Hannover Rück SE (HNR1) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I welcome you to today's Hannover Re International Conference call on 1st January 2020, Property & Casualty Treaty Renewals. For your information, this conference is being recorded. At this time, I would like to hand the call over to your host today, Mr. Jean-Jacques Henchoz, Chief Executive Officer. Please go ahead, sir.

Good morning, everyone. Thank you very much for joining this call. I'm joined by the team here. Sven Althoff, who will comment in more details on the renewals for 1/1. But just to get started, a few comments on my side. First of all, on the general market conditions on the presentation on Slide 4, a few comments. Generally, I would say that demand for reinsurance continued to be strong, and we saw some good momentum in terms of global market conditions. Some improvement, which reflected the loss activity in the previous years, but also some increased underwriting discipline in the allocation of capital from the market players and some tightening of terms. At the same time, one has to acknowledge that global capacity remained sufficient to cover the needs of the reinsurance market. There were some withdrawals, which you're aware of, at Lloyd's, in Asia. In particular, an alternative capital had some challenges to face, some trapped capital which affected the retrocession market. But generally, traditional capacity was available, and there were even increases in terms of available capacity. So I would say, a balanced supply-demand relationship with good underwriting discipline and some momentum on pricing. On the primary side, we've seen as well some improved conditions and some momentum across the world, particularly in North America, and as you know, we have a large book of business on the proportional side. So this will lead to some positive impact on the expected profitability of proportional treaties. And our clients in America have reported back that they are seeing substantial increases, sometimes double-digit in some of the long tail lines of business. NatCat market remained stable to slightly improving from our standpoint. This is a bit below our expectations. We had some large losses, of course, '17 and '18. '19 was a bit milder in comparison, closer to the average, but still a loss burden which is higher than the historic average in the last 3 years. So the movement up is a bit more moderate. Retro capacity was a bit tighter and led to some tightening on the reinsurance side. But retro capacity was available. As far as we're concerned, we're very happy with the outcome of the negotiations on our retrocession cover and we'll be able to reflect the slightly increased terms in our reinsurance programs. In NatCat, of course, as you know, on the 1st of April, we have the Asian Japanese renewals. On the 1st of July, you have a number of North American treaties being renewed. So we'll see over the next few months how the NatCat business evolves. There might be some increased momentum, but it's early days. Generally, I would say, my perception is that the industry proved its resilience and was able to react on losses. And generally, we see some positive momentum, but certainly not as pronounced as, for example, in primary lines in North America. But good movement of global market conditions. Let me maybe comment now more specifically on our own results, and I move to Page 6 of the slide deck. As you know, the 1st of January is an important renewal date. This is roughly 2/3 of our P&C business being renewed. And I'd say that we're satisfied with the outcome of the renewal season. We were very well positioned from the beginning in the market as many clients were keen to continue to expand their relationship with us. And we were often a go-to market when it comes to new business. There were a few withdrawals, as I mentioned, and we were able to attract some new business at satisfactory terms. We managed again to have a strong increase in our premium level at satisfactory terms and rate increased, and reduced commissions were more frequent this renewal than in the previous year. Then, we maintained the underwriting discipline. We tried to focus on our key clients as far as growth is concerned, we managed capacity diligently and had, of course, some negotiations where the result was below our own benchmarks and risk appetite and we declined some business as well. As mentioned, NatCat -- the NatCat market was stable to slightly improving. And in economic terms, the proportion of our NatCat exposure is in line with the recent years, although we've grown a little bit there. Retrocession, I mentioned already, we renewed our whole program in line with exposure growth and we have slightly higher risk-adjusted prices. But as mentioned, we believe we can reflect this change in pricing into our own pricing, and we were able to do so on the 1st of January and expect to see the same in the next few deadlines for renewals. And last but not least, I think the low-cost ratio, the cost leadership, which characterized Hannover Re for many years, continues to be a key competitive factor and allows us to continue to grow our book of business. So this is just one part of the mix, but it continues to be important to be competitive in the market. So overall, that's a satisfying outcome. Maybe NatCat, a little bit less movement than initially expected, but we should see in the coming months if this gains a little bit, traction. But overall, we were able to meet our profitability targets and at the same time, could grow and expand our market share. I give the floor now to Sven to give you a bit more detail on our own portfolio.

Very good. Thank you, Jean-Jacques. Good morning from my side as well. I will start on Slide 8 where you can see that out of our almost EUR 15 billion of P&C premium, EUR 10.5 billion is what we would call traditional treaty reinsurance, i.e., the proportional and nonproportional covers. For portfolios of our ceding companies, we are today, not reporting about the facultative or the structured and ILS activities we have. And out of the EUR 10.5 billion of traditional premium, 2/3s, i.e., a little more than EUR 7 billion came up for renewal at the 1st of January. As you can see, this EUR 7 billion portfolio has a broad diversified split across all lines, all territories and is therefore, a good indicator about the quality of our overall business. And the highest percentage of renewals from 1st of January point of view, we have from our European scenes and out of some of our specialties, like credit and surety and marine business were more than 90% of our businesses renewing at 1/1. On Slide 9, we are showing you from a regional footprint, what we'll renew later in the year. The EUR 3.5 billion, we are not reporting about today. As you can see, territories like the U.S., Australia or the Japanese business, which is a significant part of the EUR 726 million we are showing for the region here, are coming up for renewals later at 1/4, 1/6, 1/7. These are the territories, which experienced significant losses on the natural catastrophe side in 2019. So just to name a few: Dorian, Faxai, Hagibis and the Australian bushfires. And we do expect higher average increases from those loss-impacted areas than we could observe on average at the 1st of January renewal. But let me explain the 1st of January renewal in a little more detail now. On Page 10, you can see that the bulk of our growth is actually coming from our renewal book. We lost EUR 744 million of business due to cancellations or due to restructuring. And we gained new business of EUR 810 million on the new business or out of those restructures. But the bulk of the growth, i.e., EUR 919 million is coming from our renewal book. This, of course, is a book we know well. In many cases, we had for many years. And from that point of view, it's very, very pleasing that we could show the growth from that solid base at the 1st of January renewal. In total, we are reporting EUR 1 billion more in premium, which translates into a currency-adjusted increase of 14%. On Slide 11, you can see the various reporting lines with their premium development and the price changes. The overall price change at the 1st of January renewal was 2.3%. This compares with 0.9% from last year's report on the January renewals. So it's pointing in the right direction. Most regions and product lines are now trending positive. In addition, we can observe increases and sometimes very significant increases in many insurance markets which, of course, directly translates into more premium for our proportional business. And out of the combination of the higher reinsurance pricing, higher shares or some new shares and the underlying in price increases on the primary insurance business, we could grow our premium by the 14% I've already mentioned. On Page 12, you can see the difference between the increases on the proportional and on the nonproportional business. The proportional business overall increased by 2.1%. This was 0.8% a year ago and the nonproportional business increased by 2.9%. Again, a year ago, it was 1.1%. Overall, you see much more pluses than a year ago. The reporting at the time was much more mixed. And as you can see, now most of those lines are actually in the positive territory with only 2 minus areas, but I will report on those in a little while. From a nonproportional perspective, Slide 13 shows you that we had now 3 consecutive years of increases. We have regained some ground. So the pricing on the nonproportional side, overall, is now at 2011 level again which, of course, is a good development, but you can also see that we are not quite at 2012 levels yet. As you will remember, 2011 was a particularly heavy year from a natural catastrophe point of view and triggered some significant repricing at the time. But at least, we have managed to get to the 2000 (sic) [ 2011 ] level -- pre-losses level again. Let me now come to the details in the various reporting lines, starting on Page 14. Our North American portfolio showed some elements of growth. This is driven by mainly the reinsurance price increases, but also from the underlying insurance pricing. We managed to take the advantage of certain capacity withdrawing, which we saw particularly in the long-tail classes of business where there was less supply than in previous years. And we could selectively write some more of the long-tail exposures again, mostly in areas which we have supported historically. There were also some new business opportunities, as you can see. The most significant came from Canada where we have supported a client on their motor business on a proportional basis, which we felt was attractive due to the underlying strong rate increases on the insurance side. On the casualty reinsurance side, we saw more restructuring of programs than in previous years. So the retentions were slightly up. At times, clients also introduced annual aggregate deductibles. That's the reason why despite the rate increases and despite the increase in shares, you see relatively impact on the volume side, because clients decided based on the new reinsurance pricing to retain some of the business net, which they had -- [ ceded ] in previous years. In the reporting category, Latin America, Iberian Peninsula and agricultural business, the overall price increase was 2.1%, but we have seen a significant difference here on the agricultural side, at least in certain territories. As you may have -- you observed yourself, there was a significant swine fever influenza in China, which impacted the profitability on that class of business in 2019. And due to a significant repricing of that portfolio, we managed to increase our shares substantially on what we felt are now attractive reinsurance terms and conditions. That is the bulk of the increase we are showing under this reporting category. But we also had some growth from the property and casualty side in Latin America. Here, the main drivers are the continued strong underlying insurance growth in those developing markets and some increased premiums, particularly in Chile, following the social unrest which we had in the autumn and winter of this year. In Germany, Switzerland and Austria and Italy, we have a satisfying renewal outcome from a pricing perspective. This portfolio was very, very stable as expected, I can say. But we have managed to maintain our shares despite original signs that cedings may keep a little more net than they did in the previous years, but they kept our shares stable. We managed to find some new clients, which is a very remarkable development, given that our market share, particularly in Germany, is already at such a high level. And what we could also see is some meaningful price increases in Italy. Italy had some hail and flood events in 2019, which we will not see on our major loss list because it was more a frequency than a severity problem. But it, nonetheless, led to a repricing of the business and we could take advantage from that development. The U.K. and London market portfolio showed a very significant increase in reinsurance pricing. This had a number of drivers, some of which, of course, were result-driven but we could also see some capacity-driven drivers with [ syndicates ] at least partially closing down or closing down in their entirety. So that led to a situation where there was less supply than in previous years. And pleasingly, this translated into increased reinsurance pricing. We have, on the London market book, written a relatively stable portfolio. So we use the opportunity of the price increases to work on our portfolio composition. On some of the casualty classes, we de-emphasized some of the lower, more frequency-driven layers. So therefore, we didn't increase our shares substantially. The same goes for the U.K. motor business, which is the line that saw the most consistent rate increases. The driver for those rate increases, of course, was the second Ogden rate change within the last 3 years from minus 0.75% to minus 0.25%, which was below the expected change in the Ogden rate for many market participants and translated into increases on motor excess of loss programs of 20-plus percent on a regular basis. Again, we more or less concentrated on our renewal book and did not write significantly more layers or more programs, but stayed with our clients which we have supported in the last couple of years. The last very significant driver behind the strong premium increase in this reporting category is our increased support behind our Lloyd's platform. You know that we purchased Argenta in 2017. We had kept our capacity behind the Argenta underwriting relatively stable in the initial years, but we now saw the opportunity to increase our position on the organic business, which from a timing point of view, given the very strong increases on the insurance side, seemed the right moment in time to do so. Plus the fact that we have invited a new casualty team to join Argenta and they will come with a substantial renewal portfolio. The incumbent is no longer writing that class of business. So we would expect that we can get this business at stable or improved terms in line with the rest of the market development in long-tail classes. Continental Europe and Africa is similarly stable as the rest of Europe with some mixed developments country by country. Overall, the price development was one of the few areas which still had a slight minus, with minus 0.9%. We continue to write a stable portfolio, but also use the opportunity to emphasize some countries, some clients a little more than in the past. And we also decided to discontinue with programs that had further price deterioration, particularly in Eastern Europe. So therefore, you can see that when you look at the balance of new versus canceled business, with EUR 3 million, this is a very, very stable portfolio with some element of cycle management. But the bulk of the growth is coming from our renewal portfolio, where we could particularly benefit in the increased underlying volume, which mainly results from the better insurance pricing that our clients can achieve on our proportional book of business. In Asia, Australia and Middle East, we had mainly the ASEAN countries and China renewing at the 1st of January. Australia is more a 1st of July renewal season. And Japan and Korea is more a 1st of April renewal season. On the ASEAN countries, the development was more positive than in previous years. We could actually experience some slight rate increases. Here, you may have followed that some reinsurers either had to reduce their portfolios due to rating situations they have or discontinued their business entirely. We were able to benefit from that development by picking up some of the shares that became available on programs which are priced in line with our expectations. And it helped the market in general, because this territory was softening last year, but has now turned the corner into a slight hardening. In China, we could benefit mostly by -- from the organic growth of our ceding companies. The Chinese insurance market is still growing significantly. Our portfolio is very much concentrated on the top 5 companies in the Chinese market. They are growing in line with the market, and therefore, you can see that the bulk of our growth is actually coming from volume, i.e., underlying organic business. But in addition to that, we could also broaden some of those relationships with the top 5 insurance companies in China. So overall, a very pleasing outcome of the Asian renewal season. This is all fully in line with what we told you about our APAC initiative during the Investors Day in October. So we are in line with expectations on that side. And as I said before, with particularly Japan and partly Australia, we will have renewals later in the year. Given the losses, we do expect very positive pricing momentum on those future renewals. Credit, surety and political risk, again, a very stable renewal. The pricing was more or less at last year's level. We did see some price increases on the nonproportional book of business. This was partly Thomas Cook-related. We also found some new clients, 15, to be precise, which again is pleasing given our significant market share also in this portfolio and just demonstrating that our client relationship activities are bearing fruit. You may wonder why this line has not seen more significant rate increases due to the Thomas Cook situation. But here, only a few market players were impacted. Those programs are seeing increases and this reporting line, despite Thomas Cook, is making solid in the 90s combined ratio for our portfolio in 2019 despite the loss. So it shows you the resilience of the pricing even in a situation where we have a spike loss like that. Aviation and marine is a very mixed picture. Let me start with marine. Here, the market is still very competitive. We now had a period of relatively benign losses on the marine and offshore energy side. So from a loss point of view, there was no reason -- there's no technical reason why prices should go up. And we could certainly see that this line still has significant overcapacities for some market participants trying to increase their market share. So on the marine and offshore energy side, we can report about a stable pricing at best, slightly down. And due to that, we also lost some business on the marine side because we felt that pricing came to a level which was no longer attractive to us. Aviation is a completely different story. You all have followed the losses on both the aviation, the product liability and on the space side we had in 2019. This hit a market which came through a period -- a very long period of rate reductions, and we guided before that we felt that the aviation pricing was at a pricing level which was not sustainable over the long term. And in line with our expectations, given those losses, we now had a significant repricing exercise on both the insurance and on the reinsurance side. On the reinsurance side, we managed to bring down ceding commission levels back to 2016 levels. And on the excess of loss side, even on loss-free programs, the starting point for negotiations was a double-digit rate increase. So in aviation, we took the opportunity to regain a little bit of the market share which we had voluntarily lost over the last couple of years. So the growth you are seeing in this reporting category is more or less exclusively coming from our aviation practice. Last but not least, the natural catastrophe business. Jean-Jacques already commented on that a little bit in his initial remarks. Overall, NatCat was relatively flat. There was relatively little business renewing that had losses in 2019. On the business that came up for renewal with losses, price increases were 10% or higher. So the market was reacting on that. But the main bulk of the loss-impacted business will come later in the year. The only area where we can say that even on loss-free business, we had more meaningful rate increases was the U.S. NatCat business where, on average on loss-free business, we saw increases between 3% and 8%. With that, I would end my report and hand over to you, Jean-Jacques.

Well, thank you very much, Sven, for this overview. Let me come now to the guidance for 2020, first, showing the usual overview on our expected profitability. From a financial year point of view, as mentioned, there has been some momentum in the market and the profitability level has slightly improved. So the overall picture looks a little bit better in terms of volume. We have a number of markets and segment where we continue to be able to grow, as we've seen. We're trying to be a little bit more diligent when we are at the required profitability, but not exceeding that level when it comes to renewing the book of business. But generally, an overall picture which is satisfactory from our own point of view. And in terms of guidance, I can simply confirm that the guidance communicated already for 2020 is confirmed. Clearly, on the gross written premium, we seem to be able to exceed what we set ourselves for 1/1. But I would want to see a little bit more into the year. We have some important renewals. The structured reinsurance business is -- it has not been included yet, and we need to have full visibility on that. And last but not least, the life and health business needs to be reviewed. So it's a little bit early to change. For me, the guidance is confirmed, and there is good confidence to reach these targets. Return on investment is at 2.7%, as you know, taking into account the interest rate level and the group net income target is maintained at EUR 1.2 billion. We continue to feel that the dividend guidance for this year is -- can be met. So fully confirmed on all indicators. And to close this introductory part, just a few words on our preliminary figures for 2019. In terms of gross written premium, we were able to exceed the previous guidance we had set at 10%. As you remember, we achieved 15%. This is predominantly due to the P&C business and we have had real momentum in 2019. The return on investment is expected to reach 3.5%, which is in excess of the 3.2% which we mentioned last time, benefiting, of course, from one-off effects, as you know, which allowed us to improve the performance on investments managed by Hannover Re. And group net income is a little bit higher than the previous guidance at EUR 1.28 billion. The combined ratio is higher than anticipated. And this is largely due to the frequency of large losses. In terms of NatCat, we were more or less within budget, but the number of man-made losses occurred last year. Thomas Cook was mentioned by Sven a few minutes ago. The credit and surety business is not protected by our retrocession, and that explains that it went a little bit above budget for our large losses. So 98.2% is the KPI, slightly above our target. We'll say more on these numbers as soon as we're ready. And on the 11th of March, we'll have our con call, where we'll give you full details on the figures, but I wanted to share the preliminary key figures for 2019 this morning. With that, I close the presentation part and welcome your comments or questions.

[Operator Instructions] The first question is from Kamran Hossain of RBC.

Two questions for me. The first one is just on, I guess, how price improvements flow through into profitability. I guess, you talked about a 97% combined ratio last year. Should we expect some improvement there? Or are there any kind of business mix impacts that we should think about when we're thinking about our numbers? And the second question is, I kind of understand the comments around growth and you grew 14%. You're still aiming for 5 and you've said that you want to see how the year progresses. Can you maybe talk about the pipeline for structured business. Do you think it's as strong as it was last year? Or do you think, actually, there are some mitigating things here that could offset what looks like a very strong start to the year?

Happy to take those. From the business mix point of view, we have no significant developments. So the 1st of January renewal would certainly confirm our target of 97% or lower combined ratio. So no change from that point of view. Advanced Solutions, we have a good pipeline. Also, some successes already for the 2020 year. This year, the pipeline is more full with smaller transactions. The drivers are still very much the same like in previous years, so Solvency capital model-related drivers. But it's no significant single transaction we would be able to support on, but a good flow of smaller transactions. So also, a reasonable start on the Advanced Solutions structured reinsurance practice in line with our expectations.

The next question is from Jonathan Urwin of UBS.

Two, please. So firstly, could you please provide a bit more detail on how your retro renewal has gone? Any key changes in coverage, terms and conditions and prices would be great. And then secondly, what level of price improvement would you need to see on your book to offset the higher retro costs and claims inflation as well? It feels like 230 bps is a good starting point for 2020. But based on our expectations, it doesn't really lead to much margin improvement as you're kind of highlighting with the consistent 97% combined overlay.

Yes, thank you. On the retro side, I'm happy to give you a little more detail on our 3 main retro covers on the property side. Let me start with our K transaction. Our K investors are a mix of ILS markets, but also traditional insurance or reinsurance companies. We can't -- we could certainly see that the capacity for proportional retro covers was not that well supported from the ILS market as in previous years. Luckily, we were an outlier in that trend. So in the end, we managed to actually have more capital supporting our trade K transaction than in 2019. This was also required due to the underlying exposure change. So from that point of view, depending on how you look at it, we have more support from the capital funding, the K transaction, from a proportional session on our portfolio. This translates into a slightly down transaction. But overall, very pleasing. Why are we maybe an outlier here, whilst others did find it's more difficult to replace their proportional retro vehicles? One, we have done it for a very long time. Two, we were told that, particularly on the reporting side, given our long experience, we are seen as best-in-class. So even if our loss picture or result picture is also challenging for those investors, at least, we give them the news in a consistent way and in an early way, which is appreciated by them. So they would see a very high level of professionalism on our side. And thirdly, they would feel that given our well-diversified K portfolio, we are in a very good position to take advantage of an improving market overall. So that was K. Our -- on aggregate cover on the large loss portfolio, we could fully place this year. We had a little bit of a shortfall in 2019, but in 2020, we could place what we wanted to place. Retention and pricing on the aggregate on large loss increased in line with our exposure growth. So from a technical point of view, a relatively stable situation. If you look at it from the absolute numbers, the retention and the premium is higher. And thirdly, our whole account property protection, which is covering us on each and every loss basis rather than in the aggregate. Here, we could keep our retention stable. The pricing increased in line with the underlying exposure increase. And we did buy a little more cover than in previous years. So overall, one can say, we managed to renew our covers as in 2019 or on the limits side, even slightly up at prices which were flattish from a technical exposure development point of view. Are those retro covers earnings accretive? I mean, you've already summarized the situation and I mentioned a number of times that our covers followed, in proportion, the underlying growth of our exposure. So the answer is no, they are not more earnings accretive than they were in the last year. And from that point of view, our situation has not deteriorated on a net basis, but it has also not improved compared to 2019.

The next question is from Vinit Malhotra of Mediobanca.

Yes. Just -- if I can follow-up with the commentary that was provided for the man-made losses. You mentioned Thomas Cook. But again, that was, I assume, already booked in the third quarter, and it was actually booked. But is there any commentary around the fourth quarter, Jean-Jacques, that would help us understand because if you see sort of a 97%-ish combined ratio is one of the highest fourth quarter numbers in recent history of Hannover. Does it indicate a reserve relief change of approach? Does it just indicate that fourth quarter was rather heavy on man-made that you could flag, if not on NatCat? The [ summary of that ] would be very, very helpful for us. And just following up on the retrocession effect. So this 2.3% of pricing, how should we -- I mean, is retrocession going to eat up maybe a few basis points from here and then the rest goes into just a reserve build up? How would you like us to think of this 2.3% in relation to the flat 97%, please? It could be structured as well, but just wanted to hear your thoughts again.

Thank you very much. I'll take the first question. We had a large loss budget, a total of EUR 875 million, and we ended roughly at EUR 950 million. And this was indeed driven by man-made. The NatCat budget was close, but within budget, and we were above budget on man-made. So we're approximately at 109% of the large loss budget. Indeed, you're right, I mentioned Thomas Cook but it was actually already booked at Q3. I think the main driver, if I'm not mistaken, would be the riots in Chile, which contributed to the Q4 results. We'll comment a little bit more in detail when we're on the phone again on the 11th of March, but I believe this would be the main driver, if I'm not mistaken. Sven, any other man-made?

We had 2 fire losses in addition to that, which made it over the EUR 10 million large loss hurdle. So from that point of view, the man-made losses were well over and above the Q4 budget for man-made losses. And given Hagibis, which we, of course, have not booked in Q3 yet, there was -- nothing spare from the NatCat side either. But leading over to the second part of your question. I mean, there is no change in our reserving practice. We continue to significantly -- I mean, it was a very prudent initial reserving of younger underwriting years. So like in 2019, also in 2020, we will reserve our 2020 underwriting year well above our pricing view from that point of view. The 2.3%, I would say you can see as giving us confidence that we will be able to achieve our 97% target on the combined ratio side. But it's not a development that would be significant enough for us that we would reassess whether the 97% combined is the right target for us.

The next question is from James Shuck of Citigroup.

Three questions from my side, please. Firstly, could you just comment around trends you're seeing on the social inflation side of things? I'm particularly interested in how things might have developed in Q4, both on proportional book and the excess of loss book, please. Secondly, in terms of coronavirus. Could you just speak a little bit about the recent infection and mortality rates that you're experiencing? And put that in context of probable maximum losses in 1-in-250-year events, please? And finally, just on the SCR. So the 14% growth at the January renewals, what kind of growth in SCR do you expect for 2020, please?

Let me start with the social inflation, mainly from a U.S. casualty perspective, where I guess you are coming from. As we have already reported in our Q3 call, I mean, there are a number of loss situations which we are observing closely, starting with the opioid crisis but also topics like concussion in amateur or professional sports or the lifting of the time bar on sexual molestation losses in the United States. Here, we don't have a changed situation in Q4. So what I said in Q3 is still the case. We're still comfortable with our ultimate loss ratio picks. But nonetheless, we have decided to book some extra reserves over and above of what the ceding companies are reporting to us on those loss situations. But we did not have to significantly reassess our old casualty years due to social inflation aspects.

I'll take the question on the coronavirus, James. So generally, of course, it's early to say. This is still an event which we're following very, very carefully. There are some pandemic covers in force in the Asian region. We're not participating, or to a very limited extent, in such covers. So we don't have any significant exposure from that point of view. Obviously, the mortality business, in case of an extreme scenario, would be hit but it would be really at extreme events which would go beyond what we experienced with SARS 27 years ago. Stress testing is done systematically for pandemic, and this would, in an extreme scenario, could lead to a net loss of up to EUR 150 million based on risk management reporting, but we're very far away from that. Maybe as a benchmark, we had, so far, 361 cases of death as of February 2. That's the last number I got. If you take the normal level of influenza season, just in Germany, you have 20,000 people who die every year, so just to put things in comparison. There is some business which could be affected. I think the Chinese business, when it comes to business interruption, particularly, infectious diseases are excluded from the covers. So this would not lead to a significant exposure. The exception would be if some of the plants which stopped production and will restart, if there would be any property damage, then there would be some exposure, so it's very early to say. Medical reimbursement business. We heard that the Chinese government said they would take over the cost of treatment for people, so we would not expect a significant impact. Critical illness, they're a very small exposure for us. Personal accident covers generally have exclusion clauses for infectious diseases. So again, a bit early to say, to make a real substantial statement. But at this stage, we would feel that the coronavirus would not lead to very significant losses. But of course, we follow progress and hope this will be mitigated in the coming weeks. On the SCR, I cannot give you the exact figure in terms of including the growth for 2020, but the latest status I have for the SCR is 238%. That would be where we stand today. If you need a bit more, we might need to talk offline or I might come back to it when we meet next.

I guess, if the renewals are up EUR 800 million or so in absolute terms, is it a good rule of thumb, about 100% of underwriting risk to back that, if I'm to try and forecast the increase in the SCR through the year?

Difficult to say. We might need to come back to you offline on this.

The next question is from Andrew Ritchie of Autonomous.

Just a couple of clarifications. Could you just confirm that when you talk about proportional price changes, that is allowing for any lowering of ceding commission, i.e., it's included in that. I shouldn't think about a lower ceding commission on top? And I'm guessing where you saw most of the reduction in ceding commissions was U.S. casualty exposures? And the second question in relation to that, your U.S. casualty book, you've always talked about as being mostly regional, smaller-ticket regional carriers, smaller ticket-type exposures. You grew the book, you indicated it at 1/1. Are you happy to go up the sort of scale curve? Are you seeing attractive pricing, even allowing for the loss cost uncertainty in higher, larger value casualty books now?

Well, we have not gone up the scale, Andrew. We have written a very similar exposure profile. If you want to pick one casualty class where we have grown the most significant, it would be medical malpractice, which was always a strong component of our U.S. casualty portfolio. So this grew from roughly EUR 115 million to EUR 140 million this year, so a little more than 20%. But other than that, the profile of our U.S. casualty portfolio has not changed in any meaningful way due to the improved terms and conditions on the renewals.