Münchener Rückversicherungs-Gesellschaft AG in München

Good day, ladies and gentlemen. Thank you for standing by. Welcome and thank you for joining the quarterly statement as at 31st March 2023 of Munich Re. 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 do so by pressing star and 1. Press the star key followed by 0 for operator assistance. It is my pleasure, and I would now like to turn the conference over to Christian Becker-Husson. Please go ahead, sir.

Thank you, Francie. Hello, everyone. Good morning. Very warm welcome to our Q1 23 earnings call. I have the pleasure to be here with our CFO, Christoph Jureka. I'll hand over to him, as usual, for his opening remarks. And afterwards, we will really have plenty of time for Q&A, given that's probably more important than usually having just introduced IFRS 17. So my pleasure to hand it over to Christoph.

Thank you, Christian. Indeed, it's a big pleasure for me to, for the first time, present quarterly results according to a new accounting standard, IFRS 17 and 9. And additionally, we will also present full year 2022 and Q1 2022 numbers according to these new metrics. As Christian said, we can imagine that there will be more questions than usual. So there's enough time today to answer all the questions and there will be plenty of opportunity to asking them. So I can only encourage you to whatever you have on your mind, please ask and I'll do my best in answering the questions. But I'm convinced that that you will join me in appreciating the higher amount of transparency IFRS 9 and 17 will offer compared to the old regime, although admittedly, the transition confronts us with a lot of new information. Now, as always, I will not go through the slides, but I will start with opening remarks to allow more time for Q&A. I will first focus on full year and Q1 2022, before I then will focus on Q1 2023. So let's start with 2022 and have a look on slide 29 of our deck, where we compare the full year 2022 net result under IFRS 17 to IFRS 4. The IFRS 17 result is, as you can see, substantially higher than under IFRS 4, standing at 5.3 billion euros, where the IFRS 4 number was 3.4. Well, first to the new methodology, a positive deviation was certainly to be expected, as IFRS 17 results tend to be slightly higher compared to IFRS 4 for us. And aside from the various methodological differences across all segments, which we discussed already, I would like to particularly mention the earlier profit recognition in life and health reinsurance. Second, the 2022 IFRS 17 result is also impacted by temporary effects due to the unprecedented increase in interest rates during 2022. This is reflected in P&C reinsurance earnings, where the difference to IFRS 4 is the biggest of all segments. In 2022, we benefited from discounting of new reserves with high interest rates, which was an only partially offset by the unwind of old reserves discounted at a very low interest rates locked in a transition. So if you want the timing of the transition was just ideal in a way that until then the very low interest rate has been locked in. And then with the transition, suddenly the interest rates jumped up and thereby highly increasing the PNC net income. So the obvious question then is why do we guide for 4 billion net income in 2023 when the last year was already at 5.3 billion? So that's probably the most obvious questions anyway. And the answer to this question is given on slide 30. And I think most importantly, I can confirm and underline again that we expect the strong underlying performance of all business segments to continue in 2023, translating into a further operating improvement as, for example, shown in the very pleasing renewal results in January and also in April. Also, the investment result is expected to increase compared to 2022, which was negatively affected by the volatile capital markets. Aside from these operating developments, more one-off-like adjustments have to be considered as well. First of all, we do not expect a recurrence of 0.7 billion of currency gains. Second, the above-mentioned benefit from interest rates in P&C reinsurance Basically the impact from the high discounting and the low unwind. This effect is expected to be about 1 billion euros lower in 2023. Compared to a positive net effect of approximately 1.5 billion euros last year, so that's the absolute amount. Based on the current interest rates, we now expect a tailwind of about 500 million euros in 2023. So the effect is not gone. It's only significantly smaller. Please note that this figure is highly dependent on interest rates, which were still somewhat lower when we did the planning for 2023 back in 2022. And furthermore, as communicated with our outlook, we have made some conservative assumptions in our planning to cover the uncertainty of the first time application of IFRS 17, which we again made explicit also on the slide. Now, before I turn to 2023, please allow for a final remark on last year's number affecting Q1 earnings in 2022. Q1 2022 was exceptionally strong, supported by benign major losses and a positive currency result. And in Q1 2023, now it was exactly the other way around. Our result was burdened by above average major claims and by currency losses. However, we had a successful start to the year as we benefited from a strong operating performance once again and a good investment result. Hence, we posted a very pleasing net income of almost 1.3 billion euros significantly above our pro-rata guidance. And we exceeded the pro-rata targets not only in that headline number, but across all business fields and segments in a variety of KPIs and targets. And it's particularly also true for the return on equity, which amounted to 17.3%, which is already above our target or our guidance in our ambition 2025 for the year 2025. I think that's another proof point how strong the performance was in the first quarter. Now let's look at Q1 in more detail and let me begin with the investment result. The investment result came in at 3.0% and we posted with that a return which was significantly above our full year guidance. At 3.8% the ROI was particularly strong in reinsurance driven by just a few disposal gains, but we continue to benefit from the higher interest rates. So the reinvestment yield increased remarkably to 4.4%. Despite the generally expected higher volatility under IFRS 9, the ROI came in at exactly the value of the running yield. In other words, all other positions, including mark-to-market effects on equity and derivatives, or also disposal losses on fixed income, almost completely offset each other in this quarter. For the remainder of the year, we will continue to deliberately accept disposal losses in fixed income, as the reallocations will lead to a subsequently higher running yield due to higher reinvestment rates. Turning to the business fields and starting with reinsurance now. The life and health total technical result of 320 million euros was above the pro-rata annual ambition. The release of CSM and risk adjustment was in line with expectations. Experience variances were slightly negative, driven by expenses and US mortality. The total technical result would have been significantly higher without negative currency effects of minus 66 million euros in FinMori business. reflected in the result from insurance-related financial instruments. I'd like to underline that we consider this an accounting mismatch, as the related hedging activities are recognized in the currency result. On an underlying basis, our FINMRI business continues to grow and perform successfully. The CSM stands at 10.6 billion euros, and this is a small decline compared to year-end, driven by a shift from CSM to risk adjustment as a result of the annual parameter update in the models. As both CSM and risk adjustment represent future profits, we do not expect any margin deterioration by this shift. It's important to note that the CSM from new contracts reflecting a new business generation which was particularly pleasing in North America. So the CSM for new contracts exceeds the release through P&L. Now P&C reinsurance. As you saw, we posted a combined ratio of 86.5%. Major losses amount to 16.4 percentage points and exceed the average expectation of 14%. And I'd like to add they also include negative runoff from prior years. The single biggest event was the earthquake in Turkey with 0.6 billion of claim. As this loss then is discounted with the high Turkish interest rates, it contributed to a relatively high discount effect, which was around 8 percentage points in the quarter. And that's at the higher end of the five to nine percentage point guidance we provided at our analyst conference in February. But the underlying performance remains healthy as we earn through the margin improvements of the recent renewals. A normalized comment ratio of 85.1%, which is better than our guidance, allowed us to use the better than expected discount to cater for claims uncertainty by prudent loss bookings. So we deliberately decided to use the benefit, which is 3%, 8% discount, minus 5% in the guidance. So the 3% difference, we decided to use that for prudent loss bookings. Obviously, we did not perform a reserve review. So therefore, at this point in time, it's just prudent bookings. The reserve review will be conducted, as always, in the fourth quarter. In terms of growth, we continue to strongly expand our business. Insurance revenues increased by more than 13%. Speaking about revenues, this brings me to the April renewals, where we increased premiums by 11%, seizing opportunities at, again, an excellent profitability. In particular, we expanded the not-cut business with material rate increases. Overall, the risk and inflation adjusted price level further improved with an increase of 4.7%, including portfolio mix effects related to a higher share of property XL business. In addition, we achieved material improvements in terms of conditions like higher attachment points and stricter wordings. With primary insurance, Ergo delivered a pleasing net result of €219 million, which is also ahead of the Pro Rata guidance. The German P&C business came in strongly, while the international business suffered from large losses, and also Life & Health Germany posted net earnings somewhat below the expectation. Let's start with the latter. German Life & Health Business delivered a net result of €41 million in Q1, The total technical result even exceeded the prior year level. However, net income was burdened by non-directly attributable expenses in the live new book. The CSM increased due to positive operating changes. Please note that in this segment, new business generally will not be able to compensate for the release of CSM. In life, as you know, the back book is in runoff. And in health, our new business strategy focuses on short-term PAA business without CSM. In P&C Germany, we achieved a strong technical performance with a combined ratio of 81.2% in Q1. We benefited from very low major losses and positive seasonality of acquisition costs, which will catch up in Q4. For PAA business, IFRS 17 allows to fully expense the acquisition costs at the time of the sale of the policy, which for our Ergo Germany business is often in Q4. And thereby we get a quite significant quarter volatility of the combined ratio. So Q4 heavily burdened, the other quarters are having much less acquisition costs. The investment result contributed through the very high net result of P&C Germany of 166 million euros. The agro-international business, the total technical result increased overall compared to Q1 2022, and the life and health business was in line with expectation, reflecting CSM and risk adjustments releases dominated by the Belgium life and health businesses. The P&C result fell short of expectations with a combined ratio of 95.4%. Poland had to digest major losses from single events, where an intra-group benefit from reinsurance of around 2 percentage points is not reflected in the IFRS numbers and not in the combined ratio due to consolidation. Legal protection business. And also seasonality effects in Spain also contributed to the weaker combined ratio. And let me explain these seasonality effects in Spain. That's a health business there. So regularly, and you could see that over the last years already, the winter months, the claims are much higher in the winter months. So the majority of the result is being earned in summer. Also, the business in Greece was, by the way, performing well. Our figures now also include business operations in Thailand. For the first time in the P&L show, our TIE3 business in Thailand, where we now hold 75%. The segment net result came in lower than expected for Ergo International at 12 million euros, burdened by non-directly attributable expenses, relatively high taxes, and a negative impact from net financial result, also reflecting investment in insurance joint ventures. Some remarks on capital management. The group's economic position remains very strong with a Solvency II ratio of 254% in Q1. And please note this includes the full deduction of €1 billion in share buybacks, which will then be conducted now in the course of the year until the next AGM, but we deduct the full amount already this quarter. I would like to conclude now my opening remarks with the outlook for 2023, which remains unchanged, we are still anticipating a net result of around 4 billion euros. And as already mentioned in our pre-release, surpassing this target has become more likely due to the strong Q1 result. But as we still have three quarters to go, we decided not to change any other outlook KPI either. So it's just too early in the year. With this, I'm at the end of my opening remarks. There's a lot of additional information and improved transparency visible in our slide deck, which I recommend having a particularly close look at this time, given the changes in accounting. I look forward to answering your questions, but first hand it back to Christian.

Thank you, Christoph. Not much to add from my side. My usual housekeeping remark, we are happy to go right into Q&A. And as always, I would like to ask you to limit the number of your questions to two per person. And if you have further questions, please go back to the queue. And with that, I hand it over to Francine.

Thank you very much. Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one. If you wish to remove yourself from the question queue, you may press star followed by two. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. Our first question is from Friar Kong from Bank of America. Please go ahead.

Hi, good morning. Thanks for the presentation. Two questions, please. The 86% combined ratio guidance was set assuming a discount benefit of 5%, but if this is actually 8%, this means your rate adjusted guidance should be around 83%. Are we right in assuming that this entire three points you have invested into higher loss picks and given your unchanged guidance, it sounds like you will do this for the rest of the year? And secondly, how should we think about the increased conservatism in your loss picks? Is this due to lower confidence in the 2% margin improvement that you expect to deliver, or is this a one-off reserve building exercise in 23, meaning we should see a bigger improvement in margins in 24? Thanks.

Good morning, Faya. Thanks for the questions. Indeed, in our guidance, if you did the math, 5% discount was the number included in there. Now we had 8% this quarter, so a 3% difference, and the 3% have been used 100% for being more conservative in the basic losses. We have higher loss picks there. And The question is, why did we do that? No particular reason. Just wanted to be conservative. It's the first quarter only. If we would not have done that, the combined ratio would have come in at around 82%, significantly below the guidance. And we just didn't see any good reasons why we should start into the year with that. It's still a long time to go in the year. And therefore, being a little bit of conservative is probably close to our DNA, particularly in a quarter period. where the results are very good anyway already. And giving the uncertainties in the environment, being a little bit on the cautious side anyway is something which I would never blame me for. Let's put it that way. Looking forward, we don't know what we do. So we could either improve the result or we could continue to book in a conservative way Why should we take any decision today? That's just not necessary. We will carefully observe the performance over the next few quarters. We'll look into our reserves, how conservative we are already, if any additional buffer would make sense at all or not. You know that we traditionally are very, very much on the prudent side. So the question is also how much we can do on that side. How conservative can you be? But it will also depend on performance and on the actual development in the next few quarters. So nothing I could predict today. All options open.

The next question comes from Cameron Hussain from JPMorgan. Please go ahead.

Hi. Morning, everyone. Two questions for me. The first one is on the renewals. I'm just trying to square the 4.7% risk-adjusted rate increase at April versus the kind of just over 2% at 1.1%. Just based on the kind of, you know, I guess the commentary, what we've heard, it sounded like actually January was more positive than April. So just wanted to understand kind of what's the difference between those two numbers? What am I missing? Is it just kind of, you know, you'd already trued up assumptions last year or something at April? The second question is coming back to combined ratio guidance. Obviously, you flagged the impact of Turkey in the quarter as pushing the discount rate up a little bit. But I assume even though it's a material loss, it wouldn't have been that huge in the quarter. So should 8% continue as the discount rate kind of going forward for the rest of the year, or should it look a little bit different? Should it move maybe not back to 5%, but slightly closer to that level? Thank you.

Thanks Carmen. Renewals, I think I have to work on my enthusiasm, being the CFO, because if there was anything to be read into my comments that we were less excited about 1.4 than about 1.1, that would be completely wrong. I think we are equally happy with both results. And if you look into the numbers, they pretty much follow the business mix. We have a higher portion of cut business in 1.4 traditionally, And so it had to be expected that the numbers look higher, and the amount pretty much follows the cut proportion or the business mix development. So therefore, we continue to be very happy with our renewal outcome, and by the way, also continue to be very optimistic for the upcoming renewals, given just the market environment, how it presents itself to us. So again, very happy with the outcome and very good renewal result. The combined ratio guidance or, I mean the combined ratio indeed 5% was in the guidance. Now it was eight. The full year though was also at around 8%. And as you can see, the numbers fluctuate quite a bit. I mean, we gave a range of five to nine in our outlook presentation to somehow indicate how big the range potentially could be. It depends on a number of factors. It depends, obviously, on the interest rate environment. That's obviously the major driver. But as we could see with Turkey, interestingly, it also depends on where your loss is set. Because in Turkey, obviously, interest rates are much higher. You discount with Turkish rates. And interestingly, in the first quarter, this Turkish rate effect did compensate the overall lower yield environment, which we had compared to Q4 last year. Because if you would have looked only at the yield environment, you probably would have expected even a little bit lower discount effect, which then didn't realize. And the main driver for that being that a significant part of our losses sits in Turkey this quarter. So there's many drivers. FX could be another driver. And obviously, it has to be closely monitored. We all lack experience. We all didn't see so many quarters yet in IFRS 17, so I think it will be interesting to jointly observe how the development is going to be going forward. But again, there is some deviations always possible, just only due to the fact that the losses will arise here and there in different geographies, different currencies, and different interest rate environments.

The next question comes from Andrew Ritty from Autonomous. Please go ahead.

Oh, hi there. Thanks, and thanks for the additional disclosure on life for 17, for year 22. The first question on the investment return, as I recall, your guidance for full year 23 incorporated some expectation of realized losses on fixed income, partly to accelerate the reinvestment. I can't see evidence of that. in Q1, and that might be because there's offsets from other things that have positively moved, but kind of just update us on your thoughts on is that still a plan? You know, is there still some expectation of some realized losses as the year goes on, as things stand today? Or maybe, I don't know, the environment means you've accelerated your planning on investment return. The second question, just on LIFE RE, I mean, just the mechanical release of the CSM and risk adjustment, that alone would get me to your sort of technical result guidance. And then on top of that, I'd add in the fee business, which in itself was depressed in Q1, as you said, from FX. So why stick with the billion technical result guidance? It just looks... mechanically really challenging, unless you're assuming a high degree of caution on some negative item or not considering.

Thanks, Andrew. I'll start with the first one. So, yes, we always said we wanted to, first of all, not restrict trading activities of our investment colleagues too much, and therefore would allow them to realize losses once they occur in the fixed income space. In the first quarter, fixed income and realized losses amounted to €189 million, so there was an effect. And going forward, we explicitly, I think I mentioned it already, so we explicitly want to make it very transparent that we will continue to do that and maybe even intensify that. So that's clearly something we would like to continue to look into, and it will only strengthen how quickly we benefit from the high-yield environment So in a sense, in our view, it would make a lot of sense, particularly in an environment where the overall results are very good and at least in line with the guidance or above the guidance. So that's still on the agenda and completely unchanged. Life-free, I mean, there are various angles how you could look at our guidance. I mean, you could look into the numbers of this quarter. You can add back the ethics, and if you then take it times four, you are significantly above $1 billion. You would also look at the prior year numbers, and also there, as you said, the CSM release plus risk adjustment release already would be significantly above the one billion, and then there were some negative variances which then brought it down, back a little bit. But also there, you would immediately end up with significantly higher numbers than the one billion. So I think the only justification I have is that we are extremely conservative and cautious, and they have quite a bit of leeway for negative variances which might occur, but we have no indication at this point in time at all that they will occur. So it's really only conservativism and caution. But sometimes in life, you know, with big treaties, things can also develop quickly. So sometimes you... You have a big treaty and you're in court and you get a ruling and it costs you a triple digit number. It can happen. So it's not unseen, but it can happen. So I think I'm just saying that to show that we are not ridiculously conservative, but we are very conservative. And indeed, there's a significant upside. Why didn't we change it in the guidance already? I mean, I think the same like with many other KPIs in the guidance as well. In Q1, we would not do so. It's just one quarter into the year. A lot can still happen. Some of the KPI looks as if they were very easy to achieve. Others less so. Others maybe even challenging. But in Q1, we would never change it really.

The next question comes from Trifonas Spiro from Beringbeck. Please go ahead.

Hi, good morning. I have two questions, please. The first one is on April renewals. Obviously, this came in quite strongly, a 4.7% rate increase. I guess you previously said that this number is close to what should we expect as an improvement to the command ratio from Munich. We even read away that given April was around 8% of the total P&T renewals. That would suggest another 38 bps or so margin expansion on top of the 2.3 reported in January, which accounts for the biggest portion of the book. But is that a fair reflection? Do you now expect a somewhat higher margin expansion than before, given the strong April nuance? So that was my first question. Second, it's on P&C Germany. You mentioned the discounting impact of 5%. I was wondering if you could help us with a similar breach that you did for P&C Re combined ratio For instance, is this in line with what was factored in the guidance of 89%? And I guess, could you perhaps possibly understand a little bit of how big the lower large loss impact was to help us get a better feel for the underlying combined ratio? Thank you.

Yeah, thank you for the questions. First of all, when you were... And thank you for the question. It gives me the opportunity to outline our methodology, I think, again. So the numbers as we show them here, they are all fully risk-adjusted, which means that any inflationary effects, any model changes, any reflection of climate change, of adapted risk models in whatever line, it's all fully deducted already from that number. So it shows only a margin improvement on the volume which has been renewed at the particular date. So you can basically take the price or the margin improvement price change as we disclose it times the volume at renewal And this will be a real margin improvement and we fully can be fully added to our technical result in PNC-RE. So that's how the mechanics works. And if you look historically into these price chain numbers as we communicated them and historically how then after these price changes later on the combined ratio moved in reality you will find quite a good correlation between those numbers. Obviously, there's always uncertainty with that, but I think the past gives quite a lot of evidence that we generally are quite good in these estimates. So that would be my remark on the renewals. So overall, we're very happy with that. Margin improvement, very high. And again, for 1.7, we do not have any indication why this should change at all. So we think the environment will continue to be very positive, particularly, of course, in the nut-cut business, property XL, which was also to a significant extent the driver this time. Combined ratio, Ergo Germany, yes, discount 4% here. So first question is, why is the discount in primary business smaller than in reinsurance? There is A number of reasons for that. Most importantly, the business is more short-tailed and also the amount of reserves you have to hold given the heavier risks are in reinsurance, so the amount of reserves is relatively spoken a little bit smaller, which brings you then to a discount effect and currencies are different and so on. So the business mix is just different, so therefore you have rather 4% discount instead of the 8% we saw in reinsurance. How does now the 81 relate to the guidance of 89 in P&C Germany? Well, the most significant difference, I think, is the seasonality I was mentioning before in acquisition costs, where a lot of the acquisition costs are expensed in the fourth quarter, where a lot of the book is renewed and you fully expense the the costs once you write the new policy in the PAA methodology in IFRS 17. That's an option you can choose. You don't have to do it that way, but Ergo chose to do it that way. So you fully expense acquisition costs at the point of sale. So that's one core driver. Another core driver of the difference is that we had very good large or very low large losses this quarter, which was another significant driver. And then generally the performance has been very good this quarter also when it comes to basic losses and the overall profitability. And then there also has been a certain reduction of the loss component. If you add that all up, it was a very good quarter. But don't take the 81% for granted for the full year. as there is the seasonality effect on the acquisition costs, where in Q4 we would expect the comment ratio to be significantly higher, of course.

The next question comes from Will Hardcastle from UBS. Please go ahead.

Oh, hi there. Thanks for taking the call and all the disclosure. First of all, can you, and sorry just going over old ground, but can you help me to understand just how we come to that? five to nine percent discount guidance from a bottom-up approach and what duration we should be thinking about for example and the build of risk-free plus plus what I guess and would I be right in thinking the turkey uplift is maybe worth one to one and a half points or so versus your previous guide and secondly just thinking in PNC really looking at the investment gains on slide 51 from disposals What was the 190 million or so related to? And just on that slide, is that 3.1% regular income a fair run rate or was it inflated somewhat? Thank you.

Let me start with the second one. So the run rate is a fair reflection of the regular income. It mostly includes interest on fixed income instruments. but always a few dividends as well. But it's really a running yield which can fluctuate a little bit due to the dividend seasons and stuff like that, but not a lot. On the realization, I mentioned already we realized some losses in the fixed income space due to normal portfolio trading activities, nothing spectacular. On the other hand, there were some realized gains in reinsurance P&C, as mentioned before, and they were in the alternative investment space, so infrastructure and real estate. The first question, the range, 5% to 9%, obviously is related to different interest rate levels. So it's... roughly, I think, a 3% to 5% interest rate range, which is then reflected in a 5% to 9%. Duration depends also always on business mix, but the rule of thumb takes something between 2% and 3%, maybe 2.5%. And then, as we saw in this Q1, it will very much depend on where the losses sit to some extent, and currency and interest rate environment and various geographies And again, the difference between, for example, ergo primary insurance and reinsurance is significant. By the way, there's also a methodological difference between GMM approach and PAA approach in IFRS 17, and I stop here, but if you're interested in that, you can ask me. So there's a number of drivers in these discount rates, and I think we'll all get used to it, how much they move in reality. In any case, I would expect them to be much more stable compared to what experienced last year, where due to this unprecedented interest rate change in the environment, as of a sudden you end up having discounts between 4% and 8%, where in the past it has all been zero. So clearly it should be much more stable around the numbers as we see them today.

The next question comes from James Shuch from Citi. Please go ahead.

Yeah, good morning. Thanks for taking my questions. Slide 30, just keen to understand the PCV combined ratio that you're showing here. So you've got this full year 22, 83.2. And then that normalizes in the comment to 86.6. So keen to understand what the moving pieces are in that normalization, please, in particular the PYD on an IFRS 17 basis, but also within that 86.6. So there are additional things that you can call out for us. So I'm thinking of the discount rate effects and the release of the loss components. So that's my first question. Second question, more general one really around your NatCat appetite at this point. So If I look at the PML from the annual report for 2022 to U.S. windstorm, I think it's gone up to about 10 or 12 billion. I can't quite remember now. But over the years, that's a big number in relation to your book value, and it's probably doubled over the last few years or so. That number, I think, is updated for kind of 1-1 renewals, but I don't think it's updated for your expectations going into 2021. April or the June, July renewals. So my question is really around, you know, how much appetite do you have in that cat? I mean, in relation to book value, it's getting quite a big number. If I was to look at it only in relation to your PC read book value, that would make you very heavily skewed towards that cat in the overall book. So I'm keen to understand the progression of that PML and just thoughts around exposure in general, please.

Thank you. James, thank you for the two questions. First, the normalization of the combined ratio. I think the methodology is, as we outlined it on the slide, so we normalized for the loss component change, which is generally should be neutral over the year. If not, prices are changing or interest rate levels have an impact also on the loss component. So the loss component change is part of that calculation. Then, as in the past, also the rate the reserve releases, which are now 5% in the expectation compared to 4% in the past, but that's completely unchanged. And the increase is driven to the different volumes we have in insurance revenue versus premiums in the past. That's also unchanged. And then we have the normalization for the large losses. be it on the nut-cut side or on the man-made side, together 14%, 10% of which are nut-cut, 4% are man-made. And if we normalize for all those effects, we end up with the 86.6%. What is not normalized for in these numbers is the discount. And we had a long debate internally when we set up the whole methodology if we should also normalize for discount or not. finally decided against it because our expectation was that generally the discount should be more stable than the other drivers maybe. And the more you normalize, I mean, I wanted to avoid to finally ending up in IFRS 4 combined ratio again and by, you know, taking back all the IFRS 17 changes. I mean, we have to at some point also just to just to accept that there is a new standard now. So therefore no normalization, but we will also always mention the combined ratio. So if you want to add that piece of change in addition to the normalization as we do it, you can also do it on your own. What else in prior year? The normalization, What I can say is that the discount is the same order of magnitude than today. So at least if you compare the prior year, 86.6, what we have this year, which came in a little bit above 85 in the first quarter, then there is no difference due to different discount. So that's completely comparable, which shows that we earn through the higher discount. the higher renewals we had recently, and that the operational improvement is clearly visible also in our numbers. Not cut appetite, second question. Indeed, we are obviously enjoying a hard market and expanding our business into that hard market, so volumes go up. There's always, and that's a methodological perspective, information I start with, but I'll come back to the strategy in a second. There's always an overlay from ethics you should be aware of. A lot of our cut exposure is written outside of Euro. So if currency goes up or down, exposures follow the currency development. And if you look at the US dollar development last year and then again into the first quarter of this year, you will see or you can deduct from that that there was a significant portion of ethics also in the cut development, which you have been referring to. So there was additional growth to ethics. And now as ethics came back again, the U.S. dollar weakened significantly. it's now significantly dampened also by ethics movement. So this ethics overlay always has to be kept in mind. But other than that, indeed, strategically, we are going as far as we can when it comes to cut exposure. And for some parallels, we are getting close to our goal. our risk budgets or to the upper limit of our risk budgets. But a hard market is exactly the point in time where you should do that because now it's the time to make money with that business. In a softening market, we would, of course, deliberately decrease it again and then obviously be lower when it comes to exposure, but also in relative terms when it comes to our risk budgets As a reminder, these risk budgets are parallel by parallel for us, and obviously they depend on the capital we have. and obviously retro plays a role and retro is different from one peril to the other so also differently reflected in the various budgets so it's a very detailed and sophisticated framework and we are not simply just expanding the risk limits or the risk budgets but we are managing to optimize our portfolio within the boundaries of these budgets I think that That's what I can tell you on the nut-cut appetite. For 1.7, we do not see any restrictions for the strategy.

The next question comes from Derald Go from RBC. Your question, please.

Morning. Morning, Christoph. My first question, actually two sub-questions within that. It's on your basic PYD. Firstly, can I quickly check What was the risk adjustment released within that? And then the question is, within that, what is the basic PYD again? What were the pluses and minuses by lines of business? And maybe could you also talk about any changes in lost cost trends that you're seeing on your current year? I'm thinking about motor and casualty in particular. The second question is just in your mid-year renewals. Are you seeing any early movers at this stage, either from the primary or reinsurance side? Thank you.

I start with the first one. The second, I have to ask you to repeat it, please. I didn't really understand it. Maybe can you just ask again the second one, and then I'll answer both.

Yep, yep. It's just in terms of your current year lost cost trends, are you seeing any changes over Q1 or maybe on a year-to-date basis? I'm thinking about motor and casualty in particular.

Yeah, sure. Okay, thanks. Very clear. PYD, as we show it in our numbers, does not include the risk adjustment at all. So that's just the reserve development. And to remind you, we are using the PAA approach, so the risk adjustment is probably a little bit of less relevant for us in P&C than what it would be for us in our life and health situation. or also like it would then be for competitors using other approaches in IFRS 17. For us in P&C, we try to make it as simple as possible, and the PAA is much simpler. And what we show is PID is just reserve-related. So more or less the same figure which we would have shown you last year with the difference that we are talking about discounted reserves now. Yeah. But other than that, it's really the reserve movement we're showing under PYD. We had a positive basic loss reserve release in the first quarter, as always. Not that completely common. That's what we would expect anyway, because, as you know, our strategy is to set reserves initially at the higher end, what the possible best estimate would be, to then enjoy eventually, if we have this positive runoff, which we have had in the past quarter, to then enjoy the positive runoff of the basic losses. So that's the basic loss piece. I mentioned earlier also that on the large losses we had some negative PYD, but that large loss piece is to maybe give a little bit of color around that nothing really spectacular. It happens in one quarter it's a little bit negative, in the other quarter it's positive. It's just day-to-day business, I would mention that, so nothing really spectacular. and also nothing too material. Lost trends, your second question. I mean, first of all, I have to make the big disclaimer that in many markets, we are not the best one to be asked that question as we always lag behind the primary insurers getting that information because often our claims information is based on what primary insurers deliver to us. Of course, there's the exception of markets where we are acting as a primary insurer as well. And as you know, we do that as Ergo in many European markets. We have some U.S. primary business as well. So we do have some firsthand information. But then in other markets, we really rely heavily on the primary insurers and sometimes get information rather late. What we see, though, is that obviously for motor lines of business, inflation is a topic in some markets, as had to be expected anyway. And that's also not really new. That's something we, I think, said in Q4 already. And back then, if you remember, we also strengthened our reserves to prepare for for scenarios like that. And now Q1, do we see any particular new information? No, not really because a single quarter is probably anyway not enough information to see something significantly different. What we see is more or less in line what we expected and maybe to add that already then nobody else has to ask Also, the IBNR we set up back in Q4 for inflation, that's still there, and we didn't make any use of it in the first quarter.

The next question comes from Vinit Malhotra from Mediobanker. Please go ahead.

Thank you. Some of my questions have been addressed. Can I just ask only the discounting as such? So it's a bit of a broader question, not one key specific, but given all these positive news and you're literally having to hold back on producing such a good combined ratio and partly held by discounting, I mean, do you sense or do you see any risk? And this is maybe a broader question.

Sorry, Vinit, can you speak a bit louder, please? Okay, sorry, maybe my phone.

Can you hear me now better, please? That's better, thank you. Thank you very much. Sorry, so my first question is on the discounting, which is so powerful and having such an effect that you're literally having to hold back on your combined ratio. What's the risk that such a positive interest rate driven effect could have on underwriting behavior you know, maybe within your firm, within the market? Because if I'm an underwriter and I'm listening to this call, I'm thinking, okay, so already things are so good, partly because of the timing of IFRS 17 and the reported combined ratio is so strong. Is there a risk that, you know, there could be some laxity coming in? Are you managing it? Are you watching out for it? So that's a bit of a theoretical question. Apologies, it's not very specific. And second thing is just on the discount rate again. I'm quite interested to hear this Turkish situation where you have used the discount rate of the Turkish risk rate but obviously reporting this loss in euros and I would have thought that maybe you would have considered using the the IOPA rates or some other European measure because you're counting this loss in euros. Has there been a discussion about whether the Turkish discount rate was to be used? And secondly, can you also provide the Turkish discounted loss number, the Turkish earthquake? Maybe because that's what we should compare to peers because otherwise it looks quite high at 600 million. Thank you.

Yeah, let's start with Turkey. The 600 million is a nominal amount, to start with that. And I think the general rule is just we use the discount rate in the currency in which we owe the claim. So it's not like that we sit together and have a debate which one to use or so. It's just the currency in which we will have to pay the claim is defining the discount. Now, your more general question, I mean, margins are good. And now with IFRS 17, they look even better as the presentation changed. And I think we discussed it a number of times already. Now we have common ratios in the 80s. Before, they were in the 90s. The difference only being that insurance revenue now is defined differently than in the past. So there is a big amount of different representation in the now even better-looking numbers that But then, of course, due to the discount, the economic reality is also better transparent and better visible than in the past. And, yes, there is an element that we look even stronger. And also my commentary initially was that we had a very strong quarter and we are doing well operationally. So there is this element of, as a reinsurer, we are doing well currently. Now, what does it do to the underwriters, to the markets? I mean, first of all, you have to make sure internally that you are not getting complacent. That's something I can assure you we're doing regularly. So push for price increases where we can get them and where we think they are necessary. Don't forget, I mean, the loss numbers have been significant over the recent years. So we don't get, we should not celebrate too early. Even last year with Ian, the industry loss was still very high. So it's It's too early to say, look, I mean, they are making so much money, it's hard for them. And that's also the communication internally, obviously, that it's by far not enough. We have to earn back what we paid out as major losses over the last years. So that's the first element. Internally, we shouldn't be complacent. The other element is how do our clients react? If they see comment ratios in the mid-80s from us, and obviously... it would be at least potentially a starting point for them to tell us, look, your prices are too high, you make too much money with us. But then again, I mean, that's not how the conversation usually goes. First of all, the way we do pricing is obviously not based on IFRS. It's of course not uncorrelated to what we're doing in IFRS, but we have a pricing view and a management view which is different and which is unchanged to the past. So there's no disruption in that. And I think that's important. Secondly, of course, we train our underwriters. We explain them that this very low number, and now in IFRS 17, has something to do with how we present the numbers. And I'm pretty sure they're all very well capable of explaining their clients why the numbers now look lower as they did look last year, but why this is not a change in profitability, but just a change in presentation from an economic standpoint. And then thirdly, we're in a hard market anyway. And this is, of course, extremely helpful in the current context. So the price elasticity is, of course, different in a hard market compared to a soft market. And the reason for primary insurance to buy protection are not immediately 100% price-related. Obviously, of course, they're always happy to pay less. But the demand... is driven by the wish to get the protection. And this is a very healthy driver for us to increase volume and to continue to enjoy the very positive market environment. That's why I think your question is still relevant. We have to be careful here. But I think we are and we will be able to manage it going forward.

Next question is from Ashik Musadi from Morgan Stanley. Your question, please.

Thank you, Anne. Good morning, Krista. Just a couple of questions I have. So first of all, I mean, clearly combined ratio underlying basis is better in this quarter, but would you attribute it to the earn-through of this year rates, or would you say that a big part of this improvement is still coming from past year rates, rather than this year's rates, just because it's just first quarter. So I guess that's one thing I'm just trying to understand, because see, rates are likely to go up even further in the coming quarters and probably in 2024 as well. So I just want to understand where this 86% or your 83% is heading towards in the near future. So that's the first thing. And just related to that is, I mean, we have noticed that there is some big capital raised announced by one of the Bermuda insurers yesterday. I mean, how do you read that capital raise? Do you think that will put pressure on the pricing? Or do you think it's actually because it's a traditional player, there is not much of risk around that? So that's the first element about thinking about margins. And a second element is, where was that? Is it possible to get some color on this IFRS 17 to Solvency II walk? I mean, I guess you had given a slide in appendix about how IFRS 17 earnings, so this slide number 55, earnings is moving into Solvency II. I mean, it would be great if I can get some color on what is this OCI change. and CSM change, et cetera, would be good to get some color on that. That would be great. Thank you.

Sure, yeah. Thanks for those questions. First of all, indeed, the renewals are not all earned immediately, and we still benefit from the good renewals last year, which are still being earned to some extent this year. And this year's renewal will then also not only affect this year's numbers, but also next year's numbers. So that's obvious. Are we concerned by the capital raises? No, not at this time. I mean, eventually at some point, the market will soften again anyway. I think it's by far too early to speak about that now. If there is capital flowing in here and there, yes, okay. But then the question is also the margin expectation. And as long as this continues to be in healthy levels, we are not concerned at all. And then more generally, what we currently see is a flight to quality anyway. So us being the market leader, we get a lot of additional demand and business opportunities just because in times of higher uncertainty, many clients just want to go with the safest possible reinsurers or I'm therefore not concerned at all. And if you were to ask me, I would say the hard market will for sure continue this year until year end and probably also go into next year. But clearly that's too early to tell and will depend on capital inflows and so on and so forth. I have a 17 walk to 72. That's a great question. I love it. Because it gives me an opportunity to start a little bit earlier already with answering the question. So how did we implement IFRS 17? I think that's very important. We implemented in a way that we chose assumptions wherever we could to be 100% identical with Solvency 2. So to get the maximum possible consistency. So we have the exactly same interest rate curves, for example. We have the exactly same Reserving assumptions, reserves, we have the exactly same. Mortality, biometrical assumptions, you name them. It's all identical wherever it can be. So, therefore, you would expect a huge or a large amount of consistency wherever possible. But then, obviously, there are areas where it's not possible. So, if you're talking about setting up a loss component, for example, in IFRS 17, that's something which is not existent in solvency 2.0. And obviously there are other areas as well, or the methodology for risk adjustment is different to the methodology for the risk margin insolvency too. So there are remaining differences in the methodology. And by the way, if you ask me by far too many, Because if you now, I come back to your questions, if you then look at the reconciliation from one to the other, you'll find them, that the differences are pretty small. And so as they are so small, immediately the question comes up, is it really justified to have two sets of numbers, which is always a source for confusion internally as well as externally. And by the way, it's a lot of work of deriving both sets of numbers. And finally, as you can see on that mentioned slide, 55, the numbers are quite similar with the exception of a few methodological differences. And now I'd like to comment a little bit more what the differences are. For Solvency II, the change of economic equity is 100% economic earnings. So there's no differentiation if a change is OCI or if a change is in a P&L or if it's just a change in the CSM or in the present value of future profits. So it's all economic earnings, all just shown in one single number. Whereas in IFRS 17, it's spread across these three categories. You have to see them change, you have to change in the OCI, and you have to change in the P&L. And so therefore you have to add the three, and then you have to add the difference between risk adjustment and risk margin. If you add them all up, you can see that on the slide for full year 2022, you get a pretty good alignment between economic earnings of 2.8 billion and the IFRS 17 number. So it's very consistent with the unexplained or other effects of 0.5 only. The same on the balance sheet, where also if you take the own funds according to Solvency 2, and then you take out the CSM after tax, you are very close to the IFRS 17 equity. So there the same holds true. that basically the two sets of numbers are extremely well aligned. Again, this is particularly true for us as all the assumptions have been made identical wherever possible. So don't expect it to be the same for all of our peers. And secondly, this is a full year slide. there might be differences in seasonality between the two. So the differences might be bigger in quarters one or three compared to what we see for full year. But frankly, these seasonality effects and the differences in seasonality are something which we are also still investigating. I hope that answers the question, but I could continue for longer if you want it.

The next question is from Henry Heathfield from Morningstar. Please go ahead.

Good morning. Thank you very much for taking my few questions. Just three kind of broad ones, if I can. I'm sorry if they're not specific enough. On the investment result, the yield is obviously looking really, really strong. And I was wondering if you could comment a little bit around kind of the asset mix that's driving that, whether it's changed an awful lot, whether there's been any alteration within the credit of the investment portfolio, or whether it's kind of really remaining as it was last year. And then secondly, you spoke a little bit about Thailand in Ergo Primary. And I was wondering if you might give a little bit of a flavor around what the expectations for future international growth are in ergo, whether Asia is a really kind of a really key theme for you or merging Southeast Asia. And then the last one, just on the discount rates being used to discount the PNC reliabilities. and that's being the discount rate within the currency that the losses occur. I was wondering if you might help a little bit on the illiquidity premium build up because surely the IOPA curve, you can get the illiquidity premium from the IOPA curve. Am I wrong there?

Thank you. Sure, thank you. Asset mix changed, no, nothing spectacular, really constant investment strategy, reinvestment being done into fixed income instruments, which on average continue to be as safe or as conservative or as high rated from a credit rating perspective as in the past. From one quarter to the other, it can fluctuate a little bit. particularly if reinvestment volumes are low and you do a little bit more of corporate bonds, for example, then reinvestment yields can fluctuate up or down a little bit in a single quarter, but the stock of our overall investment is not changing a lot, a lot really, and particularly not in this quarter. It has been very stable. Asian strategy for Ergo. Ergo has been active in Asia for quite some time now, probably up to 20 years. And most of the Asian business is structured in joint ventures due to the regulatory environment in the markets. I would say the significant joint venture is in India. where Ergo has in the meantime in PNC a top five market position and this is, I think I get it right now, if I get it right now, one of the top two private PNC insurers there together with their joint venture partner HDFC. Another Asian activity of Ergo is related to China. where Ergo is having two joint ventures. One is a live business. The other is a P&C business. In life, Ergo is holding 50%. In P&C, it's just below 25%. So two joint ventures in China. And then Thailand in the past was also a joint venture where Ergo did hold less than 50%, so did not have control according to IFRS language. So we weren't able to fully consolidate it. but Ergo was now able to acquire additional stakes and we have now 75% and also one other local player has been acquired now by the Thailand entity and so now we hold 75% of this Ergo Thai 3 entity and have control now and therefore for the first time now they also in our full P&L As long as we do not fully consolidate them, their results are shown as part of the net financial result of Ergo International. That's where then their results show up. But as soon as we fully consolidate them, you have a complete technical result. You have a combined ratio. So then you can see them as the European entities as well. And that's the reason why for Thailand there's also a combined ratio on the Ergo International slide in the back. And by the way, it's for exactly the same reason I was mentioning for Ergo Germany. So the seasonality of acquisition costs, it's a little bit high this quarter for Thailand with the 113%. This has to do with the significant growth this entity is currently seeing, and therefore a lot of acquisition costs had to be booked in Q1. So therefore, the 113% in Thailand is elevated by this acquisition cost effect. I think that's what I can tell you on the Asian market. Ergo is a small entity in Singapore, which is owned by 100%. I think that's the one I didn't mention so far. So that's what I can tell you on the Asian Ergo business. Discount, again, we use exactly the same discount rates as we use for Solvency II, which means for entities where we use the volatility adjustment, we then also apply the volatility adjustment method. For IFRS 17 purposes, for the majority of our entities, we don't do that. And therefore, for the majority of the entities, there is no illiquidity premium. And if there is a positive VA, and if we apply it for Solvency II as well, then we use it also for IFRS 17. But as you know, the VA in recent quarters has always been very small. So it's a very small amount of illiquidity premium there. if at all, we are having in our numbers. And again, it's not a decision we take. We just take the IOPO decision and the volatility adjustment from IOPO.

Next question comes from Jochen Schmidt from Metzler. Please go ahead.

Thank you. Good morning. I have one question on the investment result on slide seven, the fair value change on equities of 250 million. Could you explain why there was not any higher effect from listed equities accounted as fair value through P&L in Q1? Given the market movements, was this due to hedging or were there any offsetting effects within this number, for example, from the revaluation of private equity? That's my question. Thank you.

Yeah, I think I can be very quick here. We hedge our equity exposures, and as soon as markets go up, then you lose on your hedges. So that's the effect.

We have a follow-up question from Miss Kong. Miss Kong, please go ahead.

Hi, thank you. Could you help us give some guide on how you expect the EFI to develop, given it's still currently depressed by the unwind of low locked-in rates at transition? Does this mismatch only exist because of the transition and should it normalise going forward, i.e. your higher discount benefits and your technical result should be more or less offset by higher EFI? When can we expect this to stabilize? And secondly, if I can, can you help us understand the concept of the change in loss component, which benefited your combined ratio in Q1 and also in 2022? Why is your expectation zero for the year? Thanks.

Sure. Thank you. I start with the first one. I think it's a very relevant question. So therefore, I try to be as quick as possible, but I also try to be precise here. And your question was, how will the e-fee develop going forward? And let me expand the question a little bit because what I showed you in the trends or what you see in the deck on what I was talking about also, if you look at the prior year number, 2022 full year result, 5.3, which reduced this then and we get to the 4 billion guidance. What I showed you there is a minus 1 billion euro effect due to change in discounting versus EFI in the P&C reinsurance segment. So there you see an insignificant effect reducing the benefit we have from discount versus unwind from the past. And this effect, as I mentioned in my introduction, reduced from 1.5 billion to around 500 million this year. So last year it was 1.5 billion benefit in P&C reinsurance from these interest differences. This year only 500. And next year it's going to be even less than that. I cannot be more precise than that because these numbers are highly interest rate dependent. So to just give you a rule of thumb, a 100 base point interest rate movement would mean a 500 million pre-tax movement as well. So these numbers will heavily depend on how the interest rates move. But our current expectation, 1.5 billion last year, 500 million this year. Now this number is the difference between discount benefit and the EFE. So the EFE in itself, I can answer you that question as well, but don't look at the EFE standalone because it's always in our view has to be seen in the context also of the discount benefit. So in 2023, we had an EFE of 1.5 billion, Sorry, 0.5 billion, and we expected, yeah. And so I have to, let me look up the number. I'll take that later. I think, oh, in 2022, sorry, 1.5. Yeah, there we are. 500 million EFI in 2022, which will go up to 1.5 billion in 2023. That's the direction in that, indeed. Yeah, okay.

We have another follow-up from Mr. Ricci. Mr. Ricci, please go ahead.

Well, hi there. Sorry, you just need to clarify in the answer to your last question that we need to think about the trajectory of investment income versus IFE as well. And I'm assuming sort of, you know, to what degree the investment income running yield will accrete to the same rate of the IFE expense, maybe clarify that. But sorry, my other questions were, I'm sorry, I should know the answer to this. The cat loss number you gave, the nominal number is about 16 points of insurance net revenue. So your 16 point large loss loads or the 14 points is on a nominal basis. I thought it was discounted, but it actually appears to be nominal. So the discount effect- from the cat appears where. I'm confused on that. My only other question was, how do we interpret ergo life and health Germany? I mean, the technical result looks really strong. And some elements of it look quite sustainable, particularly the large CSM release. But then there's these non-attributable expenses or some other noise. So what do we do with that division? Thanks.

Thanks, Andrew. So first of all, yes, indeed, also the interest, also the running yield has to be, the investment yield has to be also seen in the context of the EFI. That's true. I was referring to the technical result before where the difference of the two is relevant. But you're right, of course, we will also benefit going forward from the higher yields, as you could see in this quarter already. There is, though, this one-off kind of effect, which is particularly strong currently as we locked in a transition to very low rates and then the interest rates jumped up so much. And that's why we're always looking into the technical result and how these one-offs there reduce over time by a billion from 2022 to 2023. So those are large numbers in the technical result. That's why we have been highlighting them so much. But you're completely right. The discount plays a role there as well. And by the way, also the change in loss component, I think that's a question of why I didn't answer. I can quickly do that as well. The loss component reduces also interest rate dependent. It's discounted. And then, of course, it depends on pricing level. So if prices go up, you have less loss making group of contracts and lower number of loss making group of contracts So therefore, with increasing prices in the market, the loss component should go down as well. At stable price level, it should be stable as well as with stable interest rate levels. And then the loss component can move up and down depending on interest and on price. Andrew, your question then on the large losses, the numbers are discounted numbers. So the 14 as well as the 16% number is fully discounted. And then the question on ErgoLife. First of all, if you look at the total technical result as we do the accounting now, and that relates to all our segments, not only ErgoLife. We allocate into the technical result expenses exactly in line with the definitions of IFRS 17, which means only directly attributable expenses. So directly attributable to an insurance or reinsurance contract, only those expenses are part of the technical result. Everything else is outside of the technical result in our other result. And so therefore, in general, there is quite a significant negative contribution from the other result in all our segments. And that's, of course, then also the case for ErgoLife and Health Germany, but also for the other segments. That's normal, and that's not spectacular, nothing outstanding, so I would not have commented on that. But there is an additional comment for AgriLife and Health Germany I made, and this additional comment was that we have additional non-directly attributable expenses in the Life New Book business, so higher than expected expenses, which was an additional track on the result in this quarter of that segment, on top of what you would have expected anyway. And so therefore, to answer your questions, probably two components. First of all, if you look at the relatively high total technical result, there always has to be deducted a certain amount of non-directly attributable expenses in the other result. That's completely normal, and that's probably a higher number than in the past. So the difference between technical result and net income is probably higher than in the past because this cost definition in IFRS 17 is rather narrow. But that's normal. And then on top there is, as always also in the past, there's current developments in the actual quarters. There's higher expenses than expected or lower expenses than expected. And this is then the actual performance commentary you saw on the slide where this quarter the live new book business had higher expenses than expected.

We have another follow-up from Mr. Hartkastel. Please go ahead.

Hey, thanks for the follow-up. Can I just clarify something on that eight points of discount and the NATCAT load? Is it effectively 8.7? Because you've already taken some component within the NATCAT number. So Turkey shouldn't actually be affecting that headline. Just trying to understand that, if that makes sense in terms of that walkthrough. The actual question, so sorry, you mentioned there's also an adverse development on that prior year cap. I think if I understood your comments, could you just quantify or state which cap that relates to? And then just thanks for publishing the P&C reserves, always helpful. Can you just guide me where I should see the inflation caution in the motor reserves? Because all the back years seem to be developing pretty favorably across both motor prop and non-prop. I can see that the non-prop 22 loss booking was materially high year on year. Is that where the caution has been taken or is that just experience? Thanks.

So the last one is a little bit too specific that I could spontaneously answer that. So I think we have to take that offline. Sorry for that. On cut, I I'm not sure if I 100% got the question. I can only reconfirm the numbers are all discounted. The discount is pretty stable versus year end, so that's not a big source of fluctuation, particularly not in the large loss area where we normalize for. I hope that answers the question. Otherwise, please follow up. PYD, we only would quantify a number like that if something really extraordinary would happen there, which is not the case this quarter. So generally, it's up and down every single quarter. So therefore, we refrain from giving any details there.

Next follow-up from Mr. Xu. Please go ahead.

Oh, thanks. Just a very simple one from me, actually. I was hoping that IFRS 17 would lead to a certain amount of consistency and increased transparency between companies, and particularly reinsurers. You seem to have taken a different, elected to take a different approach on the PC re side in choosing the premium allocation approach. Can you just guide us through why that was the case? Obviously, we lose a particularly useful insight, which is the CSM new business margin, comparing that year on year between reinsurers. So any insight why you've chosen to differ versus some of your peers would be helpful, please.

Yeah, sure. So, I mean, to start with, I mean, I also did follow the disclosures over the last days, I have to say. I mean, it's really interesting and, by the way, also fun to observe what everybody is doing now with these new disclosures. And it's interesting and probably much more for a follow-up conversation in a few quarters from now than to comment extensively today because I think it's all early days still. But I do think comparability has improved. As soon as the dust settles a little bit, there will be much more similarities in the disclosure or are already today in the disclosure than what we had in the past. So if I look, for example, into some of the charts, how these movements have been explained by our peers, and then look into our disclosure, I think it's pretty similar in many cases. So therefore, I'm quite optimistic. And then to more specifically answer your question, also the PAA versus GMM approach in P&C, I mean, bottom line is very similar. There's not a big difference in there. There are some timing differences sometimes. I think discounting is different. That's something which somebody should maybe be aware of. But more generally, I think it's pretty similar. Representation is different. And there, I think it's a matter of taste, finally, if you prefer having a CSM for a short-term business, which I personally also sometimes have a little bit of difficulty with how to really interpret in the context that you also have a loss component then, you have a loss component, you have a CSM, all for short-term business. It's also not so simple. The PAA has other advantages. It's closer to what we did in the past, so it's maybe easier to digest initially. But then also there, the loss component and the discounting, so also some differences. It's probably more a question of taste, what you prefer of the two. The reason why we did choose the P&A is a very simple one, though. So not these highly sophisticated and theoretical discussions, but a very simple one. And the reason was that it was much cheaper for us to implement the P&A. It was simpler. And we did have to adapt less systems than otherwise. So that was the reason.

The next one is from Mr. Spiro as a follow-up. Please go ahead.

Hi, thanks for the follow-up. It relates to sovereignty.

Sorry, we can hardly hear you. Can you please speak a bit louder? Hi, can you hear me now? Yeah, let's give it a try. A bit louder, please.

Yes, so it's on sovereignty. I appreciate that you deducted the buyback, which is around six points. But I was wondering if you could give a bit more color on the moving parts. I estimate you had around maybe six or seven points of capital generation that would have offset that six points from the buyback. So any color on why sort of sovereignty looks slightly lower than the full year level, that would be great. Thank you.

Yeah, sure. So, yeah, I mean, the major driver is the deduction of the buyback. I think everything else, not very spectacular. We had positive operating earnings, economic earnings in there, which then were more or less completely offset by some tax effects and some other effects. Seasonality, I think I mentioned that in a different context, is different in the economic earnings, so in the 72 space compared to IFR 17. So a lower portion of the result is realized in Q1. at least in the way how we do the solvency two calculations. So therefore, probably that might be one of the reasons why the number is not higher. The STI is pretty stable. So all in all, nothing spectacular really.

The next one comes from Mr. Gore from RBC. Please go ahead.

Thanks for the opportunity. A couple of quick follow-ups on life and health technical results, please. And they both relate to slide 19. So I appreciate there's a lot of conservatism in the $1 billion guidance, but I'm just trying to get an underlying picture on two things. The first one is on U.S. mortality. Can you say what the total impact was from negative experience in Q1? And is there any more color you can share on this, whether it was just underlying excess deaths and is there a risk of this dragging into future quarters from things like late reporting? The second one is on that fee income from Finn Morey. So adjusting for the currency effect, it looks like it was about $120 million, which is about double what it was Q1 last year. Now, is that a fair reflection of the growth potential here, or are there any one-off seasonality effects to consider? Thank you.

A second question, I don't see any seasonalities. I think the business is growing in a very attractive and constant way for quite some time now, many years. So I think that's just the ongoing development. And indeed, if you would adjust it for ethics, the number would be significantly higher. So yeah, I think that... That's just a very good performance. On the mortality in the U.S., I mean, first of all, I think if you look at the disclosure, we're talking now about effects which would not have even been visible in the old IFRS 4 world. So this is, again, the advertisement for how good IFRS 17 is because we're talking now about tiny little bits of performance up and down which otherwise in IFRS 4 with locked-in margins and locked-in reserves would not have been visible at all. So that's a big advantage already. What's happening here is that we're talking about really slight deviations. It's not a lot. We, of course, see a big improvement in the COVID space. We still have COVID-19 which we did not release yet, so we are still on the cautious side there. And therefore, if we would include that COVID piece, then the mortality deviation would immediately look different, obviously, because then Also, the starting point of the expectation would have to be explained in a different way. And I think that's it already for now. Obviously, US mortality, we need to continue to observe that closely. I mean, that's something you can also take out of the press, that mortality generally in the US population is still elevated. Now, there's always a difference between insured portfolio and the general population. So it's not one-to-one at all in the way how one moves and then how the other reacts. But still, it's something we have to and we do observe and we do so for many years already as we have a big mortality book like many other reinsurers as well.

Mr. Musari, please go ahead with your follow-up question.

Yeah, thank you. Just a couple of follow-ups. So if I look at slide number 22, this is just for clarification. I mean, last year, first quarter, the basic loss ratio was very low, 52%. This year is high. I guess this is just the iffy gap, which you mentioned, that last year there was a positive impact of $1.5 billion. Now it will be only half a billion. So just to clarify, this is the same thing, and I'm not missing anything. And then second thing on ergo German life, if I look at the CSM release, I mean, it's a big number, like around a billion, which is 10% of CSM. So how do we think about the duration of this? Because my gut feeling would have been like, okay, German life should be relatively high duration. So, I mean, 10% release sounds pretty high. So is this a recurring number? And if that is the case, then... Should we keep expecting that this number keeps going down at a very fast pace as well?

I'll answer the first question. I'm not sure if I got the second one. The first one on the basic losses is basically, the answer is you can't really compare prior year and this year because the threshold between basic losses and large losses has been increased, as you know. In the past, the large loss would start at $10 million, and now it starts at $30 million. So the basic losses are defined differently this year compared to prior year, and we did not restate for that effect. So I think that should explain a lot more and particularly highlight it's not comparable to look at basic losses prior year to basic losses this year. The CSM release, I'll try to give the answer and you can follow up on that. I mean, the... The release, I mean, what the general guide is, we're saying around 2% per quarter or 8% per year, the same for life and health reinsurance as well as for ergo. The point is a little bit that this on the ergo side depends on the excess, so the excess yield or the excess investment income which has been generated because first the whole calculation is done in a risk-free way and then excess return adds to the release. Therefore, also all the numbers like the new business contribution, all based on risk-free interest rates, are relatively small. And then only in the release, the bigger release based on real-world investment yield is being shown in the P&L. And to give you an order of magnitude, it can be a factor of two. So the risk-free release could be by a factor of two smaller compared to the full release, talking about Ergo Life and Health Germany now. Now, there's no such effect for reinsurance life and health because there's no savings business. So be careful. That's not the case for reinsurance. But there is this effect for VFA business, so most importantly, Ergo Life Health Germany, and then also for some of the businesses in Ergo International.

Yeah, that's clear. Thank you.

I'm sorry, we have one follow-up because we had a couple of people who didn't get the numbers with respect to slide number 30, where we explain the walk from last year's earnings to this year's outlook, specifically with respect to the $1 billion figure for P&C Reinsurance. And Christoph will repeat the numbers again.

Yes, indeed. So we have 1 billion impact as shown on the slide. And I'll show you now year by year what the interest benefit in P&G reinsurance was. I start with 2022. We had a benefit of 1.5 billion euros after tax. And the components are discount effect 2 billion, EFI 500 million to be deducted from that, and 500 million lost component release. 2023 expectation is a 0.5 billion effect still, discount 2.2 billion, EFI 1.5 billion. So, and the difference between the 1.5 and 0.5 is the 1 billion you see on the slide. 2024, we expect the numbers to go down further But I also repeat my disclaimer I made before. These numbers are all highly interest rate dependent. The shift in interest rates of 100 million could mean 500 million difference in these effects.

There are no further questions at this time, and I hand back to Christian Becker-Hussong for closing comments.

Yeah, thanks to you all for joining us and for... There are lots of questions. Happy to follow up on the phone afterwards. Thanks again for joining and hope to see you all soon. And have a nice remaining day. Bye-bye.

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you very much for joining and have a pleasant day. Goodbye.