Swiss Re AG (SREN) Earnings Call Transcript & Summary

Good morning from the Swiss Re Next Auditorium here in Zurich. My name is Thomas Bohun, and I am the Head of Investor Relations. I would like to welcome you to our Swiss Re Investors Day. We have a full agenda today. We will start with Christian Mumenthaler, our Group CEO, followed by John Dacey, our Group CFO and Guido Fürer, our Chief Investment Officer. We will then open up for a Q&A session. Registered participants, please note that to ask questions you have to use the chorus call line, in line with our regular earnings calls. We will then break for an hour before we return with Thierry Leger, our group Chief Underwriting Officer; our Reinsurance CEO, Moses Ojeisekhoba; and Andreas Berger, our CEO of Corporate Solutions. We will then have another Q&A session before we close for the day. And with that I would like to welcome our group CEO, Christian Mumenthaler.

Thank you very much Thomas. And a warm welcome over my side. Good morning, good afternoon, good evening, depending on where you are all across the world. I hope you are safe and healthy in these quite challenging times. So I'm looking forward to a slightly different Investor Day. I hope everything will work fine today and the technology, I think we'll get all used to that, will work fine. I'll given an overview of where we are before handing over to our Chief Financial Officer. So first what are the key messages for the day. So the first one is clearly that our balance sheet is very strong and that we're well positioned for growth. We see positive rate momentum in P&C Re and target a combined ratio -- a normalized combined ratio next year of below or equal to 96% from what we can see at this stage. In Life & Health, we continue to focus on profitable growth, but at the same time, put a lot of effort in managing the in-force. As you know, in GAAP, this plays a very big role. Corporate Solutions is well on track to achieve the goal for next year, normalized combined ratio of 98% or below. iptiQ continues to show very strong growth trajectory. And we now had this year, a few data points from markets from similar ventures in the InsurTech space. And so we see a market-implied valuation of about $2 billion. Swiss Re's investment portfolio is well positioned in this current low rate environment, and I'm sure that later on Guido Fürer, our Chief Investment Officer will have an opportunity to show what they have done. I think their team is stellar and has navigated extremely well through the crisis this year. We continue to be committed to our capital management priorities, that I guess all of you know very well. The first 2 of those are: one, to have a very strong balance sheet; and two, to pay an equal or increasing dividend over time. And finally obviously in times like that, there's a lot of focus on the short term. But rest assured that we continue to overthink about the long term. We continue to have significant investments into the long term. And we believe that to be successful long term, it's going to be a mixture of being risk taker, which we obviously are today, but also provider of some risk insights, good partner to help other people to take risk, and therefore we continue to invest significantly in all of those areas. And this is not the focus of today's presentation, but I'm going to talk to that a little bit later on one slide. So that's the key messages today. And I guess the most natural start will be COVID-19, which is on everybody's mind today. So what we see in terms of impact on the insurance and reinsurance industry and what is Swiss Re's response to that. So the first one I think, there's no question, there's less capital around. Obviously Q2 was worse, Q3, Q4, we see some better ratios probably due to financial markets getting back. But overall this year will leave its mark on the capitalization level of the insurance and reinsurance industry, and in that context for us is really important to have the strong balance sheet but also to reserve appropriately for COVID-19 to be on the safe side. Then we see the global protection gap further increasing in these difficult times, which plays into the hand of our public/private partnership solutions, we have now for more than 10 years. That's the team that looks with -- after governments and see what can be done to mitigate the risk at governmental level. We see increasing re and insurance demand with accelerated shift to digital channels, which helps us and is a reinforcement of our strategy on the iptiQ side, our B2B2C digital white labeling platform and then obviously unprecedented low interest rates, which we expect to stay there for longer, which means there must be a total focus on the underwriting margins, foremost on underwriting margins. Obviously the fact that we had the sale of ReAssure, it massively reduced our asset risk. It means that we have a bit of space to re-risk and have a more balanced asset allocation going forward also in the other business units. So that's a bit the situation overall. I'm now getting to the main drivers for the losses for the insurance and reinsurance industry, which I showed, I think, at the end of Q2. So here, you have an update. The first driver is here business closings in Europe. So they find their way in the insurance industry through policy wordings of primary companies, in which case, some of them are not being very clear because it's clearly -- the intent was never to cover something like that but clearly we see particularly in Europe some unclear languages which means that these losses go into the primary level and then through some reinsurance treaties to the reinsurers. So if you look at the underlying driver here, this is data from Oxford -- University of Oxford, and then we reworked it a bit at the Swiss Re Institute. You can see that the biggest business closures and the strictest ones were in Q2. So this is where we expect the majority of the losses to materialize. Q3 was quieter and you noticed that we didn't increase our reserves in Q3 and in Q4 now clearly more activities again. This is a cutoff date of 9th of November. We see more closures but we -- at Swiss Re we don't believe it's going to get anywhere close to where it was in Q2 in terms of actual closures. But time will tell. Hopefully everybody has learned from the first wave, and you can see that in the detail, the restrictions are less strict. And then the other driver for insurance and reinsurance losses are obviously excess mortality, for us, mostly U.S. and England, Wales. You can see here, the light blue is England, Wales excess mortality with a huge peak in Q2. And then some normalization back to normal levels. And then the U.S. obviously had several waves that you're aware of. Q2 was the biggest one but also in Q3, we saw some losses which we have booked in our GAAP accounts and Q4 is a question mark, how high will that be. As we get to Q4, obviously the underlying mortality expectation also goes up, as you enter normally the flu season at that time. So it's going to be interesting to see how much of what we see now is going to be actual excess mortality. But clearly I think we'd expect some losses also in Q4 from the U.S. So these are the main drivers we can see, hopefully they give you a little bit of insight into how we see things. And then I go to the Q3 numbers in some details. This is a chart we showed at Q2. And so we updated it for Q3. It gives you bit more insight into where we booked the additional reserves. So you see the total of about $3 billion on the right side, and you see the majority was booked in Q2 and then Q1, Q3, also some bookings there. You go one to the left, you can see the split between IBNR and paid and case reserves. I noticed there's a lot of attention to that split in the analyst community. I just issue a health warning here that this these -- it depends a bit how you define things. So I don't think you can just compare across different peers, and I'll come back to that in the individual buckets. So if I start on the left side, event cancellation, it's clear many events have been canceled. We have $681 million reserved. This is probably the -- one of the easiest part to estimate. Then we have business interruption, the hardest part to estimate. We still have a huge part in IBNR here. We haven't touched that in Q3. Credit and surety, $175 million smaller pockets. Mortality, $667 million, I think here it's important to notice that there's 2 different ways you can define the COVID losses. You can -- on one hand, you could take all the people who have died where it's explicitly written that it's due to COVID-19, and that will be a smaller figure. But that's a definition you can take and some peers have taken. Or as we have done, we assume that deviations from base mortality, negative ones, will probably also be due to COVID to underreporting of COVID cases. And therefore, our figure here is the deviation from what we expected. Obviously the total will be the same, but this is more a definition of what falls into mortality bucket here. And obviously, in our definition, you will then see a higher proportion of paid and case reserves because we sort of go ground up. Then if we just use the cases that have -- that were explicitly clear is from COVID-19. And then we have other lines, $427 million, that's a mixture of casualty, other lines, marine, engineering, et cetera. Very difficult to estimate, although they are no or very little movement in Q3. So that's a bit the composition of where we are today. I know there's a lot of interest to know what does it mean going forward, Q4, Q1 next year, et cetera. As we have reported for our SST ratio and SST ratio, we have to make an assumption for the next few quarters but in that -- and we haven't disclosed that because it's highly uncertain, we don't know yet how many claims we're going to have in next year. But this $3 billion here represents clearly the majority of this ultimate loss. So maybe one word around the future. So I cannot give you figures but maybe some sense of how we see things and how it's going to be evaluated. So you can see here 4 categories. You can see how much we have booked by Q3 of this year. So $700 million event cancellation. The majority of the Q4 events was already booked in 9 months of -- our 9-month figures in GAAP, which means that in Q4 we obviously look at events for next year and how much we have to take there. Corporate Solutions, Andreas Berger, when he came mid of 2020, decided to exit that business. So there's limited exposure in Corporate Solutions, obviously, there's still some in Reinsurance in next year. And then in our ultimate assumption we have in our SST ratio, we assumed that larger sport events will go ahead, take place without spectators, which is what has happened this year. So I think we have a sense of the type of losses we have to expect vis-à-vis the policy limits. Business interruption. This is quite complex because it has these 3 layers, right? You have the underlying risk. So what is going to happen in terms of business interruption, then you have to transfer to the primary industry and then you have to transfer to the reinsurance industry. And I guess the biggest factor here is -- actually the second bullet point is the one we control most is the transfer then to the reinsurance industry. We have already since about April, started to have all renewals, including some exclusions for that. But this means that Europe, which is a 1-1 renewal is not covered yet or still covered this year. So the biggest risk mitigant here is going to be the 1-1 renewal. We expect all or nearly all of these contracts to be renewed with an exclusion. So this would sort of cut off the losses at the level between primary and reinsurance. But obviously, our own clients are also doing their work. They don't have 1-1 renewals necessarily. So it goes through all the year. So they have also worked on changing the wordings as they renew policies at the primary level. There's also some sublimits there that will be used up by now. So there's mitigants at all the different levels. So it's going to be a combination, I think, from lower lockdowns than in Q2, some policy wordings, some mitigation happening between the businesses and the primary layer and then the mitigations we put in reinsurance between the primary insurance and reinsurance. Mortality, I think, very hard to predict, entirely depends on the development across the world, but we gave you the sensitivity of $200 million pretax losses per 100,000 excess deaths in the U.S., which hopefully helps you through the quarter to estimate -- make your own estimate. And then finally, the highest uncertainty bucket, credit & surety and other lines. This is very difficult to say because to a certain extent, you could even argue it's not a COVID loss. These are losses that could materialize as a consequence of the economic meltdown, that was a consequence of COVID. So credit & surety very much depends on economic factors. And disability business in the past in other countries also saw the impact from economic crisis, but how much this will be the case this time is very hard to say at this point in time. So this is more risks to flag, and it will all depend on economic factors, vaccine, deployment, et cetera, et cetera. So hopefully, while this is not fixed figures that will have to be reviewed anyway, this gives you a bit of a sense of the underlying risks and where they're going. So with that, I close with the topic of COVID-19 and I come to the different businesses we have and how I see them at this stage. So the disposal or the sale of ReAssure to Phoenix, obviously, was a good point in time to rethink how we want to operate as a group because it was a big part of the Life Capital business unit. We had, since 2012, created very separately business units with separate legal entities, et cetera. So a system that is quite separate that allows entrepreneurship in all of these business units. In view of this disposal, we came to a conclusion as an executive board and together with the Board, that we should look at getting more synergies between those, to be less extreme in having them separate. So we can clearly start to see some benefits of these 3 business units or businesses helping each other and trying to capture some synergies. So go closer to what we call a one Swiss Re approach. So in this one Swiss Re approach, we have clearly reinsurance in the center as the core business, then we believe it makes sense to have a Corporate Solutions. In the past, goals in Corporate Solutions were more to grow, to become big, to have economies of scale, ultimately, maybe do an acquisition, be a big player. I think this is unrealistic in the current environment and also longer-term with the situation that we're in. So Corporate Solution is going to be much more specialized and focused and the main strategic assets they bring to the group is their very strong relation to clients, to the corporate world, which otherwise we don't touch. And we see more and more touch points between the different business units. So for example, Corporate Solutions gave access to the long-term relationships to BMW, Daimler, et cetera, for reinsurance solutions or the deal we have with IKEA with iptiQ also came only because Corporate Solutions knew the people very well, and there was a trusted relationship. So we see these 3 business units -- we see more synergies between them. And that's direction we're going to take. And all of that is going to be supported by what we call the foundation, the group foundation, where we tried to get some synergies. We think, certainly, people are -- should be freely floating between these business units. People are a huge asset in a company like Swiss Re. And then in terms of strategic assets there, I think that's the same as in the past, we always stress risk knowledge. Leadership is extremely important and embodied by the Swiss Re Institute, and Thierry Leger will talk to you later. Then we have this whole client access and image we have with clients, which is unique, including to the corporate world, as I said, and then the capital strengths. And what synergies can we get there. You've heard about our efforts to minimize the number of legal entities, put them together, get some synergies. This is not a big project, but we had to publish that, but just that you understand the context of all of that, is trying to get some synergies between these businesses. So now let me go quickly through these businesses and start obviously with Reinsurance. So Reinsurance, in my view, has some 4 extremely strong competitive advantage. This scale is just a very big competitive advantage. And as Moses will talk to you later, they have done a great effort and that great success in scaling up the business without scaling up the costs. And you just get significant benefits from doing that in the last 3 years. So scale is hugely important. And then risk diversification mathematically basically needs that you need less capital for the same amount of risk. So you get some benefit if somebody would have a certain return, your return on the capital will be higher, if you have this kind of diversification, which is very large, in particular between P&C and Life & Health. And then you could say 2 softer factors, which are huge client access. Yes, of course, we have brokers in all of that, and that's perfectly fine. The clients choose that, about half of the clients have brokers. But in all cases, also if there are brokers, we have more a triangle relationship with clients. We know the clients, we know dozens, sometimes hundreds of people at the client organizations. We're deeply embedded. There's a trust relationship in this triangle between us, brokers and the clients. And we see this as a huge, huge asset. Also for solutions and for other things to be done, not just pure reinsurance transactions. And then we -- through the size and scale and everything, we can afford to have our own risk knowledge, which, in my view, is a strong differentiator. So these 4 elements play a big role in terms of competitive advantage and where Swiss Re is. In all of that, as I mentioned, the de-consolidation of ReAssure reduces the financial market risk of Swiss Re very significantly and gives us also a bit of financial flexibility in terms of a growing -- continue to grow reinsurance, but also to rethink about rebalancing the asset side, make it more comparable to some of its peers. So within Reinsurance, P&C, when discussing with analysts and I mean, this community, investors, I often get the sense that people say, okay, the market is not hard enough, it's not moving enough. There's some impatience. It's not good. But actually, if you look at the underlying figures, I'm not sure everybody is aware of where it is. I think thanks to this enormous scale and diversification, actually, if you look at this year, the underlying business is really good. So I show here on this chart, the normalized combined ratio, which is by now 9 months between 96% and 97%. And then a normalized return on equity, this is obviously without COVID, but also looking at the ROI in a slightly normalized fashion. And you can see that the underlying will be about 16% ROE today with current -- in the current rate environment, that's what we would have. So -- and I think that's not -- that picture is not the same if you're a smaller scale reinsurer. If you don't have Life & Health, et cetera, et cetera. So this is part of this competitive advantage. Now there is concern, obviously, on the ROI, the pressure that the reinvestment rate has on the ROI, it's clear that it's going to create pressure on that. And therefore, here on this chart, I also show the stress scenario if the ROI was 100 basis points lower, and you can see, we'll still be within the range or vice versa, we would have to decrease combined ratio by 2.5 points to get back to the 16% we have. And obviously, since this asset liability duration is about 6 years in P&C Re, this reinvestment risk will only eat into the ROI over time, about 6 years. So this is the period over which you need to compensate with 2.5 points. And I definitely think this is extremely feasible. So I'm very optimistic about this picture. And as I said -- as we said, what we expect next year to be below 96% in terms of combined ratio. So we think P&C in this environment -- thanks also to scale, diversification, et cetera, can actually live in the current environment. And the interest rate environment means we just need to push for further decreases in the combined ratio and higher underwriting margins. Life & Health. Obviously, we had a good track record now since all the remediation actions we took a long while ago now. Even this year, we're just below 10% ROE, excluding COVID at 9 months. Obviously, it has to be said that in Life & Health, the difference is -- pandemics are part of the risk profile. They thought about, they're in the risk models, they're in the costing. So this is sort of the natural catastrophe for Life & Health. There's nothing to be ashamed of here to have some losses here. This is paying families to continue for what they have paid. So this is, in my view, a different quality problem than what we have in P&C. Obviously, Life & Health slightly stressed in the next few years in this very low interest rate environment, it means the R is very high. So the ROE is under pressure, but we believe we can stay within this 10% to 12% range in the next few years. You could also see that Reinsurance has done a good job in terms of growing without growing the cost line, which means that have actually 2 points lower operational cost ratio than they had in 2015. So this is a massive strengthening of the competitive position. Corporate Solutions, I tried to find a simple picture to explain a little bit the repositioning. So we have 2 dimensions here. One is how many products you offer. The right side is extremely comprehensive. Left side will be very specialized. And then from bottom to top, bottom will be capacity focused. You could say, opportunistic. This is more the excess layer business. And on top, is expertise focused. You could also say client centric. It's more the primary lead type activities where you have a relationship with the client, which is much stronger. So in the past, from pre 2012 to -- this period of '12 to '19, of course, it moved very much to the right, so a much more comprehensive product offering, but also moving with the creation of a platform, a primary lead platform closer to the client. And the move now is clearly to go back on the comprehensive offering to get back to just the lines we feel very comfortable. We have a competitive advantage. So this is the whole portfolio pruning that is taking place, and this is where we want to be. Only if we have a competitive advantage or we see particular knowledge we have that allows us to operate, do we want to be in that line. But the push towards the client is continued, right? This is very important. And I think all the growth we see now going forward must come from this primary lead. It's not just from opportunistic deals we can see in the markets. And that is, as I said, this is, I guess, the strategic attraction, of course, for the Swiss Re Group. So being close to these customers, allowing the whole group Swiss Re access to these corporate clients. CorSo is well on track. I repeat it every time. But for me, it's a pleasure to continue to repeat that. The portfolio pruning is on track, as they had promised last year, the cost savings are on track as they had promised. They bought more reinsurance to manage volatility. Price momentum is higher than we thought a year ago, so 15% year-to-date, nothing has changed. You still see very strong momentum in the corporate world. Probably also, I think, in part, because Swiss Re was quite early, but others followed, 6 months, 9 months later, so there's still a lot of noise in the market, a lot of stress, a lot of bad results also, frankly, that need to be compensated over the next 3 years. So I feel very comfortable about the development of this whole corporate market at this stage. You could also see some favorable prior year development now. So we seem to be in a good position in CorSo. If you look at this normalized combined ratio, and you can see 9 months 2020 at -- nearly at 98%. The obvious question we will get is, okay, why don't we lower the target for next year? And I guess, I answered it already here, but it's still okay to ask the question to maybe get more information from our CFO. But basically, this year, there's a lot of uncertainty around claims. There's a very low claims activity, possibly because of COVID. We think it's -- due to COVID that this normalization here is without manmade. So there's some good luck in manmade. So that's one factor. And the other factor is all the economic uncertainties next year in terms of also the Credit & Surety business, what does it mean, et cetera. So there's a few factors that make us a little bit cautious here. But overall, I would say, I'm very, very bullish about this business and where it's going for the next few years. I come to iptiQ, our B2B2C digital insurance platform. We have talked about it every year now. I guess, it's more established. It continues a very nice growth trajectory. We now have over 500,000 customers, 40 partners in 5 markets. So it's basically Life & Health in the EU. It's [indiscernible] in the U.S., and now we have also launched and worked on since 2, 3 years on P&C insurance in Europe. So these are the 3 main businesses we have. And we can clearly see how the interest throughout this year is this push towards more digital, people are more buying online. And so we see this as further encouragement for us to continue on this path. As I said, we also saw some valuations this year, some IPOs of the biggest InsurTech players. They have figures that are remarkably close to what you can see here. There's no pure Life & Health player. They're also not B2B2C. They're mostly B2C directly. But you can see here, the premiums will be over $300 million towards the end of the year, a CAGR of 75% over the last few years. Again, very similar to figures you can see in some of these peers, I would say. And then on the right side, you see the valuations have been really high in the IPOs, the listed peers, 5 to 7x premium. And then in terms of the unlisted peers, even a bigger range. So obviously, you can make your own calculation. This is just making a trial on our side to estimate the value for this iptiQ franchise, which at this stage is $2 billion. So I went through all the different businesses. Today's focus is a lot around fixing things, where are we now, what we need to do. I think that fits where we are now and what we need to talk about. But I just want to have at least one slide to talk about the longer term because there's always the risk in situations like that to just focus on the immediate and forget to invest for the long-term future. And we're not doing that. We're thinking a lot about the future, where we'll go. We see the purpose of Swiss Re to make the world more resilient, and there's obviously no lack of need for that kind of purpose in today's world. And we intend to do -- make the world more resilient by putting clients and partners at the center, by offering them risk transfer solutions, as all reinsurers do. That's the classical way, we help them, but we see also ways to help them take risk, as we did in the past through risk insights and also more and more through partnering with them to take the risk. And you can see some of these names, in terms of risk insights, tools we have talked about for a long time, like CatNet and Magnum, Life Guide, et cetera. They're all here. They're all there to provide -- to help our clients basically take some risks. And on the left side, I think you've seen a flurry of announcements through the last year or 2, where we have partnered up with some of these big corporates to help them take risk or together take some risk or improve the value chain in the insurance. So probably for our next Investor Day, but I just wanted to give you this glimpse into what we're doing and put this in the context of a longer-term value creation for Swiss Re. So my last 2 slides around ESG. I think you're all aware how this has become hugely important. It actually comes a lot from the investment community. I've been active in the field for 15 years. I remember making speeches in 2004, 2005, with very limited resonance to be fair. But this has changed massively, and you're probably even more aware than I am, that, in particular, through pension funds, long-term investors, stakeholders endorsed pressure of all of that has led to a complete change of thinking around some of these factors, put a huge amount of pressure on businesses. Obviously, some businesses are further ahead. But I can see now a lot of businesses who probably on their own wouldn't have moved, they're moving now rapidly or some of them are moving rapidly. So there's a really huge movement in the whole corporate world around sustainability. And so we have a certain number of commitments we have made. So I think we always drive to be at the forefront of things. On the operations, we have this net 0 commitment by 2030. We actually buy certificates, carbon certificates since 2003. So we are, in that sense, carbon neutral. But certificates are not probably the best way of doing things. It's just there's some question marks around that. It's not ideal. So this net 0 actually means we commit to pay the price to extract the CO2 from the atmosphere. Because ultimately, there will be no other way to get to 0, then to have a significant huge industry around CO2 extraction from the atmosphere. Otherwise, we'll never get to 0. So we estimate it's going to be much more expensive than the certificates are right now, probably $100, $200 per tonne is more realistic over time. And that's an industry that is not yet billed. So net 0, that's why it's 2030. We bet there will be possibilities to offset it, and we're going to pay for that. And then indirectly through the influence we have, both on the asset side and the underwriting side, we have commitments, net 0 on the underwriting side and asset side by 2050. So basically everything we influence will be touched. So you know that on the asset side, we have switched to ESG standards, but this goes much further. This goes into looking at the footprint of the companies we have invested in and going to net 0 for the sum of these companies. So these companies will have to get net 0, otherwise, they won't be in the portfolio or you need companies with some negative, if that's possible, contribution to have some, which still have some emissions. On the underwriting side, this is not -- this is a long-term pledge, but obviously, we take actions in between. So you probably read around our efforts or our new policies starting this year to exclude some players in the oil and gas industry who have the highest intensity of CO2, the use per gallon of oil produced, for example, so the biggest polluters in the creation. So we try to encourage those who have better processes and lower emissions. And then 2 concrete examples that we have done recently. So as far as we know, we're the first multinational company to announce a triple-digit real carbon levy internally. It starts at $100 per tonne but will go up to $200 per tonne by 2030. That's because we estimate that at 2030, that's about the price we'll have to pay for extraction from the atmosphere of CO2. So this is going to be, for example, charged for flights. Every flight will have this additional charge. So it's going to be embedded in a system where managers make decisions whether to fly or not, these costs will be fully embedded in their decisions. And then biodiversity, big topic. I think a lot of people are aware that this is a huge challenge, but it's also a huge challenge to make it more visible, tangible and link it to the economy. So we have put a lot of effort into this. We basically looked at the whole world. This is Geo coded, so in the whole world. For our CatNet, I mentioned before, you can see at the different services that nature basically brings to you. So water quality or pollination service, as they call them or soil quality, you can see that in a 1 kilometer resolution across the world. And then based on those, we're able to make some correlations to the economic side, and we were able to create some indices in countries and make some -- and link it so that you can have a reasonable dialogue with governments or other companies around the risk that is in biodiversity and the loss of biodiversity and these losses can be huge. So hopefully, this gives you a sense of what we're doing in this very important topic of ESG. A lot of you show always a lot of interest. So it will be valuable to spend a little bit time on this. And with this, I'd like to hand over to my CFO, John Dacey, who will lead you more through the capital side of things.

Christian, thanks very much. I'd like to go through about a dozen slides where we'll talk mostly about the capital generation and the strength of the balance sheet, a little bit of a highlight on the alternative capital partners team and the great work that they're doing, both in supporting our capital management, but also in supporting the growth of our businesses across multiple dimensions. And at least some information, which might be useful for some of our analysts on thinking about the future reporting for the group. On capital management, I think we've managed the COVID crisis extraordinarily well in our ability to maintain what is truly an industry leading capital position. And we're very proud of that, but proud of that also to the degree that allows us to move forward to grow in what are some very interesting market conditions that both Moses Andreas will speak about this afternoon. But maybe a little bit of history. Let's go back 5 years and talk about where our SST has come from and remains. The SST that we reported at the 1st of July is a rate of 223, that's above our target of 220, and I just would reiterate that 220 is a target, it's not a limit. And we'll see in a moment that we've done a nice glide path down to that target, as we've continued to be able to build some important parts of our business. But on this slide, I'd like to point out a couple of things. First is the economic earnings over this period. What's in the pillar #1 here, over $12 billion in this period in spite of the very difficult years we've had with natural catastrophes, some adjustments to our reserving and most recently here in 2020, the COVID losses. And just to reiterate the position that Christian mentioned, in the SST calculation that we have as of July 1, we've included not only the COVID losses booked in the first half of the year, the $2.5 billion, but also a projection that we've made internally for what we think this is going to cost us into 2021. And the second thing is, while we've repatriated more capital, a lot of that repatriation was done in the earlier years with share buybacks, the reality is our actual economic earnings have been more than 130% of the dividends that we've paid. And when I talk about our capital objectives, you'll see that, that dividend coverage by economic earnings remains absolutely critical for us, and we are very comfortable with where we stand on it. Lastly, as Christian said, in the context of the ReAssure sale, we've done 2 things: one is, we've been able to free up a material capital need overall and then specifically, in the finance portfolio that we have on investments. I'll also give you some more details of that in a moment. But that's been able then to bring down the required capital. I'd say that as we continue to own a significant portion of Phoenix Group shares, we're, frankly, very pleased with the performance of those shares this year since we've had them since July. Over time, we'll see how big of a shareholding would like to own in the future. But for now, we've got the shares on our balance sheet, and they are part of this risk calculation. Again, a historical view, the capital generation, we've been able then to see some very strong dividends from our subsidiary businesses up to the group. And the main part of this chart, what you see is reinsurance over the years, especially in the earlier years before we saw the large increase in nat cat losses, sent over $2.5 billion per year up to the group in their dividends. We also received substantial dividends from Life Capital. And yes, those will not be there in the future. But I think we expect our friends in Corporate Solutions as that business comes back on track to become a more material part of the dividend policy as well as our ability for the Reinsurance businesses, Life & Health and P&C, to maintain a strong contribution as we go forward. On the right side of this page, some information, which we've not disclosed previously, but I just thought it was important after the third quarter results to reiterate, we did get a dividend up on the sale of ReAssure from the Life Capital segment of USD 1.5 billion. But that's on top of an existing free liquidity at the group level of $2.7 billion. So we've got a total today or as of 9 months, and nothing bad has happened to it, of $4.1 billion of liquidity available at the group level, which not incidentally is at least twice times what the dividend we paid this year for the full group out to our shareholders. I mentioned the glide path of our SST ratio. We reiterate that we brought this down. We've told you back in 2016, '17, '18, the position of the group's capital seemed overly strong to us and that we would bring it down, a combination of share buybacks, which we executed over this period. And the increase of the ordinary dividend has allowed us to come closer to our target. We're very comfortable with where we are at the moment. I will also observe that the MVM identified in the bubbles in the bottom have increased materially since 2019. This is largely due to the reduction of interest rates in the last 9 months, in particular. We've been able to manage through that and maintain this very strong SST ratio. If I want to focus on what's happened in the last 9 months, we started out with an available SST capital of $42 billion at the beginning of the year and a required economic target capital of $18 billion. I've mentioned the ReAssure sale, which has reduced that required target. The series of items, especially the losses that we've endured on COVID itself, the payment of the dividend was already in there, so that's not a reduction here, have brought us over to a reduced available capital but also materially reduced required capital. The other piece I'd mention here on the capital repatriation, it might be surprised that we've only got a 0.1 negative amount here, the calculation of that is a combination of the abrogation of the second tranche of the share buyback, which is offsetting the reserving that we've already done for 50% of the dividend paid this year in anticipation of 2021. So as of July 1, we've already, on a pro forma basis, booked 50% of at least that figure. We'll see, again, the dividends decision will remain in the hands of our Board of Directors and then ultimately, the shareholders. But for now, in this calculation, 50% of that dividend has already been accrued. Overall, the capital structure of the group remains conservative. The leverage ratio we've got is stable at 25%. That's the light blue line on the left side of this chart. We've been able to reduce our letters of credits utilized in Life & Health is one of the reasons for that. We've also been able to take out the debt associated with the ReAssure business. At the same time, during the course of 2020, we were able to access the market at what we think are very interesting rates. We did earlier a subordinated instrument of EUR 800 million. And we've also accessed the Singapore dollar market later in the year with another SGD 350 million. I think our funding capacity remains robust. The market is very interested in supporting us in any debt issues that we might have. But right now again, we're very comfortable with the capital structure. I note the big blue bubble in the middle, I talk about this often. We continue to have $2.7 billion of contingent capital available to us. It's not part of the SST calculations, but there's no requirements for us to be able to draw this down, should we see an appropriate need and utilization of it. With that flexibility, I'd like to talk for -- give a little bit into the Alternative Capital Partners whose growth has provided additional flexibility for our capital structures. First, just to remind you a little bit of the history Swiss Re Group has been active in the Alternative Capital market for more than 20 years. We were arranger and the structurer of the first cat bond in 1997, and we were a principal investor. On this chart, we talk about 2 pieces that continue in our book. In the first case, we have an inventory for a portfolio of securities in the ILS marketplace. That's grown during the course of this year as we've seen some interesting price opportunities for us up to about $1 billion, maybe even a little above $1 billion at midyear of 2020. Most of these are tradable securities, 70%. We do this business in the first case for its positive economic return, but this likely structuring on the right side of this chart also provides the opportunity for us to gain market insights. We pay a lot of attention to the Chinese [indiscernible] we have to pay attention to. But we're able, as a group, to be much better informed about the dynamics of the market, especially around the U.S. natural catastrophe market. In terms of ILS structuring and bookrunning, again, we continue to be a major player in this space. I'd note, for example, in October, we did a big placement for the California earthquake Authority, I think, about USD 775 million. Again, the total for the year at the first half was up to almost USD 9 billion of structuring and placements. So this is a core activity that the group of ACP continues on and is actually, as you see, growing. In addition to these, we've got an ability that's increased materially for our own management of risk within the group. And so what you see here is between 2018 and 2020, a significant increase both in our sidecar platform but also the issuance of our own cat bonds to help support the growth -- the profitable growth that we've seen on the nat cat side of Swiss Re Group. This is largely for the Reinsurance P&C teams. But I think what you see on the right side is the shortfall relief for the North American hurricane, which is the main focus of this team to date has been material is approaching USD 3 billion. In the middle of this, we talk about the development work that the team is doing to look to even expand the risk-sharing platform. We've got the sidecar. We've got some great partners that have invested significant amounts in that sidecar. We are looking to see if there might be some opportunities for more durable sourcing of capital to support these activities for the Swiss Re Group and an extended partnership. So over the next quarters, I would hope to be able to explain that we've been able to find some success in some of these additional capabilities. Last, when we talk about the capital structure, the ACP team, again, has been able to help us think through the broader capital structure and the total capital relief that we've seen has increased by 75% over these last 2 years, up to close to USD 2.5 billion. So what's required on an SST basis for what is a set of peak risks has been substantially adjusted downward, thanks to the success of the retro activities of this team. And as I said, we should expect that they will continue to grow to support in a very symbiotic relationship with our Reinsurance team and potentially eventually with the CorSo team as well. If I can then bring you back to the group. Christian mentioned in his comments, the reduction of financial market risk related to the ReAssure transaction. Here, we give you some additional and new figures to be very clear on that of what's happened. If you look at the gray bar in the middle, when we think about the SST economic target capital on a pre-diversification and post diversification, what you see is the change between the 1st of January 2020 and the 1st of July 2020, adjusted for the ReAssure sale is a major reduction in financial market risk of $2.3 billion and of credit risk of another $0.5 billion. The colors are a little tough to see here, but that's what the numbers are. If you then go to the pie chart on the right side, and look across the total shortfall by line of business, what you see is financial market risk plus the Credit & Surety plus other credit added all together, total only 31% of the total shortfall risk that we're running in the group. Now in some ways, we're happy with the growth of the underwriting risk we've got in our business. But I will say that this 31% is probably a low end of any historical range that we've had. It also, frankly, as of the 1st of July, reflects some of the caution that we've had, given the market volatility in financial market in the first half of 2020. So I'm not suggesting that this is predictive of where the future is, we're likely to be more balanced and the risk we take. But we do have considerable room when and if our asset management team finds it appropriate to bring on additional risk, which by the way, will be a nice balance to the insurance risk that we think we can continue to grow in the markets. An additional piece of information related to ReAssure is the structure of where the bits of Life Capital are landing in the post ReAssure world. In the first case, I mentioned the Phoenix shares, they will be managed by our principal investment team but held at the group level. In addition, the iptiQ business, which Christian talked about, will also be a group item. We expect to be able to provide you some adequate information to understand the dynamics of that business, at least on a semester basis. And we'll update you on iptiQ itself at the full year results and certainly it's 6 months on the first half of 2021. In addition, there's a small business, Admin Re U.S., which is in run-off. If you remember, in 2012, the group sold the majority of Admin Re U.S. to Jackson National, there was an additional small sale, I think, in 2017 to RGA of another piece. What we've got left is a business in runoff that currently accrues about $150 million a year in premium. On average, it's looking to have about $25 million of profits with shareholders' equity of about $700 million. Those will be part of the group items not broken out in any material way. And lastly, we mentioned some quarters ago that elipsLife with the business related to some of the activities that we've currently got in core. So on the -- with the IHC acquisition done 4 years ago, will be contributed. The elipsLife portfolio is in the midst of a repricing and restructuring is too strong of a word, but adjustments of some of its activities. What we've suggested here is, in the near term, the earnings are probably going to be modest. We've simply put down 0 for your models for the near term, but over time, I think you should expect that under [ Course's ] leadership, this will return to an interesting and clearly profitable business. And then on iptiQ, what we've given you for the first time is a clear sense on sort of near to mid-term expectations of the new business strain for iptiQ, which will be booked in group items of about USD 200 million. So as we continue to build our business, as we continue to sell new policies and expand iptiQ, that will be a cost -- a running cost. As Christian mentioned, we've got different maturities of different parts of that business, some will be breaking sooner than others. But for the near-term modeling, the $200 million new business strain is an appropriate charge that you should expect in group items. Otherwise, the rest of group items, which is the combination of the profits coming out of the principal investment portfolio, the costs that are amalgamated at the group level and some licensing fees probably would bring you to somewhere close to 0 for that piece. So on balance, what you see here, the earnings before tax is of minus $200 million plus $25 million is not a bad starting point for estimating what group items might look like in the near future. My last and final slide, 2 messages, I just want to reiterate, one is our group financial targets remain in place, 700 basis points over the risk-free for return on equity, 10% economic net worth growth per share. You might -- we've heard people say that these don't seem very aggressive given the ReAssure transaction. I hear that, but you'll appreciate that in the context of working through the pandemic and actually missing these targets for the last couple of years, we'd rather have the ability to meet or beat these targets in 2021 and moving forward. The other thing I would say with the target is we've announced that we are going to be moving from U.S. GAAP reporting to IFRS in 2024. We'll have to think about our targets in the context of a new reporting GAAP as we go forward. But again, that's not a near-term issue that's going to be for 2024. Equally important, on the right side of the capital management priorities. These have not changed, but simply to reiterate, the first priority is to ensure superior capitalization. I think you should assume that we believe we're there with the 223% SST ratio, again, anywhere around the target of 220% would be a superior capitalization. To grow the regular dividend where possible and if not at least sustain it, that's the second priority. The third priority is to be sure that we're taking advantage of growth opportunities in the marketplace where we think we can, continue to build value. And then finally, if we cannot put the capital that we have, excess capital to work, then we repatriate further. That's been the basis for the share buybacks that we were doing up through last year. I think what we see right now in the market opportunities, both for Corporate Solutions and for Reinsurance, you should expect us to be focused on certainly on priority one, priority 2 and priority 3. We'll see what happens in terms of our ability to get the priority 4, but it comes after the first 3. I think that's my last slide. And with that, I'd like to be able to turn over to Guido.

Thank you very much, John. It's a big pleasure to talk about asset management as the last section of this morning before we go to Q&A. No doubt, 2020 was a very special year and kept us, asset manager, clearly on the edges of our chairs, this unprecedented volatility, which goes in both ways up and down. I thought it would make sense to give you kind of a high-level overview of what happened in our portfolio expressed by these 5 KPIs, starting with the return on investment for the first 9 months of this year of 3.4%. But this is also coupled with a very low impairment. You see it's just $27 million for the full year. Now it goes without saying we wouldn't have achieved those figures without very severe action in the portfolio. It was portfolio restructuring, but it was also coupled with a very dynamically managed overlay program, which led to another important outcome. If you look at the number of fallen angels in our portfolio, it was less than 50% of what the market experienced. Again the fallen angel is an important constituent for insurance industry because it's the bridge between investment-grade versus non-investment grade. We continue to serve on the ESG. And again, coming back in a bit more detail later on, we produced another outperformance this year. Ultimately, we have a running yield. Yes, it's lower than last year. The 2 obvious reasons are lower interest rate. The 10-year U.S. treasury dropped by another 123 basis points in the first 9 months of this year. But also, we exited certain sensitive sectors, which also led to a slightly lower running yield. But if we look on a summary on these 5 KPIs, I think it's fair to say this is a high-quality portfolio, which again produced a stable return in very choppy, very difficult markets. This was thanks to active portfolio action, but also thanks to an ESG implementation, which really works. We have used new technology this year, and we work on a few other topics, which I'm super happy to report over the next 15 minutes. We discussed about the first 9 months of this year, but I think it's fair to say you should look as a long-term investor. That's it, it's also good, therefore, long-term perspective about some of the performance figure. We all are familiar with the return on investment. And very happy to report back the last 5 years, we could produce 3.6% on an annual basis. Now that's an accounting figure. And we know the debate what is the right measurement. And probably, the total return one is a good one. That's why we took the analysis and looked how much basically we produced in our performance compared to the so-called risk-free portfolio. A risk-free portfolio in asset management [indiscernible] managing insurance asset is probably you look at the duration of your liabilities and also look at which currencies those liabilities are and take this as a risk-free benchmark. Now Swiss Re could produce 1.9% per annum over those kind of risk-free portfolios and benchmarks. Now again, this is an annual figure, and it's the average of the last 5 years. We also compare it to our peers and very happy to say we are considerably rough. Now how much risk we have taken for that outperformance? I think a very familiar figure for the investment market is a Sharpe ratio. As we measured this excess return of 1.9% over its volatility. And we derived this a Sharpe ratio of 0.8. That means we haven't produced a lot of additional volatility and nevertheless could achieve a very solid, basically access return. These are 2 kind of KPIs, which I thought is worthwhile to put into context. One is an accounting one, and the other one is basically the total return but adjusted for different currencies but also adjusted for different duration in respect of our peers. Now the question is how does this go forward? And we had a few references by Christian, but also by John yields will stay low. This is also our conviction. There's no way that we go back to something which is normalized in the short term. That's why it's so important to understand how we're currently positioned in the market. And we took the liberty to show you the split of our fixed income portfolio. And the nice thing is, and you see this on this slide, represented by the blue bar chart, most of our fixed income is at the long end. Almost 44% of our duration is placed in the 10-plus year. Now if you couple this with the unrealized gain, which you have in the fixed income, again, per 30th of September this year, we could show $6.7 billion unrealized gain in exactly this fixed income book. Now the logical question which I have and probably you as well, when those unrealized gains basically matures. And the very good news is we have to wait for many, many years because 72% of those is in the long bucket. That means about 2/3 and even slightly more of the current annualized gain, they will not mature in the next 10-plus year in respect of duration. That means the reinvestment risk -- now we know we have very low yields, that reinvestment risk is considerably lower in our balance sheet compared to others. Again, this gives us a lot of comfort that we don't see a sharp drop on the investment side because that piece is very, very stable and will basically last for many additional years. We also thought how we can enrich kind of the information to the market. And we will, next year, 2021 onwards, come up with a new figure, which is called recurring income yield. Again, this gives you a forward guidance, which is broader than the running yield, which we expand in respect of asset classes. And again, it should help you how the portfolio basically will develop just from a sustainability point of view. But let me move on and look at the current portfolio. And we mentioned the point, yes, it's a diversified portfolio. However, no doubt, we have a very high cash position. And this is liquidity expressed in this $21 billion. This is cash and short-term investment. Now there are 2 reasons why it has grown. One is clear. This was the derisking, which we have done. End of last year, we started in Q4 but continued, of course, in Q1. This also led to the very low impairment figure. This was one reason for the high cash position, but of course, also the partial proceeds from the ReAssure transaction also added to that term. I consider this as a strength in the current environment because it gives you a lot of opportunity and optionality, which was referred before by my colleagues. Now how looks the quality? Again, we make the mentioning for unrealized gain in the portfolio, but has the quality really deteriorated in the last 9 months? The answer is no. You still see 95% of our fixed income instruments are investment grade. And this is pretty much unchanged. You see a very low portion to the below investment-grade allocation of just 3%. 2% is basically not traded, but we talk about cat bonds and also some of the loans, which don't have a rating, but quite often are investment-grade like. This remains a very solid portfolio. Now what else helped us in the past, and I'm pretty sure this will also be big support going forward is ESG. We do it as a company. Christian has referred to in quite different context. I can look it from a co-investment point of view. And we want to show you what ESG means in an implemented way. And Swiss Re has ESG implemented to 100% on the asset side. And as you know, we were an early mover and clearly one which went furthest. Now the portfolio, which you see here is equity. This is the dark blue line, and we also show credit, which is another very important asset class for Swiss Re in a 5-year context. And you see both have produced on a cumulative basis, outperformance. Now it's very clear if you look at the picture, the biggest outperformance comes from the most toughest time. And we had a very choppy market back in 2015, beginning of 2016, [ Canvas ] talk about default of certain sovereigns. We had a sell-off in China, et cetera. But of course, the other key example, which is much closer over the last 9 months, and you see the sheer outperformance of ESG. That's why I can claim, ESG is probably one of the strongest risk mitigation factors. And we have done this since already a while. You can express it in Sharpe ratio. Again, you find a few interesting figures on this table. But ultimately, it's not only a better risk-adjusted portfolio, it led once more to an outperformance. This year, the first 9 months, we could produce an outperformance of 1.1% in our equity portfolio, thanks to ESG. And a similar effect, of course, not to the same extent, but the similar effect also on credit. It's a 20 basis point outperformance in an investment-grade portfolio. This is thanks to ESG. Now how should we go forward and be sure we don't rest on what we have achieved. We want to share with you key initiatives. We want to make sure that we continue the strong performance on the asset side of Swiss Re. The buildup, which has started in private market will continue. We have built up a very high-quality portfolio in the last few years. If I talk about our infrastructure portfolio, which we have started 2012, '13, we constantly grew it to a very high-quality aspect. We will continue that track because, again, we have preferred access to the market, and we have established a unique network, which allow us to really kind of capture the most interesting transaction in the private market space. Geographic diversification, that's kind of a natural DNA for Swiss Re, we're truly global. We have been global on the Reinsurance side. We have been global on the asset side. I personally believe that's a strength. We have a footprint, which goes across Europe. This helps us to capture attractive investment opportunity in other parts of the market. We clearly see very different market development, very different outlook, and we know some of the markets look much more promising than in the past. This helps us to take part of that. I think about high-growth market, China is an important market for us. We have a presence. This is just one example, which clearly allow us to capture some of the more opportune outlooks. Swiss Re has started to work with so-called thematic investing and thematic investing means you kind of move away from the asset allocation thinking or the asset class thinking. We started with that a while back. Infrastructure is a good example where you're somehow asset class agnostic, but we did the same on ESG. When I say we implemented ESG across the full portfolio, this is true for all asset classes and was a theme which we believed in, and we were able to implement it in an institutional portfolio like Swiss Re successfully. There are other themes. And again, we are now into deep dives and preparing for the next big waves. We clearly will focus on things where we believe we have proprietary insights. Swiss Re is one of the biggest Life and Health's carrier global. It's clear that we see things earlier than other investors. And again, this should be leveraged also on the asset side. That's why one of the themes which we identify is healthcare but for sure also digital infrastructure. This was successful so far that we kind of picked long-term trends early on and try to implement an institutional portfolio in a successful way. Technology. Yes, it's a big investment topic, but we know this is also a great tool. It enables our performance. We make heavy use of it. Again, it helps us to digest big data but also see trends much earlier, which is an important signal for making investment decision. Let me show you an example. Early this year, we developed a so called, of course, what you expect else, so-called COVID-19 tracker. And you see just kind of an [indiscernible] zoomed in area with a few, call it, quadrants. And those quadrants show you, it's quite some fragmentation. It's fragmentation about -- beyond the different areas. You see much more reddish in the China kind of APAC area, but also very different size of the quadrant is effect of sector. This was one of the tools which we developed. It helped us to see not only the wave, which, of course, started in China, but also we saw where it derives at which point in time. This was in February, the screen shot, and you saw U.S. was pretty much green. And of course, we knew this is probably temporary because this wave we saw going through the whole globe. But also we saw which sector mostly suffered. This was a perfect management information system, which we used to make decision, both in the underlying portfolio, but also how we structured the overlay both in respect of timing, but also in respect of sectors. These are examples, which we didn't have 5 years ago, and it's clearly an advancement, thanks to technology, but also to understand how you -- basically you want to implement and how you apply it to institutional investor context. Now I can't leave you, of course, without an outlook. I think that probably it's expected. Now the world, it's not easy. That's an obvious one, uncertainty remains. However, we believe that some recovery on the way, it's a choppy recovery. And we still see considerable downside as well as upside risk. However, it's a more balanced upside and downside risk aspect. This is clearly also thanks to advantage, which you have seen, not only on the vaccine side, but also on the policy side. Monetary and fiscal policy is bigger than ever, and we talk about 10x on the fiscal side compared to '08, '09 which was another good example, 10x bigger and also on the monetary side. This will not disappear. All signals, which we hear suggest this will stay. That means this kind of backstop is probably a factor which has being complemented by other slight positive development. Now what we will continue to focus on is the quality of the portfolio. Again, we want to be a reliable investment portfolio provider, but also we want to make sure that we use the sustainability and the power of the balance sheet. We know that differentiation is always important. I'm convinced differentiation is becoming even more important in every respect. It's not only geographically, it's clearly also the way how you approach things. Now how I go with this outlook, I start with a high-quality portfolio. Again, it has been shown this year, the last 9 months, but it has been shown in the last 5 years. I believe we are perfectly positioned for a more constructive outlook. We have a lot of optionality in our portfolio. We have 21% cash and short-term investment, which is as liquid as it can be. This, coupled with the constructive investment outlook, I believe we can capture some of the value drivers, which we have identified, value drivers, which are true differentiating, both the way how we position the portfolio, but basically also the tool which we apply. And hopefully, the themes, which have been worked in the past, in respect of thematic investment will continue to pay his part to the outperformance, which we could show over the last few years. With that, I would like to hand over to Thomas for the Q&A. Thank you much.

Thank you very much, Christian, John and Guido. [Operator Instructions] Looks like we have a first question from Kamran Hossain from RBC.

Sorry about that. The -- yes. So big picture question for Christian. I guess in the last few years, you focused on divesting ReAssure, fixing CorSo, what's your #1 priority at the moment? You did mention fixing during your session, but what's your #1 priority there? And the second question, I guess, thinking very long-term about iptiQ. It definitely feels like there's a different pool of investors between insurance and what is perceived to be tech. What's intensive for iptiQ? Kind of [indiscernible] kind of spin-off in the future, you kind of realize that $2 billion? Or is this developing economic value or earnings going forward?

Okay. Thank you, Kamran. Good questions, right. I think absolute priority for me is on the underwriting side and the fixing of the underwriting or get CorSo and P&C Reinsurance back in embedded territory. Clearly, there have been issues there. I feel extremely comfortable about where they are, but that must be the #1 attention. I personally think CorSo is going to surprise on the upside over the next 3 years, you can see the markets going up higher than what we thought. But you have to stay on top of that, right, in a very obsessed way. So to me, that's really the #1. And you could say this is short term, but for me, that's the next 2, 3 years, that is super important. There's other priorities. But to me, that's the main focus. iptiQ, yes. I think yes -- now it is in a phase where you're absolutely right, right? It's a really different profile. And obviously, we sort of count on that, our investors will have the patience and will understand that this will add to the economic valuation and later to the GAAP of the Swiss Re Group. So you obviously have the investment phase, then I think the first thing that's going to happen is going to create economic value. So it's going to be accretive for SST, dividend, et cetera, that's going to be first. And then over time, inevitably, right? Even if I run it off, it will create some GAAP profit. So I think the opportunity is so large that, certainly, at this point in time, it will be crazy to give up on it, right? I think there's no -- I can't see any theoretical limits to what we can achieve. This is basically this -- all these brands out there, there's a lot of clients who cannot invest hundreds of millions in creating a digital platform. It might change in terms of strategy. But I think at this point in time, it would not be attractive to -- even at $2 billion, right, to sell it or IPO it. So to me, it's just having this long-term perspective and then step-by-step, certainly convincing our investors that it is a good thing, also to have some growth in the portfolio and becoming part of the group. I cannot exclude, right, but at some stage, we might have co-investors in it also. But at this stage, that's not the plan.

Thank you, Kamran. Next, we have Vikram Gandhi from Societe Generale.

It's Vikram, SocGen. I've got one question, the second one on iptiQ was answered. So looking at Slide 22, it's really impressive to have $4.1 billion of central liquidity. And it's great to note, Reinsurance business has been upstreaming to the group consistently. My question really is if there is a risk that a part of the central liquidity has to be downstreamed in the Reinsurance business to some extent, to support the growth in the hardening market, of course, there's some spare debt capacity available, but I guess you wouldn't want to leave it up beyond a point? So that's my only question.

So Vikram, it's John Dacey. I think -- I'd suggest it's a fairly hypothetical question. Our view is that we have the ability to support a strong growth in the Reinsurance business, both Life & Health and P&C with the balance sheet of Reinsurance today. And it strikes me as unlikely that we would see a need to downstream. Now the exception of that, of course, would be if there's some massive natural catastrophe, that would occur in the next quarter is on top of COVID. And we've always said that we have the capability to manage that. And then I go back to the $2.7 billion of contingent capital that we would have accessible to us to be able to fund both the hypothetical losses that might occur with some extraordinary event and continue to grow the business and what would be an even hardening -- a harder -- hard market for Reinsurance. So I think the view should be that this capital is already at the group and a reverse flow into Reinsurance strikes me is highly unlikely, absent a major catastrophe.

Thank you, Vikram. We have Andrew Ritchie from Autonomous. Hi, Andrew.

Sorry to go back to this topic, which was, I think, John, you were trying to skip over possibly, which is the target ROE. It strikes me, the group has gone through quite a lot of introspection this year. You've obviously disposed the ReAssure. You've decided to more systematically use retro, which is a form of leverage, you decided to more systematically exploit synergies between the business units, which should enhance group ROE, you said you're happy with the absolute 10% to 12% ROE of your core divisions. And yet, we end up with this unambitious, unchanged target spread of ROE at group level. And I get you're sort of saying, well, we haven't achieved it, but I still just want to get some sense that you feel that when I put all those ingredients together, there's no reason why that target spread should have gone up, particularly because we need compensation as shareholders for potential volatility. And I'm not sure that is sufficient compensation. The second question linked to that. Christian, you have in previous investor days, I think almost all of them actually always referred to sort of the underlying efficiency stroke expense drive. I can't remember the format you use, but you have a desire, I think, to keep the ongoing expenses down or even full and reinvest some of that savings in technology. What's your thinking on that now? It still strikes me the group is quite overly complex. You've got a lot of risk carriers in all the divisions. I just wonder if there's been any thought of a more radical approach to further simplification.

So Andrew, let me try the -- your first question. I actually don't think I tried to gloss over it. I was very specific in saying for the moment, we're holding onto these. I would suggest that those are targets which you referred to is over the cycle. So if you want to be ambitious and suggest where we've been for the last 3 years, the [ bogey ] puts out for us in 2021 and 2022 to reach that over a recent cycle, I think, would be pretty high. What I think I can say is, your comments were all -- there's nothing I would disagree with your points on why we should be more optimistic about the return capabilities of the group. I simply would say, in the context of an ongoing pandemic where we've got enough balls in motion without changing this target, we'll be very, very pleased to significantly outperform it, if the rate environment and a normal loss load in 2021 comes our way. And in that case, I think we can -- during the course of 2021 reevaluate whether we want to reset something for then the next 2 years before we go to IFRS. But overall, I think you'll appreciate that our goal is not necessarily to meet that target, but to beat it, and that remains intact for us in 2021.

Yes. Happy to take the cost question, Andrew. I can see you have a very good memory. This is many, many years, right? The philosophy has been, I think, since 2012 or so to try to take out 3% everywhere in terms of cost and then reinvest it somewhere else, which I think we have done for several years, then came a phase, in particularly where Reinsurance and also part of operations have actually cut it without reinvesting it, right? We still have reinvestment, which means the cuts have been more significant. And then obviously, we grew without adding too much resources. So all of that has really helped. And as you might remember, right, I'm not a believer in this 10% or 15% cut in one go. It's different if you have to restructure CorSo and exit lines of business, that makes perfect sense. But if you do it to an otherwise healthy organization, you get all these yoyo effect, right? You cut long-term investments. You do lots of mistakes. And then innovatively, 3, 4 years later, you add it back on, and it's unsustainable. So I really believe, and that's also what -- I think the GE people came to us in 2007 that kind of philosophy they brought, it's just the hard work of identifying every year, something you can cut, right? And always work on that. And the pressure hasn't taken -- hasn't been taken off at all, and we continue with that. And these things you're seeing here, I think they're all pieces that would help us to continue on that track rather than having a big one-off. But you have to come up every year with these 3%, which is a lot, is a lot. You have also inflation of salaries and so on. So I'd say we just try to think over a long period of time, what are elements we can do, how can we further simplify. We now have Anette Bronder, who comes to Deutsche Telekom as our COO. She definitely comes to a different type of environment, has a lot of experience in that and is helping us, so that we can continue on this pathway. So I think that's what you should expect, right? We're trying to be sustainable, do the right thing and yet have a higher and higher, hopefully, competitive advantage over time through scale.

Thank you, Andrew. We have James Shuck from Citigroup. Hi, James.

So a couple of things from me. So I'm looking at the SST sensitivities because the -- since the ReAssure sale I was expecting those to have come down a fair bit year-on-year. And if I look at the credit spread sensitivities, it's come down a bit from 8 points to 6 points to 50 bps increase. Interest rates has actually gone up quite significantly, that's presumably because of the lower interest rate environment, real estate has gone up. The hurricane exposure, 1 in 200 year has gone up to 42 points. If I put all of that together, I mean, the SST ratio 223, you get the target level of 220, in the floor 200. It doesn't take much to start hitting that floor. I am just interested to get some of your comments around how you manage that volatility and particularly in the context of any reassurance you can give over the dividend outlook? Second question is around the capital deployed in P&C. So I think the $700 million earmarked for growth, that's forward-looking under the SST. So that takes us through the next general renewal period. Overtime, we want to come back towards that target. But the reality is we're thinking about this as a bit of a range with 2020 as a target part of that range.

Thank you, James. We have Vinit Malhotra from Mediobanca.

Just -- so one for Christian, one for John. One is the -- first one, Christian, will be, you mentioned about the pandemic exclusions, which will kind of draw a line or just cut off as this never happened for next year. I'm just curious, how much is the pushback you're expecting or you think will be important from government, from other stakeholders? I mean, can we really just say, hey, on 1st January, we'll wake up and normal losses, we close our eyes and we just be allowed to live like that? So I'm just curious, it's a more theoretical question, but I would appreciate any thoughts on that. Second question is for John. Just on the ACP, Slide 26, 27, thanks for sharing all that. I mean, I'm just curious, you did mention the benefits of market knowledge, but they seem to be coming at a cost. So when I see Slide 27, and I see a comment that your actions are helping -- increasing permanency of third-party capital. I mean how does Swiss Re, the whole Reinsurance operation, view these activities? I mean, you're literally helping the competition. I know you're not the only people, but I think it's -- I just -- I'm curious to understand if there was any debate in the company on ACP versus Reinsurance and how this actually is net positive for the Group?

So Vinit, let me obviously, take the first one, right? So it will be totally against the principles of insurability if you were forced to ensure a burning house. Right? The risk has already materialized. So I have not seen any person in the whole market suggesting we should ensure a risk that is already here. So I think this total agreement in principle that this has to be excluded. And obviously, our clients do the same at the front, right, because they have not foreseen this to be a key risk. They know this is something that shouldn't be in that portfolio. The timing is not exactly the same. They obviously move -- they can move quicker, but maybe they're not finished by 1/1. But I don't see any pushback on that. The pushback is usually around the exact wording and what it means and do you start to exclude other things with it, et cetera, et cetera, et cetera. So that's been the challenge in the detail. But I think from a principles perspective, there's no disagreement, no pushback. And obviously, maybe Moses can also give us a glimpse on the front, maybe in the Q&A session this afternoon.

And Vinit, on the ACP slide, thanks for the question because, apparently, I wasn't clear in my own description of what we're trying to explain here. In this light blue box, we're not talking about the market. We're talking about Swiss Re Group's ambitions. And so, the idea of increasing the permanency of capital as an addition to the levers that we have today, the sidecar, which works very well for us and for the investors. The cat bonds, which we had very little trouble placing at rates which work for us and support the Reinsurance teams business, right? So none of this has been done and a loss for us. We're looking for options ourselves for Swiss Re Group have some more permanent capital structure in place. And we don't have that today. But we think supporting Swiss Re's business with something that is more permanent with a potential additional set of investors would be in our interest. And so what we mean here is not that we're helping our competition. We look to invest and build capabilities inside Swiss Re.

Thank you, Vinit. We have Michael Haid from Commerzbank.

2 questions. First, on the combined ratio below 96% target for next year. You appear to be very happy with that, and you achieved a return on equity of 16%. But just to be clear, as the low interest rate environment progresses, is a combined ratio of, say, 96%, you say below, but, let's say, 96%, is that sufficient? Also did not go down further to a level of, I don't know, 92% or something like that? That's my first question. Second question on elipsLife. You sounded like elipsLife is currently -- or does currently go through a kind of a restructuring, maybe that's 2 halves of a word, and repositioning. What exactly did go wrong? If anything did go wrong? And what do you exactly do?

So on the combined ratio, I think you're probably referring to Slide 11, that Christian used, where we said the 96% with the current investment return is plus or minus 16%. Our view is, and you'll hear from Moses, that trying to predict next year's normalized ratio today before we finalize the 1/1 renewals is a little challenging. But everything we see in the market says that we should be able to get to a point where 96% is achievable. I'd encourage you to note that -- and I can say that as a CFO, not the head of the unit, that both for ReAssure and for Corporate Solutions, we say less than or equal to the expected numbers. And so if we find ourselves in a situation where the market rates actually allow us to come in better, that will be great, and we'll update you on in February. But for now, as Christian said, what we see in the market allows us to be fairly comfortable that we're on target to get to or below a 96%. And yes, if interest rates continue to remain low for longer. The kind of positive momentum we've had in reinsurance combined ratio over the last 3 years, we would expect to continue. What we do see is in the primary market, especially for the commercial rates, which make up the bulk of our Reinsurance activities outside of nat cat, a continued very strong price improvement. And the fact that the primary companies, including CorSo, are able to capture that, it means that their ability to afford Reinsurance at price levels, which will improve the Reinsurance's combined ratio should continue beyond this 1/1 renewal. So we're optimistic for the near term, we're also, frankly, optimistic for the midterm. It won't last forever, but the momentum continues to be very strong.

Maybe I'll just add to that. Don't forget that in gap, premium is earned over 2 years, 2.5 years or so. So that means the combined ratio that's going to be booked in gap next year is half of that comes from the business we have already written this year and only half comes from the business that we'll write next year. So that gives a bit of a time delay of recognition, but I think it's fair to say what I said is, if interest rates remain as low and you have a gradual lowering of the ROI of 1 point, you need to get 2.5 points to compensate for that. And I think the environment I'm seeing is definitely possible. It's a high likelihood so elipsLife, I think there's 2 elements there. One is low interest rate, create stress, in particularly in Switzerland, with some products. So there's a bit of restructuring happening there. But the other one, which is very big, is that it was part of a growth push. So within Life Capital, both iptiQ, elipsLife and a high-growth trajectory, which means you had some profitable operations, but then you start in different countries, other operations. As we did the strategic review and you compare the two, we can see that iptiQ has a higher strategic importance because the scalability is much higher. In elipsLife, you can scale, but it's more scaling with the number of people you have and the broker contacts you have, et cetera, et cetera. So we felt there's a difference going forward. iptiQ is really at the center of the strategy, something we need to develop very quickly. In elipsLife, we think that it's more important to -- instead of continue to invest and have this very high combined ratios, it's better to focus on the profitability, have less growth, less scale and then deal with this Swiss problems. I think this is a combination of these 2 things. And that's what's going to happen within the CorSo umbrella. Hopefully, that explains a bit.

Thank you, Michael. We have Thomas Fossard from HSBC.

First one would be on the pricing outlook. I think that in the past, you mentioned that 6% pricing was equals to 0 on an economic profit basis. So I was more interesting to understand what was your thinking regarding the upcoming renewals? And if you were shooting for something above 6% at the original level? And also connected to that, I think that clearly, you are the market leader with Munich Re at the present time. And so you've got the real capacity to lead the market, the 2 of you to get your Reinsurance capacity being repriced to adequate level? And maybe this year is the onetime opportunity to get that. So can I ask where Q3 is going to put the cursor in between, I would say, pricing and growth? Is it going to be a mixture of those? Or are you going to shoot for more pricing and growth? Just better to understand how the market is likely to shape up in the next 6 to 9 months? And the second question would be for Guido. On the 2.4% running yield, can you give us a bit also of a view of how we should think about the attrition of these running yields? You still have a lot of cash assets, probably yielding negative rates at the present time. So should we expect you as your -- for your peers, something which is around 15 to 20 bps attrition per annum? Or is that going to be bigger in the short term? Any guidance would be interesting.

Okay. Thomas, thanks for the question. I'll take the first 1.5 question, I guess. It's -- so obviously, I wish it was true, right? I wish we could just say what the price should be and then the market will follow. I'd just remind you that after 2017, where we had very big, natural catastrophes, we pushed very hard but we were alone, and we were not able to have any influence in the market. So I think you could -- on a positive way for the market, you could say competition is working extremely well. But certainly, I think that will be an illusion to think that we can just steer the market as we like, right? There was just too much appetite, too much capital inflowing after '17. And so the question is, is it different this time? Yes or no? But this has certainly made us cautious. I'm also cautious in just listening to competition, you can see a marked difference between the Corporate Solutions market, where you hear everybody saying, we're going to cut, it's not profitable, new management, we change everything, et cetera. So -- and there's a massive price increase, a massive hardening happening and Reinsurance, where the total seems to be -- we see massive opportunity. We want to grow. That's what I'm hearing from the rest. And if that's what I'm getting from the market, it doesn't make me as bullish as I am on Corporate Solutions. But I hope reason will prevail. The group wants Reinsurance to push profitability. So there's no particular push on growth. There's a lot of focus on profitability. I think, still work to do on casualty. We think that we're going to see good rate increases on the nat cat side, which obviously we have to hedge a lot of. So I'm positive, mildly positive, about where we're going to go, but we're going to go in with caution, and we're certainly going to be pushing -- having a focus on margins. And by the way, just to correct, right, you said -- you're right, right, 6% increase, 0% economic increase, but in terms of combined ratio, some of it goes through the combined ratio at 4 points. The ones that are related to discounting, they go through combined ratio. So we had improvements in the combined ratio, and we certainly expect further improvements in the combined ratio, I think, is highly likely.

Okay. Maybe Thomas, a very good question on the running yield. Thank you very much. Running yield is a very particular KPI. And that's why also I announced early on that we move to something which is closer to our peers in 2021. We will call it incurring investment yield, which, again, should give a better guidance because it adds additional asset classes. For example, real estate is a good example, but also some of the dividend, which we got out of equity. That's probably a much better, I guess, cockpit to anticipate what is kind of recurring with a relatively high likelihood. Now if I look at the current running yield, and again, that's kind of Swiss Re's version, which will be adjusted so that we can move closer to what our peers kind of present under this recurring piece. It was mainly impacted by 2 things this year. One was a lower yield. Again, we dropped 120 basis points in the 10-year, and that, of course, has an impact on the denominator. It was a big one. If you calculate this times the duration. Then the high portfolio action, which was another piece, which again led to a reduction in the so-called running yield. But of course, the result was a much better kind of quality. And I think the portfolio, which is a much more fit for even turmoil and more volatile time. Now how does it looking going forward? I showed you where our unrealized gain is, and that I still believe is probably one of the biggest kind of safety piece, which makes us less vulnerable than most of our peers. And for that piece, which is big, as you have seen from a duration point of view, 44% in the 10-plus year and then another, probably close to 20% in the 5-plus year. That means the bulk is out 5-year plus. I don't need to reinvest. And with that and somehow immune in respect of the current yield environment. Now the rest, of course, yes, we need to reinvest. Now the good thing is we have 21% in cash, and I don't have to tell you, cash doesn't earn a lot of money. We avoid the negative currency. Again, Swiss Re is mainly a U.S. dollar company. There we have don't have negative yield, but it's low. But as soon as I deploy that piece, even if it's high-quality investment grade, short term, I can add considerable additional spread income. That's why, in our case, because we have so much optionality in the book. It's very hard to say what kind of the strategies of yields, which is staying very low. If we look at the markets, they have much more kind of deploy capital in financial market, a less kind of allocation to cash. That means they face much more the current reinvestment risk, which, of course, is lower than it used to be. We are different. And that's why if rates are staying as they are not further drop, I think we will have a completely different drag on the recurring investment income compared to our peers. That's why I feel comfortable that the action which we have taken can should allow us to really serve through very choppy market because its highest quality of the portfolio. I have cash allocation, which, of course, we will deploy and you heard Christian, but also you heard John, our CFO, this creates a lot of optionality. Financial market risk right now is a very low shortfall capital user. Again, it's in the area of 24%. And if we add credit risk on the insurance side, we are close to 31%. This is clearly below market. And I think that's a great option. And again, we have the option to deploy the capital in an area where we earn a bit more than just kind of 0 interest rate. This will be a big mitigation against the low yield environment.

Thank you, Thomas. James from Citigroup.

First question, just on the COVID losses. Thank you for that update. Just keen to know whether there's any impact from the Australian adverse judgment on the test case, whether you can quantify that for us whether you've included anything in your reserving? Secondly, the sustainability side of things, which was interesting. And thank you for the insight into what you're doing on the underwriting side in terms of limiting some of your exposure to oil and gas. I'm just interested to know how you actually integrate sustainability more holistically into your underwriting processes when it comes to actually allocating capital to the potential areas that may not fit within that framework. How do you think about your premium that's exposed in that area in particular in vulnerable areas over the medium term?

So maybe I'll take the question on the Australian ruling. As we mentioned before, vis-à-vis the lockdown as the triggering event for most of the -- what we believe are covered business interruption losses on properties portfolios. We did book considerable positions in the second quarter. You see that these remained as of Q3, largely IBNRs, and that included some losses that we expected would migrate up from Australia. The specific ruling, I think, I'd say, was probably a little more negative than the industry. Might have thought. I think it's uncertain exactly what it means for the industry more broadly. There's some other test cases, which will come. And so we'll wait and see. What I can say is that there's -- we saw no reason to immediately jump to a change of view of what our exposures and ultimate losses might be. We'll continue to evaluate this. And as we get a better sense of what this means for some of our specific clients and our specific shares, we might or might not adjust it. But right now, in the IBNR, there is a piece that's related to Australia as well as a piece related to the U.K., where we saw exposures already in the second quarter and exactly whether those assumptions remain valid, we'll see over time and probably update on Q4.

Yes. I'll take the second question. This is really interesting and extremely timely what you asked because on the underwriting side, I think we started more than 10 years ago with some exclusions, 15 years ago, maybe exclusions. We went to exclude the very delicate industries, also like Tar Sands, et cetera, and then last year, we started with a main industry, oil and gas, which is one we support, right? Overall. But trying to find out how we can encourage, let's say, the -- those who put the least attention to these topics to become more like some of the others. But you're right, we need something much more holistic. On the asset side, we are referring to ESG scores, which are, by no means perfect, but at least to give you a sense and a new fine way of measuring it. Ultimately, also on the underwriting side, we'll have to find a way to measure the footprint, right? The carbon footprint, for example, or the ESG footprint of all of our clients and think about ways in a holistic way and then measure how much or what's basically the carbon footprint of the sum of all clients we have and how much we support them to have quantitative measures so that we can start to measure it down, right? This footprint of these clients we have. And actually, we have -- we have started to develop these measures. We're going to use them internally next year. It's going to be part of the objectives also set by the comp committee for the executive team, and it's broken down, and it's very timely. But we haven't disclosed the details and obviously still some of these methods are still in flux. So I guess, like everybody else, we're trying to find ways to make it as rational as possible.

Thank you, James. Emanuele Musio from Morgan Stanley.

This is a big question on rates. So this year, prices have gone up across many lines of business. And momentum seems to continue into 2021. So my question is, there are some players in Reinsurance that are focusing on a very limited number of lines of business. Not really monoline, but very limited focus. Do you think that as a growing number of these players may decide to under central line of business. This may slow down rate improvement. For example, let's say, the start-up in the casualty space with the claim balance sheet is not exposed to some of the legacy issues, for example, reserving gaps that are one of the components in the current upstreaming prices. Do you think that this could be something leading to a slowdown in pricing improvement or maybe [ EBIT ratio ] again in certain line of business?

Yes, maybe I take that, right? I think if every time a market hardened, you had new players come in. I think that's a natural process. Actually, in some of the past, it was much, much bigger. Now, of course, also in this environment, you see some players come in but their overall capital is relatively small compared to the overall industry. So even if they have $1 billion or $2 billion of capital, it's relatively small. So it's going to be more -- it's not going to be positive. I agree, right? Obviously, every time capacity comes in, it's not. But I don't think it's going to compensate for the gap. So if you take on the Reinsurance side, I think for any client of ours, certainly try to switch to smaller players, it's totally impossible, right? If you think how much has been placed over the last 50 years with some of the major players. So I think it's going to be used for leverage and negotiation or something like that, but it's not going to be a major factor. And I think in the corporate space, the issues and the past loss have been so large that I think all -- really, all the major players are extremely disciplined right now. And I don't think that the entrance of 1 or 2 smaller players is going to change that significantly. So I'd say, yes, it's certainly not helpful, but it's not at a scale or size that I think is going to derail the momentum.

Maybe, Emanuele, if I could just add to that. We've -- the CorSo team has been tracking very closely, the various lines of business, including the lines that they've exited. And what I can say is where you might see some new people or new entrants, say they're going to focus on excess surplus lines or umbrella casualty or other parts of the liability portfolio. CorSo is out of those lines. And soon after CorSo made that decision, a series of other important players in the market have also decided to either scale back materially or completely exit these positions. And so what you're seeing, I think, is as much some backfill of capacity to replace a greater amount that's been taken out, rather than a net new capacity when you look at what's happening. So again, I credit Andreas and the team for moving aggressively and moving early compared to lots of people in this space, but you continue to read about reports of people that are basically coming to the conclusion that even current rates for some of these liability lines are challenging and will be exiting if they've not already exited. So that's the dynamic on that side. I think on the Reinsurance side, yes, there's going to be some people trying to be opportunistic, but that's especially what Christian was saying, the relative size is not going to influence, I don't think pricing that Swiss Re Group sees, it might influence what some of the other small players who normally take a 2% share might look at.

Thank you, Emanuele. We'll take one last question from Iain Pearce, Crédit Suisse.

Just 2 quite quick ones, hopefully. On the liquidity buffer at Group, I'm just wondering what the normal level of liquidity you'd aim to hold a Group would be. So what sort of the $4.1 billion, how much of that is an excess buffer you would sort of be implied in that number? And then also on the liquidity, you seem relatively optimistic on the outlook for investment markets. I'm just wondering why that liquidity hasn't been deployed into investments as yet and when we can expect that to be deployed into better returning assets?

So I'll leave the second one to Guido. And on the first one, we don't necessarily have a target liquidity for -- at Group level. What I can say is the overall liquidity position of the Group is not just what we're holding at the Group level, but also in the various subsidiaries, is probably a little higher than we've had in recent years. And it doesn't mean that I'm necessarily focused on moving this down but I'd say that there's no view that says we need to grow the liquidity that we currently have at the Group level. So that's the -- a little bit of guidance I can give you there. I think over time, we expect the business is to return on the post-COVID world to strong earnings, return the dividend capacity and a normal flow of funds up the latter. And in that context, we'll see where we can deploy it.

Okay. Thank you. Iain, on your second question, it's a fair challenge. With this more constructive outlook, why we haven't yet moved? I have to say this more constructive outlook clearly, is not born 3 months ago. It was born after the U.S. election. But clearly, also since we have some very positive news on the vaccine development. Think these were kind of the right trigger moments to become more constructive. The policy, both physical monetary that whatever we hear, it's a confirmation, this will continue. I know it's a political discussion on some of the emergency program. But ultimately, everyone expect this holds up, which gives the perfect base to find the right entrance point. We started to deploy the capital. As you know, we have a dynamic kind of hedging program on the balance sheet. The good thing is on the equity side, I mentioned this also at the last call, we have a lot of upside. That means we mainly work with option. That means we could profit from the rally. Now the $21 billion cash, it's no doubt, this is too big with this outlook, and we used at the right moment to further deploy the capital. Thank you.

Thank you, Guido, Christian and John. Thank you for all the questions. This ends our morning session, and we'll reconvene in an hour. Thank you, everyone. [Break]

Good afternoon, and welcome to the second half of our Investor Day. Without much delay, I would like to welcome Thierry Leger, our Chief Underwriting Officer, who will kick us off this afternoon.

Thank you, Thomas. Welcome back, everyone. Good afternoon, ladies and gentlemen. As Christian, John and Guido have laid out in the first session, the insurance and reinsurance industry are living very difficult times. After years of net cat property and casualty losses, COVID-19 and the very low interest rate environment has made the situation even worse. On this background, Swiss Re has decided to take very decisive action to increase its margin and adjust its portfolio. As a result of that, we expect this portfolio to withstand future volatility much better than in the past and deliver attractive returns to our shareholders. This slide shows the environment in which we are in currently really well, in my view. You can see the gray shaded area, which is the capital inflow into the reinsurance industry over the last 20, 30 years. You can also see the dark shaded part, which is the alternative capital that actually flew into the reinsurance industry on top of the growth in the traditional area. As a result, the offer side has been outstripping the demand side. And you can see as the example of the yellow line that the prices, for example, in net cat, but across all lines of business, has been reducing since 2012. They have seen -- we have seen slight increases over the last 1 to 2 years, but of course, nowhere enough to compensate for the reductions in the years before. And all of this happened on the background of very active net cat seasons with huge losses, but also in man-made losses. It couldn't stop the influx of capital. And on top of it, as I mentioned already, we can see the decline in interest rates for now almost 30 years, from 7% in 1994 to below 1% in 2020. And you can see that the reduction in interest rates between '18 and '20 has been almost vertical on this slide. So a very difficult environment, almost toxic cocktail for the insurance and reinsurance industry. But out of this difficult situation, there are as well opportunities for us, and I will come back to that in a few minutes. Let me start with a few actions that we have taken. Interest rate, obviously, is a concern to the insurance industry. In our costing, you know that we have the economic value management as our costing and steering metric at Swiss Re. In that costing, we discount future cash flows at risk-free rates. This means that with every costing, we take into account the actual interest rate environment. By doing so, we actually forced the sales channel to sell the products at a higher price to compensate for that lower discount rate. On the GAAP side, you can see the impact this has. If in 2018, we required 40% of U.S. GAAP earnings to come from underwriting income, that underwriting -- technical underwriting contribution in 2020 has to be 60%, just to compensate for the reduction in interest rates. That means that the 50% price increases has been required just for -- that 50% increase in contribution has been required just to compensate for the reduction in interest rates. So you can see that, therefore, some of the price increases we have seen lately has been required just to compensate for this. So this is why price increases are now happening across the industry and why also Swiss Re is pushing very hard. COVID-19, as I said, made the whole situation even worse. But the particularity about COVID-19 was that, it impacted the industry simultaneously, globally, and across all lines of business. It has led to huge losses, and it's not over yet. COVID-19 is still ongoing. Swiss Re estimates that the COVID crisis will cost the industry USD 50 billion to USD 80 billion. This number is a gross number. Obviously, there are some positive elements as well, for example, in the motor insurance from COVID. But this is a gross number, $50 billion to $80 billion would make it one of the largest events ever in the insurance industry. Christian mentioned the impact this does have across all lines of business, and how this actually comes through the different layers in insurance and reinsurance. First, it reminded everyone in P&C to review their awarding. It was -- it became very clear, and the court decisions show it to us every week, that there have been weaknesses in the way the primary insurers have defined their covers. And as these covers now roll up into the reinsurance programs, particularly on the accommodation programs, the net programs. We see that we also have some learnings from this event. And they are beyond the exclusion of infectious diseases, other clarifications that need to be done. And we are obviously in discussion with our clients to discuss those and close those. On the Life & Health side, the pandemic has always been part of our models. It has always been part of what we expect to happen from time to time. So the impact there was more that we had to differentiate between the health impact of COVID-19 and the economic impact of COVID-19. And I will let you know later what actions we have taken in those areas. I mentioned opportunities coming out of this very challenging situation. You can see here the global resilience index as published by the Swiss Re Institute. And you can see that the macro index has been reducing between 2008 and 2020 from 63 to 50. This shows that the resilience in our societies has reduced. This shows that the resilience of governments, societies, companies, people has reduced. And it has impacted, obviously, also the insurance companies, our clients. We can see, therefore, an increase in demand to cover, for example, for their earnings volatility. You can see demand increasing for balance sheet protection or capital protection. And we can see demand to optimize their portfolio mix, for example. So 3 areas where we see an increased demand. And we think that with our superior capital base, our client relationships, but also with our underwriting and our solutions, we are extremely well placed to help our clients through these difficult times, which would allow us to grow our portfolio at profitable terms. We have taken further focused areas, and I would like to mention 4 of the most impactful ones. This is our -- an overview of our portfolio. Swiss Re has developed a strategic target liability portfolio steering. In this, we split our overall portfolio into 45 different portfolios. We developed a forward-looking view for each of these portfolios. These forward-looking views are developed on the back of many different data points, the economy, the competition around the clients, the quality of underwriting of the client and so on. We then classify those different areas into portfolios we want to grow, those we want to shrink and those where we need to improve the margins. And you can see the impact this had over the last 18 months. So the chart to the right shows how the portfolio has been moving over the last 18 months. So you can see that we have been growing the blue bubbles that were supposed to grow. You can see that we have been shrinking the portfolios that we wanted to shrink strategically, and you can see that we have improved the margins on those portfolios that needed an improvement in margin. So this strategic liability portfolio management for us, we feel is a real differentiator and should lead to outperformance in the long term. The second significant action we have taken is on the net cat side. Net cat is our most profitable and most important line of business for many decades already. It's a line of business we understand extremely well. We have our own proprietary models. We model 180 perils and we have demonstrated that over 5, 10, 15, 20 years, the expected to or the actual to expected loss actually is excellent. So actual equals expected. So we have a lot of confidence in our net cat models and underwriting. Despite that, we have observed over the last years that in the space of secondary perils, particularly those that are driven by climate change, there have been an increased loss activity as laid out on this slide. You must imagine that every loss represents another data point in our model. And each time it will influence the model sometimes to the better, sometimes to the worse. Sometimes the changes can be bigger, sometimes smaller. So it's a very normal standard procedure of the losses that we review our models. In this case, the changes were a bit larger, and we have updated our models in Australia, Japan and California for wildfires, for example. They're already in production and have been already used in the renewals. So we remain very confident in our models, also talking about climate change. The third area of action we took was in the space of U.S. casualty. Obviously, on the back of some difficult years with heavy loss load, we have been investigating the space to understand the root causes of that development. And we found out that the combination of large corporate risk exposure and social inflation was one to watch. Indeed, we think that with the rise of plaintiff bars, we can see more and more money, funding, moving into the area of plaintiff bars. We can see the new techniques and strategy they're utilizing and we can see that they are going, particularly after the deep pockets of the large corporate risks. And we find this combination a very difficult one, so have decided to take very drastic actions. Accordingly, in CorSo, we have reduced our exposure to U.S. general liability to 0 in 2020 already. On the Reinsurance side, we will, by next year, reduce our exposure to large corporate risks by 50%. The other 50% will remain with some key kinds of ours that are leading players in the U.S. casualty space that we continue to support, but also on some treaties where besides the LCR risks, we get actually a significant proportion of non-LCR risks. I feel very positive about our portfolios that we will be left with in 2021 and think that's a portfolio we can build on and certainly also steer through the uncertainties ahead. On top of it, we obviously, particularly in the space of U.S. casualty have increased prices. And you can see that we have been able in July this year, to decrease the commission level on our reinsurance treaties by around 5 percentage points. Considering that the Reinsurance commission is around 25%, 30%, a 5% reduction is obviously very significant. Overall, we have seen at the July renewals, an 11% nominal rate increase across all of casualty and 20% for U.S. liability. So you can see that the actions of resizing and redirecting our U.S. casualty portfolio, together with strong rate actions will position us very favorably in the years to come. Let me switch to Life & Health. I haven't said much about Life & Health, but obviously, strongly impacted by COVID too. We have strong confidence in our Life & Health underwriting. We think we have a very, very strong global team in Life & Health. We have a very large in-force book. We have an excellent understanding of our in-force book. And how we can extract value from this in-force book. On the new business, however, we have to react to what Christian called the burning house, to the ongoing COVID crisis. And we have adjusted our underwriting guidelines for new business. That doesn't mean that we don't support our clients anymore. We do actually support our clients and we still ensure people, consumers out there that need protection. On the impact, more economic impact on COVID-19. On Life & Health, it is very clear that the line of business, such as feasibility, has experienced historically, loss peaks after the economic crisis. So this is certainly not the time to increase our capital allocated to this line of business. To the contrary, if there are possibilities, we will reduce our exposure to this line of business in the 1 to 2 years to come. But overall, we remain very confident in our Life & Health underwriting, also during these very difficult times. Whilst we have a very strong focus on the here and now and the improvement of our portfolio overall, but also on adjusting the portfolio to the new reality is that there are -- we keep an eye on the future and there on the long term. And there are really 3 things that are top on our mind: One is improving the underwriting process. We see today that there is technology around that is helping us to process underwriting in a different way. It enables us to enhance the underwriting process with data and analytics in the way, it hasn't been able before. So it really leads to some sort of a machine enhanced underwriter, if you want, and putting the underwriter in a much better position to underwrite risks in going forward. So make better decisions and faster. The second thing we are doing, we continue to invest in our strategic target liability portfolio steering capabilities. I told you that there's a lot of data flowing into this steering tool, and we are convinced that more is possible. More is possible, there is more data around and better ways even to use all that data to lead to even better forward-looking views for the portfolios. But also, we need to put all these portfolios in context to each other to make sure that these individual forward-looking views also make sense as a whole. So there is lots of efforts and investments done in that space. The third area I wanted to mention is contracts. Contracts actually are our products. And we are looking at ways how we can improve. But again, here, with technology today available, how we can improve our contracts, management end-to-end. We think there is a way to actually improve that quite dramatically, improve the quality, but also the efficiency of those processes and ultimately leads to a position where we will have much better understanding, insights into our wording. This will enable us to become even more proactive than we are today in addressing emerging issues around our products. So a very exciting outlook into, what I call, the future of underwriting at Swiss Re, and something we feel very strongly about and will help us to differentiate in going forward. In conclusion, just these 2 graphs. On the left, you can see our underwriting portfolio in 2017. At the bottom of the soft market. You can see that about half of our portfolios were not earning its cost of capital. And the other half, obviously, was above that line. That was in 2017. Next year, the portfolio will have shifted to the right side. So you can see that with the exception of just 1 or 2 smaller portfolios, all the other portfolios would have moved above cost of capital. And you can also see that the average profitability of the portfolio to the right, the one we will be in next year is significantly higher than the return we had in 2017. So this makes me feel very optimistic about the portfolio that we will have built by next year. It's a portfolio, again, that will help us to withstand future volatility in a much stronger way than before. It's a portfolio that will deliver higher margins to our shareholders. And it's a portfolio that positions us extremely well to help our clients through these difficult times which, in turn, will enable us to grow our business further at very profitable terms. Moses, please.

Thank you very much, Thierry. Good afternoon, everyone. And following on with what Thierry said, from a Reinsurance standpoint, our focus clearly is on increasing the earnings power of the Reinsurance business, leveraging the assets that Christian showed on his chart. And also you'll see to recall on a number of the charts, our global scale and presence, the diversification that we have as an organization, the knowledge that we bring, and of course, the strong franchise value that the organization itself has. You are familiar with the fact that we have 3 pillars in our strategy: Solutions; Transactions; and Core, where we see room for us to be able to drive the sort of differentiation that we feel the franchise Swiss Re deserves in the marketplace. In Solutions, since we showed you this framework over the last year, more clients have come to us seeking to partner with us in the areas of Solutions. So we feel very strongly that this is an area that we'll continue to penetrate and will represent a greater proportion of the income that comes from the Reinsurance business. In the Transaction space, demand is fairly stable and diversified. So we see large and small transactions, and we also see transactions across the entire world as well. And in the Core of our business, over the midterm, we expect that this is a business that will continue to grow, in line with expectations of growth for GDP. We see opportunities, specifically in the regional and national space, and I'll come back to that particular point in a little bit. But I think it's sort of good to reflect on the portfolio we've been able to build and the performance of the portfolio over the last 4 years. The charts here that I show you are driven by -- are presented on economic terms. And you can clearly see that we've grown the premiums by almost 40% over this 4-year period. And that growth is done in a fairly diversified way across lines of business, across client segments, and you also see that across geographies as well. From an economic profit standpoint, you also see clearly that we've grown the economic profit, which is super important. And I think as John mentioned to you earlier today, that allows us to still be able to pay dividends even in times where you have significant natural catastrophes or losses as we experienced during this period of time, if you also include something like COVID in 2020 as well. So the economic profit has systematically grown as a function of some of the elements that I will talk to you a little bit later in terms of the portfolios where a number of this growth is coming from. But it gives us a great amount of confidence to continue to cultivate this portfolio, look for opportunities to continue to grow it. And even areas that have detracted or deviated from the mean, which is mostly net cats and things like COVID. Over the long term, we are hopeful that they will revert back to the mean. And the earnings that you see in economic terms will translate also to U.S. GAAP. We're able to grow the business as a function of one of the key assets we talked about, which is the client franchise that we've built, and which we continue to develop. As of today, we have just over 2,300 active clients, and not all of them are the same. They require different modes of service, depending on their needs, depending on the complexity of the underlying business. And we also ensure that we ship ourselves in a way that allows us to be able to serve this customer set. Those customers -- and depending on which line of business that they prosecute, also in terms of how we access them in the Life & Health business, almost all of that business is done on a direct basis because most of the customers in the Life & Health business also require considerable services and solutions, which means that it's far better if you interact on a direct basis rather than if it's intermediated. In every instance, we always go with the preference of the client rather than having a preference on our own in terms of the model that we prosecute. We go with the preference of the client. On the P&C side, you can see that, that's almost half and half, with half of the clients dealing with us direct, and the other half intermediating through brokers. And given the scale of our P&C business, if half of it is going through brokers, it also clearly means that the partnerships that we construct with brokers is super important for us as a company. And you can see that in terms of how the brokers also look at us. If you look at the right-hand side of the chart, which looks at M&G, they do client satisfaction service for the industry overall, for P&C as well as for Life & Health. And you can see that the brokers rank us #1. That's on P&C, they don't rank on Life & Health. And then the other 2 bars are what we call target market and total market. And target markets simply are the set of clients that we serve. Those clients in both Life & Health and P&C, they rank Swiss Re also as #1. The total market encompasses the target clients that we serve, but also the broader set of markets, including clients that we do not serve. And here, in P&C, you see that we are ranked #1, and in Life & Health, we are ranked #2. So overall, from a client satisfaction standpoint, Swiss Re is ranked fairly highly. There's some areas that our clients are critical of us, and we continue to work in those areas to ensure that we continue to build this franchise. One area that we've also spent a considerable amount of time, Christian sort of alluded to this in his presentation, is in making sure that we are more competitive. So you can see over this 5-year period for both Life & Health and P&C, we've moved away from being an outlier in terms of our total cost from our U.S. GAAP standpoint, and total cost in this case is operating expenses plus acquisition costs, to being more in line with our peers, which makes us far more competitive. And we've done that by making sure that we allocate resources to areas that are going to grow by also ensuring that for our clients, we provide the right service to the right clients. So not the same exact set of services to everybody. And those -- the services that we provide are aligned completely with also the economic returns that we expect to generate from a particular client. In addition to the various efficiency initiatives that we undertake as well. Christian mentioned the whole productivity metric that we pursue every single year. But in addition to that, we deploy technology as well as ensuring that the footprints that we have around the world, we optimize that, working together with our colleagues in the group operations space. I also thought it was important to talk about the diversification benefit that we generate in terms of from our capital as well, looking at the scale of business that we write, which comes in very handy from a competitive standpoint when you're rising certain decrease like net cat as well as mortality. But the overall message is, we are far more competitive, and we've worked hard at that. And clearly, will continue to do exactly the same moving forward. I'll turn my attention for a minute to Solutions. And in Solutions, as I mentioned, the demand continues to grow. Today, we have roughly 40% of our clients who use one or more solutions that we provide, and it generates over $300 million of economic profit to us, more than double what it was just 4 years ago. And our expectation is that this will continue to grow. And we develop solutions across the entire value chain from product development all the way to in-force management. And I give a few examples on product development. As an example, if we take the year 2019, we co-created, co-developed with our clients over 200 products, which generated over $5 billion in premiums to these clients, which is material. And we will continue to do that. This is where the knowledge and the data that we have, puts us in a good place to be able to partner our clients because all of them are looking for different products to be able to try and increase their growth rates and also to try and improve profitability as well. And in the area of improving profitability when it comes to both underwriting as well as efficiency, we have underwriting platforms that we have viewed. You've always heard us talk about Magnum, and I just put some data and statistics around Magnum. Again, taking 2019, over 13 million applications processed in Magnum. And the straight through processing metric for that improved by almost 100%. So meaning we're processing faster, less intervention, which from the client standpoint, improves their profitability, but also improves the efficiency as well. And the equivalent for Magnum in our P&C business is SwiftRe for single risk business, so not treaties, but for single risk, where our clients want to place certain pieces of business with us, they use our SwiftRe platform. And here, the average time for processing application in SwiftRe is now 5 minutes, which ordinarily before they would have -- had to make a call or send an email, takes lots of time. And you can then see the reduced timing in underwriting is over 90%. So there are a series of solutions that we're developing to try to enable our clients, again, help improve their profitability, help improve efficiency, but also target the areas of growth that they are trying to pursue. I won't spend too much time on this because you've just seen the chart from Thierry, the target liability portfolio, which is the framework we use to steer where we want to place capital, where we want to grow, where we want to receive. So I'll focus much more on the chart on the right-hand side because it looks at the main portfolios that we have or the lines of business in Reinsurance and what we expect to do going into 2021. And you can see across most lines of business with the exception of few of the ones, with the exception of a few, we expect pricing to go up. But the fact that pricing goes up on the line of business is not sufficient or the only determinant factor that says, we then expect to increase exposure. We take pricing with a host of other factors, combine them and ultimately decide whether that's a portfolio we should be growing or whether that's a portfolio we should be reducing. The sole focus we have is trying to improve margin and make sure that at the end of the year, we have a portfolio that has a far greater pricing adequacy or rate adequacy than the one we started the year out with. And given the profile that we've set up, we feel relatively confident going into next year, that we should have a much better portfolio constructed than the one that we are sitting on today. So I'll probably now delve into certain areas in P&C. And the focus on P&C is to try and demonstrate that over time, we've been able to grow the economic earnings power of the P&C franchise in a fairly, a strong way, as you would see, in terms of the data that -- which -- and even though we've done that, we see opportunities to still be able to grow the portfolio in areas where there have been a detraction or deviation from the expected we're also addressing those areas. The first is on nat cat, which Thierry also touched on. This relates to the Reinsurance portfolio. And you can see how nicely we've been able to grow the premiums and also the capital that we've dedicated to the nat cat business. Clearly, the growth that we've embarked on since 2017, which was the bottom of the cycle. You remember the chart again that was in Thierry's slide around the pricing adequacy for nat cat globally or the index rather for nat cat globally. You can see the shift in 2017, that's when we began to grow the portfolio. And you will also see from the bottom half of the left-hand chart, that we've grown the portfolio, mostly in areas where the price adjusted -- the price index on an adjusted basis has increased the most. And since 2014, as a result of that, the expected U.S. GAAP earnings from the nat cat portfolio has grown by over $400 million. So quite a significant way in terms of steering the portfolio, picking the right area we want to be and doing that mainly driven by margins. And the next area, which we tend not to talk a lot about is our specialty portfolio. But this is a really solid portfolio that has been grown in a very disciplined way. Since 2017, with rate increases, you also see material growth in the specialty portfolio. And you also see over the period of time, since we've been measuring for the specialty portfolio, which is 2014, the amount of profit that's generated on a U.S. GAAP basis, the average over the period since 2014 is over $300 million. And this is on an actual basis, so not adjusted in any way or not on the basis of expected, but on actual basis. And this is despite the fact that during this period, you had clearly lots of significant events throughout the entire year, but the portfolio delivered for us on average, significant profits. And since 2017, when we increased our participation in this space, the amount of economic profit we expect to generate from this portfolio has also grown at almost 10% per year. We're able to do this because we've got a fantastic team around the entire world of professionals who use extensively innovation and technology to ensure that they're coming up with new products to aid our customers, but also to ensure that they're using innovation and technology to assess exposure very well. Those teams are local, so they have a good sense of what's happening in the local environment and know which clients and which risk they should be on and which clients or which risk they should not be on. We remain optimistic that this is an area that will continue to grow. But as the TLP framework also shows you we don't just try to grow every single thing. We take a view on a line-by-line basis. Certain lines are clearly attractive, while you look at a credit in surety, going into 2021, that's an area that we do not see as an area we should be deploying more capital at this particular time of the cycle. And I come to regionals and nationals, which I mentioned in the strategic framework, which, again, from our perspective, we see as an attractive client segment that we have grown between 2017 and now, but if you look at the distinguishment between our globals clients and regionals and national clients, we clearly have a higher market share with our globals clients. And in our view, this gives us opportunity and potential for growth with the R&N segment, where we see our portfolio as quite profitable and also less volatile. To grow in the regional and national space, it will require us to partner with brokers who have penetration in this particular space to be able to access a number of clients that, today, we do not access. We see opportunity for growth across the entire globe, which is represented by the chart in the middle, where in the midterm, we expect this line of this segment to grow in line with GDP overall. Clearly, part of what also enables us to grow in R&N, is the fact that over time, we have become more competitive as a company because this is a segment where the ticket size is smaller. So you have to be able to process this in a much more efficient way. And your cost base also has to be in line with that's -- with the goal of being able to deliver a price point that customers in this segment find attractive. But it's an area that we clearly see as having opportunity for us to grow at really, really good margins. And I come to this slide, which looks at the performance of the P&C business over a longer period, split almost into 2 segments, which is the 2 periods, the chart on the left-hand side. Looking at sort of like the long-term normalized combined ratio for the P&C business versus the actual. And when we look at the actual and the expected and the deviation is driven in recent times by 2 main things: one is the performance of the nat cat portfolio; and the other is U.S. liability. In the nat cat portfolio, I think if you look over the entire period of time, the 2 dark blue bars over the entire period of time. So that tells you that our performance over the entire period of time is not far from what we expected, mostly in line with what we expected. And when we look at the recent period, which is since 2017, in reality, the performance of our nat cat portfolio is largely in line with that of our competitors. So it's not out of line. So I think it's important when we look at nat cat to look over the cycle. Now having said that, clearly, a number of lessons that we've learned. And in the areas that we've learned lessons, we are making adjustments to our model, as Thierry mentioned, adjustments to the assumptions that we make and sort of like the guidelines to ensure that the performance of nat cat is in line with exactly what we expect. The order, which is U.S. casualty, with the chart, the light blue. You see in the earlier part of the period, significant reserve releases, in more recent time, driven by the loss trends, which were clearly worse than what we expected. We clearly were not able to offset the worst-than-expected loss trends in U.S. casualty from other parts of the portfolio, which is why in the latter part, you see a little bit of a reserve strengthening. And we've tried to address that through a combination of factors. Thierry mentioned some of them, which is what we do in terms of reduction of exposure in areas that we feel we cannot generate these other returns that we should be generating. But also in the other parts of the portfolio, increasing significantly the reserves that sit there and also shifting some of the initial loss picks higher to give us far greater confidence about the performance of that part of the portfolio. So it's something that we feel we are addressing very strongly and comprehensively. I will now shift to Life & Health, which has delivered solid returns for us in -- since we did the fix in 2014, the ROE that's been delivered by Life & Health, our portfolio is in the target range that we've indicated, between 10% and 12%. And that's by generating good new business, but also actively managing the in-force portfolio as well. And talk about the new business. Again, here, you see in terms of growth of the Life & Health business, economic premiums, more than 50% growth since 2017, but also in terms of the economic profits that we expect from the business, over $1 billion each year with the ROE, as I mentioned, at over -- at the top end of the range, so over 12%. And we expect that we will continue to see opportunities to grow our Life & Health business. We do that carefully, especially in an environment where interest rates are lower. But even with the lower interest rates, I think it creates challenges for a number of our clients, which by its very natural spells opportunity for us, and we will walk alongside them and ensure that we're able to support them at the same time, find a way to try and grow our own portfolio. In similar to the other areas, we look at each element of Life & Health. Certain risk pools are far more attractive than others. And in certain risk pools, where we've seen significant growth, if I take critical illness as an example then we now have good market share. We move to an environment where we focus on trying to move away from hard guarantees to soft guarantees and make a number of other adjustments. It's why we've placed the portfolio in the enhanced category in our steering framework. The growth, as I mentioned, if you sort of like look at the in-force -- sorry, the new business as well as in-force, the profile since 2012, material change in that profile. The first element you see is the quantum of economic profits that we generated in 2012 versus 2020, much more than 50% growth in the absolute number. And then the second is the composition of the economic profits that we generate, where before, it was dominated by North America, now you see greater balance around the entire world. And you also see greater contribution coming out of health as well as longevity compared to 8 years ago. This element from a new business standpoint, clearly has an impact on the in-force portfolio as well. So you now see a situation where Asia represents 16% of the in-force portfolio. In 2012, that number would have been close to 5%. And the same thing for EMEA. So the Americas no longer dominates the portfolio overall. And when it comes to the U.S., that means the pre-2004, element of the portfolio, which was over 50% of the in-force business in 2012 is now less than 20%. And we expect that, that number will continue to fall. And by 2023, the drag that we experienced from the pre-2004 on U.S. GAAP earnings will also significantly reduce. In the in-force business, we actively manage, we make sure that the motivation for managing that and doing transactions. So in the form of recaptures, is an alignment of interest between the clients and us. And from the client standpoint, there are motivations are generally because they are trying to rebalance their portfolio, they are trying to manage their balance sheet or looking at different ways of earnings recognition. And from our perspective, we look at how we generate economic value out of this recaptures. And if we look at the last 2 years, roughly looks -- starting from Q4 of 2018, we have allowed clients to recapture roughly $1.3 billion of liabilities. This is still a small, very small percentage of our in-force liabilities. But that -- those recaptures generated roughly $150 million for -- also on the U.S. GAAP -- from a U.S. GAAP standpoint. And the bottom part of the chart just shows you 2 examples of these recaptures. And you can see clearly the motivation of the clients and us, while sometimes they're slightly different, there's benefit for both organizations in the recaptures, which is why we allow those recaptures. And we'll continue to do so. It's just a healthy part of ensuring that we manage the in-force, which is generally very stable. And the left-hand side of this chart, put some numbers behind the concept that Thierry showed in his own slide, where you can see for 2020, the earnings that we expect, from our business, looking at it from a EVM standpoint and looking at the commensurate U.S. GAAP impacts when you look at both components and then trying to translate that to the emergence of the earnings in U.S. GAAP overall. And over time, our clear expectation is that the economic profit that we generate on an EVM basis will slowly -- or slowly sort of like confluence with the earnings that we declare on a U.S. GAAP basis. And the chart shows you exactly why that's the case in terms of the profile of U.S. GAAP earnings. And when you look at U.S. GAAP earnings, the in-force business and overlaying each year, the new business that you write on an economic value basis here. So over time, our clear expectation is that the growth that we have seen in economic profits in the Life & Health business. That will begin to emerge and show through in U.S. GAAP, especially when the new business sort of replaces sort of like less performing or nonperforming prior business in the in-force business. So this leads us to -- we try very hard not to sort of, like, give any sort of forward-looking statements, but we give a sense of assumptions that we make and those assumptions, what they lead to or what they will become for us. And on the P&C -- from a P&C standpoint, we expect to continue the downward decline of our combined ratio. Christian already mentioned this, so he stole my thunder -- or I guess the press release stole my thunder on this one. So at the end of the day, we would expect a combined ratio in the P&C business to be 96% or below. In February, we'll give you the exact number for 2021 because then we would have gone through renewals for one. We get a good sense of the business mix of the portfolio, and then we can give a more specific number. But for now, we are comfortable saying that, that number will be 96% or below for P&C, so continuing the exact trend that we have been on the last 5 years. From a Life & Health standpoint, we stay absolutely committed to the 10% to 12% ROE in terms of the expectation for the business. For 2021 and 2022, we expect that the ROE will probably be towards the lower end of the range. But it's important when I talk about the lower end of the range to also match the ROE up with the shareholders' equity. The shareholders' equity that we see for the business, so at this particular point, is now over $8 billion, driven by unrealized gains and driven by the interest rate environment that we happen to be in. As we have the crossover of the pre-2004 business in 2023, and the drag -- the earnings drag reduces. We expect the ROE to move more towards the upper end of that range. So I sort of conclude with a few things: one, reiterating the targets that we have put out before, so the 10% to 12% for Life & Health, and 10% to 15% for P&C over the cycle, but also introducing the 96% or below combined ratio targets in 2021 for the P&C business. But fundamentally, we focus on differentiation in the 3 pillars for the Reinsurance business. That is a strategy. It has worked well for us, and we believe very strongly it we will continue to work for us moving forward. We think the business environment is very constructive for us to deploy more capital. So we would expect to grow our business in 2021. And especially in the nat cat space, and as I mentioned in R&N, we see good opportunity to be able to penetrate since we are underweight in that segment. Also addressing areas that have created deviations in the past in U.S. casualty. We are clearly taking action in this space. And Life & Health, which has produced -- which has had a solid track record we expect that to continue to be the case, continue to generate really good new business, which we expect to translate to the earnings that we see in U.S. GAAP and also making sure that we actively manage the in-force portfolio. From a solution standpoint, the demand that our clients show tells us that this will continue to be the main area that drives differentiation for us and will increase economic power for the Reinsurance business. So overall, we continue to focus very strongly on increasing the earnings power of Reinsurance business. We will do that through improving margins and focusing on profitability and making sure that we have the right portfolio mix overall. So that's the story for Reinsurance. And now I'll hand over to my colleague, Andreas, on CorSo. Thank you very much.

Thank you, Moses. Yes. Last but not least, CorSo. CorSo has come a long way. It had made strong progress, addressing not only the shortcomings from within the business. But also at the same time, starting to implement a strategy for the future. And I think this is something that is very dear to our heart. We said right from the outset that we're not only addressing the fixed part of the business, creating the foundations for the growth. We, at the same time, said, we're going to look at the customer needs. We're going to look at customer pain points and also at industry inefficiencies. So now is the moment really to address it, as Christian already said and a lot of people prior to my presentation now. We made good strides, positive strides, but I'm well aware of the old saying, one swallow does not make a summer. Disseverance, hard work, disciplined implementation and have a clear conviction. This all came together, and you could have seen it already. Q1 showed very small, already positive trends, that it was more pronounced in Q2 and Q3. And we're very confident that we're moving on and making a very positive stride towards the end of the year. Now I want you to take away 3 things today: number one, Corporate Solutions is core to the Swiss Re Group strategy; number two, we are operating in a scaled, attractive, commercial insurance market; and number 3, I'd like to talk you through the update on the turnaround story of CorSo. But let me build on what Christian said before. As CorSo is an integral part of the Swiss Re Group strategy, the profitable growth ambition of Swiss Re Group. We can very clearly repeat again that we're very well on track with our turnaround story to achieve the 98% or better. That's the new announcement, basically. And this we will do because who will have access to, and we've got a strategic engagement with corporates. And this differentiates us to other groups Reinsurance groups, but also in the combination also of the overall corporate market. More and more, we will be basing our strategy on a refined and forward-looking data and technology infrastructure and supported by capabilities and new capabilities in the underwriting. Thierry was talking about the future of underwriting. CorSo is a very good example, and we can come to this a bit later. All in all, this will lead to us being much more customer focused, better diversified and more cycle resilient as a company in this market. I referenced the scale of the market. We are working in an USD 800 billion market when we talk about the commercial insurance space and the Swiss Re Institute has projected a growth in this market. And they are predicting a plus USD 1.2 billion market in the next decade, although very fragmented. But this is just too big to be ignored from our perspective. If you look at the addressable market for Corporate Solutions, then it's divided 30-70, 30% is really in the space, the large corporate bespoke, mid-corp. space. And remember, we have separated our Chief Underwriting Officer in a bespoke Chief Underwriting Officer. That's the space that the bespoke Chief Underwriting Officer is operating in. And we're not ignoring the other part of the market here. We're operating with much more specialized, targeted standard propositions, also very much through partnerships, distribution partnerships, and also, in particular, through joint ventures. Bradesco in Brazil is one very good example, where we get access to this mid-corp. and SME market with very clear, very broad branch networks from Bradesco. This expansion into the 70% will obviously diversify our portfolio much better and will bring us also to a lower average expense ratio in our overall portfolio. Now if we look at the access to the customer value, we've done an exercise to really identify who really the corporates the target market really is. We identified 40,000 corporates. Those are groups. Obviously, they've got affiliates and the branch offices and subsidiaries, that numbers exponentially would go up. But if you look at corporates, we're talking about 40,000. They represent USD 230 billion of gross written premium. And the good news is 11,000 of those 40,000 already are in-force businesses for us. Now if you look at this 11,000, and then you can imagine there is substantial growth, potential penetration, potential in this customer universe. If you look at our gross premium written, and it's subdivided in 2 camps, basically, 55% is large corporates and the rest is midsized and others. Amongst the large corporates, and that's the good news, 35% is really where we have a very strong, almost direct relationship, at least a tri-part relationship with brokers, but very often also a direct relationship. And those direct relationships are very profitable. If you look at 123 key account managed accounts, those are the most high-touch accounts where we bring distinct value propositions to the customer. Over the cycle, they have outperformed very strongly even in the soft market cycle. So it's a very sticky business, very profitable business. And this will lead obviously to us being a specialized risk partner for those corporates with good, close relationship. And that obviously provides also the entry point into the Swiss Re Group for iptiQ and other parts, for instance, P&C solutions that we have mentioned already. Now let me talk to the turnaround story. We have already said that we will focus on technical excellence, and this will set the foundation to pursue future opportunities. Opportunities we mean by growth, profitable growth opportunities. Now let me start with Excel, with the basics. This is what we call our fix-it program. We were revisiting the portfolio. We were strengthening the underwriting discipline. We were looking at a stronger operational excellence and productivity. And this, altogether, in turn, provided opportunities to capture market growth within what we labeled our decommoditized core business, meaning businesses or lines of businesses or segments where we knew we were strong, where we had assets that we could bring to the party. Secondly, we would grow with our differentiated Primary Lead propositions. And lastly, we are very aware of the fact that more and more beyond risk transfer, the service part of business is playing a role. And here, we're advancing also the business model. And this obviously underlying with much more technical and data infrastructure and the capabilities that I just mentioned. Now let me talk about Excel the basics. And here, this is something that we have mentioned a few times, the implementation of our management actions that we started in 2019, are already ahead of plan. And this is what I call the walk to the underwriting profitability. We are starting with 110% normalized combined ratio in 2018. We had to increase our initial loss picks. We have spoken about it. And this added another 8 percentage points on our combined ratio. We then looked at the pruning of the portfolio. We were addressing earmarking $900 million of gross written premium that were not strategically core to us, where we were underperforming, where we had structural cost disadvantages or where we believed the market per se will not turn into profitability. We have mentioned U.S. casualty as one element, but that wasn't the only one. We also had addressed marine cargo, general aviation. And those event cancellation, we have mentioned it in the context of COVID. This was a very brave move, but it paid off. Here, we can say now with conviction that towards the end of the year, we will have accomplished 85% of it. The rest will obviously come a bit later. And also due to the earning patterns in U.S. GAAP, you will obviously see it over time, and this is the good news here. A very, very strong part, a substantial part, driver for the combined ratio improvement was the rate increases. Here, you can see 12% positive effect on our combined ratio. We have seen 3% rate increases in 2018. And then suddenly already in 2019, we could generate 12% across all portfolios, all lines of businesses. Year-to-date, we stand at 15%, and we're very, very confident that this is going to continue, not only due to low interest rate environments, but the market and all participants in the market show that upward trend. 2% net expense savings. They were offset, obviously, by increased reinsurance protection. And then we had a positive impact by lower-than-expected manmade claims activities, and this factors here for 4 percentage points in our combined ratio. So all in all, this led us to the 98% combined ratio on a normalized basis, obviously excluding COVID for 9 months in 2020. If you now add the manmade losses, on a normalized basis, we would have been then at 102%. And this is definitely significantly better than the communicated 105% combined ratio towards the end of 2020. That's why we are very comfortable and confident that we will achieve our target. Now we have spoken about the outlook, and we have listened to the Q&As before. People are saying, okay, what does that then mean to your target? We set out 98% for 2021. We, nevertheless, see impacts still coming our way that makes us a bit more prudent. We see that the manmade claims activities, that's at least what we expect will come back to normal, that's one aspect. Secondly, the economic downturn due to the pandemic will have an impact on our credit and surety book. This is also a factor that we have to take into consideration. Thirdly, we're investing into business. We're investing into growth, and I'll talk about a few areas a bit later. Those investments are initial costs, the ramp-up costs and they go against a contracted net premium earned base because of the pruning of the portfolio. So it is revenue generating. It's a positive growth. But this is those investments that we have to factor in and additional reinsurance protection, I also mentioned. One aspect that is not mentioned here, and you have asked it in your Q&As, is the elipsLife portfolio. This is not factored in the numbers here yet, but for 2021, it's included into our business. So if you take all of these aspects together, we feel comfortable to be at a 98% or better. That's what we lay out for the 2021 outlook. The good news is that when we decided the pruning, we were obviously -- the intent was really to rebalance our portfolio. On the one hand, on the geographical side, and on the other hand, on the product split. So if you look at the geographical side, you see definitely a decrease in the North American share from 54% to 48%. And North America share is mainly U.S. Canada is one of very profitable marketing, and we're very happy with our position there. It's growing. But U.S., obviously, we had to do some derisking, in particular, on the U.S. casualty side. You see that EMEA grew from 22% to 26% in the mix. This is intended growth, and that was exactly the rebalancing of the portfolio that we wanted to see and we continue to grow in this market. And we'll see it also with the great increases that are very pronounced in EMEA, in particular, and also in the property line of business. So just a word on Latin America. Latin America is going down here. Latin America started a bit later with the turnaround program. And the rate increases that you see in Latin America are not as pronounced as in other markets. So there is a time lag here. So only now you see really the rate increases coming through also in Latin America. So we expect Latin America to be much stronger going forward, and it's a market that we have a great interest in. Now on the product split, you see very clearly, we're growing where we want to grow, 30% to 40% increase in the share of our portfolio in property. And remember, in property, we have included the event cancellation. So all the pruning is already factored in. So 40% of the total share and property is very healthy. That's what we like. We also look at other lines of businesses like credit and surety, where we see then that the cycle management is working. So we already noticed in 2019 that we were in a downward cycle. In Q3 2019, we started to reduce the exposures and the capacity in credit and surety. And now this is a line of business that we're watching very closely, in particular, in the context of the economic downturn. But also, we will definitely see a moment when we're ready to benefit from the growth in this market. We're very strong and the teams are waiting and managing this cycle management very well here. So this is the portfolio side. On the right-hand side on the top, you see that the gross written premium that we lost is not significant because it was counterbalanced by the price increases. So that's the good news here. So price increases we factored in, but not to the extent that we could actually get it through in the market. And on the lower right, you see that on the net exposure, we have been very prudent. We're protecting our balance sheet here by reducing our net share of the risk. And here, you can see to what degree. So overall, we feel that we're very well positioned in this market. Our capital allocation is going in the right direction, in the right portfolios and this is the positive news. Now how can we ensure that we're not falling into the commodity trap, again, of a future soft [ cut ] cycle and address the unprofitability in this market. It's on the left-hand side, the technical excellence. And on the right-hand side, it's the cost element. So both parts of the combined ratio we're addressing. Costing accuracy, reserving accuracy and profitability, those elements are key. Remember, Thierry already mentioned it, technical excellence. And here, you can see it live in action At CorSo, we have a systematic steering and performance management framework called CorSo Smart Circle. And this year is really addressing, closing the loophole elements, addressing the costing and the underwriting, addressing the claims and the reserving side. And most importantly, on a quarterly basis, we look at all the trends and we look at costing gaps. And as soon as we identify them, it goes into the costing tools, into the underwriting behavior. And then we get -- we close the loop again. And this is a continuous circle so that we avoid that we're falling into that commoditized gap -- trap again in this market. Now I have to say, this is all based on state-of-the-art data modeling. We have created the analytical data model for the CorSo portfolio. This is a single version of truth, leveraging the group with the Stargate program. And this is a treasury data lake that we use with very clear analytics that give us decision -- informed decision-making on data. On the right-hand side, you can see that we have strengthened our cost discipline in the company. We have addressed the organizational structure. We delayered the organization. We looked at the footprint and we looked at improving our underwriting processes to increase the productivity. We're using state-of-the-art infrastructure. And we're also looking at the operating model. As I mentioned before, we've got the Chief Underwriting Officer standard. And there's the area where we look at the small tickets, the small average premiums per policy are going through this more standard, automated or semi-automated way of underwriting. The expense ratio has improved by 2% and this is a very good sign. It's -- I'm not hiding that we want to improve it further. We need to improve it. In particular, as we have heard, underwriting margin is key in a low interest rate environment. So you will see more efforts, and this is a continuous expense management exercise. It's not a cost cutting. It's an expense management exercise where we want to improve. $120 million -- or more than $120 million gross savings we've achieved. Obviously, we also have then used some of it to reinvest into our business. We were talking about rate increases and hardening of markets. And here, you can see how the situation looked like at CorSo. You see the compound price quality increase and we also laid out the -- separately, the property increase. So this is a very, very interesting one. You can see that in the CorSo portfolio, we have a much more pronounced rate increase in comparison to some of our peers because we are very much operating in the large corporate end of the market where the rate increases were much more severe or steeper than other markets. We still believe that there will be upward pressure on rates. That will continue. And we see this not only through loss inflation, but also the low yield environment, as we said, and also in total, the whole COVID market environment is supporting this rate upward pressure. We're using this for opportunity to grow, too. We have now agreed on a business case and we're implementing it as we speak to grow in property, yes? So we received so many submissions, asked for capacity and good quality capacity that we couldn't work on it anymore. So we're hiring more than 30 people just in EMEA to address this growth opportunity. Now is the opportunity. Now is the window that's open. And we're capturing this growth and we're very well positioned to do so and increase our technical margin. Primary Lead initiatives and proposition. You have heard many times, many years about this. This is something that started quite early already. And here, you can see that we started from an Excess & Follow business and the 20% Lead business, we started with in 2014 have increased to 45%, and we see it increasing in our plans to more than 50% going forward. This is an area, the sweet spot we feel comfortable with. And here on the right-hand side, you can see 3 initiatives that are part of our growth initiative. Let me single out the middle one, the captive solutions, because, in particular, with the hardening of the market, the customers aren't looking for capacity. They can't fill their capacity gaps, not anymore. And the rate increases increased their budget capabilities internally. So what are they doing? They're obviously looking at alternative risk financing instruments. Captive solutions. It's a very strong instrument, high end demand at the moment, and this is not geographically focused in one area. This is a global phenomenon. We are extremely well positioned with our innovative risk solutions team. We have added to the team. We have invested into a captive solutions team. And what the customers want. They want, obviously, the structuring capability of a partner like Swiss Re Corporate Solutions. But at the same time, they need the infrastructure for fronting. So that's why we also can make use of our fronting capabilities of our infrastructure and our technical platform that is state-of-the-art. So fronting and captive solutions goes together, and this forms the international program. So on the top, you see international programs in the traditional form, but in particular, now in this market environment, particularly for captives, that's quite important to note. And now -- and in order to balance the portfolio to take the volatility out and also to reduce the expense base, we have the standard proposition. So those 3 elements we're focusing on and will put us in a position not only to excel now with a decommoditized core, but also in the future, capture market opportunity. Innovation. Innovation, In particular, is pronounced in the area where we talk about initiatives beyond risk transfer. The international program platform, I have mentioned already. This is something that we collaborate very closely with reinsurance. So our reinsurance colleagues as part of solutions can offer it to their seamless customer base. We have brokers who use it and we've got a very strong pipeline of customers who really would like to have this fee-based business. This is very important because we're addressing an industry inefficiency. We had very clumsy frictional processes, costs in the process. And this is something we can address, and it has the potential to be one of the standards in the market to administer international programs. At the lower end, that's a very exciting innovative part. We're forward integrating into our customer base, the corporates. And we're teaming up with corporates and integrating into their products. Here with Hitachi, in particular, we have announced it. We forwarded integrating and -- integrating into their software maintenance program that they offer to their end customers to machinery -- machine manufacturers, OEMs. The interesting part here is that we are not working on historic underwriting data to do our underwriting. Here, we're using sensor-based, real-time information and offer protection to those -- to Hitachi. So that this is an integral part of their software program. It's not a stand-alone insurance program as we know traditionally. Now all of that is leading to our position in the Swiss Re Group. We're using our longstanding years of relationships with those customers and opening them up to the Swiss Re Group. Here, you have 3 examples where we could open up 13 years of Microsoft relationships on the primary corporate insurance side. And open them up for the B2B2B proposition with iptiQ and others. Daimler, we have with iptiQ that has been announced, the joint venture. And Verily, that's an Alphabet company. We're working on the A&H space with the P&I, who is supporting us on the investment side. So this is more and more becoming an integral part, an important part of our group. We have created one specific unit. That's a corporate partnership unit. The corporate partnership unit is reporting to me, but not necessarily as a CEO for Corporate Solutions, but as a member of the group Executive Committee because this is the entity that navigates the customer through Swiss Re and vice versa that helps Swiss Re to be much more effective in capturing those opportunities in the markets. In summary, we're becoming a specialized risk partner with deep capabilities in selective lines of businesses and segments. We're confirming our target, 98% or better, as we said. This is a new part. And we are very confident that we're adding value also to the group. Thank you very much, and I think we're going to the Q&As now.

Thank you, Thierry. Thank you, Moses. Thank you, Andreas. Like in the morning, we'll just wait a few seconds for the lines to open.

So again, if you could restrict yourself to 2 questions, and we have the first one coming from Kamran Hossain from RBC.

Two questions. The first one is just around nat cat. So, I guess there's some indication that some secondary perils, especially, have increased all your expectation of losses there. What do you think the outlook is for nat cat ratios? I know you've kind of given us a steer on the overall combined, but what's the expectation there? And the second question, maybe a longer-term question. When you think about Swiss Re, I mean, we've heard about, one, Swiss Re moving people around the business, which I think makes for excellent kind of careers and kind of motivated staff within the company. But what does that do to underwriting expertise? Do you think that kind of career paths need to change in that respect to develop kind of deeper expertise? Or is that kind of already thought through? Any kind of color on that would be really very interesting.

Good. I'll take the first question around expectations around Nat Cats risk, Kamran. I think from our perspective, we continue to view this risk as extremely attractive. I think, as I mentioned in my session, we sort of look at the performance, look at areas where we feel we need to make adjustments. I mean, so you mentioned some of the secondary perils or the climatic perils. So those are things that we've looked at and said, okay, we need to model them to -- with a greater degree of proficiency, and we then make adjustments to the model, to the pricing to the guidelines, both in terms of the [indiscernible] sales or the aggregate contracts that we put in place. But we remain extremely comfortable with nat cat risk. We feel we are one of the foremost experts in the entire marketplace. And when we look at our a versus e, I think as Thierry mentioned, over the long term, it's point on, right? So there's nothing there that gives us a sense that we need to worry more than we should. If anything at all, we're deploying more capacity to the nat cat space.