Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München (ETR:MUV2)

Earnings Call: Q4 2019

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Feb 28, 2020

Good day, and welcome to the Munich RE 2019 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Christian Becker Husson. Please go ahead, sir. Thank you, Tracey. Good afternoon to everyone. A very warm welcome to our conference call on Munich Re's 2019 earnings, strategic update on our business and on the financial outlook for 2020. We will start with the presentation, and this will be followed by a Q and A session. It's my pleasure to introduce to you today's participants, Joachim Benning, CEO of Munich Re Group Christoph Jureka, our CFO Marcus Riess, CEO of Ergo and Thorsten Jevorick, CEO of Reinsurance. I'll be back after the presentation and now I hand it over to Joachim. Solvency II ratio is very strong with 2 37%. It is still well above the target range of 175% to 2 20%. And we propose to increase our dividend to €9.8 per share. And as you know, since the day before, we have again decided a share buyback of €1,000,000,000 starting in May 2020. So for over 2 years now, we have been working to become more responsive, embrace and adopt digital solutions in our incumbent business models and generate new ones, mainly digital ones, reduce complexity and take resources out and to ultimately generate new business growth and increase earnings. And in 2018, we exactly matched expectations in 2019 as momentum and the positive impact from this is growing, we over delivered both in reinsurance and at ergo. In 2019, we consistently strengthened our initiatives that we have launched in reinsurance already in 2018. So we have again grown business profitably in select markets like in key nat cut markets in the U. S, in Japan, in Latin America. We did the same in specialty lines like credit, but also the Life and Health Reinsurance business has grown. 2nd, our so called transformation program, which intends to reduce resources in the traditional reinsurance, the more transactional reinsurance, while at the same time established a global single risk unit, thus increasing the focus on that type of business and again reducing complexity. Some of our innovation investments are showing very encouraging progress. So for example, digital partners were already productive in 2018. In 2019, they have doubled business volumes. Cyber has grown by 27% as anticipated, but it's a strong success. And our ambition to partner in the Canadian Group Life market together with incumbent clients and TPAs, is generating new income streams and is scaling up now. On the Ergo side, if you look on Slide 6, practically Ergo is improving under all metrics and delivering on its strategic pillars. And we actually expect Ergo by the end of this year to successfully finish the so called Ergo strategy program. And by then, sales of Ergo will have further increased. They started increasing already 2018, more so 2019 and mainly due to a very massive productivity increase at the end of the tight agents distribution network. Ergo International Consolidation is finished with the sale of 18 companies. And we've talked about automation. We have talked about Nexible. I think on previous occasions, on this occasion today, I'd like to highlight that Ergo has a minority stake in a startup called Next that you're aware of, which is targeting the U. S. Commercial lines business in the SME area, which is as you know a highly attractive and a fast growing market. If you look on Slide 7 then, during the past 2 years, we have to concede that market conditions have improved substantially in various markets, but mainly in select nat cut segments in the U. S, in Japan and in Latin America. And as you know, Nat Cat tends to be a more capital intense line of business. And this is exactly reflected on this slide that the risk capital consumption is growing faster than the business volumes. But this higher risk intensity is very well rewarded and is creating new value, which then is reflecting an increasing bottom line IFRS results. And on the investment side, we have been also making very good progress. For 1, we wanted to establish one consistent investment strategy in the group and develop investment processes very much in line with industry best practice. And secondly, we seek improving our return risk profile and we do so by extending the number of asset classes mainly illiquid ones which still show attractive returns, but also manage more actively our portfolio and also use external asset managers where those are better or have larger scale than Merck. And as you all know, Slide 9, beside the pure financial view integrating sustainability criteria into our business strategies and the business processes is more and more important. What you see on this slide is, where we are standing and how we are standing on the basis of various metrics that we are applying for this. And we just want to send out the message that our ambition goes even further than that. And we have become member beginning of this year of so called net zero asset on an alliance seeking a climate neutral investment portfolio by 2,050. On Slide 10, you can see the evidence that in 2019, our total shareholder return was 44%, which makes Munich Re second best performer of the defined peer group of 4 globally leading reinsurers and 4 global primary insurers headquartered in Europe. And with a dividend of now €9.8 per share, the dividend payout increases to €1,400,000,000 And if you add to this the $1,000,000,000 share buyback, then we will practically cash back $2,400,000,000 to our shareholders. The outlook for 2020, you can see in a nutshell on Slide 11, it's mostly unchanged. I can keep it short and say €52,000,000,000 premiums, roughly 3% return on investment. We expect a €2,800,000,000 IFRS result and how that is split down into ergo and reinsurance, you can see on that slide, take the combined ratios only as an indication. I'm underlying this because we had those discussions. It's not sub promises, it's an indication. And on the life and health reinsurance side, we are €550,000,000 I will finish my remarks inviting you to attend our Investor Day on the 8th December in 2020. And on this occasion, we plan to inform you about any strategic initiatives that we are planning and what the financial ambition is that we will have beyond 2020. And I'd like to also add before that date, I would understand if you have questions of what the trend is, but please forgive us on the 8th only, we will give you all the answers. Thank you so far. And with this, I hand over to Christoph. Thank you, Joachim. Good afternoon also from my side. I will give you a short overview of our current finance and risk topics starting on Page 14. We are very pleased with the 2019 financial performance, particularly as we had to digest very high random large losses in Q4. This IFRS result of €2,700,000,000 we are showing this is clearly above our initial guidance of the year. And what were the drivers? First of all, the earnings growth in reinsurance, where we're able to improve our underlying chemo combined ratio to a level of 98% to 99 percent now this year. Just to remind you, the underlying combined ratio is the normalized combined ratio where we take out some one offs, where we think that they are not representative for the operating performance of the respective year. Cargo, once ahead, is ahead of its target and delivered nicely, more than in line with the ESP program. And then on top of that, the strong investment result we were having were nicely showing an increased investment result. But on top of that, our unrealized gains increased significantly a total return of 7.7%. German GAAP earnings came in lower mainly due to the replenishment of the equalization provision and some higher tax expenses in German GAAP only. Our stock of distributable earnings, and this is important now, our stock of distributable earnings supports the dividend increase as well as the share buyback easily. Our economic capitalization with a 72 ratio of 237% continues to be very strong. And I remind you that in these figures, we already deducted the share buyback and the dividend. And this despite the fact that interest rates have been declining and we have got in our book substantially. I'd like to particularly highlight the economic earnings of above €7,000,000,000 in 2019, which indeed have been exceptionally high and we're able to more than compensate the growth as well as interest rate driven increase of the required capital. On Page 15, then some details on the Q4 results and the major drivers. I'd like to start with the operating results, not on the slide, but maybe a comment on the operating result. We achieved €580,000,000 operating result, where the consensus was €588,000,000 So on the operating result level, we were really meeting the consensus very precisely. Only on the net income level, there's a deviation between the consensus and the net income, mostly driven to the FX developments we saw in the Q4 where the positive development on the FX side until Q3 was taken back to a large extent. Looking at the net income, the reinsurance contributed €116,000,000 to the net income. Ergo contributed €101,000,000 and with that, fully in line with the run rate for the full year. Reinsurance was affected by high large losses in the Q4. I mentioned that already. And then on top of that, we strengthened assumptions for our Australian Life business by approximately 200 €1,000,000 This is reflected in the technical result and especially the combined ratio in P and C shows this that the high large losses with the major loss ratio of 27.4%. The other combined ratios continue to be very low. Maybe one more personal remark on the Life and Health re technical result. This came in substantially higher than I would have or I would have personally expected with a full year result of 456, we are pretty close to the 500, where we did warn you throughout the year that it's probably not no longer possible to get close or to achieve the €500,000,000 that we are that close more at the year end given the fact that we increased those by this €200,000,000 is exceptionally good in my view and has to do with an outperformance of our expectations in more or less all markets, except Australia. On the investment results side, return on investment, 3.1% in the quarter, pretty consistent with the 3.2 for the full year. The reinvestment yield into Q4 was a little bit lower than in the other three quarters of the year due to investments into shorter duration securities. On the next slide, I'd like to talk a little bit about our balance sheet strength. On top of our high earnings level in 2019, our balance sheet strength continued to be very strong. You know that generally our practice is that we try to be very prudent in reserving and have a very stringent risk management approach to protect earnings, especially in times of elevated volatility. So let's start with reserving on the left hand side of the slide. You know that our prudent setting of reserves unwinds over time, leading to releases, which then support the financial results of the respective year. In 2019, we were able to release 5.6 percentage points, despite significant reserve strengthening we had to do for U. S. Casualty. And still, and this is important, I'd like to underline that, still our reserve strength overall remains unchanged. On the investment side, our defensive investment portfolio and the ILM have been the basis for delivering again a stable investment return despite the low interest rate environment. We have €33,000,000,000 of unrealized gains now. And there is kind of a normal course of things that part of these reserves are being realized. We try to be as reluctant as possible with that. But still, also this year, again, these realizations overcompensated the losses we had on derivatives for hedging purposes. Finally, taxes. Very quickly, the other reserving approach is pretty similar to what we do on the claim side. So initial reserves are being said prudently. And once the topics are clarified, usually, we can enjoy releases from tax reserves as well. That's something which happened in 2019 again. And therefore, the tax rate of 15% was pretty low due to some releases we were able to make, while at the same time, the overall tax reserve position is unchanged. On Page 17, some more details on P and C reserving. Overall, I mentioned that already, but again, very favorable reserve development. But the U. S. Casualty trend is something which we see in the whole market and the whole industry. And of course, we are also concerned about some of the developments we are seeing there. For our own large and diversified U. S. Portfolio, it's important to distinguish between different areas. And in some of these areas, we have observed adverse development, particularly in the commercial liability space. And wherever we saw that and very much in line with our prudent reserving approach, we immediately and very significantly strengthened the reserves in 2019 after having taken action in 2017 already and also in 2018. So this is nothing new at all. It's just the usual course of things that we react wherever we think it's necessary. On the other hand, there are other books in our portfolio like personal lines, where we did see a pretty normal development. And overall, our casualty book is quite satisfying. Furthermore, developments in asbestos as well as workers' comp has been favorable in 2019. So overall, on aggregate level, another year underlining our strong and very solid reserve positions in an environment with quite some issues in the industry and as I said, also in some of our books. But and that's again important to notice, as already in 2018 2017, the positive developments overcompensated easily all the reserve strengthening, which we had to make in some of our books. And with that, we were able to on top of just compensating the pockets where we had to take action. On top of that, we were able to release 5.6 percentage points our net earned premiums this year, on average 5.4% over the last 7 years, and this is clearly satisfactory. On the next page, the focus on the investment result. For last couple of years, we were impacted by the low interest rates quite heavily. But that's what you can see on the slide, our investment return proved to be pretty stable. These stable returns are a result out of our well balanced, long duration, high quality investment portfolio, including managing some of the risks with derivatives. And then, of course, to some extent, it's unavoidable that, that reserves are being realized. We do so only in case really we need to do that like for financing the ZZR at Ergo or for ALM purposes, where it's really where we feel very much under pressure to take action to optimize our ALM position. On top of that, the day to day portfolio turnover, of course, sometimes it's really unavoidable to realize something because there's nearly any security left in our portfolio without any unrealized gains. Out of these realizations, we think the impact for the future on the running yield will be minus 5 basis points roughly. There's another effect of minus 5 basis points from the lower reinvestment yield or the lower investment yield in the environment right now compared to what we have in the book. And so overall, the attrition is expected to be minus 10 basis points. But then also we are investing in non fixed income securities like infrastructure, like private equity, like real estate, which also helps us to partly at least compensate the negative attrition we have in our book. Page 19, a quick view on local GAAP. The local GAAP result of €1,500,000,000 is lower than the capital repatriation in 2019. The main driver here is the significant contribution to the equalization provision despite a year with very high losses. You know that generally our local GAAP result is protected against volatility and stabilized by this equalization provision. But of course, then the flip side is that we eventually have to refill it. And especially in 2019, the replenishment was pretty significant. If I would adjust for this replenishment of the equalization provision and some tax effects, local GAAP would have covered the capital repatriation. These differences we have between local GAAP, IFRS, economic earnings, which are much higher than IFRS, this is something and you know that, of course, which is just a natural thing with different accounting standards in place and just shows timing differences. So the money is not gone. It's just being recognized at a different point in time in our P and L statement. And therefore, it's just a different distribution of earnings over time. The economic progress and the economic beneficial year we had in 2019 is not affected by that. For 2020, similar to IFRS, we expect local GAAP to be above the 2019 level. Page 20, the Solvency II ratio, largely stable and still pretty high above the optimal range, 237%. And this includes already the deduction of the share buyback and of the dividend. And for the first time, we have been applying the volatility adjustment for some of the agro entities, which we think is an important step to improve the comparability to our peers. The impact on the ratio is 6 percentage points only, so there was not nearly a necessity to do so, but we think comparability is important here. There have been many debates around our capitalization in the past. Of course, for some years, we have been asked why we are not more active in bringing the ratio down. In Q3, the other hand, we have been asked what would happen if we would then finally be at 220 or even below that. I can only say we feel very comfortable with the current level of capital we have. We were able to absorb the pressure from the low interest rates quite nicely. We were able to finance our growth and we were able to deliver a strong operating performance, which was easily compensating the growth and interest rate driven SCR increase. More details on the sources of earnings will be provided with the disclosure of our annual report March 18. Page 21, a quick view on the SCR increase. The increase was almost €3,000,000,000 across all risk categories, major drivers, business growth and reinsurance in line with the risk bearing capacity, which also was increasing. On top of that, the decline of the interest rates, of course, and also currency effects. Overall, we were able to further improve our risk profile because the insurance risks now even more clearly exceed the investment risks than a year ago. We have now EUR 15.2 billion of insurance risks versus EUR 14.3 billion on the investment side. So we continue to be in a very sweet spot with respect to our risk profile. On my last page, then 22, only quickly some CFO housekeeping remarks. To improve the ability and the consistency across our segments and also with peers, we decided to change our disclosure in 2020 in some limited aspects. We'll firstly concentrate more on the IFRS return on equity going forward and discontinue to present the RORAC. Secondly, we will harmonize the definitions for admin and other operating costs between reinsurance and Ergo and will thereby move the reinsurance also somewhat closer to what market practices for some of our peers. By doing so, our P and C combined ratio will decrease by 0.5 to 1 percentage points. And then finally, we will move other costs at Ergo from non operating to operating to have a clear distinction between operating and non operating result components and to give you a little bit more transparency on that going forward. That's it from my side. Thank you for your attention. And with that, I'm happy to hand it over to Markus. Thank you, Christoph. I am very happy to present you the 2019 results of Ergo. I repeat what you are in many set. This is the last year, 2020, of our Ergo strategy program. So 2019 was the 2nd last year. And if you look at the development, I think we can be very happy across the board and can look at this as a confirmation that we are well on track to achieve our ESP targets by the end of this year. If you follow me on Page 24, you basically have the standard array of KPIs that we have presented to you from the beginning. And I'm happy to report that they are all at target or even better than what we anticipated. There is a growth in premiums. You see that in the next couple of slides, which is widely dispersed around all our companies. We have an, again, increased profit of €440,000,000 after €412,000,000 in 2018. The investments now for the first time in 2019 were higher than budgeted on the isolated 2019 year. We had a quarter of 117%. And we can we are now confident to say that we will achieve 20,000,000 The total €20,000,000 The total cost savings come in as planned. Current status is €234,000,000 and the combined ratio of P&C Germany, obviously, one of our key KPIs, is now already down to 92.3%, which is pretty much on target as per 2020 already. The following page introduces again to you the progress that we've made according to the way we structure our business between Germany digital business and the international business. Now you know most of that, that's why I will again focus only on the highlights. In Germany, we have yet another year of increased sales. The sale increase year over year is 6%. The productivity of our tight agents, which is one of the key leading KPIs when it comes to customer orientation and profit orientation, 18%. Another year of 18% productivity increase is really remarkable, and it shows that we are very well underway in the sales area. We have now integrated our brands into Ergo, launched a new website, which shows this integrated approach. So what used to be a concept now has become reality in Germany, and the numbers speak for themselves. On the digital venture side, we are going one step further with Nexibil. We have 23% growth in our pure digital player. We are now focusing very stringently on process automation and optimization because, as you remember, medium term, this should be a very, very scalable organization with very low administration costs. So one of the housekeeping items here is to make sure now that we have a critical mass clients, 100,000 risks, that we really streamline the processes as much as possible before we scale up further. Good progress in Ergo Mobility Solutions as well as in robotics. I think an interesting KPI is here that every 2 weeks, we come up with a new robotic solution that substitutes repetitive tasks by technology and thus increasingly substitutes manpower by technology. On the international side, I'm happy to reemphasize what Joachim said. The portfolio consolidation optimization phase is over. Technically, we acknowledge in the footnote that closings will take place during 2020, but it's all being negotiated and signed. We have now very stable situation in which the core markets are well positioned and where we also have a growing franchise, both in China and obviously in India. I'll come to that in a second. And I'm very happy that we have now a strong and I'd say with low volatility affected kind of net income on the international side. Technology is one of the key drivers, and I'm very happy that I could write down a couple of interesting sentences for you. Basically, we are much more better in providing digital solutions and digital assets throughout the group. We work on portability of digital assets, and we use them primarily on the sales side when it comes to using them for pure omnichannel behavior on the customer side. Now there are a couple of numbers with slides, which I under still numbers, which I understand that Christian Becker Hussong has already related to you the key information. So again, I'll be very The only number that is negative compared to the last year, The only number that is negative compared to the last year is the Life number. Here, you have to bear in mind that we obviously have the runoff effect of the back book, which is still more significant than the new business in the new book, as expected, I can say. And also on Life Germany, we last year had a one very significant positive one off effect, which we didn't have again in 2019 and still EUR 187,000,000 net profit is a very interesting number. The other thing I'd like to comment is on the international net income. We had in 2019, 50,000,000 €50,000,000 of adverse effects because of the portfolio optimization, and we will still be able to achieve €105,000,000 net income in this segment, which is very positive. If I look at the combined ratios, it's 94.3%, which is a record low on the international business. The combined ratio in Germany has come down. So these are very nice set of KPIs. If you go into the segments and starting with Life, the new book now accounts for 20% of the overall share of Life Germany. It is composed of 49% biometric and 90%, 59% capital market related. As you recall, we will build a book with low interest rate sensitivity, and we are well underway. What I find very pleasing is that our products are very well accepted both with the clients and with our distribution partners. And a testament of this is the 29% growth in 2019 over 2018. You remember also from our previous discussions that we had notable deficits in the IT in the back book. And it's too early to claim our efforts a success, but I'm very positive that the migration of the first tranche, which will be a quarter of all of our €6,000,000 policies, will take place this summer, probably in July. And we are very happy that the preparations are going very well. So when we talk next time, I can talk to you about the results. But already currently, you'll find me quite optimistic with regards to the IT migration on the back book. The following page deals with La Ebixis Health. And you know that in Health, we have a pretty strong position in Germany. We are number 2 in the comprehensive insurance and number 1 in the supplementary insurance. The number of insured persons, which we use as a KPI, has again increased by another 60,000 to 5,231,000, which gives us a market share of a little over 21%, which is a strong leadership position. The composition of the book is also good. We have now 32% of supplementary insurance as opposed to roughly 30% 4 years ago. So it is going into the right direction, and we are very happy about this. On the P and C side, I can report 2 positive things. As you might recall in 2016, when you asked us what is the expected growth rate that you could give us in terms of a compound annual growth rate on the premium of P and C, I reluctantly said 2%, because I knew that there were a lot of portfolio cleansing that need to be done. I can happily report now that we have achieved 3.1% since the beginning of the program and in the last year even 3.6%, which technically is a growth above the market. And I think it's too early to tell whether this is a trend, but it's very clear that this positive development in P and C Insurance has come together with a higher growth than anticipated, which is plusminus around the market growth, plus a significantly increased profitability, as you see on the right hand side. And that obviously is a very strong message. On the right hand side, you see the combined ratio. It's now down to 92 0.3%. Out of the 4% that we've promised to achieve an improvement in expense ratio, we now have cashed in, so to speak, more than 3%. So 3 quarters of the way is already accomplished. We will lose we'll get the last quarter in 2020. And also the claims ratio has significantly come down. So I think that is a very strong combined ratio that we can present. The last picture of mine deals with the international portfolio, and I have already said most of the things that are on the slides. The only thing I would like to say again is that we have a very interesting triangle of observations. We have growth in premiums. We have better technical results. And we have cost savings, which makes me personally optimistic that this strong performance is not only a one off, but we have created the basis now into a strong performance for the medium term. And you see this, for example, also in our growth markets on the lower right hand side, where we have been able to achieve a compound annual growth rate of 30%, reaching now €700,000,000 and that is only for the roughly 49% that we have and 50% that we have in those markets. So that is now already part of a significant level of our overall premiums in the international business. My summary is, Ergo is well underway. We have yet another year where we have outperformed our targets. You can rest assured that we will be extremely focused for 2020 to drive home and bring home the ESP fully, and that would then translate into €530,000,000 net profit. That was was the target that we set ourselves in 2015. And you will today see me very confident that we'll be able to achieve that. And with that, I hand over to Thorsten. Okay. Thank you very much, Markus, and good afternoon, ladies and gentlemen. In my short presentation, I will try to cover 3 parts. I come back to the 2019 results, give some insights. In my second part, I will discuss the January 1 renewal. And in my 3rd part, the strategic particularly innovation initiatives. I'm on Slide 32. That is the property and casualty business in 2019. Don't want to repeat all the figures. Overall result was very satisfactory, more than €1,500,000,000 However, technical performance with a combined ratio of 101% for the full year was behind expectation. Christoph mentioned that was only driven by a very high nat cut loss experience, but also large single losses were above expectation. Overall, the large loss and cut ratio was 15.2%, 3.2% above our 12% average expectation. To some extent, you could ask why was Hagibis, the Japanese loss, with €780,000,000 higher than the JV before? That has to do to some extent with the region, but even more so with our risk appetite. After 2018, after JB and Tommy, the terms in Japan improved and we increased our risk appetite in 2019. In hindsight, you can say at the wrong time, right, But on the basis of much better terms than in the years before. Reserves, Christoph mentioned that already. Overall reserve level is in line with, I would say, the last 10 years before, very satisfactory. Despite we have to take action and took action in some of the U. S. Segments. And I will come later to the United States Casualty Business and will give some more insight about that. When I compare, let's say, the volatility from cat and large single manmade losses on one hand and then compared with a very satisfactory reserve level in the overall book in 2019, my judgment would be volatility is at the end of our business. You can say, of course, we don't like it, but it's our business that we are there for. We write this and should justify this business as long as it stays in our risk appetite and as long as our models are right. For all the large loss events and the cat events in 2019, we have no reason to believe that any of our assumptions is violated or not met. So these cat losses and large single risk losses do occur. And of course, we have to make sure that we get the right premium for that and get improvements. Reserve problems are more problematic, and we are very happy that we have a very conservative policy in place and take immediately action, which helps us, so to speak, to manage our overall portfolio immediately. Karsten also mentioned the underlying combined ratio. Underlying is between 98%, 99%. That is slightly above our 97%, which we expected to achieve. And you can say why is it still above? Yes, there is some noise in the underlying figures, but there is one major reason. And that is also because of the adverse development in the U. S. Business, we decided basically to have more conservative loss picks in the current underwriting year. So that means what we saw and see from the past has an immediate impact on our assumption also in the current underwriting year, which of course moves the combined ratio, the underlying combined ratio slightly up. Considering the changes in the allocation of the admin cost ratio, but also considering the rate change, the positive rate change I will report later from the renewal, these two factors will change our assumption. And we think in 2020, we are confident to achieve the 97%. Next slide, that is the Life business, €450,000,000 Christoph mentioned that, almost achieved our €500,000,000 targets. All continents, all regions in the world delivered very well. The only regions where we're still struggling and took a reserve hit of €200,000,000 was Australia. So that means if you take the assumption, that is my assumption, that Australia for the time being is well reserved, then I think there's a realistic chance to meet the target. And this is also the reason why we decided to increase it. I skip the next slide, Slide 34, where you see our 3 major pillars in our strategy, reinsurance business, risk solutions and innovation, and come back to life and health. And in life and health, I would only like to underline that all the continents and what are the major markets, it's Canada, United States, Continental Europe, UK and Asia, all these markets have very, very strong growth and profitable growth. That is good. And the only market where we don't grow business, we hardly write any new business, is Australia today. And in Australia, because of disability problems in that market, our focus is really claims management and restructuring and repricing of existing treaties. So it means in all other markets, the world is pretty good for us and that is the reason again why we increased the target to €550,000,000 which you see on slide 36. Slide 37, and these are the January renewals. January renewals, 1st, I'll try to describe the market environment. There was, of course, a high expectation before the renewal started that we will see and have to see better terms and better pricing conditions. Why? Because we had in the 3rd year an extraordinary development of cat losses and large man made losses, 2017 the HIM losses, 2018 the Japanese losses, 2019 again Japan plus aviation and space losses. And then the whole market has to struggle with these reserve problems in the United States. Social inflation is the key word here. And with this expectation, of course, we went into the renewal. And in a nutshell, I would say, the market environment did really further improve. That is a given. So the market environment is much more positive than in the years before. However, you can ask, is this now a global hard market? No, it is not. It's not a global hard market. In markets like Europe and in Asia, and I exclude here Japan, Japan is up for renewal in April only. Europe and Asia, the market is not a hard market. It's a kind of flattish market, I would say. It's not soft or softer than before, but it's a kind of flattish market. It does not participate in the improvements of United States and Cat affected business. Which are the segments which really helped us to improve the rates? That is cat business in affected regions, particularly United States, Bermuda, Japan again will come later, then the specialty lines, aviation, space and the large industrial business, And then the whole U. S. Primary and reinsurance market does improve considerably. So and in this, of course, positive market environment, there are good chances for us to improve our profitability and also take advantage to grow our portfolio. But it's not an approach you could or should take that you say, now I open the gates and really want to grow everywhere in the world, it would not be the right approach, we are very confident here. On Slide 38, you see the Munich refiggers of the January renewal. Please remember, January is for us among the 3 renewal dates, the most important one in terms of size. At January 1, about 50% of our global P and C business was up for renewal. And what we achieved was 4.4% increase in our volume to €10,650,000,000 now. And this 4% after we decided voluntarily to give up more than 10% of our portfolio for price and profitability reasons, particularly in the United States. The rate change which we achieved was 1.2%, so much better than a year ago. And I would like to remind you this 1.2% is not easily comparable with all of our competitors and market figures these days. Why? Because our figure is a fully risk adjusted figure. Fully risk adjusted figure means we don't measure and report here the rate, the nominal rate change. What we monitor here is the risk adjusted rate change. It means it also includes our increased and more conservative assumptions regarding the loss picks in the new portfolio. That means when we see inflation trends, emerging losses also, when we see the need to adjust our cat models a bit reflecting the cat activity, then that is reflected in this rate change. And this is, in our opinion, a pretty good figure, which gives an indication about the possible improvement in terms of the margin and the combined ratio in 2020 2021. All lines of business showed a positive price change. So there's no exception, be it property, casualty, be it the specialty line. But in percentage wise, the biggest contribution came from the specialty lines. In the United States, particularly in the casualty business, we participate from the in the proportional business from the significant rate change in the market. We are still very conservative and almost reluctant to write non proportional business. So active portfolio management remains key. And if you ask me, my assumption, my feeling for the April renewal Japan is, of course, very positive after these 2 years of losses. Slide 39, only a short summary where did our growth come from between 2019 2018, smaller extent from the mature markets, there's a very big extent from the emerging markets and then also from risk solutions, which is in line with our priorities in our strategy. And Slide 40, I would like to give you a short remark or short feedback what you can expect from our appetite in the nat cut business on a global basis. Do we have an appetite to increase this further and further? The answer would be no. But we are considering our financial resources. We have, of course, financial resources available to write more cat business if and only if the terms are really attractive. And here on that slide, you see a few examples where we think this is the case or was already the case. That's United States, that is Japan and that is, for instance, the Caribbean market. Now I switch to the next slide, 41. And on that slide, because there's a lot of noise and discussion in the market about the U. S. Casualty business, we thought we'd give you some figures what we have in our books here. And you see here on that slide in the left part, the premium and the split of the premium of our global casualty business, so that is everything United States and all other markets, EUR 6,800,000,000. The more important part is on the right side, which causes the attention now that is the U. S. Book. And in the traditional casualty book, we have €2,700,000,000 And the €2,700,000,000 so it's an important part, but of course not the only part in the world. When you ask me where are the critical lines today in the United States, look on the circle on the right side. We think according to our analysis, all what is in the commercial liability proportion and non proportional, the 70 plus 6 percent part of the €2,700,000,000 This part is more exposed to the social inflation. Personal lines is less exposed. That is the remaining part. And when you look at our contribution in split in Commercial Lines, the highest exposure come according to our figures by far from the commercial liability non proportional business. That's a 6 percent here. What is the is there an explanation for that? What drives this feedback or this statement? The reason is pretty simple and we saw this pattern already when we had these reserve issues, remember 15 years ago, from the workers' comp book in the United States in the old American REIT, the non proportional book looks nice for a while. But if you run into an adverse trend, then once the priority retention is exceeded, then all further adverse development is asymmetrically distributed between seed and insurer and reinsurer and goes only into the reinsurance book. That is the reason why you see here such a small figure of 6% only. And our risk appetite has not changed. Even in an improving market today, and I admit, even the commercial liability excess of loss book has improving terms today, Our risk appetite will not and has not changed. We keep this segment very, very small. So how do we react here? And I indicated that already. Whenever we see the smallest change, so to speak, of adverse development in one of the segments, we first address it with 2 measures: 1st in our reserve book second in a more conservative loss fix in the underwriting policy. And then, of course, we have an, let's say, underwriting target portfolio defined. And this target portfolio focuses more on personal lines business and less so on commercial liability. And we gave up almost €700,000,000 premium in particularly coming from this segment because we think our concern are not so much our reserves. Our concern is the uncertainty in the new business. We still don't know, and I say in spite of all the improvements in the underlying markets, we still don't know whether the premium and rate increases are sufficient. I admit they are much better in the years before. But are they sufficient considering the loss trend or not? We don't know yet. And for that reason, we are very selective in our underwriting, focus more on personal lines and commercial liability more on the proportional book. On the next Slide 42, risk solutions, that is our specialty insurance book, which grew very nicely from €4,300,000,000 to €5,000,000,000 now, which is a very nice increase. Combined ratio is elevated, but not because of poor underwriting underlying combined ratio or performance, but only because we had to digest the large losses, particularly from aviation and from our space business. We are market leader in space. We had around 5 satellite losses last year, Our share is between $0.20 to $0.25 in these losses. So that explains it. Particularly pleasing were the results from American Modern. And here you see it all from facultative and corporate, where we have excellent combined ratio in American Modern, 88%. At the same time, 17% growth. Is more property book what they entertain. Facultative and corporate is a very volatile and very cyclical business. All the 93%, that's a larger industrial business, which does not cause any concerns in our book. HSP is not on the list. Hartford, steamroller is as good as always, 92% combined ratio. Slide 43, it's basically an update of our innovation portfolio and of our strategies. You see here the 3 segments on that slide on the left side, some examples how we try to change or to build business models which change the value chain. Examples are our digital partners, what was already mentioned by Joachim Wenning, where our premium volume in the meantime grew to €200,000,000 IoT, Internet of Things, which is more a service model and where we just founded a joint venture with the car manufacturer Porsche and Munich Renew Ventures, which I'll come back to that in a minute. In the middle part, extending the boundaries of insurability, that is basically new product and services, cyber, I will also come back to that. And on the right side, data driven solutions, that is something like underwriting engines based on artificial intelligence, etcetera. I want to give you an example where we stand on the platform business, Slide 44. And we took this example of Munich Renew Ventures. Munich Renew Ventures is a Canadian business model done by our developed by our life and health colleagues there. And what they do is and what they want to do is they want to basically look for opportunities in the very big and very profitable Canadian group insurance market. That is a market which is performing well, but in terms of processes and services, although not on the best level. And what they built is they built a digital platform called Parachute. And this Parachute platform basically manage all the processes, manage the distribution, manages the admin services and pricing. And they cooperate with this platform together with insurance companies, but also with 3rd party administrators. And we have then 2 options. You see that here. Either we take part in that business via quota share behind the traditional sealants, which use our platform, or we use it directly behind the TPAs and pursue the direct business model. Why is that important? I mean, it has been developed for a number of years. We are in the market with this business model. The feedback is extremely positive. And what we expect is midterm, midterm when you ask me next around 5 to 6 years or so to make an income in the order of €100,000,000 So that gives a kind of indication for the potential of that business model. On the next slide, an update on our cyber business. Cyber business leads always to controversial discussions. On one hand, we all see there's a big ongoing demand. Why our world is connected? More and more of our commercial end customers see the need to protect their infrastructure, of course, by using technology, but also by insurance products, by buying insurance. And we are absolutely of the opinion that our industry, and that includes us, of course, have to find solutions to serve these customers. Major market is still the United States, which is about 80%, 85%. But more and more of that business comes from non U. S. Markets like Europe and Asia. And we were successful to grow our portfolio in line with the underlying market. Our premium volume is around the $600,000,000 by end of 2019, and our profitability is very good. It's a combined ratio over the last 4, 5 years in the order of 80% to 85%. And you can always ask the question, do you really know what you do? Difficult question because it's a young segment. And what we do is really, first of all, we build internal expertise. We hire external expertise from outside. We have approximately 100 FT feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet now in the company who really are kind of specialists, know how that business and how the technology works. And we use a lot of experts to permanently improve and enhance our pricing models, but also in particularly our accumulation models. Risk management is key in that business. And that comes on top, we think because it's a very technology driven business model, we cooperate with many, many companies, including companies which like Team 8 from Israel, which has their expertise from the, how should I call it, cyber or from the intelligence or cyber intelligence. You know what I mean, these guys. So the good hackers in my words. And of course, they give permanently good feedback and help us to build also service business models for our customers. So that is, in other words, a careful approach. We know that is permanently changing. But on the other hand, we are still of the opinion that we have to serve the market here and are undisputed market leader. So at this slide, I would like to finish maybe with a comment reinsurance expectation in terms of profitability, but also selected growth looks better. In 2020, it's not a global hard market, but we are in a position to entertain the business and have no issues on the reserving side. Thank you very much. Thank you, gentlemen. We will now start with the Q and A. So may I please remind you to limit the number of your questions to a maximum of 2 questions per person in order to give all of you a fair chance to participate in the Q and A. So thank you and back to Tracey, please go ahead. Thank you, Firstly, on the HGB result on Slide 19, I'm just a bit surprised to see around the strong increase in equalization results despite heavy losses in 2019. I know you've touched upon that topic briefly in your opening remarks, but it's the same amount as we've seen in 2018. So rephrasing the question a bit, if the large losses in 2020 are in line with the budget, does it imply that you'll have to fill that bucket even more? So that's question 1. 2nd is on the group's investment portfolio, where I see the share of equity investments has grown despite strong disposal gains in the Q4. That's on Slide 61. Now given what's happening in the markets today and your rather conservative impairment policy, what's your comfort level with respect to the SEK 2,800,000,000 net income guidance for this year, especially from the in terms of equity market downturn? Thank you. Thank you, Vikram, for your questions. Christoph here. I'll take both of yours. The first one, the difficult thing with the equalization provision is the following. It's not a simple formula looking at the overall book we have, but it's really sliced according to different lines of business. And when we are looking, for example, at the large cut claims, they more or less all affected the German GAAP line, which is called fire. And in that particular line, we did not have to replenish this year. In that particular line, due to the high losses, nothing really happened. But then at the same time, in other lines, German GAAP lines, that's not the lines we're usually talking about, in other German GAAP lines, we had favorable developments, which then led to the fact that we had to increase the equalization provision. And so it depends very much not only on your technical result overall according to German GAAP, so pretty much on how it's sliced according to different lines of business and how big is the volatility in these particular lines compared to their 15 year average, what we saw there in the past. And that makes it so difficult to predict the development because it's not depending just on one key KPI, but really on a variety and different factors, which might also change throughout the year. And so this equalization provision is also some whole a little bit more difficult to predict than other positions we have. And therefore, we increased this year comparatively high despite the fact we have the large cut claims, but coming from other lines where we had the replenishment in the last couple of years. Equity investments. Indeed, we slightly increased equity investments throughout the last year, also nicely benefiting from that in the earnings, but even more on the unrealized gain side. So the unrealized gains increased to €1,800,000,000 on the equities last year. And this is a pretty nice buffer we still have. And on top of that, we are positioned a little bit more conservatively as we speak. And we have some derivative protection, as you know, in some of our books for ALM reasons anyway. So having said that, I wouldn't say we are unaffected by the reduction of our by the development within the stock markets. But we can be, let's say, pretty relaxed when it comes to the achievement of our year end target or year end guidance because there's still so many moving parts and we have a certain level of protection in place anyway. So we are as Thorsten said before, our business is volatility that that's some additional part of volatility, but we are not concerned at this stage. We will now take our next question from Kamran Hassan from RBC. Please go ahead. 2 questions. The first one is just on the dividend. I guess we've had a good progression towards earnings, EUR 2,300,000,000 to EUR 2,500,000,000 next year, 2.8. The dividend seems to be slightly lagging in that earnings growth. So I'm just wondering whether we might see some kind of catch up next year or any thoughts around that. And does an improved German GAAP result hopefully next year influence that decision in any way? And the second question is on the Tokyo Olympics. Saw the headlines on the tape about the triple digit million number potential. Could you talk about whether that's in reinsurance or whether that's in the primary parts of the business? And then potentially in the reinsurance book, is there any kind of are there any aggregation concerns that you have around coronavirus or even the Olympics? Yes. Christoph again here. On the dividend, we did show a dividend increase today. We did announce a proposal which is an increase. I'm not sure if it's really lagging behind. I think it's pretty much in line also with consensus. We never said it's going to proportionally follow the earnings increase from €2,300,000,000 to €2,800,000,000 But due to the fact that the lower boundary of the dividend or that we never had to reduce it in the past, so this floor is pretty important to us. We cannot just increase it proportionally because we have to make sure also at a level of safety as a downside protection. Therefore, under proportional dividend growth, I think we delivered on that. And so I don't see any lagging behind here, I must say. Okay. I take this question, if I understood you correctly, accumulation risk from event cancellations. And I think you referred to the current pandemic situation or so. That's my assumption. What I can't do then I give you some figures. What I can't do is to give you specific figures for a single event because they fall under non disclosure situations and agreements with the client. Here, I can't give you figures like Olympic event or so this year in Tokyo. But as an indication or before I do that, event cancellation takes place for sports events, takes place for exhibitions, takes place for concerts and whatever. So there are many things. But not it depends on the cover, on the policy, whether this event includes pandemic events, cancellation because of pandemic events or not. Both is possible. Depends on the single and both is very common, by the way. When we look at our portfolio and would take a scenario where all possible events which are thinkable this year, all fairs, all concerts and big events, small events would materialize, which have such a coverage for pandemic events. Then our kind of exposure range would be in the kind of middle, medium, triple digit million range or so. So that is €500,000,000 plus at the end. So in that range, that is a kind of is it a worst case? It's not really a worst case because you always have a bit unknown treaty exposure, but the kind of good indication is many events are really canceled during the year, which has this kind of coverage. Okay. Thanks for the color. We will now take our next question from Jonny Urwin from UBS. Please go ahead. Hi, there. Thanks. So first question, I was just wondering if you could please provide us a walk about how you see the walk from the 2019 normalized combined ratio to the 2020 guidance. So in particular, I'm interested in just thinking of hearing how you're thinking about loss ratio improvement, expense ratio improvement and then the accounting change as well? Thank you. Then secondly, just going back to the Casualty current year loss fixed strengthening. Can you just give us an idea of where you are in terms of reserving level on that book? Is it in line with the reserving strength at the group level? Is it lower? Is it higher? Thank you. Yes. Thanks, Johnny. First of all, the walk of the NCR, I think that's pretty straightforward. Underlying comment ratio, we said we were between 98% 99%, the normalized 99.3%, but then you take out some one off kind of costs and then you'll be at this level of 90 8% to 99%. This is 2019. Now the walk to 20%. First of all, if we look at the oneone renewal and the renewals to come, this already will give us about a percentage point or something as a reduction. And on top of that, this €97,000,000 next year includes the new cost definition, which is another 0.5% to 1% depending on which kind of costs are finally occurring than during the year. And that's pretty much the walk. So there is no miracle or something to need here. It's really pretty much the development we see in the market and in connection with our book we have currently. Casualty, the reserve position. As I said, as soon as we see indications which are adverse, we react immediately in line with our general reserving strategy, which means that we also react not only immediately, but also drastically if needed. But of course, it doesn't necessarily mean that for all times in the future reserve level are already good enough because we cannot predict how the future evolvement and how social inflation is going to further develop in the future. So to the best of our knowledge today, we did reserve these books according to our usual general prudent practice, but you never know how the development in the future is going to be. Thank you. We will now take our next question from Andrew Ritchie from Autonomous. Please go ahead. Hi, there. First question, I think, is for Marcus. Could you just help us understand, I think you were implying if we were to normalize Ergo's result for 2019, we should add back €50,000,000 which was the disposal effect in international. So already you're running at say €490,000,000 €500,000,000 Is that a fair normalization? Is there anything else I should do? And also just where is the kind of biggest scope for remaining improvement? Because you're already running where you want to run-in P&C. Life, it looks hard to really shift our profitability given it's dominated by the back book. So is most of the upside from here in international still, clarify normalized earnings and where upside is. And my only second question on the U. S. Casualty thing, what actually was the impact of strengthening in 2019? In particular, when I look at your triangles, you had nearly €900,000,000 of adverse development in the 2018 accident year. I think most of that was Jebi or other cats. What was the casualty effect in that and the overall casualty negative U. S. Casualty negative PYD? Thank you, Andrew. On the normalized results, obviously, it's always hard to look at the normalization because you have positive and negative one offs. You are right in saying that I believe that in the international portfolio, I believe that the results on a normalized basis would be significantly higher, might be in the order of magnitude of €150,000,000 But I also have to say that we have positive one offs in other parts of the business, smaller ones, each in and of itself not being noteworthy. But we believe that they are in the order of magnitude of €30,000,000 to €40,000,000 So yes, the result is a little bit understated in general, not in terms of €50,000,000 So if you ask me, I'd say we are in the order of magnitude of €470,000,000 or €480,000,000 or something. But that's sort of the order of magnitude that I would be seeing. Further upside potential comes from still various sources. One source is that we still have 1 percentage point on the expense ratio to go. And we'll be realizing that because we are still in the last phase of our HR reduction. While we have negotiated with pretty much everybody more or less now their point of leaving, obviously, within 2020 and beyond, there will be people actually leaving, that will be certainly a positive factor. Also, I believe on the German sales side, with the current year on year growth, last year year on year growth is 6%. I'm not at liberty to disclose the current year on year growth number. But the way I look at it, it's not going to be low 6%. That's something which is also something which will create additional revenue potential. And then lastly, and probably most importantly, there are still over proportionally high investments planned in 2020 because it's the last year of this big investment phase. So if I look at all of this, I think the €530,000,000 is still an ambitious target. But yes, you are right, it is absolutely reachable, and we are committed to achieve it or even overachieve it. And then after this ESP, we will be looking at it strategically in the context of what Joachim was saying, the Munich Re strategy, and then we'll debate what kind of levers we see beyond that. I hope that clarifies the issue a little bit, Andrew. Thank you. Thanks. Your question on the casualty reserves, I'm happy to take that. Maybe we start with the accident year 2018. This one is pretty much driven by JV, but by far not only JV because there is negative runoff in there for many other single large losses in there as well in this figure. So the vast majority of this figure relates really to large losses, JB only being 1 and the most prominent one within these. There's also a certain portion of basic losses in that. But as I said, the majority really relates to the large loss piece, which overall across all years was neutral, just to make that pretty clear. So the 2018 year is just exceptional in the sense that in all other years, although the large losses did run off pretty positively and overall, and this was neutral. Your initial question was the level of casualty, was there a fraction we had to take? And there, I just have to apologize. We're usually not talking about sub portfolios, and we'd like to stick to that practice. Okay. Thanks. We'll wait for the triangles. We will now take our next question from Sami Taipalis from Goldman Sachs. Please go ahead. Yes. Hi. Thanks for taking my question. The first one is just on the growth of the P and C Reinsurance book. If I just listen to you talk, you sound reasonably cautious on, I guess, a couple of the major areas like U. S. Casualty space, but also the cat space, etcetera. Is it possible to just give any sort of insight into how you think about the growth potential of the aggregate business over the next year or so? I mean, I appreciate that it's going to come down to a lot to the pricing that you get, but it'd be great to hear about how you think about the potential there. Then the second question I have is just relating to the interest rate sensitivity of the business and I guess Ergo in particular. If I look at your UFR sensitivity, it's come down quite a lot year on year. It was about 7 percentage points to 50 bps move last year and now it's about 2. What's that driven by? Is it just you changed your hedging? And then also on this topic, how do you think about the potential reforms to Solvency II and the impact of that? And in particular, have you flawed interest rates at 0 in your calculation of the interest rate stress? Thank you. So Thorsten, let me start with your first question. I think I understood it correctly. You asked regarding the aggregate business or the cat aggregate business. No, sorry, the whole, the P and C Reinsurance portfolio in total and the potential for growth in that. Okay. I understand. So the total P and C business, let's say, I don't have a, let's say, line of business wise growth target here. I could not tell you because and by the way, we don't give that to our units and our units have not given that to them. It's basically a response to market environment, what they can achieve. That is why I sometimes say when the portfolio mix should change more towards cat business or more towards casualty business, that will, of course, also have an impact on our combined ratio, what happened in the past, by the way. So on the property book, my answer would be the following. On the proportional business, on the proportional business worldwide, our, let's say, appetite is unchanged, but our all the opportunities are also, let's say, a bit limited, I would say. The biggest opportunities for proportional growth are in the United States, where also we had some lot of these attritional losses, tornadoes and all this stuff, which benefit a bit of that. The specific growth potential in property comes from the cat business. And here, I say cat business only. And therefore, I asked the question before, aggregate business, which is also kind of cat business, but where you can aggregate the events, it's not a business for us. We have a few treaties, but we hardly entertain that. So the normal cat business is something we write. And here, I think our growth potential comes currently from 3 regions, 3 major regions. 1 is Caribbean and Latin America, the other one is the United States and the third one is Japan. Here, basically, the appetite is there. We have not really any limitations from the capital position. So we can take advantage of the market depending on the terms. Do I have an idea how much we can grow? No, not really. But it can probably be a medium sized, lower to medium sized triple digit million number in terms of premium or so. So around €100,000,000 €200,000,000 or so if you ask me. That is a good guess also. That is the best I can give you. Otherwise, it will be a result of the renewals at the end, and we don't pre decide that before the renewal starts. It's not the underwriting strategy behind. And outside the Again, but the most attractive environments are, Again, the most attractive environments are loss driven, of course, particularly Bermuda and Latin America, then Japan and then United States, these 3. The rest is okay ish, I would say, but not really improving. Great. Your question on interest rate sensitivity, I can think I can do that rather quickly. No real changes on the ARCO side. On the reinsurance side, we somewhat lengthened the duration during the last year. Overall, as you are mentioning already, our position is pretty well hedged. So 72, we have you. You probably know that there is an industry position where we have been also very active in contributing to that. Therefore, I don't think I have to go into much detail there because this industry position is pretty well aligned. Maybe only two remarks. One remark is that as a reinsurer for us, the risk margin is something which is of high importance. And especially the fact, if you are allowed to apply diversification to the risk margin or not. We currently are not allowed to do that. And this is clearly, given our global risk model and how important diversification is for us, clearly not an advantage in the current regime for us. And then maybe a more personal remark, because all these discussions about calibration and do you calibrate 1 risk upwards or downwards and then it's maybe all compensating or not. I personally think the most important aspect would be to have stability in the financial steering framework you have. And we are, on the other hand, also seeing that right now on the IFRS side, where also all the things are being discussed all the time. It's extremely exhausting for companies and to everybody to follow all these changes all the time. It costs a lot of money. And I think stability per se is an important value, which should not underestimate. And that's my personal remark on all these debates. If I could just follow-up very briefly on that. The change in the UFR sensitivity really is quite remarkable. And it's also, I think, notable that your the stress you apply for ergo for the interest rate sensitive, it's actually gone down year on year. If it's not that you've changed the hedging, what is it that has caused that change? I said we did not change the hedging strategy overall. Of course, there are always single transactions, which sometimes make a difference, but then the interest rate level again is a different one. We applied the volatility adjustment for the first time. That might play also. It's a variety of topics. But overall, we continue to be pretty well hedged. And all the rest, I would also say, is a little bit also moving upwards and downwards with the interest rate. Okay. Thank you. Can we have the next question, please? We will now take our next question from Michael Haidt from Commerzbank. Please go ahead. Good afternoon. Two questions. First on U. S. Casualty. You said that you have €2,700,000,000 annual gross premiums from your U. Per unit of risk exposure. So can you provide us maybe the per unit of risk exposure. So can you provide us maybe the corresponding reserve positions for these lines of business by proportional and non proportional? 2nd question, Japan. Obviously, over the past 2 years, you like your competitors incurred high losses from Japan 2018 2019, and the premiums that you collect from Japan were rather small compared to these losses. So my view is that price increases in this business of plus 10% or plus 20% would, by far, not be sufficient. So my question is what do you actually require in terms of price increases to further write this Japanese Nat Cat business? Okay. Thorsten here. I give you a short and a long answer. The short answer, Michael, is it was interesting you asked I have to smile a bit. You asked for more granularity in the U. S. Casualty segment. I think Christoph Jureka said we don't disclose further segment reserves also in general and would not like to start that here. I would only like to underline what Christophe said. Our reserve proportion, our prudency in this segment are exactly the same like in the rest of the business. Higher uncertainty is there because we don't know how the losses will develop over time in this market. So now the more precise answer regarding Japan. Japan, you are right. We had 2 losses now or 4 losses in 2 years, 2, 4 typhoon losses. Don't forget, please, that we didn't have any major typhoons over the last, I don't know, 30, no, 29 years. The last one I remember was in 1991. This was 1 year after I joined the Munich Resource for Zurich and Mireille. Since then, we had no big typhoon losses, hardly any. So no one complains about that. I admit that. Even we don't do it. And now your question, the premium looks very small. It has to look small because the business which brings these losses into the reinsurance market in our portfolio is almost exclusively non proportional cat business. There's not so much proportional business, so you don't can compare it with the primary insurance book where you have, let's say, relatively high premium related to the typhoon losses or storm losses or whatever that is. This is exclusively, almost exclusively a cat book. That means the cat book has, in relative terms, a small premium versus the capacity which you sell. On the other hand, it's non proportional. That means there are high retentions or noise or smaller events are not covered at all. And in that regard, the premium, the relationship between the premium which we charge under these kind of constructions and the limits we provide is absolutely comparable, probably even better than in other similar CAT books or cat portfolios in other parts of the world. So that is pretty normal. And this ratio between amount of loss and nominal premium, which we get for that, has, of course, to do with the return period, how often does such a loss occurrence occur, which triggers these kind of covers. And again, before these 2 years, it's 28 years back. And of course, that is exactly the kind of risk model or pricing model, which is behind the pricing method and how we calculate that, so to speak, and then of course, our cost margins and profit margins. But you cannot draw the conclusion that because of this ratio between premium and loss, we have to charge a very huge premium increase now. That would not be right. Return period are high. Give you an indication for JV, it's in the order of 30 years. For a kind of Hagee business, in the order of maybe 15 to 20 years or so. These are good figures, good estimations for that from our model. And that means you collect every year a certain portion of these kinds of event. And sometimes, you have bad luck and these events occur in 2 years. Yes? So that's how it works. So that is not a conclusion for us for price increases. However, I admit, of course, after such 2 years, we will also increase our price under these covers, but not for the reason you mentioned. So this is basically my view. Japan regarding profitability over a longer period has always been a very decent and attractive market for reinsurance and for us. Thank you. Thank you very much. Thank you. We will now take our next question from Ian Pearce from Credit Suisse. Please go ahead. Hi. Thank you. Just two quick ones for me. Firstly, on the 1 more renewals and the price move of 1.2%. Last week, we had a peer flagging quite big interest rate headwinds at the renewals. I'm wondering if you could talk to us about the overall economic profitability change you're seeing at your renewal. And then secondly, just on U. S. Casualty, where you talked about well, sorry, your exits from some of your lines, the €700,000,000 number, mainly related to U. S. Casualty seemingly. Could you talk to us as any expected headwind from further exits of certain portfolios in 2020? Economic profitability, you're right. We usually don't take it into account, but I would mention that economic profitability is slightly below 1%. And that takes into account, of course, a lower interest rate, which we took into the consideration in the Q4 of the year and which we used them for pricing purposes. In the meantime, so to speak, in hindsight, interest rates are have a bit recovered, have a bit improved. So that means slightly below 1%. It's still a good economic, let's say, round figure, if you want. So and now I have to ask the question, my colleagues, what was the second question here regarding the EUR 700,000,000? I didn't get it. Can you repeat that again? Yes, sure. It was just you flagged some portfolio exits walking away at 1one. And I just wondered if there's anything you sort of allocated to walk away from in the remainder of the year and if that's going to provide headwinds to top line? I can't tell. It's not, let's say, pre decided. As we didn't decide, so to speak, actively how much we want to give up in the January renewal, we said that that is unchanged. While the reserve is not my major problem, there's a big uncertainty in the pricing. And we have a kind of risk appetite or underwriting strategy in place, which focus on the commercial and here in particularly on the non proportional business. And how much we will give up, it's difficult to say. But considering, so to speak, the small premium which is left in that portfolio, you saw the figure, the 6%. And maybe you add some of the proportional figure on top. Yes, there is a potential that we give up maybe another amount, maybe a low triple digit amount or something like that. Again, it's not predetermined that is possible, but nothing which will basically severely impact our portfolio and will make the portfolio look very differently. That would be my answer. Okay, great. Thank you. We will now take a follow-up question from Vikram Gandhi from Societe Generale. Please go ahead. Hello. Hi. Thank you for the opportunity. 2 quick clarifications, please. On the changing approach on the cost allocation that is expected to help the P and C recombined ratio. Can you just tell us what the motivation was behind this change? And secondly, I appreciate there is a very limited transparency around RORAC. But since you steer the group on an economic basis, can I just ask what prompted the change from RORAC to ROE now? Thank you. Yes, of course, Vikram and Christoph here, I'm very happy to talk about that. Cost allocation first. We had a huge difference between what we do in the primary insurance versus reinsurance with respect to cost allocation. Whereas in reinsurance, we basically allocated all the costs we have into the admin expenses with a comparatively high portion in primary insurance, which we did allocate to other expenses, not into the admin. And there we thought it might be helpful for everybody to have a better comparability between our segments if we align that. And therefore, some of, for example, holding costs, group costs will no longer show up in reinsurance in the common ratio because basically they don't have anything to do with your voiding business in the reinsurance anyway. So in that sense, we clarify a little bit what we're doing and are up a little bit clearer in our disclosure with respect what is really related to the business and what are rather overhead costs like holding costs or stuff like that. So therefore, we think the transparency will increase. As far as we are aware, all of our peers are doing this similarly. So we have been, far as we know, the only ones allocating all the costs into the comment ratio, into the admin costs. And therefore, with a new approach where we take out roughly 0.5% to 1%, we still think that we are pretty much on the conservative side with in a sense that we do not take out a lot of the costs out of the admin. But we think that's a pretty reasonable amount given the holding costs we actually have. On the RORAC side, well, basically, we try to convince you for, I don't know, a decade now or so that not only you, but also all the other companies will follow us and also rely a little bit more on the RORAC externally. Us and also rely a little bit more on the RORAC externally. What happened is that nobody did actually. So we did never get any questions on the RORAC nor did we perceive any discussions around that. And all our peers are concentrating on the ROE. And as we think that the comparability in the disclosures of the different companies is absolutely key, we said now we're going also to focus more on the ROE because that seems to be the well accepted and consensus metrics everybody is looking at. That does not mean that internally we are not continuing to steer according to our economic principles, of course we do. And also internally for the underwriters writing the business, Aurora continues to be an important element in their assessment of a potential contract they are underwriting. But externally, we will try to be as comparable as possible to our peers, and that's why we focus on the ROE. Okay, okay. Just going back to the first question. So the overhead costs that are taken out of reinsurance, where will they appear then? Within ARGO? No, between in other expenses reinsurance, other operating expenses reinsurance. Okay. Okay. Got it. Thank you very much. Thank you. Next question please. We will now take our next question from Andreas Schafer from Lampe. Please go ahead. Thank you. So two questions from my side, please. The first question regarding German health insurance. You elaborated about the development in supplementary insurance. Could you give us some sort of indication how your insured persons develop in comprehensive insurance? I mean, it still makes up almost 70% of your premium base. And the second question, could you maybe give us after the turmoil in capital markets, a very rough estimate where your solvency ratio currently stands? Okay. This is Markus. I'll take the question on if I understood it correctly, we have sort of a bad connection here. Your question was on comprehensive insurance, right? Exactly. Very good. Well, on comprehensive insurance, we have an old book, not a back book, but an old book because the DKV is traditionally one of the largest German private insurer currently, we hold market position number 2. We have roughly around 750,000 comprehensively insured people. And because these are people who joined us decades ago, they are comparatively old. And given the fact that the access to private comprehensive insurance is limited because you need to fulfill certain criteria which have always gone up, pipeline of new people coming into the private insurance is, in the entire market, comparatively low compared to 10 years ago. So all of the companies which have a large client base traditionally have a hard time of basically retaining that client base because simply the portfolio is old in terms of the members. Our clients are old and the death is an over proportional factor in such an old client base that you have. And our rate is currently that we lose around 2% of our comprehensive insurance people every year. The year for 2019 was 2.2% or 15,000 comprehensively insured people. But given the fact that there is medical inflation and the premiums goes up, you see that the premium level ultimately also has risen in 2019. So we have a very large traditional book. I can also say it's very profitable. We consider this to be one of the most profitable health books in Germany. So it's a very healthy company in the best sense of the world. So we use that for profitability and for client orientation, obviously. We have very good values there. But the growth clearly comes from supplemental insurance and has been coming from supplemental insurance over the last couple of years. And where we are market leader with 21 plus percent and currently have €5,200,000 of supplementary insured clients. I hope that gives you some context on these numbers. Okay. Thank you. The real time Solvency II ratio, we don't have that, unfortunately. I can relate to Page 20 maybe. On Page 20 of my presentation, what you see there is sensitivities around our CET1 ratio of 2 37%. What you see there is that an equity market stress by 30% minus 30% would bring us down to 222%. Now the equity market stresses we are currently having is much less than 30%. It's probably rather 15 ish or something. So I don't know. My rule of thumb estimate would be, I don't know, between 225 and 230 as current solvency II ratio of the day. But I don't know. That's pretty much everything I can say to that question. We don't follow that on a day to day basis really. I got the impression that combining the drop in interest rates, drop in equity markets and increased spread in corporate bonds, I guess it must be more than 10, 15 percentage points. Yes. Maybe if you combine these sensitivities, you can also come to bigger figures. But then again, tomorrow the markets will look different again. We are so easily above our optimal range. We don't internally put a lot of importance to this day to day tracking of the zone situation. We don't think it's highly relevant. But of course, based on sensitivities, you could do the math every day. But as we said, we are pretty happy with where we are with respect to capitalization and this is to a certain extent of course volatile day to day. Thank you. We will now take our next question from James Schuch from Citi. Please go ahead. Hi. Thank you for taking my questions. 3 from me, please. I'm interested in the ROE focus versus RORAC. My first question is really around, please could you give an indication of on a normalized basis, what the ROEs are in the key divisions, so P and C Re, Life and Health Re and Ergo? I'm presuming that there's greater focus on the group level ROE means that you'll also start giving us allocated capital between the different divisions. Second question, on the problem with the RORAC was that it was using a multiplier on the SCR as a kind of theoretical level of equity. Does the greater focus on the ROE mean that you will be focused more on how you manage the stock of equity in the near term? And will that drive management remuneration? And then just thirdly quickly, the combined ratio development 2018 to 2020, if I look at what rate has done, rate is up kind of in aggregate about 2.3 points. The combined ratio target has gone from 99 to around 97. You've had expense improvements over that period. You've also got the expense reallocation, which is up to a point. And you've also changed the mix of business more towards nat cat. So I guess my question is why 97,000,000? Why not a better number than that? Thank you. Okay. I'll start with the combined ratio. Your question is, if I understood it correctly, why would it be more aggressive in setting our target and giving out a figure even lower than 97. Well, as you see, we usually do not have anything behind the dot, behind the comma. So it's either 97, 96 or 98. 96 would have been pretty aggressive. I think you would have been clearly against that and we would have been challenged by you a lot if you would have put out 96. So 97 was the obvious choice, I think. And if there's upside with also the renewals, which are later in the year, then we're, of course, happy to digest that in our figures once we realize it. The ROE versus RORVAX, first of all, of course, no management remuneration at all connected to that. So the bonus works completely different. It's related to the total shareholder return for us. So that's not of any concern. With respect to the divisions, we do not disclose any divisional ROEs, but this is really the group figure we're looking at. And maybe only a remark on the E to take out unnecessary volatility on the equity. What we will do going forward is we will adjust the equity for the unrealized gains and losses, especially on the interest side, because this is inflating equity depending on the interest level and at least increasing the volatility. So that's something which we will take out then as of starting with Q1. But that's all to it. Could I just, I mean, on the move from I mean, RORAC will still be used internally. I think you're saying that you're focused on ROE, but that won't drive management compensation. But I'm trying to understand whether this shift from RORAC to ROE and how you're communicating to the market will ultimately lead to better capital discipline and managing the excess capital that you have because you're running with very high levels of capital that may make sense as of today. But I'm trying to understand if there's a shift of focus here in terms of what you're saying to the market. So two answers to that. 1st of all, internally, we continue to steer economically, so no change at all. It's raw rock, it's economic earnings, it's all these kind of economic key metrics we have been using for a long time already, that's unchanged. With respect to the focus on capital management, I'd even I would even say that the focus was always on capital management. It will continue to be on capital management. But if ROE can contribute to that focus, then of course, we will be happy about that additional contribution if this will be of any help. But the focus of our management, of our stock of financial management always was very much on capital management and the distributions have been pretty high so far in the past. So I think the ROE will just additionally underline an already existing focus. Okay. Thank you. We will now take our next question from Boseard Thomas from HBC. Please go ahead. Yes. Good afternoon. Two questions on my side. The first one will be on Ergo. Moving closer to the ESP initial targets, can you remind us or maybe refresh our mind regarding what are the group expectations in terms of dividend or restating dividend from Ergo to the group and when this may start again? And the related to the life reinsurance business. Just to better understand how many deaths related to the virus you will need to reach before we see any negative impact to the €550,000,000 technical result expected for 2020? Thank you. So, Christophe, I'll start with the agro dividend question. There, everything is unchanged with respect to the communication like we did it when we agro strategy program. So the assumption continues to be that after the termination of the agro strategy program, Ergo will nicely contribute to our local GAAP earnings on group level by paying regularly dividends, like any other daughter company as well. Regarding your coronavirus question, it's an interesting one. But honestly, we don't have this kind of stress scenario available. At least we haven't made the calculation yet, how many people dying do we need before it really impacts our life result 2020 or so. What we can say is, and that is what I said to the press today, we have, of course, a pandemic scenario in place, which is a kind of risk management approach. It has nothing to do with this one here, by the way. That is maybe more based on a kind of Spanish flu event 100 years ago, this kind of event where you have plenty and millions of dead people in all parts of the world and continents or so. And we said, like in large cat events, our risk modeling, we make this 200 year approach. What is a 200 year event? And here we come to a kind of figure that we have then an exposure of €1,400,000,000 If such a really absolute extreme scenario should occur. But that is not the scenario, not even close to this scenario. And that is, of course, not the question you asked. Regarding your question, how many more people dying do we need before it impacts our result? Honestly, we don't have stress scenario available. Sorry. Thank you. Next question, please. We will now take our next question from Emmanuel Meso from Morgan Stanley. Please go ahead. Hello, hi. I have a couple of questions on cyber. The first one is on your strategy. So in particular, I'm referring to the change in relationship with Islay. So how has your strategy changed? And the second one is on your PML. If I look at your PML, it's gone up by only 15%, roughly looking at Slide 73. Whereas premium are up by 30%. Is this a result in change of is this a result of your change in appetite or anything else? First question, our strategy has not changed at all. We have a strategy consisting of 2 pillars. 1 is the risk carrying functions, insurance and reinsurance policy. Our split between reinsurance and primary insurance in cyber is about fifty-fifty roughly. Beasley is a corporation which was ended, has not basically changed our strategy. The only reason was because we said we have enough, let's say, both companies have enough, let's say, market presence that this original cooperation to basically generate business is not to the same extent necessary. So neither our risk appetite in terms of maximum limit per policy, Our risk appetite per risk is €100,000,000 has changed nor our strategy. It's only a kind of independent market approach what we pursue now. And the scenario question, yes, you are right. I mean, we have, of course, a number of accumulation scenarios in cyber. And the accumulation scenarios, of course, grow in line or not in line. That depends with our expansion of our underlying portfolio. And the scenarios basically shall monitor and shall basically also control and limit our accumulation risk according to various potential cyber attacks at the end of the day. That's similar to the Nat Cat business. And you cannot automatically say that all these there are various all these accumulation scenarios in cyber grow proportionately with the premium. They can grow faster. They can grow to a lesser extent. That depends a bit, so to speak, what business we write from what industries we write the business and what's accumulation potential is in these segments. So that's more, let's say, a kind of residual or following calculation basically, which follows the business generation and not the other way around. At some point in time, you can argue, of course, that it might limit our risk appetite, but we are still far away from this position. And only because we monitor and basically publish our biggest accumulation risk, we thought it would be fair not only to publish the cut scenarios, which you know already from the past, these 5 biggest cut events on the 200 year basis. Now cyber scenario has grown into this segment, so to speak. And therefore, we said, okay, that is now part of our disclosure. Thank you. Thank you. Next question please. We will now take our next question from Paris Hadrian Atonis from Exane BNP Paribas. Please go ahead. Yes. Good afternoon from my side as well. Just one and I hope a very quick one. So in a year where you actually took some reserve strengthening relating to U. S. Casualty, you come out with reserve releases of 5.6 percentage points. So I assume that the underlying number is higher than that. And that would imply that it's considerably higher versus your 4% normalized level. So going forward, I guess, how should we be thinking about reserve releases in this 4% level? Is it essentially a hard level, which don't go below or some kind of explanation of why this is the actual correct number that we should be expecting going forward? Yes. Christoph, yes, I'll take your question. And actually, this is a question we could debate for some time because there are many aspects which are relevant to that. So I give you some flavor, but maybe that's not completely exhaustive because it's really a complex one. First of all, our assumption is 4% is the right figure. In reality, we'll only know you will only know if 4% was correct after the book has been completely run off. And so far, it's always assumption based. And we always, in the past, said we keep this assumption stable just for the sake of simplicity. And then, of course, it turned out over time that at least for the 7 last years, we were higher than that. And following your thought with the casualty this year, if you take that out, maybe it would have been even higher than the 5.6%. You're right. So there seem to be kind of more buffer in the reserves than the 4% we put in. On the other hand and we also have so called pricing reserving gap. So if you ask our pricing actuaries, they would probably argue that that's a natural thing because the 4%, in any case, is far too low. On the other hand, looking forward, our book is growing and the composition is changing. So the business mix is changing. And this is a figure which relates to the net earned premium. So if we grow 4% on a larger book means a much bigger absolute figures, which still had then to be run off out of the old book, which has been a smaller one still. Therefore, even if in the past we had above 5% now consistently over all the years, that does not necessarily mean also in the future it needs to be more than 5%, only due to the fact that we are growing and that our business mix is changing and so on and so forth. Having that in mind, we decided that the best estimate we can give you for the future continues to be 4%. But if I may remind you on our prudent approach, you know I think how to interpret this message. Thank you. There don't seem to be any further questions. So I guess we will close this call now. Thank you very much for joining us this afternoon and for your questions. The IR team is, of course, happy to answer further questions you might have. So bye for now. Thank you again for joining us. This concludes today's call. Thank you for your participation, ladies and gentlemen. You may now

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