Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft 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.