Hannover Rück SE (ETR:HNR1)

Earnings Call: Q4 2015

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Mar 10, 2016

Well, good afternoon, everybody here in Frankfurt, and good afternoon to all those joining us via the Internet. Welcome to Hannover Re's Analyst Conference. It's a pleasure for me to see that so many have taken up our invitation, and we are very delighted to present you the figures for 2015 in greater detail, which we have published this morning. I must say, I'm impressed to see that you, as our analysts, have proven to be very accurate in estimating our results, and being very close to our actual numbers, at least in most cases. Today, we offer also a dial-in option for all those who were not able to participate here physically in Frankfurt. As a reminder, the dialed-in participants will be in a listen mode only during the presentations. If any participant has difficulties hearing the conference, please press the star key followed by the zero on your telephone for operator assistance. I also like to draw your attention to the feedback questionnaire on your table, or which we have distributed in advance. As you may know, we appreciate your remarks and it lays the foundation for preparing the upcoming investor day in October. You may either leave that feedback form on the table or send it in to our investor relations team. First of all, Ulrich Wallin, our CEO, will kick things off with a brief overview of the financial year 2015, and Roland Vogel, our CFO, will then move on to present the financials in detail. Afterwards, we will be happy to respond at length to all your questions. I also would like to point out that you please wait for the microphone before asking a question so that everybody is able to hear your question, even those who are not in the room. On that note, I'm delighted to hand over to Ulrich. Yes, thank you, Karl, and good afternoon. Welcome to Hannover Re's Analyst Conference for the year 2015, which has been a good year for Hannover Re. We had the fourth consecutive record year in a row, and for the first time in the history of the company, we reached a net profit in excess of EUR 1 billion, being EUR 1.15 billion, which is an increase of almost 17% compared to the already very good result in 2014. With this good result, we will also increase our dividend provided that the AGM agrees to that. We will be proposing to the AGM to raise both the basic dividend from EUR 3 to EUR 3.25, as well as the special dividend from EUR 1.25 to EUR 1.50. So all in all, from EUR 4.25 to EUR 4.75. Not only has the result been good, also the capital has grown again by 7%, despite the fact that with the widening of the credit spreads and the increase in interest rates, particularly in the U.S. dollar. Last year, the OCI effect is negative, and we have paid more than EUR 500 million in dividends last year. However, due to the high profitability, also the capital has increased. The book value per share stands at around EUR 67. Also, the return on equity continues to be at acceptable level. We have exactly the same number that we had last year of 14.7%, which of course is well above our minimum requirement, which is of course 900 basis point excess risk-free. You can see here on the slide that we say that 2015 is an excellent foundation for 2016. You can see that we are quite bullish for our 2016 results as well. I'd like to briefly explain why we think that the foundation that we have laid in 2015 bodes well for a good result in 2016. First of all, if I look at the P&C business, we have improved the combined ratio slightly compared to last year, 2014. However, the confidence level has further increased. In other words, the redundancies of our loss reserves according to early calculations by third parties as well as our own actuaries have actually improved quite remarkably compared to 2014. This is very positive for us because due to the soft market in the P&C business, we were expecting actually a stable situation here at best or even a slight reduction. Now that we have that increase, we feel that it should give us another two years of room to weather the storm of the continued soft market. Second point on the life and health business. 2015, we generated a very good result. EBIT EUR 404 million, EUR 290 million after tax profit. However, we also significantly reduced the collateral cost of our U.S. mortality business and also have increased rates on that business in YRT. That means that on a like for like basis, we have improved the underlying profitability of our life and health business. So we can expect that the trend of continued profitability of life and health should continue into 2016 and beyond. I should, however, mention a word of caution here. The actual 2015 result is above the trend line. The reason for that is that we had extraordinary profits, also non-recurring profits on our financial solution business, particularly the breakup fee that we were pointing out to you in the first quarter. But there were also more positive effects on the financial solution business. Yes, we had negative effects as well, also negative one-offs, particularly as a result of our French business which actually has a negative deviation to last year of around EUR 70 million. But the positive effects clearly outweigh the negatives, and therefore, I say that we are a little bit above the trend line on the life and health in 2015. On our investment side of the business, again, 2015 an outstanding result. However, we also managed to further increase the assets under management due to continued very positive cash flow. Actually, Roland will show you that in that respect, 2015 was a marked improvement compared to the already very good results in 2014. Of course, the increased assets under management, even with the lower interest rates, would allow us to keep the absolute returns of our investment portfolio at an historic level in absolute terms that we have seen over the last few years. All in all, I would summarize it that we had a very good result in 2015, and we also laid the basis in 2015 for a good result in 2016 as well. On that rather positive note, I will hand over to Roland to give you all the details. Thank you, Uli, and I will try to keep it on a positive note. We start with the cash flow, as Uli mentioned. Here you see that 2015 ended with EUR 2.6 billion. Here for the first time we did something which we usually not do. We adjusted the number. If you look at the cash flow statement of the annual report, you will find EUR 3.1 billion. The reason for that inflated number in the cash flow statement was a Chinese financial deal where we received, just more by coincidence, the money before the balance sheet date. We will pay out that money to retrocessionaires in Q1 and Q2 most likely. So we did not feel that this is a real operative cash flow. This is why we adjusted the number for 2015. Still with the EUR 2.6 billion. Very positive. This is, of course, driven by good results on the underwriting side as well as on the investment side. Still it's also a little bit inflated by the currency exchange rates, which also helped the cash flow number to improve and with, it wasn't there 2012, this would have been another record number. This number directly supports the right-hand side, the assets under own management. By the way, here we did not adjust for the EUR 500 million. We felt it is not that material for that number. We could have even adjusted the ROI calculation, which would have benefited from the adjustment. This is something we did not do. We only wanted to make you aware that the cash flow would not be sustainable over EUR 3 billion. Here again, it was also already mentioned, nearly EUR 40 billion to be invested also into the future, which should support the net investment income for the future as well. Then on the next page, the policyholder surplus, which includes the hybrids as well as the minorities and the shareholders equity. Shareholders equity up by 6%. That is something which improves our balance sheet. The policyholder surplus only up, you could say, by a slight EUR 30 million. The reason for that is that we called one of our hybrid bonds in the second quarter last year. The EUR 1.5 billion here should be the longer run rate. It still leaves us with a lot of additional flexibility to issue more hybrid if we want to. Right now, we don't have any plan to do that, but we would be in a position to do that. You see the components of the change in the shareholders' equity on the right-hand side of that slide. The net income, of course, a positive, and the dividend payment EUR 513 million last year for the running year, based on the announcement of Uli with the EUR 4.75. This number will increase to EUR 573. It is an increase over and above that. You see that the change in unrealized gains and losses went downwards by EUR 460 million. That is driven by some rate increases and the increase in credit spreads. You know that we have, in general, a hold-to-maturity portfolio. That is something which, of course, brings some volatility to the shareholders' equity number. But on the opposite side, we have the currency exchange rates. All the equities holdings in our subsidiaries are then translated from USD into the EUR, and here we had a positive of EUR 333 million, which brought us over and above EUR 8 billion in shareholders' equity by the end of last year. There is, I think, no need to repeat what Uli already had explained around our dividend policy. It stays in place. I might take the opportunity to update you a little bit on my presentation. I think it was in this room or the room next door from October when I referred to our German GAAP results. The German GAAP result for the holding company or the operative holding company was EUR 900 million. We used this opportunity to transfer EUR 250 million to retained earnings. And we have established, based on the dividend proposal, a profit carried forward of another EUR 83 million. Also the strength of the German balance sheet, the German GAAP balance sheet, is improved or has improved remarkably. Why did we increase the basis dividend to EUR 3.25? If you do the math and apply approximately 40% payout ratio, that will bring you up to around EUR 1 billion. And I think this is the message we have with us here, that the long-term sustainable earnings capability of the company, we feel should be around EUR 1 billion going forward. Return on equity. You see that our earnings power has kept up with the increase in capital over time. That leads to the fact that we could maintain the ROE at 14.7%. You see on the right-hand side, the on average numbers for 15 years, for 10 years, and for five years. By the way, the 15-year average should improve next year when we can delete out 2001 with WTC, which of course, a little bit dilutes that number this year. Overall, the message is, we have kept the ROE at 14.7%. The hurdle decreased from, as you can see, 10.7 to 10.2. So you could argue that the marginal profitability of the company has increased. ROE in comparison with the friendly competition. You see that in 2015, we are number one again. That is also true for the on average number, which we usually take as a basis for the ranking here on the right-hand side by quite some margin, more than 200 basis points margin in front of the number two. On this slide, you can also see that the majority of the peers we are referring to on this slide has decreasing ROEs, and that is, of course, also driven by increasing capital numbers. This is also the way we try to manage it to have the capital increase in line with the earnings power and the earnings increase, which we have been showing. In so far, we are happy to look at that ranking, and we will do everything to show you a comparable picture next year. I think on a group level, there is not a lot to add. We will come to some of the details in a second. Perhaps it should be mentioned that the call of the hybrid has, of course, decreased the interest payments. That is only true for a good half year on this page. As far as I remember, the planned number for next year was a little bit more than EUR 70 million. So at least also the call of the hybrid will also decrease that burden here even a little bit more. Other expenses are down from last year. Still, we should bear in mind that they are a little bit better, a little bit above the run rate. We are still benefiting from currency exchange rate gains. You know that our strategy would be to have a neutral number here. Already last year, or the year before last year, and in 2015, we had positive currency exchange rate effects in the other income. So that is something which is not really sustainable. What is sustainable is the deduction of LOC costs. So we decreased the volumes of LOCs outstanding, and we have also decreased the interest payments on these LOCs. That is something which is sustainable. We also have increased the fee income of the mostly life and health deposited accounting contracts, and also that should be a positive number in the future in the other income and expenses line. Moreover, you also might ask as to why the tax ratio has increased. We usually say that 25% is a good run rate for the tax rate. Last year we were below. This year, we are a little bit above. All the Germans might have heard that, for instance, Hannover, as a city, has increased their trade tax by only a small, from 460 to 480 basis points. But as you know, we have to calculate deferred taxes, and we have to calculate the deferred taxes, for instance, on the equalization reserve volumes. This is more than EUR 4 billion. If you only apply a brief increase in trade tax, that results in more than EUR 25 million burden here. This is not cash out. This is future taxes to be paid. That, I think, attributed 1.6 percentage points of that. Then also there is one instance where we put up some tax provisions to reflect a potential risk from a ruling of the German Federal Fiscal Court. Overall, this does not change the picture. The expected run rate would still be 25%. On the non-life side, I think Uli has already mentioned the various points here. We will come to the areas of growth in a second. What happened to reserves? I think that is usually one of the major interests here. We had a very positive run-off result. If you open up the annual report, we are referring to approximately EUR 500 million in positive run-offs. That would lead to the assumption that potentially redundancies might have decreased, which was not the case, as Uli elaborated on already. So we had especially positive run-off effects from property lines. These were lines where you look at single events, you set up reserves. Usually, the assumptions are that these are best estimates reserves. Still, these losses ran off very positively. Insofar we had a positive run-off. Plus, this did not decrease redundancies, and we looked at the current year, last year, very conservatively one more time. You will also see that we looked at the year 2014 a little bit more conservatively. So in that regard, we could capitalize on that positive run-off and still increase our redundant loss reserves. Remarkably, to say some examples. So for instance, Deepwater Horizon, Air France, Sandy. These were losses where we could release reserves, and we will also see that on the next page here in a second. I think that should be it. If we look at the lines of business in the P&C segment, this shows you that the margin between the MTCR, our maximum tolerable combined ratio, and the combined ratios which we have realized are getting narrower. You see that marine is a little bit above, driven by some of the run-offs. Same is true for aviation. Overall, again, it's getting more narrow. To have the redundant reserves, especially in that segment, gives us some relief. Still, overall, you see that with an EBIT margin of 16.6%, we are still looking at a very profitable, diversified Business group. Based on the assumption that we should be able to achieve that also next year, we are quite happy with the achievement we see here. Of course, it was a record result for the P&C segment. As such, areas of growth. You see North America has been an area of growth. We also see growth opportunities into the future. Continental Europe, very competitive already last year. Marine aviation show growth numbers might be surprising because we always say that competition is tough and especially in aviation we have decreased our market share. If these numbers are not adjusted for currency exchange rate on a line of business level, this is difficult to do. So in real terms, one should assume that aviation marine have been showing in real term decreasing numbers. What is also worth mentioning, I think the credit and surety line looks a little bit worse than it was. Also here we have added redundant reserves. We see that this line is still profitable into the future. It might not grow that much. It has been growing nicely last year, as for instance, has our structured reinsurance and ILS. This is where we take in money, cede it to the markets, relatively risk-free. So very profitable and successful last year. Large losses, not a lot to say here. We had expected EUR 690 million. EUR 573 million have materialized, so approximately EUR 120 million below budget. That is already for four years now in a row, you see that we are below budget. This is, of course, the explanation for the competition in the cat business, which we are seeing, and this is also a reason why we do not grow that much and have also increased our retrocessions a little bit. The list of large losses shows a very mixed picture. Very long for catastrophes, as well as for man-made losses. So high frequency, low severity, you could argue. If we add up all the natural catastrophes, we are far below our loss expectations. If we add up all the man-made losses, we are far above. Overall, as mentioned, we are below the line. Tianjin, of course, the most outstanding loss here, EUR 111 million net for our share. We have to accept that we have nearly not paid any losses out. We have received some loss advices. So we will have to find out. We still feel that we are conservatively reserved here in the future. Maybe the most surprising positive note, the more than EUR 400 million EBIT for our life and health segment. The fourth quarter, as you see, with an underwriting result of EUR 83 million and especially positive one. Uli mentioned already one off, which was also driven by the financial solution segment, which has improved not the net investment income but the underwriting result. We also had some negatives before. We mentioned that U.S. mortality running off below expectations, our result from France. Overall, if you look at the net underwriting result for the full year, that is something which should be achievable also in the future. Here, I would say it's a little bit an offset between positives and negatives and the run rate. We mentioned the EUR 39 million from the termination fee, which is in the net investment line. That is something which is not sustainable into the future. If we look at the EBIT margins by segment, you see financial solutions again, very, very profitable, and we also see that profitability into the future. Longevity. Here we had a positive run-off and also positive results from one special relation. That has improved the results here remarkably. Mortality, still a little bit below the run rate. We've discussed that before. We have improved the LOC costs. We have implemented rate increases. So the run rate should be better into the future. Will this be a contributor to outperformance in the future? Most likely not. Again, overall, very positive. Insofar with an EBIT improvement by more than 50%, something which is worth mentioning. The next page, you might have recognized that we have no MCEV numbers with us. We did the math internally, and you will remember that the VNB, the value of new business, is the only key figure which is part of our target matrix. This is why we have implemented or why we report it here. We will, as from this year onwards, no longer report about MCEV. We will substitute that by the numbers and key figures from the economic balance sheet, which will be available even with our auditors approving the math as from next year. This year, we have the VNB with us. As you can see, a very productive last year. On a like-for-like basis, VNB improved from EUR 448 million to EUR 489 million. Now, as we are preparing a solvency-based reporting, we have no longer applied the 4.5% capital cost ratio, which is suggested by the CFO Forum, but we've changed that to the 6% cost of capital ratio, which is required by the Solvency II calculation. That decreases that number then to EUR 543 million, as you can see here on the right-hand side. This number was made up, or the lines which have contributed are usually the long tail lines, of course, where you have a long stream of positive cash flows in the future. That is true for the longevity business. Here we have entered into a few new deals, especially from the U.K., but also Asia and other countries. We have been growing nicely in our organic growth business in the U.S. And also the financial solutions business in the U.S. contributes to this VNB. This should be another good basis for future profits. But apart from that, no other MCEV calculations anymore, or publications anymore. The third business group, as you can see here, the investment income growth, despite lower realizations. I think the 3.4 ROI on an ordinary income side is a little bit inflated by the EUR 39 million from that life and health termination fee. But even if you take that out, that reflects 10 basis points, that would be 3.3. So a significant achievement. This was supported especially by our private equity portfolio, where we had distributions from funds. Also from our real estate portfolio and, of course, the increased volumes which we had available. Realized gains, losses, slightly down, still on a higher level. It was not the intention to harvest gains here. But we have also changed our reporting currency of our Irish company. And with that associated was a transfer of EUR 1.5 billion from the euro into the dollar. So we had to sell, we had to reinvest, and that led to realizations and insofar also to realized gains. Impairments, I think more than half of that is still ordinary depreciation on our real estate portfolio. So in that regard, nothing to write home about with regards to any impairments or depreciations. A neutral change in fair value line, which is also appreciated. This is comprised of a negative ModCo derivative that was mitigated by the positive effect of some other derivatives. Overall, again, a neutral impact. So with 3.4% ROI, and here I can only mention one more time, the ROI here for Hannover Re is calculated using balance sheet numbers. So you can take the assets under our own management from the balance sheet, incoming period, outgoing period, divide them by two, take the investment income, and do the math. I think some of other companies do the calculation differently. Here it is really transparent and, I would say, rather conservative. The balance sheet. Here we have the decrease of the OCI, which has already been mentioned. Some increases in interest rates and the widening of credit spreads has led to that decrease. Again, it does not really affect us that much. We have this hold-to-maturity bucket, and this just is a normal volatility, which we usually see. We have added one slide, and you might tell us if you like it or not. This compares a little bit where we are invested and where the investment income comes from. On the right-hand side, you can, for instance, see that we have EUR 43 million invested in governments and semi-governments, and only 25% of the net income stems from that source. You can also see it here, of course, the high flyer in 2015 was a private equity portfolio where we had invested 2% of our invested assets. But we have a contribution of 9% to the ordinary income. This is not the usual run rate, I would say. This is a little bit inflated, but still very positive. The other outstanding factor you see is real estate. You see 4% portion in the investment portfolio, 11%. Here we have to bear in mind that this is before depreciation and the ordinary costs. In so far, it is a little bit inflated, but it is still far above average. If you look at the corporates, 34% part of the investment, 37% of the ordinary income split. I think we have already mentioned that the composition of the portfolio didn't change that much. We have explained this barbell strategy, which we are following a little bit to invest more on the safe side to increase liquidity and therefore also take a little bit more risk on the lower quality side. You see that the govies here increase from 21% to 26%. The covered bonds go down from 14% to 10%, and the non-investment grade investments do increase slightly. That is a reflection of that strategy. There is one additional information. It used to be the topic of the last investor conferences and road shows, which we did. This is why we have added these two pictures. Here, you see the sector split of our corporate exposures, and on the right-hand side, what out of this corporate exposure is invested in oil and gas and also the quality of these investments. As you can see here, EUR 800 million exposure into oil and gas-related issuers, EUR 52 million of that high yield, very diversified, EUR 230 million in triple Bs. We are talking about more than 100 names for this portfolio, so the average investment is less than EUR 8 million. And of course, we have higher investments in better qualities and lower investments in lower qualities. We do not see that as any remarkable exposure which could materially affect us. And I think that concludes my portion, and I leave the target metrics, as always, to the CEO. Thank you, Roland. The target metrics, as you can see, confirms that 2015 was a good year. We outperformed almost all of our targets, some very remarkably, like the value of new business. Well, I mean, of course, the return on equity and all the other ones. So target metrics, everything's fine. Confirms a good year. If I then come to what's to be expected for 2016, I also have a chart here, which is not too dissimilar to the one that Roland showed you. And I will try to keep it short and tell you things that are in line with those that Roland told you. This is the expectation here for 2016. And if you look at North America, we expect premium growth, and we also expect good profitability. As a basis for that is our very broad book of business. We have more than 600 insurance companies that we do business with in the U.S., and our growth is broad-based. I mean, we are not, for the most part, writing single large treaties in order to stimulate growth. This is particularly true for our casualty business. The reason for that is that in the last soft market in the late 1990s, we did actually write some large facilities and proportional casualty treaties, which, due to the low rates that we had, created some problems in the runoff. Therefore, we have ruled that none of the casualty treaties that we write should be a significant portion of our overall U.S. casualty book, and that is the reason why we grow our casualty business with many individual treaties rather than with a few very big ones. Slightly different on the property side, which is shorter tail, you know more quickly where you are. So there we are more willing to write also single larger treaties, which we actually had done last year, and we most likely will continue to do this year. Continental Europe, different picture. In Germany, we see increased retentions, which put pressure on the income. On the other hand, the rating and environment in Germany is still quite positive. So from a profitability point of view, we are satisfied with Germany. Rest of continental Europe, extremely competitive. Rates are under pressure and so is the profitability. Therefore, we reduce our involvement in the rest of continental Europe. If you look at the specialty lines, you can see that we are reducing our premium in marine. We also reduce the rates. However, we keep the quality of the business quite high due to selective underwriting. So we are very positive on the quality of our marine book, which almost exclusively is an excess of loss book. We have made sure that the book is clean, that we do not accept non-marine cat exposure into it. Therefore our underwriters, and having been underwriting the marine business myself, I am happy with the book that we have got there. It is not the same case with aviation, where it will not be long before we pay the airlines for the privilege of insuring them. The rates on the aviation continue to slide, and I would say, it is fair to say that at the expected losses with the current rating level, and this unfortunately is also true for the aviation excess of loss, we would have to expect a result that does not earn the cost of capital. As a result, and we have shown you that in the renewal call, we have reduced our premium volume and market share in that area. What we have on calendar year basis, we have the saving of that line of business is that we have the highest level of redundant reserves on aviation compared to all the other classes in relative terms. So the calendar year results are likely continue to be acceptable. Credit surety. With our growth of the business in 2009, we have reached the number 2 position, so being one of the market leaders in that line. That allows us to keep the book and also to keep good margins for our shares in that business. Therefore, we expect that the volume will be rather stable, but that we will continue to earn margins well in excess of the cost of capital. U.K. is a little bit a mixed picture on the reinsurance side. We are happy with our book, but the market is very competitive, and I talk non-property catastrophe here. We think that we have good quality book, which however is not growing due to the soft market. Different on our primary business, which is allocated here as well. That book of business is growing, and we also feel it grows profitably. But it is rather a specialty lines book. Facultative, the same applies at what I've told you to the marine business. We have been very selective. We will see some decrease in premium in the current year due to selective underwriting, but we feel that the quality of the book is very good and that we will see good profitability of that business. That already has been very evident in 2015, where we managed to improve the combined ratio quite significantly as compared to 2014, despite the reduced rates and pressures from the soft market. Virtual treaty, rather large block of business with differing movements. We continue to grow on our agricultural business. We also have over the last couple of years, significantly improved the profitability of that business, and we expect that to continue into the current year. We also have grown our business in China, where we have seen good double-digit growth. Also in Southeast Asia, growth have been quite good. In the more established markets, like Southern Europe, parts of Latin America, and also what we expect to see in Japan, it's the other way around. Their volume would reduce as the result of competitive market pressures. However, overall, the book is very well diversified and we are optimistic and quite confident that we will continue to see good results from that book. Catastrophe excess of loss, which we largely write from Bermuda. Again, like aviation We believe that if we have the losses at the level of the actuarially calculated expected losses, we see a profit, but not large enough to cover the cost of capital. Therefore, we have reduced our volume there. The ludicrous thing with this line is that despite the fact that the rates have come down, the probability that on a 12 months horizon you will make money on it is actually quite good. But this is a little bit a profit that is borrowed from the future, I would say. Because if the actuaries are right in the long run, the losses will gravitate back to the expected losses. So there will be years where this line of business will actually reduce or see losses. We have combated that to some extent by what Roland already told you, increased retrocession and in and large, rather conservative loss reserves on the past losses. Structured reinsurance and ILS, we will see some reductions in the ILS because also our partners find it difficult to generate sufficient amount of business. On the structured reinsurance, of course, it's a more bulky business. There's some larger transactions which are either there or not. However, low risk in this area of the business and rather secure profitability. Overall, you can see that despite the soft market, despite the fact that retentions are increased in parts, we still feel that our very well-diversified books gives us a good opportunity also in the current year to earn a profit in excess of the cost of capital. Naturally, the run-off result we expect to continue to be positive as well. If I come to life and health, the star of the profitability in 2015 has, of course, been the financial solutions business, and we expect that to continue into the current year, even without one-off positive effects. It's a bit of a mixed bag. On the one hand, we have the capital relief transactions, which are not very premium heavy. Which are either majority of them are actually either with a premium as the expected profit or they are deposit accounted, or even are counted as investments. This book of business is actually continues to increase in size, and we expect the profitability to increase outside the one-off effects as well. The other part of that business is cash financing. Very different business here. We finance acquisition costs or embedded value. This business would normally show quite a lot of premium, and the margin on the premium would not be very large for the most part. However, the margin on the amount financed is quite attractive. This business is currently growing. Therefore, you can see the volume arrows pointing upwards here. This is on some special relationships where we develop business with partners and where we also finance the production costs. Overall, we see the profitability very positive as that business. Longevity, another area where we see growth. Demand for longevity transactions, largely in the U.K., but increasingly also outside the U.K. is increasing, but so is the competition. That business has become quite competitive. We write it for many years now. We not compete on price in this business. We compete on deal certainty and speed of transactions because we have quite some respect towards this business due to the long run-off of that business. But with our market position, we still expect growth from that business. Mortality and morbidity, we expect reduced volume. This is due to the fact that some large transactions will discontinue. This is both on some Australian group business as well as some business out of China where we expect that those will not be renewed. But we expect, at the same time, that the results will be improving. This is, of course, on the U.S. mortality because of reduced collateral cost rate increases and also on the rest of the world, particularly on those two classes, we see increase of simple, profitable business where we will see improved profitability. That's the expectation more in detail for 2016. If we then put it into the guidance 2016, bottom line is more important than top line. Therefore, we expect premium income stable or even a modest reduction. Return on investment 2.9%, as Roland Vogel already pointed out, is expected for the current year. So that should allow us to keep the absolute return on investment at an acceptable level. We have changed the guidance a little bit for the group net income, because we were saying when we first guided with the third quarter figures, that should be around EUR 250 million. Now we are a little bit more optimistic, and this is on the basis what we have seen on the full year results for 2015. We say that we should see at least EUR 250 million, all this provided that the large losses stay within the increased large loss budget of EUR 825 million, and there's no dislocation in the capital markets. We see that EUR 950 million should be the floor and the analyst consensus on this year, we don't think is too far off what we can achieve. Then the dividend payment, I should probably tell you a little bit on that as well. Of course, we had a base dividend of EUR 3.25 for the current year. There's no particularly good reason that if everything goes according to plan, that we should not have the same base dividend for 2016. When it comes to special dividend, of course, it will pretty much depend what happens throughout the year. If the market continues to be soft because we have no volatility, then of course the probability that we will see a special dividend again is very high. If we have large volatility and as a result, significant opportunities to grow the business exponentially, which of course is a less likely scenario, then we may not pay a special dividend, but rather use that money to produce additional profits. The less likely scenario, I have to say. With that, briefly, why are we confident with the profitability of Hannover Re 2016 and beyond? On the life and health business, we feel that the trend to increase profitability, where we see the base year in 2013 is fully intact, even though 2015 is significantly above that trend line. Secondly, on the P&C, we feel that we continue to have a quality portfolio. We feel that as one of the top three reinsurer, we are in a position that we are sought after capacity by our clients. The situation regarding the conservatism on the loss reserves and the buffers in the loss reserves has actually further improved in 2015. So we are confident that we will continue to show acceptable underwriting profits also in the coming years. Again, the proviso on the large losses. Retrocession was the only area where the soft market really benefits us. So we bought a little bit more. We still, on the expected losses, pay a margin away on our retrocession. Should make that clear in case some of our retrocession listeners in. Don't worry, you are right. On the investment income, our business continues to have positive cash flows. We feel that our investment strategy that Roland explained in detail is valid. So we expect that the absolute returns will continue to be at the level that we have seen in the past years, in absolute terms, not in relative terms. As far as the admin expenses is concerned, actually, we managed to reduce our admin expense ratio in 2015. That, of course, also had to do with the increased premium volume. With that, I would like to close off with our presentation and Roland and I will be more than happy to answer your questions. Thank you very much. Well, thank you. We will now begin with our question and answer session. For the people who are attending virtually and wish to ask a question, please dial 01 on your telephone keypad to enter the queue. If you find your question already answered before it's your turn to speak, you can dial 02 to cancel that question. We proceed with the questions from the attendances in the room and switch then to the questions coming from the conference call. I already see some questions here. First was Andrew Ritchie. Hi. Andrew Ritchie from Autonomous. Three quick questions. When I look at your, delve into the annual report, there are three measures of capital. I think it's one ranging from 131% coverage to 246. There's 131% on your internal model, 246% on one version of Solvency II, 221% another version of Solvency II. It's nice to have a choice. Which one really matters? Just remind us, and if you have any reasonable sort of target range around which one should we look at, which one should we care about? That would be the first question. Second question, is there any measure of how much of your buffer has gone up on the non-life reserves? Because when I look at the combined ratio and back out large losses, back out prior year development, it hasn't changed much year on year. I'm finding it hard to see how there's a lot of additional conservatism in the loss pick. Maybe help me there. The third question, when I look in the annual report, it says that there's already a small benefit. I think you used the language pro rata on lower collateral costs in the life business. What is the benefit already? How much more benefit is there to come through in 2016? Yes. Sorry. I have to I can understand that the solvency numbers become a little bit more puzzled, and you have different numbers. The 131 is just internal model number based on a 1 in 3,333 years, return period or ruin probability. That is only a proxy for what we expect as an S&P rating because it is a double A quality. If you look at the 246 and the 221. 246 is the full internal model. The 221 is the internal model as it is approved by BaFin. Therefore, from legal solvency, the 221 is the important number. That is also the number where we have a limit and threshold in our risk management system, where the limit is 180% and the threshold is 200%. The reason that we are so far away here from 100% is that we believe that we are AA credit and the limit and threshold should reflect that AA credit. What is the difference between the 246 and the 221? The main difference is that under our full model, we use our own model also for calculating the operational risk. However, our operational risk model has not found the blessing of the BaFin, our regulator. In Solvency II relevant model for legal solvency, we use our internal model for the quantitative risk and for the operational risk, we use the standard model. The standard model comes out with a higher number for operational risk than our internal model. We are currently working, and BaFin expects that from us, to work on our internal model for operational risk, to get that approved as well. I think we are on a good path there. The other difference is that in our internal model, the capital of the minority shareholders, in particular of E+S Rück, we calculate them as available funds for 100%. Under Solvency II rules and regulations, there is a haircut on minorities, and this is the other, admittedly, much smaller difference. That brings the 246 to the 221. That is what I can tell you there. The second question- Sorry. To be clear then, 180 to 200 is the sort of softish binding constraint in your head then? Well, yeah. On the legal Solvency I- Legal on legal measure the constraint would be based on the 221. It is a self-imposed constraint to the extent that we have the limit and the threshold at 180 and 200 respectively. There is, of course, also a threshold on the S&P and AM Best models, even though that looks quite comfortable at this point in time. Then you wonder how the confidence level could have gone up when you see that the underlying combined ratio is presumably quite similar to what it was last year. First of all, the absolute loss reserves have increased. So the contribution to our IBNR reserve, what we can segment, called segment reserves, is significantly higher this year than it was last year. This year, I think it was from memory, EUR 236 million. Also the development of the past losses in 2015 was very favorable. Therefore, if you look at the calculation at the end of 2014, of course, it had an expectation for the paid losses and the advised losses in 2015, and the actual paid and advised in 2015 were below the expectation at the end of 2014. Therefore, in the extrapolation of the triangulations into the future, that way we saw increased redundancies. That is the reason. So loss reserves in absolute terms increased, and actual loss emergence in 2015 below what we expected in the actuarial calculation at the end of 2014. That is the reason for that. The last question I would hand over to Roland, I guess. That is on the percentage of the collateral costs that we already saved in the current year compared to what we save next year. What we are referring to here is a larger transaction which we have implemented late third quarter last year, which should save us a little more than EUR 20 million per year. Insofar, we have a pro rata benefit from that. This one transaction, I already mentioned before that we were also able to decrease the overall volume and that we were able to decrease the cost of the LOC capacity which we use. In that regard, this is something I cannot quantify right now, and it will also benefit us next year. I think the first step here should be something between EUR 5 million and EUR 10 million in absolute terms. Okay. Then, of course, there was one other transaction that we closed at the end of last year, which would also reduce the collateral cost by about EUR 6 million per year. If you look at it, all in all, saved collateral costs for 2016 should be around EUR 34 million. Of that, what we had already achieved in last year, in 2015, would be around EUR 6 million. Okay. The next question comes from Frank Kopfinger. This is Frank Kopfinger, Deutsche Bank. I would also like to come back to the Solvency II number, to the 221%. Unfortunately, you only provided as of the end of September within your annual report. Can you there provide some sort of guidance? Where are we as of the end of 2015 and maybe also as of today as we had some volatility also in credit spreads last recently. Secondly, my question would be on negative interest rates. Do you have a number that you can share? What is the share of your portfolio of assets that are affected already by negative interest rates? More important, what do you see as a consequence for you as an investor? Are you going to lengthen the duration to avoid negative interest rates? Are you climbing up the risk curve? What is your strategy? Well, I would leave the question on negative interest rates to Roland because far too complicated for me. But on the Solvency II number, yes, it's a number at the end of the third quarter that is in the annual report. The reason for that is that the full calculation of the economic balance sheet, that's of course the basis for that, which is a pillar three of Solvency II efforts that we are doing this year is still a little bit late, but that will change in future. I would say that we already calculated the capital required, and that has stayed stable from the third quarter to year-end. The funds available, we expect those that they will be increasing to some extent because if you look at the IFRS capital, it has increased by around EUR 400 million from the third quarter to year-end. That increase, of course, will also flow through to the economic balance sheet. Then, of course, we have developments of the embedded value and the redundant loss reserves, which also play a role there. I would say, on average, that should be rather neutral. So I expect that at the end of the fourth quarter, the Solvency II ratio is actually increasing, but we will let you know the exact number in due course. What we have seen so far in 2016, that is a bit early to say. I think we have seen some further widening of spread. That will, of course, reduce the valuation reserves. But there are, of course, other movements as well. There is some new business being written on the life business so far, and the quarter is not over yet. Losses have been rather benign around the world. So we have to see what that does. But we will certainly bit by bit, improve the speed of our reporting here. Because from 2017 onwards, we have to report quarterly on our solvency, on our economic balance sheet, and the deadlines are getting closer and closer as well. We are in the process of using our accounting system, that we also use to come up with the HGB and IFRS numbers also for the solvency reporting. That is not an easy task, and it is not a simple project, but it would allow us to more efficiently come up with those numbers and also more reliable. If I may add, I think we are fully aware that Solvency II is on everybody's minds. But on the other hand, we have never been reporting about Solvency II numbers because we really did not have a real restriction here. We do follow this model far more closely. It is based on our internal model, where we also build decisions on, so on and so forth. It is far more important. But we should bear in mind, it is not a real restriction in our strategies today. We are fully aware that other companies in the insurance world are far more restricted. For those, it might be far more important. But for us right now, it is another hurdle we have to jump over. This is also why you do not see it as so pronounced and with a lot of focus in our presentation. I guess Yes, I have the negative interest rates, so all the negative things for me here. I don't have the exact number with me, how much of my portfolio bears negative interest rates. I think we can do the math a little bit together. We are talking about, if that is a Euro government problem, then we have approximately 31% in the Euro right now. We have 26% in govies. That is approximately the way where we are. We might be a little bit more in the Euro here. So we're talking perhaps a 10% potential, where this dependent on the maturity and the country I'm investing in, this might be the case. Your question was as to whether this really affects our investment strategy, and the answer to that is no. We have to invest. We have monies, and sometimes we have monies, and sometimes we have to invest monies and also euros short-term, safely. We will also have securities in our portfolio which do bear negative interest. The important thing for me is the risk appetite and the reinvestment yields. You know that we always publish the reinvestment yields. They have been below on a theoretic basis, or if I invest everything exactly how I'm invested today, that was between 1.7, 1.8 over the last years. In fact, I have a math with me now because we do not exactly reinvest where we had been invested few years ago, that the achievement for last year was above 2. In that regard, that is the important thing to me, where the whole strategy ends up. Also your suggestion that we might increase maturities would not be, from my point of view, an advisable strategy. If the marginal spread I can make is better on a long-term corporate bond, then I would rather accept negative interest rates in a government bond and the higher marginal spread on a long-term corporate or vice versa. This has to be decided. We look at the options which we have, and that includes also, most naturally, securities with negative spreads. To increase maturity for the portfolio as such is not a solution anyway. You know that we match currencies and we match maturities rather dogmatically. Okay. Well, then, I have another question from Stefan Scharf. Yeah. Stefan Scharf, SRC Research. One quick question about your guidance. It is about the premium volume, more or less unchanged. I would assume after the good picture in life and health business in 2015, that this good picture will continue in 2016, and also the premium volume in life and health should increase at least a little bit. That would mean that in the non-life business, you expect a slightly decreasing volume of premiums. Is this a good assumption from my side? Yeah. We expect slight decrease in premiums on non-life at this point in time. We made the calculation after the 1/1 renewal season and made an assumption what will happen on the mid-year renewals. Looked at the unearned premium from previous years coming in. We came to the conclusion that we would be around 2%-2.5% below what we had last year based on unchanged exchange rates. Of course, the exchange rate can bring things a little bit out of order, I would say. If I look at the life and health, we have a number of large treaties which are discontinued, which we have to make up for. I think that we might end up similar, maybe slightly up, maybe slightly down. That is not so important for me. The most important thing is the bottom line on the life and health. Because if I write deposit account treaties, I am equally happy with the profits and if they come with a lot of premium. That is less of an issue as far as I am concerned, at least for the current year. Important is that we increase the value of new business and that we increase the underlying profitability. We have a lot of growth initiatives, so I am fully expecting that in the medium term, also the premium volume on our life and health business will continue to grow. One thing on the life and health, which I would like to remind you, is that it is not a terribly large business. Life and health reinsurance is only about $50 billion of worldwide premium volume, and it is very concentrated. The top seven reinsurers have about 97% of those $50 billion. So where we grow, we have to create new business, which up to now has not been reinsured. One quick follow-up question about the EBIT margin and mortality and morbidity business. As we can see on slide 18, you achieved 3.6% in 2015, and the target is to come near to 6%. What is your assumption for the current year? Well, I would be disappointed if we are again below 6%. 6% is what we need to get, and our colleagues are working on it. Okay. The next question is coming from Mr. Schaefer. Andreas Schaefer, Bankhaus Lampe. Just one question on your guidance with respect to the investment income. You are targeting more or less a stable investment income, but your target yield is some 50 basis points below what you have achieved last year. How does it fit together? I cannot believe that your assets under management will grow some 15% this year. What we mentioned is that we will keep the net investment income stable with regard to the expectations. We had an expectation for 2015 of approximately 3%. We have some extraordinaries up and down. That also includes a negative ModCo. We didn't embark on that too much. What we usually said is that we should be able to mitigate the 15 basis points, which are around 15 basis points ROI, which I lose approximately year by year by increased volumes. I think that is the assumption behind the plan right now. The plan right now does not include realizations to a large extent or to an extent which we had seen over the last two years. This, of course, includes no currency exchange effects in it. Right now, the plan today is obviously a little bit lower than what we have achieved in 2015. This still leaves us the room up, but it's a more or less theoretical bottom-up approach. You look at the maturities you have or at your current portfolio, then the maturities. Then assumption of positive cash flows. We do apply our reinvestment yields now a little bit better than we had calculated, and that comes up then with an investment gain, which right now in the plan as it is set up early this year, is a little bit lower than what we have achieved last year. Of course, it also helps us that we have increased our investment in U.S. dollars and reduced our investments in Europe. U.S. dollars, you get higher interest rates, and we did that, of course, by converting the functional currency of our Irish company from euros to U.S. dollars. We did that not in order to earn a higher investment income, but largely in order to help our subsidiary with their capital requirements, which are almost exclusively in U.S. dollar and on a group basis to mirror the currencies of our capital with the currencies of our capital requirement. Okay. Well, the next question comes from Roland Pfänder. Roland Pfänder, ODDO. Coming back to your life business, could you please provide us an EBIT split regarding financial solutions, longevity, morbidity, and mortality? Maybe you could have some words on the financial solutions business. Why is it this profitable? Is there not competition coming in and normalizing the margins, so to say, or what's your take on this? Maybe you have a hard number on your reserve redundancies. How much did they go up in 2015? Thank you. Firstly, why is the financial solutions business so profitable? The profitable part of that is largely business that we have started to generate following the financial crisis. It revolves around redundant reserves, so-called triple X and AXXX reserves in the States, which up until then largely had to be financed by LOCs. When in 2008, the LOC costs increased dramatically, we offered structures to our clients that they could deal with those statutory capital requirements without the use of LOCs, but with the use of other structures. That business, the average duration of those facilities is 20 years, and it has relatively high margins at that time. All of those transactions have to be approved by the regulators in the respective states. What is most important, and we have seen that in a recent survey, for the clients is the deal certainty. As we have done the largest number of deals, it helps us to acquire new ones because we can offer better deal certainty. It's fair to say that on a like-for-like basis, the margins on that business have come down. But as the business is covering redundant reserve, the expected loss ratio on it is actually zero, because they are far out of the money stop losses, basically. That's what it in essence is. That creates a profitability. The other part of that business, as I explained, is cash financing. EBIT margins on cash finance are not that attractive. But in a mix, the profit margin comes up pretty high. Of course, in 2015, it was aided by one of the facts where we generated profits, particularly with that one transaction that was mentioned, which otherwise we would have received in the coming years. We front-loaded them upwards. But the underlying business is still growing. That's a good thing. We continue to have new transactions on that side, both financing as well as these financing of redundant reserves. Then the split. If you split the longevity, where we have 4.5% margin, that leaves 18.1 for financial solutions. That is a little bit inflated on the longevity business because there was one transaction which was over-reserved last year out of an actuarial error. That error had to be corrected this year, and that created some EUR 20 million additional earnings on that business. Overall, our reserving on longevity business is conservative because you have, of course, locked-in assumptions as you have on life and health. On longevity, we impair them on a by-treaty basis. If we have actual to expected that is positive and we have a better view on the mortality for the future, we will not unlock. We are not allowed to unlock. The reserve remain unchanged. If we have a negative deviation on our future expectations, we unlock and book that as a loss. We had part of that in 2015. Admittedly, smaller numbers, single-digit numbers, because it was smaller transaction. That's how we look at that. The split between mortality and morbidity, Roland has right in front of him. I think the mortality with margin was 4.1, and the morbidity was 2.3. I think you were also referring to the absolute number of reserve redundancy increases. We are still waiting for the final reports to come in. This is why it is always a bit difficult. My CEO this morning at the occasion of a press conference did mention the number of above EUR 200 million. Bye. Okay. Any further questions from this room? If this is not the case, we have already some questions received, and we would start with Edward Morris from J.P. Morgan. Hi there. A few questions from me, please. First is on the growth in value of new business. I'm just trying to sort of reconcile this by which product category it's in, and also if you could give an indication of over what kind of period you expect this to translate into IFRS profit. Just as some sort of indication of how much is longevity and how much is the sort of shorter return stuff. The second question is on the payout ratio going forward. You seem to be suggesting quite heavily that special dividends are the more likely outcome in future years. I'm just trying to understand in an environment where you're not particularly expecting much premium growth, how much capital do you feel you still need to retain? Is there any benefit really to continue to build capital? Then another quick question, if I may. I noticed in your presentation when you were going through on slide 5, you seemed quite happy about the fact that you would be dropping 12.8% from your 5-year average ROE and suggesting that your rolling average might improve. If I take your guidance of EUR 950 million, that would put you below 12.8% ROE. Should I then assume your guidance is very conservative? Thanks. Yes. Thank you for those questions. On the value of new business, the largest components, all this over EUR 100 million, is the U.S. mortality business, which is a new business and new business and facilities that are open for new business. That, of course, is emerging over the next 30 years or even 35 years. As all of these treaties or most of these treaties are so-called YRT treaties, where the rates are increasing over time. We expect that value of new business emerges very slowly. The next part where we have over EUR 100 million is longevity. I think it's precise number is 139 or something like that. Again, very slow emergence of that value of new business, particularly the way how we book it, because in the first 5 to 7 years, we only book a small fee on that, and that's where most of that business is. But long emergence. Then another block, where we have more than EUR 100 million is the so-called financial solutions fee deals. Those will emerge rather quickly in the next 5 years because that's the way we are setting up the value of new business there. Then we have a whole array of business written from Asia, Paris, Stockholm, and other areas, all in the region between, I would say EUR 10 million and EUR 40 million. EUR 14 million, EUR 40 million. And those are largely mortality business. Emergence again, long tail. I mean, the value of new business translation into IFRS profits is rather gradual, with the exception of the financial solutions fee deals. Then the next question was on the dividend policy. Well, for 2016, of course, we are not showing much growth, if any, and therefore contrary to 2015. Of course, the capital requirement increased with the growth of the premium quite significantly. We are not expecting that to happen in 2016, and that is why I say a special dividend is quite likely. Do we expect that this situation of low growth will continue in the medium term? The answer to that is no. I mean, we are not expecting that will continue to happen because we're expecting that eventually we will see volatility again. With our market position, we expect that in the medium term, we will see growth in the business, which we need to finance through the retained earnings. Then on the ROE. Of course, that is why we changed the guidance from around 950 to at least 950, because we will be watching the development of the ROE very closely, and that will, of course, determine our strategy with regards to the possible return of capital. But at this point in time, I guess it is a little bit premature. That is great. That is very helpful. Thank you. Okay. That also answers all your questions, right? Thanks. Okay. Well, the next question is coming from Inyong. Hello. Two questions for me. Firstly, on the German GAAP equalization reserve. There seemed to be quite a substantial addition in 2015, I think about EUR 140 million, which is slightly different from the guidance that we had at the investor day. Is that just a function of a very good underwriting result this year? Was there anything else at play? Does that affect the guidance you gave then of EUR 140 million to EUR 145 million reduction in the equalization reserve going forward in 2016-2017? That's one question. The next one is when we look at the investment income on funds withheld for fourth quarter, there was an increase in income despite the funds withheld and the balance sheet declining quite substantially. I think in the annual report you refer to withdrawal of specific underwriting years regarding U.K. single premium business. Is there an element of one-off in the income on funds withheld for the fourth quarter? Thank you. Maybe I take the German GAAP number. I tried my very best last October to familiarize you with the complexity of that calculation. You're right, the expectation that we would not add to the equalization reserve, were a little bit affected by the unexpected growth. A very good underwriting year, and especially the growth rates, which do affect the maximum amounts per line of business, have then led to additional contributions. What does that mean for the future? It does mean that we will see a kind of a regular, potentially increased contribution to the fluctuation reserve as compared to 138, which we had in 2015. Because this steering of internal retrocessions had a one-off effect. It does not impair or affect our expectations for 2017, where as we try to explain the WTC standard deviation disappears from especially one line of business, which will have a very positive effect. The next two years to come will have a very different development, of course, based on the assumption that we will not have another WTC, which we all hope that this won't be happening. Again, as I mentioned before, the German GAAP result was very positive and gave us the chance to increase retained earnings as well as profits carried forward. Yeah, the reduction in the funds withheld. That was from a recapture of financing treaty on the longevity side, which also generated some profit. That was done because we were at our counterparty limit with that particular client. But the freed up counterparty was actually used for a new transaction. So whilst there's a little bit of a one-off here that we had a height in profitability due to that recapture, we have continued profitability due to the new transactions that we have entered into. Okay. Brilliant. All right. Thank you. Okay. Well, thank you. The next question is coming from Anasuya Iyer from Jefferies. Oh, hi, Anasuya Iyer from Jefferies. I had two questions. My first one is on the run-off profit. If I'm not wrong or if I've not missed an update, I think the guidance you gave us in the past was maybe EUR 50 million in a quarter. And just working through your combined ratio, if I just back out the man-made and if I back out whatever release I have, it seems like this EUR 50 million would need to be a lot higher for you to match your 96% target. So just wondering if you could give us an update on that. And my second question was on Solvency II. I think at the Investor Day, you gave us a notional 2014 number of 253 for the partial internal model, and since then that's come down to 221. Can I just check that move is simply growth, or is there something else there that I am missing? Thank you. If I take the second one and leave the first one to Roland. The reduction from 253 to 221 is basically the growth of the business and the commensurate increase of the capital requirement. It shows that we have actually been in 2015, to quite some extent, able to actually utilize our capital. I would also say that this was not only driven by new business, but unfortunately also by the currency development. Of course, we had a strengthening of the U.S. dollar to quite some extent, and a lot of our exposures that we write are in U.S. dollars. Whilst the capital, we were still overweight to some extent in Europe, and that is the result and the fact. That is one of the reasons that I explained that we increased the part of our capital in U.S. dollars to better match it with the exposure. I think the numbers that you cite are correct. Can I just ask a follow-up on that? Is there any intention to provide sensitivities on these ratios like some of your peers do, just so we are comfortable with these movements in the future? Well, I didn't quite catch that, but of course, we have a limited threshold, as I said. We say we have a limit of 180, a threshold of 200, and we will manage accordingly. Of course, we have a lot of opportunities to improve that ratio if necessary, which it hasn't been now. One of many would, of course, be to issue more hybrid. We have to watch it, and that's why we have the limited threshold on it. But of course, ideally, we would like to be well above 200, but not too much, because that would mean that we are not able to fully utilize our capital. With regards to the run of the result, I hope I got your maths right. If we assume that we have a run rate of around 50 or a little bit more than that per quarter, then for the full year, that would mean that this results in 200, EUR 250 million. We, on top of that, have added to the loss reserve redundancies this year, a number which we mentioned before, which would be over 200. I think if we have the same run rate, which we had before, the 200 to 250 in a year, plus we do not add 200 to 250 to the reserve redundancies, this would then already result, as far as I can calculate here, in approximately the same combined ratio where we were. Okay. Thank you. Okay. Well, the next question is coming from Xingmei Wang from Morgan Stanley. Hi, good afternoon. It's Xingmei Wang from Morgan Stanley. I have two questions, please. The first one is a follow-up on capital. I think sometime towards the later part last year, you said that the hybrid debt is accepted under Solvency II, but that the full amount was not accepted under S&P capital until Solvency II goes live. In the Solvency II world, can you give us indication of how that has changed the excess capital over rating agency requirements, please, and whether that would be how that's impacted by the potential to increase the amount of hybrid debt that you have? The second is on reserve redundancies, and apologies if I missed this before. You talked a lot about reserve releases coming from shorter tail lines. I'm wondering how you're seeing longer tail lines, casualty lines, which in 10 or so years ago, developing. Thank you. Sorry. Could I start with the hybrid? I think the restriction we have from S&P was that they had the rule or implemented the rule that they would only accept hybrids which are actually accepted by the Solvency I requirement, and this is not a theoretical but an actual acceptance. That had limited our credit, which we got for issued hybrid in the past. As Solvency I is no longer there and Solvency II accepts far more, that restriction of S&P is just gone. I think that has nothing to do with overcapitalization or anything. Just the restriction is gone. We would be in a position to issue, I think, the last number, which I knew that was by the end of last year, was EUR 1.3 billion, EUR 1.4 billion of hybrid, which we could issue to date, and this would be fully accepted by Standard & Poor's on the basis of the missing restriction from Solvency I. Well, if I may add, there's a little bit of additional S&P capital from 1/1/2016 because the current hybrid that we have was not fully recognized by S&P up until 1/1/2016. Only around EUR 800 million of that was recognized, and now the entire hybrid that we have of, I think it's EUR 1.5 billion, is recognized. On the loss reserve releases, they largely come from property, some aviation and marine business. Property purely because it's short tail business, and the initial reserves that we do on the short tail lines are apparently very conservative. That means that after 36 months, you normally see those releases. If you look at the table that we have somewhere in the annual report, you can see that the reserve releases are from accident years 2013 and before. On the aviation side, we still have a very comfortable position on the aviation side, but some of the losses have, like Air France, have just been settled. I mean, the loss is finished and settled, therefore, we had a double-digit number of loss reserve still on it, which then there was no reason to keep it any longer. We had to release it. On casualty it's different. We actually strengthened our loss reserve in the newer underwriting year, particularly 2014 on casualty, in order to put additional prudence in. Okay, great. Thanks very much. Okay. Well, thank you. The next question is coming from Kamran Hossain from RBC. Hi, everyone. I've got two questions. The first one is just, it's kind of a philosophical question. The growth outlook isn't that strong at the moment. You're still paying out a relatively low percentage of earnings back to shareholders via dividends and special dividends. Normally, companies adhere to this kind of behavior when you're going through pretty close to market correction. I guess part one of this question is: do you expect a market correction in reinsurance anytime soon? The second part to that is, if you do see a market turn, what do you expect to do to the confidence level that you hold in your reserve? Do you think you'd bring that down, or directionally, what would you expect to happen to that? The second question is just on the ROE target. Can I just double-check that the soft ROE target that you have is still 12%? From there, it feels like you're running very hard to be pretty conservative on your guidance. Could you just remind us on why the large loss man-made budget has gone up to EUR 825 million versus EUR 690 million? I appreciate some is FX, but any other moves would be helpful. Thanks. Yeah, on the philosophical question on the turn of the market and the commensurate dividend policy. I would say that the probability of a turning market has increased this year compared to last year. The only reason for that is that the soft market is continuing for one further year. So that for the market as a whole will put pressure on earnings. As I pointed out, I think at the investor day, our belief is that the market participants have a necessity to produce a profit. Of course, with the soft market lasting for longer, of course, volatility from the loss side or from the investment side will have a more pronounced effect on the profitability of the market participants. That would, of course, then change the market and you will have more attractive trading positions then. Of course, for us, it's important that we are prepared for that. Also by holding some excess capital because opportunities arise in those cases, both growing the business and maybe through acquisitions. As long as we can keep acceptable ROEs and an acceptable dividend yield on our share price, we would keep capital in the company. Because we feel that in the long run, that is for the better of the company. But with the two provisors on the ROE and on the dividend yield. That is that. The other question was, are we too conservative on our guidance, and is the 12% soft target still valid? Yes, it is still valid. I mean, are we conservative or not? A lot can happen in a year if you are a reinsurer. Because we are in a volatile business, you can have losses. We might revisit the guidance. We have revisited a little bit already with the at least EUR 950 million and not in the region of EUR 950 million. Normally, we look at these things after the third quarter when the hurricane season, which this year is actually expected to be above average, is finished, and we will do it this year as well, and then we see where we go. But overall, as you probably will have guessed from our call so far, we are quite bullish for our 2016 results. Can I just follow up on the market turn? Just one more question. Sorry. It was a very long-winded question. Just on the confidence level in reserves, and if there was a market turn, what you might expect to do to that confidence level in your reserves? Well, I would say the most likely reason for a market turn is a major cat loss. A major cat loss, I mean, well above the expected losses and certainly a loss which should at least rival any losses we have seen so far in dollar terms. That would, of course, have an impact on our results, and that would most likely mean that we would, where we can, reduce the confidence level and keep the results at an acceptable level. We, at the same time, feel that it will only be a short drop in the confidence level because should we, in fact, then get better rates like we have seen in 2009 and 2012, we will, of course, then try to rebuild the confidence level back up rather quickly. Thanks very much. Appreciate the answer. Okay. Well, the next question is coming from Thomas Fossard from HSBC. Yes. Good evening. Two questions. The first question would be on the French Life business. I think that you mentioned during the presentation a EUR 70 million of negative earnings impact in 2015. If this number is correct, can we have some confidence that, obviously, the negative drag on earnings has been ring-fenced and that we should not expect any spillover effect in 2016? My second question will be related to slide number 2 on the operating cash flow. With the book not expected to grow in 2015, could Roland guide us a bit on what would be the level of operating cash flow we should expect in 2016? Would that be, I would say, a level more in line with the 2014 level? Thank you. Well, firstly, on the French branch. The EUR 70 million is the difference to the results in 2014. 2014, of course, we had a profit, I think, from memory of a little bit more than EUR 50 million. So we were negative this year, but not that negative. We expect, for the current year, that the profit will return to around the level that we had in previous years. Because the problems, we feel, are solved. So, that is our expectation there. Expectation on cash flow is a little bit more difficult. I can already see Roland, that he wants to answer that. So I will leave it to you, Roland. I think it is difficult to do that. The assumption which you put into is that this would be more in line with 2014. If the growth rates which we have indicated were stable to slightly negative, it should really materialize. I think it does make a lot of sense. It will, of course, be lower, and then something which is then between 1.5 and 2 should be a feasible number. Do not forget that from the earnings from our investment portfolio, we would expect around EUR 1 billion and a bit anyhow. Yeah. We are pretty certain that will come, and we are expecting the technical cash flow, that is on the non-life side, that will be positive. Life and Health is always a little bit a difficult one because we have an increased demand for financing transactions. Financing transactions, of course, dampen. There is a cash flow for you buy future cash flow with that. In the last year, the overall amount of outstanding financing has been rather stable. But I would say for this year, we expect that that outstanding amount will actually increase rather than decrease, considering the number of transactions we are currently working on. Well, just as a reminder, if you would like to ask a question, please press 01 on your telephone keypad. But we have still two other questions. One is coming from Olivia Brindle from Bank of America. Hi there. Just a couple of short questions. Mostly follow-ups, actually. The first one, just on the earnings outlook. To probe your thoughts on that a little bit further. I think it was late 2014, you introduced this notion of an at least 6.5% earnings growth, which I got the sense was a more multi-year target than a sort of single-year target. So obviously, you have been quite a lot above that in the last two years. Just wanted to see what your thinking is on that. Is that broad target still relevant at all? And, more generally, do you think you can actually grow your earnings in absolute terms from here on? You sort of seemed to suggest about a EUR 1 billion level was appropriate and various parts of the 2015 numbers are maybe a bit inflated. Just to get your thoughts around the medium-term earnings outlook would be helpful. And then on the solvency, coming back to the S&P position. You have previously given us estimates for the sort of genuine excess capital that you have on that basis, which I think the last number you gave was around EUR 1 billion. Could you sort of provide the latest on that? And the final sort of point also on solvency. The move from the 253 to the 221, how much of that was FX related? And should we expect that that sensitivity will be lower given that, as you said, you are now better matched on FX? So from here on, movements related to currency should be less drastic. Thank you. Well, the first question, yes, the 6.5% is still very relevant, and we have achieved it in the past. Of course, it's a target to achieve it also in future. Clearly, for 2016, on a single year, it will not be an easy task to achieve that. We have, of course, some of the years where we don't achieve it, partly because of major losses or something like that, and partly because the reference year is a particularly good year, which was the case for 2016. But if you look at it five year forward, clearly, the goal is to increase the profitability and the earnings per share by 6.5% per year on average. That's not changing. It's not an easy task, and not an easy target, but it's not our job to put out easy targets. At least I can say in the past, we managed to deal with that and actually achieve it. On the Solvency II. S&P. S&P, I believe that. No, I think on S&P, I would say it's probably still around EUR 1 billion. But we will have to do the exact calculation in the not-too-distant future because I think they visit us again. Yes. We will be able to let you know. On the Solvency II 253, yes, the majority, I would say more than half of that was currency, and the rest was growth. Of course, the resilience to currency movements will be less because we better aligned the group capital by currency with the capital requirements by currency. Does that answer? Thank you. Thank you. Okay. Well, the next question is coming from Vinit Malhotra from Mediobanca. Hi. Thank you. Just two things, please. One is on the reserving. I remember that the last two years now, the conversations were always that external entities were motivating you to reduce the redundancies, be it auditors or tax people. What has changed now that they are letting you, or you think they will let you increase this redundancy? And how will you convince them, if anything? The other thing is just to understand the one-off. In the ordinary income in the fourth quarter of EUR 351 million investment income, there is a rather high contribution from real estate. Here I can see EUR 54 million. I can also see from your slides that private equity is very much more important. How much of the EUR 351 million do you think is sort of affected by one-off? And if I can ask the same question also for life, because I am a little confused. The guidance is, or what I understood from Uli's comments were that 2016 was a little, or sorry, 2015 was a little above the run rate or where you would expect. Is that the clear understanding, or is there more subtractions and additions in the one-offs to make to get at a normalized life level number, please? Thank you. If I take the first one. On the level of redundancies that we were able to increase that, I can tell you that for the first time our auditors were not terribly happy with that. They gave us a little bit of a warning sign here. That would mean that we would probably not be in the position to increase the redundancies much further in 2016. The problem with that is that you only know it after the calculation has been done. Therefore, when you go into the preparation for the profit and loss account and the balance sheet, it's a little bit an unknown area. We have two things for year-end. We have our outside actuary giving his first opinion on the redundancies. We have our own actuary giving his opinion on the redundancies, and we have our auditor giving the opinion of the redundancies. The auditor is finding the highest numbers, I can tell you that. He wasn't that happy with it. We have to see what we do with it. But I think with the soft market, we may not have that problem, but I thought the same a year ago. We see how it goes. On the one-off side, I will hand over to Roland. Vinit, it was not easy to understand you, just vocally. But as far as I understood, you were referring to the ordinary investment income of our life and associating that with private equity or others. First of all, we had the first quarter of last year, EUR 39 million as a one-off. That was a termination fee, which was booked as investment income and as ordinary investment income. I think that is the only extraordinary item in this line, and this should be adjusted if you want to know run rate going forward. We have not allocated too many risk-bearing assets to the life business. Here it was always a question of risk appetite and of course, also of available funds overall. A lot of the premium is deposited with our cedents and the cash flow which belongs to the life side based on also the financing deals which Uli mentioned before. The free cash flow, which is ready to be invested on the life side, is limited anyway. This is why we only have the less risky asset on the life side. The 351 is not associated with any extraordinary items from real estate or from private equity, if that was your question. Yes. Thank you. Sorry, I wasn't clear. 351 has no one-off, okay. My question on life was on the life EBIT as a whole, not just life investment income. Okay, sorry. Is that a correct understanding that 2015 is high but not very high from what you would think is normalized? Or, because there are too many one-offs in life in this year, just curious if I understood correctly. Well, Vinit, if I take that, I can say the first and the fourth quarter were well above the run rate, but the second and the third were well below the run rate. Different reasons. First quarter, of course, the one-off termination fee. Second and third quarter, adverse experience from the French branch and U.S., our nice Inv book of business that we have and some additional mortality with one very large claims, which I think is known to the reinsurance community by now quite well. And the fourth was, again, as I said, above the run rate. Here again, from financial solutions, we had an extraordinary high underwriting income. Again, coming back to those fee deals, where we had a very positive result. We expect positive results from that in the future, but maybe not quite as positive as we have seen in the fourth quarter. But if you look at the entire year, I would say yes, overall, we are at an uplift of the results of about EUR 50 million EBIT. If you take that out, you are basically at the underlying, I would say. Thank you. Thanks a lot. Okay. Well, it looks that we do not have any further questions coming from the conference call. If we do not have any further questions, oh, another one from Philipp Hesler. Philipp Hesler, Equinet. Just two very short questions. Firstly, going back to your ordinary investment income, could you perhaps tell us how much came from real estate and from private equity in Q4? Then on the oil and gas exposure, could you perhaps give us some geographic split, not by country, but only how much is Europe, how much is North America? Well, two numbers I must admit I have not available here on my desk. Before, I think with regard to the oil and gas, this should follow the currency split and where we have 50% or nearly 50% in the U.S. dollar and a little bit more than 30% in the EUR. The first question, please remind me what that was. The ordinary investment income in Q4, how much came from the private equity and the real estate contributions? I would have to look that up. It would be a rough guess, and I don't want to throw in numbers which I'm not really certain of. But I think we had a slide in the presentation that showed you where the investment income is coming from. But not per quarter. Not per quarter, no. And I am not too sure if the fourth quarter was particularly high, but if that, it would be private equity, I would say. That was exactly it. We had a contribution from the private equity side, where we had distributions from funds. These were in Q3, but we had sold some, so we had to reflect that. So there might, and there was an uplift in private equity distribution of some EUR 30 million, and most of that was Q4. From the real estate portfolio, I would assume that these are really periodical, rather stable numbers. Thank you. Okay, and we have another question from Michael Haid. Thank you. Michael Haid, Metzler Bank. Just one question. Can you say how much premiums you have from your deposit accounted business? And how profitable in absolute terms this is? And how it developed over the past couple of years? Well, under IFRS, the first part of that question is, I can answer very easily, none. The profit of that is within the other income line, and it is a double-digit number. I think we have the exact number. Roland is just looking for it. Sorry. On the life side, we have profits from deposit accounting contracts is EUR 88 million. We will have to deduct, some of that is retroceded as well. We have some retrocession, and you should deduct another nearly EUR 20 million. So it is around EUR 60 million, I would say. What kind of premium volume? I know it is not premiums under IFRS, but how- Under German GAAP, you mean. So the question would be how much premium would you show if you would- Yes not account them as deposit accounting? I cannot answer that question. Under German GAAP, it's a lot because we have a lot of growth under German GAAP because of deposit accounted treaty in particular one. It's certainly above EUR 2 billion. Yep. Thank you. There's also one of in that premium, because we had one treaty which was only running for nine months and inflated the numbers in the German GAAP balance sheet quite a bit, our profit and loss account. How did that EUR 2 billion develop over the past couple of years? We haven't got that number. We have to look that up. Plus, it goes up and down. These are mostly financial reinsurance, or these are risk-limited contracts. The premium which is associated with it goes up and down. This is very often driven by one-offs. So also the number will be very volatile. Okay. If there are no further questions, which seems to be the case, then I would like to thank you for your attendance. This call will now be concluded, and you may disconnect. For all others here in the room, I would like to invite you on behalf of Hannover Re to join us for a drink outside of this room. Thanks for coming.

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