Earnings Call: Q4 2018

Mar 7, 2019

Well, good afternoon to everybody here in London and to all of those joining us via the internet. Welcome to Hannover Re's analyst conference. Looking at the dialed-in list, it's truly a pleasure to see so many of you taking up our invitation and are showing your interest in Hannover Re. As you know, the key figures for 2018 have already been released some 4 weeks ago, together with the outcome of the one/one renewal. Today, we are delighted to present to you the full set of numbers in great detail. At first, our CEO, Ulrich Wallin, will kick things off with a brief overview of the quite favorable development in 2018. Perhaps he will classify Hannover Re's success over the time, as this is the 10th consecutive analyst meeting which he chairs. Roland Vogel, our CFO, will then move on and dive into the business group performance, the investment result, and last but not least, the group's strong capital position. This will be followed by the outlook presented by Ulrich again. Afterwards, we will be happy to respond to all your questions at length. Today, we are also offering a dialed-in option for all those who are not able to be here in London. As a reminder, the dialed-in participants will be in listen-only mode during the presentations. If any participant has difficulties hearing the conference, please press on your telephone for operator assistance. Please note this conference will be recorded and a replay will be provided on our website. As always, I would like to draw your attention to the feedback form, which you will find on your desk or you will receive via email. As you know, we greatly appreciate your remarks and ideas, and they form part of the groundwork for our next investors day, which will be held in October. Feel free to either leave the feedback form at the table or send it in to Julia, Axel, or myself. On that note, I'm delighted to hand over to you, Ulrich. Yes. Thank you, Karl. Good afternoon, everybody. Yes, one of the remarkable things in 2018 for us was that we reduced our expense ratio again. That's not the reason that we changed venue, even though it may look like that. There was more question of logistics, I guess. That will be changed. Not the expense ratio, but the venue, we might be able to change that again. Yes, 2018 was the second consecutive year of large losses for the industry above expected level, and it was also the second consecutive year where the market results were somewhat below expectations as a result of those losses. Considering that, we are reasonably content with the results that we achieved in 2018. Our guidance that we had given you for the first time in the fourth quarter of 2017 was that the profitability should be more than EUR 1 billion for the net profit. We kept that guidance all along unchanged and actually delivered EUR 1.06 billion, which I think is a pretty good result for Hannover Re. We also had good growth in our business. We grew currency adjusted double digit. Also, this was very much in line with our guidance all along. The highlight, of course, this year was again, the return on investments, which again, with the ROI of 3.2%, gave us the extra lift which Roland has helped us with in many of the previous years. He always delivers a little bit more than we ask him to. Long may that continue as well. On the P&C side, the growth is clearly driven by increased demand for reinsurance. The reason for that demand is, besides capital management, also quite a lot of volatility management, because also on the large commercial business, 2017 and 2018, were years that showed quite challenging results and a lot of action has been taken by our clients in order to improve the results. In situations like that, of course, you do not want to be derailed by one big loss, which can be unfortunate. Of course, we as reinsurers are happy to help our clients with that. That's the reason why on most of the major reinsurers, when you look at their reporting on the P&C side, they report increased volumes. If everybody reports increased volumes, probably the market has grown. I think that's a relatively fair assumption. You can see that the RoE remained positive in double digit territory, 12.2%. That's well above the minimum target of 900 basis points above risk free. It's particularly gratifying if you compare to the average RoE of the, say, the ten largest reinsurers. It continues to be the case that in years with many cat losses, we outperform the market to a larger degree than in years with very low cat losses. You can see that both the EBIT as well as the net income was rising over and above 2017 levels. Well, that was to be expected because in 2017 we had even more losses. Also, we had continued problems with our U.S. mortality business on the life and health side. In the end, we had positive developments as well because, some of the reserves we are covering as these XXX and AXXX reserves, which are then ceded outside the U.S., where U.S. statutory reserving requires those into other jurisdictions and have to collateralize those reserves in order for the ceding companies to get reserve credit for the reinsurance. Of course, as this is long-term business, the collateral has to be there for decades and you have to reserve for it because you know I have to pay the collateral costs, say, for the next 30 years or 20 years as the case may be. We had many arrangements that brought down that collateral cost, and we were also quite successful in doing that in 2018 in relation to all the change of our business, in relation to the BEAT. The Base Erosion and Anti-Abuse Tax where we had to reshuffle our U.S. business, and that rendered some of those reserves undefendable. Still quite a bit of those on the books. We had to release it. Nonetheless, the one-off negative effect from recaptures offset partly by this release of expense reserves is still EUR 185 million negative. We were relatively happy that we could absorb that pretty much as expected. We also saw an increase in the book value per share, which basically tells you that last year we paid the dividends out of profits and not out of the capital base. P&C, briefly, we had a nice outperformance compared to the market, and this is pretty much in line with our strategy, that we believe that P&C is a competitive business and you can only be meaningfully successful in the long term of that business if you outperform the average peer. We were quite happy to do that. Life and health, I think the business has developed a little bit better than many observers had expected. Of course, nobody had expected the release of the expense reserves, but also the underlying mortality in particular on our problem, U.S. mortality accounts that we bought from Scottish Re at the beginning of 2009, was also giving us quite a nice lift because we had a much better claims experience on that business in 2018 as compared to 2017 and even a little bit better than 2016. That was actually quite reassuring that the claims trend on that business also knows a trend to the downwards and not only a trend to the upwards. That doesn't mean that the business is profitable. It's still negative. Also, our financial solutions business had a record year, and then also all our non-U.S. business had performing according to plan or in some cases even better than plan. On the investments, I was already telling you that this was again, a very good year for Hannover Re ROI. Driven to a large extent also by good returns from our private equity portfolio, and our real estate portfolio was quite good. I put this slide in just because it's the tenth year where I give you the report on the annual results. When I started to do that for 2009 and first time in 2010 for 2009, of course, gave the commitment that we will reduce the volatility of our earnings and will pay stable from a tendency rising dividends. If you look at this chart, that has actually worked out quite nicely. Particularly, you can see that the earnings per share were quite solid and basically have a positive trend. Also, we paid a dividend every year, which in each of those years, based on the share price at the time was a return on the market cap of more than 4%. You can also see that in the last five years, we managed the growth of the capital downwards. We didn't manage the capital downwards, just the growth of the capital. With that, a rather nice slide for myself. I would think we should become a little bit more professional again. For that, I hand over to Roland. Yeah. Thank you, Uli. I will try to continue to show impressive numbers myself as well. I think if you are, and a few might be, as you mentioned, be more professional. On the first slide, we see here the cash flow numbers. Again, a very strong cash flow, EUR 2.2 billion, which we very much appreciate. You might remember that at the occasion of the investors day, I was talking a little bit about the positive cash flow and the influence on especially our investment income. We talk a lot about ROI, and also Uli mentioned that we are happy with the ROI, but the investment income is a computation between the volumes and an ROI. In that regard, the increasing volumes driven by the cash flow are important also for the investment income numbers. In the future, we can see that cash flow seems to arrive at the assets under own management on the right-hand side. It's more of a coincidence that we have the EUR 2 billion coming in and a EUR 2 billion increase of the assets under our own management because here, of course, we have currency valuation. We have the valuation reserves. We have issued a senior bond early in the year. Here, of course, all these different impacts are to be felt, like for instance, a stronger US dollar, but weaker valuation reserves based on higher spreads, and increasing yields, especially in the US dollar. Some of these impacts also have affected the shareholders' equity development Uli already mentioned. We do show an increase in shareholders' equity also in 2018. If you compare that to the competition, I don't know how many you find who did that. If we look at the right-hand side, you see that, of course, we have a positive impact from the good EUR 1 billion of profits. We paid out a dividend. The valuation reserves got down, as I mentioned, based on increasing spreads and increasing yields, especially from the US dollar. The currency translation brings it up again. Overall, we have the nearly 3% decrease or EUR 250 million increase in shareholders' equity for the year to come. On the left-hand side, what we here call or define as policyholder surplus hasn't changed drastically. We will come back to the EUR 1.4 billion of hybrid, which are outstanding. There is room for more, and we will see that later on, as part of our solvency reporting. Again, nothing has changed here. These are still outstanding, but there's room for more if need be. Now perhaps one of the more impressive charts, Uli had already addressed some of the items here. We do see that the equity has been increasing over the last five years, quite remarkably from EUR 6.7 billion to EUR 8.6 billion. But we were able to produce attractive returns. In 2018, the 12.2% is an outperformance of our internal target of 270 basis points. If we look at the five-year average, we even have a higher outperformance, 330 basis points. Uli mentioned that within the last 10 years, every single year showed a double-digit return. Also on the right-hand side, you can take the five-year average or the 10-year average or the 15-year average. We have outperformed our internal targets by quite a margin. That is the usual ranking, which we show as the RoE is our main profitability indicator or measure. If we look at the 2017 years, we see that Hannover was only number two. Last year was double digit returns. Here, the number one was a U.S. life insurer who was very much helped by the US tax reform to produce the 24% RoE. Here, if we take that out to some extent, I am not saying that to disqualify that. If we take that out, then also the 5.7% industry RoE last year would have already been lower. If we see the development of the RoEs of the industry over the course of the years, they go down. If we take out Hannover RoE out of 2018, and take the average of the seven companies who have already published numbers, we arrive at 4.2% industry RoE. That, from our point of view, is not sufficient. It should have an impact on the pricing going forward. But of course, it also demonstrates a little bit that especially in the years when we have high losses, Hannover usually outperforms. You know that this is one of the key drivers, is our retrocession strategy. But also here, again, this 13.3%, I think, is an impressive number. We feel very comfortable where we are here in the pole position. Now to the group's figures. You have seen them earlier this morning. The main measures had already been published. So in that regard, we will come to the details on a segmental basis. Only here I might mention the tax ratio, which is, from our point of view, back to normal. It had been helped by the sale of the equities portfolio last year. These profits were tax-free. You might remember EUR 224 million as kind of an extraordinary tax, nearly tax-free profit last year had decreased the tax ratio and the 225, around 25-ish range. I think that is something which we would expect as a normalized tax rate. Uli had already mentioned EBIT grew by 17%, also the net income double digit growth. But also here we have to take into account and to admit that last year was a year where we did not fully achieve our billion target. So it was a little bit easier to achieve these double digit increases in 2018. Let us come to the property and casualty reinsurance, where, well, things might not become complicated, but where a few more comments might be valuable. The P&C premium grew by 16%, currency adjusted. That was helped by the structured reinsurance with 16.7%. The surprising portion is obviously not that the structured reinsurance business was increasing or could be increased by 16%, but that also what we call here the traditional, and that might be a little bit misleading. It includes the ILS business as well. That also this has been growing by 16%. Also, that has been driven by a good handful of larger contracts around the world. For instance, the U.S. was increasing by EUR 200 million, Europe by EUR 100 million, worldwide treaty was increasing by EUR 450 million, and the structured reinsurance by more than EUR 300 million. So it was really an around the world growth, also outside the structured reinsurance segment, where we all had expected that growth already and where we had announced it. Structured would have been even a little bit higher. You can see that on the net number here, we changed accounting for one large contract, which then turned kind of premium reserves into an entry out and an entry in. So in that regard, the net premium here with the more than 20% indicates that change. So here, the net premium even increased by 22.5%. We will come to the large losses on the usual pages and slides in a minute. Let me comment on the run-off result and the initial reserving and the confidence level. Most of you have seen that the table in our annual report shows a run-off result of nearly EUR 1 billion, a little bit down from last year. The initial reserves, as we usually set them up, we stuck to our usual policy. We will also see in a second that two lines of business were affected by positive run-off. That it was marine and credit and surety. Marine, it is really quite obviously on one of the slides because the combined ratio there was only a 9% combined ratio. So overall, one could see that something of between EUR 100 million and EUR 200 million, one could define as extraordinary positive run-off. The issue here is that these were, in most cases, case reserves. That was not driven by an ultimate loss ratio setting by our chief actuary, but there were single case reserves which we could no longer keep up, because it was quite clear that we wouldn't have to pay out on those. The impact of the positive run-off of such case reserves to the loss reserve redundancies, this is where we really need the final study from Towers Watson. Again, the guidance here would be EUR 100 million to EUR 200 million positive run-off, EUR 100 million to EUR 200 million decrease of confidence level possible. You know that we have various parties and stakeholders looking at our reserve portfolio. That is our own actuary, that is the auditors, that is the Willis Towers Watson. We have indications that at least one says that the level should be stable. Some also indicate that the EUR 100 million to EUR 200 million loss of reserve redundancy could be the result of the final study. So we will have to wait. Still, if you remember the presentation at the occasion of the investors day, the reserve level is still on a very comfortable level in any case. Here are the large losses. I think we've commented on that more than once. EUR 825 million was the budget for the year. We had EUR 850 million. It's interesting to see that last year we had gross losses of $1.8 billion. This year or in 2018, we had gross losses of $1.7 billion. If we assume that in both years, the impact of the ILS segment is around $400, a little bit less than that. If we deduct that, because that is in and out in any case. That then would result in 2017 around $1.4 billion, and in 2018, $1.3 billion. But the difference between gross and net is remarkably higher in 2018. The retro program, which we had outstanding, and the additional capacity which we bought for 2018, really did help the difference between gross and net in that case. And of course, it is also one of the drivers for the good result, especially as compared to the competition. Usually we come with one page of large losses. That was not sufficient this year. We have brought with us two pages. One for the natural catastrophes, and one for the manmade losses. Here you see the natural catastrophes that started in Europe with Friederike. But of course, over the course of the year, it ended with a very busy Q4, which started with Michael. Had the Camp wildfire as the nearly largest loss. It turned out that Jebi also developed a little bit over the course of the fourth quarter into the real largest loss. You see that $135 million on a net basis, followed by Camp, the wildfire in the U.S. by $130 million, followed by the others. So a lot of frequency. Again, the retro structure which we have in place, the K quota share, the whole account protection, plus the aggregate large loss cover was very sufficient and that should also be the reason as to why future development is potentially really limited. Also, the retro structure did prevent us from having a lot of negative runoff from the last year. Also here we had some development, of course, also from Irma, Harvey developed more positively. Also they are protected by the retro structure which we have in place. So overall, the development also of the last year's losses were stable. Here you see on the next page then, the manmade losses. With accumulation of credit claims, which was interesting. I think we never had four credit claims which made it on the large loss list. Still, it is interesting to see that credit was seeing a positive runoff. It saw the credit claims, but even without the positive runoff, it would have been still be possible. So it is still a very attractive returns in that line of business. But you also see that as we are protected for natural catastrophes, here the numbers between gross and net are far nearer to each other. That brings us to the various lines of business. And of course, one could see the impact of the large losses here, and North America was affected. Also, the facultative business, the worldwide treaty. What is from our point of view remarkable is that our Bermudian cat business was still within the target combined ratios with 88%. But of course, this is where the natural catastrophes landed. And this is where also the good protection of the retro program had its impact. I had already mentioned the very, very positive result in marine here. We didn't have a lot of losses, so it would've been good anyway. We had the positive runoff. It looks very impressive. We should be aware that marine these days for us accounts for a good EUR 200 million in premium. We shouldn't overestimate the impact from such a combined ratio. Also, aviation, which had benefited from the reserve releases from the WTC disaster last year. Premium in that line of business, also a little bit more than EUR 200 million only. That is different for credit and surety. Here we are talking about EUR 750. Also, as I mentioned, a very positive result. Even without the positive runoff and including the large losses, we would've seen a good result here as well. Premium-wise, it may be worth mentioning the structured reinsurance, EUR 2.9 billion. 24% of the overall premium income. The largest segment with regards to gross premium these days. Again, as I mentioned, a quarter of the overall premium. If you see that this comes with a combined ratio of around 98. You see if you do the rough maths, the impact of the excess combined ratio a quarter times 2% is 0.5. We ended up at 96.5%. In that regard, of course, to be fair, also in the previous years we had some of the structured reinsurance. But that then might explain as to why we did not achieve the 96 target and as to why we increased it to 97 in the coming years. Coming to life and health. Uli had already mentioned it was a positive surprise. We had announced that the extraordinary burden from the potential recaptures based on our price increases could be between EUR 300 million to EUR 350 million. That is what we indicated with a maximum of EUR 500 million to EUR 600 million. Now it turned out to be EUR 272 million, mitigated by the collateral reserve release and ended up at EUR 185 million. That, of course, is one of the drivers as to why we did outperform the reduced expectations. Also, the underlying business was very positive. Uli mentioned also the U.S. financial business was an all-time high. In that regard, we are really happy that also this segment can come up with positive surprises at least once in a while. We are still careful going forward with our assumptions. If you ask us is there more to be expected? We might see EUR 20 million to EUR 50 million recapture impact in the first half year, 2019. Why is it EUR 20 million to EUR 50 million? I think EUR 20 million it is quite clear this should come because the increases come with the renewal date of the policies. Some of these renewal dates are still up for. They will come over the next few weeks and months. In that regard, that is a EUR 20 million which we will most likely see. The rest is to be seen as to whether we are talking about one client here. They are thinking about going into arbitration or not. If they choose not to, then they might recapture, and we might see the other EUR 30 million. If not, then we won't see that, and we will have to find it out later on. I think the growth you can see it was currency adjusted 4.6. Not overwhelming, but fully in line with our expectations. That one of the main drivers, China and U.K. longevity as you can see here. What else? I think as mentioned before, the EUR 121 million EBIT for the last quarter and the EUR 276 million is still not living up to our expectations and the profitability targets we have defined. But I think it's a very good basis for what we have to expect into the future. New business production goes down. Is that disappointing? No, it's not. It is comfortably over the hurdle of EUR 220 million. Why is it going down? I think there was the one contract in 2017. We cannot take that as a guidance at all. We have not been writing as much permanent business in the U.S. anymore. It was a very long tail. This is where we are a little bit more cautious. That, of course, is business with a very long tail where the new business production is then very high. As we are a little bit cautious in that segment as from now on. This is the reason why the production has come down a little bit again. We are comfortably over our level, and I would also say that the likelihood of then future adjustments, by not writing that business anymore, has also come down together with the new business value. Again, we are significantly above the hurdle, and we are not disappointed at all. Now the investments. Uli mentioned that we have increased our ordinary result again. That was driven by increased volumes. Also increasing reinvestment yields in the US dollar. You will remember the presentations which I usually give. So in the US dollar, the reinvestment yield was higher than the maturing yield. That has helped as well. The private equity distributions, as well as the real estate ordinary income was very positive again. These are sustainable supporters of the ordinary investment income. Realized gains came down remarkably, of course, driven by not being in a position to sell the listed equities portfolio anymore. Still, with EUR 128 million. Also that line contributed. That was driven a little bit by the de-risking strategy. So we sold some of the lower quality funds with good capital gains by selling those. So we were de-risking a little bit. It was also our assumptions that, and in that regard, the timing was lucky. I'm not telling you that I have that crystal ball, but when we were selling these funds over the course of the summer, and then we saw the spread widening in the second half year, I think that was good timing. We were expecting the spread widening to go on. And we're also prepared to reinvest into the lower quality spectrum of the credit curve. Now, since the beginning of the year, that trend reversed itself. We still see opportunities, and again, the reinvestment yields have come down again a little bit. But with these communicating numbers, also the reserve numbers, the valuation reserves on the bottom of the page, which was coming down from, you might remember, we had numbers of EUR 2.2 billion just three years ago, to EUR 1 billion. I think the last number I saw last week or so was EUR 1.3 billion again. So the rate decreases in the euro as well as in the U.S., and the spread tightening led to higher valuation reserves again. Which you can see as the Germans saying would be with a laughing and a crying eye. On the one hand, we were appreciating the increasing reinvestment yields. On the other hand, it's good to have reserves. Here is the usual slide. You can see that if you look at the government line, that we have increased from 30% to 35%. That was also, to some extent, driven by an increase of our inflation protection, which we do with inflation-linked bonds. These are usually government bonds, and we had increased our inflation protection one more time. That has also increased the government portion to some extent. You also see that the non-investment grade number goes down a little bit. The real estate goes up. These are not drastic changes, but they contribute. You also see where the ordinary income comes from. We have allocated 35% to govies, but only 25% of the net income comes from the govies. We look at the real estate portfolio. 6% allocation, but 13% of the net income. So very profitable. Although, and I've mentioned that before, it's a little bit inflated because the cost is deducted elsewhere. I think that then leads us to the first and preliminary number of our Solvency II reporting. You might have to be a little bit patient to see the full reporting, which we will publish in April. These are numbers which we have produced. The audit is not final, so this is why I would call them draft. We don't expect changes here. The capital adequacy ratio comes down. We still provide, by the way, the internal metrics. The difference between the internal and the formal metrics in the middle of that table here is the treatment of minorities because we still feel that the minority happen, which we can work with. The BaFin or the regulators don't see it like this, and this is why we provide the two numbers. It has been coming down. We will see the history of that number. It is driven by the increase of required capital. The own funds are increasing as well, but they would have to increase by the 2.6 times as much to keep that stable, which they don't. So we have an increase in the own funds, but the required capital goes up even more. The main drivers are the growth of the business, which we like. Some of you were complaining why we would have 260%? What would we do with all that excess capital? I do last year. Now we found ways and means to employ at least parts of that capital. One other contributor was the increasing spreads. With the increasing spreads, we have increasing volatility and more capital. Yes, it's a decrease, but we are still happy, and we will see with the history where we come from as to why we just only see that positive. On the next page, you see the composition of the capital requirements. Not a lot of change. Property and casualty has, of course, increased, or the portion has increased based on the growth which we have been seeing. The market value, the market risk still the most prominent risk here, but only by a very slight margin anymore. And within the market risk, the spread risk is the main contributor. 34% diversification effect. So in that regard, the numbers haven't changed drastically. Here, the history, and I want to remind you where we're coming from. We felt very happy with the 220% in 2015. Already, we have defined our threshold at 200% and our limit at 180%. This went up to 230% in 2016. It had a peak in 2017 with 270%. Now with the growth, we are slightly down again. I think also this graph should show you that we are at a very comfortable situation today as well. Here is a translation between IFRS and Solvency II. If we go, you know the criteria or the aspects which changes here. We have some adjustments of the assets, where we, of course, according to Solvency II, don't have any hold-to-maturity or amortized cost assets. I think there is no need to go through that. Here, the second column of the right-hand side shows you that there's room for 1 point. That would also count as Standard & Poor's or A.M. Best capital. In that regard, if we ever come under pressure from the solvency ratio, where we are far away from, we would have ways and means to get that even more comfortable again. I think with that slide, as always, leaves the target matrix to you, Uli. Thank you, Roland. That brings us to the target matrix, and you can see we have mostly ticks, which reflects a very good 2018 result. Two ticks are missing. One is the EBIT. Sorry, not the EBIT. All the group combined ratio is slightly above our target. That has to do, of course, with the losses. It also has to do with of the advanced solutions business or the structured business, where we increased the target to 90. Composition of the business. The other one is the IVC on the life and health side, and this still has to do with the U.S. mortality business because whilst we were happy with most of the business that was recaptured, we weren't happy with all of that business because also some actually quite profitable business was recaptured. That was included in the technical provisions as reducing the technical provisions because we were expecting future positive cash flows. They came out and had a negative effect on the economic earnings, so to say, and they also had a negative effect on the solvency ratio. But the good thing, nothing of that has to be expected for the current year. For next year or this year, again, we 2019, and that's not only myself, but the entire executive board and management. Some momentum building for higher rates. The reason for that is the rather disappointing returns of some of the market players. It's not an outright hard market, I would say, but we see a gradual increase in the momentum for rate increases. I would say that the quality of the 2 fiscal years from a rating perspective is slightly better than 2018 and 2017. Maybe on the level, I would say, of 2016. It is still, I would say, soft market pricing, but slightly improving. Overall, as a result, we expect on the combined ratio, at least in our planning, a slight improvement in 2019 compared to 2018. From a basic quality of the business, certainly that we see in the market, one would assume that on the P&C side, the business should pretty much track what we had seen in 2018. You can see that in this market environment, we are able to continue to grow profitably. Particular growth in North America and Continental Europe, particularly in North America, we see rate increases also on the primary insurance side. In both of those segments, we expect good profitability. We also grow in the worldwide reinsurance, and this is largely growth from Asia and to some extent Latin America and from Asia in particular China, where we have seen very significant growth. Specialty lines, mixed picture. Marine, credit surety, we expect continued good profitability. Aviation, we always put as negative because the rates are so low that you can hardly see them. Development is positive. We see increases there. If I still remember a lot higher rates, I always insist to put that on negative. You might say it is not very well borne out by the combined ratios we are seeing in that business. As Roland rightly said, it is a relatively small part of the business. If you go to the life and health, that is where we expect the growth and profitability coming from. This year, main reason is the U.S. mortality business, where the impact on the results will be significantly below what we have seen in 2018 and 2017, where in each of those years, the result of our business that we acquired from Scottish Re in beginning of 2009 had losses of more than $250 million in each of those years. As that for the current year will come down significantly because a lot of the business has gone through recaptures. We are expecting to see here a result which is, say, middle double-digit U.S. dollar negative result. It is still a little bit up and down. The mortality is still somewhat volatile, but the impact will be a lot less. The mortality business outside that block is actually performing quite well. That is particularly true outside the U.S., but also our U.S., what we call the organic, our new business, provides us with increasing and good profitability. Overall, we expect the mortality solutions business on a whole to get back into profitable territory. On the morbidity business, we have significant growth, in particular in Asia. It is a lot of critical illness business. The business is not quite as profitable in and large as the mortality business when it works as expected, but it is shorter term and is actually more than sufficient to cover the cost of capital. Longevity, due to very conservative reserving the overall profits, the next few years will not be that exciting. But four to five years from now, we should see increasing profitability because then the blocks are aging to a level where, in particular in the U.S., the mortality improvements that we calculated in may not materialize to the full extent, which would then give us positive actual to expected results. The star will again be the financial solutions business. We expect growing profitability there. Very profitable book in the U.S., but we grow that business also in Asia to quite some extent now, and we will see the profitability from that business grow quite remarkably in 2019. If we sum that all up, come to the guidance of 2019. We haven't changed that at all. The premium target growth, we are relatively confident that that should be achievable. We had on the P&C side, a rather good one/one renewal. We grew 15.4%, the renewed business. Fund IV is shaping up quite nicely as well. So the growth should be fine. Life and health grows a little bit less, but also there, we see increases in premium, particularly in Asia. We see some, of course, decreases in premium, continued decreases in premium in the U.S. due to the recaptures that, of course, also recapture the future premiums. Nonetheless, we see that positive. And we grow on the financial solution side in the U.S., but most of that is deposit accounted. You have seen on the numbers that Roland showed you, that the other income and expense line on the life and health business has become a really significant profit contributor. Which is a little unusual, because normally you have the expenses for the company as a whole in there. Due to the deposit accounted business, that has become really a profit engine for our life and health business. For our investments, we expect a solid result. We haven't planned any extra lift. But at least 2.8% should be achievable, provided that the capital markets do not see any dislocation beyond what we had seen in the last few years. And then, of course, the net income, we expect in the region of EUR 1.1 billion. I would say it should be around EUR 1.1 billion. But provided that the large losses stay within the budget or not much more than the budget, and we see no dislocation of the capital market, this region should not be symmetric. So it should have more levy to the up than to the down, I would say. What it should really show you, that we expect growth and the profitability in 2019 as compared to 2018. Dividend, provided that we get the results that we are guiding for, and provided that the capital ratio, the solvency ratio, stays above the, I would say 210, 220 level. Clearly, the dividend that the supervisory board and the executive board of Hannover Rück will suggest or will recommend to the AGM of Hannover Rück for 2018 of €5.25 per share, is clearly the benchmark for the dividend in 2019. With that, summing it up, we believe that we, on the P&C side, are in the position to continuously outperform the market. We feel that we have a strong competitive position and have a clearly lower expense ratio than our competition. On the life and health side, we are seeing growing profitability, as I explained. And expect a solid result on the investments. That is for 2019 and should also give the trend for the medium term. With that, thank you very much for listening, and we will be more than happy to answer your questions. Okay. Well, thank you. We will now begin with our question and answer session. Just as a reminder, please wait for the microphone so that everybody can hear your question, even those who are not in this room. For those attending virtually and who would like to ask a question, please dial the 01 on your telephone keypad now to enter the queue. Once your name has been announced, you can then ask a question. If you find that your question has answered before it's your turn to speak, you can dial 02 to cancel the question. If you are using speaker equipment today, please lift the handset before making your selection. We shall proceed first with questions from attendees in this room, and then move on to the questions coming from the conference call. On the right-hand side, I already see some hands up. We start with Kamran and continue with Andrew Ritchie. Hi, it's Kamran Hossain from RBC. Two questions. The first one's coming back to the 15-year RoE track record. Clearly, you're fantastic at exceeding your own targets. Can I ask a little bit about, do you think your own targets are too conservative? When we look at EUR 1.1 billion or around EUR 1.1 billion for this year, this feels conservative. So that's the first question. The second question is coming back to something that was said near the beginning of the presentation. You talked about undefendable reserves. Where you've been forced to release them. Could you maybe talk a little bit about two pockets? One is, I guess, in the U.K., again, the Continuous Mortality Investigation Group today has reduced life expectancy assumptions six months today. The second pocket is Ogden. We've seen a couple of the big motor insurers in the U.K. move that rate or that assumption to zero. What are the trigger points for seeing this coming through into earnings? Thank you. Well, thank you for those questions. You might say that the forecast is conservative. I think it's not much more conservative than we had in previous years. The main things that we want to say is that we see profits rising. There's always so many things happening throughout a year that we're never overly bullish with these numbers, I would say. Undefendable reserves, on the U.K. mortality improvements on our pension blocks, they're clearly defendable because we have the lock-in principle. Any improvements will only show when there is a positive development extra to expected. We cannot use that in letting it go through IFRS earnings. If we change the technical provisions under Solvency II in that respect, we can, of course, do that if it's well founded. That would then increase the solvency ratio. It will also increase the IVC then, of course. The Ogden, that could become undefendable because all the case reserves we currently reserve at the minus 0.75%, and that's a pretty large number. By now, from some of our clients, we get loss advices. Also alternatively, with 0% or even 1%, but we are not using these for case reserving purposes. Should we really see an increase in the Ogden rates, then of course these case reserves will come down, and we will just have to release them. There's not a lot we can do there. Cameron, if I may add to this, too conservative. I'm not sure as to whether you were referring to the 900 basis points and the RoE achievements or the absolute guidance which we gave to the first point. We have heard that question before. If you outperformance your hurdle all the time, why don't you just increase it and make your company even more profitable? The one thing you should really bear in mind is that these targets are really cascaded down to a contract pricing level. If we, for instance, would say we increase our hurdle from 900 to 1,200 basis points, that would mean that we no longer write the business, which provides 1,000 basis points. Now it comes back to the investors and your requirements. How much do you require of us? Do you want us to write that business? Because we are not paying dividends out of percentages and RoEs, we are paying that from euros. So in that regard, you might be happy to receive the euros which we make from all these contracts, which only in quotes, provides 950 basis points. This is really a sophisticated system. And if we take decisions here, they have impacts which might sound great to present it to you, but it really has an internal meaning also for the pricing. Okay. Andrew? Hi. It's Andrew Ritchie from Autonomous. For Roland, first of all, looking at the ROI. For the last couple of years, the returns on private equity have been seemingly exceptional. Nearly 20%, if I just look at the income and compare it to the private equity asset base. I think real estate, it's 8% or 9% for the last couple of years. I appreciate that's gross of expenses. Those just seem unsustainably high. Why are they so strong? And presumably it's part of your guidance that we shouldn't extrapolate those. And I guess a question for Uli. You've shown us your track record. What have you left for your successor to address? Are you leaving him any notes in your desk drawer of things to look at? Is there maybe one or two items that you felt maybe you would like to have done better, more? I'm not sure. Something like that. Should I start? ROIs with regard to the real estate portfolio here, I am really convinced that this is sustainable. We always mentioned and indicated, look, this gross number in the ordinary income is to some extent inflated, and the expenses go down. So here, a 6% for the portfolio, which we have on a net basis, which we had in the previous years as well. I think we see that as sustainable. That portfolio developed really well. My colleagues very often ask me, "So if that is so profitable, why don't you buy more of that?" That is exactly the thing. It is a high quality, single building policy. We look at every building. As such, we have increased the universe to also include Asia now. In that regard, I am really comfortable. A bit more complicated on the private equity side. You mentioned the kind of excessive margins which we made. They were driven in the last years, I think 2016 and 2017 in particular, where some of the funds did extra distributions. Plus our IFRS accounting, where we did not fully account for those. Those profits which were retained at some funds, there was an argument as to whether, according to IFRS, you look into that or not. There were some extraordinary items. 2018 was rather free. There were some smaller distributions, but that was not a real major, extraordinary level of private equity. We are in the double digits, and we feel comfortable that we stay there. Also there might be a market development, but what we have seen, it is very mature. We are a portfolio which of course renews once in a while. 2%, that means nearly EUR 1 billion, which we have there and continue to have there. Also here, of course, this is private equity. You don't get double-digit returns risk-free. There is no free lunch. But there is no reason to really assume that apart from major capital market developments, that this should not continue. Yeah. For my successor, there is loads of things to do. We have, of course, our digitalization initiatives, which is, of course, improving internal processes, improving underwriting by better use of data. I would say, there is quite a lot of development that we can do in the future, and I am sure we will. Under the leadership of John Jack. There is also, of course, some business relationships with clients around the world. There is definitely room for improvement. It is also, of course, readjusting the level of service we are providing our clients in order to produce business. So there is a lot of things to do, and it is of course, always challenging. It is a lot easier to say, well, that is a piece of cake when you are not having to do it. Looks a lot more challenging when you have to do it, as I know. But there's lots of things. One thing is, of course, the most important, not doing too expensive mistakes. Making small mistakes is fine because you have to do it. If you make no mistakes, you're not doing anything. But mistakes like buying a Clarica or buying a Scottish Re portfolio, if you can avoid, do it, because it has two negative effects on it. Of course, it takes out some of the financial strength of the company, but it also takes a lot of management attention. I can tell you, I know a lot more about the U.S. mortality business than I ever wanted to know. We continue to stay on this side with Vinit. Yeah. Thank you, Vinit, from Mediobanca. So, three, if I may for now. Just on the reserving first point. I noticed that you said that there's EUR 100 million-EUR 200 million extraordinary reserve releases in 2018. There were case reserves, which you said you just could not release. So that should, in theory, not damage or not reduce the confidence interval at all because they're not needed. So if you could clarify that aspect of reserving. Should I go to second question now? Second question is just on the SCR increase. I've tried in my head some rough attempts at figuring out how the, say, EUR 1 billion, or EUR 1.2 billion of premiums increase led to such a big EUR 400 million odd increase. There must have been diversification. Secondly, structured solutions by definition, as we understand, is a low capital requirement business. So those concepts are not adding up at all. Maybe you could help us in breaking up the growth versus investment risk or any other risks. There is one-third diversification as a sort of standard also, so it's not adding up. For me? Sorry, just last question. The new business value of Life. Also earlier I noticed that you said China critical illness is not that profitable. Maybe this is dragging this down a bit. What is the 220 supposed to achieve? Because the way we understood always from the outside is that new business is fantastic, so it will override the problems of the back book of U.S. mortality, et cetera. So what if you did achieve 220? Is that the level at which it offsets any back book? Or how should we interpret? Because you said the only thing good about that chart was it was better than 220. Otherwise it was very low. Thank you. Yeah. First of all, you understood me wrong on the critical illness business from China. We actually think that is actually quite profitable. However, what we have on that is what we call soft guarantees. So we are not guarantees the rates for the lifetime of the policy, but only for five or 10 years. That means that, for us, for calculating the value of new business, we take only the guarantee period into account. So we've only guaranteed the rates for five years. We only calculate the expected profit for the next five years. We're not going beyond that, despite the fact that these treaties would normally, because the policies would continue beyond that. That, of course, reduces the value of new business. The other thing is in the U.S., the U.K. and Canada, we have increased, following the experience with the ING portfolio, we have increased our rates on the permanent business. Not that significant, but sufficiently significant to become uncompetitive. So we are not having that business. Of course, if you have, say, permanent business, which is like whole of life business, sold at the age of, say, 35, your tail on that business is easily 60 years. So if you calculate that with your assumption at the time of underwriting, you expect positive contributions for the next 60 years, which of course makes relatively large value of new business. It's also, of course, subject to a lot of risk because if the mortality assumptions have to be changed downwards, then of course, that value of new business can evaporate rather quickly. The 220, if you make the 220 and have a neutral development of the technical provisions of the back years due to the roll forward, that would mean that we certainly outperform our level of IVC or the ex RoCA. We are then significantly over and above the 2% ex RoCA level. That is why we have it. What that does then on IFRS is a little bit more difficult to say, because that really depends how you account the future profits in IFRS and how the profits emerge. They are normally a little bit back-loaded. That is a little more difficult to tell. Also, of course, on the IFRS profitability, quite not an insignificant part of that also comes from short tail health business, which of course has no value of new business because a lot of that is actually single year business. On the SCR, of course, we have an increase due to the spread increase because at the year-end, we had a significant increase in the credit spread. That means that we assume a higher volatility, so that spread increase increases the SCR. Of course, the growth in the business, including some growth also in the CAT business, increase the SCR as well. Then one has to say that the internal model is not static. It has model changes all the time. Minor model changes, but they also have an effect. So it is not that easy to calculate the effects from, say, 31st of December 2017 to 31st of December. It is not such a simple calculation, I have to say. But I guess my colleagues were maybe more than happy to explain that. Maybe our Chief Risk Officer to give you that, maybe at the next investors day. Because it takes a little bit longer time and a little bit more data than I have available here. But at least, in general, one can say that the increase in business and the increase in spread has driven that growth of the SCR. Then on the reserving, Roland, I hand that over to you. Bennett, I think you have a right point. This is why I indicated that there is some uncertainty and also that three different actuarial parties did not really come to the same result. If we, for a special segment, calculate with actuarial models that the best estimate point for the ultimate loss ratio is 90%, we reserve it at 96%, then we have a 6% redundancy level. If then we decide, oh, maybe we have a little bit of a pressure, let us go down to 94. Then the math is easy to tell you, look, this was an extraordinary downward take of the reserve redundancies. Easy to say that. Or to calculate it. If it is a bit more complicated that you have in a line of business, a certain redundancy level and then case reserves, which you are totally right. If that is a pure case reserve, one should assume if we take it out, nothing happens to redundancy because it is just in and out. Still, the ultimate loss ratio calculation depends on the incurred case reserves for the actuarial model lying beneath that. In that regard, this is why I was a little bit hesitant, and I was mentioning the uncertainty for the 100 to 200, because exactly that what you mentioned is right. It is not too easy to now determine the exact decrease as we would then say, look, 100 to 200 million, that is what we expect the reserve redundancy to go down. Exactly that point defines the uncertainty, which I was trying to indicate also with the wide range. I am beginning a little bit of comfort by the fact that the overall level of reserves have actually increased in line with the increasing premiums. So we have about EUR 2 billion more reserves at the end of 2018 than we had at the end of 2017. Okay. We continue on that side with Thomas Fossard. Yes, good afternoon. I have got two questions. The first one would be on the 2019 full year guidance. I think that a couple of months ago, or weeks ago, you indicated that in the region of EUR 1.1 billion was based on the assumptions that the life business in 2019 will be around EUR 400 million of EBIT. Now, looking at the numbers, and adjusted for the specific item of the clean-up process, we are starting with a EUR 460 million in 2018. So why the EUR 460 million will not be the right base to think about your 2019 EBIT contribution on the life side? Even if you have got EUR 20 million to EUR 50 million of additional recapture, we should expect some growth in the business. And obviously, you have got some relatively positive outlook. So why EUR 400 million is the right number? And the second question will be related to P&C. And just to share, if you got some, I would say, updated news on how the 1/4 renewals could evolve for your business, in terms of volumes and in terms of pricing you're expecting. Thank you. Yeah, of course, on the life and health side, we missed the prediction because I said at the end of 2016 that we would have more than EUR 350 million of EBIT in 2017, which then didn't come through because of unexpected spike in mortality. So we are a little bit cautious on those predictions. Therefore, we are happy with the EUR 400 million for the time being. We would not be unhappy if it's more, but I think I would hesitant to predict that. On the P&C 1/4, of course, we will report in detail with the first quarter. So far, it's shaping up quite well, but it is relatively late renewal because reinsurers try to get higher prices, and ceding companies look at the options and, of course, see if they can come to terms with that. But overall, so far it looks moderately good, I would say. I think we move to the other side to William Hawkins. Hi. Thank you. William Hawkins from KBW. Three questions. I hope they're all quick. You touched on this briefly, I think, with Vinit, but on slide 25, could you try and give us an indication of what you think is the operating change of own funds and SCR in your Solvency II ratio? So if we X out market movements and model noise and other stuff. Then secondly, again, I appreciate you've touched on this in other quarters, but now that we've seen the full year, can you just remind us about why there's a widening gap between your gross and net losses in terms of large losses? So the gross figure's down EUR 100 million, the net figure's down EUR 300 million. And I guess more importantly, you've already spoken in the past comfortably about this, but are you not concerned that at some point there's going to be some reasonable payback hit that you're going to have to take, even if that doesn't come in 2019 because you've already done a lot of renewals? Lastly, given that you've now had 7 years of special dividend, is there ever going to come a point when you should just rebase the ordinary dividend? On the one hand, I appreciate that it's just noise. We know what the total number is. But on the other hand, maintaining the special does communicate some level of uncertainty about capital flexibility or growth or sustainability of profits, none of which appear to be concerns when you're talking. So why not just have a higher ordinary dividend? Yeah. Starting from the back, because if I may, we already have increased the ordinary dividend. Of course, we will continue to do that. Not the 35 to 45, which we already had increased to 45, and we probably be closer to the 45. That will come, I'm pretty sure. We will still then, for capital management, maybe add extraordinary, at least in the immediate future. Then on the why is the difference between growth and net increasing? While the losses that we had in 2018 fitted our retro program a little bit better than what we had seen in 2017. Also, we had changed the aggregate, the retro program, to buy more aggregate cover, which of course, in a year like 2018, where you had so many medium-sized, large losses, which are adding up, was quite helpful. Also, the K transaction, of course, as a quota share in a year where you have a lot of frequency is actually quite helpful. Pricing, while payback, yeah, we understand there is a concept of payback. There is, of course, on our main whole account cover, there's still a very healthy credit balance for our retrocessionaires. Hence, for 2019, we didn't get much of an increase. Actually, our department buying the cover would argue risk-adjusted, maybe they even got a decrease. But then, of course, they want to be successful. I would say in general, if we see significant reduction in retro cover and significant higher prices there, we think that that would filter through to the reinsurance pricing. Which would then allow us to increase our retention of the business at better prices. We would, of course, always offer our retrocession as renewal if they decide to do so. But of course, only at a reasonable price. Then, of course, we also have the ability as P&C business is largely annual business that coincides with the renewal dates of our protections. We, of course, also have the opportunity to reduce our growth lines if that is necessary to be in line with our risk appetite. But with that, we are not so concerned. If you get better rates on the reinsurance side, we don't mind increasing, say, the deductible of our retrocessions and even pay a bit more. As long as we get more through the front door, that's not too much of a problem. Then on the SCR, how much is operational, how much is extraordinary through spreads? I would like to say that we would have to give you that later in writing, because I would rather not want to speculate on that one. Again, please more time to provide the Solvency II reporting. This will change next year. We have outside requirements to provide even before that. The SCR, the SFCR will be produced. We will publish those numbers. We came with preliminary numbers. We just ask you for a little bit of patience. We will provide all that information in April. Well, then, we just continue with Paris. Yes. Thank you. Paris Hadjiantonis from Credit Suisse. My first question would be on German GAAP earnings. If I look at retained profits plus the profit you have achieved in 2018, your German GAAP position currently covers more than 2 times your annual dividends, which has been the case for last year as well. Is this the level that we should think that you consider to be reasonable, or is it too high? Is it too low? A comment on that. Second question will be on German government bonds. I think that over 2018, you have more than doubled your position in German government bonds in your investment portfolio. That is substantially up. Could you please explain that? Lastly, on financial leverage, you have talked about the EUR 1.4 billion of unused hybrid capacity that you have on your solvency position. Would you only increase your financial leverage, or would you only go out to the market and get an issue hybrid debt in the case of your solvency ratio coming under strain, or would you consider that for business growth as well? If I may take the first question, and I'll ask Roland to answer the other two. Directionally, I would say retained earnings and retained profits on German GAAP, I would say still here, more is better than less. We would always want to have more there. At the same time, I would say we are much more comfortable position than we were 10 years ago. We didn't have any or hardly any. We had some retained earnings, but we had no profit carry forward at all. So we are in a much better position now, but of course, it could always be more. That's very clear because it gives us financial flexibility. With the other two questions, I would hand those to Roland. If I may add to what you said to the German GAAP positioning. Well, you might remember that there was a year when all of a sudden, the German GAAP capital position was discussed. The next year, I took that up and provided some information about the equalization reserve and how it functions. We never had really such big constraints because the German GAAP is very conservative, and being very conservative, you can steer it. So we took that up. We build up some retained earnings and some Profits carried forward. But as Uli mentioned, I think it is something which can be managed, and it is not a decisive point for us. The German government bonds, the doubling, I don't exactly know where that information comes from, and I wouldn't confirm it. I think we had a lot of turnover in the portfolio. We were trying to decrease it. But first of all, we had to move various billions from Ireland to the U.S. as we had to move the business based on the U.S. tax reform. So there were things going back and forth. As I also mentioned, we have refueled our inflation protection. That also increased the government portion. The overall group-wide govie portion went up from 30% to 35%. The majority, and this is now from the top of my head, should be U.S. dollar. You're saying no, so from at least the movements which I know about. Again, based on the issuance of the senior bond, which we have, where we also have some liquidity still available for financial reinsurance deals being available, some of that money is to be parked. And of course, some of that is EUR, we park it into government bonds because we would have to pay it out. If that is the case, which I am not fully aware of now, that is really driven by some liquidity management. It is not a strategic move to go more into German government bonds. The hybrid position, I think you mentioned two options. From my point of view, these are not two options. You were talking about the same thing, because you mentioned if we would take that opportunity to write more business or if we would take it to defend our capital position. From my and our point of view, that is the same thing. If the current capital position provides enough capacity to support the growth, which it does, which it did, and that was a driver from 260 to 246 and even downwards. Again, we felt very comfortable with 230 in 2016. In that regard, that would not put pressure on us to issue a hybrid bond. Still, also, we would have to consider our positions with rating agencies. But also here, luckily, we had in the past situations where we could add some hybrid in that model, and it would not count in the other. Here we are in a position that every additional hybrid up to the 1.4 billion would count in each and every model, but we would just not do it if there was no pressure from the growth side. This is why, for instance, we issued a senior bond early last year because there was no need to issue something subordinate, which we also could have done and used the liquidity for the same purpose. Hi. Edward Morris, JP Morgan. Just a couple of quick questions, please. First, earlier on, you were talking about the strong growth that you and your peers showed in January. I wonder if you could just talk a little bit more about the main drivers of that. It seems that primary players would appear to be ceding more. I do not know whether I will say there was some market share gains for traditional reinsurers versus ILS. Presumably, there is some underlying growth and also pricing. So if you could just talk about which areas it was coming from and which of them you think are repeatable going forward. Then the second question, I appreciate you may not want to give the exact number, but volatility adjuster, which you applied for the first time in Q4, can you just give an indication of how significant that was to the solvency ratio? Thank you. Yeah. According to the preliminary figures, it is a 7.8% improvement of the solvency ratio due to the volatility adjuster. Where the growth is coming from, quota share, buying on commercial books of business in order to manage the volatility. Also some further buying of aggregate excess of losses, both close or in the money and for managing the volatility of the earnings and out of the money in order to manage the capital. We have seen quite a bit of that. But still, I would say we had a higher growth on the proportionate and on the non-proportionate sides that grew as well. But there is really more appetite for ceding volatile business to reinsurers than there was before. And of course, one area which has grown quite significantly has also been the cyber business. There is also, I think, not only for us, but also a trend in the reinsurance business. It is not huge. We write EUR 250 million of cyber business around that. So it is not that much. But last year it was around EUR 200 million, so you can see it grows a bit. Any further questions? Just as a reminder, if you would like to ask a question, please press 01 on your telephone keypad for those attending the call. But before we take the question from Michael Huttner from the conference call, we have a question from Vinit. Yeah, thanks for this opportunity. So Uli, you talked about your successors' digitalization problem initiatives. One of the reasons, Hannover's one of the competitive advantages you cited to us over the last 10 years is the fact that expense ratio is cheap, is low, sorry. It is probably because you are in Hannover and also probably because you do not hire too many large specialist researchers and those kind of things. But now that you got cyber, you got so many other volatile businesses from ceding companies. Is it time, do you think that this expense advantage should be a bit downplayed and then some more investments made? And maybe this is more for your successor, but just where you think that is the situation? And just secondly, just a quick numbers check as well, please. If I look at the 2018 Nat cat, for example, they were below your budget. Man-made was at EUR 240 million, not far from five-year average. Could you just remind us the need to actually increase the budget? Presumably, I know there's been business growth, but if 2018 didn't shake the budget much, then I don't know what you're assuming for. Just some ideas. Thanks. Well, the increase in the budget is largely driven by the actuaries because they just calculate the expected loss. The expected loss is, of course, on the Nat cat side, the large loss budget. Of course, we have capacities that we are providing. They are never fully utilized. So the large loss budget also takes into account the expected utilization of the aggregates that are available to the underwriters. So it's a pure calculation. On the man-made, a little more difficult. I guess it's more an art than a science because calculate a precise expected loss number for the man-made losses in all the different lines of business with the franchise of EUR 10 million is not that easy to do, I would say. So that's more long-term average there, I would say. On the expenses, of course, there will be a spotlight when John Jack comes on the expenses because he comes from Swiss Re and people will think, well, does it mean that we rival the expense ratio in future? That will definitely not happen, I'm pretty sure. But of course, readjusting the level of services that we do. We do a fair amount already, particularly in Germany. Question is, to what extent should we duplicate what the brokers do, to what extent we shouldn't do that. But that is an area where I think constant refinement of our policy is definitely always has to happen. But I would say, I think my colleagues and John Jack will be hard pressed to easily give up the expense advantage. Okay, well, the next question is coming from Michael Huttner. Thank you very much. Good evening to everyone. One question on reserving in P&C Reinsurance. Your run-off result has been elevated now for three consecutive years at the level of around 800 million in 2016, EUR 1.1 billion 2017, now EUR 1 billion in 2018. I understand that part of this is driven by some one-off items like the WTC reserve release, and also another part may be driven by some assumption changes, for instance, lower claims inflation. Obviously, this run-off result did not reduce that much the comfort level or at all the comfort level of reserving. I am interested in your view on what would be a normal level of run-off result in kind of a normal environment. Michael, thank you for the question. I think we have discussed it before. There were years when we said, look, the regular roll forward was 50 or then 100 million. I also used occasions like the investors day to at least address a little bit of the potential complexities in that calculation. I think this is also why we feel it is really important not to just look at the technical result of the run-off computation because it is so important to consider the development of the confidence level. We have always on top of that then promised to indicate any extraordinary levels of run-off. In that regard, we last year had the WTC. We indicated that this year we had some potential positive extraordinary run-offs in marine and some in credit. Here we do not exactly know the impact on the confidence level. Moreover, of course, it is also sometimes a reflection of the business which we write newly. When we expanded our writings in the U.K. motor business, for instance, where initial reserving comes with 120%, 130%, sometimes 150%. It also depends, of course, on the initial reserving, which then depends to some extent, on the business we write. But admittedly, the changes are usually not drastic. I do not have the number, but the one thing we could say or the one number, which is in a sustainable to be expected roll forward Hannover Re absolute run-off result. But what we can see here is that, again, with the remarkable business growth, with the very conservative initial reserving, we see that even such a result does not impact the confidence level of loss reserves. Which then indicates that we have at least added as much as the positive run-off took out. As an example, for example, if you look at our U.S. casualty reserving, the years 2002 to 2006 right now stand at ultimate loss ratio projections just below 60%. When we reserved that initially, it was reserved with loss reserves over and above 100%. All the underwriting years, from 2007 onwards, at this point in time, are still reserved with ultimate loss reserves of around 100%. Which means then a combined ratio of, say, 125%. I am not saying that they will all move back to 60% as well, because the market was clearly better 2002 to 2006. But we have clear indications that they are quite comfortable, I would say. Okay. Thank you very much. The next question is coming from Vikram Gandhi from Société Générale. Hello. Hi there. It's Vikram from Soc Gen. Thank you for taking my questions. First of all, looking at your annual report, the 250 PMLs have grown massively across all perils. Correspondingly, the 200 year actual utilization is virtually unchanged. Then the third element, which is the increase in SCR for P&C RoE, that doesn't seem to have increased much when I consider what the PMLs are doing. So can you explain what's the right way to triangulate these figures? Secondly, I see a much increased credit spread sensitivity on slide 39, versus the one disclosed at the 9-month stage, which was -725 versus -833 disclosed here. I just wondered, is it just because of the spread level that existed at the end of third and the fourth quarter respectively, on which the 50% stress is being applied, or is there something else? Thank you. Yeah, it is true that the PMLs on the cat side has grown. We also increased our risk appetite on the cat to some extent at 119. This comes with an initiative that we have, we increase our cooperation with a number of larger clients. That also means that they expect us to write higher levels of catastrophe on their programs. That's to some extent mitigated by the use of ILS, but also nonetheless, our net PMLs have increased. Of course, the premium has grown quite a bit as well. You're right, that had an effect on the SCR as well. Of course, the effect on the SCR is not as big as you might think, which is due to the diversification that comes into play there. Yeah. With regards to the credit spread sensibility, I think we mentioned it before. The credit spread have been increasing. That increases the assumed volatility. That, at least from what I know today and from the top of my head, can be the only reason for that. Because of course, we had some volume increases. But we did not increase our risk appetite when it came to credit risk. The spread risk is the most prominent risk within our portfolio. But again, we did not increase the appetite or the writings. We rather, as we indicated before, went out a little bit of the very low quality. But also, we opened up the spectrum for the middle quality again. So I would say overall, our risk appetite hasn't changed. In that regard, the impact which you see here, is to be driven by the higher spreads as such. Roland, if I can just come back very quickly on the second point. I appreciate what you mentioned as regards to the increased volatility and that increasing the SCR. But the slide 39 is really referring to the market value change. So essentially the increased volatility should not be playing a role here. Isn't that true? I don't have the page in front of me. If you allow, we'd be happy to come back to that. But I have to admit, I'm not in a position to really address it right now. Sure. We can take it offline. Thank you. Are there any further questions? There are no further questions from the conference call. It looks like that we also have answered all your questions. Thank you very much, ladies and gentlemen, for your participation and your interest. This call has been concluded and you may disconnect. For all others here in the room, I would like to invite you to join us outside of this room for a snack and a drink. Thanks for coming.