Swiss Re AG (SREN) Earnings Call Transcript & Summary

Good morning or good afternoon. Welcome to Swiss Re's Q1 2020 Results Conference Call. Please note that today's conference call is being recorded. At this time, I would like to turn the conference over to John Dacey, Group CFO. Please go ahead, sir.

Thank you very much, and good morning or good afternoon to everyone on the call. I'm here today with Thierry Leger, Group Chief Underwriting Officer; and Thomas Bohun, our Head of Investor Relations. Before we go to the Q&A, allow me to make a few quick remarks on the release we put out this morning. The first quarter of 2022 has been a challenging one, where we faced several headwinds and reported a group net loss of $248 million. The continued impact from COVID-19 on our Life & Health results was not a surprise, even as the first quarter excess mortality in the U.S. came in towards the higher end of our expectations. Excess mortality in the U.S. has rapidly declined in recent weeks, and we remain focused on achieving our $300 million net income target for Life & Health Re for 2022. Our first quarter results were also impacted by negative mark-to-market movements in our investment portfolio via the listed securities. The fact that these movements flow through our net income is a feature of our U.S. GAAP reporting basis. In P&C Re, while nat cat losses were above expectations for the first quarter, they amounted to a manageable 24% of our full year nat cat loss budget of $1.9 billion. The nat cat business remained profitable in the first quarter. Let me turn briefly to the Russian invasion of the Ukraine, which did come as a shock to us at the end of February. We extend our sincere sympathies to all who have been impacted directly by this war. There's a very high degree of uncertainty with regard to the potential impacts on insurers and reinsurers from this war and the related events. And so far, we have hardly seen any claims. We continue to believe, as we disclosed at our Investors Day last month that the ultimate market loss for the industry could be similar in dimension to a midsized natural catastrophe loss. While it comes -- when it comes to the impact on Swiss Re, we do not have any outsized exposures relative to our normal market share in the P&C Reinsurance industry. In some of the affected specialty lines, we believe we actually have an underweight market position. Nevertheless, we decided to take a proactive and cautious approach and booked reserves of $283 million related to the war in the Ukraine in the first quarter. Based on current information, we estimate that the reserves we made this quarter should cover a significant portion of our total ultimate loss from the war, covering exposures in both the Ukraine and in Russia across all effective lines of business. For Swiss Re, these include aviation, credit and surety, marine, political risk and political violence. Despite these reserves, we remain focused on achieving our less than 95 combined normalized ratio -- normalized combined ratio, excuse me, target in P&C Re and our less than 95% reported combined ratio target in Corporate Solutions. We are committed to achieving these targets without normalizing for the impacts of the war in the Ukraine. Delivering on our business segment target should allow us to achieve the 10% group ROE target in 2022. Finally, just to reiterate, our capital position remains very strong with the group SST ratio in the upper half of our 200 to 250 target range as of April 1. And with that, I'll hand it back over to Thomas to introduce the Q&A session.

Thank you, John, and hi to all of you from my side as well. [Operator Instructions] So with that, operator, could we have the first question, please?

The first question comes from the line of Kamran Hossain with JPMorgan.

Two questions. The first one is just on -- I guess it's on the targets for 2022 and the ROE target in particular. Just interested in your thoughts on the kind of levers that you have to achieve that. Because I think Q1, you obviously had the $283 million impact from kind of Russia, Ukraine. Based on the numbers that you discussed at the Investor Day, maybe there's another kind of $500 million or so to come thereabouts on that, so maybe another $400 million hit to kind of earnings. So what are the levers that help you to hit the 10% return on equity? Because it sounds like you're pretty confident in kind of Swiss Re's ability to hit that. The second question is on investment income. I guess you talked about a 2.1% income yield. Could you maybe help me understand how you kind of -- how many bps improvement we should assume per year from this place onwards, assuming that kind of yields stay kind of where they are today? So just kind of how to model the improvement in charge numbers?

Sure, Kamran. I think I'll take both of those. With respect to the levers, a couple of thoughts. One, we've reiterated that the Ukraine losses for us appear to be a midsized nat cat event in terms of dimension. That provides a bit of a range of potential losses. With the scenarios that we've gone through and the latest update we made 2 weeks ago with the teams that have been working through those scenarios, we'd probably be on the lower end of the range of a midsized nat cat. And so I think in Investors Day, people were taking away that we've sort of have an industry loss somewhere around 15%. I'd suggest a midsized cat range would be between 10% and 20%. And at least for now, we're probably closer to the 10%. So when we bring that back to Swiss Re, I think the expected loss with the information we have and all the uncertainty that's unambiguously around these scenarios, the expected loss is probably a smaller number than what you might have just indicated. With respect to other levers, I do think we believe the underlying performance of our P&C businesses are very strong. The normalized P&C Re ratio is not yet below 94, but there's an important seasonality component, which we think brings it there. And the overall business that we've been writing in the beginning of this year will earn through at very strong rates, and we're confident of strong profitability on the P&C business. We also alluded to what we believe will be a very sharp dropoff on the COVID claims in Life & Health already in the second quarter, but certainly in the second half of this year, allowing us to return to profitability there. So I think the combination of these make us believe we can get back to that 10% target. It's not going to be easy. There's a stretch, obviously, that's been imposed by the losses related to the war in the Ukraine. But we're confident that, at least for now, we've got the pieces that can get us there. On investment income, I don't think I can give you a bps target for quarter or annual increases. What we do believe is that we've reached an inflection point. Obviously, the 10-year one -- U.S. treasury is one strong indication. But the relative flatness of the yield curve allows us to actually come in even on shorter durations, 2 years, between 2 and 5, and still pick up 2.7, 2.8 on a risk-free basis on dollars. So I think we would expect that 2.1 to continue to move up as we go into Q2, 3 and 4. Exactly how much, I think it depends actually on broader macro conditions and nominal rates that are being found by our teams here. But I'd just point out, we maintain a fairly strong cash position, the cash plus short term were 12% of the portfolio. And we've got the ability to invest those funds at better rates when we think we're being compensated for.

Thank you, Kamran. Could we have the next question please.

The next question comes from the line of Andrew Ritchie with Autonomous.

Thanks for the color on Ukraine. But John, maybe could you just clarify, you said you felt Swiss Re was underweight some impacted lines. Can you just clarify which lines you're referring to? And why did the 10 to 20 fall to 10? What was the change? What changed in the last month, I guess, to bring you there would be helpful? The other question, I always get a bit confused by your slide, looking at nominal price increases versus loss cost. And I see that the year-to-date renewal price is now 3%. I think it was 4%, but the loss cost impact nominal is now minus 3%, it was minus 4%. So my reading of it is that the loss cost trend in your assumption seems to have got less, which seems counterintuitive to what we're seeing. So could you just explain how I should interpret that slide? I get that you're essentially saying the nominal combined ratio of the renewed portfolio is flat. Clearly, there's mix benefits, which will come through. But the renewal is more or less equal to loss cost, which again, if you could just clarify exactly what you're saying?

I'll do my best, and maybe Thierry can come in, but let me get the second question first. The April renewals, Andrew, are largely dominated by our Japanese portfolio. There were major rate increases on that business, which is dominated by the property and nat cat exposures in 2019 and 2020 based on the losses for the typhoons in the previous years. Those rate increases got us to what we thought was a very comfortable level of pricing for those risks. And we didn't see a need to see major price increases as a result of that. And similarly, not just the typhoon and flood risk, but also the earthquake risk we thought was well priced, and we're perfectly willing to renew. Related to that, in the Japanese market, the impact of inflation on the lines that we write has not seen the same sort of pressure that you see, certainly in the U.S. and maybe some other jurisdictions. And therefore, the higher loss assumptions were not particularly relevant for that renewed book of -- and the combination of that meant we were able to write a nice increase in the premium for the quarter, the April -- or for the April renewals, the increase was -- the existing book was about 15%. We think we have perfectly adequate pricing. And when you mix that with what we had year-to-date, it brought those numbers slightly down to 3% and so the 4%. But we're very comfortable there. I don't know, Thierry, if you wanted to add.

Maybe just one addition. If you assume for a moment that the combined ratio in the current environment stays flat, right, which wasn't the case, you have improved it slightly. But if you assume it's been flat economically given the higher interest rates, we still increase our profitability. So we're actually really pleased with the profitability increases we have seen in the April renewals. And therefore, we have also written more business.

Thanks for that. On your first question, Andrew, with respect to Ukraine, the lines where we think we're probably around market rate would be related to aviation and probably credit and surety, we don't think we're necessarily the biggest in either of those areas, but market weight seems a fair description. On some of the more specific specialty lines, and particularly with respect to political risk and political violence, these are not lines which we seek out. And while we have some exposures, they're pretty much incidental on broader treaty covers that we might have in place. And that's probably the same with some of the marine exposures that might be here. So I think overall, reinsurance, is a player in marine, the Corporate Solutions book actually materially reduced marine exposures in the portfolio pruning that was done now 2.5 years ago. On the range itself, again, our teams have a series of scenarios, which have different assumptions for the nature of the losses and how far up the overall scale of the loss you get. The one thing which I think we said at Investor Day and we'd reiterate, the longer the war last, the more losses will come through, especially in a few certain lines. So the credit and surety lines may be more impacted as the war continues with more bankruptcies, more claims on inability to deliver whatever has been assured. I think on aviation, I don't need to tell this crowd that how complicated both the exposures and the potential losses are. This will sort itself out over, I expect, a number of years. For now, we think there are losses there. And we've booked in Q1 some important part of the total in aviation because of those expected losses that will come through. And just the -- why we think this is closer to 10% and 15% at the moment, I think, is just a level of analysis and comprehension of the losses that we've assumed. It doesn't mean that we'll stay there. And there may be more information that comes and especially coming up from our primary companies on the reinsurance side will lead us to a higher position that's within the scenarios that we've considered. But at least for now, we've not seen evidence that would take us there today.

Thank you, Andrew. Could we have the next question please.

The next question comes from the line of Will Hardcastle from UBS.

Predictably, just one on Russia-Ukraine first up, just as a follow-on from that. You mentioned the aviation, it's booked -- you booked an important amount of total. Any color on potential exposure limits here? And is that -- I guess, is that in CorSo or is that in P&C Re? Because perhaps CorSo will have some reinsurance protection. Just trying to think about escalation and some caps to that. And then the second question is on prior year development. CorSo saw around 6 points of PYD in Q1. Any color? What did this specifically relate to, for example? And just finally, on casualty. In P&C Re, there was some further strengthening. Is this just -- is this case-specific or assumption changes?

So Will, on the aviation losses, what I can say is we booked -- set up reserves for both P&C Re and for CorSo. In CorSo, what I'd say is we've taken a cautious approach to reinsurance recoverables and the way that you think about accumulations for potential losses. So I -- some people, I'm guessing, are a little surprised at the relative size of what we booked in Corso for Ukraine compared to what we booked in P&C Re. I think we've tried to be balanced, but not assuming a lot of reinsurance recoverables on the events in CorSo, and that's why that's gotten to be a pretty big relative number between the 2. So that's the first part. On the PYD and P&C casualty, I think we continue to evaluate the impact on inflation and other areas and reinforce reserves, in this case, to a fairly minor degree, but still in a way, that reflects a cautious approach to loss cost development. On CorSo, I think that these releases, there's some related, frankly, to the continued appreciation for the lower experience that we saw in 2020, especially in 2021. So some reserves that were put up on the assumption would have a normal level or frequency of losses, we've brought some of the property redundancies through the P&L already last year and here's some sort of slight continuations. And I think overall, we still been thinking, especially in the CorSo book, about inflationary impacts and have not ignored the fact that in some places, we've actually strengthened some of the reserves for some lines and some years. So that's a net number. I think you should be -- just take that as a reaffirmation of the robustness of the reserve in CorSo.

Thank you, Will. Could we have the next question please.

The next question comes from the line of Iain Pearce with Credit Suisse.

Firstly, just a couple of clarifications on Russia-Ukraine, if I may. Firstly, on the sort of loss assumption changes that you've made from what you just talked about in the Investor Day. It sounds like it's a reduction in the overall expectation of industry loss rather than a reduction in Swiss Re's loss share based on being underweight in some of these class of business. So just to clarify, is that the view that you're taking on the sort of changing guidance around this? And then also on the Corporate Solutions reinsurance recoveries from potential Russia-Ukraine losses. I think you just said that you haven't booked -- assumed any reinsurance recoveries in quarter. Is that just a case of conservatism, but in reality, you may well expect to get recoveries from potential external reinsurance partners for CorSo from Russia-Ukraine losses? And then the second question was just on the acquisition cost ratios in P&C Re and CorSo. The P&C Re acquisition cost ratio has seen quite a nice improvement, but CorSo seems to have gone the other way. If you could just talk about through the moving parts in that -- in those numbers and what you expect in terms of sustainability, particularly the improvement in P&C Re?

Thanks, Iain. If I can do the first one, and maybe Thierry can come in on the second. I'm not sure that we've had big changes in our loss assumptions. When we had our Investor Day, if you remember, we were still -- I think we caveated our observations with -- there was limited information available. What we've done is, frankly, worked hard in the following 4 weeks to further develop the scenarios of where the losses are coming from, what's the insured -- potential insured losses, what's the -- what might have actually incurred in the first quarter and what may incur in future periods. So I'd argue we're still in the range of a midsized nat cat loss. Again, the scenario which we're working with today is at the lower end of that. That does -- we've also got scenarios which would take you to an upper end of that. So I wouldn't stand and say we know what the ultimate cost is, but we've done our best to try to make that assessment and certainly have booked in the lines where we think we've got incurred losses in the first quarter that booked a fairly, or at least relatively, sizable number to the events. The other thing on Swiss Re, I think we did say we were not overweight our lines in the exposures. I think we've got a little more comfortable that in some of these smaller specialty lines, we're probably underweight. And so that's a little Swiss Re-specific compared to the market. On the acquisition cost, maybe, Thierry?

Yes. So Iain, in general, for CorSo and for Reinsurance, it's actually due to mainly a change in the business mix. Now there's a bit of a difference between the 2. Corporate Solutions you can see it's a relatively minor impact and therefore, it's really to be explained mainly through the mix. In P&C Re, it's a mix question, but just think it through for a second. You've probably read in the papers that some -- in casualty business, some of the quota shares went at very, very high commission rates, and there were many attempts to actually increase those. So we have resisted that. And while it wasn't possible to resist or either reduced -- we have reduced our shares or even not renewed the program. So when you do that, you automatically start to improve the acquisition costs. So that's the impact from doing this. And of course, as you reduce that relatively high commission rate business, you're left with much lower like nonproportional business that has grown more with lower acquisition cost. So that explains really the business mix change, but also some of the decisions we have made through the renewal that we now see also reflected in that.

And I think the last point, at least for the P&C book on Page 6 of the slides that we delivered, you see actually some pretty substantial migrations in the portfolio with a 2% reduction in casualty in spite of higher prices.

Thank you, Iain. Could we have the next question please?

The next question comes from the line of Vinit Malhotra with Mediobanca.

So my 2 questions, the first one, just trying to get a bit more on Ukraine, and sorry for that. But I would -- my -- the key thing is, so from the outside, so what are the visible outcomes that we could see which will lead us to understand that, hey, this area is unraveling or it's getting worse? So will it be that the war goes on beyond a few months? I mean, I don't know what you could prepare to say here, but it would be very helpful to understand what could make this loss worsen in Ukraine as per your provisions? And second question is just on the derivatives commentary. Slide 20 has $148 million other gain in P&C Re. And I'm just curious, this from -- it looks like fixed income derivatives. But if you could just comment a bit because -- why I'm asking also is because interest rates might continue to go up, equities might continue to be down. So I just want to understand your hedging position.

Sure. So on the Ukraine in terms of visible signpost, other than what I've mentioned before, which is the longer the war goes, the more credit and surety claims might come through, and I think the rest of the leverage and how big of a loss is there is frankly going to be linked to the airplanes and the ultimate terms of the cessation of the war and to what degree there is salvageable value in those aircraft. And here, it's -- the reason we've booked something in Q1 on aviation is because we actually think that there is real loss there. The magnitude, to be seen in terms of the existing or nonexistence policies, some of which were canceled potentially before or after an event incurred and then subsequent complexities around that, both in terms of the actual number of aircraft and engines, which are -- have insured coverage and the ultimate disposition of them. So we'll have to see. But those, I guess, would be the 2 sets of signposts that I can -- Thierry, you might have additional?

Yes. Fully agree. Just one -- in addition, I wanted to add, which is the geographical extent of the war. At the beginning, it looked like it would go to all of the Ukraine, potentially even beyond. At this point in time, it looks like it has retrenched into a part of the country. So obviously, really bad, worsening outcome would be if it would geographically spread within Ukraine, but also potentially beyond. That will be another element I wanted to mention.

And then your second question, Vinit, on Page 20. I think some of these losses that you see in lines under P&C Re, the minus 145, which has doubled up there, did have this offset the 148. And so the net number, the 142 is the only one I think you need to focus on. There are some hedges in place and some other positions that we've put. But the upshot is, I think there -- it was a tough quarter on these valuations on a U.S. GAAP basis. We don't expect this to bounce back, but we also don't expect it to repeat necessarily in the future quarters. So we'll see how this plays. The broader question might be we remain cautious on the investment portfolio with respect to risk-taking and don't see the signpost, which would say, it's time to turn risk on.

And Vinit, I was reminded that I didn't answer the question of recoveries with regard to CorSo. So yes, we haven't included the recoveries in there. And your question was whether we could expect some, for example, on the reinsurance side. We haven't included any, as I just said, but also we don't, in reality, expect the program -- reinsurance program to necessarily respond to the type of losses. Again, as John pointed out several times, it's all very uncertain, we don't know, but we think it's unlikely that the reinsurance program would respond. There is another type of recovery. For example, if planes are impacted, it could be that claims finally are actually given back. And so you would have a recovery from the remaining value of that plane. That's another scenario that we obviously would take into account if that was a scenario that we would have reserved for.

Thank you, Vinit. Could we have the next question please?

The next question comes from the line of Ashik Musaddi with Morgan Stanley.

Just a couple of questions I have is, first one is -- sorry to come back to an ROE topic. I mean, if I think about from your Investor Day, which was earlier this month -- early last month and now, when interest rates have gone up, so book value has gone down, okay? So it makes the ROE to achieve a bit more easier. At the same time, your confidence on the Russia-Ukraine losses have improved, i.e. you will most likely incur lower losses. So why would you still say that 10% is still a bit of a stretch if I just compare one month back versus now? So that would be one. And just related to that, I mean, is it fair to say that your -- I mean, equity is still going down because of rising interest rates. So we should be using the new -- the average equity base to arrive at and use the ROI -- ROE of 10%. Because I mean, it only gives me about $2 billion, $2.1 billion is what you need to hit in terms of net profit to achieve this 10% ROE. Would you still say it's a stretch? Or would you say we don't need to worry about changing interest rates and thinking about net profit from that way? So that's the first one. And secondly is just with respect to Russia-Ukraine, I mean, when do we hear again from you in terms of what needs to happen to get an update on this $283 million? Is it actual losses needs to come through? Or would you reassess situation at second quarter? Or what needs to happen to get a proper update on Russia-Ukraine?

Yes. So Ashik, again, in the Investor Day, I don't think we were telling you what our loss would be for Russia-Ukraine because we actually didn't know it. And in fact, what we got here with Q1 is a clear indication based on a lot of work that's been done by a large team to estimate where we are. I think these are still significant losses. And in addition to that, on Life & Health Re, as we said, the first quarter ended up being at the high side of expectations. We expect the COVID losses to drop off significantly in a very major way already here in the second quarter, but there will be some losses that inevitably will come through there. I just would suggest that the earnings in the next 3 quarters are not in the bag, but we think we can get there. And if -- we said we'll get at 10%. If we end up with 11% or 12%, that will be great news for us. On the basis, I don't think you would expect us to have a ROE target that's a return on last year's equity. So it's fair to say we would expect it to be on 2022 equity. If that's moving okay, it's a moving target, that might make it a little easier. But it's not clear where interest rates are going to land at the end of the year. So that's -- we can have that discussion in Q4 when it's clear that the earnings are in place and we've got a better sense of what a full year equity might be. But right now, you should assume that we're talking about a 10% ROE for 2022. And after a first quarter loss, we'll -- we believe we will quickly climb back up and achieve the kind of earnings that will be required to get us there. On Russia?

On the Ukraine, so your question, if I understood it well, was when we might potentially reduce the $283 million?

Oh, no, this is adjusted to...

Oh, adjusted, yes. Reduce or adjusted. Okay. So for us, as John said, right, we have a scenario that we have built, right? So if -- from the moment we changed the scenario, we would obviously change our view on this. Certainly, John mentioned that time is one of the critical components here. So should the war actually end much earlier than our scenario foresees, then that would be a good reason for us to review that scenario. That will be a very positive outcome for us. If at some point, again, the war extends in time, and potentially even in space, then that would be a trigger point to review the scenario and accordingly the amount. But as John said, currently, we actually feel quite comfortable with the amount we have put in place. We think we are considering different lines of business as laid out and don't expect that scenario to change soon.

And what I can say, Ashik, is we will -- this will be an item for the next quarters or the half year results. We'll give you as best a update as we can with specificity. The one thing I would say is almost all of this $283 million that we booked is an IBNR. If actual claims come in, we'll get a little better sense of at least where people believe there's covers in place and we can assess those more normally with our own judgment on our treaty wordings. I think the other issue is there's a lot of primary companies which are struggling themselves to assess the losses. Our reinsurance estimates will get better with more interaction and information from those primary companies. At least right now, we believe we've got a clear handle on our exposures as they've been written.

Thank you, Ashik. Could we have the next question please?

The next question comes from the line of Thomas Fossard with HSBC.

Just a follow-up on Ukraine. Again, if I were to put numbers on how you are expecting us to think about the losses, it looks like to me that at the time of [indiscernible], you were more hinting to something which was around USD 750 million possible. And it seems to me that now you're more hinting to something which is around $500 million. Would that be the logical right way of looking at things? And then I've got 2 additional questions. The first one would be related to Slide 19, where you're showing the accident year loss ratio Q1, 59.3%. I know it's only Q1, but maybe you can explain why it's up on Q1 2021 and why it's up on full year 2021? And the second question would be if you could talk a bit about your expectations in terms of pricing for the midyear U.S. renewals since we've seen a bit of volatility in terms of pricing depending on the geographical regions so far into the year?

Maybe, Thomas, on your first question, at our Investor Day, we tried to be -- to give indications, but they were indications. And so when we said midsized catastrophe loss, it was a range between 10% and 20%. And people picked the midpoint. We didn't disagree with that. We're now saying at least the current scenario in which we've made these bookings and which we assess our exposure is towards the lower end of that. But that's the current view. So I won't actively disagree with your characterization, but I'm pretty sure we didn't give point estimates before, and we're not giving a point estimate now. And so you can -- we've seen some places where we thought we might have more exposures, which we don't, which is a good thing. And we also have a greater appreciation for some of the complexities around the aviation exposures in particular. And so that's what we've -- we've narrowed our own range for the moment with the scenarios that we're working through. So I hope that helps. On the current accident year, maybe Thierry, you want to comment?

Yes. So I think, Thomas, you already started, right, to go into the direction of saying it's just a quarter. So I think that's important. It's just one quarter, and you have seen the numbers and how they look on a normalized basis. John mentioned the seasonality impact on it. And on top of it, we had a number of large but below $20 million man-made losses in our reinsurance books that has been impacting our current year combined ratio in addition. So that would be on your first question. Then the last one, maybe what we expect for midyear renewals. So for me, the context is a positive one for us, particularly for us, I think. On the one side, we see the demand up. Clearly, the inflation that comes through higher values will increase the demand, for example, on the nat cat side, but not [indiscernible] which generally creates a larger demand. I think that on the offer side, the offer side will generally be -- may be stable, but in certain areas down. Again, nat cat, we have seen already price movements up. The offer is not up in the same way. The retro markets have reacted in a similar fashion. So we see the offer more under pressure than the demand. So we expect, therefore, for companies like us that are kind of backstop providers and right on their own balance sheet to see again, like we have seen so far, a very attractive environment for us in terms of margins, but probably also in terms of further growth.

Thank you, Thomas. Could we have the next questions please?

The next question comes from the line of Vikram Gandhi with Societe Generale.

It's Vik from SocGen. A couple of questions from my side. Firstly, I see incremental comments from the American, Bermudan and London market players about cat pricing not being adequate, whereas the large European players, including yourselves, seem to have a different view. So any comments around what might explain the disconnect would be very helpful. The second one is really a numbers question on the P&C COVID reserves. Can you remind us what's the IBNR position on those results as at the end of first quarter? And I have a third one, but maybe I'll just go back to the queue.

Do you want to take the second one first?

Happy to, Vik. It might be a short wait according to our list here, but the -- on the P&C COVID, again, a bit of frustration that some of this BI exposure is yet to be settled with the primary companies. Having said that, IBNR remains at about 50% of the total position, not just BI but overall. And we'll see how well this plays out. Again, we're pleased that we've not had to -- seen any creep in the reserves that we set up in 2020 on this, but we don't necessarily see any big windfalls coming out either. We'll just continue to work through this over the time periods and hope to get some resolution with some of our primary companies in the coming quarters is what I can say. On the incremental -- or the comments on cat, I'm not sure that there's a different view. I think there are regional differences on adequacy of pricing. I mentioned on the April renewals that we think the cat prices for Japan, for example, are adequate. We've seen the need to make some adjustments in Australia, which we were active in, and also reducing our position down to a market weight from an overweight because of pricing. I think in the U.S., we continue to be concerned about pricing in the Florida market, which has been dysfunctional probably more than even average in the last 12 months with a number of Florida-specific players actually throwing up their hands and going into bankruptcy. I think there's going to be a need to see rate increases in certain geographies. And the secondary perils that Thierry has been talking to you about for a number of years are all places where it's a mixed bag in terms of pricing. So let's wait and see where the June and July renewals are. But I'm not -- we're not universally excited about this, but we're finding enough opportunities and enough differentiating pricing in places to be willing to grow our nat cat book. But Thierry, you might want to add?

Yes. Just to add a few things, and it's going to be 2, 3 things. So the first is, of course, you don't comment on our competitors and their strategies, right, and how they view the market. And that's why I don't want to say whether they are wrong or right. That would be very arrogant. But I can speak for ourselves. And I have said it at the Investor Day as well that actually we do constantly update our models. We have 40 experts working just on that, dedicated full time. So we do feel confident in our models. We feel very confident in our capabilities to structure the right deals and so on. In addition, we -- as I just pointed out to Thomas a few minutes ago, we think it's a very positive environment for us. We think that there is a consequence of demand going up and offer probably not following in the same way, prices will go up. Now prices have to go up. Nobody should forget that. So we obviously have climate change going on and impacting different areas. John mentioned a few in different ways. There's inflation that needs to be reflected as well. So prices do have to go up for sure, but we do actually expect them to go up. And therefore, we expect that, as I said already, the margin level of renewals we will see in July to be more effective than they have been certainly a year ago, but probably also more attractive than what we have seen in April. And then we obviously have a slightly different model in the way. And I think it was Christian at the Investor Day that showed that slide, where we show that if you write mono line business, just P&C, then on a piece of business, you might have a piece of nat cat business. You might have a return of 6% because the only diversification you have is across P&C if -- sorry, if you're too a nat cat player. But if you're a P&C player writing business across all lines, then you can double your return to 12%. And if like us, you add the diversification coming from Life & Health, then with the same combined ratio, we actually achieved a 20% ROE. So that's a significant advantage that we have. Now obviously, we don't give that advantage away too easily to our clients, but it does actually position us quite well in the nat cat space.

Thank you, Vikram. Could we have the next question please?

The next question comes from the line of Dom O'Mahony with BNP Paribas.

I've just got one question actually. I was just reflecting on your comments earlier on the potential reinsurance recoveries from CorSo. If I heard you correctly, I think what you said is that you weren't expecting major recoveries on the war losses from CorSo. I was wondering if you might be able to give a little bit more color on why you might not get as much recovery as you would against some other sort of more normal catastrophe events? And the reason I'm really interested is one big question for the market is the split of walk lanes between primary and reinsurers. And I'm wondering whether you think it might be generalizable that actually reinsurance recoveries for primary specialty might not be as strong as you would, say, a normal catastrophe event?

Dominic, I think the caution that we put in here, frankly, is around the potential or nonpotential of accumulation of losses and how they would add up. So we don't think -- course, that has got a naked position. There is some reinsurance cover that we expect to be able to access. But we -- the challenge you have with 400 planes is thinking through how many events you have and if it is 400. And it may be 400 or it might be more than that if you include Chinese planes or Russian planes. And the level of uncertainty that's here remains extraordinary. So I think the right answer is we think we've been cautious with the approach for CorSo's losses, which is why they've got a relatively large number compared to what's in Reinsurance. We'll see how this sorts itself out. But I'm afraid I can't give you a lot of insight for how to generalize this out to the market today. The aviation challenge on this war-related loss is extraordinarily complicated. Sorry.

Thank you, Dominic. Could we have the next question please?

The next question is a follow-up from Mr. Fossard with HSBC.

Actually, it's a follow-up for Thierry. Just regarding property cat experienced in Q1. So actually, the industry has been impacted by 2 significant losses of the European winter storm and the Australian floods. Just wanted to understand the way Swiss Re understand these losses? Have you learned anything new? Does that mean that you did enough last year or about 2 years in order to restructure your property cat exposures? So just to understand if there are additional things to be done on the back of what you've learned year-to-date.

Yes, Thomas. So on Australia -- let's start with Europe, maybe first. So that -- obviously, these storms that we've seen, they have been only unusual in the way that it was really an anomaly in the chat stream that we observed in the north of Europe. And that chat stream did actually propel cyclone after cyclone to Europe. And that's what we all have seen, right? And it came with, as we all know, very, very strong winds. And one of the events, actually the -- what we call, the second event, headwinds up to 200 kilometers an hour. But none of that was not in our model. So we haven't been surprised by the wins. We haven't been surprised by the losses. So that one is as we would expect. In Australia, we've been very, very clear, I guess, with the investors and with our clients in Australia. We think that Australia and more than the average country is impacted by climate change. We have also been very clear that because of this, we are actually rather shy in terms of lower layers. And over the last 2 years, we have adjusted our portfolio in Australia considerably. Now obviously, we are also, on the other hand, there to help our clients and our clients desire is actually in those trade markets to cover themselves relatively low into the frequency. And so there's this natural, I would call it, debate that we are having in the Australian market. And as much as it didn't teach us anything new because we had it perfectly in our models that these events can happen, it did actually remind the Australian market again that what we are telling them is not exaggerated. So for us, very completely, the Australian losses do not lead to an adjustment in our models. We don't think that's required. It's, as I said, as expected. But certainly, we expect even clearer discussions with our clients regarding the retentions and the price levels that we need for this type of cover.

Thank you, Thomas. We have time for one last question.

Today's last question is a follow-up from Mr. Gandhi with Societe Generale.

The question really was on the new retro cover worth $1.12 billion, I think the number is in place. I'm just interested in understanding what it does and what it doesn't cover. I'm assuming it wouldn't cover any adverse development from COVID and/or anything to do with the Russia-Ukraine conflict. Would that be right? And the release said it should be positive from a rating agency perspective. So anything you can say around that point? And sorry for being greedy, but I'll use this opportunity to ask another one. I read a comment in one of the slides today that the group is targeting higher layers in the nat cat business. Just wanted to make sure I understood that correctly. It's the occurrence covers and not the aggregate covers when you're talking about higher layers. Is that right?

So Thierry, you want to take the second one, and then I'll come back?

Okay. Yes, you're absolutely right. So when we say we target higher layers, it means that's our sweet spot, isn't it? So we have been very clear that -- and that's not the aggregate layers. That are much more in the frequency area or in the horizontal protection, as we call it. So you're absolutely right that we are targeting the layers above the frequency up to very low frequency type of layers.

And Vikram, with the transaction that the ACP team was able to do together with JPMorgan, this is a cover for remote risk. So it's triggered only by a true extreme event, but it does include, frankly, all sources of loss that we're exposed to and includes any adverse development as well. But it requires us to book an extraordinary-sized loss in 12 months to be able to access it. So the -- it's a true tail-risk cover. It's not a working layer in any sense. It's very different than our normal retrocession programs or the cat bonds that we put in place are our main risks. But it is of comfort if there's something dramatic in terms of losses for the group.

Thank you, Vikram. With that, we've come to the end of the call. We'd like to thank you all for your questions. If you have any follow-up items, please do not hesitate to reach out to any member of the IR team. So with that, thank you again, and we wish you a nice rest of the day. Thank you.