Well, thank you, and good morning, everyone. Welcome to our conference call presenting our quarter results first quarter 2022 . Apologies for any inconvenience, particularly to the London-based people due to the unusually early timing of this call. The reason is our Annual Shareholders Meeting, which will start in a couple of hours. As usual, I'll first provide some general comments on our performance to date before Clemens discusses our financial figures in more detail. I'll then update you on the outlook for the year. For the Q&A as usual, I'm joined by Klaus Miller and Sven Althoff. The first quarter of 2022 provided a challenging start to the year. The ongoing war and the suffering of people in Ukraine puts all other developments in the shade.
We strongly denounce the Russian aggression, and we hope that the war will end soon. Our sympathies are with the people of Ukraine, but also with all people who are directly or indirectly impacted by this crisis. Hannover Re, for its part, has stopped writing new and renewing business in Russia and Belarus. Before I comment on the war's potential impact on Hannover Re, let me summarize the key business developments in the first quarter. Building on the successful January renewals in P&C reinsurance, we further grew our top line at attractive rates. Currency adjusted growth for the group is at 14%, and in P&C, the growth was even stronger. More importantly, the return on equity of 9.3% is above our target level, which is quite an achievement.
Large losses in P&C exceeded the budget for the first quarter by around EUR 50 million. On top of this, we have decided to book additional precautionary reserves for potential losses related to the war in Ukraine. At this stage, we do not yet have sufficient information available to come up with a reasonable estimate for an ultimate loss. Therefore, the reserving, which amounts to around 3% of net P&C premiums earned, is more a reflection of the exposure in some specialty lines. In Life & H ealth reinsurance, the pandemic continued to have an impact on our results. Pre-tax losses from COVID-19 amounted to EUR 123 million in the first quarter, the majority coming from the U.S. market. On the positive side, this has been partly compensated by further relief from our extreme mortality cover.
Considering all developments, the underlying profitability was favorable in both business groups. The investment performance was very strong. The return on investment of 3.1% is significantly ahead of our full year target, supported by high returns from our inflation-linked bond portfolio on the one hand and by the impact of rising interest rates on the other. Altogether, group net income of EUR 264 million and a very solid solvency ratio of 242% underpin our company's strong resilience and earnings power even in a volatile environment. The strong operating cash flow is an important success factor for Hannover Re. As you can see on the right side of this slide, it has fueled the growth in assets under management in recent years.
In the first quarter of 2022, the attractive reinsurance growth and favorable investment results led to an operating cash flow of EUR 1.3 billion. Together with the support of a stronger U.S. dollar, this was just enough to offset the significantly negative valuation effect that increasing bond yields had on our investments. Against this backdrop, I would even say it is a positive surprise to see our assets under management at about EUR 56 million on a par with the year-end 2021. Shareholders' equity decreased by 10% compared to the end of last year. As mentioned, the rise in interest rates had a material impact on asset valuations, and hence, unrealized gains and losses in the OCI moved from a level of around EUR 1.8 billion to almost zero in just one quarter.
This massive swing could not, of course, be compensated by positive currency effects and the favorable earnings for the quarter. I'd like to point out that higher interest rates are not only having a negative valuation effect, they also offer the opportunity to reinvest our money at higher rates, which is a positive for our ordinary investment returns. On that note, let me hand over to Clemens.
Yes. Thank you, Jean-Jacques, and good morning, everyone. Starting with our P&C business group, the premium growth continued to be very strong. You might wonder why the figure for currency adjusted growth of 19.5% significantly exceeds the 8.3% growth we had reported for the January renewals. The difference is actually mainly driven by the expansion of our structured reinsurance book, which you know is not part of our renewals reporting. This structured reinsurance book grew by 35% compared to the previous year, which is partly driven by individual large treaties. However, the growth figure in structured reinsurance is expected to decrease over the coming quarters in line with the developments in previous years. Furthermore, the development of our facultative business was pleasing and a large treaty in agricultural business was concluded just after the January renewals.
Overall, the growth continues to be highly diversified by line of business and by region. Net premium earned increased by 18%. The moderate increase in the retention has been more than offset by the change in unearned premium, and therefore, net premium growth is slightly lagging the gross number. As you know, the large loss situation was not benign in the first quarter of 2022. The costliest events for Hannover Re were the storms in Europe and the floods in Australia, with a net impact of EUR 124 million and EUR 186 million respectively. Total large losses amounted to EUR 336 million, which is EUR 52 million in excess of our quarterly budget. As Jean-Jacques explained, we do not yet have sufficient information available to fully assess the impact of the war in Ukraine.
Therefore, the reserving we have done in the course of closing our books for Q1 is not on an individual treaty basis. We have rather strengthened reserves for certain segments in Property and in Marine, where losses might have been incurred. In Property, this is based on the exposure for political violence and for war on land. As the question will likely be raised, let me state that we have not set up any additional reserves for aviation. Based on the information available and in-depth discussions with clients, we do not have a sufficient basis to set up any IBNR for this segment as of today. For all affected areas, we are in close contact with our clients to further analyze the ongoing situation and to assess the potential range of outcomes in the course of the next quarters.
The run-off reserves, the run-off result was slightly negative in the first quarter. The usual positive developments have been offset, in particular, by some late loss notifications in Q4 2021. Therefore, I don't see any general change in the underlying positive trends. Adjusting the reported combined ratio of 99.5% for the higher than expected loss impact and the reserving for the potential effects of the war in Ukraine, the underlying technical profitability is favorably below our target of 96%. Net investment income increased based on very strong ordinary income. Currency effects within the other income and expenses were less significant compared to the previous year, but were still negative in the P&L. However, compensated within OCI due to our IFRS group financials. Altogether, the aforementioned negative impacts on the underwriting results were partly mitigated by strong investment income.
This includes the inflation-linked bonds, which we buy to protect our P&C reserves. The resulting EBIT is at EUR 284 million. Finally, the increase in the tax ratio that you can see here largely can be explained by a lower share of profits from subsidiaries in countries with lower tax rates. On the next slide, as mentioned, large losses exceeded the budget by EUR 52 million in the first quarter. This is, as usual, absorbed within the result, and hence there is still around EUR 1.1 billion available to cover large losses in the remainder of the year. On the next slide, you can see the large loss list is short, but the European storms and particularly the Australian floods alone exceeded not only the attributable budget for Nat Cat , but also the full budget.
The impact for manmade losses of EUR 26 million in total was moderate. As you can see here, we have not included the precautionary reserving for the impact of the war in Ukraine in our large loss reporting. As explained, the initial reserving is not based on a sophisticated bottom-up loss estimate and is done on a gross for net basis without considering any potential retrocession. Therefore, we felt it does not really fit on this slide, but this will likely change with more educated estimations at a later point in time. The next slide shows the technical profitability of our P&C portfolio by reporting line. The picture is heterogeneous this time. The combined ratios for EMEA and APAC mainly reflect the two mentioned large losses. In Europe, part of the reserving for Ukraine is also included in the technical result.
By contrast, the Americas were mostly spared from large losses and show the strong underwriting profitability. Within the worldwide markets, marine includes one large loss and the other part of our reserving for the Ukraine war. In agriculture, a drought in Brazil is one driver of the higher combined ratio. Credit and surety, as well as our Facultative reinsurance business, enjoyed a favorable technical result with no extraordinary effects. Let's move on to Life & Health. On the next slide, gross premium overall decreased by 1.2% adjusted for currency effects. However, as you know, this does not mean that we did not see growth opportunities in the first quarter. Our mortality and longevity business recorded a pleasing premium development.
Furthermore, the business growth in financial solutions is generally not fully captured in the top line because a significant portion of the business is booked according to the deposit accounting method. The reason for the reduction in premium volume in morbidity business here, particularly the discontinuation of one larger individual treaty in Asia, was the reason behind that decreased number. The technical result includes COVID losses of EUR 123 million, which is an improvement compared to the last two quarters. The biggest impact came from losses in the U.S., amounting to EUR 76 million. The main reason for the improvement compared to the second half of 2021 is South Africa, where the overall COVID situation has improved significantly. Apart from these two regions, we have incurred notable losses in Latin America.
As explained in relation to our full year 2021 results, the expected payout of our pandemic retro cover needs to be reflected in the market value of the underlying swap in our investment income. Even though the official calculations are not yet concluded, we feel more certain based on our own analysis that the excess mortality for the two-year period of 2020 and 2021 is actually higher than assumed at year-end 2021. To be precise here, we now assume that the index stands at 114% versus the previous 112%. Hence, the additional amount of EUR 46 million is included in the Life & Health investment income in the first quarter. Still, I would not call this calculation final, and I would say we prefer to be conservative in our assumptions at first quarter end.
The result of our longevity book is again favorable, not driven by one-offs, but rather by smaller positive developments from updated mortality data, which was favorable compared to our conservative initial assumptions. The investment income from assets under own management improved, mainly driven by valuation effects from the pandemic bond. Additionally, ordinary income increased favorably, and we recorded a positive valuation effect from an at-equity participation of EUR 20 million in the first quarter. The fair value of financial instruments includes a negative impact of close to EUR 50 million from a U.K.-embedded derivative in both the current and the previous reporting period. Other income and expenses here are mainly driven by a further increase in the contribution from our financial solutions business, a large portion of which is recognized according to the deposit accounting method.
Altogether, the EBIT of EUR 113 million is built on good underlying profitability. Just as a reminder, the Q1 2021 figure includes a positive one-off effect of EUR 129 million, split across various items in the P&L, and therefore, any comparison, I'd say, is less meaningful here. On the next slide, looking at the non-IFRS metrics for business growth, the development is more meaningful from the accounting view on premiums. We have seen particularly good business opportunities in financial solutions, mainly in the U.S. market. Looking at the indicator for the value of new business at the bottom of this slide, you can see that we have seen a good start to the year.
Even more important, we have a healthy pipeline in all four reporting categories. Just as with the business is written in Q1, the mature markets currently do look a bit more promising. On the next slide, the development of our investments, as Jean-Jacques mentioned, was again very satisfactory. The ordinary investment income is particularly strong. A number of factors play a role here, as in the second half of 2021, our portfolio of inflation-linked bonds within P&C performed very well in light of current CPI figures. Additionally, the asset volumes increased and higher reinvestment yields are more and more visible in our returns from fixed income securities. Finally, the returns from real estate were rather strong in the first quarter.
Realized gains naturally decreased in the current yield environment and, impairments and depreciation are at an expected low level, I would say, to a large extent comprising regular depreciation on real estate. As mentioned in my, comments on Life & Health, the change in fair value through P&L includes two rather large individual effects, the U.K. embedded derivative as a negative and the mortality retro as a positive. Apart from that, the sum of derivative valuations was a slight positive. The overall return on investments was 3.1%, significantly above our full year expectation of at least 2.3%. Now at the bottom of the slide, you can see the, I'd say, remarkable impact of rising interest rates on asset valuations. As we have not actively harvested a lot of unrealized gains in the past, the starting point was very high.
To see this number decreasing at some point in time was not a surprise. The swing for fixed income securities available for sale from EUR 1.3 billion to EUR -1 billion in just one quarter is certainly still exceptional. As we do follow a strict asset liability duration matching, this development is not really worrying. It does reduce, of course, the potential for realized gains going forward because the remaining unrealized gains are sitting in more illiquid asset classes. After years of reinvestment yields below the running yield of the portfolio, we are suddenly no longer seeing a drag from reinvestment yields. On the next slide, as you can see, the asset allocation, I'd say more or less unchanged. The small changes are mostly driven by the relative changes in asset valuation.
In general, we focused our reinvestments in the first quarter, I'd say, a bit more on higher qualities. The contribution to ordinary investment income is diversified as usual. The most significant development compared to the previous year is the 30% contribution from government bonds, reflecting the strong contribution from our inflation-linked bond portfolio on the one hand, and rising interest rates on the other hand. Following a particularly good year for private equity in 2021, the performance in the first quarter was strong at lower levels, but I would call it natural volatility in this asset class. On the next slide, as the annual reserve review by Willis Towers Watson was concluded earlier this year, I'm happy to provide you with their final view on our reserve adequacy at year-end 2021. As indicated already in March, reserve redundancies increased in 2021.
The overall level reached EUR 1.7 billion. This is an increase of EUR 167 million compared to year-end 2020, slightly more than we had initially expected. On a relative basis, compared to our reserve that we are carrying, this means a moderate reduction from 5.5% to roughly 5.2%. The main reason for this development, of course, is the strong growth in the absolute level of reserves, which you know still include high IBNRs for COVID and the fact that the reserve study generally does not yet include any redundancies in the most recent underwriting years. Therefore, we will most likely see those coming through in future reserve studies.
Altogether, this means that we not only achieved a strong result in 2021, but at the same time, we further increased the quality in our reserves, even in the challenging year, 2021. Particularly in light of the current uncertainties associated with the war in Ukraine and rising inflation, we can firmly say that the overall redundancy level increases the comfort level for the remainder of the year. If you'd like to perform further analysis on our reserving position, we have also published the loss triangles for the year 2021 on our website today. To conclude my remarks, the first quarter of 2022 was not an easy start for the reinsurance industry.
For Hannover Re, it was another opportunity to confirm our resilience and our ability to provide attractive returns in challenging times. As things stand today, the overall performance still enable us to achieve group net income within our target range. On that note, I'll hand back to you, Jean-Jacques, for the comments on the outlook.
Thank you, Clemens. But before coming to the outlook, let me take a brief look at our target matrix. Two points I'd like to highlight. The most important achievement in the first quarter is a return on equity above our strategic target despite significant negative impacts within the results. Second point is growth. We continue to see very healthy demand from our customers and expanded our P&C book by almost 20%. Those two points are really core to Hannover Re. Strong profitability, even in difficult times, and the ability to take advantage of growth opportunities. This is what we also did in the April renewals. We have seen favorable demand overall and the continuation of the positive price momentum.
In the Americas, most segments of the market remain attractive, and we expanded our portfolio in both property and casualty lines. Just as in the general renewals, rate increases in cyber were significant, and we grew our premium with a very limited increase in our exposure. In the Asia Pacific region, we had our traditional Japanese renewals. Despite sufficient capacity in the market and benign losses in the most recent years, the rate developments continued to be positive. More significant growth was recorded in Southeast Asia. Altogether, the premium volume increased by 17.4% with a risk-adjusted price increase of 3.7%. This brings us to the guidance for 2022, which is unchanged since we first published it back in November of last year.
The group net income of EUR 264 million in the first quarter is, of course, below the average run rate, but this was already expected due to our front-loading of expected losses, particularly COVID losses in Life & Health. As Life & Health still produced a solid result, this provides some offset for the lower underwriting result in P&C. Additionally, the investment income was stronger than expected in the first quarter. We feel very well positioned to achieve our guidance for the ROI, but don't want to change it already this early in the year in an unstable geopolitical environment. This brings me to potential losses from Ukraine and Russia, where the uncertainty remains high. As already noted, we are in a close dialogue with our customers and will conduct further analysis in the second quarter.
Of course, the whole situation does not make it any easier to achieve the guidance, but as of today, we remain confident about our full year performance. We expect decreasing COVID losses in Life & Health . The investment performance is favorable, and the results for the first quarter have highlighted a healthy underlying profitability. Furthermore, as Clemens explained, our strong reserving position provides an additional comfort level. Regarding the dividend, the EUR 4.5 ordinary dividend announced in March 2022 is the floor for the ordinary dividend. The decision on a potential special dividend will, as always, be made early next year based on the actual full year results and capitalization of the company. This concludes my remarks, and we would be happy to answer your questions. Thank you very much.
We will now begin our question-and-answer session. If you have a question for our speakers, please dial zero and one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask the question. If you find your questions answered before it is your turn to speak, you can dial zero and two to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. The first question is from Kamran Hossain of J.P. Morgan. Your line is now open.
Hey, morning, it's Kamran Hossain from J.P. Morgan. A couple of questions. The first is, I guess, on losses from Russia, Ukraine. I guess you said you're updating in Q2, and I understand you don't perhaps have enough information to kind of get your arms around how big the problem or scale of the issue might be. But to what extent are your underlying clients exposed to aviation leasing? Because that seems to be, you know, the front and center of where claims might come from. And then any scenario analysis that you've done, how concerned are you about that? The second question is just on the guidance. Obviously, I think it's positive that you set up the guidance today and, you know, you've already booked some reserves for Russia, Ukraine.
To what extent do you think there are other buffers in the business at the moment that can help to offset, you know, potential impacts from Russia, Ukraine later this year? So far this year, you know, you've had the life retro, you've got the inflation-linked bonds, which really helped. Are there any other things that we should think about when considering kind of guidance and the full year target? Thank you.
Thank you, Kamran. Maybe I take the question on the guidance. Generally, you know, we have our very strong reserving as a buffer, which helps. Indeed, you know, the inflation linker in this period of higher inflation do help and are expected to help in the course of the year. Also we'll perform a review of our COVID reserving here. We'll see how things develop. Potentially, there might be some upside potential here. Particularly the credit insurance line, which performed actually relatively well compared to our initial expectations at the beginning of the COVID pandemic.
A number of potential drivers for conservatism, which supports the guidance in spite of potential downsides due to the Ukraine Russian war and the direct or indirect consequences. Maybe I'll give the floor to Sven on the losses and how we want to go about it going forward, including aviation.
Yeah, good morning, Kamran. Thanks for your question. I mean, with our precautionary reserves in Q1, we have decided to concentrate on those classes of business being political violence, war on land, marine war, and hull war in particular. Where we have to assume that losses have actually incurred at this stage. All of these are physical damage coverages. We are aware that some of the assets protected by the market have been damaged. We very often don't know the extent of the damage, but we felt that for classes of business where we have incurred losses, we should do precautionary reserving. The level of information available is not very good at this moment in time, as you will appreciate.
When it comes to other potential classes of business that are exposed to the situation, for example, trade credit. We understand that at this moment in time the monies due are still flowing one way or the other, sometimes into trust accounts. The business seems to run its ordinary course in that respect. Then there's quite a few potential exposures, be that on the aircraft leasing side or on the political risk side, where the assessment of what does this all mean for insurance coverage really depends significantly on the world after the war and how the various parties involved structure the post-war situation. Talking about aviation in particular, we have a very complex situation when it comes to coverage. Which policies could potentially respond?
What does that mean with cancellations, that the market has provided shortly after the outbreak of the war? How do sanctions interplay with those, coverages? It's much too early to speculate about the outcome on the aviation side. Of course, we are working on this, either by means of scenario analysis and observing the current situation together with our ceding companies. This is something which we will continue to work on in Q2 and later quarters. That, at this stage, we would not wish to speculate about the outcome of all this.
Thanks so much, Jean-Jacques and Sven. Thank you.
Thank you, Kamran.
The next question is from William Hardcastle of UBS. Your line is now open.
Morning, everyone. Thanks for taking the questions. First of all, just big picture, any signs of inflationary pressure materializing within P&C, I guess was this notable in the cat losses and also how any developing trends occurring given U.S. court reopening on social inflation? Second one is just looking at the gross to nets on the cat losses. It looks like you've only passed through about 15% this time around. A simple question, would this have been the same under the prior year retro protection? Presumably not. And given the K- Cession re-reduction, can you give us any sort of material impact, what that's had year-on-year? I just did a quick glance and looked at the last four years, and it looked like you passed through between 30%-35% over those years.
Just wanting to know if there's anything specific on these losses that would make it different or if that's just the retro protection change. Thank you.
Thank you, Will. Sven will take the two questions.
Yeah, let me start with the second question, Will. Good morning. The K- cession is approximately 8-9 percentage points lower compared to the previous year. That's the reason, or one of the reasons, why there is not such a significant difference between gross-to-net. For our excess of loss protections, both losses are too small to trigger the retention of our whole account event tower. That on an as-if basis would have been the same situation also last year. There is no change in that respect.
When it comes to our aggregate protection on large losses, I mean, of course, we have not reached the annual retention at this stage because it's only the first quarter, and we have decided not to do any pro rata booking against those protections in the first quarter. From that point of view, all we have booked is actually K. Another driver why the difference between gross to net is also not that meaningful is the fact that particularly on the Australian floods, we have decided very late in the book closing process to book another level of precautionary reserves in order to make certain that we have a prudent reserve on the Australian floods.
We have not allocated this additional booking, which we did so late in the process, contract by contract, but we did that as a bulk IBNR booking, and we did that gross to net, so we did not apply any potential reinsurance or retrocessional coverage against those extra bookings. We will certainly change that in Q2 and redistribute the additional reserving we have done on the individual contracts. Some of the losses will therefore be subject to K. From that point of view, Q1 is a little more on the prudent side when it comes to the reserving on the losses that have occurred in the first quarter.
When it comes to inflation, you know that we have significantly adjusted our inflation assumptions in the pricing of our short tail lines of business. This, of course, will continue. We are currently thinking about what to do on the long tail classes. We have already adjusted our pricing assumptions for inflation last year, also in the long tail classes. Given that due to the Ukrainian war in particular, the inflationary environment seems to stay longer than maybe originally expected, we will do additional adjustments also in our long tail pricing when it comes to the renewals later in the year and in 2023. The impact from inflation on losses incurred, yes, we are seeing some of that in the net catastrophe losses in 2021.
The more meaningful effect, I would say at this stage is the fact that the supply for raw materials and construction materials is still impacted by the high demand and supply chain disruptions. It's a combination of inflation, but also much longer repair times, which of course also has an impact on the business interruption side of those losses, which is all taken into account in the pricing going forward. It's also fair to say that being prudent and precise in reserving for those losses is more challenging compared to historical losses.
That's great color. Thanks. There was just one more linked with the social inflation in the U.S. courts reopening, if possible.
I mean, of course, the courts are reopening. Nothing particular to report on that side, yet, William. We are very aware about the potential for higher awards, particularly when it comes to bodily injury cases, and particularly in the U.S. legal system. We have not seen anything untoward in our portfolio. We are certainly building social inflation into both our pricing and our reserving assumptions.
Brilliant. Thanks very much for detailed answers.
The next question is from Andrew Ritchie of Autonomous Research. Your line is now open.
Oh, hi there. A few questions, please. Could you just clarify, Sven, the retro attaching to the losses you've booked so far for Ukraine? I appreciate there's no specific loss, so you can't be that precise. To the extent they're in the classes you've mentioned, are those classes covered? I can't remember if those classes are covered by K or not. Just to clarify, would retro, to the extent those claims become clarified, would retro attach? On investment income, second question. I mean, could we actually have a situation where your investment income target is harder to attain, not easier, given the evaporation of the stock of unrealized gains? Or maybe just clarify the speed with which you expect the recurring ordinary yield, I'm talking ex inflation-linked bonds, to pick up.
Presumably on the inflation-linked bonds, though, we still have another quarter or so of amortized gain, as it were, to come through. I guess my only other questions, very quick ones. On the reserve buffer, just to clarify, that would exclude anything to do with COVID, that buffer, the EUR 167, I'm assuming? The only other question I had was on growth. I mean, it looks like growth has been a lot stronger in P&C than expected. What, I mean, than expected even, 'cause I remember you being pressed on growth expectations at the full year. What is it just the sheer demand for structured or it looks also like April renewals, there was more opportunity to grow than possibly expected. What, what's that coming from? Thanks.
Thank you, Andrew. Maybe a quick one. The reserve buffer indeed excludes COVID?
Yeah. Most of that, reserve buffer increase, Andrew, is not related to COVID. There has been, for the first time, a small amount, included into that buffer, but it's really a small amount.
Yeah. Maybe on investment income,
Yes.
Clemens, Sven on retro and the P&C growth?
Yes. On investment income, Andrew, I think when we did our planning and our update of the assumptions for 2022 on the investment income, we had not planned for any significant realized gains on our fixed income portfolio. Therefore, it's not much of a worry. Of course, it sort of doesn't not make it easier to take advantage of those in Q3 or Q4, but we did really not include that in our planning. Therefore, we are still very firmly confirming our ROI target there. I think the inflation linker, both the current contribution as well as the amortization, we will see larger effects, I think, in Q2, Q3, Q4, probably not in the amount of Q1.
When we look at the contribution from the inflation-linked bonds in the first quarter, it's probably a mid-high double-digit EUR million number in our investment yield. That I wouldn't take that x4 for the year, but it will be a substantial contribution from those inflation-linked bonds. You can probably see that in our book yield. When I look at our book yield of our fixed income security portfolio, in U.S. dollar, for example, we are running currently at a book yield at roughly 3.4%, but that includes the inflation-linked bonds. If you strip those out, that will roughly be a number of 2.6%. When we look at current reinvestment yields in the U.S. dollar space, we are looking rather at 3%.
Overall, I think it does support our guidance, our expectations for our investment income.
Yeah. Starting with your question on the retro side, Andrew. In Q1, we have booked the precautionary IV in our gross for net, so we did not take into account any potential retro protection we have. We are buying specific insurance and retro protections on the marine and aviation side. More substantial for all risk losses, and less substantial for all losses. We would have coverage available for both. K would come into play, particularly on all risk losses. K would be the aviation part and K would have coverage. Where we are not buying any retro is on the trade credit or on the political risk side.
At this moment in time, given that we feel the level of uncertainty is too high to have an idea about where this loss may go, of course, it's not possible to give you an idea which coverages we are buying may or may not respond at the end of the day. We do have those areas where we are buying protection. On the business side, we had a particularly strong first quarter in our structured reinsurance, but also in the ILS fronting business we have. If you take the two together, we have grown 45% in those two structured alone, the growth of 36%. If you are looking at P&C excluding structure, the growth would have been 14%.
The reason for that being a higher than anticipated number, the 14%, is twofold. One, the rating environment is still positive, but also we have more runoff of premium from prior underwriting years, particularly 2021, of course. Due to the favorable insurance rating environment, where particularly on the pro rata business, our original assumptions on how much premium we would get through those pro rata contracts more often than not are actually exceeded because of the underlying rate improvement in the insurance market. These are the three main contributors to the strong premium growth. Pleasingly, as Jean-Jacques already said, it's well diversified.
Both from a regional and from a product point of view, but particularly strong in structure.
Great. Very comprehensive. Thanks very much.
Thank you, Andrew.
The next question is from Vikram Gandhi of Société Générale. Your line is now open.
Oh, hi, good morning, everybody. It's Vik from Société Générale. Just three quick ones from me. I appreciate you alluded to a strong underlying performance in the Life & Health segment in Q1, but I wonder if there's some more color that you can provide on the underlying technical results for that business over the course of the quarter. Second one is on P&C. The negative PYD movement that you flagged for the Q4 events, just interested which event it really related to. Lastly, can you update us on the IBNR position for the COVID reserves as of the end of first quarter? Thank you.
Thank you. Klaus will address the Life & Health performance question.
Yeah, very happy to do so. The underlying result is driven by a couple of factors. One is we had a pretty benign quarter across all business lines. No major claims. We had a very pleasing result on the so-called deficit accounting treaties. They went up from EUR 90 million in the first quarter 2021 to EUR 111 million in the first quarter 2022. This is something which will stay for a while. Although I can't guarantee that we will have this business forever, but for the next couple of years, I would expect that this increase in financial solutions will stay with us. We also had a very positive result on the longevity side. Some small positive one-offs, which might recur every now and then, but not regularly in each and every quarter.
A very solid result, this is something what we know for sure now, we have a portfolio which has more than EUR 30 billion of liabilities. It is an extremely stable result. We have been very cautious in the last 10 years not to show any results which are not sustainable. We will see very positive results from the longevity book in the next couple of years. Then there is a small one-off, which also might occur every now and then from an at-equity consolidation in one of our asset-intensive reinsurance investments in Bermuda. All in all, this proves that there is a strong underlying profitability.
Thank you.
Yeah, on the losses, the negative runoff from last year came from a variety of sources. We had smaller movements on the losses you have seen on the large loss list for last year. Uri was the most significant movement, which we have seen with roughly EUR 30 million, much smaller amounts on the European floods and on Hurricane Ida. The second source was also very late losses in last year, both on the manmade side, where we had two new fire losses, but also from a natural catastrophe point of view, where there was a significant flood event in Thailand, which we had to adjust our booking in Q1 compared to the original estimate in Q4.
When it comes to COVID, our overall COVID net loss remains steady at EUR 950 million, so there is no change on that side. The level of IBNR is at 45%, only very slightly reduced from 47% at year end.
Thank you. That's very helpful. Thank you very much.
The next question is from Vinit Malhotra of Mediobanca. Your line is now open.
Yes. Thank you. Thanks for the chance. Thank you very much. First thing is just, if I could follow up on the COVID reserve, which Jean-Jacques mentioned as one of the buffers, possibly. I'm surprised you're not mentioning BI because, I mean, obviously, I know your BI is more European-oriented than U.S. in COVID. At least in the U.S., what we are reading about is that almost all court cases are going in insurance companies' favor, 90% is being quoted. Could you just comment about what's the possibility for BI? What is the level within the EUR 950 that you have now? What is the possibility for BI to support results in the rest of the year? Second question is on structured reinsurance. The 35% growth that was mentioned.
In the past, structured reinsurance has been doing slightly better on combined ratio as well. Could we please comment a bit about the combined ratio you're, you think you're getting? Is it 98%, 96%? I know there's a slide which shows structured in IRIS, but just on the book you're writing, any comments, is it better than before? Why is it not? Because there's so much demand, I'm sure you can. I mean, isn't it that you can get a better margin on structured? Last question is on the investment side. Reinvestment yields were mentioned. Could you provide any numbers here? If you suggested it was now no attrition on the reinvestment yield. And also you mentioned high real estate income in 1Q.
Could you comment that because obviously interest rates are rising and reflect more rental yield, or is it just valuation gains? Thank you very much.
Thank you. Sven, we'll cover COVID reserves and structured.
Yeah. When it comes to our COVID reserving, there's relatively few extra buffers on the business interruption side. You were referring to the U.S and the court cases. That of course is absolutely correct. We never really included significant amounts of BI reserving for U.S. business because we were rather certain that the exclusions that were used by the market were very strong. Therefore, while it's pleasing to see that this is reconfirmed in the court system as well, it's not the fact that we have a lot of extra reserving on that side.
The buffers for COVID would mainly be on the credit and surety and also in some of the longer tail classes like liability business, but not from a property business interruption point of view.
Mm-hmm.
On the structured business, the margins are mostly still at around 2-2.5 percentage points. There is no change in that respect compared to what we told you over the years. The reason why the combined ratio was higher in the first quarter is just to be seen from the fact that we are starting the year on a prudent footing with our initial ultimate loss ratio assumptions also for this business. At the end of the year, we expect that to move to the more average profitability which we had in the class over recent years.
Right now it's a little too early to say whether the change in the capital market with the significantly higher yields will also have an impact on the potential margins for structured business. I mean, of course you're absolutely right in making that reference, because the margins are more restricted by what is happening in the capital market rather than what is happening in P&C elsewhere. That's just a little bit too early. I mean, we are talking about a development which has mostly happened in the first in the last two quarters. Therefore, I don't have a good overview or feel yet whether we can translate that into extra margins also on our structured business.
Okay. Thanks.
Vinit, on investments, I'll probably start with the real estate question. In line with our investment strategy, we have really increased the portion of real estate investments as part of our asset allocation. Can see that, I think it's some of the slides that we've increased the share from 5%-6%. Should be roughly an amount of EUR 3.4 billion now in market values on real estate in our portfolio. That's a mixed picture of direct investment funds, et cetera. It's really the increase in share. I think that 6% contributed to roughly 11% of our ordinary income. That is, I think in the first quarter, Vinit, top of my head, I would say roughly EUR 50 million of that ordinary income is attributable to real estate.
That compares to roughly EUR 35 million in the first quarter last year. It's really not driven by change in yield, but rather more than an increase in share of real estate in our portfolio.
Mm-hmm.
On the book yield, it's very difficult to give you a number for our overall book, but I'll try to give you probably the numbers for our main currencies. When I look at the current book yield in the first quarter for the U.S. dollar, that would be roughly, as mentioned earlier, roughly 3.3%-3.4%, I'd guess. But that includes the inflation-linked bonds. If you clip those out, that will be roughly 2.6% book yield in U.S. dollar fixed income. In euro, that number would be roughly 1.5%, I think, including the inflation-linked bonds, it would be roughly 2%. Then probably on pound sterling, that would be roughly 2%, both including the inflation linker.
That's roughly the picture on our book yield.
Okay, thank you very much.
Thank you, Vinit.
As a reminder, if you would like to ask a question, please press zero and one. The next question is from Iain Pearce of Credit Suisse. Your line is now open.
Hi, morning, everyone. Thanks for taking my questions. Three just quick ones, hopefully. First, was just on the retro. Sven, I think you covered most of the lines of business, but I might have missed it, but if you could just provide some clarity on how you expect the political violence claims to interact with the retro programs and any specific reinsurance you have there as well, that'd be really useful. The second one was if you could just provide some more color on what drove the negative impact from the U.K. derivative in the Life & Health book, and if there's anything to flag there going forwards as well.
Thirdly, just on the COVID credit and surety claims, what's preventing you from releasing that reserve given the sort of shorter tail line of business that that is and the lack of claims you've seen there so far? Thanks.
Thank you. On retro PV and COVID, Sven, any assessment?
Yeah, let me start with the retro question. It really depends on where this PV exposure is written, whether it's written into property accounts or into specialty accounts, because different retro protections would apply. If we are writing PV as part of a specialty contract, then the usual suspects of retro protection, i.e., particularly K, would apply. When we are writing PV on a standalone basis, we only have small amounts of specific retro protection available, and our general protections would not apply to those. On the COVID side, I didn't fully hear your question. Could you repeat it?
On credit and surety, why weren't we allowed in a position to release reserves on COVID credit and surety?
Okay, thank you. Well, we did a first release in Q4 of last year, a small amount. Once we feel comfortable that there is additional prudence and redundancy in our existing credit and surety reserves, we felt that doing it again already in Q1 was just too early. We are going to look at that during the course of the year. I do expect us to do some further releases on the credit and surety side. But the timing is later in the year. We felt Q1 was too early in that respect. Very good. Klaus, on the U.K. derivative then.
Yeah. Happy to take that. The underlying business is an old block of mortality business, mainly mortality business in the U.K., which is in run-off for a couple of years. This is so-called level premium business. That means initially we have lower claims expectations and have to set up mathematical reserves for the future. Because this is a substantial block of business, the client wanted for security reasons that this amount is deposited. We have done that with the client, and we get a return on this deposit, which is basically linked to government bonds. Because under IFRS 4, this is split up into the investment part and the reinsurance part, we have to account for it as a financial derivative.
With the rising interest rates, of course, this derivative has lost value. In the last two years, it always gained value when the interest rates went lower and lower, but now it reverses. This is not a real economic loss as such, but it has to go through the P&L. Therefore, we show losses when interest rates rises and profits when interest rates go down. If we hold this to maturity at the end, the impact is not substantial in the long run.
Iain, just briefly to add to that, the positive impact that you would expect on the liability side of the portfolio that Klaus mentioned is not visible in IFRS 4 because you've got, you know, the locked-in principles there, and therefore you wouldn't see that positive change. Whereas in Solvency II, that effect would be both visible on the deposit side as well on the liability side. That would be economically even.
Perfect. That's great. If I could just come back quickly on the PV. When you look at the PV exposures, is the majority written through specialty lines, or is the majority of the exposures on a standalone basis in terms of, you know, your exposure?
The majority is on the standalone side, so not through specialty classes. Roughly, I would say 2/3, 1/3.
Perfect. That's great. Thank you very much, guys.
The next question is from Fulin Liang of Morgan Stanley. Your line is now open.
Yeah, thank you. Hi, this is Ashik Musaddi. I'm using Fulin' s line. Thank you for the opportunity to ask questions. I have a couple of questions if I may. First of all, I mean, you have taken the EUR 143 million-EUR 150 million of losses on Russia, provisioning on Russia. Now, how do we think about that going forward? Like would you be taking some generic provision this quarter, next quarter as well? Or now basically some losses has to come through for this number to move or you need to. How do we think about that going forward? Like, how long was this generic way of taking provisioning will continue? That's the first question.
Second question is, I mean, you have kindly given the details on the COVID reserves, EUR 950 million, IBNR 45, and you mentioned that you'll be looking to review this in coming quarters. Is there any chance you could be a bit more specific, whether we should expect this after first half or later this year, or maybe like next quarter? Any timelines would be very helpful. Thank you.
Thank you.
Yeah. Let me start with your COVID question. As I said, we have not made that decision yet. It will most likely be in Q2 or Q3, not Q4. Whether it's Q2 or Q3, we have not decided at this stage. Therefore I cannot be more precise in that respect. On the Ukrainian reserving side, I'm afraid, I mean, as long as the war is ongoing, I don't think that the situation will fundamentally change by us saying that it's not possible to form an opinion about what is the potential impact from the situation.
As long as we have this very high level of uncertainty, we may or may not put extra precautionary buffers into Q2. But this is much too early and, as long as the war is an ongoing situation, we will certainly not be in a position to form a view on what does this mean for the various classes of business when it comes to ultimate losses or scenarios.
That's very clear. Thank you.
Thank you, Ashik.
As there are no further questions, I hand back for the conclusion.
Well, thank you very much. I won't be long, because I think we covered the ground very well. We wanted to show the growth in our business, particularly P&C with the price momentum. We highlighted and discussed the precautionary measures around the Ukraine and also the potential upside we see, which led us to believe that our guidance can be confirmed today. Life & Health is also strong. Underlining business is good, and we're hopeful that the trend on COVID extra mortality will continue in the right direction. All that showing strong resilience and confidence on the full year result for Hannover Re. With that, I close the session.
Thank you so much for participating and for the good questions, and have a good day.