Münchener Rückversicherungs-Gesellschaft AG in München

Welcome to our Q2 earnings call. Today's speakers are Joachim Wenning, our CEO, and Christoph Jureka, our CFO. Procedure is as always, we will start with two statements of the two gentlemen before going into Q&A. And now I have the pleasure to hand it over to Joachim.

Thanks, Christian, and sorry for the hiccup, dear colleagues. So let me start. After the first half of the year, we see ongoing strong performance across all lines of business. With a net result of €3.2 billion, we are well on track to achieve our full-year targets. In P&C reinsurance and in global specialty insurance, we have more than compensated for the severe losses from the LA wildfires in Q1, by very strong technical results in the second quarter. In life insurance, the portfolio is performing pleasingly as expected. And finally, Ergo continues to be a very reliable earnings contributor for several years now, delivering quarter by quarter. This translates in a return on equity of almost 20%, well above of our targeted range of 14% to 16%, which is going to be updated by a new financial ambition at our investors' day in December 11. I beg your understanding that today I cannot be more precise on the new ambition as we are in the midst of our planning process. but you can rest assured already today that we anticipate further earnings growth going forward as our business is in a very healthy state across the board. We will continue our journey to expand the earnings contribution of less cyclical and less volatile business segments to further reduce dependency on P&C reinsurance results. Thereby, we further diversify our earnings profile and facilitate increasing resilience of our financial performance going forward. Global specialty insurance is shaping its portfolio to leverage the opportunities of a fast-growing specialty business. In life, reinsurance and ergo are already one step further with an impressive earnings growth, which has achieved a level which alone already fully funds our dividend payout. After several years of margin improvements in P&C reinsurance, the market seems to stabilize at healthy rate adequacy. Disciplined underwriting and selective growth remain key to maintain high profitability and the sound quality of our book. In the course of this year's renewals in P&C reinsurance, we were largely able to maintain the high level of profitability. On a year-to-date basis, combining all three renewals in 2025, the price decline of our portfolio was somewhat more than just 1%. As always, this is a real margin change, adjusted for risk, adjusted for inflation, and adjusted for any model updates. From our point of view, the overall market environment remains attractive. allowing us to earn good margins on the risk we take. At the same time, we are able to largely defend achieved improvements in terms and conditions, and this is important for the quality of the portfolio. Talking of the 1.6 or 1.7 renewals specifically, we continue to manage our portfolio rigorously to safeguard an optimal risk reward. Consequently, we reduced business which was not meeting our risk-return requirements, for example, in some NAPCAT lines. To some extent, this was compensated for by selective growth, and particularly through expansion of proportional business. Overall, volume declined by around 3%, and coming off of particularly high-level prices in our total portfolio, In 2017, declined by 2.5%. When we take a closer look at the lines of business, the bubble chart, that's on slide 7, nicely demonstrates the way we optimize our portfolio. We are prepared to give up business which we think is not adequately priced, and due to our strong capitalization, global footprint, and good client relationships, Munich Re can swiftly shift capacity between geographies and perils. So some more details. Non-proportional casualty business, which you see to the bottom left on this chart, is completely insignificant and affects only a few individual contracts, so negligible. Similarly, specialty because hardly any renewal on 1.7, so nothing worth mentioning. Casualty proportional has changed very little overall. However, there have been some movements within the segment. We have consistently reduced business on the one hand by growing elsewhere, particularly in Latin America and the Caribbean. I said casualty proportional. I should have said property proportional. I'm sorry. In non-proportional property business, we have seen an overall rate reduction from a very high to a still very adequate level. In individual cases, we benefited from rate increases even and grew. Elsewhere, we wrote less business or our seasons increased their retentions. Since this year, global specialty insurance is an owned segment in our financial reporting. as it has become quite sizable. In the last three years, on average, the business grew by €800 million. This year, we expect global specialty insurance revenues to mark around €9 billion. While underlying growth is continuing, we lowered our guidance by €1 billion, mainly as the US dollar has depreciated by more than 10% against the euro. However, this will not have any impact on our bottom-line targets. Global specialty insurance achieved good results for the first half of this year, despite the significant catastrophe losses in Q1. Through a process of continuous improvement, the segment is well on track to achieve its profitability targets also for the full year. and he recruits re-underwriting to remove less profitable and to add more attractive business instead. And the diverse portfolio of this segment offers a lot of optionality to manage the many and the different cycles in his book. Altogether, We expect global special insurance to deliver robust and relatively stable earnings over time, and I'm referring even to the time beyond year-end 2025. With regard to life and health reinsurance, over the past years, LifeRe has a strong run. This breathing development continues, and we are quite successful to generate new business, which, over time, translates into earnings. A high stock of contractual service margin is laying the foundations for reliable earnings delivery. Based on a well-diversified portfolio, we are further exploiting opportunities in transactional business and also in longevity. However, we don't bluntly grow. Our risk appetite is keenly defined to mitigate the risk of bad surprises. So, for example, we have no appetite to fully retain the so-called effort-intense business. We instead focus on retaining the related biometric risks only. Finally, the very good development of our financially motivated reinsurance business has contributed a significant earnings year. And all these factors fueled a total technical result of more than 900 million euro in the first half of this year, which is somewhat ahead of the pro rata full year guidance. I come to Ergo, which has once more delivered a very pleasing performance. With a net result of almost 500 million euro in the first half, Argo is well on track to meet its full-year guidance. In Germany, the proven so-called hybrid customer model, in combination with top-rated products, is meeting rising demand. And in addition, technical excellence, together with rigorous cost control, has paved the way for success and for strong profitability. The international business of Ergo is growing nicely across different regions, both organically and through acquisitions. Recently, as you know, Ergo has expanded its footprint to the U.S. through the acquisition of Next Insurance. The integration is running as planned, and we are convinced that the acquisition will enable us to see the potential of the U.S. small and medium-sized business market while gaining access to leading technology. All these developments make me very confident about Ergo's further progress in this year and beyond. In addition to benefiting from favorable insurance markets, we continue to enjoy tailwinds from capital markets. We are reinvesting new money at close to 4.5%, which will further support the running yield. But we don't rest on the laurels of higher interest rates. Therefore, we define levers to generate additional performance, such as the steady expansion of alternative investments, which provide attractive opportunities even in an environment of high geopolitical uncertainty and competition through rising interest rates. For us, This asset class provides long-term predictable cash flows that are attractive. And in addition, we continue to, of course, successfully exploit opportunities across different markets and currencies. As an example, our overweight in equities has paid off quite nicely so far this year. So let me summarize. Unigree is in very good shape to further increase earnings. Even with the envisaged $6 billion this year, we are still a long way from the end of the line. We have absolutely no constraints to deploy capital, either organically or through acquisitions, but we won't do this for growth's sake. As evidenced in the July renewals, again, we are prepared to even give up business to safeguard profitability and diversification. Our shareholders participate in our trajectory to making earnings less volatile and more predictable, and this is the fundament for further growing dividends and share buybacks and the leading total shareholder return against our peers. And this brings me to the end of my presentation, concluding with the outlook for 2025. We are well on track to deliver another record result in this year, I am even more so pleased that all businesses are contributing to this success. And while we lower our insurance revenue guidance by 2 billion euro, driven by currency and active cycle management, this has no impact on our bottom line targets. And with that, I hand it over to Christoph.

Thank you, Joachim, and a warm welcome also from my side. I would like to provide you with some more color on our Q2 results, and as always, I will not go through the presentation slide by slide, but will have more general remarks before we go into Q&A. The story of the quarter is, in my view, very straightforward. As already mentioned in the pre-release, the operational performance of Munich Re remained very favorable in all fields of business. and we posted a particularly pleasing quarterly result of 2.1 billion euros. Exceptionally strong technical results in P&G Reinsurance and GSI, as well as a high investment return compensated for a heavily loss-affected first quarter. And thanks to the sound underlying profitability of our business, we at the same time coped well with strong headwinds from the devaluation of the US dollar. With a net income of 3.2 billion euros after six months, Munich Re is very well on its way to meet its 6 billion euro target for the full year 2025. Now let's look at the Q2 earnings drivers in more detail, starting with the investment result. The return on investment of 3.8% benefited from the favorable capital market environment. This was more pronounced in the reinsurance segment, which posted a strong investment return of 4.8%, boosted by fair value changes related to global equity markets and interest rate derivatives. The ROI of Ergo was solid at 3.0%. The running yield of 3.8% was at the same level as the ROI, supported by ongoing high interest rates and by dividend seasonality. As we invested new money at shorter maturities in the second quarter, the reinvestment yield slightly dropped to 4.2%. This level continues to provide further support for an upward trend in the running yield. In the net financial result, the strong investment result was mitigated, by the ongoing devaluation of the US dollar, resulting in currency losses of around 600 million euros in Q2. Meanwhile, we have reduced our US dollar long position such that further changes in the exchange rate should have a relatively smaller impact on our earnings going forward. Turning to the business field, starting with reinsurance. The life and health insurance total technical result of 305 million euros came in below the pro rata annual ambition. This was driven by a random accumulation of single large losses, which has largely offset the very good positive experience in Q1. While the difference in experience adjustment between the two quarters has been quite pronounced, we still consider this within the range of a normal short-term volatility. It is important to note that these losses are neither indicative of a negative trend in our portfolio nor an indication of a deteriorating mortality. This aside, the total technical results developed in line with expectations as regards the release of CSM and risk adjustment as well as the contribution from ongoing favorable Thin Marie business. The strong new business growth in the CSM, which was supported by the execution of further large transactions in North America, was dampened by significant adverse currency effects. Being ahead of the Borata Total Technical Result Guidance after the first half year, we are well on track to once more achieving our full-year targets. In P&C reinsurance, we posted a remarkably good Q2 result with a combined ratio of 61%, which benefited from a major loss ratio that was even negative at minus 2%. We had very low new major losses in the quarter and a net positive runoff result. In addition, the discount benefit of 9% was higher than would have been assumed given the low level of claims. This was driven by an update of the payout pattern for some major loss reserves. The loss component increased once more by 0.4% due to lower interest rates and an ongoing cautious recognition of new business. But fully, we still expect a rather neutral change in the loss component. Overall, I'm very pleased with the performance, also as the normalized comment ratio of 79.6% is largely in line with our full-year guidance. I am even more pleased with the performance, as the basic loss ratio in Q2 has come in even lower than in Q1. With a combined ratio of 72.9% after six months, we are heading with tailwind into the hurricane season. I conclude the reinsurance part with global specialty insurance. With a strong performance in Q2, the segment could compensate for the high losses in Q1. The first half-year combined ratio of 87.3% is better than the full-year guidance, thanks to a pleasingly low combined ratio of 77.9% in Q2, which benefited from a low level of nut-cut claims. After a difficult start to the year, GSI is back on track. In primary insurance, Ergo delivered once again a pleasing net result amounting to €251 million, ahead of the pro-rata expectation. Ergo Germany posted a strong second result of €155 million in the second quarter. Overall, the technical performance in life and health was also sound, owing to a strong result in the PAA business, which benefited from improved claim situations and from seasonality. The stock of CSM increased compared to year-end due to positive operating changes resulting from higher interest rates and premium adjustments in long-term health. The CSM releasing Q2 was fully in line with expectations. The P&C business achieved a good technical result with a combined ratio of 89.1% right at the level of our full-year guidance. Ergo International reported a pleasing net result of 96 million euros, supported by a strong operating performance. The technical profitability in life and health is on an attractive level. Same accounts for the P&C business, which delivered a combined ratio of 89.5%, better than the full-year guidance. Overall, the international business is in a very good shape, going by more than 8% compared to the first half of last year. With the acquisition of Next Insurance, Aero made another big step to expand its global footprint. Financially, this transaction will be reflected in our Q3 figures. Turning to capital management, the group's economic position remains very strong. The 72 ratio increased slightly to 287% in Q2. The strong operating performance was dampened by negative currency effects. Please allow for an additional remark on the outlook for the full year 2025, once more coming back to the topic of the US dollar. Joachim already mentioned that we now expect a €2 billion lower insurance revenue in reinsurance. Obviously, this reduction, mainly affecting P&C and GSI, but also life, is to a large extent currency related. But in the interest of a high profitability of our portfolio, it is also the consequence of deliberate business decisions. So I would like to emphasize that thanks to very attractive technical margins in all our business lines, the reduced top-line guidance will not affect our earnings target. Regarding the outlook for Ergo, the expected positive impact from the first-time consolidation of Next Insurance in Q3 will be largely compensated by a negative tax one-off, also in the third quarter. More concretely, I'm talking about the DTA reduction related to the tax rate reduction recently decided by the German government. With this, I'm at the end of my opening remarks. Joachim and I look forward to answering your questions. But first, back to question.

Thank you, Joachim and Christoph. We can now go right into Q&A. As always, I'd like to ask you to limit the number of your questions to a maximum of two per person. And now I think we can kick it off. Thank you.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and on on the telephone. You will hear a tone to confirm that you have answered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to change the loudspeaker mode and eventually turn off the volume from the webcast by asking a question. In the interest of time, like mentioned, please do not just have two questions. Anyone with a question may press star and one at this time. And we have the first question coming from line of Shanti Kang from Bank of America. Please go ahead.

Hi, yeah, thank you for taking my questions. I just had a quick question mainly on the life and health book. So you have this accumulation of large-ticket individual losses, and clearly that's attributed as being random, but it led to about 100 million negative experience charge, and that seems quite high. So I just wanted to get more comfortable with why the experience here was so different to your expectations. So a bit of color on that would be helpful. And then just on the forward outlook for growth, Obviously, you followed back growth in most areas based on slide seven with the bubbles. So how should we think about your appetite going forward given softening prices and what's your strategy of where to go within specialty, for example?

Thank you. Sorry, everyone. We seem to have a technical problem. We will try again. And I'll try to manage the Q&A without the operator. And Shanti, may I ask you to repeat your question again?

Yeah, that's fine. Sorry. So my first question was mainly on the life and health system, accumulation of large-ticket individual losses that had a pretty adverse effect in Q2. I think it's about 100 million negative experience charge, which seems very high, seeing as it's a number of individual claims. Could you just help us get a bit more comfortable on why that experience was so different to your expectations in Q2 and what that would mean going forward? And then my second question was mainly on the growth outlook. Obviously, it's a bit softer on top line for the full year. And on slide seven, it looks like you parred that growth in all areas apart from casualty prop. So how do we really think about the structure of the business going forward and your appetite to deploy? Obviously, you've shown specialty as a growth area, but within those lines, where are you looking? And if that means M&A, what would you be looking at there? Along with any kind of price softening, how should we think about that? Thank you.

Yeah, I'll take the first one, Christopher, on the large losses, large claims in life insurance. I try to start very general. You know, we have a very, very big global mortality portfolio. And due to the sheer size of the portfolio, the number of deaths we have is to be expected to be quite predictable and should not lead to any short-term volatility generally. Except for some extraordinary events like the COVID-19 pandemic, Or there's another exception, and those are the very big single large losses for some very big, big single treaties which we have. And the reason for that is that our portfolio is not that balanced in terms of the size of the reinsured policies or individual lives we're talking about. In fact, we have a sub-portfolio of large volume policies, which is quite small relative to the overall portfolio. And this may lead to short-term volatility. So in a single quarter, sometimes we have very few of those large lives, large policies affected by mortality. In other quarters, the number can be a bit higher. We're always talking about a handful. We're talking small numbers in absolute numbers, how many losses there are. But they can be sometimes quite sizable. And so this is if you want a normal short-term volatility from one quarter to the other. And we are convinced that accepting this short-term volatility is maximizing the economic value overall for the shareholders also in the longer term. And also it offers our clients a valuable additional service that we are helping them with these very big lives and give them reinsurance cover for that. It also means for us extra opportunities at attractive margins. Obviously, this volatility comes also with a price. So I think that's the entire story. So we're talking about a handful of losses we either have or not have in a single quarter. And given that we are speaking about large losses where a single loss is at least 10 million, sometimes significantly above that, a few losses can make a big difference in a quarter.

Let me take the question on the growth outlook. So let me start with those areas within our group portfolio that will grow and completely irrespective of the P&C reinsurance markets. Let me start with Ergo. Ergo, in its retail markets, both in Germany but also internationally, is supposed to grow with the underlying markets. And in addition to that, Ergo, through the acquisition of Next, will gradually and increasingly also benefit from the growth potential of Next, which has been evidenced to be double-digit for many years now in a row. Then there is life reinsurance. It's certainly independent. There is no P&C reinsurance cycle impact, not at all. Instead, there is a very vivid demand, particularly for these large transactions in the context of sales of companies or of portfolios mainly in the U.S., in which we as a reinsurer... We are interested then to assume the related biometric risks only. This has been a growth area. We expect this, at least for the near future, to still be a growth area. How sustainably, I don't want to speculate on it. Then there is global specialty insurance. It's not independent from the reinsurance PNC markets but it has its own dynamics which are very different from the PNC reinsurance market cycles but GSI has proven to grow close to 10% in the past years and even in the first of this half year they have outgrown the US dollar depreciation if you like. So also there, GSI is supposed to further grow. And then there is reinsurance P&C. And there, I say, we believe markets will be attractive also going forward. There will be selective growth opportunities. However, we are prepared to also reduce our exposures if returns don't look attractive enough. I think the best assumption going forward will be that growth would rather be a little bit challenging. But you know what? The margin decrease in these three renewals, 2025, of 1.2% is no drama. And so, overall, The group will continue to grow. Thank you.

Thank you.

Thank you, Shanti. Next question is from Wilhart Castle from UBS. Wil, please go ahead.

Many thanks. First of all, just going back to that 1.2 point, Joachim, there on the risk-adjusted price, just really trying to think about how that in most simplistic terms, feeds through to the combined ratio guide for the future. How much is already baked into 2025 guide? What rolls into 2026? And what dampeners are there to help offset that on any new revised guidance? And the second one, hopefully it's a quick one, the higher NATCAT reserve releases. There's actually been a real feature of the Q2 results updates across solicited companies, and I'm just sort of wondering... If you can help us to understand why now? It's not really a quarter where results needed to be supported. It's been good. Has there been a major settlement in Q2 forcing companies' hands or why now is essentially the question for the large net gap. Thanks.

Yeah, well, thank you very much. First question, the relationship between price changes as we communicate them in our combined ratio is always the same. There is a certain portion which is immediately to be reflected in the first year after the renewal, and then there is another part which is in the second year, and even in the third year there is an impact, so it's a bit distributed over time. I would estimate maybe 50% already in the first year and then a bit less in the following years. It's obviously not the only driver in the combined ratio. You have expenses, you have the development from the reserves, you have discount in IFRS 17 terms, of course, as well. So it's one of a few drivers. But the correlation of this, certainly, if you would look into our price changes with the combined ratio changes, would imply that maybe 50% of the change would be visible in the first year after our announcement of the price change. Reserve releases on large losses. I mean, as I mentioned already, there is a few items affecting the minus 2% we're talking about here. It's mostly, of course, that we had to release some reserves on old losses. But then there's also an impact from a change of a discount pattern also in that number. We shouldn't forget that. But the release on the reserves of the old losses, it's something we booked because we are well-reserved. I mean, there is no need for further reserve strengthening. I mean, you know, a couple of years back, I once said our reserves are full, and I regretted it a bit later because I've been cited so often for that sentence. But I just maybe used the opportunity now with this release to remind you all that our reserves are very, very strong. And then in a quarter like that, you're forced to release something, and we're happy to do that and have you participate in the results.

Thank you. I guess just as a follow-up on that, if I may, I guess is there anything you can say on risk percentile or risk adjustment? Was there any moving parts on that as a result of this release?

Or this is just good news? It's just good news. Our reserving policy is completely unchanged, and the general reserve review is always happening in the fourth quarter, third and fourth quarter. So whatever we show in between is just the actual real development without any change in the reserve strength. Also, no change in front pile, and also the risk adjustment is completely unchanged.

Thank you.

Thank you, Will. The next question is from Ivan from Barclays. Please go ahead.

Hi, good morning. Thank you very much. First of all, I'd like to take the opportunity to thank Joachim and congratulate Christoph on the upcoming CEO handover. I think it's an incredibly successful run, of course, and we look forward to chatting later in the year. And my other two questions that I have, I mean, one is just still back on the topic of growth and GSI. Maybe you could talk about the 10% growth that I think we've been talking about as a midterm aspiration. I mean, how does the pipeline look into year-end? And do you think in 2026 that type of growth could potentially be achieved? Because I think the FX headwind is something that, at least so far, we should expect to remain later in 2025 and in 2026. And my second question is just thinking ahead about the P&T renewals. So we've had the 2.5 percentage points price reduction in the past two renewals, April and July. As we look into 2026, do you think that for January the same pace of change is something that would be rational in case the large loss experience is in line with expectations for the sector. Thank you.

Thank you, Ivan, and thanks also for your nice words in your introductory remarks. I think we still will have one or the other opportunity to shake hands. Thanks for that in any case. The specialty insurance growth outlook. So I think the 10% is with the best of our estimates. And, you know, this is with the caveat that we cannot predict how the market will be 2026, 2027, 2028. But with the best of our guess today, I would say the growth of GSI can be towards 10% going forward. And if market dynamics are less favorable, which we cannot anticipate now, but if so, then it would probably be somewhere between 5% and 10%. But where exactly? And in 2026, I cannot predict at this point in time. And for the 1-1 renewal in P&C reinsurance, honestly, I don't have the crystal ball. But, you know, we... And whatever we say, I know there is so many others who will counter-argue. If you want to argue a soft market, you find your reasons to argue a soft market. I just would say, let's face the facts. Fact in 2025, when most of the people commenting on the P&C reinsurance markets, they are commenting on a soft market. trend or the soft market cycle, we are entering into the soft market cycle. And against that, I look then into our picture. And then I say, we have suffered, if you like, coming from a very high level, we have suffered a 1.2 percentage margin decrease. And you know what? That's a conservative number. As always, that's a real margin decrease already taking into account inflation and all of that and risks and model update. 1.2%. Isn't that still a great market? Come on. If before rates had gone up by just less than these 1.2%, wouldn't you still have said that's a great market? I would, to be honest. so before that background then i asked myself what are the underlying trends or evolutions that could have an impact of the market going up or down or being flattish i don't see big reserve releases in the markets because as we saw in other historic soft market environments when those reserve releases mainly from casualty lines, they also fueled a little bit the aggressiveness of risk carriers or their innocence, including ourselves, to be honest. I don't see them because there is social inflation, there is PFAS, there is other topics. So I don't see this fuel. The other one is, What fueled also real soft market trends in the past were years of no large losses at all. Come on. There is no single one year since many years now where the whole industry isn't seeing large losses. We see them every year. So that to me also doesn't fuel any innocent soft market. And And also, against what I can read again and again, that there is so much new capital flowing into the market, new cat bonds being launched, you know what? Almost all of them, they just replace bonds that they run out, and they're relaunched. But in total, the alternative capital practically is not growing, or at best is growing at the pace of the underlying markets also growing. So I don't see any such pressure coming from the big new capital inflow either. And with that, we would say, The markets are stabilizing at still very attractive levels, and that is our best guess going forward. But I don't have the crystal ball in my hands. That's the true, honest, very comprehensive answer to your very good question.

Thank you. Maybe one follow-up on the first part of the question. I mean, you talk about 5% to 10% for 26%. But in the first half, if I strip away the effects, it was only a 3% growth and about 2% and 2%. Were there any one-offs related to the top line in GSI that made it less than the run rate?

It was 3%, but after the U.S. dollar depreciating heavily against the euro. It was 3% despite the U.S. dollar depreciation. So I wouldn't feed any decline in growth dynamics into it.

Thank you, Ivan. Next question from Cameron, JP Morgan. Please, Cameron, go ahead.

Hey, good morning, everyone. And Joachim, Christoph, just echoing Ivan's comments, it's been kind of a great run. Joachim, you know, kind of the CEO share price has definitely reflected that. And Christoph, you know, looking forward to kind of seeing you running the place, and I'm sure you're going to do an excellent job. Two questions from me, both on different combined ratios. So on the P&C reinsurance business, just trying to understand, clearly, you know, you're a little bit above your guidance on the normalized combined ratios to 79.6. Discounting is higher than you expected, so that's an additional benefit. What's kind of, you know, what's driving that? Is this... worth and expected trends on kind of like losses elsewhere is this prudence is this something else is this managing through target how should i think about that um you know you do have a bigger benefit why is the normalized not actually a bit a little bit better then on gsi and please bear with me on this if i try and if i look at the old splits of the matcap budget you had you know, a NatCat budget that covered P&C RE and GSI, which was 10 points, you know, roughly now you're two-thirds reinsurance, one-third GSI. If you now assume 14% cat loss in P&C RE standalone, that suggests there's very, very, very little cat budget allocated to GSI. So once I hear your comments about it being a really good call set for GSI because of like that cat, It feels like actually the underlying is much better than 90. So just interested in whether my maths is completely wrong, very possible, or whether underlying to running much better than 90.

Thank you. Good morning. I will not comment on your maths. But more seriously, I thought of the second question. There is... I think the not cut budget as you would have expected for GSI anyway. So it could be a bit higher than what you would expect for pure retail insurer, but significantly lower than what we have in reinsurance. And then in that range, there are ups and downs possible. The first quarter was heavily affected also by the LA wildfire, also for GSI. In the second quarter, we didn't have any event like that. And also beyond that, it was a relatively benign quarter, as mentioned. And then we benefit also in GSI from that lack of large losses. And of course, they also do have man-made losses. We shouldn't talk only about large losses, but there's also man-made losses. So I think what we see here is that the quarter was significantly better due to the absence of large losses, but then also the basic losses were quite benign in GSI in the second quarter, which had also a bit of a technical explanation. And sorry, I have to become a bit technical now here. So if there is an old loss, which was below the large loss threshold, And you have to increase the reserves a bit in the following quarter. And it gets above the major loss threshold then in the following quarter. Then you take it out of the basic loss reserves and put it into the large losses. And this would then also help the basic losses in the quarter. And this is something which happened in the second quarter and this is also one of the reasons why the major losses did have a bit of an uptick, still, despite the small numbers, but also the reason why the basic losses are so good in GSI, also in the second quarter. Underlying, it's very healthy, it's very good, but the basic loss is probably a bit less good than visible, maybe, if you do the math. And the large losses at the same time would probably have been even better if I looked only at the quarter alone. But this is now very technical. And frankly, without going into the calculation in detail, you would probably not even see all those effects in numbers as you publish them. But I'm sorry, I had to go into that level following up on your question. So P in theory. Here I start with a discount because you're saying it's elevated. And there I have to immediately jump in. It's elevated overall. But the driver for the increase is only the large losses. The discount on the basic losses is not elevated at all. And the driver has been the pattern change, as mentioned before, in the large loss area, where we had to change the pattern for some large loss reserves. And this increased the discount significantly, but this increase is not affecting the basic losses and therefore also not affecting the normalized combined ratio. So therefore, if you look at our normalized combined ratio, forget about discount, no impact on that. The second point is I mentioned in my introduction deliberately also the basic losses because they have been even better in Q2 than in Q1. And this is also something which you maybe do not immediately see if you look only at the normalized comment ratio. So if large losses are better, basic losses are better, then the question is what is really driving the normalized comment ratio to be a bit above guidance? And then there's only a single explanation left, and this is expensive. And what happened is that in the second quarter, the expenses were a bit higher than what we had in the last quarter. And there's not a big secret behind that. But sometimes when you book expenses for IT projects or for relatively big single expense positions, sometimes it matters if you book them in two or three. And the shift between the quarters sometimes can make a big difference. And this is basically everything which happened. And so the expense ratio, if you look in our deck, you'll see it's about 10% this quarter. It used to be between 9 and 10. And the reason for that is really that we've had some shifts of bookings in the admin expenses. That's all there is. I hope that's clear enough because I've also talked about the normalized comment ratio, so I wanted to be a bit more specific here. I hope that's clear enough. It's all about the expenses.

That's complicated, but still great. Thank you.

Thank you, Cameron. Next, please, Michael from Berenberg. Please, go ahead, Michael.

Fantastic. I was going to say the same as everybody, which is well done, Joachim, and really good luck, Christoph, what you've done and what you're doing is outstanding. My question is very lightweight. So one is on the proposal where a fellow one company says, where Proposal hasn't been a source of success, and I just wondered why it should be with you. The thing I remember about Proposal is that the Catholic third is completely uncapped, so I can't quite see the point there. And then the other question is, you talked about the growth and the effects, and I think we've been walking around, and can you give us the actual figures? How much growth did you give up? you know, versus your plan or whatever in that, you know, reduction in revenues from 42 to 40 relative, you know, ignoring the FX. And then assuming that, you know, the $6 million, you say, well, it's offset by better margins. I mean, my math is really poor, but it kind of implies that you're improving the combined ratio guidance implicitly by that one point. You know, if you reduce the revenues by 5%, the combined ratio has improved by the equivalent, which on 20% would be one. There we are. That's it.

Sorry, we didn't get your first question. Could you please repeat that one?

Sure. Proportional is rubbish business, is what I'm saying. It's really awful business. I follow one company which does it, and it really is a source of problems because it's uncapped exposures, and at best, and you really don't control anything of it, and I don't understand why you're doing it. I just would like a bit of a kind of insight here. Thank you.

Oh, this one I have to take, Mike. Thank you very much. And thanks for your words in the beginning. Michael, proportional business is rubbish business. I guess you're referring to proportional property business. And you're right that you have to be very cautious as a reinsurer to engage in property proportional business. And the key reason for this is that oftentimes it doesn't cater enough for the TAO risks or the NATCAT risks in there. That's why it's difficult. You don't control anything, as you say. However, there is markets in regions, and Latin America and the Caribbean would qualify for this, where you de facto only have proportional business. And why so? Because that's the only way that they can benefit from from capital relief, from a regulatory perspective. And the regulatory rules are such that they are based, at least to an extent, also on the volumes that they write. So the more they feed on a proportional basis, the more they enjoy capital relief. And if they didn't cater for NATCAT rules, lost possibilities sufficiently by high enough margins, they wouldn't get any reinsurance and no capital relief. So these are sound proportional markets, whereas I agree in all the other markets you have to be very careful. I give the other question to you, Christoph.

Yeah, the other question was the split between operational and FX. I refer to our presentation where at least for GSI and for global specialty insurance you can see the volume change between organic change and foreign exchange. So you see for example in P&C reinsurance that we have a reduction in volume in foreign exchange by 90 million. and the reduction of organic change of minus 35. So in half a year, the dominating effect is still FX when it comes to P&C reinsurance, and similar in global specialty insurance where we even still grow organically much more than what we lose with FX. Now, the difficulty with projecting that into the future for the auto guidance is who knows what the US dollar is going to do. And as you also know, the volume is going into our P&L with the average currency rate. So there's even an averaging effect, which is mathematically, at least for me, similarly challenging like some combined ratio components for some other people. Therefore, what we did is basically we looked at the half-year numbers, and there's no really exact science behind that, what we think the year-end is going to be. Take it times two, and then you get to a $2 billion reduction, and it is driven by P&C reinsurance, GSI, but it's also driven by life health. And in life health, it's driven due to the fact that we also discontinued some business where the margins were no longer attractive enough. So the volume reduction is not at all indicative of any change of volume or profitability or anything like that going forward. So it's a combination of all these things. So therefore, I would... I would personally be very relaxed when it comes to these volume figures because it's either FX or it's a reduction for very good reasons. Because if we wanted to grow, it would be very easy to grow also in that market, but then maybe at a too high cost when it comes to the profitability of our business. So, sorry, I can't give you any more precise numbers because there are no precise numbers. It's a projection to the future and it can be like that or also completely different depending on what the US dollar does going forward. Lovely. Thank you very much.

Thank you, Michael. Next question is from James Chuck from Citi. Please go ahead, James.

Thank you very much, and good afternoon. I just wanted to ask you a couple of things. So the outlook you've given for the investment income, which is at the group level, and you've indicated that the reinvestment rate, particularly fixed income, is above the running yield. I'm interested more in the impact specifically in P&C REIT. So you had the investment income yield was 4.4% in Q2. It was 4.2 at 1H. Are you able to give the recurring fixed income yields for PCRE and the reinvestment yield? I'm just trying to kind of look through primary life and health earlier business to get a feel for where that regular investment income could go. That's my first question. Secondly, I think I've asked this before, but I wasn't too clear on the reply that I just wanted to kind of revisit what happens with the, for once I've got to turn the reserve you set aside for sort of interest rates. So the difference between the discount rate benefit and the ISI unwind that has been a big positive in the past, you've squirreled that away. As that kind of gets released as interest rates potentially come down, where do we actually see that emerging through? Does it come through the attritional loss ratio? Does it come through the normalised and therefore we will see some offset to some of that margin deterioration that you're expecting following the recent renewals. Thank you very much.

Yeah, James, very, very deep IFR 17 questions and thank you for those. I'll start with the reinvestment yield that's easier. The reinvestment yield in reinsurance overall, and I don't have a split with me now between P&T and LIFE, and GSI, but the average reinvestment yield in the reinsurance segment would be 4.2%. Now the question, where does the e-fee versus discount benefit come through? So it's in different lines in the P&L. The discount is the discount and it goes into the combined ratio, while the E-fee is only visible in the E-fee line. And then therefore, whatever changes, you will have to look at both lines in our P&L. Now, will there be significant changes? We don't expect them to be significant at this point. It has been largely stable, slightly positive indeed, but not big numbers recently. And going forward, maybe it's on a similar level between discount and easy, maybe still slightly positive, maybe neutral, but we don't expect any really significant impact from that at all.

Okay. Do you mind if I just quickly follow up? It's probably just my knowledge. But my understanding is, I mean, there's been a positive because of the discount, the difference between those two, which you haven't recognized in earnings. And therefore, as that, you know, you will release that to offset any headwinds. I'm just trying to get a feel for when we see that through the technical profit or when we see it, you know, kind of in the moving pieces and the iffy and the discount rate benefit. Apologies for taking back on that.

Let's go back in history a bit. When we first did the transition into IFRS 17, there was this impact that the discount and EFE, they were very different because we had high interest rates for the discount and the EFE was very low because traditionally the interest rates were significantly lower. But then over time now, the EFE increased significantly because we one underwriting year after the other locked in the higher yields already and the average duration of our P&C book is not that long that the significant difference would have been maintained for a long time. So therefore the support now out of this difference between E-fee and discount has come down significantly and is only marginally positive. And as all the interest rates develop differently in Europe versus US and you have all these different effects in the various geographies, it's all very much diluted. This is what I meant with there is not a significant positive nor negative, but overall rather stable effect now which we see. So if you think about sources, how we can compensate for earnings deficiencies, it's not the difference anymore. It has been a big support in the first year after the transition, in 2017, but no longer in recent years.

I'll check through with IR, but I thought you'd added a reserve to set aside that you could release, but maybe my understanding is incorrect. Thank you very much.

Thank you. Next question from Darius from KBW. Please, go ahead, Darius.

Good afternoon. Just two questions, please. So, Joachim, in his opening remarks, mentioned that we should absolutely expect the group to grow earnings going forward. Just a quick one. Does this statement also apply to the PNCB earnings in the medium term? And the second question is, what caps did you release the reserves from in the PMCV? And are you able to quantify what the impact was from the current period caps? Thank you.

I'll take both questions. The first one, we usually don't disclose individual runoff results of individual large losses from the past. Therefore, I think the only thing I can add is maybe our general policy, which we do for basic losses, but also for large losses, is of course that the initial results, as we said, are always, in brackets, very conservative. And then over time we enjoy the runoff. So that's not at all unusual that this happens. And sometimes it's not that visible because we have a higher portion of new large losses. And then it's less visible because we generally don't disclose them separately. But it's a very normal thing that these kind of things happen. And at some point, the bucket is just full, and you cannot maintain them any longer, and then you release them. So this is what happened. But I apologize if you don't disclose them on an individual loss level. The other question, which is the development of the various lines of business, where do we expect earnings to go, to what extent, and all the volumes and all these kind of questions, there I would just refer to our investment day which will come up on the 11th of December where we will be able to speak a bit more about our expectations for the future. I think our general optimism has become very clear and I can only echo what Joachim said that also going forward and then also in my new role I will be very optimistic that our earnings footprint will develop very favorably. um but it's too early to speak about details also due to the fact that we are still in the process of you know doing all these bottom-up planning um meetings and and assessing all the numbers in more detail and i don't want to get ahead of myself too early sure thank you thank you darius and now um to win it from media bunker please go ahead yes good afternoon and thank you for my for your question i've got uh

Two questions, both on the revenue guidance, unfortunately. You know, the first one is just trying to, if I look at slide 29, I mean, the PNCV shows year-on-year effects of only 90 million. I mean, not very different, slightly less for GSI. And then, you know, if I then think that We are trying to predict a 2 billion lower revenues mainly from, you know, from the GSR and PNCV. So, and you said it mainly from SX. So, I'm just trying to square these numbers because it suggests that the business mix or the cycle management is actually a little more powerful force than than we are thinking at the moment. I'm just curious on that. And linked to that, you know, I also understand that the second half will also suffer. Is that because of what's happened in renewals already or because you're expecting more pressure in the cycle management side or any other reasons for that? That's on the revenue guidance. Second thing is only comment that the revenues are lower, the profits are unchanged. From the outside, I mean, yes, that's definitely a good outcome and possible outcome. But then should not the combined ratio guidance reflect that, do you think? Or is that too simplistic to think about? Thank you very much.

Thank you very much for your question. So in a very strict mathematical sense, I start with the second one. I would even confirm that if you maintain the losses and have less volume, then the comment ratio would change. In reality, obviously, there are so many moving parts. If you look at our results overall, you have the investment results, you have the currency results, you have life, you have health, you have the agribusiness, you have the GSI, you have the P&C business. So, maintaining the guidance of 6 billion does not necessarily mean that we can predict each single of these items up to an accuracy that we would immediately detect now also a change of the combined ratio for our guidance going forward. But what I can confirm, and I think that's what we did the entire call already, is that technically our profitability is in a very, very good place, both underlying as well as the large losses in the first half here. And this has not immediately been reflected in an update of the guidance, because then again, we have to look into the second half of the year and what will happen. But the shape of our book is brilliant. Now, the ethics topic on the slide 29 you're mentioning. Now, the technical topic behind that is that for your plan and for your outlook initially, you use certain assumptions about where the US dollar sits. And then you have an actual development. And what makes it even more complicated for the P&L, you use the average across a certain time horizon, so the half year in this case. And then you compare the average with what has been the average in the past. And so there are many technical effects to be considered. But what you can see here in the numbers with the minus 90 is relatively small. You have to compare it with the last year's average currency US dollar price in the first half year of last year. While if you compare the outlook with what we expected for the year end, we have to expect the average over the entire year with what we thought when we made the plan initially. And this is not necessarily similar or the same number, already mathematically. I wanted to avoid that deeper discussion earlier when I said who knows what the US dollar is going to do going forward because frankly we really don't know. But technically now if we would assume it to continue and stay on a very low level like it does, then of course the averaging effect with another half year of very low rates as where they currently are would come in over proportionally compared to what we saw in the first half year just mathematically. And this would then influence also our guidance forward a bit or significantly stronger also on the FX side compared to what we saw so far. So therefore, the expectation in the outlook and the reduction for 2 billion or the impact of FX in the 2 billion reduction in the outlook is bigger than what we saw so far in the first half year. What you said on the renewal side is also correct, that whatever the experience in renewals in the first half of the year is obviously but then also reflected in our outlook. But the relative share of FX in the $2 billion reduction compared to the relative share of FX in the first half year results is significantly higher. I'm not sure if I was too confusing, but it's really the math behind it. I'm sorry for that.

No, no, it's very clear. Thank you very much, Christoph. Thank you. And congrats again, Joachim, and Gustav, that is a very good, smooth transition. Thank you. Thank you.

Thank you. Next question is from Jochen Schmidt from Metzler. Please, Jochen.

Thank you. Good afternoon. I have just one question on the organic development of insurance revenue in non-license reinsurance in the half-year numbers. Was there any, let's say, at least minor impact from having shifted from proportional to non-proportional business? That's my question.

It has been, but it was not a significant driver. I mean, there's always shifts back and forth between proportional and non-proportional, so it would be a complete surprise if there was not such an effect, but it's certainly a very small effect.

Thank you. Next question from Ian Pierce from Exxon BNP Paribas. Please, Ian.

Hi, thanks for taking my questions. And thirdly, just to echo the comments, congratulations to Wacky Hunt and Simon at Munich and Christoph on the new role. I need one left from me. It's just on the discounting in P&C where I'm a little bit confused. So obviously sort of insinuating that the better discounting in H1 is a result of discounting on the large losses, the basic in line. But at H1, the large losses are left in budget. So why would the discounting be better than you would have expected at this point in the year? And sort of just to follow up really to the gist of the question is why shouldn't we be upgrading the discounting assumption versus the sort of 7% to 8% guidance for the full year?

Brian, thank you. That's all about the loss pattern. So what we had to do is we had to update for some of our large loss reserves the assumption how long it would take until we pay them out. The assumption was we would pay them out relatively quickly. And as it turned out, for those part of our reserves I'm talking about here now, the payout is significantly longer than what we thought. And then, therefore, the interest rate is still the same, but now you apply it not only on a couple of years, but over a long time, and then the discount effect goes up. And this is a part of the major losses, and it drives up the entire major loss discounting significantly. and therefore this loss pattern change is the missing link or the missing piece you're looking for.

Okay, great. And what sort of losses are they? Why would the duration change so significantly?

Again, we don't speak about individual losses, but what we do also in our large losses is some more kind of bulk reserves for very slowly developing loss complexes. And there the assumption, as I said, turned out to be overly optimistic how quickly we would be able to settle those. And again, the change is significant. So it will take much longer than initially thought, and therefore this impact on the discount is very significant. Thank you, Ian.

And the last question is from Emanuela from Intesa San Paolo.

Hello, hi, thanks for taking my question. I have a couple of questions, actually. So you discussed about reductions in a few lines of business, and at this point I'm wondering how should we think about decreased exposure and ultimately the SCR relating to your P&C operations. And then the second question is on the new guidance, which I see on the slides that is on gross revenues. I was wondering about the net. I mean, as a part of the question, I'm wondering what is happening to retro prices and your rationale on sitting business.

I can take the first one. Emanuele, thanks for the first question, and Christoph will then try to take the second one. The reduction in a few lines, in the 1.7 renewal at least, these reductions were... related partly to some NatCat lines, and you would be right. With that, the solvency capital requirements would logically also come down. However, these were not, I would say, material enough amounts to come up with any new SCR prognosis into the future. As a principle, if there is a good market environment and we believe that we can make money, we are happy to lend out full capacity and have high solvency capital requirements because we are in good margins. And in case that our assumption is wrong and the market is worse, then we will expose ourselves less and the SCR will go down. Christoph.

If I understood it correctly, your question was if the net insurance revenue would move similarly like the gross insurance revenue we have been talking about so far. And this is something I can confirm. So in any case, retrocession doesn't play a significant role for us at all. And our retrocession always has been very stable in recent years. So therefore, there are no changes. And therefore, we have seen a parallel movement here.

Thank you.

Okay, thank you. There are no further questions. Thanks for your participation. Thank you Joachim and Christoph. Very happy to follow up on any questions on the phone. Thanks again for joining and hope to see all of you very soon. Have a nice remaining day and a nice evening as well. A weekend in particular. Thank you. Bye-bye.