Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft 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.