Münchener Rückversicherungs-Gesellschaft AG in München

Good day and welcome to the Munich Re half-year financial report 30th of June 2021 conference call. Today's conference is being recorded and at this time I would like to turn the conference over to Mr. Becker-Hassan. Please go ahead, sir.

Thank you, Simon. Ladies and gentlemen, dear friends, good afternoon, good morning, wherever you are. A warm welcome to our conference call on Munich Re's second quarter 2021 results. Pleasure to have you all with us and very happy to welcome our today's speakers, Joachim Wenning, our CEO, and Christoph Jureka, Munich Reef CFO. The two gentlemen will start this call with a short statement based on the slide deck we provide on our website. Afterwards, there will be ample opportunity for Q&A, as always. And with that, I hand it over to you, Joachim.

Thank you, Christian, and good afternoon, everybody. Thanks for joining the conference, and I hope you're all doing well. Let me talk you through some important achievements of Ergo and reinsurance in the first half year on the way to meet our 2021 group earnings commitment. Ergo had a good start into the first year of the five-year ambition 2025. Top line shows strong growth in Germany and internationally . In Germany we are seeing strong new business development both in P&C and in life. And the hybrid customer approach responding to on and offline needs of customers has been effectively supporting this good business development. The strongest growth at Ergo International could be seen in P&C in Poland and in the health business mainly in Spain. So Ergo bottom line shows very strong numbers so far. As expected, various initiatives targeted to continuously increase the level of process excellence in Germany and abroad contribute to further improve efficiency And the technical quality of the business remains remarkably strong with stable and attractive combined ratios despite above average major losses. On the reinsurance slide, I'm on slide six just in case, in life and health, we continue to grow our portfolio and key contributors are a strong new business development in the U.S., and ongoing growth in our financially motivated reinsurance business. And I should also mention the interesting acquisition of Group Health. Group Health is a leading TPA in the Canadian group life business, allowing us deeper and broader access into a, what we consider, low-risk, high-return market. And beside that, it's really a shame we cannot see the beauty of the life and health reinsurance development due to ongoing COVID losses, which are affecting this line of business. On the P&C reinsurance side, we seized the tailwind from a hardening market environment by substantially growing both our core and the risk solutions business. Growth currently is clearly double-digit, and we are actually leveraging our leading market position. However, we aren't rushing. While strongly expanding in attractive markets, we are more reluctant and more selective in other areas, like US casualty. At the same time, we are paving the way for future growth, by creating and developing new business opportunities, in many cases based on digitalized models. And of course, I should not miss to add that the investment results have been very strong with attractive returns on investment. In addition to that, Our captive asset manager, Merck, is also progressing well with regard to their TPA and third-party asset management business. It's been growing and Morningstar rankings show Merck in top positions compared to their peers. So bottom line, insurance, reinsurance, and investments altogether have contributed to a strong first half-year result of €1.7 billion, totally in line with our 2021 earnings commitment. On slide 7, I would now turn our attention to the 1.7 renewal experience and results so far. Overall, the price change for our book was 2%, plus 2%. As always, fully risk-adjusted. We benefited from this by growing our book by 11.1%. The most powerful impact was observable in the US, there practically in all lines of business, in casualty due to social inflation and low interest rates, and in property due to cat losses. Outside the US, so in Latin America, And in some Asian markets, we also saw rate increases driven by loss experiences. Against this background, Europe showed the mildest price momentum. Our takeaway from this renewal, or I would say from all the renewals in the course of this year, is that the trend of rate increases is unbroken. We do appreciate this. in some areas by improving the technical margins, in other areas by compensating for interest rates and loss inflation. However, it's also true that in the... With close to a billion of US dollar of cyber premium income, we have a global market share of close to 10%. Despite the various attacks with high media attention, and primarily since the outbreak of the pandemic last year, our cyber performance is still fully in line with our expectations. Their impact on us was very limited and Compensated by price increases, we are well on track to achieve 85 to 90% combined ratio going forward. And going forward, we would also expect demand to grow faster than available capacities. This should create further momentum to increase transparency provided by clients and customers and improving terms and conditions. We will prioritize our capacities towards those areas where diversification is the highest, wording is the strongest and interest alignment the most pronounced. We regard Munich Re as key driver to further foster resilience throughout the global cyber market and to accomplish this we will continue to further invest in expertise, technologies cyber services and cyber partnerships just a few comments on inflation as well slide 9 the consumer price index has indeed increased recently starting in the us and then with a delay and probably at lower levels in other regions like europe as well but we aren't worried about it first many lines of business and it's true also for the shorter-term property reinsurance businesses. Second, in P&C business, in many cases, index clauses are protecting against inflation. Third, in new business, we always price for the most recent trends. And fourth, with regard to the back book, we are broadly hedged against consumer price index through inflation bonds. That said, CPI, however, has only limited significance in insurance. There is more specific phenomena like medical inflation, social inflation, and others, which can matter more or less. We take all of these factors regularly into account when it comes to adjusting our pricings and reviewing our reserves likewise. Plus, we have additional hedging potential available on the asset side through asset classes like real estate, infrastructure invest, equities and others. With slide 11, I would like to miss mentioning ESG. I should remind you of our non-financial ambitions 2025, above all our climate ambition 2025, and our social ambition to have 40% female managers by 2025. The necessary governance to reach all of this is set up. and respective execution and monitorings are taking place. And I think that we will report our progress probably on an annual basis and probably starting next year. Yet, I'd like to highlight already today that we are well on track to also reach our non-financial targets. Finally, a quick look at the outlook 2021, slide 12. With 1.7 billion euro in the first six months, we have already earned 60% of the earnings commitment. From a growing book of business, we believe that 2.8 billion earnings this year is still doable and we are fully confident. This view has not changed. Ergo and reinsurance have grown their top line to now €58 billion, €1 billion more than what we indicated last quarter. And the recent flood event in Germany and the neighboring countries in the Netherlands, Belgium, France and Austria will probably mean a mid-three-digit million euro loss burden to us. Still all in line with our expectations for the €2.8 billion result in 2021. I do not want to miss to express my deep sympathy with all people and families affected by this terrible catastrophe and thank for the immediate and extensive support and solidarity from all corners of our society. And with this introduction, I'd like to hand it over to Christoph.

Thanks. Thank you, Joachim. A warm welcome also from my side. It's a pleasure to run you through the Q2 figures today. As usual, I will not go through the presentation as you were able to look at that in advance anyway, but start with a few personal remarks on the development. As already indicated in the pre-announcement, we achieved a net result of €1.1 billion and a return on equity of 19.2% in the quarter. While the COVID-19-related claims at Ergo and in P&C Reinsurance were in line with the expectations, we had high mortality rates in some emerging markets, which left their mark on life and health reinsurance. Apart from the good operating profitability in all fields of business, the strong Q2 result was also driven by comparatively low major losses and by a sound investment result. Starting with the investment result, in Q2 we achieved a return of 3.1%. This result was supported by disposal gains from typical portfolio turnover and some sets that are financing, as well as a seasonal dividend effect. The derivatives we used for hedging made a small negative contribution, while the related positive impact on equities was only partially realized as a profit, so we were able to build up unrealized gains. Additionally, we also benefited from commodity derivatives. Joachim has just been speaking about the way how our assets are also one way of coping with inflation. The reinvestment yield further increased to 1.7%, thereby somewhat easing the pressure on the yield attrition, but of course on a very low level. Now turning to reinsurance. The life and health technical result, including fee income of 64 million euros, fell short of the pro rata annual ambition. The higher than expected COVID-19 losses of 140 million euros were driven by the high mortality in South Africa and in India. For 2021, we are now expecting COVID-19 losses of around 400 million euros. And therefore, the probability of missing our annual guidance of also around 400 million for the technical result plus fee income has increased. Adjusted for the COVID-19, however, the performance, and Joachim was mentioning that, was even better than expected. And this was due in particular to retroactively agreed premium increases in Australian disability business and to a one-off effect in a major reinsurance treaty in North America. More generally, overall, the positive experience in Europe and Asia could then largely compensate for the negative experience in the United States, including a few large losses. On the same level as in Q1, the fee income continues to show very strong contribution. Now, P&C reinsurance. In property casualty reinsurance, we posted below average major losses. COVID-19 losses of around 100 million were fully in line with our expectations. So the initial expectation that now over the year the COVID-19 claims would gradually reduce, this trend is still intact. Overall, the combined ratio of 90.1% benefited from a low major loss ratio of 6.8 percentage points. And including the usual reserve releases of 4 percentage points, our normalized combined ratio amounted to 95.3%, fully in line with our full-year guidance, considering that the number is expected to improve further as we continue to earn through the rate increases achieved in the recent renewals. Now, if we jointly look at Ergo, Ergo continued its pleasing financial performance. posting a strong net result of 155 million euros. If you look at that in the context of the annual guidance of 500, you'll easily see that that's highly above the run rate. In all lines of business, the underlying performance was healthy across all ERGO operations. And on the COVID side, ERGO was only showing a marginal effect, 6 million euros in the quarter. The German life and health business at ERCO posted net earnings of 33 million euros, driven by good operating performance in health and some lower claims also in travel, which contributed to the solid result. In life, a large part of the ZZR has already been funded in the first half of the year, and in this context also the disposal gains in Q2 were lower than in Q1. Now P&C Germany, the combined ratio is 92.6 and came in slightly higher than anticipated. But looking at the large losses both on the nut-cut as well as on the man-made side, I think it's still an excellent result. Because what we see is that strong growth and a very good operating performance could nearly fully compensate this above-average nut-cut and man-made development. But, I mean, looking at the half-year numbers and also looking at the usual uncertainties plus the flood event Joachim was talking about already, we have to say that it's become more challenging for ERCO to achieve the combined ratio target for the full year. In the international business, there's an ongoing favorable development and a net result of 41 million in the Euro, which underlines the successful strengthening in our core markets. Again, we had a very strong quarter in Poland and in Greece, which contributed to a combined ratio of 92.2%. The health business was stable with a continuously strong operational performance in Spain. Now, some remarks on capitalization. The group's economic position remains strong. Our Solvency II ratio increased to 225% in Q2, slightly exceeding the upper end of our optimal range. If I look at that development, what were the main drivers of that development? Well, on the positive side, we have the strong operating economic performance across all segments. and we have positive market variances. On the negative side, we have an increase of the SCR, both on the investment as well as on the business side, and, of course, the redemption of our subordinated bond for May this year. Now, I'd like to conclude with the outlook for 2021. In light of the strong business growth, both in reinsurance as well as in ergo, we now expect €1 billion higher premiums. Joachim mentioned that already. And the first half-year result is now a pretty good basis, a pretty good path towards achieving the net income target of €2.8 billion. As mentioned, the usual uncertainty with respect to large losses and on top of that the flood events in July this year make it a little bit more ambitious for ERGO to achieve the 92% combined ratio target. And on the reinsurance life side, the COVID-19 development we saw so far and the expectation for the remainder of the year will challenge the 400 million technical result guidance as given at the beginning of the year. So that pretty much concludes my introduction. Joachim and I are now looking forward to answering your questions, but first I'll hand it back to Christian.

Thanks Joachim and Christoph for your introduction. I'm aware that some of you out there have technical issues listening to this call. From a technical standpoint, it would be an option to switch to the webcast, at least for those of you who do not intend to ask questions. Otherwise, we hope we can fix the issue soon. Otherwise, just send me an email if you can't ask the questions you would like to ask. So let's try it anyway, and let's go right into Q&A. May I please remind you to limit the number of your questions to a maximum of two per person. And you can, of course, rejoin the Q&A.

for another round of questions if you wish so please go ahead with the first question thank you very much sir we'll now move to our first question over the phone which comes from vikram gandhi from society general please go ahead oh hello good afternoon everybody i hope you can hear me all right it's big from softgen i've got two questions one on covid the other on renewals Firstly, on COVID reserves, the IBNR level of 68% looks particularly strong, and even more so considering nearly 57% of those reserves are related to contingency lines. If I do a simple math and assume even a theoretical maximum of 100% IBNR for all other lines of business except contingency, it implies that contingency lines have an IBNR of about 45%. So in reality, the IBNR on contingents is probably above 50, which looks really high for a short tail line of business. So probably you can share with us what's driving that high level of IBNRs. And secondly, on the renewals, not just the mid-year, but considering even the April renewals, can you tell us how the PMLs or the peak risks have moved versus last year, not just the U.S., but even Australia and Japan? Thank you.

Yeah, Vikram, Christoph here. I'm happy to take both of your questions. First of all, the IBNR level. Indeed, the numbers are still significant, and we're feeling comfortable with that, given that the runoff of the business or the claims adjustment process, I must say, is still not as quick as I would personally have expected. I think we had that conversation already in Q1. Since then, I think we made some progress in claims adjustment, but if you would have asked me half a year or three quarters ago, I would probably have said, well, we will be much more advanced by now, which we are not. So therefore, we are feeling confident with the level of ABNR we are still having. On the numbers and the calculation you provided us with, I think it's important to notice that we basically have two different kinds of IBNR if you want. One is IBNR which is already kind of allocated very specifically towards a line of business, towards sometimes even a treaty or a client relationship. And on top of that, we have a more general IBNR to cover more general uncertainties. And obviously this more general IBNR, we call it bulk IBNR. This bulk IBNR, I mean, there the allocation to the lines of business is to some extent, I wouldn't say artificial, but I mean, there's a lot of leeway if you want. And therefore, I mean, we provide you with the figures that are booked, but I would not over-interpret. I mean, probably, let me put it that way, over-interpret the allocation at this point in time given the uncertainties which are still around based on the very slow claims adjustment process. That's probably the answer on the first question. The second question, the PML, I cannot give you numbers at this point in time. That's maybe something we could also then discuss offline. But the growth has not only been sitting in our peak scenarios. I think that's important to notice. So if you only look at the growth and are only looking for growth in the peak scenarios, then you would miss a substantial part of our growth, which is also growth we're having in our period businesses, for example, also growth we're having in some less peak event affected lines, also some proportional covers where we have additional growth. So in that regard, I think independently now of the precise numbers, I think my general answer would be It's growth pretty well diversified across the various businesses we are having.

Okay, thank you very much.

We'll now move on to our next question over the phone, which comes from Will Hardcastle from UBS. Please go ahead. Just to confirm, Mr. Hardcastle, I'm not receiving any audio across the line. You might be on mute.

I was indeed. So thanks very much for taking the question. Two questions. The first one is solvency. We've got a 225% print, which is very strong, and it's beaten consensus by nearly 10 points, I guess. What were we doing wrong from the outside? Or is there stuff that's benefited the ratio that we couldn't have forecast externally? And did these benefits come on the STR or eligible end funds? And the second one is on the reinvestment yield. I guess you've gone up 20 bps Q on Q, which is quite sharp. And just trying to really understand what asset reallocation or duration shifts have been taken And which segments are likely to benefit or is it all through life and health, for example? Thanks.

Yeah, Will. Christoph again here. Solvency. I think outside in it's pretty hard to predict precise numbers on the Solvency II figures for a number of reasons. First of all, let's focus on the growth. As I mentioned, business SDR increased. What you cannot really see from the outside perspective is the amount of diversification in that growth because it very much depends on also how broadly you distribute your growth across the various lines of business. That's one example where it's really hard to come up with the precise numbers. The other topic is also operating economic earnings. As you know, there are certain elements where this economic earnings concept is pretty close to IFRS, but there are other areas where it's completely disjoint to IFRS, where you, for example, account already for the full expected future earnings in the economic earnings concept, In opposite to IFRS where you only have the first year in your earnings. And these are just elements which are not at all accessible from the outside perspective. On the sensitivities, we also have to say, and I think we have done a couple of times already in the past, that also these sensitivities, they are linear approximations, but they are convexity effects on top of that. So even the sensitivities on capital market parameters are not always 100% precise. That's also something. You have to keep in mind, especially in a situation where we also might change hedging strategies and ALM mismatches. Because in all these sensitivities, in this economic world, everything is fully mark-to-market, but then obviously you very quickly see change hedging approaches. You quickly see ALM mismatches which are changing. You see different FX exposures. And the sensitivity people provide you with at the beginning of the year, they are obviously based on the status quo back then. So having mentioned all that, if you combine a few of these effects and they all go into the same direction, then you end up... with a comparatively big gap. Like in this quarter, where the consensus, I would agree, is pretty far away from our 2.25 we have now been releasing. In, let's say, more normal quarters, some of the effects are offsetting each other, and then the consensus estimate is sometimes much closer to where we actually are. But fundamentally, these differences are always the same. The second question, reinvestment yield. Well, I mean, you know, the interest rates, especially in the eurozone, they increased a little, which was helpful in this quarter. But on top of that, what we also did is we, again, looked into the duration of our reinvestments and also slightly increased the amount of investments into some emerging market bonds versus maybe more covered bonds or more Eurozone fixed income instruments. So I think it's a mix of the both, which led to the fact that the 1.7 is now a little bit a little bit higher than the 1.5 we saw last quarter. In any case, I mean, the reinvestment volumes are never huge, so the marginal impact is not massive. And what I said in my introduction is that it's just some easing effect from that 1.7 versus the 1.5 we had last quarter. We shouldn't overestimate that. And again, we are on a very low level. All in all, the investment risk, if you compare it to also the insurance risk, so the balance is unchanged, and the slight increase of SCR also on the investment side I've been mentioning before, is fully within the limits of our risk strategy. So fundamentally no change.

Thanks for that. Just one very quick follow-up on that. I guess if there's a bit of reallocation, a bit of duration, is there more to go or have we sort of caught up to the mix that you're looking to achieve here?

I think it's just, if you want, it's a little bit arbitrary what you invest in one quarter to the next. And so I would not see any strategic relevance in this, you know, volatility from one quarter to the other with respect to new investments.

Very clear. Thanks.

Thank you. We'll now move on to our next question over the phone, which comes from Andrew Ritchie from Autonomous Research. Please go ahead.

Oh, hi there. Can we just focus first of all on the gross premium growth in P&C RE? I mean, it was exceptional in Q2, 37%. Was there anything particularly lumpy or unusual about that? Is there I don't know if there's a fronting business in there or something. And I guess linked to that, relative to the outlook you gave both at the investor day and at the beginning of the year, there does seem to be a lot more growth in P&C than expected, than you expected, although it doesn't look like pricing is particularly stronger. So what is driving that stronger growth? Is it much more meaningful expansion of risk solutions? I'm just trying to understand what's changed as to why you're seeing a lot more than maybe you thought you would. And a second question on investment income. When I look at the recurring investment income, particularly in P&C REIT, there's still quite a sharp decline, 20, 30 bits. in terms of yield year on year, even though I would have expected some recovery in things like dividends, et cetera. Is there anything unusual in that, or is that level of investment income the new run rate, given where reinvestment rates were obviously very depressed last year?

Hello, Andrew. This is Joachim. Hi. So with regard to P&C reinsurance growth, Is there anything special about the Spectacular17 growth? The straightforward answer is no. Nothing special. No underwriting policy has changed. There is no one single large transaction that explains it all. So it's a blend of new businesses or extended client relationships and the rate development. Nothing else. Nothing special really. Just a great growth outcome. You are rightly alluding to our growth expectation end of last year or even last quarter for this year was slightly less bullish. You're right. So what we had to learn luckily this year is that the hardening environment as we foresaw it last year, actually is at least as strong as we expected it to be. And together with the capacity that we are willing to hand out to the market, we see that also some complementary growth comes with that. If you like, that is higher than what we had expected end of last year. That's true. The second question, Christoph, you take.

Yeah, Andrew, you found it. The technical topic. Sorry, we have a noise here. We have a noise. Okay, I'll go ahead. So, Andrew, you found the technical one-off hidden in the investment result of the P&C Rebusiness. What's happening there is that I agree you would have probably expected a little bit higher running yield, given also that the dividend season is very much in Q2. The offsetting one-off in here is that we have a lower regular income from associated companies compared to prior years, and that's a non-recurring effect.

So can I just ask on the P&C regrowth, there must also be an effect here from risk solutions being stronger than you expected, because we can see the renewal effect. of the reinsurance premium in recent renewals. Okay, there's a timing issue as to when that flows through. I get that. But we can see the 10, 11% growth. There must still be quite a big impact from risk solutions that's stronger as well. Is that not the case?

Andrew, there is growth coming from both, from the core P&T reinsurance business, but also from the real solutions business. And with regard to the latter, at this point, I wouldn't say that we had underestimated or overestimated the growth outlook back last year. It's rather than already end of last year, we expected this to grow significantly. with 10% CAGR, and this is what we have seen to date. Slightly more. Okay.

All right. Thanks.

Thank you. And we'll move on to our next question over the phone, which comes from Vinit Malhotra from Mediabank. Please go ahead. Your line is open.

Yes, good afternoon. Thank you very much. So I had two questions on growth and investment come to, but I'll just rephrase them a bit. So on the growth side, thank you for the answers on the PNCV, but from the Ergo PNC Germany as well, when I see the numbers, it seems that there's growth in various lines, including in liability lines. Now, elsewhere, we've heard from you how you're cautious. I know on the U.S. casualty side, but if you could just comment a bit about Ergo PNC, as well in this quarter in the PNC Germany area that could be useful. Second question is, could you update us on the derivatives and commodities in particular? So, you know, you mentioned how real assets are employed by the group to manage inflation. And then in the PNC investment income, I see a derivative gain of $107 billion into QE. and it seems to be coming a lot from commodities as well. Could you just help us understand where is it? And the reason I ask is because it used to be a topic a few years ago, but then I thought the commodity exposure was lower. But if you could just help us understand. Thank you.

Good afternoon, Winnet. This is Joachim. So I take the first question, Christoph takes the second one. So Ergo's P&C Germany growth, that comes from a couple of reasons. Before I come to the reasons I would like to highlight, Ergo P&C Germany is growing faster than the market. So they are making market share, which is a very, very good and strong sign. They did that last year and it seems continuing to date. Where does it come from? one is new products which very successful launches something that ergo in the very past was slightly weakened now they are very strong in that they sell the second thing is The productivity of the sales forces, both in P&C but also on the life and health side, has been increasing. That's part of the sales approach of Ergo. That's also a result of the hybrid customer strategy of Ergo, which integrates off- and online approaches of one and the same client, It's this. It's not like on the reinsurance side, the market environment. It's this. And with regard to the casualty business of Ergo in Germany, I would suggest you cannot possibly compare it at all with U.S. casualty business. It's totally different market. It's totally different market dynamics. I would say the German casualty business is plain vanilla business.

Okay. Yeah, Vinic, your question on derivatives and the commodities. First of all, I can confirm that there is a significant positive result impact from commodity derivatives. That's something I mentioned already in my introduction to give you an order of magnitude. It's a high double-digit million euro number. And this is part of our overall investment strategy where we try to hedge inflation as much as we can. Of course, there's always some basis risk. But we really look into our liability position also from an inflation perspective and then and then set up an asset portfolio which, as much as possible, really hedges this inflation exposure. And to do that, we are relying on various asset classes. You were mentioning real assets, and equities are also part of that. but also obviously commodities. And one way to invest into commodities is by using derivatives. But then it's also inflation-linked bonds, for example. That's also part of that investment universe we're using for these inflation kind of hedges. In the reinsurance portfolio, all together, it's about 25% of our assets, which are inflation-sensitive, to give you an order of magnitude.

Sure. And Christoph, sorry to ask, Has there been an increase in commodities recently because of inflation or was it just stable and now we are seeing the results?

I mean, this commodity position is not a static position per se. So in that regard, we are always looking into opportunities and then also giving on the opportunities we see on an opportunistic base, increasing the portfolio if we think it's the right environment to do so. So as it's no static hedge, I'm a little bit... I'm struggling a little bit what is the basis for comparison but indeed we have been benefiting quite a lot this quarter from commodities maybe let's put it that way and I think that's about it what I can say about that Thank you very much Thank you and we'll now move on to our next question over the phone which comes from Anthony Wang from RBC please go ahead

Thank you. Just two questions here. So first one on the life and health rate, would you provide some color on the U.S. and non-U.S. of the mortality claims, please? I think it would be helpful to understand, like, the biggest exposure other than U.S. going forward. The second question is on P&C regrowth. Given the outlook on price momentum, Could you give some comment on these lines where you would think to overweight and underweight in terms of growth going forward? Thank you.

So Anthony, this is Joachim. So on the life and health reinsurance side, Where is the potentially bigger loss potentials or claims potentials sitting? On the mortality side, it's always the single largest event is a pandemic, actually. If it's not a pandemic, it could be a natural catastrophe just causing a high number of deaths, and then it is single large risks. So individuals passing away with very high sums. What are the amounts? I mean, a pandemic can cost, you know, our modeling, the one in 200 years loss that goes in excess of a billion of euro for our account. The single large losses for one individual, depending on the client relationship, they can make up 10 million, 20 million euros. they can make up 30, 40, 50 million per person. That is roughly my answer if I got your question fully right.

On the PNC... Sorry, I just want to follow up on that. I guess it's just if you could provide any color on U.S. and non-U.S. of the COVID claims would be helpful.

Oh, you mean the COVID claims only. Sorry. Then on the COVID claims for the U.S., these were in the first half year around, Christoph, was it around 300? Around.

Well, the point is we have 140 in the quarter. I think you were referring to the full half year, but for the quarter, 140. And what I cannot give you or what we do not provide you with is the exact split between the emerging markets and the mature markets, so North American markets. But to give you an order of magnitude, the expectation we had initially was for the mature market, the actual development is pretty close to the initial expectations. So the initial guidance would pretty well have covered what the actual development was in the United States and in other mature markets. So what comes on top must be then, if you do the math, coming from India and South Africa.

Thank you. So I take the second question which was referring to P&C reinsurance growth appetite and you asked for where do we have an overweight appetite, where do we have an underweight appetite. I need to be a little bit careful and generic in my answer because of course this response is highly interesting also to the competition. But broadly I would say there is sort of a natural limit of how much share as a P&C reinsurer you can have in the big exposures because one client wouldn't give all of it to one reinsurer. And if we assume that this is sitting somewhere around 25% in many cases when it comes to very high exposures, it may be sitting somewhere 15% per reinsurer, not more. Then I would say in markets with high nut-cut exposures like the US, like Japan, like Australia and some others more, we are relatively close to how far a client and how far we ourselves would go. And with regard to the non-peak businesses, there is appetite to grow it as much as possible as long as it diversifies And as long as the market environment or the rates look attractive to us, there we follow really a transactional, more opportunistic approach. And then there is some underweight. areas where we would say we wouldn't like more of that. That is typically those areas where we have seen industry issues or company-specific issues with regard to the quality of the business or with regard to the appropriate rates of this business. Yes, we had been more reluctant in the U.S. casualty business in the past years, but as we see the original market catching up for its deficits in this, if you like. We are more open to it, but still cautious and selective. On the life side, for example, with regard to the Australian DI business, I don't need to repeat that that was a to-be-fixed area for us for many, many years, and there we would have an underweight appetite. So underweight is mostly where we had issues. Sure, thank you.

Thank you. And we'll now move to our next question over the phone, which comes from Ashik Masadi from J.P. Morgan. Please go ahead.

Yeah, thank you. I just have a couple of questions. First of all, in terms of capital return, I mean, I think you mentioned earlier the Solvency Capital has been very strong and has been largely supported by a strong diversification benefit. So if I think about it, I mean, last time I remember you mentioned that the reason why you are not willing to do the share buyback this year is because you plan to grow faster. Now the growth is coming, but not very capital intensive. So is there any update on potential capital return plans and can it be revisited in the third quarter results this year or early next year? So that's the first question. Second thing is, I mean, clearly $1.7 billion of your $2.8 billion earnings is already done. So you're left with $1.1 billion to be done. Now, clearly, I agree that the uncertainty around CAT is high as we enter the hurricane season. But how would you classify the reason why you're not upgrading the guidance? Is it because of the CAT that has already happened, which is the July flood losses? Or would you say that's not really the problem? The problem is we just don't know what is going to come. So how would you classify not increasing the guidance here? And thirdly is any thoughts on cyber business if you can give? I mean, clearly some of your peers, one of your peers, a smaller peer has recently reported and they were talking about like prices doubling in cyber markets. So what would you say? I mean, is the cyber market, you would say, getting better in terms of loss frequency, severity, pricing? I mean, is it getting more profitable, or would you say there remains a constructive uncertainty around cyber in the next, say, two to three years? Thank you.

Okay, Christoph speaking. Yeah, Christoph speaking here. First of all, the capitalization, the growth, and the potential share buyback. Well, first of all, yes, indeed, we are pleased with the growth, and we are pleased with the diversification, and we are also pleased with the capitalization that we have achieved so far. At the same time, it's only mid-year, and you know we usually do not talk about Share by Pax mid-year anyway. There's a lot of development still ongoing, and one important base for Share by Pax is also just the earnings of the year and how the final result will be evolved. So therefore, we don't see the need to immediately go into these discussions. But at the same time, beginning of next year, once we know what the year-end result will be and how the second half of the year has evolved, then very obviously it will be on the agenda that we will sit together and discuss if and to what extent another share buyback should be done. Result-wise, I think that's your second question, 1.7 billion out of 2.8. Well, I mean, you know, our business is volatile sometimes. We are ahead, but we are ahead as large losses have been below expectation the first half of the year. And that's a pattern that's not completely unusual. And we should be really careful in extrapolating that already until year end. So as much as we are pleased by the head start, we still continue to be a little bit cautious. And that's basically the reason why we think it would be premature to talk about higher earnings targets for this year. Having said that, operationally, we are really pleased about the development. So really, whenever we look into the business, the underlying profitability, the underlying development of the business from an operational perspective is really outstanding. And the third question, I think, Joachim.

Yeah, I will take it, Christoph. So, Ashik, this is Joachim. Is the cyber market getting better now? So I would say the cyber market started pretty much as an immature market in various senses. Immature in the sense of although individuals and companies were cyber exposed, there was no or very little demand in the very beginning. And also from a risk carrier perspective, there was little, if not any data. And even if you had historic data, what did the historic data tell you in terms of the cyber risks going forward? So since then, I think the cyber industry, the cyber insurance industry has matured. Mainly market leaders, and we are among them, have invested a lot of resources into a proper cyber risk understanding and in properly assessing our risks. And since then, the market leaders have defined their underwriting policies accordingly. And the main point about the underwriting policies is, to me, not primarily pricing, whether you price 100 for a risk or 103 or 91. It is that you expose yourself to those type of cyber risks where you believe that they diversify or have the potential to diversify across regions and across clients, and to make sure that the accumulation risk is under control, because cyber, of course, has a very systemic component and a very toxic one, And you better make sure as a risk carrier that you don't get involved into this one. And with these policies, the market leaders have been growing with a growing demand. And so far, we see the market as good in the sense responsive. to a change in losses responsive in terms of I would say risk management requirements that the risk carriers suggest to their clients and that would be my comprehensive qualitative answer to your question at this point.

Thank you Jochen.

Thank you. Thanks a lot.

Thank you, and we'll move on to our next question over the phone, which comes from Thomas Fossard from HSBC. Please go ahead, your line is open.

Yes, good afternoon, everyone. Two questions, please, on the life and health reinsurance business. Actually, we talked a lot of growth coming from P&C, but can you explain us a bit more what's going on on the life and health reinsurance side? in terms of top line growth. In your financial statement or report, you're pointing to some loss of treaties in Europe and Asia, if I remember well. So I was wondering why this was the case. And second point in another slide, you're pointing to very strong growth in new business. But of course, in our first term, we are not seeing that. would be interested to better understand the dynamic here and also if you could quantify how much is the new business growth. And second point would be more relating to the underlying profitability of the life and as rebooked. It seems to be that it's going from strength to strength on a quarterly basis, stripping out COVID. I know that there is a bit of a one-off into that, but it seems to be that you're very, very satisfied with the underlying performance of the live rebook. So I was wondering if actually you're not too conservative, too prudent as well at this tense now regarding your technical margin, including fee income guidance for maybe over the next two years. Thank you.

So Thomas, thanks for your question. Good afternoon. This is Joachim. The life and health reinsurance business is expected to grow in the next years with a CAGR of 4%. In this year and in this quarter, we have seen a slight premium decrease, I mean a marginal decrease, which doesn't break the expectation or doesn't change our picture. It is simply due to mainly FX effects, which in other quarters may just go the other way around. And it's also thanks to a couple of transactions that have run off. It's not transactions that we have cancelled. It is like when you have, for example, a five years capital relief transaction and there is no longer a need for a capital relief, then this transaction runs off and that decrease in premium is taken into account. Nothing else than that with regard to the numbers. Then how is the business growing? It is growing through, again, financially motivated reinsurance needs of our clients. That is nothing new, but it is continuing to be a big need, both in the North American markets but also in Asia. And there is a value proposition that has been extending every more, and that is the predictive analytics capabilities of our live colleagues, which they offer and build into their sedent propositions, which allows them then to take a proportional reinsurance business. That's mainly a U.S. growth reason. And then the underlying profitability is tripping out. COVID, you're right. It's a nice thing. And I said in my introductory remarks, it's a shame that there are COVID losses because this is just covering how beautiful the underlying is. But you want a better commitment with regard to the results. I was in charge of the life reinsurance business. I've seen that every year, if not every, but every other year, there was something that in the way of showing growing IFRS earnings. But if you ask us, we do believe that once these extraordinary effects like COVID losses are done, that the underlines will provide a very nice bottom line impact to the group and the fee income I would say if you expect going forward that that will be around 100 million earnings per year, then that would be a pretty appropriate guess. Thanks.

Thank you. We'll now move on to our next question over the phone, which comes from Ian Pierce from Credit Suisse. Please go ahead. Your line is open.

Hi, thanks for taking my questions. I just had one on a follow-up on cyber. I'm just wondering if you could add a little bit more details to sort of what sort of rate increases you're seeing on your cyber book, what your sort of growth expectations are there if you're deploying capital and sort of growing ahead of rate, just sort of thinking about that as what you're seeing in the market in terms of claims trends and also how much cyber is contributing to the overall, you know, very strong growth that you delivered. And then my second one was just on, there was a bit in the presentation that talks about monetizing digital business investments. I was just wondering if you could elaborate on this, if this is related to sort of, you know, monetizing the investments you made in some of the digital partners investments. how you think about going about that, whether that's sort of exiting investments that you've made, and should we think that this is a sign of less investment going forwards, or is it very much that you expect the digital partners franchise to continue to grow, but that sort of first cohort of investments that you've made is now sort of ready to start showing some gains? Thanks.

Okay, I will take, Ian, this is Joachim, good afternoon. I take the first one with regard to cyber. You asked about the rate increases that we are seeing. We have seen this year rate increases very clearly double digit. Is that good or is that bad? Is that enough or is that insufficient? it was at least good enough to cover the higher losses which we have seen since the outbreak of the pandemic and the related increase of cybercrime. And going forward, we as Munich, we would expect that demand grow faster than supply. because there is that much capacity that the whole industry can altogether offer to the market, and we believe the demand in the end will extend that, and there is no capital market capacity available. So my expectation would be that the pressure on rates upwards is going on. Second question. Ian, we have a difficulty in this room because the quality was a little bit poor of the transmission when you asked your second question, and we are not exactly sure what it was. Would you mind just repeating it?

Yeah, sure. Sorry about that. Yeah, it was just around the line in the presentation around the monetization of digital investments. I was just wondering if you could elaborate on how you're thinking about going about monetizing those digital investments.

First of all, we are keen to make these investments with the intent to improve our strategic positioning going forward. allowing us access to the original market, which we would never have as a pure classic traditional reinsurer. And we are not going for the quick money or the quick gains, but we are going for strategic positioning for some sort of what others call a stickiness, etc. And when that is working, we are also happy to increase our investments and not yet the earnings from that, if that further improves that strategic strength. And so in total, we have in the meantime at least a handful of digital investments which have transformed into concrete business plans which are providing at this point in time still relatively small earnings contribution with regard to our P&L size. But by 2025, they will already deliver three-digit billion earnings Beyond that, beyond 2025, we haven't planned anything. But if you ask me, are we more keen to increase those earnings or to even do further investments, I would say if we can do good further investments, I would be happy to do that.

Perfect. Thank you.

Thank you. As a reminder, ladies and gentlemen, it is Star 1 on your telephone keypad if you wish to ask a question on today's call. We'll now move to our next question over the phone, which comes from Darius Sapkowskis from KBW. Please go ahead. Your line is open.

Oh, hi. Two questions, please. You spoke about hedging on the asset side for inflation. Just a question on inflation on the liability side. So given a notable amount of COVID stimulus, what are you seeing in terms of general claims inflation in the U.S. if you kind of attempted to exclude social inflation trends, if possible? And are you cautious about the general claims inflation outlook at all? And the second question is, any update on South African riot losses for yourselves in the industry? Thank you.

Yeah, Christoph, I'll start with your second question. There's nothing I can give you today on the South African losses. It's too early to tell, finally. And on the inflation, on the liability side, social inflation... I think that's a topic we covered quite often already in recent calls as we, as you know, had to adjust liabilities in some of our books over the last few years. Never really to an extent that it was something which was visible on the overall reserving level and we were always still able to achieve our positive runoff targets. But in certain pockets of our books, we here and there had to also strengthen the liabilities based on this social inflation experience. So what we're doing going forward, very obviously, is to reflect that in underwriting wherever we can. We are very cautious when it comes to social inflation issues. bone exposures on the U.S. casualty side. We try to implement it in the structure of the treaties wherever we can. We obviously try to reflect the most recent estimates in also pricing assumptions, looking at at the individual treaties, at the renewal dates. And again, we are not renewing quite a lot of business. Going forward, the difficulty with long-term assumptions like that always is that it sometimes takes quite some time until you really know that you are at the end of a development or if it's still ongoing. And what makes it particularly difficult this time is that we saw quite a reduced activity in courts across the United States during COVID, which will pick up again. And there we are very much convinced that the reduced activity We should not misinterpret it in a way that the social inflation phenomenon is already gone or is already fully digested by the industry. But we give the current development, which is slightly better, we give that really no credibility at all going forward. So I think that that's the overview on the social inflation, obviously on the liabilities. There are other pieces of inflation which also play a role. But again, we have annual contracts. We reflect that in pricing as soon as we can. We have some index clauses for certain tariffs, also certain treaties, certain tariffs, certain covers also in place. So all in all, we feel well prepared for inflation.

I apologize. I think I misphrased my question. I'm essentially asking about the monetary stimulus driving the inflation. So I'm talking about general claims inflation rather than social inflation. So I'm just curious if you're cautious about the outlook for material prices going into cat season and things like that. What is your view? Thank you.

I think the general answer is the same, that we feel well-prepared. Part of our cut models are already the post-claim amplification of prices, so that there is a certain increased price of material after a big cut event is something which is anyway part of our model assumptions. Now you could still ask to what extent and so on and so forth. But I think the general answer is we feel well prepared also for that piece of inflation. Maybe that I was talking more about social inflation is a signal that if you would ask me personally what is the more difficult part or the more difficult piece of inflation, it continues to be the social inflation more than anything else.

And then I'd like to maybe add one comment with regard to Thomas's question before, asking for some life and health reinsurance background. Gratefully, both Christoph and Christian, they made me aware that one of my statements maybe was not precise enough. I correct it. I said that you could expect like €100 million of fee income going forward. The correct statement would have been that in this first half year 2021, we have actually seen €100 million fee income. Now, you cannot just double it to have an annual figure, but going forward, as in the past, we would expect this number to grow over time.

Okay, I guess there are no further questions. May I ask Simon to confirm?

No, sir. The queue is now clear. Thank you.

Okay, thanks. Then thanks to everyone for joining us today. Sorry for the inconvenience due to some technical issues. I think they were resolved in the course of the call. Should you have further questions, please don't hesitate to get in touch with us with the IR team as always. And we are very much looking forward to meeting you soon again. Have a nice day and goodbye.

Thank you to our speakers. Ladies and gentlemen, this does conclude today's call. Thank you very much for your participation.