Hannover Ruck SE

Good morning, everyone, and welcome to our earnings call on behalf of Results 2025. Today's speakers are Clement Jungstöpfer, our CEO, and Christian Hemmeling-Meyer, the CFO of Hannover Re. For the Q&A, they will be joined by Claude Schäfer and Sven Aalto. With that, I hand over to you, Clement. Thank you, Axel.

Good morning from Hannover. So I'm pleased to report that the business performance in the first half of 2025 leaves us very well positioned to deliver on our profit target for the full year. The group net income of 1.3 billion euros reflects a strong underlying profitability and additional positive effects from currency translation and from tax. As we had not planned for such positive effects to be explicit, this left us in a very comfortable position where we could use the extra level of profits to further strengthen our company's balance sheet. We have added additional prudency to our P&C reserves. We've taken a more cautious view on certain pockets in our life and health portfolio, and we have realized some losses in our fixed income portfolio. All of this improves our already strong capability to manage volatility, deliver on targets, and to pay a steadily increasing dividend. In P&C reinsurance, we have continued to grow our portfolio in an attractive rate environment. As explained at our Q1 conference call in May, the refinement in the calculation for the non-distinct investment component has a negative base effect on reported growth numbers. As it does not impact earnings, this is no cause for concern, also not when comparing to our 7% growth target. On an adjusted basis, the growth is in the double digits, clearly ahead of the 7% mark. The large loss experience in Q2 was rather benign, particularly on the NADCAT side, mitigating the significant overshoot of the budget in Q1. Hence, the overall impact from large losses only slightly exceeded the budget for the first half of 2025. As mentioned, we have used the overall positive result situation to add further prudency to our P&C reserves with a corresponding effect on the reported combined ratio. Nevertheless, adjusted for the large loss impact, the reported 88.4% is in line with our target clearly pointing to a better underlying number. In life and health, reinsurance revenue remained rather stable. More importantly, the new business generation was clearly positive at 365 million, supporting our growth targets for the overall CSM. The reinsurance service result of 445 million euro reflects the overall positive business development and a precautionary increase in the risk adjustment for morbidity business in China. All together, we are well on track to deliver on our target for life and health for 2025. The investment performance was very satisfactory. The return on investment of 3.3% is in line with the target, despite around $60 million in active realization of fixed income losses in the second quarter. Finally, the capitalization remained strong with a solvency ratio of 261%. The decrease versus Q1 is mainly driven by the redemption of the hybrid bond, some smaller model changes, and the next step in our quarterly accrual of foreseeable dividends. Furthermore, the additional prudency in reserving is dampening the operating capital generation in P&C. Shareholder's equity decreased by 6%. Major driver here is the negative impact from currency translation. Economically, our asset liability matching is very good, not only for duration but also for currencies. However, an accounting asymmetry is artificially splitting the valuation impact of the weakening U.S. dollar, leading to a positive P&L effect and a negative OCI impact. The CSM increased by 3.8%, mainly reflecting the new business generated by both business groups, partly mitigated by negative currency effects. The risk adjustment decreased by 9.2%, mainly driven by some model refinements in P&C, as well as negative currency effects and a new retrocession in life and health. Altogether, the performance of both business groups and our strong balance sheet, including the CSM and risk adjustment, give me considerable confidence in current and future earnings growth. The return on equity of 23% in a period with a large loss experience around the expected level is further confirmation of our success. On that note, I'll hand over to you, Christoph.

Yeah, thank you, Clemens, and good morning, everyone. Our P&C business is growing nicely on a diversified basis, including a strong contribution from structured reinsurance. The top-line growth is slightly below our 7% target for the full year. As Clemens mentioned, the reported number is impacted by a refinement in our accounting. However, this modification was not fully reflected in the first half of 2024, resulting in a one-off effect when comparing the revenue to the current year. Excluding this base effect, reinsurance revenue would have increased by more than 10%, clearly supporting the target achievement. Importantly, there is no impact on earnings due to the corresponding effects in the cervix expenses. Furthermore, the accounting impact on reported growth should decline over the course of the year, and I would still expect that the reported FX adjusted growth will also end up in line with our target of at least 7%. The combined ratio of 88.4% includes a moderate negative impact from large losses ending up 41 million euros above our budget. As Clemens already explained, the underlying profitability was even stronger in light of the additional balance sheet strengthening with an increase in reserve prudency. Finally, the combined ratio includes a discount effect of around 9%. As usual, the increase in prudency for our reserves is biased towards long tail lines with a higher level of discounting. Overall, the discount effect is still higher than the interest accretion in the reinsurance finance result. As explained before, we have been very prudent on the reserving side as an offset. The favorable investment result primarily stems from the increased ordinary income from fixed income securities and very solid returns from alternative assets. For the sake of completeness, the amortization of our inflation-linked bonds added 69 million euros. Furthermore, we have used the opportunity offered by a strong result overall to moderately realize hidden losses on our fixed income portfolio. In Q2, this effect amounted to around 60 million euros. The currency result was significantly positive at 232 million euros driven by the accelerated weakening of the US dollar over the course of the first half year. The main contributor to the P&C service result is the CSM release, reflecting the recent renewals in a very attractive market environment. As in 2024, the CSM release includes smaller catch-up effects due to a prudent release in previous periods. The experience variance mainly reflects our prudent reserving on the business earned from current underwriting years and the overshoot of our large loss budget. The runoff result has been positive in most regions and lines of business. But, as explained, we have used the strong underlying profitability and the overall strong result situation to add additional prudency to our reserves. This is the reason while we are reporting a negative runoff result of minus 419 million euros. Apart from this, the runoff result also includes our updated view on the Russia-Ukraine aviation loss and a moderate increase in the best estimate for some pockets of U.S. liability business. The loss component from new business is quite low, confirming the attractive rate environment in P&C reinsurance. The CSM growth is mainly determined by the successful renewal period in 2025, resulting in a strong new business CSM of 2 billion euros. Compared to the previous year, the number increased moderately. This development mirrors our renewal reporting. Growth at slightly lower risk-adjusted prices and a reduced session rate to our retro programs. Let's now move on to life and health. Reinsurance revenue was rather stable, increasing by 0.3%, adjusted for FX. The revenue increase in financial solutions and longevity was offset by a decline in traditional business in Greater China and the US. The new term traditional business refers to our combined mortality and morbidity business, reflecting a change in our internal reporting lines. The result for the first half of 2025 is based on favorable underlying profitability with a positive experience variance in all reporting categories. This strong basis allowed us to take a more cautious position with regards to our mobility business, in particular in Greater China. Altogether, the reinsurance service result of 445 million euros is fully in line with our full-year target. The investment result mainly reflects good ordinary income from fixed income. Altogether, the EBIT contribution from our life and health business group was 470 million euros. Looking now at the IFRS 17 components of the service result, The CSM release is the main profit driver and the release in Q1 is within the expected range. The risk adjustment release has normalized after an extraordinary low release in the first quarter. The experience variance is clearly positive based on a diversified contribution by line of business. Looked at in isolation, the experience variance for the second quarter was negative. This is connected to our US mortality business and includes an adverse impact from large claims. Overall, this should be viewed in connection with the first quarter, where we have recorded a positive impact from the same business. Overall, developments are within normal quarterly volatility and not connected to any underlying trend. The main driver for the loss component is our morbidity business, particularly the critical illness business in Greater China. Here, the negative impact is not based on new trends resulting in assumption changes, but rather the overall level of profitability allowed for a more cautious positioning, reflected in an increase in the risk adjustment. With a more holistic and economic view on assumption changes and experience variance, I would like to point out that both The sum of assumption changes in the CSM and the loss component, as well as the experience variance, are positive in the first half of 2025. This again confirms the overall cautious initial assumptions in our diversified portfolio. The CSM development on the right side is clearly impacted by the currency effects. The CSM generation, which includes the new business CSM and extensions on existing contracts together, amounted to €365 million, based on a diversified contribution from financial solutions and our traditional business. Changes in estimates are driven by updated assumptions for our longevity business. the total CSM would have increased by 3.8%, excluding the currency effects, so nicely ahead of our 2% target. The development of our investments was again very satisfactory. The ordinary investment income reflects the continued rollover in a higher-yield environment and a strong operating cash flow. Inflation-linked bonds contributed 69 million euros. Additionally, the contribution from alternatives was very solid. In light of the positive currency result and a rather low tax rate in the second quarter, we decided to also strengthen our balance sheet on the investment side and took the opportunity to moderately realize some losses in our fixed income book. The income from the change in ECL and the fair value of financial instruments remained moderate. All in all, the return on investment of 3.3% is slightly above our 3.2% target, despite realizing around 60 million in losses in our fixed income portfolio. At the bottom of this slide, you can see that the unrealized gains within the OCI have changed materially in the category Others. This reflects our participation in Viridium, accounted as an asset held for sale. You have probably seen the latest news on this topic. We have decided to sell our entire stake later in 2025, concluding a highly successful financial investment for Hanover Re. To conclude my remarks, the business performance in the first half of the year was satisfactory, The positive impact from currency and tax has been used to further strengthen our balance sheet. We are well positioned to deliver on our targets in 2025 and in our continued positive earnings trends going forward. And on that note, I'll hand back to you, Clemens, for your comments on the outlook. Thank you, Christian.

So the mid-year renewals I would say lined up well with the trends reported in January and in April. The market environment is characterized by an increase in reinsurance capital and a willingness to deploy this capital in an attractive market environment. The resulting increase in competition has created some pressure on pricing, most pronounced in property CAT. Renewals in other lines of business are more stable. Casualty pricing in the U.S. was stable or up slightly, supported by the underlying rate increase in primary business. The overall risk-adjusted change in price was minus 2.9%. Terms and conditions, though, as well as attachment points, remained broadly unchanged. Overall, the rate at accuracy remains attractive, and we continue to expand our portfolio on a diversified basis. Looking at the outcome of the mid-year renewals, this has been masked by a reduced placement for a large individual treaty in the US. Adjusted for this, the premium growth would have been 4.5%. On top of this, we benefited from favorable demand for structured reinsurance, posting double-digit growth in the first half of 2025. To summarize the year-to-date renewals in 2025, Hanoveri has grown the premium volume by 5.4%, despite the reduced volume from one large treaty. The underwriting year 2025 marks the third consecutive one in a very attractive market environment. The quality of our portfolio and the business we earn going forward will remain strong. As the results of the first half year fully support our expectation for 2025, we've kept our guidance unchanged. We continue to expect growth in P&C revenue of at least 7%. On an underlying basis, we are very well on track, while on a reported basis, including the aforementioned accounting impact, we might end up closer to the target. The combined ratio is expected to come in below 88%. The large loss experience in the first half year was close to expectation. This means that we have almost a full budget available for the second half. Additionally, the overall level of prudency and the added amount in Q1 and in Q2 provide considerable confidence in our target delivery. The life and health service result is expected to come in above 875 million, and we are targeting a return on investment of at least 3.2%. Altogether, we are highly confident that we will achieve our net income guidance of at least 2.4 billion euros. This concludes my remarks, and we would be happy to answer your questions.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press the star and one button on their touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. One moment for the first question, please. And the first question comes from Michael Hutner from Bernberg. Please go ahead.

Good morning. Thanks a lot. I have two questions there, numbers. The first one is on Sonsi. I just wondered if you could give us the detailed breakdown of the move from 272 to 261. I guess the more detail we have, the better to understand it because that's the number which I can't square at all. And then on viridium, so I'm looking at slide 13. I see the others, and you highlighted the difference in part of patients would mostly be the viridium coming out of it. So plus 355 to minus 58, that's kind of, I guess, a 410 million gain. I just wondered if that is the gain you would expect, and how will that be booked? Is it part of your 2.5? 4 billion profit target, and how much cash will you get? Thank you.

Yeah, thanks, Michael, for your questions. The first, if I got it right, concerning the delta in the solvency-2 ratio, I can elaborate a bit on that. So half of the 11 percentage points difference is just related to the repayment of the 500 million euro hybrid bond. So this was communicated before and as expected. And the second half of the movement is quite a mix of different effects. So some, of course, growth related. impact, minor model updates, spread movement and updating of the underlying data. And you have to consider that our very prudent reserving approach dampened a bit the operational own funds generation. So this is also reflected here in the solvency ratio.

Just on that, could you give us a little bit more... Any numbers on these things would be so kind, but I understand if you'd rather be vague.

Yeah, so consider them all to be in a low single-digit space. So there is really none of them outstanding. This is, from my point of view, really the quarterly volatility in an internal model when you rerun it. So nothing standing out there. Lovely, okay.

Michael, on Viridium, you've pointed at the number. I don't have an exact number off the top of my head, but the overall gain will be in, I would say, the mid-triple-digit million area. And that is due to the accounting regime, the accumulated value and gain in the other comprehensive income. as we have opted for valuing this investment through the OCI and not through the P&L, this will be basically a recycling from OCI to retained earnings straight away. So this will not touch our P&L. So this is not part of our $2.4 billion guidance. And in terms of cash, sorry, Mike. Yeah, that's exactly, sorry. And in terms of cash, that's largely the amount our book value has been in the double-digit area. I think clearly the fair value on our RFS balance sheet as mentioned, but that is largely sort of the cash that we will receive.

Can you help me on that? I don't know where to look for this other item you just mentioned.

Yeah, the cash position you won't see in our half-year financial statements, I think. So it's part of the overall cash flow, of course, and that will show up in our operating cash flow.

I understand, but just to get... I don't know how to ask the question. How much cash will you get? I think that's the best way I can ask it.

Yeah, so given that it's a double-digit accrued book value... on Viridium. It's mainly so the number, sort of the triple-digit million number that I alluded to earlier, Michael, is roughly also the amount of cash that we will get. Ah, brilliant. Sorry, I was a bit sick. Thanks a lot.

You're welcome. And the next question comes from Andrew Baker from Goldman Sachs. Please go ahead. Great.

Thank you for taking my questions. First one, just on PNC RE, I mean, you've alluded yourself that the underlying combined ratio, when you sort of normalize for prudency taken in currently reserves, the runoff result versus a normalized assumption, obviously large losses versus budget, is running very favorably versus your planning targets. As we think about the rest of the year, obviously I appreciate it will depend on losses, but just assuming large losses are in line with budget, should we expect you to show any of this underlying combined ratio strength into earnings, or will your preference continue to be to sort of strengthen the balance sheet and look more towards that 88% combined ratio level? So that's the first. And then the second one, just on the Russia-Ukraine reserve, can you just remind me, or I guess tell me what the reserve stands at now? And then also, was the increase just prudence or was it a result of any specific new information that you've had in the period? Thank you.

I'll start with the second question, Andrew. So our aviation reserve on Russia-Ukraine is in the mid-triple-digit region. The reason why we have now increased this number by a low triple-digit figure is is related to the decision of the High Court in the UK. We still have the situation that we don't have reserves given to us by our seeding companies for the most part so therefore our reserving is based on a scenario analysis and given the ruling in the UK we have somewhat adjusted our assumption on the average settlement values across all claims and how these are split across the all-risk coverage and the all-war coverage. And that adjustment in our scenario analysis led to a low triple-digit increase and the all-war loss still stays in the mid-triple-digit region. On the P&C side, I'm sure Christian and Clemens will add to that, It's, of course, too early to tell. It all depends on how the losses fall. You know that we do our reserve study in the fourth quarter and taking all of this together will then put us into a position. How much are we going to let through into the P&L at this stage? All we can say is that we are happy with our guidance of being below 88% for the full year. And the rest depends on both the reserve study and the major loss experience.

Great. Thank you.

Then the next question comes from Shanti King from Bank of America. Please go ahead.

Hi, morning. Thanks for taking my question. So I just had one question on the P&C reserve strengthening. So I was just wondering if you could possibly quantify how much that contributed to the combined ratio for this quarter or this half of the year? Or perhaps if you can't give the exact figure, if you could frame it in terms of what the impact would have been without having booked the additional prudence on the combined ratio. And then the second question is just on the increase in the risk adjustment relating to China morbidity. Could you just give us an update on these lines and the philosophy going forward of how that drag is going to continue? I know that you guys have taken action here in the past, so just what has changed now to kind of warrant that further increase would be helpful. Thank you.

Thanks for your questions and maybe I start with the P&C reserve strengthening. If you look at our runoff result of 419 million, so as Clemens just at the beginning already mentioned, you could assume that by the running business we would see a positive impact here and a positive runoff result and even if we consider the Ukraine reserve strengthening that Sven just mentioned, it would still be above zero, so non-negative, and the rest. And as you know, we do not have a fully detailed reserve study at this point of the year, but just to give you a feeling for the volume, this could be the today estimated amount of prudency buildup. So if you start with the 88% combined ratio, you could deduct a couple of percentage points, but it's too early to be really precise here.

Stefan, maybe on your question on CI China, I mean, We hadn't seen, observed any negative trends or any additional more claims in this portfolio. It's simply that we have had very good results, as Christian and Clemens already alluded to, in life and health, and this allowed us to take just a more prudent approach with this portfolio. So that's why we increased the risk adjustment.

Thanks. And just, sorry, just on that, what's the kind of time horizon you're expecting that to sort of continue, those additions? Can you

kind of conceptualize that for us or is it still quite unknown well the point is that on life and health you're always on the best estimate assumption so in principle what we have done right now is our best estimate but as you know best estimate is always 50 50 so i cannot give you any time horizon on this one okay thank you then the next question comes from cameron hussain from jp morgan please go ahead

Hi, good morning. I just want to come back to the underlying profitability and what the implications are. I guess given the maths, I think at Q1 you said 100 triple digit positive developments should happen every quarter. So you take the 400 million, you add a couple of hundred million on for each quarter. You take off Russia, Ukraine, you're probably like 500 million for the first half. So it gets you to a kind of low 80s combined. Just really interested in kind of the philosophical view about this within Hanover E. Clearly, there's a material gap between your target, so the veteran 88, and kind of where you're actually working in the business. When do you start to close that gap? You know, is this something where, you know, you've got the EBIT target, obviously, you know, kind of 5% growth out to 2026. So no need to kind of dip in and do a little bit more at this stage. Just interested in kind of views on that. And then the second question is just on the reinsurance treaty that you kind of flagged, kind of what kind of treaty it was that you gave up and why in particular you decided to come off this business. Thank you.

Yeah, Cameron, I'll start with the second question. So this was a US proportional treaty. The seeding company was what you call an insure tech. It could have been written in the structured bucket because the risk transfer on that transaction was not very significant. We wrote it in the traditional basket. The reason why we have less revenue coming from that contract is the fact that the seeding company significantly increased their net retention on the quota share. When you look at the session that is remaining, we could actually increase our share. So from a market share perspective, you could argue we even increased, but overall the session reduced significantly. And without that, we, as we said, would have gone by 4.5% at the 1st of July renewals, which gives you an idea about the potential size of the the loss premium. But as I said, we could also have written that on the structured size, which also means that from a reinsurance service result point of view, the margin on this, as it is a risk-remote quota share, was not significantly high, so we don't expect a significant impact on our reinsurance service result capabilities.

Regarding, Cameron, your first question, so first of all, to comment on your back-of-the-envelope calculation, it sounds plausible to confirm that, but looking forward, as said, we have to stay prudent here. We will wait for the hurricane season and the loss development, and in Q2 or November, We will look at this, where we stand, and then it's time to decide if there is an impact or where to go at.

So I was probably more thinking about not 25, because you're quite a long way through the year, just in terms of what that might mean into next year. And I know you're not going to give guidance until Q3, but just philosophically, is there any incentive for you to push the EBIT a little bit harder than, I guess, the 24 to 26 target suggested?

Yeah, I guess I have to disappoint you here, but unfortunately the same comments refers to that, so we think it's not the time to already give an outlook on that. Okay, thanks.

And the next question comes from Chris Hartwell from Autonomous. Please go ahead.

Good morning. Just a couple of questions from me. First of all, on the life side of the business, there seem to be quite a few sort of moving parts within that. I was wondering if you could sort of help me understand a little bit around some of the sources of volatility. I mean, US mortality, I'm assuming, is the same type of thing that we've seen emerge from some of your peers, but I wonder if you could just comment a little bit more on why you're experiencing that and also on the CSM change on longevity. And actually, I think you mentioned earlier in your opening remarks that you have a new retrocession on the life side. I was wondering if you can maybe let us know what that is going to help with. That's a big first question, of course. And the second question is just really sort of keeping on the philosophy subject on the investment side this time. You've taken 60 million of realized losses. I mean, that's it's a very, very small sort of drip in the ocean of what the ultimate unrealized loss position is on the fixed income book. So I was kind of wondering really on this philosophy of taking that. And I presume there's a benefit on the other side of that through the reinvestment rate. And so I was wondering if you can maybe help understand where that's moving to and effectively the benefit to that. Thank you.

Maybe start with the last one. Good question. So it's not a change in philosophy, but as towards quarter end, we could already see that we would have another very positive, at least very positive accounting FX result under IFRS and the tax ratio would be quite low. We just took the opportunity because of the overall good result to start realizing here these 60 million and as you said it's reinvested immediately so the running yield in the book will go up and we will see the returns then in the future. So it's just a shift of that and we think this is the right environment to do this. Will this continue? This depends on the overall development. So it's not the target at all. It's a reaction to the overall high profitability we saw in all the business groups. And this is just one option to reduce the hidden losses. So let's see what the next quarter looks like.

Yes, and maybe on the life and health. First of all, what Christian also said in his introduction is that you need always to look into experience variances the loss component and change in estimates together, because it's mainly the same concept. And if the three together are positive, then you know that our best estimate assumptions are very positive. Now, on the experience variance in Q2 standalone, you're right that it was negative, and you're absolutely right that we were suffering the same as some of our competitors. which was some volatility on the mortality book in the U.S. It's not due to any trend, any negative trend that we're seeing, but it's a few bigger risks that cost us a bit of money. So you could say it in a way, the wrong people have died. The people with a higher sum assured have died in this quarter, and that led to this negative experience from the U.S. mortality rate. On the change in estimates, in Q2, as you said, it's mainly due to the longevity business. You need to see that the longevity book is quite big, and minor changes in best estimates lead to these change in estimates, which appear to be quite big. It is not a trend that we're seeing. We're not expecting these change of estimates for the next 10 years being positive every single quarter. But it's really that we check, we analyze our portfolio once a year, and we go treaty by treaty. And when we see slight positive deviations, then we see this positive change in estimates. The last one was on a retro call, I think. Clemens, do you want to take that one?

It was just a retrocession on one portfolio that we have and that had an impact on the KPIs in that sense. It was just one retrocession contract that we have implemented in Life and Health.

Okay, thank you very much. So if I can just come back to that first question on the reinvestment return. I wonder if you could just let me know where the reinvestment rate is relative to the running yield, please. I don't know whether that's somewhere in the disclosure. I haven't seen that yet.

Yeah, absolutely. Happy to do that. So we are at a running yield of 3.4%, and the reinvestment yield is around 4.1%. Lovely.

Thank you very much indeed.

And the next question comes from Wilhard Kassel from UBS. Please go ahead.

Morning. Let me take the questions. I guess, first of all, just what's the thinking on P&C retro at this juncture? Are you more likely to increase or decrease your assessment rate in what's the declining pricing environment, but what you still consider very strong margin availability? The second one is, you know, there was two post events disclosed in the report, and you've discussed beryllium, so thanks for that. The second one's related to German tax reduction. I guess, are you able to discuss what percentage of your earnings get paid this way or any sort of impact and timing of how this would feed through earnings? Thank you.

Well, on the P&C retro side, we are currently in the planning phase for next year. Our base assumption is that when it comes to our property and specialty protections, we will buy more or less exactly what we have purchased in 2025. no intention to buy significantly more or less of course we will observe the market and if we should find later in the year that the pricing offered by the retro market is particularly attractive we may buy a little more but of course also the retro pricing is fully dependent on how the rest of the year is going to perform from a major loss point of view. So therefore, the base assumption is we are going to place what we have placed in 2025 again.

I take that one with the potential tax impact. So, to clarify on this, nothing is considered in the Q2 figures for that legal change we have in Germany. I don't have the exact share of the taxable income here at hand, but as we write a lot of business out of Hanover, you can consider this to be substantial. And as we book deferred tax liability, And for the future, we have this one percentage point reduction per year over five years. We expect that this will have a positive impact. We will see this in the second half of the year. We are working on the exact calculation, so we are ready to disclose and book this.

Then the next question comes from Ian Pierce from Exxon BNP Paribas.

Please go ahead.

Hi. Morning, everyone. Thanks for taking my questions. The first one is just coming back to the solvency, the sort of six-point negative organic capital generation or sort of ex-debt movements in the solvency. Can we just get some more detail? Because we really can't square this. You know, you flagged a few small headwinds from model updates from booking growth, but you clearly made some good profits in Q2. You've written some profitable business. You know, the RFS framework allows for prudency a lot more than this Office 2 framework does. So it feels like there must be something a bit bigger than what you're sort of alluding to as a headwind. So can we just get a bit more detail on the moving parts on that number? And the second one is on the 7% P&C revenue growth guidance. So 6% on a constant currency basis in H1. The renewal volumes are obviously down in the June-July renewals. If you could just give us some confidence as to why you think you'll get there, particularly with the accounting change as well and how much of a headwind that's expected to be in H2.

Thank you. So on the first one, the SE quality, the ex-debt 6% impact, maybe to give more view on that. So, yes, there is a positive operating profit flowing into or in the direction of the own funds. But on the other hand, you have to consider that we have to deduct the prorata dividend. So this balances out to a certain extent. And then the big impact, besides all this low single-digit profit, points I already made. It's really the reserving and the runoff loss that you saw. This also is reflected under Solvency 2. The reserve is increased. The reserve risk on that is calculated via Solvency 2. So this is the main or one of the substantial impacts that reduces the otherwise positive capital generation that you related to?

On the premium development P&C, as you can see on the outlook slide, we have grown from an underwriting year perspective on the traditional side by 5.4%. We keep growing double-digit on the structured side. So from an underwriting year perspective, this is there or thereabouts when it comes to the 7% calendar year, financial year guidance. And the tailwind we are certainly getting is from underwriting year 24. So as you have seen on our slide, the underlying growth has been double-digit. and the only reason why it's showing up at 6% is the accounting change we did last year on the non-distinct investment component, so the variable commissions in proportion of business, and we expect that the effect from that change is going to reduce in the second half of the year, so that overall we are confident that the 6% will move towards the 7%.

And the next question comes from James Shook from Citi.

Please go ahead.

Hello. Thanks for taking my question, and good morning, my questions. So two things. I'm sorry to do this, but I wanted to return to the solvency roll forward since Q1 into Q2. And I listened to your answer just then, but I'm still confused. You mentioned positive own funds generation In the course of it, then you deduct the pro rata dividend, and that gets you roughly kind of neutralish, which I find surprising because the OFG, certainly on a full year run rate basis, should be well in excess of the dividend. And you then mentioned that the reserving and the runoff losses need to be deducted from that as well, which seems to be double counting because it's either deducted already from the OFG or you deduct it afterwards. I kind of end up in the same place that Ian's at, and that is I can't reconcile a six-point decline in Q2 excluding the debt. Now, the only piece that's kind of left to me is growth, and I'm kind of keen to see, has there been a material step up in growth expectations or the expected increase in the SCR for the year ahead? Perhaps we can have another go at reconciling that. I'd find that helpful. And then secondly... The growth that you're putting onto the books now, as it was last year, is coming a lot from structured business. So I think that's what's giving you the confidence in the top line growth outlet. You mentioned over 10% was structured in this period. I guess another way of asking questions is, are there any mixed effects when you think about the combined ratio? So does structured come onto the books at a higher rate than the rest of the treaty book? Ultimately, what I'm trying to get at is for a P&C reinsurance company, is growth getting harder to come by? The P&C new business CSM growth was plus 7% in the period. So you're still confident that you can grow that at similar sorts of levels next year. Thank you very much.

I'm happy to start with the second question. We are growing stronger in Structured, but I would argue that with 5.4% in the underwriting year, we keep growing strongly also on the traditional side. But the impact on the IFRS 17, unlike IFRS 4, of a more pronounced growth in Structured is not diluting, for example, the combined ratio Most of the growth in structure is coming from a proportionate business where we have significant ceiling commission structures, which is a way how to minimize the risk transfer under those contracts. So therefore, from an IFRS revenue point of view, it's considerably less compared to the old IFRS for premium view. Whilst the margin is staying, of course, the same in the reinsurance service results, so therefore from a combined ratio point of view, we don't expect a dilution from a stronger growth trajectory in the structured business, and the same goes for the CSM generation.

And regarding solvency, and thanks for the opportunity to clarify again here, as you are completely right, so the on funds or the profit generation is not completely neutralized or balanced. This is not what I meant. It's dampened. And so there is an effect. But as you also pointed to, of course, the SCR is also increasing. I mean, we talked about the growth. You have to take all the accounting. effect from the non-distinct investment component we see under IFRS out of the equation. So it's a double-digit growth in the P&C business, and this leads, of course, to a higher SCR. But I have to repeat here, this is really quite a substantial list of different points, like also update in the spreads. The prudency booking, as I elaborated on, we have a small impact from currency. We have minor model updates and data updates. We have the growth impact and the hybrid. So it's really several things and not the one big point that is changing here, the solvency ratio.

And the next question comes from Vinit Malhotra from Mediobanker.

Please go ahead.

Yes, good morning. Thank you. So I have two questions, please. The first one is on the growth. So the 5.4%, Sven, you mentioned, and I agree with you, it seems to be a bit more, a bit stronger than some of the peer group. And I'm just curious whether you think there's any lines, you're winning some share or They have a different view from the market in some areas. So that's the question on where this is coming from. And second question is on the purpose of the higher reserve buffers. I understand that you have the ability because of the Q2 being very low last quarter. But also if I go back to one Q, you had mentioned that, or I think you had mentioned that some of the reserve buffers is to manage the cycle. Now with such more higher level of reserve buffer buildup, is it because you think the cycle is turning a bit quicker or it has nothing to do with that? So I'm just curious about the purpose of this much stronger reserve buffer than expectations. Thank you.

Well, the growth in it is really coming from almost all of our segments, so it's very diversified. The main driver continues to be the underlying growth of our seeding companies. So even if we keep our shares the same, we often can show some growth. We keep growing our net cut risk appetite a little bit where in many parts of the world we are underweight and we still, despite the softening in rates, feel that we are in an attractive rate environment. So this is an area where we have a little stronger growth than the 5.4%. But other than that, with maybe the exception of APEC, where the premium volume is more stable, we are really showing growth in all the segments and the most pronounced, as we said, is on the structured side. So a very pleasing situation from that point of view, that it's not only coming out of one basket, but that it's a true reflection on our global diversified portfolio.

And the NACAD region is somewhere US-driven or India-driven, you think?

Well, it's again, I mean, global development. So there's some growth in the US as well, definitely, but we are also growing in the rest of the world. So it's not one region in particular. But the U.S. is a growth area for us as well as we still feel that the rating environment that is offered for U.S. cat business is attractive despite the first reductions.

Thank you. And regarding your question on the steering of buffers and the cycle, So there is no change in the philosophy how we deal with this to be here on the prudent side to be able to cover the volatility, of course, from large losses, but also from the cycle and deliver stable results. But we have to see and have in mind this is just one quarter, and this is a long-term, mid- and long-term steering philosophy and policy, and this is not changing because of three months. So let's see how the year develops, and then we can take our conclusions where we stand and how much room is to maneuver. Great. Thank you very much.

And the next question comes from Michael Hattner from

My lucky day, sorry about that. Still on Viridian, what's the sovereignty impact? And then the other question, and I think it's pretty much been asked in many different ways already, but maybe this way is slightly different. Your peers have all mentioned that they're earning through the 2024 pricing, so not 25, so not the lower, the more the higher. So I just wondered whether the many adjustments you've made in terms of reserving, etc., is effectively to correct for what I would regard as over-earning. It's probably not the right term, but earning 2024 profit levels, which are probably not going to recur for a while. Thank you.

So maybe on the first one, the impact of viridium, I don't see a substantial impact from that. So we just changed the investment into cash at the balance sheet. So this is just shifting between the categories. So no substantial impact, stand-alone.

Well, and on the PNC underwriting environment and how this is running through, I mean, as Clement and Christian said, I mean, the headwind we really had this half year was from the currency and partly also from the tax side. So this has triggered certain adjustment in our reserve positions. the earning of the underwriting year 2024 and the profitability coming with us is very much in line with our original expectations. So the tailwind we are talking about is really coming more from the currency and from the tax side.

Brilliant. Thank you. And the next question comes from Henry Heathfield from Morningstar. Please go ahead.

Good morning. Thank you for taking my questions. I was just wondering if you could talk a little bit about the risk-adjusted pricing. It's kind of been increasing from 2.1% in the January renewals to 2.4% and then 2.9%. And I was just wondering if you could kind of elaborate a bit on how much that's impacted by the shape of the renewals, really, if at all. And then on the second question, in the first quarter, the running yield was, I think, 3.5, reinvestment of 4.3, and the return on investment 3.5. And then in the second quarter, that's come down, the return on investment's come down to around 3.3. And so I was just wondering if you could talk a little bit as well about your confidence around the return on investment target at 3.2 and you meeting that at the year end. Thank you.

On the P&C pricing side, I mean, the situation throughout the year has not really changed in the sense that outside property CAD, the business is plateauing at a very high level. So very few reductions on the pricing side. Terms and conditions are stable. Retentions are stable. And that was also true for the mid-year renewals. where we continue to see a softening in terms and conditions when it comes to price is in property CAD. And of course, the mid-year renewals are particularly heavy in peak territories like the US and Australia. And here on the excess of loss side, we did see high single-digit or lower double-digit reductions throughout most of the renewals. The exception, of course, for the U.S. were those programs that had an impact from the California wildfires. They, of course, did see some increases. And that mix of the portfolio has resulted in the minus 2.9. But the fundamental situation is still the same. That's for the most part of the business we are talking about. Rather stable renewals at a high level. with pressure on pricing, but not retention, not terms and conditions on the property cap side.

Looking again at the investment results, so as you said, we have a 3.3 return on investment for the first half year. If I just take out the 60 million of active realizations, this is just shifting through the accounting, we would have had 3.5%. It's also mentioned Already, we have a reinvestment yield slightly above 4%. So if there are no surprises or substantial shifts in capital markets, I have no reason to think that we should not meet our target of at least 3.2%. Thank you.

Then the next question comes from Dario Sotkaskos from KBW. Please go ahead.

Hiya. Thank you for taking my questions. Just two, please. I'm really sorry to come back to Solve Institute, but I'm still a bit confused. Are you telling us that including the prudence added, the net operating capital generation matched the dividend accrual in the quarter? Are you able to tell us what the gross capital generation was or rough idea how it compares to 2024 plus half? The second question is on just life and health reserve additions. You carry reserves at sort of best estimate, but clearly you've added to the risk adjustment. Are you happy with the stock of risk adjustment right now, or should we expect that you may continue to opportunistically add to this going forward because of all the inherent uncertainty in some of the portfolios? Thank you.

Coming back to sovereignty then again, and sorry if I confused some of you, so to reiterate that the dividend pool, the prorata is not offsetting the complete operating profit generation here and you have to consider here especially that we only accrue the ordinary dividend here. And this is not what I meant. So to clarify that again, this is not the case here. And I think I don't have to repeat all the several influences on solvency.

Yes, and on your life and health questions on the risk adjustment, I mean, this is really pure prudency that we're adding here. And whenever we can, we will continue to add prudency into our risk adjustment. Risk adjustment ultimately is going to become results, obviously. It's just a question of timing, when the results are going to be shown.

Then the next question comes from Jochen Schmidt from Metzler. Please go ahead.

Thank you. Good morning. I have one question only for taxes. You mentioned a potential gain in the second half. Would you consider to use this headroom to realize, for example, some losses on fixed income, or would the potential tax gain just lift net income? That's my question. Thank you.

I think that's too early to tell. First, let's see how big the impact really is. As I said, we expect a positive one. With the tax liability and the lower tax rate in the future, this should be the direction, but let's see how this works, and then let's see the overall result development, and then we can see if there is room to maneuver.

Thank you. Ladies and gentlemen, as a reminder, anyone who wishes to ask a question may press star and one. And the next question comes from Emmanuel Muzio from Intesa San Paolo. Please go ahead.

Hello, hi, thanks for taking my question. The first one is on the structural reinsurance growth. You said 10% growth and I was wondering what proportion of your book is in structural solutions nowadays and what is essentially the key driver of demand here given most companies nowadays have a strong balance sheet. Is this perhaps related to the softening cycle? Then what do you think it is a sustainable trend a sustainable rate of growth for this line of business, and if you can remind me what is the capital absorption for this growth contributor. And then another one, perhaps not an easy one. A few years ago, basically, you topped your reserve buffer and were not able to alter redundancy significantly. So I'm wondering how far are you from that point, if you can give some guidance, please.

I start with your first questions on structured reinsurance. So this is a lower double-digit percentage of our overall portfolio on the P&C side as measured by revenue. When it comes to your question, is this a sustainable area for growth, the answer to that from our point of view is a clear yes. I mean, more and more seeding companies are embedding this into their overall capital planning. They are running sophisticated internal capital models, whatever the solvency regime they're in. And so it's just an alternative way of how to capitalize the company and the underwriting side of things. So that's that demand will not go away where there is a certain degree of cyclicality included certainly in relation to the higher retention levels which we have seen in the market since the underwriting year 2023 because this is potentially giving seeding companies a concern from a frequency earnings volatility point of view and there are access of loss structures available that can deal with that volatility over time so to the extent that the retention levels are holding up also in the future traditional reinsurance renewals that demand will stay intact in case the market should be prepared to write the traditional business at lower retention levels this demand may slightly drop but the most significant part of our structured reinsurance business is coming from the capital management, solvency-related side of the equation, in any case, where we see that demand to continuously grow.

Regardless... Pardon?

No, no, I was just reminding you about the reserves, if you can answer that, please.

Yeah, if you could please say that again, because we could not understand here every part of your question regarding the reserves.

Yeah, I think it was 2015 and you were not able basically to add substantially to your reserve redundancies. So I was wondering whether you are close to a situation like that or there is still a little bit of room ahead to add more to your reserve buffer to your redundancies.

Yeah, now I got it. Thanks for repeating this. So I don't see that we are hitting here a certain limit. Of course, this has all to be managed within the different regimes we have to apply, but I don't see that we are already limited there to a remarkable extent. So this is still manageable from my point of view.

Okay, thank you very much.

Then the next question comes from Michael Hötner from Bärenberg. Please go ahead.

Thank you so much. And this is the last one. Germany P&C motor is turning around incredibly fast. And is that part of the reason you're so confident on the margins? Could you maybe give some light here, please? Thank you.

Well, I mean, German Motor, of course, is turning around, as you say. It's part of the overall portfolio. It's not the dominant part of the portfolio. But, of course, it's supporting both our revenue growth ambitions and our overall goals. profitability ambition. So it's baked in but it's only a part of the overall portfolio so it's not carrying the global portfolio because at this stage as you can see from the still rather low loss component which we are showing in the first half of the year the business is still rated attractively on a global basis across product lines.

Brilliant, thank you very much.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Clemens Jungsthoeffel for any closing remarks.

Yes, thank you all very much for your questions. We fully appreciate that these numbers need a bit of effort to look through this. It gives an indication, I hope, as we have been able to deliver the message, that we have applied prudency really across our profit engines, not only because the underlying results in P&C and in life and health were very strong already. Also, the investments are faring well. And then, as Sven reiterated again, we really had the tailwind from taxes and from currency, which we didn't just want to let fall through to the P&L this early in the year. So on P&C, it's really that we have added, again, substantial prudency. And just philosophically, because we've heard that question rightly a couple of times, that has not changed at all. And just to remind you, The way we look at our combined ratio, the way we look at our guidance on the combined ratio is very much through the cycle, mid to long term. So the fact that even if we go into softer market environments, this combined ratio will most likely remain where it sits at the moment. So therefore, it's really our philosophy to look through the cycle when it comes to that. On life and health, Just a reminder, I think this quarter as well, that there is imparity between loss component and CSM. And I think it's fair to say that in the first six months of this year, as well in the recent financial years, we've been able to demonstrate that if you sum those two up, if you look at the results of CSM and loss component, hence our experience, has been on the positive side, which I think is an indicator to your question and Claude alluded to it, that we are more on the prudent side, even excluding the risk adjustment, more on the prudent side in our best estimate setting. And then the risk adjustment, of course, adds a layer of prudency. All that allows us to deliver on our targets through the cycle. And I think this first six months have been able to even increase that capability to deliver on our targets and to manage really mid-long term through the cycle. So thanks again for your questions and have a good day.