Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft 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.