Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München

Good afternoon, ladies and gentlemen. Thank you for standing by. My name is Francie, your course call operator. Welcome and thank you for joining the Munich RE half-year financial statement as of 30th June 2022. 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 touch-tone telephone. Press the star key followed by zero for operator assistance. It is my pleasure, and I would now like to turn the conference over to Christian. Please go ahead.

Thank you, Francie. Good afternoon, everyone. Warm welcome to our Q2 earnings call. I have the pleasure to be in the room with our CEO, Joachim Wenning, and our CFO, Christoph Jureka. And the procedure is straightforward. There will be an approximately 15-minute meeting introduction based on the slides we have put on the internet this morning from both of the gentlemen and then we can go right into Q&A as always and it's now my pleasure to hand it over to Joachim for his introduction.

Thank you Christian and colleagues, good afternoon also from my end. I'm on slide four. Munich Re achieved a pleasing first half 2022 result despite significant geopolitical and macroeconomic challenges imposed by the war in the Ukraine and a sharp rise, of course, of inflation levels. Based on very sound underlying performance in our core business, we stick to our full-year profit guidance. We have taken advantage of the hardening market and have profitably grown our business. And after severe hits from COVID-19, the results in Life and Health 3 impressively recovered as seen in the Q2 results. Ergo is almost like a clockwork delivering on its targets quarter by quarter. And I should also mention risk solutions in that regard as these businesses are performing pretty well and will facilitate increasing stability of our overall earnings profile going forward. And after all, I am grateful for high interest rates as these will gradually increase our sustainable investment results. Moving on to slide five, I mean Christoph will provide you with more detail on our half-year results, but please allow me to highlight a few things only that matter to me. We are in a great market environment as insurance rates are much more attractive than they used to be some time ago. In P&C RE, we grew our business by almost 19%, while at the same time improved margins, with a combined ratio almost 4 percentage points better than in the first half of last year. This helps us compensate for the impact of extremely volatile capital markets, with turmoil in the equity and credit markets, as well as spiking interest rates. Considering currency, which as an asset class is not reflected in the investment result, I deemed the return on investment quite decent. In essence, after the first half of the year, strong technical results across all lines of business delivered promising returns, which put us well on track to achieve our 2022 targets. Next slide. And coming back to the key challenges the insurance industry is facing these days. Record high inflation is definitely the most imminent topic, especially for the back book. On the one hand, Munich Re is known for its prudent reserving and holistic ALM approach to mitigate these risks. On the other, We have seen significant nominal price increases in this year's renewals, which were to a large extent driven by inflation and will be supportive for a continuation of the hardening market. With a certain time lag, interest rates responded to higher inflation. Economically positive for us, we have to live with some temporary accounting mismatches which can affect IFRS earnings quite significantly. First indications point to increased recessionary risks, as high inflation more and more affects consumer sentiment and spending. From our experience of last recessions, we would expect positive as well as negative effects on our business, which might largely balance out. With comparatively low credit risk in our investment portfolio, I feel relatively comfortable. Experience also tells us that past economic downturns also provided business opportunities, for example, capital relief transactions. And the last topic, of course, is climate change. Munich Re is in a strong position to manage climate-related risks and related NatCat volatility, while taking advantage of business opportunities arising from the protection gap. Let's take a closer look at inflation on slide 7. The good message is that a large part of our business portfolio is hardly affected. So the issue is pretty much centered on P&C RE, in particular on the back book. And if you look at the maturity structure of our reserves, about three quarters is short-term business, where we can swiftly adjust prices to inflation development. More than 50% of our reserves have a maturity of less than two years. For long-tail lines, we prudently assess various inflation drivers that are relevant for each line of business. We have further strengthened our reserves to react to inflationary trends already last year, we feel that our solid reserve position provides quite some resilience to inflation developments. So, although inflation pressure has increased, no doubt, we expect this risk to be manageable for us. Slide 8. The July renewals' in-depth investigation of business-specific inflation impact played a big role. Some parts of European and North American property business are now expected to be more exposed to inflation than before. Among the drivers for this is that demand for building materials currently exceeds supply by far, leading to strongly increasing overall building costs. The large share of the significant nominal price increases we have seen in the market was mitigated by adjusted loss expectations. Overall, we have seen a continuation of the upward price trend as high loss experience and inflationary pressure enforced the need for adequate margins. At the same time, we continued to choose increasingly cautious loss picks for long-tail casualty lines taking account of social inflation trends. Hence, the flattish price development we are showing is, as usual, prudent and fully risk and business mix adjusted. And our growth was quite selective to preserve profitability. Referring to slide 9, there are discussions if the surge in interest rates is good or bad for insurers. Bad because a large share of valuation reserves is washed away. Good because higher reinvestment yields are positive for future investment results. When looking at the solvency to ratio, which has noticeably increased, it becomes very obvious that rising interest rates are economically beneficial for our business and for our financials. In particular, our German primary life business benefits disproportionately. So strategically, higher interest rates improve the quality of our investment result as the share of sustainable income is increasing. The debate about higher interest rates may perhaps be short-lived as there are increasing recession fears. In this kind of scenario, we usually observe turbulences in the capital markets and declining interest rates. I don't say that there will be a recession, but we need to be prepared. The impact on the various classes of business are quite different, and some of the main drivers of volatility and profitability in our business are certainly completely independent of the economic environment, like the frequency of NatCat events. In liability, the impact is different across lines of business. In motor and general liability, the by far biggest share of our liability book, positives and negatives will probably balance out somehow. In property business, we would also expect positive and negative effects to balance out to some extent. Positive effect would be reduced loss frequency due to a slowdown of operations. And on the other hand, reduced investments in maintenance may increase loss frequency. In a recessionary scenario, more impact is expected to come from capital markets. At least we can say we have a high-rated fixed income portfolio with comparatively low exposure to credit risks. On slide 11, the next topic which is frequently discussed in the markets is climate change and related NatCat volatility. Due to our state-of-the-art risk and pricing models, which are updated regularly, we feel comfortable to understand and manage NatCat risks. Managing NatCat risks well among other things means to strictly limit exposures to frequency and aggregate covers, which make up only a small share in our portfolio. Alignment of interest is important as well. We want our clients to have skin in the game and not to simply pass on all exposure to reinsurers. Discipline is decisive for profitability. is historically one of our most profitable lines of business, which delivered average combined ratios of 70% to 75% if we, for example, considered the last 10 years concretely. Nog on wood, this year has been quite promising as well. But we need these margins as NatCat business is volatile. Slide 12. The topic of climate change is, of course, also a core element of the E of ESG. But first of all, let me stress that ESG management is deeply embedded into our organization and our ambition 2025. This is underlined by self-imposed voluntary commitments and memberships. Within our insurance business, we contribute both to the adaptation and to the mitigation of climate risks. So in Greentech, we already insured renewable energy projects for a total nominal output of over 50 gigawatts over the last 13 years. And our products particularly address performance, longevity and financing risks. But we also invest in global renewable energy projects and focus on certified real estate and forestry investments. In sum, we are making good progress to reduce our carbon footprint and totally in line with our climate ambition 2025. And sure, promoting diversity and inclusion in all its aspects is a strategic ESG focus as well. Just to give a few insights, we increased the share of women in management from 35% to 38%, and we now count 114 different nationalities in our group. And to add, we are quite proud that MSCI has just upgraded our ESG rating to AAA, stating Munich Re is leading peers on governance, responsible investing, and in addressing emerging health trends. Slide 13 brings me to the financial outlook 2022, which is unchanged compared to our quarter one communication with one exception. Given the low investment result in the first half, we lowered our guidance for the return on investment from above 2.5% to above 2%. However, due to our strong underlying earnings power, we are able to compensate a lower investment income, at least to some extent, and are still aiming for a net income of €3.3 billion. I would like to conclude with slide 14 with a medium-term outlook. When we set our five-year ambition 2025, and we did that in 2020, we did not expect the pricing cycle in P&C reinsurance to persist for so long as we do see now. At this point in time, inflation and interest rates were at much lower levels and no war was ongoing in Europe. So, as you can see, a lot has changed since then. In total, these factors have so far provided more tail than headwind towards achieving our targets of the Ambition 2025 and have reinforced our capital management commitments. With that, Christoph, I would like to hand over to you to give us the details of the first half year.