Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München

Hello, everyone. Warm welcome to our call on the occasion of our first quarter 2022 earnings. I have the pleasure to be here with our CFO, Christoph Jureka. He will, as always, give you a few statements up front, and then we will open the floor for Q&A, for which I would like to ask you, as always, to limit yourself to two questions each. And now I'm handing over to Christoph.

Thank you, Christian, and good morning, everybody. A pleasure to present our numbers today. And I'll start with a few introductory remarks. Munich's net income of just about 600 million euros in Q1 was clearly affected by the backdrop of a very challenging geopolitical and macroeconomic environment, not least due to the war in Ukraine and the related sanctions in Russia. In this context, we wrote down our fixed income investments in both countries, and we booked claims incurred in Q1, while the ultimate financial impact on our underwriting result is still highly uncertain at this point in time. Despite these challenges, our overall profitability remained sound, with a group return on equity of 9.8% in Q1. With an overall investment return of 1.6%, Write-downs on Russian and Ukrainian bonds of almost 700 million euros cross and 370 million euros net on currently very low market values of even below 20% for sovereign bonds left their mark on the investment result, both in reinsurance as well as ergo. Additionally, in response to the sharp increase in bond yields, we had losses on interest rate derivatives used for hedging and duration management. Equity, credit, and commodity derivatives largely offset this effect. Disposal gains for ZZR financing as well as gains on equities contributed positively to the result. The reinvestment yield increased noticeably to 2.1%, almost matching the running yield, which remained quite stable at 2.3%. Turning to reinsurance. As expected, the life and health technically result, including fee income of 20 million euros, was clearly below the pro rata annual ambition owing to the prevailing pandemic. In line with our assumption that the largest share of mortality claims would be accounted for in the first half of the year, COVID-19 losses amounted to 150 million euros in Q1. For the full year, our loss estimate still stands at around 300 million euros. Apart from COVID-19, experience was favorable, despite a few individual large mortality claims in North America. The fee income was very strong once again and continued its pleasing growth path. We therefore consider the Q1 result to be a promising start to the year, and we are sticking with our annual guidance of a technical result of around 400 million euros, including fee income. In P&C reinsurance, we posted a good combined ratio of 91.3%, including major losses of only 9.2 percentage points, despite the series of major natural catastrophes. This figure includes runoff gains, from prior year major losses of around 100 million euros, which is not unusual given our prudent reserving policy and is based on updated claims reports we received from our clients during Q1. As regards losses in connection with the war in the Ukraine, we can only reserve for claims that we have already incurred and for reinstatement premiums we expect to pay under external reinsurance cover that we hold. In Q1, we had expenditures of slightly above 100 million euros. This includes losses that we consider to be covered and also have been incurred with sufficiently high probability to meet the applicable accounting standards. We are closely monitoring the evolving situation and potential additional losses that might emerge. In any case, also because our remaining major loss budget for the rest of the year amounts to around 3.3 billion euros, we expect the ultimate claims burden to remain manageable for the group. The underlying performance remains healthy with a normalized comment ratio of 94.8%, including reserve releases on basic losses of 4 percentage points. This is in line with our full year guidance, considering that the number is expected to improve further in future quarters as we continue to earn through the rate increases achieved in recent renewals. This brings me to the April renewals, which still featured the slowed favorable trends observed in previous renewals, but in which these trends were certainly countered by increased loss cost inflation expectations. Overall, the risk and inflation adjusted price level of our portfolio remained stable despite a materially increased inflation. At the same time, we were able to expand premium volume by almost 8% by exploiting opportunities at excellent profitability, especially in Japan and India, as well as with other clients around the world. Global clients saw volume reduction partially due to inadequate terms. In primary insurance, in spite of bond write-downs and high large losses, Ergo continued its pleasing financial development, posting a net result of 96 million euros. In all segments, the underlying performance was healthy overall. German life and health business delivered a net result of 44 million euros, which was driven by a comparatively low investment result, especially in life, related to Russian-Ukrainian fixed income investments. a decreasing ZZR requirement, and negative effects from interest rate derivatives. In addition, the technical result was lower due to normalization of the operating performance after a very good prior year quarter in health and travel. Moreover, the segment recorded a higher currency result, which, however, further burdened the operating result due to the policyholder participation which we book in the operating. In P&C Germany, we achieved strong premium growth above market estimates and a very good underlying performance. The combined ratio of 97.4% in Q1 was higher than anticipated due to man-made and not cut major losses that were significantly above expectations. In addition, we had the usual seasonal fluctuations in claims and net earned premiums in the first quarter. Considering these effects, the underlying combined ratio supports the full year guidance albeit with an increased level of uncertainty depending on the further major loss development. The ongoing favorable development of the international business with a combined ratio of 92.6% reflects the successful strengthening of our presence in core markets. In Q1, we achieved good portfolio growth despite divestments in prior years. The quarter was particularly strong in Greece and in Poland. In addition, we improved our operating performance and legal protection. Taking seasonal effects in health into account, the underlying combined ratio is well in line with the full year guidance. Now some remarks on capital management. The group's economic position remains very strong. From the two ratio increase to 231% in Q1, driven by good operating earnings and the sharp rise in risk-free interest rates. which were partly offset by write-downs on the Russian and Ukrainian bonds. Please note that the Q1 Solvency II ratio includes the deduction of 1 billion euros in share-by-backs. The two subordinate bonds, which will be redeemed at the end of May, will be considered within the Solvency II ratio in Q2. I would like to conclude with the outlook for 2022. With regard to our last communication at the end of February, all figures remain unchanged. with the exception of our GWP outlook. Due to currency effects, especially a stronger US dollar, higher than expected business expansion and risk solutions, and further growth in the April renewals, we expected GWP of 45 billion euros in reinsurance and of 64 billion euros for the group. The Q1 results keep us on track towards achieving a net income guidance of 3.3 billion, even though considerable uncertainty remains with respect to the financial impact of the Russia-Ukraine conflict. This additional uncertainty now comes on top of the usual drivers for short-term volatility, namely major losses and capital market movements. But again, we are having 3.3 billion of large loss budget still available for the remainder of the year. This concludes my opening remarks. I look forward to answering your questions. But first, I'll hand it back to Christian.

Yeah, thank you. Because there's nothing to add from my side, so we can kick off the Q&A. As mentioned, please limit yourself to a maximum of two questions per person. And please go ahead.