Ladies and gentlemen, thank you for standing by. I welcome you to today's Hannover Re Conference Call on Q1 2023 results. For your information, this conference is being recorded. Throughout today's recorded call, all participants will be in a listen-only mode. After a short introduction by the management, there will be a question and answer session. If you would like to ask a question, you may press star followed by one on your touchtone telephone. Please press the star key followed by zero for operator assistance. At this time, I would like to hand the call over to your host today, Karl Steinle. Please go ahead, sir.
Well, thank you, and good morning, everyone. Welcome to our earnings call on our results of the first quarter 2023. It doesn't sound spectacular, but this is the first time we are presenting our figures according to the new accounting standards, IFRS 17 and IFRS 9. This morning, the speakers are, as usual, Jean-Jacques Henchoz, our CEO, and Clemens Jungsthöfel, our CFO. They will give a brief presentation after which we will have plenty of time for your questions. At the stage, we will also have Klaus Miller and Michael Pickel, who are also commenting our Life & Health and P&C reinsurance business respectively. With that, I would like to ask Jean-Jacques to kick things off.
Thank you very much, Karl. Good morning, everyone. Thank you for joining our call today. We remain in a rather uncertain and volatile geopolitical and macroeconomic environment. I'm very pleased to say that the business development of Hannover Re has not been affected by a larger extraordinary event in this first quarter of the year. The group net income of EUR 484 million reflects, I believe, a good start to the year and fully supports all our targets for 2023. In P&C reinsurance revenue, according to IFRS 17 remained stable, largely reflecting the P&C renewals, where our portfolio management had a clear focus on improving the quality of our book of business.
In particular, we've shifted our capacity towards non-proportional treaties where we expected profitability and price adequacies have improved significantly in the past renewal. IFRS 17 changes earnings of the reinsurance revenue to a more exposure-based pattern, so the outcome of later renewals will be visible over the course of the year. The loss situation improved significantly compared to the previous year. Large losses were slightly below budget, the impact from COVID-related claims in Southeast Asia decreased as expected. In Life & Health , reinsurance reported COVID-19 claims decreased to EUR 11 million, not affecting our result in a meaningful way anymore compared to previous years. The reinsurance revenue in Life & Health is mainly reflecting volume effects connected to in-force management actions in our U.S. mortality portfolio.
The strong reinsurance service result is supported by the continued healthy profitability in financial solutions and longevity. Additionally, the transition to IFRS 17 and the unlocking of assumptions result in a slightly higher profitability for our mortality business, now also being a more significant and stable contributor to Life & Health results. With return on investment of 2.7%, the investment performance was favorable this quarter. The strong ordinary income is mainly driven by higher interest rates, and additionally supported by the contribution from inflation-linked bonds in this quarter. Altogether, the return on equity of 20.8% and the solvency ratio of 261% highlight the strong earnings power and capitalization of the firm. Shareholders' equity increased by 5.2%, mainly driven by Q1 earnings.
The main change compared to the previous accounting is the discounting of liabilities and the recognition of the respective impact of changing interest rates in the OCI. Due to our strong asset liability matching and a change in the reinsurance finance result within the OCI, largely offsets the change in unrealized losses on our investments. The CSM increased by 13.3%, mainly driven by the new business value generated by our successful January renewals in P&C. The risk adjustment increased by 2.9%. All three balance sheet items reflect value for our shareholders, but in different ways. Reported profits are accumulated in shareholders' equity. Future profits in the CSM. Furthermore, the risk adjustment can be seen as a buffer for uncertainty.
If the business runs according to expectation, this will be released into profits as well. On that note, I'd like to hand over to Clemens, who will do a deep dive in our figures for the quarter.
Thank you, J ean-Jacques , good morning, everyone. Yes, Karl, as you mentioned, after nearly two decades, we are finally there with the new insurance standards. In my following remarks, I will therefore try to provide a bit more details than usual when it comes to IFRS 17 related topics, and in particularly on the P&C side. I will also put a bit more emphasis on the current quarter versus expectations and guidance, as opposed to comparing numbers to prior year. I do hope that you also find this a useful approach. P&C, to start with, P&C, the development, where we have grown our book substantially over the last couple of years. The newly defined top line in the first quarter largely reflects the outcome of our January renewals.
Here, our clear focus on quality and the corresponding shift towards non-proportional business in combination with higher retention and some portfolio pruning on the proportional side did have an impact on volume. At the same time, we recorded substantial margin improvements with it. Sorry, we had a disconnection here. Apologies. I just start again on slide 6, we are on development on P&C. Again, here our clear focus on quality and the corresponding shift towards non-proportional business in combination with higher retention and some portfolio pruning on the proportional side did have an impact on volume. At the same time, we recorded substantial margin improvement, which is now very visible in the new business CSM contractual service margin in the first quarter, which is mainly a reflection of the 1/1 renewals.
At EUR 1.5 billion, this number clearly increased compared to the prior year. Another indication for the improved quality of our renewed portfolio is the low loss component for new business. I'd say generally, our unchanged cautious reserving approach can usually result in a loss component, and this can result in seasonality connected to the renewal date. The likelihood of having a positive CSM instead of a loss component is, of course, depending on the market environment. Let's say in a favorable pricing environment, even combined with higher interest rates, we would structurally report lower loss components for the new business, and we are actually currently in such a positive environment. This is what we see here. The new business value will be earned over the so-called service period.
We should expect a larger portion of this being earned in 2023. Mechanically, in the new accounting regime, the CSM will be released into revenue, and then contribute to the reinsurance service result. Generally, this is, I'd say, less front-loaded compared to a gross written premium view under IFRS 4, as the revenue under IFRS 17 is already, as you know, an earned number. Another difference compared to IFRS 4 is the growth of our structured reinsurance business. Part of the business growth is connected to treaties with a rather high level of commission and non-distinct investment component, which are typical features in this line of business. As you know, those components are deducted from the reinsurance revenue, meaning that the growth in structured reinsurance is slightly subdued compared to traditional premium numbers.
Altogether, we still expect to see growth in our P&C reinsurance revenue, and the successful April renewals are the first step. On large losses, they amounted to EUR 334 million , that is EUR 22 million below our budget. As mentioned already in March, the main events were the earthquake in Turkey and the weather-related events in New Zealand. The impact from man-made losses was below expectation. Just as a reminder, our large loss reporting in the budget both reflect an undiscounted view, as the actual reserves, as part of the reinsurance service result, are now discounted. However, as for the large losses, this does not really make a huge difference because the affected business is mostly short tail.
On top of that, the Turkey earthquake loss is largely in euro currency for us, therefore not discounted, based on local interest rates. COVID-related claims from our accident and health business in Southeast Asia have decreased as expected. In the first quarter, the negative impact was in the double-digit millions. Apart from this, the loss development for both current and prior years was very much in line with our expectations. The improved quality profitability should have enabled us to increase the confidence level of our reserves as we have not changed our cautious loss mix, particularly early in this year. Altogether, the resulting combined ratio is at 92.3%. On the combined ratio, I think it's really worthwhile to recap on the main differences from IFRS 4 and also to provide some more details on the composition of the 92.3%.
Let's assume a target combined ratio of 94% under IFRS 4 for 2023. To arrive at a target combined ratio under IFRS 17, as you know, we have a couple of structural changes and the discounting. As for the structural changes, we have the change in disclosure, where commissions and so-called non-distinct investment components are being deducted from both the nominator and the denominator. We also have some reallocation of costs, the so-called non-directly attributable costs, which are now captured in other income. Both effects together reduce the combined ratio by roughly, I'd say, 2 percentage points. That brings us from the 94% to 92%. In Q1, this has been offset by the change in the newly established risk adjustment, and that offsetting effect was roughly 2 percentage points.
I would say that's usually a rather stable number, but there is, of course, some seasonality in the risk adjustment, especially in renewal quarters like this. It's probably a bit higher, but again, that's 2%. This brings us to actually a 94% target under IFRS 17 for the Q1 combined ratio before discounting. On the discounting, for the first quarter, please bear in mind that this is not fully based on the currently higher interest rate level for the business written in 2022 and before the corresponding CSM release and transition from the LRC to the LIC is based on initial lock-in interest rates. Therefore, discounting effect is a blend of lower years from prior years and higher interest rates in the first quarter.
Overall, the positive discounting, the discounting effect should be somewhere between EUR 150 million and EUR 250 million. That translates roughly into 5 percentage points effect on the combined ratio. That would bring us to a target combined ratio, a discounted target combined ratio of roughly 89% for the first quarter. The difference to the reported combined ratio is probably an amount of 1 percentage point. The accident in health, the same in Asia Pacific. Other than that, the underlying development is very much in line with our expectations. The underlying combined ratios are very strong. The difference to the reported combined ratio is mainly the increase in the confidence level of our reserves in the quarter.
Please bear in mind that we have not really changed our cautious reserving approach at initial recognition, and then on top of that, we have the risk adjustment. Therefore, I think the confidence level increased well in the first quarter. This discount effect compares to an interest accretion on reinsurance liabilities of roughly EUR 129 million. A negative number, which is now being captured in the reinsurance finance result, which is a separate line item in our presentation, just between the reinsurance service result and the investment. This is the result of the sharp increase in interest rates observed in 2022. On the one hand, the positive discount effect is increasing quickly due to the fast turnover of the CSM. On the other hand, the unwind of the discount is largely based on the lower interest rate environment.
As currently, high interest rates will gradually increase the finance expenses, this is only temporarily positive for the P&C earnings. Over time, of course, the combined discount of reserves and the interest accretion should be largely neutral to the results. Moving on to the investment results in P&C. The performance was favorable, driven by a strong ordinary income. Our inflation protection contributed, sorry, EUR 39 million to the results. You might wonder why this number is much lower compared to previous quarters, even though the CPI inflation has not decreased to the same extent. Here I want to mention we have not changed the accounting method there. However, we did make a change to the allocation of the overall expected contribution to the individual quarter.
This is really to ensure a more economic accounting view in our quarters, with the amortization now being based on the expected inflation for 2023 instead of the reported. This will not change the overall earnings contribution from our inflation-linked bonds, which we expect to be around EUR 160 million for the year. It will change the recognition over the course of the year towards a more stable pattern for the year 2023, as you can see in the first quarter. The other result on this slide is comprised of the currency result as well as other income and expenses. The other income and expenses mainly includes the non-directly attributable expenses, as mentioned earlier, and the currency result, which was a positive number of EUR 47 million in the first quarter.
On the next slide, as mentioned during the first quarter of 2023, three large NatCat events occurred. For the devastating earthquake in Turkey and Syria, we reserved a little more than EUR 200 million, and for the cyclone with heavy rain and flooding in New Zealand, we reserved together another EUR 100 million. These three events, together with two manmade losses, have not fully utilized our large loss budget of EUR 356 million. In line with our usual practice in the past, we have not released unused part of the budget. You might have noticed that the weather-related events in the U.S. at the end of the quarter are not on our list in the appendix. Those losses occurred after closing our books, however, but we are not really looking at a huge insurance event here.
Based on early indications, good part of the losses might also stay within retentions of primary insurance. Anyhow, the Q2 budget of EUR 395 million leaves a lot of room for other events in the second quarter. Let's move on to Life & Health . Reinsurance revenue decreased by 2.6%. As Jean-Jacques mentioned, the decrease in revenue is largely connected to the in-force management actions for our U.S. mortality business. Additionally, we have discontinued morbidity business in APAC. Longevity business remained rather stable under IFRS 17. Entire financial solutions business is now also recognized within reinsurance revenue, including around EUR 115 million fee business, which was previously recognized in other income and expenses. As you know, the so-called deposit accounting under U.S. GAAP.
With the transition to IFRS 17, profitability is structurally a bit higher because loss-making business has been revalued at transition and should not longer affect the income statement. This effect is mainly connected to our mortality business and the earnings contribution should increase in stabilized volume. In contrast, the earnings level and pattern of our longevity and financial solutions business is largely unaffected by the transition, and the performance in both lines continue to be positive. As expected, COVID claims in Life & Health continued to decline from quarter to quarter. The figure of EUR 11 million is therefore significantly lower than the previous IFRS 4 figure of EUR 123 million.
The previous year's IFRS 17 result that you see here has been less affected by COVID-19 claims, as most of the claims were already anticipated and absorbed by the risk adjustment and the CSM in 2022. The ordinary investment income in Life & Health was favorable. The previous year's period included positive contributions from our extreme mortality cover and also from at equity participations. Both were non-recurring items. Overall, the EBIT does not include larger one-off effects. However, I would like to emphasize that the EBIT exceeded expectations and should not be taken as a quarterly run rate for the next quarters. More generally, the significant level of CSM and risk adjustment will support a more stable and sustainable earnings pattern in the future. The new business contribution in Q1 was EUR 77 million.
Naturally, this figure can be volatile in individual quarters due to the transactional profile of parts of the Life & Health business. Other components of the change in CSM are changes in estimates and the regular CSM release. I think it's worth mentioning that the changes in estimates are mainly connected to prolongation of existing treaty, which under IFRS 17 is not captured in the new business CSM. However, under Solvency II, the value of new business prolongation business is included. Assumption changes can generally have larger impacts due to the long-term nature of Life & Health business. Of course, in Q1, as you can see, we have not recorded any larger individual effects. Finally, the regular release of the CSM is not at unusual levels. On investment on the next slide, the development of our investments was again very satisfactory. The ordinary investment income is strong.
A number of factors play a role here. The asset volumes increased. Based on a strong operating cash flow and higher reinvestment yields are more and more visible in our returns from fixed income securities. In contrast, the contribution from alternative investment have decreased compared to the very strong performance in prior years. As explained, the contribution from inflation-linked bonds was EUR 39 million, reflecting the inflation expectation instead of the actual reported CPI numbers. Otherwise, the investment income is pleasantly unremarkable, in particular in terms of the new ECL Expected credit loss and the higher share of investment at fair value through OCI. As you know, we have included some negative P&L effects for private equity and real estate valuation. The ROI guidance, and the absence of these effects resulted in a moderate seasonal outperformance versus our guide.
All in all, I'd say the ROI of 2.7% is above our target of 2.4%, which still includes allowance for negative valuation volatility. On the next slide on the reserves, 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 2022. As indicated in March, the resilience reserve decreased in 2022, but the actual reduction of EUR 325 million is at the lower level of our indication of around EUR 300 million-EUR 400 million. The overall level now stands at close to EUR 1.4 billion. I would like to highlight that this number includes any changes in inflation expectations. Just as a reminder, the reserve study generally does not include any resilience reserves in the most recent underwriting years.
Therefore, we will most likely see those coming through in future reserves. We are committed to further rebuild the resilience reserve during the course of the year, as previously stated. If you would like to perform further analysis on our reserving position, we have also published the loss triangles for the year 2022 on our website today. To conclude my remarks, the first quarter of 2023 was a rather pleasantly uneventful one, which makes the analysis of the first time IFRS 17 numbers probably a bit easier. As things stand today, the overall performance is supported to reach or exceed our group net income of EUR 1.7 billion. On that note, I'll hand back to you, Jean-Jacques, for the comments, the outlook.
Thank you very much, Clemens, for this overview. Before commenting on the outlook, just a few observations on the April renewals. They were characterized by a market environment similar to the January renewals. Industry capital remains constrained, with limited new capacity entering the market. Reinsurers generally continued to adjust prices and structures in a disciplined way during this April renewals. Most significant price increases could be achieved in the non-proportional property cat business. Accordingly, we continue to shift our portfolio towards non-proportional business and reduce some of our shares in our proportional portfolio. Due to the loss experience, rate increases were stronger in the U.S. than in Asia, particularly in Japan. The general development was positive for almost all lines and regions.
This is also true for marine business, where a lot of focus was maintained, not only on price, but also on the terms and conditions and definition of coverage. Altogether, as you can see on the slide, the premium volume increased by 7.1% for our portfolio with a risk adjusted price increase of 6%. As the business development in the first quarter supports our expectations for the full year, we've kept our guidance unchanged. We continue to expect a growth in revenue of at least 5%, even though there has not been any material impact from valuation volatility on the investment side during the quarter. Our ROI target of more than 2.4% still includes the initial assumption of decreasing valuations for private equity and real estate.
Additionally, the ambition to restore our reserving strength in P&C reinsurance, which was mentioned by Clemens, continues to be embedded in our guidance. In Life & Health, the Q1 performance was strong, even though this was not driven by one-offs, it was still above our expected run rate per quarter. Altogether, I'd say we've had a good start to the year, and we're quite confident that we will achieve our guidance. We do believe that the new accounting regime overall provides more insights into our business and our profitability. However, we appreciate that it does need more granular information, which we're trying to do today, in particular, to assess the potential impacts on interest rates on some of the established KPIs.
An addition to our official guidance, we therefore decided to provide you with further assumptions for some IFRS 17 P&L items on this slide. The combined ratio in P&C is expected to be between 91% and 92%, reflecting the favorable market environment, also our ambition to restore reserving strength. Of course, this figure is subject to changing interest rates affecting the discounting effect. The same is true for the current assumption for insurance finance expenses expected at around EUR 500 million for the full year. In Life & Health , the expected interest accretion is a structurally smaller number than in P&C, where premiums are usually paid up front and claims paid at a later stage.
The service result in Life & Health should be between EUR 750 million and EUR 800 million. Altogether, the expected EBIT numbers for our two business groups are unchanged. We have only adjusted assumptions to at least instead of around, to reflect the favorable performance in the first quarter and to better align.
These assumptions with our group net income guidance of at least EUR 1.7 billion. This concludes our remarks. We would be happy to answer your questions as usual. Thank you very much.
Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. In the interest of time, please limit yourself to two questions only. If you're using speaker equipment today, please leave the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. The first question comes from the line of Vikram Gandhi with Société Générale. Please go ahead.
Hello. Good morning. It's Vik from Soc Gen. Thank you for the opportunity. I've got a couple of questions and just a couple of quick clarifications, if I may. First of all, on P&C Re, how should we think about the Russia, Ukraine, Russia-Ukraine impact affecting the 1Q 2022 numbers on slide six? Is that a drag in the new business CSM, or has it amplified the new business loss component, or it's a mix of the two? That's question one. The second one is on the amortization of Life & Health CSM, the EUR 189 million figure that goes into the P&L.
When I look at the P&L on the left-hand side, is there a way to know what all lines does the EUR 189 million figure hit? How do we get a sense of what the other profit contributors are? I think you said the EUR 115 million from financial solutions was recognized as revenue. Does that drop through entirely as profit? Those are two questions. The clarifications, we don't have the roll forward of the CSM stock for P&C Re. Are we likely to get that going forward? The other bit is on Life & Health Re. In future, are we likely to get the breakdown of the CSM stock by different lines of business, mortality, morbidity, longevity and financial solutions? That's really all.
Vik, good morning, this is Clemens. I'm happy to pick up those questions. Probably on the latter, when it comes to future disclosures. Yes, we will be providing the CSM breakdown for Life & Health . I can probably share the numbers. I guess overall nicely diversified the CSM stock with probably a bit more than 30% on financial solutions. Roughly 30% should be mortality, 25% longevity, and the rest should be morbidity. Really, just off the top of my head, but those should be quite stable numbers. As for the CSM walk as development on the P&C side, yes, we will, we will provide those. I mean, this is mainly driven, of course, in the first quarter by the CSM of new business, there are no major adjustments there.
As you know, these ones are quite quickly. Happy to share that, from Q2 going forward. I guess, we will be able to do so. On the, you might help me, Vik, on the other questions, but I'll try to recall those. The first one being, where would, in the prior year column, the Ukraine losses would show up. We do form when we assess the business, when we do the initial recognition. Let's say at the beginning of the year, we do it, of course, assess the expected claims, the expected premium, et cetera, et cetera. Then we have the risk adjustment usually, and we have a CSM on the new business.
If there is any adverse development stemming from, for example, large losses, exceeding our expectation, you would see that either in the risk adjustment. It might end up being reduction of the risk adjustment or the CSM. That would be the first one, as long as we are in the coverage period or the LRC. If this is a business where we have already claims, where we are in the leak, you would see that in the actual over expected. That would be actual over expected. Then it really depends on, you know, is it prior year? Is it current year? That would then go into current service or past service. Past service, really comparable with something that we would call a run off result. We will see that also going forward.
I think, Vik, you asked also the question on the loss component, new business, which lines that are. I think structurally, I would always think, you know, the loss component, something that is basically the result of either rather cautious reserving. As I mentioned in my comments, that can of course, let's say low interest rates and lower rating environment will structurally have a seasonal effect in the first quarter on the loss component. Why is that? When you discount your expected claims with lower interest rates, then you are more likely to be in an onerous contract position, and you will structurally pick up a bit more onerous contracts. Secondly, it depends really on the granularity of your valuation.
You know, there is a different approach for recognizing losses versus the gains. You have to pick up the losses right away at initial recognition, while the CSM is in stock and is distributed over time. Structurally, there is more likelihood. I do not have the exact composition, but I would still watch the loss component, see the loss component rather as being future profits. Vik, did I cover all your questions?
Yes, there was one more on slide nine. The Life & Health CSM amortization, the EUR 189 million number.
Oh, yeah.
I'm just trying to square this against on the under P&L on the left-hand side.
Yeah, that's the release. That's the regular CSM release, I guess, what we're seeing here. Structurally, the way it works, you know, under IBNR, that is contributing to the reinsurance revenue. That will go into the top line first and find its way to the reinsurance service. The EUR 189 million could be a run rate, probably the lower change, an estimate here, but that could be a normal run rate, I think, for it.
Okay. Fantastic. Thank you.
Thank you, Vik.
The next question comes from the line of Freya Kong with Bank of America. Please go ahead.
Hi. Thanks for taking my questions. Firstly, could you give us a little color on your P&C runoff in the period, and where this comes through in the P&L? Are we right to think that any reserve buffer building this year will happen primarily through additional conservatism on the current year? Secondly, reinsurance revenue growth, you've reiterated at least 5% at the group level, but your revenues were down almost 1% year-on-year in the quarter. How should we think about the evolution of this as we go throughout the year and separately between P&C and Life & Health if possible? Can we just get a starting figure for reinsurance revenue for 2022? Thanks.
Very happy to pick on those questions. Runoff results, I think really in line with expectations in the first quarter, nothing really material. I don't have a number here, but I think in line with expectation, that will come through actual versus expected past service. That is a line item that will then ultimately feed into the reinsurance service result. In terms of the, let's say, the resilience reserves that we are going to build in the year, that will mainly be in the current year. That assumption is right. As for the revenue, as mentioned, I think there are a couple of accounting effects in there. If we were to look at the gross written premium in the first quarter, I'd say it's probably a growth of roughly 2% on a gross written premium.
You see there is a slight difference to IFRS 17, but not that substantial. As Jean-Jacques and myself mentioned, that's mainly really due to the 1/1 renewals and the structural changes, but then also the discontinuation of some of the larger pro ratas. However, we do believe that both from an accounting perspective, but also particularly from the upcoming renewals, 1st of April, but also our growth position structure and on facultative business, there are still opportunities. We're still convinced that we gonna reach the 5%, particularly on the P&C side. On Life & Health, you see the reduction was mainly due to some discontinuation of morbidity business. We'll see.
Again, as you've seen also in the value of new business and the business CSM, that's rather transactional, seasonal business from the Life & Health side. We do expect some growth also coming into revenue over the course of the year. We are still sort of committed there. I hope I captured all of your questions. I don't have a 2022 revenue, full year revenue number to add yet.
Okay. Thanks. Just to follow up, if that's all right. The 91%-92% combined ratio, how much of that is assumed to be buffer building then for this year? Would it be around 2-3 points based on the walk you gave?
I think that would be probably the right assumption. I think we said we want to do this in one go. This will all be in the combined ratio. The potential rebuild, as we mentioned, at least the EUR 325 million. We want to do that in 2023, and that has been built into that guidance.
Okay. Thank you.
The next question.
The next question is from Kamran Hosain from JP Morgan. Please go ahead.
Hi, it's Kamran Hosain from JPMorgan. Just on the reserving piece, I just wanted to clarify. If you're talking about EUR 300 million that you want to add or kind of get back into the buffer this year, based on the walks you gave for Q1, my maths, and it might well be wrong, gets me to about you've done about EUR 85 million or a little bit more than the course of that in Q1 already. Just wanted to clarify the kind of maths on that is kind of okay. The second question is on, okay, I guess when you've got the guidance for the year of EUR 1.7 billion, you talked about two things during the year when you gave the guidance. One was the reserve build. I think I kind of understand that now.
The second was, like, private equity writedowns. Could you maybe talk about how that's gone? Kind of what progress there's been on that or what, you know, what indicators there've been on private equity writedowns that were kind of implicit within your guidance for the year? Thank you.
Yes. Happy to do so. The first one on the buffer rebuild. You know, I mean, we don't usually really quantify, and it's very difficult to quantify this on a quarterly basis. Of course, we will look at that at year-end. However, if we think about it, I mean, you've seen the difference from the reported to our target combined ratio. That's quite a substantial number probably in the first quarter. Of course, we have our initial loss picks, which remain cautious. As usual, we haven't changed our reserving policy. Of course, we have the risk adjustment on top again. That's another 2 percentage points. You can view that, of course, to some extent as future profits or at least loss absorbing.
Overall, I think we've made quite a step in the first quarter when it comes to the buffers. As for the private equity funds, you know, they are now with the new accounting regime under IFRS 9 valued through the P&L. There is potential for volatility in the P&L. For the first quarter, we haven't seen anything yet. You know, it's at least on the private equity side already is, it's a portfolio of more than EUR 2 billion. A potential downside of, let's say 10% in terms of valuation, given that the private equity funds are valued on a historically high level, we still believe that there is more to come. Again, nothing seen in the quarter yet, in the first quarter.
We are slightly optimistic that we won't see all of that. However, I mean, there are still 3 quarters to go, so we still have that baked into our guidance.
Thanks very much, Clemens
Thank you.
The next question comes from the line of Andrew Ritchie with Autonomous. Please go ahead.
Hi there. Thanks. Thanks for the additional color you've given in the commentary on IFRS 17. The first question, I just wanna understand again, sort of seasonality in the combined ratio. I understand the loss component normally may be bigger, but it's small. I'm more interested in the risk adjustment seasonality. My thinking is risk adjustment over time in steady state should be sort of neutral to the combined ratio because what you're adding for new business is being released for expiring business. Just to clarify, there's a net drag, particularly in a renewal quarter if the business is growing. Is that a correct understanding? Just that's the first thing, clarity on seasonality of the risk adjustment.
Second question, you mentioned a couple of times some discontinuation of morbidity business in I think you said APAC, so I think Asia. What is that? I'm just curious, you know, what country, why have you discontinued it? What's your thinking there? It's not a question, it's just an observation. When you discuss renewals, I think the April renewal disclosure you've given is on premium or revenue. I'm not sure. It's not labeled. Why not give us consistently the CSM renewal impact, as in the CSM renewal year-on-year impact? Thanks.
Andrew, I'll start with the seasonality of the combined, particularly the risk adjustment. You're perfectly right, the observation. Usually you would have seasonality due to I would say market cycle and interest rate. First component, as you mentioned, Andrew, this is rather more minor in the first quarter this year. I would expect that number, and you can see it in the first quarter last year, I would expect that be there seasonality structurally. On the risk adjustment, same here, though, when we are growing, of course, as long as we are growing, put it like that, then of course you will have a slight drag on the risk adjustment. I completely agree there is seasonality, more seasonality.
The roughly 2 percentage points would come down over the course of the year with the upcoming renewals. I can't give you a number, but I would expect that rather being about 1% as opposed to 2%. That's really just a rough guess. On the CSM, I do take that away. I think that's still based on our logic on written premium. But again, I'll take it away with respect to CSM on new business and how we can make that into future renewals. That's a fair.
Sorry, on the life morbidity?
Yep.
The new business.
Shall I take that?
Yeah.
Klaus.
Klaus will take that, Andrew. Sorry.
Go ahead, Klaus.
I'm happy to do so. On the morbidity in Asia, we have seen some, let's say developments in China we don't like. First of all, screening took up significantly. If in the Western world you tell the people you should do more screening, 2% or 3% will do that. In China, it's 20%. That has an impact on the incidence rates. They are also using pretty old morbidity tables. We have not really stopped writing morbidity in China, but we have stopped giving long-term guarantees. This is now annual treaties, if the client agree, and if they don't agree, then we just have stopped writing that. It's a precautious measure in order to avoid additional problems in the future.
Klaus, can I ask, would this affect anything in force or is the in-force business or no long-term guarantees, et cetera?
No, we have switched to maximum 10-year guarantees already in, I guess, 2015, 2016. These treaties are impacted as well, and we might increase rates either now, where we can, or in the very near future, if we have to wait for the, whatever, five-year or 10-year guarantees we have provided.
Okay.
What we are writing right now is just on annual terms.
Okay, great. Thank you.
The next question comes from the line of James Shuck with Citi. Please go ahead.
Hi, good morning. Thanks for taking my questions. Congratulations on being one of the first companies to guide us through this. My first question, in terms of the combined ratio guidance you've given for the full year 2023, so the 91%-92%, what are the actual kind of moving pieces within that guidance that you're planning for? You know, thank you for the split out in Q1, but I'm interested in some of those moving pieces. What is the discount rate assumption that you have in there? What's the risk adjustment, those sorts of things. I can, you know, measure against what might be some quite volatile items as we move through the year.
Connected with that, actually, I think you were implying that the risk adjustment impact in Q1 was sort of seasonally negative versus the actual build. Therefore, you know, the normalized number that you ran us through or the target number in Q1 might be about 1 point worse because of that seasonality. If you could just confirm that I've understood that correctly. Then my final question is somewhat simplistic, but I just wanna see if I'm thinking about this in the right way. The new disclosure that you give for the net result from reinsurance contracts, that's a negative EUR 368 million in Q1. Is that just a clear view of the profitability of your overall retro, ILS programs?
That, you know, if we look at that over time, and as you increase the, you know, the disclosure periods, we'll build up a track record of, you know, just how much you paid for your retro versus how much you've actually claimed on it. Thank you very much.
James, thank you for your questions. This is Clemens. On the combined ratio guidance, it's really just I should stress that, you know, an approximation to give you all a sense of, you know, what are the components, et cetera. I don't have an exact mark for the year-end. Let's try to look at the components. If we say, well, you know, we arrive at 89% to, let's say 89-ish to 90% in the first quarter. Yes, I would confirm the risk adjustment. I would expect that number to be lower. The 2 percentage points on the combined ratio in the first quarter, I would expect that to come down.
If we think of that being 1%, then we land somewhere at over 89% target combined ratio for the full year. If we assume that interest rates stand where they are from that post, you know that the blend of interest rates coming into this count for 2023 and the 2022 prior years discounting, that roughly lands at 5%. That's the assumption. That's why it's so difficult to come up with an exact combined ratio, but that's the overall assumption. The difference should be then the reserve buffer build, which I think should work quite well. On the retro, I think there's a bit of front-loading effect in the first quarter.
I mean, we as we've seen, for example, the earthquake in Turkey, which is not part of our K-Cessions quota share, and probably other effects. That number, as you mentioned, James, will build up over the course of the year. That should level out if you compare that with the cost number. But there is some front-loading effect in the first quarter, I think.
Yeah, that's great. Thank you very much.
Thank you.
The next question comes from the line of Derald Goh with RBC. Please go ahead.
Hi. Morning, everyone. Can I just start quickly with a clarification, please? Just on a risk adjustment, I just wanna understand that this is on top of your buffer. The increase was EUR 74 million in the quarter, that is not to be read as the buffer rebuild itself. The first question is: So you've got EUR 1.9 billion of CSM in your P&C at end of Q1. Am I right to assume that this is even higher if we were to allow for any loss components? If so, what's the stock of loss component that you have in P&C as at the end of Q1? My second question is just on the equity on transition, so that's moved from EUR 8 billion, roughly EUR 8 billion to EUR 9 billion at year-end 2022.
I'm just a bit surprised that the stock of unrealized losses hasn't reduced by more. I'm just trying to understand why that's the case. Thanks.
Yes, Derald. On the risk adjustment, the way it works, you will have seen that the level of risk adjustment overall is roughly EUR 800 million now in P&C. Of course, this is meant as a buffer on top of the best estimate. As we haven't changed our cautious approach from the initial loss pick, there will also be, of course, you know, as we are structurally rather picking loss ratios at the upper end of possible range of best estimates, we see this risk adjustment as future profits. Finally, of course, you know, with the runoff would end up in the P&L. I would view these as future profits.
On equity at transition, I think the moving parts were, and I think we have it on the slide. The reduction of unrealized losses is of course, roughly, I think it should be roughly EUR 800 million. We have a widening of the credit spreads, which I think added another EUR 200 million to it. That should explain at least some of the difference there.
The stock of, loss component within the P&C CSM?
Oh, yeah. I don't have the exact number, but I would, I would guess the loss component not be too high, to be honest. Probably in the area somewhere around EUR 150 million-EUR 200 million as of quarter end.
Okay. Thank you.
The next question comes from the line of Vinit Malhotra with Mediobanca. Please go ahead.
Yes, good afternoon. Thank you. Just two clarifications really from my side. One question each on the business lines and the investment. Just on mostly follow-up topologies that's been addressed. Just on the nearly 35% increase in P&C new business CSM. Is this consistent with what you were expecting, or is it consistent with the targets that have been laid out? It looks like a pretty powerful, strong number. Is it mainly pricing-driven? Any bit more color on that would be very appreciated, Clemens. Secondly, I'm just checking again my understanding. The pre-mark-to-market or write-downs haven't happened now, you know, given where interest rates are, where, you know. What's the, why should we keep building it, or why should we continue to expect it?
Apologies if you clarified that. Again, I'm just checking, please. Lastly on the life, I've understood there's not no one-offs in this number of EBIT, but then you also said don't extrapolate. Why not? If you could just clarify that, please. Thank you.
Vinit, I'll take your first, two questions, and then I'll let Klaus answer the latter on Life & Health and see how optimistic he is. On the first one, the increase in the new business CSM. I do believe it's a very good reflection of the actions that we've taken in this renewal. As Jean-Jacques mentioned, I think the shift from pro rata to non-proportional has huge impact on our, on the quality of our portfolio and also the discontinuation of some of the pieces, et cetera. We actually see that when we look into the pieces of the business of new CSM, you can see that really across the lines of businesses. I think that's structurally something we expected. It's very difficult though to come up with an exact number.
Again, all these factors, and I should mention also the terms and conditions that have improved quite significantly, have also contributed to that. Why is it difficult to put a right number? For literally the same reasons that we have for the combined ratio, Vinit, is the discounting. When you think of the way the CSM is billed, then of course, discounting of claims have an effect on the CSM as well. Therefore, it's not easy to do the math, but overall, I think it is in line with our expectations. On the market valuation private equities, yes, we haven't seen anything yet in the first quarter, at least not, nothing substantial. You can see that in the P&C, in the sorry, in the P&L.
Our investment result is really mainly fueled by the ordinary income, which is overall pleasing, but there's really no noise on neither fair value through the P&L, be it private equity, be it STPI, SAIA Investments, be it other impairments. It's very, very quiet, and I still do expect those fair values coming down. As you know, then it's structurally there is a time delay in the reporting of these funds because, you know, these are mainly private equity funds, so they will provide a net asset value. There's always a reporting time lag by providing the net asset value by the fund managers. Therefore, I would expect that still to come through in the second third of last quarter. That's why we are still a bit more cautious on that side.
I hope that clarifies your question on those two.
Yeah. Yeah. Thank you.
Okay.
I'm happy to-
Let's hear Klaus.
The life side. Then at the maximum sum insured per life, what we have is EUR 25 million. We have not that many, but we have a couple in the range of EUR 15 million, EUR 20 million, EUR 25 million. Q1 2023 was a very benign quarter. I have not seen any large claims. I accept that large claims in life with EUR 25 million is not comparable to a large claim on the P&C side, but for us, it would be large. One or two claims could happen any time. I would be a little bit careful here and have not seen any large claims in our accounts for the first quarter. I would be a little bit cautious to multiply that by four.
I would deduct one or two claims and then multiply it by four to get a reasonable estimate for the full year. That's a very simple answer to the question.
Thank you, Klaus. Very clear.
The next question comes from the line of Will Hardcastle with UBS. Please go ahead.
Oh, hi. Thanks for taking the questions, and thanks for the IFRS 17 walkthrough. Just on reserve redundancy, first of all, I guess I'm just trying to understand why we're sort of using an absolute number of, you know, last year and where we're trying to get back to. Just trying to think about that really as a percentage of reserves and why that wouldn't be a sensible way to think about it, because you've come down quite a long way over five or six years. Just trying to understand really the concept of absolute number versus percent is really that question. Then just where you're replenishing, getting back to last year's level, just which lines that's coming through and just maybe verification on Kamran's question, where he asked you about the quantification.
I think he had about EUR 85 million, if that's what's gone through in Q1 or not.
Good morning, Will. It's Clemens. On the absolute number of reserve redundancies versus the relative number, you're perfectly right. There are a couple of drivers, both in the nominator and denominator, if you like. I think the denominator has been very much affected by the IBNR level, by large losses, et cetera. We've grown the book quite substantially over the last couple of years. We've seen large loss complex. All of this has contributed rather to the denominator. As I mentioned earlier, the reserve redundancies in the studies, they only come through with a time lag of two to three years. The lack of, you know, the fueling of the nominator, because those have been rather difficult years, that is one effect I think that has brought that number down.
We will see how that looks like at year-end. We are not aiming a certain percentage, really. Therefore, it was really just to give you a guidance to say, well, you know, if we have used up EUR 325 million, then we want to replenish that in one go. We will see where we are percentage-wise. I do believe if we are, if we land there at year-end, I think we do feel quite comfortable with the overall. We will look at the percentage and see how, you know, how that develops and also how much comes through in the new reserve study from recent underwriting years. We'll revisit that.
For the first quarter, again, it's very difficult to really come up with a number, as you know, because this is many moving parts, actuarial assumptions, et cetera. I wouldn't be surprised if it's a triple-digit EUR million number in the first quarter, to give you at least sort of a hint. If you do the walkthrough of the combined ratio, and if you consider that our initial loss peaks are still rather cautious, and I think then we have made some steps in the first quarter. Again, it's very difficult to come up with an exact number. Hope that helps, Will.
Yeah, that's great. Thank you.
The next question comes from the line of Ivan Bokhmat with Barclays. Please go ahead.
Hi. Good afternoon. Thank you very much. I have a few questions on P&C, please. Maybe the first one is on the interest accretion of EUR 500 million. I wonder if you could just help us understand what's the right way to think about it. Should we think about it as % of earned premiums, so like a 3% compared to 5% discounting? How should that develop going forward? Are those two become closer matched? Is there any seasonality there? The second question also on P&C. The 94% combined ratio that you used as a starting point, that, I understand, assumes the benefits, the 2 percentage point benefit from the hard market.
I just wanted to confirm that and to maybe get your feeling of how, you know, the renewals that you have seen are factoring into that estimate right now. I'm a little surprised that you're already factoring it in from Q1 2023, when essentially the really hard renewals have only just started. You know, the implication from this question and all the discussion on reserving, I think, is that for 2024, potentially, if you're no longer adding to the buffer, there could be quite a significant step down in the combined ratio from 91%, let's say, to 88%-89%. I just want to understand why that might not be the case. Thank you.
Even it's Clemens. On the first one, interest accretion, the EUR 500 million is rather, let's say, an assumption based on, you know, what we've seen in the first quarter, what we've seen in last year, interest accretion, et cetera. That should be a rather stable number on P&C, but I wouldn't think of it as, you know, we really made this number bottom up, so I wouldn't see this as a percentage of something. Of course, that number will go up in coming years. You know, with now, with the high interest rates discount this year, of course, will feed into that number. There is a bit of a front-loaded effect from higher discount rates and lower interest rates structurally. As you know, we apply the fair value approach at transition.
We are looking at rather lower locked-in yields in that come via the interest accretion. On the combined ratio, I mean, it was really just to give you a sense of, you know, how you could think about the walk. Yes, we started with the 94%. It does reflect. Although it's not, you know, really we made a mark there, but it does reflect our confidence that this renewal and also the one for renewal has been in line with expectation. We always said we have increased the quality of the book, therefore the 2 percentage points, I think, should reflect the 8 percentage point price increases and the 6% price increase in this renewal. Therefore, yes, I think that's the way to look at it.
I mean, to replenish the reserves in one go, and I think, yes, there is of course some upside in the combined ratio or downside, if you want to read it that way next year. Again, even it's a long year still, and we do know what happened. You know, we are rather cautious. Of course there is potential for upsiding coming out.
Thank you.
The next question comes from the line of Henry Heathfield with Morningstar. Please go ahead.
Good morning, all. Thank you for taking my question. Just a couple of, kind of IFRS 17 ones. Thank you for all the detail you've provided. On the CSM, the Life & Health CSM amortization P&L, I think you said in the investor day that that was gonna be around 8% per year. It looks like it's around 14% today. I was wondering if that might come down over the rest of the year or we should just think about somewhere in the middle. With regards to P&C CSM, could you provide, like, a rough indication of what the amortization rate of that might be into the P&L? That would be really useful. Finally, on the risk adjustment, it seems to have moved up.
Well, it's moved up 2.9%, a lot lower than the CSM. I was wondering if, like, we should think about that with regards to the increase in the best estimate of liabilities and not related to the increase in the CSM. That's it. Thank you.
Okay. On the CSM Life & Health amortization, I think the 8% was a rough guess. There can be some seasonality, but I would expect that number to be somewhere between 10%-15%, rather. That's probably a bit a bit early to say really a run rate for Life & Health , but I would rather look at 10%-15% as an amortization rate. As for PNC, I think that as we usually have earned our premium, although the concept's slightly changed, you know, it's rather an exposure-based pattern here. There can be some difference to probably some of the other score metrics. If you think of PNC NatCat business, for example, you would expect the release of CSM, both CSM and revenue rather be in the third quarter. However, there will be a lot of moving parts.
If I just reflect on the earnings patterns of our P&C book in general, we always said it's probably 50%, probably a bit more than 50% in the first year. And then that number will come down in the second year. There's probably another 30%-40% in the second year, and the remainder then going forward.
Okay. It's. I mean, of the CSM stock that you have currently, and I might be thinking about this incorrectly, then. CSM stocks that you have of EUR 1.8 billion for P&C. Should I be thinking about that in terms of an annual amortization rate, or should I be more thinking about in terms of, you know, over a longer period of time, as you're just alluding to, basically?
Yeah, I mean, it's, of course, that's mainly fueled by the renewal in the first quarter. It's the absolute number end of the first quarter.
Yeah.
Of course, I mean, a larger part of that will be earned in 2023. That's for sure. Some of the renewal, the newly built CSM has already been released via the revenue in the reinsurance service result in the first quarter. Some of that, of course, will then be released in the coming quarters, and then the CSM will be further fueled by the next quarter. By the 1 April, a renewal is set up. The most build-up is usually, of course, in the first quarter.
Okay. On the risk adjustment, sorry.
Yes. What was the question again? Sorry. On the risk adjustment?
Yeah. Just... Yeah, your CSM's up 13.5%. Your risk adjustment's up 2.9. I recall that your risk adjustment is rather a mechanical calculation based on your, you know, your estimate of losses, essentially. Should I view the rise in the risk adjustment as sort of, you know, it's a layer on top of your liability, so that's essentially what you're, you know, looking at what your...?
Yeah.
Claims liabilities have risen by. There's really no relation to that rise, the rise in the CSM. Essentially, you know, your future profitability is looking much better, whereas your claims haven't risen that much. Is that kind of a good way of thinking about it?
Yes. I think if you look at the mechanics of the risk adjustments, they do not really attach to the CSM build.
Yeah.
The CSM is basically, you know, the result of all the moving parts, including discounting, et cetera. There are a lot of moving parts in there. As for the risk adjustment, I mean, from the methods that we implemented is we try to very much align that to what we do in the pricing. In our margin approach, we apply percentage on our capital, on our available capital, it's often required capital, so it might be the reason. In CSI, the risk adjustment is a bit higher, but that's really rather mechanical. Again, whilst we are growing, when you look at the P&C side, the risk adjustment will grow gradually with our business. Eventually, of course, will be released, of course, with the coverage period of course.
Where will that be released into? Is that gonna flow into the insurance service result as well, or is that gonna come into somewhere, you know, below that?
Yes.
Um.
Yes. Perfectly right.
Okay.
That will come into the reinsurance service result.
Thank you very much. Thank you for your answers.
The next question is a follow-up from Freya Kong with Bank of America. Please go ahead.
Thank you. Just to follow up on changes in the Life & Health business. The EBIT last year was been restated to EUR 300 million. How should we think about the excess COVID claims that you saw in that particular quarter being accounted for? Would they have just been reduction adjustments to the CSM, so limited P&L impact? Thanks.
Yes, Freya. That's right. On the reinsurance services side, the main driver is that the COVID claims have been absorbed by the risk adjustment and the CSM. It works exactly as it should do under IFRS 17. You have a much more stable and robust result. Those were mainly captured by those two elements. Just to complete the picture, Freya, you have of course, when you look at the investment result, and I think I mentioned it, but I'm not sure that you have so below the reinsurance services side, you have a couple of one-off effects that lead to a higher EBIT last year. That's mainly the extreme mortality cover. Basically no contribution in the first quarter this year and a one-off effect of one of the e-equity participations.
Okay. Okay. All right. Thank you. That makes total sense.
The next question comes from the line of Thomas Fossard with HSBC. Please go ahead.
Yes. Good morning, everyone. Two last questions on my side. The first one would be on the P&C side on the full year profit guidance for the current year. Clearly there is more impact now going forward from interest rates changes and evolution. Can you provide some indication of how the EUR 1.6 billion EBIT P&C or the EUR 1.7 billion net profit guidance for the group could move or could change depending of level of interest rates? I mean, any sensitivities that you could provide would be interesting. The second question would be on the Solvency II level at the end of Q1 for the 260%-261%.
Any comments that you would like to share on, you know, what have been driving the 9% increase versus the end of the year? Thank you.
Yes, good morning, Thomas. Clemens again. On P&C, as for the full year profit guidance, I would say there are a couple of moving parts. First, with respect to 2023 is the, you know, the replenishment of the reserves. That's one element that we've built in there. As for the interest rate, Thomas, that you mentioned, I'd say structurally, of course, there is in this year with increased interest rates, a tailwind on the EBIT. Potential upside on the EBIT, whilst of course that will come through in future periods via higher interest accretion. Again, when we look at our Q1 numbers, and if we take that as representative for the next couple of quarters, we will look at an interest accretion of roughly EUR 130 million. That translates into the EUR 500 million for the full year.
If we assume the 5% on the combined ratio, roughly, it's really just a rough guess on discount factor, then we have a tailwind of somewhere between EUR 70 million-EUR 120 million, probably, on potential interest rate tailwind. That's the upside. Again, that will come back, of course, in future periods, with higher interest rates. Again, that will be just some noise between the periods. Overall, that should level out and be a stable number. Again, with the reserve, with the reserve replenishment being built into that number structurally, of course, there is more upside to that number going forward than anything else. On Solvency II, I think it's really mainly the driver upside is driven by the own funds.
Required capital remained rather stable. There are some moving parts. I don't know all of those off the top of my head. It's really driven by the increase in own funds, and that's mainly, of course, our operating profit. That's really the main driver there. You should keep in mind though, that the dividend is still included. That will be excluded then in the second quarter. The dividend being paid for 2022 is still included in the own funds. Plus we have no accretion of the 2023 dividend in there yet. That will be only included later in the year. That explains probably the subtlety. That will be in the fourth quarter, I think, and we will see the overall dividend impact for 2023. Hope that helps, Thomas.
Excellent. Thank you. Have a good day.
You.
The next question comes from the line of Darius Satkauskas with KBW. Please go ahead.
Good morning. Darius Satkauskas from KBW. Thank you for a very helpful disclosure today. Two questions, please. The first one is slightly different angle from what Thomas asked. Have you done any sort of stress test around the combined ratio guidance? I mean, what happens if, you know, interest rates move 25% basis points up or down? Are you thinking about providing some sort of sensitivities going forward? Am I right to assume that the discounting effect will increase as you go through the quarters because the what you've captured once you included a lot of this was written before? Now, the second question is, sort of how should we think about the hard market benefits timing?
I mean, once you're done with the rebuilding your reserve cushion this year, would you be willing to sort of take down the, you know, the sort of the, you know, what you book, the losses at? Sorry. Would you be willing to start with lower sort of book ratios? Or are we really gonna see the benefits in the run-off over time? Thank you.
Darius, on the first one, it's really difficult to assess the overall impact on interest rates. I do believe that the 2023 guidance is a very robust one. It would allow for potential upside and downside. The big renewal already, I think there shouldn't be a huge impact on coming from interest rate on our combined ratio and ultimately on our EBIT. I think we should come up with sensitivities going forward. I do believe, as we did today, should provide you with some sensitivities and guidance on, you know, interest rate impacts. We do believe the concept is ultimately helpful in a steady state, but it does provide volatility, particularly on the P&C side. We should overcome this by disclosing more information.
We will do so going forward. As for the hard market benefits, I think structurally we will stick to our cautious reserving approach. We will of course will not increase our initial rather cautious loss picks. Ultimately, of course, you know, if earnings develop as they are expected, of course, that will come through the bottom line at some point in time, that's clear. That could be sooner than later, depending really on the our goals and how next year will go. We are calling renewals, but it's really too early to say.
The next question comes from the line of James Shuck with Citi. Please go ahead.
Hi. Thanks for giving the opportunity for a follow-up. Just two things. I think you mentioned on the life CSM roll forward, there's EUR 232 million there for change of estimates. I think you mentioned prolongation of existing treaties as the reason. Am I right in thinking of that sort of almost as the kind of same concept as contract boundaries, and therefore one might expect that to kind of annualize and recur going forward, and therefore we should expect, you know, to see positive development and factor that into future CSM build? That's my first question. Secondly, with the best will in the world, I haven't had a chance to go through the loss triangles, thank you for publishing those early this year.
Are there any things you'd like to call out from those loss triangle, disclosure that you give? Obviously we'll have questions on it later. Make our lives easier if you can highlight anything worth highlighting. Thank you.
No, as for the loss triangle, nothing really that springs out. I should say on the reserve study, and that was also done with Towers Watson, I think there was not major movement in the expected losses. The estimate to that estimate didn't really move a lot. Probably approved for the already built-in inflation assumptions when it comes to social inflation, but also other inflation. That was rather stable in terms of estimates. I should add that. On your first question, would you mind repeating that?
Sure. The change in estimates for the life CSM roll forward.
Yeah.
There's EUR 232 million positive, and you mentioned that was prolongation of existing treaties.
Yeah.
Just wondering, how recurable that figure is?
Yes, perfectly right. That's down to contract boundaries. Under IFRS 17, that's a different concept than under Solvency II. I wouldn't say you can just see this as a recurring item, but structurally, yes, those numbers would show up usually. I don't know if it's, you know, a specific contract or, but structurally, that's something that would always be visible, and not being captured by the CSM, and that's why we would actually disclose that going forward as well.
Yeah. Okay. That's helpful.
Yeah.
Thank you so much.
I wanna make one correction. I did mention that in the Solvency II ratio, one of the drivers was that the dividend for 2023 is still in the own funds, but that's actually not accurate. That was already been taken out in Q4 2022. I just mentioned that. Thomas, that was your question, just to correct that.
The next question comes from the line of Tryfonas Spyrou with Berenberg. Please go ahead.
Hi. Thank you. I just have a couple of quick final questions. On Life & Health , how should we expect the new business CSM to develop over the year? Appreciate this could be quite lumpy. Any color on expectations here would be quite helpful. The second one is on the Asia impact on the accident health.
In Health? You're perfectly right due to the fact that the business is rather transactional. You can call it lumpy, but usually you would say some of the larger transactions, both on the financial solutions side, but also on longevity, rather in the second half of the year. Therefore, we are still committed, and with that we reached our plan, which is roughly EUR 400 million- EUR 500 million, I think of new business is probably around EUR 450 million for the whole year. We are still committed to reach that. I'll hand over the second question on accident health to Michael Pickel.
Yeah, as Clemens stated, we had in the first quarter a double-digit million impact in our figures. We canceled all these loss-making contracts, and so far as well as COVID is disappeared. We do not expect that we'll see any major impacts for the next quarters to come.
Very helpful. Thank you.
Ladies and gentlemen, there are no further questions at this time. I hand back to Jean-Jacques Henchoz for closing comments.
Well, thank you very much. I hope the Q&A helped you with all the disclosure. I appreciate that it's heavy on IFRS 17, and thank you very much to Clemens for clarifying all these questions. In short, I think we wanted to convey that we have a good start in the year. Uneventful quarter, as Clemens put it. We see continued momentum at both B and C with the renewals. I think we'll have very good renewals in July. We have some structured business, some facultative business, and in Life & Health , also strong pipeline. We're quite upbeat about the outlook for 23, but also beyond.
The significant CSM in some extent also the risk adjustment should give you an indication of the future earnings power, which make us quite confident as far as the outlook is concerned. Hopefully this was a useful exercise today to give some light to these numbers. Of course, some KPIs will emerge over time and hopefully will help you with the disclosure. Next opportunity will be the conference call on the 9th of August where we'll have the Q2 numbers. With that, I close the conference call and thank you all for joining today. Thank you.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining and have a pleasant day.