Hannover Ruck SE

Ladies and gentlemen, welcome to the conference call on annual results 2025. I'm Sergan, the Chorus Call Operator. I would like to remind you that all participants will be in a listen-only mode and the conference being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. Unauthorized recordings, publications, or broadcasts are not permitted. At this time, it's my pleasure to turn it over to Karl Steindl. Please go ahead, sir.

Well, good afternoon, everyone, and welcome from sunny Hanover to our analyst and investment fellow on our full year results for the year 2025. As announced, our CEO, Clemens Jungstöse, and our CFO, Christian Hermann-Lingmeier, will provide a brief overview of the business development in 25 and the outlook for the current year. For the Q&A session, they will be joined by Claude Schevren and Sven Althoff. And it's now my pleasure to hand over to you, Clemens.

Thank you, Karl, and good afternoon from Hanover. So let's start with our business performance 25, which was indeed very satisfactory. The group net income of 2.64 billion Euro is a record result for Hanoveri, reflecting a sustainable increase in the earnings power of the group. The proposed dividend of 12 Euro 50 for 2025 is a significant step up of almost 40% compared to the previous year. Furthermore, the result is based on a very strong underlying profitability Our deliberate actions to strengthen the balance sheet increases our confidence in future earnings growth. We have achieved this by adding around 700 million euros to resiliency reserves and by actively realizing losses of almost 600 million euros in our fixed income portfolio. The sum of these effects is clearly higher than the total tailwind from the benign large loss experience, positive currency effects, and a lower than expected tax rate. We have continued to grow in 2025. The underlying revenue growth in P&C was around 10%, clearly ahead of our 7% growth target, including the impact of the refinement in the calculation of the non-distinct investment component the FX adjusted growth was 3.8%. In life and health, we recorded favorable FX adjusted growth of 6.8%. Moreover, the new business CSM increased in both business groups, providing a good basis for further earnings growth. Also, our total investments have grown by 0.7%, driven by a strong operating cash flow of 5.7 billion. The fact that assets increased despite negative currency effects of around 4.5 billion euros and the redemption of a hybrid bond is remarkable. The impact of large losses in P&C was clearly below our budget, driven by an overall benign NatCat experience. As previously indicated, We have used this opportunity to continue to realize losses in our fixed income portfolio and to add resiliency reserves also in the fourth quarter. Altogether, the EBIT of 2.6 billion euros and the combined ratio of 84% in P&C reinsurance are based on a strong underlying earnings power. In life and health reinsurance, the profitability has been satisfactory as well. The reinsurance service result of 903 million euros came in above the targeted level of at least 875 million. The new business generation increased by 22% to 755 million euros, including a favorable contribution in the fourth quarter. The ordinary investment performance was very satisfactory. Against the backdrop of the overall strong profitability, we have realized another 270 million euros of fixed income losses in the fourth quarter, bringing the total loss realization to almost 600 million for the full year. Hence, the return on investment of 2.5 is deliberately below our target. to improve further of future investment returns and increase the flexibility in our investment portfolio. The capitalization of Hanoveri remained very strong, with a solvency ratio of 256%. This number reflects a strong operating capital generation of 3.7 billion euros, and a successful deployment of capital for growth. In addition, the strong capitalization allowed us to reduce the level of hybrid capital and to pay a significantly increased dividend to shareholders. The moderate decrease in the solvency ratio in the fourth quarter was mainly driven by our prudent reserve bid. In the solvency regime, This was more pronounced in the fourth quarter compared to previous quarters. Finally, we were able to keep our group cost ratio flat at a very low 3.2%. This will continue to provide us with an important advantage in a competitive market environment. The dividend proposal of €12.50 on the next slide is a significant increase compared to the previous year. In line with our adjusted dividend strategy, the full amount will be paid as a regular dividend. Furthermore, according to the targeted progressive growth of our dividend, this is also the new minimum level for the next year, reflecting our strong confidence in future earnings growth. At 57%, the payout ratio is in line with our target of around 55%. The retained earnings of slightly above 40% will support future growth opportunities in a continued attractive market environment. Shareholders' equity increased by 10%, driven by the strong 2025 results. A mitigating factor is the negative impact from currency translation within the OCI, the other comprehensive income. The CSM decreased by 3.1%. The healthy level of new business generated by both business groups has been offset by negative currency effects. If X adjusted, the group CSM would have increased by 4.4%. The risk adjustment decreased by 6.6%, mainly driven by some model refinements in PNC, and again, by negative currency effects. Our long-term ROE performance highlights our ability to consistently provide shareholders with attractive returns, significantly above cost of capital. Our ROE performance also creeps green favorably compared to peers. On top, we have achieved this outperformance with less volatility. And as you can see in the chart on the right-hand side, Hanoveri is well placed in the top left quadrant. Comparing the 10-year ROE performance, we have reported the highest ROE with the lowest volatility. This will continue to be our ambition altogether 2025 was another strong and successful year for hanaburi confirmed by the return on equity of 21.4 percent and just as a reminder our successful participation in beryllium has contributed around 500 million to the equity position over time without affecting the ifs net income Given that the balance sheet has been further strengthened to support future earnings growth, the underlying performance for 2025 was even better. And on that note, Christian, I'll hand over to you.

Thank you, Clemens, and good afternoon, everyone. As you can see, our P&C business is growing nicely on a diversified basis, including a strong contribution from structured regions. The underlying growth is around 10%, well ahead of our 7% target. The reported top line growth is masked by the refinement in our accounting, resulting in a one-off effect when comparing the 2025 revenue to the previous year. The reported FX adjusted growth was lower at 3.8%. As a reminder, the ending effect has no impact on earnings due to corresponding effects and the service expenses. The combined ratio of 84% is comfortably within the target range below 87%. The impact from large losses was 375 million euros below budget. As explained in previous earnings calls, we have used this strong earnings position in 2025 as an opportunity to increase our reserve resiliency. Based on preliminary Internal estimates, we expect the reserve resiliency to stand at around 3.2 billion at year end 2025. This means that the increase in reserve resiliency was significantly higher than the benefit from benign large losses. Hence, the unaligned combined ratio is better than the reported 84%. To complete this picture, This combined ratio also includes the strengthening of reserves for the Russia-Ukraine aviation loss and a prudent reaction to uncertainty around loss trends in U.S. casualty. Together, I am highly satisfied with the profitability of our property and casualty portfolio. It enabled us to take a more prudent position on certain prior year developments, to significantly increase the reserve resiliency and to report a combined ratio well below our target. Finally, the combined ratio includes the discount effect of around 10%. One reason why this number is higher than initially assumed is the increasing reserve volume in long tail lines with a corresponding higher discount effect. The investment results reflects an increased ordinary income and our deliberate decision to realize losses in our fixed income portfolio. The vast majority of these losses is allocated to the PNC reinsurance segment. The currency result was significantly positive at 233 million euros, driven by the weakening of the US dollar over the course of the first half year. And just as a reminder, since Q3, 2025, we have implemented an accounting hedge for the IFRS currency result, so you should not expect larger impacts from recent movements in the exchange rates. The main contributor to the P&C result is the CSAM release, reflecting the recent renewals in a very attractive market environment. The experience variance includes our proven reserving on the business earned from current underwriting years, This has mitigated the positive experience from benign large losses. 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 earnings position to add significantly to reserve resiliency to strengthen the reserves for the Russia-Ukraine aviation loss and to react prudently to the uncertainty around loss trends in U.S. casualty. Putting this together, the runoff result was minus 603 million euros, although the underlying runoff was positive. Finally, the loss component from new business is quite low, confirming the attractive rate environment in PMC reinsurance. The growth in new business CSM of 12% reflects the favorable market environment and our success in the renewal period in 2025, resulting in a strong new business CSM of 3 billion euros. In life and health, reinsurance revenue increased by 6.8% adjusted for FX. The growth is on a diversified basis as well, The step-up in growth in the fourth quarter is driven by new business in U.S. financial solutions. The reinsurance service result of 903 million euros is above our target and based on favorable underlying profitability. The experience variance was positive in 2025, mainly driven by financial solutions. Assumption updates for onerous business and a more cautious position with regard to our morbidity business had a negative impact in the reporting period. The investment result is based on a good ordinary income from fixed income. The recognition of an equity participation had a negative impact of 36 million euros. The active loss realization in our fixed income portfolio amounted to 20 million. Putting this together again, the EBIT contribution from our life and health business group was 886 million euros. Looking now at the IFRS 17 components of the service result, the CSM release is the main profit driver and within the expected range. The same is true for release and risk adjustment. The experience variance is clearly positive, mainly driven by financial solutions. In traditional business, we have recorded positive and negative developments with an overall limited impact, a quite normal picture for a diversified portfolio. The main drivers for the loss component are assumption changes for onerous business in morbidity. This is particularly driven by the critical business in Greater China, where we have updated our assumptions and took a more cautious positioning reflected in an increase in the risk adjustment, mostly already in Q3. The CSM development on the right side is clearly impacted by currency effects. The CSM generation, which includes the new business CSM and extensions on existing contracts, amounted to favorable 766 million euros, based on a diversified contribution from financial solutions and our traditional business. Changes in estimates were overall positive, driven by updated assumptions for our longevity business. In the isolated fourth quarter, changes in estimates were negative, largely due to model updates for U.S. mortality, not driven by a changed view on U.S. mortality assumptions. Altogether, the total CSM would have increased by 3.4%, excluding the currency effects. So ahead of our 2% target. The development of our investments was also very satisfactory. The ordinary investment income reflects the continued roll over in a higher yield environment and a strong operating cash flow. In addition, the contribution from alternatives was very solid. As mentioned, we have used the overall strong earnings situation to accelerate the realization of losses in our fixed income book in the second half. In total, we are looking at realized fixed income hidden losses of 593 million euros for the full year. The corresponding higher locked-in interest rates will support a further increase in investment income in the coming years. With a modified duration of slightly below four, the positive impact is somewhere between 10 and 15 basis points. Please bear in mind that this is not the only factor having an impact on the development of our portfolio yield. Movement in yield curves, NFX, needs to be considered as well, and the development of those two factors in 2025 has been slightly negative for our yield projections. Finally, the impact from the change in ECL and fair value of financial instruments remained moderate, including the loss realization in our fixed income portfolio to return on investments is at 3.4%, higher than our initial target of at least 3.2% for the year. As a result of yield curve movements, and our active loss realization, the level of unrealized losses on our balance sheet is still material at around 2 billion, but significantly lower compared to year end 2024. To conclude my remarks, the business performance in 2025 was highly satisfactory. The earnings position was strong enough to clearly outperform the initial group net income guidance and to strengthen our balance sheet with the aim to invest into future earnings growth. And on that note, I'll hand back to you, Clemens, for some comments on the outlook. Thank you, Christian.

So future earnings growth brings us actually directly to the guidance for the financial year 2026. Based on the strong performance of our business in 2025 and the outcome of the January renewals, we confirm the guidance for 2026 without any changes. We do expect further growth in our business. The strong quality of our P&C portfolio puts us in a good position to deliver on the combined ratio target of below 87%. Based on a normal large loss experience, we should remain in a position where we actually can build resiliency reserves also in 2026. The target achievement is not linked to a change in our prudent initial reserving approach. Based on the successful new business generation in FEM25 and a healthy pipeline looking forward, we anticipate an increase in reinsurance service result to around 925 million euros in life and health reinsurance. Furthermore, our strategic midterm target for the CSM growth of around 2% remains valid. The return on investment is expected to reach around 3.5%. Christian explained the major factors having an impact on this number, and we do feel comfortable to confirm it. Altogether, the balance sheet of Hanoveri is the strongest in history, and we are confident in future earnings growth, even in a more competitive market environment. So 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 star and one on the telephone. Do we return to confirm that you have entered the queue? If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to save the loudspeaker mode while asking a question. And the first question comes from Andrew Baker from Goldman Sachs. Please go ahead, sir. Thank you for taking my questions.

The first one, just on P&C reserving, was the update to your Russia-Ukraine reserving, did you take more in the fourth quarter or was that comment related to action taken earlier in the year? And I guess on the reserving for the uncertainty for the U.S. liability trends, are you seeing a deterioration in data points or is this just prudence? And then secondly, just on the topic of longevity, so I can see obviously it drove the positive CSM estimate change in 2025. When we speak to some of the primary companies, they are saying that the reinsurers generally have a more favorable view on longevity than they do. I guess virtually curious whether you would agree with that statement. And then secondly, we saw sort of in the UK, we saw the CMI 2025 mortality tables released earlier this week. They're showing an improvement in life expectancy, and that's over 24, which was already an improvement over the past couple of years. So how do we square that sort of, sort of improving mortality trends in the data we're seeing with, I guess, releasing reserves related to longevity. Thank you.

Yeah, thank you, Andrew. It's Sven. I will start with your first two questions. So when it comes to Russia-Ukraine, We have increased our reserve positions throughout the full year 25, so it was not a specific exercise which we only did in Q4. On the other hand, we added a low triple-digit number also in Q4. The main reasons are coming from the aviation side, where you know we had the high court ruling early in the year, but now that more seating companies are reporting their lost positions to us, We also see that the amount of money that is spent from a legal point of view, dealing with the topics at hand, is higher than we originally anticipated. So those were the two main drivers for us putting the Ukraine Reserve to a higher confidence level. When it comes to youth casualty, it's really three factors we are looking at. First and foremost, we can see a higher frequency of loss activity in the younger underwriting years. It's still difficult to do a full interpretation of what the triangles are telling you. We, as you know, had the a situation where the courts couldn't really make any decisions for an extended period due to the COVID lockdown. We expected a certain period of catching up with the cases that could not be heard during that time. But the data points we are now seeing seems to indicate that there is a little bit more of a trend over and above catching up than maybe originally expected. So as we were in the position to have a more conservative view this year, it was really the combination of the data points we are seeing using partially also the more conservative actuarial methods. So we were moving more to the outer bound of the best estimate range. And thirdly, it was, of course, also an area where we did build new resiliency.

Yes, and maybe on your question on longevity, I wouldn't say that we see the longevity business more aggressively than our clients. We have a pretty conservative approach to longevity, and you can see that in the new business CSM. And you will see or you will have seen that in the past two years, our new business CSM hasn't been growing because of longevity, because we were having quite conservative view on the longevity trends. Now, obviously, the fact that we have released a little bit of the CSM, this is related to our initial assumptions when we wrote the blocks, and these assumptions were still more conservative than our current assumptions. And that's the reason why we have been able to release, year by year, some of the CSM into longevity, but our view on longevity, I can tell you, is definitely a bit more conservative than what our competitors are doing right now.

That's really clear. Thank you so much. The next question comes from Cameron Hossein from JPMorgan. Please go ahead.

Hi. Good afternoon. I've got two questions. The first one is just on the dividend, which is clearly hugely up from last year, increased to the payout. It's a really good yield. So my question, please take it in the light that I'm delighted with the dividend, but just wondering why it's not up more. At the MS today, you talked about an extraordinary result potentially leading to special dividends. Yes. Just trying to understand how 2025 is not extraordinary. You know, you've had a much better return on equity than your target. You know, I think if you added back the kind of things that dampen the result, you probably would have doubled your return on equity target. You've got this really strong balance sheet. If 2025 is not extraordinary, what would be? The second question is, given kind of the news flow at the moment, just really interested in kind of war impacts. on kind of anything that you can talk about. And are we safe to say, apart from the conflict in the Middle East, it's probably been quite a light quarter so far? Thank you.

Yeah, Cameron, starting with the first question on the dividend, asking for the extraordinary definition, as we also discussed, I remember, at the investors' day, So our target is to deliver attractive returns in terms of ROE and of dividends. Therefore, we increased already. this year the payout ratio. And this is a really good year for Hanoveri. But as you know, we want to deliver also stably and continuously increasing results. And this is also true and stays true for the dividend. And I would, yeah, refer back to the guidance that Clemens already elaborated. So, our outlook on the earnings for 2026 is also positive and increasing, and if this comes as Clemens talked about and reconfirmed, and we are quite confident with the balance sheet and all the resilience we could add, also the dividend will go up again. But, of course, it's early in the year, but this to give you a bit of flavor of the outlook also for dividends.

And Cameron, probably in addition, just take it also as a view on our outlook for business opportunities, for opportunities to deploy capital into P&C, life and health, and probably into investment. So it's a bit of a balanced view between what Christian referred to as delivering attractive dividends, but at the same time, making sure that we put the capital to work and deploy it for further growth.

Well, then, as regards Q1 to date and the bore, you're right that the loss experience in Q1 to date has been relatively light. We, of course, will give you the number in May, and the quarter isn't over, but I would say from what we see today would speak for quite some underutilization of the budget for the quarter. That, of course, does not include any assumption on the war yet. Really too early to have a view here. There's obviously a lot of things going on. Commercial shipping and commercial flying has more or less come to a standstill. in that part of the world. And we have to wait and see what the market is prepared to offer from a war coverage point of view when that situation is safer again and is changing again. So from that point of view, I mean, you know the heads of cover. that are exposed next to aviation and marine. Of course, we have political violence. We have war on land. The longer the conflict lasts, classes like trade credit or political risk may come into play. So from that point of view, we are watching the situation very carefully, but what we have learned so far from a damage point of view, it looks more like quite a bit of minor damage to various assets, but nothing very significant to date. But that, of course, can change any second.

Maybe, Sven, so maybe talk about life and health because, as you probably know, we're a market leader in the traditional business in the whole region of the Middle East, including the Gulf region. We also have a subsidiary, by the way, in Bahrain with 60 employees. And they're all well, by the way, just for information. We're obviously in constant contact with these guys. But we don't expect too much of claims out of the life and health portfolio, even though we have an exposure. We do not cover active war. And we cover passive war, obviously, with our life policies, but with a certain limit, kind of a 28-day limit. So it really limits our exposure then in the Middle East, even being market leader. So no issues from the life and health side so far.

Nice question. The next question comes from Shanti Kang from Bank of America. Please go ahead.

Hi, thanks for taking my questions. Yeah, just on P&C, for the four year new business loss component, I actually noticed that was better year on year, which was a bit of a surprise. And I was just wondering, what was the driver of that? Was that like a slight quality or could some of the retro be playing into that? So just to get your thoughts on how conditions are impacting that. And then on the life and health side, the 903 print that you've done today makes the 26 guide of 925 look pretty breezy. Do you think there's some conservatism in the 26 guide, for example? Thank you.

Yeah, Shanti, on the loss component, I don't have a very big answer for you here. I mean, it is slightly lower compared to 2024. And that has to do with, of course, us continuously portfolio pruning where we don't like the going forward profitability of the business. But these are individual transactions. It's not a trend I can talk about. It's the sum of many little pieces.

Yes, I'm on the life and health side. I mean, yes, we came in with 903. We planned 875. Now the new plan is 925. I would say it's slightly, maybe slightly on the conservative side, but as you know, and I showed it, I think you were probably at the investors' day, I showed you it, the life and health result is made of many, many assumption changes, model changes, et cetera, et cetera. So I would say the 925, I feel comfortable with it, but becoming better would be great.

Cool, thank you.

The next question comes from Ian Pierce from BNB Paribas. Please go ahead.

Hi, afternoon. Thanks for taking my questions. The first one is just on the reserve resiliency. At the investor day, you sort of alluded that the reserve resiliency was heading towards a peak level if you looked at it on various different metrics, but particularly sort of as a proportion of net reserves. And clearly the 700 million move we've seen this year is faster than the growth in the reserves. So just sort of thinking where that is as a proportion of net reserves and how you expect that to trend as a proportion of net reserves would be very useful. And the second one is just on the operating capital generation, the 3.7 billion pre-strain. Could you just give us a sort of indication of how much that is a clean number, anything we need to consider in that related to, say, the realized losses and so on? And again, sort of tying that into the capital distribution and the solvency movement as well because, you know, that's a very strong number and a billion net capital generation post-dividend. So if you could just talk to those moving parts as well, that would be very useful. Thank you.

Yeah, thanks, Ian, for your questions. Happy to take them. So starting with the reserve resiliency question, And to start with an indication where, and as said, this is a preliminary estimate, our own estimate. So in May, we will, as usual, give you the result of the Willis-Tawas Watson review. So this might change a bit. but we would lie at above 8%, including the risk adjustment that we also book as kind of a prudent reserve in addition to the lost reserves. And as said, and you're right, of course, in a very attractive and good market environment, we would consider to add a bit more to reserve resiliency and looking for the cycle to come, this might then go down. And we are, as also indicated before, happy to, when the time might be, when it might be necessary in a given time to use some of the resiliency. So, we don't have a limit there. So, if 2026 is according to plan, there might be, Another addition, but as I said, it's quite early in the year, so let's see where we land in the end.

And, Ian, just to add to that, don't take the realized losses in the investment portfolio, 600 million, not as an indication that we have reached the ceiling, as Christian said. It's more to have, you know, both in the toolbox, and we actively use both as indicated. And this is also the fact going forward.

Absolutely. And elaborating a bit on the solvency ratio, so the operating capital generation at around 3.7 billion is clearly reflecting the very favorable margins and the new business. You could see this also in the CSM development, especially in the new CSM buildup. Of course, the reserving actions are also reflected here. So, in the fourth quarter, the development might not be as positive as you would expect just from the running business. And the reason is exactly that under solvency, the full model update and the update of the reserving view is done in the fourth quarter. So, it's a bit more pronounced building up the prudency here reflected in the operating movements and the solvency ratio. And, of course, there is also a higher foreseeable dividend as we increased, as we also talked about substantially, the dividend. This has to be already to be reflected as a foreseeable dividend in the solvency ratio. And we talked about this also earlier, looking at the 12-month movement. We also repaid the 500 million hybrid bond dividend. So, putting this all in the mix, I think that's a good explanation for where we stand at year-end 2025.

Thank you.

The next question comes from Chris Hartwell from Autonomous. Please go ahead.

Good afternoon. So, I just wanted to come back to the question around the life insurance service result or re-insurance service result. I understand what you're saying about maybe being slightly conservative, but can you just elaborate a little bit on the onerous element that we saw in Q4? That was much, much lower than what we've seen in previous quarters. So that's question number one, and I guess a little bit of a random question number two, just going back to last January in the California fires. So noted in the Q4 movements, the gross loss has gone up, the net loss has gone down. I wonder if you could sort of comment a little bit on that. But moreover, sort of thinking about the prospects for subrogation, which I guess is a subject that's gone a little bit quiet, but there are still companies – in the U.S. that have a substantial subrogation benefit already embedded into their own loss assumptions. So I was wondering sort of what your latest thoughts are on that, and if so, sort of any likely timing of when you would expect to see any of that loss reversed. Thank you very much.

Maybe let me start with your first question on life and health with the loss component. I mean, the main component of the loss component as we were writing it is really coming from the greater China morbidity business. And as you probably recall, we took the biggest hit up to the third quarter This is why in the fourth quarter we have quite a little add-on to the loss component. You know, the way we look into that, and I showed it in the investor study, remember, we're looking into all these businesses through all the year, and we decided to look into the morbidity business But in Q3, mainly in Q3, and that's where we had all these model changes and assumption changes, this is mainly the reason why we have a very little add-on on the loss component in Q4, because we didn't do too many analysis in the fourth quarter. That's all. What you should look at is really on an average add-on of the loss component, quarter by quarter, and that's what I was showing you last time. Remember, we were in Frankfurt, yeah, sorry, forgot about it. I think we said it's around 80 million per quarter. So you end up more or less at the same level, and this is also our assumption going forward. We simply don't know where it's going to come from, because if we knew it, we would have to take the hit already, in principle.

And then on the wildfires, the composition of the loss has slightly changed over the year. So we are showing a little bit more from our ILS fronting activities, which is increasing our gross number. But as you know, we are not having any retention on this. So that's therefore not increasing the net position on the fires. And when it comes to subrogation in general, we are, of course, observing that situation, but our approach has been that we would only book subrogation when received by the seeding companies. And so from that point of view, we have not taken any general subrogation haircut when we look at that loss. And so, hopefully, over time, there will be a little bit of an improvement.

The next question comes from Henry from Morningstar. Please go ahead. Oh, good afternoon.

Thank you so much for taking my question. Just a couple. On the investment yield, I was wondering if you could give us an update on the running and the reinvestment yield. And then kind of related to that, the guidance of 3.5% ROI for 2026, and then the remaining kind of 1.6 billion of unrealized losses. Is there a chance that we're going to see something similar to what we've seen in 2025 in 2026? And then on the risk capital for U.S. hurricanes, I just noticed there's a slight decline there, and I was wondering if that kind of cycle management or something else. Thank you.

Yeah, thanks for the questions, and to start with the investment. So, the reinvestment yield is currently slightly above 4%, and the book yield is just shy of 3.6%, of course, also driven by the realization actions, and we talked about that already in the investors' day a bit more in detail. Looking at 2026, I mean, I'd be quite confident with the 3.5, but there's a lot of dynamic in capital markets, and we need to see how it develops. And therefore, it's far too early to talk about additional actions. Of course, the optionality to realize even more hidden losses from our investment portfolio is always there, but it's far too early to really consider this.

And on the capital allocation for U.S. Hurricane, I don't have the full answer for you on that question. I mean, we have grown in U.S. Hurricane. On the other hand, we have grown other country power combinations more quickly. So, therefore, I would assume that we have positive diversification effects. We also did buy a little more retrocession on the non-proportional covers last year. And then, of course, you have to be mindful of the exchange rate development. So I would assume it's a combination of the three. Thank you.

The next question comes from Ben Cohen from RBC Capital Markets. Please go ahead.

Oh, hi there. Thanks for taking my questions. It was really a question and a clarification both on the life and health side. The first question was just in terms of how you see the competitive environment going into this year in terms of, I guess, in particular, the new lines that you're looking to grow in. And the second, the clarification was coming back on the CSN, the change in estimate number It was positive for the full year, but it looks like in the fourth quarter that positive element has come down. So could you just describe, was that a negative element relating to a longevity charge, or is there something else going on there, or have I got it the wrong way around?

Thank you. No, no, you got it the right way around, absolutely. There was a negative element in the fourth quarter on the CSM, which is a change in estimates, and this negative element came from the U.S. I mean, as I told you before, we're looking into our models, we're refining our models every now and then, and we're fine-tuning them. And usually when you do that in big portfolios, these model changes, they have positive and negative impacts. And it happens just that in the fourth quarter in the U.S., our model change that we had then had all a negative impact. Not that we're changing our view on the assumptions on mortality in the U.S. at all, by the way. It is really just the fact that we have two or three model changes that we implemented in Q4 with a negative impact on the CSM. So there was no problem at all, by the way. On your second question, the first question, the competitive environment on the lines where we think that we can grow, I mean, the life and health market is competitive. And I don't want to tell you again what I was telling you many, many times in the investors' day. It is competitive. Where do we see potential to grow? We see potential to grow where we're not already market leaders. And I would say this is in the traditional business in the U.S., U.K. We see potential to grow, but there is obviously competition. We see potential to grow in longevity outside of the U.K. For what I just told you before, U.K. is highly competitive and we're probably a little bit less competitive than our competitors over there. So longevity out of the UK, we see possibilities to grow. And then last but not least, we also see possibilities to grow in financial solutions, in particular in Europe. These are the areas where we do see potential to grow. But I tell you the truth, licensed health is competitive because we're competing against professional reinsurers. There's only a handful of them. The market is small. So we will see how it goes. But I'm positive.

Thanks very much. Thank you.

The next question comes from Vinit Malhotra from Mediobankra. Please go ahead.

Yes, good afternoon. Thank you and great set of results. Thank you. Just from my side, so one question is more on the dividend and the signal it sends and the other question is on PMCD growth. So on the dividend, you know, you mentioned that, you know, the 40% on growth is obviously not a new strategy since last few months now, but the growth you said shows your confidence about future earnings. Now, just from the outside, I mean, I can realize the 82% underlying combined ratio is pretty strong. And we've talked about that. But so given where the pricing cycle is, the terms and conditions movements, the market dynamics and reinsurance, I mean, how should we think about this? strong dividend growth and what you're trying to tell the market about, or what you're trying to tell the equity investors about the state of the market and Hannover Re's position in it. I presume it's positive, but just a little bit more on that would be very helpful. Second question, as I said, was on growth. So when I see say nine, nine and a half, 10% kind of growth coming in on an underlying basis, few quarters and also in, you know, XFX and 4Q. And I'm just wondering if, you know, your kind of mid single digit excluding structured ambition of target for 26, could that be a bit conservative? Could that need a bit of review given how strong 4Q was? So just on that, please. Thank you.

I'll start probably with the first one on the dividend and then let Sven complement on the outlook for P&C. So generally, and probably alluding to Cameron's question on, you know, 55, well, in this case, 57%, why not more? And that is basically the reason that we still believe that this is an attractive market environment both in P&C and that we have also a healthy pipeline on the life and health side. So it's really that view. I mean, you will not see us chasing top line. We were clearly committed to our underwriting, to our discipline underwriting approach here, but it's more that we still consider this to be an attractive market environment. It's still a rational market. As you know, we were quite happy with the outcome. of the 1-1 renewals overall. So there is plenty of growth out there. We do believe, and just to reiterate, Vinod, that our lean operating model, which does come with the lowest cost ratio of 3.2%, that it gives us room to grow our book, to capture business opportunities, even in a more challenging market pricing environment. So that gives us a competitive edge. where we do believe that we still can gain market share. And that's basically all feeding into our thinking about the dividend policy that clearly we didn't want to change now from October, so no need there. And we will see how the year plays out. We will always, of course, consider that in light of the dividend for the 2026 year.

When it comes to the growth guidance on the P&C side, Vinod, please remember that this is a 2026 number. So with us renewing 60% of our business at 1.1, we achieved a growth of 3.3%. We were talking about the client basically taking the savings. and keep them to themselves. They're not translating this at this moment in time into more buying, lower buying, wider buying. So from that point of view, we would still stick to the mid-single-digit range we have given for the traditional business for the year. Over the cycle, we would be more bullish than that, but we're guiding only for 2026 in that respect. So from that point of view, you should not expect us to change the guidance.

Okay, great. Thank you very much. The next question comes from James Schack from Citi. Please go ahead.

Yeah, hi. Good afternoon. I just wanted to ask firstly about Russia-Ukraine reserve additions and I think some other large losses that were included as well. I mean, it looks like you valued at least a billion in 2025. So just keen to know if any of that has gone into the resiliency reserve of 3.2 billion. Then in terms of the P&C new business CSM outlook for 2026, you've obviously got a lot of the business on your books already and you've should have line of sight of the app for that new business, CFM, including kind of reduction in retro as well. So are you confident that the 2025 number, you can grow that in 26? And then finally, if I may, and I'll try and phrase this as best I can, but I'm just interested in kind of not so much how AI can enable you to do lots of things internally and drive efficiency. I'm more interested in how AI and hyperscalers, for example, are kind of redefining other industries, and that's likely to get a pace over the coming years. What kind of impact do you see that having in terms of the kind of provision of integrated risk solutions from reinsurers? Thank you.

Well, let me start with the first two questions, James. So on the CSM development, I mean, you've seen the growth of 3.3%. The corresponding risk-adjusted rate reduction we were reporting is minus 3.2%. So that would imply that the CSM development, of course, neutralizing currency effects, So it should be relatively stable year on year when it comes to the new CSM generation. On Russia-Ukraine, I didn't fully get your question because the movement we are talking about here is outside of what we are talking about when it comes to the 700 million on the resiliency build side. So, as I said, in the fourth quarter, we added a low triple-digit number to this claims complex, but maybe you can repeat the question if that is not meeting.

Thanks for the opportunity. So, yeah, I mean, across the year, you've added a billion, at least a billion for Russia and Ukraine. And I was keen just really to know if any of that was included in the resiliency reserve, or was it effectively all claims related as opposed to increased conservatism on IBMR? Thank you.

Thanks for clarifying that. And we have not added a billion in 2025. We have added a mid-triple-digit number, but far away from the billion. on a net basis and none of this is forming part of our resiliency numbers.

Okay. Thank you. I'll follow up on HR now. Thank you.

And then I'm happy to start on your AI question, but I'm also inviting colleagues to add. I mean, when it comes to P&C business, I mean, you know that The time horizon of what we are doing is 12 months. So from that point of view, of course, we are following how AI is changing industries and what may that mean from a risk landscape point of view. But given the time horizon of our business, we don't have to look five, ten years into the future to come to decision-making today. So things clearly will change. and the risks and the landscape will look a little different. Whether that is translating into other products that we can sell our clients, I would say time will tell. But, of course, our clients, the insurance companies, expect us to be a strong partner also when it comes to having a good understanding of what AI is all about and how we can introduce it. into our discussions and or products if that is what is required.

I mean, I can add on. You know, I think it's going to change the insurance landscape probably much more than the reinsurance landscape. For us, there is an add-on or, let's say, a positive value of AI, which is that we can invest. You know, unstructured data, much easier. This improves, obviously, our modeling. This improves also our ability to do real-time monitoring of our business and makes us simply much, much better and absolutely convinced. So, AI has a positive impact on our risk management and risk selection, definitely. But I invite also my colleagues. I'm looking at Clemens Christian.

James, any specific question on what we are doing on AI? I mean, as Sven said, we are in very close contact with our clients on this, what they are doing on AI, both in their existing portfolios, on new products. I mean, you would have seen some of the sort of second-order impact on data centers, for example, or on cyber. Clearly, I mean, that will have an impact on some of the existing products. But as Sven said, this is an ongoing topic. And for our operations, I think we spoke about that briefly also on the investor stage. I mean, we look at AI as clearly, yes, it's clearly, as Claude alluded to, it will be a game changer in some of the areas, but we don't do AI for the sake of it. We try really to integrate AI into our digital journey. Clearly, as you mentioned, James, on the operational side, it gives us, given that we have the focus on reinsurance, a bit of an edge to really try to implement AI as part of our digital journey when it comes to infrastructure, data, et cetera, and I think The amount of homework that one has to do before you actually can effectively use AI is probably underestimated. So doing that foundational work is very much top of mind at the moment.

Okay. Thank you very much.

As a reminder, if you wish to register for a question, please press star and then one on your telephone. The next question comes from Will Hartcastle from UBS. Please go ahead.

Hey there, thank you. Just coming back to the reserve provisions, you mentioned they were in there for US casualty in Ukraine. It sounds like, to your answer to James, none of the Ukraine reserves have gone into that resiliency edition, but presumably most of the US casualty ones has. It's in the 700 edition year-on-year, unless it's coming in the 2025 underwriting year. Or are you saying because it's adverse news, it's not boosted it? And then when the reserve data comes out, will the Ukraine addition be shown in aviation? And the reason I ask is that that would put the 22 ultimate loss ratio at more than, say, 200% for that line. And I thought in that reaction there'd have been a steeper payback. I'm just sort of trying to wonder why it hasn't happened. It's a bit of a stretch, but second question. In your projections, it sounds like there's potential for more resiliency built in 2026, given your guidance. And yet, you've got a really strong solvency. You've got really strong reserves. At what point do we see the profits that are really underneath the bonnet is really what I'm trying to get to. Thank you.

Yeah, I start with your first line of questioning, Will. So when it comes to Ukraine, I mean, as I said, none of the increases form part of our resiliency build. So this is all best estimate. what we are talking about here. Not all of the increase, but quite a bit of it is in the aviation line of business. So when you look at it from a segment loss and combined ratio point of view, I'm afraid your assumption is correct. The reason why this has not yet translated into more payback also has to do that when you look at it from a reinsurance point of view, relatively little of that loss is yet paid. And it took seeding companies a relatively long time to present their loss position. So from that point of view, we are in the midst of having those discussions with clients. But on the overall loss number, to just give you an idea, only 30% of of this is paid for our portfolio at this stage. So still a relatively low number. So that maybe as an explanation on Ukraine. When it comes to U.S. casualty, I mean, as I said, the development was spread between moving the best estimate, moving to more conservative actuarial method and building prudency. So therefore, it's in various buckets. It's not all in the resiliency. Partly it has ended up in resiliency, but the bigger part is just the best estimate movement, including the more conservative use of actuarial model, which we have not pushed towards the resiliency bucket. And by the way, It's also spread between older underwriting years, but also the younger underwriting years. So, therefore, part of that development is also in the current service result.

Well, I take the question on the resiliency build. And thank you for the question because it gives us the opportunity to clarify probably how we think about the P&C earnings 2026. So, the way we've looked at the combined ratio and when we say we're going to build further resiliency, it was just a reiteration of the fact that despite it might be a bit more challenging market environment, we will and have not changed our approach to our initial prudent reserving on the P&C side. Hence, in absolute numbers with the growth of the book, we will build further resiliency. in relative numbers, and Christian alluded to it, the eight point plus, we don't know exact number yet, but it's in relative terms. It includes the risk adjustment. It's above 8%. We feel comfortable with that level. Same is true for, and to reiterate again, on the investment side, it's more an opportunistic toolbox that we are using. and i mean we are fully committed to deliver on the guidance 2026 having said this if we have an extraordinary good year like we had in 25 we are also willing to adjust or lift our guidance as we did for 25 so so don't take this as an absolute uh a message more in in the sense of we will see how it goes and how the years how 2026 plays out, and we'll make a final decision in Q4. But as always, we will be very transparent about it.

There are no more questions at this time. I would now like to turn the conference back over to Clemens Jungstöffel for any closing remarks.

Yes, I think we've covered everything. I don't want to reiterate the message that, I mean, this was not only an extraordinary good year, 2025. I think we've really taken the opportunity to build a very, very rock-solid balance sheet to increase the resiliency further and particularly to be able to show and demonstrate further earnings growth in the future. Thank you all for your questions, and have a good day. Stay safe and stay healthy. Bye.