Earnings Call: Q4 2017

Mar 13, 2018

Good afternoon to everybody here in Frankfurt, and good afternoon to all of those joining us via the internet. Welcome to Hannover Re's Analyst Conference 2018. Looking at the dialed-in list, it is truly a pleasure to see that so many of you have taken up our invitation and are showing your interest in Hannover Re. As you know, we have the key figures already published four weeks ago, together with the 1/1 renewal results. Today, we are delighted to present to you the full set of numbers in greater detail. Before we get started on them, may I say how impressed I am by your work over the past year. It was particularly striking to see how much effort and time many of you invested in anticipating not only the large loss numbers from the hurricanes, but also the effect from our retro program. In many cases, your calculations came incredibly close to the actual mark. Once again, you were instrumental in advising the understanding both of the reinsurance business in general and our positioning, in particular. You delivered a value contribution for the investors. Even though we are now living in the world of MiFID II, I hope that the high regard in which investors hold you, it has in no way been diminished. For our part, I would certainly like to thank you for your dedication and your work. Do please keep it up. Today, we are also offering a dialed-in option for all those who were not able to participate physically here in Frankfurt. 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 the star key followed by zero at your telephone keypad for operator assistance. Please note this conference will be recorded, and a replay will be available on our website. I would also like to draw your attention to the feedback questionnaire, which we have distributed in advance, and which you will find on your desk. As you know, we greatly appreciate your remarks. As you know, this is the groundwork part for preparing the Investor Day, which will be held in October. Feel free to either leave the feedback form at your table or send it in to Julia Axel. First of all, Ulrich Wallin, our CEO, will kick things off with a brief of the 2017 financials, and that will be followed by our CFO, Roland Vogel. Then again, the outlook will be presented by Ulrich again. Afterwards, we will be happy to respond at length to all your questions. I would like to point out that we do please ask you to wait for the microphone so that everybody can understand your questions, even those who are not in the room. On that note, I am delighted to hand over to Ulrich. Welcome. Thank you for coming to our investors presentation for the 2017 result. You can see that we have chosen a smaller room compared to last year, and that of course tells you that the EBIT as well as the net income is down compared to last year. I am happy to tell you that the expense ratio is down as well. The two might go hand in hand. That's not an option. Why is the result down? Of course, because of the exceptional hurricanes, which dominated the 2017 results. Particular, of course, well-publicized, the so-called HIM losses, Harvey, Irma, and Maria. Then we also had some wildfires in California, which were quite expensive, earthquakes in Mexico and also in Australia. We had Cyclone Debbie, which also did not come entirely for free. Therefore, reinsurance industry was heavily impacted by those losses, and that's not a surprise, because that's one of the major reasons why insurance company buy reinsurance is because in years where you have exceptionally high natural catastrophe losses or other losses, then you have your reinsurer, to help you out, that you have a more consistent results and less volatile earnings as an insurance company. Of course, the flip side is what the reinsurer have, it takes the volatility from the ceding company and therefore he has the volatility. Nevertheless, we feel that at Hannover Re, we fared pretty well. We still were able to record a 10.9% RoE, which is still above our hurdle, which is 900 basis points above risk free. It compares favorably to the average RoE of the 10 largest reinsurers, which stands at 3.3%. So whilst in absolute terms our results are less good than last year, in relative terms, compared to our peers, I think they are probably the best we ever had. The only thing is, I'd rather have absolute profits rather than relative profits. It still shows you that we have fared relatively well in 2017. One of the reasons, of course, was that we sold our listed equities, which boosted our investment results to an all-time high. That was, of course, also helped by double digit increase in the ordinary investment income. So our investment managers enrolled for the start of 2017. The P&C business did all right considering the circumstances. The large loss budget was exceeded by EUR 302 million. However, we had pretty good development of our loss reserves from older years, where we saw fairly significant positive result without actually compromising on the quality of our loss reserves, which are still at a high level. We have a limit and threshold system on the level of our loss reserves because we should, of course, in theory, be at about 100% confidence level, being best estimate. So we have this threshold which is at 106%. If the confidence level is higher than 106%, we would be in the amber area, and I can assure you that we continue in the amber area. At least according to our own actuaries and according to a pre-study of our external actuary firm that looks at our reserves every year. So the quality of the P&C result is not diminished by taking out of the confidence level of the loss reserves. On the life and health side, the performance has been good except the U.S. mortality business. Here in particular, and only I would almost say, the large block of business, of the ING business that we bought in the first quarter of 2009 from Scottish Re. On this business, we initiated vigorous in-force management action, which already in 2017 had resulted in recapture, which took off a fair amount of the future liabilities and future expected losses. But in 2017 cost us EUR 45 million of losses. I can already say at this point in time, that we expect more of such recaptures in 2018 because our in-force management actions are accelerated quite significantly in 2018. What does that mean for the dividend? It remains unchanged at EUR 5, including the EUR 1.5 extraordinary special dividend. The book value per share has come down slightly. This is due to the fact that significant amounts of our capital are being held in U.S. dollars. In fact, the euro has strengthened against the U.S. dollar. That U.S. dollar capital in euro terms is, of course, less. That is not too much of a problem for us because also we have significant, I would say more than 50% of our exposure that creates a need for capital, are also denominated in U.S. dollars. At the same time, in euro terms, the capital decreases, also does the capital requirement. That is reflected in the solvency ratio, which has actually increased significantly from 230% at the end of last year, of 2016, to 260% at the end of last year. This also was aided by the fact that we got the approval of our regulator for the Hannover Re group to use our operational risk model in the official solvency calculation, and that also had boosted the solvency ratio. All in all, the financial strength of Hannover Re has actually improved last year. As I said, the results have been not great, but in relative terms, quite acceptable. On this rather general note, I will hand over to Roland, who will give you all the finer details. Well, thank you, Uli. I haven't been announced as the star. I don't know whether that's really true. It is a pleasure for me to also present a good set of number. Although, obviously, the market reaction today was not that convincing, and I hope we will be able to address at least some of the concerns. This is also why I think it just makes sense to really concentrate and focus my comments on such details which I find are worth mentioning, and then give you all the opportunities to ask the question to your heart's extent. Let's start with the operating cash flow, an important number. You see it, nearly EUR 1.7 billion, which is, from our point of view, a good cash flow number still. It is lower than it was in the previous years. What is the reason for the decrease? We have seen payouts for the hurricane losses in Q4 already. That amounts to approximately EUR 400 million. Here we also see the impact of the hurricanes. Apart from that, one should also bear in mind that with the impressive P&C growth, which we will be discussing in a minute, one should assume or potentially has expected a higher positive cash flow number. As this growth is driven by the Advanced Solutions business, which is not really cash rich, these are usually quota shares. They are accounted on a quarterly, half-yearly, or even yearly basis. You would only get a balance from these quota shares. It is not non-proportional business where you get a premium in the beginning and then later on, the outflow of the claims. In that regard, again, this is not a very cash flow rich business. This is also why the cash flow hasn't been boosted by it, as perhaps one would have expected. Still, we mentioned EUR 1.7 billion in positive cash flow in such a year, still very positive. Why does the asset base on the right-hand side not increase if there is a positive operating cash flow? Uli has mentioned that, and we will come to that point more than once during the presentation. That is a reflection of the currency exchange rate movements. We see a decrease of EUR 1.7 billion of the asset base. EUR 2.5 billion is the impact of the USD. EUR 2.9 billion negative is the impact of the currency exchange rates overall, as also other currencies have depreciated vis-à-vis the strong euro over the course of 2017. By the way, according to the currency exchange rates we have been using, the dollar had lost 14%. That is also to be seen on the next page when it comes to shareholders' equity, which is the policyholder surplus, which is really reflecting the shareholders' equities here as nothing has really changed on the hybrid or the minority share side. We also see that the shareholders' equity is going down by EUR 500 million from EUR 9 billion to EUR 8.5 billion. Let's look on the right-hand side. Here we see the explanations. We have a very positive net income. That goes up by the EUR 959 million. Then we have paid out a dividend, and we have a change in unrealized gains and losses. Here, the impact of, for instance, the sale of our equity portfolio after minorities, after tax in that reflection here is not that much. Of course, also here we have seen some decreases in the OCI, reflecting the market values of our assets. Also here you see the currency translation, EUR 740 million. That is exactly, I think Uli mentioned that already, a reflection of all the capital positions which we have invested in the USD and which came down. Of course, also our liability side and our exposures came down at the same point. We will see later on that our solvency ratio has increased from 230% to 260%. The loss absorption capacity of the group, or the exposure absorption capacity of the group has increased and not decreased. I think that is important to understand. In that regard, the EUR 9.5 billion has indeed also aided a little bit the RoE position, because, of course, that is positive here. The RoE is here reflected on the next page, 10.9% vis-a-vis a hurdle of 9.8%, which means an outperformance of 110 basis points in a year with a remarkable exceedance of our large loss budget, which I feel is remarkable. We also see on the right-hand side, on a 5-year or a 10-year or a 15-year average, the RoEs which we have produced are around 14%. Yes, the 2017 year is a little bit lower than that, but with a double digit RoE, I think we are still in a good position. That good position also allows us to keep the dividend payments up. Here we see the dividend or distribution history since 2008. Ever since 2014, we have paid out remarkable bonuses on top of the regular dividend, which reflects our dividend policy of 35%-40% of group net income. That also means in a year where we have this after-tax profit position a little bit depressed, that our payout ratio has increased from 51% to 63% in the year 2017. We will hear that we are expecting this to continue going forward if nothing extraordinary is going to happen. If we take today's price, not yesterday's price, but today's price of EUR 110 per share, that translates into a dividend yield of 4.5%, which I also think should support what we have been saying. We are in a pole position again, when it comes to the RoE table here with 10.9%. We are, and Uli mentioned that, on average, the rest or the 10 largest reinsurers here have produced 3.3%. That is below 5%. I think it was always our prediction that an RoE below 5% for the industry should trigger a reaction. We have seen a little bit of a reaction, not as much as we have anticipated. On the other hand, if you look at the average RoEs on the right-hand side, which have not become so much under pressure already, this perhaps is a little bit an explanation why the reaction has not been as pronounced as we had expected. Still, then you might have the question, what happened to peer number 3? I think this is a U.S. company, and it has benefited from Mr. Trump remarkably so they could decrease their deferred tax liabilities remarkably because they are to be calculated with another tax rate. This is the explanation for the outperformance here. But the rest of the market has performed lower than Hannover Rück. Now, let's have a look at the group's result really briefly. We will come to all the different segments. There is not a lot worth mentioning on that level. FX-adjusted double-digit growth, I think that is really remarkable here on a group level. The net retention was stable, and it should be stable also going forward. The tax ratio is down from 24.2% to 19.2%. The background of that is the sale of the equities, which is nearly tax-free, and these tax-free or nearly tax-free profits have benefited the tax ratio. This is obviously not sustainable going forward. So in our plan, we assume that the tax rate is going to be 25% around on a long-term sustainable basis. The details will follow on the next pages. You see that on the P&C side, impressive growth, 19% FX-adjusted, driven, we've mentioned that before, by the Advanced Solutions structured reinsurance business. Apart from that, or if we adjust for that, the growth would still have been more than 4%, or is more than 4% from the rest of the business. The net premium income goes up as well. The growth areas, North America, Europe, credit and surety, and the London and direct market, these were the main contributors to the growth which we have seen. Of course, the results driven by the EUR 300 million exceedance of the large loss budget translates into 3 percentage points above the budget. That was mitigated to some extent or to quite some extent, by a positive runoff. You might have seen the numbers, more than EUR 1 billion in positive runoff. Some explanations here, I think we have asked our actuaries to come up with a new long-term sustainable number. Some of you might remember that we once mentioned EUR 200 million a year, EUR 50 million per quarter. That is a number. With the large increases which we have seen here over the last years in the redundancy numbers, also of course the regular runoff numbers have increased. The latest numbers, which we heard and we will confirm and might have a little bit more details in October with that regard is around EUR 400 million. That is what we expect these days as a regular runoff number. Moreover, we had a very attractive positive runoff in our aviation result. Here, a very large loss event in the past had been settled. That came with a very positive triple digit million amount in the fourth quarter, which was nice. We also had commuted other parts of our U.S. business that was especially still asbestos related, which also had increased the positive runoff. I did mention last October some systematic things on one or the other area of the world. We still only have underwriting year numbers, which also usually translate in some positive runoff. I think the important thing is, and Uli had mentioned that before, this positive runoff has not impaired our loss or confidence level. You might remember, these numbers still include the Ogden rates, EUR 300 million. That was in the second quarter. We mentioned that we had mitigated the impact of the Ogden rate of EUR 300 million by loss reserve releases. That should translate then in the assumption that the loss reserve redundancies should have gone down by EUR 300 million, which is not the case. The Ogden rates are still booked at the EUR 300 million level. But the indications are that at least after also taking into account that, for instance it was interesting to see this very positive runoff in the aviation space. For instance, had led to the assumptions that no other redundancies would be in the aviation reserves, which is not the case. So during the reserve assessments over the course of the year, we expect redundancies to be recognized again. The assumption would be that by October, the reserves should be on a level as they had been last year. Especially as we have to assume that the Ogden rate will be adjusted, maybe not this year, but then upwards then next year. Some of the redundancies which we had released will come back. Just to keep the message straight is really the level of reserve redundancies might have also gone down slightly based on the currency exchange rates. Which also have an impact here, because some of the redundancies are USD redundancies, and they are also impacted by the currency exchange rates. But if we look at it from a percentage-wise redundancy level, we should be approximately on last year's level. I think that the rest had been mentioned by Uli already. A very acceptable result for a year where we had such large losses. Here, I think on the next page, you see the large losses, gross and net. The interesting thing here is, yes, with EUR 1.79 billion, this gross loss is really the largest we ever had. Still it needs a little bit an explanation because this now includes ILS losses, which we take on and cede on. If we adjust for that, I think the gross loss in equal terms to, for instance, 2011, which we can see here, has been lower and the retrocession impact has been lower if we exclude the ILS impact in these numbers. The single events here on the next page, not that much which is to be said here. We've all seen the numbers. We've all seen the developments. I think it is worth mentioning that the Californian wildfires, the two of the fourth quarter amount to EUR 100 million overall. We had a budget of EUR 200 million for the fourth quarter. That was below, but still with EUR 100 million, also the wildfires had been a large loss in the year 2017. Without them the impact of the hurricanes would have been lower. A brief look at the MTCR and the business lines, how they performed on the P&C side. I think it's also not really a surprise what we can see here. The hurricanes and the fires hit North America. This is why here the combined ratio is remarkably over the hurdle. We also see aviation, a negative combined ratio. I think not too many instances where I saw a negative combined ratio. This is explained by the positive run-off result, which we have already mentioned. U.K. and London market, that is impacted by the Ogden rate. You might ask, well, if you had decreased your IBNRs, why is it that this exceeds the MTCR so much? I think the release of the large loss of the redundant reserves came from other segments as well, not only from U.K. and the London market. This is why Ogden can be seen here so pronounced. And of course, the cat lines are impacted by the hurricanes. The structured reinsurance, as you see, large, higher combined ratios as expected, but still very profitable. The 97.7% reflects our profit expectations fully. These are risk limited exposures where the margin which we make here make it really sufficient. I think that is now the one area, Uli had mentioned that before, which had not really lived up to our expectation. The U.S. mortality still underperforms for the legacy block, the ING portfolio. The background profitability of that segment, if we concentrate always on the U.S. mortality, is a little bit ignored to some extent. Here, the financial solution business really was exceptionally good. That explains the other income and expense line. Here, the profitability goes up by EUR 100 million. This is really where we reflect the profitability of these deposited accounted contracts. Here you see that we really had a remarkable increase in profitability from financial solutions business. Also, the longevity business with the 2% doesn't sound so impressive. You know that we have started that business. We have increased it remarkably over the last years. We are in early stage. The profitability is reflected in line with the emergence. The 2.1%, which we see here and which is above the target, really fulfills our profitability requirements. Also, the mortality business around the world, apart from the ING business, is really performing according to our expectations. Still with the EUR 145 million EBIT, we are below expectations. This is also why we really concentrate in last year and even more so in this year on our management actions. We've explained them more than once. We will increase rates. There might be more commutations and other things. This is also why the expectation for the year 2018 is not really brilliant. That gives us room to implement those changes, to really concentrate on the action, to then also in the future reflect the real profitability of that segment again. A brief look at the value creation of new business. The future profits, those who have been here in October might remember Claude Chèvre's presentation, where he explained how the value of new business then translates into IFRS profits in the future. You see that this is going down. We really had in 2015 and 2016 remarkably large transactions which came with really high value of new business. On the one hand, this number goes down, yes. On the other hand, and you see that it is still remarkably above our hurdle. The target is EUR 220 million. We've achieved EUR 364 million. This is really an outperformance here, even though it looks so decreased. We are happy with the new business, which was created and produced in 2017, and which will translate into future profits, according to the patterns which we tried to explain in October. This came from the U.S., Asia, from Australia, from around the world. Here now, Uli mentioned before, the investment income was exceptionally good in 2017. Unfortunately, I'm afraid I might not make 3.8% in the current year. Again, still you might remember we came into the year with 2.7% as a target. We've increased the target to 3%. Now we came in with 3.8%, of course, aided by the sale of the equities. But also the ordinary investment income is up remarkably, double-digit increase. Why is that? How could it be? It was helped by private equity fund distributions. Some of them have a little bit an extraordinary touch. They will not reoccur, but the overall level will also be very attractive in the future. Moreover, we have increased our investments in real estate, and also that is performing really well, and that boosts also the ordinary income, and that should be sustainable. Realized gains, losses, of course, boosted by the sale of the equity portfolio. We've commented more than once on that. Impairments, appreciation, depreciation, that line is well, nearly in line with the current year. Nothing extraordinary. The majority of that is ordinary depreciation on our real estate portfolio, so really nothing extraordinary here. Same goes for the fair value instruments through P&L and the investment expenses. A brief look at the unrealized gains and losses. Here you see that we've seen them to some extent already in the capital position. This goes down slightly. Why doesn't it go down more if you have realized EUR 220 million in listed equities? Here, one has to bear in mind, a lot of that potential of the realizations has been created in 2017, so approximately EUR 100 million had already existed when we entered into 2017. The rest of the appreciation happened in 2017. This is why the hidden reserves are only affected by, or the valuation reserves are only affected by EUR 100 million. Still, we have to bear in mind this number is no longer that high today. We've seen interest rate increases. We've seen that the credit spreads in the U.S. dollar as well as in the euro have increased slightly. This number is still around EUR 1 billion, I would say, but it is decreasing. Is that a problem? Not really. I think the capital position would still be high. Maybe worth mentioning, the reinvestment yield, also that is something which we explained in a lot of detail in October here, is around 2.05%. On this pro forma basis, if I sell everything today, reinvest the same thing today, and have no changes in the composition, the reinvestment yield would be 2.05%. If we look at the projections, which we did, and which we gave you, there is no reason to think that the projections today would have a different result. In that regard, at least on the one hand, we are losing some of the valuation reserves. On the other hand, we are investing or reinvesting at higher rates. On the next page, you see the comparison. Where are we invested on the assets under own management, and where does the profit come from? You see real estate and private equity, especially private equity in the year 2017. Extraordinary. 2% on the allocation and 13% of the income. 5% real estate, 13% of the income. These are the main contributors. We also see that, of course, that the government, here with the govie portfolios, it's vice versa. But nothing extraordinary that goes. Same goes for the composition of the investment portfolio as it stands today. We have been explaining the barbell strategy over the last years to some extent. You can see it at least on the government portfolio, which has increased. Here that is the one part of the barbell. The non-investment grade assets have also increased, and of course, also the listed equity, sorry, the private equity and the real estate have been increasing. This has come to an end now. We will no longer continue with the barbell strategy. We are where we wanted to be. In the future, we will invest across the board again. Well, with a little bit of higher quality on the credit side. I think this is what we have decided early this year, and in so far, again, with the barbell, we are where we wanted to be. Now we might change or decrease spread duration a little bit. Otherwise, no fundamental changes to the portfolio. Let me comment then on the Solvency II reporting as at December 2017. Please bear in mind we will publish the full Solvency II reporting in May, including the SFCR and analysis of change, so our economic P&L. Today, we can present some key figures, and we should bear in mind that they are not finally audited, I should mention that. Slight changes might be necessary. Still, we don't expect them to happen. The available capital, you know that we have these internal metrics, where we distinguish today only the minority interests, where we feel they are fungible enough to use them as capital in our internal model. The Solvency II BaFin approved numbers exclude them. They force us to apply the haircut, and that is the difference between the two numbers. You see that the available capital eligible own funds have decreased by some EUR 500 million. That is again, driven by the currency exchange rate. Same effects, which we have discussed more than once in that presentation, I warned you at the beginning. Here it is quite obvious that the same happens on the required capital side as well. Here also the currency exchange rates decreases or increases. A strengthening of the euro has impacted the required capital positions remarkably. So our cat exposures in the U.S. dollar go down, and all the other exposures go down as well. Moreover, the market risk goes down based on the sale of the listed equities. Plus, we have the impact, which also Uli mentioned already, that the operational risk is also now calculated based on a stochastic approach, so we can use it from an internal model point of view, and no longer use the standard model. The interesting thing here, or the funny thing here is that they do not result in such different numbers, but if we use the stochastic methods, we can use the diversification effect. So they now diversify, which was not allowed according to the standard model, and that also increases the diversification remarkably. That leads to an increase of the solvency ratio from 230% to 260%. You see that here on the next page, where the risks come from. The P&C, the life and health, and the market risk, plus the diversification, and then how here the required capital compares to the eligible own funds, which then results in the increased ratio. Again, especially the market risk has come down, and the diversification has improved remarkably. The next page summarizes that I think nicely over a three-year horizon from 221% to 230% and 260%. You see also here the internal limits and threshold systems, which demonstrates even as the capital position went down slightly, the solvency position here increased remarkably. As well, I think this summarizes the development. On the next page, the usual translation from the IFRS shareholders' equity to the basic own funds on the right-hand side. We have to add some effects from the asset portfolio. For instance, all those investments which are accounted for at amortized cost, hold to maturity bucket. This is to be added. We also see that the technical provisions are adjusted. That is the discounting of loss reserves, the future gains on the life side. These are additions. Then those additions have to be taxed, which goes the other way. We have to deduct the foreseeable dividends, which is the increased number now. I explained to you already the minority haircut. Then we add our hybrid baskets to that, and we have also given you the number of the potential hybrid issuance we could do, which would fully be accepted here and increase our capital position, which is nearly EUR 1.3 billion. If we needed that capital, we could issue it tomorrow. That then explains how you come from this IFRS shareholders' capital position to the solvency basic own funds on the right-hand side. I think that then leads us to the target matrix. Usually, Uli, that is something which only a CEO can explain. Absolutely, Roland. I will of course do that. Thank you. You can see even in a year like 2017, we have more ticks than not, which if you want to put it positively, shows the resilience of our business model to situations like we had seen in 2017. That's actually good that we show this resilience because it's not really a tail event, what happened in 2017. It's something we have to expect, I would say every five to seven years from a natural catastrophe point of view. Therefore we better apply risk management that prepares us to those kind of years. If you look at two things where we didn't manage tick marks, which is the xRoCA, which is the excess return on the capital allocated based on economic valuation. It only takes into account risk-free interest rates, not the nice earnings from sale of the equities. Still on the P&C side, we managed to have a positive figure there. That means that we earned more on an economic basis on the P&C side, than the cost of capital. Cost of capital plus admin expenses, we still outperformed those. That's a positive number in the light of the net cat losses, which exceeded the large loss budget or the expected losses by more than EUR 300 million. Flip side of that, if you look at the life and health, you see a negative xRoCA, and that really shows you the additional technical provisions on an economic balance sheet and the Solvency II balance sheet, which reflects the additional expected future losses from the U.S. mortality business. That also tells you that those developments are included in the solvency ratio of the 260%. I wanted to mention those, which I normally not do because I normally dwell on those where we have tick marks, but not today. That brings us then to the outlook for next year. I start with the P&C. Some weeks ago we had our renewal call. Not only we gave you the preliminary results, we also gave you the results of the renewal season at 1/1/2018, which overall were actually quite positive for us because we could generate higher rates. Also in this environment, due to our competitive position and our low admin expense ratio, we were able to grow both our traditional business as well as our structured reinsurance business. Overall, the growth of the business being renewed at 1/1/2018 came actually to 21%. However, the renewal season did not show the rate increases that many people might have hoped for, including us, I would say. Because I mean, as Roland already alluded to, we had this theory, every time the average RoE of the reinsurance market falls below 5%, there will be a reaction from the market like we had seen in 2009 and 2012. This was not that remarkable in 2018. Main reason that none of the capacities were withdrawn, which was different in 2009 and 2012. Some capacities were withdrawn, not this time. Most of the underwriting units on the P&C side were waiting for significant market changing events and were of course, trying to increase their capacities rather than decrease their capacities following the losses. So all we have seen is an increased underwriting discipline of the underwriters and a loss driven hardening. The shares have not moved a lot, even in the Caribbean, which of course had an extremely high loss ratio. None of the capacities were withdrawn, so the panels of reinsurers actually remained more or less unchanged, admittedly at higher rates. There was no opportunity for new players coming in or existing players significantly increasing their lines. So I think what that really shows in years like 2017, we have to expect that we have to continue to deal with a very competitive market, and we have to look for competitive advantages in order to be successful in those markets. It's not good enough to say, "Well, I have a lot of losses in a year like this, but I make it all up by the rate increases in the following year." That, on this kind of loss level, does no longer work. Then of course if I go to the individual subsegments, North America and Continental Europe, both are very broad books that we have serviced very many clients. We were actually pleased with the outcome of the renewal season. We already had a very good profitability of our continental European business in 2017. We have seen on average rate increases of that business. So we are very positive. Of course, North America was affected by the Hurricane losses and got pretty much rate increases across the board, but only moderate. On the specialty lines, mixed picture. Credit and surety, we saw some increases. We increased our market leading position. U.K. and Ireland were Ogden-driven increases, even though we feel that the market responded a little less pronounced than we would have liked to see to the Ogden rate changes. Because really, the current rates that were charged for 2018, according to our assessment, did not reflect the -0.75 Ogden rates that is a legal prevailing rate. Now, admittedly, it hasn't been used as yet. So there's an argument to use a higher one, but we feel that the market should have gone with the official rate. So we were a little bit disappointed with that, which meant that, yes, we have more premium, but we have significantly less exposure on that business. Aviation, very interesting. Still very competitive, but quite remarkable that 2017 was the first year where we didn't have a single fatality in commercial airline travel. Quite remarkable. Very good job of the airlines. Worldwide reinsurance and catastrophe, excess of losses, we see growth in worldwide reinsurance, particularly in China, where we were able to improve our position on some key clients. We have a strategic important client approach and initiative that we have for the last few years, and that is actually bearing fruit this year, in particular in China and Australia. There are also other areas where this approach is actually quite helpful. Structured reinsurance and ILS both increased quite significantly. We had a more than 50% increase of our structured reinsurance book again at 1/1/2018. Actually on our largest treaty we expect per underwriting year in margin, just to give you an idea, of around $45 million, which will be earned over two years. This business is not only top line accretive, it is also bottom line accretive. That to the 2018 year. We expect that we will be above the margin requirements. If you put 2018 in perspective, we expect that it will have a better rating quality on a fiscal year compared to 2017. Not quite as good as 2016 on a fiscal year. On an underwriting year, it is better than 2017 and 2016, but falls short of 2015. On the life and health side, our financial solutions business will see increase in profits. That is almost certain at this point in time because the business is on the books and the transactions are risk remote, so that the probability that we will actually achieve these increased profits is very high. I should also say that the premium volume on the financial solutions is not so important because a number of the transaction are deposit accounted and are not showing up as top line on the books. Longevity, we see a stable development at profitability that is sufficient to cover the cost of capital. However, we have a number of larger transactions in the pipeline, particular also outside the U.K. Depending on our success on these transactions, we may even see an increase in premium. Otherwise, because of the long duration of the underlying business, the same premium volume is pretty much a given. Because we had seen some reduction in our enhanced annuity business in the last couple of years due to change in the legal environment. That has come to an end. That will no longer reduce. Mortality solutions, we expect further negative results from our U.S. mortality business. This is a little bit difficult to gauge at this point in time because it will depend on the recaptures and will also depend on the additional premiums that we are able to already account in 2018 from the rate increases. At this point in time, we are not expecting to lose money on mortality because the non-U.S. mortality business, as well as the new business in the U.S., continues to perform in line with expectation. Actually, on our non-U.S. mortality business, the EBIT margin is around 8%. Morbidity, it is basically critical illness and some health business where we expect some growth because there is additional demand for that business, in particular in Asia and China. We expect to earn the cost of Putting that all together, that brings us to an unchanged guidance. We see single digit percentage growth of the premium, which currency adjusted will likely be double digit on the P&C side, and quite stable on the life and health side. So might be the higher end of double digits. Return on investment, of course, we are not hitting the benchmark that we have set in 2017 of the 3.8%, but rather expect 2.7%, which is based on the current portfolio. It is also based on what Roland mentioned, some de-risking on the credit exposure, particularly on the higher yielding bonds, where we feel that the pricings are at a level where it is difficult to see that the spreads could tighten even further. They actually have done the opposite in recent years. With the 2.7%, we still should reach an absolute return in the region, say of EUR 1.1 billion, which is in line with the five-year average, except if you exclude the effects and the profits from the sale of the quoted equities. We also have a policy that might also put us back into quoted equities, but it would need a more significant correction of the market than we currently have seen. Profitability more than EUR 1 billion will, of course, be driven by an expected increase the underwriting result from the P&C side, where we feel that we are in a good position. We have better underlying rating quality than we had last year. We continue to have very good level of redundancies in our loss reserves, and we have not increased our risk appetite for cat on a net basis, so that also the volatility towards cat losses is pretty much at an unchanged level. From that point of view, we feel well positioned on the P&C side. Dividend payout ratio. We have shown the 360% solvency ratio. We have got dividend paying abilities from a German GAAP balance sheet and P&L account. If everything goes according to plan and say if the first three bullet points come to reality on this one, it is more likely than not that we will continue to pay a dividend, at least on the level of the current year. I realize that this is an early promise. However, I put it to the proviso that, of course, that would need the other three bullet points to be fulfilled. The dividend paying capacity is definitely there, that would allow us to have at least a dividend continuity. If I then go to the individual business groups as well as the investments. Property casualty, as I said, we feel well positioned with our business in 2018. We think that our combined ratio should go back to below or equal to 96%, despite the fact that the portion of the Advanced Solutions business or the structured reinsurance business is growing, which comes in at combined ratios between 98 and 100. Still we feel that the overall underlying profitability of the business should support the 96%, even without reducing the confidence level of our loss reserves significantly. So we expect that we will stay above our threshold on the upper end of our threshold on the sufficiency level of our loss reserves. We also feel that we should gain modestly on our market share, which we have done at 1/1 because, we have grown a little bit faster than the market overall. On life and health, already said that the financial solutions business, particularly from the U.S., has continued to perform excellently. On the U.S. mortality, as I said, we expect further losses. That is also why we were a little bit more cautious on our EBIT expectation. We are now seeing around EUR 200 million, and the reason for that is the aggressive in-force management actions that we are performing, that could lead to recaptures, which could produce losses in 2018. We would actually not shy away from those, because what it really would mean is they would reduce the outstanding liabilities on this rather problematic book that we were buying in the first quarter at 2009, which in hindsight did not turn out to be our best decision. VNB, we have a lot of new business initiatives, and therefore, we are very confident that the value of new business will be in excess of our target. On the investment income, not a lot to say. I already told you we will be around EUR 1.1 billion. That's what our expectation is, give or take. Maybe there's the opportunity, because we have been used to that, to outperform that a little bit. So overall, we are looking positive into the current year. Thank you very much, and I now look forward to your questions. 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 the room. For those attending virtually who would like to ask a question, please dial zero one on your telephone keypad now to enter the queue. Once your name has been announced, you can speak and ask your question. If you find that your question is already answered before it's your turn to speak, you can dial zero two to cancel the questions. We shall proceed first with the questions from the attendees in the room, and then move on to the questions coming in from the conference call. So I see already some hands up. We start with Frank Kopfinger and then continue with Andreas Schäfer. Yes. Thank you. It's Frank Kopfinger from Deutsche Bank. My first question is on your guidance or your outlook for 2018. Obviously, you left your guidance or your outlook unchanged with the over EUR 1 billion net profit target and all the other drivers. However, you have this reduction in the life EBIT. Can you comment on where the offset is coming from to keep the overall target outlook stable? Secondly, on your outlook for the life re EBIT of around EUR 200 million for 2018. You commented that this is driven by more accelerated in-force management and potentially higher recapturings. At your Investor Day, you guided toward that this recapturing action might take until early or mid-2019. Can you comment there also on the timeline if you have now this track in 2018? Yes. Thank you for those questions. Our guidance on the profit for 2018, of course, said more than EUR 1 billion. The range of more than EUR 1 billion, as we have seen in 2016, can also extend to numbers which are a little bit higher than EUR 1 billion. We see the profitability largely driven by our P&C business. We feel, at least our current expectation, which we do on a regular basis, suggests that even with the EUR 200 million EBIT, or even if it's a little bit below, the remainder of the P&C business and the investment will be able to carry the more than EUR 1 billion of profitability. The timeline on the in-force management action, we have brought that forward. We will be acting more swiftly and earlier than originally expected. Therefore, the majority of the effects from the in-force management should actually occur in 2018 and not drag over into 2019. We have accelerated our efforts there because, as you can probably appreciate, we'd like to solve this problem sooner rather than later. Therefore, we have brought it a little bit further. Why do we have negative effects from these in-force management actions at all? The reason for that is that when we bought the ING portfolio, we took it in our books on purchase GAAP accounting, which means on certain treaties, particular YRT treaties, we have negative reserves. If they come out plus some unearned premium by recapture, it has a negative effect. You just hand over the microphone to your colleague behind you. Thank you. Thank you. Andreas Schäfer, Bankhaus Lampe. Just two questions. One of the development of your net cat losses, gross and net. During the first three quarters, the losses on a gross basis went down by EUR 140 million, but on a net basis went up by roughly EUR 70 million. Could you explain the differential between net and gross development? And a follow-up question on life and health. As far as I understand, the guidance for 2019 in terms of EBIT should be now at least unchanged or rather up compared to what you said before, given the fact that you now accelerated, let's say, the recapturing program to 2018. Is that the case? Okay. If I get to the second question first and go in the opposite direction. Well, it could be if all our clients would simply accept the rate increases, that would be exactly the case. But, that is not that likely because, the experience, also of other companies on these actions is that a certain percentage of the treaties are being recaptured, and that would have more likely a negative effect. So the acceleration of the in-force management action is likely to be detrimental to the IFRS earnings in 2018, but is accretive to the IFRS earnings in 2019. The net cat losses were coming down on Hurricane Irma, which meant that they are no longer in our whole account protection, and therefore, the reduction in the reserves exclusively benefited our retrocessionaires. On the other hand, we saw some increases on Hurricane Maria, which however, had not reached the whole account protection. So both losses are now at a good position to safeguard future increases because both of them sit right at the attachment point of the whole account protection. Okay. Then we continue with Jochen Schmitt from Bankhaus Metzler, and then with Ivan. Thank you. Jochen Schmitt from Metzler. Just one question on the dividend. In your Solvency II position of 260%, what prevented you from opting for a, say, somewhat higher dividend payout for last year? Well, I guess mainly the growth of our business. Growth of our business and also, of course, the result was not quite as good as the year before, and therefore we opted to have an unchanged payout, rather than to increase the payout again, because due to the higher percentage of the IFRS profits that we paid out, mitigating the growth of our capital base in original currencies was fulfilled even with limiting the dividend payment to EUR 5. Also, of course, two things. We have to look at the dividend of the current year, but we also have to look at the long-term continuity of the dividend. We only paid out part of our German GAAP profits, so that our dividend paying capacity for the coming years is actually a lot better than it used to be. Our dividend continuity that way is more comfortably safeguarded than it was before. Okay. Ivan Bokhmat from Barclays. Hi. I have a few questions on the life business. Firstly, you mentioned that the financial solutions do contribute the e-revenues that are booked as other. The question would be, how sustainable are they and how should we think about them going forward? Secondly, the question also related to life. I think you've given up, or you said you're going to give up the target for margins for individual blocks of businesses, longevity, mortality, financial solutions. Maybe you can comment on why you think that's the right approach. Well, first on the financial solutions, whilst the treaties are not comparable in the duration, to say, longevity or traditional mortality treaty, where the durations can go up to 50, 60 years if it's permanent business. On the financial solutions business, the majority of our deals are three to five years, and the longest that we have is 20 years. We also continuously write new business. We have a very vivid underwriting practice in our financial solutions, particularly in the U.S., where we are able to continually to grow the business. The business, normally, a lot of it comes towards the end of the year. The production of 2017, to some extent, the new production becomes effective only in 2018. Therefore we think that this is quite a sustainable revenue stream. The goal, of course, is to increase the profits from the financial reinsurance double-digit year on year. The last few years, we were able to do that. Why did we not have the EBIT margin by line of business and change that to just an EBIT growth target? The reason for that is that the business is very diverse. If you look at the financial lines, we have deposit accounted business where the EBIT margin is endless because there's no premium. We have out of the money stop loss business where the EBIT margin is expected to be 100%, and we have cash financing business where the EBIT margin is normally around 2%. Because you finance embedded value or acquisition costs. Then of course you get sufficient amount of premium ceded that the profit stream from that business is sufficient to pay off the pre-financed amounts, which are pre-financed by commission. Then you of course look for what we call a loan-to-value ratio, for lack of a better word, say it's normally around 60%, I would say. But then you need quite a lot of premium for that payback dependent on the underlying profitability of the business that's ceded to you. Likewise, on morbidity, it's really a mixed bag. Some of the less volatile businesses, the margin may only be 2%-3%. Other business where the volatility is higher, like in Latin America, we have margins that go up to double digit. So it's a mixed bag, and the question whether or not how it moves really depends on the development of the mix of business. Therefore we thought might be misguiding to some extent and said, what we certainly want to have is the growth in the EBIT year on year. Therefore we changed that. That is the answer to those questions. Okay. Then we have the next question from Roland Pfänder, and then we continue with Michael Haid. Good afternoon, Roland Pfänder, ODDO BHF. Coming back to your U.S. recaptures you are planning. Could you talk about the amount of price increases you are trying to put into the market? Maybe you could provide also a timeframe when you think that will be handed over to customers and negotiating timetable. Maybe another question, what would be different if clients would not accept any recaptures? How much different would be the running EBIT number for the next years to come? Second question. I saw you are more positive on credit and surety business in terms of profitability compared to last year. What has changed in your view on that? Thank you. Well, firstly on the recaptures. We are not planning for recaptures. We would have no problems if everybody just accepts the rate increases, because that would be accretive to the EBIT. We would have no negative vibes. If everybody would actually accept our rate increases, we would of course have an EBIT that should certainly be above EUR 350 million. But we are not expecting that. We expect to see recaptures. On the percentage, I am not too sure if it is the best communication strategy if I announce that here. I think my lawyers tell me that is not the best idea. So we have a communication strategy there. Does not call for me to announce the rate increases here and now. We are planning to move in the second quarter. Credit and surety, we had a combined ratio, I think, of 90% last year, so we were quite pleased with that. We have seen some rate increases on our credit and surety business. On an apples for apples basis, it should slightly improve. Of course, it also depends on insolvencies and large losses, whether or not we are having them. Thank you. Michael Haid, Commerzbank. Two questions. I am still trying to understand, and I struggle a little bit with the EUR 1.1 billion run of profits and reserve releases. Obviously, there are some moving parts in there. I understand that some of this EUR 1.1 billion comes from a reserve, or are reserve releases from reserve redundancies. Some are actually run of profits when you settle the claim. These were not included in the reserve redundancies at the beginning. Can you say how much of the EUR 1.1 billion was already in the pool of the EUR 1.9 billion reserve redundancies? That is my first question. The second question, can you provide a quarterly breakdown of this EUR 1.06 billion reserve releases or run of profits? Well, these questions are sufficiently complicated that I will hand over to Roland. Oh, sorry. Well, first of all, I think we have mentioned more than once that these, to start with your latter question first, these detailed analysis really needs a full analysis of the loss reserves, of the ultimate loss ratios which we have booked and all that, and this is done on a yearly basis. What we do give you quarterly is an estimate, an educated estimate of the development of the run-offs and the confidence level, but to give you that breakdown quarterly would not be possible today. Still, there is still the commitment to give you an idea as to whether the confidence level went up or down. To your first question, yes, you are right. I think we mentioned the one big run-off from the aviation event of 2001. That has not been regarded as a redundancy before, so that run-off had no impact on the EUR 1.9 billion you have mentioned. The same would be true, I did not mention that before, for approximately EUR 100 million from our Bermudian cat portfolio. Also here, there is a rather straightforward policy, which we have agreed upon with our auditors, that even if we really reserve conservatively after 3 years with no loss advice, we release those loss reserves. That, in the fourth quarter of 2017, was approximately EUR 100 million. Also, these event-driven reserves beforehand are not treated as being redundant. So that gives you some indications. Moreover, especially the Ogden rates releases, which we have seen already in the Q2, that had been regarded a redundancy before. In that regard, the EUR 300 million should have, in your theory, if I try to follow that, should have decreased the large loss reserve redundancy. Then there were others. I did mention before, some commutations, which included some asbestos reserves. Also, these were not regarded being redundant beforehand. So there were quite some parts of the positive run-off result did by nature not affect the redundancy number. For those which did affect the redundancy numbers, we have set up the current year's combined ratios and ultimate loss ratios assumptions, again, conservatively enough, that we are confident to assume that overall, the additions for the past have been set up, again, very conservatively so that there is, again, created redundancy for the years to come. That had led us to the effect or to the message that the confidence level, at least percentage-wise, should be the same. Again, with the impact of the currencies. In absolute terms, it might have come down slightly. Thank you very much. Okay, we have some further questions, not from the room, but from the conference call. We start with the first question from Kamran Hossain from RBC. Hi, everyone. I am sorry I could not be there in the room. Two questions from me. First of all, could you give an indication of what your surplus is on an S&P basis? So kind of an idea of that, because I guess that is probably the binding constraint for you on capital. Secondly, I guess with the really, really strong capital ratio, would you consider M&A? Any thoughts on that? I guess as activity seems to be picking up at the moment. Thanks. Okay. The surplus on the S&P model has actually come down quite a bit due to a model change that S&P is applying, particular on the pension swaps or the longevity business and the asset liability matching. Which means that, unfortunately, up until that change, the S&P ratio and the Solvency II ratio were actually quite in sync with the Solvency II ratio even a little bit lower than the S&P ratio. This change, which in my humble opinion, I would say, was not well founded, let alone communicated, of course, makes S&P more difficult. We still have a higher than the AA- rating S&P solvency ratio. But of course, the excess capital on S&P has reduced remarkable. Still, S&P have confirmed our AA- rating, confirmed the stable outlook. Actually, our analysts on S&P told us not to worry, whatever that is good for. But yeah, that is the situation on S&P. We do not really see it as much of a binding constraint at this point in time, because they also have told us if we fall below AA- for a while, it is not a problem, and we still have a lot of dry powder on the hybrid capital. So it is a manageable problem, and so we would not see that as a binding constraint of our growth. We will continue to steer the business based on the internal model. Because, of course, it is not that easy to steer your business on a model that has these rather significant changes on short notice. I have to say that even though we love S&P, as you know, we were the first European company that got rated in Europe from S&P. So our relationship with them is very good. And you might remember that at the beginning, they were so excited about us that they even gave us a triple A. But that's a long time ago. On M&A, there's currently nothing we are working at. Thanks very much. Okay. Then we have the next question coming from Jonathan Denham from Morgan Stanley. Hi. Thank you for taking my questions. Your commission ratio in P&C seems to have ticked up a bit. What's the cause of this, and how should we expect it to develop going forward? Secondly, as you said, Roland, your 2017 value of new business was above the EUR 220 million target, though lower than 2016 and 2015 levels. Do you expect this to continue to fall towards the EUR 220 million, unless you enter into any further large transactions? Thanks. Well, on the commission ratio, that is due to the growth of the structured reinsurance business. Because on this business, the risk transfer is lower, and that is often buffered by the commission terms of the treaties. Therefore, these treaties tend to have higher commission ratios as a normal, say, P&C traditional treaty, or let alone an excess of loss treaty. So with additional growth of more than 50% of our structured reinsurance business at 1/1, the commission ratio is likely to increase. As far as the value of new business is concerned, it will probably not decrease a lot further, but also not increase because with the experience that we have with our U.S. mortality business on permanent business, and also luckily, as we are not heavily involved on permanent business also in other jurisdictions like the U.K., our strategy is to reduce the tail of our life and health business. And that, of course, means that you have less years that we are counting for the value of new business. Say, if I only have a five-year transaction, I only have value of new business for five years. While if a 50-year transaction, I have value of new business for 50 years. But we are in the process of shortening our bets there. Therefore, whilst we do not expect that the value of new business will come closer to the hurdle rate, it will also not be as high as it used to be in some of the past years. Very clear. Thank you. Okay. Just as a reminder, if you would like to ask a question, please dial 01 on your telephone keypad now. We still have two more questions. The first one is from Thomas Fossard, HSBC. Yes. Good afternoon, everyone. I have got three questions. The first one is on the weakening of the USD. Can you remind us what is the potential negative impact on your EBIT line or net profit line, and how potentially it could impact your $1 billion net profit guidance in 2018? The second question is on the life and health re side. Obviously, you have targeted a new structure for your business, which was sitting in Dublin. Potentially moving some of this business out of Ireland, and now located it in the Bermuda. We see some underlying tax rate changes. Can you help us to understand how this may change the overall taxation rate of the life and health business going forward? The last question, also related to the life and health re segment. Just to come back on the financial solutions. If I am looking at the EBIT profit line, the financial solutions increased remarkably in 2017 from EUR 64 million to EUR 184 million. I am fully taking into consideration that you expect this business to grow further. If you could help us to better understand how much you would expect this growth to be EBITDA'd for 2018 and 2019. How should we think about the EUR 184 million EBIT profit from the financial solution to move up going forward? Thank you very much. Thank you. I will do the third question, then we will let Roland to do the easy ones, being question one and two. On the financial solutions business, actually, the EUR 184 million only is the deposit accounted business. There is, of course, other business that is reinsurance accounted that is in there as well. We expect to this year, in U.S. dollar terms, profit, which should be coming close to $300 million, and it should increase next year at least by 10%. That is at least the plan. It is good business for us. On the effect of the USD, I will hand over to Roland. Thank you, Uli. Thomas, I think we did the exercise in one of the previous years, and it will be a very crude one. Of course, we try to analyze that a little bit more in detail. To give you an indication, if we have an EBIT of approximately EUR 1.7 billion, and let's assume that a good 40% of that is coming from the U.S. dollar. If we just concentrate on the U.S. dollar when it comes to currencies, that results in approximately a little bit less than EUR 700 million. In 2017, I did mention that we had a 14% devaluation of the U.S. dollar. If that started in month January and ended in December, the average decrease of the P&L, and here we apply monthly rates, would be 7%. If you calculate a 7% on the EUR 680 or approximately EUR 700 million, this would result in, let's say, around EUR 50 million as a really broad calculation, which was the impact in the year 2017. Without that, our EBIT should have been a little bit higher. If we then assume that the U.S. dollar stays where it is, we would, following that theory, lose another EUR 50 million in the year 2018, which will be the rest of the remaining 7%. Again, this is a very theoretic exercise, but should give you an indication. Of course, it depends on where the U.S. dollar will be moving to. There are very different theories when it comes to inflation or interest rates. We are not currency speculators, but that would be included in our estimates. I think that was the one point. Again, it's a broad calculation, but should give you an indication. When it comes to the tax rate impact of some changes of the U.S. tax code, in essence, there was business ceded, life business ceded to Germany and to Ireland before. This will be ceded to another jurisdiction where the U.S. tax rate will be applied. Some of the business was taxed beforehand with 35% in Germany and it was 12% in Ireland. For those businesses, the applied tax rate will be 21% in the future, which means that we most likely will have a really slight negative impact. Again, it applies to the life business and the portion of the profits ceded, of the EUR 245 million profits of the business group ceded to Ireland and to Germany was not very high. In that respect, I do not expect any really remarkable change of the tax rate caused by those changes. Thank you very much. Okay, then we have another question from Andrew Ritchie from Autonomous. Oh, hi there. Thanks for taking my questions. Could you just clarify, the simple question, I am not sure, maybe you have said this already. What was the actual loss from the Scottish Re portfolio in the 2017 accounts? The actual EBIT loss, including the recapture. Because obviously the EBIT levels you are generating are kind of equal to what you said you would generate from recently written new business, implying the overall in-force is kind of break even. Also for 2018 guidance, you had flagged about EUR 100 million impact from recapture. I am guessing that now is more like EUR 150 million or EUR 200 million as the assumption. The final question on the life business, what was the impact on the Solvency II evolution, on the new basis of Solvency II from the change in assumptions in the life business. You implied earlier in your comments that there have been some change in the estimate assumptions which affected your year-end Solvency II position. Thanks. Sorry. Thank you for those questions. The loss from the Scottish Re business was a three-digit million dollar amount. Lost three million dollar digits. You can see it is quite negative. The overall profit that we had from our U.S. business overall was around, in dollar terms, around $50 million. With a very positive Advanced Solutions business and a very negative Scottish Re acquired business. Let us put it that way. The impact on the Solvency II own funds was around, I would say, just in very broad terms, around 500 million from increased technical provisions. You can see it was quite significant. Did that answer all the questions, or did I forget one? There was the other question of 100 million you recaptured before. Oh, yeah. The recapture numbers that you mentioned are actually embedded in our plan. I would say it is at least 250 million. That would then result in the expected EBIT number. Okay. Thank you. Okay. We have another question from Vinit Malhotra from Mediobanca. Yes, good afternoon. Just to follow up quickly, you know that when the equities were sold and that released around EUR 400 million of capital, what are the plans for that capital usage in terms of, because the business didn't grow or pricing wasn't as good as we expected. Just any ideas on the plans? Second question is that, maybe it's very simple, but the PML for 1 in 100 U.S. hurricane in euro terms is up 8% or so. Maybe dollar terms might even be 15% or something. Could you just comment on why this PML is up? Because obviously you weren't very impressed with the rates in the renewals. Just to follow up on investment income for Roland, you said the real estate is sustainable rate. Were you referring to 4Q or full year? Because 4Q was rather high ordinary income in real estate. Thank you. Yes, the equity freed up was really used to grow the P&C business, which we have grown quite significantly at 1/1/18. But of course, we have the ability with the excess capital that we have to move back into equities if our triggers are met. The PML on the hurricanes increased mainly because we had a lot of business opportunities in the U.S. on the property side. Some of them were quite promising, and that resulted in a higher PML there. The model change, there was no model change to speak of that came into play here. Of course, it didn't increase the large loss pattern due to the retrocession structure that we were able to put in place. On the sustainability on the investment income from real estate, I would hand over to Roland. My comment, Vinit, was based on, I would say the impact of the private equity as well as the real estate portfolio to the ordinary income was approximately a plus EUR 100 million, with two-thirds coming from the private equity portfolio. Here, I did mention that this included some extraordinary items. If we take the 100 and the two-thirds from the private equity, the assumption would be not too far away that one-third was a little bit caused by extraordinary items. So two-thirds of that EUR 100 million should be sustainable with the full sustainability of the private equity contribution in that number. I think that was the background. Again, if you say EUR 33 million is one-third, then this addition from the real estate will also be sustainable. It should grow when the portfolio grows, and it is growing. Approximately, 30 million-40 million EUR from the private equity portfolio will not be sustainable in the future because it was caused by extraordinary distribution from those funds. Thank you. We have some more questions. But before we continue with a follow-up question from Thomas Fossard, we have another question from the room, from Tim Friebertshäuser from Deutsche Investment. I am looking at the life reinsurance business on a normalized profits. If I just take your remarks on financial solutions, like $300 for 2018, and then growing into 2019. If I would add longevity, I would come to near EUR 300 million. Then you said, I am in drag over from mortality into 2019 because you do that acceleration of management actions in 2018. You also said some 8% of the ex-U.S. mortality business as an EBIT margin. If I take 3% of an EBIT margin on that, I am in EUR 5 billion of premium income. If I add both, I would come to more than EUR 400 million of EBIT in 2019. What is wrong with that, and why are you so cautiously guiding only for profit growth into 2019 for the life and reinsurance business? Well, we haven't as yet guided for 2019, I have to say. Higher profits. Yeah. But if I would add everything, I come to that. Your calculation is entirely correct, I would say. The only thing is, I'm a little bit cautious there because of the increased claims that we have seen in 2017. So I'd like to see stabilization of the claims in 2017 to give me better confidence on the prediction for 2019. Therefore, at this point in time, cautious. This is cautious on the U.S. mortality, and in particular, on the old block. As far as the remainder of the business is concerned, the development is actually quite positive. Okay, we have a further question from Thomas Fossard. Yeah. Thanks, Karl. Just wanted to come back to the life business and really focusing on slide, where is the number? Can't see the number. Yeah, 12. Sorry. Because if I'm looking at the EBIT reported in full year 2017, so 245, this includes EUR 45 million of negative impact from the recapture. Let's say, roughly speaking, on a normalized basis, EUR 300 million. Now, if I'm looking at the Q4 standalone, EUR 40 million. Normalized basis, 160 plus the 45. So I'm more reaching something which is around EUR 200 million. So I've got some difficulties to reconcile what is normalized run rate currently, either based on the full year numbers or taking the annualized Q4. Thank you. Well, I think one has to expect that the development of the EBIT is quite volatile on a quarter-by-quarter basis. The reason for that is that we have net retention on the mortality, which is particularly relevant for the U.S. business of $20 million. So if you have a large loss, so to say, on a quarterly basis, it can have a rather significant effect. That was actually what was happening in the Q4. But I would say, if you look at the normalized EBIT, excluding the ING block of business, it's certainly around EUR 400 million to EUR 450 million. Then, of course, the actual results that we are seeing would then depend on how much negative effects both, actually to expect it will always be negative based on the locked-in assumptions that are also prevailing for the ING block and the recaptures. Those two figures will then determine. The numbers on actual to expected on the ING block will only improve with the rate increases. Only when the rate increases become effective, you will see an improvement. It's also fair to say that we also improved the still negative results on the ING portfolio already by about a run rate of EUR 80 million per annum by rate increases that we already have applied and by the reduction of the collateral costs, which we have almost eradicated completely. As you can see, we have done a lot of work on it. Unfortunately, it's still work in progress. Okay. Then we have another question from Will Hawkins. Hi. Thank you very much for taking my questions. Roland, you made passing reference to this in the presentation, but what exactly was the HGB revenue reserve and claims equalization reserve at the end of last year? If you can remind me the end of 2016 figure in context, that would be helpful. Secondly, just a bit of housekeeping. Can you remind me what you expect the other income and expenses line to be in the P&C division when you are thinking about your 2018 budget? Thank you. Well, the development of the equalization reserve in the German GAAP accounts was a plus EUR 170 million. We expected a plus EUR 300 million based on our simulations of the fire industrial line. I hope you do remember what we had discussed here, which was caused by the World Trade Center loss falling out of the overall computation. Why was it lower? It was lower because the financial solution business added so much premium to the German GAAP accounts, which then again increased the maximum equalization reserve amounts in other lines of business. Still, the German GAAP business was very positive. We could add more to our profits carried forward, which now amount to more than EUR 600 million. So in that regard, we have a full year's, today's dividend payment in our profits carried forward according to German GAAP. Moreover, we have retained earnings of more than EUR 600 million. Moreover, we should have a positive profit, of course, in 2018. Again, when that was what you were driving at, I think the dividend paying capacity or the flexibility has increased remarkably. Was that your question? The other income. Sorry, the other income on the P&C side, that we normally expect at negative of around EUR 50 million, I would say, that is because we have the expenses for the company as a whole in there. It also has a lot of other things which are more neutral. But on the P&C side, we haven't got any meaningful deposit account treaties. I think at this point in time, probably there's none. So the other income and expenses line is always expected to be negative. It was a little bit more negative in 2017 because we had to write off some reinsurance recoverables from a captive deal, where we felt it prudent to write off some of those. Of course, not expecting that to reoccur in 2018. So the number will be slightly better in 2018 than it was in 2017. That's helpful. Thank you. Okay. It looks like that we have no further questions, neither from the conference call nor from the room. If that is the case, then I would like to say thank you for your participation and your interest. This call has been concluded. You may disconnect. All others here in the room, I would like to invite you for a snack and drink outside of this room. Thanks again for being here.