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.