Good morning or good afternoon. Welcome to Swiss Re's Q1 2022 results conference call. Please note that today's conference call is being recorded. At this time, I would like to turn the conference over to John Dacey, Group CFO. Please go ahead, sir.
Thank you very much, and good morning or good afternoon to everyone on the call. I'm here today with Thierry Léger, our Group Chief Underwriting Officer, and Thomas Bohun, our Head of Investor Relations. Before we go to the Q&A, allow me to make a few quick remarks on the release we put out this morning.
The Q1 of 2022 has been a challenging one, where we faced several headwinds and reported a group net loss of $248 million. The continued impact from COVID-19 on our life and health results was not a surprise, even as the Q1 excess mortality in the U.S. came in towards the higher end of our expectations.
Excess mortality in the U.S. has rapidly declined in recent weeks, and we remain focused on achieving our $300 million net income target for Life & Health Re for 2022. Our Q1 results were also impacted by negative mark-to-market movements in our investment portfolio via the listed securities.
The fact that these movements flow through our net income is a feature of our US GAAP reporting basis. In P&C Re, while net cat losses were above expectations for the Q1 , they amounted to a manageable 24% of our full-year net cat loss budget of $1.9 billion. The net cat business remained profitable in the Q1 . Let me turn briefly to the Russian invasion of the Ukraine, which did come as a shock to us at the end of February.
We extend our sincere sympathies to all who have been impacted directly by this war. There's a very high degree of uncertainty with regard to the potential impacts on insurers and reinsurers from this war and the related events, and so far, we have hardly seen any claims.
We continue to believe, as we disclosed at our Investors' Day last month, that the ultimate market loss for the industry could be similar in dimension to a mid-sized natural catastrophe loss. When it comes to the impact on Swiss Re, we do not have any outsized exposures relative to our normal market share in the P&C reinsurance industry. In some of the affected specialty lines, we believe we actually have an underweight market position.
Nevertheless, we decided to take a proactive and cautious approach and book reserves of $283 million related to the war in the Ukraine in the Q1 . Based on current information, we estimate that the reserves we made this quarter should cover a significant portion of our total ultimate loss from the war, covering exposures in both the Ukraine and in Russia across all effective lines of business.
For Swiss Re, these include aviation, credit and surety, marine, political risk, and political violence. Despite these reserves, we remain focused on achieving our less than 95 combined normalized ratio, normalized combined ratio, excuse me, target in P&C Re, and our less than 95% reported combined ratio target in Corporate Solutions. We are committed to achieving these targets without normalizing for the impacts of the war in the Ukraine.
Delivering on our business segment target should allow us to achieve the 10% group ROE target in 2022. Finally, just to reiterate, our capital position remains very strong with the group SST ratio in the upper half of our 200 to 250 target range as of April 1st. With that, I'll hand it back over to Thomas to introduce the Q&A section.
Thank you, John, and hi to all of you from my side as well. Before we start, if I could just ask you to limit yourselves to 2 questions, and then rejoin the queue if you have additional questions. With that, operator, could we have the 1st question, please?
The 1st question comes from the line of Kamran Hossain with JPMorgan. Please go ahead.
Hey, afternoon, everyone. 2 questions. The first one's just on, I guess it's on the targets for 2022 and the ROE target in particular. Just interested in your thoughts on how the kind of levers that you have to achieve that, because I think, you know, Q1, you obviously had the $283 million impact from kind of Russia, Ukraine. Based on the numbers that you discussed at Investors' Day, maybe there's another kind of $500 million or so to come, you know, there or thereabouts on that.
Maybe another $400 million hit to kind of earnings. What are the levers that help you to hit the 10% return on equity? 'Cause it sounds like you're pretty confident in, you know, kind of Swiss Re's ability to hit that.
The 2nd question is on investment income. I guess you talked about a 2.1% income yield. Could you maybe help me understand how you've kind of how many basis points improvement we should assume per year from this place onwards, assuming that kind of yields stay kind of where they are today. Just kind of, you know, how to model the improvement in yield into our numbers. Thank you.
Sure, Kamran Hossain. I think I'll take both of those. With respect to the levers, a couple of thoughts. 1, we've reiterated that the Ukraine losses for us appear to be a mid-sized net cat event in terms of dimension. That provides a bit of a range of potential losses. With the scenarios that we've gone through and the latest update we made two weeks ago with the teams that have been working through those scenarios, we'd probably be on the lower end of the range of a mid-size nat cat. I think in Investor Day, people were taking away that we've sort of had an industry loss somewhere around 15.
I'd suggest that the mid-size cat range would be between 10 and 20, and at least for now, we're probably closer to the 10. When we bring that back to Swiss Re, I think the expected loss with the information we have and all the uncertainty that's unambiguously around these scenarios, the expected loss is probably a smaller number than what you might have just indicated.
With respect to other levers, I do think we believe the underlying performance of our P&C businesses are very strong. The normalized P&C Re ratio is not yet below 94%, but there's an important seasonality component which we think brings it there.
The overall business that we've been writing in the beginning of this year will earn through at, you know, very strong rates, and we're confident of strong profitability on the P&C business. We also alluded to what we believe will be a very sharp drop off on the COVID claims in life and health already in the Q2 , but certainly in the H2 of this year, allowing us to return to profitability there. I think the combination of these make us believe we can get back to that 10% target. It's not going to be easy.
There's a stretch, obviously, that's been imposed by the losses related to the war in the Ukraine. We're confident that, at least for now, we've got the pieces that can get us there.
On investment income, I don't think I can give you an EBIT target for quarter or annual increases. What we do believe is that we've reached an inflection point. Obviously, the 10-year bond, U.S. Treasury is 1 strong indication. The relative flatness of the yield curve allows us to actually come in even on shorter durations, 2 years between 2 and 5, and still pick up 2.7, 2.8 on a risk-free basis in dollars.
I think, you know, we would expect that 2.1 to continue to move up as we go into Q2, Q3, and Q4. Exactly how much, I think, depends actually on broader macro conditions and nominal rates that are being found by our teams here.
I just point out we, you know, maintain a fairly strong cash position. The cash plus short term, we're 12% of the portfolio, and we've got the ability to invest those funds at better rates when we think we're being compensated for them.
Thank you, Kamran Hossain. Could we have the next question, please?
The next question comes from the line of Andrew Ritchie with Autonomous. Please go ahead.
Oh, hi there. Thanks for the color on Ukraine. John, maybe could you just clarify, you said you felt Swiss Re was underweight some impacted lines. Could you just clarify which lines you're referring to? Why did the 10 to 24 to 10, what was the change? What changed in the last month, I guess, to bring you there? It would be helpful. The other question, I always get a bit confused by your slide looking at nominal price increases versus loss cost. I see that the year-to-date renewal price is now 3%.
I think it was 4%, but the loss cost impact, nominal, is now -3%. It was -4%.
My reading of it is that the loss cost trend in your assumption seems to have got less, which seems counterintuitive to what we're seeing. Could you just explain how I should interpret that slide? I get that you're essentially saying the nominal combined ratio of the renewed portfolio is flat. Clearly, there's mixed benefits which will come through, but the renewal is more or less equal to loss cost. Which again, if you could just clarify if that's exactly what you're saying. Thanks.
I'll do my best and maybe Thierry Léger can come in, but let me get the 2nd question st. The April renewals, Andrew, you know, are largely dominated by our Japanese portfolio. There were major rate increases on that business, which is dominated by the property and nat cat exposures in 2019 and 2020 based on the losses for the typhoons in the previous years. Those rate increases got us to what we thought was a very comfortable level of pricing for those risks. We didn't see a need to see major price increases as a result of that.
Similarly, not just the typhoon and flood risk, but also the earthquake risk we thought was well priced and we're perfectly willing to renew.
Related to that, in the Japanese market, the impact of inflation on the lines that we write has not seen the same sort of pressure that you see certainly in the U.S. and maybe some other jurisdictions. Therefore, the higher loss assumptions. We're not particularly relevant for that renewed book of. The combination of that meant we were able to write a nice increase in the premium for the quarter at the April renewals, the increase on the existing book was about 15%.
We think we have perfectly adequate pricing. When you mix that with what we had year-to-date, it brought those numbers slightly down to 3% instead of 4%. We're very comfortable there. I don't know, Thierry Léger, if you wanted to add.
Maybe just one addition. If you assume for a moment that the combined ratio in the current environment stays flat, right? Which wasn't the case, you have improved it slightly. But if you assume it stays flat economically, given the higher interest rates, we still increase our profitability. We actually are really pleased with the profitability increases we have seen in the April renewals. Therefore, we have also written more business.
Thanks for that. On your 1st question, Andrew, with respect to Ukraine, you know, the lines where we think we're probably around market weight would be related to aviation and probably credit and surety. We don't think we're necessarily the biggest in either of those areas, but market weight seems a fair description. On some of the more specific specialty lines, and particularly with respect to Political Risk and Political Violence, these are not lines which we seek out. While we have some exposures, they're pretty much incidental on broader treaty covers that we might have in place.
That's probably the same with some of the marine exposures that might be here. I think overall, reinsurance is a player in marine.
The Corporate Solutions book actually materially reduced marine exposures in the portfolio, pruning that was done, now two and a half years ago. On the range itself, again, our teams have a series of scenarios which have different assumptions for the nature of the losses and how far up the overall scale of the loss you get. The one thing which I think we said in Investors' Day, and we'd reiterate, the longer the war lasts, the more losses will come through, especially in a few certain lines.
The Credit and Surety lines may be more impacted as the war continues, with more bankruptcies, more claims on inability to deliver whatever's been insured.
I think on aviation, I don't need to tell this crowd how complicated both the exposures and the potential losses are. This will sort itself out over, I expect, a number of years. For now, we think that there are losses there, and we've booked in Q1 some an important part of the total in aviation because of those expected losses that will come through. Just the why we think this is, you know, closer to 10 than 15 at the moment, I think is just a level of analysis and comprehension of the losses that we've assumed. It doesn't mean that we'll stay there.
There may be more information that comes, and especially coming up from our primary companies on the reinsurance side that will lead us to a higher position that's within the scenarios that we've considered. At least for now, we've not seen evidence that would take us there today.
Thank you. Andrew, could we have the next question, please?
The next question comes from the line of Will Hardcastle from UBS. Please go ahead.
Hey there. Thanks for taking the questions. Predictably, just one on Russia-Ukraine. 1st up, just as a follow-on from that, you mentioned the aviation. It's booked, you know, you booked an important amount of the total. Any color on potential exposure limits here? And is that, I guess, is that in CorSo or is that in P&C Re? Because perhaps CorSo will have some reinsurance protection. Just trying to think about escalation and some caps to that. And then the 2nd question is on prior development.
CorSo saw, you know, around six points of PYD in Q1. Any color? What did this specifically relate to, for example? And just finally on casualty in P&C Re, there was some further strengthening. Is this just case specific or is that assumption changes? Thanks.
On the aviation losses, what I can say is we booked set up reserves for both P&C Re and for CorSo. In CorSo, what I'd say is we've taken a cautious approach to reinsurance recoverables and the way that you think about accumulations for potential losses. Some people, I'm guessing, are a little surprised at the relative size of what we've booked in CorSo for Ukraine compared to what we've booked in P&C Re.
I think we've tried to be, you know, balanced, but you know not assuming a lot of reinsurance recoverables on the events in CorSo, and that's why that's gotten to be a pretty big relative number between the two. That's the first part.
On the PYD in P&C Casualty, I think we, you know, continue to evaluate the impact on inflation and other areas and reinforce reserves in this case to a fairly minor degree, but still in a way that reflects a cautious approach to loss cost development. On CorSo, I think these releases, there's some related frankly to a continued appreciation for the lower experience that we saw in 2020, especially in 2021. Some reserves that were put up on the assumption we'd have a normal level or frequency of losses.
We've brought some of the property redundancies through the P&L already last year. Here's some sort of slight continuations.
I think overall, we've still been thinking, especially in the CorSo book, about inflationary impacts and have not ignored the fact that in some places we've actually strengthened some of the reserves for some lines in some years. That's a net number. I think you should just take that as a reaffirmation of the robustness of the reserving in CorSo.
Thank you, Will. Could we have the next question, please?
The next question comes from the line of Andrew Pearse with Credit Suisse. Please go ahead.
Hi. Afternoon, everyone. Thanks for taking my questions. Firstly, just a couple of clarifications on Russia, Ukraine, if I may. Firstly on the sort of loss assumption changes that you've made from what you just talked about in the Investors' Day. It sounds like it's a reduction in the overall expectation of industry loss rather than a reduction in Swiss Re's loss share based on being underweight in some of these classes of business.
Just to clarify, is that the view that you're taking on the sort of changing guidance around this? Also on the Corporate Solutions reinsurance recoveries from potential Russia, Ukraine losses, I think you just said that you haven't assumed any reinsurance recoveries in CorSo.
Is that just a case of conservatism, but in reality you may well expect to get recoveries from potential external reinsurance partners for CorSo from Russia, Ukraine losses? Then the 2nd question was just on the acquisition cost ratios in P&C Re and CorSo. The P&C Re acquisition cost ratio has been quite a nice improvement, but CorSo seems to have gone the other way.
If you could just talk about the moving parts in those numbers and what you expect in terms of sustainability of particularly the improvement in P&C Re.
Thanks, Andrew. If I can do the first one, and maybe Thierry Léger can come in on the 2nd. On the first one, I'm not sure that we've had big changes in our loss assumptions. When we had Investors' Day, if you remember, we were still. I think we caveated our observations with there was limited information available. What we've done is frankly worked hard on, in the following four weeks to further develop the scenarios of where the losses are coming from, what the insured potential insured losses, what might have actually incurred in the Q1 and what may incur in future periods. I'd argue we're still in the range of a mid-sized nat cat loss.
Again, the scenario which we're working with today is at the lower end of that. That does. We've all still got scenarios which would take you to an upper end of that. I wouldn't stand and say we know what the ultimate cost is, but we've done our best to try to make that assessment and certainly have booked in the lines where we think we've got incurred losses in the Q1 , booked a, you know, a fairly or at least relatively sizable number to the events. The other thing on Swiss Re, I think we did say we were not overweight on lines in the exposures.
I think we've got a little more comfortable that in some of these smaller specialty lines we're probably underweight.
That's a little Swiss Re specific compared to the market. On the acquisition cost, maybe Thierry Léger.
Andrew, in general, for CorSo and for reinsurance, it's actually due to mainly a change in the business mix. Now there's a bit of a difference between the two Corporate Solutions. You can see it's a relatively minor impact, and therefore it's really to be explained mainly through the mix. In P&C Re, it's a mix question, but just think it through for a second. You've probably read in the papers that some in casualty business, some of the quota shares went at very high commission rates.
There were many attempts to actually increase those, so we have resisted that. Where it wasn't possible to resist, we have either reduced our shares or even not renewed the program.
When you do that, you automatically start to improve the acquisition costs. That's the impact from doing this. Of course, as you reduce that relatively high commission rate business, you're left with much lower, like non-proportional business that we have grown more with lower acquisition costs. That explains really the business mix change, but also some of the decisions we have made through the renewal that we now see also reflected in that.
I think that last point, at least for the P&C book on page 6 of the slides that we delivered, you see actually some pretty substantial migrations in the portfolio with a 2% reduction in casualty in spite of higher prices.
Thank you, Andrew. Could we have the next question, please?
The next question comes from the line of Vinit Malhotra with Mediobanca. Please go ahead.
Yes, good afternoon. Thank you. My 2 questions. The 1st one, just trying to get a bit more on Ukraine and sorry for that, but I would like the key thing is, so from the outside, so what are the visible outcomes that we could see which will lead us to understand that, hey, this scenario is unraveling or it's getting worse. Will it be that the war goes on beyond a few months? I mean, I don't know what you've got to say here, but it could be really helpful to understand what could make this loss worsen in Ukraine as per your provisions. 2nd question is just on the derivatives commentary.
Slide 20 has the $148 million other gain in P&C Re.
I'm just curious, this from comment, it looks like fixed income, derivatives, but if you could just comment a bit, because why I'm asking also is because interest rates might continue to go up, equities might continue to be overdone and down. Just want to understand your hedging position. Thanks.
On the Ukraine, in terms of visible signpost, you know, other than what I've mentioned before, which is the longer the war goes, the more Credit and Surety claims might come through. I think the rest of the leverage and how big of a loss there is frankly going to be linked to the airplanes. The ultimate terms of a cessation of the war and to what degree there is salvageable value in those aircraft. Here it is. The reason we've booked something in Q1 on aviation is because we actually think that there is real loss there.
The magnitude to be seen in terms of the existing or nonexistence of policies, some of which were canceled potentially before or after an event occurred, and then subsequent complexities around that, both in terms of the actual number of aircraft and engines which have insured covers and the ultimate disposition of those. We'll have to see, but those, I guess, would be the two sets of signposts that I can think of. Thierry Léger, you might have additional.
Yes. Fully agree. Just one in addition I wanted to add, which is the geographical extent of the war. At the beginning, it looked like it would go to all of the Ukraine, potentially even beyond. At this point in time, it looks like it has retrenched into a part of the country. Obviously, a really bad worsening outcome would be if it would geographically spread within the Ukraine but also potentially beyond. That would be another element I wanted to mention.
Your 2nd question, Vinit, on page 20, I think some of these losses that you see in lines under P&C Re, the -$145, which is doubled up there, did have this offset, the $148. So the net number, the $142 is the only one I think you need to focus on. There are some hedges in place and some other positions that we've put, but the upshot is I think, you know, it was a tough quarter on these valuations on US GAAP basis. We don't expect this to bounce back, but we also don't expect it to repeat necessarily in future quarters. We'll see how this plays.
The broader question might be, we remain cautious on the investment portfolio with respect to risk taking and don't see the signpost, which would say it's time to turn risk on.
Andrew, I was reminded that I didn't answer the question of recoveries with regard to CorSo. Yes, we haven't included recoveries in there. Your question was whether we could expect some, for example, on the reinsurance side. We haven't included any as I just said, but also we don't in reality expect the program, reinsurance program to necessarily respond to the type of losses. Again, as John pointed out several times, it's all very uncertain. We don't know, but we think it's unlikely that the reinsurance program would respond. There's another type of recovery. For example, if planes are impacted, it could be that planes finally are actually given back.
You would have a recovery from the remaining value of that plane. That's another scenario that we obviously would take into account, if that was a scenario that we would have reserved for.
Thank you, Vinit. Could we have the next question, please?
The next question comes from the line of Ashik Musaddi with Morgan Stanley. Please go ahead.
Thank you, and good afternoon, team. Just a couple of questions I have is, first one is, sorry to come back to an ROE topic. I mean, if I think about from your Investors' Day, which was earlier this month, early last month, and now when interest rates have gone up, so book value has gone down. Okay, so it makes the ROE to achieve a bit more easier. At the same time, your confidence on the Russia-Ukraine losses have improved by you will most likely incur lower losses. Why would you still say that 10% is still a bit of a stretch, if I just compare one month back versus now? That would be one.
Just related to that, I mean, is it fair to say that your, I mean, equity is still going down because of rising interest rates, so we should be using, the new equity, the average equity base to arrive at the, and use the ROI, the ROE of 10%? Because, I mean, it only gives me about $2.1 billion is what you need to hit, in terms of net profit to achieve this 10% ROE. Would you still say it's a stretch, or would you say, we don't need to worry about, changing interest rates and, thinking about net profits from that way? That's the first one.
Secondly, just with respect to Russia-Ukraine, I mean, when do we hear again from you in terms of what needs to happen to get an update on this $283 million? Is it actual losses needs to come through, or would you reassess situation at Q2 , or what needs to happen to get a proper update on Russia-Ukraine? Thank you.
Yeah. Ashik, again, in the Investors' Day, I don't think we were telling you what our loss would be for Russia-Ukraine 'cause we actually didn't know it. In fact, what we've got here with the Q1 is, you know, a clear indication based on a lot of work that's been done by a large team to estimate where we are. I think these are still significant losses. In addition to that, on life and health, as we said, the Q1 ended up being at the high side of expectations. We expect the COVID losses to drop off significantly in a very major way already here in the Q2 .
There will be some losses that inevitably will come through there. I just would suggest that the earnings in the next Q3 are not in the bag, but we think we can get there. If we said we'll get a 10%, if we end up with 11% or 12%, that'll be great news for us. On the basis, I don't think you would expect us to have a ROE target that's a return on last year's equity. It's fair to say we would expect it to be on 2022 equity. If that's moving, okay, it's a moving target.
That might make it a little easier, but it's not clear where interest rates are going to land at the end of the year. Let's, you know, we can have that discussion in Q4 when it's clear that the earnings are in place and we've got a better sense of what a full year equity might be. Right now you should assume that we're talking about a 10% ROE for 2022. Yeah, after a Q1 loss, we believe we will quickly climb back up and achieve the kind of earnings that will be required to get us there. On Russia?
On the Ukraine. Your question, if I understood it well, was, you know, when we might potentially reduce the $283 million.
Oh, no, just adjust it to
Okay, for us, as John said, right, we have a scenario that we have built, right? If from the moment we change the scenario, we would obviously change our view on this. Certainly, John mentioned that time is one of the critical components here. Should the war actually end much earlier than our scenario foresees, then that would be a good reason for us to review that scenario. That would be a very positive outcome for us. If at some point, again, the war extends in time and potentially even in space, then that would be a trigger point to review the scenario and accordingly the amount.
As John said, currently, we actually feel quite comfortable with the amount we have put in place. We think we are considering different lines of business as laid out and don't expect that scenario to change soon.
What I can say, Ashik, is this will be an item for the next quarters of the half year results. We'll give you as best an update as we can with specificity. The one thing I would say is, you know, almost all of this 283 that we booked is an IBNR. If actual claims come in, we'll get a little better sense of at least where people believe there's covers in place, and we can assess those more normally with our own judgment on our treaty wordings. I think the other issue is, there's a lot of primary companies which are struggling themselves to assess the losses.
Our reinsurance estimates will get better with more interaction and information from those primary companies. At least right now, we believe we've got a clear handle on our exposures as they've been written.
Thank you, Ashik. Could we have the next question, please?
The next question comes from the line of Thomas Fossard with HSBC. Please go ahead.
Oh, yes. Good afternoon, everyone. Just to follow up on Ukraine. Again, if I were to put numbers on how you are expecting us to think about the losses, looks like to me that at the time of CMD, you were more hinting to something which was around $750 million possible. It seems to me that now you're more hinting to something which is around $500 million. Would that be the logical or the right way of looking at things? Then I've got 2 additional questions. The first one would be related to slide 19, where you're showing the accident year loss ratio Q1 59.3.
I know it's only Q1, but maybe you can explain why it's up on Q1 2021 and why it's up on full year 2021. The 2nd question will be, if you could talk a bit about your expectations in terms of pricing for the midyear U.S. renewals since we've seen a bit of volatility in terms of pricing depending on the geographical regions so far into the year. Thank you.
Maybe Thomas, on your 1st question, at our Investor Day, we tried to give indications, but they were indications. When we said mid-size catastrophe losses, it was a range between 10 and 20. You know, people picked a midpoint. We didn't disagree with that. We're now saying at least the current scenario in which we've made these bookings and which we assess our exposure is towards the lower end of that. But that's the current view. I won't actively disagree with your characterization, but I'm pretty sure we didn't give point estimates before, and we're not giving a point estimate now.
you can, you know, we’ve seen some places where we thought we might have more exposures, which we don’t, which is a good thing. We also have a greater appreciation for some of the complexities around the aviation exposures in particular. That's what we've narrowed our own range for the moment with the scenarios that we're working through. I hope that helps. On the current accident year, maybe Thierry Léger, you want to come in?
I think, Thomas, you already started right to go into the aspect of saying it's just a quarter. I think that's important. It's just one quarter. You have seen the numbers and how they look on a normalized basis. John mentioned the seasonality impact on it. And on top of it, we had a number of large but below $20 million man-made losses in our insurance book that has been impacting our current year combined ratio in addition. That would be on your 1st question. The last one, maybe what we expect for mid-year renewals. For me, the context is positive one for us, particularly for us, I think.
On the one side, we see the demands up. Clearly the inflation that comes through higher values will increase the demand, for example, on the net cat side, but not only. It will generally create a larger demand. I think that on the offer side, the offer side will generally be maybe stable, but in certain areas down. Again, net cat, we have seen already price movements up. The offer is not up in the same way. The retro markets have reacted in a similar fashion. We see the offer more under pressure than the demands.
We expect therefore for companies like us that are kind of backstop providers and write on their own balance sheets to see again, like we have seen so far, a very attractive environment for us in terms of margins, but probably also in terms of further growth.
Thank you, Thomas. Could we have the next question, please?
The next question comes from the line of Vikram Gandhi with Société Générale. Please go ahead.
Oh, hello. It's Vikram from Societe Generale. A couple of questions from my side. Firstly, I see incremental comments from the American, Bermudan, and London market players about cat pricing not being adequate, whereas the large European players, including yourselves, seem to have a different view. Any comments around what might explain the disconnect would be very helpful. The second one is really a numbers question on the P&C COVID reserves. Can you remind us what's the IBNR position on those reserves as at the end of Q1 ? And I have a third one, but maybe I'll just go back to the queue.
Do you wanna take the second one first?
Happy to, Vikram. It might be a short wait according to our list here. On the P&C COVID, you know, again, a bit of frustration that some of this BI exposure is yet to be settled with the primary companies. Having said that, IBNRs remain at about 50% of the total position, not just BI, but overall. And we'll see how well this plays out. You know, again, we're pleased that we've not had to see any creep in the reserves that we set up in 2020 on this. We don't necessarily see any big windfalls coming out either.
We'll just continue to work through this over the time periods and hope to get some resolution with some of our primary companies in the coming quarters, is what I can say. On the incremental or the comments on cat, I'm not sure that there's a different view. I think there are regional differences on adequacy of pricing. I mentioned on the April renewals that, you know, we think the cat prices for Japan, for example, are absolutely adequate.
We've seen the need to make some adjustments in Australia, which we were active in, and also reducing our position down to a market weight from an overweight because of pricing.
I think in the US, you know, we continue to be concerned about pricing in the Florida market, which has been dysfunctional probably more than average in the last 12 months, with a number of Florida specific players actually throwing up their hands and effectively going into bankruptcy. I think there's going to be a need to see rate increases in certain geographies. The secondary perils that Terry's been talking to you about for a number of years are all places where it's a mixed bag in terms of pricing. Let's wait and see where the June and July renewals are.
We're not universally excited about this, but we're finding enough opportunities and enough differentiating pricing in places to be willing to grow our net cat book. Thierry, you might want to add. Yeah, just to add a few things, and it's gonna be two to three things. So the first is, of course, you don't comment on our competitors and their strategies, right? And how they view the markets, and that's why I don't wanna say whether they are wrong or right. That would be very arrogant. I can speak for ourselves, and I have said it at the Investors' Day as well, that actually we do constantly update our models. We have 40 experts working just on that, dedicated full time.
We do feel confident in our models. We feel very confident in our capabilities to structure the right deals and so on. In addition, we, as I just pointed out with Thomas a few minutes ago, we think it's a very positive environment for us. We think that as a consequence of demand going up and offer probably not following in the same way, prices will go up. Now, prices have to go up. Nobody should forget that. We obviously have climate change going on and impacting different areas. John mentioned a few in different ways.
There's inflation that needs to be reflected as well. Prices do have to go up for sure.
We do actually expect them to go up, and therefore we expect that, as I said already, the margin level of the renewals we will see in July to be more attractive than they have been certainly a year ago, but probably also more attractive than what we have seen in April. We obviously have a slightly different model in the way, and I think it was Christian at Investors' Day that showed that slide, where we showed that if you write monoline business, just P&C, then on a piece of business, you might have a piece of net cat business.
You might have a return of 6% because the only diversification you have is across P&C. Sorry, if you're a pure net cat player.
If you're a P&C player, writing business across all lines, then you can double your return to 12. If like us, you add the diversification coming from life and health, then with the same combined ratio, you actually achieve a 20% ROE. That's a significant advantage that we have. Now, obviously, we don't give that advantage away too easily to our clients, but it does actually position us quite well in the net cat space.
Thank you. Vikram, could we have the next question, please?
The next question comes from the line of Dominic O'Mahony with BNP Paribas. Please go ahead.
Hi, folks. I've just got one question, actually. I was just reflecting on your comments earlier on the potential reinsurance recoveries from CorSo. If I heard you correctly, I think what you said is that you weren't expecting major recoveries on the war losses from CorSo. I was wondering if you might be able to give a little bit more color on, you know, why you might not get as much recovery as you would against some other sort of more normal catastrophe event.
The reason I'm really interested is one big question, you know, for the market is the split of war claims between primary and reinsurers.
I'm wondering whether you think it might be generalizable that actually reinsurance recoveries for primary specialty might not be as you would for, say, a normal catastrophe event. Thank you.
Yeah, Dominic. I think the caution that we put in here is frankly around the potential or non-potential of accumulation of losses and how they would add up. We don't think CorSo's got a naked position. There is some reinsurance cover that we expect to be able to access. The challenge you have with 400 planes is thinking through how many events you have and if it is 400.
It may be 400, or it might be more than that if you include Chinese planes or Russian planes. You know, the level of uncertainty that's here, it remains extraordinary.
I think the right answer is we think we've been cautious with the approach for CorSo's losses, which is why they've got a relatively large number compared to what's in reinsurance. We'll see how this sorts itself out, but I'm afraid I can't give you a lot of insight for how to generalize this out to the market today. The aviation challenge on this war-related loss is extraordinarily complicated. Sorry.
Thank you, Dominic. Could we have the next question, please?
The next question is a follow-up from Mr. Fossard with HSBC. Please go ahead.
Yes, thank you. Actually, follow-up for Thierry. Just regarding property cat experience in Q1. Actually, the industry has been impacted by 2 significant losses. The European wind and storm and the Australian floods. Just wanted to understand how Swiss Re understands these losses. Have you learned anything new?
Does that mean that you did enough last year or the past 2 years in order to restructure your property cat exposures? Just to understand if there are additional things to be done on the back of what you've learned year to date. Thank you.
Yeah, Thomas. On Australia, let's start with Europe maybe first. That obviously these storms that we've seen, they have been only unusual in the way that it was really an anomaly in the jet stream that we observed in the north of Europe, and that jet stream did actually propel cyclone after cyclone to Europe. That's what we all have seen, right? It came with, as we all know, very strong winds.
One of the events, actually the what we call the 2nd event, Eunice, had winds up to 200 kilometers an hour. None of that was not in our model. We haven't been surprised by the winds. We haven't been surprised by the losses. That one is as we would expect. In Australia, we've been very clear, I guess, with investors and with our clients in Australia. We think that Australia more than the average country is impacted by climate change. We have also been very clear that because of this, we are actually rather shy in terms of lower layers.
Over the last two years, we have adjusted our portfolio in Australia considerably.
Now obviously we are also on the other hand there to help our clients and our clients' desire is actually in the Australian market to cover themselves relatively low into the frequency. This, as much as it didn't teach us anything new, because we had it perfectly in our models that these events can happen, it did actually remind the Australian market again that what we are telling them is not exaggerated.
For us very concretely the Australian losses do not lead to an adjustment in our models. We don't think that's required. It's as I said, as expected.
Certainly we expect even clearer discussions with our clients regarding the retentions and the price levels that we need for this type of cover.
Thank you, Thomas. We have time for one last question.
Today's last question is a follow-up from Mr. Gandhi with Société Générale. Please go ahead.
Oh, hi. Thank you for the opportunity. The question really was on the new retro cover worth $1.12 billion, I think the number is in place. I'm just interested in understanding what it does and what it doesn't cover. I'm assuming it wouldn't cover any adverse development from COVID and/or anything to do with the Russia-Ukraine conflict. Would that be right? The release said it should be positive from a rating agency perspective. Anything you can say around that point? Sorry for being greedy, but I'll use this opportunity to ask another one.
I read a comment in one of the slides today that the group is targeting higher layers in the nat cat business. Just wanted to make sure I understood that correctly.
It's the occurrence layer covers and not the aggregate covers when you're talking about higher layers. Is that right?
Thierry Léger, you wanna take the second one, then I'll come back? Okay. Yeah, you're absolutely right. When we say we target higher layers, it mean that's our sweet spot, isn't it? We have been very clear that and that's not the aggregate layers that are much more in the frequency area or in the horizontal protection as we call it. You're absolutely right that we're targeting the layers above the frequency up to very low frequency type of layers. And Vikram, with the transaction that the ACP team was able to do together with JPMorgan, this is a cover for remote risk.
It's triggered only by a true extreme event. It does include, frankly, all sources of loss that we're exposed to and includes any adverse development as well. It requires us to book a extraordinary sized loss in 12 months to be able to access it. It's a true tail risk cover. It's not a working layer in any sense. It's very different than our normal retrocession programs or the cat bonds that we put in place on named risks. It is of comfort if there's something dramatic in terms of losses for the group.
Thank you, Vikram. With that, we've come to the end of the call. We'd like to thank you all for your questions. If you have any follow-up items, please do not hesitate to reach out to any member of the IR team. With that, thank you again, and we wish you a nice rest of the day. Thank you.