takes a quota share of 25%. But for the past business, on the business which was renewed during the course of the last year, obviously, the old quota share of 45% was in place. So there will be an -- over the time of the year, there will be another increase of the retention rate due to the new structure here.

And finally, with regard to the reinvestment yield, I have to ask my colleagues, which are supporting me, maybe I pick first some other questions, and then I will explain that. I just want to see the numbers here. I do not have them directly.

[Operator]

Next question is a follow-up question from the line of Michael Huttner from Berenberg.

[Jan Wicke, executive]

But Michael, before you do so, I can answer Roland's questions. It's 1.85% was the reinvestment yield during the first quarter.

[Michael Huttner, analyst]

I had 3 questions. I don't know if you -- so the cash at holding was 1.45x the dividend at the year-end. I just wondered if you can give a feel for where we might land at the end of 2022.

The Retail Germany, I just wondered if you can say something about the frequency now versus 2019, which is a kind of prepandemic benchmark here. Are we still down? And is there a change in the behavior, which means we stay down.

And my third question, it's a little bit ahead of what you might say in December, so the -- But if inflation goes up, unfortunately, it means you need more capital, which is -- it sounds that -- and I just wondered how that might impact any changes you make to your dividend policy?

[Jan Wicke, executive]

Three questions. First one was with regard to the cash [ background ]. Somebody just provide me the number. It's around 1.5%, which we have achieved during 2021. You could see that in the last -- in the full year presentation. I think we have included that in that presentation so -- but all in all, I think the more important question is, as we have said and announced at the Capital Markets Day, we are to reassess our dividend policy. You should keep in mind it's stable or upwards, and we are really underlying upward here. And we will come out on the 6th of December with the new dividend policy. Currently, now I have the figure. The cash pool stands at 1.54%. So it's above the lower threshold of the target range when we wanted to reinvest it. We always said it's in between 1.5% and 2%, then we would reassess the dividend policy. And this is what we are going to do, and we will deliver on the 6th of December. But already keep in mind, it's stable also.

Second, you asked for the prepandemic behavior of -- or the prepandemic claims frequency in Retail Germany. What we take internally as a benchmark here is the 2019 level. And there, we are slightly -- we are well in line with 2019, slightly below even with the 2019 claims frequency. This is what we currently observe. Does it answer your question, Michael?

[Michael Huttner, analyst]

Yes. That's very helpful. And I suppose a more general question, it was about the SCR, I'm sorry. It's like next to it, sorry. If inflation means that pricing goes up and number premiums go up, and you need more capital, that's a negative, right? Penetration does have a real cost, yes? I mean, how do I think about that?

[Jan Wicke, executive]

Let me first answer that on a broader base. Our business model is that we collect the premiums in advance and pay out the claims later. And therefore, we need to include inflation expectations in our pricing. If the inflation expectation is exceeded by reality, obviously, this is a negative one because it enhance our result, and this is also then reflected in Solvency. This is -- so first of all, inflation is not a positive one for the insurance business model, in particular, if it goes along with negative real interest rates. But with regards to our group, I think we are very resilient also due to the inflation-linked bonds, which we have in the portfolio due to our conservative reserving and due to our outstanding solvency position, which is even above our internally set target range from 150% to 200%. So we feel very comfortable, and we do not need -- see any need to change our capital positioning due to inflation so far. The overall effect if inflation is in place, you have premium increases. You have then more nominal SCR needs. This is true. But on the other hand, if you're able to achieve prices above the inflation, then you have additional business opportunities. And currently, I would rather see this as a business opportunity.

[Operator]

[Operator Instructions] Now I'd like to refer you over to Bernd Sablowsky for reading of a web question.

[Bernd Sablowsky, executive]

Vikram, again, has a question. As regards to our resiliency reserve, I want to know whether the resiliency reserve are part of our best estimate reserves or best estimate losses under the S2 calculations? And he wants to know whether there's a difference in the approach adopted by Talanx and Hann RE in terms of handling the resiliency reserves.

[Jan Wicke, executive]

So let me start with the later one. No, I think this is pretty similar, the way how we treat resiliency reserves, which are embedded in our best estimate. So what we do here, and we have phrased this as resiliency reserves is that it is simply the difference between what we have booked compared to what the external actuary has given us as a second opinion. So this is a difference. So we were able to find external comfort for also having a lower claims reserving. This is the overall concept. And this provides us also internally with comfort that, through all entities, we are well and adequately reserved. And this gives us also a certain strength to balance volatility and to provide you as analysts also with some comfort that we are able to deliver on our guidance and as well to deliver on the dividend expectations. So this is to summarize the concept a little bit more.

Does that help you, Vikram? So if not, just give us a follow-up question on that one, please.

[Operator]

There are no further questions at this time, and I would like to hand back to Bernd Sablowsky for any closing comments.

[Bernd Sablowsky, executive]

All right. So obviously, if you have follow-up questions 1Q studies in more detail our presentation [indiscernible] remember the financial data supplement is also being made available. Do not hesitate to read out to [indiscernible] or myself. And other than that, I guess it's for Jan to conclude.

[Jan Wicke, executive]

Yes. Thank you, Bernd. So thank you for your questions. To summarize it once again, we believe we had quite a strong first quarter given the growth which we could see. The results are solid, taking into account the development of the large losses and also that we have set up a book reserve for Ukraine. For the year-end, we confirm our guidance, but we have to admit, obviously, there's some high uncertainty due to the Ukraine. But given the resiliency of Talanx, we are able that we can cope with it.