Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München

Good morning, ladies and gentlemen, dear analysts and investors. Thanks for joining us to our Q1 earnings call. It's a pleasure, as always, to welcome you to discuss the most important results and trends. And I have the pleasure to introduce to you Christoph Jureka, our CFO, who will host this call this morning. And I will directly hand it over to him. Christoph, please.

Thank you very much. Good morning also from my side. I'm very pleased to be able to present you the Q1 figures today. In this first quarter, it was clearly dominated by the COVID-19 pandemic. Our top priority in these times is clearly protecting our staff and business partners. And with many infected people and fatalities worldwide, Please allow me to express my deep sympathy. Our thoughts are particular with all those directly affected by the virus. The pandemic and the unprecedented lockdowns have had a severe macroeconomic and financial impact. In these unusual and very special circumstances, we posted net earnings of €221 million in Q1, which is completely in line with our pre-release a couple of weeks ago. The big number of cancellations and postponements of large events led to large losses that were significantly above average. Our investment result, however, proved to be quite resilient despite the extreme market turbulences we also saw in Q1. The tax ratio of 53.5% was exceptionally high as equity impairments and disposal losses on equities are non-tax deductible, while we had currency gains which amounted to 144 million euros. The ROE stands at 3.9% at Q1. Now, as usually, I will go through the major parts of this result together with you in my quick introduction before we then go into the Q&A. Well, then let's start having a closer look at our investments. The annualized ROI was 3.9% and met our full year guidance while we had a running yield which decreased only slightly to 2.5%. The reinvestment yield remained unchanged at 1.9%. As part of our conservative positioning of our investment portfolio, we went into the crisis already equities underweight. We then took measures to further reduce the exposure in March. And additionally, our hedges proved to be very effective in reducing the earnings volatility. Accordingly, the equity impairments and disposal losses could be largely offset by derivative gains. Furthermore, we had some disposal gains on fixed income and real estate investments, which also had a stabilizing impact, even though they were never meant or intended for this purpose. I'm very pleased that our prudent risk management approach helped us to protect our investment result in this really very challenging capital market environment. Now turning to reinsurance. First of all, the underwriting result in both segments was clearly below our expectations. In life and health reinsurance, the technical result, including fee income of 56 million fell short of full year ambition. which was driven by a disappointing result of our North American business. After several quarters with good claims experience in the US, we in this quarter experienced a higher than expected mortality and a catch-up from late reported claims. In Canada, the decrease of interest rates required a strengthening of the claims reserves. The performance outside of North America was an aggregate in line with our expectations. It's, I think, important to notice that the Q1 result does not include any notable impact of COVID-19 related claims in life and health reinsurance. Now, by contrast, the Q1 result in P&C reinsurance already includes substantial COVID-19 related claims of roughly 800 million euro with contingency losses accounting for the largest share of it. Overall, the large losses amounted then to 21.1 percentage points, lifting the combined ratio up to 106. Excluding the impact of this coronavirus-related claims, Q1 was a relatively benign quarter for us in terms of large loss events. If you then do the usual schematic calculation, so the normalization, which includes reserve releases of four percentage points, we get to a normalized combined ratio of 96.8%, which is completely in line with our full year guidance of 97. The basic loss ratio in it reflects the usual food and reserving approach in a context of ongoingly elevated reported claims in US casualty. While in basic losses, we do not see any COVID-19 related losses in Q1. The expense ratio improved due to the cost reductions and also due to premium growth. And just to remind you of the change in cost allocation method we did for the first time now in Q1, the effect was 0.3 percentage points. And we restated also all prior year figures. I think that's important to notice. In the April renewals, trends observed in January continued. So we had an overall very favorable renewal. The price level for our portfolio pleasingly increased by 3%. And at the same time, we were able to substantially grow our premium volume by around 26%. We did so exploiting growth opportunities, especially in Asia and with global clients. Coming to Ergo and primary insurance, we posted a Q1 net result of 72 million euros. which was impacted by a somewhat lower investment result compared with last year, despite the fact that we also have effective hedging measures there. COVID-19 related claims have been insignificant at ERGO so far. Overall, in my view, these results are very pleasing, giving the challenging environment also for ERGO. In that regard, I think it's important to highlight the once again strong technical performance of the P&C segments. Germany life and health of Ergo was posting a net result of 5 million and this was largely driven by lower investment result while the technical result was slightly higher even than last year. German P&C segment First of all, showed a strong premium growth of 6.7% versus previous year. And nicely, this is driven by almost all lines of business. The combined ratio was good at 93.4%. And if you take into account the usual seasonal fluctuations we see at Ergo, and which are typical for the first quarter, then the underlying combined ratio completely supports the 2020 full year guidance of 92%. In Ergo International, we posted strong profits of 46 million, driven by good development in the core markets, while the prior year was burdened by portfolio streamlining. Combined ratio remained largely stable at the good level of 95.2. Now looking at the group's economic position, the economic position remains very strong, despite the current difficult environment. Resolvency 2 ratio decreased to 212% in Q1. And please note that this number still contains the discontinued 2020-21 share buyback. Compared with the year in 2019, the Solvency II ratio means a reduction of 25 percentage points, which is, of course, mainly a consequence of the stressed capital market. But as you can see, the risk mitigating measures we have in place, diversification, and then also the volatility adjustment partially mitigated the impact and helped us keep the Solvency II ratio very comfortably within our optimal range. Overall, we continue to be very solidly capitalized. I'd like to also emphasize that our leverage continues to be very low and our strong balance sheet, according to all metrics, allows them also to be a reliable partner for all our clients going forward and also make use of opportunities, be them organic or inorganic. Now, coming to the outlook for 2020, the usual uncertainties about the future developments in major losses and capital markets are naturally much more pronounced than usually. The range of possible outcomes will thereby not only depend on the still dynamic development of the COVID-19 pandemic itself, but also on the effectiveness of the containment measures, as well as on their impact on the economy. As already mentioned in our pre-release, we will not attain our group profit guidance of €2.8 billion, and we are also withdrawing it for the reinsurance field of business, including the combined ratio. Despite the disappointing start to the year, we continue to assume that achieving a technical result, including fee income of €550 million in life and health reinsurance, is still within reach. The same applies to the guidance for the ergo financials and the return on investments. which we also left unchanged given the solid Q1 performance. However, and this is very important now, there is a big caveat. We see a very substantial risk of falling short of this guidance, subject, of course, to the further development of the COVID-19 pandemic. With that, I'm at the end of my opening remarks. And of course, I'm very happy to answer all your questions. And with that, I hand it back to questions.

Christoph, thank you. We can go straight into Q&A. As always, please, a maximum number of questions of two per person in order to give everybody a fair chance to participate in the Q&A. So please go ahead.