Our holistic management system Performance Excellence (PE) 2.0 ensures consistent implementation of our corporate strategy throughout the Group and across the various areas of business. PE enables us to steer and measure the development of the company and hence also to evaluate the extent to which we have achieved our strategic objectives.
It is based on the Excellence Model of the European Foundation for Quality Management (EFQM). The decentralised approach used by PE is of special importance in this context. It enables each of our Group's organisational units to define and examine its contribution to the Group strategy. In this way, we ensure that all initiatives and activities within our Group are rigorously linked to the corporate strategy.
Our integrated system of enterprise management constitutes the basis for accomplishment of our strategic objectives. Located at its core are, first and foremost, our profit and growth targets, which are summarised for the Group as a whole and the individual business groups in the target matrix. In addition to traditional performance indicators geared to the IFRS balance sheet, our system of strategic targets also includes economic targets derived from our certified internal capital model and from the economic equity pursuant to Solvency II reporting. These targets are regularly analysed and adjusted in the context of the strategy review conducted at periodic intervals. Thus, for example, with effect from the strategy cycle commencing in 2018 we added a target for our solvency ratio to the target matrix. In general terms, our primary focus is on medium- and long-term attainment of the strategic targets.
Especially in terms of its return on equity, our Group has performed very favourably in recent years despite the intensely competitive environment faced by reinsurers and the heavy losses incurred in the financial year. Our return on equity target of 900 basis points above risk-free – which is enshrined in the Group strategy – already represents a substantial target value creation. Through our business operations on all continents and the diversification between our Property & Casualty and Life & Health reinsurance business groups we are able to effectively allocate our capital in light of opportunity and risk considerations, which helps us inter alia to generate a higher-than-average return on equity. We have now reported double-digit returns on equity for ten years in a row.
The following chart shows that our annual return on equity in recent years comfortably surpassed the set minimum targets.
* After tax; target: 900 bps above 5-year rolling average of 10-year German government-bond rate („risk free”)