Hannover Rück SE (HNR1) Earnings Call Transcript & Summary

Thank you very much, and good morning, everyone. Welcome to this conference call which will focus on the 1/1 renewal on the P&C side. As usual, I'll start with a few comments and Sven Althoff will make a deep dive on the key figures for the different markets and lines of business. I'll then comment on the outlook for the year as usual. Well, first, let me mention the devastating earthquakes in Turkey and Syria. We're all watching the news with shock and sadness and our deepest sympathy goes to all the people affected by this catastrophic event. We hope that the rescue efforts will be prompt and effective. Let me now move to the overall market conditions. As you know, we're looking back at a year 2022, which was quite challenging for the industry, reinsurers and insurers. Insured losses from natural catastrophes were quite elevated, as you know, and clearly about expectations. Additionally, we had the war in Ukraine, which increased uncertainty in the markets, drove up energy prices, contributed to the surge of inflation worldwide. So supply and demand in the industry has become out of balance. We've seen that in Q4, and that's clearly due to the reduction of reinsurance capital, the rise in interest rates, the tighter retro market and the hardly noticeable inflow of alternative capital in the ILS market. There was a strong difference between the increase in primary insurance and reinsurance prices. And for this reason, the proportional business was less attractive to us than the excess of loss business. Rate increases were really strong in nonproportional property and they were also attractive in a number of specialty lines. More moderate rate changes were seen in casualty and in credit reinsurance, which had a very strong track record in the last few years. Terms and conditions have hardened significantly. The best known changes are the increased retentions or the elimination of working layers but there are many other risk-mitigating instruments, which have been introduced or reintroduced in the treaties across the globe. For example, annual aggregate deductibles. We expect the current market environment to continue for the upcoming April and the midyear renewals. That's because the key driver for the current market dynamics, the supply-demand imbalance will very likely remain in the course of this year. Moving on to our treaty renewals, I'd say that most of the described factors were also true for our portfolio, the improvements of rates as well as terms and conditions are adding up to a clearly improved risk return profile in our book of business. Additionally, we saw continued healthy demand for Hannover Re as a reinsurance counterparty. I'm, therefore, very pleased with the outcome of the renewal. The risk-adjusted price increase overall was at about 8% and even 21% or nonproportional business. The renewal of our retrocession coverage was also very successful, and Sven will explain this in more detail later. But we were not only able to renew the previous year's retro cover, but also have seen high demand for participation in our K-Cession as our long-term partners sought to benefit from the rate increases in our nonproportional NatCat book. In this renewal, we sharpened our focus on underwriting discipline. We encouraged our underwriters not to renew business if it did not meet our increased margin or terms and conditions requirements or if it was the least profitable business in recent years. So there was an element of pruning and portfolio steering this renewal. As a result, the amount of nonrenewed or significantly restructured business increased materially. Because rates in a number of primary insurance markets have not increased as much as we believe is necessary to cope with inflation. We have also encouraged underwriters to offer proportional capacity in a more restrictive manner and instead, further expanded our nonproportional business. As a result, the underlying profitability has increased significantly. And at the same time, the underwriting year premium is unchanged practically compared to the previous year. However, for the financial year 2023, we will continue to see material top line growth. Some will come in the upcoming renewals in April, June, July, but also from some of the lines of business, in particular, our single retrocession business, but also the structured reinsurance business. We'll see some further growth as we have seen a lot of demand lately, and we continue to see continued interest from clients in the course of this year. In this respect, we are quite confident of achieving the expected growth of more than 5% for the group. This is like in health and P&C combined after retrocession. As mentioned, the quality of our global book of business improved substantially, this renewal. However, you can only partly measure the quality improvement through rate changes, some exclusions or limitations in coverage are not systematically measurable and can, therefore, not be included in the reported price changes. These terms and condition improvements were observed in many, many contracts and will lead to a much better overall claims experience and therefore, underlying profitability. And I believe also that the sustainability of the improvement is much better as a result. All in all, we're very satisfied with the outcome of the renewal. The improvement in prices and terms and conditions are, as mentioned, sustainable, and we have achieved a durable improvement of the quality of our portfolio, which is much more important than top line because it benefits our performance in the long run. This is the development of the renewals in January in a nutshell. And now we would like to give some more colors around the specific geographies and segments, and Sven will comment on this.

Well, thank you, Jean-Jacques. Also good morning from my side. Today, we are reporting about our traditional treaty reinsurance, which was up for renewal at the first of January which is 63% of our overall traditional business or 42% of our total P&C in-force premium. From a geographical point of view, EMEA is the most prominent first of January renewal where the majority of the business is renewing at that date. For Americas and APAC, we still have very meaningful renewals at the first of April and in the midyear at around first of June and first of July. As Jean-Jacques already mentioned, we had unusually high number of canceled and restructured contracts. Out of the EUR 1.3 billion of cancellations, EUR 950 million was coming from the proportional side. Here, we have a combination of us discontinuing with pro-rata business, particularly in EMEA and in APAC, which was no longer making our profitability hurdles, but also the fact that given the stronger price momentum on the nonproportional side, our shifting of capacity for NatCat from pro-rata to excess of loss contracts. With EUR 400 million, we also had a meaningful component of nonproportional business, which was canceled as part of the EUR 1.3 billion, here some of the aspects, Jean-Jacques already mentioned when it comes to higher retentions and/or annual aggregate deductibles come into play. And on the business, which we have renewed, on the other hand, we had a very pleasing change in pricing, which is a risk-adjusted figure of 8% across pro-rata and nonproportional business -- which with the stronger momentum on the nonproportional side. And overall, we have renewed EUR 9.8 billion, so almost the same amount the incoming figure only slightly down compared to the previous year. On Slide 11, we are talking about the price development in the various reporting lines. As you can see, all reporting lines are showing a positive price change with the most prominent development in the Americas and on aviation and marine. On the premium side, we have good growth in EMEA and the Americas. And due to the cancellation of the proportional business in APAC, we have a stronger reduction in that region. And overall, as already mentioned, the renewal premium was roughly stable compared to the previous year but with an 8% increase across all reporting lines, a strongly improved profitability profile of our renewals. If we look at the split between proportional and nonproportional business, you can see that the pricing momentum was less strong on the pro-rata side. As the insurance rates not always make up for changes in underlying exposure assumptions or inflation, we discontinued business in particularly EMEA and APAC due to profitability reasons, when it comes to the Americas the main reason for us reducing the premium on the proportional side was a shift towards excess of loss premium for NatCat exposed business. On the other hand, we had a much stronger momentum on the excess of loss side with a very pleasing overall price change of 20.7%, particularly strong in those parts of our portfolio, which has seen losses during the 2022 year. So EMEA, Americas, Aviation and Marine are most noticeable on that side, but also APAC and particularly on the Australian business, we have seen strong momentum on the price change as well. That's the reason why, overall, we could also change the -- increase our premium volume by more than 20%. This figure could have been a higher figure, but also our seeding companies had constraints when it comes to their spending budgets. So given inflation and given that in many programs, there was the requirement from ceding companies to buy additional capacity on top of the existing program. A lot of programs have seen a shift away from lower frequency layers to higher severity layers at the end of the program, where, of course, the premium on the contract is lesser than on the frequency protections, which often enough were restructured or discontinued so reducing the overall premium pool. On Slide #13, you can see that we are reporting about the sixth year in a row with good price increases on our nonproportional business for 2023. The 20.7% are leading by quite a margin compared to the previous years. And just as a reminder, these numbers we are showing on this slide are those which we have reported to you in the respective February after the January renewal. They are not recalculated to end today's as of basis. So let me go into the details for the various reporting lines. I would like to start with EMEA, where the overall change in pricing was 7.2%. We did increase the overall premium by 2.5% despite the fact that we have canceled a few contracts on the proportional side due to profitability reasons. The most significant price increases we have seen was on the Cat programs in Germany and France. And here, the background are the well-known losses from the calendar year 2022, which were a driver for this development. Overall, particularly for the Germany and France portfolio, we can say that the expectation for profitability in our portfolio has clearly improved. When it comes to cyber, we have been able to renew our proportional business -- improved terms and conditions. The momentum continues to be positive on cyber reinsurance and just as an overall side note, this is not only in respect of EMEA, but in general, our -- today's cyber portfolio is now exceeding EUR 600 million and we were able to continue to grow our portfolio at the first of January. And as I will mention later, have also gained some additional flexibility by us placing additional retro protection on the cyber class. In the Americas, the property portfolio has seen the strongest rate increase in our overall portfolio. The volume effect was less pronounced due to often higher retentions while the seeding companies. As already mentioned by Jean-Jacques, we had a more moderate development on the casualty side. So the overall improvement of the market was broad-based, but it was most pronounced in property and specialty and to a lesser extent, in the long-tail classes and casualty in particular. Latin America has only seen a small renewal. The main renewal is still view at the first of July. But also here, we can report that we have a good momentum of price development and therefore, improved profitability of our portfolio. So in total, the change in price for the Americas was almost 13%, and we could grow the volume by almost 7%. In APAC, the development was less pleasing, particularly on the proportional side. So in many cases, the development of the insurance rates, which are, of course, the basis of our renewal decision for pro-rata business was below our expectation. Therefore, we discontinued business, particularly [ Kuala Lumpur ] and Shanghai branch. On the excess of loss side, we could grow our portfolio and sometimes we were able to shift capacity away from pro-rata towards excess of loss. But overall, there was a significant drop-off premium by more than 20% due to our decisions on the proportional side. Australia was a relatively small part of our first of January renewal with only a few programs coming up. But here, we had a similar pricing momentum compared to what I was able to report on the EMEA and Americas. So very strong development also here on particularly the NatCat pricing of the business. When it comes to our specialty classes, the development in credit and surety was relatively benign from a pricing point of view. We are coming out of a period where the loss experience and credit and surety has been very positive. So therefore, there was less of a demand from our side to increase pricing where we have seen increases is on the excess of loss programs. Due to inflation, of course, the underlying turnover of the business have increased, therefore, often enough requiring larger excess of loss structures. And due to inflation, they were readjusted in the pricing expectation from the reinsurance community. Overall, we are having a small reduction in the premium, but coming from a very good level of profitability. So therefore, we are pleased with the development in credit and surety overall. In both Aviation and Marine, where we are reporting about a 17% increase in price, 2022 has seen losses, either from the war in Ukraine or from older product liability losses, which have developed. So therefore, the market has developed a very strong momentum on the pricing, on the reinsurance side. The same is not necessarily true on the insurance side, where the development of rates is stable overall on marine and aviation. Therefore, overall, the premium volume, which we did rise was relatively similar to where we started the renewal season. One major topic for discussion was the coverage for war perils, when it comes to those 2 specialty classes where we had very constructive dialogue with the majority of our clients. But on some business, we had to discontinue because we couldn't agree on the scope of coverage going forward. But overall, the profitability of the portfolio has certainly increased according to our expectation. Last but not least, the agricultural risks. Here, we have a very mixed picture, an overall price increase of 3%. So we had very pleasing situations like the renewal in Brazil where after the losses from the drought event last year. We had a very strong reaction from the reinsurance market. So a satisfying renewal here. But the same is not true in all the territories. So therefore, we have reduced our exposure in Asia due to insufficient profitability margins in the business. And we have also derisked for selected natural perils like drought and [ thrust ], for example, in France or in Poland, where we felt that the underlying exposure trend is not fully reflected in the pricing. And therefore, we have reduced our positions for those perils. On Slide 16, we are talking about the outlook for our structured business, our facultative business and the NatCat business for the remainder of the year. On the structure side, we can report that we still see a very strong demand for tailor-made reinsurance solutions, which are bespoke to the individual ceding company. We are expecting some additional demand due to the fact that retention levels have gone up and ceding companies will look for solutions to deal with a more frequency and of their programs. And that, of course, was fueled by the development of the pricing in the traditional business. Therefore, we have a strong pipeline for further growth in 2023. As you know, we always shy away from giving a percentage or specific percentage or premium increase we are expecting due to the fact that transactions on the structured reinsurance side can be very bulky in premium volume, which is different to the traditional business. So therefore predicting percentage increases is significantly more difficult for this part of our business. On the facultative side, we have seen continued strong demand, which in our view, will only increase during the course of 2023. Again, one of the reasons is the fact that the ceding companies, in general, have decided to run higher retentions. So one way of reducing their volatility profile, of course, a facultative business. We are seeing very pronounced rate increases and particularly the Cat exposed business. And overall, we can report that the momentum for the facultative reinsurance pricing is good. In many cases, it's stronger than the underlying insurance rate development. And therefore, for the remainder of the year, we expect strong demand and us being able to increase our premium volume for the underwriting year 2023 by more than 10% and we will do that with a limited natural catastrophe profile because our preferred way of writing natural catastrophe exposure is through the treaty side and not through the facultative side. Last but not least, the natural catastrophe business, where we have seen overall risk-adjusted price increases of 30% on average. The reasons have already been explained, of course, the heavy loss activity and at the same time, the limited supply of reinsurance capacity. Risk-adjusted rate increases have been most pronounced in North America. Our overall net risk appetite remains relatively unchanged. And as I will explain in a second, the higher retro protection, which we were able to place allowed us to offer additional capacity to our ceding companies without increasing our own net risk appetite over and above the small increases, we were willing to accept when we started with the renewal season. For the April and midyear renewals in Japan, Australia and North America, we do expect a continued strong momentum of reinsurance pricing and we will be able to be a flexible partner for our ceding companies due to the fact that we had a successful retro placement, so we will be able to take advantage of the positive trading environment for natural catastrophe business also throughout the year 2023. So then finally, let me give you a few details on our successful retrocession renewal. Before I start with the property, retro, let me mention the new cyber quota share, which we were able to place. We have secured capacity of EUR 100 million on a collateralized quota share basis. And this is a very pleasing development due to the fact that the demand for cyber reinsurance and insurance, indeed, from this continuing to grow. And therefore, this is going to give us the flexibility to be long-term partner with our ceding companies and accompany them with the underlying growth that they will have in their portfolios. On the property side, we have been able to renew all of our 3 main retro vehicles. Let me start with our pro-rata K-Cession where we were able to place more than EUR 800 million of capacity. This compares to EUR 450 million of capacity, which we placed last year. Due to the very strong pricing environment, particularly on the natural catastrophe business, our retro partners were willing to support us even stronger compared to the previous year, also in order to take advantage of the good trading environment on their side. This was very welcome because of the imbalance of supply and demand for natural catastrophe business in general. So it enabled us to be more flexible in our gross underwriting and satisfy the demand from our ceding companies. And so from that point of view, a very pleasing development. On the event excess of loss, so what we call whole account, we were able to place roughly EUR 100 million more in capacity, so now at EUR 387 million. This was certainly a more challenging renewal given the loss experience and the tightness of the supply side also for retro capacity or in particular for retro capacity. We have seen the same dynamic that we have seen on the incoming business. So there was an ask for higher retentions, and there was a repricing of the business. But in combination with K, we were able to move the retention levels of our whole account protection upwards so that our overall spend for our whole account excess of loss protection is not significantly higher compared to the previous year. And last but not least, the aggregate of large loss, excess of loss protection. Here, we decided to place slightly less of a limit compared to the previous years. And the reason for that was the already very successful K transaction at the time of placement and the fact that due to the restructuring of the aggregate protection. We wanted to have less of a spend on that vehicle in order to control the overall spending on the retro side for the 2023. So before I get back to Jean-Jacques. A few words on the large loss budget, which is increasing from EUR 1.4 billion to EUR 1.725 billion. Here, you have various drivers for this development. Let me start by the higher-than-anticipated growth we had in the year 2022 on the premium side and on the exposure side. We have the same dynamic on the exposure side, like we have on the premium side when we think about inflation and the underlying sums insured and how they develop and of course, also currency developments. You know that a significant part of our business is written in U.S. dollar and given the strong development of the U.S. dollar, there was a catch-up effect also from the currency side, in addition to the inflation. Secondly, there is, of course, also some growth associated with our additional writings in the 2023 portfolio. As already mentioned, this is not a major driver, but one of the components which led to the increase in the large loss budget on a net basis. And we have, as a third reason again updated our view when it comes to risk in the various models. And some of those adjustments were moving upwards and therefore, are also requiring a higher budget for large losses compared to the previous years. And with that, I would end my part of the presentation and hand it back to Jean-Jacques.

Thank you very much, Sven, for this overview. We're now on Slide 19. And I'd like to make a few comments on the guidance for financial year '23. Clemens presented this exactly one week ago as we're moving into the IFRS 17 accounting in the upcoming quarterly reportings. As you can see, we expect the total reinsurance revenue to increase by at least 5% in '23, this financial year. So the figure is also based on the numbers from prior year, but also the expected upcoming renewals in April and mid-year. Additionally, as Sven just reported, we see a single risk or facultative as well as structured reinsurance as segments with a healthy business pipeline, and we believe this will contribute to the growth of the portfolio in 2023. So overall, we're quite confident we'll be achieving our targets are prudent granted, but I think it's a very good starting point. And in any case, we will be paying very close attention to the profitability of the underlying business and not so much to the volume going forward. Our return on investment target is at least 2.4%. As you've seen last week, this reflects the improvement in interest rate levels in accordance to the duration of our investment book. One has to bear in mind that the inflation linkers contribution will be lower than in 2022 in all likelihood. And we have also catered at least to some extent, for a higher volatility stemming from the IFRS 9 accounting as mentioned by Clemens last week. We've already communicated our new group net income target for '23 of at least EUR 1.7 billion as Sven explained, the guidance is based on the [indiscernible] that large losses stay within our '23 budget for large losses of EUR 1.725 billion. The guidance reflects an improving underwriting results in P&C. It also includes the cost of retrocession. And as Clemens elaborated in the call last week, the combined ratio in the IFRS 17 world is very difficult to estimate as discounting effects are not yet measurable. But this aside, the quality of the P&C book has strengthened tremendously and therefore, the risk return in P&C reinsurance has improved. We estimate an economic improvement in this renewal to be in the range of 2 to 3 percentage points on loss ratios. Some of this economic improvement will be visible in our IFRS 17 net income in 2023. And some of it will be used to increase our reserving buffer in order to manage further periods. We are committed to maintaining our approach of prudent initial loss picks and prudent reserving. And we believe it should put us in a strong position in light of elevated inflation levels, which we also expect for 2023. Regarding the dividend guidance, we remain fully committed to our dividend strategy and intent to provide a stable or growing base dividend and to pay a special dividend if we reach our profit guidance and have a comfortable level of capitalization to support our business. As usual, we will communicate the proposal on our dividend 2022 together with the full details of our numbers for the full year financial results on March 9. With that, let me close the presentation part of today's session, and we would welcome your comments or questions.

[Operator Instructions] We have the first question from Freya Kong from Bank of America.

So 2 questions, please. So you've retreated quite meaningfully from proportional treaties after growing quite strongly in recent years. What's driven this increased cautiousness on primary rate increases and are there any particular business lines you would call out? This seems to be in contrast with most commentary we've heard from commercial lines insurers who say they are still pricing comfortably ahead of loss cost trends. And secondly, of that 2% to 3% improvement in your loss ratio that you estimate, how much of this will be used to build into your reserve buffers.

Yes. Let me start with your pro-rata question. The insurance rates are indeed still growing positively for most territories on product lines. But we see a slowing down of that development. And as Jean-Jacques mentioned at the beginning of the call, we also have increased profitability requirements due to the inflationary environment and due to the fact that we are updating our model assumptions over the time. So therefore, the relative attractiveness of the pro-rata business was, at times, no longer attractive compared to the rate development we have seen on the nonproportional side. And therefore, we have reacted in specific regions and for product lines like low-margin business in personal lines, for example or indeed also in industrial business, when we saw that the portfolio of a ceding company was not up to the average quality of the portfolio compared to the global market. So therefore, we decided to be more restrictive on that. On the profitability question, I get back to Jean-Jacques.

Yes. Freya, thank you for the question. On that note, we want to make sure that we exceed our target, that's the guidance for '23. That's the priority. We also would like to come back to significant levels of reserving. You know that we supported our results 2022. So the priority here will be on rebuilding. We don't have a set plan but the intention subject to the performance of the portfolio will be to come back to the levels we've been at about a year ago in the course of '23 and '24. So no decisions, no automatic decision on reserving level. We look at performance first and later in the year, then we take decisions. But the intention is clearly to increase our buffers in P&C to manage volatility over time. And that will be part of the loss ratio points we'll be gaining through the quality improvement in this year.

The next question comes from Andrew Ritchie from Autonomous.

The first question is just on catastrophe exposure. I think just to clarify, Sven, I think you're saying effectively the net P&L or cash exposure of Hanover hasn't really changed. I guess you can see that in the premium growth quite equal to the price, but maybe just confirm that. But in that context, isn't there a lot of dry powder for the rest of the year because your Cat capacity, at least judging from the -- from K vehicle, which is the quota share for your Cat capacity appears to be dramatically up more than the inwards premium. So -- but I'm assuming you're not -- you want to grow the net premium in Cat. So are you just -- is it just a tremendous amount of dry powder for Cat for the rest of the year? Is that how I should interpret it? And the second question, I'm not quite sure what the 2 to 3 points economic improvement and loss ratio means or how do I relate that to the 8 points risk-adjusted improvement in pricing? Is that 8 points not really risk adjusted. I guess I can see it working both ways. I mean it sounds like you would acknowledge you haven't fully captured changes in terms of conditions, which would suggest you could actually do better than 2, 3 points, but 2, 3 points seems low versus the 8 points. So can you just help us square those numbers.

I'll start with your Cat questions, Andrew. Our net risk appetite for catastrophe business was mostly stable. It's showing a small increase, but we are talking single-digit percentage point here. So therefore, I would call that mostly stable. You're right, when it comes to the dry powder, we have not fully utilized the capacities we have available for the full year 2023. So we will have the flexibility to look at attractive alternatives or additional business cases for the first of April, first of June, first of July renewals. And therefore, we are optimistic that our net premium for the Cat business will ultimately increase during the course of 2023 but we are under no pressure to write additional Cat business in case the pricing development should slow down, which is not what we expect. We expect a very strong momentum on the pricing side also to continue for the rest of the year. So therefore, the dry powder is very welcome. One reason why we have also not fully utilized the capacities at the 1/1 renewal is, of course, also a question of timing. I mean some of the first of January business is renewed rather early. So therefore, we wanted to wait for the final outcome of our retrocessional placement rather than speculating how successful we may or may not be. And therefore, that dry powder was not available or through the general renewal, but only in the later part. [indiscernible] then on the question of 8% versus the 2% to 3% increase in profitability. The 2% to 3% is obviously not a direct translation from the price increases we are reporting, but has to be seen more in the context of how much we are willing to increase or decrease, I should say, our ultimate loss ratio picks for the various classes of business. And as you know, we have a more prudent approach on that side. So therefore, we are not translating the price increases 1:1 into that equation.

Sorry. So the better way of putting it is to say that 8% is the economic improvement, 2 to 3 points is the accounting improvement.

That's one way of looking at it, Andrew. And I mean, it is a risk-adjusted figure, the 8%. So therefore, that is, of course, mainly looking at the economic side of things. And the 2% to 3% is how it will translate into our [ Ulrich ]. You're right, yes.

The next question comes from Will Hardcastle from UBS.

A lot of questions have been answered. I guess just one more then from me, does the higher retro change [indiscernible] I know you've had previous conversations. And you said before that you wouldn't be seeing much U.S. catastrophe growth, given already high exposure there. Has this changed that heading into those...

Well, your line was really bad. I hope I understood your question correctly. So I'll give it a try. If not, please ask again. So the higher amount of retro has not significantly changed our view -- our view on U.S. perils. We are still working hard to improve the diversification in our portfolio. So whilst we are willing to grow the U.S. site in proportion with the rest of the portfolio. We are still not prepared to outgrow on the U.S. natural peril side compared to other territories.

The next question comes from Kamran Hossain from JPMorgan.

First question is just on the revenue, I guess, reinsurance growth this year. I guess you highlighted you moved to nonproportional business, lower premium, high-margin theoretically. Do you expect that shift to continue later this year? Or is that more of a 1/1 impact? Just trying to think about late renewals and top line. Second question, I think my question keeps changing as you keep giving answers. But on the risk-adjusted price increases, Andrew's talked about versus the loss ratio improvement. I mean even if you book the midpoint of 2 to 3 points suggests something like a EUR 400 million post-tax benefit to earnings based on the midpoint, [indiscernible]. So if you're rebuilding [indiscernible], it still feels like you've been pretty cautious. I mean if I use the 8 points, there's a huge number. So just trying to think about just how cautious you being right now versus how you've been in recent years and recent cycles.

On the renewals, which are coming later, Kamran, it's too early to say whether you should expect the same decrease of pro-rata versus shifting towards excess of loss, the 1/1 renewal is more production-rata heavy compared to other renewals later in the year. If our assumption is correct that the pricing momentum is -- continues to be that strong on the nonproportional side, we may continue to shift some of our pro-rata capacity towards excess of loss. But whether we will have the same level of discontinued business regarding our profitability requirements, which was a big feature for the 1/1 renewal. This is too early to say. But most likely, 1/1 was more prominent than the rest of the year compared to those cancellations due to profitability.

And Kamran, on your second question, your estimate is correct. The development of our performance will be driving decision-making level. As mentioned, we will try to come back to a comparable level of reserving protection, having a sufficient buffer compared to a year ago. And if circumstances permitted, we'll take them in the course of '23, if not, if we need a bit more time, we'll give ourselves a bit more time in the course of '24. At this stage, indeed, it appears very conservative. But the year is long, a lot of things can happen. We're also in a new accounting regime, which we need to experience in the coming quarters. So we'll give you some updates on where we feel we are in terms of financial year performance. And of course, we'll give you in Q2 some more granularity on the reserving level as of end of 2022. So it will give you some order of magnitude for what could be achieved. But as you say, at this stage, it would appear if everything goes according to expectations that we're being cautious, and we have the potential to rebuild the reserving level in 2023. And we'll do so if we have enough margin of maneuver. If not, we'll give ourselves a bit more time in the course of '24.

And then maybe a few additional comments from my side, Kamran, I mean we are talking about 8% on 40% of our overall P&C business. So for example, it does not exclude -- it does not include the Advanced Solutions business. As you know, these are underwriting year figures. So for the financial year 2023, you know that the approximation from our side for how an underwriting earns in the calendar year is only 50% of the underwriting year -- will earn in 2023 with a further 50% than earning in '24 and '25. So there's certainly also a time lag. And then, of course, the reserving comments, which Jean-Jacques already made. And lastly, Kamran, the 2% to 3% was after retros was the 8% gross figure.

The next question comes from Vinit Malhotra from Mediobanca.

Just literally following up from where you left this last question. The -- I understand the 8% going to 2% to 3%, maybe retro is 5%. But just clarifying, have you attempted internally even to quantify the terms and conditions because all those exclusions, all those high deductibles, they will come on top, right? And that will be at -- and I know we probably can't quantify it today, but has there been any attempt internally to think, hey, will this be another percentage point if we have to guess. So that's I know a tricky one, but that's something that lack of interest. Then my second question is structured. I always asked this in probably these calls, but with all this demand, and you are expecting far more because of the structural change in higher deductibles. Would this be more profitable now? Could you just remind me, is it better than the kind of 98%, 99% that used to be structured? Could you just remind us that? And just last thing is that this reserve buffer building up -- rebuilding up, sorry. Are you thinking of going back to the 1.7 that you last reported in May last year. And I'm just checking that -- I mean, I remember there were these 2 quarters of credit buffer releases roughly EUR 160 million. Is that the number you had in mind when you said that you released reserve buffer last year? Or was it a bigger number? Just trying to understand how much to subtract from pricing gains that you have.

Yes. Let me take the first 2, Vinit. We have not tried to quantify the structural changes in the programs or the introduction of the risk-mitigating factors we mentioned earlier. We, of course, do that when we in the price the individual contract there, this analysis is extremely meaningful but the various changes are so different compared to -- from one program to another program from one client to the next client to come up with a uniform figure, which is then a fair representation of that calculation for the entire portfolio would be too difficult in our point of view. So therefore, we can qualitatively say that we had those improvements but we will not start the attempt to quantify that effect for the entire portfolio. When it comes to structure, structured and the margin you were mentioning. I mean, those margins are clearly making our cost of capital. So our structured portfolio is very profitable from a cost of capital point of view. So therefore, there's not so much pressure to increase the level of margin for the entire portfolio. But also here, of course, it depends what is the driver for the underlying demand for the business. So if we are talking about risk -- very risk remote structures, then the margin requirements will not change. If we talk about more frequency-driven layers, which are protecting ceding companies because they have now increased their retention under the traditional programs. Those structures will come with a higher degree of risk transfer. And we are, of course, then charging the same amount of margin requirement like we with the traditional business. So there's no arbitrage for the ceding companies possible, whether we put it into the traditional or into the nontraditional i.e. structured bucket. The driver is always what is the required capital for a transaction and all of our transactions have to make the hurdle rate of 1,000 basis points [indiscernible]

Vinit, on your last question regarding reserving buffer. Indeed, the latest number you've seen showed EUR 1.7 billion as a reference point, this is certainly our reference point, and we'll certainly aim at matching that level over time. We'll take account of the development of the portfolio, of course, volume-wise, mix of lines of business development in the next 12 months, portfolio mix, but that would be the reference point. On the ninth of March, we'll give you some initial input on the reserving levels, the tariff was on study will be published in May. So we'll be able to give you some more indication. At this stage, I'm not able to give you a precise indication on buffer used in 2022. So I'll have to ask you for a bit of patience. But in any case, during our next conference call, we'll go back to this question.

The next question is from Derald Goh from RBC.

Just 2 quick questions, please. The first one is just on the 8% risk-adjusted rate change. Can you say what's the level of inflation and risk adjustment that you've assumed within that, please? And the second one is just on NatCat. What's the volume of premiums that you have today after the January renewal?

On the risk-adjusted 8%, as explained during our Investor Day last year in October, we are using a very wide basket of inflation in this, so almost 400 different inflations. So therefore, there is not the one number I can give you. What I can tell you is that the incremental increase for the inflation assumptions compared to the previous year, has not been high. It was stable for most of our indices and only in a few indices we have put another incremental increase in our inflation assumption at around 0.5 to 1 percentage points, but I don't have an average number across all product lines, across all territories for you. All I can say is that our assumptions in 2020 -- for the 2023 year were broadly in line with the assumptions we have also used for 2022. And could you, Teik, repeat your second question?