Hannover Rück SE (HNR1) Earnings Call Transcript & Summary

Well, thank you, and good afternoon to everyone. Welcome to our earnings call on fiscal year 2022. This afternoon, the speakers are Jean-Jacques, our CEO; and Clemens Jungsthofel, the CFO of Hannover Re. They will give, as usual, a brief presentation, after which we will have plenty of time for your questions. At that stage, we will also be joined by Claude Chevre and Sven Althoff, who are responsible for our Life & Health and P&C reinsurance business, respectively. With that, I would like to ask Jean-Jacques to kick things off.

Well, thank you very much, [ Karl, ] and good afternoon, everyone. The 2022 financial year was once again a year of wide-ranging challenges and not only for the reinsurance industry, along with numerous natural disasters and the easing, but still a visible impact from the COVID-19 pandemic. It is above all Russia's war of aggression on Ukraine that has put the world in general and our own risk management, in particular to the test. It had also resulted in macroeconomic turbulence and geopolitical instability. Inflation in many countries is at levels not seen for decades. All these developments are having material impacts on the insurance and [indiscernible] industries. Against this backdrop, I'm really delighted to report that the group net income of EUR 1.4 billion is within the range we set when publishing our initial expectations for 2022. This is central to our business model, namely our ability to absorb volatility and deliver on targets even in difficult times. Growth continued to be strong, as you can see on the slide deck on top of the 12.7% ForEx adjusted premium growth. Currency effects pushed the total number to 20%. This is mainly driven by the expansion of our P&C portfolio in an improving price environment. With a return on equity of 14.1%, our main profitability metric is also clearly above target. The capitalization according to our regulatory requirements remained strong. The Solvency II ratio increased to 252% at year-end 2022. This number is well above our limit and threshold levels and allows us to target further growth and propose an increased dividend of EUR 6 per share in total. This proposal, which reflects the growth in our earnings, consists of an increased ordinary dividend of EUR 5 per share and a special dividend of EUR 1 per share. Let me briefly comment on the developments within our business groups. In P&C reinsurance, the net impact from large losses reached EUR 1.2 billion, large nat-cat or man-made losses were in line with the expectations overall. Hence, the overshoot of the budget can be attributed to our reserving for potential impacts from the war in Ukraine. The combined ratio was additionally impacted by a negative runoff of prior year large losses and increased frequency of COVID-19-related claims in our accident and health business in Southeast Asia. As a mitigating factor, we were able to release reserves for other COVID-19-related claims, in particular in Credit and Surety and Liability business, where losses did not materialize as initially expected. Additionally, the positive contribution from our inflation-linked bonds of EUR 458 million in the investment income should be seen in the context of our P&C underwriting results. I'm very satisfied with the strong EBIT in our Life & Health reinsurance business. COVID-19 claims of EUR 276 million were much less compared to 2021. And our extreme mortality retro cover provided an offset of EUR 87 million. Therefore, the underlying earnings development in Life & Health was very favorable, in particular, in Financial Solutions and Longevity. As already indicated in November, the results in the fourth quarter benefited from some positive effects from our strategic participations where Hannover Re holds a minority share, the total impact amounting to EUR 143 million in the full year. Finally, with a return on investment of 3.2%, the investment performance was very pleasing. This number does include a few extraordinary items, and Clemens will explain this in more detail later on. But the positive impact from higher reinvestment yields will also be visible going forward. On the next slide, you can see the long-term track record for our dividend payments. The ordinary dividend is showing a stable and consistent upward trend in line with the dividend policy we had in place since 2021. As a growing company, it is generally our desire to remunerate our shareholders in 2 ways, paying an attractive dividend is one; and financing future earnings growth and subsequent growth in the book value per share is the other. So striking the right balance between these 2 considerations has also been the driver behind this year's dividend decision. I'm very confident about the positive outlook for growing our earnings in the coming years. And on this basis, we have decided to increase the ordinary dividend and enhance the floor for next year's dividend by EUR 0.50. Our capitalization provides room to take advantage of attractive opportunities. In particular, in P&C reinsurance markets were, therefore, able to bring the total dividend to a level of EUR 6 per share by paying a special dividend of EUR 1 per share as mentioned. With a total payout of EUR 6, we feel that we have found the right balance between growth ambitions and a consistent shareholder return, tied to the earnings power of the company. The operating cash flow on the next slide is driven by our continued premium growth and favorable investment income, the level of around EUR 5 billion achieved in the last 2 years provides a very robust basis for the growth in assets under management. In 2022, this development is masked by the negative valuation effect from rising interest rates and the asset base increased only moderately to about EUR 57 billion at year-end 2022. Nevertheless, our strong cash flow is still very supportive for the ordinary investment income as we're reinvesting the fresh money in an improved interest rate environment. As a reminder, the very strong increase in the ordinary investment income in 2021 and '22 is supported by the contribution from our inflation-linked bonds, even excluding the roughly EUR 200 million in '21 and about SEK 450 million in '22. The trend would still be positive and accelerating. On the next slide, we're looking at our capital base according to IFRS 4 accounting standards for the last time. Structural accounting mismatch for the impact of changing interest rates on assets and liabilities is very visible. Rising interest rates and widening credit spreads had a remarkable impact of EUR 4.8 billion on unrealized gains and losses within the OCI. Including the positive results for the year and moderately positive ForEx effects, shareholders' equity decreased by around 32% compared to year-end 2021. From an economic perspective, according to Solvency II, however, the capitalization of the group remained far more stable and even improved towards the end of the year. Apart from the positive operating capital generation, this development is supported by the additional hybrid capital, we issued in light of the attractive opportunities in the P&C market. Looking now at the long-term ROE performance of Hannover Re, it is pleasing to see that the ROE is clearly in the double digits with a decent spread over our minimum target, no matter whether we look at the 5-year average or the 10-year or the 15-year average. The fact that another [indiscernible] return on equity in 2022 is higher than the long-term average and largely be explained by the sharp increase in interest rates and the corresponding decrease in shareholders' equity. On the other hand, increased earnings also contributed here. In relative terms to our ROE performance screens favorably compared to peers. As you know, we aspire to achieve not only a high ROE but also a less volatile ROE. And as you can see in the chart on the right-hand side, comparing the 10-year ROE performance with the market, we continue to deliver on this important ambition in the top left quadrant, Hannover Re is well placed with clearly above average ROE and below-average volatility. On that note, I hand over to Clemens for the deep dive on the financial performance. Clemens?

Thank you, Jean-Jacques. Good afternoon, everyone. On Slide 9, let's move on directly to the reporting for our business groups. With 18% FX-adjusted premium growth, we significantly expanded our P&C portfolio in an improving market environment. The growth in 2022 was stronger than initially expected, and it's not only very well diversified across traditional reinsurance and structured solutions business, but also by region and line of business within the traditional book. Total large losses, including our reserving for potential claims toward war in Ukraine exceeded budget by around EUR 300 million, as Jean-Jacques mentioned, excluding the impact from the war in Ukraine large losses would have been very much in line with our expectations. However, the runoff result for large losses from prior years has been negative. As already reported, this includes the Brazil drought with an amount of EUR 106 million and the Malaysian floods in 2021 -- in May 2021, but also a number of other loss. The largest impact in the fourth quarter is coming from the increase in the market loss for the 2019 aviation loss. Overall, a part of the negative development of large losses can be attributed to a combination of supply chain issues, stronger U.S. dollar and inflation. The contribution from our inflation protection and the investment income should be seen as an offset. As Jean-Jacques mentioned, we recorded a significantly increased claims frequency in our Accident & Health business in [ South ] Asia. As explained at our Q3 results call, the negative developments driven by a high number of smaller payments [indiscernible]. For hospital daily benefits, the losses are mainly the result of a combination of local regulatory changes affecting coverage under the original policy and high COVID-case numbers due to the Omicron variant. We discontinued the effective treaties in Q2 of last year, but the runoff of the underlying insurance contract still had an effect in the fourth quarter. The overall impact in 2022 amounts to slightly more than EUR 500 million. Going forward, any impact should diminish significantly compared to the experience in the third or fourth quarter of 2020. As an offsetting factor, our reserving for potential COVID-19 claims in Credit and Surety and other lines like Liability has turned out to be too high as the expected losses did not materialize when we were able to release these results. Altogether, we recorded a net negative impact of EUR 269 million from the COVID-19 pandemic in [indiscernible] in 2022. The level of COVID-19-related IBNR has decreased, but is still in the triple-digit million. The runoff of our reserves includes the aforementioned negative effects, but still came to a positive EUR 732 million for the year. This figure is based on the usual positive reserve divestments in many lines of business, but we would also expect that some of the reserve releases were at the expense of our confidence level. At the year-end 2021, our external reserve review quantified the difference between external view on the estimate reserving and the actual reserves at EUR 1.7 billion. For the year-end of the external -- our external review is still ongoing. As you can imagine, there is also a high level of uncertainty around inflation assumptions. So I can't provide you with any figures from our external review. However, my best guess at this stage is around EUR 300 million to EUR 400 million of those redundancies that we would have used in 2022. But that number would already include any potential impact from inflation on 2022 redundancy levels. We still feel comfortable with the current reserving level. However, as explained in our recent publications, we clearly have the ambition to bring the reserving back to at least previous levels in 2022 financial year. And we have embedded that into our planning and also in our guidance that we published for 2022. Based on the aforementioned development, the reported combined ratio for 2022 stands at 99.8%. Net investment income in P&C increased on the back of a very strong ordinary results. This includes the EUR 548 million from inflation being [ pumped up. ] As I already mentioned that we like to protect our P&C reserves and earnings. Other income and expenses include negative currency effects of EUR [ 113 million. ] As you know, this effect is mainly due to an accounting mismatch connected to U.S. dollar investments where there is an offset -- positive offset in this case in the OCI. Due to the fact that we have contributed a large part of our private equity investments to a joint venture with Munich Re and hence, had to reconsolidate the investments which are [ bundled in a vehicle. ] The positive currency at OCI has been realized. Together with some other deconsolidation effect, this led to a gain of EUR 129 million within other income. As this number is mainly an unwind of the currency sources that I mentioned before, as shown in the past, it should not be seen as a windfall cost. Altogether, the EBIT P&C stands at EUR 1.4 billion. On the next slide, large losses. The net impact reached almost EUR 1.7 billion. The overshoot of the budget driven by the war at Ukraine and not by nat-cat or man-made losses. You might wonder looking at this slide, why the gross loss has increased remarkably compared to our 9 months reporting, while the net loss has only changed moderately in response to loss development in the fourth quarter. As you know, Hannover Re is a leading player in partnering with capital markets in the ILS space, where we structured cap bonds and are active in the area of collateralized reinsurance. Hurricane Ian was a very large loss in the main market for this type of business. So within the EUR 2.9 billion gross loss we are reporting here, around EUR 900 million is connected to the Ian loss and our activities in the ILS. As we don't write these risks for our own balance sheet, this number only affects the gross loss. In general, 2022 is the sixth year in a row where the large losses have been at or above the budget. This is one of the drivers for the strong price reaction in the 2023 renewals. As always, we provide slides with a list of individual large losses, which you will find in the appendix. One further comment on the topic of large losses. The first quarter of 2023 started with 2 large nat-cat events already, namely the devastating earthquake in Turkey and Syria as well as cyclone with heavy rain and flooding in New Zealand. For both events, it is still too early to make reliable estimates of the [ whole process. ] As of today, we would expect that the combined impact from both events could reach the level of our large loss budget for Q1, which is around EUR 350 million. On the next slide, the technical profitability by reporting line is basically a reflection of my earlier comments. You see the APAC business is impacted by a number of large losses, including the Australian floods and the Malaysian floods in 2021. In addition, the next group development in the Accident & Health business had an impact on the combined ratio in this region. Large losses also had an impact on the underwriting result in EMEA and the Americas as well as our Agricultural business. The other specialty lines and our [indiscernible] business showed a good underwriting result with Credit & Surety supported by COVID-19 reserve. The [ North ] experience in structured reinsurance was slightly higher than in previous years, but still within the normal and rather low boundaries or volatility in [indiscernible] business line. So let's move on to Life & Health. Gross premium grew by 1% adjusted for currency effects, stemming mainly from our mortality business. The underlying growth in mobility was partly offset by the discontinuation of a sizable treaty in Asia. Under IFRS 4, as you know, the business growth in Financial Solutions is generally not fully captured in the top line, because a significant portion of the business is according to the deposit accounting method. Going forward, the results from these treaties actually will be reflected in the reinsurance revenue falling to IFRS 17. The technical result here includes COVID losses of EUR 276 million, which is significantly lower than in the previous year. As a mitigating factor, our pandemic retro for losses in the COVID period of 2020 and 2021 is valued at EUR 87 million within our investment. The result from longevity was very strong, supported by smaller positive development from updated mortality data, which were favorable compared to our conservative initial assumptions. The Financial Solutions business delivered a very strong and growing contribution to the Life & Health results. As the runoff of the in-force book in Financial Solutions is rather stable. This number provides a strong basis for the [ coming ] [indiscernible]. Investment income from assets under our management improved, driven by the increased ordinary income from fixed income and a strong result from our strategic minority investments. The pandemic retro was offset by the negative impact of rising U.K. government on yields and on the fair value of the U.K. embedded derivatives. Here, we recorded a negative valuation effect of EUR 123 million. Other income and expenses are mainly driven by the result of deposit account in treaties in Financial Solutions. Overall, while the Life & Health result includes positive and negative, as mentioned before, it reflects a very favorable underlying performance. The result in mortality, excluding COVID was, however, better than our expectations. So the next slide highlights the benefit of diversification and strongly supports growth message from last year's Investor Day. The premium volume in Life & Health is well diversified and the balance between the different risk categories [indiscernible] reduces the volatility of [indiscernible]. This is highlighted by the strong result from financial solutions and longevity, which are unaffected by the pandemic and have compensated for the weaker results in mortality and morbidity in recent years. With regard to the economic view on growth, which will be part of our normal accounting from 2023, the development was favorable in 2022. The value of new business is clearly above our full year target of EUR 250 million. Overall contribution by line of business is diversified. We have seen, in particularly a good business opportunity in Financial Solutions. The same is true for our longevity business and the fact that opportunity -- that the opportunities are not limited to -- our main U.K. market is good for the diversification of the portfolio. Overall, the value of new business is also diversified by region with a higher share in developed countries, in particular, the largest insurance markets in the U.S. The development of our investments on the next slide was very pleasing, and this is particularly true for the Ordinary return of 3.7%. The main factor is the strong performance -- further strong performance are the contributions from our inflationary bonds, as mentioned before. We generally increased reinvestment yields and also very solid returns from our alternative assets and particularly from our real estate portfolio in 2022. Realized gains include the disposal of our listed equity portfolio in Q1 and in Q2. And furthermore, we have contributed a large part of our private equity investment to the joint venture. And in order to improve scale and diversification through a combined portfolio, but also with a high on IFRS accounting volatility. In consequence, the deconsolidation of the affected assets resulted in realized gains within the investments of EUR 558 million. However, the realized gains from both, listed and private equity investments, has largely been offset by realized losses from fixed income securities. And therefore, you do not really see a larger impact in the P&L within the investment income here. Within impairments and depreciation, we recorded the normal depreciation for real estate and also some impairments for bonds impacted by the Russia and Ukraine war. As mentioned in my comments on Life & Health, the change in fair value through P&L includes 2 larger individual effects: the U.K. embedded derivative as a negative and the pandemic retro has positive. Apart from that, the sum of derivative valuations was a positive. So the overall return on investments of 3.2% compares favorably with our expectations for the 2022 financial year. At the bottom of this slide, you can, of course, see the remarkable impact of rising interest rates on asset valuations. The development is not worrying as we follow strict asset liability duration [indiscernible]. And fortunately, the introduction of IFRS 17 will address this accounting mismatch going forward, just like in Solvency II, where the effect of interest rate movements on our Solvency II ratio was rather benign during the year. On the next slide, our asset allocation. As you can see, the changes that we made in 2022 were moderate overall. Within our fixed income book, we have reduced our corporate exposure and increased investment in government bonds. By doing this, we achieved our desire to position the portfolio more defensively and increased liquidity in volatile markets. A larger turnover in our portfolio connected to the realization of fixed income losses at year-end largely took place within the government bond portfolio. In this context, we have not changed our strategic asset allocations, but we have increased the liquidity of the portfolio and the accelerated reinvestments in a higher yield environment, which will be positive for the Ordinary income in the coming year. Contribution to ordinary investment income is well diversified. As usual, the most significant development here compared to the previous year is the 35% contribution from government bonds, reflecting strong contribution from the inflationary [ costs, ] on the one hand and then also, of course, the rising interest rates on the other hand. Furthermore, the support from real estate and private equity has also helped us in volatile markets. Moving on to the capitalization and development of the Solvency II ratio, we are looking at a positive trend that continued in 2022. Own funds increased driven mainly by operating capital generation of around EUR 1.5 billion. Here, the main factors were the strong investment performance and our Life & Health business. P&C was affected by the higher-than-expected claims from both, current and prior years as commented earlier. Additionally, own funds increased due to the hybrid bond issued in November. The capital requirement overall year-on-year remained almost stable. This might seem surprising as the business grows in P&C and particularly was quite significant, but rising interest rates more or less offset the operating impact within the SCR. Overall, this means that the Solvency II ratio increased to a strong 252% at year-end. Please bear in mind that, of course, this is not the only capital model that we are looking at, for example, rating agencies, as you know, they are -- some of the models more restrict. Still the room above our limits and [indiscernible] according to Solvency II provides a lot of comfort. On that now, I'll hand back to you, Jean-Jacques, for comments on the outlook.

Thank you, Clemens. So first on Slide 21 before we come to the outlook. I'd like to take a quick look at our target matrix. In the challenging environment we were in last year, we delivered on our financial year guidance, as mentioned. We also achieved most strategic targets. In particular, 2 main targets for the group were achieved with quite a margin in our business groups. The economic targets according to our internal metrics, the excess return on capital were also comfortably achieved. Looking ahead, the profitable growth in P&C and the value of new business in Life & Health made me quite optimistic for the coming year. On Slide 23, we have an overview on the outlook for the financial year '23. Clemens has already presented this slide or part of this slide and explained the drivers for the underlying business development and the respective IFRS 17 impact in the session in early February. So on go into the full details here as the slide and the guidance remain unchanged. We expect further growth of at least 5% of our reinsurance revenue. The return on investment should be at least 2.4% and the group net income at least EUR 1.7 billion. As Clemens explained the return on investment and the group net income includes some elements where we have been rather cautious planning, for instance, as regards to the valuation volatility on the investment side. Furthermore, the indications from our year-end reserve review confirmed that the reserving quality has decreased somewhat, and we have the ambition and with the rate increases achieved in the January renewals, also the room to restore our reserving strength in 2023. All these factors are included in the guidance and in the decision to communicate a minimum target instead of point estimates. To provide some more detail on the contribution from our business groups, in P&C, we expect to achieve an EBIT of around EUR 1.6 billion. This number particularly reflects my comments on the reserving side. And in Life & Health, we want to achieve an EBIT of around EUR 750 million. On one hand, this includes the mid to high double-digit million positive uplift from the move to IFRS 17 with respect to the unlocking of best estimate liabilities. At the same time, the underlying earnings development is also quite favorable as you have seen in the EBIT numbers, particularly those from financial solutions. With regard to the dividend, we will follow our usual approach. The new baseline for the ordinary is set at EUR 5 per share with a general desire to increase the ordinary dividend together with the earnings over time. Overall, as mentioned several times, we're quite optimistic for 2023. We continue to see healthy reinsurance demand, particularly in P&C to [ fuel ] our business growth. The quality of our portfolio has improved significantly in the recent renewals and will further improve in the upcoming renewals, [ 1417 ] in particular. Additionally, a higher level of interest rates will be supporting our investment returns. And last but not least, COVID-19 claims in Life & Health are expected to play a much reduced role compared to the last couple of years. This concludes our remarks, and we will be very happy to answer your questions. Thank you very much.

[Operator Instructions] We have the first question from Andrew Ritchie.

I'm struggling a little bit to understand what you would think the normalized level of combined ratio was in 2022. I guess in relation to that, there's quite a long shopping list of adverse effects. The Asia A&H, some of the large losses developing adversely, structured solutions within your annual report, you've been surprised at your exposure to retail -- U.S. retail inflation. So is there -- are there any grounds for sort of maybe more of a proper review of some of the recent growth in non-Life? And in that respect, also sort of resetting what the normalized profitability starting point is. So that's the first question. The second question is this more general one. When I look at your Solvency II ratio, also alongside the fact that there was actually shrinkage in nat-cat exposure in '22, which was surprising, reading the annual report, you seem to have an awful lot of firepower in capital terms. Also, you reload the retro, there's even more firepower from that perspective as well. But why did you bother issuing hybrid debt in November? What's the capital being built up for, because you didn't really grow exposure massively at 1/1?

Andrew, let me start with your first question. From a normalized combined ratio point of view, the way we look at it is starting from the 99.8%. I guess we will deduct the excess of our large loss budget, the EUR 306 million which would explain 1.4 loss ratio points. Then you have already mentioned the net impact from COVID in Asia and the releases we did on the other side and Credit & Surety. So the EUR 269 million, it is another 1.2 percentage points. And then we would also consider the draughts in Brazil and the Malaysia floods, because we have not really booked any reserves on those in the calendar year 2021 as they happened very late in the year, not as ordinary run-off losses, but the first time reserving which added together is EUR 160 million, so 0.7%. So starting from the 99.8%, this would get us 96.4%. You're right, from a runoff perspective on the old calendar years, we saw a lot of noise during the year, particularly also from the property capital related losses. Here, as I explained in earlier calls, this is clearly an impact of inflation and still supply chain disruption from the lockdown periods during COVID-19. So that's a one-off result but certainly also the reason why we tapped into our redundancy levels in order to compensate for those, but taking it all together, I would say that the year has run at a normalized loss ratio at around 96% to 96.5%.

And you don't see any grounds for having to look at certain blocks where you've grown recently, I mean I think if you think structural solutions in particular?

Well, I mean, we, of course, always do that. And you remember from the renewals call when we talked about the proportion of business where we dropped roughly EUR 1 billion in premium. Mentally, you can split that in 2 halves. One was getting rid of business which was not performing according to our capital requirements. So that was certainly improving exercise and the other half was making room for natural catastrophe exposure, which we wrote in addition on the [indiscernible] side and where we saw the profitability on the export business being superior to the property side. When you are mentioning Advanced Solutions, we are -- we continue to be very satisfied with our portfolio. Yes, we had some negative impact from U.S. retail business in the calendar year 2022, but we are already getting very strong indications that the first quarter of 2023, that trend will be reimbursed because of increased rate filings on that business. So from that point of view, we expect Advanced Solutions to return to the usual lower combined ratios. But as you know, combined ratio is not the best measure to look into the economic success of Advanced Solutions, because often enough, you also have other financial components and also in the calendar year 2022, if you take that all together, our structured reinsurance business was performing very well from the return on capital perspective.

Andrew, this is Clemens. Just on Solvency II. So I think it's fair to say that we have seen some material movement of the Solvency II ratio in Q4, some of them related to [ FD ], some of them to inflation, credit spreads, et cetera. So the Solvency II ratio came in higher than expected. One of the reasons also is that we have been able to place the retro very successfully and that came in later in the year. So the SCR came in at lower than expected. And we have seen large interest rate movements that did not have a material effect on Solvency II. However, they did have a material impact on our rating models. So some of the capital models, as you will be aware of, they do fully take account of the OCI movements on the asset side, on the investment side, but they do not fully reflect the discounting effect. So they are [indiscernible] applied to the accounting effect on the liability side. So there's a material difference in capital models from rating agencies to Solvency II. So we are a bit more tight on the capital model side. Again, also the renewal of our retro came in very late. So we weren't [indiscernible] so sure, when we issued the hybrid bond in November, how that will play out. Whilst what Sven said, we were prepared to prune our portfolio. We did not want to limit our potential here in terms of business opportunity, both on the P&C and Life & Health. Therefore, the issuance of the hybrid bond, you will be aware of the fact that there is one due mid next year in the hybrid months. So that was all the thinking behind that.

And just to be clear the stress -- the -- sort of the exposure numbers in the annual report are net of the additional retro both at 1/1.

No, that is the year-end number, Andrew. So therefore, given that the effective date of the new retro is only starting in '23 versus your [indiscernible].

Okay. Why did the net exposure fall in 2022?

Well, the retro we did buy in 2023 was a little less -- in '22 was a little less compared to the previous year. Therefore, we have also been careful in further growing our risk appetite on the nat-cat side. So that would be my explanation for me. On the other hand, Andrew, I mean, the nat-cat risk at [indiscernible] of course, over time is growing in line with our general growth of the business. And you can see that with the increased major loss budget we have in 2023, which we have increased from EUR 1.4 billion to EUR 1.725 billion. And one of the main driver here is the organic growth we have in the overall business in the [ P&C. ]

Then we'll go to the next question from Mr. Kamran Hossain from JPMorgan.

Two questions from me. First one, I guess, on reserving. It's helpful to kind of understand the context of the decrease in the buffer of EUR 300 million to EUR 400 million. What I mentioned in, I guess, is going forward on that buffer, if you do manage to rebuild that within this year, should the absolute level of conservatism in the reserves increase naturally as, I guess, the new years unwind, you've reserved pretty cautiously? Should there be a natural uplift to the buffer just coming through over the next years on top of kind of what you're going to see this year? The second question is basically on Asia. So note that you had -- you commented or you talked about Asian growth a couple of years ago at the Investor Day. You hired a Board member recently. What are the plans there for growth? And any danger of kind of COVID-related type claims in 2023 in Asia?

[indiscernible] Kamran, I take the question on the reserving. So again, the EUR 300 million to EUR 400 million is the preliminary mark. However, as mentioned, we are prepared to rebuild that buffer mainly in 2023 and between one [indiscernible] on at least the EUR 300 million to EUR 400 million. So in terms of the development of that buffer going forward, I would look at it this way. I do believe, I mean, both the internal and our external view on reserve buffers will only be reflected, let's say, 2 or 3 years after we've underwritten the business. So we usually keep the prudent loss ticks for the 2, 3 financial years going forward. So there is some incremental buffer already in there. But that buffer would naturally will be visible and will be reported. In terms of the absolute buffer with the growing book, I would expect that buffer to increase but in terms of the relative buffer, if we compare that to our liabilities, I would expect it to be at least stable.

When it comes to Asia, I mean, of course, is a strategically important growth area for our P&C practice, but of course, also on the Life & Health side. All the reasons we talked about in the past, so strong economic growth in many markets, still the relatively low penetration on the insurance side, very often government-sponsored programs in place to increase the level of insurance penetration. So therefore, we are convinced that Asia is going to be a growth engine for P&C insurance premium. Therefore, we want to be positioned as good as we can in that region. That's also the reason why we now have a dedicated important member on the P&C side taking care of that region. And [ Sharon ] definitely is expert, because she worked in that part of the world for most of her career. So from that perspective, the long-term trend of us going to grow on the Asian side, there is certainly something we can confirm. As always, when we talk about these topics, we are talking about the trend over the cycle and not necessarily a trend that has to happen every year. So therefore, what we talked about also for the first of January renewals, we felt that Asia was lagging behind on the P&C side in many markets, behind what we have seen as far as improvement in terms of condition and pricing is concerned compared to other parts of the world. So therefore, at the first of January renewals, we deemphasized certain part of our Asian portfolio and that for at least business that we renewed at the time meant that we have less premium in 2023 when compared to the previous years. But on the other hand, we have the [ 1-4, ] we have the [ 1-7 ] renewals ahead of us. And given that we do have sufficient capacity on the natural catastrophe side to, for example, increase our positions in Japan and/or Australia, which are very prominent renewals ahead of us. I'm confident that we will take advantage of the positive trading environment we are in. When it comes to your question on the COVID-related losses. As mentioned earlier, we have canceled those contracts in the second quarter of 2022. So they are relatively mature in the runoff, but the full year is not over yet. So from that point of view, we do expect a significantly less amount of claims activity in the first and second quarter of 2023, but we cannot say it will be 0 amount, but it should be significantly less compared to what we have seen in Q3 and Q4 of 2022. And then if I may, I hadn't actually correct myself, my answer to Andrew's question on the cat numbers was incorrect. They actually included the 2023 retro structure and will no longer apply in the 2022 retrospect.

Maybe just, Sven, I can only echo what you said, Sven, on Asia on the P&C side for Life & Health. Asia, and I said that that's various loans, Asia is very dynamic. Asia is very competitive, also on the Life & Health side. And we're looking to grow very selectively. So we're not growing for the sake of growing in Asia Life & Health.

The next question comes from James Shuck from Citi.

It's nice to hear all your voices again. I'd like to ask about the P&Ls shown in the annual report, please, firstly. So pretty much down across the board, but the 1 in 100s, 1 in 250s, I would have expected with inflation and the growth that you put on the books and what you said about moving up the layers for some of those to go up. So just kind of keep getting inside there, please? Secondly, on the EBIT guidance on the IFRS 17 in P&C Re. EUR 1.6 billion, it just looks very low number to me. I hear what you're saying about the margin rebuild, so EUR 300 million to EUR 400 million from that. That will kind of still only get us to about EUR 2 billion, maybe a bit shy of that. So I'm just kind of wondering why that's kind of so low. I guess you're going to -- in 2022, you did, I think, EUR 1.3 billion with a 100% combined ratio. So if you get back to target of 96%, [ now that's ] at least EUR 1 billion on to that number. So I guess if you're going to do 98%, assuming rebuilds of EUR 300 million to EUR 400 million, then it's still going to be well in excess of that EUR 1.6 billion is key to just understand what I'm missing in that follow through, please? And then finally, just on capital actually deployed in P&C Re, I can see the movements year-on-year. But I'm actually keen to understand how much capital organically deployed into growth in the business if you look through all of that interest rate movements in 2022, please?

James, this is Clemens. I'll start with the IFRS 17 guidance. And thank you for raising it and giving us a [ moment ] to clarify and add a bit on color to that. So I think the reason why we have provided a guidance for the business group for the first time is exactly, because we wanted to give you some clarity, a bit more granularity and because of the interest rate movement, particularly at the moment, and that can have a significant impact on the combined ratio as itself. So when you only look at the combined ratio and try to make up your mind about -- giving impact on the P&C side that turns out to be very difficult given the volatility on interest rates at the moment. Therefore, we wanted to provide you with the guidance, particularly on the P&C side, but also wanted to show that we are slightly ahead. Apart from the accounting impact on Life & Health that we are slightly ahead of our initial plan of reaching that EUR 600 million EBIT. So we are now guiding at EUR 750 million. But on the P&C side, as you rightly mentioned, so the EUR 300 million to EUR 400 million is only one element of that, and we might -- so in our planning, we actually had rather a slightly higher number than the EUR 300 to EUR 400 million. So it will be rather at the upper end, that was anchored in our planning. But then also, when you start with the EBIT 2022, you should bear in mind the [indiscernible] contribution from the inflationary funds for the [ 458 ] are only attributable to P&C. So that number will certainly go down significantly in 2023. So that will reduce the ordinary income, investment income. And then also, which we mentioned that in our February call, and I think Jean-Jacques also alluded earlier, we do see some potential impact on the valuation of the private equity portfolio that we carry, because the net asset values are at historical highs at the moment, there is potential for downside. And that downside has only been attributed to P&C, because we now segment reporting, we allocate private equity portfolio only to the P&C side. So that will also bring the number, let's say, to a certain level, which we would expect. And then coming back to my earlier comments on interest rate movements, the mechanics under IFRS 17 are such that when you are growing, then you have increasing interest rates, there is probably a benefit of discounting new cash flows with higher interest rates at the moment while the interest accretion that you locked in is locked in with a lower interest rate. That positive impact that might flow through the P&L has not been incorporated into our EBIT as well -- into our EBIT guidance. So in essence, I think the potential uplift, let's say, both on the underwriting side when it comes to quality of our book. On the interest rate movements, on investments, et cetera, they will all be -- the potential upsides will all be on the P&C side. Therefore, we've -- I think the observation is right. There's a lot of caution built into that EBIT guide.

And let me continue with the natural catastrophe P&L. We have 2 trends here, which are making P&Ls go up from a gross perspective, both also being explanations for the significant premium growth in the business in 2022, those trends are inflation, and there are currency effects quite a bit of the natural catastrophe, we are just writing is a non-euro denominated currencies, particularly U.S. dollar. So as I said earlier, that's also the main driver why we have increased our budget for major losses on 2022 to 2023 to now EUR 1.725 billion. On the other hand, we had a very successful retro renewal. And our retros are particularly efficient when it comes to peak territories because that is what is covered in our proportional [indiscernible] facility and they are effective in the tail of the business, also the higher return in the period given the fact that we do buy a substantial amount of retrocession on a non-proportional basis. And taking all together, that's the explanation why we have the P&L movement you have just mentioned.

There was just one other question on the capital deployed in P&C Re.

James, we don't have the exact numbers to hand at the moment. I'm afraid we have to come back on that question.

The next question comes from Vinit Malhotra from Mediobanca.

Yes. So, [ Mike ], one remaining question for me is only, I think, a fairly large amount of asset movement was done in fourth quarter to realize sales, to realize losses on fixed income and then to reinvest probably at a higher rate now. So could you just comment a bit more about that activity? And also whether the guidance at greater than 2.4 already captures the move of this expectation for the outcome of this move. So that's my first question. Second thing is, if I can just ask again, the structured book -- I always ask, I mean, the structured book continues to grow very strongly, and there is a lot of demand as you talked about. And also, I think to an earlier question, you said that combined ratio is not the right metric. You're happy with returns. But is there some possible upside from that, either in combined ratio terms or otherwise that we should build in when you look at this EUR 1.6 billion EBIT forecast that you have laid out?

It's Clemens. So I'll start with the investment and the turnover there. So yes, we have turn around, I'd say, roughly EUR 4 billion of fixed income securities in the fourth quarter in euro and U.S. dollar. As mentioned earlier, we have roughly created 500 -- roughly EUR 500 million of some realized losses here. We have replaced the book years -- locked in years in euro, let's say, in the range of 0.3% to 4% with reinvestment yields of roughly 2% or a bit higher. In the U.S. dollar roughly 1.8% to 4%. So overall, we have increased our locking yields in the total portfolio. If I would have to make a guess on the impact, I would say, that's roughly 20 basis points per year on the locked-in yield which should be at year-end, including that effect at about 2.75% running yield overall in [ level. ] That includes all currencies. But that number has been included already in the guidance. So in the 2.4%. And again, the 2.4% does allow for some revaluation within our private equity. That's the main driver why we have positioned now a bit more on the cautious side when it comes to the ROI. Does that answer your question?

And solution structure, the reinsurance business, there has not been very special to report when it comes to the 2023 planning and guidance. We do assume that we will write the mostly stable to slightly growing book here. You may find this cautious given the growth trajectory we had in structured reinsurance over recent years. But this business is difficult to plan, in particular, because many of those transactions are coming in significant sized categories, and they either happen or not happen. And therefore, it's much more complicated to have a plan -- forward-looking plan in place for this [indiscernible] business. From a profitability point of view, of course, we are rising the business at our combined ratio hurdle rates also shown in our presentation or better, of course. So from that point of view, where we are expecting a relatively stable portfolio environment. We are of the opinion that there will be more demand during the course of the year in structured reinsurance, also given that many [ seating ] companies have decided to go for higher retention levels during first of January, renewal season but this is not fully baked into our planning yet.

Next question comes from Derald Goh from RBC.

Two questions, please. The first one is on Life & Health EBIT guidance. So starting from 2022, it looks as though the EBIT, excluding the COVID impact is just over EUR 1 billion, and the one-off in aggregate looks to be net neutral. So how do you square that against the 750, please, especially considering you spoke about a mid- to high double-digit uplift from the IFRS 17 transition? And the second question is on the solvency change between Q3 and Q4. So there's a 20-point movement, which looks like quite a strong development excluding the impact of the hybrid movement, because I understand the full dividend was only deducted in Q4 as well, please.

Thank you for your question on the Life & Health side, there is, I think, one element that we need to take into account when you look into the guidance is that you cannot take all the COVID claims that we have shown as people who have been dying because of COVID. So we know out of our statistics that approximately 50% of all the people that we saw under COVID, they haven't died because of COVID, but they have died with COVID, which means that during the year, we were a little bit underestimating our normal mortality, and we were probably a little bit overestimating our mortality to COVID. So you cannot just simply deduct from our EBIT that we have shown in 2022, the full COVID amount.

Yes. Got it. And you spoke about longevity releases in 2022 as well. Can you say how much did it amount to? And are you assuming any more within the EUR 750 million outlook?

Well, the amount of the COVID release is, I would say it's a low double-digit million euro figure as we have. We call this the so-called [ PADS ], these are provisions for adverse sedation. I'm going a little bit into detail now, I know. But what we do when we have write a longevity deal is that we set up provisions for adverse sedations for every single risk that we are in our book. And every now and then, what we do is we look into who has died. The people who have died are people for whom we can release these provisions for diversifications. And this is something we do every now and then. So I cannot tell you exactly how much is in the next year. There will be a certain amount, but total time being, it has been a low double-digit million.

Yes. And that's probably another point adding to what Claude just said on the mortality side. So we've been very cautious in just excluding the COVID mortality, because the mortality let's say, excluding those COVID effect has been very positive this year. And therefore, we've been cautious on that end. We've been cautious on the longevity side. I think those are the 2 big elements. And then, of course, you would have spotted the other projects like the minority investment, which is not recurring. I won't say it's a one-off, but it, of course, came in at very high extent and you have the recapture fee, EUR 40 million, that's a positive one-off, I would say, as well in the 2022 EBIT. And then, of course, you have the U.K. derivatives. That will go away under IFRS 17, because it doesn't have to -- that derivative doesn't have to bifurcate it going forward, but that brings you to the EUR 750 million, which has a couple of elements in there.

Yes. Yes. Makes sense. And the solvency change, please?

Yes. Okay. Sorry, yes. Let me just briefly -- this is to just to open your [indiscernible]. So the dividend approval basically was the dividend payment, basically is being offset by the hybrid. So it really comes down to a couple of effects in Q4. I wouldn't be able to quantify it, but just to give an overview. So it's clearly the very good new business value on the P&C side from the 1/1 renewal and also the positive contribution on the Life & Health side. [ Those are drivers, ] the lower SCR due to our successful retro placement, as mentioned earlier, that came in better than expected, lower SCR due to lower credit spread volatility. So it's really a mix, how also the volatility adjustment reacted to that. We had some gains from stronger euro versus U.S. dollar in the fourth quarter. And then also a mixture of a couple of small effects, which have just been accumulated to that number in the fourth quarter.

Next question comes from Freya Kong from Bank of America.

How should we think about the renewals combined ratio guidance you gave, which was around 2 to 3 points against the desire to rebuild the buffer in 2023. Was that factored into the guidance you gave at the time? And Clemens, you made in the comments that we should view the negative development on prior year losses in the context or against the benefit you got from inflation-linked bonds, which is around EUR 458 million for the year. Is it fair to assume that these 2 effects sort of net each other off in the reserve movements?

Just starting with the second -- that effect is, as you just said, is negative runoff from prior year losses and the additional returns from inflation linkers are roughly in the same ballpark. But in fairness, of course, we should say that when we decided to protect our liabilities on the P&C side against inflation by investing into those inflation linkers, the idea was to -- or we were more focused on our long tail business and the runoff losses actually came more from our short-tail business. So from that point of view, economically, yes, that was the effect. But the expectation at the time, investing was more the idea to protect against inflation [indiscernible] classes. As we explained during our renewals, we called the 2% to 3% improvement in combined ratio given the increased pricing environment is hardly baked into our guidance, and that has to be read in combination with our desire to rebuild redundancy levels. So from that point of view, the achievement of the EUR 1.7 billion net income is the prime objective and then followed by rebuilding the levels of redundancies, which we have lost during the calendar year 2022. So therefore, the improvement in combined ratio points will fall through into the net income subject to that site condition. So therefore, it may be a lesser amount at the end of the year.

On the inflation link, I think it's a fair observation. I think we have seen substantial run-off losses from prior year claims being higher -- significantly higher than we had seen in the past. As mentioned, not all but I think a substantial amount of those one-off losses have to be attributed to inflation. So I would see the inflation contribution in the context of those runs losses, at least in our financials 2022.

Next question comes from Thomas Fossard from HSBC.

Can you hear me now? Sorry about that. Three questions. The first one would be on the combined ratio in Q4. Clemens, can you say if you started to rebuild already the redundant buffer in Q4. I'm thinking about this, because at the end of the day, you had a lot of positive one-off in Q4. So meaning that potentially you didn't need to lower the combined ratio too much. So how much -- maybe you started already, that's why I'm trying to better understand. The second question would be related to your comments relating to the income loss in Q1, EUR 350 million, close to the Q1 budget. I'm quite surprised by the amount of combined losses you mentioned. Maybe you can shed some light on your participation now especially on the Turkish cat [ group. ] And the third and last question would be around the remaining COVID-19 IBNR reserve at the end of the year. Do you see what was the number? And I mean, do you see any flexibility for additional releases in 2023?

Thomas, I can start probably with the first one and probably also a comment on the last question and hand over to Sven for the second one. So on the combined ratio, Q4, your assumption is right. Some of the explanation for the stand-alone combined ratio in Q4 is that we have rebuilt some of the buffers that we have probably reduced in Q3. So that is one of the effects that would not include -- be included in the 3% to 4% that I mentioned earlier. So that's the overall -- so that's really for the 12 months. So -- and again, when we think about rebuilding that buffer, it's really the EUR 300 million to EUR 400 million, again, probably at the upper end of the EUR 300 million to EUR 400 million in 2022. So that's how I will read the combined ratio in Q4. As for the remaining COVID IBNR, there's still roughly EUR 130 million to EUR 140 million of COVID IBNR. I probably see -- I wouldn't see this fully as a redundant reserve, but partly, there is probably partially some room to use that also in 2023.

Yes, and on the first quarter losses, the first quarter was active. The biggest loss is, of course, the earthquake in Turkey and Syria where we expect to have a loss at around EUR 200 million for our share. This is based on the assumption that the market -- the insured market loss should be around EUR 3.5 billion to EUR 4 billion from this event, what we are not participating in the Turkish earthquake pool. We have participations across a number of Turkish insurance companies and also some of the loss will come from Western European insurance companies, which have subsidiaries in Turkey. And so from that point of view, as you would expect in a strong developing economy like Turkey where we also have a significant footprint. And therefore, the EUR 200 million seems to be listed to us in this case and at this stage. In addition, we had heavy rainfalls in New Zealand. And on top of that, there was also a typhoon in New Zealand. And if you add that all up, we are relatively close at this stage 2 where we are from a budget point of view, for nat-cat losses in Q1. So we are still inside that budget that is mostly exhausted where things are looking more benign on the man-made side, where at this stage, we still have most of the budget available for the remainder of the quarter. So if you take it all together, at this stage, we should be roughly at 85% to 90% of the full quarter's budget and some room left but was EUR 200 million coming from Turkey, of course, is used most of the budget we have available during the first quarter.

The next question comes from Roland Pfander from ODDO BHF.

Two questions from my side. Sorry to come down -- to come back to the redundancies. You mentioned that you will rebuild EUR 300 million to EUR 400 million in the current year. And what would be actually the sweet spot you would like to have in percentage of your liabilities in the future? Because historically, redundancies have been much higher in the past. So is there a sweet spot or do you see this just short term from your perspective? And secondly, on the Life side, if you would maybe add some comments on your mortality and morbidity business, if you adjust this business for COVID losses and other one-offs, are you satisfied with the underlying profitability? Or what do you think this is heading to?

Roland, I'll start with the first one on the redundancies. So just to give you some general perspective on how we look at it and probably also on the development in recent years. So in 2020 and 2021, in absolute terms, we had increased the redundancy levels to the EUR 1.7 billion that we had reported at the end of 2021. In relative terms, if you compare it to our liabilities, that number has decreased, of course, for a couple of reasons. The first one being the liabilities, including large IBNR portions, for example, for COVID, but also for other large losses. So the relative number goes down just because of that. And also, of course, we've been growing quite substantially for the last couple of years. So our initial loss picks are rather prudent as you know. So we don't show any redundancies in the recent underwriting years. So therefore, that there was an incremental number in there. But in terms of sweet spot, I think we do feel comfortable to rebuild that buffer in the first place to the EUR 1.7 billion. There's no such thing as a sweet spot for us where we really guide to. But in relative terms, I think that's a good starting point to grow that redundancy level with the growth of our book to give at least that relative number stable.

And maybe coming to your life and health questions. I'm probably repeating myself here, but the point is that you cannot really adjust the experience we have had by the full amount of COVID claims that we have seen. So the full amount that we have reported was EUR 276 million. And as I said before, when you want to adjust that for COVID claims, you need to take into account that approximately 50% of these trends are claims which are people who have died or have become disabled with COVID and not due to COVID. In other terms, you have to adjust, and you can adjust only for half of it. But even if you adjust only for half of it, the underlying profitability of the licenses book in both, mortality and morbidities for reasons.

Could you specify this in terms of, let's say, an EBIT margin because micro [indiscernible] was indicating something below, at least in my personal expectation?

I must say here, this question, I cannot give you EBIT margin right now on the spot, but I'm coming back to you. Maybe just -- we are not pricing with EBIT margins. As you know, I mean this is maybe again a little bit too technical guides, I'm sorry, but we're looking into the economic capital that we need that each of the business needs. And we want to have a minimum return on economic capital and the more volatile the business, the higher EBIT margin, the more stable the business, the lower the EBIT margin that we need. So that's why I'm absolutely unable by the way, to tell you what the EBIT margin is, because we're not thinking in terms of EBIT margins.

And in terms of capital return, you reached your threshold?

Yes, absolutely. So we reached the threshold, absolutely. When we price business on the Life & Health side, by the way, the same on the P&C side, we have the same pricing requirements. We want to reach our minimum thresholds in terms of return capital.

Next question comes from Will Hardcastle from UBS.

Just a quick one following up on reserves. It sounds like most of these additions have been really on the short-tail lines. Just really wanting to understand if there's been any extrapolation at all for higher, for longer impact on liability lines and also understanding the process in that. Is that a view of inflation, let's say, if it was higher for longer, would that be solely in your control to put that through? Or is there any sort of auditor regulator pressure informing those views? Second one is just really -- it's a very quick one. Just looking at the hurricane loss, you were very clear on the gross and net difference. But the net actually increased about EUR 50 million as well, I think, quarter-on-quarter. And generally, industry data points have been suggesting that would be lower, I'd have thought. So just trying to understand what the late surprise was there.

Yes, I'll start with the second question. You're right, our net number has increased by roughly EUR 50 million. Our gross loss, which we are writing for own account, i.e., excluding the [ fronting ] we are doing on the ILS side has actually slightly reduced in the fourth quarter. So it may be counterintuitive by the net loss is then increasing. The reason here is that when we closed Q3, we looked at our aggregate of large loss protection, and we're applying that protection pro rata to the 9 month retention and limit that would have been available and both some of the loss against the aggregate of large loss protection, given that the fourth quarter was very benign, and we only have winter storm Elliot, in the fourth quarter, the protection actually had less losses for the full year than we were anticipating when we booked the net in position in Q3. That was the single biggest driver for the deterioration in our net number, it was not an increase in the gross figure, which we are writing for own [ account ].

Well, on the second one or on the first question on inflation, so I think it's fair to say that, yes, in the short tail lines, we have seen that, particularly in large loss content, we have seen quite significant impact on inflation and also on post-COVID constraints, et cetera, as mentioned earlier. On the long tail lines, we do not really see inflation coming through yet. That is probably for a couple of reasons. One is, of course, that the reporting doesn't really show any [ contentual ] inflation yet. This can be -- of course, it might be visible in the years to come. However, nothing really observed there yet at the moment. But there are also some mitigating factors, of course, in the underlying portfolio in the contracts like indexation clauses, also when it comes to claims and liabilities, there are limits, one-off payments, et cetera. So there are a couple of mitigating factors. And then overall, I think the way we have thought about inflation in the past has been probably a bit more prudent in our assumptions. So the incremental offer for inflation impact, I think, is probably a bit higher, also supported by the fact I think that we also -- we've always factored in things like social inflation, et cetera. So all those elements on top of our general prudent reserving approach have been reflected. And I think it's also fair to say that our reported redundancy level was not always factored in also those elements of prudency. So I think there is a lot of room to buffer potential impacts. But of course, we all know if inflation stays at a very high level for longer than that, we've also impacted at least our redundancy level going forward.

The next question comes from Vikram Gandhi from Societe Generale.

It's Vik from SocGen. A couple of quick ones. Firstly, it's on the strong investment income from associates. Can you share what drove this very strong figure last year? And how should we be thinking about the sustainability of this number? And the second one is on the very helpful disclosure in the annual report, on Page 31, where we get the EBIT contribution by various business lines for P&C. And I see a quite steep drop in the EBIT contribution from the structured Re [indiscernible] line. just wondered what is the driving factor really there? I mean I do see an increased combined ratio, but what's the underlying reason behind that, that would be helpful.

I'll pick up the first one. Minority shareholdings, they are valued through the P&L according to the equity consolidation method. So we basically mirror the financial statements of the companies we hold shares in. The basis for this development in 2022 was basically some larger transactions that those shareholding, those companies were in 2022. Can you hear me? Vik, can you here us?

I assume we have some technical issues. His line is still connected. Mr. Gandhi, if you wish, you may register again, and we'll go to the next question, which is a follow-up from Thomas...

Yes, yes.

He's back.

Okay. Sorry, this is Clemens again. I don't know if you got the part, so I'll just repeat those. So those are my [ net ] shareholdings under IFRS, those are consolidated valued by the equity method, so they basically mirror the equity of the balance sheet of those companies, which they are reporting to us. So the basis for these huge effects in -- for the bulk of the Q4 effect is -- was one shareholding and the basis was the larger transactions within the financial year 2022, which had a positive impact on their equity so therefore, that's just simply what we mirror. And therefore, I would not see this as a recurring number going forward overall. There is always some element coming through these investments, of course, because their contributions mainly not based on dividends, but rather really on the equity valuation, but that's a much smaller number than the number we have presented in 2022. Yes, we still have one left on the EBIT side. I think on the EBIT contribution on structure, yes.

My explanation is actually the deteriorated combined ratio yield for this development, we have to look into that in more detail and eventually get back to you if there are other drivers. But the explanation should be mainly the deteriorated combined ratio.

All right. We have a follow-up from Mr. Fossard. Please go ahead.

Well, on the life side, just wanted to compare your former guidance of an EBIT of EUR 600 million to the new one of EUR 750 million. So adjusted for IFRS 17 uplift. So let's call it [indiscernible]. So what has changed your view regarding the better profitability coming from the Life business moving from EUR 600 million to EUR 700 million?

So I would say, let's try to quantify the IFRS 17 effect. Obviously, this takes the EUR 600 million as the starting point, it's EUR 50 million to EUR 100 million. Let's say, that brings us up to EUR 700 million. So it's really, I think, the increase in the profitability of the underlying business. We have seen healthy business growth, both in financial solutions and longevity. I think those are the main drivers going forward. We have increased our footprint in international solutions, and we are increasing our footprint in longevity. So it's really that. So I think we've just managed to grow that business quite nicely and profitably, both in terms of regions, also in terms of opportunities. And that's really the underlying development.

No, nothing to add.

That was our last question, and I hand back for closing comments.

Well, thank you very much. I'll be, brief because we covered the ground very, very well. We want to highlight the challenges of the past year, but also the delivery of the guidance and the dividend total which is pursuing the trajectory upwards. The outlook is very good. The strong P&C renewals demonstrates that, the improved interest rate environment as well. So we're optimistic about the outlook for '23. We issued a cautious guidance as you've seen through the many questions but wanted to make sure that we can build in some buffer for uncertainties and for the increasing reserving level, but our comfort level on exceeding our guidance '23 and rebuilding the reserves on the P&C side is very good. So I think the key messages were addressed today. Thank you for the very good questions. Next time we meet will be the conference call for Q1, which is scheduled for May 11. So with that, I conclude and close the session. Thank you very much for joining.