Münchener Rückversicherungs-Gesellschaft AG in München

to Munich Reef Q2 earnings call. Today's speakers, as announced, Joachim Wenning, our CEO, with a presentation. Afterwards, there will be ample opportunity for Joachim.

Christian, ladies and gentlemen, good morning. After the first half of the year, we see strong performance across all lines of business. In P&C reinsurance, we continue to navigate in a favorable environment with highly attractive rates. We have taken advantage of the further hard-earned market. We find ratio is way better than our full-year ambition for 2023. Our life and health reinsurance posts an excellent total technical result, well ahead of the pro rata full year guidance, and Ergo continues to be a very reliable earnings contributor. In terms of return on equity, we are already at the upper end of our targeted range of 14% to 16% for the group, but also for each of the Our ambition 2025 trajectory is based on sound underlying development, but additionally it benefits from a longer than anticipated favorable pricing cycle. And I'd like to say even if the cycle should reverse at some point, and of course it will, but I don't think so soon, we will continue to deliver. By expanding the earnings contribution of less cyclic businesses like Life & Health 3, Global Specialty and Ergo, we facilitate increasing resilience of our overall earnings going forward. Diligently managing earnings, we aim for a rather steadily increasing earnings path. I'd like to now summarize my key takeaways for each segment, and I start with core P&C reinsurance, where the July renewals have seen a continuation of the upward pricing trend. We posted a fully risk-adjusted rate increase of 5%, which is significantly above the one seen in past July renewals, but also the two renewals on 1.1 and 1.4 this year. Main driver remains NatCat business, which we further expanded across all regions, but we also further improved terms and conditions and did quite some work on wordings and exclusions, etc. As weaker wordings tend to cost some money from time to time, and strong wordings make the business more robust, This to us is an equally important achievement of our underwriting rigor. We are simply not willing to support what doesn't make technical sense and we have seen some evidence of this in quarter two. So we continue to be very disciplined in the casualty lines which are very long tail and we also reduced a little bit our property proportional business, I come to this. And as a result of this business shift, business makes shift from proportional to non-proportional, we have reduced premiums by almost 2%. Taking then a closer look at lines of business, it is striking that NatCat provides increasingly attractive margins. I'd like to repeat, now is the time to grow this segment, and we are prepared to do so and seize opportunities. For the other lines of business, the picture is slightly more differentiated. Consistent with our approach in recent years and against the backdrop of social inflation and the like, we have further reduced our exposure to proportional casualty business. And in property, we have given priority to non-proportional structure. All the remaining lines of business are doing really good. In our eyes, the favorable market environment will not only sustain into 2024, But I'd like to make a bold statement. It will probably sustain into 2025 as well. Now, we don't have the crystal ball and nobody can really know and predict this. And nobody knows what the actual large loss is going to be, how they impact the cycle, how the capital markets might or might not impact available capacities. However, beside those effects that always will be there, there is simply too much ongoing uncertainty around in the market and too much to still catch up to worry about rates broadly decreasing. So I give you examples. Take the personal lines business. Everybody would agree that there is something more to do. Just take motor business in many of the international markets. It's obvious. But then there is climate change and related losses. Whether the big, large ones or the more local ones, it's obvious that losses practically have doubled in recent years. And this trend will not become cheaper if at all, but will become more expensive. Insurance gaps are still high even in established markets. To the extent that they will close, this is further demand. The cyber market. There is not too many risk carriers offering their capacity. Inflation is somehow lower, yes, but it's still very much there. So I also don't see any easing at this front. And social inflation driven by US litigation industry drives rates up and up or coverages down. I could add more points, but those define our position that we don't see the positive trend changing any soon. Then within P&C, you know that we're working on extending our specialty business. That's why we have bundled this under the lead of Mike Koerner. We seek for synergies in the areas of underwriting, claims, sales, and operation. This has been worked on. We expect this segment to grow by 25% to around 10 billion primary income by 2025. And the combined ratios should end up in the low 90s. In life and health reinsurance, earnings are developing rapidly. Much better than anticipated, total technical result is expected to exceed 1 billion by 2025. On the one hand, this is supported by IFRS 17 because the business profitability is crystallizing much better and earlier than under IFRS 4. But at the same time, and more importantly, the underlying performance of our business has improved materially. I come to ERGO, which has delivered an exceptionally strong net result of $470 million in the first half, way more than 50% of the full-year guidance. I'd like to say that going forward into 2025 and thereafter, there is even more earnings potential than the $700 million annually. We are confident that ERGO management will get there step by step, as evidenced in the last six years. In addition to the favorable insurance market environment, we are experiencing some tailwind also from higher interest rates in the capital markets. We are currently reinvesting new money at almost 4.5%, so much better market conditions than just a year ago. And in essence, we use three major levers. some technical shorter term positions like higher investments in high yielding assets and or taking some currency positions like very recently increasing our US dollar position which we had reduced towards the end of last year. But then another reason is of course that we are constantly expanding our investments in the alternative sector thus liquidity premiums. And the third lever is that we are also open to mandating the asset management for high parties that outperformance. Let me summarize. Munich Re is in very good shape to further increase earnings. demonstrated in the last renewals we have absolutely no constraints to deploy capital in the hard market and profitably expand our book. But we don't do this blindly, we do it consciously, nothing for growth's sake, as evidenced in the July renewal. We are leveraging our superior underwriting qualities to safeguard profitability and diversification. At the same time, Our shareholders participate via growing dividends and by share buybacks. The result can be seen in the leading total shareholder return against our peers, now for the second time in row number one. This brings me to the end of my presentation, concluding the 2023 outlook, which as you can see is unchanged compared to our last announcement in May. Some of the KPIs might look a little bit conservative from today's perspective, as we have already achieved 60% of our net earnings target. So I would agree to this view, and no doubt the likelihood of achieving or even surpassing our financial targets in 2023 has further increased yet, cautious and mindful of the hurricane season still ahead, there is still to us no sufficient reason to adjust guidance now. With that, I'd like to hand over to Christoph for his guidance.

Thank you, Joachim, and a warm welcome also for myself. As always, I will not go through the presentation, but just kick off the Q&A with my personal remarks. I'd like to provide you with some more color on Q2 results to begin with. This time, the story of the second quarter is really quite straightforward. Our technical performance in all fields of insurance business continues to be very strong, while the investment result was dampened by losses on fixed income. We posted a very solid net income of almost 1.2 billion euros, which, by the way, is very close to the analyst consensus. On a personal note, I think it's impressive how well you guys have managed to estimate our earnings. You obviously did a lot of homework on IFRS 17, like we did, which makes me very optimistic that you join me in appreciating the higher amount of transparency and predictability IFRS 9 and 17 offer compared to the old regime. We will continue to provide you with detailed explanation necessary to thoroughly project and analyze our earnings. Now coming back to the Q2 numbers, Munich Re exceeded almost all KPIs and Borata financial targets, with the exception of the ROI of 1.1% in Q2, which was clearly below our guidance. And here the Q2 result was negatively influenced by two management decisions, aiming at a steadily increasing future earnings trajectory and as much as possible dampened volatility, both in reinsurance and as ergo. First, management decision affects investments. It's reflected in the comparably low ROI. In reinsurance, we decided to reallocate funds in our fixed income portfolio, realizing losses of around 300 million euros, thereby increasing future investment income. Similarly, negative fair value changes from interest rate derivatives in agri-life and health Germany will also lead to a higher investment result going forward. Without these two effects, the investment result would have been more than twice as high and would have fully met the guidance. The second management decision affects P&C reinsurance and Ergo P&C. In these two segments, we used the opportunity of higher-than-expected discount benefits to book more prudent best estimates results. We'll come back to that. Despite all the mentioned measures, After the first half of the year, MiniGree is well ahead of its pro-rata 4 billion 2023 net earnings target, reflecting an excellent underlying performance. Now turning to the segments and business fields one by one, and let's start with reinsurance. Life and health, total technical result of 325 million euros in Q2 was again above the pro-rata annual ambition. The release of CSM and risk adjustment was in line with expectations. Experience variances on aggregate were largely neutral, with negative U.S. mortality compensated for by positive variances from the remainder of the portfolio. The prudent booking of certain short-term group and health business had some negative impact booked in the on-risk contracts line. Total technical result would have been significantly higher without negative currency effects reflected in the result from insurance-related financial instruments. Consider this an accounting mismatch. Related FX hedging activities are recognized in the currency result. On an underlying basis, our FinMori business continues to grow and to perform very successfully. GSM in life and health re-stands at 10.5 billion euros. This is a small decline compared to the year end, driven by a shift from CSM to the risk adjustment as a result of an annual parameter update, as already seen in Q1, so that's not new. The CSM and the risk adjustment represent future profits. We do not expect any margin deterioration from a shift from risk adjustment to CSM or the other way. CSM from new contracts is reflecting a new business generation which was particularly pleasing in North America in the release through P&L. In P&C reinsurance, we continue to strongly expand our business. Revenues increased across the board by 9% in the first half of 2023. In Q2, we posted a very good combined ratio of 80.5%. Major claims amounted to only 9.3 percentage points, clearly below the average expectation of 14%. 200 million euros, the flood in Italy was the single biggest loss for Mini Green. Against the backdrop of a quite active nut-cut quarter for the industry, specifically in the US, this large loss result bears testimony of our prudent underwriting. Underlying performance, remains sound as we earn through the margin improvements of the recent renewals. The normalized comment ratio of 86.2% is fully in line with our guidance. Already in Q1, we again used the high 8 percentage points discount benefit to cater for claims uncertainty by prudent basic loss bookings. The increase of the normalized comment ratio versus Q1 is a reflection of the even more prudent loss picks in Q2 compared to Q1. In primary insurance, Ergo delivered an exceptionally strong Q2 net result of €250 million, which leads to a very high half-year net profit of €470 million. Starting with German Life and Health, the net result amounted to €72 million in Q2. In addition to a strong contribution from the Life Back Book, The result of PAA business exceeded the level achieved in Q1, driven by a very pleasing development of short-term performance. In P&C Germany, we achieved a very good technical performance with a pleasing combined ratio of 84.7%. This number includes a high discount effect of 3 percentage points, which we, as we did in reinsurance, used for a prudent reflection of downside risks in the basic loss ratio. Isolated second quarter with 88.1%. Combined ratio was pleasing, supporting a good net result. Again, benefited from the seasonality of acquisition costs, and again, lower than expected major losses, contributing to an H1 major loss level significantly below expectations. Let me quickly explain the acquisition cost topic. For the PAA business, the IFRS 17 standard allows to fully recognize the acquisition costs as expenses when they are paid out. This leads to seasonality, especially for the motor business, where the majority of sales and renewals happens in Q4. Therefore, the acquisition costs will increase significantly in the fourth quarter, leading to a much higher combined ratio in that last quarter. And as a consequence, in assuming a normal large loss level, we of course expect P&C Germany earnings to be substantially lower in the second half of the year than in the first half. The international business of Ergo saw a strong operating performance and benign large loss development in P&C. Compared to the first quarter, the Q2 combined ratio improved to 88.1%, with particularly good combined ratio in Greece and in Poland. The total technical result was also supported by the CSM release on an expected level and a €30 million one-off release of claims reserves in life and health. The segment net result came in at a very strong level of €116 million. A few remarks only on capitalization, which remains very strong according to all metrics. The group's economic position is particularly strong with a solvency 2 ratio of 273% at the end of Q2 due to good operating earnings and lower capital requirements from active risk and capital management in P&C reinsurance, including a recent issuance of a cut bond. Joachim mentioned the outlook already. I can only reiterate what I said at another occasion already. We do not want to wake any hurricanes by raising our outlook too early. So let's wait and see how Q3 develops. And in any case, we'll continue to diligently assess and, where beneficial, also implement measures to support a reasonable earnings trajectory going forward. That's it. Then also from my side, Joachim and I, we are looking forward to all your questions. But first, I'll hand it back to Christian.

Thank you, gentlemen. We can now move on and turn to the Q&A session. My usual housekeeping remark, please. 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 1 on their telephone keypad. If you wish to move yourself from the question queue, you may press star then 2. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. First question is from the line of Ivan Bogmat with Barclay. Please go ahead.

Oh, hi. Good morning. Thank you very much for the opportunity. My third question would be on the PNC combined ratio. I was wondering if you could try to help us understand how much have you added in terms of this ratio. IBNR in first quarter? Is it the 3% difference between 8 and 5? Is there a little bit more? And maybe if you could elaborate of when you are adding to reserve prudence this year, are there any particular buckets that you are more concerned of? And then the second question, I think it's related to the disposals that you've taken so far this year. Could you help us estimate, you know, compared to how much you have costed through the P&L, what's the uplift to the regular income should we be expecting, let's say, this year and next? And is there a budget for your disposals, or are you just going to be opportunistic if the, let's say, if the caps are low, you're going to keep doing it? Thank you.

Yeah, Ivan, I think both questions are for me. Let's start with the common ratio P&C. I mean, My commentary was that we used the opportunity of the difference in discount of 8% versus what the expectation was. The expectation was 5%, so 8 minus 5, 3%. That was the background in front of which we decided to strengthen the reserves. What I also said is that in the second quarter, we even booked more conservatively than in the first quarter. which I think gives room to fantasy that maybe the 3% is the lower boundary of what we have been doing in the first and in the second quarter. I would be a little bit reluctant to give you more detail than that because at some point it's no precise science anymore, but then it's very judgmental where the additional prudence ends and where you really would need the reserves then. But I think I can easily confirm it's minimum the difference between the discount of eight and five. There are no specific buckets. It's clearly only IVNR. And also your question, if there were any areas of concern, I think for that strengthening, no, there aren't. Because there really wasn't any indication leading us towards the need to do a strengthening. It was really opportunistic in a sense that we were able to afford it. And again, the target is this steadily, hopefully not at all volatile earnings trajectory increasing forever into the future. That's the target. Disposals on fixed income. There is a budget, but it doesn't make a lot of sense to release any budget here because there's an opportunistic overlay over the budget. So therefore, it's both. We started into the year with a budget. But in the meantime, the budget has been increased opportunistically already, and we will continue to manage that in a very agile way, depending on result development, obviously, and also depending on our view on how the earnings trajectory will develop also into the future. We are currently going into our planning exercise where we do another three-year plan ahead and try to understand well what the effects are going to be There are quite a few sources of volatility, as you know, in the business, but also generally IFRS 17 and I is more volatile than what we had in the old regime. So there's quite a bit of areas where you might want to have some buffers in the future. And therefore, wherever we can afford building them up, we will do so. The impact on the running yield, yes. Thanks for the reminder. It depends a little bit how you – and in which book you do it. But as a rule of thumb, if you assume, I don't know, a duration of four years or three years, then divide the impact by that number, and you get a rule of thumb for what the impact would be.

Thank you very much.

Next question is from the line of Cameron Hossein with J.P. Morgan. Go ahead.

two questions for me the first one is just on the evidence and i think it's very reassuring to hear you say that you'll probably like you to exceed it just because we're i guess we've seen the q and i for 17 we don't always really know what the different quarters will do in terms of seasonality or other effects is there anything to flag in the second half of the year that we should really bear in mind when we're going and updating and kind of uh you know working on our rfs 17 numbers so any kind of that we might expect, whether that's kind of contracts, et cetera, in Q4. The second question is, given the kind of strong earnings base, you know, it's a much larger base than it's been for many, many, many, many years or kind of, you know, of all time. Now, you know, dividends have just been strong and consistent. The share buyback's been consistent. for many years. At what stage do you think you would look at that share buyback and think, actually, we can put that sustainably up to a higher number than a billion? Thank you.

Okay. Seasonality, there is a few items where we have some seasonality, either in our business or in IFRS 17. To start with large losses, I mean, you know that we generally talk about our expectation to be 14% on average across the year, so for every single quarter. But in reality, the second half of the year is more prone to large losses than the first half of the year. So that's already the first source or potential source of seasonality, obviously depending on the actual outcomes. A second source of seasonality is acquisition costs, what I discussed before for Ergo Germany, for example, where in certain quarters, particularly in the fourth quarter, you have higher acquisition costs than on average due to the fact that a lot of the book is being renewed in that quarter. And there's a similar effect also in P&T reinsurance where the lost component built up or released is also subject to seasonality, where in the fourth quarter, as we have the big renewal, EVEN IN TIMES WHERE MARGINS ARE EXTREMELY ATTRACTIVE AS THEY CURRENTLY ARE, WE STILL WOULD EXPECT THE LOST COMPONENT TO BE BUILT UP AGAIN DUE TO THE FACT THAT WE HAVE THIS VERY LOW GRANULARITY IN THE WAY WE BOOK IT, AND WE ALWAYS PUT THE ADDITIONAL PRUDENCY ON TOP, AND EVEN, YOU KNOW, INCLUDING THE PRUDENCY IN THE MOST PROFITABLE BOOK, YOU ALWAYS FIND A FEW POCKETS WHERE YOU BOOK A LOST COMPONENT. SO THAT'S ALSO A SEASONALITY WE GENERALLY SEE. Part of the idea of the way we maybe steer the earnings is really to manage those areas. But obviously, they will not go away, so they will always be part of to interpret our numbers. Second question, buyback dividend. I think what is very obvious is that we currently are on a different run rate when it comes to earnings. than where we have been a few years back. Our buffers when it comes to capital, they are also well-filled. Solvency 2 is very high, but also according to all other capital metrics, we do not see any significant restrictions. The usual process for us is to consider our capital measures in the first quarter after we saw the Q4 result. just because this seasonality you were asking for is hitting us very much in the second half of the year. A lot of the large losses happens in the second half of the year, so therefore it always feels better to await how they really turn out to actually happen. And then we will make up our mind in Q1 next year what actually the payback can be and what dividend and share buyback will be then going forward. Obviously, it's very clear if our result comes in as expected, buffers all being filled up and insolvency being at a very high level also in historic terms, obviously, we will consider all of that in our decision and currently very clear that there will be.

Thanks, Christoph.

Next question is from the line of Trufana Spiro with Berenberg. Please go ahead.

Hi there. Thank you for the opportunity. I've got two questions. The first is on MUNIOS. I was wondering if you can perhaps share some additional color on what specific lines in geographies you reduce exposure at the mid-year yields and whether this is made up of a single large contract or many sort of individual smaller ones. And I guess on the expansion in ACAD, would it be fair to say that the cut bond you issued It was as a result of the higher than previously anticipated growth in this area. So that's the first question. And the second one is I was wondering if you can maybe share some comments on the performance of the global specialty insurance in Q2 and how it's yet to date. You mentioned a low 90s combined ratios and ambition presumably over the cycle. I was wondering whether you can share where you sort of currently stand and whether there are any particular lines where you're currently more cautious or more excited about. Thank you.

Thank you. Let me take the first one. I understand the first one, like you are interested to know which are the lines where we reduced our exposure. In the traditional P&C reinsurance side, it was clearly the proportional casualty lines. And we reduced them further after having reduced them already in the years before. And the second one is that in the developed markets in Asia, in Europe, but also in the US, we have reduced our property proportional exposures where possible we transformed them into non-proportional structures or shrank our participations or just exited them. Those are the two lines. A third one is on cyber, where we thought that wording-wise we don't get to terms. We prefer not participating. These are the three areas that would come to my mind. With regard to the global specialty insurance, what are the sweet spots, what are the not-so-sweet spots? Frankly, compared to what we have been doing In the last years, the strategy or the appetite hasn't really changed. So in that sense, I would say continuity in a good sense.

Maybe the cut bond question quickly. What I can confirm is that the issuance of the cut bond felt in a time where the cut bond market generally was an attractive market for investors or more investors showed interest in that. and we were benefiting from that.

Thank you, we can continue with the next question.

Next question is from Linus James Shook with Citi, please go ahead.

Yeah, hi, good morning. So my two questions are firstly, in terms of this kind of recycling of the discount rate benefit. So I can hear what you're saying in terms of the margin build. What I'm trying to do is just gain an understanding of how that will reverse out in future years. So I think you guided for an IFE unwind and PCE of 1.5 billion, if that's still valid. Presumably that number is going to go up in 2024. So as we move into 2024-25, how should we view how you release that margin build? Will it be neutralization of the discount rate benefit net of the IFE? or will it be neutralization of those two offset by the investment income? Will we see it come through the PYD, or will we see it come through the initial loss pick? So any help on how to think about that when we actually see your numbers coming through next year would be helpful, please. Second question is around the Atlantic windstorm exposure. So your PMLs show a very sharp increase for the 1 in 200 from $8 billion to $10 billion. My understanding is that is a forward-looking number. So I'm keen to hear, given the July renewals, is that still valid PML, also given that cap bond that you've issued? And how do you think about that in the context of your NAV? Because you seem to be stressing that you're a very diversified company, but when we look at that windstorm number in relation to your NAV, it's actually all-time highs and a very big number. So I'm I'm worried about the volatility at the overall group level, please. Thank you.

Well, thank you for the two questions. First one, how will the reserve strengthening be reversed? How will we in the future benefit from that? Well, there's a number of ways how we could use debuffers, obviously. I think the worst potential use would be that we would really need it somewhere, maybe even short term. So if something unexpected happens during this year even, we could use the funds we have been setting aside now to fund additional losses or higher than expected inflation or whatsoever. That would be the first option. Currently, no indication at all that this will happen, but we cannot exclude it, of course. The second option is that in our year-end review at the end of this year we find out that the overall prudence in our reserves is so high that it's hard to sustain that high level and then we would maybe even also have to release something this year already. I'm also not expecting that to happen but it's also not to be excluded. And then the third way is to release it in the future, so next year or even later. And there are two ways to look at it. One is we generally have the target, as you know, to release 5% from prior year. And given the growth, we have these 5% in absolute terms are higher numbers every single year, so it's harder to get to the 5%. So it might help us in the future to get the 5%. That's the more negative interpretation. The more optimistic one would be that we would achieve the 5% even without these additional reserve strengthenings, and then they would come on top of that and help us in the future to release more than 5%. As I say, highly speculative at this point in time. We don't know how it's going to happen. It just feels much more flexible having those additional pockets of IBNR on our balance sheet. And I'd also like to confirm again that there was no need at all to build that up. Reserved strength was unchanged end of last year already at a very high level, so there was no need to fill up something again after having it used before. It's really now about managing how we develop into the future. The North Atlantic windstorm exposure We do not quarterly update our PML numbers, as you know. It's hard for me to give you a 100% precise answer. But I think we came across that question quite a few times already in the past. Very often also in the context of how much potential do we have to grow still? Are we getting closer to our limits? Those kind of questions I recall, for example, And there I can continue to confirm that this is not the case. So there's plenty of room for growth still. And what we also continue to do is in the course of the renewal, we manage our exposures. So a few of the actions Joachim has been elaborating on, for example, changing from proportional to non-proportional, all these kind of topics also have an impact. What we saw now in the second half of the year, also in the improvement of the Solvency II numbers, is I think I called it risk management in P&C RE very generally in my introductory remarks. But what we were able to achieve is a more balanced portfolio in the second half. quarter compared to where we were at the beginning of the year. And balanced, meaning that it's also better diversified again. And as you can see, we immediately benefit also from that in the Solvency II ratio, but also affected budgets, affected not-cut budgets, of course, we also benefit from these kind of actions. And as you said already, the cut bond, of course, also has an impact on that. So therefore, a very long answer. Sorry for that. I cannot give you any precise numbers, but I just wanted to show a little bit how we think as we're really diligently managing the topic and are convinced that the risk profile is still very well diversified and easily digestible for us. Maybe a last remark on discount and IFI effects for the next year. because that also has something to do with managing earnings going forward. And as you know, we are currently still benefiting from the difference between discount and the insurance finance and income and expenses, the EFE. And the benefit this year is estimated to be roughly maybe 500 million. It's obviously ups and downs and depending on the curve. And only recently we analyzed the shape of the curve, how it might impact these numbers. I will not go into all these details, but it's a little bit volatile, but the order of magnitude is still the same. And next year is going to be less than that. So there is a negative development against which we have to work. And a few of our earnings management measures obviously also will support us next year to achieve this stable increasing and gradually increasing earnings trajectory, not very volatile and increasing over time. So that's also part of the overall set of measures we're implementing that we have to offset this discount versus EFE effect.

Next question is from the line of Will Hardcastle with UBS. Please go ahead.

Hi, thanks for taking the question. I guess just on, it's very clear that reserve release is still very strong with buffers increasing. I guess going a bit more granular Was there any line of business? Is the spread of it perfectly normal? I guess there's continued talk and discussion on social inflation and just trying to understand if there's any adverse trend beyond your expectations here today that you're seeing there. The second one is just on that SDR reduction. You did mention the use of the cap bond. I guess, can you just go into a little bit more detail on the quarter-on-quarter reduction, anything you can give on in terms of those specific actions taken, probably on the cat bond or market move benefits there, any color on that cat bond and size that you can give us. Thank you.

Thanks for the question. Will I take the first one on social inflation and the second one Christoph will deal with? Do we see any change in the trend of social inflation which we prefer calling legal abuse to be a little bit more provocative? No. but that's a bad statement because that means that we assume an ongoing trend of increasing liability losses, which are the consequence of the litigation industry that we know particularly in the U.S. market, the consequence of which is that we would technically expect ongoing increasing rates and or reducing coverages or reducing limits. Christoph.

Sure, yeah. I don't think there's a lot of, you know, that I can add. The cut bond obviously helps us to reduce our exposures in the perils which are covered by the cut bond. Specifically, we talked about it already, the North Atlantic windstorm peril. The The underwriting action we took, I think we mentioned a lot of it already. So we reduced proportionally, we increased the excess of lost business. We looked a little bit into the distribution geographically also. It's somewhat more diversified now than before. Prices went up, obviously. So a combination of all these things is then obviously also having an impact on the SCR and the model. And this is how the STR goes down. But it's not like, you know, there's this one single silver bullet which immediately helps us to have a completely different portfolio. Of course not. It's really treaty by treaty the underwriting action we have been commenting on already.

Thanks. Next question, please.

Next question is from the line of Vinit Nahultra with Mediobanker. Please go ahead.

Yes, good afternoon. I hope you can hear me clearly. So just, you know, just picking up this market outlook commentary, I seem to remember that in the management meeting in June.

Sorry, we have a significant issue here with your line. We can't.

Can you hear me now?

Can you hear me now? Now it's better. Thank you.

Thank you. Thank you. Sorry. So just the first question is on the market outlook that we heard today, which was a bit more positive than what we heard back in June in terms of, you know, it was, I think you said, attractive market sustaining even into 2025. I'm just curious, has something changed between now and June, or are you just along the same lines but just a bit more optimistic? Okay. So that's my first question. And the second question was on the solvency too, but I think you already addressed it. So I think I'll stick to one question for now. Thank you.

Thank you, Vinit. I can say there is no change really compared to June, and I'm not aware of any changes with regard to our June statement. I would say what you hear today is just another reconfirmation of our confidence in pretty attractive markets going forward. What is maybe new is my bold statement that I don't see this trend ending any soon. Thanks, Vinit. Okay, thank you.

Next question is from the line of Freya Kong with Bank of America. Please go ahead.

Hi, thank you. Maybe just following up on Vinit's question as well. I guess to what extent do you think that Munich Re and the rest of the industry can continue to push for further risk-adjusted rate increases, given that the ROEs that you're showing today are already very strong? Where does further margin expansion come from here, from property non-proportional or other lines? And then maybe I just wanted to touch on your thoughts in cyber. I think you had a little more cautious commentary on the core just now, and you've reduced exposures. Is this pricing or wording driven? Thanks.

Thank you, Freya. Let me take both questions. So to what extent can we push rate increases? First of all, in all humbleness, we alone, we cannot push anything. Our market share is not important enough globally. But what we can observe and what we can state is that the reinsurance market, though offering broadly the capacity needed and demanded in the market, The reinsurance industry is very firm in what they are charging for it. So for good money, you get good capacity. For soft prices, you don't. And I just wanted to underline, we don't see that these circumstances are changing any soon. but I will not make any prediction into what that could mean in terms of risk-adjusted rates next year or in two years. I just expect it to stay very favorable. With regard to cyber, my comment was not so much referring to rates for cyber coverages than for the conditions or the wordings. And what I mean is, The whole industry, I mean, starting with the insureds, but also the brokers, but then the direct writers and the reinsurers, we should all be as crystal clear as possible of what is included in a policy and what is excluded in a policy. And the wording should do this job. And there is still too many wordings out there which are not crystal clear enough to avoid any long debate when really big events happen and when, let's say, a cyber war attack is happening or when an attack on critical infrastructure is happening. Those are the delicate circumstances that will matter a lot. And in those ones, we just insist that the wordings are as clear as possible then we are happy to grow our business. And if not, then we have no appetite.

Okay, thank you.

Next question is from the line of Andrew Ritchie of Autonomous. Please go ahead.

Oh, hi there. The first question is just on life re. I think I probably asked the same question in the last two calls. Why shouldn't we, I mean, I can't see what I would normalize down in the life re result, particularly given a large portion of the strong result is just the CSM release. And then I guess there's natural growth in the fee component as well, which is better in Q2 versus Q1. So what would I normalize down in the life result to try and reconcile with your guidance versus what's actually emerging? The second question is probably one for Joachim. This cycle, I mean, having covered Munich for a long time, there seems to be a lot more quite strong management renewals of the book. Munich is known as a very long-term partner for Seedence, but it looks like you've done some fairly radical stuff on proportional versus non-proportional in particular. Is this a philosophy shift? Is Munich sort of being a lot more tactical than it has been historically, or is it just simply the case that that there's just quite a radical difference in the economics this time around between proportional and non-proportional. And related to that, if I could just slip in another related question, is it possible the economics proportional actually start improving more next year because there's just a catch-up in primary business as pricing there accelerates?

And I'll take the first one, live free, and I think we had this conversation indeed a few times already. I don't see a lot of reasons to normalize it down. We are two-thirds of the yearly target now at half-year, and the run rate is very much driven by the CSM release, so I think the probability that we are going to exceed our target of a billion is quite high at this point in time. I mean, there's still some volatility. As you could see this quarter, we had a quite significant negative impact from FX movements on the total technical result in LIFE RE. So things like that can happen. But again, I think that we achieved the target there. Maybe more generally on our outlook. I mean, when we took the decision that ahead of the wind season now, we don't want to change our outlook, that income number, Obviously, the discussion always starts with the $4 billion net income. And if you then take a decision like let's keep it with that for now, then it's hard to change any sub-targets at this point in time because we cannot only keep the $4 billion constant and then increase life because what are you going to do with P&C then or with Ergo or whatever? So these things, they depend on each other. Therefore, maybe you take away with you that the intention was very much to keep the $4 billion stable. And that therefore, at one or the other of the other targets, the probability to overachieve them is even higher now than it was in Q1.

Yeah, Andrew, this is Joachim. Thanks. Is there a philosophy shift at our end? I don't think so. Is there a rigor shift? Maybe. The rigor is high. And I think it should be. But there was also urgency, Andrew. So if you just look into the U.S. market specifically, and we just look into our traditional U.S. P&C reinsurance business in the last five to six years, they weren't overwhelming. They were underwhelming. So there was a need to do things differently. One of the reasons is the casualty business. Another reason is then the proportional property business. And there is of course learnings from this also into in other regions where this urgency had not yet occurred, is there enough skin of the game of our citizens or should we be more prudent here? And the learning was there could be similar events, not events, experiences going forward in other regions And from that we learned, and then we said we have a preference for non-proportional property, and we introduced it. So I would call it underwriting rigor, no philosophy shift.

Next question, please.

Next question is from Linus Aschik-Mossary with Morgan Stanley. Please go ahead.

Yeah, thank you. And good afternoon, Yakim. Good afternoon, Christophe. Just a couple of questions. First of all, is it possible for you to quantify the benefits that you're seeing already from the terms and condition and attachment point change? I mean, is there a way to quantify that benefit already? I mean, we are hearing at least this time that there has been a lot of losses, cat losses, in U S et cetera, but it is not feeding into the reinsurance. And probably part of that benefit is coming from terms and condition and attachment point. But is there a way you can quantify and you can see a clear benefit? Uh, that would be good to know. And then second question is, uh, uh, how should we think about earnings growth in the future? I, I agree that I'm probably going into 2024, 2025, uh, But I guess it is getting more and more relevant because you continue to remain very optimistic about top line. At the same time, margins, I mean, if I hear you, Akim, you're not really worried about the market outlook in terms of pricing. Investment income is going higher. You have much more prudency in terms of reserves. I mean, it is very easy to just get a number, a growth number, net profit growth number much higher than 10%, like much higher than 10%. So could you give some color around that? Like how should we be thinking about that? Or if we are missing anything? I guess the only thing negative I can see is clearly the EFE drag. But other than that, I mean, anything else you would want to add? Thank you.

Thank you, Arshik. So is it possible to quantify the, how should I say, the terms and condition changes in underwriting P&C business? Can we quantify those? So higher attachment points or lower limits or sublimits? Can we give a quantification? We can't. Even internally, we don't have it. It's not that we don't disclose it. It's we don't have it. So it's qualitative. And if you just take a new wording and you say the wording will do a better job than the old wording, When would you really actually see the impact of this? It is when the loss is happening and then you will see if the wording does the job it was supposed to do. It doesn't. As long as there is no loss, it's theoretical. You see? And in this sense, please accept, it's not quantifiable, but it's important. If you're experienced in this business, you know which structures align You as a reinsurer with your seasons and the better the alignment is, the better the quality of the book is in the end. Earnings growth going forward?

Sure. I mean, first of all, I'm very happy that we have now a discussion about how high the earnings growth is going forward. I can remember discussions with unwind of discount and some technicalities from IFR 17 where there was the notion more than potentially earnings might come down even next year. So it's good to talk about growth. Of course, this is absolutely also what we are expecting and what we are seeing. I mean, one of the big advantages of IFR 17 is anyway that a few of our segments are much better predictable than in the past. So whatever is life and health, long-term, ergo, reinsurance, I think it's pretty well predictable. You can add some, I don't know, new business CSM onto our current CSM, then run it off with the usual rate of monthly or yearly runoff and get a pretty good view on what the earnings potential is in those segments. Similarly, Algo, more generally, they have been on a steady earnings increasing growth path for a number of years. Why shouldn't they continue? The more difficult thing is PN3. Obviously, we have been growing significantly at higher rates. So I'm sure you can put up a nice model and parameters, get some ranges of potential outcome. We are internally not at a point yet to really discuss it as our planning process is more or less starting as we speak. And we will use the fall then to have those internal discussions, what we think is realistic. But what I, of course, I'm very happy to confirm is and that we are also expecting quite a significant earnings growth going forward. Having said that, I mean, there's one statement of caution I always have to make as a CFO. Obviously, the standards are much more volatile, and as soon as capital markets would be volatile, or as soon as anything else, FX or the loss development would deviate from expected value, you would also see more of it in our P&L than in the past. But again, we expect earnings to go up.

Thanks a lot. Really appreciate your response. Thank you.

Next question is from the line of Henry Heathillwood, Morningstar. Please go ahead.

Hi. Good afternoon. Can you hear me?

Yes, we can hear you.

Oh, great. Thank you very much for taking my questions. So just on the reserves of 600 million you set aside for the earthquake in Turkey, I was wondering if you might be able to give me a rough idea of the shape of that in terms of reported versus not reported. And then the second question is on the large contracts in continental Europe within life and health that led to a decline in net insurance revenue. I was wondering if you could talk me through briefly, if you haven't already, and I'm sorry if you have, what that relates to.

Thank you. Sure. I started with the second question, the decline in life and health, nothing spectacular. I mean, what we do very often is we restructure contracts when the profitability is not according to our expectation. And in life, you have quite a few options how to structure contracts. Sometimes they come with a lot of premium. Sometimes they don't. So the volume is just affected in this case by restructurings or sometimes even discontinuation of contracts where just our profitability targets are not met. Turkey, there is a significant amount of IBNR, of course, still in that number. Other than that, there's nothing I would like to comment on publicly.

Thank you. Next question, please.

Next question is from the line of Darius with KBW. Please go ahead.

Good afternoon. Just one question, please. So if I go back to your sort of full-year presentation, you know, when you talked about general renewals achievements, your rate increase, risk-adjusted rate increase was 2.3%. And I think you based your combined ratio guidance for 2023 on on the assumption that you achieve roughly similar sort of rate in the upcoming renewals. Now, clearly, renewals in April and July and June have been much better. And so, you know, I think back then you sort of assumed that one percentage point roughly will be still in 2024, so, you know, implied combined ratio of 85%. Is that still a right number to think about? Because obviously, you know, it's double the rate, you know, when you initially issued that guidance for 2023. Thank you.

Sure, yeah. I mean, generally, we knew already also back when we did our planning or our initial outlook that the renewals would not all be the same because the not cut portion is different in the three renewals. And as you know, 1.4 and 1.7 is more cut heavy than 1.1. Therefore, in that regard, we already knew that the outcome would be slightly different. But where I would agree is that now particularly 1.7 was even better than what we expected. Still, it takes some time until you earn it, obviously. And then finally, again, I come back to my initial comments. Of course, we book also conservatively.

Thank you. Another question, please.

The question is from the line of Thomas Fossard with HSBC. Please go ahead.

Oh, yes, good afternoon, everyone. Two questions. The first one, Christophe, can you come back on the acceleration of the solvency to ratio numbers, especially in Q2, or maybe give us a bit of quantified elements to understand maybe the growth year-to-date, maybe the numerator, the denominator, I mean, anything where we can better understand what has been driven by market movement and what is really driven by either good returns or management actions. The second question will be for Joachim. You referred to the 2025 target and business plan. Clearly, when you presented the plan, we were in a completely different environment from a technical point of view and interest rate point of view. Maybe you don't need to provide any updates in terms of strategy, but do you feel that actually at some point we'll have to update the financial targets embedded in this 2025 business plan? Thank you.

I'll start with the first one. I mean, the beauty of IFRS 17 now is that earnings in IFRS 17 are closer to solving the two problems. So as much as we don't generally disclose own funds numbers and STR numbers during the year, at least the approximation could be just to take, I don't know, 1.5, 2 billion earnings, own funds earnings, so economic earnings in the second quarter. And if you assume then the own funds to have been growing in that order of magnitude to get to an improved, So on the two ratio of the 273%, you can easily do the math. You will end up with the requirement that SCR has been shrinking, has been decreasing, and that's actually what happened. So we have a lower SCR now compared to 1.3 to the end of March and higher on funds. And probably this is also what you call the acceleration. We have a double impact, higher, higher. higher own funds and lower SCR and then obviously the impact on the ratio is significant.

Yeah, and your question on the 2025 expectations that we had set back at the beginning of Ambition 2025 and how our look on them is now. I mean, there is Factors that very clearly are more favorable than we had them in mind three years back. Very concretely, the P&C price cycle is better and is longer than we expected end of 2020. Interest rates. are higher than what we anticipated back then that's all in favor that's all tailwind and it's quite a bit of tailwind but then at the negative side inflation has been much higher than anticipated it has come at the cost then we have seen a deeper a longer pandemic in some i would say some pandemic losses in the end higher we had reserved for them but but higher than we would have hoped for then we have seen the war in ukraine or russia ukraine which wasn't anticipated of course we still don't know what the war-related losses are going to be but they will be there and we hadn't anticipated them if you take everything together net net net as it stands With all the uncertainty going forward, I would say today we are very confident that we will deliver on 2023, 2024 and 2025 and internally would say and maybe there is a chance to even exceed that. More specific, We cannot be. We are going through the planning period, and I think towards the end of the year, you will know what we concretely will plan then into 2020.

There are no further questions registered at this time. I would like to hand back to Christian Becker-Holstang for closing comments.

Thank you. Nothing to add from my side. Pleasure as always. Further questions, you know where to find us. Thanks again. And hope to see all of you very soon. Have a nice remaining summer. Bye bye.