Ladies and gentlemen, welcome to the Munich Re quarterly statement as at September 30, 2026 conference call and live webcast. I am Sergun, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Christian Becker-Hussong, Head of Investor and Rating Agency Relations. Please go ahead, sir.
Thank you and good morning, everyone. Welcome to Munich Re's Q3 earnings call. Andrew Buchanan, our CFO, is today's speaker, and as always, he will kick it off with his opening remarks, and then we will go right into Q&A. Andrew, please go ahead.
Thanks very much, Christian, and good morning to all of you from me as well. With a Q3 result of EUR 1.7 billion, I am pleased to report another particularly strong quarter, continuing the excellent performance of the first six months. Munich Re remains resilient and continues to deliver on ambitious financial targets amid geopolitical uncertainty, heightened capital market volatility, and more challenging reinsurance markets. Very strong operational performance across all lines of business, together with a high reinsurance investment result, demonstrate the value of our diversified business model in delivering sustainable earnings.
Importantly, our Q3 results stand out not only for their size, but also for their quality. We were able to deliver this strong performance despite further strengthening our balance sheet, a point I will discuss in more detail later. Another point I would like to highlight is that after nine months, we are making good progress towards our revised revenue guidance, primarily driven by strong new business in life and health reinsurance and inorganic growth at ERGO International. On a currency-adjusted basis, revenue grew by almost 5% year-on-year in the first nine months. We continue to navigate the environment from a position of strength and remain well on track to achieve our targets of the Ambition 2030.
Against this backdrop, let me turn to the key drivers of our Q3 earnings, starting with the investment result. Global bond yields rose sharply in the third quarter, as you all know, affecting investment results differently across the group. At ERGO, it led to a decline in the fair value of fixed income investments, directly burdening the investment result, which contributed to the return on investment being a relatively low 2.1%. Bear in mind that the P&L impact is, by contrast, rather small due to policyholder participation.
Turning to reinsurance, the ROI amounted to an excellent 4.7%, benefiting from derivative instruments, positions to gain from higher interest rates, as well as a positive contribution from commodity investments. The strong investment result for reinsurance contributed directly to the net result, with the impact mostly visible in the P&C reinsurance segment. While the group's return on investments of 3.2% in Q3 was a touch lower than expectations, it remains, however, comfortably within our full-year guidance for the first nine months, with a return of 3.9%.
At the same time, higher interest rates lifted our reinvestment yield by 40 basis points during the quarter. We took advantage of attractive yields to reposition our fixed income portfolio, deliberately realizing some losses in the reinsurance business field to secure higher future investment income. The running yield remained at the high level of the previous quarter of 4%, despite the seasonal boost from dividends that we enjoyed in the prior quarter. We increasingly will see the benefits of higher yields gradually earning through to our investment income, which gives us tailwind for next year's earnings.
Now, I turn to the business fields, starting with reinsurance. The life and health reinsurance total technical result of EUR 493 million in Q3 came in above the pro rata rate that we need to meet our ambition for the year. This was supported by positive biometric experience, mainly mortality, which was, however, offset by some assumption updates following adverse experience in specific disability portfolios. The result from insurance-related financial instruments developed very favorably, supported by strong business growth in this year, which was to some extent dampened by negative effects from the rising interest rates.
The stock of CSM in life re-increased further, driven by new business growth and the recognition of further large transactions in Q3, providing a strong foundation for sustainably high technical results. Being ahead of the pro rata total technical result guidance after the first nine months, we are very well on track to achieve our full-year guidance of EUR 1.9 billion. Now, in P&C reinsurance, we posted a pleasing Q3 result with a combined ratio of 80%, which includes major losses somewhat below our expected level.
Higher interest rates increased the discounting benefits on newly incurred claims, which went up to 11.5% combined ratio points in Q3, driven by major losses, and at the same time led to a higher release of loss component. These positive effects on the combined ratio were offset partially by a more cautious approach to the balance sheet, where we chose to release only 2% for basic losses from prior years instead of the usual 6%. This leaves us better able to cater for any adverse claims development going forward. As usual, we will reassess reserve uncertainties as part of the annual reserve review in the last quarter of this year.
While the overall reserve development continues to be favorable, we will address any areas of potential vulnerability where appropriate in order to be well prepared for the future, potentially also at the cost of a higher normalized combined ratio in Q4. As indicated already, the normalized combined ratio increased slightly further to 82.4% in Q3, reflecting the gradual earn-in of recent renewals and business mix effects. This upward trend may continue in Q4, not least due to the large structured transaction mentioned in our Q2 earnings call, as well as some modest amounts of seasonality.
In any case, with a headline actual combined ratio of 72.2% after nine months, we expect to beat our full-year guidance for P&C reinsurance. I will conclude the reinsurance part with Global Specialty Insurance, GSI, which delivered a very pleasing result again. The combined ratio of 83.9% was better than expectations, benefiting from benign major losses. Like in P&C reinsurance, we expect to beat our full-year guidance after achieving a combined ratio below 86% for the first nine months of the year. In the primary insurance business field, ERGO delivered a strong net result of EUR 263 million in the quarter, well above the pro-rata guidance. ERGO Germany, within that, posted a solid segment result of EUR 118 million.
Technical performance in German life and health business was pleasing, primarily driven by a high CSM release and a strong PAA business contribution, supported by continued profitable growth. In P&C, we achieved good technical profitability with a combined ratio of 89.8% in the quarter, while claims reserving remains cautious. The ERGO International business reported a very strong net result of EUR 145 million. Beyond a solid operating performance, it was supported by the first-time full consolidation into our accounts of ERGO China Life Insurance, partly offset by smaller negative one-off effects.
Technical profitability in the international life and health business was strong and significantly exceeded expectations, reflecting a sustained high CSM release, mainly driven by Spain and Belgium Health, and a better-than-expected PAA result. In P&C, in ERGO International, the combined ratio of 89% met full-year guidance, supported by good technical performance across most major markets. Finally, a remark on the group's economic solvency position, which remains very strong. The Solvency II ratio decreased to 301% in Q3. This largely reflected higher capital requirements from profitable business growth, particularly in life and health reinsurance, which were only partly offset by our very strong operating performance in the quarter and by the upwards impact of interest rates.
In line with Ambition 2030, we aim to deploy capital through profitable business growth and selective M&A, such as the recently announced forthcoming acquisition of At-Bay. At the same time, we aim to ensure that shareholders participate in Munich Re's earnings growth through attractive capital returns. In that regard, we will provide an update at our next analyst conference in late February, once the full-year figures are finalized. This brings me to the outlook for the full year 2026. Overall, with a net result of EUR 5.7 billion after nine months, we are firmly on track to exceed our annual profit target once again. This would be for the sixth consecutive year.
As mentioned, Munich Re intends to continue strengthening its balance sheet where appropriate in the fourth quarter, which could involve realizing further disposal losses in our fixed income portfolio to reinvest at higher yields. At the same time, as you know, we have raised our full-year net result guidance to EUR 6.6 billion, with the increase coming from the reinsurance business field.
Looking to next year, we will disclose our financial outlook for 2027 on December 10th, by which time our planning process will have been completed. I would be grateful if you could be patient enough to save your questions about the guidance for year 2027 to the call that we will host at that time. Ladies and gentlemen, with this, I am at the end of my opening remarks. I look forward to answering your questions, but first, I hand back to Christian Becker-Hussong.
Thank you very much, Andrew. Just my usual housekeeping. I would like to remind you to limit the number of your questions in the upcoming Q&A session to a maximum of two questions, and then please rejoin the queue should you have additional questions. We can go ahead, please.
Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. In the interest of time, please limit yourself to two questions. Anyone with a question may press star and one at this time. The first question comes from Andrew Baker from Goldman Sachs. Please go ahead.
Great. Thank you for taking my questions. First one, just on the P&C reinsurance revenue. Can you just help me understand what led to the 5% growth in the third quarter standalone? Were there any catch-up effects, I do not know, from the large structure transaction you highlighted in 2Q or something else going on here? Any thoughts here would be really appreciated.
Secondly, on the normalized P&C re-combined ratio, I appreciate it is in line with your prior guidance. I guess the discount benefit was very favorable. When you set the guidance, were you anticipating the higher discounting benefit in 3Q? Is the 11.5% discount benefit in 3Q a good number to think about going forward, just given obviously higher rates, but then there is quite a lot going on on the reserving side as well? Thank you.
Thanks a lot, Andrew. It's Andrew here, and thank you to all of you actually for joining us today. I know it's a busy day for insurance results, so I appreciate your interest. On the P&C revenue, it's obviously a positive thing. I'm pleased that our revenue has turned out to be resilient in this way, and that even though the adjustment that we made at the half-year downwards of the revenue guidance was absolutely necessary and the right thing to do, I think the revenue is now holding strong and even looks as if it may exceed those levels that we set.
There are certainly a few contributing factors here. I must honestly say that FX is part of that. We enjoyed a modest FX tailwind this time round, and it's certainly refreshing that once in a while it actually goes in our favor. As you know, we suffered quite a lot from the U.S. dollar weakness of Q2 of last year. The second thing, you mentioned the large deal that we began to discuss with all of you on the Q2 call, and yes, that does continue to earn in. The volumes that we will show in our revenue numbers do have a slight upwards pattern in this financial year.
That's correct. I think it would also be fair to say that some of that business came in the door a bit quicker even than we and our clients had anticipated. So there was certainly some benefit from that. But last but not least, I would say there's also an element of genuine organic expansion in there as well, which I would not completely rule out. I think, even though P&C reinsurance is in a tough and diligent cycle management phase, as we all know perfectly well, there are still opportunities out there. There is still opportunity to expand coverage, and so some of the reductions that we've seen are also offset by natural growth in pockets.
Then, Andrew, your second question was more about the normalized combined ratio. So, we did not know earlier in the year that interest rates were going to move up by 70 basis points in Q3. Having said that, I would say to you, the 11.5% discounting benefits that we had in Q3, part of that you would naturally expect when you have more outliers in the P&L, because the more outlier losses you have, the more discounting you have to do in absolute terms, the more combined ratio points of discounting that you get. And in Q1 and Q2, our outlier ratio was very low, so just in terms of absolute magnitude of the discounting, there was less of it around.
Where I would say to you, no, I wouldn't consider the 11.5% the new normal, is also the particular mix of losses that we had in the quarter. So, for example, the largest single outlier loss that we had in the quarter was the earthquake in a place, I believe, called El Choco in Colombia, which we said is about EUR 0.3 billion of our outlier losses. And I learned, so you always learn something new, that the Colombian peso yield curve, I think, is sort of up in double digits. So, the discounting benefit, let's say, will enjoy a temporary artificial boost in this quarter because of the geographical location of the losses.
The next question comes from Shanti Kang from Bank of America. Please go ahead.
Hi, Andrew. Thank you for taking my questions. The first one was just to get your thoughts into 1/1/2027, what your base case is. This morning, we heard one of the primary carriers talking a little bit about securing agg covers, so just to get your thoughts on Ts and Cs would be helpful too. The second one was just on life and health. Obviously, there's been impressive growth there, and the new business CSM generation is pretty strong. There's been some impact on the solvency side on the back of higher capital requirements. I was just wondering how we should think about the trade-off between the life and health CSM growth and maybe the own funds generation going forward, just to help us model that a bit better. Thank you.
Great. Quite different questions there, Shanti. Thank you. You're keeping me nimble. P&C renewals. I'm going to try and be realistic about what I know and what I don't know. Of course, I've been speaking to our colleagues, and honestly, with seven weeks to go, part of my message to you today has to be that it's too early to call. Renewal negotiations have started. Discussions are happening. I think that some clients will want to get things done before Christmas, but not all. Also depends on the geography. I think there's still a certain amount of, let's call it price discovery and negotiation taking place.
I don't think final battle lines, if I can use a military phrase, I don't think final positions have yet solidified. I think everything I have to say here is with due caution. I think it's realistic to say that given the strong level of capitalization of both the reinsurance industry and the primary insurance industry, and given that we appear to have come through basically unscathed from the North Atlantic hurricane season, that there will continue to be downward price pressure. I certainly would say that brokers and clients directly will be trying to secure further price reductions. The extent to which that is successful is difficult to say at this stage.
Certainly, it depends a little bit on the performance of the business. I think loss-free portfolios probably have a better shot at getting further price reductions than loss-affected ones. You broadened the conversation out to terms and conditions. What I'm hearing from my colleagues is that there is more talk this time than there was a year ago. I think the conversation has broadened. It's perhaps not only about price, the way it was in this year's renewals. I try to get a feeling for whether there's one single theme that's predominant in those discussions, and the answer is not really.
It seems like each client has their own priorities or the things that they would be interested in. I mean, agg covers is one. I think that comes up. There is discussions around prepaid reinstatements is another one that comes up. Then there are some clients that would have more of an interest in widening scope definitions, so basically the geographical area or the time period over which you can aggregate losses for the purposes of reinsurance. But all of these things should also come at a price. These things aren't free on a technical basis.
I think this is probably now going to be the tough edge of the negotiations in some places. At this point, I certainly wouldn't be able to commit to any predictions of a single number, be it price change or volume change. So I'm afraid that's probably the best I can do with seven weeks still to go. On life and health, it's an interesting one because, of course, our balance sheet is exactly there to be put to work to write profitable business. That's what we're always looking to do. It's the normal state of the world that when you write profitable business, that does transfer risk, it consumes risk capital, and it brings the Solvency II ratio down.
That's certainly what you would always expect from profitable nat cat business or P&C business. There's just this peculiarity that some of the larger life deals that we've been writing in recent times have had, let's call them future profits discounted over very large time periods that were, let's say, relatively high in comparison to the short-term impact on the risk capital. So those deals have had the slightly unintuitive impact that they've pushed the ratio up. In Q3, in the deals that we booked in Q3, that wasn't the case. It was more a case of normal service being resumed in the sense that you write profitable deals, they're above hurdle, they do actually add positively to the own funds, but they increase the SCR as well, and that leads to the ratio drifting down.
If you think of the point that we've reached now mathematically, where we're on 300% solvency ratio, in order to be continue pushing that ratio upwards when you write new deals, you really need a high ratio of profit to risk capital on a deal to continue pushing it up even further. So generally, I would say I treat this as a very positive thing. I'm actually delighted that we're putting the balance sheet to work. We haven't had to compromise on our quality in any way. It's profitable business that we've written, and in some regards, as I say, it's normal service resumed, that you write good business and the ratio comes down.
The next question comes from Kamran Hossain from JP Morgan. Please go ahead.
Hi. Good morning. The first question from me is on the increase to guidance. If I just look at the Q3 numbers, clearly you've tried to hold back some of the profit, the reserving being one of the examples there. What's the rationale behind increasing the guidance? I'm not convinced you get rewarded for increasing the number to EUR 6.6 billion this year.
It's interesting what the decision-making was behind that and why you wouldn't have maybe tried to put a bit more away, realize some more losses, take more reserve, conservatism, et c. The second question is on German GAAP. Clearly, the IFRS result is very positive this year. How's the German GAAP progressing this year, and is it better for you under German GAAP to put conservatism in reserves or realize losses on the investments? Thank you.
Morning, Kamran. The EUR 6.6 billion, I think it's important spontaneously, I think it's important that the accounts have at least a degree of integrity in the sense that they need to show what's really happening in the business. When we have a good quarter and losses come in below expectation, I think it's appropriate and necessary that the results breathe with that. I think while many of the things that we do are based on assumptions, and you certainly know that we have some room to maneuver in exercising our judgment, I think at the end of the day, it's important that the results also reflect what we've actually achieved.
For this year, we have had a very good year, which in the aggregate has exceeded our original expectations. I think that at some point, it's important that some of that is reflected in the P&L. I think perhaps if the underlying assumption is that we are completely free to, let's say, store away all upsides that arise, I think that's not right, actually. I think we can't go that far. I think we have to operate within the accounting policies and within what our auditors consider to be reasonable. When we have a great year, I think we show that result, and I think that's what we have done.
I think that in a way, that probably links to your second question, because I think also by showing a strong result, we do increase the possibility of higher capital returns to our shareholders, which I think is what they would like to see from us when the results are strong. What I can say to you at this stage is that the German GAAP results are proceeding well. I think that they will support our capital return plans in the short to medium term.
I would also say to you, though, as a precautionary statement, the dynamics are very different, because those results under German GAAP come partly from dividends from subsidiaries, partly from single company holdings in the P&L. So they are not consolidated in the way that IFRS results are. But directionally, German GAAP is looking strong, and I am confident that it will support our capital return strategy going forward.
The next question comes from Will Hardcastle from UBS. Please go ahead.
Oh, thank you. Just on the insurance P&C re-revenue, you mentioned there some genuine organic expansion. Here, are we talking about traditional business or structured, and why aren't we seeing this come through in the GWP that is not grown as much? If, I think you said on that large structured transaction, it has come in a bit earlier. I guess, do you expect the overall quantum of the transaction to be bigger now, or is it just a timing aspect, and how does that interact with the combined ratio impact that is there?
Then just looking at the P&C re-regular income yield, it does look elevated now for the past couple of quarters. I accept yields have moved a long way. I am wondering if there is something that has just boosted that a little bit further this quarter, so you wouldn't want us to take that as the regular income run rate, or is that actually the starting point we should think about the higher reinvestment yields from? Thank you.
Okay, thanks, Will. On the revenue question about P&C reinsurance, and in particular the large deal, yes, I did mention that the volume of business came in a bit quicker than we had anticipated. I would consider that largely a timing effect, in the sense that the impact that that deal has on our combined ratio will stabilize a little bit sooner than it would otherwise have stabilized. I think it will probably reach a kind of equilibrium level around the end of this year. Probably when we get to Q4, the normalized combined ratio that we present then, whatever piece of that is attributable to the large deal, that is probably then the, let us say, the sustainable level which we might then carry through into next year, probably for a large part of next year.
That deal, I think, will start trailing off in terms of earnings towards the end of next year. That is the dynamics. I would say that, let us say that plateau, that equilibrium point, whatever you want to call it, we are probably going to get there a bit faster than we anticipated. On the income yield for P&C reinsurance, so there were I am afraid I am prepared to comment a bit more easily just on the overall running yield on the investment portfolio, which I believe was the 4.0%. It actually came in exactly the same as the Q2 number.
There were different effects going on. So, where we were, let us say, less good than Q2, or where we suffered relative to Q2, is that we did not have the European equity dividend season, which we had in Q2. We also did not have the catch-up effect on inflation-linked bonds, which came through in Q2. Those are reasons why you might even have expected a lower running yield. What helped us then, what basically closed the gap, was actually a good quarter for private equity distributions in Q3, which more or less left us back at the same level that we had in Q2. So that was good. Couple of other remarks. I think in terms of guiding you as to sustainable running yield, I am cautiously optimistic.
I really think the increase in the reinvestment yield to 4.7% in Q3 is good news on this front. I would not yet guide you towards 4% as being the permanent level. I think when I was asked this last time, or perhaps the time before, I was suggesting to you somewhere in the middle between 3.5%, which is our overall target for the return on investment, and the 4%. So let us call it something more like 3.7%, with maybe potential for some upwards drift. As I say, I am cautiously optimistic about that.
Also because the 4.7% reinvestment yield that we achieved in Q3 is a good number, but even there, I think some of the reinvestment that we did was in the earlier part of the quarter, in July and August, before interest rates had increased as much. So, I would treat that as good news. I think where you started your question was specifically on P&C reinsurance, and I would just point out to you, there were some more volatile items that are specifically allocated to P&C reinsurance that led to fair value changes being positive, things like that.
So there I am talking about the interest rate derivatives that were positioned for an increase in yields. And we also, although it is rather modest, the holdings, I think we also benefited from our exposure to oil, which I think was up 30% in the quarter, and even gold was up 3%. So there were a few, let us call them more volatile contributors.
The next question comes from Ivan Bokhmat from Barclays. Please go ahead.
Hi, good morning. Thank you very much. I have got a couple. The first one, please, on life and health. Can you talk a little bit about those onerous contracts and adjustments over Q3? I mean, which regions was that affected by? I understand it is disability. And just as additional clarification, would any of these be related to the transactions that you have been writing over the past couple of years? And then secondly, just on GSI, I think we have had a much stronger combined ratio, clearly, in the quarter, despite the fact that there was quite a lot of severe convective storm activity in the U.S.
The GSI was picking up quite a lot in the past. I was just wondering if there was any changes made on the way that exposure was taken, whether you are off risk or there is a new reinsurance in place, or it is just pure luck. And maybe one final really small follow-up. You mentioned the loss component for third quarter in P&C Re was also elevated because of interest rate impact. Should we read it then it would not repeat to the same extent in Q4? Thanks.
Thanks. Thanks, Ivan. On life and health reinsurance, perhaps let me answer the second part of your question first, because it's a very simple and resounding no. Those onerous contracts, the assumption strengthening that we did had absolutely nothing to do with any of the large deals that we've written recently, I'm happy to say. In terms of where the adjustments took place, it was in a few specific portfolios or specific contracts in a few different places, a little bit in Canada, a little bit in the U.S. and Germany. Nothing to do with Australia, which has also been the perennial difficult spot when it comes to anything to do with disability.
I also hasten to add, nothing systematic here, nothing systemic. Not particularly related to one country or one particular kind of product feature or anything like that. Then, moving on to GSI. Yes, a very pleasing combined ratio. I think the colleagues really have done a good job, because you're absolutely right, GSI is exposed more to severe convective storms. Firstly, I can say that the good performance is not really driven by external reinsurance. Recoveries from third-party reinsurers did not really play a role in that.
I would say, from what I've observed in the last few years, that exposure management and management of concentrations has definitely gone to a different level from what we had in the past. I think the colleagues have invested more in exposure monitoring. I think you can use a lot of geocoding, geolocation, and high-definition modeling these days, which allows you to be more precise. I think the colleagues are doing a better job at understanding the combined footprint of all of the GSI entities together and not just each of them in isolation.
Anecdotally, I was given some presentations on this of the losses that we took at the beginning of last year from the L.A. wildfires, and those were heavy and expensive losses. But what was impressive to see actually is how much higher those losses would have been if they had occurred a few years earlier, before we started looking so carefully at exposure accumulations. I think in insurance underwriting, certainly there's always an element of chance, but on this one, I would actually also give the colleagues some credit for what I perceive to be some good professional improvements in the underwriting operations.
Then I think, Ivan, you sneaked in a third question, for which we may forgive you just this once, which was the loss component. The loss component reduced by 3.3% as a result of higher discounting from the higher yields. That's clearly a one-time effect that wouldn't usually happen, especially it wouldn't usually happen in Q3.
There is some seasonality in the behavior of the loss component, and I would usually expect some kind of release of the loss component in each of the first three quarters, and then I would expect some kind of seasonal increase in Q4, because we allow for all of the large volume of new business that's going to be bound at 1 January in the renewals. That would be the usual pattern. But to have a release of the order of 3.3% combined ratio points in a Q3 is not something we would usually expect. I don't think you would get that in a world of stable yield curves.
The next question comes from Chris. Sorry.
Oh, sorry, I was just going to finish maybe just as an afterthought, Ivan's point, which is why in a world of stable yield curves, the increases and decreases of the loss components over the year would broadly cancel each other out. In our normalization calculations, we usually set that yield loss component piece to zero, as you know. Thank you. Now I'm finished.
The next question comes from Chris Hartwell from Autonomous. Please go ahead.
Good morning, gentlemen. Just a first question is, I guess, an extension from what Kamran was discussing. Given the, I mean, I suppose to use the phrase honesty of these results in Q3, I was wondering if you could give a little bit more color in terms of the basis for the change in the release in Q3. Just if you can give some color on what you've observed and if there are any specific sort of underlying books for either for reserve release or where you've chosen just to hold back. So that's the first question. Secondly, just on M&A.
I appreciate it's quite small, but I was wondering if you could just give a little bit more color on At-Bay. I guess in particular, it's the second acquisition you've made where the value really is somewhat distant into the future. I guess in that regard, if you could also just remind us on what you're trying to achieve from that and the broader context of your M&A ambitions. Thank you.
Thanks very much, Chris. On the first question, yeah, and going back to the EUR 6.6 billion and Kamran earlier question about the rationale for that, and indeed, I'm arguing the accounts need to faithfully reflect what is actually happening in the world and the performance of the business, and our ability to, let's say, maneuver within a reasonable range of best estimates has its limits. I think it's actually healthy for all of our stakeholders that when the performance is very good, that you actually see a reaction in the P&L. Regarding the reserve release, the 2% number, firstly, I would describe that as precautionary and preliminary.
Just to recap, for those of you that haven't heard this before, the way we do things is that in the first three quarters of the year, we do so-called bulk releases, which are really top-down at portfolio level, which is why they can end up being such nice round numbers like 6.0% or 2.0%, because they are really preliminary. Ultimately, what matters is the annual bottom-up review of the reserves, which is in progress now. I have not seen any results yet, but we'll see the results in Q4. Then those preliminary releases are essentially replaced by the bottom-up portfolio assessment.
What we do is we do these provisional releases through the year as an attempt to smooth the release somewhat over the year, and to not just have an enormous big bang release all in Q4. Within that context, I would say don't over-interpret the 2%. We've just decided to slow down and be a bit more cautious. I would balance that by saying, based on everything I'm seeing, the reserves overall are running in a very satisfactory way. We continue to be very well reserved, and I certainly have no concerns about any big problems or serious reserve strengthenings that we would need to announce in the near future.
I would want to dispel any fears that may have been triggered by the 2% number. I think you should rather interpret this as a precautionary measure that we've decided to slow down. Now, of course, we will look through the portfolio very carefully. If we find and when we find areas of potential vulnerability where we would want to have more security for the future, where we would want to bolster our resilience to be able to cope with developments that are less good than we currently expect, we will certainly take action. You know, we tend to be a bit asymmetric in our behavior. At the earliest signs of potentially bad news, we tend to strengthen, and we tend to be rather slow to reflect good news.
We will certainly take a look. We will be prudent, maybe even especially prudent. Anticipating that a little bit, we decided we don't need to wait until Q4. We can probably slow down a little bit already in Q3. Hopefully, that gives you a feeling. Now, changing gear, you mentioned M&A, you mentioned At-Bay, and you're right, it's not particularly large. Maybe before I talk about At-Bay, maybe if I can take issue a little bit with the second part of your question, because you said it's the second acquisition where we have bought something where the profitability is distant.
Of course, the bigger and already completed acquisition from last year is NEXT in California, now branded as ERGO NEXT. Hopefully, everyone has seen the bright pink training kits of Inter Miami Football Club that says ERGO NEXT on the front. We are sticking to our commitment that that business will be break-even by the end of next year. I would say to you, that's not too distant, and actually, that business is going pretty well, both in terms of volume growth and technical performance.
Now coming back to At-Bay, just a quick update. We've announced the deal. We announced it back in August, as you know. The intention continues to be to close that deal early next year. I certainly would hope for Q1, maybe even early Q1, but let us see. To the best of my knowledge, the necessary regulatory approvals have been obtained or are in the process of being obtained. I think in particular, I don't think there is any concern about antitrust or anything like that. I think the necessary period for objections to be raised has elapsed. I think we're quietly confident that we will complete that acquisition.
I think the strategic logic of that business, of combining just cyber insurance as an insurance product with a broader package of services, so scanning, monitoring, and incident reaction, so to mitigate losses when an event happens, really makes a lot of sense. Even more so in the new world of frontier large language models that seem able to discover weaknesses at machine speed. In particular, the kind of businesses that At-Bay serves and will continue to serve in the small and medium space are the ones that may not be able to afford their own big IT departments or their own cybersecurity officer. This kind of offering, I think, is exactly the kind of thing that they need. I think the strategic rationale for that is certainly intact.
The next question comes from Vinit Malhotra from Mediobanca. Please go ahead.
Yes, good morning. Thank you. My two questions are mainly just follow-ups, so apologies for that. Just more clarifying things, please. First one is, again, back to the revenue, P&C Re revenues. Just trying to understand, when you said that it was the large transaction and the organic opportunities, I am just trying to square the second bit with the fact that renewals were -9% this year and last year -1%. I am just trying to understand whether the bulk of this surprise growth was indeed the large transaction, or was there something else in that organic an element you wanted to point out to, please. So that is the first thing.
Second thing is, again, just picking up on the reserve release. I know you have elaborated very well already. I am just curious that, I mean, should we be thinking that because the loss component went to such a magnitude of 3.3%, it allowed you to think about postponing this reserving action? Because, I mean, it has never happened in Q3, as you said yourself. So I am just curious whether there was, or should we draw any link between these two outcomes? There might not be any, but I just wanted to clarify. Thank you.
Right. Morning, Vinit. Thank you for your questions. So on the P&C revenue, you are, of course, absolutely right to point out the negative volume change that we reported on our renewal results. If I was giving you a rank order of the explanatory factors that drove the quite good year-on-year revenue number for Q3, I would probably have them something like, number one, the FX improvement that we enjoyed, number two, the large deal, and then probably number three, I would have modest amounts of organic growth. So I would have them in that order.
I would also point out to you that not all of our business is included in our renewal reporting, because renewal reporting relates to treaty reinsurance only. Of course, there is also some facultative and corporate business, which is about underwriting more single large cases, which just happens continuously through the year on a sort of ongoing submission basis. Secondly, don't forget that when we report those renewal numbers to you, of course, we do our best to give you the best possible estimates of the volume impact.
But as we've discussed once or twice before, especially if you take something like the proportional business, we don't know exactly what the volumes will be in the proportional business, also because our clients don't know either. If underlying business production is a bit stronger than expected, it can also be that more of that flows through to us, and that the original estimates that we had in our renewal reporting turn out to be a bit on the low side.
I can't rule out that that may also be playing a modest role here. Your second question, which is the loss component, the reduction of 3.3%, which came from the surge in the interest rates. I wouldn't particularly link the two things. I wouldn't particularly say, "It was 3.3%, so let's pull some levers somewhere else to balance it out." I think the decision to go a bit slower on the reserves is a standalone decision. As I said before, I think we'll also know better at the end of the year once we've completed our reserve review.
The next question comes from Iain Pearce from BNP. Please go ahead.
Hi. Morning. Thanks for taking my questions. The first one was just on sort of your comments around having to reflect the underlying performance and the market movements in the earnings number. I'm particularly thinking about this in relation to the discounting number. I mean, over recent quarters, there's been a lot more volatility in the discounting, and the normalized has been more stable if we sort of account for the structured deal. I mean, should we just be thinking that if interest rates move, that will be fully reflected in the discounting, and that will be fully reflected in the normalized GWP report?
Or how do you think about managing the sort of discounted versus the undiscounted normalized number? My second question was just on your comments around the large deal and the fact that you expect that to reach the sort of equilibrium by full year. What impact do you expect from that large deal earning through on the normalized combined ratio in Q4? If I could just sneak in a third, apologies. The ERGO Germany growth, organic growth number in Q3 looks to have really accelerated. I think it was 2% at half year, and it was 11% in Q3. Could you just give us some comments on why that's been so strong in Q3? Thank you.
Right, Iain. Let me go through those and just tell me at the end if I've caught all of them. What I would say on the underlying portfolio, sorry, the underlying performance, the discounting. What we do, our practice, for good or for ill, in the normalized combined ratio that we present, is that the impact of yield curves on the discounting of the newly incurred claims, you basically see in the normalized combined ratio. In this quarter, you see the 11.5 points of discounting, and that's on the newly incurred claims in the quarter. We could have, I guess, decided to define the normalized combined ratio differently and strip that out. Rightly or wrongly, we did not do that.
But just to be comprehensive in the answer, there are, of course, some other interest rate effects that do get stripped out and normalized, and specifically, that's the loss component piece that we have just been talking about quite a lot on today's call. The - 3.3% does not benefit the normalized combined ratio. We just replace that with zero, which, as I was saying earlier, is what we would have estimated to be kind of over-the-year aggregate in a world of largely stable interest rates. You could debate and you could define it differently, but I think the most important thing is that we're clear about what's in there and what's not in there.
Regarding the large deal and the earn-in and the equilibrium point, I'm afraid I can't quantify for you separately the combined ratio impact of that one deal. I think we made a decision as a matter of policy because of the commercial significance and the fact that it is a single deal with a single client, that we don't publicly break out the economics of that one deal. I think I would say to you, we've said before that the normalized combined ratio continues to have upwards pressure. I think that upwards pressure will continue in Q4, and that will be a mix of continued earn-in of recent renewal results and continued quicker earn-in of that large deal.
Then in ERGO Germany, I would have to say, I do actually think the organic growth in ERGO Germany is quite impressive. I think for a large and mature market, I'm actually quite pleased. I think the colleagues really deserve some credit for what they have achieved there. I will say there is probably one effect underlying that, which is an update in the accounting treatment of premium adjustments in the life and health business, which may have helped us a bit. I think most of what you see there is organic, and I think that the revenue levels that we have now achieved at ERGO are sustainable. I am not particularly predicting a big drop-back or dip again in Q4. Thank you.
There are no more questions at this time. I would now like to turn the conference back over to Christian Becker-Hussong for any closing remarks.
Sorry for the interruption here. I think we may have been cut off. Someone just pointed out to me, and it is probably worth mentioning, when wanting to put the 11.5% combined ratio points of discounting into perspective, that quite a lot of that discounting benefit actually comes from the new outliers that incurred in the quarter. Remember I said the 11.5% relates to the newly incurred claims. Quite some piece of that is the outliers. The entire outlier impact, both the nominal value of the new outliers, but also any discounting impact that goes along with that, is completely normalized away, and it is just replaced with the 18% that we have as our outlier guidance for this year.
It actually has not come up in today's call so far, but maybe it is a good opportunity for me to also mention that, of course, in hindsight, as a result of the way the business mix has moved, the 18% is probably higher than it needs to be. I think our normalized combined ratio probably understates the underlying profitability of the business a touch. That is obviously something we will try and address for next year. Thank you very much.
There are no more questions at this time. I would now like to turn the conference back over to Christian Becker-Hussong for any closing remarks.
Yeah, thank you very much. Nothing to add from my side. If you have further questions, please just give us a call. Otherwise, hope to see all of you very soon again. Thank you for joining, and have a nice day. Thank you. Bye-bye.
Ladies and gentlemen, the conference is now over, and you may now disconnect your lines. Goodbye.