Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München

Ladies and gentlemen, thank you for standing by. I'm Natalie, your chorus call operator. Welcome and thank you for joining the Munich Re-Analyst and Investor Call on annual results and January renewals. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touchdown telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Christian Becker-Hursang. Please go ahead.

Thank you, Natalie. Good afternoon to all of you and a warm welcome to our call on Munich Re's fiscal year 2021 earnings and the outlook on 2022. Today's speakers are our CEO Joachim Wenning and our CFO Christoph Jureka. And the procedure is pretty much straightforward as always. I will now hand it over in a second to Joachim for his messages, and Christoph will add his statement afterwards. Then we should have plenty of time for your questions. And with that, I'm happy to pass it on to Joachim for his statement.

Excellent. Thank you very much, Christian and colleagues, everyone out there in the call. A warm welcome also from my side and good afternoon. 2021 was a successful year for MiniGree. And despite significant challenges imposed by a sharp rise in inflation levels, high net cut losses and ongoing claims from the COVID-19 pandemic, we delivered an excellent result of 2.9 billion euro. Hence, we even exceeded our ambitious financial target because a strong operational performance of all business segments offset the multiple challenges we had to face. Or simply speaking, diversification and earnings power at work. What is of equal importance is the earnings level we achieved is a very solid one, because despite high earnings, we at the same time strengthen the prudency of our balance sheet in various dimensions. And we want our shareholders to immediately participate in this pleasing outcome. And we propose to increase the dividend per share to 11 euro. And we have also decided to resume share buybacks in the order of 1 billion until the AGM next year, as you are aware of, since our ad hoc publicity yesterday. Now on page five, let's have a closer look at how the achievements in 2021 compared to our promises which we gave with our ambition 2025. The profitability level in terms of return of equity is already very good, within the range we are aiming for by 2025. We set the normalized result of $2.8 billion as basis for our earnings per share growth, and with close to 5%, we are delivering on our promise, which is Quite remarkable given the challenges I described in the beginning and the fact that for last year we hadn't yet expected any EPS growth. As you all know, Munich Re is committed to sustainably growing dividends and with an increase of over 12%, we are well above plan. Shareholders can rely on us and continue to participate in our earnings growth. That's the story. our capital position remains strong. The Solvency II ratio is even slightly above our optimal range of 220%, even after the proposed dividend and also after the announced share buyback. The strong operating performance in 2021 was supported by both fields of business, so ergo and reinsurance. If you look on page six, Ergo performed remarkably well with an RE of around 10% and this despite the flood losses in July. In particular, the German and international business posted pleasing profitable growth. This puts Ergo in a very good position to deliver on Ambition 2025 targets and also to continue to upstream substantial dividends to Munich Re. By the way, operationally something that you wouldn't necessarily see in the numbers is good progress was made to replace legacy systems and further enhance customer satisfaction through digitization. Now, page seven is maybe a busy one and a technical one. What it means is in 2017, we decided to separate the German Life Back Book from new business. After diligently evaluating a disposal of the portfolio, we came to the conclusion that an internal runoff represented the most valuable option. The decision to keep the Back Book turned out to be the right one from a financial, strategic, customer distribution and reputation perspective. Today we can say that we fixed all issues, effectively protecting downside risk with hedging and reinsurance solutions. And now we can focus on the upside potential as the portfolio has become a reliable contributor to Munich Re's earnings. Through focused management of the back book only, stringent cost control and a balanced consideration of different stakeholder groups, We more than doubled the average dividend since then while keeping high reserves, providing sustainable returns to customers and benefiting the risk diversification within Munich regroup. Or simply speaking, we do what specialized runoff companies are doing or would be doing, but we retain the margins. The portfolio transformation, as you can see in the middle of the slide, is on track. The share of the back book in premiums is continuously decreasing, naturally, as we want it. And new business, that's to say, capitalized and biometric products, is boosting. And with the new IT platform, which we developed together with IBM, we will be able to offer third-party administration services to other insurers thus generating economies of scale and additional earnings. I'd like to add some words about growth at ERGO on the next slide, eight, which was very pleasing in 2021, plus 3.7% in growth-ridden premiums. In P&C Germany, we did very well with far above market growth market average growth while maintaining high profitability. Here the growth came both from our retail business as well as commercial and industrial business. And the international segment also showed some pretty substantial growth. Please keep in mind that we are running off our life business in Belgium and that the growth from our joint ventures in India and China is not included in this figure. So the main drivers for the figure that you can see were the strong P&C business in Poland and Austria, as well as the increasing demand for health insurance in Belgium and Spain. Coming now to reinsurance, page nine. With a return on equity of 13.5% in 2021, We are already close to the upper end of what we deem a sustainable level. To preserve ongoing high profitability, we are seizing market opportunities in core business, which currently, as you know, benefits from a favorable cycle. At the same time, of course, we are fostering our market leading position in business fields like cyber or structured solutions. In our risk solutions business, we continue to make good progress with further increased top and bottom line. And in life and health reinsurance, we delivered an excellent result when adjusted for COVID losses of, yes, almost 800 million euro last year. So the underlying profitability of our biometric business or our biometric portfolio in life continued to be very sound, and in addition, the financially motivated reinsurance business, let's just say the financing and the capital relief type of business, delivers stable earning streams. And to push the boundaries of insurability, as you know, we keep investing in digitized business models with more than 50 initiatives within six focus domains, which you can see in the footnote of the slide. I am personally very happy that these investments are starting to pay off. By 2025, both top and bottom line should benefit visibly. On the next slide, number 10, I'd like to talk you through our January renewals, where we have seen a continuation of the upward price trend. This was driven by the recent high loss experience, of course, ongoing low interest rates and inflationary pressure enforcing the need for adequate margins. An increased demand for protection met with stable or even tightened and disciplined capacity supply, which in the end was supported for further rate increases. However, A large share of the significant nominal price increases we have seen in the market was mitigated by adjusted loss expectations. So, in-depth investigation of business-specific inflation impact played a big role in underwriting this renewal. Some parts of European and North American property business are now expected to be more exposed to inflation than before. And among the drivers for this is that demand for building materials currently exceeds supply by far, leading to strongly increasing overall building costs. At the same time, we continue to choose cautious loss picks for long-tail casualty lines, taking account of social inflation trends. Hence, the 0.7 percent price increase that you can see on the slide, as usual, is fully risk and business mix adjusted, considering diligent loss trend assumptions. So this rate change is a good proxy for the real margin improvement we expect to be reflected in the combined ratio going forward. Overall, Munich Re benefited from a flight to quality with a substantial premium increase of 14.5%. Our growth, however, was quite selective, including a further expansion of structured quarter share business, while the share of NATCAT business in the overall premium volume remained unchanged. At the same time, we were increasingly restrictive on covering event frequency and aggregate covers, further improving the risk return profile of our portfolio. I would now like to put some attention to the cyber insurance business on the next slide as one other area of business expansion where we have grown by slightly more than 70% last year. This growth largely reflects nominal price increases, less so an increase of exposure. While capacity supply in the market overall has abated, Munich Reefs hasn't. But it is important for me to stress that we continue to strictly follow a very disciplined underwriting and risk management approach, and we continuously refine our models Of course, with particular focus on accumulation risks, taking several measures to increase resilience. With this in place, this line of business, yes, is risky, but very rewarding, including last year. Starting page two, I'd like to highlight the key challenges or two key challenges the insurance industry is facing these days. namely inflation and then volatility that comes with natural catastrophe. After the economic downturn during the beginning of the COVID-19 pandemic, then strong and fast recovery with increasing demand, at the same time supply shortages and a surge in energy prices, inflation pushed to a multi-decade high. The insurance industry is affected by this development as even more pronounced price increases in certain segments have relevance for insurance claims. If you just take the construction materials like timber as an example. As seen in the January renewals, net cut volatility leads to higher insurance rates on the one hand, which is good for our industry, On the other, it affects earnings, which is a particular concern of analysts and investors these days. However, volatility is our business. It is at the heart of our value proposition as a reinsurer, and it is the reason why our clients do business with us. So with my next slide, I will go into some more detail with regard to these two items. Page 13. For some industries, non-insurance, inflation is a real concern. If companies cannot pass on higher prices to their clients, either they lose margin or they lose business, don't they? Insurers are differently exposed to inflation depending on the line of business. Munich Re's business essentially falls into three buckets that are reflected in the slides. The first one, there is business with no or with lower inflation risk. Either the underlying risk is uncorrelated to inflation, for example, with regard to biometric risk, it rather benefits from high inflation, as the guarantees are all on a nominal basis, or there is the possibility to pass higher inflation on to clients within a short timeframe. Then business in the next two buckets, if you move further up this slide, is more exposed to inflation. And this is the case for core P&C reinsurance business. And here we have to differentiate between the new and the existing book. As treaty business can be renewed on an annual basis, we of course do consider higher inflation in pricing or in risk selection. But this is not possible for our existing book because the premiums have been paid for this already in the past and the assumptions are locked in. But when we set reserves with initial loss picks, we build in significant margins to buffer adverse development. So for calendar year 2021, we reacted to inflation trades by picking higher reserving loss ratios, especially for short tail lines of business, but also added reserves to prior contract years for some longer tail lines. I think Christoph is going to elaborate on this later more. To further reduce inflation risks, we also invest in inflation-sensitive asset classes in our investment portfolios. Think of the inflation-linked bonds. And even though we only can buy protection for consumer price inflation and there remain some basic risks, These investments provide a good hedge. And there is, of course, other real values like equities, but there is infrastructure investments. You could name real estate. All to an extent are additional hedges to inflation developments. So all in all, our diversified book of business, the prudent setting of reserves, And the reflection of inflation risk in our investment portfolio make inflation a manageable risk, which does not concern us too much. Next slide with regard to the nut-cut business. In terms of nut-cut business, we have demonstrated that we can manage volatility through earnings diversification. And furthermore, we have a strong balance sheet and an excellent capital position to manage inflation affecting the business. There are a lot of discussions in the market, as you know, about model quality in the context of climate change. We deem our models state-of-the-art, reflecting a long data history, recent insights from academic research and forward-looking findings. Within our portfolio management, we incorporate this know-how, taking active measures to contain risks. Considering our business growth and recent loss cost trends, which are fully reflected in pricing, our expectation for outlier losses increases to 13% from 12% previously, partially driven by a higher expectation for major NAVCAT claims. This, however, has no impact on the combined ratio and also has no impact on the profitability of our business as it is simply a shift between basic and major losses. But what I would like to emphasize most of all are the opportunities presented by an ADCAT business. There is a huge protection gap. while increasing uncertainty is driving demand, not least due to climate change. Munich Re can provide significant capacity, which is much sought after in the current market environment. Natcat is one of our most profitable lines with promising business potential going forward. And cycle-wise, it's now that you would like to be in the market and harvest. However, if you move on to the next slide, one single line of business, of course, should not be the only or the dominant driver of earnings. That's why we defined our strategy in the Ambition 2025 with the aim to continuously expand the share of more stable lines of business such as Ergo, life and health reinsurance, risk solutions, I could also add the structured insurance and P&C, thereby reducing earnings volatility. If we move on to the next slide, I'd like to re-emphasize how committed Munich Re is contributing to the climate targets of the Paris Agreement. Munich Re's climate approach contains disabling and enabling elements. Our climate ambition is based on a clear roadmap to reduce CO2 emissions in business operations as well as on both sides of the balance sheet. On the asset side, ambitious interim targets are set to achieve a net zero investment portfolio by 2050 at the latest. And on the liability side, we have implemented strict underwriting guidelines for example on thermal coal and oil and gas production. But at least as important is our enabling approach, which means for us ensuring risks in the context of new energies and thus enabling the transformation from fossil to renewable energies and its respective funding. And as you can see on slide 17, our decarbonization pathway is well on track. When putting 2021 into perspective of our climate ambition 2025, please note that on the asset side, we also see a COVID dip in the emissions reduction. On the liability side, 2021 is a transition year to prepare our clients for the more restrictive climate-driven underwriting policies. So we will report our achievements from next year onwards. And with regard to our own emissions, Munich Re's path to carbon net zero in 2030 is supported by our target of 12% less CO2 per employee by 2025. We will achieve this goal step by step by remaining carbon neutral until the net zero target is achieved group wide. Page 18, as from the beginning of last year, January 2021, we set ourselves a target of achieving 40% share of women in leadership positions throughout the entire Munich regroup by 2025. And I personally, as well as the entire board, have this very high on their agenda. Diversity and inclusion measures are taking already effect The share of women in leadership positions increased in all business fields. And at 37.8%, we are well on track towards our global voluntary commitment of 40% women in leadership roles. Our consistent improvement of talent management activities has led to an increase from 31 up to 38 in our group management platform. That's the name for our Howe Potential program for top executives. around the globe. Gender diversity was an important starting point for us in terms of diversity and inclusion. Now it's time to take the next steps and fully embrace all other relevant aspects of it and anchor them in our organization. Let me summarize on page 19. Our strategy is paying off. With an ROE clearly above cost of capital combined with strong profitable growth, we are creating value. Shareholders participate in Munich Re's success via attractive payouts and actually share price appreciation. And this is reflected in a leading long-term total shareholder return among our peers since we care for this KPI since 2018. And this brings me on the last page to the end of my presentation with the financial outlook on 2022. We expect a net result of 3.3 billion driven by ongoing premium growth and further improving profitability. With this set of figures, we want to take the next big step towards delivering on our ambition 2025 targets. Christoph, I think, will now lead you through the financials in more detail. Thank you very much.