Münchener Rückversicherungs-Gesellschaft AG in München

Good day and welcome to the Munich Re quarterly statement as at 30th of September 2021 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Becker-Hussong. Please go ahead.

Thank you, Saskia. Hello, everyone. Good morning and a warm welcome to our call on Munich Re's Q3 earnings release. Today's speaker is our CFO, Christoph Jureka. The procedure is very simple, straightforward. Christoph will kick it off with his introduction. And then we will go right into Q&A. So no time to lose. Christoph, the floor is yours.

Thank you, Christian. Well, good morning also from my side. It's a pleasure to present the Q3 results this morning. Q3 was a heavy nut-cut quarter, which was dominated by two major events, Storm Burnt and Hurricane Ida. These two events accounted for an insured market loss of almost $50 billion, with Ida alone standing out at around $35 billion, according to our own assessment. This fits into a series of above-average major losses, including COVID-19, in the last five years. As a consequence, reinsurers have been increasingly scrutinized by capital markets as regards to the appropriateness of the internal models and partially perceived underestimation of climate change risks. Therefore, before I start with my usual remarks on our quarterly result, I would like to take the opportunity to speak about how Munich Re looks at these topics based on the slide deck included in our Q3 presentation starting on page 19. Climate change is not a new phenomenon for us. Munich Re has been a pioneer in the research of climate change for almost 50 years. We recognized quite early the relation between global warming and the risk of extreme weather-related events. This impact is not uniform, and there are significant differences across regions and powers. To mirror these risks, we permanently incorporate new data into our internal risk and pricing models. And as risks are constantly changing, we also reflect forward-looking findings and incorporate the latest academic research. This in particular holds true for our 35 peak risk scenarios, but also for what we call non-peak risks. In total, as you can see on slide 21, We model more than 100 risk scenarios, albeit the basis for less impactful risks is somewhat less sophisticated compared to peak risks, which are driving our exposure management and economic capitalization. It is important to add here that depending on where we stand in the market cycle, the theoretical prices cannot always be implemented in the market. Therefore, exposure and cycle management as well as underwriting our decisive factors for the profitability of our book. For example, we have been traditionally very cautious with regard to frequency or aggregate covers, and we still are. One example of our peak risks is flood Germany, as shown on slide 22. By the way, a risk which we have been modeling for quite a long time. Even though the flood in July was the costliest nut-cut event in German history, we deem a flood loss of that order of magnitude to happen about once every 50 years. While the aggregate loss is consistent with our model, the regional distribution of losses is much more difficult to model, also due to climate change-driven developments like the increased risk of severe rainfall in local areas. Now, how can we respond? First of all, it's our responsibility to help the people affected and support rapid reconstruction. At the same time, preventive measures have to be taken in addition to stricter rules defining the use of land. As there are still many households without flood coverage, this insurance gap has to be closed with primary insurance and related reinsurance cover, but only at risk adequate prices. Capital to cover these perils is sufficiently available in the market. On page 23, you can see an example for non-peak risk. Wildfire is a risk where the impact of climate change is clearly visible today. As you can see in the chart, there's a positive correlation between global warming and the frequency and severity of wildfires in California. Does this mean we don't ride wildfire risk anymore? No, it doesn't. We have been analyzing this trend for quite a while, investing a lot of effort to improve our internal wildfire model. The increased risk is reflected in our pricing. And in addition, we've adjusted our underwriting approach and have a much more selective risk appetite with a focus on rate adequacy. If you compare the actual nut-cut losses with our expectation, you'll notice that there is a certain fluctuation around the expectation every single year. Looking at the 10-year moving average as shown on page 24, this average meets our current expectation pretty well. Comparing last year to this year, sometimes it's just a matter of a few miles in the track of a hurricane, whether a market loss ends up at 10 billion US dollars or multiple times higher. In the short term, the randomness of events and the specifics of the affected areas are much more relevant for the loss amount than climate change. In this context, it is important that we can reprice most of the cut business annually and thus respond to any change in the risk assessment in a timely manner. In the last couple of weeks, we were frequently asked if our expectation of around 8% not cut losses is still appropriate. given climate risks and the recent uptick in losses. As you can see on slide 25, the 8% is based on a probabilistic bottom-up analysis of our current portfolio, considering the peril-specific impact for man-made climate change and factors of natural climate variability, such as the variation of sea surface temperatures in the North Atlantic Ocean. We also consider changing regulation and social inflation, such as building standards and demand search. Even though we've expanded our nut-cut exposure in absolute terms and permanently redefined our models, the expected major nut-cut loss ratio of around 8% has been remarkably stable. Having said that, we are keeping this under regular review, and we might change it, but only if necessary. Finally, let me look at volatility from a more overarching perspective on page 26. Volatility is inherent to our business model, and we get paid for taking volatility from our students' books. The expansion of less cat-porn and less cyclical businesses like Liferay, Risk Solutions, and Ergo will reduce P&L volatility over time. Our strong balance sheet allows us to cope with volatility already in the short term. Even in bad years, we are committed to paying at least an unchanged dividend. Share buybacks increase the amount to be repatriated when no alternatives generating more value for our shareholders are available. And as you have seen in the third quarter results, diversification between earnings components, like the investment and technical result, and also between segments smoothens P&L volatility in quarters with increased loss activity. As a result, we are fully on track to achieve our IFRS earnings target, despite the large events we have been seeing. This brings me now to our Q3 result. As already indicated in the pre-announcement, we achieved a net result of €366 million, corresponding to an ROE of 6.3%. Year-to-date, the return on equity is a pleasing 12.1%. We are very happy to have achieved such a resilient performance given the high losses from the storm Bernd and hurricane Ida, not to forget the Texas freeze already in Q1. In our view, and as mentioned before, Bernd is the one in 50 years event, while Ida is the one in 10 years US hurricane event. Also in Q3, we benefited from a good operating profitability in all fields of business, but also from a strong investment result and also currency result related to our investments. Therefore, let's start to look a little bit deeper into investment result. In Q3, we achieved an investment return of 3.3%. The result was supported by disposal gains from typical portfolio turnover, but also from outsourcing activities to third-party asset managers. As a part of the disposal gains in Q3, and even more so in Q4, goes back to our share reduction in Admiral. I would like to emphasize that our close business relationship remains wholly unaffected by this transaction, which in no way reflects MiniGree's assessment of Admiral's current or future performance. Due to largely stable capital markets, the derivative result was unremarkable. The reinvestment yield dropped to 1.4% and as a result of investments in shorter maturities and lower interest rates during the quarter. Now turning to reinsurance. The life and health technical result including fee income of 9 million Euro again fell short of the prorata annual ambition. Higher than expected COVID-19 losses of 168 million Euros were driven by a surge in mortality in the United States. as well as an ongoing high mortality in South Africa and India. For 2021, we are now expecting COVID-19 losses of around €600 million. We will not reach our annual guidance of around €400 million for the technical result plus fee income. Adjusted for COVID-19, however, the underlying performance remains strong. In P&C reinsurance, we posted above average major losses, as mentioned. While COVID-19 losses were and are expected to remain insignificant, the combined ratio of 112.8% was burdened by the mentioned events. Given the high amount of nut-cut losses in this year, we will not achieve our combined ratio guidance for 2021. However, the underlying performance remains sound, including reserve releases, the usual amount of 4 percentage points, The normalized comment ratio amounted to 95.2%, which is fully in line with our full-year guidance. In primary insurance, Ergo continued its pleasing financial performance. With a net result of €134 million in Q3, Ergo is on a very good track towards its full-year guidance. I'm pleased that a strong underlying performance with sustainable profitable growth and stringent cost management, as well as a higher investment result could largely offset significant losses from storm burn also for Ergo of around 0.1 billion euros. With negative effects of 12 million in Q3, the COVID-19 impact continues to be marginal. German life and health business posted net earnings of 80 million euros. good operating performance and health, and still very low claims and travel contributed to the pleasing result. In P&C Germany, the combined ratio of 95.6% in Q3 was remarkably resilient. High flood losses were mitigated by ongoing profitable growth, favorable underlying claims development, lower large man-made losses, and stringent cost discipline. Given this earnings power, we are sticking to our full-year combined ratio guidance albeit with increased uncertainty depending on further major loss development. The international business of Ergo posted a somewhat lower net result of 32 million euros affected by COVID-19 related claims in India and large losses in the Baltics and Austria. But the operating performance continues to be strong. The ongoing good development in Poland and Greece as well as a seasonally strong quarter in Spain, contributed to the pleasing combined ratio of 92.3%. Now, a few remarks only on capitalization. The group's economic position is very sound and remains sound. Our solvency 2 ratio increased to 231% in Q3, which is largely attributable to the issue of our green bond, while the change in all the other drivers was rather small. Finally, I would like to conclude with the outlook for 2021. We maintain our group net income guidance of 2.8 billion with unchanged 2.3 billion in reinsurance and 0.5 billion in ergo. Within reinsurance, however, the composition of earnings contribution has shifted. Given the high amount of not cut losses, we expect an increased combined ratio of around 100% in property casualty. And due to COVID-19, we will also not reach the guidance for the technical result, including fee income in life and health. This has been lowered to 200 million euros. On aggregate, the lower underwriting result can be fully compensated for by a strong investment performance, which is expected to continue into Q4. All in all, we are very optimistic to achieve the outlook, which is built on our usual cautious planning approach and reflecting higher than 12% large losses following our usual internal seasonality pattern. With this, I'm looking forward to answering your questions. But first, I'll hand back the question.

Thank you, Christoph. So we can now go right into Q&A. As always, please consider my housekeeping remark. We would like to limit the number of your questions to a maximum of two per person. And if you have further questions, please go back to the queue. And with that, I'll hand it over to Saskia for the first question. Thank you.

Thank you. Ladies and gentlemen, if you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star 1 for your questions today. Our first question today comes from Andrew Ritchie of Autonomous Research. Please go ahead.

Hi there. Thanks for the additional disclosure and discussion around catastrophes and climate change, etc. Maybe, Christoph, I'm just trying to judge, is the message here then that you feel that catastrophe pricing is broadly adequate? Or do you – because obviously you feel more or less you're on top of it. Or are you saying still, okay, with current pricing you can position a good portfolio, but really you would still expect to see ongoing higher pricing across layers and regions to reflect – some of the trending effects. I'm just trying to understand what the message is, whether it's okay or actually we want to see much more rate on catastrophe business. The second question is an easy one, I think. When you segment the investment results, there's a section called commodities slash inflation. in one of the slides which there has been zero or negligible effect in Q3 and nine months, which surprised me a bit. I would have thought maybe some of your commodity-linked or inflation-linked assets would have had a positive result. So maybe if you could just clarify that. Thanks.

Well, Enzo, thank you for the question. Good morning. First, pricing on the cut business. Well, I think it's a differentiated picture. We saw hardening of many cut-prone markets over the last few years already, and this was highly necessary. In some markets and in some parallels where we did not see a lot of claims, we still need higher prices. And this was reflected in my introductory remarks when I was talking about the fact that theoretical prices are not always easy to be implemented. That's especially the case when there wasn't a big event for a longer time. So in the current environment, I would now be pretty optimistic that in Europe, at 1.1, we see some upward movement in prices. That's at least what I hear. And looking at the events we saw in the past and to the pricing level we experienced in certain occasions, I think that's highly necessary. In other geographies, we saw quite significant movements in the past, so there the pressure is for sure less than in Europe. Summing that all up, I think what I can confirm is that a cut business is clearly a profitable line of business, earning its cost of capital and a decent margin on top of that. So on a more long-term perspective and looking at the book overall, we're very happy with the profitability. Second question, commodities. There's a few items in there, and so there might be offsetting elements. The inflation linkers per se, of course, are benefiting from higher inflation. Maybe that's the more high-level answer. If you want to have more details, we might be forced to take it offline, or you can take it up as a question later on.

Okay, thanks.

Thank you. We move on to our next question now from Vinit Maholtra from Mediobanker. Please go ahead.

Yes, good morning. Thank you, Christophe. The first one is more on the reinvestment yield, which you commented is due to lower maturity. Because when I look at the interest rates, it's not that much different. In fact, you know, the reinvestment yield of one point is not very far from the December level of 1.3, but obviously, I mean, bond yields are 30, 40 basis points higher. So I'm just curious, are you positioning the asset side for pickup in interest rates consciously? Also seen in the duration, which are moving quite a lot every quarter these days, but are you positioning for a rise in interest rates? That's my first question. Second question is, Just on the live side, I picked up a comment that the COVID, ex-COVID U.S. mortality or experience was negative. Is that purely, is that something to flag in terms of some other trends or is it just some fallout from how COVID is reported or linked to COVID illnesses or deaths? If you could just comment a bit about the ex-COVID U.S. mortality, please. That could be helpful. And I'll come back for more questions later. Thank you.

Thank you, Vinit. The reinvestment yield... Indeed, the 1.4 is lower than what we saw in the last couple of quarters. The reason is that interest rates in the quarter themselves were lower than at quarter end. So towards quarter end, the interest rates went up again, but during the quarter they were lower. On top of that, we invested in lower duration assets. And I think what I can add is also that the volumes have not been spectacular high in this quarter. We were talking about rather low volumes. There's always a certain element of taking a position in these things, but much more often it is really ALM-driven, what kind of assets you're investing into at which point in time. And then maybe on top of that, as you are aware, the green bond was also issued in this quarter, so you get in a lot of cash when you're issuing that bond. then it takes some time until you take the reinvestment. So this also is, in a sense, not helpful for the reinvestment yield because it takes some time until you reinvest it, so you have it in short-term cash-like investments for some time. And if your overall volume is not very high, then a bond issuance of a billion is making a difference already also from that angle. So I think that that's the overall answer. Are we taking a big position towards interest rate increase? No, we don't. As you know, we're also looking at that in a very differentiated way when it comes to the various currencies we're investing into. So, no, there's not a big position taking. But here and there in single portfolios, of course, we are trying to optimize our portfolio all the time, also given the current environment. And then small positions, marginal positions from an overall perspective are always being taken. Okay. Thank you.

Thank you. We now move on to Wilhart Cassel from UBS for our next question.

Sorry, there was a second question, Vinit, on the non-COVID US performance. And I think I can make that very short. There's not a structural topic there. Potentially, there's something which is even related to COVID. We're not sure. We think the separation, what is COVID and what is not COVID, we've done it as good as possible. But you're never 1,000% sure there. So maybe there's an effect from that as well that will have to remain sorted out in the course of the next few quarters maybe. But altogether, no structural issue there. And as you have seen, the overall performance of the live rebook was good.

Thank you, Christian.

Thanks.

First of all, on the premium growth drivers in P&C RE, what were the major ones here? Obviously, very, very strong growth, Q3 discreet. Anything that shouldn't be extrapolated, perhaps ruin statements, or is this a pretty good starting point to base our 2022 growth off? And secondly, again, thanks for the slides for the climate change and ATCAT impact. Maybe just to clarify, should one of the key messages I should take from this, and given expected exposure growth in 2022, you're still comfortable at the eight points of NACAT budget at this point, is that correct? Or should we view that maybe there's some heightened risk of this increasing? Thanks.

Well, thank you, Will. I'll start with the second one. Yes, we are still comfortable with the 8%. The process is... unchanged, so we'll look at that again in the first quarter of next year, do the mentioned bottom-up analysis, including this probabilistic modeling, and then we'll find out if the 8% is still the best number to be communicated. That was the case for the last many years, and we'll see in Q1. And if 8% is still the best number, then it will be 8, and if it changes, it will be another number. But at this point in time, I do not see any need and any tendency that the change would be appropriate. The premium growth in the P&C reinsurance segment is really an across-the-board growth. So it's affecting both the traditional reinsurance as well as risk solutions. And in these business fields, it's really across all markets, more or less, all the businesses we are having. Because what we really see is that the current pricing environment is attractive really across the board, more or less on a global level. And therefore, we are very happy to grow the book in all these areas. As you know, growth per se is not a target for us. So we only do grow our book if the profitability prospects are correct. So with extrapolating our growth, the difficulty always is that it's highly depending on the market environment. If it continues to be attractive, then we will continue to grow our book across all the sub-segments of all the businesses. But then it has to be attractive. The environment has to be attractive really for all of them. And currently, I think we're optimistic also for next year. But then, of course, eventually the cycle will break. So I wouldn't be unrealistic that the reinsurance business and the global insurance business will continue to be a cyclical business. So as a matter of fact, at a certain point in time, margins will reduce again. And then we will react, of course.

Thanks. Is there any chance to get an understanding of maybe how much of that 18% year-on-year growth is exposure versus price? Is that possible?

That's a tough one. I mean, I think you're aware of the renewals, how we communicated them. And there, as a rule of thumb, I think the price increase you would deduct from that, what is it, around 2% of that order of magnitude? But then there's a lot of business where we are also growing, which is not part of the renewals. And there is much more difficult, also given the fact that these businesses are so differentiated and different. And there it's hard to give you a number. Also, the way we measure that is somewhat different. So therefore, I'm a little bit reluctant. But all in all, I think the key message is that we're growing the book into a more profitable environment. it's not like that we're having the same book and increase the prices significantly. It's really we're having more business, but at more attractive prices and terms.

Brilliant. Thank you.

Can we have the next question, please?

Saskia, please, the next question. Hello? Saskia?

We can now take the next question from Ian Pierce from Credit Suisse.

Ian, please go ahead.

We can now take the next question from Vinit Malhotra from Medial Banker.

Oh, hi there. Morning. Sorry, I'm back and I didn't expect to be back so soon. But just if I can ask one or two more topics, please. One is you know that there's also reserve movements in the major loss category, not just the basic loss. Are you able to quantify them if they are meaningful in the third quarter? That's the first question, please. The second one I would say is that the FX in fact, I mean, the quarter was, in terms of dollar strength, 3Q was not that different from 1Q, but then 3Q has a material number there. uh could you just quantify or explain whether there was some uh driver behind such a big fx move and this last very quick one is that are you happy with the 95.3 normalized for nine months uh given we only have one quarter to get to the 95 so i i appreciate it's about in line but would you have expected a faster run through of rate for example thank you

Thank you, Winit. On the major losses, indeed, our reserving approach is very similar to the reserving approach in the basic losses. So we start from a conservative perspective and then a runoff is something which will occur eventually in case our assumptions are proven to be correct. In year to date, for this year we are talking not about a very significant number, And also these kind of prior year developments, they fluctuate significantly between the quarters sometime. Therefore we decided to release it only once a year with our annual report. As you know where you can deduct the full year figures. because we are of the opinion that that's for clear, giving a much better picture than commenting on quarterly volatility with respect to these developments. which are quite natural because we are reviewing all our major large loss provisions more or less every single quarter. So it's just the usual activity what you do in claims handling and claims adjustment that you review these provisions every single quarter. But sometimes trends tend to be a little bit volatile, therefore we are only talking about them. once a year. But again, year-to-date, not very significant. Ethics, well, our ethics management has two components. First of all, we optimize the positioning between the various financial dimensions we have to look at. So this is IFRS, this is the economic perspective, this is local gap, this is capital management. And that's not a single sweet spot because our ethics position is different according to all these various dimensions. So therefore, already the definition of a sweet spot implies that you're never completely protected when it comes to ethics movements in none of these standards. After having taken that positioning, what our asset managers can do and what they are doing is they take positions on top of that. So if they have a very strong opinion of an ethics movement, of the US dollar movement, the pound movement, whatever, they can take a position like they do for other whiskey asset classes as well. And therefore it may well be the case, or it's very often the case actually, that similar ethics movement in various quarters they result in different outcomes because the positions were different and the positions our asset managers have been taking. And therefore, I think the FX result in Q3 has an element of volatility in it, but there's also an element of a very good performance in that. And this, I think, is something I'd like to underline here. Third question, the development towards the 95 normalized combined ratio. I think we are happy with the development. I mean, in any case, you shouldn't expect movements in the way we book things to be overly volatile, given the fact that we take conservative views when setting loss picks. And therefore, we are fully on track to meet the 95 guidance. So what else could I expect, to be honest? So, yes, indeed, we're very happy with the development.

Thank you. We now move on to our next question from Darius Satkowskis from KBW. Please go ahead.

Hi. Thank you for taking my questions. First question. Some of your peers reported an impact to solvency to you ratio from capturing expected growth for next year in the pre-Q solvency ratios. Does your 231% solvency ratio capture your growth outlook for next year? And if so, how many percentage points of solvency to you does this amount to? That's the first question. Second question. I appreciate it's likely too early to tell, but when you have these discussions internally, given how you see the situation right now, do you expect COVID-related mortality losses next year? Thank you.

Well, the first question, that's a very clear rule how we do the accounting. We account in Solvency II for insurance contracts. as soon as we have the obligation. So as soon as we are legally bound to a contract. So therefore what is not included there is future renewals, future growth, which we are not obliged to take in our books already. Everything where we have already a contract is reflected in some of the two numbers. The second question, if I understood you correctly, was about COVID already for next year. As you have seen in P&C for this year, we reduced the guidance and we didn't see a lot of activity anymore in the third quarter at least. So generally it's trending down. There are still a few multi-year contracts which we have which might end up having some claims next year. But all in all, I would think that's rather insignificant in the context of all the overall amount of claims we're having in every single year anyway. It's more difficult on the life and health side. As you have been seeing, we have had to increase our guidance for this year twice already. And I have to say, unfortunately, the pandemic is by far not over. We have increasing case numbers now again in Europe, but also the United States is by far not over yet. And I think this pandemic surprised that already too often. So therefore I'm a little bit reluctant to call it off already now, but I would rather say that also next year we have to be prepared to still have claims on the life reside. I would expect them to be lower than what we saw this year because I'm still optimistic. And I think humankind will be making progress in fighting this pandemic. So the claims will be lower. but I'm pretty sure there will be claims also next year.

Thank you.

Thank you. We now move on to our next questioner, Ian Pearce from Credit Suisse. Please go ahead.

Hi, thanks for taking my questions. My first one was on NatCat growth. With the sort of statement that NatCat is seeing very good returns on capital and comfort around the 8% budget. Should we be expecting exposure growth and PML growth in NatCat business next year? And my second one was just around the decision to sell Admiral. If you could just give us a little more detail on sort of the strategic logic for selling down there and also what the realized gain we might expect on that stake sale in Q4 might be.

Yeah, thank you. On the nut-cut side, I think as mentioned before, we are happy to grow the book if the rates are adequate. And again, I think it's the core of the strategy of every reinsurer because it's really where we started from, as reinsurance businesses, reinsurance market overall. The geographic diversification is an obvious benefit we can deliver to the individual markets. And as long as the rates are adequate, we are happy to grow that. How that... will play out in the 1.1 renewal. I think it's too early to tell. But again, if rates are adequate, we are happy to grow that, and then PMLs also would go up. On the Admiral side, as I said in my introduction already, what we did has nothing to do with Admiral per se, but the concentration of a single stock in the context of our all-equity portfolio was just too big. So therefore, we reduced the investment amount into this one single stock to benefit from a better diversification going forward and to reduce the concentration risk here. Also having in mind, and you're probably aware of that, how well the Admiral stock performed over the last few years.

Thanks.

Can we have the next question, please? Thank you. We move on to Michael Haidt from Commerzbank. Please go ahead.

Thank you very much. Good morning to everyone. Two questions both on Ergo Lifehouse Germany. The net profit contribution from Life Germany was quite high, 80 million, and year-to-date it is even above 200 million. Can you say more specifically what drove this IFRS profit, and is that level a level which you think is sustainable going forward? Second question, I assume the investment strategy remained broadly unchanged despite a shorter duration of newly invested money. From the past, I remember you invest also in the U.S. and you run some ethics risk there. Is this still the case or has it even increased?

Yeah, Life Health Germany, indeed we are happy with the performance. the maybe better than expected performance, at least in your perception, is attributable more to health and the travel business than the life business per se. As you know, in this segment, we are combining the life businesses in Germany with the health business and also the travel business. And health is performing well, and also on the travel side, we have still a very good performance, given the fact that, of course, also travel was restricted to some extent. So therefore, we would not expect that to continue like that also going forward. But a certain swing back to normal is something we would expect on that side, maybe even more midterm than short term. More short term on the life side, I think what I have to mention as well is that from the ZZR, so the ZZR realizations, you are aware of them. we already did around 90% for this year in the first three quarters. So therefore, for the fourth quarter, we expect much less. And you know, in IFRS, this immediately translates into realized gains on the asset side. And therefore, also for the fourth quarter, the general expectation for that segment would be to contribute underproportionately given that lower realization level. The investment strategy is indeed unchanged. So we are investing significantly in the United States, already due to the fact that also our liabilities are quite a substantial amount in the United States. It's for sure one of the most important markets we are doing business in. And so indeed we are continuing to do that. We are running some FX risks, but as mentioned before, we are also doing some hedging there. with the technical difficulty that it's never possible to hedge all the various dimensions of metrics you're looking at. So IFRS, local gap, capital, it's all different. And on top of that, we're also taking FX positions deliberately sometimes if we have a very strong view on markets.

That also goes for LifeHealth Germany, right?

On the Life Health Germany side, it's different. So thank you for asking that more precisely. On the Life Health Germany side, we are investing in US assets But there it's really about, you know, hedging or fully hedging the currency effect. So there we do not take a lot of positions, but it's really hedging. And so the reason is that the liabilities are euro liabilities there, and we need to have a tight match currency-wise between the liabilities and the assets. So the position taking takes place in the reinsurance business.

Thank you very much.

Thank you. We now move on to Vikram Gandhi from Societe Generale. Please go ahead.

Hello, thank you for taking my questions. First one is on the ID&R level for the BNC COVID reserves. At 65% at the nine-month stage, that looks remarkably high. So is it likely that we may see some changes releases perhaps next year. That's question one. And the second one is assuming the group is able to achieve the 2.8 billion or around 2.8 billion for this year, where you certainly seem quite optimistic, how should we think about potential return to share buybacks i know it's it's you know a your end decision and review then you know decided by the board and so but it basically i wanted to get a context of how how should you think about potential capital return versus the growth environment um so those are my two questions thank you

Yeah, Vikram, thank you very much for the questions. The claims adjustment process in COVID-19 is ongoing. And unfortunately, I have to again emphasize that it's slower than I would have expected personally, again. There is a number of reasons for that. But what we do is, of course, we follow our clients and we have to rely on the claims reporting as it comes in. from our primary insurance clients. And they are sometimes still waiting for the outcome of some legal proceedings, of some court actions, these kind of things. So it takes a little bit longer than expected still. And I would expect claims adjustments to go on until 2022 for sure, maybe mid of the year or something. And please be aware that I've been wrong with my assessment a number of times already, so don't give too much credibility towards what I'm saying now. Having said that, the IBR level is still high. That gives us a lot of confidence that our reserves are not on the light side. But I think for everything else, it's a little bit too early. When you still do not get the notifications in and you're still waiting for information from some of your key clients, then it's probably too early to talk about if there are any buffers or not. But I also wouldn't rule that out. Buyback, well, yeah, I don't have to repeat everything. I think, I mean, you're all aware that share buybacks are an integral part of our capital management and that we will always use them for repatriating more capital as soon as it is clear that there is not a more or higher value creation, more value creation by investing the money elsewhere. Now this year so far we have been in a very sweet spot. We have been growing our book significantly and at the same time increasing our capital strength and not only by the green bond but on top of that really by the operational development we have been showing. So this is I think a lot of support from an overarching capital management perspective. Can I predict anything now already what we will do in Q1? No, I can't, because we wait for the end results. We wait for the 1-1 renewal, business development, and then, as you know, we'll make up our minds only then. But so far, I think we can be very happy with the performance of our company and with the growth and the combination of the two leading to an even stronger capital base. So that's encouraging, isn't it?

Yes, indeed. Thank you.

Thank you. As a brief reminder, that is Star 1 to ask your question today. We now move on to Thomas Fossard from HSBC with our next question. Please go ahead.

Oh, yes. Good morning. Two questions. The first one will be on the live free business. I think that... It's probably fair to say that the volatility of the life-free earnings for the industry, I mean, I think that there is a kind of discovery process at the present time due to COVID. Does it change your view of the long-term earnings volatility of the business line and as a result, the need for maybe additional pricing or margin to cover maybe higher capital that you need to allocate to this line of business. And the second question will be relating to maybe the year 2022 outlook. It seems to me that compared to the scenario you based your five years looking forward view at the time of your last capital market day. It seems to me that things have strengthened much more in terms of top line growth, in terms of pricing. So, I mean, any comment you could put on how this is potentially accelerating the delivery of what you were expecting to achieve, or if this is front-loading somewhat what you wanted to report. Yeah, anything would be interesting. Thank you.

Thank you. Thomas on live free. Well, I think for COVID-19, it's too early to make the final assessment at this point in time. When the whole pandemic started, I think we were talking about our pandemic model also publicly, saying that the 1.4 billion loss would be a 200 years event. We're by far not there yet on the life side. But on the P&C side, claims have been much higher. What we also still don't know is if this COVID-19 impact on mortality, which we are seeing now in various markets, if there will be an offsetting effect after the pandemic has been dampening down. There's a lot of speculation and debate around that, but I don't think anybody has the clear answer yet. So therefore, I think for final assessment, it's too early. But yes, indeed, volatility is a little bit higher due to COVID-19. compared to what we have been expecting. On the other hand, the way we are currently presenting live free in IFRS is very asymmetric. So first performance shows up pretty quickly in the numbers, but a better than expected performance, if at all with a long delay or over a long time only, which I think I mentioned a few times already. And therefore, I think the value of the business per se is not really reflected well enough in the current IFRS numbers. So I think it's higher than what you could deduct from these IFRS numbers. A few years back, we had all these kinds of debates around the MCV publication. Going forward, we'll have IFRS 17. There are for sure better views how to look at the life-free business than the current IFRS. Let's put it that way. So therefore, I'm not concerned overall. And overall, it's clearly an attractive and profitable business for us, despite the pandemic at this point in time, which is a short-term effect anyway. Having said that, of course, we are reviewing that, and in certain areas where we think prices need to be increased, then we do so. Similarly, what we are doing in the P&C area as well. So maybe that's on life. On the outlook 2022, well, I mean, indeed a lot happened since our investor day a year ago. So, I mean, it's clearly premature to talk about numbers today and to give you an indication what the outlook could be for next year anyway. Maybe a few items I would look at if I would be in your shoes and to assess what we could be able to do in the next year, in the next few years. Let's start with growth, something you mentioned also. I think this year we have been indeed growing more. Market has been more positive than what we expected. The cycle has been more positive. But what remains unchanged is that this cycle will not last forever. And we're also paying a certain price for the longer cycle. We're discussing large losses a lot today already. So I think it's good to have that better, longer cycle now, but it's also necessary. The cycle will not stay with us forever, but the cycle will turn again. And that was our assumption when we released our strategy a year ago. And I don't think this has changed significantly. So in the later years of the strategy, we would still expect the cycle to be much less positive than it is today. The strategic answer always was to grow the businesses outside of the traditional reinsurance, and they're very happy that we have been able to grow them as well. The PEWI business, so the risk solutions business, the ergo business, the life-free businesses, and there we are making good progress to dampen volatility and to have a higher share of earnings also from that sources. Summarizing all of that, yes, the growth is good. The margins are good. The question out there is for how long it will continue to be that good. That's the growth side. On the claim side, volatility hit us this year above our expectations. So clearly for next year's outlook, we have to talk about the expectation then again, what the expectation is. And this is true, of course, for the large losses, but then also for the normalized comment ratio, which will benefit from the renewals we saw this year. We covered that early on today as well. At the same time, there is a significant part of our business which is not part of the regular renewals, so we will have to carefully analyze also the price development in these areas, and then also the business mix development, because obviously we were very happy to also write, for example, proportional business with higher combined ratios as long as it's profitable and at low risk. And then it would somehow, of course, influence the combined ratio to be expected next year, and it's maybe not always covered in the renewal reports. So that's also something we would look at internally, and if you make up your mind what to expect from us, that should also play a role. On the investment side, as much as the investment return helped us in diversifying around the higher not-cut losses and helping us to achieve our targets this year, you cannot expect that to be a new normal. These higher realizations have very specific reasons. We've been talking about admiral, we've been talking about outsourcing. We were talking about portfolio management activities. So these kind of things are not, in a sense, sustainable that you could expect them to continue. So there you should be very cautious. And then finally, my last remark is a comment I gave already end of 21 when we talked about the guidance, end of 20 when we talked about the guidance for 2021. Back then I said the plan for 2021 is particularly stretched. And this is also something which I would at least to remind you of, because when you talk about or think about what the basis for next year is, this is also something you have to keep in mind. That's maybe from my side what I can say about our assessment. Internally, I cannot give you anything else. The board has still to assess our planning, which is still ongoing internally. So that's about what I know myself. And so with that, I can leave it with you and trust you'll take the right conclusions from that.

Thank you. As there are no further questions at the moment, I'd like to hand the call back over to you, Mr. Becker-Hussang, for any additional or closing remarks.

Yes, thank you. Nothing to add from my side and, of course, happy to follow on with you on any questions you might have and hope to speak and hear all of you very soon. Thanks for attending and bye-bye.

Thank you. This concludes today's call. Thank you for your participation, ladies and gentlemen. You may now disconnect.