Hannover Rück SE (HNR1) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Hannover Re conference call on Property and Casualty Treaty Renewals 2024. I'm Morris, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Karl Steinle. Please go ahead.

Well, good morning, everyone, and welcome to our earnings call presenting the outcome of the 1/1 renewal 2024 of our P&C treaty reinsurance book. Our speakers today will be Jean-Jacques Henchoz, our CEO; and Sven Althoff, the coordinator of the P&C business. And with that, we are set, and I hand over to you, Jean-Jacques.

Thank you, Karl. Good morning, everyone. Welcome to this call. As usual, I'll start with an overview on the general renewal before Sven explains the detailed outcome of the renewals. And I'll then comment on the outlook for this year together with our preliminary figures for the financial year 2023. This January renewal was characterized by a more balanced supply and demand dynamics, as you've seen from early market reports if we compare it to 2023. Nevertheless, the supply of reinsurance capacity remains conditional on adequate risk pricing. And for Hannover Re, the renewal provided some good growth opportunities and further improvements in the quality of our portfolio on top of the strong basis from the underwriting year 2023. Before focusing on our own renewal results, I'd like to make a few general comments on how we see the market environment. 2023 has again seen quite some loss activity with the impact from natural catastrophes somewhere around USD 100 billion. So this was the context of the renewal. Additionally, inflation, as you know, was still impacting major economies and remained above historical average. And together with economic growth in various geographies, these factors have resulted in an increase in demand for reinsurance protection. On the supply side, there has been very limited inflow of new capacity, but the capital base of existing players, including Hannover Re increased mainly on the back of solid results and retained earnings. Hence, capacity was generally available to meet the increased demand. For the pricing, this resulted in a more stable but still positive development compared to the significant step-up in property reinsurance rates in the previous year. This is a clear positive as it means that reinsurance rates remain on a favorable level across regions and lines of business. Furthermore, the higher retention levels with a rebalancing in risk sharing between primary and reinsurance markets remains in place and the terms and conditions were further adjusted in this year's general renewal where necessary. Looking ahead, we expect the current market environment to prevail for the upcoming April and midyear renewals. Individual dynamics per region and line of business will likely also be influenced by the loss experience. So much on our view on the market. So reinsurance markets remain at attractive levels to provide us with profitable growth opportunities in 2024. This brings me to the result of our 1/1 treaty renewals. Our strong client relationships and continued flight to quality resulted in favorable demand for our capacity as pricing trends also remained positive. This enabled us to grow our portfolio at an improved quality for traditional treaty portfolio. The 2.3% increase in risk-adjusted prices has been complemented by further tightening in terms and conditions. As in the previous year, pricing remained more dynamic in reinsurance than in the primary business. And consequently, also, our growth was more geared towards nonproportional treaties, albeit not as pronounced as in 2023. For our traditional treaty portfolio, this resulted in an increase in premium volume of reinsurance revenue of 6.9%. Additionally, we recorded a continued high demand in structured reinsurance and ILS business as well as in our facultative business, which are not being part of today's quantitative reporting on the treaty renewals. The renewal of our retro program was unchanged in terms of structure. Capacity has been available. And as indicated, we have reduced our protection with a slightly lower cession rate to the K-quota share and retropricing moved slightly in our favor. This leaves us well protected for the year 2024 with the risk appetite at our desired level, and we feel well positioned to benefit from attractive rates in the continued renewal rounds in the course of 2024. Altogether, we're satisfied with the outcome of our renewals, both in terms of the further improved quality of our portfolio and the growth we captured in an attractive market environment. So this was well within our anticipated outcome for January. This is, in short, the development of this renewal round, but I hand over now to Sven, who will dive into the specific geographies and lines of business.

Yes. Thank you very much, Jean-Jacques. And a very warm welcome also from my side. As you know, we are reporting about the EUR 15 billion of our traditional reinsurance business in this call, out of which, EUR 9.5 billion, so 62% were up for renewal at the 1st of January. If you look at that from a regional point of view, this is a bulk of our EMEA business, which is renewing at 1/1 with still significant renewals ahead of us in the Americas and in the APAC region. So when we look at the development of our portfolio, we can report the risk-adjusted rate increase of 2.3% across the entire portfolio. I will talk about the details a little later. You are seeing change in share of minus 0.5%. If you go a little deeper here, and you can see that on the slides in the appendix, you will note that the change in share was a negative 1.1% on the proportional business. So here, unlike 2023, we had no major themes why we reduced our proportional business. But in certain parts of our portfolio like cyber business, we have reduced certain positions and after some losses in 2023 and the market's reaction to those, we could also see a shift of demand from historical proportional protections to nonproportional protections, which is also a driver behind this reduction in share on the proportional side. On the other hand, again, you can see that in the appendix, you can see that on the nonproportional business very much in line with the initial comments from Jean-Jacques. We've also increased our shares by 0.7%. In combination with the change of underlying volume, this in the end resulted in a growth of our business of 6.9%. This is premium. This is not reinsurance revenue as under IFRS 17, but those 2 should roughly develop in parallel. And you then look at our reporting lines in more detail. You can see that we continue to have a positive price development across all the regions and all the global specialty lines. From a diversification point of view, it was particularly pleasing to see that we could grow in our specialty segments stronger than on average, which, of course, is improving the diversification of our overall portfolio. But still positive price momentum and also positive premium growth across the entire spectrum of our traditional treaty business. The price changes have been more pronounced on the nonproportional business where we can report risk-adjusted price increase of 4.4%, and on the proportional business, this still came in at an overall positive at 1.3%, but less pronounced, which was already a trend over the last 2 renewals. And consequently, like in the last 2 January renewals, we again grew our nonproportional business more strongly than we have our proportional business, increasing the earnings capability of our portfolio. There's only 2 segments on the Slide 11, where we are showing a negative when it comes to premium growth, but I explain those reasons on the later more detailed slides. So if you look at the premium -- or price development over the last number of years, we can see that after the strong reset in 2023 on the nonproportional side, the market remained disciplined and achieved another year of risk-adjusted rate increases in our view. And it's now the seventh year in a row where in this call, we can report a positive for our nonproportional business. On the other hand, as a reminder, those are the numbers we reported at the time they are not indexed to our today's view on risk, but still a positive development over the same period. So let me go into the details of the portfolio and let me start with our regional markets. You can see that we are still showing positive price momentum in all of our regions, starting with EMEA. Here, we had some loss activity in for example, Italy and Turkey, as you know, so those were the part of our portfolio where we have seen the strongest price movement, particularly on the nonproportional side. Overall, we managed to increase our premium base by 6.5%. What was pleasing is that price was not the only major topic during the renewals but that we could also achieve further improvement in terms and conditions. For example, the event limits we have in proportional business or the coverage we are providing for [indiscernible] promotion in the context of property reinsurance, which following the rise in France has been a topic in this year's renewal and not only in France could we achieve further restriction when it comes to that parallel within property protections. In the Americas, the price increase was 2.9%. The premium development is a little less than proportionate. So overall, we can say we were pleased with the development of our U.S. portfolio and our Canadian portfolio, in particular. The Latin American renewal had a positive trend, but it's not the most meaningful renewal for this part of the world. So this will be something we will report on when we have concluded on the 1st of July renewals, but overall, very much as expected. One of the drivers why the premium volume was less in this region particularly came from reduced appetite we had on proportional cyber business coming out of that market. Here, we are observing that the insurance market on major ticket cyber business has started to give first reductions since last year. This is particularly true for the higher access cyber business. We are not seeing that development in the smaller SME-driven cyber business yet, but nonetheless, we had certain ambitions when it came to reinsurance terms and conditions for this portfolio given that dynamic in the insurance market and we did not agree with some clients on those renewal terms, which made us reduce participations or in rare cases even discontinuing with those contracts. But overall, the Americas very much according to our expectations. On the other hand often though particular growth opportunities from our point of view. Let me turn to APAC. Here, the rate development was a positive 0.7%. We had particular opportunities in the Chinese market where over time, we have developed some strategic relationships, and in the context of those, we were able to broaden our relationship with those clients. Across Southeast Asia the rating level was -- or stayed at attractive rate levels. So it was a relatively stable renewal for that part in our portfolio. And when it comes to Australia and New Zealand, the markets remain firm and continued to react to loss development but like I have already said for South and Latin America, the major renewal for Australia and New Zealand is the 1st of July. So there is going to be more to report at future occasions in our earnings calls. So in specialty, again, positive price development in all of the specialty classes. When I start with credit surety and political risk relative to the stable picture on the proportional business. Here, as you know, the performance of that portfolio has been very positive over the last number of years. So in that sense, having a stable renewal on that proportional business is positive from our point of view. So we kept our position on that part of our portfolio where we have seen stronger demand than historically is that our specialty clients on that side decided to buy more nonproportional protection, which continued to see good levels of rate increases, and we managed to improve our positions on those placements, resulting in an overall growth of this portfolio of slightly over 10%. A similar picture on the aviation and marine side. Again, a positive price development here, a pleasing 4.1% for the entire portfolio with an overall growth of 11.5%. That growth continues to also mostly come from our nonproportional business. We had, particularly in aviation, a stronger appetite for nonproportional business than for proportional business, as we are not seeing a positive rate development in the direct airline business, for example, so therefore, this class of business is more attractive in our view, from a nonproportional perspective. And like I've already reported on the EMEA business, we also had strong discussions with our clients when it comes to terms and conditions in the areas of slight rise to the promotion, but also political risk and political violence exposure within marine and aviation placements. Last but not least, our agricultural business. Here, we have seen a positive price development of 3.1% and a strong premium development of more than 15%. The main drivers of growth were opportunities, which we saw in China and in Brazil. In Brazil, as you know, there was a significant loss to the market given the drought in that country around the 2022 year-end, and that's led to a very attractive repricing of that business already in '23. The market was able to keep that level, and given the underlying growth of exposure with some of our ceding companies, we could participate in that development. On the nonproportional side, you have seen on the previous slide that there was a slight reduction of our premium volume despite very positive rate development. As you may remember from previous calls, on the agriculture side, it is market practice to negotiate the business also after the inception date of the business. So the 1/1 renewal season is not fully concluded on the nonproportional agricultural side. So the negative premium development we have shown in that respect on the previous slide is not necessarily a reflection of what we are expecting for the full year when it comes to that part of our agricultural business. To give you an idea of what has happened outside of our traditional treaty business, starting with structured reinsurance. Here, we saw a continued strong demand for tailor-made solutions, also as a reaction of -- from the increase in retention levels, which some ceding companies had during the 2023 renewals. So that created new opportunities in our structured reinsurance practice. And in addition to the demand we have seen on more solvency-related covers, we continue to see also a stronger demand on the nonproportional structured reinsurance protections. So with that in mind, we can say that our January renewal on that side has been even more positive from a premium development point of view. We were growing by a low double-digit number here. But again, this is a premium view and not a revenue view. And the revenue, as you know, is significantly in structured reinsurance compared to the premium. But overall, it's certainly supporting the fact that we feel that our January renewals are fully supporting our full year guidance of revenue development as we have given to you during the Investors Day. In our facultative practice, the picture was relatively similar to what we have seen on the treaty side of things. So a disciplined market environment overall. We were able to defend the good quality of rate level from '23 with some further increases also in '24, but at a lower level. So from that point of view, we do expect that we will be able to further grow our portfolio also in the underwriting year 2024 and that this should be at least in line with the growth rate we are showing on the treaty portfolio. Last but not least, on the NatCat side, which, of course, is forming part of our traditional treaty business, we can, in summary, report that there has been adequate capacity in the market to satisfy the capacity needs of our clients. We have seen some stronger demand this year compared to previous year, particularly in those parts of the world where we had the loss activity. The market was able to absorb that additional demand. At the same time, it was able to reprice those products after the losses. And we have seen at times still double-digit risk-adjusted rate increase in the loss impacted areas, for example, in Turkey and in Italy. So therefore we were able in that part of our portfolio to show an overall premium increase of 9%, which is slightly ahead of the general increase we are showing in our portfolio. And last but not least, our retrocessional protection. Here we can report that the retro market was also showing more supply than it did in the previous years. The market participant stayed very disciplined also in the retrocessional place. We were able to renew our overall structures on a mostly unchanged basis. So when it comes to our nonproportional protections, we kept the retention levels where they were from the previous year. On the -- our K-Cession, as we already indicated during our Investor Day, we have reduced the cession from the previous year given the fact that 2023 was a very good year for the investors behind that transaction. So therefore, our payback situation was turning to much more positive numbers for our retrocessional partners. And therefore, we could reduce some of that cession. And what we are showing on this slide here is the amount of capital that is supporting the K-structure given the underlying growth we have in our K transaction, the cession rate has reduced even more strongly than the 9% reduction in capital we are showing here on this slide. When it comes to the cyber business, we reported last year that we, for the first time, were able to place a quota share into the ILS market on a collateralized basis. We were able to renew that protection. But given the development of our inward cyber business, which was stable to slightly reducing overall, we also decided to reduce this cession in line with that development, but it's certainly an important cornerstone for the future development of our incoming cyber portfolio during times where we have the appetite to grow that portfolio again in the future. So to conclude my remarks, in summary, overall, satisfying renewal on the incoming business but also when it comes to our protections, which overall was in line with expectations in a disciplined market environment.

Thank you. Thank you very much, Sven, for the details of this renewal. Let me move now to the guidance for the financial year 2024. As the outcome of the renewals was in line with our expectations and the planning for the financial year 2024, there is no need at this stage to change the guidance we have communicated back in Berlin at our Investor Day in early December. Please bear in mind that reported renewal figures for premium development do not translate one-to-one into IFRS 17 reinsurance revenue. Still, the volume growth at our January renewal is fully supporting our 5% revenue growth target for the group. As a reminder, within the 5% target for the entire group, we expect a stronger contribution from P&C reinsurance because of the market momentum versus life and health reinsurance. The strong and further improved quality of our P&C portfolio should bring us in a good position to deliver on the combined ratio target of below 89% due to the time lag in earning the underwriting year premium, the financial year '24 will also benefit from the strong quality of the underwriting year 2023. For the group net income, we aim to deliver at least EUR 2.1 billion, as you know. And as always, this comes under the provisor that incurred large losses remain within the 2024 large loss budget, which is set at EUR 1.825 billion. In summary, we are in a favorable position for 2024. The market environment remains supportive, and our earnings continue to grow. The general renewal fully supports our positive outlook for the coming year. Yesterday, we published the preliminary figures for the financial year 2023. We have achieved a net income of EUR 1.8 billion, and therefore beat our profit guidance. At the same time, we have increased our reserving position in our P&C business above the planned level. As you know, we had planned to replenish our resiliency reserve and bring it back to at least EUR 1.7 billion in 2023. Given the very favorable market environment at a very solid underlying profitability of our P&C business, this could be achieved in line with our planning on top a positive one-off tax effect in Bermuda provided additional headroom to further increase the confidence level above the anticipated level in our guidance. This provides us with a further improved balance sheet strength and the continued ability to also deliver on results in more challenging situations in the future. This has been a big differentiator of the Hannover remodel in the past decade, and we are confident to preserve this strength across market cycles. As the analysis from Willis Towers Watson has not been concluded yet, we're not able today to provide you with precise estimates of our reserve position as of today, but we will give an update on this aspect together with the full financial details on the 18th of March. So we have this impact by our reserving actions, and therefore, the operating result for property and casualty reinsurance reached EUR 1.1 billion and was, of course, by design below the target anticipated of EUR 1.6 billion. The underlying profitability, however, developed very favorably due to the attractive market environment and was fully in line with the expectations. On the other hand, life and health reinsurance contributed about EUR 870 million to the operating results, beating the guidance set at EUR 750 million. As mentioned, we had a positive one-off tax effect. Most of this can be explained by the introduction of the global minimum tax for our operation in Bermuda and the resulting buildup of deferred tax assets. This reduced our group tax rate for the year to 1.4%. Finally, reinsurance revenues stood at EUR 24.4 billion for the full year. So altogether, we delivered on our group net income targets and significantly improved our position for the coming years. With that, I close the presentation part, and we would welcome your comments or questions.

[Operator Instructions] And the first question comes from Freya Kong from Bank of America Securities.

Two questions, please. Are you able to help us translate the price changes of 2.3% improvement in terms and conditions and the business exchanges into a recent loss ratio improvement. I think you're able to give that to us last year. So anything around that would be helpful. And secondly, could we please get an update on your views on U.S. casualty? Your commentary seemed quite favorable and you saw positive development in this line of business, which seems to be in contrast to what peers are saying? And just a point of clarification, is most of the decline in the Americas proportional business related to cyber?

Thank you, Freya, for those questions. So when calculating the risk-adjusted rate increases, we are putting very little emphasis on quantifying changes in terms and conditions into that number. So what you are seeing here in the reported figures is really mostly the development of rates over and above inflation or our changes in model assumptions. So from that point of view, it's -- those positive changes of terms and conditions are coming mostly on top of the reported figures. But as you know, we are not always translating this into immediate reductions in our initial loss reserve setting. So therefore, we are staying with our guidance of the 89% combined ratio without immediately changing our loss ratio assumptions due to the positive rate development and will most likely keep that stable also in the first quarter of the year. On your second point, U.S. casualty, we can report that we have seen some risk-adjusted price increases here as well, so over and above trend. We've also seen some reductions in sliding scale commissions on the proportional business. So from that point of view, we are content with the renewal. But as you can see from the overall premium development in the Americas, we have not seen those terms and conditions and the pricing environment as an opportunity to grow our U.S. casualty business. So therefore, this was a, from a volume point of view, relatively stable renewal for us. And the overall reduction in the premium is 50% explained by our reduction in volume in the cyber business. But we had some clients also on noncyber business reducing their cessions on a proportionate basis. And so it is not only cyber related, but it's mostly coming out of our proportional Americas business.

And the next question comes from Kamran Hossain from JPMorgan.

Just wanted to touch on, I guess, the news that came out last night. Two questions on that. I guess the first one is, you talked about being significantly ahead of the EUR 1.7 billion that you've focused on the kind of reserve resiliency. How should we think about this going forward? Because when I'm trying to think about it in my head, we're now well above that. There's unwind of conservatism to come on the business that you put on in more recent years. So we should get a natural kind of pickup in that number anyway. Should we expect to see reported numbers looking closer to underlying profitability in future years? Are you now at a point that you kind of max out on this? And then, I guess, around that as well, I know you said, we'll get the Willis Towers Watson number a little bit later in the year. I guess there's only a month and a bit to kind of find out. But should we assume the shortfall in EBIT versus guidance about EUR 500 million is a number that's -- is a reasonable way of thinking about how much more has gone into reserves?

Thank you for the question. So going forward, of course, we had an opportunity from the earnings flow, the good results and the one-off tax to take some action before the end of the year. So that gave us really a solid basis to continue and manage the cycles over the next few years. So we're satisfied with that level. I think going forward, we will continue to reserve adequately in order to reflect the growth of the portfolio. So there will be some development, of course, on the reserving side. But I would say we have very solid basis now. We're very satisfied with what we have. And it allows us to have a bit more confidence on the earnings expectations for '24 and beyond. The shortfall, I think, would be a fair statement, the EUR 0.5 billion you mentioned. But of course, the reserving itself will be done across the board, across the portfolio, across lines of business. And some of these lines of business will be focusing on underwriting years, which are a bit more recent. And as the external actuary looks into our reserving adequacy in the coming weeks and months, they will generally tend to be cautious on the youngest underwriting years. So it remains to be seen how much they believe should be categorized as redundant or resiliency reserves, and we'll see if it's the full EUR 500 million. But it's a good number to start with.

And the next question comes from Will Hardcastle from UBS.

First one on retro. You've reduced the K-Cession level a bit. And there's a removal of a cat swap. I guess just on the -- can you quantify the amount of what the risk of the K-cession is now protecting in terms of percentage of losses ceded. I think it was in the 40s last year. Are we talking about something that's dropped into 30s. Is that a fair assumption? And what exactly is the EUR 100 million cat swap that's been removed and the logic there for year-on-year change? Secondly is on tax benefit. Can you help us with the mechanics of it? Helpful on that last answer on the quantification, I guess, but does this then effectively provide accounting P&L benefit of about 0.1 over 10 years? And when we incorporate this, essentially, what I'm trying to understand is, is the tax rate assumption going forward effectively the same tax rate that we're going to be running at for 10 years? Or is there a difference in the -- what would be a guided tax rate for '25 and beyond?

Yes. So well, let me start with your questions on the retrocessional side. The cat swap replaced last year was less strategic, more transactional. It made sense for us at the time to swap certain exposure with a ceding company that wanted to do something about their diversification in their portfolio that demand dropped away. And as we did not require the swap for our own risk management, we decided to, therefore, just lapse it as this reciprocity arrangement was no longer required from our partner. On the K side, the cession rate on K was actually higher than the 40%. That's more the historic average you have in mind, so given the payback situation, it was in the 50s last year. And the cession rate dropped by 15% to the higher 40s now for the '24 year.

On your second question, we'll give a bit more granularity next time when we meet on the details. This is, of course, a change in the legislation the parliament in Bermuda issued, a decision before the end of the year. But basically, indeed, this is a deferred tax benefit, which we had to take into our 2023 book. But in essence, the Bermuda operation will have that tax benefit starting in 2025 for a duration of 10 years. We're talking about EUR 200 million, roughly speaking. So over 10 years, you'll have this tax benefit. So there will be a reduction of the tax payment due by our Bermuda operation. So the tax ratio in 2023, therefore, really very much of a one-off. And going forward, we're going to see normalized levels of taxation in line with historical levels.

And the next question comes from Vinit Malhotra from Mediobanca.

I hope you can hear me?

Yes, we can.

Just 2 questions. One is on reserving the [indiscernible] specialty line space. On the reserving [indiscernible] how did the discussion with the auditors go? Because did you say that, hey, we are going to be faced with some inflation. I mean -- or did you say that some lines needed more buffering. Because I can understand the mechanics or logic behind the tax gain being recycled on reserves. And clearly, it's a positive move for the company. But I'm just curious as to -- if you can do more details on what happened or we wait till March, I don't mind, but just curious now. Second question is growth in specialty lines. I mean, credit, for example, is there a view that the world will get better on credit? Or -- yes, because I can -- I hear in your comments there is demand, but maybe demand is because of reason. And I also ask because the pricing that you report total for credit about 0.5% is not actually that high. I'm just curious on credit. And broadly on specialty, any comments because I think a lot of the reinsurance world is wanting to write more specialty lines, including a peer who reported yesterday. So I'm just curious if you see market competition in this line getting too popular maybe? So just any thoughts, please, on these 2 topics.

Well, thank you for the question, Vinit. We will give a bit more granularity on the reserving when we have our third-party actuary confirming a bit the numbers. But in short, we always have a relatively broad range of potential best estimates across geographies, across lines of business. So there's an intense discussion around it. And we tend to be prudent. Our external auditors do appreciate that we have this consistent prudency level in the way we reserve. But it's a discussion we're having, we're confident that the decision we took per year and '23 are consistent with our philosophy a little bit going towards the one end of the range, but it is still within the range of potential outcome across lines of business. So we have taken action in many different lines. So of course, the long-tail, particularly, but also in specialty lines, and to some extent, a little bit in the short-tail property lines across the board. But generally, we're confident that we'll get sign off, if you want from our external auditors.

Yes. Then on specialty when it comes to the renewals, I mean, the specialty classes are no different compared to the P&C business overall in the sense that there is sufficient supply in the market right now. On the other hand, as you know, we historically always had a strong risk appetite for the specialty classes. We continue to see positive rate development on the nonproportional business. So from that point of view, we were happy to grow our specialty portfolio at this year's renewal at what we feel are attractive pricing levels. And so from that point of view, as one of the lead markets in those areas, we are not concerned about this marketplace having a sufficient supply overall. Credit, in particular, the demand came mostly on the nonproportional side. So particularly at levels which are outside historic scenarios of loss ratios or individual loss levels, so very much towards the upper end of the tail of credit portfolios. And whilst we, of course, are expecting a return of loss ratios to the long-term averages also in credit given the economic world around us. But writing a little more at those tail ends was attractive for us as those purchases have been, as I said, outside of historic loss events.

And the next question comes from Tryfonas Spyrou from Berenberg.

I have 2 questions. The first one is, I was wondering if you could comment on the net P&L changes on your NatCat book year-on-year. How does the shape of your book look like considering the tweaks across the retro program? It appears you have slightly more appetite for growing exposures this year. Overall, the shape remains sort of unchanged. So interesting to hear your thoughts on that side. And then maybe it'd be great if you could comment on your appetite for growth and maybe your broader expectations on pricing on April and mid-year renewals, that would also be appreciated.

Thank you very much for those questions. I don't have the detailed figures with me, but our net P&Ls have, of course, increased given the growth of the underlying portfolio, given our decision to buy slightly less on the particularly proportional retro side. So from that point of view, you will see increases in our net P&Ls when we are next reporting on those. But without having the details with me today, I would ask for your patience when we are publicizing those figures. When it comes to the outlook for the 1st of April and 1st of July renewals, we are expecting a broadly similar situation compared to the 1/1 renewals. Japan is very prominent on the 1st of April. The recent earthquake was a reminder of the exposure in that region. And given that at 1/1, we were still in a very disciplined market environment, I'm certain that this will play a role also when we are looking at the pricing for that Japanese business. And 1st of July, whilst we are not a big player in, for example, the Florida renewals at 1/6, 1/7, it is fair to say that the U.S. cat renewals were more flattish than some of the rest of the world. So from that point of view, that's a trend we certainly also continue to expect for the mid-year renewals. So more flat than further rate increases. And in Australia, it's too early to say because we are still in the midst of the main reporting season here, which is 1st of July to 1st of July. The first half of that period already has seen some loss activity which should definitely lead to at least a stable pricing environment, but we may see further loss activity in that part of the world, which may then drive prices further up. But as I said, it's a little too early. But in general, a very similar expectation we would have. So from that point of view, I would say, for the traditional business, the 1st of July -- the 1st of January renewal should be a good indicator for you what to expect from a premium growth point of view for our portfolio in general. But we will also continue to be very disciplined in our underwriting. So therefore, be that 1st of April, be that 1st of July, there may always also be some transactions where we may want to reduce acquisitions. There's nothing in the pipeline. So from that point of view, we expect a similar picture with some ups and downs.

And the next question comes from Roland Pfänder from ODDO BHF.

Two questions from my side, please. I would be interested in average risk-adjusted price increase for your NatCat business renewed in January? Also, you mentioned that there's sufficient capital available to meet demand. Where is this capital actually flowing? So what business pockets are hunted for best returns as the competition heating up so the same? And the second question, looking at your proportional versus nonproportional business, nonproportional is around 30%. Is there an ideal balance regarding these relationships from your view in terms of, let's say, volatility management of earnings? Or could you grow your nonproportional even further?

Yes, thank you very much. On the NatCat side, I can report that we still had a positive rate development, risk-adjusted rate development across our entire cat portfolio. It was slightly lower than the 4.4% then we are reporting for nonproportional in general, and it was more in the 3% to 4% area with some parts of the world being flattish and other parts of the world depending on the loss situation showing double-digit rate increases, like, for example, Italy and/or Turkey. So it was a mix this year, but overall, a positive number. When it comes to competition, I would say that there are very few areas where there is a shortage in supply of coverage. One area I can give you as an example is low layer natural catastrophe protections, which are exposed to climate change frequency type of events. Here, the market has not supplied a lot more capacity in a traditional sense. So from that point of view, there's less competition for that. But this is also not in line with our risk appetite. So therefore, that lack of overall supply didn't create any particular opportunities for us. But there's sufficient supply in most of what we are doing from a portfolio point of view. And your third question is yes, of course, we have some restricting metrics when it comes to risk appetite, but we are in a very good position in all of those metrics be that Cat, be that on the specialty side. So from that point of view, we have no growth restriction on the nonproportional side. And as a reminder, the way we are looking at portfolio mix is by distributing our capital across all of our lines of business, determining the individual hurdle rates given the tail and volatility profile of those boxes. And once the business is making it over and above that hurdle, we are happy to engage, and we are a little agnostic when it comes to portfolio mix in the end as long as all of our business is making those hurdle rates.

[Operator Instructions] And the next question comes from Darius Satkauskas from KBW.

Two questions. So the first question, considering the amount you've added to reserves in 2023. Could this create issues in keeping the discounting benefits in the reserves this year? Or should we still expect that you will continue with it? That's a bit of context, I suppose, one of your largest peers is finding reserves fall, so no longer keeping the discounting benefit. So wonder if anything changed for you because of what you've done? And the second question, is the reserve strengthening in the fourth quarter all bulk IBNR? Or have you allocated to treaties, if you did allocate it? Could you give us some color on the business lines?

Thank you, Darius. So part of it, we'll talk about it at the next call when we have the reserving overview. But in essence, we can still keep the discount benefit at this stage in the reserves. So that's the status. And generally, we did a bit of both some Brazil strengthening as IBNRs bulk IBNR for the portfolio and some of it allocated to the line of the business. We'll give an update when we have the exact numbers also with the view from the external auditors. So if I can ask you just for a bit of patience and on the 18th of March, you'll get a little bit more granularity.

And we do have a follow-up question from Freya Kong from Bank of America Securities.

Can I just touch on the outlook for the non-treaty alliance structure and facultative. Historically, you've given us a decent view of pipeline and quantified your growth expectations here. Is there any reason why not the case this term around? And secondly, can you just please remind me of the relationship or difference between premiums in the facultative business versus -- in the structured business, sorry, versus reinsurance revenue?

I mean, as I said, the year started well on the structured reinsurance side with lower double-digit growth on that side. But as you know, we always make that subject to the remark that our structured business is more lumpy and less plannable from a demand point of view than our traditional business. So therefore, the good start to the year should support our full year guidance for the P&C practice. And the pipeline is looking strong. But given that these are very bespoke and tailor-made solutions, we are discussing here with our clients. It's less of an ordinary renewal book. And so therefore, more difficult to plan. And the reason why we are not giving any specific guidance here but we expect our structured practice to grow at least as strong as our overall traditional business. And the difference between premium and revenue depends on the kind of structured business. If you think more about the solvency related quota share transactions which would form the bulk of our premium year writing on the structured side, those contracts are protected by a very strong sliding scale commissions in order to keep the risk transfer at the desired level. And so those sliding scales, if the underlying business, which it should in this market environment should run very positively for the ceding company, you can have significantly higher ceding commissions than you would have a traditional quota share. So hence the reason why the gap between the premium and the reported IFRS 17 revenue is higher than on our traditional proportional business. Some of the growth, on the other hand, we have seen in our structured practice at 1/1 has been more nonproportional in nature this year. As I said, the driver here is also increased retention levels for ceding companies coming from their traditional placements. And on that business, you have the typical brokerage levels, you would also have on nonproportional traditional reinsurance. So a little bit of a mix but with more significant swings in the ceding commission payable given the results dependent nature of those sliding scales.

And the next question comes from Phil Ross from BNB Paribas.

It's just a question on the new S&P model, which I appreciate you're still moving. But is there anything in the portfolio changes today that might be better or worse under a new model? I'm thinking maybe NatCat growth, for instance, might be a bit easier for you given the changes and diversification in that model?

I'm not able to give you a granular impact on what it would mean for lines of business, unfortunately. But we -- if it's okay, we take it up, and we might as soon as we have the latest news on the S&P model, will report and say how we interpret them. From the different discussions we're having with S&P, we are optimistic about our capital will be treated. So generally, the message we've received is positive. But we need to wait until we get formal confirmation from S&P. But we -- I know that question, which I'm not able to answer today on the likely impact. And as soon as we have clarity, we'll try to take it up then.

And from a P&C renewal point of view, given that we didn't have any huge jumps in the portfolio mix and given that the new S&P model is rewarding diversification in a stronger way to -- compared to the previous version, I would not expect anything unexpected coming out of the new model when you look at our 1st of January P&C renewal.

There are no further questions at this time. And I would now like to turn the conference back over to Jean-Jacques Henchoz for any closing remarks.

Thank you very much. I'll be brief. I think we covered the ground very well on the renewals. We really wanted to stress the fact that we have continued momentum in the market, robust rates, retentions at a satisfactory level, terms and conditions being firmer. So good news and continued quality and growth in line with our expectations and on the 2023 results after the ad hoc statement from yesterday evening, we just wanted to clarify the sources of differences to the expectations. We -- as we discussed, we wanted to take the very solid earnings situation in '23 together with this one-off tax impact at the end of the year to further build up our reserves. So we have sufficient confidence on our reserving level. We'll talk about this next time. But basically, it gives us increased confidence in our ability to deliver on targets in 2024 and beyond, which is very much the Hannover Re model. With that, I close the call. Thank you so much for joining and see you on the 18th of March.

Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.