Hannover Rück SE (HNR1) Earnings Call Transcript & Summary

Hello, and good morning to all of you. I would like to welcome you most warmly to our Investors' Day today. This event is already a long-standing tradition. This year's edition is the 23rd. The format this time is entirely virtual given that the ongoing coronavirus pandemic prevents us holding a physical event. With that in mind, we are broadcasting today's Investors' Day from the Peppermint Park recording studio here in Hanover. Particularly in these uncertain times, it's important for us to give you, as we usually do, a more in-depth insight into Hannover Re's position and above all, the prospects going forward. Before I get the day started, I would like to thank you for your interest and your support. I would like to give a special shout-out to the sell-side. Year-to-date of 2020, almost 17% more research paper have been written on the sector or on Hannover Re in particular compared to the 5 years average before. Even under those challenging conditions, you have provided support and guidance to the investors during this crisis. That's impressive, and I'm sure investors appreciate this added value. For today's Investors' Day, we have, as always, taken our cue from your feedback and picked up those topics you said you want to have addressed these. I hope, therefore, that we can offer an interesting program. But let me say this right off the bat, today, we will neither provide any new guidance for 2020 or '21 nor any preliminary figures for Q3. Nonetheless, we will be sharing with you our medium-term goals for the upcoming strategy cycle 2021 to 2023. Strategy cycle is probably a good keyword for the first presentation. Our CEO, Jean-Jacques Henchoz, will kick things off and discuss the revised strategy. In the context of the market environment, he will pinpoint just how we intend to achieve sustainable outperformance. After that, I have the pleasure of introducing our CFO; Clemens Jungsthofel. He will explain how he intends to steer the investment portfolio through these choppy capital markets and the low interest rate environment. In the third presentation, Sven Althoff will talk about P&C reinsurance. He will provide a long-awaited update on our retrocession program. And besides this, he will be sharing some insights into the U.S. casualty business. After this, Claude Chèvre has another fascinating presentation in store for us. He will focus on growth and even more importantly, on earnings growth prospects in life and health reinsurance. As you can see, we have a rich agenda for today. But before we start, I would also like to draw your attention to the feedback form we distribute today. You already know that we attach extremely high value to your feedback. We use it extensively for: a, conveying the comments and views to management; and b, preparing the upcoming events. This program will be recorded and you can download it from our website. [Operator Instructions] And now without breaking for commercials, it's my pleasure to hand over directly to our CEO, Jean-Jacques Henchoz. Jean-Jacques, the floor is yours.

Well, good morning, everyone, and a very warm welcome to our Investors' Day 2020. It's a pleasure to have this event today with the frustration, of course, not to be able to be in the same room. We very much hope that next year there'll be the possibility to have a physical presence event as last year when we were in Frankfurt. You remember last year, we were focusing on our performance or outperformance journey in the last 10 years. This was very much the entry point for me as incoming CEO, and I'd like to take it from there, 1 year later, having observed the company, talked to a number of clients, and I'd like to focus on the strategy in the next 3 years. We'll start the strategy cycle for '21 to '23, and we'll have a balancing act. We'll have a number of key strengths of the Hannover Re model, which we want to pursue and some areas where we want to invest more in the years to come. So the balancing act is about outperformance, therefore, the title Striving for Sustainable Outperformance. So 3 topics I'd like to cover today. First, briefly, our starting point and the position we have in the market. Today, I think, an excellent starting point for Hannover Re in spite of the difficulties and the pandemic situation in 2020. Then mainly, I'll focus on the group strategy and describe the key elements of our new strategy cycle with a focus on outperformance. And lastly, I'll comment on the outlook and what I see as a good market momentum for the industry, but particularly for Hannover Re. So let's start on where we stand today. And I have a few charts which highlight really the KPIs of great importance to Hannover Re. This is how we benchmark our performance. We look at profitability, earnings growth and cost efficiency. Here, you have the top and bottom line numbers with the 5-year period from '15 to '19 top line compared to the top 10 reinsurers and the earnings growth compared to the main European peers. And you can see here the growth story, which is highlighted in the past few years. The other metrics of high importance to us include the ROE, of course, on the left-hand side with a relatively low volatility, very, very strong return on equity performance. And on the right-hand side, the expense ratio. We look at cost, as you know. We want to be a cost leader. We want to be focused. And this is an area of competitive advantage which we want to keep in the future. So why this outperformance? And I think we had that slide already last year in Frankfurt, where we highlighted the key strengths of the Hannover Re model. And I think these are 4 key drivers of outperformance. The first is the underwriting culture. We have a very strong underwriting discipline, the DNA of underwriting in our house. We have also a number of underwriters with a lot of experience, with a long tenure in our organization. And I think that consistency and that focus on technical result has led to a very, very strong performance. The client partnership spirit is very much part of what we do. We seek long-term relationships, and we offer consistent service over time. I think the loyalty of our clients and the feedback I hear lately in the virtual version of the conferences in Monte Carlo, in particular, shows that we continue to be on the right track when it comes to customer relationships. The lean operating model, I mentioned cost ratio. This is not only about measuring the cost ratio. It's about being focused, having organizational simplicity, avoiding complexity across the value chain. And here, again, I think we have a very strong track record over the years. We continue to take it forward. And lastly, capital management. Here, we have a robust capital allocation process. We are very good at managing volatility. As you know, Sven will talk about the retrocession strategy later on. And this has really given us a good standing and earnings growth without too much volatility even in years with very high, large losses in the past. So these are the key strengths which are part of the model, and the strategy will be about leveraging these strengths. We are not changing gears here. And you're going to see the Hannover Re you know in the next few years, and we're going to bring this strength further. And to end up with the position in the market, you see a reinsurance market which is growing steadily. We've been able to grow very well, particularly in P&C, where we gained market share over the past few years. In life and health, we are also growing. You don't see that so clearly on the chart because we grow particularly with financial solutions, where we use deposit accounting mainly. So you don't see this on the premium development, but the growth is good in spite of the slight decline in market share. But all in all, I think we're very well positioned. We're sufficiently large to be a top-tier player. But at the same time, sufficiently small in terms of market share to be able to continue to expand and increase our share of wallet with many clients. So good position and I think 3 years of growth potential, which we're going to tap into. So let me come now to our group strategy. And again, the focus on outperformance and trying to find ways to pursue the journey of outperformance by building on our strength and having focused investment into the future. This is our new group strategy map, and I'll go through the different elements of the map in the next few minutes. You see the foundations, which are about our culture, but also our governance and our operating model. Then you see the performance drivers, which I would call the growth engine, and I'll come to the different topics in that category. And then thirdly, the performance enablers or the areas which support our growth story, people, capital, business model. And I'd like to start with culture because we issued a new purpose statement this year. And I think this is a very strong commitment to Hannover Re's culture, but also an emphasis on where we want to be heading. This is about partnership spirit. Beyond risk sharing, we team up to create opportunities. So the idea of a strong team, but also teaming up with our customers, with our broker partners. And to create opportunities is about pushing the boundaries of insurability and making sure that we are focused on new business opportunities. We have 3 main values which we've identified as part of what we want to see in our culture today and tomorrow. Responsibility, the first, this is relating to our strong sense of accountability, but also integrity is a key value for us. The we-spirit is the recognition that we work for the common success of the organization and our clients. And again, that team dimension which is so important. And drive, which is about focus, about speed, about delivery solutions. So this is very much one of the foundations for the strategy. A lot of cultural aspects which were discussed in workshops in the organization. And I'm very, very pleased to say that this was a result of a process involving hundreds of employees at Hannover Re, which is really a great outcome for us. Still on the foundation of our operating model, we'll hear a little bit more about it in the next presentation. But I think the strong capital position and the financial flexibility are key to success and continue to drive our actions. We have very strong ratings, as you know. We have strong solvency levels, which we continue to monitor tightly. The retro aspect has helped our volatility management, and we'll hear much more about it later on. And I think we have sufficient flexibility capital-wise to grow further, and there is unutilized hybrid capital capacity which we can use in the coming years, so good, strong foundations for a growth story. And still on the foundations, we have decided to push ahead with ESG and have issued a new sustainability strategy. And here, there are a number of subjects where we want to make good progress. We want to further increase the transparency of our reporting. We'll look into climate change as a big topic today and want to have an open dialogue with the different stakeholders. So transparency is key. We look for ways to make sure sustainability is very much part of our business governance. This is the case in underwriting, but also in asset management, where we look critically at the extractive industries. Generally, the topic of coal is known as it was the subject of many discussions in the public sphere. But here, we want to make progress as well in the future. Employees, I'll speak about it in a few minutes, but employee engagement is very important, and we want to be an attractive employer. And lastly, the social engagement, environmental management, areas where we continue to make progress. We are carbon neutral in the location Hanover and want to expand the program in order to be carbon neutral across all locations in the world. So let me move to the performance drivers. And starting with one of the key strengths I mentioned earlier on, a preferred business partner, a position we have. I've been struck over the past 1.5 years to see so much positive feedback from our clients. The the feedback I hear, consistency is key. We're very reliable, very responsive and undogmatic, so the Hannover Re way is very much appreciated. And I think this is an area of strength. One or two examples are on the slide of proven strength. I think specialty, the specialty lines of business are areas where we have very strong teams and good experience, marine, aviation, credit and surety, in particular. And we're tapping into the specialty sector as well as a minority shareholder in the joint venture with HDI Global Specialty, so a very important source of growth for the future. So specialty is a proven strength. And the E+S Rück model is also a good example of working with our clients. We have a setup which allows us in Germany to work with a number of clients who are also shareholders of the company. And this is an astute way to create long-term relationships. Where I believe we can go even further in leveraging our strength is key account management, customer relationship management. And as we grow some of the larger international relationships, it is important that we have the necessary structure, so we're going to introduce a new CRM system to drive customer engagement. It's about making sure that in virtual teams we can work together for the benefit of the clients, but also make sure that we have one voice to the customer. And this will be done in a virtual format with client teams working together, but no organizational change in the future. We have a very good organizational setup. There's no need to change, but I think we need some more structure when it comes to customer relationship engagement. There are many cross-selling opportunities. There are many ways for us in the organization to exchange information about the clients, and it gives us opportunities to grow. In our planning for the next 3 years, we said that there is potential for EUR 100 million of additional EBIT contribution until 2023. So a very important subject, customer excellence or key account management, and we're going to invest in a focused way, again, using virtual structure for our business. Still under the performance drivers, we have -- excuse me, we have earnings growth as a heading, and we have a number of areas where we definitely secure outperforming growth pattern. Financial solutions is an example of proven strength on the life and health side. You see the numbers on the slide, EUR 1.3 billion of contribution to our EBIT in the past 5 years, a very stellar performance, very important to success for our life and health franchise. And of course, our asset management in a difficult environment has been very successful and has delivered very significant earnings. It's a key source of earnings for us, but obviously with challenges ahead with the interest rate environment. So again, a position of strength, but one area which is very important which was identified already last year when we presented in Frankfurt is Asia Pacific. We have been growing steadily in Asia Pacific, but we see the need to continue to grow in the region and follow the demographic development and make sure that we're close to the customers, close to the market, and we're going now to shift a little bit the resources allocated to the Asia Pacific region. We're going to build a strong team without adding to locations. So we're building around existing locations, and we're going to be also very, very focused and we'll avoid organizational complexity or legal entity additions in the next 3 years. So it's about resources, about expertise on-site. And on the next slide, you have a bit more details. I won't go through all the numbers, but you see a growth trajectory in line with the planning we've been discussing for the next 3 years. These are top line numbers with an 11% expected growth in P&C and about 7% in life and health. So a very clear growth story which we support through a number of initiatives which are developed by the teams. We empower the local team, as I said, and we'll have strong leadership on-site accompanying this initiative. And what we want to do is really preserve the Hannover Re model. We want to keep the lean operating model, fast decision-making. And as much as we're going to invest in the Asian region, we're going to have a cost ratio which is stable. So all the initiatives are funded in terms of resources and budget based on the assumption that we won't grow our cost base faster than the premium and EBIT contributions in the next 3 years. So Asia Pacific, last year in Frankfurt, a key topic for us, which will continue to accompany the organization for the years to come. This is a decade horizon, but we focus now on the next 3 years and want to add to our earnings growth story in Asia Pacific. And still under the performance drivers, the last topic which is very important to us is innovation. Here, we want to strengthen our capabilities. We again have a number of success stories, not least what we're doing in tailor-made solutions or structured reinsurance. You see on the bottom left side of the slide some key numbers, over EUR 3 billion of gross written premium in structured and ongoing. And we've been a leader in the ILS market as well. That has been a very important success story. We were a pioneer at the time, but continue to use ILS for our own purpose, but also as a transformer, which is an important part of what we do. We're also keen to look into new risks and push the boundaries of insurability, and cyber is certainly one example of that. We're about EUR 300 million of top line in cyber, among the leaders in that market from a reinsurance side and continue to operate in that segment. But obviously, with some risk management considerations, in particular, the topic of silent cyber, which we need to address in the years to come. One area where I've seen a number of excellent examples of projects and initiatives across the world is digital innovation and digital partnership, but I've also seen some fragmentation and inability to really scale up opportunities. And I think that's the strategic focus area we're going to have in the next 3 years. We want to make sure that the most promising ideas can be leveraged and scaled up in terms of geographies, in particular, and replicating opportunities. So we're going to devote more management attention to innovation and particularly digital innovation and have a setup to regularly look into our pipeline of projects, and we're going to invest into new capabilities. I think we're seeing through the requests from our clients, in particular, that we need to have data analytics capabilities. We need to have digital savviness as well to complement our strong underwriting. But we see an increasing number of inquiries, be it from our clients or new entrants, and we want to orchestrate that in a more structured way and identify those opportunities which are the most promising. So we have so-called accelerators or teams helping the market units to identify and scale up innovative projects. On the next slide, you see a few examples of what we do already today. I won't go through all of them, but it's a good illustration of the different areas where we're active. One example is, of course, what we do in the parametric space. We have the example of Global Parametrics, which is a company specializing in this sector. We also have the example of Vitality in the health sector, a South African partner, where we made good progress. We have some good initiatives in the data analytics sector and also some new partnerships every week. You have fintech speaking to us. We also have the hr | equarium platform, which is an opportunity for us to orchestrate contacts between our clients and the fintech world, so a lot of activities already. What we're going to do with the increasing management attention is to, of course, focus on those more material business opportunities, but also focus on helping our clients as they go through their own digital transformation and seek help in terms of new avenues for growth. And lastly, we want to build new partnerships, particularly with fintech. We're not going the route of having a huge infrastructure in our organization. We want to keep the lean model, but we want to establish strong partnerships with some of the new entrants. And I hope we'll be able to give you more insights on that in the years to come. Still an area which is very difficult to quantify, but the potential is significant, and I very much hope that in the next 2 to 3 years, we'll have a significant portion, at least a material portion of our earnings coming from such partnerships. Moving now to what we call the performance enablers or those areas which help our growth story and will help us succeed in our next strategy cycle. The first is the obvious one, people. And again, we are currently in a situation of strength. I think the proven strengths are that culture of delegation. The fact that we have very, very experienced professional people in-house with long tenures, as I said, a lot of experience in the organization. People are fully accountable, very professional and have ownership for what they do. And this is the result of a very strong culture. What we see is we need to make sure that we acquire new talent in our organization and that we help also our people to grow and go into new roles and responsibilities. We feel we need to invest more into succession planning, talent reviews. And we'll focus very much on development programs for underwriters, but also focusing on leadership topics in the next year. And we'll create opportunities for our people who want to change to a new job. Mobility is a topic. We want to have engaged people. We want also to have equal opportunities and make sure that we have a diverse organization. So a lot of topics which will help us to modernize our talent management framework, but also help succession planning and make sure that the next generation of lead underwriters are well prepared when they take over. Still under performance enablers, I won't go in-depth here because we'll see a little bit more at the next presentation, but capital management, clearly, has been mentioned. The focus is on managing volatility and making sure that we're a dividend payer and the focus on reliable dividend will continue to be a driving factor in our decision-making internally. The area where I feel we need to invest and we have done so already is in-force management. Clearly, the U.S., we had to invest more because we had problems and had to fix some of these problems. We're making good progress in the U.S. on the life and health side. We have a new analytics team who will help making sure that we have the capabilities to analyze our in-force portfolio on the life side, look at treaty terms, make sure that we maximize profitability and at times also use the retrocession market to dispose of elements which are beyond our capacity or risk appetite, so in-force management. Also an important topic in P&C, the topic of runoff and commutation, but the main driver here is life and health. That's where we see a lot of potential going forward. And last but not least, the lean operating model. Clearly, with the cost advantage I've highlighted, the strong assets which we want to keep, I think it's a mix of cultural and organizational aspects which explain the success story. We are really very focused. We seek simplicity. And we only invest in ventures or projects where we really see a business case, and that has been the strength of the model. Where I think we will need to continue to focus on is by leveraging the experience we've made in automation, in looking into ways to simplify, streamline some parts of the value chain not adding that much value and liberating energy and resources for our people to focus on the more value-adding parts of what we do. So end-to-end automation will be a big topic for us in the next 3 years, and I hope it will continue to contribute to that cost performance and lean operating model. So this is in short, without going into a lot of details, of course, but in short the main features of the new strategy. As mentioned, we are leveraging the strength of the Hannover Re model. We're not going into full change mode. Why should we with that success story. We have identified the strengths of our model. We want to nurture these strengths. And there are areas where we're going to focus more in terms of management attention, budget and of course, resources. And I've highlighted these, customer excellence, Asia Pacific, innovation and talent management, but also the area of automation as well as the analytics with our in-force portfolio. These are the blocks of the strategy, and we'll discuss them as we meet in the future, but this is our radar, if you want, and the framework we're going to operate in, in the next 3 years. So let me finish with a few words on the outlook for the market, but also for Hannover Re. And clearly, we are, today, in a year where there is a big crisis, a big pandemic and some uncertainties. So we're not yet there in terms of fully assessing the impact of a crisis, which is still ongoing. But I think, based on what we know, based on the client feedback we have, based on the exposure estimate that we have for the COVID loss complex, I remain of the view that we'll be able to manage this and start 2021 with a very positive dynamic. And on the first chart, you see, first of all, large losses mapped, nat cat losses and man-made losses. No, these are only nat cat losses highlighted for the industry in the past 10 years. And you can see that 2017, '18, '19 were above the average of $67 billion. To that, the COVID complex is to be included. $57 billion is the current consensus estimate. It is still subject to many interpretations. The reported losses related to COVID are much less than that, remains to be seen what the ultimate loss burden will be on the industry, but you see that it is very significant. And you have the interest rate environment highlighted through the example of the 10-year German government bond development, clearly, with the negative interest rates showing the challenge. And this is the very reason why we've been relatively vocal on the need for price adjustments, not only in reinsurance, I should stress, also in insurance. But it's clear to us that 2021 should see some market corrections. And we've been very clear on the fact that we need to make sure that we can benefit from better conditions given the very heavy load on the industry and the COVID complex, which is, of course, impacting the reinsurance sector, in particular. So a bit of a perfect storm, I would say, with a situation requiring a turning of the market in P&C, in particular. On this slide, you have some of the details we've announced at Q2. The numbers related to COVID-19, EUR 600 million estimated at Q2 for our P&C operation, EUR 63 million for life and health. We expect some development in the second half of the year, and we'll be discussing this in a couple of weeks when we meet and present our Q3 numbers. But I think this is still manageable, and the development will not be commensurate to what we've seen in the previous quarters. We also see business opportunities. I mentioned the need for price increases. This is the main opportunity for the immediate future as we embark on the campaign for the January renewals. I think we'll see some increased demand as well, structured and traditional, from our clients and what we call the flight to quality will play a role. And I think with our positioning as a top-tier player in the market, we see good potential to benefit from the flight to quality in 2021 but also beyond next year. We'll see digitalization as it accelerated through the pandemic situation may lead to an acceleration of opportunities in insurance. I think this will be part of this innovation and digital innovation strategy, in particular. We'll see how much additional earnings we can gain out of it. But I think this is a long-term trend which is accelerating and will give us some good potential. And some new product development are always possible. Parametric solutions is one of the examples I showed earlier. Let me now come to the target matrix. And Karl mentioned that we won't be issuing numbers for the quarters, of course, but also not any guidance at this stage. But this shows you the updated numbers we agreed on in terms of the strategy cycle. So this is for the next 3 years. The ROE remains the same in terms of target. It's still 900 basis points. The solvency ratio target is unchanged. When it comes to growth, P&C and life and health, we have an EBIT growth over 5% for the period. The premium level is a little bit higher on the P&C side, taking account of financial solutions in life and health, so 5% in P&C and 3% in life and health. And the combined ratio takes account of the improving market conditions. And therefore, we decided to change the target from 97% to 96%. The value of new business has been slightly increased and is now over EUR 250 million for the next strategy cycle. So let me conclude on this initial presentation. Just to thank you for your attention. And hopefully, you get a gist of where we want to be heading in the next 3 years. We are very well positioned in the market. We have very strong market credentials. We are dealing with the COVID pandemic still ongoing. And there are some uncertainties, clearly, but we think it's manageable. And we're also focusing on opportunities arising out of this special situation. And therefore, 2021 should be a good year for Hannover Re. The group strategy is a balancing act. We want to ensure further value creation. We focus on outperformance with these key metrics I showed earlier on, growth, earnings growth, profitability through the ROE and cost efficiency. We want to build on our strengths, the model of Hannover Re. The business model works very well, and we want to strengthen it in the years to come. And we have a number of areas where we want to invest without losing track of our cost ratio. Our business model remains the same, but we have scope for investment into the future. So thank you very much, and I think we are going to have a Q&A now with some of my colleagues. Thank you.

Well, thank you, Jean-Jacques, for your detailed presentation. I'm sure this has raised a lot of interest, and we are going straight into the Q&A session now. [Operator Instructions] For the Q&A session, I'd like to invite all the Board members giving presentations today to take the stage. First, I'd like to welcome Sven Althoff, our coordinator for the P&C reinsurance business with responsibility for Australasia, U.K., Ireland and London market as well as for the specialty markets like aviation, marine, credit and surety, and last but not least, the facultative business. Then I also welcome Claude Chèvre. His responsibility in the life and health business comprises the longevity business and almost all regions, except for the Anglo-Saxon markets. And I'm also pleased to welcome Clemens Jungsthofel, whose scope of responsibility includes, amongst other things, investments, IT and finance and accounting. I think we are now set to take your questions. So the first question, I'm sorry, I cannot see the first questions now. So please, operator, give us the first caller.

It's from Andrew Ritchie of Autonomous Research.

Three quick questions. First of all, Jean-Jacques, you talked about reliable dividend, and it has indeed been reliable. Although you kind of imply less reliability than you actually have because you still split it into an ordinary and a special. Is that still an appropriate split? I mean, given you've consistently delivered the whole dividend, even in years -- recent years where we've had pretty elevated catastrophes. So maybe just give us your perception of that and why still split it. Second question, the cost advantage has been remarkable with Hannover over the years. Do you think it's peaked? I mean you admitted that you're having possibly to invest a bit more in coming years. Okay, you think you can still keep it lean. But also, your peers are recognizing benefits from the use of technology and also focusing on making their models more lean. So do you think you can maintain that, something like a 400 basis point cost advantage from this point? And the final question, you mentioned in passing HDI Global. Maybe you could just give us a perspective on that. I'm not sure it's dealt with. Maybe Sven is dealing with it later, I'm not sure he is, on the potential contribution from that. Any other thoughts on potential expansion in primary nonlife?

Yes. Thank you very much, Andrew. On the dividend, this is a fair question you're asking. I think, at this stage, particularly considering that 2020 is a very special year, we haven't focused on changing the way we look at dividend, so we maintain the dividend policy as is. And the numbers are in our presentation, and we want to keep that notion of having a special dividend when the circumstances allow. I don't want to exclude that at some stage we question it. But in the short term, we're not going to have that discussion as a top priority. The priority for me is to really ensure reliability and consistency over time. But at some stage, clearly, this question will need to arise. And I don't know if it's going to be next year, in a couple of years. It's a fair challenge, and we have it on the list but not for now. On the lean model, this has been, of course, in the past 1.5 years for me, the big question, how can we make sure we keep up with the need to have structure built into our operations as we grow. And my sentiment today is that, that cost advantage is not only about structure or technology, it's also about culture and the way we operate. And if you want, we're becoming a big small company. We are getting to a scale which is very large, but keep the many attributes of a smaller company. And these are multiple aspects of our model which are not that easy to replicate for the peers. That organization simplicity is very clear. Technology may play a role, but in the end, as much as I think it is important, and we will do everything we can to automate and streamline the model, I don't think this is 90% of the answer as we will continue to operate in an environment where there is a need for tailor-made solutions. There is a need for client contacts. And we're not heading into an area where the reinsurance model is fully commoditized. I don't think so. There might be segments which are, where technology may play a role. But generally, I think the model is robust. So the jury is out whether the competitors can catch up. But my commitment is that we want to keep consistency in terms of our cost ratio. I don't think this is going to disappear anytime soon. Personally speaking, having gone through a different model in my previous life, I think there are many elements which are not easy to replicate and will be important in the future. On HDI Global, I think the best is that I give the floor to Sven because he's very much involved in the collaboration with our friends from HDI.

Well, thank you, Jean-Jacques. And thank you, Andrew, for the question. So I can report that the joint venture with HDI Global is well on track. When we started the joint venture 1.5 years ago, both sides contributed from their existing business as a starting point for the joint venture. But the company has been able to grow significantly over this 1.5 years. The timing to form the joint venture has been very beneficial. As you know, the specialty insurance market had already started to turn significantly in 2019. So in the meantime, we have been able to not only organically grow the existing lines of business, but to also add additional teams to broaden the scope of the specialty business. So from that point of view, I would say, so far, so good. You asked about contributions. So from the top line perspective, the joint venture is a little over EUR 1 billion of premium income for us right now. The combined ratio is still in the high 90s. So they are not fully contributing to our 97% and from next year 96% combined ratio targets yet, which has to be understood in the context that this is a fast-growing company. So the initial reserving positions are naturally a little more conservative. But at this stage, we are very positive that they will contribute to our 96% combined ratio target and hopefully, even significantly below that because, as I said, the timing for the joint venture is very good. The last part of your question was our ambitions for primary insurance in general. Here, I can say that our strategy has not changed. So our 2 main vehicles are going to be the joint venture I was just talking about and our ownership of Argenta as a Lloyd's platform. Outside that, we have no ambition at this stage to broaden our footstep into the primary market and want to stay as pure-play reinsurer as possible.

Okay. Well, thank you. We have another question from Kamran.

Just 1 question. I guess we've talked about the market hardening, where things are going to go in P&C. I guess looking back at the last [indiscernible] Hannover Re has a tendency to kind of under report and build the reserve buffer. But looking through the slides in the next session, the buffer is still strong. So I just wanted to understand, should we -- I know you talked about 96% for next year in your '21 to '23 guidance, but should we expect [indiscernible] the margin improvement this time around than we did last time we hard cycle?

Sven, should I give you that easy question?

Yes, I would give it a try. I mean, I hear what you say when it comes to the 96% combined ratio target, but it's going to be a mix. It's -- the rate increases themselves. Where we are fairly optimistic that 2021 will be a good improvement over 2020 when it comes to rate momentum and terms and conditions in general. But at the same time, given the various catastrophes we have experienced, given the pandemic situation right now, the view on risk is also changing at the same time. So it's not only the rates but also the loss ratio assumptions, which are changing. And of course -- and then I will talk about that a little bit in my presentation. We will also have to spend a little more when it comes to our retrocessional coverages. At least that is our expectation. So therefore, all in all, we feel comfortable by lowering the combined ratio target by 1 point. And I guess we can give you a more robust answer on this after the January 1 renewal. I mean at this stage, it's all still crystal ball glazing to a certain extent. But we are comfortable with the 96% combined. And from that point of view, we are optimistic that we will meet this target.

Well, thank you, Kamran. The next question is from Vinit Malhotra from Mediobanca.

If I can have 3 very quick ones, please. The first one is, you mentioned, Jean-Jacques, the underwriting talent and the management. I seem to remember that maybe 2 years ago or maybe even last year, there was a discussion around this topic. Is it still a topic that you're thinking about? If there's some comfort you can give us that it's not that suddenly in 2, 3 years' time, there's nobody very senior left? Or some kind of an indication would be helpful on this underwriting talent management. Second thing is just the solvency release solutions that we keep hearing about where there is a demand. I am a bit surprised that if there is so much demand, then why is the margin not expanding? Or are you saying that it is expanding but only a little bit? Because I seem to remember from one technology conference that you were saying this is not really a margin expansion area because it wasn't affected by COVID. But then there is more demand, and it's for high-quality capital. So shouldn't there be a little bit of scope here? And yes, I think those are my 2 questions, sorry, not 3. Two questions.

Okay. Vinit, thank you very much. I'll take up the underwriting talent question and maybe give the floor to Claude and Sven on the structured reinsurance, what we see. I guess your question was both life and nonlife, yes?

Yes. I didn't know what you meant by [indiscernible] I was assuming nonlife mainly, but I don't know. Yes.

Perfect. Also on the underwriting talent, I can reassure you that we're not about to have a flight of talents anytime soon. It's true that we have a number of colleagues who are in their mid-50s and -- to late 50s. So there are some key people who are important to the organization, and that's why it's important that we focus on succession planning in particular. I can tell you that we have a lot of excellent people in our underwriting teams but also in our support teams across the locations. But it's just a matter of making sure we orchestrate this. We prepare this more carefully, and we help our people grow and make sure that they have development plans in place. So that when in 2, 3 or 4 years, there is an important function where we have a replacement, that we really have the choice of great people in our house and a well-planned process to have succession. So no concern. It's just an area which has not been prime concern in the past 10 years for obvious reasons because the loyalty has been great and continues to be so. But I think it's important that we put a bit more time, particularly management time, on looking into succession plans. So no immediate concern, but it's very important that we invest sufficient time on this. So on structured reinsurance, maybe Claude on the life side, financial solutions.

Yes, maybe -- I mean, you're mentioning that you were expecting the margins to go up -- I mean, one thing which is right, and you're absolutely right saying that is that the demand for solvency relief solutions, for capital relief solutions, for reserve relief solutions has been increasing. But one thing which is also true is that we have been able already in the past, to push very high margins through. It's not a price game. It is that we're really very fast, that we're reactive also, that there is a kind of -- as I told you already, a kind of a deal certainty when you talk to Hannover Re. So we have already had very high margins, and that's the reason why I don't believe that the margins on these kind of solutions is going up in the future. What is going up is definitely demand. That's clear. Sven, maybe over to you.

Sorry, I meant the nonlife [ pricing. ]

Okay, sorry, yes. Sorry.

Well, the situation on the nonlife side is rather similar. So the demand is going to be significant, but we have no requirement to adjust our pricing metrics on those structured solutions. The return over and above what we would require from a cost of capital perspective has been very meaningful. And so from that point of view, no pressure to increase the pricing. And of course, the business we are writing on the structured side is very often competing with other instruments of capital. So from that point of view, there's also ceilings and then what we can achieve as far as pricing is concerned. And I know the same is true on the life and health side as well. So from that point of view, we are very optimistic about the additional demand but very happy with our pricing structure as it is.

Sure. And sorry, if I can follow-up. The recent commentaries have been that you're excluding pandemic coverage or [ there's steep ] lowering as a risk management from the next renewal cycle in terms and conditions. Is there a lot of pushback from clients? Or do you see your pushbacks from governments? Or I mean, how do you manage that side of being able to get away with no or lower pandemic coverage?

Well, then, of course, of course, the clients are excluding this kind of exposure themselves. So from that point of view, I think the industry is aligned right now. COVID-19 has demonstrated that the potential systemic risk from a pandemic is something which the commercial market cannot take just on its own. There will be private public partnerships to come up with solutions. I'm sure about that. This will take a little bit of time. I guess governments are more busy right now dealing with the ongoing pandemic rather than thinking about future pandemics, but those solutions will come. But both insurers and reinsurers are going to limit their potential exposure as from the next renewal date. Where, of course, we have interesting discussions with our clients is on their runoff portfolios because the timing of the reinsurance renewals may not coincide with them having had a chance to renew a full year of the underlying business. So there is an area of pushback and an area of discussions. But as always, in a changing situation like that, I'm sure we will come to constructive solutions with our clients. But it may involve paying more premium on bespoke solutions rather than having it covered in all risk policies like in the last couple of years.

Well, thank you, Vinit, for your questions. We still have a number of requests in the inbox. So unfortunately, owing to time constraints, we only can include 3 more questioners now. We start with Thomas Fossard from HSBC.

Two questions on my side. The first one would be, again, on the special dividend. If you could clarify a bit what is the management view on special dividend, especially in a hardening pricing cycle environment. And especially since I think that last word of [ Roland ] before he left was that potentially is a special dividend would be a bit less automatic that has been in the past at Hannover Re. So any clarification on this would be interesting from my point of view. The second question would be back to the target metrics. Actually, we are hearing a lot of price increases, change in underwriting, behaviors and discipline, all that leading to better underwriting profitability. And on top, we're expecting now -- or you're expecting now to be able to push reinsurance prices up. So dropping or reducing your combined ratio by only, I would say, only 100 basis points and keeping your 900 basis points margin over Re's fee, is that usual? Is it purely Hannover Re usual conservatism? Or is there something that you're losing elsewhere, and that on an economic basis, you're not expecting too much improvement over the duration of the plan?

Thank you, Thomas. We will give the floor to Clemens on the dividend question.

Yes. Thank you. Well, to complement probably what Jean-Jacques earlier said on the dividend, in general, we stick -- of course, in terms of the ordinary dividend, we stick to our policy that it's going to be -- we're looking at a payout ratio between 35% and 45%. So that is going to be our policy in general, and that's going to be our policy looking forward as well. You mentioned Roland, and Roland has always pointed out and stressed the fact that we -- although, I guess, we've been used to it in terms of the special dividend, that this always depends, of course, on our net income in the first place but also on our capital position in terms of opportunities that we might pick up going forward. So just to reiterate what Jean-Jacques said, we will have that on the table, that discussion in terms of the special dividend. But as for the moment, we just stick to what we've sort of guided in the past.

Thank you. And on the target matrix, of course, it's very difficult. This is a 3-year view. So we had an in-depth discussion on what should be the number. We'll see in terms of guidance for 2021 how things look like and we'll give more information, most probably next time. The 1% combined ratio points of -- over the global portfolio P&C is not an easy endeavor. Bearing in mind, of course, that you have -- you still have regions with competitive pressure. So it's not going to be a walk in the park, but I think we need to see how the situation looks like during the January renewals. This will give us, I think, a very good hint whether our expectation becomes a reality and to what extent price corrections will occur across the board as we hope. But I hope it is conservatism, of course. But it was based on growth outlook, competitive pressure remaining in some areas. And the fact that there's still uncertainty on the final outcome of the general renewal, the best estimate for the next 3 years. Sven, I don't know if you want to add on the combined ratio targets and its significance.

Well, I can only repeat what I answered to Andrew's question. I mean the combined ratio is not only the price increase, which you can directly translate into a lower combined ratio. But the reason why the prices are increasing is, of course, very often losses. So you have a changed view on risk at the same time, which makes your loss ratio assumptions go up, eating some of the rate increase you're going to earn. And then we have to expect a general hardening of the retrocessional market. And as you know, we are a significant buyer of retrocessional coverage. So this, of course, also somewhat diluting the positive price impact we will achieve for our incoming business.

Okay. Well, thank you, Thomas, for your question. We continue with Michael Haid from Commerzbank.

On cyber insurance, it's an area of material growth for the years to come. You mentioned cyber is going to play and already plays with 200 million premiums, an important role within Hannover Re. COVID-19 probably accelerates this. With respect to the expertise in cyber, this requires material investments in human capital. How do you see Hannover Re's strategy in cyber? Is it lean costs such -- are you prepared to invest more in cyber know-how and increase the team going forward? Do you see the need for that?

Sven, I'll give you that question because you're close to the action on this.

Well, we have been writing cyber business for more than 10 years now, so we have invested heavily into our knowledge and into our people. So from that point of view, we feel we are very well positioned. As you know, we write almost all of our business on a reinsurance basis. So it's not like we have to underwrite the original cyber business. This is done by the seeding companies. They have learned a lot over the last 5 to 7 years themselves. And for us, it's a matter of underwriting the underwriter. Of course, it was a technical view from our side as well. But it's not a situation where we are underwriting the original business. Where we are working a little closer with the seeding companies and where they are a little more reliant on us is on the -- what we would say, SME business or small commercial enterprise business, where very often the insurance company is lacking a little bit of their own resources, and they are looking to their reinsurers for some help in that respect. But this is an area we have addressed successfully, particularly in Germany over the last 2 or 3 years already. So for us, we feel it's a scalable model, which we can also take into other countries. So from that point of view, I wouldn't say we have a huge investment case on our side. And we will continue to organically grow our cyber business like we have done in the last few years.

Thank you, Michael. The next question is from Vikram Gandhi from Societe Generale. And then we would close this Q&A session for now. So please, everyone else should hold their thoughts for later on, please. Vikram?

It's Vikram, Soc Gen. I hope you can hear me all right. Just a quick question. I appreciate what you see on the cost advantage or the admin cost advantage in particular. And I'm aware it's very well acknowledged by the market, and it's a great advantage to have. I'm just interested in your perspective on the relative disadvantage, for the lack of a better word, that the group has in terms of higher dependence on the brokers, mainly for the P&C business. And if there are any plans to work around that area.

No, thank you, Vik. The cost advantage indeed continues to be key to success, as I mentioned. It's a blend of different factors. The broker channel on the P&C side continues to be a very important feature of what we do. I don't feel that we're that dependent on the brokers. We have very, very strong relationships at every level with old brokerage companies. Of course, you have consolidation in the market, and that creates a situation where you have a little bit more dominance in the market, but you still have competitive pressure. You'll still have new brokerage companies being established in the future. So I'm not that concerned. And I think the reinsurance brokers do need to have not only reinsurance capacity but partnerships for innovation for new covers. And we are into -- in a long-term relationship as well with the brokers generally. So this is not going to lead to any sort of situation where we feel we're totally dependent on them. I think there's very, very strong dialogue and many, many examples where the brokers are really trying to do a very good job in having covers and terms and conditions, which work for both parties and which are sustainable. So even though, of course, we see some move to consolidation in the brokerage industry, that doesn't change the commitment to brokers. This has worked for us very, very well. There's a lot of trust. And I'm not concerned that this will change anytime soon.

Well, thank you, Vikram, but also thank you all for all your excellent questions. And thank you for taking the stage to answer the questions. We move on to the next presentation. I hope you can wait a little longer for the next coffee break.

The -- I'd like now to introduce Clemens Jungsthofel, our new CFO. Although young in years, Clemens has a wealth of experience to draw on. He learned about the insurance business from ground up as an insurance agent before even embarking on his university studies. After graduating, he completed his very own path or journey of outperformance with KPMG. He has audited Hanno Re as a responsible KPMG partner from 2013 to 2015. To this extent, he knows Hanno Re quite well. He knows the key actors, and he knows the culture of the company. On top of all that, he was the candidate put forward by Roland Vogel as his own successor of choice. Clemens joined Hannover Re's executive Board at the beginning of September and took on the mantle as CFO on October 1. He will be sharing his insight into some pressing questions in his presentation, namely, A, how is the investment portfolio and the return on investment expected to fare? And second, what is the reserve and capital position? I'm really looking forward to Clemens' debut presentation, which kicks off a long series of Investor Day presentations in the years to come. Clemens, now it's your turn.

Thank you, Karl. Thank you for your very kind introduction. I'm still thinking, though, what is more flattering? The journey of outperformance that you just mentioned, or the young in years, given the fact that I've burned the midnight oil at KPMG for 20 years and actually just turned 50? But seriously, Karl, you have raised the bar quite high for me because I thought, at least on my first Investors Day, I could get away with an excuse that I've only been the CFO for 3 weeks now. But this is obviously what our guys in Investor Relations talk about when they talk about expectation management, putting pressure on the CFO and then making him run behind it. So Karl, thank you. And first of all, of course, hello, and welcome to our Investors' Day to everyone who is following online. My name is Clemens Jungsthofel, and well, Karl pretty much mentioned all the secrets and details of my CV already. But Karl, there are 2 insights or 2 secrets that apparently, you haven't found out yet. And I think I'd just share them with you today. Not that they are particularly exciting, but I think they explain in the best way why I actually joined Hannover Re. So the first being, and Karl alluded to it, the fact that I've been in the insurance and reinsurance industry, literally all my life is not a coincidence. It's actually so that I inherited the insurance genes because both my father and my grandfather were insurance brokers. So I really, really grew up with insurance at home. And as Karl mentioned, I was then trained as an insurance broker myself. The second, the second secret, the second insight that I want to share with you is actually the first time when I entered the office of Hannover Re and Hannover. It was not, as Karl mentioned, in September, and it was not in 2013 when I was a partner at KPMG responsible for the audit of Hanno Re. It was actually -- and I did look it up, on January 16, 2002. That was the first time when I joined the KPMG audit team at Hannover Re in Hannover. And I've never really forgotten this first encounter with the Hannover Re Group, I have to say. I mean I -- as a KPMG auditor, I had seen many insurance and reinsurance companies before I came here to Hannover. However, I have to say, after just being here 1 week in the office at Hannover Re, I thought, wow, these guys are really different. And I don't know -- some of you will know that in 2002, that slogan, Someone Different, wasn't even invented. I think it was actually in 2005. So there were a couple of a couple of things really that came to my mind when I thought about back in the days, but there are 3 things that really stood out for me. First -- and Jean-Jacques perfectly mentioned it already this morning, first, really the speed and pragmatism in terms of coming to decisions, making decisions. That was really impressive for me and made it easy for me actually to work with Hannover Re as a client, even on a Board level. Second, really, the underwriting skills, and Jean-Jacques mentioned it as well. It was really -- it became obvious to me. The underwriting culture, the underwriting skills, coupled with this really strong relationship with the clients and -- but also with the brokers, that was something that really stood out for me as well. And then, of course, the lean operating model and the high cost discipline, which then feeds into our cost ratio. And you've pointed already out in the Q&A session, I know that has been discussed in the past. I was wondering where that comes from as well. But something that is very pleasing for me as a CFO, a low-cost ratio. And probably for you as well, I can tell you, if you are an auditor or a consultant at Hannover Re and when it comes to fee discussion, that can be a very painful exercise. So that probably proves what the culture is. So I think it's really deep in the DNA of the company really to look after costs and be very careful about it. Something, I have to say you can -- and I have seen that at many clients, it's very difficult to gain. It's really difficult to get there, but it's easy to lose. So whenever I -- if there are auditors or consultants listening today, whenever it comes to fee discussions, I'm very happily taking up with that tradition going forward. So on top of that, I have to say, following 2002 when I had this first encounter, I've really followed Hannover Re ever since. And as Karl mentioned, later on as a partner on the audit as well. And on top of the things that I've mentioned, I always felt that there's really something -- that there is this specific, very unique culture at Hannover Re. It is something that is -- and I can say that having been there now for 7 weeks, it's something that's tangible every day. But as a CFO, I can say, of course, it's nothing that you would see on a balance sheet. If I would have to describe this unique culture, at Hannover Re, I, would say probably it's a mixture of reliability, integrity. It's clearly passion and team play and the entrepreneurial mindset that you can sense really every day at Hannover Re. So coming back to my answer or the question, when I would have to answer the question -- and I've got many of them over the last couple of weeks. Why did you, Clemens, actually join Hannover Re? I can really confidently say that all these things, that the culture, that the way Hannover Re works fits perfectly into my own values, and it fits perfectly in the way I like to work. So I can really confidently say today here standing here in front of you, say I'm really, really happy after all these years as an auditor or an external viewer, I'm really happy to be part of the Hannover Re family today, and I'm really happy to be part of the management team today. So now of course, I'm really happy to be here standing in front of you. Although I have to admit that, of course, I would have much preferred to meet all of you in person, particularly on my first Investors' Day. But I'm sure we will have the opportunity in the future going forward. So what's on the agenda for today? Karl mentioned it. It's a -- and Jean-Jacques mentioned it already as well. I mean we are just 2 weeks away from our Q3 earnings call, so you will appreciate that this is really a fresher -- a refresher on the investments on the capital situation. And then, of course, so there will be some repetition probably of something that you've seen in our Q2 numbers already. But I'm really happy to provide an update and to more actual numbers then during our Q3 call in 2 weeks from now. But then I'll spend some time and, of course, shed some light on the, I guess, eagerly awaited reserving studies of Willis Towers Watson on our 2019 numbers. So on the investments. Well, I guess, it's needless to say that the capital markets in general have proven to be extremely challenging and extremely volatile in the year 2020. Having said that, looking at our investment portfolio at Hannover Re, I think it's fair to say that our portfolio has been extremely resilient, even in the face of a global pandemic. And I think we've demonstrated that already in our Q2 numbers. So why is this? Why is it so resilient? And why have we delivered very stable and, I think, very good ROIs in the past? And I did ask myself that question many times, and I think -- I believe this is because our investment policy is strictly guided by principles. So what are these principles? I can tell you, looking at Gerard Segler, who will be joining us for the Q&A session later, that Gerard Segler and his team -- and I have known him for quite a while. I can assure you, these principles, he will make sure that he and his team adhere to it and particularly remind us, as Board members as well, that we adhere to these principles. So what are these principles in essence? First of all, yes, I think it's fair to say we do take opportunities when they arise. We are very flexible in adapting to new market environment, looking for new asset classes and the like. However, I think 1 core principle is that we only pick investments that we fully understand and that we believe in. Gerald would say probably, we know what we don't know. So put it the other way around. So we always would look for really high standards and high diversification. We, of course, ensure always liquidity and solvency in terms of our investments. In terms of earnings, I think our philosophy is that we look for stable, risk-adequate returns as opposed to investing in commodities or something like that. And of course, we do not bet on interest and currencies. So we really try to do everything to reduce our currency and our maturity risk by matching our investments to our liabilities. So how does our portfolio look like? And this slide will look familiar to you, I'm pretty sure. You know this already, but just as a quick reminder. On the left-hand side, you see the composition of our investment portfolio, a very fairly stable and broadly diversified portfolio over the last couple of years. We are carrying a stable proportion of fixed income securities with 87% of the overall portfolio, but broadly diversified within this asset class of fixed income securities as you can see. On the government bonds, you've seen we've built up over the last couple of years, some percentage point, and that's mainly the inflation-linked bonds on the government side. As to the quality of the fixed income portfolio, measured in terms of rating, the proportion of fixed income securities that are carrying an investment grade remains on a very stable and high level of 93%. So our credit profile has been largely unchanged over time. Then I think that has been mentioned already before by Roland in our Q2 call. We have used the significant drop in the stock market to pick up and build up some listed equity portfolio again. That was back in March. You can imagine that portfolio has developed quite nicely over the last couple of months. On the right-hand side, you can see the contribution of the several asset classes to our ordinary investment income. You can see the government bonds, the govies, with 35%, representing the portfolio, contribute 20% to our ordinary income. On the other hand, you can see our alternative assets. When you look at the lines, private equity and real assets, so mainly real estate and infrastructure. That is about 7% of our overall assets, and they contribute roughly 19% of our ordinary income. Of course, admittedly, on the real estate side, the expenses are not included. But that doesn't really change the story and the message. So what are we expecting for the years to come on the investment side? I mean you've seen we've reported a 2.7% ROI as per Q2, quite stable ROI and I think a very comfortable ROI, given the market environment. So one thing, I think, is for sure. The low interest rate environment has been challenging in the past, and it will be even more challenging in the future. That is for sure. And it becomes pretty obvious, and you know that slide already. It becomes pretty obvious when you compare the locked-in yields with the current reinvestment yields, as you can see here on the slide. Just to remind you, the light blue bar and the light blue dotted lines are the locked-in yields. And you can see that we have that for our main currencies here. So this is the ordinary income for our -- the ordinary income yield for our fixed income security portfolio. Just to remind you, it's not -- the overall portfolio is really just the fixed income portfolio. And our locked-in yield at the moment is 2.35%. The dark blue bar or the dark blue dotted line is the current market yield for our portfolio. Having said that, so if we would have to reinvest our portfolio today, our yield would be 1.31. So what we've done is, with the green line is, we have transferred that view on the reinvestment into a more realistic investment view, taken out some short duration investments. Of course, we wouldn't reinvest exactly that portfolio as it stands today, then we come to a 1.45%. So in essence, well, what does this slide tell us? Well, I guess, interesting probably to have a quick glance at is the difference between the light and the dark blue bar. And you can see that in -- when you look at the euro zone, that drop is not so prominent. But you can see a very sharp drop in the non-EU currency yields, particularly in the U.S. but also in pound sterling. And as you all know, that forms a substantial part in our asset class. And then of course, we have the inflation-linked bonds. They've, I think, mentioned in the past, that's roughly 4.5 billion, I think, of our portfolio sitting in our governments, as I -- in our government bonds, as I mentioned earlier. Those bonds provide, in general, a lower yield, particularly in 2020. You've seen that in the Q2 numbers. But just to remind you, I mean, we've purchased these government bonds to hedge our inflation link. So there is some, of course, convoluting effects on the underwriting side as well. So the next slide -- and you know that already, I think, Roland showed that last year as well. The next slide shows -- just underlines the difference between the maturing portfolio yield and the respective reinvestment yield over the next 10 years. So the dark blue is this year's analysis, and the gray line, we've shown last year's analysis as well. And so same story. So as this -- to be honest, all seems a bit depressing on the current yield and on the interest rate environment. Let's get a bit more positive spin on it. So let's have a look what we've done about this situation in the past and what are we going to do it in the future. So we have already built up a quite substantive portfolio of other asset classes, as you can see here. Those asset classes are delivering much more attractive returns, and they have proven to do so in the past. So we have won then, more than EUR 1 billion sitting in private equity. And I want to reiterate the fact that this is not a portfolio that we've built up over the last couple of years. I mean I mentioned that I came in as an auditor in 2002 and the portfolio was already quite substantive. So I think looking back, Hannover Re started investing in private equity already in 1998. So this is really an established -- well-established, highly diversified portfolio with a long track record, a very good team, very experienced team. I think it's fair to mention when we look at private equity going forward as well. And that's definitely an advantage for us, I would say. Then we have our real estate portfolio, highly diversified around the world. There are some indirect investments via funds, but predominantly direct investments and really, a pick-and-choose exercise, I would say, with each investment decision that we take on the real estate side is part of an extensive analysis of both the property itself, the market we are investing in but also the manager who's looking after the real estate. Then we have -- on the right-hand side, you can see the other asset classes like emerging markets, fixed income, enhancement funds, for example, our middle market funds. All these funds, all these investments, we are looking for opportunities for yield pickup, and we have done that already in the past. So overall, I think it's fair to say, it's not going to be a very easy exercise to produce ROIs like we have seen in the past. And to be honest, I wouldn't feel comfortable to put in front of you, to put up a target of an ROI of 2.7% going forward for the years to come. However, having said that, I think we are still benefiting from our locked-in yields that we've seen. We have built up quite a substantial portfolio of alternative assets. That is going to help us in the years to come. Our investment team, I mentioned it earlier, has been able to quickly adapt to the challenging markets in the past and find alternative asset classes, find niches. And I'm pretty sure that we will do so in the future. And then of course, we have the positive cash flow coming in that will help us at least stabilize our investment returns in absolute terms. On capitalization. Jean-Jacques already mentioned it. And you've seen it on the slide, on Slide 9, just a quick confirmation that the preliminary Solvency II ratio that we had reported in Q2 has come out as -- with 225% as you can see here on the slide in the Q2 number that has been confirmed. So this 225% is still very comfortably above our limit of 180% and very comfortable above our threshold of 200% despite the significant market movements that, of course, we have seen in 2020 during the year. I will provide preliminary Q3 number during our earnings call in 2 weeks from now. Just to remind you, and I think that has been mentioned before as well, our internal matrix show that the ratio is even better. You will remember probably that the regular takes a different view on minority interest. So when you look at our internal matrix, this ratio would even look better. On the right-hand side, very important to mention, I think, you see continued very high quality of our capital, with 87% being Tier 1. And then, of course, the high degree of flexibility with EUR 1.3 billion unused Tier 2 capacity in order to take advantage of any opportunities that we will see in the market. On the next slide, you know that our capital position is constantly reviewed against the backdrop of possible changes in the risk profile as well market developments, as we've seen this year. And so we see the stress test here, some of the stress tests on these slides. We haven't updated the numbers with Q2 data. However, the key message remains unchanged. The solvency ratio remains comfortably above our targets in our relative stress tests. The next slide, just to remind you on the reserving -- reserve redundancy. You know that Willis Towers Watson is performing an independent review on our group IFRS reserves on a gross and a net basis. So Willis Towers Watson would come up with an own view where we are sitting with our reserves that we are carrying in our IFRS group balance sheet and will come up with an implicit margin. And this is what you've seen here on the slide. So as you know, we've built up quite some redundancies up until 2015 and have used some of that in 2018 and '19. And what you see here for 2019 is, I think, pretty much what we had already indicated in our call when we presented the 2019 numbers back in March. I think Roland mentioned EUR 200 million plus redundancies that we might have used, sort of a first rough guess. And you can see that's pretty much what we -- what Willis Towers Watson came up with here. So in essence, I think it's fair to say that our reserving remains extremely conservative and that we are still carrying high redundancies for our P&C book of EUR 1.4 billion. And probably to add to it, a quick glance on the right-hand side of the slide, our P&C gross reserves are EUR 28 billion. And when you look at the reserves that we get reported from our cedents, that is only 50% of our P&C book. So another 15%, we put up actually as additional IBNR. So overall, I think that gives us a very good starting point and gives us a lot of comfort, both for our reserving policy on the one hand side but also in terms of managing volatility in the years to come. Last, not least, a quick glance on Slide 12, a quick glance on how Andreas, Andreas Markert, and his team are going to support the group strategy that Jean-Jacques has presented from a risk management perspective. You've heard from Jean-Jacques earlier, our operating model is based on very robust governance and very effective risk management. Did you know that also the rating agencies have awarded this. Our risk management does form an integral part of our strategy not only to manage risk but also to utilize opportunities. I think that's really important to mention. So we want to build on that. We want to expand that when we are entering in our new strategic cycle. Therefore, we identified 4 areas where we want to put some further focus on. First, strengthen our climate change risk management. That's really understanding and tackle the risks, both the risks and opportunities associated with climate change. For example, we just ran an internal study on climate change. We worked together with partners to monitor the implications of global warming. And we also plan to implement a set of management measures, for example, KPIs, to put that into our management system. Second, improved cyber exposure management. We briefly mentioned that in our Q&A already, so it become a bit more -- got a bit more hands-on probably in terms of exposure management, scenario analysts, further develop our tools that are already in place, et cetera. I think this is an ongoing task. Then thirdly, we want to review our systematic risk management process. Again, for example, how we are affected by systemic risks. For example, it could be something to do with cyber, but also of course, with pandemics and really strengthen the process there. And then also, we will further strengthen our commitment to the high ESG standard as Jean-Jacques already mentioned this morning. So key takeaways from my side, probably again, the low interest rate environment. And we've seen that will, without doubt, provide challenges. But I think we've managed to adapt to it in the past, and we will do so in the future. Our capital basis is very strong, and we are well positioned to take advantage of any market opportunity, particularly on the hardening P&C market. Our reserving approach remains very conservative, and we do carry high reserves buffers, so also to manage volatility if need be. Our risk management is well placed, will play an integral part in our strategy. So that concludes my presentation. And before I hand over back to Karl for -- and for the audience, for your comments, et cetera, I'd like to thank you for participating and assure you that I always make myself available for any discussions and one-to-one meetings going forward. Thank you.

Well, thank you very much, Clemens, for your distinguished presentation. As we move on to the Q&A session, I'd like to welcome back Jean-Jacques on stage. But with that -- but I also would like to welcome 2 other colleagues to take the stage. The first is a face that is already familiar to you. It's Andreas Markert, our CRO. And I'm also pleased to welcome Gerard Segler, who oversees our investment management division and can take the credit for the good ROI performance in the past years.

With this, I think we are -- we go straight into the Q&A session. And we have already received some virtual hands up. The first one is from Andrew Ritchie from Autonomous.

Clemens, 2 quick questions. First of all, I mean, I admire your confidence in the expected returns, future returns from private equity and real estate. But maybe can you just bring us up to speed on any sort of impairment risks near term, I guess, I'm thinking, particularly with the real estate or potentially private equity. You've never really given us any sort of indication as to the underlying exposure. Maybe just give us some sense as to that on both the portfolios because they have delivered extraordinary returns. Second question on the reserve surplus or buffer. Maybe this is unfair. I appreciate the buffer is still strong. Relative to your net reserves, it is a low point. I make it to be about 5.5% of your net reserves. I mean in the history, it's gone between something like about 6% to about 9%. Does that matter? Is there a target kind of level? Do you want to keep the reserve buffer relative to the reserves? It feels like it's at the lower end. Or is that not the way to look at it?

Yes. Thank you, Andrew. Very happy to answer the questions. On private equity, yes, I think it's a quite impressive returns that we've seen in the past. And I'll try to answer your questions and then probably let Gerald complement. I think when you look at probably 2018 and '17, returns have been probably extraordinarily high. And I think it's fair to say. I've seen that at other companies as well, that were probably very high years. But when you look at the years before, we have seen always very stable and quite attractive returns. So this is not just looking at the last couple of years, it's really a track record of probably 20 years that we are looking at, and we've seen these returns flowing in quite constantly, I have to say. Probably not on the level of '17 and '18, but quite constantly, yes. And that's probably part of the reason as well. There is, of course, sort of a gap in terms of reporting. So when we see the valuations, when we saw the valuations coming in at Q2 and Q3, there will be some effect. You have seen some slight impairments that we've made in Q2. And I think I don't give out a secret when I say in Q2, Q3, that doesn't really look that worse. So we haven't seen really huge impairments flowing in. And that's probably the reason why we actually like this asset class. It doesn't add too much volatility to to our investment returns into our investment results. It does deliver stable returns. And I'm pretty confident that they will do in the future. Gerard, anything to add from your end to share the optimism? Let's put it like that.

Yes. I'm pretty positive regarding these alternative assets, private equity and real estate. And probably we will see decreasing yields over time since all the investment returns are coming down with this kind of money crowded role currently. And I think the hunt for yield will lead to much lower yields following the yield curves came down over the last couple of quarters. But I do not think that we will face a huge amount of impairments in private equity. In real estate, it's a bit more deceptive this picture. We will see some issues in the office market coming out of these COVID circumstances, but all the other sectors are pretty stable. And so far, we do not see extra any impairments.

Okay. Thank you, Gerard. Henry, on the second question, the reserve buffers. I see you've perfectly done the math actually in terms of -- and we show you is the net premium. But if you compare it to our reserves, you're perfectly right. We are roughly running at a 5.5 percentage points when you compare the reserve buffers to our reserves in P&C. Yes, that number has been higher in the past. I think probably between 8.5% and 9% probably at the high end in 2015. That has come down do we feel comfortable with that level that we have today? Yes, absolutely. I think our internal metrics would say, well, probably at 2%, we would look at it. But purely from a reserve perspective, from an accounting perspective, you would say, well, there could be a 0, then that's fine. But of course, I mean, we've been very open with that in the past. We've built up these buffers. We've always said we would, to some extent, use them in hard market cycles to build them up and use them in weaker market cycles to make use of them. I think this is what you see here, and then we still feel very comfortable with the level we are carrying. Andreas, anything to add from your end?

Yes. Not much. Thanks, Clemens, Andrew, for this question. Yes, I think our expectation would, of course, be that we -- when we see improving market rates in the coming years, and we see good signs for that, that we will be able to build up these buffers again, so that we have also, for the next cycle management, enough material sort of to use that when there is the need for it.

Okay. Thank you, Andrew. The next question is from Vikram Gandhi from Societe.

Vikram from Soc Gen. Just a couple of questions on the redundant results, I appreciate the real reduction has come for the past couple of years, and there's quite a still buffer in there. My question is, can you give us a feel, at least a qualitative comment, in terms of the development so far this year? And secondly, looking at the split of the results in terms of the case versus IBNR, I remember, for the past couple of years, the split used to be something like 47%, 53%, and now we are at 50-50. So not a huge change, but, certainly, the proportion of IBNR within the overall reserving portfolio has come down a bit. So if I were to read this graph on the right-hand side against what has happened in terms of the redundancy development, is it fair to say that the reduction in redundant reserves, to whatever extent has happened over the past couple of years, is more or less reflective of the change in the mix of reserves, i.e., a bit reduction in the IBNR? Those are my 2 questions.

Okay, Vikram. Thank you. I'll pick up the ones probably on reserves and let Andreas comment to it as well, probably. On the development, 2020, I think you -- that was your question. So do we have a feel what 2020 looks like? I mean, this is a tough question, of course, at this point in time. I mean, this is a reserving exercise, of course, that we're performing on our 2020 numbers. Then we start with that during the year already, but, of course, we will have only a few -- a clear view next year. So a tendency, my best guess at this at the moment would -- we would probably keep the level as it is, but it's very difficult to say, I have to say, because still a quarter to come and form our view on the reserves. I wouldn't be confident to say where we would have increased our reserves redundancies this year. Let's put it like that. In terms of the split of IBNR and case reserves that you alluded to, I think it's probably a fair reflection of what we've seen on the redundancy level as well. So IBNS coming down compared to our cash reserves probably in terms of the mix of lines of business. I guess, where we probably have decreased our redundancies is -- will be on the long tail lines. Of course, that's going to be liabilities and motor probably slightly, and that's probably a reflection of what you see on that graph as well. Andreas, anything to add?

Maybe just on the split of IBNR versus case, also, the deconsolidation of HDI Global Specialty as an influence on that figure a little bit. So it's not only reflecting sort of the -- sort of decreased level of reserve redundancies, but also some changes in the portfolio split.

Thank you, Vikram, for that question. We continue with Thomas Fossard from HSBC.

2 questions related to your Solvency II ratio. The first one would be, could you remind us how you are treating your COVID-19 losses, both on the P&C side and mortality side, from an economic point of view, and what you are already factoring in the 2 25 at Q2 and potentially be now closer to 2021 if you're starting to factor additional losses made in your Solvency II ratio, which may impact the number? And the second question would be related to a more dynamic view of your Solvency II ratio. I think that, that was also a point of discussion at the Investor Day last year, when I think that you cautioned us a bit because of the top line growth that you -- the premium growth that you were expecting, that you were hinting to a structural and gradual decrease of your Solvency II ratio with unchanged market conditions, financial market conditions. So I wanted also to get a bit of an update on this point as well.

Tres, do you want to take the questions? Probably on the COVID one, it's fair to say, I mean, whatever we include in our IFRS numbers, I think, is reflected of course, in terms of the book numbers in our solvency ratio as well, but the look going forward will probably be helpful, Andreas, to get your view as well.

Yes. I can say that on COVID-19 -- I mean, the P&C -- on the P&C side, I guess, the treatment of Solvency II, and IFRS is pretty equal or equivalent. So there's not any going forward losses that we also would include here because that's already also part of the P&C IFRS reserves. On the life and health side, we haven't set up any additional reserves for COVID on -- at Q2 because we are still evaluating also maybe positive side effects for our longevity book. So that will enter our solvency calculations by Q3 and partially Q4 this year, where we sort of have a more solid sort of view, even if the sort of pandemic is obviously ongoing and the second wave is just around us. We think we have a more solid view on what it could mean in the long term. So we will build that in Q3 and Q4. And on your second question, you're right, we have indicated that sort of our business forecast projects a sort of stronger business growth than capital growth over the short term. We have also had quite successful renewals this year. So part of the solvency ratio drop from year-end to Q2 is also caused by strong business growth at the 1/1 renewal, but also the 1/4 renewal, which then is the SCR increasing, and we are not immediately taking sort of account of additional owned funds here, especially on the P&C side. So it's, first of all, a strain on the solvency ratio. And so sort of the outlook also to Q4 is more stable or slight deterioration. In terms of sort of business growing faster, we have also our outlook. We think that we have good perspectives in terms of business growth that will make probably our SCR grow a little bit faster than our own funds in the short term. But then, of course, we expect this business to provide positive contributions to own fund -- on funds in the midterm. I hope that answers your question.

Thomas and said earlier, we will pick up that question again, probably when we present our Q3 numbers, and we'll come up with a preliminary Solvency II view. And that, as Andrea said, will then include, of course, the forward-looking view on the business as well.

Okay. Well, thank you, Thomas. Thank you all for your excellent questions. I don't have any further questions on this topic. Therefore, we break now for coffee, and we will resume in about 10 minutes time. So yes, in about 10 minutes time, which is 10 minutes after the hour. [Break] [Presentation]

Welcome back to the second part of Hannover Re's Investors Day. The next highlight that awaits us is the presentation by Sven. As usual, he will give us some insights into Hannover Re's P&C reinsurance business. Of course, given the limited time available, Sven won't be able to cover all the fascinating aspects of the P&C business. And thanks to the numerous requests we received, he -- we decided that we put a spot line on 2 areas of today's presentation. The first is the retrocession program, which Jean-Jacques mentioned earlier, will remain a crucial factor of the success of our corporate strategy. The second issue, that's when it's going to focus on. Is the development of our U.S. casualty business and our reserving position here. With that, Sven, over to you.

Thank you very much, Karl. A very good morning also from my side. As Karl said, I'm going to concentrate on 2 main areas today, one being our retrocessional catastrophe coverage for natural perils; and second, our thoughts on social inflation in the context of our U.S. casualty treaty portfolio. I will start with our retrocessional coverages. And on the right-hand -- left-hand side of the page, you can see the well-known pyramid, which we have shown to you many times, where, in addition to our protection from our capital base and, of course, the inherent earnings in our business, i.e., our EBIT, we have 3 main vehicles of property catastrophe reinsurance. The details we are showing on the right-hand side of the slide, and I would like to walk them through with you to remind you what those vehicles are, let me start with our large loss aggregate excess of loss, where we cover the sum total of the losses we experienced in any given financial year with a structure of EUR 200 million in the aggregate excess of EUR 650 million in the aggregate. This structure receives benefit from our traditional whole account protection, which we have purchased for many, many decades. Nowadays, the structure is a EUR 325 million limit with 2 different retentions. The retention for peak perils is EUR 350 million; and for nonpeak perils, it's EUR 250 million. Our definition of peak perils is that the peak peril bucket includes the natural catastrophes in North America, in Japan, in Europe from a European storm perspective and in Australia. The rest of the world would be at nonpeak perils for the purpose of this structure. And last but not least, our K transaction, which is also very familiar to you, which is a proportional instrument where we cover the peak peril aggregates I have just mentioned. Plus, we are also covering our aviation and marine excess of loss business. But I will not talk about this. Today, I will concentrate on our protections for natural catastrophes. As you can see from the pie charts, we have a very diversified basis of markets. So a variety of our reinsurance partners are coming from the capital market, but also from the traditional market. Overall, the split of limit we are buying is slightly favored towards the capital markets, but it's a very diversified structure with quite an impressive panel of participants on the various programs. And it's very diversified. We are not reliant on any one retrocessional partner in a sense that only one partner is providing the bulk of the capacity we are buying. But I will show that in a little while. So why are we buying our retrocessional coverages? This slide, we have first shown to you in 2016, and I show it today again as a reminder of what we discussed at the time. Let me start on the right-hand side, which is showing our earnings profile for our nat cat-related business in the year 2016, including the reinsurances and retrocessions we did buy at the time in order to protect us from a natural catastrophe point of view. So we have almost EUR 1.9 billion of inboard natural catastrophe-related business. This is not only the traditional property cat business, but it's also the cat premium elements in pro rata and per-risk contracts. If you then deduct the outwards reinsurance premium and the modeled gross losses, you can see that we expect EUR 234 million of recoveries from our retrocessional coverages. So in the end, starting from an inward premium from EUR 1.9 billion. We are ending up with a technical profit of EUR 370 million on this slide. The exercise we did at the time was to ask ourselves the question, how would that change if we keep the risk appetite constant but discontinue at least as a mental exercise to buy retrocessional coverage? And the result, you can see on the left-hand side, where at constant risk appetite, you can see that the inward premium we would be able to write would shrink to EUR 1.1 billion, and the technical result would be at EUR 240 million. So considerably less compared to the situation we have, including our retrocessional purchase. So you can see that the use of our retrocession is accretive, both from a top line, but also from a bottom line perspective. So how has that changed compared to 2016? So on the next slide, we are showing the 2020 equivalent, again, on the right-hand side, starting with our existing retrocession program, and then on the left-hand side keeping the risk appetite the same, but, yes, as a mental exercise, discontinued with our retrocessional buying. And you can see that the volumes have changed quite considerably, which, of course, has to do with a number of things: one, the organic growth of our business; and second, of course, also the fact that we, in 2020, now have the large loss aggregate excess of loss, which we didn't have in 2016, and that our whole account retrocessional structure was relatively stable, whilst the underlying portfolio has increased considerably. So the value of our whole account protection has increased over the period from our point of view, and you can see that the difference, both from the bottom and from a top line point of view, has significantly increased compared to the year 2016, which, of course, is very pleasing. So how do our retrocession now coverages work in practice? On the next 3 slides, we are showing some of our peak scenarios and the waterfall diagram is explaining how our various protections would react to those scenarios. All 3 slides are going to show the 250 year return period event for the respective peril here on the first slide, we are talking about European storm. I should say that the waterfall diagram is an idealistic diagram. So it implies that we have not exhausted our coverage through other losses, and it also implies that we have satisfied the retention of our large loss aggregate excess of loss. So we can collect the full EUR 200 million of limit in this example. So starting on the left-hand side of this graph, you can see that the gross loss we are expecting from a EUR 31 billion European windstorm event is EUR 1.5 billion. You can see very meaningful collections from K, whole account and the large loss -- excess of loss. We are also showing some minor protections we are buying in addition to our main catastrophe protections. They would also correspond to this scenario, which brings us to a net loss of just below EUR 500 million. If we then at the reinstatement premiums, we have to pay and receive on a loss like this, plus the tax side, the economic impact reduces to EUR 421 million coming from a gross loss of EUR 1.5 billion. Or in terms of market share, we can say that we are starting at a 4.8% market share for this scenario. And after our protections, we are ending up at a market share of 1.4%. The second slide is showing the same for U.S. wind scenarios. So here, the 250 year event is a market loss of EUR 202 billion. Our gross loss would be EUR 3 billion. Our net loss after tax would reduce to EUR 1.3 billion, also following the same logic I have just explained. So in this case, our market share is coming from a 1.5% gross and is half 2.7% net. On the third slide, we are showing our largest nonpeak scenario, which is Chile Earthquake at this moment in time. And the main reason why we are doing this is not to demonstrate the waterfall mechanics, again, they are very similar to the previous slides. But what we wanted to explain is that our market share in the nonpeak natural catastrophe zones can differ significantly from our peak zone market shares, which is by design, because it tremendously helps our diversification and is therefore making our use of capital significantly more efficient compared to a situation where we would have similar market shares also in the nonpeak zones compared to the peak zones. So here in this example, you can see that in Chile, we would have an 11.5% market share on a gross basis for a market loss of EUR 13 billion and still a 5.1% market share from a net perspective. So again, this is by design and is coming from our view on diversification. So to close the topic of retrocessional coverage, what do we want to achieve with our retro protections. We want to, of course, protect our capital in order to continue trading in a market changing situation. And the past experience has shown to us that this strategy has always worked in our favor. We have predefined risk tolerances. So for example, our risk appetite based on the 200-year net underwriting result allows us to use a maximum of 90% of our risk budget for natural catastrophe business, which for 2020 is 16.8% of our economic capital under Solvency II. And we also have other thresholds like the 50-year net loss from the largest single event shall not exceed the EBIT of the P&C business group. So you can see a lot of green ticks in the boxes here. So in 2020, we have been able to fulfill all this through various measures. We continue to buy our retrocessional coverage at adequate pricing levels. We are very mindful of risk transfer considerations. So for our risk transfer, we want to see our protections offer more than 40%, including reinstatement premiums. We want to be independent from our retrocessional partners. So we are limiting their involvement per reinsurer to a capacity of EUR 200 million or EUR 250 million per group. And we also want to be independent from the type of product we are buying. And you have seen on the first slide that we are mixing capital market protections and traditional protections, which is giving us a good flexibility and also a very good access to a wide range of retrocessional partners. Let me now come to social inflation with our -- within our U.S. casualty treaty business. And I would like to start with our building blocks for underwriting U.S. casualty business. Quite a few of them will be well-known to you, like our top-rated security, A.M. Best rating of A+, then at input rating of AA-. We have the reinsurance focus. I was asked in the Q&A earlier, how about primary business, and we will continue to have a reinsurance focus, which makes us very attractive for our ceding companies because we are not competing with them for their own business. We have a very consistent long-term strategy and client relationship approach. And a very specific defined appetite for various segments, and I will show in a later slide that our predefined appetite for segments also has a long list of things we don't want to do, which we feel is at least as important as knowing what you want to write is to have a clear vision on the things you would like to avoid. On the right-hand side, you can see that the percentage share of our U.S. casualty treaty business has been relatively constant over the last 10 years. So we have always been in the range of 8% to 10% as the company was growing organically overall. Of course, also our U.S. casualty volume grew over that 10-year cycle with a 10-year -- a 10% combined average growth rate. But the percentage share, as I said, is very constant at 8% to 10%. You see a little bit of an uptick in the last 2 years. And the reason for that is the fact that the U.S. casualty primary market had started to react to poor underwriting results already a few quarters earlier than many other classes. So therefore, we felt it was a good time to start growing our participation in this market a little bit. So social inflation, what is that? Do we all have the same understanding of what social inflation is? I guess we don't have an industry-wide definition for it. But the common denominator seems to be the phenomenon that we are seeing higher verdicts by U.S. courts with a higher frequency of them occurring and therefore, giving pressure on the claims load that has to be paid by the U.S. insurance industry for casualty businesses. And some of the drivers behind this we are mentioning on the right-hand side of the slide. I mean, we have a, in general, contiguous environment in the United States. We are seeing a strong erosion of the tort reforms that were built into the legal system during the last century towards the -- particularly the '80s and '90s. And of course, and that, I guess, is unique compared to previous situations where we talked about inflation. We have a lot of populistic media coverage, particularly also in social media, and therefore, higher verdicts are becoming the more accepted norm in the society. And therefore, this is giving added pressure on the legal system to compensate victims with higher than historic verdicts. On the next 3 slides, and I will not go into details on all of the items here on the slides. We are just showing 3 exemplary claims complexes, which are associated with the term U.S. social inflation. We are going to talk about the opioid litigation, medical practice and D&O. So what we are showing here is always, what is insured? What is the issue? And how do we see the effect on Hannover Re? So let me walk you through the first example, being the opioid crisis. Here we see a lot of litigation happening right now due to the misuse of opioids in the United States and the consequences for people and society at large. The main claimants or the main defendants, pharmaceutical manufacturers, the distributors for the products and the retailers and drug stores, where the defend -- where the claimants could buy those drugs. We are seeing relatively limited effect for Hannover Re from particularly the pharmaceutical part of the exposure. We always have avoided this type of exposures. We are also avoiding Fortune 1000 business, which is including a lot of the distributor business here. So in that sense, we can expect that the industry is going to pay a significant amount of losses here, but due to the way the portfolio is structured at the Hannover Re level, we are expecting to be underweight in the financial consequences of those losses. On the medical practice side, and as I said, I will not go through all the details, given that I have limited time today. Here, our positioning in the portfolio as such, that we have always only written medical malpractice on a strict claims made basis, which, of course, is cutting the tail of the exposure for late reporting. And secondly, we have always positioned our exposure in the more lower parts of the program, where you have a relatively balanced risk reward position. We have avoided the large access limits on the medical malpractice side and the larger verdicts we are seeing in recent history. There, of course, the EUR 100 million kind of verdicts that is -- that are eating into those large excess limits. And due to the positioning of our portfolio, we have mostly avoided to participate in those legal situations. The third example is D&O, which, of course, is very topical right now and will remain topical also due to the economic recession following or due to COVID-19. Here, we can say that our risk appetite on the D&O side has always concentrated very heavily on the private and non-for-profit D&O. We have, of course, written some public D&O, but we have always deemphasized this. The main driver here is our observation that it's very cyclical business. So when the economic times are good, the D&O underwriting results tend to be good. But if you have a recessionary environment, that leads to loss situations and public D&O portfolios. And as we are skeptical that we will always be able to fully predict how the economic cycle will be running. We have the tendency to deemphasize public D&O as compared to private and not-for-profit D&O. So we feel that the impact of social inflation on our portfolio is well addressed. We have a strong relationship focus. So we understand our clients very well. We understand the underwriting approach very well. We know what they like, what they don't like. So we are not writing black boxes. The reason why we feel that we are particularly strong when it comes to the relationship side is the fact, and that was already mentioned by Jean-Jacques in his presentation, is that we have a very low staff turnover. Almost all, if not all, of our U.S. casualty underwriters are homegrown, i.e. they started their career at Hannover Re. We have -- yes, to train them on U.S. casualty business. And so, therefore, this is giving us a very consistent approach to the business. We have strong succession from within the team. So when we replaced our leader of the U.S. practice 5 or 6 years ago, it was very clear from the very beginning that we will be able to fill that succession from within, again, adding to the consistent approach and the continuity approach. And what is also very important is that we do all of our underwriting out of Hannover in Germany when it comes to U.S. casualty business. That means we can control and steer that business centrally, and that is giving us a lot of positive experience that we can control our underwriting approach, that we can react to trends consistently. We also have a very conservative underwriting approach. This translates into topics like line size management, where we would say that we do not want to write more than 50% of a slip, but it also translates into portfolio management strategies, where, for example, we have definitely avoided casualty contracts, which are covering the casualty whole account of major clients. We have a much stronger preference to write the casualty class in their various buckets rather than bundle them all together into whole account structures. And the reason behind that is that our risk appetite is simply very different for the various casualty classes. And therefore, writing whole account structures for us is not as effective as writing single line casualty business. I said at the beginning that when it comes to underwriting, it's good to know what you want to write, but it's even more important that you know what you want to avoid. And for U.S. casualty business, we have quite a list of topics we want to avoid here, which we are showing on the right-hand side. So we are not really featuring in the Fortune 1000 casualty business. We avoid commercial auto and nonstandard auto business. As I have already mentioned, we are not a market for pharmaceutical business and have also deemphasized life science business. We want to underwrite the underwriter. So therefore, we are avoiding situation where underwriting is delegated. So for example, the MGA or binder type of business, and we do not want to write fronted business because for us, it's very important that our ceding companies are taking significant net retentions in the casualty underwriting they are doing. And by avoiding those situations, we feel that we are avoiding a lot of mistakes you can make in U.S. casualty underwriting. Our U.S. casualty portfolio is very diversified, as you can see in the pie chart. I will certainly not read through all these various subclasses. But when we talk about cycle management on the previous slide, you can also see that in practice here in the pie chart, the inner circle is showing you the underwriting year 2015. The outer circle is showing you the underwriting '19. And you can, for example, see that during this reporting period, we have deemphasized areas like agency casualty business or workers' compensation business, coming from 11%, 9%, respectively, down to 6% and 5%. And at the same time, we saw new opportunities in, for example, cyber, which grew from 4% to 7%. And we saw particularly opportunities on the medical malpractice side in the last 2 or 3 underwriting years, given the withdrawal of capacity from other markets, so here, our market share has become a little more meaningful. In general, our portfolio is split 50-50, proportional, nonproportional. As I mentioned, we have very little involvement in Fortune 1000 company business. It's only 2% of our overall casualty premium that is resulting from this type of exposure. And therefore, we feel we have a very nicely diversified portfolio. And we do manage the cycle within this portfolio by emphasizing or deemphasizing the various subclasses, and not only try to cycle management by writing more or less premium. Portfolio composition in our view is key to be successful in U.S. casualty business. Clemens talked about our reserving position. So I wanted to also show a chart showing our actuarial runoff by financial year on our U.S. casualty treaty business. So the chart you are seeing are the financial years 2010 to 2019. And you are seeing the actuarial runoff based on earned premium for the underwriting years 2010 -- excuse me, 2000 to 2019 for the respective financial years. So quite a long reporting period. And you can see that our actuarial calculated ultimate loss ratio picks have improved in every single financial year. So there was no requirement for us to rereserve the entire book in a negative sense. There was always positive runoff, but you can also see a certain cyclicity in the business. So we are starting at 9.6%, 0.5%, 0.5 percentage point improvement, which is a result of the soft market environment we had prior to 2011. You can see the better runoff environment given the higher quality of rates in the following years. And there is a general saying that hard underwriting is developed more positively and that soft market underwriting years has the tendency to develop less favorably. And you can see these swings in this slide also very nicely. And no question that for the next couple of financial years, we will see the impact of the softer underwriting years, which we had in the last couple of years. But I'm confident that we will continue to have a situation where we will be able to report a positive runoff due to our very conservative initial reserving position. And due to the fact that we have taken social inflation into account when we have put up our initial ultimate loss ratio assumptions. So the outlook for U.S. casualty business is positive from our point of view. We have a significantly improving market environment. So the original rates are increasing. The reinsurance terms and conditions are increasing at the same time, and the competitive environment, from a consistency point of view, is favorable for us because ceding companies perceive us to be a more consistent player rather than be hot and cold about U.S. casualty business and move in and out. So that makes us a preferred business partner. We feel that we are very well positioned for the reasons I have already mentioned on previous slides. So from that point of view, we would say, from a social inflation point of view, yes, we expect higher loss trends, but this is something we are taking into account, that pricing the business when reserving the business. So therefore, we feel that we are well positioned. And that particularly the next 1 or 2 underwriting years should present good opportunities to consider even more profitable business on the U.S. casualty side. So to close, the key takeaways from my presentation are that we do -- that we use retrocessional coverage significantly to reduce our natural catastrophe exposure. But at the same time, the use of our retrocessional coverage is accretive, both from a top and from a bottom line point of view. So therefore, it will be important for us to continue with buying significant amounts of retrocessional coverage. And on the U.S. Casualty business, we would say that the risk of inflated losses due to social inflation is apparent, but that is well reflected in our underwriting, pricing and reserving approach. We have a very experienced and stable team. And therefore, given our predefined risk appetite and underwriting discipline, we do not necessarily see as a threat, but it should be a situation where in a better market environment, this should even create opportunities. Thank you very much.

Well, thank you very much, Sven, for your insights and your food for thought and the very well presented topics. For the Q&A round, I now like to ask all P&C Board members to take the stage. Well, first, we have Silke Sehm. She is responsible for reinsurance business with Continental European and African clients for cat XL as well as for ILS in structured reinsurance business. And just to round things off, retro covers is also part of her oversight. Michael Pickel's scope of responsibility includes reinsurance customers in the following European markets: in Germany, in Austria, in Switzerland, in Italy, Spain and Portugal. And the other major regional markets are North and South America. Not only that, he is responsible also for agricultural and runoff solutions. I think we are now ready to take your questions. And we already have 3 questionnaires in the line. As usual, we start with Andrew. Andrew Ritchie from Autonomous.

Sorry, it's me again. 3 fairly quick questions, I think. Sven, looking at your retro, I mean I appreciate it's a mix of traditional and collateralized, but by limit, it's about 77% collateralized. So maybe given that, can you give us a perspective on the state of the collateralized retro market? We hear a lot of stories about a lack of appetite. Investors still reassessing exactly what kind of structure they want to invest in. So maybe I just -- useful if you could give us a sense of your perspective on the state of the collateralized retro market and where that might go and what might be needed to kind of start that seeing more sort of inflows again. Secondly, I've always been more wary of excess of loss casualty than proportional casualty. And obviously, in the late 90s, early 2000s, we saw a lot more pain from excess casualty books. You've got a higher proportion of nonproportional casualty in the U.S. than some of your peers. How do you reassure us on your visibility of the underlying loss development before it hits your excess layer? And the final question, I'd never like to ask about pricing on casualty because there's lots of different types of casualty. But maybe just give us a sense as to, do you think the pricing trends you're seeing at the primary level plus improvements or lowering of ceding commissions is enough to offset underlying loss trend. Is there -- and it's all been positive spread between the 2? Or are you still cautious in that respect?

Okay. Thank you very much, Andrew. Let me start with the retro question you have asked, and I would invite Silke to also comment on that side. You're right. We are buying significant limits for -- from the ILS market. And at the same time, we are also fronting significant limits for the ILS market. So out of our conversations, I would say that we currently expect a relatively stable risk appetite on both sides. So from the buying and on the fronting side. That would not necessarily go for each individual participant in the ILS space. But if I look at them in the aggregate, I would say you can expect a stable situation here. And we have no indication from discussions on our outwards programs that there will be a sharp withdrawal from ILS capacity. Actually, the opposite may be the case as there are other participants looking to enter the space. And we have very promising discussions with them early on. But Silke, maybe you want to add to that.

I fully agree to what Sven said. We have -- actually, we have a few new requests and -- but also our other partners are long-term relationship partners. So we expect quite stable amount of our limit and retrocession.

Very good.

Do you think you're in a slightly different position from other market participants because you're offering access to diversified book, I mean?

Well, if history repeats itself, Andrew, we should be. I mean, you know that capacity for proportional retro vehicles was sharply reducing from the 2020 renewals and at the same time, we had a very successful K placement where we placed at least as much as we could place in the previous year. So it's the diversification, which is helping us, but it's also the fact that we have purchased K in its various forms for a very, very long period now. So we always get very positive feedback that our reporting is state-of-the-art that we give our ILS partners less surprises than maybe others do. So the capacity for proportional retrocessional coverage has reduced in general last year and I do not expect that to dramatically change for 2021. But we are blessed with having constant support given the features we are offering.

Okay.

On the proportional U.S. casualty question, I will ask Michael in a second to answer that. But let me try to give you an answer on your excess of loss question first. Yes, of course, you're absolutely right. Given the excess of loss nature, it's always a little more difficult to discover loss trends. That is easier and primarily our quota share portfolios, given that we have written U.S. Casualty business for many, many decades now. We, of course, have very good data here. From a loss trend point of view, it's the -- it's an actuarial heaven. I mean if you look at many, many countries, all you get is maybe 2 indexes you can look at when it comes to inflation. In the U.S., you have tons of data, split by the various subsegments. So if you're on top of your data, on top of your loss trends, you will be able to identify trends. And of course, when we underwrite the business, we are asking for losses to be given to us as information, which are significantly below the retention level of the contract. So we don't only start looking at losses when they are hitting the layer already. But we are more or less also having access to, not quite ground-up information, but very detailed information also on losses, well below the retention level of the excess of loss structures.

May I add maybe 3 comments? First of all, proportional, we feel very comfortable with the reinsurance we are writing there. But if you view the proportional reinsurance, there is no sideways protection. So -- and so far under the excess of loss column, I have my limited reinstatements. And then I know my maximum liability. And so far, I think I would not share your comments exactly, but we see definitely the threat on excess casualty and excess workers' comp, therefore, we are not a writer too much of this business. And you see us very much underrepresented in this field. And this comes from the feeling what you voiced that maybe there's an explosion of claims under the retention. And then the retention is blown by one single step. And maybe you have observed that with competitors. The third argument I would like to add, when we are writing casualty business, we audit always the business. So we hardly write any new business where we haven't had any loss track proven by our auditors. These auditors are based in Itasca, Chicago, and these are around 12 people. They are traveling through the United States, and now they are doing video conferences with their clients, but they audit every single account they have written and maybe after 2 years, they -- if we have renewed, there's the next turn to audit the loss trends with their clients. And therefore, I think we are ahead of the curve.

Do you also want to comment, Michael, on the trends we are seeing in primary pricing and whether they are good enough in combination with reductions on ceding commissions to write their business?

I think for the moment, we are very cautious on the casualty segments in the U.S., generally speaking because it needs some more rates to come up. I think there is still a meaningful gap in the pricing. And therefore, we are not with a foot on the gas pedal with regards to new casualty business or expanding our footprint. We see a better trend, a much better trend in all short-tail lines. And so far, we are focusing for the forthcoming renewals on the property segments, which we have, which is multiline and the normal property segments. And there, we see really increased prices, but what is more important for us, even more increased retentions for the clients and compressed limits. And that seems to be more our sweet spot than expanding now our Casualty business. I think it's always a trend in cycle management that the Casualty business gets later hard, and has a longer cycle than the property lines, and this will be as well the proven track record as well for the coming renewals.

Well, thank you, Andrew, for your question. The next question is from Vikram Gandhi from Societe General.

It's Vik from SocGen. I've got 3 questions, 2 on U.S. casualty, I'm afraid, and third on retro. The first one is, can you give us a sense of the reserves mix in terms of proportional versus nonproportional for the EUR 4.5 billion figure? I see these place for premiums, which is 49% and 51%, but a comment on the reserves would be helpful. The second is on the EUR 3.7 billion figure relating to the reserves over the past 10 years, can you give us what's the proportion of the IBNR reserves within this EUR 3.7 billion figure? And thirdly, on the retro impact and what it does to the group's profitability, is it fair to say that the figures that's shown are somewhat influenced by the fronting business and hence, the retro benefit is slightly more pronounced or overstated than it is really on an underlying basis? That's all from my side.

Yes. Let me start with the retro question, Vik. What we are showing on that slide is the book we are writing for net accounts. So we have not included our ILS fronting in that in order to compare apples-to-apples. We certainly did not have the same extent of fronting activity in 2016, which was the first year we have shown. So therefore, both years are showing the portfolio, which we are writing for net account. For your 2 reserve questions, I'm looking at Michael, whether he has the details on this.

No.

I'm afraid, Vik, I also don't have the very details. And then rather than speculating...

Exactly.

I would suggest that we come back to you on those splits, which we are very happy to do. But we would only be able to do very rough guesstimates right now, which I don't think would be appropriate.

Yes. Exactly.

Okay. And then we come to the next question from Kamran Hossain from RBC.

A couple of questions. First one is just on, I guess, on the topic of social inflation trends there. It sounds like you're pretty cautious still in that area. Do you see anything on the horizon that might be able to stop social inflation? Or I guess, when you're reserving for this, you assume that similar trends to the ones that we've seen in the last couple of years has continued for the next few years. And the second question is, do you think that COVID claims will be behind us at this point? Do you think we -- that there's enough to say that terms and conditions have tightened enough 2020 that obviously has been hit by COVID, but we're probably not going to see many more claims in future years? Or do you think we're sitting at the kind of cliff edge of litigation, all sorts of horrible things that will emerge in future years? Any thoughts on that would be really helpful.

Yes. Let me start with your COVID question, and I will ask Michael to answer your social inflation question. So unfortunately, impossible to answer your question. I mean, this is an ongoing pandemic. Yes, both insurers and reinsurers are going to apply more exclusions. So we will have a reduced exposure going forward, but I would not be in a position to say that it's eliminated completely. We have a lot of business that is sensitive to the economic cycle. That's not only trade credit, that's also classes like D&O and other classes of business, which are sensible -- sensitive to the economic circle. So the longer the pandemic will last, I mean the more severe or at least the more -- the longer from a time point of view, the economic recession situation may be, and therefore, we may see a lot of what I would call secondary effects also in the U.S. to come. When it comes to direct COVID losses, I guess, both the insurance and the reinsurance industry will be much better protected by use of exclusionary language from the next year on. Michael, would you like to talk about that?

Yes. I think it's very difficult to comment on social inflation because it's a long speculation. My take is that we have not seen really creeping up verdicts like punitive damages. Single cases, yes, there have been. The second thing, which is as well a question how the Supreme Court will, for example, be constituted. And if you see the tendency under the Trump administration, it seems to be quite conservative and less consumer protective. And so far, my take would be that we do not see a great uptick. But it's always a threat and this was always a threat in the U.S. business because that's the reason as well why we are cautious in this segment, and we do a very strict limit management in order not to be exposed on one single client or on a single risk too much. And I think this is the second thing, which I would like to highlight in this context. The rest, I think, is quite a long speculation.

Okay. Thank you, and we have another question from Paris from Exane. Okay. Well, it looks like that we have another question from Paris from Exane. [Foreign Language] Okay. Well, it looks that we have another question from Paris Hadjiantonis from Exane.

Yes. Can you hear me?

Yes. Now we can hear you.

Excellent. So a couple of small questions from my side as well. On rental pricing, I'm just wondering what kind of higher cost are you currently budgeting going forward? Obviously, there have been -- the overall trend is for prices to rise on that line of business, and you will be incurring a cost, but at the same time, I cannot imagine your partners being very unsatisfied with the results of actually produced over the long term. So what are your expectations for overall pricing of the rental program that you have? And then another one on social inflation, and thank you very much then for the useful information there. And in terms of the market in general, year-to-date and the impact that you have been seeing, hasn't pandemic had an impact on the number of claims or maybe on the progress of outstanding claims that might be actually driving claims either up or down in 2020? That's the question.

Okay. Thank you very much. Silke, why don't you start with our expectation on the retro pricing? And then maybe, Michael, you can answer the COVID question.

On the retro pricing, we have to differentiate between the 3 programs. The first one, the K-quota share, as Sven already mentioned, that we have long-term relationship partnerships. So we see the reinsurance over a long term. And so there, our partners go with the cycle, through the cycles with us. So they are very constant partners all over the last years. So I assume this will be quite good from the pricing level as such for the K-quota share. The underlying business comes in at a much higher price level. So therefore, our retrocession partners will participate on that additional pricing level, higher price levels, and therefore, I'm very sure that they will found that. Then we have the whole account. There also the underlying business also comes in with adjusted rates. And so -- and then this will be priced again on expectation of the new expected loss. So there, I assume, quite stable. Then we have the large loss, which is the aggregate cover. There, I would say it's the same. It depends from the loss amount and the expectation on the new portfolio. And then we also will come to the price there. Sven, something to add?

Yes. I just wanted to clarify that if you talk about stable, we always talk risk as adjusted, stable.

Yes. Yes.

So not stable in cash terms, but stable in terms of the development of our underlying portfolio. Michael?

I think social inflation and COVID-19, I think that's really the tricky question and as well shows you the difference underlying. We see lots of provisional loss notifications, and there are lots of lawyers in the arena, giving provisional notice of claims to insurance companies. If we see on the ongoing litigation, there are 2 types of litigation. There's the litigation where COVID-19 or pandemics is clearly included or the next policy type is where the policy only says that it's a physical damage must trigger the policy. And we have had seen lots of verdicts as well on federal courts. I think 15 positive -- no, 15 in total, 9 positive, 9, 12 positive. And the remainder was negative against the insurance industry. And this shows you there is lots of litigation to come. But it's not a lost case. And I think the court system is behaving, I think, rational and giving as well the right to the insurance carriers. And so far, I'm not that much worried about the litigation, which is going on. Certainly, it costs money because everybody has to bear the cost. So our clients will have the burden of the litigation costs. But for us, for the moment, it doesn't look bad.

Well, thank you, Paris, for your question. But thank you all for your excellent question. And also thank you, Sven, Silke and Michael, for your -- for responding to them. We now break for a second break now for about 20 minutes. So that means we will resume at about half past the hour. [Break]

Welcome back, everybody, to the third part of the Hannover Re's Investors Day. Thanks for being so punctual. We can now dive straight into the last presentation of the day. It's about life and health. Claude has given some remarkable presentation over the past years, as he explained the finer details of this business. One stands out, in my mind, is the transformation of the VNB into the group's EBIT. This year's, he is focusing on the earnings driver, and he will map out the prospects for the years ahead. But that's enough for a lead-in from me. I don't want to keep you waiting. Claude, the floor is yours.

Thank you very much. Thank you, Karl, and thank you to all of you guys for staying with us the whole morning and waiting for this last, but hopefully not least, presentation on life and health. You might ask yourself maybe why we decided to make a break now. The obvious answer would be, well, we break so that you have the time to digest the information you got from all our P&C colleagues, and be fresh for an exciting presentation on life and health, but that's not really the truth, by the way. It's not really that. The truth is that when I came up to the stage here, I stood behind the speaker's desk, and I realized that I'm so short that you would not see me behind the desk. So I had to make a compromise and the compromise was the following. I said, okay, I leave the notes somewhere, so I'm here without the notes, but I don't have the speaker's desk, so I feel much, much freer to talk to you guys. So that's it about the introduction. Let's move directly into the subject. The title of my presentation is always the same. It's Insights into Life and Health reinsurance, as you know. And I thought -- or let's maybe quickly look into the agenda. So the agenda previews, first of all, a quick look into the strategy because you have heard about the strategy of the life and of the group, of the Hannover Re Group. And I thought it may be good if we move ahead with the strategy of the life and health business. But also looking into the past performance of the life and health business, that's number one. We then have a look into the earnings growth drivers of the life and health business to show you where our EBIT of the future is going to come from. Very important, I guess. And I will then also talk quickly about the COVID impact, very important also right now. Finalize with the key takeaways as all my previous speakers have done already. And I will then be joined by my colleague, by Klaus Miller, for the Q&A session and that we will hopefully be able to answer most, or if not all, our questions you might have on the life and health business. So when I look at this picture, by the way, I really realize that this is an old picture because, I mean, nowadays, I mean, we don't have all these events, the events and marathons. We're socially distancing, so it's an old picture, but it's right because I'm going to talk about the past performance where we still didn't wear masks, all of us. But let me maybe start, first of all, to the strategy map. And this is really trying just to move on. Jean-Jacques' presentation was showing the whole strategy map for the Hannover Re Group. What I wanted to say with this slide here is really on the life and health business group, we're, of course, involved in all these strategic topics that Jean-Jacques has been presenting. So all these hexagons are important for us. But I would say, the ones which are really important, where we can really add some value to the group are the 4 that I have been highlighting in the slides, which are the 4 in cyan blue. So you see it's all around performance drivers, which is important for us. So being a preferred business partner, as usual, making sure that our earnings grow into the future and also, of course, being an innovation catalyst. So that's one of the things. And then the fourth topic, which is also very important for us, is all about around effective capital management. Jean-Jacques has already said it this morning. It's around in-force management. When Klaus and myself and our managing directors, we start together around this map, we said, "What are the 4 really most important goals that we derive out of this strategy map?" And out of these 4 topics that I have been highlighting so far, and I'm going to read them quickly right now, but don't be afraid, I'm go -- coming back to these goals. But we detected the 4 goals: #1, we want to support our clients in optimizing consumer experience and risk segmentation; #2, we want to provide our clients with tailored risk-transfer solutions beyond our own core expertise; #3, we want to outperform the competition in the fastest-growing life and health markets; and #4, we want to identify and actively manage value-destroying risks in our portfolio. I'm coming back to this, but let me maybe start with a quick review on the past performance of the life and health business group. I'm going to show you 2 slides. One is focusing on the net premium earned and the second one that I'm going to show is focusing on the EBIT that we have been generating over the past 5 years, so looking from 2015 to 2019. If you look at the right-hand side of the slide, you will see the real figures that we have been publishing. So these are the real net premium earned figures that you see. And you see that we have been growing with a CAGR of 1.7% between 2015 and 2019. And if you look into the split per business or per line of business category, you see that the mortality business has remained pretty stable. So it's approximately 45% of the total premium income is coming from mortality. And it's still the case in 2019, which means that the mortality business has been growing more or less at the speed of the whole portfolio within the life and health business. You then see if you look on the right -- on the bottom right-hand side of this slide, you then see that the morbidity business has grown substantially, and it has grown not only percentage-wise, but it has also grown in absolute terms because it has grown percentage-wise on a bigger portfolio, of course. And the main reason why the morbidity business has been growing is mainly Asia. In Asia, as you probably already know, morbidity is really the game. Asia is not a mortality market. Asia is a morbidity market. We have been growing in Asia and I will show this in a few slides later on. So this is the reason why morbidity has been de-proportionally, let's say, growing over the past 5 years. You then see that the financial solutions business has remained pretty stable. Of course, percentage-wise, it reduced, but in absolute terms, it remained stable. And I'm coming to this topic also, as you know, financial solutions is not that premium-heavy. It depends on what kind of business you're writing, but I will explain this later. And then you see the longevity business where the premium volume, in absolute terms, has also decreased a little bit. I will also explain to you where this comes from. Now I thought looking into the right-hand side of this of -- into the left-hand side of this slide, is one thing. But of course, what I suggest to do in this slide is to normalize the premium income and take away all the kind of special effects that we have seen over the past years. And there were 3, I would like to mention here. We had, in 2015, we had a switch from a single premium longevity business into an annual premium longevity business. And you can imagine what that means. I mean, if you take on a longevity book, which generates a lot of premium through all the years to 30, 40, 50 years into the future, and you say, "Well, I'm going to take this on, on a single premium basis. It's clear that this generates huge amounts of premiums." We have switched this book from a single premium into a -- let's say, a Regular Premium Annuity Treaty, and we call them the RPATs, as you know. This has, of course, generated a big dip in our net premium income from 2015 onwards. So that's what you see on the slide there in the middle, the EUR 442 million. A part of the EUR 442 million you see there is coming from that. There is also a large single premium longevity block that we closed for new business, which was again very, very premium-heavy. You see also the impact there. And then, of course, and I have told you this already various times, you have the impact of the new C-ROSS regulations, which came in 2015, 2016, and which meant for our clients that all the financial solutions, the financing treaties, the cash financing, noncash financing treaties we have been writing in China became obsolete for the clients. They have to really to take them back. And this is also the reason why we had a big dip in the premium. So if you take all these special effects and now, you add them to -- let's say, to the premium figures that we have been publishing, then you see what I would call normalized net premium earned. And you see that this figure looks already much more logic, you see that we have had a CAGR over the past 5 years of 3.5%. It has been steadily growing, and I think that's exactly what we would have been expecting from the life and health business. Now moving to something which is much more interesting than the premium, which is the EBIT. And I'm having exactly the same logic here on the EBIT right now. So you see that the EBIT figures, they have also been growing, but there is quite a bit of volatility here. You see that, that we move from EUR 405 million down to EUR 245 million. You see that in 2017. And they moved up again to EUR 570 million. So again, the same exercise. So let's take off the one-off effects that we have seen over the past 5 years and the most important ones on the EBIT. And there was one-off effect in 2015. So we had a recapture of an FS, a financial solutions deal, in the U.S. The deal was recaptured, and we got the whole future fee that we have gotten over the next 10 years, the whole coming 10 years. We've got them in one, and that gave us a huge increase of the EBIT by EUR 84 million, as you can see in 2015. Then we had, of course, also the recaptures that, as you know even better than me, of the various treaties from the ex-ING Re portfolio. And remember that we recaptured these treaties -- some of these treaties in 2017 and 2018. And the negative impact on the EBIT, you'll remember, is because of the negative reserve that we had with these treaties given that we were under the locked-in principle under IFRS. And these negative impacts, you see them in 2017 and 2018, which are quite impressive. And then you see in 2019 another positive impact, again, of EUR 100 million, and this was our Viridium investment, as you know also, and Klaus has explained that, I think, last time also. So you see all these special one-off effects. And now, if, again, you normalize the EBIT for these special effects, you see a figure which is, again, much more logical. So you see a CAGR of our EBIT of approximately 10% per year from 2015 to 2019, and that's what we were expecting that we hope also to see, of course, in the future, but I'm coming to that later on. Let me maybe move forward now into the strategy. And I promise you I would -- I will go and have a look into these various goals that we have identified for the life and health business groups. And let me go maybe against the needle of an hour. I'm starting with the first goal, number one. And I would like to give you a little bit of feedback why we thought within the life and health business group that these are the right goals. So on the first goal, when you look a little bit into the industry and you look a little bit in the past, you can say that there are many, many reasons why some life insurance companies are successful. But we have identified that there are at least 2 reasons which made some of the life insurance companies more successful than others. So -- and that's what I want to concentrate on. So the first reason is that some of these successful life insurance companies, they have realized that having a good online, digital, contactless sales channel is a lot of value. They have realized that the consumer, the end consumer of today, I mean, he wants to be able to buy understandable products, to buy affordable products whenever he wants and wherever he wants. And this is something they have understood. And I can tell you, right now with corona, they understand it even better. We will come to that later on, but it's very clear that insurance companies with a good digital, contactless sales channel, they are still growing. They're still writing new business, whereas traditional insurance companies, they have a lot of pain to grow. So we have detected that. And we think if this is relevant for our clients -- whatever is relevant for our clients is also relevant for us, the life and health business group. And that's why we said we want to support our clients with -- in optimizing the consumer experience and the risk segmentation. The second reason, by the way, apart from this digital sales channel that is so important has also been the fact that the successful companies, they have realized that, let's say, designing products and pricing products is not all. There is something which is much more important, which is really finding the right end consumers for their products, which is all about segmentation. Getting the segmentation right is so important. And when I say segmentation, getting segmentation right, I don't talk about, well, let's make a product for young, medium-aged or old-aged people, and let's make a product for male and female. It goes much, much deeper. It goes into socioeconomic segmentation, which needs a lot of, of course -- which needs a lot of data analytics. And this is the reason why we have, out of this goal that we have decided on, on number one, we have come up with all these 4 different actions that I'm not going to write -- read now loudly and you can read yourselves. These actions are really derived from what we try to achieve, staying relevant for our clients within these 2 topics. The second topic that's now on the left-hand side -- on the bottom left-hand side of this slide is coming from a totally different logic. We have realized that being one of the top 5, say, 6 life and health reinsurers of this world, that we are supposed for our clients to be something like a kind of a one-stop shop. They expect from us -- to come to us and discuss about anything that they want to get rid of, any kind of risk they want to get rid of. They talk about asset-intensive reinsurance, not really our cup of tea, not really the things that we can provide and want to provide, not really our core expertise. They want to get rid of certain risks, which are just much more than the risk appetites that we have on certain businesses, be it because it's just huge, huge volumes, be it because the risk type is just something we don't feel comfortable with. So they want to talk about these kind of risks also with us. They sometimes even want to get rid of their own expense risks, something also where we do have low expenses, but you cannot compare our expense ratio, our expense topics of a reinsurer with the expense ratios and the expense topics that you have on a direct life insurance company. So again, something we're not really experts. But we need -- as one of the top 5 reinsurers on the life side of the world, we need to be able to have an intelligent and informed discussion and to provide solutions to our clients. And this is where this comes from, this goal. And we said we want to continue to do what we have been doing so far, which is select appropriate partners for the different areas that we're talking about. So appropriate partners who can take investment risks. Appropriate partner who are maybe happy to take some biometric risks maybe in the financial markets. And appropriate partners -- I'm talking about Viridium, it's a very good example -- who are able to have a very good added value on the expense risk. So this is where the goal #2 is coming from. Let me move to the goal #4 first. The goal #4 is really coming from, again, another angle. I mean our portfolio has been growing quite substantially in the past. It has been aging. And we have -- analyzing the portfolio, we have realized that the portfolio composition of the various portfolios that we're writing is moving all the time. And this is -- of course, this is clear because the end consumers, they do have -- in many products they buy, they have an optionality integrated in this product. I make an easy example for you guys to understand this. One is, for example, if you're living in a market which is becoming, all of a sudden now after 5, 10 years, very competitive. I mean healthy risks, healthy end consumers. They might say, you know what, I'm going to lapse my policy and buy a cheaper policy with somebody else. So you lose the best risks of your portfolio. On the other hand, people who feel sick, they might say, you know what, I'm going to increase the sum assured of my existing policy because they do feel sick. So you can imagine this is very trivial. What I'm saying now is that the composition of your portfolio from the stage of pricing when you started to look at it, when our actuaries did the right thing, they determine the right price is changing over the years and can put us into problems. And the earlier we're able to detect that there is a trend in the portfolio mix, in the portfolio distribution for whatever reason, the better for us. And that's where the goal #4 is coming from. We need, and Jean-Jacques said it various times, be -- better in-force management. And in-force management means really to understand the risks we're sitting on policy by policy, how does the composition of the portfolio change, et cetera, et cetera. But all these 3 goals, by the way, this is not -- to tell you the truth, this is not the topic of today's presentation. The topic of today's presentation is goal #3 on the upper right corner of the slide, which is really that we also want to outperform, of course, the competition in the fastest-growing life and health markets. And what we have found out, and it is probably not difficult to find this out, is that the fastest life and health growth markets are, on the one hand side, Asia. We discussed that, and you'll remember my presentation last year in Frankfurt. We talked about that. That's #1. That's a geographical market. But then we have also 2 lines of business where we believe they're really, really, very fast growing, which is financial solutions, I will explain why; and which is also longevity solutions. I'm going to explain why. So what I'm going to do, and this is really the main topic of this presentation, what I'm going to do now is looking into these 3 life and health growth markets that we have identified. I will tell you why we think these are growth markets. I will show you how our performance was in the past and what we believe that we'll be able to generate as additional earnings, EBIT, for you guys, EBIT into the future. So let me start with the first topic, which is financial solutions. I mean one thing is sure: regulations are changing every now and then. It's impressive. And the capital charge that you have, the regulatory capital that you need, the reserve capital that you need, is increasing every now and then, and this puts our clients into a really stressed situation. And this is -- it doesn't seem that this is slowing down. It's even the other way around. The need for financial solutions to have capital relief, solvency relief, reserve relief is just increasing and it continues to increase, I can tell you that. So this is the reason why we have said financial solutions is really one of the growth drivers for ourselves. Now you'll remember, everybody says financial solutions. Oh, that's deposit accounting, no premium. Let's have a look at the premium and look at the net premium earned that we see here in the gray square. I mean there is premium. And now, where does it come from? And now, try to remember the presentation of Klaus in Frankfurt where he was presenting financial solutions. Financial solutions for us is, of course, solvency relief deals, capital relief, reserve relief, you name it. This is deposit accounting. But there is a big proportion of financial solutions also which is just traditional financing business, which means cash financing, noncash financing, which means new business financing, which means financing whole portfolios. And this is also something we're doing. And you see the premium, by the way. The premium is pretty stable, up EUR 900 million. But it's quite substantial again. So financial solutions also provides premium, but only the traditional financial solutions business, which I would call the financing business. So if you look quickly into the bottom line, into EBIT, you see how we performed over the past 5 years, steady growth. And I do have to admit the growth comes off -- from a major part out of the U.S., that's very clear, where we have the surplus relief -- sorry, these capital relief deals that I was mentioning. That's very clear. And in the past years, we have also experienced quite a bit of growth of EBIT from financial solutions business. So reserve relief, capital relief business out of China. That has been quite successful. Now what do we expect into the future? And that's what you see on the next year, so 2020 to 2023. We expect an additional -- to generate an additional EBIT out of the financial solutions business of roughly EUR 120 million. Now is it going to be exactly linear the way we show it here? Probably not. These deals are very bulky, as you know. But we still believe that we can make approximately EUR 120 million additional EBIT out of the financial solutions business. That's the earnings growth driver number one. Let me move forward to the second one, which is longevity. And, I mean, if you look into the end consumers portfolio, asset portfolio, these asset portfolios, they are transitioning now from an accumulation phase into what we would call into a payout phase. That means there -- we will see in the future much, much more longevity business coming up. And we see that -- we have seen it in the past that the majority is coming from the U.K., as you know, but we see already a lot of opportunities also from other countries outside of the U.K., and that's the reason why we have defined for ourselves that longevity business is one of our growth drivers, one of the 3 growth drivers I was mentioning before. Now let's have a quick look into the premium. And you might be surprised if you look into that. You see, the net premium earned is going -- from EUR 1.1 billion, it goes to EUR 1 billion from 2015 to 2016. I mean the main reason there is really that the GB pound, and you'll remember that probably between 2015 and 2016, has been losing quite a bit of value compared to the euro. So there is this devaluation of the GB pound with the euro, which is the main reason why you have this step downward from EUR 1.1 billion to EUR 1.0 billion. And then you have another step which goes from 2017 to 2018, where we go down from EUR 1 billion to EUR 800 million. And the main reason there is just that we bought a little bit more retro. We didn't buy the retro because we don't feel comfortable with the risk. We bought the retro because we felt that we can have an additional margin out of the retrocession of these businesses. So that's the reason why you see this strange curve in a business that I would say is definitely growing. Now let's look into the EBIT. The EBIT figure looks a little bit weird 2015, 2016. 2015, we had some minor special effects, which were positive. I don't want to go into the details. But then you see in 2016 a drop. Again, same reason: GB pound-euro devaluation. But then you see that the business EBIT is going up. And this increase of the EBIT is coming from 2 sides. It's coming from the traditional longevity business that we're writing. So typically, these are pots -- regular -- sorry, regular premium annuity treaties. We get there and -- of course, but also from the financial solutions business. Because as you know, the financial solutions business always has some biometric risks underlying the fund solutions (sic) [ financial solutions ] treaty, and this can be mortality, it can be morbidity. And in this case, it is longevity. So the financial solutions business has also helped us here on the longevity side. What do we expect? We expect to generate an additional, I think -- I can hardly read it -- EUR 80 million EBIT by 2023 out of longevity. Where does it come from? Financial solutions, that's clear. We have discussed about that. But we also see opportunities in countries outside of the U.K. definitely. We see opportunities right now popping up in Canada. We see opportunities in Europe, talking about the Netherlands, France. And we see also -- we have, by the way, on the first sheet a longevity deal in New Zealand, and this will have also an effect, I believe, on the Australian market, which we believe also will have huge opportunities in a few years on the longevity side. So that's what we're expecting. We're, of course, growing with the traditional longevity swaps, the RPATs, but we're also going to grow with index solutions and others. We're constantly working on new solutions for our clients. So this is the second growth drivers, which is longevity. And this brings me then to the third growth driver. And I don't have to talk too much about that. I mean I have been talking about Asia last time. Asia, it's clear, growing middle class. This is pushing insurance growth. We see that across the whole of Asia. You see the premium income, which has been increasing. You see some volatility, of course, on the EBIT. But still, we expect to generate an additional -- I think it's EUR 50 million there -- EUR 50 million EBIT by 2023. We said there is above-average growth in Asia. If I take an average growth within Asia, I would say -- I would cluster Asia in the following way. I would say you have below Asian average growth for our portfolio, out of India, out of Singapore, out of Hong Kong, out of Taiwan, out of Korea and Japan. They're probably slightly below the Asian average mean, if you want. Then you have countries which are growing on the average. This is in Southeast Asia, mainly Malaysia. It's going to be Thailand, Vietnam. And then you have, of course, Mainland China, which is growing just above average. So I don't want to spend too much time on Asia right now and now -- right now try to sum these things up. Because one thing is sure, and this is just an illustration that we have done, I mean, you cannot just take all these additional EBITs that I was showing up and add them up and say, oh, that means that life and health is going to make EUR 250 million additional EBIT within 3 years. It's hot as easy as that. As you have them understood and have shown this, you have the -- a big overlap between the financial solutions business and, of course, the Asian business. I talked about the Chinese financial solutions. You have a big overlap between the financial solutions business and the longevity business also there. And you have probably in the future even a small overlap between longevity and Asia. I'm not sure, but we're probably also getting there one day. We're talking with certain countries already about longevity solutions be it Korea and others. So it also might come. So there is an overlap, but that's clear. Now on the traditional business, the business that I was not mentioning right now, we expect stable growth. And when you talk about stable -- or let's say stable profits. And when we talk about stable profits on traditional business, what you need to understand is that life and health is a long-term business. I have explained that already many times. There is, of course, an inherent runoff always in our book. And our book runs off. With every single underwriting year that we take in, it's going to runoff. It runs off because of claims. It runs off because of lapses. And this runoff is probably 5% to 15% of the premium every year. So if you want to remain stable, you need to generate 5% to 15% additional business. And by generating 5% to 15% additional business, you're generating -- well, you're remaining stable, and that's what we expect there. So this -- on this -- and now we have been doing the homework for you. We have added everything up. We have taken into account all these kind of overlaps that we have. And this is what we came up with. You see the EUR 470 million, which is the normalized EBIT of last year. Remember, EUR 570 million minus EUR 100 million from Viridium, that's EUR 470 million. And then you see what we expect for the next strategic cycle over the next 3 years. We expect to be at around EUR 600 million. Now don't lay me down. It's not going to be as linear as that, of course. And please don't take the figure that you see in 2020 as the best estimate for how we're going to finish this year. I haven't talked about COVID right now, okay? But this is what we expect from the life and health business. Now of course, how can I do a presentation on life and health without talking about COVID? And I would like to summarize this in the next 2, 3, 4 minutes, what the impact of COVID is on the life and health business both in terms of, and I showed this on this slide, in terms of the business volume that we generate and in terms of profitability. And I'm going to do that along the business lines that you all know. So first of all, the business volume on mortality and morbidity is going down. That's very clear. I mean we see some countries where the new business generation is really, really minimal. It's -- in principle, it's countries where you don't have any digital channels. That's very complicated for these countries. So very little new business. On the other hand, of course, we see some insurance companies who were increasing the new business production since COVID. These are exactly the guys who do have a great digital channel, who have something which is good looking, which is understandable, which is affordable. And we have a lot of examples of these guys out there. The financial solutions business, I told you already, we believe that the volume is going to increase. That doesn't mean, I mean, that the premium volume is going to increase, but the business volume we're writing is going to increase. And the longevity, I think there, COVID has no impact on the longevity business. That's -- that -- it will remain pretty stable, growing but growing as expected. Now looking into profitability, that's much more interesting. I believe that, of course, mortality, morbidity will take a hit. If you look into the mortality business, which is the kind of things that we would have expected anyway, you talk about the pandemics, you were expecting millions of people dying in the streets. And of course, we're suffering from that, but we're not suffering as much as the population mortality is suffering. So our book is suffering much, much less than the population mortality. Reasons are, of course, evident. First of all, the population has a different age split. Population has much more elderly people than we have in our own portfolio. And we know that in this pandemic, and I say in this pandemic, elderly people are over-proportionally dying, of course. So that's one of the reasons. The second reason is unfortunately, we also see in this pandemic that the people who are dying more are people from low socioeconomic classes, and people from low social economic classes tends to have either no insurance or lower sunset risks, which means that the claims that we see on the mortality side are below average. So this plays for us, if you want. And then we have also other impacts which are positive, on the other hand, which is that we see much, much less accidental death benefits. Of course, people, they cannot drink and/or drive, which means that the accidental deaths are going down dramatically, and this, of course, benefits us. Notwithstanding all this, it's very clear that on the mortality side, we're going to take a hit. Morbidity, the same. You might say, how can morbidity take a hit? Morbidity is more a secondary impact of the COVID situation. As you know, COVID leads, of course, to economic downturn. And when you talk about economic downturn, you know that this leads into more disabilities. Karl, I'm looking at you. I'm probably -- I still have 2 minutes, okay. So let me explain this quickly. It might be interesting for you guys. I mean, first of all, one thing that we see is that when you have an economic downturn, the disabilities due to mental illness, due to stress, the psychological factors which kick in there, are just increasing dramatically. And we will see that. We don't see it right now, but we will see that. So this will be -- this is what I would call secondary impact on disability income. That's one thing. The second thing, and that's also quite interesting, is that I think -- and don't take me by the word, but I think roughly 20% of all the disability income claims that we see, the incidence rate, is coming from mental illness. So that's one thing. But it's interesting that if you look into claims and course of payments, so claims that we're paying out, the percentage of claims that we're paying out due to mental illness is much, much bigger. What is the reason? Because these claims, they stick longer. Somebody who is disabled for mental illness is unlikely to get back to work. And if you're -- in addition, in an economic downturn, you're even more unlikely to get back to work. So this is the reason why we see also this. So that's on the morbidity side. Financial solutions, again, I think, as I said already before in the Q&A, profitability is going to remain the same, but we're going to write probably more of this business. On longevity, yes, you might say, yes, longevity, that's great because the old people are maybe dying a little bit more than expected, so this has a positive impact. Yes, it has a positive impact. However, on the EBIT, the impact is going to be minor. I mean the EBIT, the yearly EBIT that we will see will be slightly higher, of course, than expected because we're paying less annuities. We pay less annuities for the people that we thought we will pay annuities but we -- who died a little bit before what we expected. That's true. So on EBIT, there is a slight impact, a positive impact. Where we have more impact is on the available Solvency II capital, of course, because our longevity portfolio will be valued a little bit better because we take the value into the future, and this has, of course, a positive impact on longevity. So that's the COVID impact. And now, of course, let's talk about the key takeaways, and let's try now to take what we have seen at the beginning, the EUR 600 million. And let's take the COVID into this game, and let's put the 2 together, which brings me to the key takeaways. By the way, this picture is much more a modern picture, I would say. That's the way we're collaborating right now. So the American, forget about them, but that's reality. Well, first of all, since 2015, we have seen a strong EBIT growth, you know that, of about 10% every year. That was the CAGR. The key earning drivers, I'm not going to repeat them. These are the guys that we have detected, and we believe this is the growth of the -- this is where the EBIT growth is coming in the future. In 2023, well, without COVID, we would have expected to end up at approximately EUR 600 million of EBIT. But, and now comes the but, COVID is, of course, slowing down this progression. And well, I'm looking at Klaus there. Our expectation is that this will delay us by at least 1 year. It depends how COVID develops, when the vaccine is coming, et cetera, et cetera. It could even delay us by 1.5 years. It does not change the growth drivers that we have been showing you. It does not change the pattern. But it's clear that we will take a hit, and it will take a little bit longer to get to the EUR 600 million. So I think that's all from my side, and I would ask Klaus maybe to join me now for the Q&A session. Over to you.

Well, thank you, Claude, for this great and speedy presentation. And to -- I'd like to welcome Klaus Miller on stage as well. He's in charge for the life and health business in regions that fall out of Claude's responsibility, namely North American, the U.K., Ireland and the Northern, Eastern and Central European markets. I think we are set to go into the Q&A session, and we already have 2 questioners. We start first with Vikram.

Well, I thought Ritchie.

Sorry, it's me again. Thank you for the interesting presentation. I've got 2 questions and a clarification. So firstly, on the financial solutions, the planned EBIT CAGR of less than 7% looks quite a bit lower compared to what we've been used to in the past 2, 3 years. I appreciate it could be partly explained by the base effect. But still, it looks on the lower side considering the really encouraging comments we have heard in the past. So any comments there would be helpful. Secondly, I just wanted to clarify if the 3 components that are there in the presentation: financial solutions, longevity in Asia and the expected additional EBIT. I'm assuming all these 3 are not additive because you mentioned there's a lot of overlap. So is that right or they can be added independently is the clarification I wanted. And lastly, I'd like to go back to some of the remarks made earlier in the day, where I think the message was that some of the assumptions with respect to longevity might be updated and reflected in the group's Solvency II ratio. I hope I understood that correctly. However, if I think -- when I think about the messages from the past, the signaling has been that you can and have to account for the experienced deviations but you can't really change your assumptions even if you wanted to. So just keen to understand what has really changed now, if I'm -- obviously assuming that I've understood the mechanics correctly. So that's all from my side.

Yes, thank you very much. I'm taking the second question first because that's an easy one. This is really -- this overlap that I was explaining. I mean if you look into my presentation, and you have the slide in front of you, and you sum up all the additional EBIT that we would generate, you would end up at something like EUR 250 million. But that's not really the sum that we're adding to get to the EUR 600 million. So there is definitely an overlap. When we talk about longevity, we talk about longevity including financial solutions. When we talk about Asia, we talk about Asia including financial solutions. So this is where the overlap comes. So you're right. You have understood correctly. There is an overlap, and that's why I did this, the last piece -- the second before last slide where I did the sum of this, where I consolidate it altogether so that you understand where we believe we will end up, okay? So that's a very easy question. Klaus, do you want to take the longevity one maybe?

The longevity is yours.

It's ours, yes.

Sorry.

But it's from the U.K. Most of it is from the U.K. I can take -- or take the first one. Take the first, and I'll take the longevity, yes, okay.

I'll take the EBIT one. What you have to keep in mind is that the financial solutions business we are writing today is not the same as 10 years ago. We write -- sorry, financial solutions business also on the long term. But you're all familiar with, for instance, XXX reserving requirements in the U.S. This business is gone with the introduction of principal-based reserving. So what you see in these, let's call it cycles, like in the P&C area, you see pretty good margins in the beginning, and then as soon as this becomes a commodity -- we're not the only one who do financial solutions in the market -- the margins go down. And we have to be on our toes all the time to find new ways for financial solutions. Fortunately, the regulators help us and change their rules every now and then so that companies have problems and they need our support. So this might be, again, together with the normalization Claude mentioned, the reason for the 7% you have calculated there.

On the longevity, I think the question is why do we now start to reevaluate the book whereas before we haven't been doing that? Remember, we have seen a kind of a break of the longevity improvements and particularly in the U.K. You'll remember we have discussed about that. And when we saw this, the slowing down of the improvements, which means -- which is part for longevity or for -- which is -- sorry, which is good for longevity, yes, because people, they die more than what we expected. Into the future, we decided not to take this into account and to wait some years until we see really some kind of evidence that this is happening. So this is what we have been doing. And when we have seen the evidence then, of course, you have said, okay, so we're going to reevaluate the book a little bit. So it's not really the COVID-only impact -- COVID also has an impact, that's very clear -- that made us reevaluate the book. We have reevaluated the book already before. And this has an impact on the Solvency II available capital, of course. But we cannot show this as EBIT figures in the year we do that, yes. I don't know if I respond to your questions right now.

No, that's very clear.

Thank you.

Thank you, Vik. The next question is from Andrew Ritchie from Autonomous.

I'm just trying to understand a bit more the sort of medium-term effects of COVID. Let's deal with mortality, first of all. Did you expect that there's quite a lot of displaced mortality, as in mortality that has sort of been, I suppose, accelerated, for want of a better word? So as the COVID effect had dropped out, mortality could overall sort of normalize or even be possibly better than expected as early as sort of some point late in '21? So that's the first question. I was intrigued by the morbidity indications because it sounds like you're quite cautious on a sort of COVID hangover effect, if you like, from -- on morbidity. Just remind us, where are your biggest morbidity exposures geographically? And the final question, is COVID leading to an increase in demand for financial solutions business? I'm thinking here life insurers confronted with even lower interest rates. And whilst you don't take asset risk, there can still be a way you can help them optimize capital. I'm just curious, is that actually -- do you think COVID could lead to an increase in financial solutions demand?

Thank you very much for your questions. Klaus, do you want to take the last one quickly? Because that's...

Yes.

Yes.

Well, on the financial solutions side, we expect definitely an increased demand. Reason is the companies -- life companies have problems right now, not necessarily because they can't pay the claims, but with all the economic downturn and the turmoil in the financial markets, we see that they have a closer look on their balance sheet. And financial solutions, although the underlying risk is mortality, morbidity, longevity, whatsoever, the driver for financial solutions is the impact on the balance sheet. And we have seen an uptick already. Right now, we are writing a lot of business. We are extremely busy. And we expect this to continue way into next year.

Maybe I move on your disability question that you had. I mean the main exposure -- I don't explain -- I hope it was clear that the economic downturn has an impact on disability. It's not really COVID. It is economic downturn due to COVID. The biggest exposures we have in Australia. As you know, we have talked about the DII business in Australia quite some time. So this will, of course, have an impact. But we have also -- I mean, disability is one thing, but we talk about morbidity business. So morbidity could also have an impact. Of course, we talk about the secondary impacts on, let's say, critical illness business because we -- nowadays, we don't know if somebody who has suffered from COVID that has maybe recovered, that he might maybe even more likely to have a critical illness sometime into the future. We do not know that. So it could also have a negative impact on this. And the critical illness exposure, we see it mainly from Mainland China in principle. And then the last question is mortality. We can take...

That was -- yes.

We can both -- hey, would you want to take it, Klaus?

Yes, I can...

Yes, yes. Okay, go ahead.

I can start with that.

Yes.

It's a little bit of a tricky question. We know that there was an argument, okay, all the people with bad health have died irrespectively whether it's old age or middle age, and then mortality must improve after the COVID pandemic. That's one argument. On the other side, it's not quite clear what is left after you have survived COVID, whether there is any impact on your health. And we see, at least in some scientific research papers, that there are people who have had COVID and survived that, even a mild form of COVID, but still, months later, they don't feel that well. There's back-to-work, that's fine, but they don't feel that fit. And the long term effects, we probably need 2 or 3 medical research professors here to support us, and they -- even they could only air some guesses how this will pan out. It's much too early to say how this will impact us. We will certainly see a slight improvement. But then in the long run, whether mortality will be the same or whether you will be able to see the difference -- you know that we still have, on average, something like a 1% mortality improvement. Is this gone after COVID for the next 10 years? Nobody knows today.

Well, you're talking about the cohort of people who have survived to COVID, who have suffered from COVID. And right now, as we said, we don't know if this is a good cohort or a bad cohort in terms of mortality. I'm absolutely with you, Klaus. I hope we have answered your question.

But still there is...

Yes. That's very interesting.

Super.

Still 90% of the people who have not been infected yet. So...

Yes.

And hopefully will never be.

Well, thank you, Andrew, for your question. Thomas Fossard has also raised his virtual hand for asking a question. Please go ahead, Thomas.

Yes. First question would be a clarification on the slide you presented for financial solutions. You're presenting a normalized EBIT in 2019 of EUR 397 million. If I'm right, actually you reported EUR 297 million last year. So I'm struggling a bit to understand what is the right starting point for the chart? Or maybe you can explain the EUR 100 million difference in your reporting? And the second question would be, taking the benefit of Klaus being present as well, if we could get, I would say, an updated view on the ING mortality by book 18 months into the repricing. Could you, yes, say what is the situation where, if everything is almost back to normal, how many cases actually are in arbitration process? I mean we get a full picture on the situation there.

So to tell you the truth, I must say I'm unable to give you the answer right now, and I don't know if anybody is able in the room to help me out. I will -- we will give you the answer via the [ CCE ] Department. You said you were interested in why we have a normalized EBIT of EUR 397 million. I don't know if you see the slide that I'm showing right now. And you said that we reported EUR 297 million. That's what you said. Is this right? Did I get you right?

We're -- actually, EUR 287 million from -- EUR, 287 million...

Okay, EUR 287 million. We will come back to you.

In my notes here I took, yes. Maybe I'm wrong.

You will get an answer. Definitely, I cannot tell you, okay? And I would hand over to Klaus for the other topic.

Yes. On the ING portfolio, we have seen, if you ignore COVID, the expected results. So yes, we are still making losses on that but in line with our expectations, in line with our adjusted expectations after the rate increases. You might remember that last year, I talked about significant recaptures which happened. And this also helped, of course, during the pandemic now because the old-age mortality was the problem and a lot of business has been recaptured. On the arbitrations, you might remember that we had 4 arbitrations or 4 company groups where we have arbitrations. The first one was concluded this year. Due to confidentiality orders in the arbitration order, I can't give you the exact details. But what I can tell you is that you know that we have increased premiums in May 2018, and for these special treaties here, we had terminated them in, I guess, January 2019 due to nonpayment of the increased premiums. That was the reason why it went into arbitration. And I can tell you that we are very pleased with the outcome. And the way we conduct our business is that these terminations remain in place unaffected. But I can't give you any more details on that one. And the other 3 arbitrations will definitely go into 2021. One might even go into 2022. COVID-19 is not really helpful in getting the people together and discussing this. So this all happens virtually over video conferences. And it dragged a little bit longer than we thought. I thought in -- by the end of 2021, everything will be fine and sorted, but that might even drag on into 2022, at least for one of the -- these arbitrations. Does that answer your question?

And we will get back to you with the other question. The next question is coming from Paris from Exane.

Yes. Hi from my side as well. Just one remaining question, and it's a very general one. Basically, when we look at the impact of lower interest rates, it's quite easy to understand the impact that lower interest rates have on the P&C side. For life and health, it's much more complicated, at least from the outside, to understand the certain developments within the business. So the question would be, how are you thinking about margins and profitability on the back of the new normal of very low interest rates at least for the next couple of years? But also, how the lower interest rates are actually impacting your strategy for growth? So going a bit more into financial solutions versus some other lines of business, I guess, mortality, et cetera.

We have already started going into financial solutions. That doesn't mean that we give up the traditional business. It's still important to us, and we are supporting our clients there. But one effect, for instance, is that we don't like a level premium business which runs extremely long. That is, whole-of-life business, permanent life business. We still write that, but we're not very competitive. And now I talk especially about the U.S. We're not very competitive on permanent business in the U.S. any longer. We write next to nothing. And that means the interest rate is not that important for us if you look at YRT treaties. It is important for us when you look at coinsurance. And especially, it's important when you look at coinsurance with an extremely long tail. That's what we currently avoid. For the in-force business, we have even decided to take part of our portfolio and reinsure that with some of our cooperation partners who like asset-intensive business. And they're happy to guarantee interest rates, not great rates but something better than what we currently would use in our own calculations. So it's a net win for us and it's still a net win for them. So this is one part of the active in-force management Claude talked about earlier.

Maybe, Klaus, I can add maybe one more comment because you might say -- be saying, what about the longevity business? I mean you remember what I said. We went away from the single-premium longevity business into regular premium annuity treaties, where we don't get the full premium and we need to invest it. So it's interest rate unsensitive, of course, because every single year, we get the premium or we pay the claims. So that's also one of the reasons why we were less sensitive to interest rates.

But you started that already in 2015.

Exactly. So it's not an issue at all. Did we answer your question, sorry?

You did. It's very interesting.

Okay. Super.

Well, thank you, Paris. And we have another, and that seems to be the last question for this session, from Vinit Malhotra from Mediobanca.

So one very quick maybe follow-up, Claude, if you like. The longevity, you're thinking of roughly doubling up the EBIT. Now remember, going back, maybe you weren't at Hannover Re then, but there was the enhanced annuity book in the U.K., which was then withdrawn. And then every time we've asked you about longevity in the U.K., my sense was that you had said how the population, mortality, et cetera, cannot be always extrapolated and used. Is there a -- could you just remind me again, sorry if I missed it already, whether there's been a reason for this shift in bullishness towards longevity book now?

So there were various things that you mentioned, I think, because you mentioned something -- and I see that you follow us for many, many years. You mentioned one thing that we took off the book. Now that was a special effect. That was -- as -- you're right, that was one of these enhanced annuity treaties. That's true. Now I'm not 100% sure what the question really is that we should answer. Have you understood? So can you maybe -- sorry, I need to ask you again. What is exactly what you would like me to say? Is it maybe around the risk that we see with the longevity business given that we go into long-term treaties and we are bound kind of for 30, 40, 50 years in the future? If this is the case -- I can give you a reason why we feel comfortable with it if this is the case, but I don't want to spend our time now answering something that was not your question. Can you maybe just make -- clarify that?

So -- yes, sure. So -- yes, so the question is that it seems from the outside that there's been a shift in longevity recently, your approach, because now you're thinking of doubling up the profit in a few years. Is there something that we could understand why there is a shift, if there is a shift?

Okay. Now I get it. I mean doubling the profits out of longevity, as I said, is not just doubling the profits out of the RPAT treaty. So the standard longevity swaps that we have been writing. The doubling of the profit comes, of course, also from the financial solutions business, which has as an underlying biometric risk longevity. That's number one. But you're right, we do feel comfortable with longevity. I must say we have a lot of statistics right now. We do feel comfortable writing more longevity business. There is also this view, and I mentioned that about optionalities that we don't like in policies, in long-term policies. I was mentioning that in my presentation, remember, because the portfolio structure is changing. This is totally different than the longevity book. If you take a longevity book, you take it on. And the people, they have no option but trying to survive as long as they can, but they cannot take their annuity and then just move it and buy an annuity somewhere else. So this longevity business is really with very little or no optionality for the end consumer, and that makes us really feel very comfortable about it. In addition, we have also started to look into more, let's say, deferred annuities as you -- if you have followed us for many, many years, previously we have started with the enhanced annuities, which were much shorter. Now we're looking also into deferred annuities. Why are we doing that? Because our data, our stats that we have right now are so, so much more powerful. We have so much more data that we feel comfortable to go ahead. So that's the reason. Another reason that's a side effect is that if you look into our capital, into the diversification of the life and health business, we are really, I would say, optimally diversified, but we can even do better. And I'm looking at Andreas Markert somewhere there. We -- if we write a little bit more longevity, our diversification would even improve. So that's even a reason more for us to push longevity forward. Klaus, I don't know if you have any...

No.

Okay. Super. I hope I answered your questions right now.

Thank you, Vinit, and thank you all for your profound questions. Thank you, Claude and Klaus, for your comprehensive insights. Without further ado, Jean-Jacques will now summarize the day and take another brief look forward. But as mentioned, we will not providing any fresh guidance today. The initial guidance for 2021 will have to wait, as usual, for the Q3 conference call on November 4. I'd just like to draw your attention one more time to the feedback questionnaire we have distributed. We are also pleased to read your comments and suggestions for improvements and learn about the topics that really matter to you. And as stated at the beginning, this is especially important for us. On that note, I certainly would like to thank you on behalf of the entire Investor Relations team for your participation today. It is really gratifying that so many of you have -- took part today and showed such a lively interest. On that note, over to you, Jean-Jacques.

Well, thank you very much, Karl, and thank you to all attendants for the great questions. A good dialogue. I think it was a good roundup of topics. So thanks for that. The main purpose today was very much to introduce our strategy, and you've seen that we have a balancing act. We are building on our strengths, I mentioned it earlier this morning, all the business model of Hannover Re. And we want to complement the strength with a number of focused investments which are related to future readiness on the -- and earnings growth. So that's the purpose of our strategy, very purpose driven because this is about culture and focus on the business. And our purpose statement beyond risk sharing, we team up to create opportunities, is very much summarizing the essence of the strategy. We had then a first opportunity to introduce Clemens on stage, and he focused on capital management and asset management with a difficult environment, no doubt, but I think a strong position on our side and a sound strategy, which is what I call the foundations this morning. We move to P&C later on and Sven focused on 2 topics of great importance and relevance to the industry: the U.S. casualty area, which is an important factor; and the inflation, the social inflation topic in particular. I hope you had the information you needed on this. And then the retrocession program, which is very much one of the pillars of our P&C strategy, which we will continue to use as a way to manage volatility going forward. And then we just move to the life and health space with a very good conversation and a focus from Claude on the earnings growth strategy and a number of key topics, including financial solutions, the topic of longevity, which we just discussed, and, to some extent, Asia Pacific, which was the topic of last year's Investors' Day. But I hope this was a good roundup for you in terms of topics and information on our strategy. We're going to be very diligent and focus on implementation now as we believe there is a lot of work to secure earnings growth at Hannover Re. So thank you very much. The first -- the next opportunity to reconnect will be on the 4th of November, as mentioned. This is going to be our conf call for the Q3 result and an opportunity for us to give you an update on the year-to-date performance. Thanks again and let me close now the Investors' Day 2020.