Münchener Rückversicherungs-Gesellschaft AG in München

A warm welcome to everyone to our Q3 earnings call. Thanks a lot for joining. Procedure, very straightforward. Today, as always, today's speaker is Christoph Jureka, our CFO. And I'll hand over to him in a second. And afterwards, we can go right into Q&A. Christoph, please.

Thank you, Christian. Good morning, everybody, also from my side. Great pleasure to have the opportunity to talk to you about our Q3 earnings in particular, given how excellent these earnings are. We have almost met our earnings target for the full year already after nine months, which reflects a consistently strong underlying profitability across all our segments. After nine months, the ROE amounts to 16.5%, and this is already slightly above the upper end of our 2025 ambition target range. It was great to see in Q3 that we were able to maintain the momentum of the strong previous quarters, again exceeding almost all KPIs and pro rata financial targets. The pleasing net income of almost 1.2 billion euros is once again very close to the consensus estimate. I must say I'm still quite impressed how predictable our earnings are under IFRS 9 and 17, although we should not underestimate the volatility, so I cannot promise you stable results forever. But as in previous quarters, we also continued to take management decisions aiming at a steadily increasing future earnings trajectory and also as much as possible dampening earnings volatility. We again made use of higher than expected discounting benefits to book prudent best estimate reserves and once more also realized losses on our fixed income portfolio. Let me start with a second decision and its impact on the investment result. In Q3, disposal losses amounted to around 200 million euros for the group, affecting reinsurance and ergo in almost equal parts. By reallocating funds at current reinvestment yields of 4.5%, we will gradually increase the sustainable investment income beyond the current running yields of 3.3%. In addition, negative fair value changes at Ergo Life and Health Germany in particular resulted in a comparably low ROI of 0.9% at Ergo. By contrast, the ROI of 1.4% for the group benefited from the solid 2.2% investment return in reinsurance. As fair value changes are volatile in nature, we did not change our full year 2023 outlook for the return on investment. However, with an ROI of 1.8% after nine months, the outlook of achieving more than 2.2% appears more of a stretch now. As it is closely related to the investment result, let me quickly mention the currency result of just above €300 million. The further expansion of our US dollar long position has paid off. Turning to the business fields and starting with reinsurance. In life and health, we already surpassed our initial full year guidance for the total technical result after nine months. Q3 standalone contributed 440 million euros, which is particularly pleasing and well above the pro rata run rate. The insurance service result is dominated by the release of CSM and risk adjustment, which was in line with expectations. Experience variances were balanced overall, adverse US mortality was compensated for by positive variances from the remainder of the portfolio. Apart from that, the result includes negative technical one-offs of around 60 million euros. In Q3, the underlying result from insurance-related financial instruments remains on a high level, while at the same time benefiting from sizable positive currency effects. which fully reversed the negative currency volatility in H1. However, as mentioned in previous quarters, we consider this FX overlay an accounting mismatch, as the related hedging activities are recognized in the currency result. And by the way, after nine months, the overall FX impact on the insurance-related financial instrument result is close to zero. The CSM stands at 10.7 billion euros, which is a small decline compared to year-end, driven by a shift from the CSM to the risk adjustment as a result of the annual parameter update, which we did already in Q1, so this is still the same effect. The CSM from new contracts is reflecting a healthy new business generation, which was particularly pleasing in North America, exceeding the release to P&L. In property casualty reinsurance, we continue to profitably expand our business. In Q3, we posted a very good combined ratio of 82%, supported by lower than expected major losses. Although no major hurricanes occurred, it was a fairly active nut-cut quarter with several medium-sized events accumulating. With around 200 million euros, the Maui wildfire was the single largest loss, to a larger extent driven by our primary insurance operations. The underlying performance remains sound as we earn through the margin improvements of the recent renewals. The normalized combined ratio of 85.5% is fully in line with our guidance. Due to the impact from major losses, currencies, and the shape of the yield curves, we benefited from a high discount rate effect of 10 percentage points this quarter. As mentioned earlier when referring to our management decisions, we again used this benefit to cater for claims uncertainty by prudent basic loss bookings. More concretely, as in the quarters before, we took the additional discount on top of the 5% we had in our initial outlook and put it fully into our reserves. Concretely, 10 minus 5 gives 5%. of additional discount effect, which is fully reflected now in additional or was fully reflected in conservative or prudent reserve bookings. After the first three quarters, I can now easily confirm that at least the discount effect or the additional discount on top of the 5%, at least that amount has been put as additional prudence into our reserves. Now turning to primary insurance. Ergo delivered a net result of 173 million euros in Q3, fully in line with the pro rata run rate. In German life and health, the net result amounted to 52 million euros in Q3, driven by SC's M release, fully in line with expectations. In addition, we saw a very pleasing contribution from short-term health business and a seasonally strong development in travel insurance. In P&C Germany, the underlying performance continued to be strong. We achieved a good combined ratio of 88.2% in Q3, despite elevated nut-cut losses like hailstorms. While Ergo continues to benefit from the seasonality of acquisition costs in Q3, we have to expect a much higher combined ratio in the last quarter. As the majority of sales and renewals for our PAA business is taking place in Q4, the acquisition costs are expected to increase significantly compared to Q3 in the fourth quarter. In our fixed income portfolio, also at Ergo P&C Germany, we deliberately realized losses in Q3 to support future running yield, which led to a somewhat lower investment result. Overall, the net result at Ergo P&C Germany amounted to 31 million euros. The Ergo International business performed well. In P&C, the very pleasing combined ratio of 87.9% was, among others, driven by good development in Poland, Spain, and the Baltics, compensating for elevated nut-cut losses, particularly in Greece. In life and health, the CSM release was in line with expectations. Furthermore, we recorded a release of claims reserves in the Belgium health business. The segment net result amounted to a high level of 90 million euros this quarter. Now some remarks on our capitalization, which remains very sound according to all metrics. The group's economic position is particularly strong with a nearly unchanged solvency 2 ratio of 271% at the end of Q3. Despite positive operating earnings, the solvency two ratio decreased slightly compared to the previous quarter, but only slightly due to the market variances, taxes, and other effects. I would like to conclude with the outlook for 2023. While Ergo is expected to deliver on its guidance, including both combined ratio targets, The uplift of the group net result target to 4.5 billion euros is driven by higher than anticipated earnings in reinsurance. Consequently, we have increased the net income target for the reinsurance segment by 500 million euros. In P&C reinsurance, we now expect a lower combined ratio of around 85% for the full year. please bear in mind that after the release in the first three quarters, there will be an increase of the loss component in Q4. Additionally, the unwind of discount in the insurance finance income or expenses, so-called IFI, will continue to trend upward every quarter and will, by the way, also burden results in 2024 significantly. In life and health reinsurance, we reflect the strong development by lifting the full year guidance for the total technical result to 1.4 billion euros. While the outlook for insurance revenue is unchanged at group level, we increased it for Ergo to 20 billion euros while reducing it, driven by FX, to 38 billion euros for reinsurance. With this, I'm at the end of my opening remarks and look forward to answering your questions, but first, of course, hand it back to Christian.

Thank you, Christoph. Not much to add from my side, just my usual housekeeping remark. When we go to Q&A now, please limit the number of your questions to two questions per person, and if you have more questions, then please rejoin the queue. So with that, let's go ahead.

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 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using speaker equipment today, please lift the handset before making your selection. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. And the first question comes from Kamran Hossein from JP Morgan. Please go ahead.

Hi, morning. Two questions for me. The first one is on capital management. And I guess you've kind of, you know, the earnings for the year has gone up. You've beaten your four billion target. Do you think now's the right time to think about increasing the share buyback or, you know, given the level of earnings and taking into consideration they look relatively sustainable. Should we expect a step up in the share buyback from a billion into next year? The second question is on reserving. Clearly your reserve movement overall was very positive, so just slightly ahead of your 5% guidance. Could you maybe talk to whether we've seen movements within that, so actually whether you've had better development in short-tail classes, property specialty, etc., versus long-tail classes and how that's developing and whether there are any issues or concerns or worries that you have on that at all on the long-tail side. Thank you.

Yeah, good morning, Cameron. Thank you for the question. First of all, on capital management and your question if now is the right time, I think we have, first of all, a little bit defined what now means because, as you know, our general process is to discuss questions like that also internally only after Q4. So, therefore, let's assume for a moment now is after Q4 and that the year continues as we expect it to continue and we very nicely achieve the 4.5 billion target. In that case, I mean, it's very obvious that we're on a higher earnings level now. And as you know, our entire company and the board and whoever is responsible here, we always have been shareholder-minded in the past in the sense that whenever possible, we distributed earnings and repatriated capital wherever possible. So it feels like a very natural question you ask and also internally it's a very natural discussion to have to increase payout then. If by dividend, by buyback, I mean all these are technicalities we are going to discuss then later on. But I can clearly confirm we are highly dedicated to continue to give shareholders a very attractive contribution also in our success and our results as soon as it's achieved. Second question, reserving development. Also there, first of all, a process disclaimer. We are always doing our holistic reserve review only in the fourth quarter. So whatever I tell you now is very preliminary. But I think a lot of what we disclosed during the year already was preliminary. pointing at very positive developments on the reserve side for us. I mean, we consistently were showing a 5% positive impact in our normalized comment ratio from reserve releases throughout the year already. I mentioned in my introduction already that we feed it in the additional benefit from discount above the 5% and at least that amount into our reserves during the year already to increase the reserve strength. And if you remember, end of last year, we set aside an amount of 1.3 billion for inflation impacts. So I think there should not be a single doubt about our reserve strength. We are very, very much on the safe side. Talking about the individual businesses, Obviously, when you think about property, you think about maybe inflation on building costs, stuff like that. So the inflation assumptions are key. Currently, I don't have any indication. But again, the review is ongoing. I have no indication that the inflation assumptions from last year that they are not holding. So the money will set aside. At this point, I'm not aware that it would need to be increased. On the casualty side, I'm also not aware of any issues. Earlier today, I got a question already if that's only on the discounted level, also on the nominal level of the reserves, but also on the nominal level, I'm not at all concerned for casualty for us, given where we currently stand and the developments as I currently see them. So, no, all good, I think, on the reserve side, safe as ever, and looking forward for the reserve releases to come.

Thanks, Christoph.

And the next question comes from Andrew Ritchie from Autonomous. Please go ahead.

Oh, hi there. As far as following up a little bit on that question, I mean, in numbers terms, you've effectively added the best part of a billion euros to reserve prudence. year to date. I'm just wondering how you do that from an auditing perspective, an auditor perspective, because you're doing it by way of, well, maybe clarify, are you trying to manage the risk of discounting volatility going forward? In other words, if the discount benefit declines, are you trying to manage claims volatility going I'm just trying to gain – if it's basically a smoothing mechanism, how are you justifying that from – an auditor perspective, is there was room to move to the upper end of the range of best estimates? And if that is the case, presumably you're getting close to that. Or maybe just clarify, I'm surprised at the frankness with which you're essentially telling us you've added about a billion euros to Prudence this year. The second question, is the life-free technical result upgrade possible? the new base from which we go forward, or was there any sort of noise inflating that? I appreciate, well, I think actually the FX noise is neutral by nine months. So maybe just tell us, is that the new base going forward? Is there any, you know, can we grow off that base, or is there anything inflating it?

Thank you, Andrew. Auditor is a good question when it comes to reserve. First of all, the way we look at it is always that we look at the best estimate as a range of possible best estimates. There are many actuaries in the world, and if you ask two of them, they for sure will come up with different best estimates, so there are always ranges. and you can be more conservative or less conservative. And as long as you're in a certain range, the auditor will have no chance to challenge what you're defining as your best estimate as long as you're in that range. And obviously that range can be stretched a little bit here and there, and the upper boundary is not completely fixed. So there is room to maneuver for us and always has been. And obviously, the more we strengthen the reserves, the closer we'll get to the upper end, but who knows where the upper end really is, to be honest. This is a debate we for sure are going to have at year-end with the auditors, as we do every single year. I'm not aware of any single year where we weren't close to what the upper end was at that point in time. So this is a recurring discussion more or less. But as long as you are within that reasonable range, obviously the auditor will sign off and you're still booking best estimates. And now a little bit more to the details. So do we do then all these, you call it smoothing, I wouldn't call it smoothing, but we just have offsetting effects in various pockets we have in our system. in our reserves. You have all these developments. In one portfolio, they go up. In the others, they go down. So there's a lot of individual items. And if you look at them one by one, of course, there's always very good justification for what's going on there. But more globally, there's also kind of a diversification in that. And what we also do is we look at them also then more from a top-down perspective and ask ourselves if we need an IBNR on top of that. And that's also something we book. So in the first three quarters, what we did is we booked what we call a bulk IBNR to cover that additional prudency. So we didn't allocate it to specific segments. It's really a bulk booking. And now in the course of the fourth quarter reserve review, we will see if we need some of it in certain actual segments. or if it will all remain bulk for more global uncertainties, not reflected technically in one of our specific segments. Yeah, I mean, that's the way we do it. And yes, I mean, I can also confirm there's a lot of volatility in that, and this is just the reason why it works, because uncertainties are the justification to have ranges around best estimates. And maybe that's also one of the differences between us and many, many other insurers you also might be looking at. Given our business portfolio, our business mix, and the uncertainties, being a global reinsurer and having all these major, major, big, big risks across all lines in our book, I would immediately say that the uncertainties for us are significantly higher than for others. which also translate into bigger ranges than what others potentially would have. And what we're doing is just using this flexibility. I hope this helps a little bit, but that's really technically what's going on here. And again, the review is ongoing as we speak, so I do not have any indication what really then we'll be discussing at Q4, but also I do not have any indication of any weakness at this point in time, rather the opposite. Life-free, you mentioned already, Andrew, that the currency is now neutral more or less after three quarters. So if you look for a moment at the two components, one is just the, let's say, the IFRS 17 business where we just transfer the CSM over time into earnings and the risk adjustment, and that's very stable by nature anyway. And then you have the IFB, so the IFRS 9 business, so the former so-called fee business. And there you have this currency volatility on top of what the underlying performance is, which is just an accounting volatility as we hedge it. Now, after nine months neutral, so therefore looking at the numbers for now and dividing them by three, you probably get an indication of what a quarterly run rate that year currently was. Now, the duration of the businesses is different. The traditional life-free business tends to be a little bit longer than the fee business, but also the fee business is not really a very short tail. So, therefore, going forward, as a starting point, before talking about experience variances and assumption changes and these kind of things, as a starting point, I think it's a fair assumption to look at the current result level and as a starting point for projection into the future.

Great, thank you. And the next question comes from Malhotra Vineet from Mediobanker. Please go ahead.

Good morning. Thank you very much. So just picking up your comment on the dampening of earnings volatility, could you give us some examples? Could it be perhaps that some of these reserve prudencies that we just discussed uh or you just mentioned uh discuss could those be used in the future to manage um or to dampen volatility could you just give me some examples that will be very helpful uh second question is just on the growth in pncv which maybe there are some large treaties on and off but 3q was a bit lower than recent quarters x effect basis about you know 1% give or take. So I'm just curious, or maybe even something like 1% to 2%. I'm just curious, is there anything that you'd like to flag here? Because, you know, I've noted the comment on slide 21 that GSI was still very strong. So is it the traditional PMCV was a bit slower? Is it because of renewals recently? Just any thoughts would be helpful. Thank you very much.

Yeah, okay, Vinit. Yeah, maybe on the reserve side or generally managing earnings volatility, I mean, what we did recently and in the recent past and also going forward, what we would do in case we would be hit by a larger than expected loss, we would, of course, look into into levers we have in other bookings and review assumptions. And if you then find assumptions which are rather on the conservative side, you can discuss if it's really needed to be that conservative and can maybe reassess here and there the level of conservatism you have in one or the other of the assumptions in your balance sheet. Obviously, you have to be careful with that and I mean, the way you asked your question, if exactly the amounts we're setting aside now are then available for dampening earnings volatility, I mean, we properly document what we are booking here, so I cannot confirm that it's exactly the amount we're setting aside now. But if you balance it overall, it's very conservative. You'll most probably find pockets where the level of conservatism maybe is no longer justified, and you can reduce it a little bit and then dampen the volatility by releasing reserves in one or the other area at a point in time when some bigger event is hitting you. I think that that is how it works. But obviously, we are not free from any restrictions, and we have to also keep in mind the way how we did document things in the past. And even for us, the best estimate is the best estimate. It doesn't suddenly change from one quarter to the other. And these kind of things, of course, are all the same for everybody. We are, I mean, fully in line. It's obvious, but it's just to confirm it again, fully in line with all the accounting standards, very obviously. And the auditors are fine with what we are doing. But that's how it works generally. The second question I understood was more on the growth side. And I think in the commentary what we differentiated a little bit is the cost support significant growth in GSI versus the excess of loss business where we maybe were benefiting more from price increases but then really having more risks on the balance sheet. It's rather the price effect driving the revenue increase here. And then in the proportional business, we discontinued some business, but then were able in other businesses to compensate, as also primary insurers were increasing the prices, and then obviously we also benefit from that, and then also certain commissions have been reviewed and these kind of things. So what we wanted to give, I think, in that slide is just a differentiated picture in a big segment where not everything is moving exactly in the same way, But I think the overarching comment would be that it's still very positive. If you look at the organic growth number, it's still very high, and it's just offset by FX. And, by the way, also the now somewhat reduced outlook for insurance revenue on the reinsurance side, it's only FX driven. We are still very happy with the organic business growth in that segment. Thank you.

And the next question comes from Ashik Musari from Morgan Stanley. Please go ahead.

Yeah, thank you, and good morning, Christophe. Good morning, Christian. Just a couple of questions I have. I mean, so first of all, a very simple question with respect to this earnings base of $4.5 billion. Now, there are quite a few moving parts. I mean, you have higher discounting, but then higher reserve buffers, better CAT, but then higher – say investment gain, losses, et cetera. But would you say that this $4.5 billion is a good starting point for next year to think about? So this would be an underlying number for 2023 as well, rather than it has been impacted positively or negatively by someone else. So that's one thing I'm trying to understand. Is this a good starting point to think about what could be the earnings for 2024? without going into details of what it would be in 2024, but at least thinking from a starting point perspective. So that's the first one. And second question is, can we get some color with respect to what are the IBNRs still on your COVID reserve, on your, say, Hurricane Ian related stuff, then the inflation reserve? And could you just remind, I think it's $1 billion for the discounting reserve. So any visibility on those things would be very helpful. All I'm trying to do is to understand how much of extra buffers you have built up and how you're going to use this in the future. Is it just going to be against a big event or some structural changes, or would you try to use it for earning support as well in terms of growing earnings? Thank you.

Thank you for the question. Yeah, maybe let's start with the reserving question again. It's a nice theme already throughout the call, so let's continue with reserving. I mean, all those ABNRs you're mentioning, they're sitting where they are, more or less, and awaiting development of claims in the future. There has not been that much of development, but there is still some development, even in the COVID space. So that's why we feel still comfortable with the IBNRs as they are. To remind you, we released some of the COVID IBNR end of last year already, but a minor piece, a minor part only, so the majority of it is still sitting where it is. Now, would we use it for supporting the earnings? Well, I mean... I think what counts most for us is really the underlying organic earnings capacity we are having. And obviously your reserves can be whatever strength you want to have them, but releasing them into earnings, you can only do it once. So we will also always be talking about one-time effect if we would release something here or there. And what we are much more interested in is just our ongoing and operating capacity. sustainable earnings trajectory. I tried to highlight also in my introduction remark that we're really interested in sustaining to develop that earnings trajectory growing into the future, growing, sustainably growing earnings into the future. That's what we are interested in. And that's something you cannot achieve by reserve releases. The sustainable piece is just not achievable by releasing reserves. Now, in case a big hit would come from a big, big event we weren't expecting at a point, as I said before, of course, we would be able then to review assumptions in certain pockets of our reserves overall. And if we find conservatism here and there, it would help us to dampen volatility and to make sure this earnings trajectory continues to be stable and as expected. I mean, obviously, that's what buffers are for. But as a long-term support for earnings, it's just not the purpose of having these reserves. Talking about the future, the 4.5, and is it a starting point for the expectation for next year? Why don't we just look into our segments one by one, and I give you a little bit how I think about the various developments. Maybe the easiest piece is Ergo, potentially. Ergo has been steadily growing their earnings contribution year by year for quite a long time already. I do not see any reasons why that should not continue, to be honest. I mean, they are just on track. Second, LIFE-3, I think we discussed LIFE-3 already. We have the starting point now, and then, of course, you think about effects like ethics, you think about effects like experience variances, these kind of things. But the starting point is given also how IFR-17 works. pretty much a stable CSM release, stable risk adjustment release, and whatever assumption you take for how the fee business continues into the future, how long it does continue, and how much you can also add to that. And there's some interest rate dependency in that as well, because a lot of that is financing business, and the higher the interest rates are, then you also potentially get higher interest from your clients, at least for new business. So that's something to be considered there. And then on the P&C re-business, and frankly, that's just technically a little bit more complicated, given how IFRS 17 is working. There we have the discount component. We have the E-fee, so the insurance finance income or expenses. I mentioned already that this is trending upwards, so the interest unwind is going to increase year on year significantly. We have been speaking, I think, about the support and earnings we have this year. Earlier this year, we mentioned around 500 million after-tax as support. This will be a significantly lower number next year. That is something to be kept in mind. But then on the other hand, this year's discount effect, we used it for reserve strengthening. I mean, that's clearly also, we talked about upper boundaries and all this stuff like that before. So the question really is how long are you able to do that? At some point, the lower discount will just be the lower discount and support your earnings. So this would be then an upward driver of result versus the e-fee would be a downward driver. And again, to remind you, our target is a sustainably increasing earnings trajectory. So that's always what we have in mind. And then there are other drivers, of course. Also, if you look at the result for the future, we had a relatively high tax rate this quarter. I wouldn't expect that necessarily to be the case again in the fourth quarter. And more long-term tax ratios for us, we always said were between 20% and 25%. But already that 5% range is quite a bit of a lever. The other result is also always some ups and downs. So there are quite a few more drivers which you have to keep in mind. But, yeah, generally, I mean, of course, the 4.5 is the starting point. I mean, that's what we expect this year now to happen. And so if we ourselves look at what we would expect ourselves to deliver next year, of course, we would look at 4.5 as the starting point for the discussions. But then, as I said, the discussion will be very differentiated segment by segment. And particularly in P&C, we look at e-fee versus discount and also as take some assumptions what we are going to do with the discount next year compared to what we did this year.

That's very clear. Thank you. Thanks, Christoph. And the next question comes from Trifonio Spiro from Bernberg. Please go ahead.

Hi there. I guess just following up on the result for next year, how should we think about the uplift from investment income to come through and help with the results? It looks like the higher EFI track will be managed somewhat by the buffers using the discounting. But again, presumably you have a much higher investment income coming through given you are realizing losses this year. So should that be a net contributor to the result next year or better buffer EFI? So that was my first question. I guess the second one is, excuse me, on the... Some early thoughts on renewals for January next year and your appetite for growing volumes further and which areas you're looking to deploy your balance sheet. I guess any early thoughts on the risk adjusted price increases you're looking to achieve? Thank you.

Yeah, thank you for the question. And then for the reminder on the investment result, I should have mentioned that before, of course, it's also a significant driver for next year's result. Already this year, our regular income, our running yield is significantly higher than prior year. And of course, wherever we reinvest money now, it comes again with a higher yield. So the upward trend in the investment result only from that effect is obvious and something we would expect for next year. Then on Against that, of course, then the question how much losses are we going to realize, and there's always two elements for that. Even without any management overlay like what we do this year to dampen results, even without that, natural turnover in our fixed income portfolios very often still comes with the realization of losses as long as we still have unrealized losses. So, therefore, the investment planning for next year in any case will foresee the realization of losses on fixed income books And on top of that, just to remind you, IFRS 9 is quite volatile in nature, as we also did see that year. So there will be, for sure, some noise in one or the other way. It could indeed go either way on top of that, which is difficult to reflect in a plan. But, yes, my answer would be in the investment result, the trend will go to higher earnings given higher running yield. And then the connection to EFI maybe, that's something you ask as well. I mean, the EFI, there's three components you have to look at. The EFI will go up, of course, for the higher unwind. In parallel, investment yield will go up due to higher reinvestment. That's for sure the case. And then there's also the question, what happens with the discount? How much of the discount is being used to reserve strengthening, and how long are you going to do that or not anymore next year? And all these three things are moving parts, which to some extent have to be looked at together. But yes, all the three are relevant for next year's earnings expectations. General renewal, we continue to be very confident. I think in many business lines, Prices are now on an attractive level. If you talk about the big nut-cut layers, we wouldn't expect our margins to go up significantly from the point where they are, but also do we not have any indications that the market would soften at all? So I think it's in a good place. Differently in casualty, I think there is space and also the need for rates to go up in at least certain segments in certain markets. So a differentiated picture, but overall, I think I can just confirm what we already said in the last few calls, a very attractive environment for us as a reinsurer generally, and we don't think this is going to change anytime soon.

And the next question comes from Freya Kong from Bank of America. Please go ahead.

Hi, good morning. Thanks for taking the questions. I just wanted to follow up on the growth outlook because, like you said, the environment remains very attractive and it looks like claims experience is holding up better than what you're expecting. Portfolio repositioning has worked quite well and reserves are strong. So does this mean that you would be pushing for growth in these more volume growth in these conditions in 2024? And just secondly, a more technical question, just could you give us the moving parts on the solvency to reduction in the quarter and what growth assumptions are loaded in that 411? And last question, if I can, just on the discounting benefit assumption that you took this year, which was five points, is probably going to end up being closer to nine points at the end of this year. Was there just a lot of prudence in that? And should we expect a more aligned or less prudent discounting assumption next year when you set your expectations? Thanks.

Yeah, let's start with the third question. I think when we published our outlook last year, we immediately said that this was an outlook which even for Munich Re was particularly conservative. And one of the areas where we were booking, let's call it booking the conservatism, was the discount rate. So the 5% was one source or one area where we already knew we were quite conservative. And then numbers realized to be significantly above that, 8%, 9%, 10% even. And let's see where the year-end number will finally be. The reason for that particularly conservative outlook clearly was the first time introduction of IFRS 17. based also on a lack of experience in planning and forecasting in that new metric. And there we now have one year more experience, which still doesn't mean we are up on the maturity level like we were after 20 years of IFRS 4, but of course we are much more certain of what we are doing compared to a year ago. So therefore I cannot tell you what exactly we are going to do in the outlook because it's just too early to do and we are still having the internal discussions. But what I can promise you is that when we are going to, at this point in time when we are going to release the outlook, I will be very well able to tell you if the level of conservativism is still the same than a year ago and my current assumption would be it can be less because we understand better now what we are doing. But details we can only tell you once we talk about the outlook. It's too early to tell today because I don't have any outlook for you. But again, the reason for the overwhelming high level of conservativism clearly was the first-time plan based on IFR 17. The other question on the outlook was if we were pushing for growth. And then the question is, what does pushing for growth mean? Would we compromise on profitability? No, we would never compromise on profitability. We never did, and there's still not a single person in our insurance organization having growth targets, and we would not change that. At the same time, if there are growth opportunities, of course we push for growth, and of course we would strive to grow our book, if possible, at attractive terms and prices and so on. So therefore, it depends a little bit on what you mean by pushing for growth, but we would not compromise on the level of profitability. Solvency 2. I mean, first of all, maybe a few remarks on the development in that quarter. You know the number is 271 now. It was 273, so rather stable from one quarter to the other now. There are a few effects to be considered. First of all, the operating impact is positive, always is positive. We are a little bit closer now in solvency 2 also to what's happening in IFRS, given that IFRS 7 is closer to solvency 2. But the seasonality is still different. So if you remember Solvency II, after a renewal, also for P&C business, you in Solvency II fully reflect the present value of future earnings of the business you're writing because it's a fully present value-based regime, Solvency II, also for P&C. Now, that's not the case for IFR 17. So therefore, in quarters where you do not have a renewal date, numbers differ significantly. stronger than in other quarters because there's not that amount of new business you add to your Solvency II numbers in that quarter. So in that sense, already structurally, Q3 is a little bit muted in Solvency II compared to IFRS 17 or more muted than the other quarters. That's one effect to have kept in mind when talking about the operating impact on Solvency II. And that's Probably an impact no other insurer has to that extent like we have because for us the renewals are much more pronounced than for others and maybe also the way we model them. That's one aspect. The other aspect, in the fourth quarter we saw some market-to-market effects. I mentioned that in the IFRS 17 context already, but clearly they also have been affecting our solvency numbers, so with a little bit of a negative impact on the solvency-to ratio from, for example, equity markets, that's something which was a little bit detrimental, but that's volatility in our view, that it can happen every quarter. It could go up easily again very quickly. Also other asset classes, even FX was a slight negative contributor to Solvency II. This quarter could easily go the other way again next quarter. So that's volatility in a sense. And then there are a few other effects, taxes and other effects, more of technical nature, which also reduced our solvency-2 ratio this quarter, maybe by a percentage approach here, there, or a couple of percentage points. Nothing spectacular, all of them very small, but if you look at them holistically, then you end up having a quarter where the solvency-2 ratio is more or less stable and not going up like it did all the other quarters before. but it's not of any concern at all. And given the level where we are, I think the discussion anyway should be, is the level of 270 plus, is it a level where we should be long-term? And I think very consistently the answer in the past was our optimal range is 175 to 220. So as long as we are in that range, we are fine already. And above that range, it's not necessary anyways. I hope that helps a little bit on the Solvency II development.

Yes, thank you.

And the next question comes from Ivan Bogmat from Barclays. Please go ahead.

Hi, good morning. Thank you very much. I've got a first question on the investment side, actually two small ones perhaps. One, maybe you can just clarify the scale of the disposal losses year to date. I think I'm counting around 700 million. And maybe if you link it to the expected uplift to the regular income over this year and next. And the second small question here, on the investment portfolios, I mean, about 16% of the total is in alternative investments. Have you been taking any kind of notable mark-to-market adjustments on those portfolios this year, given what has been happening to financial markets. Do you think you might need to take something towards year-end? And if there's anything you may want to call out. And sorry, the second question, which is just a separate topic. We're hearing a bit more recently about the increase in cyber frequency, I think competitive pricing in various market segments. So I was just wondering if you could perhaps give your view on the attractiveness of cyber for your both primary and reinsurance portfolios. Thanks.

Sure. Let's start with the investment result. So for the uplift, you have first to differentiate the various segments. In the P&C segments, I would look at it like average duration, maximum five years, sometimes even three years. So there you'll get an uplift relatively quickly. So if you realize, let's say, for the sake of an easy calculation, realize 100 million of losses in a five-year duration portfolio, on average you get 20 million more every year. Okay. On the life and health ergo portfolio, it's very much different because there the investment movements are anyway buffered by the CSM. So there the immediate earnings impact is already different by the accounting rules of IFRS 17. But on top of that, of course, also the duration of our fixed income book is significantly longer so that in case you realize some losses in those books, It takes a longer time, or the proportion you get back every single year is smaller, obviously, given the higher duration. So a little bit of a differentiated answer, but if you look at our disclosure, you can probably figure it out. Alternative investments, it's a significant share for us. We are reviewing valuations regularly. So far, not really anything very significant. But here and there, of course, we have been adjusting values. So an example which comes to my mind are certain real estate revaluations, for example, where we reduced values a little bit in the course of the year already. But nothing spectacular, nothing really significant so far, at least. On the cyber side, I... I think our strategic general picture is completely unchanged. And, you know, claims and frequencies, they go up and down. And I wouldn't be worried at all by that. And I think other than that, I think our cyber story is very much unchanged. So nothing to add, really.

And the next question comes from Will Hardcastle from UPS. Please go ahead.

Oh, hi. Thanks for taking the question. Two questions. Q3 PNC revenue growth looks like it's been heavily impacted by FX. Can you give us a view of what it would be year on year in Q3 constant currency? And then second one is undoubtedly the commentary on the income guide is really strong. I do feel like you'll be going increasingly challenging to model because there's so many buffer areas. But if we strip out the discount benefits, et cetera, how big do you think the year-on-year economic improvement is on the underlying combined ratio? You know, sort of trying to understand what the margin benefit has been of this hard market.

True, Bill. The... differentiation between organic change and ethics change is something we show in our slides. So if you look at the insurance revenue development on our slides, you can see the differentiation. I'm trying to find the right page now as we speak. Without ethics, it's 6.5%. Now, can you remind me of the second question, sorry?

Yeah, it was trying to understand the benefit of the hard market.

I think the best way to look at it is looking at our renewal publications as we did them after Q1 and Q2 for the, let's say, big block of the reinsurance business. And then, of course, for the primary business, it's a more differentiated picture. So you have to reflect a little bit the proportion of how much is reinsurance versus what is primary in our book. But yes, I mean, generally, I think the renewals are... at least in line with our assumptions as we took them last year, slightly better. I mean, you saw also the normalized comment ratio running a little bit lower now. I mean, there's always some volatility, but now it's already below the 86. So I think that's an indication already for an attractive and very positive organic business development. And I don't see any reason why that should not continue going forward. So therefore, generally, I think we are in a very good place there. Great. Thank you.

And the next question comes from Darius Satkoskos from KBW. Please go ahead.

Hi there. Thank you for taking my questions. Two questions, please. So the first one is, your discounting benefit was very high this quarter. Is anything unusual there in terms of having large losses in high interest rate geographies, or is 10% what we should be taking in going forward now, assuming interest rates remain unchanged? And my second question is, You mentioned a potential rebasement of payout ratio. How should we think about a potential additional capital return? I mean, would you consider adjusting the ordinary dividend, or is this really about buybacks or specials? Thank you.

Darius, thank you for the questions. The payout ratio, I didn't say the payout ratio was kept stable necessarily. I was talking about that if you have higher earnings, then obviously the contribution we would need to give or want to give to shareholders will also increase, so the absolute amount. That would not necessarily mean that the payout ratio will stay the same. We will look at the payout ratio as well, but we are generally much more looking at the absolute amount. also look at the various ways how to do that dividend versus buyback, but then, of course, also look into growth opportunities, how much would we need to deploy for organic growth and all these kind of considerations. And then the outcome of these considerations in January, February next year will be a dividend and a buyback, and then we'll see what the payout ratio is. But it's really that way around, not the other way around. We're not looking first at the payout ratio and then define what we do. I think that's just to make everybody aware of what we are doing.

Is the upside risk to be ultimately dividend or is it more about everything else?

As I said, we look at everything. So I can neither confirm nor say it's completely impossible. We will look at all the possible measures, how to reasonably give back capital. The way I personally would look at it is the following, that the buyback is always a more flexible tool which you can more easily increase, decrease, so you have a lot of flexibility there. The dividend has always been something which we never reduced it, so it always was kind of a floor for capital repatriations. And having that in mind, we would always be a little bit more careful when it comes to increasing dividends versus increasing buybacks. But then on the other hand, if you are convinced that your underlying sustainable earnings level is significantly higher than what it was in the past, why not also thinking about dividends, right? But this is exactly the kind of debate we need to have then from now on, but more pronounced probably than in January and February, only once we know what really the outcome of the actual current year is. And on top of that, also once we have finalized our planning process and also ourselves understand a little bit better how the earnings trajectory will develop into the future years and how much organic, sustainable earnings growth we think there is going to be, and to put that then into relation to a potential dividend increase versus a buyback increase versus a combination of the two. So that's on capital. The other question, the discount level. I mean, first of all, interest rates are just higher now than they were in the first two quarters. I think that's the most obvious driver behind that. But then there is also always a lot of technicalities behind. The shape of the interest rate curve differs and then differs by currency. And it matters, as we discussed already in Q1, in which currency do you have which kind of claims. But then also cash flow pattern, they change from one quarter to the other. So you have different assumptions how long it will take, for example, to fully invest. just a claim and then your discount impact might deviate from that. Your reserve prudency changes from one quarter to the other. The discount impact you show in your comment ratio also depends on how prudent your reserves are because the more reserves you have, the higher your discount effect is. So there's many, many moving parts, and I couldn't give you a detailed breakdown of what exactly were all the drivers. I think the most significant clearly was the interest rate increase, which we saw, and then there's many others. And then, by the way, we are always talking about rounded figures. So we started into the year with 8, now we are at 10. It looks like it's necessarily a 2% difference. That's also not necessarily the case. So a lot of moving parts. Sorry for that not 100% precise answer, but it's really complex.

And the next question comes from Roland Pender from OdoBHF. Please go ahead.

Yes, hello. Two questions from my side on page six where you show your investments. You mentioned that there was an expansion into alternative investments in the quarter. What asset classes are those and what is driving it in the context of actually a high interest rate environment to go into more, I guess, illiquid asset classes here? Second question regarding US dollar long position or active FX management. How is this embedded in your risk management? What could be, for example, the maximum loss you would accept and how do you manage this? Thank you.

Sure. I start with the risk management piece. Currency for us is an asset class like any other asset class. So our investment function, they get a risk budget and it's Their job then to decide if they invest the risk budget into the equity, into the credit, into the interest, into the ethics markets or whatever other markets they find. It's really their responsibility. Currently, we have a U.S. dollar long position as stated in the documents. But this is really a snapshot and something which is fully in line with our investment risk appetite overall, and it might change quickly. If the view on ethics or on U.S. dollar would change, or if other markets would be assessed as being more attractive than the ethics markets. So that's maybe the remark on the U.S. dollar. I mean, it's not a new strategy at all for us. So going into the alternative space to benefit from illiquidity premiums, but also to diversify the portfolio and also to find investments which are long in duration to cover our, in part, very long durations of the liability side. It also makes a lot of sense for us. So that's completely unchanged. Obviously, we started that in a very different interest regime, but even with higher interest rates now, it continues to be an attractive place. Maybe no longer every single investment as in the past. For some of them, the hurdle rate is a little bit harder to achieve than before, given the risk-free interest rates are so much higher. But there are still attractive targets around. And we're looking into all of them very regularly. As a class, we would look into our... Well, what are they? Infrastructure equity, infrastructure debt, for example, renewal energies, forest is an asset class I like very much, also some private equity in their real estate. So a variety, a broad variety of various asset classes which are all under the label alternative assets. And the increase now in the quarter was not that spectacular that I would be able to point it, you know, at a single investment, which I would like to highlight today. It's just, you know, the normal course of action.

Okay, thank you.

And there are no further questions at this time, and I hand back to Christian Becker for closing comments.

Yeah, thank you very much. Not much to add from my side. Thanks again for joining, and please don't hesitate to get in touch with the IR team for any further questions you might have. Have a nice remaining day, and hope to see you all soon. Thank you.