Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München

Good day and welcome to the Munich Re Q3 Results 2020 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Becker-Hussang. Please go ahead.

Thank you, Saskia. Good morning, everyone. Thanks for joining us to Munich Re's Q3 2020 earnings call. I have the pleasure to be here in the room with Christoph Jureka, our CFO. and I will directly hand it over to him for his introductory remarks, and then we can go into Q&A as always. Christoph, please.

Thank you, Christian, and good morning from my side. The third quarter's financial development once again reflects good underlying performance in these very challenging times. As we have pre-announced already, further significant COVID-19 related losses, as well as other major losses that were above expectations, left their mark on our P&L. Our Q3 result amounts to 199 million euros, which we think is quite remarkable given the additional 800 million in COVID-19 related claims this quarter. And after nine months, we achieved a net income of around 1 billion, including accumulated COVID-19 claims of around 2.3 billion euros. Of these, with around 2.1 billion, P&C Reinsurance accounts for the largest share. So far, the insurance of large events is the most affected area, and we still expect this to be the case once the pandemic has run its course. Beyond these losses, we have set up material provisions spread across other lines of business. These include in decreasing order of magnitude property, including BI, casualty, and credit. Our reserves, which have been saved in a consistently prudent way like we always do at Munigree, they cover all claims incurred until the end of September. And as mentioned earlier already, reserving for claims not incurred by then, it's not possible according to our accounting standards. So far, the claims actually paid or reported amount to €300 million, and the large remainder of €1.8 billion is then IPNR. In life and health reinsurance, COVID-19-related claims Development in Q3 continued at about the same pace as what we saw in the previous quarter already. So the losses year-to-date amount to around 200 million. S&Q2 COVID-19-related claims were dominated by U.S. mortality. Claims reported from other regions and other lines of business have been very low. Looking at Ergo, COVID-19 related claims at Ergo continued to be insignificant also in Q3 from a group perspective. In P&C Germany, we observed minor additional claims due to business closures and event cancellations. Travel insurance was affected by COVID-19 clearly, but on the health side, we did not see an increased claims activity. Thank you. Now, let's move away from COVID-19 and let me just give you a few comments only on developments aside from COVID-19. As usual, starting with the investment results. The ROI amounts to 2.7% for the quarter and 2.8% for the nine months, and thus supporting our guidance of approximately 3% for the year. Interestingly, in Q3, we saw a difference in the investment return among our fields of business. In reinsurance, the ROI of 3.7% was higher than at Ergo, benefiting from disposal gains from, on the one hand, portfolio turnover, but also from the disposal of some strategic equity investments. At Ergo, by contrast, the ROI was comparatively lower, 2.1%. as we did not have any ZZR financing this quarter and therefore realized a very small amount of unrealized gains only. And there was a negative contribution from equity impairments as well as from derivatives. The regular income on group level declined to 2.4% in Q3, given a lower dividend income compared to the previous quarter, a weaker U.S. dollar and also, of course, the lower interest rates. Reinvestment yield of 1.3%. It was also affected, of course, by the low interest rate, but maybe more importantly, also affected by the high volume or higher portion of short-term investments. Now, in life and health reinsurance, the technical result, including fee income, was €56 million, and this is at a similar level than the last quarter, and again falls short of the pro rata full year ambition. This is almost exclusively owing to the impact of COVID-19. And in North America, we saw some excess mortality claims on top of that in the aggregate. And we also saw some impact from lower interest rates. All of that was largely compensated by strong results in Europe and Asia and also by a better than expected experience in Australia. Organic business growth continues to be healthy across all geographies. In P&T reinsurance, our combined ratio stands at 112.2 for Q3. In addition to the already mentioned COVID-19 related claims, the explosion in Beirut contributed to the high man-made loss ratio of 18.4%. In contrast, the Nutcat loss ratio of 8.3% turned out to be only slightly above or largely in line with the expectations, despite an accumulation of large losses centered in the U.S., in particular several hurricanes, thunderstorms, as well as the wildfires. Our underlying performance remains sound, which I think is very pleasing, including the reserve release of four percentage points, the normalized comment ratio amounted to 97%, which is fully in line with our ambition. In primary insurance, Ergo once again posted a strong net result of €136 million in Q3, and all three segments contributed to this pleasing performance. In German life and health, The net result amounted to 31 million, and in contrast to Q2, the Q3 technical result benefited from the inter-year volatility driven by COVID-19-induced capital market effects. In German P&C, the segment delivered sound earnings of 48 million, and here the combined ratio was exceptionally good, driven by the strong premium growth and also benign nut-cut activity. The combined ratio in the first nine months is fully in line with our full-year guidance of 92%. In the international ergo business, we also posted strong results of 57 million euros, driven by an ongoing sound operating performance. The very pleasing combined ratio benefited from the reduced claims and also from lower large losses in P&C, and then in health from seasonal effects, rate increases, and the favorable claims development. Combined ratio in the first nine months fully supports our full year guidance of 94%. The group's economic position remains sound. Solvency II ratio increased to 216%, still being at the upper end of our optimal range. The eligible only funds now benefited also from the issue of the green bond, which accounted for seven percentage points, while the economic earnings came in below our expectations, of course, due to the COVID-19 losses. The SCR remains stable. Now, regarding the outlook for the remainder of the year, we kept our guidance unchanged for the investment return, which has proved quite resilient, and also for the ergo financials, despite an environment which continues to be very challenging, also for ergo and also for primary insurance in general, I can say. given all the uncertainties we have around the capital market volatility and the second COVID-19 wave running across Europe right now. As the uncertainties are even higher for reinsurance, we still refrain from providing a new net result target. Despite all the additional insight we have at this point in time and also the experience gained so far, it's still difficult to predict the COVID-19 claims for the remainder of the year and beyond. there's a very wide range of possible paths that the pandemic can still take. Assuming normalized large losses, Munich Re would have been very well underway to achieve its 2.8 billion net income target. Over the last few years, we've accelerated growth and we have further strengthened the earnings power of our group. And this together provides a very good basis going forward for the consistent execution of our strategy and new financial targets which we will communicate at our investor day in December. With that, I'm looking forward to answering your questions and now hand back to questions.