Hannover Rück SE (HNR1) Earnings Call Transcript & Summary

Well, good morning, and a warm welcome to our Investors Day. And I'm very proud to say that this is the 28th edition of this event since our IPO in '94. And I'd like to say thank you to all of you for participating here in person in Frankfurt and also that so many have already locked in to follow the event via the webcast. A big thank you right at the beginning also to my team who did a very good job to find a nice location here and also yesterday evening for the dinner at the [indiscernible] and also for doing a very good job in preparing the content for today, which I think is interesting and compelling, but you will judge that. And also a big thank you to the entire Executive Board because all of them are here today, which is very good. I appreciate that very much. And I can tell you some of them have traveled a very long way back home from a business trip to be here on time. What should you expect at the Investors Day today? In general, we have -- as you have recognized, we have not released anything this morning apart from the presentation. So, no big news. Some of the news we have already spoiled at the beginning of this week, the payout change or the change in the dividend. And from that perspective, we are not providing a new guidance or new financial targets or a new strategy. That has to wait to later times. The strategy for the next cycle, which begins for the year '27 will be provided at next year's Investors Day in November. And the guidance for '26 comes as usual with the numbers for Q3. So this Investors Day is all about giving you reassurance about that we are on the right track that we deliver on what we have promised. We have a business model that is robust, that is pure and that is lean and growing at the same time. And we are still striving to achieve higher return on equities with lower volatility. So, as I said, today, it's all about confirmation that we are on track. And in this respect, our CEO, Clemens Jungsthofel, will give us his view on the business model and how we can lever and monetize our strength and our positioning in the market. Christian Hermelingmeier, our CFO, will show us that our investments have shown a very strong track record when it comes to ROI and when it comes to low volatility of those investment returns. And second, he will also explain that the earnings growth is supported by the growth of our investments and also by an increasing book yield. And last but not least, he will also talk about the P&L volatility and how -- which comes from currency and how we will decrease that over the next time. And in order to spoil further content, Sven Althoff will talk about the NatCat business and showcase how we will grow that business in this current market environment and how the client relationships will support the top and the bottom line growth. And Claude will give us his insights into the life and health business and how to read the IFRS 17 KPIs in particular, that the service result demonstrates a high resiliency and strength. And of course, he will also talk about the CSM and how that will feed into future earnings growth. We have scheduled a number of Q&A sessions, to be precise, three. And with that, you have plenty of opportunities to ask questions. And yes, because, as I said earlier, it's really important to increase the understanding of our business and the future expectations. And that's all about what we are doing today and to show you or give you more insights in what we are doing. And with that, I hand over to you, Clemens, for your presentation.

Thank you, Karl. Good morning, everyone, and a very warm welcome also from my side. It's a real pleasure to welcome you here in our Investors Day 2025. Thank you to all of those who came to Frankfurt to join us here in person this morning, and thank you to everyone who's dialing in via the webcast. Thank you for your interest in Hannover Re. And I just want to add on what Karl said. Karl, thank you to you and your team for all the preparation and all the hard work that went into this Investor Day. So as you know, it's not the first time that I stand here in front of you, but it's the first time that I stand here in front of you as the CEO of Hannover Re, which still feels like a huge privilege to me and which still feels excited. And someone said this morning, oh Clemens, you look quite relaxed. Rest assured that is only good acting if I look very relaxed. But joke aside, transitions in leadership and particularly when it comes to the CEO roles, always raise the question, is there a change in strategy? Is there a change of direction? Will priorities probably shift with the new CEO? So, let me try to answer that question this way. Over the last couple of months, as I transitioned into this new role, I've really diligently tried to take every opportunity that I could get to listen to and to engage with our clients, with our brokers, with our investors, with many of you and with a lot of employees across the globe. And those conversations over the last couple of months have just really, I would say, reinforced what I've always believed in. And actually, long before I joined Hannover Re, the group in 2020, Hannover Re is somewhat different. And that differentiation is our strength. And I truly believe it sets us apart from our peers. We empower our people. We are solution-oriented, pragmatic and fast. We are reliable. We are consistent and above all, deeply committed to long-term partnership with our clients. And that is actually not me observing or saying, this is what I've heard consistently in those conversations over the last couple of months. And these -- and I know when we talk about these attributes, it might sound a bit fluffy here and there. But I can assure you, these intangible assets become very tangible when you sit in front of our clients, of our brokers or you just see what we've managed, what kind of book we've built on the back of these attributes over the last couple of years. So, as I see it, these hallmarks are deeply written into our DNA, and they will remain key to our sustained success and for, as Karl said, for further profitable growth in the future. And we are going to pursue this growth from a position of strength. So, as Karl mentioned, we are just sort of entered, let's say, the second half of our three-year strategy cycle. I think it's fair to say we've delivered on all our financial ambitions for 2024, and we are well on track to deliver on all our targets for the financial year 2025. What is pleasing is that this performance is built on all profit engines, P&C, Life and Health and Investments. These strong results across all profit engines have also allowed to substantially increase the resilience in our balance sheet. And this is not only in our P&C reserves. This is also in Life and Health and in other areas of the balance sheet. And this will -- this P&C resiliency, we will always share with you by way of disclosing the Willis Towers Watson report. However, delivering on our promises is not just about hitting financial targets. It's about delivering value in a consistent and in a reliable way. So higher ROE, as Karl said, with lower volatility, reliable earnings growth across the cycle and a lean operating model that supports scalable growth going forward. This is the profile an investor gets when investing in Hannover Re. And whilst we've continuously increased our net income target, as you can see here, we've missed the guidance only in 2 out of 10 years. And admittedly, 2017, when I look at the slide, just slightly. But then, of course, COVID weighing heavily on the year 2020. Therefore, I believe it's fair to say that we've truly delivered on our promise in the past. And even more important, we've built a highly diversified book of business that performs across the cycle. And we've built a rock-solid balance sheet that ensures earnings growth even in more softer market periods. We've done this by staying true to our strength. and at the same time, making the right adjustments here and there where needed. So let's quickly recap what has brought us here. First, clearly, our culture, which people or people from the outside would describe as being entrepreneurial with a spirit of empowerment and ownership, accountability, but also kindness. They -- our people feel really that they can contribute to this success meaningfully. There's also a. Genuine sense of curiosity and enthusiasm when it comes to the business. And that is really true across the whole value chain. And we always joke and I can tell you, every time in the Executive Board, and we go through the agenda and we talk about the business, you can see the temperature rising in the Executive Board room because everyone gets so excited when it comes to the business. I believe with this culture, we managed to create, let's say, a sense of purpose, a sense of belonging, which I think nowadays is very important to attract and to retain talent. But even more important, it forms the basis for trusted and long-lasting and deep relationships with our clients. Then our pure-play reinsurance model. As you know, this is a strategic choice. It allows us to stay focused. It avoids conflicts of interest because we do not compete with our clients. On the contrary, we actually help them to grow their business. And I think they really value that clarity, and I do believe this is one of the success factors for our deep and long-standing client relationships. This focus, sometimes referred to as speedboat mentality at Hannover Re also reduces administrative complexity and overhead. It enables faster decision-making and more agile responses in a what I would call a rapidly changing environment. Third, we just like to keep things simple. We feel that internally, but also our clients feel that. Simplicity in the sense of organizational setup, simplicity when it comes to our processes, our guidelines, governance, et cetera, flat hierarchy with a high level of delegation and the speed of decision-making and the execution certainty is clearly felt by our clients. I often hear it just feels easy to do business with Hannover Re. These success factors have brought us here and they become even more relevant as we continue to grow and as we look ahead. Because we do believe that our focus on reinsurance and our lean operating model provide an even bigger competitive advantage in the future, given the breathtaking speed, for example, of technological change. Why is that? Because we don't have to cope with fragmented landscape when it comes to our IT, to our processes. We don't have to cope with legacy systems, which are usually very difficult to switch off or to modernize. It takes ages and we can spend a lot of money on trying to do that. So when I look at our data, when I look at our infrastructure, our IT systems, our ledgers that we've built over the last couple of years, I today look at a fairly harmonized and a fairly homogeneous landscape. For example, we have only one reinsurance administration system for our entire life and health and P&C business. And every single entity, every single branch, every single piece of business with only tiny exceptions are on this centralized reinsurance administration system. And adjusting or transforming a landscape from that starting point is so much easier. Having said this, we will be very rigid in further monetizing, as Karl said, this advantage. So we will keep very hard on what I would call the fundamentals. That includes even further streamlining our IT landscape, particularly optimizing end-to-end automation, considering in-house solutions. So on the -- in the sense of thinking about build before buy because I think this pure-play reinsurance model, this focus allows us to think about it because we're not always so strongly dependent on external parties to provide support. And then I think, first and foremost, very important to enhance and further improve our data. I think this work on the fundamentals, and you cannot do a presentation nowadays without talking about artificial intelligence, which we see, I would say, in the context also of automation. I think this work on these fundamentals is really needed in the first place to take full advantage of our automation initiatives and to take full advantage of the possibilities that come eventually with AI. And of course, we're working a lot on AI and on automation, et cetera. But I would say we do it in the typical Hannover Re way with purpose and not just to chase trends. So in essence, we are fully committed to even further increase efficiency and scalability. And this will not only ensure our cost advantage, we truly believe this has the potential to even further expand our cost advantage if we fully monetize this lean operating model. And first and foremost, this will support further growth whilst still not increasing, let's say, organizational complexity. As mentioned earlier, we're very confident that we will be able to continue to grow, which we have been able to demonstrate in the last 10 years, both in terms of our top line growth, but also in terms of our earnings growth. And this confidence is not only built on a strong track record in the past, it has its foundations in the strong pillars that I just referred to and that you can see sort of here in the middle of the slide. The best sort of practical proof point for me is always when I consistently hear from clients, we just love to do even more business with Hannover Re. With respect to the P&C market, and Sven will talk in detail about it, we sort of our -- we consider this still to be an attractive market environment. Our ability to grow our traditional book on a diversified basis remains unchanged. We have increased, as you will have noticed, our risk appetite in NatCat over the last couple of years, and that meets continued strong demand. You should not forget, we talk about the market cycle and the softening of the market that significant parts of our P&C portfolio are less exposed to the pricing cycle, which you will also have noticed in our renewal reports. And not to forget, our significantly lower cost ratio will help to maintain profitability in the business even if margins are more compressed in softer market cycles. Last not least, our very strong reserves give us confidence in earnings growth. I mean, let's say, let's be honest about it, only adding less to our reserves would already have a significant positive impact on our combined ratio. So we would even be able to grow our earnings with stable relative buffers. And then, of course, as you know, drawing on this buffer is a second option, always possible to manage volatility or to manage the cycle. In life and health, so in life and health, we are leveraging our strength in financial solutions and longevity, trying to expand our regional footprint in those lines of business, developing new solutions to meet evolving regulations. We're also exploring areas to increase the footprint in our traditional business in life and health. And also Karl alluded to this, our overall positive experience variance and the change sort of in estimates that you can see in the IFRS regime and in the disclosures, they provide very strong confidence in our assumption setting, which I would say is rather on the prudent side as we've proven over the last couple of years. Hence, there is a strong, I would say, reliability in our ability to produce stable increasing earnings also on the life and health side. The continued value creation is reflected in the CSM growth, which will support future earnings growth, and Claude will touch on this in his presentation. So overall, I think it's fair to say that we've been able to create a very reliable and increasing run rate in our life and health business. And then, of course, investments. Our business is highly cash positive, leading to continued growth in assets and investment income. We are well positioned to benefit from higher interest rates and selective opportunities, and Christian will talk in detail about that. So we continue to grow profitability in both business groups, and we have the ability and the willingness to use our reserving approach to support continuous earnings delivery and earnings growth over the cycle. At the beginning, I said we are going to pursue this growth from a position of strength. That is, as you can see here, because we have clearly used the hard market years to further improve our strong ability to absorb and manage volatility. The capitalization has further improved according to all capital models. We've been able to further strengthen our German GAAP balance sheet, which forms the basis for our dividends, as you will know. So this provides also more flexibility. And we will continue to use hybrid capital, of course, as a flexible tool to, let's say, optimize our capital position and our cost of capital. Our strong and improved capital position clearly provides room for further growth and at the same time, deliver on attractive dividends. But our priorities, to be very clear, remains unchanged. And you should see our release on Sunday on the dividend in that context. First priority remains to have the ability to finance our growth ambitions. Because we do see continued good opportunities to deploy capital at attractive double-digit ROE, hence, which will result in continued growth of our book value. Second priority is to return excess capital to shareholders. Our commitment to the increasing dividend remains unchanged, but at higher levels and including the, let's say, the de facto transformation of the extraordinary dividend, the special dividend into a regular dividend. The payout ratio will be increased to a level above the historic average. So that's the 55%, around about 55% we were referring to. Why? 55%, you could ask. Well, we really wanted to make sure that we can provide a sustainable run rate on the payout ratio. So we really took sort of a midterm, long-term view on this and that in no case, in no instance, we would compromise on being able to finance our growth ambitions. Special dividends are not excluded, but let's say, they will be true specials for really extraordinary situations. So, to sum up, the environment which we operate at the moment is, and you will all agree to it, evolving. If we just look at the geopolitical landscape, if we look at the trends, the complexity, climate change, increasing loss trends, only being a few examples. This also clearly means that the need for reinsurance protection and managing uncertainty and volatility will keep growing. And it is precisely in these times, in times like these, that resilience, long-term thinking and a trustful partnership approach with our clients are vital. So as you've heard, we're fully 100% committed to our somewhat different approach to the business, including our lean operating model, which we believe sets us apart from our peers. We are a preferred business partner, and I hear this consistently with our clear focus on pure-play reinsurance, excellent underwriting expertise, fast execution and a very consistent approach when it comes to our client, which they really highly value. Our main focus at Hannover Re has always been partnering with our clients. And that has been -- if you just look at the source of the growth over the last 5 to 10 years, that has been the success factor of our growth, expanding, deepen the partnerships with our clients. And we will be fully leveraging this advantage, this strong relationship, particularly at this stage of the cycle. Therefore, we do remain confident that we continue to grow our book of business and that we will grow our earnings, again, even in softer market cycles. I think it's fair to say we look at the fortress balance sheet at the moment. I don't think that we've ever had a stronger balance sheet than now. And together with the strong capitalization, this forms a very strong basis for sustainable value creation for our shareholders. And with that, I hand over to Christian, Karl, and we do the Q&A.

Thank you, Clemens, for your presentation. I know you have a number of questions, but please hold back those questions for a second because we will have the next presentation by Christian. And Christian will -- I mean, is our newest addition on the Board -- on the Executive Board. And -- and it feels like he has been here for ages already. And he will present about the investments and give an update and also when it comes to the currency and how we try to reduce volatility also in this line of the P&L. So then I hand over to you.

Yes. Thank you, Karl. And let me start with an echo what Karl said because it's now six months that I'm at Hannover Re and in this new role, and it feels really like, yes, I would say not six months, but at least six quarters. That's the heartbeat of the CFO, the quarters. And I think and this confirms what Clemens just alluded on. That's also this easy onboarding, this feeling at home very fast. This is also part of the somewhat different mindset and culture. So really the openness to share knowledge, to share experience to work as a team, finding solutions for certain topics, no matter what department, what structure you're in, it's the mindset, it's the people. And so I really feel already at home, and it makes much more fun to work in such an environment. And I think this is a perfect fit and match. It happened also quite a lot over the last six months. So there could be a lot of topics to talk about today. But my focus, as Karl already stated, will be first on our investments and how investments contribute to the overall earnings growth and resilience ambitions we have at Hannover Re. And second, I will elaborate a bit on how we manage currency with that regard, so limiting currency risks and how we expand our tool sets there further. But let me start and begin with a look back on the profit contribution of the investments to the overall performance of Hannover Re. And we saw a similar metric and picture just moments ago for the return on equity that Clemens used as well. And here, we have it for the return on investments over the last 10 years. And it's a similar picture, attractive ROIs at eye level with the best peers, but with a significantly lower volatility. So fully contributing to the overall risk/return, the superior risk/return characteristics of Hannover Re. What is the backbone of these results also for investments, clear strategy, consistent execution of this strategy. And you see here the current strategic asset allocation, and it's fairly stable and unchanged for a long time. Clear focus on fixed income, investment-grade fixed income, high quality. It's currently a bit above 85% of the portfolio. And this is complemented by a clearly defined risk appetite for yield pickup from alternative investments. So talking about real estate, infrastructure, private equity and a small portion of listed equity. But it's not only the relative return attractiveness, it's, of course, also the volume growth. And Clemens mentioned that already, there's a strong positive operating cash flow from the reinsurance business and from its growth. It's also shown here on the slide. And this fueled and fuels the growth of the assets under management. And this is one of the main drivers and was one of the main drivers for also in absolute terms, increasing investment result. And this was over the past five years, an increase on average of 5%. And as we have the clear ambition to further grow our business, and this will be a key topic of the presentations also from Sven and Claude, we expect also that this trend of growing assets will continue and also foster the overall investment result. But of course, no surprise, and you all are aware of this, it's not just the volume growth feeding the higher investment income. It's also the change in interest rate regime that we witnessed some years ago. And every new fresh money we invest or every maturing bond that we reinvest lifts our average book yield upwards since market yields were higher than our average book yield. You see it here on the upper left that crossing in 2022, the book yield is converging upwards to the higher level of market yield. And this trend is still continuing. So our duration in the book is a bit more than four years, 4.1 for Q2. And this means we reinvest approximately 15% of the fixed income book each year. So you can expect this trend to continue. We are not there. There's still and you see the gap between the lines. This trend is still continuing. So we expect -- assuming the current interest rate environment that we will see another roughly 10 basis points increase in the average book yield for the next years as a continuing trend. And with an uplift in the average book yield, of course, there's a mirror side that's the hidden losses on the balance sheet. And we started in 2022 with around EUR 4 billion of hidden losses. And you can see here also on the slide on the right below the line, the saw quite substantial reduction already if we look at the figures for 2025. And of course, this trend will also continue and these hidden losses will go down, reflecting the increase in book yield. And depending on the overall result situation, the profitability of the overall business, we might even accelerate this trend by actively and strategically realizing hidden losses as we did with the first step in Q2, as you saw, with roughly EUR 60 million of active realizations to get the hidden losses down and the book yield even more increased, and we will assess this quarter-by-quarter if we have room here to act in this direction. And if there is room to act in this direction, of course, the ROI will, for the future, benefit even by some points more. Let's have a brief look at the alternative part of our portfolio here with the two largest classes we have. That's real estate with around 6% of the portfolio and private equity with around 3%. And is shown here, and you can see that both delivered above-average returns to the ordinary investment income, so above their share of the portfolio. And starting here with real estate, it was fairly stable over time. And what is the key of our strategy here? That's diversification. And you see here some dimensions as example. So first, by geography. So the real estate investments are spread and cover more or less every large market. And of course, there's also a sector diversification. You see it's still dominated by office with it's shy of half of the portfolio. But if we would go back like 10 years, you would see like 80% real estate in office, and you would see a huge bunch in Germany. So step by step over the years, diversification was broadened here, and we saw a sector rotation that shows we adapt to the current market opportunities. And we started years ago going from office, for example, into logistics. Next move was to add a bit of energy. And these days, of course, we talk about data centers and things like this. Private equity, also sound results, above average of their portfolio share. But to be honest, looking for the last years, as you can see these on the slides, this is, of course, not meeting currently expectations. So we are not back at the pre-COVID level of double-digit ROIs here. But it's still a quite sound result above the average, but the expectation for the future is that this will, over the years, go up again, and we follow a long-term strategy here. This is not an asset class to tactically go in and out and switch falls and back. So it's a long-term view we have here, and this delivered and proved quite resilient and delivering attractive returns. And first element of the strategy here is, of course, also broad diversification. You see here the investment styles. And even when buyout is the largest part, and this means buyout means mid-cap and large-cap buyout, also within the buyout style, of course, there's a broad diversification of different industries, business models, management teams. So this is really broad diversification. And for me, a second really important key element is also the continuous investing, so continuously making new commitments. And this is the reason why you see here a well-balanced mix of vintage years. So this is the continuous investing the long-term strategy here, creating all these vintage years with a fairly balanced split. And especially those vintages that historically were started in downturns of the markets have proven later to be really profitable because the low valuations at these periods, of course, also offer quite attractive entry points for the GPs to add new targets, new target companies to their portfolio. So I think it's not the time to go back with your commitments. It's the right thing to continuously stay with your commitment rate. And talking about the portfolio companies, just to give you a feeling for the diversification by number of underlying investments, we are invested in roughly 200 PE funds. And let's take as a, I think, conservative proxy, just 10 portfolio companies each. This means we are talking here about 2,000 separate single management teams, business models, locations. So there's really, really broad diversification. The strategy here is not like perfect market timing, finding the perfect GP, finding the perfect sector. That's a broad approach here. And this delivers the attractive and stable returns that play into the overall characteristics and ambitions of Hannover Re. And if we would look at infrastructure, the picture would be quite similar. That's roughly 2% of our portfolio. So above-average returns while adding modestly to volatility. And talking a lot about volatility already, that's the point in time to talk about currency management. And we all witnessed the kind of roller coaster in the U.S. dollar exchange rate this year. I think we started around EUR 1.10 versus dollar. Then it decreased quite substantially. Actually, it feels like long ago because then we saw the huge uprise, especially after Liberation Day beginning of April. And since then, some weeks later, we are now at the level that is also currently in the market. And of course, this has had quite a substantial impact also on our IFRS figures, as you all have seen. And therefore, I talked a bit also about that in our earnings calls. But today, I want to use the opportunity to elaborate a bit more on how we look at currency risks and how we manage and limit volatility. And let me begin with a short view at what does currency mean? What is meaningful for Hannover Re? And you can see here shown on the slide, that's the U.S. dollar. There are a couple of other currencies, of course, but these are just tiny portions of the overall portfolio. The meaningful topic here is to look at the dollar exposure. Starting with the asset side, around 45% of the investments are U.S. dollar-denominated and similar on the liabilities. You see here the reinsurance liabilities with nearly the same number, so the LIC and the LRC. When talking about currency risks and currency management, we have a clear priority for how we view at that, and that's the economic view. So what is the economic impact of the exchange rate dynamics. And we take our internal model for Solvency II as a good proxy for this economic view and measuring and simulating exchange rate changes. And our target is to protect the economic value, and we do simulations and try to steer this and limit this. And this sounds reasonable, sounds straightforward. But in practice, this is not that simple. Why? Because it's not just one target. It's to protect and to limit the risk for the net asset value, obviously, but also for the solvency ratio. And in most of the scenarios we do in the model, the two are moving in opposite directions. So one going down and the other is going up. So we have to balance a dual target here and find a good balance of limiting both. So our target is to get both simultaneously in a very limited thin corridor of just a few percentage points up and down. So this is what we aim for. And just an example here, on the upper right, if we take a 10% appreciation of the euro, we have a 6% decrease in net asset value. And in this scenario, the solvency ratio would increase by 5 percentage points. So this is according to the model. Let's do a reality check. Perfect occasion first half of 2025. We saw appreciation of the euro around 12% versus the USD. And you can see here the impact on solvency, holding all other things equal, and the NAV were decreased by 8%. And at the same time, the solvency ratio increased by 8%. So giving, I think, a quite good validation of the model and showing that the strategy and the limitation here works even in strong dynamics of the exchange rate. While I feel very comfortable with this approach and the clear economic view and the strategy, we have to accept and to acknowledge that IFRS accounting figures sometimes tell a bit different story. And why is that? The reason is a different treatment of certain items on the asset -- out of the asset side of the balance sheet with regard to FX revaluation. That's the nonmonetary and the monetary part. And the nonmonetary items that's for Hannover Re substantially our U.S. dollar vehicles for our alternative investments I just spoke about. These are revalued with regard to exchange rate changes in the OCI, not the P&L. And this creates an accounting mismatch with the liabilities because their revaluation goes through the P&L. And even if we were able to perfectly 100% match assets and liabilities with regard to currency, the change in the exchange rate would lead to currency gains or losses. And the reason is the accounting mismatch in the background, and this is exactly what you can see in our P&L in Q2 2025 with the EUR 236 million of currency gains. So this is not the economic impact. The largest part of this figure is just the accounting mismatch. So why we feel comfortable with the economic focus, we want to, of course, reduce volatility also in IFRS figures and earnings. And therefore, going forward, we will -- or we did actually extend our hedge accounting using opposing derivatives for the U.S. dollar to bring this down and limit the volatility here. So what does this mean? This means economically, nothing changes. No change to the economic priority and focus of steering and protecting the NAV and the solvency ratio. But by combining parts of the assets and the new derivatives with the liabilities they cover, we can build a block for accounting purposes. And this affects the P&L in a way that -- let me very roughly describe it, we can shift OCI impact into the P&L. And this will reduce the accounting mismatch, and this will lead to much reduced volatility coming from currency exchange rate changes in the future. So I would not expect that we will see triple-digit movements there in the future. And let me clarify this. This was implemented during Q3. So this is in place for the future. But the Q2 figures, they will not vanish. So there is no retroactive impact. So the starting point is Q2. But from that on, the volatility will be much narrower. And so these new instruments will contribute to the overall stability and reduced volatility of our IFRS earnings. Let me summarize my two parts of the presentation briefly for you. So, first, the investments delivered an attractive and strong return on investment while remaining with substantially lower volatility than peers. The earnings growth will be fueled by strong operating cash flow and increased book yield. And third, as just alluded on, the currency risks are already well managed in an economic perspective. And going forward, we will extend our hedge accounting so that also the IFRS accounting volatility will be substantially reduced. Putting it all together, all points clearly contributing to a strong delivery of the investments into the overall targets that Clemens talked about, so supporting earnings growth while also being and producing stable and robust results with low volatility. That was my part. I hope that was interesting for you and some new information. And with that, back to you, Karl, I think.

Well, thank you, Christian, for your presentation. And we will go into the Q&A session in a combined Q&A session where Clemens and Christian will answer your questions. [Operator Instructions].

So, first, we start with questions here in the room. And if you keep up your hands, I will then register you and make sure that we start with those questions. Probably start right in with Michael and then we go in the next -- in this row and then to the next one.

The first one, you mentioned the -- your customers want to do more business with you. I just wondered, can you give a figure for that? And the second one is on the -- lovely presentation on real estate and private equity. Now on average, and I understand the point about vintages and the diversification and everything. But are there any pockets anywhere which you've looked at and you've now been CFO for like six quarters or something, where you think, oh, we'd better have another look at it. And I'm thinking more of here in Frankfurt. I was next to the guy on the plane, he said the Trianon Tower is empty. So clearly, there is stress in the market.

Michael, thank you for the question. So, I'll start with the first one, right? And I know it's always difficult to grasp. What I wanted to do is give a flavor, particularly at this part of the cycle where we talk about growth outlook, what are the opportunities, et cetera. And I just wanted to give a sense on all the discussions coming out of Monte Carlo, Sven and myself just spent three days at CIB in North America, talked to our North American clients and all the discussions, be it all the way from Canada, Europe to Asia, to APAC. So what is the outcome of these discussions. And the focus was not our prices had to come down and terms and conditions that clearly, they are part of the discussion. But the flavor that I got was very much -- and we talked a lot about and Jean-Jacques always talked about, is there a glass ceiling, is there a limit for Hannover Re, et cetera. And I can just reassure you, I just wanted to reassure that there are plenty of growth opportunities for us going forward, most in P&C, but also in life and health. And there's a general feeling in our client base that we can grow their business with them. There is a lot of appetite for us to deepen that relationship with our clients. And again, some of the reasons I mentioned, I think that is this execution certainty, this ease of doing business is something which, again, sounds probably a bit fluffy, but it becomes very clear and very tangible when you sit in front of your clients and look at the portfolio that we've developed over the last 5 to 10 years with them. how much opportunity there is. We will come up, though, Michael, with a number sort of our growth outlook for 2026, as Karl said, in November. So there will be a guidance also, of course, on our growth. But bear with us until November.

Okay. I take the real estate question. And of course, the single investments in this huge portfolio, there are better ones and not that well-running ones. But you're asking for pockets of concern. I don't see them actually, and I give you some evidence for that. So the overall is quite conservative portfolio. And the overall valuation change was around 5% in the downturn of the market. And I'm not talking about 1 year, but all the years compounded. So this was really robust and has proven strong. And one of the reasons is that we have the -- or a large part of the real estate investments at our balance sheet. So it's not indirectly via big funds and managers where you see the fair value going up and down. But over the time, we built really a reserve on that. So this can cover the downturn or some downturn when you get the new valuations before you even see really an impact in the IFRS results.

Okay. We continue with [ Mr. Kotzé ] and then Hadley afterwards in the second row.

[ Johan Kotzé ] from [indiscernible]. When looking at your strategy, it seems to me that if we imagine the next five years, you have plenty of opportunities to grow organically. Hence, we should not worry or think about any acquisitions, big or small?

Yes. In terms of M&A, and you will have heard this saying probably in the past a lot, we're very boring when it comes to M&A opportunities, Mr. Kotzé. But what is the reason for that? On the P&C side, if you just look at the growth over the last 5 to 10 years, I think we've roughly tripled our P&C book over the last 10 years just by way of organic growth. And clearly, we would never rule out M&A to buy business, but it has to be accretive. But why would you pay a premium for a business that you can get by way of engaging with your clients or your brokers organically. So -- and I think that has been also part of the secret of our efficient growth, sort of growing with our clients is a very efficient way of grasping growth. And this will be the case going forward. So we have a very -- we have a very strong broker business. So 2/3 of our P&C business comes by broker, rest direct. So we do see plenty of opportunities to further grow organically. I wouldn't rule it out on the life and health side. If there are opportunities for M&A, if there are opportunities to engage in any larger transaction that could be, but nothing concrete on the horizon at the moment.

Hadley Cohen, Morgan Stanley. First question is around the new payout ratio. Thank you very much. I think the -- I think you said that the new payout ratio implies that the solvency ratio is going to remain broadly stable or maybe potentially trend slightly lower from current levels. So my question is, what's the implied growth rate that you're assuming within that to keep the solvency ratio flat to maybe slightly down? And I guess, linked to that, the extent to which there's any maybe conservatism in your -- when you're calculating your solvency ratio, maybe with regards to new business value or something like that? And then my second question is sort of linked, but around the special dividend, and that's only now for really extraordinary circumstances. Can you sort of give us more color around what a really extraordinary circumstance is? And I guess I'm asking that in the context of 2025, where all else equal, obviously, there's still a few weeks at the end of the year, but all else equal, it should be a very strong year of profitability. Solvency ratio is very strong. So what needs to happen? What could be better than this for you to consider specials?

Yes. I'll start with probably [indiscernible] and Christian can complement. So on the growth, well, let's probably start with the payout ratio, and thank you for giving the opportunity to clarify it even a bit more. So what we wanted to achieve with the roughly 50% payout ratio is first simplification. I think -- and we've really got that feedback and listened to many of you, get your heads around what's the special, what is the ordinary dividend, et cetera? What's the run rate? What's the payout ratio, let's say. And I think this was diligently considered. That's why we said, let's really try to simplify our approach and just try to come up with a run rate that we can sustain over a longer period. Hence, 55% roughly of our IFRS net income is really considered as a run rate. Why have we done this? I mean, we are in the context of planning, of course, at the moment, et cetera. We're coming up with our plan for 2026, but also sort of our medium-term outlook, and we did solvency projections. And if we just look at the growth assumptions that went into this plan, our Solvency II ratio will partly due to the fact that we have considered growth in P&C and life and health will gravitate towards a lower level, clearly. And then we should not forget, of course, rating capital models, et cetera. But that number will trend down mainly due to the assumptions on new business. Is there prudency in that plan, Hadley, and I think if we just look at the last 5, 10 years in terms of our growth assumptions, e, I think it's fair to say that most of the time, we've actually outperformed that plan. So prudency in the sense of have we been very cautious on that business, I would say it's a balanced view, but there's always a bit of prudency when we look at the business. Of course, because we don't want to send a message to our underwriters to chase top line. This is all about profitable business, and we will always look at the margins of the business. And therefore, this is -- that's how we look at the plan. So in terms of -- and business opportunities, again, both on P&C and life and health. In terms of numbers, are there -- what's the underlying run rates, et cetera? I mean, again, so Sven will talk about a bit. We will not give a number at this stage for 2026. However, Sven will give you a bit of a flavor where we've grown in the past, where we have appetite to grow and where there are opportunities. And I think it will give you a bit of a broader picture where we do see areas of growth in P&C. And that might give you a sense already. But then again, bear with us until November. I hope I answered every question, [indiscernible], otherwise.

Maybe the extraordinary. What is extraordinary? Maybe I can take that one. And yes, it would not be extraordinary if we would have a list for that. So I think it's our point to make clear. It's not like the old special dividend that was regularly used. So this would really be there to be able to act in a certain situation where there is some shift, some really fundamental change, some really extraordinary unexpected situation. So I would not expect that we would consider this just because profitability is going a bit up or down. We are quite consistent in steering results and trying to not have too much volatility. So that's maybe giving a bit of flavor around extraordinary. It's nothing you should expect to just regularly happen.

But to give you a sense how we apply that payout ratio, we just look at, let's say, our guidance for '25, et cetera, we'll see how the year goes, of course, and you know we will go to book the budget for Q3, which has been benign, as we all know, no secret. So we book the budget, and we'll see how the year goes at year-end. And to be clear, there is no ceiling in the sense of we have a guidance out there, we have a target for 2025. There's no ceiling in that. So if this is a very good year, we're also prepared, of course, to look at the guidance at year-end and would just simply apply that payout ratio to that increased guidance. So that will, by way of that, to your questions at the core, that will flow through to the P&L and will also increase the dividend.

Okay. Then we go to the next row and probably start from that side, Ben, and then we continue with Darius.

Ben Cohen from RBC Capital Markets. I just had a couple of questions actually on the expense side. I just wonder if you could say more about the sort of underlying cost inflation that you see in the business and how you're sort of managing that kind of over the cycle. And the second part, obviously, the bigger part of your overall costs is on the commission side. And I just wonder the outlook. I mean, you mentioned the strength that you have with your clients, the degree to which that helps on the brokerage side versus as markets soften, whether the brokers are trying to push harder to take a bigger slice of the pie as it were.

No, happy to comment on this, Ben. Thank you. So if we just look at our cost base, our admin costs, I would say probably half of the costs are personnel costs and half of the costs are other costs, IT, admin costs, et cetera. Overall cost ratio, as you've seen, 3.2%. We've managed to keep that ratio fairly stable. We have another cost ratio if we just apply on the EBIT, so the EBIT to cost ratio, which is actually -- which has developed quite favorably. I always joke as long as Karl books us into Motel One hotels as he did here also in Frankfurt, our cost ratio is not in danger at all. He even excluded the breakfast. I've noted this morning. So there is a lot of cost discipline. And then at the core of your question, I think some of it is the organizational simplicity that I alluded to and really trying diligently to keep things simple and challenge complexity. I think that is something that is very, very important. And in my previous life, and I alluded to it in my intro that I've not only known Hannover Re since 2020, but also already since 2002 when I joined as a union consultant and auditor on the audit of Hannover Re. And I can tell you, negotiating fees with Hannover Re was already difficult back in those days, and it hasn't become easier. So that cost consciousness, that culture is so deeply ingrained, and I think it does give us a competitive edge. Having said this, it's very clear that we have seen inflationary trends also in our cost. If you just purely look at the personnel costs, they will, of course, increase and develop. The same is true for our administrative costs when it comes to IT costs, software costs, cloud costs, et cetera, all these elements. And that's why I said we also consider build before buy to make us less dependent on external providers. And when you look at some of the dynamics of the fee developments and when you're very dependent on some of the providers, you're basically on the hook. So that's why we try to make us independent. I do believe that this focus on reinsurance, the lean operating model does give us that opportunity to look at bits and pieces here and there to do it ourselves, keep it really simple. So therefore, we have managed also over the last three, four years to keep that ratio quite stable. And we are diligently working on this. When I spoke about automation, AI, et cetera, we do invest, but clearly with the focus of even leveraging that simplicity, that advantage even more. On the brokerage or on the broker side, again, 2/3 of our P&C business is roughly coming via brokers. I think I mean that's one of the reasons why we've managed to keep our organizational setup quite efficient and simple. So I mean, we are operating, for example, our business that we write in North America, I alluded to earlier, we are mainly writing out of Hannover. And as we all know, that's probably not as expensive place as some of the other big cities. So that gives us an advantage. And on the broker side, I think the advantage that comes with this is that it provides -- these are variable costs. So as we go into cycles and manage the cycle, those costs are variable, so we can adjust accordingly. I think that gives us an advantage as well.

Okay. We continue with Darius.

Darius Satkauskas, KBW. So one question for Clemens and one for Christian. So, Clemens, thank you for increasing the payout ratio. You said your second priority is to return excess capital to the shareholders. I think looking at your sort of key targets like, it would be easy to assume that 260% when your target is above 200% implies excess capital. So if it doesn't, can you help us gauge how should we estimate the excess capital that Hannover Re has got if the EUR 260 million is not the right number? Second question to Christian. I'm just curious to hear your thoughts on private equity and optimism about the future. I think there's been a lot of concern that the IRRs that were promised in the past are probably not going to materialize given the material rise in interest rates and some of the assets actually being stuck on their balance sheets rather than being able to sort of upload them. So presumably some of the returns, and I've noticed a lot of your vintage years actually predate 2022, 70% or so. So why is there still optimism that actually that yield pickup will happen and instead of big markdowns when they finally sort of come to reflect the real valuations?

So, Darius, thank you. I'll start with the payout ratio. So again, as I said, this is more a mid- long-term view that we took on the ratio. And we -- again, we've done some initial projections on the Solvency II ratio. That, again, will -- the assumed growth, again, some prudency in those numbers will bring the solvency ratio closer to our threshold, clearly not at a threshold because we do like to have some buffer in the Solvency II ratio. And of course, again, we need to also look at some of the capital regimes on the rating side, which are also site conditions that come in. So we will always imply some buffer, mainly really to be able to capture further growth opportunities or any other opportunities that come along the way. So this is more really to take a bit of a cautious view. Again, we do not want to compromise any opportunities that come along the way when it comes to that assumption and that sensitivity. On private equity?

On private equity, I would describe actually the situation just like you did. And as said, so the returns are a bit depressed. They are not at the levels that we had pre-COVID. But I mean, look, what returns these vintages produced. This were not just double digit. In part, that was 15% to 20%, even with not that offensive portfolio. And I'm not seeing this return in the near future. But as I said, the lower valuations are new entry points for new investments, for new business models. There is a huge realignment, reshuffling in the market. So part of the business models are not working anymore. I totally agree. So it will take time. And as I said, I'm not expecting this next year to jump up again. So this will really be a continuous development over the next years. But as I said, for such a long-term strategy, the overall mix of the vintage years produce sound returns on investment. And if we see that even, we have, as always, a quite conservative approach here with the valuations. So really bringing them down as we see signs of more risk. This is all done in the balance sheet. So I think there is still a sound and reasonable -- I wouldn't call it optimism by the way. I think that's clearly the expectation on the fundamentals. Will we see the full pre-COVID returns? I don't know. But even if it's just going double digit, it will be a good strategy for us.

Okay. Then we have further questions from Vinit and Will.

Vinit from Mediobanca. Clemens, one for you. One for you, Christian. So, Clemens, just back on the growth and the clients loving Hannover Re. Is there some kind of an analysis you performed which suggests that per client you're kind of outdoing your peers in terms of nature of business or volume that they give you or business they give you? And is there a perception of risk, which is different that you could comment on or maybe Sven could add later about, hey, we grow differently here because everybody that we would ask would say their clients love them. So it's not very easy to just use that as an explanation for the strong growth. And then second question, Christian, is just I'm quite intrigued by the unrealized bond losses projection chart. I think it's Slide 4 in your pack, where you seem to be taking it down by EUR 300 million a year for next two years, which is in normal life and not a normal thing. I mean, because when you did EUR 60 million in Q2, you flagged it as an exceptional activity. So it obviously implies that you intend to do EUR 60 million a quarter bond losses for the next two years or you're just expecting interest rates to go up. And in that context, the 10 basis points, just to clarify if you did do this bond loss realization that would be higher, right, 15 or whatever some other number, just to clarify the thought there behind that slide.

So, Vinit, on the clients, love to do business with Hannover topic. I've asked exactly that question, most of our clients and brokers said exactly what you said, Vinit, everyone says this, and everyone will say this. Come on. I mean give me a bit more of a challenge, what can we do better? What's the reason why we've grown substantially. I think what we've proven though is just by way of -- and when you look at the growth on the P&C and life and health side, when you look at the growth on the life and health side over the last 5 to 10 years. I think we've just proven it by way of that. And if you just look at the portfolio, I think we've deepened the relationship with our clients quite substantially over those years. And we've really tried to come up with concrete feedback why is that and what could we do more, not just by way of looking at broker service and things like that, but really sitting down with our clients, having strategy days with our brokers, with our clients and trying to find out where can we do more, what would you like to see more from Hannover Re, et cetera. And again, one of the thoughts is that always comes it just feels easier. And I've really tried hard in it really to challenge that. 99% of the responses was tenants, please don't change anything when it comes to our underwriting approach. And I think this empowerment concept, having the underwriter decision-maker at the table is, I truly believe something that is unique. And then this consistency, 99% of the responses that I get is you're consistent in your risk appetite. And coming to your question, Vinit, on what does it do to the portfolio, I think there are clearly areas where they would say, well, we've been showing you this business for 10, 15, 20 years, but you still don't like it. So -- but we will be very upfront about it and very clear about our risk appetite. And I think this consistency, this clarity is something that clients like. We are not opportunistic. We are not transactional. We are very upfront even in when I -- when we did a bit of a debrief after the 1/1/2023, that reset of the market, it was always the response you guys were tough. It was very clear, but you were always honest and upfront about it. Second, I really believe this pure-play reinsurance model that we don't compete with our clients that we really sit there as a pure-play reinsurer in front of them is something that they really like. And therefore -- and again, it sounds a bit fluffy, but I think we've just proven it. And Sven will provide a bit more detail probably in his presentation on what are the areas, and Claude, what are the areas where we still see growth opportunity.

And on the hidden losses, and thanks for giving the opportunity to clarify this. What you saw on the slide, so the walk over the next year and the years and the expectation, this is just the pull-to-par effect of the maturing part of the portfolio, plus the reinvesting in the same bonds or same durations, again, same ratings at the current interest rates. So everything, as mentioned, that we could do in addition, like the EUR 60 million, and this is just a random example to show we are really doing this will, of course, lift by a handful maybe of basis point. And as said, we will not follow like EUR 60 million roughly every quarter. This will really depend on the overall situation. I mean we have different profit drivers and contributors to the overall result, and you all know our quite conservative reserving approach using this as a tool, but we might also look in the coming quarters at the losses to make some realizations there if we see room.

Okay. Well, even that we are a bit over time, but we take a question.

Yes, I'll make it quick. It's Will Hardcastle, UBS. It's actually linked with that last question. Is it a sign that you're starting to realize investment losses that there's less headroom in the reserve resilience to play with, and this is, therefore, another lever that you can work alongside. So essentially, that's a question, is the reserve resilience closer to the upper end that you're allowed? And then second of all, just coming back to the solvency new capital build and that amount. Within your capital consumption assumptions, how much -- is there more coming out of life and health? Or is it more coming out of P&C, where you're assuming a greater capital consumption in the near term?

Should I probably...

I'll start probably with the last one. Will, I think it's both. I don't have numbers top of my head, but it's really growth assumption both on life and health and P&C. I start probably with the first one. So on the reserve resiliency, I mean, you know that we've substantially built resiliency. The way we look at it is take sort of the number that we disclosed from Willis Towers Watson, the 2.5% plus the risk adjustment, you roughly end up 31st of December 2024 at 7.7% in relative terms. And you all know and we've been clear about this without having come up with any actuarial analysis, we believe that we've built further resilience in the first two quarters as we reported. Is that the ceiling that we've achieved clearly not. But -- and there is no number that we would give for a ceiling, but we do feel comfortable with this reserve level in general. So therefore, as Christian said, looking at the investment, looking to realize some fixed income unrealized losses is more of having that toolbox and having that ability to look at earnings management to look at sources of future profits that will come just over time. And it's just another possibility to use that. But it will be probably a blend of both, Christian?

Yes, I couldn't agree more, and I can completely confirm this, yes. So I also don't see a ceiling. We could do more technically. But the question is, what is the right mix and balance and what is the level we already have. And as Clemens said, we feel that is quite a good level in the reserve already. So, let's maybe look a bit more to the hidden losses in the balance sheet, but it's more shifting and finding the right mix.

Great. Well, thank you. For answering all those questions. Thank you for your questions. We will now break for a coffee and we'll resume 20 minutes before the hour with this presentation of Sven. Thank you. [Break]

Welcome back. Thank you for being so punctual, almost. And so we are here for the next presentation of Sven. And Sven, just as Clemens said this morning, also came back from the CIAB, The Council of Insurance Agents & Brokers Conference, a P&C Conference in Colorado Springs. So thanks for being here so punctual because that was indeed one of the challenges to manage that we have an Investors Day also presenting Sven about the NatCat business. And with that, I hand over to you.

Yes. Thank you very much, Karl. So I will talk about three topics during my presentation. The first topic is going to be a reminder why diversification is business is important for our business model and how do we reflect on diversification in the context of our natural catastrophe exposed business. I will then share with you what is our journey on the NatCat side of things and what to expect in the future. And last but not least, I will also talk a little bit about the topic of growth, both from a top line and from a bottom line point of view, not only on NatCat, but for the business group P&C in general. For the Q&A, I will be joined by Sharon, Silke and Thorsten. So you will have a good time to ask your additional questions. So let's start by reminding us all why diversification is important for our business model. As you know, we are categorizing the business into the three main components, P&C, life and health and market risk on the investment side. The numbers you see in the chart are the solvency capital requirements for P&C, life and health and the investment side after the internal diversification within those sectors. And then you can see that the diversification across the three segments is basically giving us a 34% credit from a group diversification point of view. And this diversification, which, as you would imagine, is a major component when we are pricing the business is given to our market divisions, and we can benefit from the significant impact of diversification when we are writing the business. So a meaningful number, but diversification is not only about capital. It's also very much about our earnings profile. So what we have done for the last 10 years in the lower chart is give you an idea how our various segments have contributed to our technical results on the P&C side in the years mentioned. So, first and foremost, it's important to note that on a gross basis, we have made a technical profit in every of the 10 years. And you can see that the contribution year-on-year, depending on the profile when it comes to losses has changed, but it's overall positive. You can also see and that is the yellowish part of the chart that the contribution from Structured Solutions and ILS, i.e., the business which is less prone to volatility in the pricing cycle of P&C is increasingly getting important for our portfolio. Yes. And last but not least, these are gross numbers. So the earnings profile in the more challenging years like 2020, for example, where we had a technical profit, but below the long-term averages would, of course, be improved from a net point of view. But over the cycle, retro comes as a cost, so it only supports in years with higher volatility, and that's why we are showing the gross numbers because at the end of the day, we have to finance the retro out of our gross results. So starting to talk about natural catastrophe business in more detail. The diversification is also very important for us in our natural catastrophe portfolio. To get to a good diversification, we feel we should write different market shares for different country peril combinations. And in practice, it means is that we write the lower market shares in the larger perils and higher market shares in those markets with a smaller peril compared to, for example, Atlantic hurricane exposure. So we have picked four examples where in the waterfall chart, and I will not go through them in detail every chart, where we are just through the waterfall charts, take you through a gross to net journey. Starting with U.S. hurricane, clearly, the biggest market from a demand point of view. We're in a 1 in 250-year scenario. We are starting from a gross number of a little over EUR 4 billion for our share and then with the use of retro and after tax implications, this translates to a net loss of EUR 1.8 billion or in market share terms, we are starting with a market share of 1.3% from a gross perspective and reduced this to a net market share of 0.6% on a net basis. Same logic applies to the other three scenarios we are showing, so European winter storm, U.S. West Coast earthquake. And we've also picked one of the examples where the market demand in overall terms is smaller, but where we have a relatively significant market share. Just to give you a sense what a wide range of market shares we are willing to write. So the last example is, therefore, our exposure to Chilean earthquake, where from a gross market share of 20.4%, we are reducing to 10.2% via the use of retro. So it's quite a wide range all the way from 0.6% in a scenario like U.S. hurricane, but can be double digit in other smaller scenarios. So if you look at the U.S. West Coast scenario, you can see that on a net basis, we are saying that in a 250-year scenario, we expect to have a market share of 1.7%. So if you take that as a proxy and look at our losses from the wildfires in California, and yes, of course, wildfire is not earthquake, but it's from the same region. You will remember that after two quarters, we have reported a net loss of EUR 615 million, and that is based on a market loss assumption of $40 billion. So if you divide one by the other, you would end up with a ratio of 1.8%. So broadly in line with the 1.7% we are showing here. So from that point of view, an expected number when it comes to the state of California. And in that sense, not a surprise when it comes to our involvement in that loss. So where do we see the natural catastrophe business going. So let me start by talking about the increase in values that need to be insured and reinsured and the reasons why this is structural. So the first trend we want to talk about is the trend of urbanization. So in the middle of the slide, you see that there was a significant growth in the world population and most of that growth actually happened in urban areas rather than in rural areas. And in the lower map, you see the dots where the growth of agglomeration has been particularly strong. So the red dots are those parts where the growth has been the biggest. And you see the characteristic that many, many of the dots or most of the dots indeed are in coastal areas, which, of course, are prone to natural catastrophe exposure from both wind and from a water point of view. The second driver of increased values is, of course, the underlying asset inflation coming out of general inflation. But even more importantly, you have to look at the construction cost inflation, which is more relevant compared to general CPI inflation for the question of insured values under property policies. And as you know, this situation of higher inflationary numbers and particularly higher construction cost inflation has accelerated significantly in the last five years, which means that through the trend of urbanization and through underlying asset inflation, you have more concentration of values, which is fueling the demand for the product. Another driver is climate change. We have a lot of topics under the umbrella of climate change. But just for illustration purposes, we have picked 2 examples how we see climate change materialize. Let me start by talking about extreme sea level events. You see the map and you see the dots of the map, the dots tell you about how the likelihood of events is increasing over time. And a solid brown dot means that by the year 2040, we have to expect significant sea-level events in those areas on a very frequent, if not annual basis. And if you compare this map with the map I've used on the previous slide when it comes to urbanization, you will find that many of the dots are in identical places. So you have a combination of increased urbanization at around the coast lines, which is meeting increased frequency of extreme sea level events over the next decades from a climate change point of view. So this is the one example, which is giving you an idea about the increased risk landscape. Another example is hail. Hail has, of course, been very topical, particularly when it comes to the U.S. through the increased frequency of severe convective storms. But of course, hail is also important when it comes to other parts of the world and how losses materialize. So the maps on the lower part of the slide are giving you ideas how we see frequency developing. The red part of the map is those areas, both in Europe and in North America, where the increase -- the frequency for hail events in severe Quebec storms is increasing significantly. The graphs we are showing here is then giving you an idea of severity. So the graphs are talking about the inherent energy within a storm and/or the size of the hail, both also again from North America and from Italy. And you can see that both in the maps, but also in the graphics, we are talking about increasing numbers. So when it comes to the peril of hail, it's both frequency and severity increasing. And we all, for example, remember the hail losses in Italy two years ago, where this has actually materialized in the southern part of Europe. So the climate change is leading to an increase in exposure. But on the other hand, you also have to have a very differentiated view on risk. So as you can also very clearly see in the map, particularly on the hail map, I mean, not everything is having a color and not everything is green. So you have to have the capability to be very precise in your modeling and the pricing when it comes to regional exposure for the individual perils in order to have a solid and risk consumer offering to your clients. So a one-size-fits-all approach is not working in a scenario where we have different trends in different parts of the world, peril by peril. And therefore, you have to have a very diversified and sophisticated modeling landscape in order to recognize those differences. A third area which is driving demand on the natural catastrophe side is the protection gap. I mean you know that the insured losses from natural catastrophes have significantly increased year after year over the last five to six years. the chart on the right-hand side is talking to that. These are the numbers as published by Verisk. So one of the big vendor models on natural catastrophe modeling. So today, we are expecting as an industry an insured loss of EUR 150 billion roughly in any given year resulting out of natural catastrophe losses. And that number was only EUR 82 million in the year 2020, so not that long ago. So the trend of insured losses resulting from natural catastrophes is a very clear one. On the other hand, and that's what the chart in the middle is talking about, there is still a huge protection gap where only a part of the economic loss, and that is the lighter blue in the chart is insured losses versus significantly more economic losses in the years mentioned. And of course, it's our ambition and the ambition of the entire insurance and reinsurance industry to close that gap over time, which is going to give more demand for the natural catastrophe-related products in our industry. So what does that mean for us? So as explained, you need to have the capabilities and expertise to monetize the increase in this demand. You need to be able to capture all of the mentioned trends and changes in exposure in the modeling and the pricing. And you have to have a good diversification in order to deal with the volatility that is inherent to this exposure. If you look at our experience of budgeting for large losses from natural catastrophe and our gross technical results for natural catastrophe, we feel that this is a class of business which we are able to manage and steer in a manner which is accessing -- allowing us to access a good driver of technical profitability. So the lower chart is giving you a reminder on what our journey has been on budgeting for natural catastrophe losses as part of our major loss budget. So we are showing this since 2015. What's not every year was within the estimated budget for the year. In the total aggregate, we have been within the budget. And with 12% below budget, we are in a relatively comfortable situation. What you also see on the upper hand chart is that over the cycle, we are making good technical profitability out of our natural catastrophe business. And this, again, is a gross slide. So this is before retro. And obviously, retro also helps us to deal with the volatility in a number of those years. The most prominent example here on this slide would be the year 2021, where we had both burned in Europe and either in the United States. And in that year, our gross profitability was negative. But as you can see in the lower chart, it translated into a situation where from a net point of view, we only exceeded our budget for the year on a very marginal basis. So from that point of view, retro helps us to accept the volatility on the natural catastrophe side. But most importantly is, of course, that we are in a position to write it profitably on a gross basis over the cycle, which I feel we are nicely demonstrating here in the past. You can also see that the last number of years, the profitability numbers are getting a little more meaningful and are exceeding the long-term averages nicely. And the reason for that is something I will explain on the next slide. So, we are currently in a period where we have grown our natural catastrophe exposure, of course, also taking advantage of the good market environment. So this means we are structurally willing to increase our share in natural catastrophe-related business. And the left-hand chart gives you an idea about our journey and how we have dealt with that over the last 10 years. So when we started in 2016, you can see that the contribution from the blue part of the -- the lower blue part of the chart, which is showing you the U.S. and Caribbean total value at risk. at the 100 centered view has been very dominant. So it was close to EUR 2 billion out of a total of approximately EUR 2.5 billion. So roughly 70% of our total value at risk came from U.S. hurricane and the Caribbean. In the trading conditions, we had up until 2022, it was, therefore, of high importance to us to do something about the better diversification profile in our portfolio. So you will see that over the period 2016 to 2022, the absolute number from an exposure point of view when it comes to U.S. hurricane and Caribbean hurricane has not really changed a lot. It was relatively stable. What we have done in that period is make certain that the growth we had was in non-U.S. non-Caribbean related perils. So as a starting point, when the market turned in 2023, the contribution from U.S. wind, in particular, was still roughly EUR 2 billion. It's the total value at risk. But the global [indiscernible] had moved to more than EUR 4 billion at the time. So the U.S. was only representing 50% of the total exposure base, which was exactly what we wanted to achieve to have more diversification in our natural catastrophe exposure and it allowed us when the market turned in 2023 to grow in all peril country combinations, including the U.S. without significantly changing our volatility profile. And this is what the right-hand chart is talking about. What is the contribution of natural catastrophe business in terms of required capital in relation to the own funds. So the bar is giving you an idea on the absolute development of the SCR for natural catastrophe business. And the other bar is giving you the development of the own funds. So the dots are therefore the SCR for NatCat as part of our own funds. And you will see that since 2018, this ratio has been extremely stable in the low 20% range despite the underlying growth, which means that with the improved diversification in NatCat from a regional perspective, we have become more capital efficient. And it also means from a diversification point of view that our general growth meant that despite increased positions we have written on the natural catastrophe side, it was relatively stable in the entire portfolio of P&C. And that will also be important for us in the future. We feel that we will be able to structurally grow the natural catastrophe business, which is a class where we have more and more demand for the product without changing the volatility profile of our P&C earnings. And that is thanks to our strong diversification. And of course, also thanks for us using retrocession in order to steer the volatility. So -- and this is the last slide. Coming back from NatCat to the overall business group. You of course, are asking a lot of questions about growth and what to expect in the future. So what we have done here is give you an idea of where the growth was coming from in the last 10 years. For 2026, from a trading environment point of view, we are expecting a broadly similar situation as we have found it in 2025. So there will be pockets where we will see softening, most likely on the property catastrophe-related side. But for the most part of our business, we expect that pricing will remain at an adequate level, and it will allow us to produce good profitability and hence also further grow the business. The period which we have chosen is 2015 to 2024. So that was our profitability journey of the last 10 years. The average growth over the period was a little over 12%. But you see also the component parts where did the growth come from. So let me start with the traditional business, which is the biggest block of our business with roughly EUR 15 billion. Here, you have seen that we have a constant growth trajectory. And in many of the years, we have been over and above the 7% we have mentioned in the past as a figure, we feel comfortable as a growth prospect over the cycle. And I mean, you already heard Clemens talk about our experience in this year's conferences and the positive feedback we have from our clients, the pricing environment we do expect does give us a lot of comfort that we will be able to continue on the traditional side to be on a good and healthy growth trajectory. So therefore, we would say that the 7% figure over the cycle is still true. But of course, we also have always said it doesn't have to be 7% every year. Sometimes it will be more, sometimes it will be less. This all depends on the pricing we find and the adequacy of the pricing. So from that point of view, we will not give a number for next year today, but we are comfortable from an overall pricing environment. And here, of course, on the traditional business, the lean operating model also will help us to continue growing in softer environments as it will allow us to write business at acceptable profitability levels, and we can do that longer compared to peers, which have to operate with a higher expense ratio. So from that point of view, a good starting point. Then in the last couple of years, a particularly strong contributor to our overall growth story has been the structured and the ILS business with average growth rates in the mid-20s for a sustainable period. So we see a good pipeline of new opportunities. We've also seen in the last few years, increased demand on frequency-related covers on the nonproportional side. That pipeline continues to be healthy. On the other hand, growth patterns are much more difficult to predict for structured business, given the fact that the business can be very bulky. So in some transactions, we are talking about hundreds of millions of dollars for our share only, sometimes even in the billions. And some of the demand, of course, is transitional. And it can always be that we also have a situation where one or two meaningful transactions are placed on a significantly lower basis or disappear completely. But when it comes to the long-term average growth trend on the structured side, we are very comfortable that this will be a growing part of our business. Last but not least, I talked about natural catastrophe business a lot. You see that in the soft market environment, we have grown the natural catastrophe business very carefully. So the growth trend was 9% versus 12% compared to the overall traditional business has been careful in the soft market years. I've mentioned that our main emphasis in those years has been the improved diversification from a regional point of view. That mission was well achieved. And we used the hard market in the last three years to have an accelerated growth pattern in natural catastrophe business, where we had 23% growth versus a lower growth number on the traditional. And as I said, structurally, we have the risk appetite to further grow our position in the market on the natural catastrophe side, and we can expect that there will be more demand for the product given the development on the exposure side from climate change and the concentration of values. So this brings me to the end of the presentation. I hope I could demonstrate to you that diversification is the key to the success throughout the cycle as it allows us to write the business with a lower cost of capital and a lower earnings volatility. Second takeaway is our success story in writing a natural catastrophe portfolio and that we do have the appetite for further growth without significantly changing the volatility profile of our business group results. And thirdly, we are talking about the strong client relationships, which will also give us a good platform for future top and bottom line growth. And I would like to add that we are, for the next years to come, also protected by our conservative reserving approach, which we have taken over the last couple of years, which will allow us to continue to show continued earnings growth also in more difficult trading conditions. And with that, I would close my presentation.

Well, thank you for your presentation and for your insights. So there will be, I'm sure, and I already see some hands-up questions. But for the Q&A session, we will also...

You have to invite the other colleagues.

The other colleagues, please come here on stage, and I provide a microphone as well. Yes. And with that, we are set if you -- just in the middle of the -- yes, because there is the camera to capture the questions. We start from the back of this room this time. So, Iain, first, and then Will, next minute.

Iain Pearce from BNP Paribas Exane. The first one was just on the diversification expectations you have going forward. Do you expect that trend to continue of increasing the non-U.S. business as a proportion? Or are you more comfortable with the overall diversification as it is now and everything should more grow in line and actually increasing the allocations to the U.S. wind risk? And secondly, linked to that, in terms of the SCR growth for the NatCat business, it looks like that's probably been high single digits versus the 13% premium CAGR. Would you expect that now to be more in line with the premium CAGR that you have going forward?

Okay. Thanks for your question. And -- yes, you can hear me right. I answer on the NatCat question, U.S. versus non-U.S. growth potential, next renewal. We will grow both. This is our plan, but the non-U.S. portion probably even higher than the U.S. portion.

Yes. The same is true on the SCR-related question. So we expect a relatively stable pattern. But of course, in any given year, this can be subject to change depending on how attractive we find the business in that year. So if we have very attractive market terms and conditions, we would, of course, be willing to do the same like we did in the years '23 and '24 accelerate the writing of natural catastrophe business in a more significant way. But for the immediate years ahead, given the trading experience conditions we are expecting, we expect a more stable development.

We continue with Will. In the meantime, we all move a bit closer to the center of this room to be captured adequately by the camera.

Will Hardcastle, UBS. The first one is just looking at the chart where you had the CAGRs for traditional growth structure growth. It's fair to say that traditional has picked up the CAGR in more recent years as the benefit of pricing has happened. Is it impossible to believe that as the market gets a bit tougher, that could be flat year-on-year on a traditional basis and perhaps the other aspects of the growing areas? Secondly, on that EUR 150 billion assumed industry loss assumption that you've gone to now, I'd love to know what everyone else is pricing in for that. But I guess, any clarification on the split you'd have of that between what you think is insurance versus reinsurance weight? And I know that depends on where the types of losses are. And I guess, how would that have compared to versus maybe five years ago?

Well, I don't have absolute numbers for you, Will. But given how retention levels have developed since 2023, the percentage of the loss that would be accepted by the reinsurers, the insurers of course, has reduced, which doesn't mean that the absolute number has necessarily reduced given the strong growth patterns year-on-year when it comes to the expected loss number. And of course, I also don't know what others are using as an underlying estimate for the annual aggregate loss. But what I can tell you is that the development on the numbers you have seen in that chart is consistent with us setting the budget for major losses for the next financial year.

Comment on the traditional business. I mean 9% compound growth is a meaningful number, but we are not at the end of the journey. And the question was -- your question was if it can never be zero, it could be potentially if the market would soften a lot, but we just don't see that scenario just yet. It's too attractive out there for reinsurers for us. And in some markets, our market share is below of where we see our market share, where we want it to be. So I don't see that scenario.

Okay. Then we have the next question from Ryan.

Yes, it's [ Ryan Witham ]from BlackRock. I guess I'm just interested. So I see -- I can understand all the structural drivers between increasing values, the increased risk from climate change. They're all quite concentrated increasingly. I guess I'm just interested in the large loss budget. Obviously, the standard deviation of the modeled losses has been growing over that time period as well. So I'm interested if you see a scenario where actually that could come back down and what could drive you to be maybe just more confident in that sort of standard deviation. That sort of seems like quite a big risk.

Well, whether this will narrow, of course, it is also a question on how much retrocessional coverage we are buying. We have been a constant buyer of retrocessional coverage. But in relative terms, our retro protection compared to the gross exposure we have was a little less in recent years with the very strong underlying profitability profile in the business we are accepting. We have been willing to take a higher percentage of that net compared to historic averages. With the market environment changing, we have already started buying a little more excess of loss retro last year. And we may do that in the future as well depending on trading conditions. And that, of course, is one of the major drivers of the standard deviation.

Okay. We continue with Vinit and then Ivan.

Vinit from Mediobanca. So just -- I don't know if there are two questions, but let's try. It's all the same topics, really, the NatCat and hurricane interaction. So I can sense from your communication to the market that, okay, you had a few weeks or months of very lucky, no hurricanes, but let's look at the overall picture on climate change. Let's look at the risks. What's the market telling you? Is it -- if there is no hurricane this year, next year, hypothetically speaking, is there -- I mean, are you going to be a little more concerned? Are you getting pushback that, okay, guys, there's no hurricanes happening nowadays? Things are changing, what should we do? So I'm just curious, you have put on a very brave front here. You put on a very confident message. And I'm just curious about that. And then second thing, just maybe it's interlinked, but the frequency cover comment you mentioned where you're seemingly willing to do that line of business, which some people in the outside world look at it like a weakening trend. But you've reiterated that you're very confident with it also from Silke's business. But just curious on this comment on the frequency cover as well and how you see that -- why you're confident about placing those covers?

Okay. I'll start with the last question on the frequency covers. Actually, indeed, as you already said, we like to look on the frequency aggregate covers on a more structured basis. And yes, to cope with that. And this is what we have done in the past where we currently see a higher demand. And so this on the aggregate covers. And then there was more question about the modeling of NatCat losses hurricane related. I'm not sure whether I fully understood it correctly. But from the modeling as such, I mean, this year, so far, it seems to be a good year with regards to hurricanes. And it's not that we change our modeling or our underwriting behavior on what we based on that year. So we will continue to model it, write it next year in a quite similar way. And yes, I mean, from a mathematical point of view, these underwriting years are independent. And regarding climate change, we have to be sure that we model and price it correctly at least for one year. So what will happen in five years' time? These are basically one-year contracts. So to have it right for one year, and this is what Sven showed in the graph that our models on a globally basis, we are quite good to model it on a globally basis. Does this answer your question? Clients, what?

My question is, are clients accepting that you're not changing the model? Just I mean, are clients thinking that. I'm asking the market behavior on this.

Yes, we are changing the model. I mean, we always have the updated model and new scientific research and analysis are going directly into our model. So we make sure that we always have the best model to assess the NatCat exposure. And this can mean also that we think it should be a higher price on certain risks, but then we openly discuss this with our clients, explain it and then try to find a good solution.

It's Ivan Bokhmat from Barclays. I mean my first question is, I guess, I'm just trying to understand the broader strategy. A lot was said about client relationships and how you would close the underweight position in certain areas such as NatCat. So I was wondering maybe you could try to put it into some perspective. I mean what could be the indicators that we could see where is your aggregate market share across the markets and where you are in NatCat? Is it by gross share of losses, for example, in specific perils? And how do you think about over the medium term of closing that gap? I think that's my question number one. Question number two, I think of the more recent trends, we're seeing very strong cat issuance -- cat bond issuance. We're seeing casualty side cars being proliferated in general, some changes in the ILS market. So I'm just wondering if -- what are your thoughts about that? Does it change the way risk is distributed? Is there some disintermediation? And then finally, just a cheeky question. I mean, what do you think about the 1/1 renewals price-wise?

Yes. Let me maybe start with your first question, and then I hand the microphone to the colleagues when it comes to price expectation in the ILS market in particular. So we won we have a market share of roughly 8% to 9% in P&C reinsurance. And on the natural catastrophe side, we are somewhere between 4% and 5% on a global basis, as I have shown, this can be very different region by region. But when we talk about the global market share, there's appetite to do more over time, but we don't have a target that we should get to our average market share, i.e., the 8% to 9% by a certain year. So we have the capital, and we feel comfortable with our capability to understand and write NatCat business. But a lot will depend on the trading conditions we find. So there will be structurally more growth but whether it is as accelerated as we had it in '23 and '24 and to a certain extent, also '25, then solely depends on how attractive is the business. So from that point of view, we are prepared to close that gap, but we do it over a period and not in a short time frame. But then maybe pricing, what do we expect at 1/1?

If only I have crystal ball. Generally, I think that for -- and it's always easy to start with markets where there have been losses. And while there haven't been significant losses, there still have been earthquakes and floods and everything else. So in markets where there have been losses, I think the markets and the pricing will remain flat. Or if there's underlying increases in exposure, then that will be taken into account. Inflation, at least in the markets that I look after is less of an issue currently. but it's still something that has to be considered. And then in markets where it's really been clean and there haven't been any losses, then there will be very interesting discussions just around how to continue with the pricing that's there, and there will be pressure, absolutely. But a lot of pressure tends to always come only on the NatCat side. When you look at the perk side, you look at liability and everything else because of the underlying changes in the portfolio, all that has to be taken into account. So we expect flat to slightly down generally. And then on the cat side, if it's clean, it's probably going to be down more than on the other lines of business.

ILS?

Yes. Coming back to your question on ILS. As you know, we are very active in the ILS space. We think we are a market leader in the business we are currently doing on cat bond transformer business, on collateralized fronting and on also a few other parts. There is one missing piece for us. This is some sort of a sidecar, and we are currently in the process setting up such a side car, HCP, Hannover Re Capital Partners. And so this means for us also a new business opportunity because we write the NatCat business anyhow, we assess it, we model it, we underwrite it. So, and takes the volatility to our own balance sheet. And as Sven explained today, we are happy and have appetite to even write more on our own balance sheet from a volatility perspective. But we can also add an extra portion on transferring it to the capital market as we do with all our other ILS activities and in that way, also generating fee income for us and diversification and less volatile business.

Okay. So there, much more request to speak, but probably take one or two, Roland and then Michael, you were the first one, and then we will see. We can stretch the time a bit.

Could you speak about if the business is interlinked, meaning do you need to write more NatCat business to be able to get more traditional business because you are very much underweight at least to your competitors. And I guess clients look at this relation or dynamic you might need to evolve. Is that right? Or...

Good question. Is it interlinked? I would say not in all cases. I mean when you -- the bigger the client -- let me put it this way. The smaller clients are usually buying reinsurance based on a bouquet basis. So if you write the non-cat piece, you also get a piece of the cat piece and often a share across the entire program. So it's a strong interlink, and you want this to be interlinked with the large global international companies you can write business much more based on your appetite. You can overweight there, you can underweight there. So, and obviously, nevertheless, I mean, the strength of Hannover Re from my perspective, and I've only joined a year ago is if a client buys 100 reinsurance treaties, we are usually on most of them, let's say, 80 or 90 of them we support. And therefore, we play to our strength that we can negotiate packages, and that's what we always do. And of course, if we are underwriting NatCat on certain clients and we have appetite to write more NatCat business, as you've heard, we are using the opportunity of this very broad participation across the client relationship and try to get a higher share on the NatCat side.

Just one question. So you had this lovely chart on Page 2, showing the gross technical results. And also you talked about the capital. What's the RORAC on all these things? So I spoke to Silke and she said her RORAC is excess RORAC, which is fantastic is 20%. But what are the figures for the others?

Well, regardless of what it is, we all work with the same hurdle rate. So from that point of view, over time, all the business units have contributed to a positive excess return on capital. I don't have the exact numbers in my head split by year and over time.

I suppose what I'm really asking is, because we had the discussion about reducing solvency, so using more of your capital to write business. And clearly, it's got the NatCat and other stuff has got fantastic returns. I'm just trying to get a feel for how the mix of -- are you writing richer ROE business going forward? That's what I'm writing in terms of mix. So in other words, would your ROE improve even though the profitability on some lines can go down?

Well, I mean, if history repeats itself, we will have very diversified growth again. I mean when we look at pricing the business, we are distributing cost of capital across all the segments. And you have seen in the past number of years that we had a very diversified growth from a product point of view, but also from a regional point of view, which means that in all these regions, we have found business which was at or over and above capital hurdle rates. So over time, we expect that to continue. So we are not expecting significant concentration shifts in our portfolio. But we expect that we will manage to continue growing very organically with how the portfolios of our clients are developing because that's really the key for us to build long-standing relationships with clients and make them broad and make them deep. And so our portfolio will, for the most part, following the growth pattern of the underlying client.

Very good. Due to time constraints, I only allow for the very last question for this session from James, and then we go into the next presentation.

James Shuck from Citi. I was interested in the slide showing the technical profitability in [indiscernible] Re split between the structured and facultative and the other lines. So it looked like, on average, structured and fac make up about 1/3 of the technical profitability over time. I'm not sure it's difficult to know exactly what you would expect in any one year, but any kind of insight into that mix would be helpful. But really, my question is about the outlook in terms of the industry and pricing structure in fact and structure, is it very different to what's happening in the core traditional treaty? I've often heard that facultative can be an early harbinger of what's to come in the wider market.

So I'll take the fac question. So, yes, I think facultative tends to soften before the treaty market does, and we're already seeing that in the portfolio that we have. But what's really interesting about the fac portfolio that we write is that it doesn't come with memory. So our underwriters, which are very empowered, they can accept the risk because it's properly priced because it's a good risk. And then they can reject it if it's not in the price point that we want or if the risk actually isn't a good risk and the terms and conditions are not good. So from that perspective, the ability to steer the portfolio on a yearly, year-by-year basis has resulted in the fact that each and every year we have, we have actually made a profit. which is good. We have taken advantage of the hard market cycle, and you see that closer linked in terms of the fact portfolio following that cycle. We expect when we project to a softer market cycle, you'd see that project quite closely as well with our fact portfolio.

Sorry, so would you expect structured and the fact to be more resilient through a soft cycle relative to the rest of the portfolio?

So, yes, it will be more resilient because we can accept or reject risk on a year-by-year basis. But you'll also see that in good years, so in a harder market cycle, we can actually have better profitability in a softer market cycle, the profitability is slightly reduced, but it's still positive.

One final sentence on structured. Yes, I also answer was yes, more resilient. And quite often, the treaties are multiyear treaties. So you also cover different periods anyhow. And it's more a risk and capital management tool. Therefore, also financial stability and planning is important and not so much dependent on pricing cycles.

Yes. And the mix and the profitability you have seen over time has less to do with the quality of pricing in those various blocks. It has more to do with where do losses materialize. And I mean, if you look back over the last number of years, and that's where you see the traditional business, which is including our cat writings is showing negative years. I mean those are in the heavy cat years and it's in the COVID years. So from that point of view, it's more to do about where are the losses than the underlying question, how is the quality of the rates.

Well, thank you for your questions on P&C, and thank you, Sven, Sharon, Thorsten and Silke.

And before we go into the next presentation by Claude, just I'd like to draw your attention to the feedback form that we provided on the table. It's easy to find it's just right under the chocolate. And the chocolate actually is a gratitude to you for attending today, and it's from Hannover from a chocolatery in Hannover. And so the feedback form, you either can fill it out in the old-fashioned way as a paper, but you also can scan the QR code on the back of it and fill it out. And just to be very sure that we get your feedback, we will send out an e-mail tomorrow and you have another possibility to provide the feedback, which is very valuable for us because it really helps us to refine our work and to produce content for the next Investors Day that is relevant to you. So with that, I would thank you for filling it out, and we go now straight into the next -- I guess you are ready for the next presentation. Yes, Claude is ready, I'm sure. And he will, no surprise here, talk about life and health. And moving into IFRS 17 has caused some headache, but it also had, on the flip side, some positive things. The new metrics, the new KPIs that we have showing a CSM, showing the future profits on the face of the balance sheet is appreciated, I would say, at least that's what we hear from the market. And Claude will now explain how to read those numbers in a session. So with that, I hand over to you.

Thank you, Karl. Mic is working. Great. It's, by the way, not very nice to remind the people of our feedback form just before I come on stage. I mean that's not nice really. I mean it's terrible. But anyway, I mean, I live with it, and I'm used to it, obviously, always the last presentation, and many thanks to the guys here in the room. Many thanks to everybody who is watching us on video. There are plenty of people I heard online also who are watching us. So thank you for your interest in the life and health reinsurance. Really appreciate. Now I mean Clemens, Christian, and also Sven, you were mentioning lean operating model. And you were mentioning and also our cost ratio, which is very low. And one very concrete example of our low cost ratio is I would say is the first cover sheet. Because I tell you we hate to spend money on nice two halves. And Brona myself she said, we stop spending money on models for our photo shoots. So we said between two client meetings. We took the camera and we took the picture ourselves. And this is the first example. The second one is what you see here very clearly is that we have no age discrimination in this company, right? Because while 14 years ago, I was a teen baby surrounded by some old man, right? 14 years later, I'm the oldest Board member surrounds by very young colleagues and still I made it on the picture which is really brilliant. Yes. Anyway, some of you were here two years ago when I was for the first time talking about IFRS in the context of life and health reinsurance. And you -- I don't know if you remember, but we were -- at that time, we were really just one year into IFRS 17. It was totally new for all of us. I mean we had to get used the processes, the way of reporting. And at that time, what I was presenting to you were some illustrations. I don't remember. I was showing you how important cash flows out of the sudden become how important it becomes to understand the current cash flows and understand the changes that we have in the current year cash flows having an impact. Remember, in the experience variance, having a direct impact into the P&L. I was also explaining how our estimation of the future cash flows impacts logically the CSM positive or negatively or if you're already in treaties which have no CSM left, the loss component. So this was just illustrative. And we thought, with Brona two years later, now that our processes are very stable, that we understand more or less what's going on with IFRS 17 that it's probably a good time to look into the real figures and look backwards and just check how did we do it. So no illustrations at all. There is no illustration. Let's have a look into the real figures. And what I suggest you to do today is to look into the 10 past quarters. So starting from Q1 '23 up to Q2 '25 and really looking into how we did. And what we're going to we're not going to invent anything new. What we want to do with you now is show you the figures as we usually present them in the con calls every quarter. You remember, we're looking into the CSM. We're looking into these famous waterfall charts and the components of the CSM. And we're looking into the reinsurance result, the waterfall chart, the reinsurance result and then the various components. But there is one difference today. Because while in the con calls, we always look into the year-to-date data. And you remember, in Q1, it's Q1. But in Q2, it's Q1 plus Q2. In Q3, it up to Q3. And we do that. We have decided today to look into the quarterly figures. And why? Because I have the feeling, and maybe I'm wrong, that some of you in this room, you still look into the quarter figures. Yes, you still. When we show the year-to-date figures and you tell me if it's right or not, right? But when you look into the year-to-date, in your head, you're deducting the year-to-date of the past quarter to see how did these guys do in the current quarter. And I believe this is the case. So why don't we look together now into the quarterly figures, what we have never presented so far and see how we did. So I have a click through now, which is called Andrea. Andrea. Andrea, please. Thank you very much. And let's be clear, this slide is super busy, super misleading, and you will never understand it if I didn't explain it to you. So let's go step by step and please try to follow me here because it's important that you understand what we're showing here also for the next part of the presentation. So, Andrea, let's reduce the complexity. What we are showing here is an average quarter. So what we have been doing, we have been looking into 10 past quarters, and we have done, in this case, for the reinsurance service result, we show you the waterfall chart of an average quarter. So you see here on average, on average you see how much CSM release we have made on average every quarter. Then you see the RA change, you see the experience variance, you see the loss component and you see the reinsurance service results. So what you see here, and you have the whole picture well done on your slide, you see that we were able to produce on average, EUR 214 million of reinsurance result, meaning we talk about 10 quarters that in the past 10 quarters, we have been able to produce more than EUR 2.1 billion of reinsurance service result. So let's start with this, Andrea, please. So let's have a look into what we're showing here. So the colored bar is the average. This is the EUR 214 million that we have been able to produce. And the 10 other bars show you what we produced every single quarter, quarter-by-quarter, starting from Q1 '23, ending at Q2 '25. But not really. We're not showing you the real figure. We show you the difference between the average quarter and what we really achieved, okay? So what you see here, and you see it down here that the spread of the results that we have been producing goes from EUR 133 million to EUR 253 million. The EUR 133 million quarter has been Q4 '23. That was the worst quarter we ever had. You see this negative bar, the bar going down, meeting that it is the EUR 217 million or EUR 214 million average, minus some figures leading us to the EUR 133 million. So the worst performing quarter was Q3 -- Q4, sorry, '23. While the best performing quarter, if you look into the figure with EUR 253 million has been Q1 '23. So when you see these bars going up and down, that's not positive or negative figures. It is simply slightly above average or slightly below average. We could have shown you, I agree, we had plenty of discussions. Yes, I could have shown you the bars from bottom-up for each of these components, but you wouldn't have seen tons of bars, and you wouldn't have seen what we really want to show you what we want to show you is the volatility that we have in every single component of the reinsurance service result as well as of the CSM. So we understand the way we look into these figures. It's super important. So, Andrea, let's open it up and let's look into the rest. So what you see here, first of all, is the CSM release. Again, there, you see we released EUR 217 million and the spread, well, it's not that big. So it was between EUR 184 million and EUR 200 million. I cannot read it. I think I need my glasses -- sorry, guys, I need my glasses. It's terrible. That's when you get old, you cannot read the figures anymore. Much better. Much better. So between EUR 184 million and EUR 260 million. But you see that there is relatively low volatility on the CSM release. Why is this the case? Because we released the CSM according to a predefined pattern, there is not too much of a surprise in the CSM release. Then another part that you see is pretty stable is the loss component. And the loss component has been pretty stable around the same figure, EUR 87 million negative, a bit more, a bit less. And that's pretty normal, and we're going to get to that afterwards. I want to explain to you a few things about these things. And it's logic for the portfolio of our size, it's logic that you will have every quarter some parts of a loss component. So CSM release and loss component, pretty stable, if you look at it. But then you see experience variances. That's where when I looked into the figures with Brona, we're both a little bit surprised because we have always had the opinion experience variances, which is, again, I repeat, which is a new view on our current cash flows in the current year. We always had the feeling they are very positive. That's the feeling we have, right, Brona. And we said, how can it be only 3. And then we looked into the figures and we saw, oh, there is a special impact. There is something special, a one-off impact that you all know, but you have probably forgotten by now, which happened in Q4 '23. And that's where you see the bar that we showed with this kind tilde to show, in principle, this bar would be much more negative in Q3 '23 if we took the right figure, but it would be misleading. What happened is that before the transition, you remember we had all these arbitrations in the U.S., and we were not 100% sure about the outcome of these arbitrations. So what we did at transition, we injected because of this insecurity on the transition, more risk adjustment for these transitions on the transition. And when we had finalization of some of these arbitrations and that happened in Q4 '23, this allowed us to release the risk adjustment and you see this in the risk adjustment change to save in Q4 '23. We released the amount of risk adjustment and we're able to neutralize the negative impact we've on the experience side. That was a very, very clear one off. So one way of looking into this to say let's forget about this one off. But this one off is over estimating my risk adjustment change and this kind of under estimating by experience variance. And that's why you see on the risk adjustment change and on the experience variance you see a second line with the second line of figures which is if we neutralize for this one off effect then you would say the RA change on average is EUR 60 million with much less volatility as you see and the experience variance is EUR 23 million with much less volatility and that is much more what you'd have expected, our gut feel was saying exactly this. No change obviously on the reinsurance services side. Okay, now I would like to do exactly the same for the CSM. That's where it's going to get more interesting, I guess. So Andrea, please. Same story, very complicated, all the components there. Let's close it down again to the most important stuff, Andrea, which is obviously the average. So what you see on this slide is again the average addition to the CSM every quarter. So you see that on average, we added EUR 87 million of CSM every quarter over the past 10 quarters, meaning that we added in total EUR 870 million of CSM over the past 10 quarters. Now let's look into the different component first, Andrea. And I would like you to focus on two components at the same time this time. Because that was very surprising, telling you the truth. When Brona and myself we looked at it we said, Jesus, that's quite interesting. There is a huge correlation between the currency effects on the CSM and between the CSM itself. And you see that whenever our CSM was below the average, you can see on the other side the currency effects were also below the average. So there is one exception, I remember this Q1 '23 I think, which is exception. But in all the other cases the currency effect have a huge impact obviously on the CSM. Again, the way you have to read the CSM here, you see EUR 87 million average. The minimum was minus EUR 122 million, which is Q2 '25 and the maximum was EUR 329 million, which was, if you look into this chart, it's Q2 '24, yes, so that you understand the volatility. But you see there is quite a bit of volatility on the additional CSM that we generate quarter-by-quarter. And a big part from this is driven by the currency effects. Now we might say, why? I mean we have heard that from Christian, currency effects. In our case, the CSM is heavily, I mean, determined by U.S. dollar, obviously. But there are two other currencies that you haven't mentioned, Christian, which are important for us on the life and health side, which is the GB pound, because of our strong longevity portfolio in the U.K. and the Australian dollar. So all these currencies have a huge impact, obviously, on the CSM, on the amount of CSM that we add. And they also have, and that's very important, an impact on the new business we write because if we write the new business in U.S. dollars, it might be super looking -- well looking in U.S. dollars, converting it into euros. Again, the new business is also obviously suffering a little bit. But that was for me and for Brona, I must say, quite surprising to see this huge, huge correlation between currency and the delta CSM that we're producing. Now let's go and look into the rest of this slide, Andrea. I mean, the new business I tend to joke with my P&C colleagues, and you know the joke. I always say life and health, we work through the whole year, yes. And you see this here, okay? You see the new business, the average new business that we have been creating every single year -- every single quarter was EUR 178 million, meaning we have generated EUR 1.8 billion of new business CSM over the past 10 quarters. And as you see, we have been generating new business in every single quarter. And from the worst quarter having been Q2 '23, the best having been Q1 '23, EUR 85 million to EUR 263 million. What you need to understand is this life business, it's very chunky. So you write a deal in a quarter, you write it maybe in the next quarter. It is very, very chunky. So again, you see quite a bit of volatility on the new business generation, the same. LC for us on the life and health side, it's really just interest accretion. And there is no surprise, very, very stable. So we don't have to talk about it. And then comes the regular release. We have seen it already in the reinsurance services result, nothing to add. It's just the other sign. And then comes, in my opinion, one of the most interesting part, which is the change in estimates. And I would like us to spend a little bit of time here in what these change of estimates are and why we do have them. Andrea, please just highlight this. It's quite an interesting chart because it's very, very, again, volatile around the average. The average 118, but it goes from minus EUR 3 million, so very slightly negative, up to EUR 366 million. And when you look into these figures, what you see is that you have very little changes in estimates in the Q1. That's where you have these bar plots which go down, yes. They're close to zero sometimes. And you have very little changes in estimates in Q4, which is totally logical. In Q1, we're just coming out of renewal also sometimes. So we're starting to run our models. We're starting the analysis. The impact of the change in estimates is coming in Q2 and Q3, usually, and you see this very nicely on this chart. You see that in Q2, for example, we usually look into the longevity assumptions into longevity book, which represents quite a bit part of the positive deviations compared to the average. But we have also many, many other books, obviously, that we're looking at and which are producing these change in estimates. Now let's stay with these change in estimates. I would like -- really like to give you a little bit of insights and dig a little bit deeper into what that means, okay? So, Andrea, please. Again, so let's take these change in estimates on the left-hand side. And what I suggest you now to do is to take a very, very average quarter. And the most average quarter we had, as you see here on this slide, is Q3 '24. Q3 '24 is slightly below average, but it is across EUR 100 million plus changes in estimates in this quarter. Now let's, first of all, look into the comments. What kind of changes in estimates do we have? We have from the easiest ones to the most complex ones, a little bit everything. So the most easiest changes in estimates that we have are simply driven by the fact that we received the accounts in a certain quarter, we look into the accounts and say, oh, Jesus, the client has been producing a little bit more than what we expected. So having a positive impact into the future cash flows, meaning that I have a change in estimates, positive. It could go the other way around. So all these, what we call the updating of inventory data, this is a big part of the change in estimates because we're not knowing everything perfectly. And if a client produces more or less, it has an impact on the future. And I showed that two years ago, remember on this illustration. So that's number one. Easy, automated, automated, very important. I mean this is crazy. You cannot do this manually. So the system automatically says, oh, it's bigger than expected. So it adapts, it adjusts the CSM of the future automatically. You have the second level, which is already a bit more complex where we say, oh, we have great models, but every now and then let's say once in a year, maybe once in two years we check whether the assumptions, the parameters of these models are still valid. You need to do that on the life business. Life is long term, right? So you look into the figures, you look into the claims. This is a longer process manual. You look into assumptions and then you do what we call usually assumption changes. I would say we refine the assumptions. And this can go both ways. It can go positively or negatively. So we look at the models, we say the model is good, assumptions need to be changed. The third one, which is the most complex one is when we really have to say we need to modify and improve our models. These actuarial models and some of you who know about life business, they're super, super complex. It's not trivial. So there you have the multi models with mark off chains, cetera, cetera. I mean this is big, big business. And when we change and improve the models, automatically, we're going to have changes in estimates, positive and negative ones. Now in this quarter, and this is an average quarter again, we were looking -- I just asked the guys, how many groups of insurance contracts have we had to produce these changes in estimates of EUR 100 million. So we looked into the figures and we realized that we had more than 1,000 group of insurance contracts which had either a positive or negative change. And you remember we have the con calls we say change in estimates plus EUR 100 million, and we give you a reason. I could give you more than 1,000 reasons for these EUR 100 million. And I want you to understand this, okay? So when you take the sorted view, what you see here concretely, you see these 1,000-plus groups of insurance contracts and you see the biggest change in the group of insurance contracts, which has been EUR 100 million, you see number one and the smallest and the worst change, the biggest worst change, which is #2, which is at minus EUR 40 million. And in between, you have plenty of changes. So this is the way it looks like. And what is even more interesting is when you look into the cumulative view. So when you take these changes and you accumulate them, all the positive ones and then you take all the negative ones, you end up obviously with EUR 100 million change in estimates. You see that in the slide on cumulative, right, EUR 100 million, you see them again. But in reality, we had EUR 500 million, close to EUR 500 million positive changes and close to EUR 400 million negative changes. That's a lot. So when you look into the machine room and Clemens, you always talked about machine room, right? The machine room of Hannover Re, this is a big beast. And at the end, we tell you EUR 100 million plus. But it's the result of this, okay? And coming to the loss component, it's exactly the same process. The loss component is made of hundreds of group of insurance contracts which are in the loss component. It's not just one. It's hundreds. And for each of these group of insurance contracts, we do exactly the same. I could have shown you the loss component, by the way. And some of these contracts are performing better than expected, so positive in terms of loss components. Some are performing less good than expected, negative. And again, what we show you in the loss component is really the result of such an analysis, which is very, very deep, obviously. Okay. So now what I would like to do is let's, for an instance, just suppose that the world is perfect, okay? And let's suppose that we have no changes in estimates. Let's suppose that we're really able to know exactly how much claims produced, how the claims are going to perform. What's going on et cetera. But we're predicting everything. So zero changes in estimates Let's make the world more perfect, by saying we don't have any currency effects. No currency effects, no change in estimates. What would that mean for our CSM? So, Andrea, let's look into that. So let's just forget about currency effects. Let's forget about changes in estimates and let's look into what is left. And what is left is the new business CSM that we're generating, it's the interest accretion and it's the release of the CSM. And when you want -- and I try to give you some hints, when you want to see whether we're maintaining the value of our portfolio. Let's forget about changes in estimates, let's forget about currency effects where we maintain this value, the best way of doing it is really adding these figures and see are we able with the new business and the interest accretion on the portfolio, are we able to compensate the regular release. And that's super important. Now should you look into that on a quarterly basis, obviously, not makes no sense. Makes no sense at all. But looking into it on a, let's say, 10-quarter basis on two years, three years, that's very relevant. And when you see that we have been able to compensate and slightly in this case, even overcompensate the release, that's a very good story. Now what you need to understand is that, obviously, it depends on the type of business that you're writing. If you write, let's say, longevity business, longevity business would then generate a huge new business CSM. But it would take us, and it's going to take us 30 years to release, that is releasing longevity profits over 30 years into the future. While if you write financial solutions business, that's the other extreme probably unless we take group business, et cetera, well, we would have the same increase in new business, but release it much, much faster. So this way of looking into it has really to be taken over, let's say, a period of time. It makes no sense to do it in quarter or just one year because you have the type of business that obviously you're writing, which impacts how much you release and how much new business you have there. But I think a very interesting way of looking at it. Now let me go back to the real world because the real world is not this, right? The real world is messy. We don't know everything perfectly. And when we think about what the variables are that Re at Hannover Re on the life and health, we try to estimate all the times in these components and where we see the impact of our estimates, there are three parts. Number one, experience variances, which obviously have a direct impact on the P&L; number two, change in estimates, which have a direct impact in the CSM; and number three, you have the loss component, which has, again, a direct impact in the reinsurance services. So, Andrea, let's have a look into that. So here, we have these three components. And again, what is interesting is to understand how good is the quality, how well are our best estimates? How well are our assumptions really. And one way of looking into it, and I try to give you some hints again here is to say, over a period of time, Again, not in one quarter, please, that makes really no sense. Over a period of time, how does the change in estimates, so the positive changes, how does the experience variance and the loss component perform? And if the sum of these three values, which are mainly the same thing, it is because of our assumptions of the future and current cash flows. If the sum of these components is positive, you can conclude that our estimate, our view of the future is probably slightly conservative because you would expect on a best estimate basis to be here at a zero level. So when you look at this, and I showed you again the two values of experience variances, that's very important. You remember, I said with the one-off, it's EUR 3 million positive. Without the one-off, it's EUR 23 million positive. So I showed you the two here, right? When you sum this up, you see that in a realistic scenario, we have EUR 50 million -- around EUR 50 million per quarter of positive deviations in respect to our view of the future world. So EUR 50 million, meaning that's EUR 200 million per year, where we are slightly on the conservative side. And this obviously has an impact on the new business CSM. That means that we're probably slightly underestimated the new business CSM, which then comes out via changes in estimates and experience variances. So that's a very, very important message in my opinion. Good, Andrea. This is my last slide, but I would say the most important one. What you see here is, again, so let's go back to the reinsurance service results. Let's go back to the CSM. You see the variations of these components. So again, the colors, I don't have to repeat this anymore. Let's just suppose for an instance, I might agree on that, okay, that the average over 10 quarters, the average over 10 quarters, the average waterfalls of the 10 quarters is a good indication of the life and health economics. I don't say that we do the average over 500 years, that's stupid, okay? But over 10 quarters, as we're doing here, if we suppose that this is a good indication of the economics of the life and health business. And if you look now into these individual components, and we see in light Violet, the volatility of each of these components that we have seen previously in every single quarter, you see the huge volatility. I mean we have discussed them, the experience variances as an example, change in estimates as another example. I mean, you would probably agree that a single quarter is all but a good indication of the economics of life and health. I mean it's kind of -- I'm stating the obvious, right? You cannot take a single quarter and say this is a good indication of the economics if we believe that the average is a good indication. And we have seen the average makes sense. So what Brona and myself said is, well, is there a better view maybe? Is there a better way to look into the economics of the life and health business? And we gave it a try. And what we did was to say, well, if you get a new quarter, the rolling average of the four past quarters, including the new one, then you see and you see this with these nice little squares here to row squares you get something which is much, much, much closer to the average of the 10 quarters and you get a result which is at much, much better economics -- indication of the economics of our of business. But looking into a single quarter sincerely that's not make a lot of sense and this is I think a very important slide in my opinion. You do whatever you want but when you do this you get a real idea of what's going on. I mean you see it here. I mean this is real figures. I mean, mathematically, we all understand it, right? The rolling average has less variance. I don't have to make studies here. We know that, okay? Obviously. But this is real numbers and it works, and it works quite well. Look at the variance we get on the Delta CSM. Look at the variance we get around the reinsurance service result, very, very close to the reality, and this is really good, okay? So, Andrea, I have three key takeaways, okay? Number one, number one, we have shown, and you remember the figures that we have been able to produce more than EUR 2.1 billion of reinsurance service result, consistently positive quarter-by-quarter over the past four quarters. This demonstrates our earnings strength and also the earnings stability of life and health, number one. Number two, we have shown that we have created EUR 870 million of additional CSM, 10x EUR 87 million, remember the figures, notwithstanding very, very strong currency headwinds. So this gives us sincerely confidence into the earnings growth because this additional CSM is going to emerge into earnings, number two. And number three, we have shown you that we have generated EUR 1.7 billion of additional new CSM over these 10 quarters. And we have also shown you that our new business CSM is slightly on the conservative side. So this gives us also confidence in our ability to grow our business into the future. Thank you very much, and I ask Brona to join me for the Q&A.

Thank you, Claude, for this fascinating and well-presented insight you gave. And thank you Brona for joining us here for the Q&A session. And just a few words on Brona because I want to introduce you. Brona is responsible for all the life and health regions that fall out of close responsibility, namely the North America, the U.K., the Ireland, the Bermuda business and as well as they're responsible for the longevity business.

So all the big markets, all big markets.

Yes. And with that, we are set and we dive into the Q&A session. And this time, we start from the front. So, Hadley, first, Michael.

Hadley Cohen, Morgan Stanley. Thanks for all the detail on the sort of the volatility of the CSM and the earnings. But can we talk about the growth profile a little bit, please? Because I mean, I think if we adjust for the noise around the numbers, the CSM growth is quite limited. It's quite small, especially when I compare that with some of your competitors on the reinsurance side that are seeing much stronger CSM growth on the life side. So can you sort of talk about why you think there's a difference there, whether you can expect to grow the CSM at a faster rate going forward? And then linked to that, can you also talk about the growth outlook on the financial solutions side, please? Because I think the margins there, particularly in the U.S., have halved in recent years. Are they going to continue to come down? Is that still an attractive line of business and the growth outlook, I guess, on Asia and from the fin sol perspective as well?

Brona, it's for you.

Yes. Thanks for the question. So on the first point about the CSM growth in the past CSM growth, I think as Claude explained, there has been some conservatism taken there. So I think some of the new business CSM that we have shown probably is a little on the conservative side, and you will see that conservatism released into earnings then in the future as experience variances. So I would say that's for the first part. I do think we feel very optimistic about growth prospects on the Life and Health side. There's a number of areas that we feel there's growth opportunities in. I would say on the traditional side, there are markets where we're underweight, particularly the more mature markets. We're underweight in the U.S. and in the U.K. in traditional business, and we still see a lot of growth opportunities there that we would expect. You mentioned financial solutions. Financial solutions, there are still definitely opportunities in the U.S., but you're absolutely right that margins have come down. So we need to write more business to kind of run at the current level of growth. But there are opportunities in the U.S., and we continue to execute on some attractive U.S. opportunities. And then you rightly mentioned Asia. And there's a lot of regulatory change happening in Asia. So there's been a lot of change in regulation in Hong Kong in Korea, in Japan, across many of the Asian countries. And that regulation change always leads to growth in financial solutions opportunities. We've strengthened our teams in many of the Asian markets to prepare for executing on those opportunities, and we do feel there's going to be opportunities to grow. We're already seeing -- again, we're already executing on reasonably significant financial solutions opportunities in Asia, and we would expect that to continue. And then the other -- the last part of the business, just to mention is our longevity business. We've written a lot of longevity business, mostly in the U.K., but we have executed in almost 10 countries on longevity, and we see longevity opportunities growing across the world. We've quoted on longevity opportunities at this stage in more than 25 countries. That's a lot. So we do feel our longevity teams are very strong. They're well able to execute. And we probably feel relative to our peers, we have that connection between our local teams and our global experts, and we feel well positioned to execute on those longevity opportunities as we start to see more and more opportunities outside of the U.K.

No, you said everything. I can just tell you that there are markets and regions where we expect less growth, where we're going to grow at most with the market because we're already market leaders. I mean I give you example, Latin America, we're a market leader by far. We cannot grow much more. And I don't want to have 60% of the whole Latin American market neither. That's stupid, right? So it's diversification. In the Middle East, we're #1. In Australia, we're co- #1. In Africa, we're co #1. So in these regions, we can at most grow with the market. But what you were mentioning was the whole rest where we have plenty of opportunities.

We continue with Shanti, right next to Hadley.

Yes, Shanti Kang from Bank of America. So I have two questions. The first one was just on the earnings mix of life and health. How should we think about the distribution between fin solutions, longevity and then the traditional kind of mortality book? Do you expect that to shift in the next year or two? Or what's the horizon? And then this is perhaps a more simplistic question, but just connecting the pieces from Christian's currency hedging piece into your CSM view, how do those two interlink? And will there be an adjustment from a currency effect impact off the back of the hedging that's been put in place for Q3?

Maybe I'll take the first question on the mixture of earnings from financial solutions, longevity and traditional business. I mean I think what you have to recognize is most of our earnings, the vast majority of our earnings come from our in-force book. Life and health is long-term business. So it takes time to change the mix of earnings. So over the next five years, the vast majority of our earnings are going to come from that CSM that Claude showed that's already on the books. And that gives confidence in how the earnings are going to emerge, but it also means it takes time to change the mixture. So you mentioned one or two years. No, I don't see much of a change in profile in earnings over the next one or two years. Looking out longer 5, 10 years, yes, we might want to see more traditional business there and less some -- a smaller proportion, I would say, from financial solutions. On the currency?

On the currency, I'm going to hand over to Christian. But just one second on the other question again on what you said. If you look into the CSM, and I was presenting the CSM two years ago, remember, I was presenting the real CSM. And I can tell you that the split of the CSM hasn't changed dramatically. So we're still at 1/3, 1/3, 1/3, 1/3, 1/3 traditional business. And that's -- there is a certain stability of the mix of the CSM. And it's this mix of the CSM, which determines how quickly, as I said before, it moves into profits. So if we start to write more traditional business, as you said, or longevity business, as you were just mentioning, the impact will be, yes, a new business CSM, but on the reinsurance service results, the impact will be much lower because these profits take longer to emerge. So that's something that you have to take in mind. That's why I said look into it over a reasonable period. don't look into it on a 1-year basis, quarterly basis makes no sense. But the reasonable period and over a reasonable period, we have quite a bit of stability. Sorry, now Christian, currency.

Happy to take that one perfectly ties to my presentation. And we have to take a bifurcated look here. So there is two answers to your question basically. The one is for the existing book of business for the existing CSM because this is already hedged by the approach that I presented. Why is this? Because I mean, what is the CSM. The CSM is basically the present value of the future profits in a specific way under IFRS measures. And I explained to you before that we hedge with an economic view, and we take Solvency II as the calculation basis for this. And what is in Solvency II in the NAV, there's the basic own funds, including the future profits. So it's already included. It's not one-on-one. It's not exactly the same valuation under Solvency II. But broadly speaking, this is already covered by the hedging we do for currencies. That's the first part of the answer. And the second is, obviously, the new business, the newly written business. And as Claude already explained, of course, there you have an impact, yes. The business we write into U.S. dollar is more or less value depending on the actual exchange rate we have at the time we write the business into our books.

Okay. Great. If you hand over the microphone to Michael, then...

So my memory is very bad, but I remember your presentation last year in London, the mood on new business was zero. That's what I remember. Maybe it was more than zero, but it was really not very much. We were sitting on those funny squares. And today, the mood is much more positive. My impression, and I just wondered where it's coming from, is it that -- because pricing on life is zero or 1, you don't kind of get half a contract, you get a full contract or zero. Is it that you've taken all these positive variances into account and you're pricing a little bit more aggressively? I know aggressive is the wrong word for Hannover. And then the second question is, I know Shanti kind of asked the same thing, but how has the cash flow cash emergence, the cash -- the dividendable cash change.

Do you want to?

Yes. I mean I wasn't there last year. So I don't know exactly what you heard. I think when you look at growth opportunities, you really have to look at the different segments, the different businesses and then the different markets. So you mentioned that we either win or lose a contract. That's actually not the case in the U.S., for example, to the largest protection market, largest traditional protection market. In the U.S., reinsurance is typically ceded via pools. So a reinsurance pool from a client is normally split into three, four, five reinsurers. Our focus in the U.S. up to more recent years was very much on stabilizing our in-force book. That work is done. We look at pricing in the U.S. We feel we're not going to write every deal, but we feel there are opportunities to grow our new business there fairly significantly. So that probably has changed over the last few years. Then we look at longevity. Like I said, we still see there's good opportunities, particularly outside of the U.K. And financial solutions, I think we've always -- I don't think our appetite there has changed at all. We do feel we are the market leaders or one of the market leaders in those structured financial solutions. And I don't think there's any change in our desire to write as much of that business as we possibly can.

But the opportunity lies in the big markets, that's exactly. That's why you were here, by the way, Brona. U.S., longevity, this is where the opportunity is U.K. for us. In other markets, we're already really -- we are already where we want to be. We're market leaders in so many markets. But there -- unfortunately, these are the smaller markets. So this is a big guide here.

Yes, we probably have been underweight in those markets, I would say. Some of those bigger, more mature markets, we probably have had a lower share, particularly of the new business than some of our peers. And we'd like to grow that, and we think we have the ability to grow some of that.

The other question, I'm sorry, the cash flows. Christian, I have to ask you. I'm unable to answer that one. Christian, you have the mic.

Actually, I would have also not have numbers or a clear pattern at hand, haven't looked too much into this. So I mean, the general answer would, of course, the duration is quite different if you take the financial solutions part or the financing part that comes quite quickly, obviously. But longevity, we talk about sometimes about decades, but I think there is not a big shift, but I couldn't tell you the mix today.

I just -- and I said that last time, I guess, if you look into the CSM that we're having, it's now probably EUR 7 billion or whatever. This is future profits, which are coming. But this is discounted. So if you don't discount the figure, you have to add 50% to the EUR 7 billion. So we're ending up that the figure is a bit more complicated, 11.5%, if my calculation is right, yes. No, 10.5%. 10.5%, sorry, I'm getting tired. So 10. Old and tired. 10.5%, okay? EUR 10.5 billion, which is massive, okay? Then you have the risk adjustments which is in principle also future profits. yes, if everything goes as expected we're [indiscernible] of EUR 3 billion and there discounting as a much, much figure that impact because the risk adjustment, the big part of the risk adjustment is from our long term business. So if the discounting effect is 90% that means the real figure if you undiscounted and we're undiscounting it's obviously is 90% higher than the EUR 3 billion. So we're talking about close to EUR 6 billion risk adjustment to EUR 10.5 billion CSM. We're talking about close to EUR 17 billion of profits which are lying there and which are common to the reinsurance services at sometime. But you need a little bit of patience, obviously.

Yes.

Okay the we move to the next question from Ivan, and then Darius.

It's Ivan Bokhmat from Barclays again. I wanted to tie together with some of the comments that Clemens and Christian have made about the capital consumption and the solvency ratio drag and some of it will come from life and health. So what I wanted to understand perhaps is what is the capital-intensive growth in life and health? Is it about the type of business, the geography, the mix altogether? So if you talk about growth in closing the underweight in traditional markets in mortality, is that the most capital intensive or maybe there's some types of fin fall something along those lines? And secondly, again, tying back to the earlier session, we were talking about the adding to the buffers in Life and Health. Is there a way for us to quantify to think about that? I mean, very simply, if you say it's EUR 200 million of extra kind of releases in a year, should we just compare it to the stock of CSM and say, well, you're 3% over reserved. So this is kind of how those buffers work if we just use the P&C analogy.

Okay. Maybe just quick on the first one. The way -- what you need to understand is the way we price our business. And Sven alluded to it, by the way, we -- in the whole of Hannover Re, we have the same way of looking into business. There is no politics. So we have a certain economic capital that diversified economic capital that every piece of business is consuming. And obviously, the more volatile, the more dangerous the business is, the more capital you're going to consume. And the way we price the business is that we want to have a minimum return on this capital that we have consumed. So the more volatile, the bigger the margins. You write a cat business, you have much higher margins, obviously, than if you write financial solutions deal. So we look into this business in a very, let's say, agnostic way. You understand what I mean. We look into the business, look into volatility, how much capital does we consume, how much margins do I need, and that's it. And now the question on the most capital-intensive business, Brona, go ahead. We could both answer it. Go ahead.

No, I would say for life and health, what drives the capital intensity is the duration and the guarantee. So long-term guarantees over a long duration are what attract large amounts of capital. And then we need to make sure that, that business is priced to adequately reward that capital. And just as Claude said, we price assuming that capital is rewarded and assuring that, that capital is rewarded. But the longer the duration -- and particularly if it's guaranteed, that drives the capital consumption. Another part of the question?

Was the -- that was the question, I guess.

Life buffers.

The buffer. So what I tried -- we don't have explicit buffers, unfortunately. P&C, you have that somehow we talk about buffers. We don't have because we're always on the best estimate basis. What I tried to show you here without saying it, we do have buffers because if you look into the changes in estimates experience loss component and you think about it that in one year, we have 4x the 50 I was showing, so EUR 200 million, you could probably inter maybe I'm totally wrong here, by the way. But it is a kind of a buffer of EUR 200 million every year that we're producing somehow, right? But we don't call it buffer, we don't have an explicit buffer.

I mean I think best estimate is always a range, right? You never have a point best estimate. Nobody knows exactly what's going to happen in the future. Best estimate is always a range. And I would say we're probably at a more conservative end of the range than our competitors, but we still feel very much in a best that we are in a best estimate range.

One more question. For those buffers, can you add to them as well in the same way as with P&C or it only when you assume your business?

I mean we are always reviewing our assumptions. So reviewing assumptions on in-force business is an annual or at least a biannual event. So in that way, we always have an annual opportunity to look at those assumptions and decide where are they in that range of best estimate and where do we want them to be.

You have seen it, by the way, a concrete example, which is for me, that was quite interesting to see how many different reviews we have.

Okay. Darius?

Darius Satkauskas, KBW. Very interesting. A few questions, I suppose. So the first one is, when you do peer review, I want to know how you know that you are doing well relative to the market, some of your competitors because you could judge the CSM stock creation, but then you've got lumpy deals. I don't know how you normalize for that. You've got different assumptions. You probably don't know what assumptions your competitors are making in arriving at CSM. So perhaps someone is being too optimistic today and we'll pay tomorrow. So how do you know that you're on the right track? You're not behind more aggressive, where you shouldn't be in terms of assumptions, et cetera, et cetera?

Yes. I mean I would say there's no one single source for that. We look at multiple different sources of information. And then you're trying to piece it all together and put together an overriding story on how we compare with our competitors. So we do have NMG or a consultancy firm who do client surveys in all the markets. There's good information, particularly in the more mature markets. There's good information on the amount of business that each of the reinsurance companies is getting from cedents. We get information from the cedents from the clients, particularly from friendly clients. They're typically very happy to share how we are doing relative to cedents. Often when we price a piece of business, we will get market feedback on how we're pricing relative to other competitors. So there's multiple sources of information. And then we're obviously also looking at their earnings reports, and we watch their Investor Days. But I don't think there is a single source. I think it's putting together multiple sources of information and finding -- connecting the dots essentially and putting together that view of how we compare to our competitors. And I think that gives -- that can give you quite a reasonable source of information, but you're never going to know every...

No. The advantage we have on the life and health side is that there are much less competitors. I mean to do life and health reinsurance, the hurdle rate is quite high because it's quite technical as you see. It's long term. It's risky. So it is easier to know what a handful of competitors are doing. And I hate to say so, they're as good as we are. They're also good, yes. We have to admit it, yes, life and health reinsurers, they know what they do. We know what we do. So sometimes the differences in pricing, I mean, this is in the perm part, right, that you get the business or you win or lose a business. It's many, many, many assumption changes, and we all have professional people who look into that. So I think a lot going on.

I think it's just the place we want to be is where you do get into price change -- price differences that are very, very small. that the clients will then choose Hannover Re because it often comes down to that. Often, they will have three, four quotes from reinsurance companies all within a very small margin. And we want them to choose Hannover Re for that. And often, they do because they do value working with us.

Totally true. And one of the reasons often is not price, but it's speed. And as Clemens said, we're fast. We have empowered people. So we send people, we're empowered to the clients and the clients, they want to talk to a decision-maker and not somebody who is just a letter box. And the speed made us win a lot of business. I mean, in the past two years and also in the past, by the way, absolutely amazing, not the price, it's the speed.

Okay. I see a further indication from Vinit and also from Andrew.

Vinit from Mediobanca. So just one, let's say, philosophical question and one quick life question. The IFRS 17, when it came in, one of the supposed benefits was granularity. And you highlighted with the thousands of contracts that you get to see. Has it changed anything in your behavior as a manager of those contracts to see all the data -- because then we would thank the IFRS 17 effort as well. But if there is, I'm just curious to know. And second thing is just with Brona coming in and the whole financial solutions used to be a quite emphasized area, but are we sensing the emphasis a bit lower with this new -- in this new world now? Or just curious, it seems to be a bit less emphasized. You said five years later, less financials than more traditional book.

You want to take first or you want to take first. IFRS 17, it's as you said it is complex. And it is a new regime of this leverage you need -- previously you had actuaries here, accountants there. Now you need what we call accountaries. Because you need -- it is more complex, I would say. But I must say I like it by the way because it's more economic than the previous regime and I love it by the way. I love the fact we don't talk about freedom anymore. I loved it, yes. I always found it stupid. So, but if you look into the way we write our business, the daily business, our underwriters, now it's [indiscernible] we need to take a decision on the piece of business which is on the table, and we're excited about it. We're not talking about IFRS 17. We talk about premium, commissions, profit sharing claims. So we take economically sound decisions and the decision-making process, the way of pricing, looking into the economic capital we need, et cetera, et cetera, has not changed a new, I can tell you. Nothing. This is still the same. IFRS 17 is the way we show profits, but I must say I pretty much like it. I hate to say so, yes.

I think we've always operated very much according to an internal model. Our internal model, our economic basis. I think what's nice is that IFRS 17 aligns to that much more than IFRS 4. So it hasn't changed any behaviors, but you probably see a much more aligned accounting to the way the business was already being run. On the second point, I mean, Claude can comment also. I love financial solutions business. I think we both love financial solutions business. And our appetite is to write as much financial solutions business as we possibly can. So just to be very clear on that, we will continue to write financial solutions business. We do see more competition in this space. We do see more and more peers coming into that financial solutions business. So we will have to fight hard to maintain our growth in financial solutions. So we absolutely want to continue to grow the financial solutions business, and I think we will continue to grow the financial solutions business. When I spoke about financial solutions reducing the proportion of financial solutions reducing from where it is today, and that would be by growing the traditional business, particularly where we have been underweight, I would say. So it's not in any way a reduction in appetite for financial solutions business. Quite the contrary, we'd like to write as much of that as we possibly could.

And what you need to understand financials, we need to be ahead of the curve. We have been one of the first guys running financial solutions with [indiscernible], you remember. So we need to stay ahead of the curve. And while we're doing our financial solutions business of today, we're working very hard to understand what is the potential solution we might provide our clients tomorrow for a problem that they might not even know yet. And that's exactly what we're doing. So we have to invest into solutions constantly, constantly.

Okay. Then the next question comes from Andrew.

Andrew Baker, Goldman Sachs. Just a quick one. So when we think about the EUR 200 million, the net impact of the estimates variances loss component, I appreciate those thousands of contracts. You made that very clear. But are there any specific lines of business or geographies that are consistently contributing positively or vice versa acting as a drag on that number, how we should think about it?

Let me make one example, and it's with you, by the way, longevity, but I had longevity before. So that's why I know the detail there. When you look for something longevity, we had positive changes in estimates. But what you need to understand, it's not that we said, oh, we see that people are living less long than we expected, so we can release reserves. It's not about this. It is about the inventory. So every year, we look into our book and we -- I told that you probably we look into every single policy, policy by policy, right? And we look into who died. And given that we have a mini reserve for adverse deviations of every single person in the book, everybody who died releases this mini reserve of adverse deviations, and this is leading to a change in estimates. So don't believe that we're changing our estimates on longevity every year. I mean what's going on that we change our estimates on how people are dying every single year, that makes no sense, right? So longevity is certainly, I would say, systematically going to produce more positive results than expected because of this detail that was just explaining to you. Brona, you have the other.

Yes. No, I think if you -- longevity is the obvious example on the positive side. I think it's very spread then across, as Claude mentioned, many, many thousands of groups of insurance contracts when you combine the positive and the treaties contributing to loss components. So I think it's very hard to isolate. I mean we have referred to China CI in recent earnings quarters. We've seen some impact there. I think we've taken some pain there. But going forward, there's nothing, I think, we feel will stand out as a contribution to either positive or negative.

And I would say there is nothing we're the only guys who have either positive or negative results. This is pretty much market-driven. You might have heard Australia TPD claims increasing. You might have heard it. You hear it from every single life and health reinsurer. It is what it is, you need to correct it. And that's very important for us also that we don't have a single thing which we are suffering or benefiting only. Well, benefit is okay, yes. Suffering is probably not that good, but we don't have anything like this.

Okay. Well, in the interest of time, I thank you for your questions. And Claude and Brona, thank you for answering those. And before we are wrapping up this Investors Day, I'd like to invite you for a light dinner outside of this room and get together. And I'd also like to thank you for being here, attending the Investors Day on behalf of the entire Investor Relations team and for your questions and contributions. And with that, I hand over to you, Clemens.

Sorry, thank you. Thank you, Karl. So when I made my introduction, I said there's a lot of passion when we talk about the business, a lot of love for the business at Hannover Re, as you can tell. And that's all the way through the Executive Board. What I didn't know, that's my key takeaway is that there is so much passion for IFRS 17 accounting in the Executive Board, which we've just learned Claude. So thank you very much. That was very good. I think what all presentations that you heard, I mean we spoke about a variety of topics in those presentations, all sorts of topics. I think when I just reflect on them, I think what all presentations had in common was confidence. Confidence to grow, to continue to grow our business, be it in P&C or be it in life and health. The confidence -- and our colleagues alluded to it, Claude, Sven, you said in a given year, the business can be a bit volatile when we talk about structured business, et cetera, when we talk about how do we react to market cycles. But midterm, long term, we are very confident due to many of the reasons that we alluded to are very confident that we will continue to grow our book of business. What also was very clear is that there is a lot of confidence that we will continue to grow our earnings. by way of fueling it with new business. We've heard on the life and health side, you could tell, I think that there are plenty of opportunities to grow for us. And the same is true on the P&C side, be it in a traditional business, again, all according to market cycle, be it in a structured business, where in a given year, it is transactional. It can be volatile. But clearly, we are very positive on the pipeline also on the P&C and on the life and health side. So that earnings growth is not only fueled though by new business that we are confident to create. It's also backed by the resilience that we've been able to build in our assumptions. And if I just start probably in a different order and start with the investments, and Christian you alluded to it. I think we've been able to build a portfolio on the investment side that is highly diversified and that even provides stable increasing investment income in difficult market environments as we've seen in recent years. So reliable earnings contributions on the investment side is something that we expect going forward with the assets under own management to grow and the higher yields that we see, the higher market yields still finding their way into the running yield of our fixed income portfolio. So that will already increase the contributions from the investments. On the life and health side, I mean, one of the earnings contributors and Claude alluded to it, clearly, the new business contribution. And whilst that might really just on the face of the presentation of the new business creation looks like, is there really a lot of new business CSM coming? Or is that mainly assumption updates. I think it's true that already in the initial recognition, we are very cautious in setting the assumptions. Therefore, I would say the new business value that we show in our new business CSM is a bit subdued by the fact that we are very conservative. And you will see some of that new business creation coming through by way of assumption updates later on. We spoke about, and Ivan, to your question on are there similar buffers or resiliency on the life and health side. So we roughly look at EUR 6 billion of CSM at the moment on the life and health side, which are by definition, as we heard, future profits. But we are also looking at the risk adjustment on the life and health side of around EUR 3 billion, which no coincidence and some of the capital models are considered future profits as well, hard capital. So therefore, to that point, our confidence on the earnings on life and health are also fueled by the fact that we are sitting on EUR 3 billion of risk adjustment, which by definition of IFRS 17 are also contributing and find their way into the P&L going forward. Some of that is more fungible than other elements of the risk adjustment, but there are ways to manage our earnings also on the life and health side. On P&C, again, I think that confidence that we will continue to grow our earnings is fueled by attractive opportunities in the market and Sven alluded to the fact that this is still an attractive market environment. And I think here, really our low cost ratio will give us an advantage to grab market share, to grab business in a profitable way, even in more difficult markets. So growing the business will fuel that confidence. But at the same time, and I just want to be clear on this, we do feel quite confident with the buffers and the resiliency that we've built over the last couple of years. Whilst this is not a ceiling just by, let's say, we will not change our prudent reserving approach. But just by way of not adding additionally as we did probably very substantially in the last couple of years, just by way of not adding additionally to these buffers to the reserve resiliency, this will clearly have a positive impact on our combined ratio on our reinsurance service result in P&C, which we expect to grow even in softer market cycles. So overall, again, I think, and I hope you find this useful and you have sense that there is a lot of confidence that we will continue to grow our earnings and that we will, in combination with a higher payout ratio on our dividends, continue to create value for our shareholders. And as we saw earlier, on a sustainable and very reliable way. That's clearly our ambition. So thank you again for taking the time out of your busy schedules to come here to Frankfurt. Thank you for taking the time in the webcast and follow the sessions. Thank you again for your interest in Hannover Re. And I want to repeat, Karl, thank you to you and your team, big shout out to all the work that has gone into this. I really find it enjoyable, and I hope you all found it enjoyable. Thanks again, and see you soon. BACKUP EXPORT