Swiss Re AG

Good morning or good afternoon. Welcome to Swiss Re's first quarter 2023 results conference call. At this time, I would like to turn the conference over to John Dacey, Group CFO. Please go ahead.

Thank you very much and good morning or good afternoon to everyone on the call from me. I'm here together with Thomas Bowen, our Head of Investor Relations, to talk you through the first quarter 2023 results. Before we go to Q&A, allow me to make a few quick remarks on the release we put out this morning. The first quarter represents a solid start into the year for Swiss Re with a net income of $643 million. Our objective is to make more than $3 billion this year. We believe we are on track and there are a few key drivers for this. First, in PNC Re, we earn the majority of our NatCat premiums in the second half of the year when the Atlantic and Pacific storm seasons occur. Assuming normal experience, This is expected to benefit the combined ratio. We are also benefiting from strong renewals. The 19% price increase achieved in April represents a continued strong momentum in the spirit of what we saw in the January renewals. The 97.2 combined ratio we achieved in the first quarter, despite higher NACAT activity, is therefore in line with our four-year ambition. Secondly, our life and health business is typically impacted by elevated mortality in the first quarter due to the circulation of respiratory viruses, especially the flu in winter months. We expect this impact to reduce in the next quarters on our path to our $900 million net income for life and health three. Thirdly, corporate solutions had an excellent quarter as evidenced by the 90.3 combined ratio. Corporate Solutions price increases accelerated in Q1 compared to the end of last year, and this will benefit margins going forward. Finally, the recurring investment yield continues to increase as expected, reaching 3.1% yield in the first quarter. Interest rates have declined in the last days, but we expect continued upward trajectory as we invest incoming cash at higher rates. On reserves, The overall net reserve development was modestly positive in the first quarter in both P&C units. We saw releases in property lines, while we added the casualty lines mainly in P&C RE, as well as specialty and corporate solutions. In addition to, and very importantly, almost all of the $1 billion inflation IBNRs we set up in 2022 across liability, motor, property, and specialty lines remain in IBNR form. We intend to continue to balance any reserve redundancies with increased caution where required. The main goal is to deliver on a reported combined ratio targets. Capital remains very strong. We've not published an official first quarter SST figure. We estimate the SST ratio as of mid-April to be close to where it was when we started the year. That is around 290%. While we have not renewed some of our investment hedges and saw a negative impact from slightly lower yields, our SST ratios benefited from strong renewals with higher economic income expected, a key factor. And with that, I'll hand over to Thomas to introduce the Q&A session.

Thank you, John, and hello to all of you from my side as well. As usual, before we start, I'd just like to remind you if you could limit yourselves to two questions, and should you have follow-up questions, if you could please rejoin the queue. So with that, operator, could we have the first question, please?

The first question comes from the line of Cameron Hossain with JP Morgan. Please go ahead.

Hi. Afternoon, everyone. Two questions for me. The first one is just thinking about the combined ratio guidance for the year. And it's pleasing to say that you'll do everything you can to hit the kind of guidance of 95 and below. When I look at kind of what happened in the quarter, you clearly had property and I think there were a lot of headlines around Turkey and clearly there was a big loss. But it looks more to me like the casualty book was the source of the issue rather than property. If you X out Turkey from property, your combined ratio is something like 55. Can you maybe talk a little bit in a little detail around what's going on in casualty how one-off the kind of additions in, I think you talked about most reliability are, and to what extent that's behind you. The second question is on Corso. As you said, you know, an excellent quarter. You know, the problem seemed well, you know, kind of so far in the rear view mirror now. How long do you think margins can keep going? And do you think actually the tighter reinsurance cycle will help Corso a little bit? Thank you.

Hi, Cameron. Thanks for the questions. On the combined ratio, and I assume that you're making reference to what we show on page 20 of the slide deck where we've put the Q1 2023 combined for property, casualty, specialty, and P&C reinsurance. I guess what I would say is we're thinking slightly differently about the current year and prior years. And in the current year, yes, the NACCAD experience we had was above our expectation. The loss in Turkey was a large loss. Actually, our team went back. This is by far the single largest insured loss for an earthquake across Europe ever. It's twice the insured loss of the previous largest earthquake for insurers, at least, which was in Turkey in 1999. It's five times larger than the – or more than five times larger, actually, than the Aquila loss in Italy in 2009. It's the seventh largest earthquake loss around the world ever. And so to give you a magnitude, the 5.3 that we estimate for the industry is a big deal. We absorbed that as well as the – floods and typhoon cyclone in New Zealand and still were able to come through with a solid combined ratio of 97.2. To your point, there were some positives in property as well, and this relates to prior year development that partially offset the losses we had in the current year. And maybe I can specifically call out a significant release that we had with Hurricane Ian from last year. If you remember in the third quarter of the year, we had to book based on early information and the number we had included a substantial potential loss with respect to flooding and the National Flood Insurance Program. The reality is we found out during the first quarter of this year after the period for making claims to that program expired that the losses for flood were substantially lower than we originally expected and we decided to go ahead and release that component on Hurricane Ian and that had a very positive impact for the combined ratio that report we report for property which is the the mix of the current and previous years on casualty we took a look at some new information that came in from our clients with respect to specific liability claims. We also noted that the overall reserve positions, while we think that they're strong, have an uncertainty around them and we decided to go ahead and repurposed some of the reserves that were being released out of the property side and strengthened our casualty reserves from prior years. Some of that, as I said, was related directly to information that came from clients. We might have thought about doing something different vis-a-vis existing IBNRs, but we saw the opportunity to go ahead and take some of the prior year gains that were in place on the property side and increase the reserves for the U.S. casualty in particular. I think it's important to observe that overall the prior year development was positive across these lines. approximately 40 million, both in PNC RE and as well as in Corso. And we're comfortable, as we were, frankly, at year end with the overall reserving levels that we've got in place. So I think to your point, we're in any one quarter, you might see certain lines look relatively strong or relatively weak based on some of the reserving options and decisions that are taken. But overall, this target of 95 we take very seriously and we'll continue to work to delivering that for the P&C Rebusiness. On CORSO, what I suggest is the activities that you saw in the primary space in the fourth quarter of last year where a number of players who had not made specific allocations related to inflation during most of the year decided to call out inflationary impacts on some of their businesses has fallen forward into this 2023 on the pricing side where pricing has improved as a result of this recognition. And so our risk adjusted prices in Q1 were up 5%. Your question is how long can this last? My response is I don't know exactly, but I think directly it's the right thing. We see, in fact, that while some lines are well priced, there's others that need to catch up still. And we would encourage the market to be sure that line by line we're getting adequate pricing or what in some cases are substantially higher loss cost estimates related to inflation, but not necessarily only inflation.

Hope that helps. Thank you, Cameron. Could we have the next question, please?

The next question comes from the line of Andrew Ritchie with Autonomous. Please go ahead.

It's just a technical question. Why did the expense ratio deteriorate in P&C re-year-on-year, both acquisition and operating expense, given what's been happening, exceeding conditions and the volume growth. I'm surprised that was the case. The second question, could you just give us a sense as to what you're thinking around mid-year renewals? I guess both in terms of sort of your appetite um i mean i don't think you've grown exposure that much here today you obviously harvested prices on cat but i guess your appetite and just what you're sort of expecting around um you know the trajectory of rate increases clearly there was there was very good momentum in april but what are you thinking mid-year yeah sure andrew i'll try to take both on the expenses um

With P&C REIT, it actually looks a little worse than it probably should related to a understatement in Q1 of 2022 of the total expense base. We had a small glitch which we fixed in the half-year results, but there is approximately 40 million of OPEX, 38 I think is the precise number, that should have been in the 22 numbers that wasn't. So I wouldn't fret too much over the difference year on year. We're largely flat, which is the way we think about that even though we're growing premiums 8% for the position. Mid-year renewals, a couple of thoughts. One is we weren't necessarily surprised, but we were pleased that the April renewals showed this 19% price increase. This includes, as you know, the Japanese market, which had not had a lot of loss activities in the last 24 months on the NACAT side, at least. And so we were comfortable or pleased actually to see that, um, our clients there as well as other parts of the world that were part of that renewal recognize that the, the, the new supply demand, um, reality and that we were able to get these price improvements as strong as we were with respect to what's coming in June and July, which is another 25% of our book between the two, um, We've got some significantly loss impacted portfolios which are renewing in that period. We would expect this momentum to continue. We expect the demand to be sustained. And we don't see lots of new supply coming into the market. We didn't see it in April. We don't expect to see it. here this summer. So you're right, we've not increased in exposure materially year to date, but we have an appetite in a number of the lines which are showing adequate pricing for us to go ahead and capture additional opportunities where we can. We also have in place a robust retro program which we were able to expand year on year, and so the management of our peak risks continues to be in good shape. So I'm not predicting exactly where we'll land vis-a-vis growth, but we're not constrained to grow. We've got the capital clearly, and as long as our clients are willing to meet us on what our price expectations are, we should be in good shape.

Andrew, you also had a question on acquisition costs. Is that correct?

Again, I guess I would have expected that to have not gone up.

Yeah, so we had a significant decrease already last year. So this year, we would expect the impact from pricing to really be seen more in the loss ratio. And hopefully that's what you saw in Q1 in the traditional loss ratio, and hopefully that continues. The decrease we already saw last year on the commissions And it could be that it's overall more muted this year. But you're right, currently it's 0.3 points up. It could be anywhere near flat.

Okay. All right. Thanks.

Thank you, Andrew. Thank you. Could we have the next question, please?

The next question comes from the line of Will Hardcastle with UBS. Please go ahead.

Yes, can you hear me? Yes, we can, Will. Okay, great. The first one's a quick one. Can you verify whether the change in the combined ratio calculation regarding the interest on funds withheld is already accounted for in your better than 95% combined ratio target, or would that now mean better than 94.4, for example, if that's the run rate? And the second one is, is there any possibility you can break out that PYD between the classes, even into very, very round double or triple digit numbers? I'm wondering if there's any uptick in in risk arising from social inflation that appears to be popping up as a key word again for many actuaries. Thanks.

Sure. With the first one on funds was held, and I apologize if this is clearly communicated to the animals community in advance as I somehow in the back of my mind thought it had been. And the whole planning process with our executive committee and the board of directors, this was always part of an expected change to have us lined up better with our competitors. So this was in the calculation for the better than 95. At the time, the impact was a little smaller than the 0.6 that you see on page 21. for the first quarter. I don't expect this to become a bigger number during the course of this year. And overall, I think we're in the belief that better than 95 doesn't mean 94.99. So this gives us the room to be better and we can see where we land at the end of the year of how much better. With respect to your second question, on the quarter, we normally don't give the breakdown as we go. I think we'll provide a little more information at mid-year. The one thing I would reiterate from what we spoke about before is the IBNRs that we did put up for inflation. last year, which were largely related to the existing book of business and the impact of 2023 inflation on that book of business remain largely in place. And so I think overall, yes, we've got some bookings here in the first quarter. We'll have to work with our actuaries over the course of the the next three months to be sure that we're appropriately allocating uh some of that inflationary uh reserving that was done last year to the the appropriate books of business and some of that a lot of that was for shorter tail lines which probably would not be social inflation but you can um imagine that at least some of what we booked, especially in Q4, was related to longer tail positions. Overall, yeah, the U.S. cash in this book is something we watch closely. But again, we've made material reserve increases over the last three years related specifically to social inflation issues.

Thank you, Will. Could we have the next question, please?

The next question comes from the line of Priya Kong with Bank of America. Please go ahead.

Hi, thanks for taking my questions. Maybe another way to ask about the casualty strengthening. Had you not seen those extra releases in property, would your inflation IBNRs have been a little depleted over the quarter? And sort of what can we track externally looking at inflation? to measure whether or not you're going to be more comfortable with your reserves going forward or should we expect continued tweaks at the margin of this? And secondly, on large loss budgets, 1.9 billion for 2023. You've already consumed about a third of this at the end of Q1. How do we as a market get comfort that your flat budget year on year is appropriate given the track record that you've had? Thanks.

Sophia, on the first question, it's a pretty hypothetical what we would have done if we'd not had the positions. We have the positions, and I think we're comfortable. We were comfortable on December 31st with the reserves. We're comfortable on March 31st with the reserves. And I think you're right. subsequent observation. I don't exclude that there'll be continued tweaks, pluses and minuses, where we find we've got redundancies. We'll deal with them where we've got needs for reinforcing reserves. We'll do that. They may not always match up quarter by quarter, but obviously in Q1, they roughly did. So I think we'll continue to evaluate this. If we thought we had a big hole that we needed to solve for, we would have solved for it in the first quarter and taken the pain. That was not the case. We've been able to work through it just fine. And with respect to your second question... I think it's very tough to extrapolate from any single quarter. Had there not been a Turkey earthquake, we would have been 200 below the budget for the first quarter. So the timing of events is not a particularly useful way to think about this. Over the course of the year, we expect that we've got a well-diversified portfolio that will have losses in certain geographies with certain perils and others will miss us. And so that's the way we think. I think most importantly is the premiums that we're receiving for these losses are very far in excess of the expected loss, the 1.9 that we've got here. And so as we showed in 2022 with losses that for the full year were above expectations. We still write this to an underwriting profit as we've done in, I think, six of the last seven years. And so we're not overly concerned when we happen to have one big event in one quarter. I think we'll continue to work through this. And as I mentioned before, we've got lots of the premiums earned in the second half of the year to be able to absorb what we would expect for North American and Asian storms.

Thank you, Freya. Could we have the next question, please?

The next question comes from the line of Dara Goh with RBC. Please go ahead.

Hi, afternoon, everyone. Two questions, please. The first one, can I just quickly clarify that the strengthening casualty that came from specific claims, and was it mostly economic inflation rather than social inflation. And the question is, did you have to tweak your current year loss picks on the back of the reserve movement that you saw this quarter? Because if I look at your renewal loss assumption, that's still plus 13 as it was in Jan. I was thinking maybe it should be a bit higher instead. Second one, it's just in Corso. So you mentioned that rates reaccelerated. What would it drive us there, please? Thank you.

Yeah, so As I mentioned, we did have some claims notifications coming up from our primary carriers in the casualty side. In some cases, it was an increase in the expected losses. In some cases, they were new positions. But we get these every quarter from clients. It's not particularly novel, but I think we we said is some of the reserving was in relation to those notifications. Some of it was a subsequent extrapolation and assumption adjustment on the claims reserve, which got us to the total number. I don't think it had any influence on the pricing for the current book. There are a couple of important reasons. One is We've made material changes in pricing in these specific lines of U.S. liability, of commercial motor, of broader casualty, and in the existing renewals, the price increases we put on that have been substantial. And it's one of the reasons why what you see on the renewal page, even though the economic earnings are positive. They're not as positive as you might have otherwise expected given the duration and the potential upside from the investment income associated with that precisely because we needed to continue to push the expected loss component up as well. And so we're comfortable with where we are for the new business we're writing. We think we're being sufficiently conservative on that. And it's not just economic inflation in the U.S. liability space. I think there probably is some degree of large severity increases that we've a priori priced in in the current book in which we've worked very hard to reserve well in recent years otherwise. I think on Corsa what's driving these price increases is a couple of things. One, and maybe an allusion to an earlier question, the primary companies are paying more for reinsurance. That includes for corporate risks. and need to adjust their frontline pricing for part of that. I'd say the other thing is what I mentioned before of the inflationary impact on ultimate loss costs, and people see that they need to get more rate in the door at the beginning to be able to manage that position. We think Our risk-adjusted prices were moved up nicely, and maybe the market's playing a little bit of catch-up to where we already are in Corso, and it could be that the mix of our business is slightly advantageous to the current pricing marketplace. But again, we expect this to continue for some period of time. For how long, I can't give you a good judgment on it.

Thank you, Daryl. Could we have the next question, please?

The next question comes from the line of James Shock with Citi. Please go ahead.

Hi, thank you, and good afternoon, everybody. My two questions, firstly, John, on the investment income, obviously the running yields are picking up quite nicely. The reinvestment yield is in excess of that. If I simplistically just look at kind of plus 200 million on the quarter, on the running yield in absolute terms. And you did 2.9 billion last year. So if I kind of just plus 200 times four quarters, you know, should I be expecting kind of 3.7 or so as a baseline for the running yields for the full year, perhaps even a little bit more than that because you'll have extra stuff to work through. Just help me understand the outlook for that core absolute number. That would be helpful, please. And then secondly, on IptiQ, I think there's a comment that you've kind of shifted the focus away from growth a bit more towards profitability. I think your guidance before was 250 million lost this year, break even next year. Does that shift in focus change the outlook for profitability there?

Thank you. Sure, James. So look, is a Barclay envelope calculation on investment income? I wouldn't disagree completely. with where your numbers are. I don't think I'd put anything more on top of that. And again, our first quarter total result received a benefit from some gains that were made in the private equity and listed equity space on a mark-to-market basis. So there was a net probably 100 million or a little more than 100 million there. But Yeah, I mean, we do expect to be able to earn more on the assets. The 3.1% is on a trajectory which we would expect to continue to increase, at least for the couple coming quarters, and then we'll see where long-term rates are at the end of the year. Our current Swiss Reinstitute expectation, I think, is at 3.4%, so very close to where it is today. On IPTQ... There are parts of this portfolio which are growing very nicely. There are other places where we were concerned that long-term profitability may not be achieved in specific product classes or geographies, and so we made some adjustments. That's why you see on a, I think, FX constant basis effectively flat premium volumes. That doesn't mean that this is not capable of growing in the future. With respect to profitability, I think what we said is sort of the 250 or so loss in this year related to new business strain and continued push out of the business. The break even we've earmarked for 2025. So 2024 will be in between the two, but that's what I think we're on record for and committed to deliver.

Thank you, James. Could we have the next question, please?

The next question comes from the line of Vinit Malhotra with Mediobanca. Please go ahead.

Yes, good afternoon. I hope you can hear me. Yes, we can. Thank you. My two questions, first on The slide, the one, the attritional loss ratio, which is 57.9, is getting a bit better than even the full year and what we saw in Koniku. Could you just comment a bit about this? Is there some way to read this as to say that the inflation-induced attritional pressures are easing a bit? Do you think that's a read you would make from it? So that's one question. The second question is just on the PNCV growth of 11.3% NEP, XFX. And it's quite a pickup from earlier periods, and it could be because of renewal growth. And then you also noted that, obviously, the NASCAP premiums were coming to edge more and more. And that's where you've been really growing. So should we expect a pickup in this 11% as the year progresses, so any comments on that, please?

Thank you. Thanks for the questions. On the first one, the attritional loss ratio improvements, I think there's a couple of things, but it's largely, I'd argue, related to the improved pricing we're achieving and the contained loss right i mean we've said it um january one and reiterated uh with year to date here with april one uh that we've got a a margin of five percentage points um between the price increases we're achieving and the lost causes which were were um um we're booking as we um bring these premiums in uh we've alluded to it on the January 1, and it's still the case actually here after April, approximately a three percentage point improvement in the combined ratio that should come from this. In 2023, we should expect to see between one and a half and two points come through. And I think this 1.4 you see in the first quarter is directionally linked to that, how this will develop quarter by quarter again. be precise on, but overall, this is where we should be going with it. And so that's the underlying reason why we're comfortable and confident that we'll achieve the better than 95 for the full year. With respect to the premium growth, part of this is also going to be the question of what happens with pricing. As we might expect, the price increases we've got here today can hold up for the full year. Even if we've not grown exposure in any material way, we should see that premium volume continue to grow. If, in fact, some of the opportunities that are there at mid-year or on specific transactions with clients during the course of the year give us more opportunity than, as I mentioned at the beginning with Andrew, we're prepared to write the business. We're not constrained either by capital or by the sort of many peak risks as the retro programs are nicely in place. So again, not predicting a massive increase of volume growth, but I don't exclude it either. Our goal is to continue to write economically profitable business, which is going to help us meet these targets we set out for ourselves. And if we've got the chance to do more, then we'll do more. If we think the market's not responding to what we think are adequate price requests, then we'll do a little less. But as you say, 60% of the book renewed at 11%. growth is a nice place to be, I think.

Thank you, Vinit. Could we have the next question, please?

The next question comes from the line of Ashik Musadi with Morgan Stanley. Please go ahead.

Thank you, and good afternoon. Just a couple of questions I have. First of all, the life underwriting profits were impacted by mortality, but If I look at the underwriting profits within the life split, basically, I mean, it was more or less zero. So how do we think about that? I mean, ex-mortality, how should we think about the underwriting profits in the life business? Was there any negative variance, deviation from your expectations? So that's the first one. And secondly is, sorry to go back on the casualty topic, I mean, you've been booking a combined ratio of above 100% for, say, seven out of past nine quarters. I mean, how do you get confidence that if it doesn't happen in next few quarters, and if it does happen in next few quarters, would you have, could you just remind us where could be the pockets of additional reserve releases could be? I mean, you mentioned that there are still quite a few IBNRs from other business lines, but any obvious ones which you would remind us that this is something which could be released to offset any casualty reserving. Thank you.

I'm sure. Let me give it a try. With respect to the life and health, I'm not quite sure I've got the source of your question. As we showed, I think, on one of the early pages in the slide deck, maybe five, where we are. demonstrating the US excess mortality, which unfortunately is highly relevant for our quarterly P&L. What you see is the, on the right hand scale, still being above what would have been expected. So this excess mortality is, it looks to be a little less than 5% on the graph, dramatically different than it was in the two COVID quarters of 21 and 22, but still not where it was in the prior years of 19 and 20. And so I think we had a strong investment result in the first quarter, but this drag on mortality is kind of where the difference is between what we showed for the profit for the quarter and what you might have expected if you took 900 and divided by four. And there was a couple other positives and negatives in the book, but nothing other dramatic item that we have any place in other lines or other geographies that were material for this result in life and health. On the casualty combined ratio, look, if I had a very specific positions which I thought were redundant, I would have dropped them into the quarter and our external auditors would have been clear that they should be dropped into the quarter. I think there are places which we'll evaluate during the course of the year that might be relevant as we see, I mean, a little bit like the flood component of um of hurricane in you know when we finished the full year we had indications that there this might be over reserved but we weren't sure and it wasn't um clear by how much and it was only after we got additional data during the course of the first quarter that we were comfortable saying that this is in fact a a a redundant piece it also didn't um It wasn't lost on us that some of the investors in the retrocession programs were looking at the same data we were looking at and wondering why these reserves were being held on to when it didn't look like we were going to have the claims cost. So I think there's a couple of different things going on here. The one observation you did make is we do have IBNRs. And again, I don't want to beat them to death, but the broad-based, you know, billion of inflation-related IBNRs that we put up in 2022, 95% of that remains as IBNR at the end of the first quarter. They will eventually be migrated down into specific sub-portfolios or even case reserves along the way. But... I think, again, we believe that we're well-reserved, but part of this is working together with our clients and making sure that we've got the information that's relevant from them to be able to make our own judgments of how things might be developing. The other thing which is important is our underwriting of this line of business has fundamentally shifted in the last two or three years, a major reduction in large corporate revenues. portfolios that have been reinsured by us, the complete exit of umbrella liability and excess and surplus casualty by Corso, a number of very explicit actions to reduce further our exposure to what we think is the worst part of the US casualty market. Hope that helps.

Thank you. Ashik, could we have the next question, please?

The next question comes from the line of with Berenberg. Please go ahead.

Well, hi there. I just have one question on Latin health, and sorry to come back to this, but I appreciate there could be some lingering COVID impact. However, as you do demonstrate on the slide, the excess mortality has come down a lot in Q1, almost back to pre-COVID levels. On the other hand, it looks like the flu season in the U.S. has ended unusually early in December last year. So I'm just trying to understand if there are any other factors that are keeping the results depressed in Q1. And I guess how comparable do you feel the 900 million run rate for the year? Thank you.

Sure. So the, yeah, I saw the headline that the flu season ended in December. I'm not sure that that's coherent with what we've heard from other sources. And what I can say is when you look at the excess mortality, it was worse in January and February than it was in March. And there seems to be a trending down. Now, whether that's a point one, point two is I think in the data we've received to date, we struggle to differentiate between COVID explicit claims, COVID related claims, and claims that are not COVID in the mortality. It's gotten more complicated because of the fundamental shift away from testing in the populations, but also there might or might not be other things going on. What we can say is when we started the year, we expected COVID losses of more than 100 million U.S. to be absorbed during the year, and that was recognized when we set out the target of 900 million. So some of what was a negative impact in Q1 was we believe would have taken some of that up. But I think we still have a non-trivial amount left for the rest of the year. We don't expect COVID to be zero. for the next three quarters, but we think we can absorb what's there in part with our expected loss profile. And the rest, yeah, I think this is a strong life and health business where the negative impact in the US in particular from the cohorts of pre-2004 YR2 business should not have the same cost to us that they've had for the last three or four years. And that improvement plus an improving investment result give us a high degree of comfort that we'll hit the $900 million. Thank you, Chris. Could we have the next question, please?

The next question comes from the line of Ivan Bachman with Barclays. Please go ahead.

Hi, good afternoon. Thank you very much. I've got two questions changing the topic a little bit. One on the investment portfolio. I was just wondering if the current issues in the commercial real estate space over in the U.S. in particular have made you rethink some of your asset allocation. What I've noticed on slide 23 is that the other investment number has come down a little bit. So I'm just wondering if you have done anything specific there. How do you assess the situation, whether on the investment or on the underwriting side? And the second question, there's been some some noise over the past six months about the changes to cyber warding taking out the state attributable attacks. So I was just wondering, in the past, there has been clearly, you know, from the management stated the caution to write that business because specifically of the accumulation due to state-sponsored attacks. Do you think that this new wording would make you more optimistic on the class? Thank you.

Alon, thanks so much for the questions and two questions that didn't include U.S. casualty. So on the first one on the investments, yeah, we're watching commercial real estate. Our real estate portfolio is not particularly large. It's quite diverse. We actually sold a couple properties in the last two years. not because we had brilliant insights, but we thought that they were relatively fully priced and provided the opportunity. I think this is one of the segments which we're unlikely to grow into at this point of time. We continue, I would argue, to be cautious in the overall investment approach. We continue to have... hedges in place, both on equities and to a lesser degree than we started the year on credit. And we'll see how the rest of the year progresses. But we were very pleased that we had no impairments, neither real estate nor the credit portfolio in the first quarter of the year. And the gains were net positive from the positions. So I think At least for now we'll stay relatively conservative in our deployment and don't see any big exposures or risks in the near term. On cyber, yeah, so the market has seen major price improvements over the last two years. We believe they're absolutely necessary. There's a different question of whether they're sufficient, but directionally this has gotten to be a better price market. Terms and conditions and specific warranties have in places improved as well, and so that's a good thing. I don't think that combination makes us enthusiastic on the segment. We continue to believe that the accumulation risk is problematic, not just because of state sponsored events, but also, frankly, other potential actors working to simultaneously attack across geographies, across industries for reasons which might or might not be obvious. And so we do continue to write this both in corporate solutions and in our reinsurance portfolio but the the premiums we have i i think um are underweight uh it's 600 million uh at least that was where we're year-ending we've got no real intention of growing this in any material way uh during the course of 2023 so i think um it's increasingly a a significant line of business for the industry um I think it's better price than it was, but I think the challenges in this line remain, and what we're doing right now is spending real time with partners to figure out how we are able to mitigate the risks and manage down the lost potential of the business we do right.

Thank you, Ivan. Could we have the next question, please?

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

Oh, yes. Good afternoon. Two remaining questions on my side. The first one will be related to potential issues regarding surrender rates on the live side. Just was wondering if you may have on the return in the past, maybe in some financial solutions line, any concerns or if you have any exposure to potential increase in lapse risk coming in the live books. And the second question will be regarding maybe in the US with more liquidity contingency plan being worked out by insurance company, maybe as well in Europe, I was thinking if you've been approached to provide liquidity and actually if you are willing to participate to this market. Thank you.

Thanks for the question, Thomas. On the first one, I think the answer is we've got no particular exposure in our Lifebook to positions which are potentially exposed to lapse risk. In the first case, I observed that many of the primary companies after 2008 worked very hard on their products to make the likelihood of lapses and or redemptions smaller based on a couple of bad experiences that you saw in the marketplace. Obviously, this famous class of YRT products that we've been talking about for too long, the pre-2004 had as one of its major design flaws a lapse exposure, which we've learned some lessons from, and so we haven't put that up, is a a place where we want to go back into in terms of our exposure. So I think the industry is better protected and we don't have any specific risk exposure. On the second question, I'm not aware that we've been approached, but I don't think we'd be particularly interested in finding ourselves the provider of liquidity to either our clients or other participants in financial services. We're comfortable writing the business the way we're writing it. The funds withheld component is an area where we're not trying to grow the business, but we do accommodate clients where there's a specific reason and specific need, but it's a very small part of the portfolio. which I wouldn't necessarily drop in your class of liquidity-driven activity, but there's nothing new or novel going on there from our side.

Thank you, Thomas. Do we have any more questions?

There are no more questions at this time.

Then we'd like to thank you for all the questions asked and for your interest. Should you have any follow-up questions, please do not hesitate to contact the IRR department. With that, we wish you a good rest of the week, and thanks again. Thanks very much. All the best.