Hannover Rück SE (HNR1) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to our call presenting the outcome of Hannover Re's 1/1 renewal dates and information on the P&C treaty reinsurance book. And today's speakers will be Clemens Jungsthofel, our CEO; and Sven Althoff, our coordinator for the P&C business. And with that, I hand over to you, Clemens.

Thank you, Karl. Good morning from snowy Hannover. So a couple of overall messages to start with. The January 2026 renewals were characterized by a continuation of the trends observed in 2025. So the good profitability of the reinsurance sector is the main driver for an increase in reinsurance capacity. Market participants continue to see reinsurance market as an attractive place to deploy capital, and this has accelerated competition and price pressure heading into the January 2026 renewals. However, the competition is, I would say, rational. Rates are softening from attractive levels. Reinsurance rates remained risk adequate on a broad basis. So, before looking at our renewal results, I'd like to comment further on the general market environment, which you will find on Slide 4. One element of this market cycle is clearly that competition is mainly between incumbent players. Apart from inflow in the ILS space, we are not observing any meaningful inflow of new capacity into reinsurance markets. Retained earnings are the main driver for the increase in reinsurance capacity. Demand for reinsurance increased as well, but less pronounced than anticipated. Inflationary pressure has stayed on lower levels. The overall healthy capitalization of the primary insurance sector is another factor. In several instances, clients buying approach had the target to reduce reinsurance spending instead of buying more limits with an unchanged budget. On the one hand, this was negative for the overall demand. But on the other hand, this clearly confirms that reinsurance pricing is not at a level where clients would buy more opportunistically. Altogether, the described supply-demand dynamics resulted in increased competition, which mainly centered around price negotiations, so terms and conditions as well as attachment points stayed largely at the healthy level achieved in the previous hard market years. Furthermore the willingness to provide capacity for aggregates covering frequency losses remained muted. Reinsurance price changed varied by region and line of business. So most significant price reductions could be observed in property, and of course, in particularly property cat business as well as parts of the specialty markets. These trends were further accelerated by the overall benign large loss situation in the second half of 2025. As a reminder, there are areas where rate increases in the years '23 and 2024 have been most significant. Prices are coming down from attractive levels. The price development in other lines of business has been more stable. Pricing in U.S. casualty, for example, was overall flat. This confirms that pricing remains rational. Historic loss developments or individual client performance has been reflected in the price setting. So much in our view on the market. So reinsurance markets remain attractive and do provide Hannover Re with continued profitable growth opportunities. So this brings me to the results of our renewals on Slide 6. We are satisfied with the outcome of the general renewals. The quality of our portfolio remains strong. Our long-standing client relationships and our consistent approach towards clients resulted in favorable demand for Hannover Re's capacity. As explained, we continue to view the level of pricing as adequate, providing us with an expected return at or above our cost of capital. This also means that the necessity for active cycle management remains limited in the current market environment. Furthermore, it's particularly pleasing that we could largely defend or even increase our shares on reinsurance programs. We clearly can say that we are perceived as a preferred business partner from our clients even in an increasingly competitive environment. In addition, our broad client relationships resulted in clients offering us attractive participations on new business coming to the market. For our portfolio, this led to an overall growth in premium volume of 3.3%. Our strong market position and the growing underlying portfolios support the expansion of our proportional business. With regards to our guidance for the financial year 2026, this 3.3% growth supports a target achievement in the mid-single-digit range. Risk-adjusted pricing for our traditional treaty portfolio was down by 3.2%. The price decrease for proportional business was less pronounced than for the nonproportional business. The quality of our P&C portfolio remains strong, and we continue to feel comfortable with our combined ratio target. Needless to say that we have prepared ourselves to deliver on earnings growth in the following years, but I'll touch on this a bit later. Last but not least, we have successfully renewed our retrocession program. The overall structure remains unchanged. In a softening retro market, we've purchased an increased level of retrocession at improved pricing. Altogether, our renewals were successful, both in terms of prevailing good quality of our portfolio and the growth we captured in a competitive market environment. I'm now pleased to hand over to Sven, who will dive into the specific geographies and segments. Sven, over to you.

Well, thank you very much, Clemens, and a very good morning also from my side. With EUR 10.2 billion, we have renewed 61% of our traditional treaty reinsurance business at the 1st of January, which equates to roughly 38% of the total P&C business in force. With the exception of the EMEA region for which 1st of January is the main renewal date with more than 80% of the business renewing, there are still significant renewal dates for the other regions and the specialty business later in the year. With the 3.3% growth that Clemens has already mentioned, we continued to grow in an attractive market environment. The growth is coming from two main components. Firstly, when you look at our new and restructured business versus the business we have canceled and restructured that gave us an additional income of EUR 160 million. But also on the renewed business, we could show an overall growth of 1.7%. On the renewed business, the overall risk-adjusted price change is a minus 3.2%, but there is a positive effect from the underlying volume of the transactions and the development of our shares, which is overcompensating the change in price also on the renewed business. When it comes to our shares in general, you can see in the appendix that we grew our shares in the nonproportional business. The slight reduction you can see in the proportional business mostly results from lesser sessions of the ceding companies where normally, our share in the remaining cession has increased after that reduction in shares. The next two slides gives you a little more detail of the development in our reporting lines. So, on Slide 10, you can see that the growth areas are mainly driven by the Americas with 6.5% and parts of the specialty portfolio, which grew by 5.8%. However, all reporting lines contributed positively to the overall growth rate of 3.3%, which is a good indication that we continue to have a very strong and good diversification in our overall portfolio. The growth was balanced between proportional business growing by 4.2% and nonproportional business. The risk-adjusted rate decrease on the nonproportional side was mainly driven by property catastrophe business and parts of the specialty portfolio. In nonproportional, we started to see a few limited areas where we decided to cut back our shares due to the price change. But overall, as the portfolio came from very attractive levels, the quality of the portfolio continues to be strong and also allowed us to grow on the nonproportional side. When you look at Slide 12, you can see that the profitability of the nonproportional portfolio remains at an attractive level above the long-term average. As a reminder, on this slide, we are showing the risk-adjusted rate changes as reported at the time. We are not bringing the historic numbers to today's view on risk. But you can clearly see that with the last two underwriting years and the minus 2.8% last year and the minus 6.4% this year, we are nominally below the very strong improvements we have seen in the years '23 and '24. So, let me come to a little more detail in our reporting lines, starting with the Americas. As already said, the Americas grew by a total of 6.5% despite an overall risk-adjusted rate movement of minus 4%. The development on the pricing side was very bifurcated between property and casualty. We saw an increased level of softening on the property classes. Casualty, on the other hand, continued to be stable or even slightly improving. The competition was on price only. Terms and conditions are stable across the regions and retention levels were at last year's level. In EMEA, we could maintain the profitability at a good level and safeguard our strong market position despite a competitive environment, particularly also in nat cat. The overall price reduction was a minus 2.9%. We could take advantage of diversified growth opportunities across the regions. On the other hand, some of our larger clients decided to increase their retention levels, which translated into the growth being more muted than the average with 0.4% growth. Like in the Americas, the renewals focus mainly on price discussions with structures and terms and conditions remaining largely stable. In APAC, we could grow by 1.9% despite a reduction in risk-adjusted rate of minus 2.8%, but we could use the strong client relationships to take advantage of some growth opportunities, particularly also coming from those parts of the Asian market, which did see losses last year, and those losses translated into increased demand for natural catastrophe capacity. However, in a few of the markets where we did not see the losses, we also decided to reduce our positions somewhat due to the combination of weaker pricing and at times, also widening of terms and conditions. On the specialty side, we have seen a very diverse picture in the various specialty classes, leading to an overall risk-adjusted rate reduction of minus 3.2%. This was ranging from positive numbers in, for example, aviation to negative numbers similar to the natural catastrophe business in Marine. Particularly pleasing was the development in credit, where we could show double-digit premium growth in a still very attractive market environment. In marine and aviation, we have overall reduced our volume somewhat on the aviation side. We have seen overall stable pricing with some increases on the nonproportional business. But in Marine, the pressure on rates was higher, which subsequently also increased in us reducing positions in a few instances. On the agricultural side, overall, we could continue to grow at a continued good quality in particularly the major markets like Brazil and in the U.S. Also in digital and cyber, we could slightly grow our position and defend our market shares and also had some limited opportunities for new business. in cyber, particularly also on nonproportional structures. So overall, this led to a good level of growth with 5.8%. For the sake of completeness, let me also spend a few words about the other P&C business, starting with the natural catastrophe business in total. The natural catastrophe business is included in the regional reporting you have seen in the previous lines. But if you look at it globally, as Clemens already said, I mean, we had ample capacity in the market, leading to more supply than increase in demand. This translated into risk-adjusted rate reductions between 10% and 20%, depending on the loss history of the regions. But overall, the natural catastrophe business was still adequately priced, which allowed us for somewhat diversified growth whilst maintaining underwriting discipline by also reducing capacity where required, for example, in Asia, as already mentioned. Last but not least, we can also report that our new sidecar vehicle, Hannover Re Capital Partners was successful in attracting first investor and started writing some business already at the 1st of January renewal. In structured reinsurance, we could again broaden our portfolio based on our disciplined underwriting and the strong alignment with our clients when it comes to their requirements. The positioning we have on the traditional side helped with internal cooperation to secure renewals and also find new opportunities. In parts of our incoming structured business, we could see a decrease in cession rates on some existing larger contracts overall impacting the volume despite the very favorable demand for the new business. In general, we are very positive about the pipeline for the remainder of the year. On the facultative side, we could see and observed the similar trends compared to the treaty business. So in the property classes, in particular, we had abundant capacity, which led to increased retentions and the rates softening, which was most pronounced in property business. Nonetheless, overall, we could renew most of our portfolio with overall risk adequate rates and could also find some new business opportunities. As a side note, we continue to see positive increases in risk-adjusted rates for U.S. casualty business. This brings me to my last slide being our retrocessional program. We had strong support for our retrocessions. Overall, no change to our structure on the property side. We continue to buy our two nonproportional towers, the one being event, the other one being aggregate. And of course, we have increased -- we have renewed our proportionate K quota share was our ambition to renew a similar cession rate compared to the previous years, which is in the low 30s due to the underlying growth of the portfolio, this meant that we had to increase the capacity behind the K vehicle, and you can see the numbers on the slide. What we have seen on the incoming business also applies to our retrocessional business. So there was improvement in pricing. both on the proportional and on the nonproportional side, in line with the inward market trend, which led us to buy slightly more limit on our nonproportional towers. We have also placed a new parametric earthquake cover, which at this stage is coming with a relatively small limit, but it's a nice addition to our overall property buying. What was particularly pleasing is that all placements have seen an increased number of participants, which, of course, is helpful from a diversification point of view when we think about future renewals. And with that, I hand over to Clemens.

Thanks very much, Sven. So, let's move on to our guidance for the financial year 2026. As the outcome of the renewals was broadly in line with our planning for the financial year 2026, there is no need to change the guidance we have provided in November 2025. The prevailing strong quality of our P&C portfolio should bring us in a good position to deliver on the combined ratio target of below 87%. And as explained at our analyst call in November, the underlying combined ratio in '25 is running well ahead of the 88% target and the new 87% target for 2026, and that clearly leaves room for some price reductions in '26. Therefore, the developments in the January renewals do not contradict our underlying assumptions in any way. To complete the picture, the target achievement is not linked to a change in our prudent initial reserving approach. But the option of adding less to resiliency reserves compared to '25 adds even further confidence in the ability to deliver on target. Furthermore, I can confirm the targets for life and health and investment returns. Hence, our group net income target of at least EUR 2.7 billion remains unchanged as well. As long as the profitability of the sector is healthy and large losses remain broadly within expectation, we anticipate a prevailing competitive market environment in P&C reinsurance. In such a competitive environment, it is most important to have competitive advantages. Our lean operating model with lower administrative costs than our competitors will clearly help us to provide us with business meeting our margin requirements. Combined with our pure-play reinsurance model and our strong client relationships, it will support further growth. So we are entering this softening market phase with a very strong or let me say, an exceptionally strong balance sheet. If needed, this provides further comfort in our strong ability to manage volatility and to grow earnings over the cycle. I'm convinced we have the right recipe to remain successful over the coming years. Now let me take a first glance at the preliminary figures for the 2025 financial year. Full details will be disclosed on the 12th of March. So, reinsurance revenue reached EUR 26.8 billion, which is a currency-adjusted increase of 4.7% compared to the previous year. Taking the NDIC, so the non-distinct investment component accounting effect into account, our growth in property and casualty reinsurance was well ahead of our 7% target. Our group net income of EUR 2.64 billion is fully in line with our increased guidance and represents a strong earnings growth of about 13% compared to the previous year. Operating performance stood at EUR 3.5 billion with both business groups performing well. P&C contributed EUR 2.4 billion and life and health contributed EUR 0.9 billion. In P&C Re, we have benefited from the strong underlying profitability of our portfolio, positive currency effects and an overall benign large loss environment. We have used this as an opportunity to add to our reserve resiliency and to actively realize hidden losses in our fixed income portfolio also in the fourth quarter. We will provide full details in March, but with the actions taken in '25, we have further improved our ability to deliver on earnings growth in the coming years. So we've met our group net income target in '25, and we are very well positioned to repeat this in 2026. I will now open the floor to your comments or questions.

[Operator Instructions] The first question comes from the line of Shanti Kang from Bank of America.

So was just curious what surprised you about the renewals this year, and you cited that 3.2% rate decline today. I'm just curious to help us understand where you see margins sitting relative to your hurdle rates? Are there any lines where that spread is really narrowing that we should be thinking about? And then on the nat cat rate declines that you cited down between 10% and 20%, do you guys have a new kind of clearing price that you're thinking about? And how sensitive is your appetite for growing that if pricing weakens further at midyear renewals?

Well, when we talk about surprises, Shanti, I guess we were expecting a little less pressure on the nonproportional pricing. And at the same time, we were expecting some more demand coming from our ceding companies, either through slightly reduced retention levels or additional buying on other property products. So, in a nutshell, the pricing or the pressure on pricing was a little stronger than expected. but it didn't translate into additional buying. That would be the main surprises. When it comes to the question of excess profitability, I mean, as we have highlighted, there were only a few areas where we had to start reducing our positions. So, from that point of view, the quality of the portfolio after the renewal is still very sound. No particular area to highlight, which is under pressure on a forward-looking basis. But of course, with another round of reduced prices on the nonproportional side, the level of excess margins is a reduced one. On the nat cat side, we have a very diversified picture, which is pleasing. So overall, despite the pressure in pricing, we could still find good excess profitability in quite a number of the areas, and we were willing to take advantage of those and clients were willing to give us more limit where offered. On the other hand, and I mentioned Asia as an example, there were also pockets where we felt that we should reduce our positions. But overall, the growth we are talking about comes from a globally diversified basis with no particular region being very overweight in this. And on a forward-looking basis, our approach to nat cat business and how we look at profitability has not changed. So from that point of view, as explained during the Investors Day, we have identified the nat cat business as an area of structured growth given that we feel that we are still underweight from a market share point of view, but we will grow when we find the profitability. And if we don't, we are also happy to consolidate.

The next question comes from the line of Andrew Baker from Goldman Sachs.

First one, so just in Germany, you highlight the impact of increased retention at some of the larger clients. I guess, do you have a sense of what's driving this? Is there anything to do with any of them developing their own sort of in-house reinsurance structures? Or is there something else going on there? And I guess, why do you see this happening in Germany and not elsewhere? Any views on that would be really helpful. And then secondly, on structured re. I know you previously flagged the sort of reduced sessions and but a strong pipeline and you're sort of saying the same things today. Do you have -- now that we're into 2026, do you have a better line of sight into how we should be thinking about premium growth for 2026? I know previously, you've said sort of lower than previous levels, but should we still be thinking positive? Or should we be expecting premiums to decline on the structured side in '26?

Yes. Thank you very much, Andrew, for those questions. When it comes to the German business, it was a combination of factors. So with the underlying profitability in their business, clients are naturally more comfortable with their portfolios also from a profitability point of view. And this, at times, did translate into higher retention levels. But you also mentioned internal reinsurance vehicles, and we have also seen that development in the German context. So it was a combination of the two. And the only reason why we have mentioned it in the EMEA context is that this was one of the drivers why the growth in EMEA was a little more muted compared to the global growth number. When it comes to the structured business, yes, I mean, you have already repeated our main messages. Given that the reduced sessions from ceding companies are coming from our bigger existing client relationships after the 1/1 renewal season, we are talking about a somewhat reduced premium volume. But as I highlighted, the pipeline is looking strong, and it's only the beginning of the year. And structured reinsurance is not necessarily so 1/1 focused. So from that point of view, we continue to be optimistic for the remainder of the year without me wishing to give you a number for guidance.

We now have a question from the line of Will Hardcastle from UBS.

You mentioned that you're happy to write the business because it's at or above cost of capital. But where do you think these renewals lead yourselves relative to cross-cycle return on capital? I'm thinking on an economic basis, not accounting. And I'd love to know where you think it leaves the industry in that regard. And something of a bit of a follow-up. while there still seems to be plenty of headroom between your guided combined ratio and, let's say, the underlying adjusted for these pricing decreases still, there was something similar yesterday as well. I guess, should we not assume a base case of similar price decreases next year and likely further T&C reductions as a result? I guess maybe put another way, what stops or slows this rate of price decline from here?

Well, when I look at the 1st of January renewals, well, I think the 1st of January renewals will be accretive when it comes to cross-cycle profitability. So given that all of our business, which we have renewed is still making cost of capital or even above, it should be a year where we are -- given the guidance we have given, hopefully, we'll continue to build balance sheet strength, maybe not at the same level like we have done in '24 and '25. But in our view today, we should still be able to talk about the underwriting year 2026 as one that helped building resiliency, if that is answering your question. When it comes to the profitability for the financial year, I mean, even though we were slightly surprised by some of the dynamics in the renewal season, the when we were reflecting on our guidance for 2026, the development was nonetheless baked into our [ 87% ] number. So from that point of view, there is no reason to change. And when it comes to your question, okay, what will stop the market going in that direction. Of course, volatility is the answer at the end of the day. And the industry enjoyed a good number of quarters now with very strong profitability, which translates into accumulation of capital and into the desire to write more market share. As long as the profitability is at such a high level, this trend will continue. And then it depends on volatility, whether that comes from major losses or whether it comes from capital market volatility in order to change the sentiment in that respect. And lastly, when it comes to that question, I mean, with our lean operating model and our cost structure, we feel comfortable that we will be able to write the business profitably for longer compared to the average peer.

The next question comes from the line of Kamran Hossain from JPMorgan.

Two questions from me. The first one is on the direction of travel for the remainder of the year. Just really intrigued kind of following on from Will's question. If we look at how things have developed this year, prices came down a bit more than they did last year, and that was probably inevitable given kind of what was going on in the industry, the amount of money people have made. When I think about the upcoming April renewals, last year, you saw double-digit declines in Japan or I guess what [indiscernible] did on a reported property cat basis. What do you think the direction of travel should be for something like Japan, where you've already seen that kind of correction happen last year? And the second question is just coming back to the kind of discussion around like guidance and mid-single-digit growth. From your comments, it sounds like you're a little bit surprised on the lack of kind of new or increased demand out there. How should we get comfortable that the mid-single-digit constant FX, excluding structured is still the right number to think about?

Well, when it comes to the remainder of the year question, we expect that the remainder of the year is rather similar compared to what we have seen 1/1. You're absolutely right when you are talking about Japan, in particular, that the Japanese renewals at 1st of April last year saw more of a reduction in rates compared to the 1/1 renewals. So from that point of view, we do expect that this will be taken into account when it comes to the pricing for this year because in relative terms, it comes from a slightly lower base. But outside Japan or just in general, we would expect a rather similar picture compared to the 1st of January renewals also for the rest of the year. When it comes to top line for the remainder, I mean, we feel we have a very robust portfolio. So if our experience repeats itself, what we have seen at the 1st of January renewals, we will be able to grow where we want to grow. Our clients gratefully have been very good with us allocating our shares that we have offered to us. So if the quality of the pricing remains sound like we have found at 1/1, we're optimistic that we will be able to at least keep our position on programs, if not grow that. I mean one way of looking at it, and Clemens already alluded to that, the lack of additional demand where we were expecting a little more should also be seen as a sign that the quality of the pricing we can achieve is seen by our clients in a way that it's not the time to start buying opportunistically now because it's still all at a sound level. So with their improved capital positions, this translates into keeping a stable program or even a little less at times. But overall, as we sit here today, with the starting point of 3.3%, we still feel positively that our guidance for a mid-single-digit premium growth for the entirety of the year is definitely in reach.

We now have a question from the line of Chris Hartwell from Autonomous.

I just wanted to come back to the question of demand. I mean you said several times, it was subdued. I was wondering how much of that could be related to terms and conditions that obviously still seem to be pretty tight. I think you said that that's been quite stable. And I guess if we're thinking sort of through the rest of the year and you're seeing clients have already banked good price reduction. I mean, how much pressure do you think there could be on terms? Or do you think the sort of reset that we've seen over the last couple of years could be a little bit of a recalibration by the reinsurance carriers? So that's the first question. And second question, I just wondered if you could maybe say a few words on your strategy in capital partners. And I guess if we do think that the reinsurance market can continue to attract third-party capital, where do you think capital partners could be in a few years' time?

Yes. Thank you, Chris. On the terms and conditions, I mean, it's one of the ingredients, of course, which clients take into account when they're thinking about the demand for the product. And at 1/1, I mean, we have seen that it was more important for clients to improve the pricing rather than also do something on the terms and conditions at the same time, which would have a more stabilizing impact on the pricing if you are working on both sides of your placements. So it's difficult to predict what the future will bring. And so from that point of view, if this should be a dynamic where clients should feel that they should concentrate a little more strongly on improving the terms and conditions, then this will have an impact on how much price reduction they can achieve because obviously, both is taken into account when reinsurers are looking at the renewals. When it comes to Hannover Re Capital Partners, I mean, we are very pleased that we did get this off the ground and could start transacting some first business. What we have done so far with the investor is writing a relatively traditional property catastrophe portfolio on a globally diversified basis. And of course, with the first success, we hope to find additional investors. And we will listen very carefully to what their risk appetite is. So from that point of view, it's not so easy to look into the future. We're optimistic that given our relations we have into the capital market, also from the other ILS activities we are doing that we will find more investors but where exactly their risk appetite is then needs to be discussed on a bespoke basis. So I would hesitate to give you numbers where we want to be in three or five years.

The next question comes from the line of Iain Pearce from BNP Paribas.

It's just on the growth of K I'm just trying to understand the sort of impact on some of the other financials. I mean, looking at the growth of K up sort of 30-ish percent year-on-year and a flat cession rate. Just trying to sort of understand what the impact we should read into that on potential P&L movements, particularly in the U.S. and also potentially cat budgets. And then also thinking, looking at the insurance revenue seeing K grow that much on a proportional basis, is this just -- is the growth in K from a sort of renewal point being offset by FX and pricing, and that's why you're not seeing that sort of implied growth associated with K come through the renewal number?

Well, on both questions together, I would say you will see hardly any impact from our K placement. I mean we kept the proportional cession the same, which means from the underlying growth we have in our nat cat portfolio, we will share that equally between our net position and the just above 30%, we are seeding with K investors. The only reason why the capacity has grown behind K is the underlying growth of the business in '24 and '25, which translates into more capital being required to have the same default probability behind the K portfolio. But from a P&L point of view, we are not sharing more of our incoming business in relative terms compared to what we did in previous years. If anything, and that would be a positive for our net position is we could improve the terms and conditions of our K retrocession when it comes to some of the commission terms.

We now have a question from the line of Vinit Malhotra from Mediobanca.

My first question would be on structured. I hear the comment on cession rate. But could you also please just share some thoughts if there was more competition. We heard one of your peers yesterday talk a lot about that line. So I'm just curious whether you're just seeing more competition as well in structured. And secondly, just back to the cession rate. I mean, is it a risk that you could probably manage with a bit more give way on P&C, you think? Or I mean, obviously, the game would be to manage the risk such that the overall profits are better underwriting-wise. But I'm just curious just to hear your thoughts once again, please if you don't mind, how big a risk is this to your targets? Is it a trend that you're observing? And how do you -- what do you think is the best way to meet this new development, let's say?

Thank you, Vinit. So, on the structured side, yes, clearly, the market has become more crowded on the structured side. On the other hand, what we can report is that on those transactions, which have not renewed, see they just stopped buying. So we didn't lose that to competition. On the new business, we could write, we can still write the shares we want to write. So, from that point of view, we don't feel impacted by the increase in competition. And most importantly, on those few of the bigger programs where the clients have decided to reduce their cession rate, our share of the remaining section in all cases has increased, which means that our relative market share in those transactions has increased rather than reduced. So, from that point of view, yes, it's a more competitive environment also on the structured side, but we are so far satisfied with our journey on that class of business. When it comes to cession rates in general, we are not particularly concerned that what we have seen from our clients at this 1/1 renewal will necessarily repeat itself also in future years. I mean some of them have decided to reset retention levels given the underlying profitability of their portfolios and others may follow, but I don't see a general shift in a higher proportion of the business being remained net by our clients, more the opposite to the extent they continue to do well and grow their own portfolios, this over time will lead to more rather than less reinsurance buying.

The next question comes from the line of James Shuck from Citi.

First question was just to get a little bit more insight into the mid-single-digit growth again expectation for '26. Apologies for returning to this. What I'm doing is I'm just looking at the '25 underwriting year premium that's disclosed in the pack today. And that showed that traditional treaty was down 6% year-on-year, facultative down 8%. Your January renewal premium today is plus 3%. And obviously, the '26 year is going to be a blend of all of those things. So just help me understand and talk through how those kind of fit together to still give you confidence in that 3%. I appreciate you gave an answer early on, but it's really the '25 development earning through that causes me to question that a little bit. Secondly, on the proportional rate increases, so down 1.7% at Jan. That was pretty flat versus the 1.8% last year. Americas though got a lot better in terms of -- I think it was down 2.8% last year and only down 1% this year. And the delta between the two must be specialty re that must have got a lot worse. So just keen to understand some of the dynamics on the proportional side, what's happened in Americas and Specialty Re. And then just finally, if I may, you've written about the sort of half of your new business CSM in Q1, rate up a bit, volume -- sorry, rate down a bit, volume up a bit. Are you able to give any indication of what the Q1 CSM has done year-on-year, even if directionally?

Yes. Let me start with the third question, James. I don't have an indication for a CSM number for you today, I'm afraid. So I guess we will be able to give you an outlook when we do our March earnings call at the earliest. So I would have to ask you for a little patience. On your first question, I am not so certain where your negative premium numbers are coming from, particularly, as you mentioned them in the context of our 2025 year, where when Clemens talked about our preliminary numbers for the financial year, we were talking about ignoring the end effect for a second that we have come from a situation of good growth, definitely in line with our 7% target for the year. So that is the basis from which we are also starting the financial year 2026. So from that point of view, maybe you can clarify where the negative numbers you were referring to are coming from. And then -- yes, please go ahead.

I can hear that. So I'm just looking at Slide 8 and then the traditional treaty, this business by underwriting here. So Slide 8 shows traditional treaty EUR 16,702 million and I'll ignore fact for now, but the previous year same slide showed EUR 17,378 million. So that's down 6% year-on-year before the renewals.

Yes, that's, of course, solely currency effect. We, of course, have -- we adjusted to year-end currency numbers and the numbers you saw in last year's presentation, of course, was year-end 2024, FX.

Sure. That makes sense.

So that is a driver. And then on the proportional side, as you will appreciate, I mean, it's always difficult to talk about trends in proportional business because solutions are so bespoke to individual clients. So the reason why it's up and down also has to be seen in the historic context of the client profitability and what have they already achieved maybe when it comes to ceding commission increases in the last year's renewal and the sky is not always the limit. So, from that point of view, if you had success increasing your ceding commission last year, maybe it was flat this year. So I don't see any overarching trend of the proportional side, but it's very much driven by the historic profitability of that individual treaty plus effect, what is happening in that underlying insurance portfolio when it comes to rate development.

[Operator Instructions] We now have a question from the line of Roland Pfaender from ODDO BHF.

I would like to come back to the specialty business. Could you maybe explain what is the attractiveness of the credit business? To my knowledge, insolvencies might peak in '26. So is it pricing or maybe other things you might elaborate a little bit on? Second, digital and cyber. What is the overall appetite of Hannover Re for these business lines? Also knowing that cyber pricing is down since several years now. So what is your intention to grow here?

Yes. Thank you, Roland. On the trade credit side, as you're referring to that, in particular, of course, we are seeing the increased level of insolvencies, and this is partially also translating into slightly higher loss ratios for the industry compared to the previous years. But what is making this line very attractive for us is not only the historic levels of profitability in that class of business, which you have seen in previous reports, but also the fact that we are dealing with very sophisticated seeding companies that have very advanced methods in risk selection and building their portfolios. And despite the general increase of insolvencies for economies, this does not necessarily always translate in a one-to-one basis into deteriorating results for the insurance portfolios, given all the diligence our clients are putting into how they structure their portfolios. So, from that point of view, we are very comfortable with our incoming portfolio, and we're even more pleased that we could further strengthen our position in that market. Cyber is a little bit more complicated. Yes, you're absolutely right. We are observing reductions in the insurance pricing for some time now. So when we look at the cyber renewal at the 1st of January, I would say on the proportional business, which is still the bulk of what we are doing, we can say that we have increased our position in some cyber quota shares where we are satisfied with the risk selection and the historic performance of those clients, but we have also been willing to deemphasize some other positions where we feel that the historic performance has not been so strong and where we, therefore, are more concerned about where the trend is going from an insurance pricing point of view. And the other area to mention, but that will be a slower process as we are working on improving the diversification in the cyber portfolio, deemphasizing pro rata in general a little bit and building more of a nonproportional portfolio on the cyber side. And we have done some very good first steps, but it will take time for the weight in the portfolio from the nonproportional business to get stronger over time. So, overall, if we add it all up, cyber was a slightly growing class for us, but only with those clients where we were very comfortable with their historic track record and coming from the nonproportional side.

The next question comes from the line of Ivan Bokhmat from Barclays.

Three small questions for you, please. One, perhaps on the motor business. And sometimes you give color on the U.K. motor, sometimes on Germany. But maybe you can talk a little bit about how you feel the outcome of the renewals and the underlying business is developing for 1st of January. Second question is related to casualty business. I think this is one where price pressure has been a lot less than property cat. But I'm just wondering how you think about the technical profitability in it overall? Is it deteriorating? Or is it more unchanged? Does that influence the attractiveness of the business in your view? And the final question, sorry, it's a bit general, but we've been hearing over the past few weeks a lot about growing demand from certain insurers and certainly the brokers for tailored products related to data center CapEx, AI-related coverage. Just wondering if you have any general thoughts of how important that might be in 2026 for you? What's the upside for you and the appetite here?

Yes. Thank you, Ivan. On the motor side, yes, let me talk about Germany and the U.K. So the profitability journey on the German motor business is in place again after the rate increases done by the primary markets. And so from that point of view, we were happy to continue with our motor portfolio in Germany in general. In the U.K., the situation is slightly different. You, of course, remember that we had the change in the Ogden rate not that long ago given that we are now talking about a positive discount effect again rather than a negative. This, of course, translated into some reductions on the motor excess of loss portfolios, which we are writing. They were not so severe that we had to reduce our positions in general on those programs, but it was clearly leading to some softening for good technical reasons, but still softening. And on the proportional side, we have seen less demand for motor solutions here. And one of the drivers for that was also M&A in the U.K. indigenous market. On the casualty side, I would say that from a technical profitability, we can say that it is unchanged compared to the previous underwriting year according to our assumptions and risk assessment. And data centers, yes, that's definitely a very interesting topic right now. And we have a lot of discussions with ceding companies about the topic given insured values. This is certainly an accumulation topic where the reinsurance industry still needs to understand the accumulation aspects more fully. Most of the discussions we had with ceding companies were in the context of their normal property renewals where data center, data centers are part of the portfolio they are writing. And we only had rare opportunities so far, but that may change in the future when it comes to data centers as a bespoke reinsurance solution. We had one client engaging with us on that side. And yes, that was certainly a nice way of us growing with that client on their data center initiative. Of course, on the facultative side, data centers are also presenting opportunities for us. But I was referring to the traditional treaty business when you asked about how much of an opportunity is that? Given that it's an accumulation risk, we, in my view, will see more bespoke opportunities in the future, but a lot will also just be catered for in normal property renewals.

We now have a question from the line of Jochen Schmitt from Metzler.

I have one question on the preliminary figures for '25. Reinsurance revenue increased by EUR 0.5 billion, while it was virtually unchanged in nine months. Could you provide some details on the development in Q4?

So, on the top line numbers, Q4 and for the full year, I'll ask for your patience. We will do all the details. We provide the details really in March. What I can say that the growth generally has been positive and not only in P&C, but also in life and health, and that has actually provided some tailwind for the growth also in the fourth quarter.

We have a follow-up question from the line of Vinit Malhotra from Mediobanca.

Sorry to come back. Just one very quick one. In the fourth quarter, which you just mentioned, the -- you also mentioned, I think, that the underlying combined ratio was very strong. Could you just comment a little bit just so we get a sense of where this strength could have been coming from? Is it just better P&C? Is it just better attritional? Just a little comment on fourth quarter underlying would be very helpful.

Yes, Vinit, again, we ask you for a little patience. We, of course, will disclose all the details in our March earnings call, as you would have expected, given the more benign cat environment in the second half of the year, we have come in below our major loss budget and that has translated in Q4 into us continuing to realize some losses on the fixed income side to also build some further resiliency in the fourth quarter, but also have some of the underutilized nat cat budget fall into the P&L. And so from that point of view, a very strong underlying technical results. But details, we will talk about in our March earnings call.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Clemens Jungsthofel for any closing remarks.

So, yes, as you can hear, we are satisfied with the outcome of the renewals. The quality of our portfolio remains strong. We look at the healthy pipeline for the remainder of the year, given our strong sort of long-term relationships, client relationships and also our consistent approach towards our clients that I hear in pretty much all conversations that I have with our business partners. But also in terms of our lean operating model, and Sven alluded to it, which does allow us to write business for longer on a profitable basis as the average peer. So we do remain optimistic and very confident to meet our guidance 2026, both in terms of growth, efficient growth, but even more so in terms of growing our earnings throughout the cycle, given our exceptionally strong balance sheet coming out of 2025. So, thank you all for your interest this morning, and have a good day. We'll speak soon.