Hannover Rück Aktie

Good morning, everyone. Welcome to our earnings call on our results for the first quarter of 2026. Today's speakers are Clemens Jungsthofel, our CEO; and Christian Hermelingmeier, CFO of Hannover Re. For the Q&A, they will be joined by Claude Chèvre and Sven Althoff. With that, I hand over to you, Clemens.

Thank you, Axel, and good morning from Hannover. So let's dive into it. I think it's fair to say that we had a strong start into the year 2026. We've seen a continuation of the positive trends from recent quarters. Underlying profitability was very pleasing in both business groups and the balance sheet and the resilience of Hannover Re have clearly been further strengthened.

This will support sustainable earnings growth and will help to manage volatility going forward. We are operating in an unstable geopolitical environment. The Iran war with its severe implications for people across the region as well as for global economies is contributing to elevated uncertainty. The impact on insurance and reinsurance from these ongoing events also remains uncertain.

As it is not yet possible to come up with reliable estimates, we have not yet booked any precise amounts as a large loss estimate. So far, we have received only, I would say, a minimal number of claims notifications from our clients. We do expect to have some exposure. However, we feel comfortable that any losses that may potentially have occurred will be more than covered by the unused part of our large loss budget in the first quarter.

So let me come back to Hannover Re's overall performance in the first quarter 2026 with a group net income of EUR 711 million. We had a very good start to the year. In P&C reinsurance, the combined ratio of 83.6% is well below our target of 87% and in line with our usual approach, as you all know, we have booked the full large loss budget for the quarter despite actual large losses coming in clearly lower.

Additionally, the strong underlying profitability allowed for a further increase in reserve resiliency. The top line growth in P&C has been impacted by currency effects and a decreased volume in structured reinsurance, which is a bit lumpy, as you all know. This is mainly driven by the anticipated reduction in the cession rate for some individual large reinsurance programs.

In fact, based on our strong relationship, we were able to even increase our share on this business, partially mitigating the underlying reduction in ceded reinsurance volumes. In the traditional business, the FX adjusted growth was 2.1%. This is slightly below the target range for the full year, supported by strong growth opportunities in the April renewal, our full year growth target does remain achievable.

The slightly weaker growth in Q1 can partly be explained by the impact of IFRS 17 accounting. Changes in commissions and particularly in the structure of profit and sliding scale commissions had a visible impact on the growth, not necessarily on the gross written premium, but on reinsurance revenue.

So here, it is important to mention that the higher amount being directly deducted in the top line does not filter through 1:1 to the bottom line. The impact on earnings is expected to be a lot lower. The underlying premium growth was approximately 2 percentage points ahead of the revenue growth. The new business CSM of EUR 1.1 billion mainly reflects our successful January renewals and fully supports our planning for the year, and Christian will provide some further details on the new business CSM.

The business performance in Life and Health reinsurance confirmed the positive trends seen in recent quarters. We were successful in growing our portfolio. The new CSM generation of EUR 249 million increased compared to the previous year. In combination with the reinsurance service result of EUR 254 million, the business group is well on track to deliver on our targeted profitable growth.

The investment performance was very satisfactory. The return on investment of 3.6% is slightly above the target and is based on a strong ordinary income from fixed income securities. Finally, the capitalization remains strong with a solvency ratio of 254%. This figure includes foreseeable dividends based on a quarterly accrual of dividends to be paid for 2026. And apart from this, the decrease compared to year-end '25 is mainly driven by market movements and the successful capital deployment for growth with a corresponding increase in required capital.

On the next slide, shareholders' equity increased by 7.3%. Apart from the positive contribution from Q1 earnings, currency effects were also positive. The CSM increased by 9.7%, mainly reflecting the new business generated by both business groups. And as you know, the new business contribution from P&C is seasonally high due to the recognition of the January renewals. The risk adjustment increased by 5.2%. This is also driven by new business and some assumption changes in Life & Health. Altogether, the developments on this slide show a continued positive value creation for our shareholders. And on that note, I'd like to hand over to you, Christian.

Yes. Thank you, Clemens, and good morning, everyone. I'm now on Slide 7. Our P&C result is based on the strong quality of our diversified portfolio. And as we booked the full large loss budget for the quarter, the result did not benefit from the benign cat environment in the first quarter. And additionally, the combined ratio of 83.6% includes a further increase in reserve resiliency. As usual, we do not provide exact numbers for the change in resiliency without the full reserve analysis, which is only available at year-end.

But what I can say is that the underlying runoff result was clearly positive and our decision to add additional prudency is the reason why the reported runoff result is negative at minus EUR 48 million. Therefore, the underlying combined ratio is even better than the reported 83.6%.

As Clemens already explained, the reasons for the decline in reinsurance revenue, our mid-single-digit growth target for the traditional business remains achievable. We continue to see growth opportunities in the current market environment, but we will not pursue top line growth just for the sake of growth. The accounting impact from changes in sliding scale and profit commissions is having an impact on reported growth figures. But altogether, the likelihood of ending at the lower end of our target range is probably higher than at the upper end. The investment result increased mainly driven by a higher contribution from our fixed income portfolio. The other result does not include any unusual items.

The currency result was fairly neutral. The main contributor to the P&C service result is the CSM release, reflecting recent renewal trends. Our prudent reserving approach is the main reason for the negative experience variance and also, as explained, the negative runoff result. Additional prudency for business earned from recent underwriting years is reflected in the experience variance.

Additional prudence for prior underwriting years shows up as a negative runoff. The very low new business loss component confirms that rates remained adequate on a broad basis despite the rate decreases we've seen in recent renewals. The increase in CSM in the first quarter is mainly driven by our successful January renewals with a diversified contribution from different regions and lines of business.

The new business CSM amounted to EUR 1.1 billion. It should not come as a surprise that this number has decreased compared to the previous year as the reinsurance industry and also Hannover Re reported decreasing reinsurance rates for the January renewals. Furthermore, our volume in structured reinsurance has decreased. Those 2 effects account for roughly EUR 250 million of the decline compared to previous year.

The rest can be explained by currency and also discounting effects. As those factors were largely anticipated, the level of CSM at the end of the first quarter fully supports our targets for 2026. In Life & Health Reinsurance, we have recorded strong top line growth of plus 15% adjusted for currency effects. Main drivers for the growth are larger deals in U.S. Financial Solutions and also expansion of business in our Australian subsidiary. Large part of the revenue contribution from U.S. Financial Solutions is connected to short-term deals.

The revenue contribution from these deals may well be lower again in the coming year. The reinsurance service result of EUR 254 million provides a very good starting point to meet our full year target of EUR 925 million. This result does not include any larger extraordinary items. The experience variance was clearly positive, whereas assumption changes and the prudent increase in risk adjustment had a negative impact on our results. The investment result mainly reflects the good ordinary income from fixed income, but also includes a negative impact from the valuation of an equity participation. The currency result was minus EUR 25 million. The 2 latter effects are the reason for a slightly weaker EBIT performance compared to the reinsurance service result. Looking now at the IFRS 17 components of the service result, the CSM release is the main profit driver and the release in Q1 is slightly above our expected range. We have been quite successful in financial solutions in recent quarters and some of the deals have a rather quick release pattern with a visible impact on the overall release pattern. The risk adjustment release was in line with expectations.

As mentioned, the experience variance is clearly positive based on a diversified contribution across our traditional business. This mitigates the negative impact from the change in loss component of EUR 133 million. So altogether, a diversified experience compared to initial expectations and not unusual for a diversified portfolio.

The main reasons for the loss component are assumption changes for onerous business and a prudent increase in risk adjustment for morbidity business. Larger part of this can be attributed to critical illness business in China, but also other regular assumption reviews contributed to this overall number. CSM development on the right side shows that the new CSM generation, which includes extensions on existing contracts and the [indiscernible] are nicely ahead of the regular release, supporting sustainable earnings growth in our Life and Health business group. The contribution to the new CSM generation comes from Financial Solutions and traditional business. Changes in estimates did not have a material impact in the first quarter. Additionally, supported by positive currency effects, the CSM increased by 3% -- the development of our investments was again satisfactory. The ordinary investment income reflects the continued rollover in the higher yield environment. And as you know, we have accelerated this with active loss realization in 2025, and we are now benefiting from these actions.

Distributions from alternative assets were below average in the first quarter. By contrast, though, the fund valuation for alternative assets recognized at fair value through P&L had a positive impact, hence the P&L contribution in total from alternative assets was very solid. Realized gains are mainly driven by the sale of some real estate.

So all in all, the ROI of 3.6% marks a good start to the year and is slightly above our 3.5% target. Our investment portfolio is well positioned to deliver a resilient performance in volatile times. Also with respect to private credit, the risk is very manageable. Our exposure in the narrower end, meaning private credit funds is around 1% of our assets under management and highly diversified, even including exposure to direct infrastructure debt and highly rated CLOs, the total exposure to private debt is in the low single-digit billions. This is not at all a concern from a risk perspective. At the bottom of this slide, you can see that interest rate movements led to an increase in unrealized losses in our fixed income portfolio.

In the next slide, as the annual reserve review by Willis Towers Watson has been concluded, I'm more than happy to provide you with their final view on our reserve adequacy at year-end 2025. The final number is EUR 3.2 billion and in line with our initial indication provided in March. In relation to total undiscounted reserves and including the risk adjustment, the total resiliency has increased from 7.7% to 8.6%.

Generally, we feel very comfortable with the current reserving position, and there remains flexibility around the level. So going forward, our unchanged reserving approach for new business and the in-force book should fuel further growth in our reserve resiliency in absolute terms, reflecting the increase in business volume. Considering the generally uncertain claims environment, recently increased risk around inflation trends and the softening market environment, we prefer to be on the cautious side.

The developments in 2025 are also visible in the loss triangles for 2025, which we have published on our website today. The increase in prudency is clearly visible, particularly in the long tail lines. The underlying trends in the development of our loss ratios are largely positive, but specific underwriting years in the liability segment also include an increase in our best estimate reserves. And now to conclude my remarks, the first quarter 2026 was a good start to the year. We reported strong earnings and strengthened again our balance sheet at the same time.

On that note, I hand over back to you, Clemens, for some comments on the outlook.

Thank you, Christian. So let's start with a view on the April renewals, which you can find on Slide 17. I think it's fair to say the renewals were characterized by a market environment quite similar to the January renewals. Reinsurers are well capitalized and continue to see reinsurance market as an attractive place to deploy capital.

And as a result, the competition has led to continued price pressure in the April renewals. However, the competition does remain rational. The rates are softening from attractive levels and reinsurance rates remain risk adequate on a broad basis. In this environment, our strong market position, including our low cost ratio enabled us to act on selective growth opportunities. The overall strong growth was predominantly driven by our digital business and an expansion of our footprint in India. Furthermore, we grew successfully in specialty lines. The overall risk-adjusted price change for our diversified portfolio, as you can see here, was minus 3.6%.

Rate reductions were most pronounced for loss-free property cat business. Other areas renewed more stable. In U.S. casualty and loss-affected nonproportional business in aviation, we could achieve price increases. Overall, the volume weighted growth in '26 renewals is at 5.6%, so in line with the targeted growth for our traditional business.

So based on the business performance in the first quarter and the outcome of recent renewals, we do confirm the guidance for 2026 without any changes. As explained, the growth target in P&C remains achievable. The strong quality of our P&C portfolio with a combined ratio of 83.6% in the first quarter puts us in a good position to deliver on the combined ratio target of below 87% based on a normal large loss experience, we should additionally remain in a position where we can build resiliency reserves in 2026. Also in Life & Health, we are well on track to achieve our target for the reinsurance service result of around EUR 925 million. The return on investment is expected to reach around 3.5%. So altogether, we are confident to deliver on earnings growth in 2026 and in the following years. This concludes my remarks, and we would be happy to answer your questions now. Thank you.

[Operator Instructions] The first question comes from the line of Will Hardcastle from UBS.

First question is whether you could just help us break down a little more the details in numbers on the reduction in structured reinsurance year-on-year? And how do you expect that to develop as the year progresses, recognizing it's a bit lumpy, but any guidance there would be helpful. And if there's a materially different margin between structured and traditional? And just on the reserves, forgive me, I've only looked at the total reserves so far and recognize a lot of distortion on the mix, which you highlighted.

It's really evident for me in a way that you tucked away stuff last year, as you said, which goes on top of the $3.2 billion, I believe, because it's presumably the latest year looks to have the highest IBNR to ultimate you booked in that for a decade. Does that ring true to yourself? And when you discuss that reserve build in the current year, the '26 that you mentioned, is that beyond sort of a book growth level? Is that as a percentage of premium you expect it to grow as well?

Yes. Will it's Sven, I will answer your first question. On the structured side, we have lost a mid-single -- yes, mid-triple-digit revenue number at the 1st of January renewal. I mean the 1st of January renewal was remarkable in the sense that all the contracts we are aware of where clients are reducing their cession rate are all at 1/1 renewal.

So from that point of view, the reduction in top line revenue is a little tilted. And we are confident that in the remainder of the year, we will have less of a reduction and the colleagues are also working on a pipeline -- so from that point of view, we are confident that the revenue on the structured side will stabilize more throughout the year. And when it comes to the margin of the business, it's nominally less when you look at revenue. On the other hand, when you look at the capital efficiency, it's very comparable to the traditional business.

Well, then, Christian here again. I would comment on your reserves question. So for 2025, I think the EUR 3.2 billion are pretty fair view on the resiliency. But as you already said, we tend to have a rather conservative reserving philosophy also in case of events or the younger underwriting years. So I think it's a conservative view that's correct. Looking forward to 2026 and the first quarter, as I said, I cannot provide precise figures here. But if you would just remind that we indicated some time ago that the regular runoff release undistorted by reserving actions or other items should be around EUR 200 million or EUR 250 million positive. You have a rough indication of the growth of the resiliency also in 2026 first quarter. And I think that's rather in line with what we saw as increase last year.

The next question comes from the line of Shanti Kang from Bank of America Merrill Lynch.

So Solvency today was a little bit softer than I was expecting, and you mentioned that was because of a higher required capital. Could you just walk us through the moving parts on that? And what was driving that higher required capital? Was that a particular growth area that we should be mindful of for the rest of the year? And then I know that you've reiterated the mid-single-digit growth guide, albeit at the lower end of the guide for this year. What's really the execution risks for that as we move into the next part of the year?

Shanti, I will take the Solvency II question. So as already briefly mentioned by Clemens, the decline can fully be explained by some market movements, so FX and interest rates. The operating capital generation was, I would say, quite healthy around EUR 800 million. And as you indicated in your question, exactly the capital was deployed to growth. It's rather a broad growth. There is a traditional business.

There's also the planned growth in life and health traditional included. So I would say there's not a very specific area. And you should have in mind that the reserving actions, meaning the buildup of prudency and resiliency has also an effect on the reserve risk. So also consuming a slight part of the own funds here.

And on the revenue side, I mean, when it comes to the traditional business, we have by now renewed more than 70% of the business that is up for renewal this year. The remainder will mostly follow at the June 1 and July 1 renewals -- as you have seen, the growth as measured in premium after the April renewal has increased from 3.3% to 5.6% year-to-date. And as we also said that when it comes to the revenue growth in traditional business, which was 2.1% for the quarter, would have been 2% higher if it was not for the IFRS 17 features we explained.

So from that point of view, those are the numbers I can mention to you. The execution risk, of course, is uncertain when it comes to potential acceleration of the softening of the market, which we are not seeing at this moment in time, but we have to wait for the outcome.

We now have a question from the line of Kamran Hossain from JPMorgan.

My first question is coming back to the kind of reserving and how that plays into the combined ratio. From -- I know you kind of -- you're not going to give us the exact number on the kind of amount of resilience you had in the quarter. But if I take the minus 48 million, I think you said EUR 200 million to EUR 250 million, getting us to EUR 250 million to EUR 300 million resilience in the quarter. Is that the big driver of the discounting hitting 11%? Or is there something very different going on, on discounting because it's above maybe where I would have expected it to be and above kind of what you've kind of guided to there?

The second question is on renewals later this year. Clearly, kind of renewals at April saw an acceleration in prices coming down relative to January. What do you expect -- and it's probably a question for Sven. What do you think will happen to Florida? Do you think it gets worse than what we've seen? Or is there something else to help stabilize prices still down, but not down more than we saw April or Jan?

Kamran, thanks for the question. Let me briefly comment on the discount of the reserves. So the reserving actions, and it's really a rough figure is around 1% of the change you have seen. So yes, it's impacting the discount, of course.

Yes. And Kamran, when it comes to the Florida-specific renewals, as explained in the past, we are not really a significant player in this market as we are distributing our U.S. wind capacity mostly to global U.S. nationwide and super regionals. So from that point of view, the outcome of the Florida renewal is less relevant for our portfolio. But I have no indication why they specifically should see any other trend compared to what we have elsewhere seen when it comes to property cat businesses here.

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

First one is just really coming back to the resilience reserve. I mean I appreciate what you're saying about continued ability to add some resilience and you've done that in Q1. But I'm just sort of wondering if you can sort of help me sort of think through how the resilience reserve can change given the degree of softening that we're seeing in the market. I mean, in effect, when should we start to think about you actually drawing down if the profitability of the industry carries on deteriorating, I suppose, current rates?

And then second question, if we can sort of pivot to the life side. The experience variance and the loss component changes sort of broadly cancel each other out, but they're both quite sizable numbers. And again, you talked about China critical illness. So I was wondering if you could just give a little bit more color on the sort of the key components within those numbers and how close do you think we are to the end of this China CI issue?

So Chris, let me again give some comments on reserving and resilience. So I don't see any limitations to build further resilience like resilience yet. So we are flexible, as also said in my introductory remarks. I would expect, and I think we indicated this also with the annual results already that if there is no large distortion in the market or any unusual extraordinary large loss situation, we would think that we can again add a substantial amount of resilience reserves at least growing with the business. And the market environment was already roughly anticipated then.

So talking about what could change and Sven indicated already an acceleration of pricing trends, of course, is a risk, but this would mean that we just would not build up that much additional amount. So we are far from drawing down reserves, so using them. And I don't see this for the near future independent of slight changes in pricing environment.

Yes. And maybe on your question, it's Claude speaking on Life & Health.

You're right, the experience variances and the loss component, they level out pretty much. Obviously, what you don't see in the experience variance is that we have also positive experience variance from Chinese CI business, which shows that our assumptions are pretty, I would say, pretty conservative on this topic. We're always talking about the best estimate assumptions. So what we have right now is the best estimate case, which means there is obviously a probability that we will see further strengthening, further prudency on the CI business. But right now, we're on a best estimate basis.

The next question comes from the line of Paris from BNP Paribas.

The first one is just on your own cession rates. So I noticed the net insurance revenue fell slightly more than the gross insurance revenue. If you could just give us some guidance on how you expect that to trend over the year and if that's been impacted by the structured business at all?

The second one was just on the new business CSM movement. Thank you for providing the sort of breakdown between FX discounting and the renewals. Is it possible you could give us a breakdown of the EUR 250 million, how much comes from traditional and how much comes from structured in terms of that decline?

And then if I could just ask a third one as well. On the outlook for the structured business, you sound pretty confident that that's going to improve over the course of this year, but you flagged reducing cession rates from primaries as a driver for the reduction at -- are you expecting that trend to reverse and primary is going to start increasing cession rates again or buying more reinsurance? Or is there something else that gives a more confident outlook for the structured volumes going forward?

Yes, I'm happy to take your questions. Let me start with the last question. I mean the number of contracts we are talking about the clients have reduced cessions is maybe 1% or 2% of our entire portfolio. So therefore, I would not read any trend into this fact. It was just individual cases, which all happened at the 1st of January renewal but it's not a general trend we are seeing that cession rates are reduced across the portfolio we are currently writing.

When it comes to your first question, yes, you're right. The slight change in the net to gross ratio has to do with the reduction on the structured side as we are not buying any reinsurance on our structured business. And therefore, this translates more 1:1 into also reduced net numbers. And then thirdly, when it comes to the EUR 250 million, the way how to think about that is we renewed roughly EUR 10 billion worth of premium at the 1/1 renewals.

As we said before, what we've seen on the rates would indicate combined ratio deterioration of roughly 2%. So that would explain EUR 200 million out of the EUR 250 million and the remainder would come from the reduced volume written on the structured side.

We now have a question from the line of Andrew Baker from Goldman Sachs.

Just 2 clarifications really on the structure side.

Firstly, I think you said that margin less on revenue structured versus traditional, the capital intensity broadly similar. Does that mean the ROE is lower on the structure side? Or am I misinterpreting what you're saying there? And then secondly, probably on the structured growth Q1 versus your outlook, are you able just to give us a sense of sort of what the year-on-year growth rate you're expecting for 2026 is given there's a lot of moving pieces there.

On the first question, the structured business is less capital intensive compared to the traditional business. So whilst the nominal margins are somewhat lower compared to the traditional business from an ROE perspective, it's equally attractive. So that's what I wanted to say.

And on the year-to-year growth expectation on structured overall, we have not really guided for that. And given that this is a very lumpy business, so one single transaction could change the entire situation altogether, good or bad, that is we would continue not to give any guidance when it comes to the top line development.

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

So most of my questions have been addressed. I would just raise one topic. The commentary around the April renewals was interesting. If you could just clarify a few more things there.

For example, you mentioned in specialty lines, you found some growth. I can see credit and surety where you're noting an attractive environment. I can see digital business being noted. Is that cyber really? Or is it something else? If you could just comment a bit more about the growth elements you saw in April renewals, that will be very helpful. And I just wanted to just follow up one more thing. The resiliency reserve, sorry to come back to that. I understand that there's no limitation to build it up more.

But I'm just curious about the motivation to do it. are you -- I mean, is it that you're just using the very strong profitability to weather out the cycle even better or to ensure more growth later on? Or what's the thinking behind that? That would be also very helpful.

Yes, Vinit, let me start with the first question. So the 2 main drivers for the growth at 1st of April were on the specialty side, the digital business and on the traditional side, our business, which has renewed in India.

So when it comes to digital business, this is not cyber business, which would be a separate specialty bucket for us. but it's a business we are writing behind ceding companies that distribute their business via more an insurtech platform. So from that point of view, I hope that clarifies. Otherwise, it was a mixed picture on the specialty side. Aviation saw some rate increases. Marine is still a very competitive environment. And most of the credit and surety growth really came from underlying growth of our ceding companies. So a mixed picture, but overall, a growing part of the portfolio at this 1st of April renewal.

I think we had the second part.

So Vinit, you asked also on the motivation for building up a more resilience. And I can confirm that our philosophy and view here is unchanged. So we built this resiliency in hard market times and good profits to mitigate any volatility from our business and show stable earnings growth.

So the resiliency next to also our high retro program is there to cover extraordinary events that may happen, but also the reinsurance pricing cycle. So with stable and solid margins. you should expect that we take away some more resiliency to use it later when we might come to a soft market.

And I would also mention that we always want to have flexibility to step in after any market dislocation to use attractive opportunities that may arise as we have done in the past.

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

I have one question on the April renewals, please. Apart from prices, the terms and conditions remain broadly stable? Or do you see any signs of softening here in individual lines of business? That's my question.

No. As Clemens already said, the picture at 1st of April was very similar compared to January. So terms and conditions are, for the most part, still very stable and the same goes for retention levels. So from that point of view, the market is characterized with competition on mostly price only.

[Operator Instructions] We now have a question from the line of Darius Satkauskas from Keefe.

The first question is, those 1% to 2% of clients that reduced cessions appear to have had a large impact to really large accounts. Do you have any visibility on why they reduced the cessions? And is it surprising to you at all or just a function of the soft market that you sort of expected?

And my second question is just on the April renewals. We're clearly in a softening market, and you grew a lot. So can you provide some reassurance on the mix of that growth? I mean how much of that is coming from your existing accounts versus purely new business because the figure is just so much higher than what your peers have reported?

Let me start with your second question. You can see from Slide 17 that only a small part of the growth actually came from new business. So EUR 83 million out of the EUR 250 million -- EUR 350 million of growth and the bulk really came from existing client and contract relationships where we managed to increase our shares at still attractive terms and conditions. So from that point of view, not that much new business. And when it comes to the reasons why we have seen reduced cessions on the structured side was basically 2 main reason.

One had to do with merger and acquisition, where the new entity buying the expiring client of ours did not see any need to buy surplus relief quota share any longer. And the second reason is improved capitalization of the existing client itself. So after a number of years of very attractive terms and conditions also in the primary space, of course, some clients have also accumulated net retained earnings. And therefore, the reason -- the main reason why they did buy the contract originally, i.e., surplus relief was less relevant compared to previous years.

The next question comes from the line of Ben Cohen from RBC Capital Markets.

I just wanted to ask just on the April renewals. In terms of the price movement, I was maybe slightly surprised there wasn't a bigger negative effect maybe given the nat cat in the mix compared to the January renewals. Was there something else going on there? Is that due to the price rises that you saw in U.S. casualty in particular? And looking forward, could you give a comment as to how you see the inflationary environment developing generally kind of post the Iran war? Are you looking to kind of price for that? Do you think that's being captured adequately in the kind of pricing environment in some of the longer tail classes globally?

Well, on the first question, again, I mean, we have a very diversified portfolio. So the weight of the property cat business in itself is meaningful, but it's only a fraction of what we are renewing.

So from that point of view, it's one of the -- or the main driver why the rate development is as negative as we have shown. But we also have a lot of other business, the bulk of the business, indeed, which is renewing at much more stable prices and terms and conditions compared to what you see in the headlines when it comes to property catastrophe business. And when it comes to inflation, we have adjusted our inflation adjustment -- inflation expectation when it comes to the pricing of the business, -- but of course, we have to wait and see whether the increase in expected inflation we have taken is going to be in line with reality at the end of the day that we have decided to be more conservative in light what we are seeing resulting out of the conflict in the Middle East.

[Operator Instructions] We now have a question from the line of James Shuck from Citi.

Can I just return to the P&C new business CSM. I heard your explanation earlier that EUR 250 million or so was from margin and volume and you rationalize that by 2 points price on EUR 10 billion of volume given EUR 200 million and the rest due to the reduction in structure volume. However, the EUR 10 billion kind of is a January number. If I include April, then I get EUR 12 billion. And the price reductions that you posted in excess of 3 points. So.

I'm kind of looking at 3 points on EUR 12 billion to give you EUR 360 million, which is difficult for me to then bridge to what the impact was from the reduction in structure. So perhaps you can just help me with some of the math there, that would be helpful, please.

And then secondly, I know the run-off result that you normally expect is in the region of EUR 200 million to EUR 250 million. Would you mind telling me what the risk adjustment release was and the run-off result in P&C Re in Q1? And does that EUR 200 million to EUR 250 million include the risk adjustment release as well?

Let me start with your first question, James. I mean, the Q2 impact, you will, of course, see also in our Q numbers from the April renewals. When it comes to your math, of course, the rate reductions you need to apply to the underlying loss ratio rather than the full combined ratio. That's why the impact is not 1:1. -- to the combined ratio impact. But when it comes to the traditional business, given that it's now EUR 12 billion, we have to expect that there is also some element of lesser new business CSM compared to what we saw previous year.

And Christian here again on your question on the runoff result. And yes, the risk adjustment is part of this figure and the release was within our usual expectation of 6% to 8% release.

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

Yes. So just to conclude and round up the call a bit. So you can sense we still see and view this as an attractive market environment. And the Q1 results, particularly when you look at factors like the loss component or the resiliency build that we've been able to build in the first quarter is an indication of the underlying profitability.

Christian alluded to it, when you look at the runoff result versus an expected runoff result, you get an idea of the potential resiliency that we've been able to build. So we do remain confident that we can build resiliency going forward, that we can, as Christian also said, manage volatility but also manage earnings growth and manage the cycle to manage earnings growth throughout the cycle. We still look at the strong pipeline, both in traditional business and in structured as well as in Life & Health, and we are confident to pursue that growth potential cautiously as we look forward.

Thank you for your questions, and speak soon. Have a good day.

Ladies and gentlemen, welcome to the conference call on Annual Results 2025. I'm Sergen, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Karl Steinle. Please go ahead, sir.

Well, good afternoon, everyone, and welcome from sunny Hannover to our analyst and investor call on our full year results for the year 2025. As announced, our CEO, Clemens Jungsthofel; and our CFO, Christian Hermelingmeier, will provide a brief overview of the business development in '25 and the outlook for the current year. For the Q&A session, they will be joined by Claude Chevre and Sven Althoff. And it's now my pleasure to hand over to you, Clemens.

Thank you, Kark, and good afternoon from Hannover. So let's start with our business performance '25, which was indeed very satisfactory. The group net income of EUR 2.64 billion is a record result for Hannover Re, reflecting a sustainable increase in the earnings power of the group. The proposed dividend of EUR 12.50 for 2025 is a significant step-up of almost 40% compared to the previous year.

Furthermore, the result is based on a very strong underlying profitability. Our deliberate actions to strengthen the balance sheet increases our confidence in future earnings growth. We have achieved this by adding around EUR 700 million to resiliency reserves and by actively realizing losses of almost EUR 600 million in our fixed income portfolio. The sum of these effects is clearly higher than the total tailwind from the benign large loss experience, positive currency effects and a lower-than-expected tax rate.

We have continued to grow in 2025. The underlying revenue growth in P&C was around 10%, clearly ahead of our 7% growth target. Including the impact of the refinement in the calculation of the non-distinct investment component, the FX-adjusted growth was 3.8%. In Life & Health, we recorded favorable FX-adjusted growth of 6.8%. Moreover, the new business CSM increased in both business groups, providing a good basis for further earnings growth. Also, our total investments have grown by 0.7%, driven by a strong operating cash flow of EUR 5.7 billion. The fact that assets increased despite negative currency effects of around EUR 4.5 billion and the redemption of a hybrid bond is remarkable.

The impact of large losses in P&C was clearly below our budget, driven by an overall benign NatCat experience. As previously indicated, we have used this opportunity to continue to realize losses in our fixed income portfolio and to add resiliency reserves also in the fourth quarter. Altogether, the EBIT of EUR 2.6 billion and the combined ratio of 84% in P&C reinsurance are based on a strong underlying earnings power.

In Life & Health reinsurance, the profitability has been satisfactory as well. The reinsurance service result of EUR 903 million came in above the targeted level of at least EUR 875 million. The new business generation increased by 22% to EUR 755 million, including a favorable contribution in the fourth quarter.

The ordinary investment performance was very satisfactory. Against the backdrop of the overall strong profitability, we have realized another EUR 270 million of fixed income losses in the fourth quarter, bringing the total loss realization to almost EUR 600 million for the full year. Hence, the return on investment of 2.5% is deliberately below our target to improve further future investment returns and increase the flexibility in our investment portfolio.

The capitalization of Hannover Re remained very strong with a solvency ratio of 256%. This number reflects a strong operating capital generation of EUR 3.7 billion, and a successful deployment of capital for growth. In addition, the strong capitalization allowed us to reduce the level of hybrid capital and to pay a significantly increased dividend to shareholders. The moderate decrease in the solvency ratio in the fourth quarter was mainly driven by our prudent reserve build. In the solvency regime, this was more pronounced in the fourth quarter compared to previous quarters.

Finally, we were able to keep our group cost ratio flat at a very low 3.2%. This will continue to provide us with an important advantage in a competitive market environment.

The dividend proposal of EUR 12.50, on the next slide, is a significant increase compared to the previous year. In line with our adjusted dividend strategy, the full amount will be paid as a regular dividend. Furthermore, according to the targeted progressive growth of our dividend, this is also the new minimum level for the next year, reflecting our strong confidence in future earnings growth. At 57%, the payout ratio is in line with our target of around 55%. The retained earnings of slightly above 40% will support future growth opportunities in a continued attractive market environment.

Shareholders' equity increased by 10%, driven by the strong 2025 results. A mitigating factor is a negative impact from currency translation within the OCI, the other comprehensive income.

The CSM decreased by 3.1%. The healthy level of new business generated by both business groups has been offset by negative currency effects. FX adjusted, the group CSM would have increased by 4.4%.

The risk adjustment decreased by 6.6%, mainly driven by some model refinements in P&C and again, by negative currency effects.

Our long-term ROE performance highlights our ability to consistently provide shareholders with attractive returns, significantly above cost of capital. Our ROE performance also screens favorably compared to peers. On top, we have achieved this outperformance with less volatility. And as you can see in the chart on the right-hand side, Hannover Re is well placed in the top left quadrant. Comparing the 10-year ROE performance, we have reported the highest ROE with the lowest volatility. This will continue to be our ambition.

Altogether, 2025 was another strong and successful year for Hannover Re, confirmed by the return on equity of 21.4%. And just as a reminder, our successful participation in Viridium has contributed around EUR 500 million to the equity position over time without affecting the IFRS net income.

Given that the balance sheet has been further strengthened to support future earnings growth, the underlying performance for 2025 was even better.

And on that note, Christian, I'll hand over to you.

Thank you, Clemens, and good afternoon, everyone. As you can see, our P&C business is growing nicely on a diversified basis, including a strong contribution from structured reinsurance. The underlying growth is around 10%, well ahead of our 7% target. The reported top line growth is masked by the refinement in our accounting, resulting in a one-off effect when comparing the 2025 revenue to the previous year. The reported FX adjusted growth was lower at 3.8%. As a reminder, the NDIC effect has no impact on earnings due to corresponding effects in the service expenses.

The combined ratio of 84% is comfortably within the target range below 87%. The impact from large losses was EUR 375 million below budget. As explained in previous earnings calls, we have used this strong earnings position in 2025 as an opportunity to increase our reserve resiliency. Based on preliminary internal estimates, we expect the reserve resiliency to stand at around EUR 3.2 billion at year-end 2025. This means that the increase in reserve resiliency was significantly higher than the benefit from benign large losses. Hence, the underlying combined ratio is better than the reported 84%.

To complete this picture, this combined ratio also includes the strengthening of reserves for the Russia-Ukraine aviation loss and the prudent reaction to uncertainty around loss trends in U.S. casualty. Together, I am highly satisfied with the profitability of our property and casualty portfolio. It enabled us to take a more prudent position on certain prior year developments to significantly increase the reserve resiliency and to report a combined ratio well below our target.

Finally, the combined ratio includes a discount effect of around 10%. One reason why this number is higher than initially assumed is the increasing reserve volume in long-tail lines with a corresponding higher discount effect. The investment result reflects an increased ordinary income and our deliberate decision to realize losses in our fixed income portfolio. The vast majority of these losses is allocated to the P&C reinsurance segment.

The currency result was significantly positive at EUR 233 million, driven by the weakening of the U.S. dollar over the course of the first half year. And just as a reminder, since Q3 2025, we have implemented an accounting hedge for the IFRS currency result, so you should not expect larger impacts from recent movements in the exchange rates.

The main contributor to the P&C result is the CSM release, reflecting the recent renewals in a very attractive market environment. The experience variance includes our prudent reserving on the business earned from current underwriting years. This has mitigated the positive experience from benign large losses. The runoff result has been positive in most regions and lines of business. But as explained, we have used the strong underlying profitability and the overall strong earnings position to add significantly to reserve resiliency, to strengthen the reserves for the Russia-Ukraine aviation loss and to react prudently to the uncertainty around loss trends in U.S. casualty.

Putting this together, the runoff result was minus EUR 603 million, although the underlying runoff was positive. Finally, the loss component from new business is quite low, confirming the attractive rate environment in P&C reinsurance. The growth in new business CSM of 12% reflects the favorable market environment and our success in the renewal period in 2025, resulting in a strong new business CSM of EUR 3 billion.

In Life & Health, reinsurance revenue increased by 6.8% adjusted for FX. The growth is on a diversified basis as well. The step-up in growth in the fourth quarter is driven by new business in U.S. financial solutions. The reinsurance service result of EUR 903 million is above our target and based on favorable underlying profitability. The experience variance was positive in 2025, mainly driven by financial solutions. Assumption updates for onerous business and a more cautious position with regard to our mobility business had a negative impact in the reporting period. The investment result is based on a good ordinary income from fixed income. The recognition of an equity participation had a negative impact of EUR 36 million. The active loss realization in our fixed income portfolio amounted to EUR 20 million. Putting this together again, the EBIT contribution from our Life & Health business group was EUR 886 million.

Looking now at the IFRS 17 components of the service result. The CSM release is the main profit driver and within the expected range. The same is true for release in risk adjustment. The experience variance is clearly positive, mainly driven by financial solutions. In traditional business, we have recorded positive and negative developments with an overall limited impact, a quite normal picture for a diversified portfolio. The main drivers for the loss component are assumption changes for onerous business in morbidity. This is particularly driven by the critical illness business in Greater China, where we have updated our assumptions and took a more cautious positioning reflected in an increase in the risk adjustment mostly already in Q3.

The CSM development on the right side is clearly impacted by currency effects. The CSM generation, which includes the new business CSM and extensions on existing contracts, amounted to a favorable EUR 766 million based on a diversified contribution from financial solutions and our traditional business. Changes in estimates were overall positive, driven by updated assumptions for our longevity business. In the isolated fourth quarter, changes in estimates were negative, largely due to model updates for U.S. mortality, not driven by a changed view on U.S. mortality assumptions. Altogether, the total CSM would have increased by 3.4%, excluding the currency effects, so ahead of our 2% target.

The development of our investments was also very satisfactory. The ordinary investment income reflects the continued rollover in a high-yield environment and the strong operating cash flow. In addition, the contribution from alternatives was very solid. As mentioned, we have used the overall strong earnings situation to accelerate the realization of losses in our fixed income book in the second half. In total, we are looking at realized fixed income hidden losses of EUR 593 million for the full year. The corresponding higher locked-in interest rates will support a further increase in investment income in the coming years. With a modified duration of slightly below 4, the positive impact is somewhere between 10 and 15 basis points. Please bear in mind that this is not the only factor having an impact on the development of our portfolio yield. Movement in yield curves and FX needs to be considered as well and the development of those 2 factors in 2025 has been slightly negative for our yield projections.

Finally, the impact from the change in ECL and fair value of financial instruments remained moderate. Excluding the loss realization in our fixed income portfolio, the return on investments is at 3.4%, higher than our initial target of at least 3.2% for the year. As a result of yield curve movements and our active loss realization, the level of unrealized losses on our balance sheet is still material at around EUR 2 billion, but significantly lower compared to year-end 2024.

To conclude my remarks, the business performance in 2025 was highly satisfactory. The earnings position was strong enough to clearly outperform the initial group net income guidance and to strengthen our balance sheet with the aim to invest into future earnings growth. And on that note, I'll hand back to you, Clemens, for some comments on the outlook.

Thank you, Christian. So future earnings growth brings us actually directly to the guidance for the financial year 2026. Based on the strong performance of our business in 2025 and the outcome of the January renewals, we confirm the guidance for 2026 without any changes. We do expect further growth in our business. The strong quality of our P&C portfolio puts us in a good position to deliver on the combined ratio target of below 87%.

Based on a normal large loss experience, we should remain in a position where we actually can build resiliency reserves also in 2026. The target achievement is not linked to a change in our prudent initial reserving approach. Based on the successful new business generation in 2025 and a healthy pipeline looking forward, we anticipate an increase in reinsurance service result to around EUR 925 million in Life & Health reinsurance. Furthermore, our strategic midterm target for the CSM growth of around 2% remains valid.

The return on investment is expected to reach around 3.5%. Christian explained the major factors having an impact on this number, and we do feel comfortable to confirm it. Altogether, the balance sheet of Hannover Re is the strongest in history, and we are confident in future earnings growth even in a more competitive market environment.

So this concludes my remarks, and we would be happy to answer your questions.

[Operator Instructions] And the first question comes from Andrew Baker from Goldman Sachs.

The first one, just on P&C reserving. Was the update to your Russia-Ukraine reserving, was that -- did you take more in the fourth quarter? Or was that comment related to action taken earlier in the year? And I guess on the reserving for the uncertainty for the U.S. liability trends, are you seeing a deterioration in data points? Or is this just prudence?

And then secondly, just on the topic of longevity, so I can see, obviously, it drove the positive CSM estimate change in 2025. When we speak to some of the primary companies, they are saying that the reinsurers generally have a more favorable view on longevity than they do. I guess, firstly, curious whether you would agree with that statement. And then secondly, we saw sort of -- in the U.K., we saw the CMI 2025 mortality tables released earlier this week. They're showing an improvement in life expectancy and that's over '24, which was already an improvement over the past couple of years. So how do we square that sort of improving mortality trends in the data that we're seeing with Hannover Re, I guess, releasing reserves related to longevity?

Yes. Thank you, Andrew. It's Sven. I will start with your first 2 questions. So when it comes to Russia-Ukraine, we have increased our reserve position throughout the full year '25. So it was not a specific exercise, which we only did in Q4. On the other hand, we added a low triple-digit number also in Q4. The main reasons are coming from the aviation side, where we had the high court ruling early in the year, but now that more ceding companies are reporting their loss positions to us, we also see that the amount of money that is spent from a legal point of view dealing with the topics at hand is higher than we originally anticipated. So those were the 2 main drivers for us putting the Ukraine reserve to a higher confidence level.

When it comes to U.S. casualty, it's really 3 factors we are looking at. First and foremost, we can see a higher frequency of loss activity in the younger underwriting years. It's still difficult to do a full interpretation of what the triangles are telling you. We, as you know, had the situation where the courts couldn't really make any decisions for an extended period due to the COVID lockdowns. We expected a certain period of catching up with the cases that could not be heard during that time. But the data points we are now seeing seems to indicate that there is a little bit more of a trend over and above catching up than maybe originally expected. So as we were in the position to have a more conservative view this year, it was really the combination of the data points we are seeing using partially also the more conservative actuarial methods. So we were moving more to the outer bound of the best estimate range. And thirdly, it was, of course, also an area where we did build new resiliency.

Yes. And maybe on your question on longevity, I wouldn't say that we see the longevity business more aggressively than our clients. We have a pretty conservative approach to longevity. And you can see that in the new business CSM. And you will see, and you will have seen that in the past 2 years, our new business CSM hasn't been growing because of longevity because we were having quite conservative view on the longevity trends. Now obviously, the fact that we have released a little bit of the CSM, this is related to our initial assumptions when we wrote the blocks, and these assumptions were still more conservative than our current assumptions. And that's the reason why we have been able to release year-by-year some of the CSM into longevity, but our view on longevity, I can tell you, is definitely a bit more conservative than what our competitors are doing right now.

The next question comes from Kamran Hossain from JPMorgan.

I've got 2 questions. The first one is just on the dividend, which clearly hugely up from last year, increase to the payout. It's a really good yield. So my question, please take it in the light that I'm delighted with the dividend, but just wondering why it's not up more when you -- at the Investor Day, you talked about an extraordinary result potentially leading to special dividends. Just trying to understand how 2025 is not extraordinary. You've had a much better return on equity than your target. I think if you added back the kind of things that have dampened the result, you probably would have doubled your return on equity target. You've got this really strong balance sheet. If 2025 is not extraordinary, what would be?

The second question is, given kind of the news flow at the moment, just really interested in kind of war impacts on kind of anything that you can talk about? And are we safe to say, apart from the conflict in the Middle East, it's probably been quite a light quarter so far?

Yes, Kamran, starting with the first question on the dividend, asking for the extraordinary definition, as we also discussed, I remember at the Investors Day. So our target is to deliver attractive returns in terms of ROE and of dividends. Therefore, we increased already this year the payout ratio. And this is a really good year for Hannover Re. But as you know, we want to deliver also stably and continuously increasing results, and this is also true and stays true for the dividend. And I would refer back to the guidance that Clemens already elaborated a bit on. So our outlook on the earnings for 2026 is also positive and increasing. And if this comes as Clemens talked about and reconfirmed, and we are quite confident with the balance sheet and all the resilience, we could add also the dividend will go up again. But of course, it's early in the year, but this to give you a bit of flavor of the outlook also for dividend.

And Kamran, probably in addition, just take it also as a view on our outlook for business opportunities, for opportunities to deploy capital into P&C, Life & Health and probably into investments. So it's a bit of a balanced view between what Christian referred to as delivering attractive dividends, but at the same time, making sure that we put the capital to work and deploy it for further growth.

Well, then as regards Q1 to date and the war, you're right that the loss experience in Q1 to date has been relatively light. We, of course, will give you the number in May and the quarter isn't over, but I would say from where we -- what we see today would speak for quite some underutilization of the budget for the quarter. That, of course, does not include any assumption on the war yet. Really too early to have a view here. There's obviously a lot of things going on. Commercial shipping and commercial flying has more or less come to a standstill in that part of the world, and we have to wait and see what the market is prepared to offer from a war coverage point of view when that situation is safer again and is changing again. So from that point of view, I mean, you know the heads of cover that are exposed. So next to aviation and marine, of course, we have political violence, we have war on land. The longer the conflict lasts, classes like trade credit or political risk may come into play. So from that point of view, we are watching the situation very carefully. But what we have learned so far from a damage point of view, it looks more like quite a bit of minor damage to various assets, but nothing very significant to date. But that, of course, can change any second.

And maybe, it's Sven, so maybe talking about Life & Health because as you probably know, we're a market leader in the traditional business in the whole region in the Middle East, including the Gulf region. We also have a subsidiary, by the way, in Bahrain with 60 employees. And they're all well, by the way, just for information, we're obviously in constant contact with these guys. But we don't expect too much of claims out of the Life & Health portfolio, even though we have an exposure, we do not cover active war. And we cover passive war, obviously, with our life policies, but with a certain limit, kind of a 28 days limit. So it really limits our exposure then in the Middle East, even being market leader. So no issues from the Life & Health side so far.

The next question comes from Shanti Kang from Bank of America.

Just on P&C, for the full year new business loss component, I actually noticed that was better year-on-year, which was a bit of a surprise. And I was just wondering what was the driver of that? Was that like a flight to quality? Or could some of the retro be playing into that? So just good to get your thoughts on how conditions are impacting that. And then on the Life & Health side, the EUR 903 million print that you've done today makes the '26 guide of EUR 925 million look pretty breezy. Do you think there's some conservatism in the '26 guide, for example?

Yes, Shanti, on the loss component, I don't have a very big answer for you here. I mean it is slightly lower compared to 2024. And that has to do with, of course, us continuously portfolio pruning where we don't like the going-forward profitability of the business. But these are individual transactions. It's not a trend I can talk about. It's the sum of many little pieces.

Yes, on the Life & Health side, I mean, yes, we came in with EUR 903 million. We planned EUR 875 million. Now the new plan is EUR 925 million. I would say it's slightly -- maybe slightly on the conservative side. But as you know, and I showed it, I think you were probably at the Investors Day. I showed you the Life & Health result is made of many, many assumption changes, model changes, et cetera, et cetera. So I would say the EUR 925 million, I feel comfortable with it, but becoming better would be great.

The next question comes from Iain Pearce from BNP Paribas.

The first one is just on the reserve resiliency. At the Investor Day, you sort of alluded that the reserve resiliency was heading towards a peak level if you looked at it on various different metrics, but particularly sort of as a proportion of net reserves. And clearly, the EUR 700 million move we've seen this year is faster than the growth in the reserves. So just sort of thinking where that is as a proportion of net reserves, and how you expect that to trend as a proportion of net reserves would be very useful?

And the second one is just on the operating capital generation, the EUR 3.7 billion pre-strain. Could you just give us a sort of indication of how much that is a clean number? Anything we need to consider in that related to, say, the realized losses and so on? And again, sort of tying that into the capital distribution and the solvency movement as well because that's a very strong number and EUR 1 billion net capital generation post dividend. So if you could just talk to those moving parts as well, that would be very useful.

Yes. Thanks, Iain, for your questions. Happy to take them. So starting with the reserve resiliency and to start with an indication where -- and as said, this is a preliminary estimate, our own estimate. So in May, we will, as usual, give you the result of the Willis Towers Watson review. So this might change a bit, but we would lie at above 8%, including the risk adjustment that we also book as kind of a prudent reserve in addition to the loss reserves. And as said, and you're right, of course, in a very attractive and good market environment, we would consider to add a bit more to reserve resiliency and looking for the cycle to come, this might then go down. And we are, as also indicated before, happy to -- when the time might be -- when it might be necessary in a given time to use some of the resiliency. So we don't have a limit there. So if 2026 is according to plan, there might be another addition. But as I said, it's quite early in the year. So let's see where we land in the end.

And Iain, just to add to that, don't take the realized losses in the investment portfolio of EUR 600 million, not as an indication that we have reached the ceiling, as Christian said, it's more to have both in the toolbox, and we actively use both as indicated in the Investors Day, and this is also the fact going forward.

Absolutely. And elaborating a bit on the solvency ratio. So the operating capital generation at around EUR 3.7 billion is clearly reflecting the very favorable margins and the new business. You could see this also in the CSM development, especially in the new CSM buildup. Of course, the reserving actions are also reflected here. So in the fourth quarter, the development might not be as positive as you would expect just from the running business. And the reason is exactly that under solvency, the full model update and the update of the reserving view is done in the fourth quarter. So it's a bit more pronounced building up the prudencny here reflected in the operating movements in the solvency ratio. And of course, there is also a higher foreseeable dividend as we increased. As we also talked about substantially, the dividend that has to be already to be reflected as foreseeable dividend in the solvency ratio, and we talked about this also earlier, looking at the 12 months movements. We also repaid the EUR 500 million hybrid bond in summer. So putting this all in the mix, I think that's a good explanation for where we stand at year-end 2025.

The next question comes from Chris Hartwell from Autonomous.

So I just wanted to come back to the question around the life insurance service result or reinsurance service results. I understand what you're saying about maybe being slightly sort of conservative. But can you sort of just elaborate a little bit on the onerous element that we saw in Q4? I mean that was much, much lower than what we've seen in previous quarters. So that's sort of question number one.

And I guess a little bit of a random question number 2, just going back to last January in the California fires. I noted in your -- in the Q4 movements, the gross loss has gone up, the net loss has gone down. I wonder if you could sort of comment a little bit about -- a little on that. But moreover, sort of thinking about the prospects for subrogation, which I guess is a subject that's gone a little bit quiet, but there are still companies in the U.S. that have a substantial subrogation benefit already embedded into their own loss assumptions. So I was wondering sort of what your latest thoughts are on that? And if so, sort of any likely timing of when you would expect to see any of that loss reserve reversed?

Yes. Maybe let me start with your first question on Life & Health with the loss component. I mean the main component of the loss component as we were writing, it is really coming from the Greater China morbidity business. And as you probably recall, it's -- we took the biggest hit up to the third quarter. This is why, in the fourth quarter, we had quite a little add-on to the loss component. The way we look into that, and I showed it at the Investor Day, you remember, we're looking into all these businesses throughout the year, and we decided to look into the morbidity business, but -- in Q3, mainly in Q3, and that's where we had all these model changes and assumption changes. This is mainly the reason why we have a very little add-on on the loss component in Q4 because we didn't do too many analysis in the fourth quarter. That's all.

What you should look at is really, on an average, add-on of the loss component quarter-by-quarter. And that's what I was showing you last time. Remember in -- we were in Frankfurt, yes, sorry, I forgot about it. I think we said it's around EUR 80 million per quarter. So you end up more or less at the same level. And this is also our assumption going forward. We simply don't know where it's going to come from because if we knew it, we would have to take the hit already in principle.

And then on the wildfires, the composition of the loss has slightly changed over the year. So we are showing a little bit more from our ILS fronting activities, which is increasing our gross number. But as you know, we are not having any retention on this. So that's, therefore, not increasing the net position on the fires. And when it comes to subrogation in general, we are, of course, observing that situation, but our approach has been that we would only book subrogation when received by the ceding companies. And so from that point of view, we have not taken any general subrogation haircut when we look at that loss. And so hopefully, over time, there will be a little bit of an improvement.

The next question comes from Henry Heathfield from Morningstar.

Just a couple. On the investment yield, I was wondering if you could give us an update on the running and the reinvestment yield. And then kind of related to that, the guidance of 3.5% ROI for 2026 and then the remaining kind of EUR 1.6 billion of unrealized losses, is there a chance that we're going to see something similar to what we've seen in 2025 in 2026? And then on the risk capital for U.S. hurricanes, I just noticed there's a slight decline there, and I was wondering if that's kind of cycle management or something else?

Yes. Thanks for the questions. And to start with the investment yield. So the reinvestment yield is currently slightly above 4%. And the book yield is just shy of 3.6%, of course, also driven by the realization actions, and we talked about that already in the Investors Day a bit more in detail. Looking at 2026, I mean, I feel quite confident with the 3.5%, but there's a lot of dynamic in capital markets, and we need to see how it develops, and therefore, it's far too early to talk about additional actions. Of course, the optionality to realize even more hidden losses from our investment portfolio is always there, but it's far too early to really consider this.

And on the capital allocation for U.S. hurricane, I don't have the full answer for you on that question. I mean we have grown in U.S. hurricane. On the other hand, we have grown other country -- other combinations more quickly. So therefore, I would assume that we have positive diversification effects. We also did buy a little more retrocession on the nonproportional covers last year. And then, of course, you have to be mindful of the exchange rate development. So I would assume it's a combination of the 3.

The next question comes from Ben Cohen from RBC Capital Markets.

It's really a question and a clarification, both on the Life & Health side. The first question was just in terms of how you see the competitive environment going into this year in terms of, I guess, in particular, the new lines that you're looking to grow in? And the second, the clarification was, coming back on the CSM, the change in estimate number, it was positive for the full year, but it looks like, in the fourth quarter, that has -- that positive element has come down. So could you just describe was that a negative element relating to a longevity charge? Or is there something else going on there? Or have I got it the wrong way around?

No, no, you got it the right way around, absolutely. There was a negative element in the fourth quarter on the CSM, which is a change in estimates and this negative element came from the U.S. I mean, as I told you before, we're looking into our models. We're refining our models every now and then, and we're fine-tuning them. And usually, when you do that, in big portfolios, these model changes, they have positive and negative impacts. And it happens just that in the fourth quarter, in the U.S., we -- our model changes that we have then had all a negative impact. It is not that we're changing our view on the assumptions on mortality in the U.S. at all, by the way. It is really just the fact that we had 2 or 3 model changes that we implemented in Q4 with a negative impact on the CSM. So there was no problem at all, by the way.

On your second question. The first question, the competitive environment on the lines where we think that we can grow, I mean, the life and health market is competitive. And I don't want to tell you again what I was telling you many, many times in the Investors Day. It is competitive. Where do we see potential to grow? We see potential to grow where we're not already market leaders. And I would say this is in the traditional business in the U.S., U.K., we see potential to grow, but there is obviously competition. We see potential to grow in longevity outside of the U.K. for what I just told you before, U.K. is highly competitive. And we're probably a little bit less competitive than our competitors over there. So longevity out of the U.K., we see possibilities to grow. And then last but not least, we also see possibilities to grow in financial solutions, in particular in Europe. These are the areas where we do see potential to grow. But I tell you the truth, life and health is competitive because we're competing against professional reinsurers. There's only a handful of them. The market is small. So we will see how it goes. But I'm positive.

The next question comes from Vinit Malhotra from Mediobanca.

Great set of results. So one question is more on the dividend and the signal it sent. And the other question is on P&C regrowth. So on the dividend, you mentioned, Clemens, the 40%-odd growth, which is obviously not a new strategy since the last few months now, but the growth you said shows your confidence about future earnings. Now just from the outside, I mean, I can realize the 82% underlying combined ratio is pretty strong, and we've talked about that. But -- so given where the cycle -- pricing cycle is, the terms and conditions movements, the market dynamics and reinsurance, I mean, how should we think about this strong dividend growth? And what you're trying to tell the market about -- or what you're trying to tell your equity investors about the state of the market and Hannover Re's position in it? I presume it's positive, but just a little bit more on that would be very helpful.

Second question, as I said, was on growth. So when I see, say, 9%, 9.5%, 10% kind of growth coming in on an underlying basis a few quarters and also ex FX in 4Q, and I'm just wondering if your kind of mid-single digit, excluding structured ambition target for '26, could that be a bit conservative? Could that need a bit of review given how strong 4Q was? So just on that, please.

Vinit, I'll start probably with the first one on the dividend and then let Sven complement on the outlook for P&C. So generally, and probably alluding to Kamran's question on 55% -- well, in this case, 57%, why not more? And that is basically the reason that we still believe that this is an attractive market environment, both in P&C and that we have also a healthy pipeline on the Life & Health side. So it's really that view. I mean, you will not see us chasing top line. We're clearly committed to our underwriting -- to our disciplined underwriting approach here, but it's more that we still consider this to be an attractive market environment. It's still a rational market.

As you know, we were quite happy with the outcome of the 1/1 renewals overall. So there is plenty of growth out there. We do believe, and just to reiterate, Vinit, that our lean operating model, which does come with the lowest cost ratio of 3.2%, that it gives us room to grow our book to capture business opportunities even in a more challenging market pricing environment. So that gives us a competitive edge where we do believe that we still can gain market share. And that's basically all feeding into our thinking about the dividend policy that clearly we didn't want to change now from October. So no need there, and we will see how the year plays out. We will always, of course, consider that in light of the dividend for the 2026 year.

When it comes to the growth guidance on the P&C side, Vinit, please remember that this is a 2026 number. So with us renewing 60% of our business at 1/1, we achieved a growth of 3.3%. We were talking about the clients basically taking the savings and keep them to themselves. They are not translating this at this moment in time into more buying, lower buying, wider buying. So from that point of view, we would still stick to the mid-single-digit range we have given for the traditional business for the year. Over the cycle, we would be more bullish than that, but we are guiding only for 2026 in that respect. So from that point of view, you should not expect us to change the guidance.

The next question comes from James Shuck from Citi.

I just wanted to ask firstly about Russia-Ukraine reserve additions and I think some other large losses that were included as well. I mean it looks like you've added at least EUR 1 billion in 2025. So just keen to know if any of that has gone into the resiliency reserve of EUR 3.2 billion?

Then in terms of the P&C new business CSM outlook for 2026, you've obviously got a lot of the business on your books already, and you should have line of sight of the outlook for that new business CSM, including kind of reduction in retro as well. So are you confident that the 2025 number, you can grow that in '26?

And then finally, if I may, and I'll try and phrase this as best I can. But I'm just interested in kind of not so much how AI can enable you to do lots of things internally and drive efficiency. I'm more interested in how AI and hyperscalers, for example, are kind of redefining other industries and that's likely to gather pace over the coming years. What kind of impact do you see that having in terms of the kind of provision of integrated risk solutions from reinsurers?

Well, let me start with the first 2 questions, James. So on the CSM development, I mean, you've seen the growth of 3.3%. The corresponding risk-adjusted rate reduction we were reporting is minus 3.2%. So that would imply that the CSM development, of course, neutralizing currency effect should be relatively stable year-on-year when it comes to the new CSM generation.

On Russia-Ukraine, I didn't fully get your question because the movement we are talking about here is outside of what we are talking about when it comes to the EUR 700 million on the resiliency build side. So as I said, in the fourth quarter, we added a low triple-digit number to this claims complex, but maybe you can repeat the question if that does not meat...

So I mean, across the year, you've added EUR 1 billion, at least EUR 1 billion for Russia-Ukraine. And I was keen just maybe to know if any of that was included in the resiliency reserve? Or is it effectively all claims related as opposed to increased conservatism on IBNR?

No, thanks for clarifying that. And we have not added EUR 1 billion in 2025. We have added a mid-triple-digit number, but far away from the EUR 1 billion on a net basis and none of this is forming part of our resiliency numbers.

And then I'm happy to start on your AI question, but I'm also inviting colleagues to add. I mean, when it comes to P&C business, I mean, you know that the time horizon of what we are doing is 12 months. So from that point of view, of course, we are following how AI is changing industries and what may that mean from a risk landscape point of view. But given the time horizon of our business, we don't have to look 5, 10 years into the future to come to decision-making today. So things clearly will change and the risk landscape will look a little different. Whether that is translating into other products that we can sell our clients, I would say time will tell. But of course, our clients, the insurance companies, expect us to be a strong partner also when it comes to having a good understanding of what AI is all about and how we can introduce that into our discussions and/or products if that is what is required.

I mean I can add on. I think it's going to change the insurance landscape, probably much more than the reinsurance landscape. For us, there is an add-on or, let's say, a positive value of AI, which is that we can ingest unstructured data much easier. This improves, obviously, our modeling. This improves also our ability to do real-time monitoring of our business and makes us simply much, much better, I'm absolutely convinced. So AI has a positive impact on our risk management and risk selection, definitely. But I invite also my colleagues. I'm looking at Clemens and Christian.

James, any specific question on what we are doing on AI? I mean, as Sven said, we are in very close contact with our clients on this, what they are doing on AI, both in their existing portfolios, on new products. I mean you would have seen some of the sort of second order impact on data centers, for example, or on cyber. Clearly, I mean, that will have an impact on some of the existing products. But as Sven said, this is an ongoing topic. And for our operations, I think we spoke about that briefly also on the Investor Day. I mean, we look at AI as clearly -- yes, it's clearly, as Claude alluded to, it will be a game changer in some of the areas, but we don't do AI for the sake of it. We try really to integrate AI into our digital journey. Clearly, as you mentioned, James, on the operational side, it gives us, given that we have the focus on reinsurance, a bit of an edge to really try to implement AI as part of our digital journey when it comes to infrastructure, data, et cetera. And I think the amount of homework that one has to do before you actually can effectively use AI is probably underestimated. So doing that foundational work is very much top of mind at the moment.

[Operator Instructions] Next question comes from Will Hardcastle from UBS.

Just coming back to the reserve provisions. You mentioned they were in there for U.S. casualty and Ukraine. It sounds like, to your answer to James, none of the Ukraine reserves have gone into that resiliency addition. But presumably, most of the U.S. casualty ones has, it's in the EUR 700 million addition year-on-year unless it's coming in the 2025 underwriting year. Or are you saying because it's adverse news, it's not boosted it? And then when the reserve data comes out, will the Ukraine addition be shown in aviation? And the reason I ask is that, that would put the [ '22 ] ultimate loss ratio at more than, say, 200% for that line. And I had thought in that reaction there have been a steeper payback. I'm just sort of trying to wonder why it hasn't happened.

It's a bit of a stretch, but second question. In your projections, it sounds like there's potential for more resiliency build in 2026 given your guidance. And yet you've got a really strong solvency. You've got really strong reserves. At what point do we see the profits that's really underneath the bonnet is really what I'm trying to get to?

Yes, I'll start with your first line of questioning, Will. So when it comes to Ukraine, I mean, as I said, none of the increases form part of our resiliency build. So this is our best estimate what we are talking about here. Not all of the increase, but quite a bit of it is in the aviation line of business. So when you look at it from a segment loss and combined ratio point of view, I'm afraid your assumption is correct. The reason why this has not yet translated into more payback also has to do that when you look at it from a reinsurance point of view, relatively little of that loss is yet paid and it took ceding companies a relatively long time to present their loss position. So from that point of view, we are in the midst of having those discussions with clients. But on the overall loss number, to just give you an idea, only 30% of this is paid for our portfolio at this stage. So still a relatively low number. So that maybe is an explanation on Ukraine.

When it comes to U.S. casualty, I mean, as I said, it's -- the development was spread between moving the best estimate, moving to more conservative actuarial method and building prudency. So therefore, it's in the various buckets, it's not all in the resiliency. Partly it has ended up in resiliency, but the bigger part is just the best estimate movement including the more conservative use of actuarial model, which we have not put towards the resiliency bucket. And by the way, it's also spread between older underwriting years, but also the younger underwriting years. So therefore, part of that development is also in the current service result.

Well, I'll take the question on the resiliency build. And thank you for the question because it gives us the opportunity to clarify probably how we think about the P&C earnings 2026. So the way we've looked at the combined ratio and when we say we are going to build further resiliency, it was just a reiteration of the fact that despite it might be a bit more challenging market environment, we will and have not changed our approach to our initial prudent reserving on the P&C side. Hence, in absolute numbers, with the growth of the book, we will build further resiliency in relative numbers, and Christian alluded to it, the 8 point plus, we don't know exact number yet, but it's in relative terms, if you include the risk adjustment, it's above 8%. We feel comfortable with that level.

Same is true for -- and to reiterate again on the investment side, it's more an opportunistic toolbox that we are using. And I mean, we are fully committed to deliver on the guidance 2026. Having said this, if we have an extraordinary good year like we had in '25, we are also willing to adjust or lift our guidance as we did for '25. So don't take this as an absolute message, more in the sense of we will see how it goes and how the years -- how 2026 plays out, and we'll make a final decision in Q4. But as always, we will be very transparent about it.

There are no more questions at this time. I would now like to turn the conference back over to Clemens Jungsthofel for any closing remarks.

Yes. I think we've covered everything. I don't want to reiterate the message that -- I mean, this was not only an extraordinary good year 2025, but I think we've really taken the opportunity to build a very, very rock-solid balance sheet to increase the resiliency further and particularly to be able to show and demonstrate further earnings growth in the future. Thank you all for your questions, and have a good day. Stay safe and stay healthy. Bye.

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

And with that, I hand over to you, Clemens.

Thank you, Karl. Good morning from snowy Hannover. So a couple of overall messages to start with. The January 2026 renewals were characterized by a continuation of the trends observed in 2025. So the good profitability of the reinsurance sector is the main driver for an increase in reinsurance capacity. Market participants continue to see reinsurance market as an attractive place to deploy capital, and this has accelerated competition and price pressure heading into the January 2026 renewals. However, the competition is, I would say, rational. Rates are softening from attractive levels. Reinsurance rates remained risk adequate on a broad basis.

So, before looking at our renewal results, I'd like to comment further on the general market environment, which you will find on Slide 4. One element of this market cycle is clearly that competition is mainly between incumbent players. Apart from inflow in the ILS space, we are not observing any meaningful inflow of new capacity into reinsurance markets. Retained earnings are the main driver for the increase in reinsurance capacity. Demand for reinsurance increased as well, but less pronounced than anticipated. Inflationary pressure has stayed on lower levels. The overall healthy capitalization of the primary insurance sector is another factor.

In several instances, clients buying approach had the target to reduce reinsurance spending instead of buying more limits with an unchanged budget. On the one hand, this was negative for the overall demand. But on the other hand, this clearly confirms that reinsurance pricing is not at a level where clients would buy more opportunistically.

Altogether, the described supply-demand dynamics resulted in increased competition, which mainly centered around price negotiations, so terms and conditions as well as attachment points stayed largely at the healthy level achieved in the previous hard market years. Furthermore, the willingness to provide capacity for aggregates covering frequency losses remained muted.

Reinsurance price changed varied by region and line of business. So most significant price reductions could be observed in property, and of course, in particularly property cat business as well as parts of the specialty markets. These trends were further accelerated by the overall benign large loss situation in the second half of 2025. As a reminder, there are areas where rate increases in the years '23 and 2024 have been most significant.

Prices are coming down from attractive levels. The price development in other lines of business has been more stable. Pricing in U.S. casualty, for example, was overall flat. This confirms that pricing remains rational. Historic loss developments or individual client performance has been reflected in the price setting. So much in our view on the market. So reinsurance markets remain attractive and do provide Hannover Re with continued profitable growth opportunities.

So this brings me to the results of our renewals on Slide 6. We are satisfied with the outcome of the general renewals. The quality of our portfolio remains strong. Our long-standing client relationships and our consistent approach towards clients resulted in favorable demand for Hannover Re's capacity. As explained, we continue to view the level of pricing as adequate, providing us with an expected return at or above our cost of capital. This also means that the necessity for active cycle management remains limited in the current market environment. Furthermore, it's particularly pleasing that we could largely defend or even increase our shares on reinsurance programs. We clearly can say that we are perceived as a preferred business partner from our clients even in an increasingly competitive environment. In addition, our broad client relationships resulted in clients offering us attractive participations on new business coming to the market.

For our portfolio, this led to an overall growth in premium volume of 3.3%. Our strong market position and the growing underlying portfolios support the expansion of our proportional business. With regards to our guidance for the financial year 2026, this 3.3% growth supports a target achievement in the mid-single-digit range.

Risk-adjusted pricing for our traditional treaty portfolio was down by 3.2%. The price decrease for proportional business was less pronounced than for the nonproportional business. The quality of our P&C portfolio remains strong, and we continue to feel comfortable with our combined ratio target. Needless to say that we have prepared ourselves to deliver on earnings growth in the following years, but I'll touch on this a bit later.

Last but not least, we have successfully renewed our retrocession program. The overall structure remains unchanged. In a softening retro market, we've purchased an increased level of retrocession at improved pricing. Altogether, our renewals were successful, both in terms of prevailing good quality of our portfolio and the growth we captured in a competitive market environment.

I'm now pleased to hand over to Sven, who will dive into the specific geographies and segments. Sven, over to you.

Well, thank you very much, Clemens, and a very good morning also from my side. With EUR 10.2 billion, we have renewed 61% of our traditional treaty reinsurance business at the 1st of January, which equates to roughly 38% of the total P&C business in force. With the exception of the EMEA region for which 1st of January is the main renewal date with more than 80% of the business renewing, there are still significant renewal dates for the other regions and the specialty business later in the year.

With the 3.3% growth that Clemens has already mentioned, we continued to grow in an attractive market environment. The growth is coming from two main components. Firstly, when you look at our new and restructured business versus the business we have canceled and restructured that gave us an additional income of EUR 160 million. But also on the renewed business, we could show an overall growth of 1.7%. On the renewed business, the overall risk-adjusted price change is a minus 3.2%, but there is a positive effect from the underlying volume of the transactions and the development of our shares, which is overcompensating the change in price also on the renewed business. When it comes to our shares in general, you can see in the appendix that we grew our shares in the nonproportional business. The slight reduction you can see in the proportional business mostly results from lesser sessions of the ceding companies where normally, our share in the remaining cession has increased after that reduction in shares.

The next two slides gives you a little more detail of the development in our reporting lines. So, on Slide 10, you can see that the growth areas are mainly driven by the Americas with 6.5% and parts of the specialty portfolio, which grew by 5.8%. However, all reporting lines contributed positively to the overall growth rate of 3.3%, which is a good indication that we continue to have a very strong and good diversification in our overall portfolio.

The growth was balanced between proportional business growing by 4.2% and nonproportional business. The risk-adjusted rate decrease on the nonproportional side was mainly driven by property catastrophe business and parts of the specialty portfolio. In nonproportional, we started to see a few limited areas where we decided to cut back our shares due to the price change. But overall, as the portfolio came from very attractive levels, the quality of the portfolio continues to be strong and also allowed us to grow on the nonproportional side.

When you look at Slide 12, you can see that the profitability of the nonproportional portfolio remains at an attractive level above the long-term average. As a reminder, on this slide, we are showing the risk-adjusted rate changes as reported at the time. We are not bringing the historic numbers to today's view on risk. But you can clearly see that with the last two underwriting years and the minus 2.8% last year and the minus 6.4% this year, we are nominally below the very strong improvements we have seen in the years '23 and '24.

So, let me come to a little more detail in our reporting lines, starting with the Americas. As already said, the Americas grew by a total of 6.5% despite an overall risk-adjusted rate movement of minus 4%. The development on the pricing side was very bifurcated between property and casualty. We saw an increased level of softening on the property classes. Casualty, on the other hand, continued to be stable or even slightly improving. The competition was on price only. Terms and conditions are stable across the regions and retention levels were at last year's level.

In EMEA, we could maintain the profitability at a good level and safeguard our strong market position despite a competitive environment, particularly also in nat cat. The overall price reduction was a minus 2.9%. We could take advantage of diversified growth opportunities across the regions. On the other hand, some of our larger clients decided to increase their retention levels, which translated into the growth being more muted than the average with 0.4% growth. Like in the Americas, the renewals focus mainly on price discussions with structures and terms and conditions remaining largely stable.

In APAC, we could grow by 1.9% despite a reduction in risk-adjusted rate of minus 2.8%, but we could use the strong client relationships to take advantage of some growth opportunities, particularly also coming from those parts of the Asian market, which did see losses last year, and those losses translated into increased demand for natural catastrophe capacity. However, in a few of the markets where we did not see the losses, we also decided to reduce our positions somewhat due to the combination of weaker pricing and at times, also widening of terms and conditions.

On the specialty side, we have seen a very diverse picture in the various specialty classes, leading to an overall risk-adjusted rate reduction of minus 3.2%. This was ranging from positive numbers in, for example, aviation to negative numbers similar to the natural catastrophe business in Marine. Particularly pleasing was the development in credit, where we could show double-digit premium growth in a still very attractive market environment.

In marine and aviation, we have overall reduced our volume somewhat on the aviation side. We have seen overall stable pricing with some increases on the nonproportional business. But in Marine, the pressure on rates was higher, which subsequently also increased in us reducing positions in a few instances.

On the agricultural side, overall, we could continue to grow at a continued good quality in particularly the major markets like Brazil and in the U.S.

Also in digital and cyber, we could slightly grow our position and defend our market shares and also had some limited opportunities for new business. in cyber, particularly also on nonproportional structures. So, overall, this led to a good level of growth with 5.8%.

For the sake of completeness, let me also spend a few words about the other P&C business, starting with the natural catastrophe business in total. The natural catastrophe business is included in the regional reporting you have seen in the previous lines. But if you look at it globally, as Clemens already said, I mean, we had ample capacity in the market, leading to more supply than increase in demand. This translated into risk-adjusted rate reductions between 10% and 20%, depending on the loss history of the regions. But overall, the natural catastrophe business was still adequately priced, which allowed us for somewhat diversified growth whilst maintaining underwriting discipline by also reducing capacity where required, for example, in Asia, as already mentioned.

Last but not least, we can also report that our new sidecar vehicle, Hannover Re Capital Partners was successful in attracting first investor and started writing some business already at the 1st of January renewal.

In structured reinsurance, we could again broaden our portfolio based on our disciplined underwriting and the strong alignment with our clients when it comes to their requirements. The positioning we have on the traditional side helped with internal cooperation to secure renewals and also find new opportunities. In parts of our incoming structured business, we could see a decrease in cession rates on some existing larger contracts overall impacting the volume despite the very favorable demand for the new business. In general, we are very positive about the pipeline for the remainder of the year.

On the facultative side, we could see and observed the similar trends compared to the treaty business. So in the property classes, in particular, we had abundant capacity, which led to increased retentions and the rates softening, which was most pronounced in property business. Nonetheless, overall, we could renew most of our portfolio with overall risk adequate rates and could also find some new business opportunities. As a side note, we continue to see positive increases in risk-adjusted rates for U.S. casualty business.

This brings me to my last slide being our retrocessional program. We had strong support for our retrocessions. Overall, no change to our structure on the property side. We continue to buy our two nonproportional towers, the one being event, the other one being aggregate. And of course, we have increased -- we have renewed our proportionate K quota share was our ambition to renew a similar cession rate compared to the previous years, which is in the low 30s due to the underlying growth of the portfolio, this meant that we had to increase the capacity behind the K vehicle, and you can see the numbers on the slide.

What we have seen on the incoming business also applies to our retrocessional business. So there was improvement in pricing. both on the proportional and on the nonproportional side, in line with the inward market trend, which led us to buy slightly more limit on our nonproportional towers. We have also placed a new parametric earthquake cover, which at this stage is coming with a relatively small limit, but it's a nice addition to our overall property buying. What was particularly pleasing is that all placements have seen an increased number of participants, which, of course, is helpful from a diversification point of view when we think about future renewals.

And with that, I hand over to Clemens.

Thanks very much, Sven. So, let's move on to our guidance for the financial year 2026. As the outcome of the renewals was broadly in line with our planning for the financial year 2026, there is no need to change the guidance we have provided in November 2025. The prevailing strong quality of our P&C portfolio should bring us in a good position to deliver on the combined ratio target of below 87%. And as explained at our analyst call in November, the underlying combined ratio in '25 is running well ahead of the 88% target and the new 87% target for 2026, and that clearly leaves room for some price reductions in '26. Therefore, the developments in the January renewals do not contradict our underlying assumptions in any way.

To complete the picture, the target achievement is not linked to a change in our prudent initial reserving approach. But the option of adding less to resiliency reserves compared to '25 adds even further confidence in the ability to deliver on target. Furthermore, I can confirm the targets for life and health and investment returns. Hence, our group net income target of at least EUR 2.7 billion remains unchanged as well.

As long as the profitability of the sector is healthy and large losses remain broadly within expectation, we anticipate a prevailing competitive market environment in P&C reinsurance. In such a competitive environment, it is most important to have competitive advantages. Our lean operating model with lower administrative costs than our competitors will clearly help us to provide us with business meeting our margin requirements. Combined with our pure-play reinsurance model and our strong client relationships, it will support further growth. So we are entering this softening market phase with a very strong or let me say, an exceptionally strong balance sheet. If needed, this provides further comfort in our strong ability to manage volatility and to grow earnings over the cycle. I'm convinced we have the right recipe to remain successful over the coming years.

Now let me take a first glance at the preliminary figures for the 2025 financial year. Full details will be disclosed on the 12th of March. So, reinsurance revenue reached EUR 26.8 billion, which is a currency-adjusted increase of 4.7% compared to the previous year. Taking the NDIC, so the non-distinct investment component accounting effect into account, our growth in property and casualty reinsurance was well ahead of our 7% target. Our group net income of EUR 2.64 billion is fully in line with our increased guidance and represents a strong earnings growth of about 13% compared to the previous year.

Operating performance stood at EUR 3.5 billion with both business groups performing well. P&C contributed EUR 2.4 billion and life and health contributed EUR 0.9 billion. In P&C Re, we have benefited from the strong underlying profitability of our portfolio, positive currency effects and an overall benign large loss environment.

We have used this as an opportunity to add to our reserve resiliency and to actively realize hidden losses in our fixed income portfolio also in the fourth quarter. We will provide full details in March, but with the actions taken in '25, we have further improved our ability to deliver on earnings growth in the coming years. So we've met our group net income target in '25, and we are very well positioned to repeat this in 2026.

I will now open the floor to your comments or questions.

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

So was just curious what surprised you about the renewals this year, and you cited that 3.2% rate decline today. I'm just curious to help us understand where you see margins sitting relative to your hurdle rates? Are there any lines where that spread is really narrowing that we should be thinking about?

And then on the nat cat rate declines that you cited down between 10% and 20%, do you guys have a new kind of clearing price that you're thinking about? And how sensitive is your appetite for growing that if pricing weakens further at midyear renewals?

Well, when we talk about surprises, Shanti, I guess we were expecting a little less pressure on the nonproportional pricing. And at the same time, we were expecting some more demand coming from our ceding companies, either through slightly reduced retention levels or additional buying on other property products. So, in a nutshell, the pricing or the pressure on pricing was a little stronger than expected. but it didn't translate into additional buying. That would be the main surprises.

When it comes to the question of excess profitability, I mean, as we have highlighted, there were only a few areas where we had to start reducing our positions. So, from that point of view, the quality of the portfolio after the renewal is still very sound. No particular area to highlight, which is under pressure on a forward-looking basis. But of course, with another round of reduced prices on the nonproportional side, the level of excess margins is a reduced one.

On the nat cat side, we have a very diversified picture, which is pleasing. So overall, despite the pressure in pricing, we could still find good excess profitability in quite a number of the areas, and we were willing to take advantage of those and clients were willing to give us more limit where offered. On the other hand, and I mentioned Asia as an example, there were also pockets where we felt that we should reduce our positions. But overall, the growth we are talking about comes from a globally diversified basis with no particular region being very overweight in this.

And on a forward-looking basis, our approach to nat cat business and how we look at profitability has not changed. So, from that point of view, as explained during the Investors Day, we have identified the nat cat business as an area of structured growth given that we feel that we are still underweight from a market share point of view, but we will grow when we find the profitability. And if we don't, we are also happy to consolidate.

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

First one, so just in Germany, you highlight the impact of increased retention at some of the larger clients. I guess, do you have a sense of what's driving this? Is there anything to do with any of them developing their own sort of in-house reinsurance structures? Or is there something else going on there? And I guess, why do you see this happening in Germany and not elsewhere? Any views on that would be really helpful.

And then secondly, on structured re. I know you previously flagged the sort of reduced sessions and but a strong pipeline and you're sort of saying the same things today. Do you have -- now that we're into 2026, do you have a better line of sight into how we should be thinking about premium growth for 2026? I know previously, you've said sort of lower than previous levels, but should we still be thinking positive? Or should we be expecting premiums to decline on the structured side in '26?

Yes. Thank you very much, Andrew, for those questions. When it comes to the German business, it was a combination of factors. So with the underlying profitability in their business, clients are naturally more comfortable with their portfolios also from a profitability point of view. And this, at times, did translate into higher retention levels. But you also mentioned internal reinsurance vehicles, and we have also seen that development in the German context. So it was a combination of the two. And the only reason why we have mentioned it in the EMEA context is that this was one of the drivers why the growth in EMEA was a little more muted compared to the global growth number.

When it comes to the structured business, yes, I mean, you have already repeated our main messages. Given that the reduced sessions from ceding companies are coming from our bigger existing client relationships after the 1/1 renewal season, we are talking about a somewhat reduced premium volume. But as I highlighted, the pipeline is looking strong, and it's only the beginning of the year. And structured reinsurance is not necessarily so 1/1 focused. So from that point of view, we continue to be optimistic for the remainder of the year without me wishing to give you a number for guidance.

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

You mentioned that you're happy to write the business because it's at or above cost of capital. But where do you think these renewals lead yourselves relative to cross-cycle return on capital? I'm thinking on an economic basis, not accounting. And I'd love to know where you think it leaves the industry in that regard.

And something of a bit of a follow-up. while there still seems to be plenty of headroom between your guided combined ratio and, let's say, the underlying adjusted for these pricing decreases still, there was something similar yesterday as well. I guess, should we not assume a base case of similar price decreases next year and likely further T&C reductions as a result? I guess maybe put another way, what stops or slows this rate of price decline from here?

Well, when I look at the 1st of January renewals, well, I think the 1st of January renewals will be accretive when it comes to cross-cycle profitability. So, given that all of our business, which we have renewed is still making cost of capital or even above, it should be a year where we are -- given the guidance we have given, hopefully, we'll continue to build balance sheet strength, maybe not at the same level like we have done in '24 and '25. But in our view today, we should still be able to talk about the underwriting year 2026 as one that helped building resiliency, if that is answering your question.

When it comes to the profitability for the financial year, I mean, even though we were slightly surprised by some of the dynamics in the renewal season, the when we were reflecting on our guidance for 2026, the development was nonetheless baked into our [ 87% ] number. So, from that point of view, there is no reason to change.

And when it comes to your question, okay, what will stop the market going in that direction. Of course, volatility is the answer at the end of the day. And the industry enjoyed a good number of quarters now with very strong profitability, which translates into accumulation of capital and into the desire to write more market share.

As long as the profitability is at such a high level, this trend will continue. And then it depends on volatility, whether that comes from major losses or whether it comes from capital market volatility in order to change the sentiment in that respect.

And lastly, when it comes to that question, I mean, with our lean operating model and our cost structure, we feel comfortable that we will be able to write the business profitably for longer compared to the average peer.

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

Two questions from me. The first one is on the direction of travel for the remainder of the year. Just really intrigued kind of following on from Will's question. If we look at how things have developed this year, prices came down a bit more than they did last year, and that was probably inevitable given kind of what was going on in the industry, the amount of money people have made. When I think about the upcoming April renewals, last year, you saw double-digit declines in Japan or I guess what [indiscernible] did on a reported property cat basis. What do you think the direction of travel should be for something like Japan, where you've already seen that kind of correction happen last year?

And the second question is just coming back to the kind of discussion around like guidance and mid-single-digit growth. From your comments, it sounds like you're a little bit surprised on the lack of kind of new or increased demand out there. How should we get comfortable that the mid-single-digit constant FX, excluding structured is still the right number to think about?

Well, when it comes to the remainder of the year question, we expect that the remainder of the year is rather similar compared to what we have seen 1/1. You're absolutely right when you are talking about Japan, in particular, that the Japanese renewals at 1st of April last year saw more of a reduction in rates compared to the 1/1 renewals. So, from that point of view, we do expect that this will be taken into account when it comes to the pricing for this year because in relative terms, it comes from a slightly lower base. But outside Japan or just in general, we would expect a rather similar picture compared to the 1st of January renewals also for the rest of the year.

When it comes to top line for the remainder, I mean, we feel we have a very robust portfolio. So, if our experience repeats itself, what we have seen at the 1st of January renewals, we will be able to grow where we want to grow. Our clients gratefully have been very good with us allocating our shares that we have offered to us. So if the quality of the pricing remains sound like we have found at 1/1, we're optimistic that we will be able to at least keep our position on programs, if not grow that.

I mean one way of looking at it, and Clemens already alluded to that, the lack of additional demand where we were expecting a little more should also be seen as a sign that the quality of the pricing we can achieve is seen by our clients in a way that it's not the time to start buying opportunistically now because it's still all at a sound level. So with their improved capital positions, this translates into keeping a stable program or even a little less at times. But overall, as we sit here today, with the starting point of 3.3%, we still feel positively that our guidance for a mid-single-digit premium growth for the entirety of the year is definitely in reach.

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

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

And second question, I just wondered if you could maybe say a few words on your strategy in capital partners. And I guess if we do think that the reinsurance market can continue to attract third-party capital, where do you think capital partners could be in a few years' time?

Yes. Thank you, Chris. On the terms and conditions, I mean, it's one of the ingredients, of course, which clients take into account when they're thinking about the demand for the product. And at 1/1, I mean, we have seen that it was more important for clients to improve the pricing rather than also do something on the terms and conditions at the same time, which would have a more stabilizing impact on the pricing if you are working on both sides of your placements. So it's difficult to predict what the future will bring. And so from that point of view, if this should be a dynamic where clients should feel that they should concentrate a little more strongly on improving the terms and conditions, then this will have an impact on how much price reduction they can achieve because obviously, both is taken into account when reinsurers are looking at the renewals.

When it comes to Hannover Re Capital Partners, I mean, we are very pleased that we did get this off the ground and could start transacting some first business. What we have done so far with the investor is writing a relatively traditional property catastrophe portfolio on a globally diversified basis. And of course, with the first success, we hope to find additional investors. And we will listen very carefully to what their risk appetite is. So from that point of view, it's not so easy to look into the future. We're optimistic that given our relations we have into the capital market, also from the other ILS activities we are doing that we will find more investors but where exactly their risk appetite is then needs to be discussed on a bespoke basis. So I would hesitate to give you numbers where we want to be in three or five years.

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

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

Well, on both questions together, I would say you will see hardly any impact from our K placement. I mean we kept the proportional cession the same, which means from the underlying growth we have in our nat cat portfolio, we will share that equally between our net position and the just above 30%, we are seeding with K investors.

The only reason why the capacity has grown behind K is the underlying growth of the business in '24 and '25, which translates into more capital being required to have the same default probability behind the K portfolio. But from a P&L point of view, we are not sharing more of our incoming business in relative terms compared to what we did in previous years.

If anything, and that would be a positive for our net position is we could improve the terms and conditions of our K retrocession when it comes to some of the commission terms.

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

My first question would be on structured. I hear the comment on cession rate. But could you also please just share some thoughts if there was more competition. We heard one of your peers yesterday talk a lot about that line. So I'm just curious whether you're just seeing more competition as well in structured.

And secondly, just back to the cession rate. I mean, is it a risk that you could probably manage with a bit more give way on P&C, you think? Or I mean, obviously, the game would be to manage the risk such that the overall profits are better underwriting-wise. But I'm just curious just to hear your thoughts once again, please if you don't mind, how big a risk is this to your targets? Is it a trend that you're observing? And how do you -- what do you think is the best way to meet this new development, let's say?

Thank you, Vinit. So, on the structured side, yes, clearly, the market has become more crowded on the structured side. On the other hand, what we can report is that on those transactions, which have not renewed, see they just stopped buying. So we didn't lose that to competition.

On the new business, we could write, we can still write the shares we want to write. So, from that point of view, we don't feel impacted by the increase in competition. And most importantly, on those few of the bigger programs where the clients have decided to reduce their cession rate, our share of the remaining section in all cases has increased, which means that our relative market share in those transactions has increased rather than reduced. So, from that point of view, yes, it's a more competitive environment also on the structured side, but we are so far satisfied with our journey on that class of business.

When it comes to cession rates in general, we are not particularly concerned that what we have seen from our clients at this 1/1 renewal will necessarily repeat itself also in future years. I mean some of them have decided to reset retention levels given the underlying profitability of their portfolios and others may follow, but I don't see a general shift in a higher proportion of the business being remained net by our clients, more the opposite to the extent they continue to do well and grow their own portfolios, this over time will lead to more rather than less reinsurance buying.

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

First question was just to get a little bit more insight into the mid-single-digit growth again expectation for '26. Apologies for returning to this. What I'm doing is I'm just looking at the '25 underwriting year premium that's disclosed in the pack today. And that showed that traditional treaty was down 6% year-on-year, facultative down 8%. Your January renewal premium today is plus 3%. And obviously, the '26 year is going to be a blend of all of those things. So just help me understand and talk through how those kind of fit together to still give you confidence in that 3%. I appreciate you gave an answer early on, but it's really the '25 development earning through that causes me to question that a little bit.

Secondly, on the proportional rate increases, so down 1.7% at Jan. That was pretty flat versus the 1.8% last year. Americas though got a lot better in terms of -- I think it was down 2.8% last year and only down 1% this year. And the delta between the two must be specialty re that must have got a lot worse. So just keen to understand some of the dynamics on the proportional side, what's happened in Americas and Specialty Re. And then just finally, if I may, you've written about the sort of half of your new business CSM in Q1, rate up a bit, volume -- sorry, rate down a bit, volume up a bit. Are you able to give any indication of what the Q1 CSM has done year-on-year, even if directionally?

Yes. Let me start with the third question, James. I don't have an indication for a CSM number for you today, I'm afraid. So I guess we will be able to give you an outlook when we do our March earnings call at the earliest. So I would have to ask you for a little patience.

On your first question, I am not so certain where your negative premium numbers are coming from, particularly, as you mentioned them in the context of our 2025 year, where when Clemens talked about our preliminary numbers for the financial year, we were talking about ignoring the end effect for a second that we have come from a situation of good growth, definitely in line with our 7% target for the year. So that is the basis from which we are also starting the financial year 2026. So from that point of view, maybe you can clarify where the negative numbers you were referring to are coming from. And then -- yes, please go ahead.

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

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

Sure. That makes sense.

So that is a driver. And then on the proportional side, as you will appreciate, I mean, it's always difficult to talk about trends in proportional business because solutions are so bespoke to individual clients. So the reason why it's up and down also has to be seen in the historic context of the client profitability and what have they already achieved maybe when it comes to ceding commission increases in the last year's renewal and the sky is not always the limit. So, from that point of view, if you had success increasing your ceding commission last year, maybe it was flat this year.

So I don't see any overarching trend of the proportional side, but it's very much driven by the historic profitability of that individual treaty plus effect, what is happening in that underlying insurance portfolio when it comes to rate development.

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

I would like to come back to the specialty business. Could you maybe explain what is the attractiveness of the credit business? To my knowledge, insolvencies might peak in '26. So is it pricing or maybe other things you might elaborate a little bit on?

Second, digital and cyber. What is the overall appetite of Hannover Re for these business lines? Also knowing that cyber pricing is down since several years now. So what is your intention to grow here?

Yes. Thank you, Roland. On the trade credit side, as you're referring to that, in particular, of course, we are seeing the increased level of insolvencies, and this is partially also translating into slightly higher loss ratios for the industry compared to the previous years. But what is making this line very attractive for us is not only the historic levels of profitability in that class of business, which you have seen in previous reports, but also the fact that we are dealing with very sophisticated seeding companies that have very advanced methods in risk selection and building their portfolios. And despite the general increase of insolvencies for economies, this does not necessarily always translate in a one-to-one basis into deteriorating results for the insurance portfolios, given all the diligence our clients are putting into how they structure their portfolios. So, from that point of view, we are very comfortable with our incoming portfolio, and we're even more pleased that we could further strengthen our position in that market.

Cyber is a little bit more complicated. Yes, you're absolutely right. We are observing reductions in the insurance pricing for some time now. So when we look at the cyber renewal at the 1st of January, I would say on the proportional business, which is still the bulk of what we are doing, we can say that we have increased our position in some cyber quota shares where we are satisfied with the risk selection and the historic performance of those clients, but we have also been willing to deemphasize some other positions where we feel that the historic performance has not been so strong and where we, therefore, are more concerned about where the trend is going from an insurance pricing point of view.

And the other area to mention, but that will be a slower process as we are working on improving the diversification in the cyber portfolio, deemphasizing pro rata in general a little bit and building more of a nonproportional portfolio on the cyber side. And we have done some very good first steps, but it will take time for the weight in the portfolio from the nonproportional business to get stronger over time. So, overall, if we add it all up, cyber was a slightly growing class for us, but only with those clients where we were very comfortable with their historic track record and coming from the nonproportional side.

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

Three small questions for you, please. One, perhaps on the motor business. And sometimes you give color on the U.K. motor, sometimes on Germany. But maybe you can talk a little bit about how you feel the outcome of the renewals and the underlying business is developing for 1st of January.

Second question is related to casualty business. I think this is one where price pressure has been a lot less than property cat. But I'm just wondering how you think about the technical profitability in it overall? Is it deteriorating? Or is it more unchanged? Does that influence the attractiveness of the business in your view?

And the final question, sorry, it's a bit general, but we've been hearing over the past few weeks a lot about growing demand from certain insurers and certainly the brokers for tailored products related to data center CapEx, AI-related coverage. Just wondering if you have any general thoughts of how important that might be in 2026 for you? What's the upside for you and the appetite here?

Yes. Thank you, Ivan. On the motor side, yes, let me talk about Germany and the U.K. So the profitability journey on the German motor business is in place again after the rate increases done by the primary markets. And so from that point of view, we were happy to continue with our motor portfolio in Germany in general. In the U.K., the situation is slightly different. You, of course, remember that we had the change in the Ogden rate not that long ago given that we are now talking about a positive discount effect again rather than a negative. This, of course, translated into some reductions on the motor excess of loss portfolios, which we are writing. They were not so severe that we had to reduce our positions in general on those programs, but it was clearly leading to some softening for good technical reasons, but still softening.

And on the proportional side, we have seen less demand for motor solutions here. And one of the drivers for that was also M&A in the U.K. indigenous market.

On the casualty side, I would say that from a technical profitability, we can say that it is unchanged compared to the previous underwriting year according to our assumptions and risk assessment. And data centers, yes, that's definitely a very interesting topic right now. And we have a lot of discussions with ceding companies about the topic given insured values. This is certainly an accumulation topic where the reinsurance industry still needs to understand the accumulation aspects more fully. Most of the discussions we had with ceding companies were in the context of their normal property renewals where data center, data centers are part of the portfolio they are writing. And we only had rare opportunities so far, but that may change in the future when it comes to data centers as a bespoke reinsurance solution. We had one client engaging with us on that side. And yes, that was certainly a nice way of us growing with that client on their data center initiative.

Of course, on the facultative side, data centers are also presenting opportunities for us. But I was referring to the traditional treaty business when you asked about how much of an opportunity is that? Given that it's an accumulation risk, we, in my view, will see more bespoke opportunities in the future, but a lot will also just be catered for in normal property renewals.

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

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

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

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

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

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

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

So, yes, as you can hear, we are satisfied with the outcome of the renewals. The quality of our portfolio remains strong. We look at the healthy pipeline for the remainder of the year, given our strong sort of long-term relationships, client relationships and also our consistent approach towards our clients that I hear in pretty much all conversations that I have with our business partners. But also in terms of our lean operating model, and Sven alluded to it, which does allow us to write business for longer on a profitable basis as the average peer.

So we do remain optimistic and very confident to meet our guidance 2026, both in terms of growth, efficient growth, but even more so in terms of growing our earnings throughout the cycle, given our exceptionally strong balance sheet coming out of 2025.

So, thank you all for your interest this morning, and have a good day. We'll speak soon.

Good morning, everyone, and welcome to our earnings call on our results for the first 9 months of 2025.

And as usual, our CEO, Clemens Jungsthofel; and CFO, Christian Hermelingmeier, will provide a brief overview of the business development so far in '25. And afterwards, Clemens will present the updated outlook for the current year. And as usual, we'll provide an initial guidance for the financial year '26. For the Q&A, we will be joined by Claude Chèvre and Sven Althoff.

And with that, I hand over to you, Clemens.

Thank you, Karl, and good morning from Hannover.

So on the first slide, the business performance in the first 9 months was very satisfactory. The group net income of EUR 1.96 billion reflects a strong underlying profitability and additional positive tailwind from currency translation and from tax, adding up to more than EUR 400 million. The low tax rate, particularly in the third quarter, is mainly connected to the newly enforced change in the German corporate tax, resulting in a corresponding release in deferred tax liabilities.

This not only left us in a comfortable position to increase the group net income guidance to around EUR 2.6 billion for the full year. In addition, we used the extra level of profits to further strengthen our company's balance sheet. We have added significant prudency to our P&C reserves. We've taken a more cautious view on certain pockets in our Life & Health portfolio, and we have realized more than EUR 300 million losses in our fixed income portfolio. All of this improves our already strong balance sheet and our confidence in future earnings growth.

In P&C reinsurance, we have continued to grow our portfolio in an attractive rate environment. As in the first half, the refinement in the calculation for the non-distinct investment component does have a negative base effect on reported growth numbers. As it does not impact earnings, this is no cause for concerns at all, also not when comparing to our 7% growth target. So on an adjusted basis, the growth is close to 10% and therefore, clearly ahead of the 7% mark. The favorable underlying growth is also reflected, as you can see, in the increase in our new business CSM to now EUR 2.6 billion.

The large loss experience in Q3 was rather benign, particularly on the nat cat side. Hence, the overall impact from large losses was well below our budget for the first 9 months. But as you know, as usual in this situation, we have booked the full year-to-date budget. Therefore, the reported combined ratio does not reflect the benign large losses. On the contrary, we have actually used the overall positive results situation to add further prudency to our P&C reserves with a corresponding effect on the reported combined ratio. Nevertheless, the reported 86% is well in line with our target, pointing to an even better underlying number.

In Life & Health reinsurance, the revenue is growing moderately. The new business generation increased by 16% to EUR 575 million, including a favorable contribution in the third quarter. The Reinsurance service result of EUR 671 million reflects the overall positive business development and confirms that we are well on track to deliver on our target for 2025. The ordinary investment performance was very satisfactory against the backdrop of another strong quarter, including the positive tax effects, we have decided to accelerate the loss realization in our fixed income portfolio. After around EUR 60 million in the second quarter, we have realized another EUR 260 million in the third quarter to improve future investment returns and to increase the flexibility in our investment portfolio. Hence, the return on investment of 2.8% is deliberately below our target for the full year.

Finally, the capitalization remained strong with a solvency ratio of 259%. In the third quarter, the operating capital generation was slightly above EUR 1 billion. We have also been successful in deploying capital. So the recognition of planned growth for 2026 had an impact of around 6 percentage points on the solvency ratio. Furthermore, the quarterly accrual of foreseeable dividends, including the update of our dividend strategy impacted the solvency ratio by minus 4.5 percentage points. Model changes had a minor positive impact.

On the next slide, the shareholders' equity increased by 2%, driven by the strong 9 months results. A mitigating factor is a negative impact from currency translation within the OCI. The CSM increased by 2.1%, mainly reflecting the new business generated by both business groups, again, also here partly mitigated by negative currency effects. The risk adjustment decreased by 7.8%, mainly driven by some model refinements in P&C as well as a negative currency effect and a new retrocession in Life & Health.

Altogether, the performance of both business groups and our strong balance sheet, including the CSM and including the risk adjustment, gives me considerable confidence in current and future earnings growth. The return on equity of 22% is a further confirmation of our success.

And on that note, I hand over to you, Christian.

Yes. Thank you, Clemens, and good morning, everyone, also from my side.

So on the next slide, our P&C business is growing nicely on a diversified basis, including a strong contribution from structured reinsurance. The top line growth in the first 9 months is marked by the refinement in our accounting, resulting in a one-off effect when comparing the 2025 revenue to the previous year. Excluding this base effect, the FX adjusted reinsurance revenue would have increased by 9.5%, clearly supporting the target achievement. Importantly, there is no impact on earnings due to corresponding effects in the service expenses. Furthermore, the accounting impact on reported growth should decline in the fourth quarter.

In the third quarter, the NDIC refinement continued to have an impact. Additionally, the timing of bookings for some larger treaties had an impact on the reported Q3 revenue. In this respect, we expect some catch-up effects in the fourth quarter. The combined ratio of 86% is well within the target range below 88%. The impact from large losses was EUR 459 million below budget, which has nevertheless been booked in full as usual. The unused budget should be sufficient to cover the expected losses from Hurricane Melissa, meaning that full Q4 budget is available for other losses in the fourth quarter.

As Clemens explained, the underlying profitability was even stronger in light of the additional balance sheet strengthening with an increase in reserve prudency. However, we have added less to the reserve resiliency in Q3 compared to the previous quarters and have instead decided to use the better-than-planned result for active loss realization in our investment portfolio. The reason is that we feel very comfortable with the current level of reserves and saw a good opportunity to lock in higher interest rates to improve the contribution from investments in the years to come.

Finally, the combined ratio includes a discount effect of around 9.5%. As usual, the increase in prudency for our reserves is biased towards long tail lines with a higher level of discounting. Overall, the discount effect is still higher than the interest accretion in the reinsurance finance result, but we continue to be very prudent on the reserving side as an offset. The investment result reflects an increased ordinary income and the loss realization for fixed income of around EUR 320 million. The currency result was significantly positive at EUR 219 million, driven by the weakening of the U.S. dollar over the course of the first half year.

The main contributor to the P&C service result is the CSM release, reflecting the recent renewals in a very attractive market environment. As in 2024, the CSM release includes smaller catch-up effects due to a prudent release in previous periods. The experience variance includes our prudent reserving on the business earned from current underwriting years. The run-off result has been positive in most regions and lines of business. But as explained, we have used the strong underlying profitability and the overall strong result situation to add additional prudency to our reserves. This is the main reason why we are reporting a negative run-off result of minus EUR 465 million.

Apart from this, the runoff result also includes our updated view on the Russia-Ukraine aviation loss and the moderate increase in the best estimate for some pockets of U.S. liability business. The loss component from new business is quite low, confirming the attractive rate environment in P&C reinsurance. The CSM growth of 7% reflects the favorable market environment and our success in the renewal period in 2025, resulting in a strong new business CSM of EUR 2.6 billion.

On the next slide, in Life & Health, reinsurance revenue increased by 2.2% adjusted for FX. The revenue increased in Financial Solutions and longevity. In traditional business, revenue moderately decreased mainly in Greater China. The result for the 9 months of 2025 is based on favorable underlying profitability. Furthermore, the experience variance was positive in all reporting categories. Assumption updates for onerous business and a more cautious position with regards to our morbidity business had a negative impact in the reporting period. Altogether, the reinsurance service result of EUR 671 million is fully in line with our full year target. The investment result reflects a good ordinary income from fixed income and the negative impact of an equity participation of around EUR 30 million in the third quarter. Altogether, the EBIT contribution from our Life & Health business group was EUR 645 million.

On the next slide, looking at the IFRS components of the service result, the CSM release is the main profit driver and within the expected range. The same is true for release and risk adjustment. The experience variance is clearly positive based on a diversified contribution by line of business. The main drivers for the loss component are assumption changes for onerous business and morbidity. This is particularly driven by the critical illness business in Greater China, where we have updated our assumptions and took a more cautious positioning, reflected in an increase in the risk adjustment.

As Claude highlighted at our recent Investors Day, one should focus here on a more holistic and economic view on assumption changes and experience variance. Adding up the positive assumption changes in the CSM and the change in loss component as well as the experience variance, the total deviation from initial assumptions of our diversified portfolio is positive year-to-date. The CSM development on the right side is clearly impacted by currency effects. The CSM generation, which includes the new business CSM and extensions on existing contracts, amounted to a favorable EUR 585 million based on a diversified contribution from financial solutions and our traditional business. Changes in estimates are driven by updated assumptions for our longevity business. Altogether, the total CSM would have increased by 5.2%, excluding the currency effects, nicely ahead of our 2% target.

On the next slide, the development of our investments was very satisfactory. The ordinary investment income reflects the continued rollover in a higher yield environment and a strong operating cash flow. Inflation-linked bonds contributed EUR 110 million. Additionally, the contribution from alternatives was very solid. And as explained, we have used the overall result situation to accelerate the realization of losses in our fixed income book in the third quarter. In total, we are looking at the realized fixed income loss of EUR 324 million for the first 9 months.

The corresponding higher locked-in interest rates will support a further increase in investment income in the coming years, and the lower level of unrealized losses will increase the flexibility for our asset managers, both helpful in the overall trading environment. The impact from the change in ECL and the fair value of financial instruments remained moderate. All in all, the return on investments of 2.8% is deliberately steered below the initial 3.2% target due to the realization of losses in our fixed income portfolio. So no concern at all as the main group target for 2025, the net income is not only maintained, but has even been increased, including an adjusted lower target for the ROI.

At this point, I would like to point out that depending on the business development in the fourth quarter, I would not rule out further opportunistic steps with an eye on the remaining level of unrealized fixed income losses of more than EUR 2 billion on our balance sheet shown at the bottom of the slide. Apart from the strong movement in fixed income, you can see that the unrealized gains within the OCI have changed materially in the category others. This reflects the sale of our stake in Viridium, concluding a highly successful financial investment for Hannover Re.

To conclude my remarks, the business performance in the first half of the year was very satisfactory. The positive impact from currency and tax has been used to further strengthen our balance sheet and improve future investment returns. We are well positioned to deliver on our increased target for 2025.

And on that note, I'll hand back to you, Clemens, for the comments on the outlook.

Thank you, Christian. So despite the significant increase in reserve prudency and the realization of fixed income losses, the reported group net income of close to EUR 2 billion after 9 months is running nicely ahead of our plan. Consequently, we have increased the target to EUR 2.6 billion. The new target assumes a full realization or full utilization of our large loss budget at year-end. As of today, we do have significant budget available to cover potential losses in the remainder of the year. In case not all of this is used by year-end, this might provide the option to continue realizing some fixed income losses and additional flexibility for the assumption setting in our annual reserve review. These comments also need to be considered looking at the updated target for the combined ratio, which is expected to come in below 87% and the ROI target, of course, of around 2.9%.

The expectation for the Life & Health service result remains unchanged. And as explained, the FX adjusted growth in P&C revenue is influenced by the refinement in the NDIC calculation. Excluding this effect, the 7% target remains unchanged. And again, this effect does not have any impact on earnings, hence, no reason for any concern here. Altogether, we are confident that we will achieve a net income of EUR 2.6 billion, higher than initially anticipated for the year. Furthermore, I'd say there are probably more upside risks than downside risks for the delivery on our guidance, potentially also providing options to further improve the basis for future earnings growth.

So future earnings growth brings us directly to the guidance for the financial year 2026. The new group net income target for 2026 is at least EUR 2.7 billion. This is an increase of 12.5% compared to the initial guidance for 2025. So you can see this as a strong commitment to continued earnings growth also in a slightly more challenging market environment.

Looking at the underlying drivers, we expect further growth. Our P&C business, excluding structured reinsurance, is expected to grow in the mid-single-digit percentage range. The reason why we have excluded structured reinsurance here in our guidance is the transactional character of the business. So individual treaties can be a bit bulky. And for 2026, we have an indication for some reductions in session rates on the one hand. And we do continue to see a strong pipeline for new business on the other hand. The combined effect is not easy to predict, and hence, we have decided to exclude this part of our activities from our top line guidance.

All in all, it is possible that the revenue development in structured reinsurance might be less dynamic in 2026 than the average of previous years. The combined ratio target for the total P&C business is below 87%. This is an improvement compared to the below 88% target for this year despite the expectation of some softening of rates in the underwriting year 2026. One reason for this is the discount effect, which is expected to be around 9% to 10% in 2026. This is rather stable compared to this year, but higher than initially expected for 2025, so providing some uplift compared to the previous target. Furthermore, the pricing environment is expected to remain on an attractive level overall. So this means that the quality and the profitability of our portfolio will remain strong.

As explained earlier, our underlying combined ratio is running well ahead of our target in 2025. This means that also the new target of below 87% does leave room for some pricing pressure, not only in 2026, but also going forward.

With regards to our reserving, we feel very comfortable with the overall confidence level of our reserves. The option of adding less to reserve prudency compared to previous years adds further confidence in the ability to deliver on our target. Based on the successful new business generation in 2025 and a healthy pipeline looking forward, we anticipate an increase in reinsurance service result to around EUR 925 million in Life & Health reinsurance. The assumed CSM and risk adjustment release remains unchanged compared to this year at around 11% to 13% for the CSM and 6% to 8% for the risk adjustment. Furthermore, our strategic midterm target for the CSM growth of around 2% remains valid. The return on investment is expected to reach around 3.5%. So altogether, the new guidance highlights Hannover Re's successful and lean business model, our ability to grow and our very strong balance sheet.

So this concludes my remarks, and we would be happy to answer your questions.

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

So the first one was just on the Q3 model refinements that you made in P&C. Could you just give us some color on what was driving those for this quarter? And then my second question is just going into the renewal period in January, what you're sort of expecting from conditions there?

And then my last question is just on the guide for 2026 of that less than 87% combined ratio, and that's got the higher discount rate between 9% and 10%, as you mentioned. What's really driving that assumption? Has the duration of the book changed? Or are you assuming continued long-tail reserve releases? I'd expect that to come down with rates. So any color there would be helpful.

Yes, thanks for the question. So I'll take the first one, the Q3 model refinement in the P&C book that relates to the risk adjustment. So there have been some seldom combinations of contracts where the risk adjustment just by the methodology that is applied in the data was larger than the expected losses and the cash flow for the losses. And so we refined that in capping the risk adjustment to the maximum amount of the lost cash flow, so to erase the outliers that we figured out we have here and there in the book. That's basically everything. So no reference to the underlying business itself.

And when it comes to the renewals, Shanti, I mean, as we said on previous occasions, we are expecting a broadly similar market momentum compared to what we have seen in 2025. We have not seen too many firm order terms from the renewals yet. So there are too few data points to give you an update on that expectations. So from that point of view, we are still expecting similar momentum, as I said, which would be mostly on price and stable on retention levels and terms and conditions.

Shanti, it's Clemens here. So on the last one, on the underlying drivers for the 87% combined ratio guidance for 2026, a couple of points here. One is the discount rate, as you mentioned, but there are a couple of other drivers that have led us to go for a slightly lower combined ratio. One is that we -- and it's not that we expect portfolio composition. So we do expect growth rather on a diversified basis also as we go into 2026. It's a reflection on that, we still believe that the quality and the profitability of our portfolio will remain strong even if there is more pricing pressure as we go into 2026.

So it's also not led to the fact that we have changed or will change our reserving approach. The prudent reserving approach is unchanged. However, just adding a bit less to the overall confidence level will already have an impact on our -- on the combined ratio. So overall, this is basically a reflection also of the fact that we have seen that the underlying combined ratio was strong in '25, and that has led us to that decision.

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

First one, sorry, just to go back to the combined ratio target for '26. I guess, if I look at the '25 original guidance, sort of the less than 88%, you add back in the discounting of 6% to 7%, you get to sort of less than 94% to 95% undiscounted. And my understanding was, and correct me if I'm wrong here, this was sort of a through-the-cycle assumption. And then if I look at the updated guidance, so the less than 87%, you add back in the 9 to 10 points for the discounting, you're sort of less than 96%, 97%.

So I guess a couple of points deterioration on the undiscounted. I hear what you're saying in terms of some of that pricing. But I guess I thought that was in the original target. So maybe just help me think through or should I be thinking about that undiscounted combined ratio or not? And then I guess, as you're looking at the 9% to 10% discounting for next year, is this still in excess of the [ iffy ]? And if so, should we expect sort of further prudent building within the less than 87% for next year?

Andrew, just briefly, I'll start and then probably Christian can also complement. And that is, in fact, the discount and the, let's say, the management of the volatility of the discount, which we have done in the past, also have a compensating effect. So that had an impact on our underlying combined ratio last year. As you know, we -- it was a tailwind when you compare the discount impact versus the unwind of that discount. And we have also -- we've always taken the approach to not take advantage of that tailwind, but increase our loss assumptions in roughly in the sort of size of that delta. That has also fed into our 2026 combined ratio assumptions. So there is -- and I'm just looking at Christian, there is still expected to be a slight tailwind. So therefore, that will also have an impact on the combined ratio in our assumptions. So there is a smoothing impact overall if we look at the combined ratio.

Yes, Andrew, and I can absolutely confirm this view going forward. So as Clemens also briefly mentioned, we think with our combined ratio guidance more over the cycle and midterm, so this has not changed here. So this is no short-term impact from changing interest rates. This is really just the overall balance of profitability and the positive impact that we currently still see. We are in 2025, around 2% of this tailwind. This is well covered by our very prudent and conservative reserving.

We now have a question from the line of Kamran Hossain from JPMorgan.

Two questions. The first one is just on the decision-making process around some of the financial steering in the quarter. I hear what you're saying on taking -- adding a little bit less prudence into the reserves and doing more on kind of realizing losses and therefore, allowing the fixed income to, I guess, returns to pick up going forward. What's the decision-making behind that? Was there really -- is it an either/or? Could you do kind of more -- could you have done more reserving and less realized losses? Or is this a sign that you're reaching the top of what might be like an acceptable level of prudence in your reserves to auditors so you can't really add that much more, so you're choosing to do other things.

The second question is just on the guidance on the [ HA ]. This is not a complaint at all. I can't remember in all my years when you've guided above consensus, so clearly very positive. But why now? You talked about -- over the course of the last couple of years, you talked about keeping the combined ratio stable. I think earlier in the year, we heard it might have been 88% for the medium term, and now it's moving to 87%. Just trying to understand kind of why now. And is the 87% now the medium-term guidance of it's not going to get worse than that for the medium term?

Yes. Thank you, Kamran. Christian here. I'll take the first one. So you asked for the decision-making process, and there is no fixed rule. There is no automatism and there's also no either/or. So we have to assess the business, look at the development, and we can pronounce one measure over the other or we could balance both, and I would explicitly not rule that out for the future. So here, as we are already at a quite comfortable reserving level for our P&C business, we decided to focus more and act a bit opportunistically to lock in the higher interest rates. But this is -- and I want to emphasize this, there is no sign at all that we reach the maximum level of reserves or something like this. So there is still room to continue with our very prudent reserving approach also in the future, and we will see how this is used also for the rest of the year.

Kamran, just on the overall guidance for 2026 and to add a bit of color here. So you should still see this guidance, the way we come up with the overall guidance has not changed at all compared to previous years. So you should still see this guidance in light of having built in some resilience, some level of prudency into that overall guidance also for 2026. I think this is a reflection of a strong underlying result, both coming [indiscernible] and Life & Health. It has allowed us, particularly in the third quarter, as you would have noticed come to realize some losses on the fixed income side, as you said, that will, of course, come through over the next 1 or 2, 3 years. So given the duration of the portfolio, we will see some of that increased run rate in our fixed income portfolio already into next year. So that has driven a bit our overall guidance for 2026.

On the combined ratio, in particular, this is also a reflection of that we've seen a strong underlying combined ratio this year. Then we have the discount impact again, which is smoothened to some extent by way of not taking full advantage. And overall, we wanted to bring it, in fact, to a more realistic combined ratio. Still no change in prudency when it comes to our reserving approach, but we do this consider as a more stable combined ratio, a consistent combined ratio also over the midterm. So through the cycle, that's how you can read it.

The next question comes from the line of Chris Hartwell from Autonomous Research.

Just a couple of quick questions. First one is on the Life side. New business appeared quite strong in the quarter. Just wondering if you could give a little bit more color on that. And secondly, probably a little bit of an extension to the previous question from Kamran. You commented that the target for 2025 is not a reflection of the loss benefit so far. And I guess I was a bit intrigued by your comment around more upside risk than downside for forward earnings guidance, particularly given, I guess, the historical nature of finding either realized losses or prudence or so on. So I was just again wondering on your sort of thought process if Q4 does or doesn't throw up anything particularly exciting on the loss front?

And if I can have a sort of part B on that second one. You also sort of commented about Melissa being sort of contained within budget. But given how much budget you have still available from the first 9 months, that seems to put a number in the range of like 0 to almost EUR 500 million. So I was wondering if you can give a little bit more color on your Melissa exposure.

Yes. Maybe let me -- it's Claude here. Let me start with the Life & Health question on the new business. This is really, as Christian already alluded to, it's the result of one -- mainly the result of one bigger transaction that we have written in Q3. And as you know, the new business CSM Life & Health is transactional, and this is really depending on some bigger transactions. This is the case here in Q3.

Chris, on the guidance for 2025. So if we were observing another benign fourth quarter, mentioned there's still quite some budget left for the fourth quarter. So if that would be the case, as Christian said, I think there are mainly 2 things that we will consider at year-end. One is, of course, further realization acceleration of fixed income unrealized losses, which will support future earnings growth. Second, we do feel comfortable with our reserve level now. I think we significantly built reserve resiliency over the last couple of years, but there's still some room to increase those further. At the same time, I wouldn't fully rule out that some of that potential tailwind that we might see touch wood on Q4 would also have an impact on the P&L. But again, that's something to consider late in the year.

Yes. And then on Melissa, Chris, it's Sven, I don't have a number for you yet. It's still early days. So we are still gathering all the information. But to narrow the range a little bit for you, if you look at the EUR 450 million unutilized budget for Q3, we are not expecting Melissa to use all of this EUR 450 million. On the other hand, we expect this to be a 3-digit loss for our share. And Jamaica, from a territory point of view, is where we have a slightly above average market share. So I hope that gives you a little bit of color, but we don't expect that the EUR 450 million unutilized budget is fully used for Melissa.

We now have a question from the line of Darius Satkauskas from KBW.

Can you tell us what was the market impact in the quarter in your Solvency II ratio? And then the second question is, I know you sort of carried the reserves in Life & Health as best estimate. But obviously, you're quite conservative in your assumptions. So I'm just wondering how much of the new business loss component impact in Life & Health would you attribute to building prudence in regards to China morbidity and what was needed due to the underlying trends?

Darius, Christian, I'll take the first one. On Solvency, if I got you right, you asked for the impact of the -- market impact on the Solvency ratio. And there, I can say that the impact of risk-free rate and spreads together were rather neutral.

And this brings us to your question on the Life & Health loss component. I mean the new business loss component, as we said, is very small. It's just about EUR 10 million. And the rest of the loss component that you were referring to the Chinese morbidity business, Greater China morbidity business is approximately 50% of this is coming from the Chinese morbidity business.

So my question is more, should we see it as sort of reserve strengthening? Or is there an element of prudence in that number? And how much...

Sorry, I got you. No, it's really an element of prudence. We did it via the risk adjustment. So it is pure prudency.

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

The first one was just on the insurance revenue in P&C. Obviously, that was quite a big miss. But if you could just give us a walk so we can understand sort of the different contributing factors because how much was NDIC, how much FX and how much was due to some large contract impacts that I think you flagged? And also, can you give us some guidance for how much NDIC impact you would expect in Q4? And if there's any expected to roll into Q1, Q2 next year as well?

And then the second one was just on the discounting benefit, obviously slightly higher discounting benefits for next year. Could you just explain sort of why you're expecting that given where interest rates are? And then the third one, just on the tax rate in the quarter, that was obviously very low. Could you just give us a bit of an expectation as to what drove that and if anything to go forward to think about with tax rates?

Okay. Iain, I'll take the 3 questions here. So first, on the insurance revenue in P&C, just to give you the walk again. So we had an FX impact of roughly 2%, and the NDIC impact was year-to-date around 7.5%. And I mean, you can do the math yourself, I know, but it's roughly EUR 1 billion of impact. And I would expect that we see not the same amount for the fourth quarter. It will go down substantially. And for Q1 and Q2 the next year, I would virtually expect that it's just -- yes, not substantial or relevant anymore. And the last impact that I mentioned was the timing of booking of some larger contracts. And this is an amount of a bit more than EUR 100 million, so 0.5 impact on the gross rate in P&C.

The next question was regarding the discount rate. And here, yes, you referred to the capital markets and where rates currently are. But here, you have to see that we are talking about the earn-through of the interest rate. So we look not just at the very current renewals, but we look at more or less 2 to 3 underwriting years that we see here in the earnings pattern. And so we still see some catch-up for the interest rate environment.

The last question referred to the high -- or the low tax rate, so a high one-off impact here. And this is the coming reform of the German corporate income tax. So to remind you all, starting in 2028, the corporate income tax in Germany will be lowered by 1 percentage point each year for consecutive 5 years. And this is the reason why we could release a substantial amount from our deferred tax liability that we carry under IFRS. And so this is a bit more than 8 percentage point positive one-off impact. And yes, as I said, it's a one-off.

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

Some hopefully, 3 quick ones, sorry. In the combined ratio, I'm just curious, the slightly lower prudence in 3Q, where obviously, 3Q was also as, let's say, good a quarter as 2Q. And maybe it's a little bit of a follow-up here. But you said, obviously, you had no compulsion, no restrictions on reserving and prudence. And I'm just curious, was there any reason that you kept the prudence a bit lower in Q3? So that's the first question.

Second question is on the top line for next year. I mean, from your comments about structured, which I understand is hard to predict. But if you could just comment what's changing in that area? Why is it that -- why do you think that this is becoming a little bit of a may be a headwind even to the growth, if my understanding of your comment is correct. And lastly, this kind of step-up in realizing bond losses, I think in the CMD or Investor Day of last month, we talked about maybe 10 basis points of pickup in yield. With these measures, could we expect that to kind of go up a little bit because that's hopefully the motivation behind that?

Yes. Thank you, Vinit, for your questions. And I'll comment on the first one. So you asked for the lower prudency reserves in Q3 stand-alone. And I can see there are no restrictions that drove our decision here. But I would look more for the full 9 months of the year. And as you know, this already increased our resiliency in the reserves substantially. So from the overall view, it was a good opportunity to now shift a bit more to focusing on the investment side and use opportunistically the realization of hidden losses to increase the resiliency here and fuel a bit the future earnings by that measure.

And maybe I directly jump to the third one and take that also. So as you said, and I elaborated on that on the Investors Day, we expect just from the rollover from our investment book, roughly 10 basis points increased running yield each year going forward. And you are completely right with your assumption by the over EUR 300 million of realizations we did in the 3 months. This will give another upside of around 7 to 8 basis points would be my rough guess. And this is already also reflected in the new guidance on the ROI. We started in 2025 with a guidance of 3.2%, and now we face 3.5% for 2026. And one of the drivers here is exactly the realization of losses.

Yes, Vinit, and then on the structured side, and please keep in mind, the guidance we have given is for '26 only. It's not an over-the-cycle statement we are making on the structured side. But I mean, some of the buying when it comes to risk remote reinsurance can be transitional. So when we have looked at the guidance for next year, we had a few clients telling us that they will reduce their sessions. That does not necessarily mean that our market share will reduce more the opposite, very often in a situation where a client is reducing the session, our signed line is protected better compared to the average. But nonetheless, given reduced sessions, we have a little bit of a headwind.

On the other hand, we can say that the demand for structured products is still strong. So we have a very good pipeline. We have already closed a few transactions, but as part of the pipeline, there are still quite a number of deals where the negotiations are not such that we can say with 100% confidence that we will close the transaction. And therefore, given the bulkiness of the business, to be on the cautious side, we have decided to let you know that the guidance is for the traditional business only, and that we have to wait and see the outcome on the structural side of things.

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

The first one is coming back, I'm afraid, on the uplift in discount rate, 3 percentage points year-on-year. It's a really large uplift. I appreciate you said to Iain's question, it's a 3-year rolling on locked-in rates. Is there anything else underneath that's caused that? It seems like a huge jump.

The second one is it's really tough to unpick the combined ratio guide year-on-year. I guess you're saying it's more of a cross-cycle guide almost. Is that right? And you're willing to say -- are you willing to say essentially that you'd be operating better than that cross cycle underneath the bonnet at the moment and for 2026? I'm just trying to work it out because you've improved at 1 point. There's 3 points more discounting benefit. You're suggesting that reserving prudency won't need to be as much additions either. So you might have something like 5 points of improvement year-on-year just from those things. So I'm trying to back out essentially what's the year-on-year deterioration that you're assuming in it from an underlying level. Are you able to help us out on that?

Yes. Thanks, Will. And let me start looking at the discount again, and that's absolutely true. That's a substantial move if we just compare the numbers. But as I said, there are different elements here driving this. And one is the earn through we see here, I already mentioned from the different up to 3 underwriting years. And of course, we also see the reserve increases and the reserve actions here. So as we added and not just expect this for 2025 and the numbers on reserve and prudency buildup also for 2024, this is predominantly done in the long tail and very long tail lines as there is also the most substantial portion of the reserves.

And of course, this also drives the duration of the overall portfolio a bit and gives another increase a bit like self-feeding on the discount increase. So it's not the one driver. It's really a composition of that. And last, I would also mention that as we now have quite some experience on IFRS 17 and IFRS 9, I think we are also bit more confident in doing forecasts and trying to utilize our models and our predictions with the methodology here.

Will, and on the combined ratio, yes, as you mentioned, it is a mix of certain factors that are all meant together when we looked at it to bring us, in fact, to a running combined ratio, a guided combined ratio that is to be viewed over the cycle, really midterm to bring us to a more stable number. Again, one of the driving factors is the discount rate, yes, but also potential pricing and rate movements as we go into 2026. So it's also a reflection on the quality diversification of the book, of course. So hence, the underlying combined ratio has been very strong in 2025. So you should also see this combined ratio being, again, a bit more realistic. However, it gives also room for pricing dynamics as we go into 2026 or even beyond that.

So I guess just to verify on that, do you think 2026 is likely a better than cross cycle, all else equal?

On the combined ratio, you mean or?

Yes, on that versus 87%.

Yes. I mean the underlying combined ratio is expected to be below the 87%, of course. But again, it allows for some prudency depending on how the renewal goes, how the pricing environment will change.

We now have a question from the line of Roland Pfaender from ODDO BHF.

Two questions on Life side, please. You had quite solid results on the Life new business in this quarter. Could you talk a little bit about the composition? Was it more mortality, longevity or financial solutions in the end? Then secondly, reinsurance service result, you added EUR 50 million towards '26 in your guidance. Is this entirely fueled by a better loss component? And maybe you could elaborate a little bit about your expectations regarding loss component going into next year?

Yes. Thank you very much. It's Claude talking. So you talk about the new business CSM and in particular about Q3, I guess. Again, I said it before already, it's driven by one larger transaction, and this transaction is coming from the financial solutions business. So that's the question to your first -- the answer to the first question.

Then afterwards, the increased reinsurance services of EUR 50 million is mainly driven by the increase of our business in general. As I told you probably in the Investors Day, I don't know whether you were there, with the size of our portfolio, you always have to expect some loss component, additional loss component, the same as you can expect some experience variances and changes in estimates. We have obviously included some prudency in this figure that we have shown there, but still it's coming really out of the growth of the Life & Health business.

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

Yes. Thank you very much for your interest this morning. Just to reiterate, I guess, overall, the new guidance highlights Hannover Re's successful and lean business model. That lean business model will support further efficient growth in the future, together with our strong -- very strong balance sheet, I'd say, that will allow us to grow our earnings throughout the cycle. And together with these capital returns, this will sustainably create value for our shareholders.

And with that, thank you again, and speak soon.

Well, good morning, and a warm welcome to our Investors Day. And I'm very proud to say that this is the 28th edition of this event since our IPO in '94. And I'd like to say thank you to all of you for participating here in person in Frankfurt and also that so many have already locked in to follow the event via the webcast.

A big thank you right at the beginning also to my team who did a very good job to find a nice location here and also yesterday evening for the dinner at the [indiscernible] and also for doing a very good job in preparing the content for today, which I think is interesting and compelling, but you will judge that. And also a big thank you to the entire Executive Board because all of them are here today, which is very good. I appreciate that very much. And I can tell you some of them have traveled a very long way back home from a business trip to be here on time.

What should you expect at the Investors Day today? In general, we have -- as you have recognized, we have not released anything this morning apart from the presentation. So, no big news. Some of the news we have already spoiled at the beginning of this week, the payout change or the change in the dividend. And from that perspective, we are not providing a new guidance or new financial targets or a new strategy. That has to wait to later times. The strategy for the next cycle, which begins for the year '27 will be provided at next year's Investors Day in November. And the guidance for '26 comes as usual with the numbers for Q3.

So this Investors Day is all about giving you reassurance about that we are on the right track that we deliver on what we have promised. We have a business model that is robust, that is pure and that is lean and growing at the same time. And we are still striving to achieve higher return on equities with lower volatility.

So, as I said, today, it's all about confirmation that we are on track. And in this respect, our CEO, Clemens Jungsthofel, will give us his view on the business model and how we can lever and monetize our strength and our positioning in the market. Christian Hermelingmeier, our CFO, will show us that our investments have shown a very strong track record when it comes to ROI and when it comes to low volatility of those investment returns. And second, he will also explain that the earnings growth is supported by the growth of our investments and also by an increasing book yield. And last but not least, he will also talk about the P&L volatility and how -- which comes from currency and how we will decrease that over the next time.

And in order to spoil further content, Sven Althoff will talk about the NatCat business and showcase how we will grow that business in this current market environment and how the client relationships will support the top and the bottom line growth. And Claude will give us his insights into the life and health business and how to read the IFRS 17 KPIs in particular, that the service result demonstrates a high resiliency and strength. And of course, he will also talk about the CSM and how that will feed into future earnings growth.

We have scheduled a number of Q&A sessions, to be precise, three. And with that, you have plenty of opportunities to ask questions. And yes, because, as I said earlier, it's really important to increase the understanding of our business and the future expectations. And that's all about what we are doing today and to show you or give you more insights in what we are doing.

And with that, I hand over to you, Clemens, for your presentation.

Thank you, Karl. Good morning, everyone, and a very warm welcome also from my side. It's a real pleasure to welcome you here in our Investors Day 2025. Thank you to all of those who came to Frankfurt to join us here in person this morning, and thank you to everyone who's dialing in via the webcast. Thank you for your interest in Hannover Re. And I just want to add on what Karl said. Karl, thank you to you and your team for all the preparation and all the hard work that went into this Investor Day.

So as you know, it's not the first time that I stand here in front of you, but it's the first time that I stand here in front of you as the CEO of Hannover Re, which still feels like a huge privilege to me and which still feels excited. And someone said this morning, oh Clemens, you look quite relaxed. Rest assured that is only good acting if I look very relaxed. But joke aside, transitions in leadership and particularly when it comes to the CEO roles, always raise the question, is there a change in strategy? Is there a change of direction? Will priorities probably shift with the new CEO?

So, let me try to answer that question this way. Over the last couple of months, as I transitioned into this new role, I've really diligently tried to take every opportunity that I could get to listen to and to engage with our clients, with our brokers, with our investors, with many of you and with a lot of employees across the globe. And those conversations over the last couple of months have just really, I would say, reinforced what I've always believed in. And actually, long before I joined Hannover Re, the group in 2020, Hannover Re is somewhat different. And that differentiation is our strength. And I truly believe it sets us apart from our peers.

We empower our people. We are solution-oriented, pragmatic and fast. We are reliable. We are consistent and above all, deeply committed to long-term partnership with our clients. And that is actually not me observing or saying, this is what I've heard consistently in those conversations over the last couple of months. And these -- and I know when we talk about these attributes, it might sound a bit fluffy here and there. But I can assure you, these intangible assets become very tangible when you sit in front of our clients, of our brokers or you just see what we've managed, what kind of book we've built on the back of these attributes over the last couple of years.

So, as I see it, these hallmarks are deeply written into our DNA, and they will remain key to our sustained success and for, as Karl said, for further profitable growth in the future. And we are going to pursue this growth from a position of strength.

So, as Karl mentioned, we are just sort of entered, let's say, the second half of our three-year strategy cycle. I think it's fair to say we've delivered on all our financial ambitions for 2024, and we are well on track to deliver on all our targets for the financial year 2025. What is pleasing is that this performance is built on all profit engines, P&C, Life and Health and Investments. These strong results across all profit engines have also allowed to substantially increase the resilience in our balance sheet. And this is not only in our P&C reserves. This is also in Life and Health and in other areas of the balance sheet. And this will -- this P&C resiliency, we will always share with you by way of disclosing the Willis Towers Watson report. However, delivering on our promises is not just about hitting financial targets. It's about delivering value in a consistent and in a reliable way.

So higher ROE, as Karl said, with lower volatility, reliable earnings growth across the cycle and a lean operating model that supports scalable growth going forward. This is the profile an investor gets when investing in Hannover Re. And whilst we've continuously increased our net income target, as you can see here, we've missed the guidance only in 2 out of 10 years. And admittedly, 2017, when I look at the slide, just slightly. But then, of course, COVID weighing heavily on the year 2020. Therefore, I believe it's fair to say that we've truly delivered on our promise in the past. And even more important, we've built a highly diversified book of business that performs across the cycle. And we've built a rock-solid balance sheet that ensures earnings growth even in more softer market periods.

We've done this by staying true to our strength. and at the same time, making the right adjustments here and there where needed. So let's quickly recap what has brought us here. First, clearly, our culture, which people or people from the outside would describe as being entrepreneurial with a spirit of empowerment and ownership, accountability, but also kindness. They -- our people feel really that they can contribute to this success meaningfully. There's also a.

Genuine sense of curiosity and enthusiasm when it comes to the business. And that is really true across the whole value chain. And we always joke and I can tell you, every time in the Executive Board, and we go through the agenda and we talk about the business, you can see the temperature rising in the Executive Board room because everyone gets so excited when it comes to the business. I believe with this culture, we managed to create, let's say, a sense of purpose, a sense of belonging, which I think nowadays is very important to attract and to retain talent. But even more important, it forms the basis for trusted and long-lasting and deep relationships with our clients.

Then our pure-play reinsurance model. As you know, this is a strategic choice. It allows us to stay focused. It avoids conflicts of interest because we do not compete with our clients. On the contrary, we actually help them to grow their business. And I think they really value that clarity, and I do believe this is one of the success factors for our deep and long-standing client relationships. This focus, sometimes referred to as speedboat mentality at Hannover Re also reduces administrative complexity and overhead. It enables faster decision-making and more agile responses in a what I would call a rapidly changing environment.

Third, we just like to keep things simple. We feel that internally, but also our clients feel that. Simplicity in the sense of organizational setup, simplicity when it comes to our processes, our guidelines, governance, et cetera, flat hierarchy with a high level of delegation and the speed of decision-making and the execution certainty is clearly felt by our clients. I often hear it just feels easy to do business with Hannover Re. These success factors have brought us here and they become even more relevant as we continue to grow and as we look ahead. Because we do believe that our focus on reinsurance and our lean operating model provide an even bigger competitive advantage in the future, given the breathtaking speed, for example, of technological change.

Why is that? Because we don't have to cope with fragmented landscape when it comes to our IT, to our processes. We don't have to cope with legacy systems, which are usually very difficult to switch off or to modernize. It takes ages and we can spend a lot of money on trying to do that. So when I look at our data, when I look at our infrastructure, our IT systems, our ledgers that we've built over the last couple of years, I today look at a fairly harmonized and a fairly homogeneous landscape. For example, we have only one reinsurance administration system for our entire life and health and P&C business. And every single entity, every single branch, every single piece of business with only tiny exceptions are on this centralized reinsurance administration system. And adjusting or transforming a landscape from that starting point is so much easier.

Having said this, we will be very rigid in further monetizing, as Karl said, this advantage. So we will keep very hard on what I would call the fundamentals. That includes even further streamlining our IT landscape, particularly optimizing end-to-end automation, considering in-house solutions. So on the -- in the sense of thinking about build before buy because I think this pure-play reinsurance model, this focus allows us to think about it because we're not always so strongly dependent on external parties to provide support. And then I think, first and foremost, very important to enhance and further improve our data.

I think this work on the fundamentals, and you cannot do a presentation nowadays without talking about artificial intelligence, which we see, I would say, in the context also of automation. I think this work on these fundamentals is really needed in the first place to take full advantage of our automation initiatives and to take full advantage of the possibilities that come eventually with AI. And of course, we're working a lot on AI and on automation, et cetera. But I would say we do it in the typical Hannover Re way with purpose and not just to chase trends.

So in essence, we are fully committed to even further increase efficiency and scalability. And this will not only ensure our cost advantage, we truly believe this has the potential to even further expand our cost advantage if we fully monetize this lean operating model. And first and foremost, this will support further growth whilst still not increasing, let's say, organizational complexity.

As mentioned earlier, we're very confident that we will be able to continue to grow, which we have been able to demonstrate in the last 10 years, both in terms of our top line growth, but also in terms of our earnings growth. And this confidence is not only built on a strong track record in the past, it has its foundations in the strong pillars that I just referred to and that you can see sort of here in the middle of the slide. The best sort of practical proof point for me is always when I consistently hear from clients, we just love to do even more business with Hannover Re.

With respect to the P&C market, and Sven will talk in detail about it, we sort of our -- we consider this still to be an attractive market environment. Our ability to grow our traditional book on a diversified basis remains unchanged. We have increased, as you will have noticed, our risk appetite in NatCat over the last couple of years, and that meets continued strong demand. You should not forget, we talk about the market cycle and the softening of the market that significant parts of our P&C portfolio are less exposed to the pricing cycle, which you will also have noticed in our renewal reports. And not to forget, our significantly lower cost ratio will help to maintain profitability in the business even if margins are more compressed in softer market cycles.

Last not least, our very strong reserves give us confidence in earnings growth. I mean, let's say, let's be honest about it, only adding less to our reserves would already have a significant positive impact on our combined ratio. So we would even be able to grow our earnings with stable relative buffers. And then, of course, as you know, drawing on this buffer is a second option, always possible to manage volatility or to manage the cycle.

In life and health, so in life and health, we are leveraging our strength in financial solutions and longevity, trying to expand our regional footprint in those lines of business, developing new solutions to meet evolving regulations. We're also exploring areas to increase the footprint in our traditional business in life and health. And also Karl alluded to this, our overall positive experience variance and the change sort of in estimates that you can see in the IFRS regime and in the disclosures, they provide very strong confidence in our assumption setting, which I would say is rather on the prudent side as we've proven over the last couple of years.

Hence, there is a strong, I would say, reliability in our ability to produce stable increasing earnings also on the life and health side. The continued value creation is reflected in the CSM growth, which will support future earnings growth, and Claude will touch on this in his presentation. So overall, I think it's fair to say that we've been able to create a very reliable and increasing run rate in our life and health business.

And then, of course, investments. Our business is highly cash positive, leading to continued growth in assets and investment income. We are well positioned to benefit from higher interest rates and selective opportunities, and Christian will talk in detail about that. So we continue to grow profitability in both business groups, and we have the ability and the willingness to use our reserving approach to support continuous earnings delivery and earnings growth over the cycle.

At the beginning, I said we are going to pursue this growth from a position of strength. That is, as you can see here, because we have clearly used the hard market years to further improve our strong ability to absorb and manage volatility. The capitalization has further improved according to all capital models. We've been able to further strengthen our German GAAP balance sheet, which forms the basis for our dividends, as you will know. So this provides also more flexibility. And we will continue to use hybrid capital, of course, as a flexible tool to, let's say, optimize our capital position and our cost of capital.

Our strong and improved capital position clearly provides room for further growth and at the same time, deliver on attractive dividends. But our priorities, to be very clear, remains unchanged. And you should see our release on Sunday on the dividend in that context. First priority remains to have the ability to finance our growth ambitions. Because we do see continued good opportunities to deploy capital at attractive double-digit ROE, hence, which will result in continued growth of our book value.

Second priority is to return excess capital to shareholders. Our commitment to the increasing dividend remains unchanged, but at higher levels and including the, let's say, the de facto transformation of the extraordinary dividend, the special dividend into a regular dividend. The payout ratio will be increased to a level above the historic average. So that's the 55%, around about 55% we were referring to. Why? 55%, you could ask. Well, we really wanted to make sure that we can provide a sustainable run rate on the payout ratio. So we really took sort of a midterm, long-term view on this and that in no case, in no instance, we would compromise on being able to finance our growth ambitions. Special dividends are not excluded, but let's say, they will be true specials for really extraordinary situations.

So, to sum up, the environment which we operate at the moment is, and you will all agree to it, evolving. If we just look at the geopolitical landscape, if we look at the trends, the complexity, climate change, increasing loss trends, only being a few examples. This also clearly means that the need for reinsurance protection and managing uncertainty and volatility will keep growing. And it is precisely in these times, in times like these, that resilience, long-term thinking and a trustful partnership approach with our clients are vital.

So as you've heard, we're fully 100% committed to our somewhat different approach to the business, including our lean operating model, which we believe sets us apart from our peers. We are a preferred business partner, and I hear this consistently with our clear focus on pure-play reinsurance, excellent underwriting expertise, fast execution and a very consistent approach when it comes to our client, which they really highly value.

Our main focus at Hannover Re has always been partnering with our clients. And that has been -- if you just look at the source of the growth over the last 5 to 10 years, that has been the success factor of our growth, expanding, deepen the partnerships with our clients. And we will be fully leveraging this advantage, this strong relationship, particularly at this stage of the cycle. Therefore, we do remain confident that we continue to grow our book of business and that we will grow our earnings, again, even in softer market cycles.

I think it's fair to say we look at the fortress balance sheet at the moment. I don't think that we've ever had a stronger balance sheet than now. And together with the strong capitalization, this forms a very strong basis for sustainable value creation for our shareholders.

And with that, I hand over to Christian, Karl, and we do the Q&A.

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

Yes. Thank you, Karl. And let me start with an echo what Karl said because it's now six months that I'm at Hannover Re and in this new role, and it feels really like, yes, I would say not six months, but at least six quarters. That's the heartbeat of the CFO, the quarters. And I think and this confirms what Clemens just alluded on. That's also this easy onboarding, this feeling at home very fast. This is also part of the somewhat different mindset and culture. So really the openness to share knowledge, to share experience to work as a team, finding solutions for certain topics, no matter what department, what structure you're in, it's the mindset, it's the people. And so I really feel already at home, and it makes much more fun to work in such an environment. And I think this is a perfect fit and match.

It happened also quite a lot over the last six months. So there could be a lot of topics to talk about today. But my focus, as Karl already stated, will be first on our investments and how investments contribute to the overall earnings growth and resilience ambitions we have at Hannover Re. And second, I will elaborate a bit on how we manage currency with that regard, so limiting currency risks and how we expand our tool sets there further.

But let me start and begin with a look back on the profit contribution of the investments to the overall performance of Hannover Re. And we saw a similar metric and picture just moments ago for the return on equity that Clemens used as well. And here, we have it for the return on investments over the last 10 years. And it's a similar picture, attractive ROIs at eye level with the best peers, but with a significantly lower volatility. So fully contributing to the overall risk/return, the superior risk/return characteristics of Hannover Re.

What is the backbone of these results also for investments, clear strategy, consistent execution of this strategy. And you see here the current strategic asset allocation, and it's fairly stable and unchanged for a long time. Clear focus on fixed income, investment-grade fixed income, high quality. It's currently a bit above 85% of the portfolio. And this is complemented by a clearly defined risk appetite for yield pickup from alternative investments. So talking about real estate, infrastructure, private equity and a small portion of listed equity.

But it's not only the relative return attractiveness, it's, of course, also the volume growth. And Clemens mentioned that already, there's a strong positive operating cash flow from the reinsurance business and from its growth. It's also shown here on the slide. And this fueled and fuels the growth of the assets under management. And this is one of the main drivers and was one of the main drivers for also in absolute terms, increasing investment result. And this was over the past five years, an increase on average of 5%. And as we have the clear ambition to further grow our business, and this will be a key topic of the presentations also from Sven and Claude, we expect also that this trend of growing assets will continue and also foster the overall investment result.

But of course, no surprise, and you all are aware of this, it's not just the volume growth feeding the higher investment income. It's also the change in interest rate regime that we witnessed some years ago. And every new fresh money we invest or every maturing bond that we reinvest lifts our average book yield upwards since market yields were higher than our average book yield. You see it here on the upper left that crossing in 2022, the book yield is converging upwards to the higher level of market yield.

And this trend is still continuing. So our duration in the book is a bit more than four years, 4.1 for Q2. And this means we reinvest approximately 15% of the fixed income book each year. So you can expect this trend to continue. We are not there. There's still and you see the gap between the lines. This trend is still continuing. So we expect -- assuming the current interest rate environment that we will see another roughly 10 basis points increase in the average book yield for the next years as a continuing trend.

And with an uplift in the average book yield, of course, there's a mirror side that's the hidden losses on the balance sheet. And we started in 2022 with around EUR 4 billion of hidden losses. And you can see here also on the slide on the right below the line, the saw quite substantial reduction already if we look at the figures for 2025. And of course, this trend will also continue and these hidden losses will go down, reflecting the increase in book yield.

And depending on the overall result situation, the profitability of the overall business, we might even accelerate this trend by actively and strategically realizing hidden losses as we did with the first step in Q2, as you saw, with roughly EUR 60 million of active realizations to get the hidden losses down and the book yield even more increased, and we will assess this quarter-by-quarter if we have room here to act in this direction. And if there is room to act in this direction, of course, the ROI will, for the future, benefit even by some points more.

Let's have a brief look at the alternative part of our portfolio here with the two largest classes we have. That's real estate with around 6% of the portfolio and private equity with around 3%. And is shown here, and you can see that both delivered above-average returns to the ordinary investment income, so above their share of the portfolio. And starting here with real estate, it was fairly stable over time. And what is the key of our strategy here? That's diversification. And you see here some dimensions as example.

So first, by geography. So the real estate investments are spread and cover more or less every large market. And of course, there's also a sector diversification. You see it's still dominated by office with it's shy of half of the portfolio. But if we would go back like 10 years, you would see like 80% real estate in office, and you would see a huge bunch in Germany. So step by step over the years, diversification was broadened here, and we saw a sector rotation that shows we adapt to the current market opportunities. And we started years ago going from office, for example, into logistics. Next move was to add a bit of energy. And these days, of course, we talk about data centers and things like this.

Private equity, also sound results, above average of their portfolio share. But to be honest, looking for the last years, as you can see these on the slides, this is, of course, not meeting currently expectations. So we are not back at the pre-COVID level of double-digit ROIs here. But it's still a quite sound result above the average, but the expectation for the future is that this will, over the years, go up again, and we follow a long-term strategy here. This is not an asset class to tactically go in and out and switch falls and back. So it's a long-term view we have here, and this delivered and proved quite resilient and delivering attractive returns.

And first element of the strategy here is, of course, also broad diversification. You see here the investment styles. And even when buyout is the largest part, and this means buyout means mid-cap and large-cap buyout, also within the buyout style, of course, there's a broad diversification of different industries, business models, management teams. So this is really broad diversification. And for me, a second really important key element is also the continuous investing, so continuously making new commitments. And this is the reason why you see here a well-balanced mix of vintage years.

So this is the continuous investing the long-term strategy here, creating all these vintage years with a fairly balanced split. And especially those vintages that historically were started in downturns of the markets have proven later to be really profitable because the low valuations at these periods, of course, also offer quite attractive entry points for the GPs to add new targets, new target companies to their portfolio. So I think it's not the time to go back with your commitments. It's the right thing to continuously stay with your commitment rate.

And talking about the portfolio companies, just to give you a feeling for the diversification by number of underlying investments, we are invested in roughly 200 PE funds. And let's take as a, I think, conservative proxy, just 10 portfolio companies each. This means we are talking here about 2,000 separate single management teams, business models, locations. So there's really, really broad diversification. The strategy here is not like perfect market timing, finding the perfect GP, finding the perfect sector. That's a broad approach here. And this delivers the attractive and stable returns that play into the overall characteristics and ambitions of Hannover Re. And if we would look at infrastructure, the picture would be quite similar. That's roughly 2% of our portfolio. So above-average returns while adding modestly to volatility.

And talking a lot about volatility already, that's the point in time to talk about currency management. And we all witnessed the kind of roller coaster in the U.S. dollar exchange rate this year. I think we started around EUR 1.10 versus dollar. Then it decreased quite substantially. Actually, it feels like long ago because then we saw the huge uprise, especially after Liberation Day beginning of April. And since then, some weeks later, we are now at the level that is also currently in the market. And of course, this has had quite a substantial impact also on our IFRS figures, as you all have seen. And therefore, I talked a bit also about that in our earnings calls. But today, I want to use the opportunity to elaborate a bit more on how we look at currency risks and how we manage and limit volatility.

And let me begin with a short view at what does currency mean? What is meaningful for Hannover Re? And you can see here shown on the slide, that's the U.S. dollar. There are a couple of other currencies, of course, but these are just tiny portions of the overall portfolio. The meaningful topic here is to look at the dollar exposure. Starting with the asset side, around 45% of the investments are U.S. dollar-denominated and similar on the liabilities. You see here the reinsurance liabilities with nearly the same number, so the LIC and the LRC.

When talking about currency risks and currency management, we have a clear priority for how we view at that, and that's the economic view. So what is the economic impact of the exchange rate dynamics. And we take our internal model for Solvency II as a good proxy for this economic view and measuring and simulating exchange rate changes. And our target is to protect the economic value, and we do simulations and try to steer this and limit this. And this sounds reasonable, sounds straightforward.

But in practice, this is not that simple. Why? Because it's not just one target. It's to protect and to limit the risk for the net asset value, obviously, but also for the solvency ratio. And in most of the scenarios we do in the model, the two are moving in opposite directions. So one going down and the other is going up. So we have to balance a dual target here and find a good balance of limiting both. So our target is to get both simultaneously in a very limited thin corridor of just a few percentage points up and down. So this is what we aim for. And just an example here, on the upper right, if we take a 10% appreciation of the euro, we have a 6% decrease in net asset value. And in this scenario, the solvency ratio would increase by 5 percentage points. So this is according to the model.

Let's do a reality check. Perfect occasion first half of 2025. We saw appreciation of the euro around 12% versus the USD. And you can see here the impact on solvency, holding all other things equal, and the NAV were decreased by 8%. And at the same time, the solvency ratio increased by 8%. So giving, I think, a quite good validation of the model and showing that the strategy and the limitation here works even in strong dynamics of the exchange rate.

While I feel very comfortable with this approach and the clear economic view and the strategy, we have to accept and to acknowledge that IFRS accounting figures sometimes tell a bit different story. And why is that? The reason is a different treatment of certain items on the asset -- out of the asset side of the balance sheet with regard to FX revaluation. That's the nonmonetary and the monetary part. And the nonmonetary items that's for Hannover Re substantially our U.S. dollar vehicles for our alternative investments I just spoke about.

These are revalued with regard to exchange rate changes in the OCI, not the P&L. And this creates an accounting mismatch with the liabilities because their revaluation goes through the P&L. And even if we were able to perfectly 100% match assets and liabilities with regard to currency, the change in the exchange rate would lead to currency gains or losses. And the reason is the accounting mismatch in the background, and this is exactly what you can see in our P&L in Q2 2025 with the EUR 236 million of currency gains. So this is not the economic impact. The largest part of this figure is just the accounting mismatch.

So why we feel comfortable with the economic focus, we want to, of course, reduce volatility also in IFRS figures and earnings. And therefore, going forward, we will -- or we did actually extend our hedge accounting using opposing derivatives for the U.S. dollar to bring this down and limit the volatility here. So what does this mean? This means economically, nothing changes. No change to the economic priority and focus of steering and protecting the NAV and the solvency ratio. But by combining parts of the assets and the new derivatives with the liabilities they cover, we can build a block for accounting purposes. And this affects the P&L in a way that -- let me very roughly describe it, we can shift OCI impact into the P&L. And this will reduce the accounting mismatch, and this will lead to much reduced volatility coming from currency exchange rate changes in the future. So I would not expect that we will see triple-digit movements there in the future.

And let me clarify this. This was implemented during Q3. So this is in place for the future. But the Q2 figures, they will not vanish. So there is no retroactive impact. So the starting point is Q2. But from that on, the volatility will be much narrower. And so these new instruments will contribute to the overall stability and reduced volatility of our IFRS earnings.

Let me summarize my two parts of the presentation briefly for you. So, first, the investments delivered an attractive and strong return on investment while remaining with substantially lower volatility than peers. The earnings growth will be fueled by strong operating cash flow and increased book yield. And third, as just alluded on, the currency risks are already well managed in an economic perspective. And going forward, we will extend our hedge accounting so that also the IFRS accounting volatility will be substantially reduced.

Putting it all together, all points clearly contributing to a strong delivery of the investments into the overall targets that Clemens talked about, so supporting earnings growth while also being and producing stable and robust results with low volatility.

That was my part. I hope that was interesting for you and some new information. And with that, back to you, Karl, I think.

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

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

The first one, you mentioned the -- your customers want to do more business with you. I just wondered, can you give a figure for that?

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

Michael, thank you for the question. So, I'll start with the first one, right? And I know it's always difficult to grasp. What I wanted to do is give a flavor, particularly at this part of the cycle where we talk about growth outlook, what are the opportunities, et cetera. And I just wanted to give a sense on all the discussions coming out of Monte Carlo, Sven and myself just spent three days at CIB in North America, talked to our North American clients and all the discussions, be it all the way from Canada, Europe to Asia, to APAC.

So what is the outcome of these discussions. And the focus was not our prices had to come down and terms and conditions that clearly, they are part of the discussion. But the flavor that I got was very much -- and we talked a lot about and Jean-Jacques always talked about, is there a glass ceiling, is there a limit for Hannover Re, et cetera. And I can just reassure you, I just wanted to reassure that there are plenty of growth opportunities for us going forward, most in P&C, but also in life and health. And there's a general feeling in our client base that we can grow their business with them. There is a lot of appetite for us to deepen that relationship with our clients.

And again, some of the reasons I mentioned, I think that is this execution certainty, this ease of doing business is something which, again, sounds probably a bit fluffy, but it becomes very clear and very tangible when you sit in front of your clients and look at the portfolio that we've developed over the last 5 to 10 years with them. how much opportunity there is.

We will come up, though, Michael, with a number sort of our growth outlook for 2026, as Karl said, in November. So there will be a guidance also, of course, on our growth. But bear with us until November.

Okay. I take the real estate question. And of course, the single investments in this huge portfolio, there are better ones and not that well-running ones. But you're asking for pockets of concern. I don't see them actually, and I give you some evidence for that. So the overall is quite conservative portfolio. And the overall valuation change was around 5% in the downturn of the market. And I'm not talking about 1 year, but all the years compounded. So this was really robust and has proven strong.

And one of the reasons is that we have the -- or a large part of the real estate investments at our balance sheet. So it's not indirectly via big funds and managers where you see the fair value going up and down. But over the time, we built really a reserve on that. So this can cover the downturn or some downturn when you get the new valuations before you even see really an impact in the IFRS results.

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

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

Yes. In terms of M&A, and you will have heard this saying probably in the past a lot, we're very boring when it comes to M&A opportunities, Mr. Kotzé. But what is the reason for that? On the P&C side, if you just look at the growth over the last 5 to 10 years, I think we've roughly tripled our P&C book over the last 10 years just by way of organic growth. And clearly, we would never rule out M&A to buy business, but it has to be accretive. But why would you pay a premium for a business that you can get by way of engaging with your clients or your brokers organically.

So -- and I think that has been also part of the secret of our efficient growth, sort of growing with our clients is a very efficient way of grasping growth. And this will be the case going forward. So we have a very -- we have a very strong broker business. So 2/3 of our P&C business comes by broker, rest direct. So we do see plenty of opportunities to further grow organically. I wouldn't rule it out on the life and health side. If there are opportunities for M&A, if there are opportunities to engage in any larger transaction that could be, but nothing concrete on the horizon at the moment.

Hadley Cohen, Morgan Stanley. First question is around the new payout ratio. Thank you very much. I think the -- I think you said that the new payout ratio implies that the solvency ratio is going to remain broadly stable or maybe potentially trend slightly lower from current levels. So my question is, what's the implied growth rate that you're assuming within that to keep the solvency ratio flat to maybe slightly down? And I guess, linked to that, the extent to which there's any maybe conservatism in your -- when you're calculating your solvency ratio, maybe with regards to new business value or something like that?

And then my second question is sort of linked, but around the special dividend, and that's only now for really extraordinary circumstances. Can you sort of give us more color around what a really extraordinary circumstance is? And I guess I'm asking that in the context of 2025, where all else equal, obviously, there's still a few weeks at the end of the year, but all else equal, it should be a very strong year of profitability. Solvency ratio is very strong. So what needs to happen? What could be better than this for you to consider specials?

Yes. I'll start with probably [indiscernible] and Christian can complement. So on the growth, well, let's probably start with the payout ratio, and thank you for giving the opportunity to clarify it even a bit more. So what we wanted to achieve with the roughly 50% payout ratio is first simplification. I think -- and we've really got that feedback and listened to many of you, get your heads around what's the special, what is the ordinary dividend, et cetera? What's the run rate? What's the payout ratio, let's say. And I think this was diligently considered. That's why we said, let's really try to simplify our approach and just try to come up with a run rate that we can sustain over a longer period. Hence, 55% roughly of our IFRS net income is really considered as a run rate.

Why have we done this? I mean, we are in the context of planning, of course, at the moment, et cetera. We're coming up with our plan for 2026, but also sort of our medium-term outlook, and we did solvency projections. And if we just look at the growth assumptions that went into this plan, our Solvency II ratio will partly due to the fact that we have considered growth in P&C and life and health will gravitate towards a lower level, clearly. And then we should not forget, of course, rating capital models, et cetera. But that number will trend down mainly due to the assumptions on new business.

Is there prudency in that plan, Hadley, and I think if we just look at the last 5, 10 years in terms of our growth assumptions, e, I think it's fair to say that most of the time, we've actually outperformed that plan. So prudency in the sense of have we been very cautious on that business, I would say it's a balanced view, but there's always a bit of prudency when we look at the business. Of course, because we don't want to send a message to our underwriters to chase top line. This is all about profitable business, and we will always look at the margins of the business. And therefore, this is -- that's how we look at the plan. So in terms of -- and business opportunities, again, both on P&C and life and health.

In terms of numbers, are there -- what's the underlying run rates, et cetera? I mean, again, so Sven will talk about a bit. We will not give a number at this stage for 2026. However, Sven will give you a bit of a flavor where we've grown in the past, where we have appetite to grow and where there are opportunities. And I think it will give you a bit of a broader picture where we do see areas of growth in P&C. And that might give you a sense already. But then again, bear with us until November. I hope I answered every question, [indiscernible], otherwise.

Maybe the extraordinary. What is extraordinary? Maybe I can take that one. And yes, it would not be extraordinary if we would have a list for that. So I think it's our point to make clear. It's not like the old special dividend that was regularly used. So this would really be there to be able to act in a certain situation where there is some shift, some really fundamental change, some really extraordinary unexpected situation.

So I would not expect that we would consider this just because profitability is going a bit up or down. We are quite consistent in steering results and trying to not have too much volatility. So that's maybe giving a bit of flavor around extraordinary. It's nothing you should expect to just regularly happen.

But to give you a sense how we apply that payout ratio, we just look at, let's say, our guidance for '25, et cetera, we'll see how the year goes, of course, and you know we will go to book the budget for Q3, which has been benign, as we all know, no secret. So we book the budget, and we'll see how the year goes at year-end.

And to be clear, there is no ceiling in the sense of we have a guidance out there, we have a target for 2025. There's no ceiling in that. So if this is a very good year, we're also prepared, of course, to look at the guidance at year-end and would just simply apply that payout ratio to that increased guidance. So that will, by way of that, to your questions at the core, that will flow through to the P&L and will also increase the dividend.

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

Ben Cohen from RBC Capital Markets. I just had a couple of questions actually on the expense side. I just wonder if you could say more about the sort of underlying cost inflation that you see in the business and how you're sort of managing that kind of over the cycle.

And the second part, obviously, the bigger part of your overall costs is on the commission side. And I just wonder the outlook. I mean, you mentioned the strength that you have with your clients, the degree to which that helps on the brokerage side versus as markets soften, whether the brokers are trying to push harder to take a bigger slice of the pie as it were.

No, happy to comment on this, Ben. Thank you. So if we just look at our cost base, our admin costs, I would say probably half of the costs are personnel costs and half of the costs are other costs, IT, admin costs, et cetera. Overall cost ratio, as you've seen, 3.2%. We've managed to keep that ratio fairly stable. We have another cost ratio if we just apply on the EBIT, so the EBIT to cost ratio, which is actually -- which has developed quite favorably. I always joke as long as Karl books us into Motel One hotels as he did here also in Frankfurt, our cost ratio is not in danger at all. He even excluded the breakfast. I've noted this morning. So there is a lot of cost discipline.

And then at the core of your question, I think some of it is the organizational simplicity that I alluded to and really trying diligently to keep things simple and challenge complexity. I think that is something that is very, very important. And in my previous life, and I alluded to it in my intro that I've not only known Hannover Re since 2020, but also already since 2002 when I joined as a union consultant and auditor on the audit of Hannover Re. And I can tell you, negotiating fees with Hannover Re was already difficult back in those days, and it hasn't become easier. So that cost consciousness, that culture is so deeply ingrained, and I think it does give us a competitive edge.

Having said this, it's very clear that we have seen inflationary trends also in our cost. If you just purely look at the personnel costs, they will, of course, increase and develop. The same is true for our administrative costs when it comes to IT costs, software costs, cloud costs, et cetera, all these elements. And that's why I said we also consider build before buy to make us less dependent on external providers. And when you look at some of the dynamics of the fee developments and when you're very dependent on some of the providers, you're basically on the hook.

So that's why we try to make us independent. I do believe that this focus on reinsurance, the lean operating model does give us that opportunity to look at bits and pieces here and there to do it ourselves, keep it really simple. So therefore, we have managed also over the last three, four years to keep that ratio quite stable. And we are diligently working on this. When I spoke about automation, AI, et cetera, we do invest, but clearly with the focus of even leveraging that simplicity, that advantage even more.

On the brokerage or on the broker side, again, 2/3 of our P&C business is roughly coming via brokers. I think I mean that's one of the reasons why we've managed to keep our organizational setup quite efficient and simple. So I mean, we are operating, for example, our business that we write in North America, I alluded to earlier, we are mainly writing out of Hannover. And as we all know, that's probably not as expensive place as some of the other big cities. So that gives us an advantage. And on the broker side, I think the advantage that comes with this is that it provides -- these are variable costs.

So as we go into cycles and manage the cycle, those costs are variable, so we can adjust accordingly. I think that gives us an advantage as well.

Okay. We continue with Darius.

Darius Satkauskas, KBW. So one question for Clemens and one for Christian. So, Clemens, thank you for increasing the payout ratio. You said your second priority is to return excess capital to the shareholders. I think looking at your sort of key targets like, it would be easy to assume that 260% when your target is above 200% implies excess capital. So if it doesn't, can you help us gauge how should we estimate the excess capital that Hannover Re has got if the EUR 260 million is not the right number?

Second question to Christian. I'm just curious to hear your thoughts on private equity and optimism about the future. I think there's been a lot of concern that the IRRs that were promised in the past are probably not going to materialize given the material rise in interest rates and some of the assets actually being stuck on their balance sheets rather than being able to sort of upload them. So presumably some of the returns, and I've noticed a lot of your vintage years actually predate 2022, 70% or so. So why is there still optimism that actually that yield pickup will happen and instead of big markdowns when they finally sort of come to reflect the real valuations?

So, Darius, thank you. I'll start with the payout ratio. So again, as I said, this is more a mid- long-term view that we took on the ratio. And we -- again, we've done some initial projections on the Solvency II ratio. That, again, will -- the assumed growth, again, some prudency in those numbers will bring the solvency ratio closer to our threshold, clearly not at a threshold because we do like to have some buffer in the Solvency II ratio. And of course, again, we need to also look at some of the capital regimes on the rating side, which are also site conditions that come in.

So we will always imply some buffer, mainly really to be able to capture further growth opportunities or any other opportunities that come along the way. So this is more really to take a bit of a cautious view. Again, we do not want to compromise any opportunities that come along the way when it comes to that assumption and that sensitivity.

On private equity?

On private equity, I would describe actually the situation just like you did. And as said, so the returns are a bit depressed. They are not at the levels that we had pre-COVID. But I mean, look, what returns these vintages produced. This were not just double digit. In part, that was 15% to 20%, even with not that offensive portfolio. And I'm not seeing this return in the near future. But as I said, the lower valuations are new entry points for new investments, for new business models. There is a huge realignment, reshuffling in the market. So part of the business models are not working anymore. I totally agree. So it will take time.

And as I said, I'm not expecting this next year to jump up again. So this will really be a continuous development over the next years. But as I said, for such a long-term strategy, the overall mix of the vintage years produce sound returns on investment. And if we see that even, we have, as always, a quite conservative approach here with the valuations. So really bringing them down as we see signs of more risk. This is all done in the balance sheet. So I think there is still a sound and reasonable -- I wouldn't call it optimism by the way. I think that's clearly the expectation on the fundamentals. Will we see the full pre-COVID returns? I don't know. But even if it's just going double digit, it will be a good strategy for us.

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

Vinit from Mediobanca. Clemens, one for you. One for you, Christian. So, Clemens, just back on the growth and the clients loving Hannover Re. Is there some kind of an analysis you performed which suggests that per client you're kind of outdoing your peers in terms of nature of business or volume that they give you or business they give you? And is there a perception of risk, which is different that you could comment on or maybe Sven could add later about, hey, we grow differently here because everybody that we would ask would say their clients love them. So it's not very easy to just use that as an explanation for the strong growth.

And then second question, Christian, is just I'm quite intrigued by the unrealized bond losses projection chart. I think it's Slide 4 in your pack, where you seem to be taking it down by EUR 300 million a year for next two years, which is in normal life and not a normal thing. I mean, because when you did EUR 60 million in Q2, you flagged it as an exceptional activity. So it obviously implies that you intend to do EUR 60 million a quarter bond losses for the next two years or you're just expecting interest rates to go up. And in that context, the 10 basis points, just to clarify if you did do this bond loss realization that would be higher, right, 15 or whatever some other number, just to clarify the thought there behind that slide.

So, Vinit, on the clients, love to do business with Hannover topic. I've asked exactly that question, most of our clients and brokers said exactly what you said, Vinit, everyone says this, and everyone will say this. Come on. I mean give me a bit more of a challenge, what can we do better? What's the reason why we've grown substantially. I think what we've proven though is just by way of -- and when you look at the growth on the P&C and life and health side, when you look at the growth on the life and health side over the last 5 to 10 years. I think we've just proven it by way of that. And if you just look at the portfolio, I think we've deepened the relationship with our clients quite substantially over those years.

And we've really tried to come up with concrete feedback why is that and what could we do more, not just by way of looking at broker service and things like that, but really sitting down with our clients, having strategy days with our brokers, with our clients and trying to find out where can we do more, what would you like to see more from Hannover Re, et cetera. And again, one of the thoughts is that always comes it just feels easier. And I've really tried hard in it really to challenge that. 99% of the responses was tenants, please don't change anything when it comes to our underwriting approach. And I think this empowerment concept, having the underwriter decision-maker at the table is, I truly believe something that is unique. And then this consistency, 99% of the responses that I get is you're consistent in your risk appetite.

And coming to your question, Vinit, on what does it do to the portfolio, I think there are clearly areas where they would say, well, we've been showing you this business for 10, 15, 20 years, but you still don't like it. So -- but we will be very upfront about it and very clear about our risk appetite. And I think this consistency, this clarity is something that clients like. We are not opportunistic. We are not transactional. We are very upfront even in when I -- when we did a bit of a debrief after the 1/1/2023, that reset of the market, it was always the response you guys were tough. It was very clear, but you were always honest and upfront about it. Second, I really believe this pure-play reinsurance model that we don't compete with our clients that we really sit there as a pure-play reinsurer in front of them is something that they really like.

And therefore -- and again, it sounds a bit fluffy, but I think we've just proven it. And Sven will provide a bit more detail probably in his presentation on what are the areas, and Claude, what are the areas where we still see growth opportunity.

And on the hidden losses, and thanks for giving the opportunity to clarify this. What you saw on the slide, so the walk over the next year and the years and the expectation, this is just the pull-to-par effect of the maturing part of the portfolio, plus the reinvesting in the same bonds or same durations, again, same ratings at the current interest rates.

So everything, as mentioned, that we could do in addition, like the EUR 60 million, and this is just a random example to show we are really doing this will, of course, lift by a handful maybe of basis point. And as said, we will not follow like EUR 60 million roughly every quarter. This will really depend on the overall situation. I mean we have different profit drivers and contributors to the overall result, and you all know our quite conservative reserving approach using this as a tool, but we might also look in the coming quarters at the losses to make some realizations there if we see room.

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

Yes, I'll make it quick. It's Will Hardcastle, UBS. It's actually linked with that last question. Is it a sign that you're starting to realize investment losses that there's less headroom in the reserve resilience to play with, and this is, therefore, another lever that you can work alongside. So essentially, that's a question, is the reserve resilience closer to the upper end that you're allowed?

And then second of all, just coming back to the solvency new capital build and that amount. Within your capital consumption assumptions, how much -- is there more coming out of life and health? Or is it more coming out of P&C, where you're assuming a greater capital consumption in the near term?

Should I probably...

I'll start probably with the last one. Will, I think it's both. I don't have numbers top of my head, but it's really growth assumption both on life and health and P&C.

I start probably with the first one. So on the reserve resiliency, I mean, you know that we've substantially built resiliency. The way we look at it is take sort of the number that we disclosed from Willis Towers Watson, the 2.5% plus the risk adjustment, you roughly end up 31st of December 2024 at 7.7% in relative terms. And you all know and we've been clear about this without having come up with any actuarial analysis, we believe that we've built further resilience in the first two quarters as we reported.

Is that the ceiling that we've achieved clearly not. But -- and there is no number that we would give for a ceiling, but we do feel comfortable with this reserve level in general. So therefore, as Christian said, looking at the investment, looking to realize some fixed income unrealized losses is more of having that toolbox and having that ability to look at earnings management to look at sources of future profits that will come just over time. And it's just another possibility to use that.

But it will be probably a blend of both, Christian?

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

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

[Break]

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

And with that, I hand over to you.

Yes. Thank you very much, Karl. So I will talk about three topics during my presentation. The first topic is going to be a reminder why diversification is business is important for our business model and how do we reflect on diversification in the context of our natural catastrophe exposed business. I will then share with you what is our journey on the NatCat side of things and what to expect in the future. And last but not least, I will also talk a little bit about the topic of growth, both from a top line and from a bottom line point of view, not only on NatCat, but for the business group P&C in general. For the Q&A, I will be joined by Sharon, Silke and Thorsten. So you will have a good time to ask your additional questions.

So let's start by reminding us all why diversification is important for our business model. As you know, we are categorizing the business into the three main components, P&C, life and health and market risk on the investment side. The numbers you see in the chart are the solvency capital requirements for P&C, life and health and the investment side after the internal diversification within those sectors. And then you can see that the diversification across the three segments is basically giving us a 34% credit from a group diversification point of view. And this diversification, which, as you would imagine, is a major component when we are pricing the business is given to our market divisions, and we can benefit from the significant impact of diversification when we are writing the business.

So a meaningful number, but diversification is not only about capital. It's also very much about our earnings profile. So what we have done for the last 10 years in the lower chart is give you an idea how our various segments have contributed to our technical results on the P&C side in the years mentioned. So, first and foremost, it's important to note that on a gross basis, we have made a technical profit in every of the 10 years. And you can see that the contribution year-on-year, depending on the profile when it comes to losses has changed, but it's overall positive. You can also see and that is the yellowish part of the chart that the contribution from Structured Solutions and ILS, i.e., the business which is less prone to volatility in the pricing cycle of P&C is increasingly getting important for our portfolio.

Yes. And last but not least, these are gross numbers. So the earnings profile in the more challenging years like 2020, for example, where we had a technical profit, but below the long-term averages would, of course, be improved from a net point of view. But over the cycle, retro comes as a cost, so it only supports in years with higher volatility, and that's why we are showing the gross numbers because at the end of the day, we have to finance the retro out of our gross results.

So starting to talk about natural catastrophe business in more detail. The diversification is also very important for us in our natural catastrophe portfolio. To get to a good diversification, we feel we should write different market shares for different country peril combinations. And in practice, it means is that we write the lower market shares in the larger perils and higher market shares in those markets with a smaller peril compared to, for example, Atlantic hurricane exposure.

So we have picked four examples where in the waterfall chart, and I will not go through them in detail every chart, where we are just through the waterfall charts, take you through a gross to net journey. Starting with U.S. hurricane, clearly, the biggest market from a demand point of view. We're in a 1 in 250-year scenario. We are starting from a gross number of a little over EUR 4 billion for our share and then with the use of retro and after tax implications, this translates to a net loss of EUR 1.8 billion or in market share terms, we are starting with a market share of 1.3% from a gross perspective and reduced this to a net market share of 0.6% on a net basis.

Same logic applies to the other three scenarios we are showing, so European winter storm, U.S. West Coast earthquake. And we've also picked one of the examples where the market demand in overall terms is smaller, but where we have a relatively significant market share. Just to give you a sense what a wide range of market shares we are willing to write. So the last example is, therefore, our exposure to Chilean earthquake, where from a gross market share of 20.4%, we are reducing to 10.2% via the use of retro. So it's quite a wide range all the way from 0.6% in a scenario like U.S. hurricane, but can be double digit in other smaller scenarios.

So if you look at the U.S. West Coast scenario, you can see that on a net basis, we are saying that in a 250-year scenario, we expect to have a market share of 1.7%. So if you take that as a proxy and look at our losses from the wildfires in California, and yes, of course, wildfire is not earthquake, but it's from the same region. You will remember that after two quarters, we have reported a net loss of EUR 615 million, and that is based on a market loss assumption of $40 billion. So if you divide one by the other, you would end up with a ratio of 1.8%. So broadly in line with the 1.7% we are showing here. So from that point of view, an expected number when it comes to the state of California. And in that sense, not a surprise when it comes to our involvement in that loss.

So where do we see the natural catastrophe business going. So let me start by talking about the increase in values that need to be insured and reinsured and the reasons why this is structural. So the first trend we want to talk about is the trend of urbanization. So in the middle of the slide, you see that there was a significant growth in the world population and most of that growth actually happened in urban areas rather than in rural areas. And in the lower map, you see the dots where the growth of agglomeration has been particularly strong. So the red dots are those parts where the growth has been the biggest. And you see the characteristic that many, many of the dots or most of the dots indeed are in coastal areas, which, of course, are prone to natural catastrophe exposure from both wind and from a water point of view.

The second driver of increased values is, of course, the underlying asset inflation coming out of general inflation. But even more importantly, you have to look at the construction cost inflation, which is more relevant compared to general CPI inflation for the question of insured values under property policies. And as you know, this situation of higher inflationary numbers and particularly higher construction cost inflation has accelerated significantly in the last five years, which means that through the trend of urbanization and through underlying asset inflation, you have more concentration of values, which is fueling the demand for the product.

Another driver is climate change. We have a lot of topics under the umbrella of climate change. But just for illustration purposes, we have picked 2 examples how we see climate change materialize. Let me start by talking about extreme sea level events. You see the map and you see the dots of the map, the dots tell you about how the likelihood of events is increasing over time. And a solid brown dot means that by the year 2040, we have to expect significant sea-level events in those areas on a very frequent, if not annual basis. And if you compare this map with the map I've used on the previous slide when it comes to urbanization, you will find that many of the dots are in identical places. So you have a combination of increased urbanization at around the coast lines, which is meeting increased frequency of extreme sea level events over the next decades from a climate change point of view. So this is the one example, which is giving you an idea about the increased risk landscape.

Another example is hail. Hail has, of course, been very topical, particularly when it comes to the U.S. through the increased frequency of severe convective storms. But of course, hail is also important when it comes to other parts of the world and how losses materialize. So the maps on the lower part of the slide are giving you ideas how we see frequency developing. The red part of the map is those areas, both in Europe and in North America, where the increase -- the frequency for hail events in severe Quebec storms is increasing significantly.

The graphs we are showing here is then giving you an idea of severity. So the graphs are talking about the inherent energy within a storm and/or the size of the hail, both also again from North America and from Italy. And you can see that both in the maps, but also in the graphics, we are talking about increasing numbers. So when it comes to the peril of hail, it's both frequency and severity increasing. And we all, for example, remember the hail losses in Italy two years ago, where this has actually materialized in the southern part of Europe. So the climate change is leading to an increase in exposure.

But on the other hand, you also have to have a very differentiated view on risk. So as you can also very clearly see in the map, particularly on the hail map, I mean, not everything is having a color and not everything is green. So you have to have the capability to be very precise in your modeling and the pricing when it comes to regional exposure for the individual perils in order to have a solid and risk consumer offering to your clients. So a one-size-fits-all approach is not working in a scenario where we have different trends in different parts of the world, peril by peril. And therefore, you have to have a very diversified and sophisticated modeling landscape in order to recognize those differences.

A third area which is driving demand on the natural catastrophe side is the protection gap. I mean you know that the insured losses from natural catastrophes have significantly increased year after year over the last five to six years. the chart on the right-hand side is talking to that. These are the numbers as published by Verisk. So one of the big vendor models on natural catastrophe modeling. So today, we are expecting as an industry an insured loss of EUR 150 billion roughly in any given year resulting out of natural catastrophe losses. And that number was only EUR 82 million in the year 2020, so not that long ago. So the trend of insured losses resulting from natural catastrophes is a very clear one.

On the other hand, and that's what the chart in the middle is talking about, there is still a huge protection gap where only a part of the economic loss, and that is the lighter blue in the chart is insured losses versus significantly more economic losses in the years mentioned. And of course, it's our ambition and the ambition of the entire insurance and reinsurance industry to close that gap over time, which is going to give more demand for the natural catastrophe-related products in our industry.

So what does that mean for us? So as explained, you need to have the capabilities and expertise to monetize the increase in this demand. You need to be able to capture all of the mentioned trends and changes in exposure in the modeling and the pricing. And you have to have a good diversification in order to deal with the volatility that is inherent to this exposure.

If you look at our experience of budgeting for large losses from natural catastrophe and our gross technical results for natural catastrophe, we feel that this is a class of business which we are able to manage and steer in a manner which is accessing -- allowing us to access a good driver of technical profitability. So the lower chart is giving you a reminder on what our journey has been on budgeting for natural catastrophe losses as part of our major loss budget. So we are showing this since 2015. What's not every year was within the estimated budget for the year. In the total aggregate, we have been within the budget. And with 12% below budget, we are in a relatively comfortable situation. What you also see on the upper hand chart is that over the cycle, we are making good technical profitability out of our natural catastrophe business. And this, again, is a gross slide. So this is before retro. And obviously, retro also helps us to deal with the volatility in a number of those years.

The most prominent example here on this slide would be the year 2021, where we had both burned in Europe and either in the United States. And in that year, our gross profitability was negative. But as you can see in the lower chart, it translated into a situation where from a net point of view, we only exceeded our budget for the year on a very marginal basis. So from that point of view, retro helps us to accept the volatility on the natural catastrophe side. But most importantly is, of course, that we are in a position to write it profitably on a gross basis over the cycle, which I feel we are nicely demonstrating here in the past. You can also see that the last number of years, the profitability numbers are getting a little more meaningful and are exceeding the long-term averages nicely.

And the reason for that is something I will explain on the next slide. So, we are currently in a period where we have grown our natural catastrophe exposure, of course, also taking advantage of the good market environment. So this means we are structurally willing to increase our share in natural catastrophe-related business. And the left-hand chart gives you an idea about our journey and how we have dealt with that over the last 10 years.

So when we started in 2016, you can see that the contribution from the blue part of the -- the lower blue part of the chart, which is showing you the U.S. and Caribbean total value at risk. at the 100 centered view has been very dominant. So it was close to EUR 2 billion out of a total of approximately EUR 2.5 billion. So roughly 70% of our total value at risk came from U.S. hurricane and the Caribbean.

In the trading conditions, we had up until 2022, it was, therefore, of high importance to us to do something about the better diversification profile in our portfolio. So you will see that over the period 2016 to 2022, the absolute number from an exposure point of view when it comes to U.S. hurricane and Caribbean hurricane has not really changed a lot. It was relatively stable. What we have done in that period is make certain that the growth we had was in non-U.S. non-Caribbean related perils.

So as a starting point, when the market turned in 2023, the contribution from U.S. wind, in particular, was still roughly EUR 2 billion. It's the total value at risk. But the global [indiscernible] had moved to more than EUR 4 billion at the time. So the U.S. was only representing 50% of the total exposure base, which was exactly what we wanted to achieve to have more diversification in our natural catastrophe exposure and it allowed us when the market turned in 2023 to grow in all peril country combinations, including the U.S. without significantly changing our volatility profile.

And this is what the right-hand chart is talking about. What is the contribution of natural catastrophe business in terms of required capital in relation to the own funds. So the bar is giving you an idea on the absolute development of the SCR for natural catastrophe business. And the other bar is giving you the development of the own funds. So the dots are therefore the SCR for NatCat as part of our own funds. And you will see that since 2018, this ratio has been extremely stable in the low 20% range despite the underlying growth, which means that with the improved diversification in NatCat from a regional perspective, we have become more capital efficient. And it also means from a diversification point of view that our general growth meant that despite increased positions we have written on the natural catastrophe side, it was relatively stable in the entire portfolio of P&C.

And that will also be important for us in the future. We feel that we will be able to structurally grow the natural catastrophe business, which is a class where we have more and more demand for the product without changing the volatility profile of our P&C earnings. And that is thanks to our strong diversification. And of course, also thanks for us using retrocession in order to steer the volatility.

So -- and this is the last slide. Coming back from NatCat to the overall business group. You of course, are asking a lot of questions about growth and what to expect in the future. So what we have done here is give you an idea of where the growth was coming from in the last 10 years. For 2026, from a trading environment point of view, we are expecting a broadly similar situation as we have found it in 2025. So there will be pockets where we will see softening, most likely on the property catastrophe-related side. But for the most part of our business, we expect that pricing will remain at an adequate level, and it will allow us to produce good profitability and hence also further grow the business.

The period which we have chosen is 2015 to 2024. So that was our profitability journey of the last 10 years. The average growth over the period was a little over 12%. But you see also the component parts where did the growth come from. So let me start with the traditional business, which is the biggest block of our business with roughly EUR 15 billion. Here, you have seen that we have a constant growth trajectory. And in many of the years, we have been over and above the 7% we have mentioned in the past as a figure, we feel comfortable as a growth prospect over the cycle.

And I mean, you already heard Clemens talk about our experience in this year's conferences and the positive feedback we have from our clients, the pricing environment we do expect does give us a lot of comfort that we will be able to continue on the traditional side to be on a good and healthy growth trajectory. So therefore, we would say that the 7% figure over the cycle is still true. But of course, we also have always said it doesn't have to be 7% every year. Sometimes it will be more, sometimes it will be less. This all depends on the pricing we find and the adequacy of the pricing. So from that point of view, we will not give a number for next year today, but we are comfortable from an overall pricing environment.

And here, of course, on the traditional business, the lean operating model also will help us to continue growing in softer environments as it will allow us to write business at acceptable profitability levels, and we can do that longer compared to peers, which have to operate with a higher expense ratio. So from that point of view, a good starting point.

Then in the last couple of years, a particularly strong contributor to our overall growth story has been the structured and the ILS business with average growth rates in the mid-20s for a sustainable period. So we see a good pipeline of new opportunities. We've also seen in the last few years, increased demand on frequency-related covers on the nonproportional side. That pipeline continues to be healthy. On the other hand, growth patterns are much more difficult to predict for structured business, given the fact that the business can be very bulky. So in some transactions, we are talking about hundreds of millions of dollars for our share only, sometimes even in the billions. And some of the demand, of course, is transitional. And it can always be that we also have a situation where one or two meaningful transactions are placed on a significantly lower basis or disappear completely. But when it comes to the long-term average growth trend on the structured side, we are very comfortable that this will be a growing part of our business.

Last but not least, I talked about natural catastrophe business a lot. You see that in the soft market environment, we have grown the natural catastrophe business very carefully. So the growth trend was 9% versus 12% compared to the overall traditional business has been careful in the soft market years. I've mentioned that our main emphasis in those years has been the improved diversification from a regional point of view. That mission was well achieved. And we used the hard market in the last three years to have an accelerated growth pattern in natural catastrophe business, where we had 23% growth versus a lower growth number on the traditional. And as I said, structurally, we have the risk appetite to further grow our position in the market on the natural catastrophe side, and we can expect that there will be more demand for the product given the development on the exposure side from climate change and the concentration of values.

So this brings me to the end of the presentation. I hope I could demonstrate to you that diversification is the key to the success throughout the cycle as it allows us to write the business with a lower cost of capital and a lower earnings volatility. Second takeaway is our success story in writing a natural catastrophe portfolio and that we do have the appetite for further growth without significantly changing the volatility profile of our business group results. And thirdly, we are talking about the strong client relationships, which will also give us a good platform for future top and bottom line growth. And I would like to add that we are, for the next years to come, also protected by our conservative reserving approach, which we have taken over the last couple of years, which will allow us to continue to show continued earnings growth also in more difficult trading conditions.

And with that, I would close my presentation.

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

You have to invite the other colleagues.

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

Iain Pearce from BNP Paribas Exane. The first one was just on the diversification expectations you have going forward. Do you expect that trend to continue of increasing the non-U.S. business as a proportion? Or are you more comfortable with the overall diversification as it is now and everything should more grow in line and actually increasing the allocations to the U.S. wind risk?

And secondly, linked to that, in terms of the SCR growth for the NatCat business, it looks like that's probably been high single digits versus the 13% premium CAGR. Would you expect that now to be more in line with the premium CAGR that you have going forward?

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

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

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

Will Hardcastle, UBS. The first one is just looking at the chart where you had the CAGRs for traditional growth structure growth. It's fair to say that traditional has picked up the CAGR in more recent years as the benefit of pricing has happened. Is it impossible to believe that as the market gets a bit tougher, that could be flat year-on-year on a traditional basis and perhaps the other aspects of the growing areas?

Secondly, on that EUR 150 billion assumed industry loss assumption that you've gone to now, I'd love to know what everyone else is pricing in for that. But I guess, any clarification on the split you'd have of that between what you think is insurance versus reinsurance weight? And I know that depends on where the types of losses are. And I guess, how would that have compared to versus maybe five years ago?

Well, I don't have absolute numbers for you, Will. But given how retention levels have developed since 2023, the percentage of the loss that would be accepted by the reinsurers, the insurers of course, has reduced, which doesn't mean that the absolute number has necessarily reduced given the strong growth patterns year-on-year when it comes to the expected loss number.

And of course, I also don't know what others are using as an underlying estimate for the annual aggregate loss. But what I can tell you is that the development on the numbers you have seen in that chart is consistent with us setting the budget for major losses for the next financial year.

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

Okay. Then we have the next question from Ryan.

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

Well, whether this will narrow, of course, it is also a question on how much retrocessional coverage we are buying. We have been a constant buyer of retrocessional coverage. But in relative terms, our retro protection compared to the gross exposure we have was a little less in recent years with the very strong underlying profitability profile in the business we are accepting.

We have been willing to take a higher percentage of that net compared to historic averages. With the market environment changing, we have already started buying a little more excess of loss retro last year. And we may do that in the future as well depending on trading conditions. And that, of course, is one of the major drivers of the standard deviation.

Okay. We continue with Vinit and then Ivan.

Vinit from Mediobanca. So just -- I don't know if there are two questions, but let's try. It's all the same topics, really, the NatCat and hurricane interaction. So I can sense from your communication to the market that, okay, you had a few weeks or months of very lucky, no hurricanes, but let's look at the overall picture on climate change. Let's look at the risks. What's the market telling you? Is it -- if there is no hurricane this year, next year, hypothetically speaking, is there -- I mean, are you going to be a little more concerned? Are you getting pushback that, okay, guys, there's no hurricanes happening nowadays? Things are changing, what should we do? So I'm just curious, you have put on a very brave front here. You put on a very confident message. And I'm just curious about that.

And then second thing, just maybe it's interlinked, but the frequency cover comment you mentioned where you're seemingly willing to do that line of business, which some people in the outside world look at it like a weakening trend. But you've reiterated that you're very confident with it also from Silke's business. But just curious on this comment on the frequency cover as well and how you see that -- why you're confident about placing those covers?

Okay. I'll start with the last question on the frequency covers. Actually, indeed, as you already said, we like to look on the frequency aggregate covers on a more structured basis. And yes, to cope with that. And this is what we have done in the past where we currently see a higher demand. And so this on the aggregate covers.

And then there was more question about the modeling of NatCat losses hurricane related. I'm not sure whether I fully understood it correctly. But from the modeling as such, I mean, this year, so far, it seems to be a good year with regards to hurricanes. And it's not that we change our modeling or our underwriting behavior on what we based on that year. So we will continue to model it, write it next year in a quite similar way.

And yes, I mean, from a mathematical point of view, these underwriting years are independent. And regarding climate change, we have to be sure that we model and price it correctly at least for one year. So what will happen in five years' time? These are basically one-year contracts. So to have it right for one year, and this is what Sven showed in the graph that our models on a globally basis, we are quite good to model it on a globally basis.

Does this answer your question? Clients, what?

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

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

It's Ivan Bokhmat from Barclays. I mean my first question is, I guess, I'm just trying to understand the broader strategy. A lot was said about client relationships and how you would close the underweight position in certain areas such as NatCat. So I was wondering maybe you could try to put it into some perspective. I mean what could be the indicators that we could see where is your aggregate market share across the markets and where you are in NatCat? Is it by gross share of losses, for example, in specific perils? And how do you think about over the medium term of closing that gap? I think that's my question number one.

Question number two, I think of the more recent trends, we're seeing very strong cat issuance -- cat bond issuance. We're seeing casualty side cars being proliferated in general, some changes in the ILS market. So I'm just wondering if -- what are your thoughts about that? Does it change the way risk is distributed? Is there some disintermediation?

And then finally, just a cheeky question. I mean, what do you think about the 1/1 renewals price-wise?

Yes. Let me maybe start with your first question, and then I hand the microphone to the colleagues when it comes to price expectation in the ILS market in particular.

So we won we have a market share of roughly 8% to 9% in P&C reinsurance. And on the natural catastrophe side, we are somewhere between 4% and 5% on a global basis, as I have shown, this can be very different region by region. But when we talk about the global market share, there's appetite to do more over time, but we don't have a target that we should get to our average market share, i.e., the 8% to 9% by a certain year. So we have the capital, and we feel comfortable with our capability to understand and write NatCat business. But a lot will depend on the trading conditions we find.

So there will be structurally more growth but whether it is as accelerated as we had it in '23 and '24 and to a certain extent, also '25, then solely depends on how attractive is the business. So from that point of view, we are prepared to close that gap, but we do it over a period and not in a short time frame.

But then maybe pricing, what do we expect at 1/1?

If only I have crystal ball. Generally, I think that for -- and it's always easy to start with markets where there have been losses. And while there haven't been significant losses, there still have been earthquakes and floods and everything else. So in markets where there have been losses, I think the markets and the pricing will remain flat. Or if there's underlying increases in exposure, then that will be taken into account.

Inflation, at least in the markets that I look after is less of an issue currently. but it's still something that has to be considered. And then in markets where it's really been clean and there haven't been any losses, then there will be very interesting discussions just around how to continue with the pricing that's there, and there will be pressure, absolutely.

But a lot of pressure tends to always come only on the NatCat side. When you look at the perk side, you look at liability and everything else because of the underlying changes in the portfolio, all that has to be taken into account. So we expect flat to slightly down generally. And then on the cat side, if it's clean, it's probably going to be down more than on the other lines of business.

ILS?

Yes. Coming back to your question on ILS. As you know, we are very active in the ILS space. We think we are a market leader in the business we are currently doing on cat bond transformer business, on collateralized fronting and on also a few other parts.

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

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

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

Good question. Is it interlinked? I would say not in all cases. I mean when you -- the bigger the client -- let me put it this way. The smaller clients are usually buying reinsurance based on a bouquet basis. So if you write the non-cat piece, you also get a piece of the cat piece and often a share across the entire program. So it's a strong interlink, and you want this to be interlinked with the large global international companies you can write business much more based on your appetite. You can overweight there, you can underweight there.

So, and obviously, nevertheless, I mean, the strength of Hannover Re from my perspective, and I've only joined a year ago is if a client buys 100 reinsurance treaties, we are usually on most of them, let's say, 80 or 90 of them we support. And therefore, we play to our strength that we can negotiate packages, and that's what we always do. And of course, if we are underwriting NatCat on certain clients and we have appetite to write more NatCat business, as you've heard, we are using the opportunity of this very broad participation across the client relationship and try to get a higher share on the NatCat side.

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

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

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

Well, I mean, if history repeats itself, we will have very diversified growth again. I mean when we look at pricing the business, we are distributing cost of capital across all the segments. And you have seen in the past number of years that we had a very diversified growth from a product point of view, but also from a regional point of view, which means that in all these regions, we have found business which was at or over and above capital hurdle rates.

So over time, we expect that to continue. So we are not expecting significant concentration shifts in our portfolio. But we expect that we will manage to continue growing very organically with how the portfolios of our clients are developing because that's really the key for us to build long-standing relationships with clients and make them broad and make them deep. And so our portfolio will, for the most part, following the growth pattern of the underlying client.

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

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

So I'll take the fac question. So, yes, I think facultative tends to soften before the treaty market does, and we're already seeing that in the portfolio that we have. But what's really interesting about the fac portfolio that we write is that it doesn't come with memory. So our underwriters, which are very empowered, they can accept the risk because it's properly priced because it's a good risk. And then they can reject it if it's not in the price point that we want or if the risk actually isn't a good risk and the terms and conditions are not good.

So from that perspective, the ability to steer the portfolio on a yearly, year-by-year basis has resulted in the fact that each and every year we have, we have actually made a profit. which is good. We have taken advantage of the hard market cycle, and you see that closer linked in terms of the fact portfolio following that cycle. We expect when we project to a softer market cycle, you'd see that project quite closely as well with our fact portfolio.

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

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

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

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

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

And before we go into the next presentation by Claude, just I'd like to draw your attention to the feedback form that we provided on the table. It's easy to find it's just right under the chocolate. And the chocolate actually is a gratitude to you for attending today, and it's from Hannover from a chocolatery in Hannover. And so the feedback form, you either can fill it out in the old-fashioned way as a paper, but you also can scan the QR code on the back of it and fill it out. And just to be very sure that we get your feedback, we will send out an e-mail tomorrow and you have another possibility to provide the feedback, which is very valuable for us because it really helps us to refine our work and to produce content for the next Investors Day that is relevant to you.

So with that, I would thank you for filling it out, and we go now straight into the next -- I guess you are ready for the next presentation. Yes, Claude is ready, I'm sure. And he will, no surprise here, talk about life and health. And moving into IFRS 17 has caused some headache, but it also had, on the flip side, some positive things. The new metrics, the new KPIs that we have showing a CSM, showing the future profits on the face of the balance sheet is appreciated, I would say, at least that's what we hear from the market. And Claude will now explain how to read those numbers in a session.

So with that, I hand over to you.

Thank you, Karl. Mic is working. Great. It's, by the way, not very nice to remind the people of our feedback form just before I come on stage. I mean that's not nice really. I mean it's terrible. But anyway, I mean, I live with it, and I'm used to it, obviously, always the last presentation, and many thanks to the guys here in the room. Many thanks to everybody who is watching us on video. There are plenty of people I heard online also who are watching us. So thank you for your interest in the life and health reinsurance. Really appreciate.

Now I mean Clemens, Christian, and also Sven, you were mentioning lean operating model. And you were mentioning and also our cost ratio, which is very low. And one very concrete example of our low cost ratio is I would say is the first cover sheet. Because I tell you we hate to spend money on nice two halves. And Brona myself she said, we stop spending money on models for our photo shoots. So we said between two client meetings. We took the camera and we took the picture ourselves. And this is the first example. The second one is what you see here very clearly is that we have no age discrimination in this company, right? Because while 14 years ago, I was a teen baby surrounded by some old man, right? 14 years later, I'm the oldest Board member surrounds by very young colleagues and still I made it on the picture which is really brilliant. Yes.

Anyway, some of you were here two years ago when I was for the first time talking about IFRS in the context of life and health reinsurance. And you -- I don't know if you remember, but we were -- at that time, we were really just one year into IFRS 17. It was totally new for all of us. I mean we had to get used the processes, the way of reporting. And at that time, what I was presenting to you were some illustrations. I don't remember. I was showing you how important cash flows out of the sudden become how important it becomes to understand the current cash flows and understand the changes that we have in the current year cash flows having an impact.

Remember, in the experience variance, having a direct impact into the P&L. I was also explaining how our estimation of the future cash flows impacts logically the CSM positive or negatively or if you're already in treaties which have no CSM left, the loss component. So this was just illustrative. And we thought, with Brona two years later, now that our processes are very stable, that we understand more or less what's going on with IFRS 17 that it's probably a good time to look into the real figures and look backwards and just check how did we do it. So no illustrations at all. There is no illustration. Let's have a look into the real figures.

And what I suggest you to do today is to look into the 10 past quarters. So starting from Q1 '23 up to Q2 '25 and really looking into how we did. And what we're going to we're not going to invent anything new. What we want to do with you now is show you the figures as we usually present them in the con calls every quarter. You remember, we're looking into the CSM. We're looking into these famous waterfall charts and the components of the CSM. And we're looking into the reinsurance result, the waterfall chart, the reinsurance result and then the various components.

But there is one difference today. Because while in the con calls, we always look into the year-to-date data. And you remember, in Q1, it's Q1. But in Q2, it's Q1 plus Q2. In Q3, it up to Q3. And we do that. We have decided today to look into the quarterly figures. And why? Because I have the feeling, and maybe I'm wrong, that some of you in this room, you still look into the quarter figures. Yes, you still. When we show the year-to-date figures and you tell me if it's right or not, right? But when you look into the year-to-date, in your head, you're deducting the year-to-date of the past quarter to see how did these guys do in the current quarter. And I believe this is the case. So why don't we look together now into the quarterly figures, what we have never presented so far and see how we did.

So I have a click through now, which is called Andrea. Andrea. Andrea, please. Thank you very much. And let's be clear, this slide is super busy, super misleading, and you will never understand it if I didn't explain it to you. So let's go step by step and please try to follow me here because it's important that you understand what we're showing here also for the next part of the presentation. So, Andrea, let's reduce the complexity.

What we are showing here is an average quarter. So what we have been doing, we have been looking into 10 past quarters, and we have done, in this case, for the reinsurance service result, we show you the waterfall chart of an average quarter. So you see here on average, on average you see how much CSM release we have made on average every quarter. Then you see the RA change, you see the experience variance, you see the loss component and you see the reinsurance service results. So what you see here, and you have the whole picture well done on your slide, you see that we were able to produce on average, EUR 214 million of reinsurance result, meaning we talk about 10 quarters that in the past 10 quarters, we have been able to produce more than EUR 2.1 billion of reinsurance service result.

So let's start with this, Andrea, please. So let's have a look into what we're showing here. So the colored bar is the average. This is the EUR 214 million that we have been able to produce. And the 10 other bars show you what we produced every single quarter, quarter-by-quarter, starting from Q1 '23, ending at Q2 '25. But not really. We're not showing you the real figure. We show you the difference between the average quarter and what we really achieved, okay? So what you see here, and you see it down here that the spread of the results that we have been producing goes from EUR 133 million to EUR 253 million. The EUR 133 million quarter has been Q4 '23. That was the worst quarter we ever had. You see this negative bar, the bar going down, meeting that it is the EUR 217 million or EUR 214 million average, minus some figures leading us to the EUR 133 million. So the worst performing quarter was Q3 -- Q4, sorry, '23. While the best performing quarter, if you look into the figure with EUR 253 million has been Q1 '23.

So when you see these bars going up and down, that's not positive or negative figures. It is simply slightly above average or slightly below average. We could have shown you, I agree, we had plenty of discussions. Yes, I could have shown you the bars from bottom-up for each of these components, but you wouldn't have seen tons of bars, and you wouldn't have seen what we really want to show you what we want to show you is the volatility that we have in every single component of the reinsurance service result as well as of the CSM. So we understand the way we look into these figures. It's super important.

So, Andrea, let's open it up and let's look into the rest. So what you see here, first of all, is the CSM release. Again, there, you see we released EUR 217 million and the spread, well, it's not that big. So it was between EUR 184 million and EUR 200 million. I cannot read it. I think I need my glasses -- sorry, guys, I need my glasses. It's terrible. That's when you get old, you cannot read the figures anymore. Much better. Much better. So between EUR 184 million and EUR 260 million. But you see that there is relatively low volatility on the CSM release. Why is this the case? Because we released the CSM according to a predefined pattern, there is not too much of a surprise in the CSM release.

Then another part that you see is pretty stable is the loss component. And the loss component has been pretty stable around the same figure, EUR 87 million negative, a bit more, a bit less. And that's pretty normal, and we're going to get to that afterwards. I want to explain to you a few things about these things. And it's logic for the portfolio of our size, it's logic that you will have every quarter some parts of a loss component. So CSM release and loss component, pretty stable, if you look at it. But then you see experience variances. That's where when I looked into the figures with Brona, we're both a little bit surprised because we have always had the opinion experience variances, which is, again, I repeat, which is a new view on our current cash flows in the current year. We always had the feeling they are very positive. That's the feeling we have, right, Brona.

And we said, how can it be only 3. And then we looked into the figures and we saw, oh, there is a special impact. There is something special, a one-off impact that you all know, but you have probably forgotten by now, which happened in Q4 '23. And that's where you see the bar that we showed with this kind tilde to show, in principle, this bar would be much more negative in Q3 '23 if we took the right figure, but it would be misleading.

What happened is that before the transition, you remember we had all these arbitrations in the U.S., and we were not 100% sure about the outcome of these arbitrations. So what we did at transition, we injected because of this insecurity on the transition, more risk adjustment for these transitions on the transition. And when we had finalization of some of these arbitrations and that happened in Q4 '23, this allowed us to release the risk adjustment and you see this in the risk adjustment change to save in Q4 '23. We released the amount of risk adjustment and we're able to neutralize the negative impact we've on the experience side. That was a very, very clear one off.

So one way of looking into this to say let's forget about this one off. But this one off is over estimating my risk adjustment change and this kind of under estimating by experience variance. And that's why you see on the risk adjustment change and on the experience variance you see a second line with the second line of figures which is if we neutralize for this one off effect then you would say the RA change on average is EUR 60 million with much less volatility as you see and the experience variance is EUR 23 million with much less volatility and that is much more what you'd have expected, our gut feel was saying exactly this. No change obviously on the reinsurance services side.

Okay, now I would like to do exactly the same for the CSM. That's where it's going to get more interesting, I guess. So Andrea, please. Same story, very complicated, all the components there. Let's close it down again to the most important stuff, Andrea, which is obviously the average. So what you see on this slide is again the average addition to the CSM every quarter. So you see that on average, we added EUR 87 million of CSM every quarter over the past 10 quarters, meaning that we added in total EUR 870 million of CSM over the past 10 quarters.

Now let's look into the different component first, Andrea. And I would like you to focus on two components at the same time this time. Because that was very surprising, telling you the truth. When Brona and myself we looked at it we said, Jesus, that's quite interesting. There is a huge correlation between the currency effects on the CSM and between the CSM itself. And you see that whenever our CSM was below the average, you can see on the other side the currency effects were also below the average. So there is one exception, I remember this Q1 '23 I think, which is exception. But in all the other cases the currency effect have a huge impact obviously on the CSM.

Again, the way you have to read the CSM here, you see EUR 87 million average. The minimum was minus EUR 122 million, which is Q2 '25 and the maximum was EUR 329 million, which was, if you look into this chart, it's Q2 '24, yes, so that you understand the volatility. But you see there is quite a bit of volatility on the additional CSM that we generate quarter-by-quarter. And a big part from this is driven by the currency effects.

Now we might say, why? I mean we have heard that from Christian, currency effects. In our case, the CSM is heavily, I mean, determined by U.S. dollar, obviously. But there are two other currencies that you haven't mentioned, Christian, which are important for us on the life and health side, which is the GB pound, because of our strong longevity portfolio in the U.K. and the Australian dollar. So all these currencies have a huge impact, obviously, on the CSM, on the amount of CSM that we add. And they also have, and that's very important, an impact on the new business we write because if we write the new business in U.S. dollars, it might be super looking -- well looking in U.S. dollars, converting it into euros. Again, the new business is also obviously suffering a little bit. But that was for me and for Brona, I must say, quite surprising to see this huge, huge correlation between currency and the delta CSM that we're producing.

Now let's go and look into the rest of this slide, Andrea. I mean, the new business I tend to joke with my P&C colleagues, and you know the joke. I always say life and health, we work through the whole year, yes. And you see this here, okay? You see the new business, the average new business that we have been creating every single year -- every single quarter was EUR 178 million, meaning we have generated EUR 1.8 billion of new business CSM over the past 10 quarters. And as you see, we have been generating new business in every single quarter. And from the worst quarter having been Q2 '23, the best having been Q1 '23, EUR 85 million to EUR 263 million. What you need to understand is this life business, it's very chunky. So you write a deal in a quarter, you write it maybe in the next quarter. It is very, very chunky.

So again, you see quite a bit of volatility on the new business generation, the same. LC for us on the life and health side, it's really just interest accretion. And there is no surprise, very, very stable. So we don't have to talk about it. And then comes the regular release. We have seen it already in the reinsurance services result, nothing to add. It's just the other sign.

And then comes, in my opinion, one of the most interesting part, which is the change in estimates. And I would like us to spend a little bit of time here in what these change of estimates are and why we do have them. Andrea, please just highlight this. It's quite an interesting chart because it's very, very, again, volatile around the average. The average 118, but it goes from minus EUR 3 million, so very slightly negative, up to EUR 366 million.

And when you look into these figures, what you see is that you have very little changes in estimates in the Q1. That's where you have these bar plots which go down, yes. They're close to zero sometimes. And you have very little changes in estimates in Q4, which is totally logical. In Q1, we're just coming out of renewal also sometimes. So we're starting to run our models. We're starting the analysis. The impact of the change in estimates is coming in Q2 and Q3, usually, and you see this very nicely on this chart. You see that in Q2, for example, we usually look into the longevity assumptions into longevity book, which represents quite a bit part of the positive deviations compared to the average. But we have also many, many other books, obviously, that we're looking at and which are producing these change in estimates.

Now let's stay with these change in estimates. I would like -- really like to give you a little bit of insights and dig a little bit deeper into what that means, okay? So, Andrea, please. Again, so let's take these change in estimates on the left-hand side. And what I suggest you now to do is to take a very, very average quarter. And the most average quarter we had, as you see here on this slide, is Q3 '24. Q3 '24 is slightly below average, but it is across EUR 100 million plus changes in estimates in this quarter.

Now let's, first of all, look into the comments. What kind of changes in estimates do we have? We have from the easiest ones to the most complex ones, a little bit everything. So the most easiest changes in estimates that we have are simply driven by the fact that we received the accounts in a certain quarter, we look into the accounts and say, oh, Jesus, the client has been producing a little bit more than what we expected. So having a positive impact into the future cash flows, meaning that I have a change in estimates, positive. It could go the other way around.

So all these, what we call the updating of inventory data, this is a big part of the change in estimates because we're not knowing everything perfectly. And if a client produces more or less, it has an impact on the future. And I showed that two years ago, remember on this illustration. So that's number one. Easy, automated, automated, very important. I mean this is crazy. You cannot do this manually. So the system automatically says, oh, it's bigger than expected. So it adapts, it adjusts the CSM of the future automatically.

You have the second level, which is already a bit more complex where we say, oh, we have great models, but every now and then let's say once in a year, maybe once in two years we check whether the assumptions, the parameters of these models are still valid. You need to do that on the life business. Life is long term, right? So you look into the figures, you look into the claims. This is a longer process manual. You look into assumptions and then you do what we call usually assumption changes. I would say we refine the assumptions. And this can go both ways. It can go positively or negatively. So we look at the models, we say the model is good, assumptions need to be changed.

The third one, which is the most complex one is when we really have to say we need to modify and improve our models. These actuarial models and some of you who know about life business, they're super, super complex. It's not trivial. So there you have the multi models with mark off chains, cetera, cetera. I mean this is big, big business. And when we change and improve the models, automatically, we're going to have changes in estimates, positive and negative ones.

Now in this quarter, and this is an average quarter again, we were looking -- I just asked the guys, how many groups of insurance contracts have we had to produce these changes in estimates of EUR 100 million. So we looked into the figures and we realized that we had more than 1,000 group of insurance contracts which had either a positive or negative change. And you remember we have the con calls we say change in estimates plus EUR 100 million, and we give you a reason. I could give you more than 1,000 reasons for these EUR 100 million. And I want you to understand this, okay?

So when you take the sorted view, what you see here concretely, you see these 1,000-plus groups of insurance contracts and you see the biggest change in the group of insurance contracts, which has been EUR 100 million, you see number one and the smallest and the worst change, the biggest worst change, which is #2, which is at minus EUR 40 million. And in between, you have plenty of changes. So this is the way it looks like. And what is even more interesting is when you look into the cumulative view.

So when you take these changes and you accumulate them, all the positive ones and then you take all the negative ones, you end up obviously with EUR 100 million change in estimates. You see that in the slide on cumulative, right, EUR 100 million, you see them again. But in reality, we had EUR 500 million, close to EUR 500 million positive changes and close to EUR 400 million negative changes. That's a lot. So when you look into the machine room and Clemens, you always talked about machine room, right? The machine room of Hannover Re, this is a big beast. And at the end, we tell you EUR 100 million plus. But it's the result of this, okay?

And coming to the loss component, it's exactly the same process. The loss component is made of hundreds of group of insurance contracts which are in the loss component. It's not just one. It's hundreds. And for each of these group of insurance contracts, we do exactly the same. I could have shown you the loss component, by the way. And some of these contracts are performing better than expected, so positive in terms of loss components. Some are performing less good than expected, negative. And again, what we show you in the loss component is really the result of such an analysis, which is very, very deep, obviously.

Okay. So now what I would like to do is let's, for an instance, just suppose that the world is perfect, okay? And let's suppose that we have no changes in estimates. Let's suppose that we're really able to know exactly how much claims produced, how the claims are going to perform. What's going on et cetera. But we're predicting everything. So zero changes in estimates Let's make the world more perfect, by saying we don't have any currency effects. No currency effects, no change in estimates.

What would that mean for our CSM? So, Andrea, let's look into that. So let's just forget about currency effects. Let's forget about changes in estimates and let's look into what is left. And what is left is the new business CSM that we're generating, it's the interest accretion and it's the release of the CSM. And when you want -- and I try to give you some hints, when you want to see whether we're maintaining the value of our portfolio. Let's forget about changes in estimates, let's forget about currency effects where we maintain this value, the best way of doing it is really adding these figures and see are we able with the new business and the interest accretion on the portfolio, are we able to compensate the regular release. And that's super important.

Now should you look into that on a quarterly basis, obviously, not makes no sense. Makes no sense at all. But looking into it on a, let's say, 10-quarter basis on two years, three years, that's very relevant. And when you see that we have been able to compensate and slightly in this case, even overcompensate the release, that's a very good story.

Now what you need to understand is that, obviously, it depends on the type of business that you're writing. If you write, let's say, longevity business, longevity business would then generate a huge new business CSM. But it would take us, and it's going to take us 30 years to release, that is releasing longevity profits over 30 years into the future. While if you write financial solutions business, that's the other extreme probably unless we take group business, et cetera, well, we would have the same increase in new business, but release it much, much faster. So this way of looking into it has really to be taken over, let's say, a period of time. It makes no sense to do it in quarter or just one year because you have the type of business that obviously you're writing, which impacts how much you release and how much new business you have there. But I think a very interesting way of looking at it.

Now let me go back to the real world because the real world is not this, right? The real world is messy. We don't know everything perfectly. And when we think about what the variables are that Re at Hannover Re on the life and health, we try to estimate all the times in these components and where we see the impact of our estimates, there are three parts. Number one, experience variances, which obviously have a direct impact on the P&L; number two, change in estimates, which have a direct impact in the CSM; and number three, you have the loss component, which has, again, a direct impact in the reinsurance services.

So, Andrea, let's have a look into that. So here, we have these three components. And again, what is interesting is to understand how good is the quality, how well are our best estimates? How well are our assumptions really. And one way of looking into it, and I try to give you some hints again here is to say, over a period of time, Again, not in one quarter, please, that makes really no sense. Over a period of time, how does the change in estimates, so the positive changes, how does the experience variance and the loss component perform? And if the sum of these three values, which are mainly the same thing, it is because of our assumptions of the future and current cash flows. If the sum of these components is positive, you can conclude that our estimate, our view of the future is probably slightly conservative because you would expect on a best estimate basis to be here at a zero level.

So when you look at this, and I showed you again the two values of experience variances, that's very important. You remember, I said with the one-off, it's EUR 3 million positive. Without the one-off, it's EUR 23 million positive. So I showed you the two here, right? When you sum this up, you see that in a realistic scenario, we have EUR 50 million -- around EUR 50 million per quarter of positive deviations in respect to our view of the future world. So EUR 50 million, meaning that's EUR 200 million per year, where we are slightly on the conservative side. And this obviously has an impact on the new business CSM. That means that we're probably slightly underestimated the new business CSM, which then comes out via changes in estimates and experience variances. So that's a very, very important message in my opinion.

Good, Andrea. This is my last slide, but I would say the most important one. What you see here is, again, so let's go back to the reinsurance service results. Let's go back to the CSM. You see the variations of these components. So again, the colors, I don't have to repeat this anymore. Let's just suppose for an instance, I might agree on that, okay, that the average over 10 quarters, the average over 10 quarters, the average waterfalls of the 10 quarters is a good indication of the life and health economics. I don't say that we do the average over 500 years, that's stupid, okay? But over 10 quarters, as we're doing here, if we suppose that this is a good indication of the economics of the life and health business.

And if you look now into these individual components, and we see in light Violet, the volatility of each of these components that we have seen previously in every single quarter, you see the huge volatility. I mean we have discussed them, the experience variances as an example, change in estimates as another example. I mean, you would probably agree that a single quarter is all but a good indication of the economics of life and health. I mean it's kind of -- I'm stating the obvious, right? You cannot take a single quarter and say this is a good indication of the economics if we believe that the average is a good indication. And we have seen the average makes sense.

So what Brona and myself said is, well, is there a better view maybe? Is there a better way to look into the economics of the life and health business? And we gave it a try. And what we did was to say, well, if you get a new quarter, the rolling average of the four past quarters, including the new one, then you see and you see this with these nice little squares here to row squares you get something which is much, much, much closer to the average of the 10 quarters and you get a result which is at much, much better economics -- indication of the economics of our of business. But looking into a single quarter sincerely that's not make a lot of sense and this is I think a very important slide in my opinion.

You do whatever you want but when you do this you get a real idea of what's going on. I mean you see it here. I mean this is real figures. I mean, mathematically, we all understand it, right? The rolling average has less variance. I don't have to make studies here. We know that, okay? Obviously. But this is real numbers and it works, and it works quite well. Look at the variance we get on the Delta CSM. Look at the variance we get around the reinsurance service result, very, very close to the reality, and this is really good, okay?

So, Andrea, I have three key takeaways, okay? Number one, number one, we have shown, and you remember the figures that we have been able to produce more than EUR 2.1 billion of reinsurance service result, consistently positive quarter-by-quarter over the past four quarters. This demonstrates our earnings strength and also the earnings stability of life and health, number one. Number two, we have shown that we have created EUR 870 million of additional CSM, 10x EUR 87 million, remember the figures, notwithstanding very, very strong currency headwinds. So this gives us sincerely confidence into the earnings growth because this additional CSM is going to emerge into earnings, number two. And number three, we have shown you that we have generated EUR 1.7 billion of additional new CSM over these 10 quarters. And we have also shown you that our new business CSM is slightly on the conservative side. So this gives us also confidence in our ability to grow our business into the future.

Thank you very much, and I ask Brona to join me for the Q&A.

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

So all the big markets, all big markets.

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

Hadley Cohen, Morgan Stanley. Thanks for all the detail on the sort of the volatility of the CSM and the earnings. But can we talk about the growth profile a little bit, please? Because I mean, I think if we adjust for the noise around the numbers, the CSM growth is quite limited. It's quite small, especially when I compare that with some of your competitors on the reinsurance side that are seeing much stronger CSM growth on the life side. So can you sort of talk about why you think there's a difference there, whether you can expect to grow the CSM at a faster rate going forward?

And then linked to that, can you also talk about the growth outlook on the financial solutions side, please? Because I think the margins there, particularly in the U.S., have halved in recent years. Are they going to continue to come down? Is that still an attractive line of business and the growth outlook, I guess, on Asia and from the fin sol perspective as well?

Brona, it's for you.

Yes. Thanks for the question. So on the first point about the CSM growth in the past CSM growth, I think as Claude explained, there has been some conservatism taken there. So I think some of the new business CSM that we have shown probably is a little on the conservative side, and you will see that conservatism released into earnings then in the future as experience variances. So I would say that's for the first part.

I do think we feel very optimistic about growth prospects on the Life and Health side. There's a number of areas that we feel there's growth opportunities in. I would say on the traditional side, there are markets where we're underweight, particularly the more mature markets. We're underweight in the U.S. and in the U.K. in traditional business, and we still see a lot of growth opportunities there that we would expect.

You mentioned financial solutions. Financial solutions, there are still definitely opportunities in the U.S., but you're absolutely right that margins have come down. So we need to write more business to kind of run at the current level of growth. But there are opportunities in the U.S., and we continue to execute on some attractive U.S. opportunities.

And then you rightly mentioned Asia. And there's a lot of regulatory change happening in Asia. So there's been a lot of change in regulation in Hong Kong in Korea, in Japan, across many of the Asian countries. And that regulation change always leads to growth in financial solutions opportunities. We've strengthened our teams in many of the Asian markets to prepare for executing on those opportunities, and we do feel there's going to be opportunities to grow. We're already seeing -- again, we're already executing on reasonably significant financial solutions opportunities in Asia, and we would expect that to continue.

And then the other -- the last part of the business, just to mention is our longevity business. We've written a lot of longevity business, mostly in the U.K., but we have executed in almost 10 countries on longevity, and we see longevity opportunities growing across the world. We've quoted on longevity opportunities at this stage in more than 25 countries. That's a lot. So we do feel our longevity teams are very strong. They're well able to execute. And we probably feel relative to our peers, we have that connection between our local teams and our global experts, and we feel well positioned to execute on those longevity opportunities as we start to see more and more opportunities outside of the U.K.

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

We continue with Shanti, right next to Hadley.

Yes, Shanti Kang from Bank of America. So I have two questions. The first one was just on the earnings mix of life and health. How should we think about the distribution between fin solutions, longevity and then the traditional kind of mortality book? Do you expect that to shift in the next year or two? Or what's the horizon?

And then this is perhaps a more simplistic question, but just connecting the pieces from Christian's currency hedging piece into your CSM view, how do those two interlink? And will there be an adjustment from a currency effect impact off the back of the hedging that's been put in place for Q3?

Maybe I'll take the first question on the mixture of earnings from financial solutions, longevity and traditional business. I mean I think what you have to recognize is most of our earnings, the vast majority of our earnings come from our in-force book. Life and health is long-term business. So it takes time to change the mix of earnings. So over the next five years, the vast majority of our earnings are going to come from that CSM that Claude showed that's already on the books. And that gives confidence in how the earnings are going to emerge, but it also means it takes time to change the mixture.

So you mentioned one or two years. No, I don't see much of a change in profile in earnings over the next one or two years. Looking out longer 5, 10 years, yes, we might want to see more traditional business there and less some -- a smaller proportion, I would say, from financial solutions. On the currency?

On the currency, I'm going to hand over to Christian. But just one second on the other question again on what you said. If you look into the CSM, and I was presenting the CSM two years ago, remember, I was presenting the real CSM. And I can tell you that the split of the CSM hasn't changed dramatically. So we're still at 1/3, 1/3, 1/3, 1/3, 1/3 traditional business. And that's -- there is a certain stability of the mix of the CSM. And it's this mix of the CSM, which determines how quickly, as I said before, it moves into profits.

So if we start to write more traditional business, as you said, or longevity business, as you were just mentioning, the impact will be, yes, a new business CSM, but on the reinsurance service results, the impact will be much lower because these profits take longer to emerge. So that's something that you have to take in mind. That's why I said look into it over a reasonable period. don't look into it on a 1-year basis, quarterly basis makes no sense. But the reasonable period and over a reasonable period, we have quite a bit of stability.

Sorry, now Christian, currency.

Happy to take that one perfectly ties to my presentation. And we have to take a bifurcated look here. So there is two answers to your question basically. The one is for the existing book of business for the existing CSM because this is already hedged by the approach that I presented. Why is this? Because I mean, what is the CSM. The CSM is basically the present value of the future profits in a specific way under IFRS measures. And I explained to you before that we hedge with an economic view, and we take Solvency II as the calculation basis for this. And what is in Solvency II in the NAV, there's the basic own funds, including the future profits. So it's already included. It's not one-on-one. It's not exactly the same valuation under Solvency II. But broadly speaking, this is already covered by the hedging we do for currencies. That's the first part of the answer.

And the second is, obviously, the new business, the newly written business. And as Claude already explained, of course, there you have an impact, yes. The business we write into U.S. dollar is more or less value depending on the actual exchange rate we have at the time we write the business into our books.

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

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

And then the second question is, I know Shanti kind of asked the same thing, but how has the cash flow cash emergence, the cash -- the dividendable cash change.

Do you want to?

Yes. I mean I wasn't there last year. So I don't know exactly what you heard. I think when you look at growth opportunities, you really have to look at the different segments, the different businesses and then the different markets. So you mentioned that we either win or lose a contract. That's actually not the case in the U.S., for example, to the largest protection market, largest traditional protection market. In the U.S., reinsurance is typically ceded via pools.

So a reinsurance pool from a client is normally split into three, four, five reinsurers. Our focus in the U.S. up to more recent years was very much on stabilizing our in-force book. That work is done. We look at pricing in the U.S. We feel we're not going to write every deal, but we feel there are opportunities to grow our new business there fairly significantly. So that probably has changed over the last few years.

Then we look at longevity. Like I said, we still see there's good opportunities, particularly outside of the U.K. And financial solutions, I think we've always -- I don't think our appetite there has changed at all. We do feel we are the market leaders or one of the market leaders in those structured financial solutions. And I don't think there's any change in our desire to write as much of that business as we possibly can.

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

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

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

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

I just -- and I said that last time, I guess, if you look into the CSM that we're having, it's now probably EUR 7 billion or whatever. This is future profits, which are coming. But this is discounted. So if you don't discount the figure, you have to add 50% to the EUR 7 billion. So we're ending up that the figure is a bit more complicated, 11.5%, if my calculation is right, yes. No, 10.5%. 10.5%, sorry, I'm getting tired. So 10. Old and tired. 10.5%, okay? EUR 10.5 billion, which is massive, okay?

Then you have the risk adjustments which is in principle also future profits. yes, if everything goes as expected we're [indiscernible] of EUR 3 billion and there discounting as a much, much figure that impact because the risk adjustment, the big part of the risk adjustment is from our long term business. So if the discounting effect is 90% that means the real figure if you undiscounted and we're undiscounting it's obviously is 90% higher than the EUR 3 billion. So we're talking about close to EUR 6 billion risk adjustment to EUR 10.5 billion CSM. We're talking about close to EUR 17 billion of profits which are lying there and which are common to the reinsurance services at sometime. But you need a little bit of patience, obviously.

Yes.

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

It's Ivan Bokhmat from Barclays again. I wanted to tie together with some of the comments that Clemens and Christian have made about the capital consumption and the solvency ratio drag and some of it will come from life and health. So what I wanted to understand perhaps is what is the capital-intensive growth in life and health? Is it about the type of business, the geography, the mix altogether? So if you talk about growth in closing the underweight in traditional markets in mortality, is that the most capital intensive or maybe there's some types of fin fall something along those lines?

And secondly, again, tying back to the earlier session, we were talking about the adding to the buffers in Life and Health. Is there a way for us to quantify to think about that? I mean, very simply, if you say it's EUR 200 million of extra kind of releases in a year, should we just compare it to the stock of CSM and say, well, you're 3% over reserved. So this is kind of how those buffers work if we just use the P&C analogy.

Okay. Maybe just quick on the first one. The way -- what you need to understand is the way we price our business. And Sven alluded to it, by the way, we -- in the whole of Hannover Re, we have the same way of looking into business. There is no politics. So we have a certain economic capital that diversified economic capital that every piece of business is consuming. And obviously, the more volatile, the more dangerous the business is, the more capital you're going to consume. And the way we price the business is that we want to have a minimum return on this capital that we have consumed.

So the more volatile, the bigger the margins. You write a cat business, you have much higher margins, obviously, than if you write financial solutions deal. So we look into this business in a very, let's say, agnostic way. You understand what I mean. We look into the business, look into volatility, how much capital does we consume, how much margins do I need, and that's it.

And now the question on the most capital-intensive business, Brona, go ahead. We could both answer it. Go ahead.

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

Another part of the question?

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

Life buffers.

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

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

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

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

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

Okay. Darius?

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

Yes. I mean I would say there's no one single source for that. We look at multiple different sources of information. And then you're trying to piece it all together and put together an overriding story on how we compare with our competitors. So we do have NMG or a consultancy firm who do client surveys in all the markets. There's good information, particularly in the more mature markets. There's good information on the amount of business that each of the reinsurance companies is getting from cedents. We get information from the cedents from the clients, particularly from friendly clients. They're typically very happy to share how we are doing relative to cedents. Often when we price a piece of business, we will get market feedback on how we're pricing relative to other competitors. So there's multiple sources of information. And then we're obviously also looking at their earnings reports, and we watch their Investor Days.

But I don't think there is a single source. I think it's putting together multiple sources of information and finding -- connecting the dots essentially and putting together that view of how we compare to our competitors. And I think that gives -- that can give you quite a reasonable source of information, but you're never going to know every...

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

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

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

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

Vinit from Mediobanca. So just one, let's say, philosophical question and one quick life question. The IFRS 17, when it came in, one of the supposed benefits was granularity. And you highlighted with the thousands of contracts that you get to see. Has it changed anything in your behavior as a manager of those contracts to see all the data -- because then we would thank the IFRS 17 effort as well. But if there is, I'm just curious to know.

And second thing is just with Brona coming in and the whole financial solutions used to be a quite emphasized area, but are we sensing the emphasis a bit lower with this new -- in this new world now? Or just curious, it seems to be a bit less emphasized. You said five years later, less financials than more traditional book.

You want to take first or you want to take first. IFRS 17, it's as you said it is complex. And it is a new regime of this leverage you need -- previously you had actuaries here, accountants there. Now you need what we call accountaries. Because you need -- it is more complex, I would say. But I must say I like it by the way because it's more economic than the previous regime and I love it by the way. I love the fact we don't talk about freedom anymore. I loved it, yes. I always found it stupid. So, but if you look into the way we write our business, the daily business, our underwriters, now it's [indiscernible] we need to take a decision on the piece of business which is on the table, and we're excited about it.

We're not talking about IFRS 17. We talk about premium, commissions, profit sharing claims. So we take economically sound decisions and the decision-making process, the way of pricing, looking into the economic capital we need, et cetera, et cetera, has not changed a new, I can tell you. Nothing. This is still the same. IFRS 17 is the way we show profits, but I must say I pretty much like it. I hate to say so, yes.

I think we've always operated very much according to an internal model. Our internal model, our economic basis. I think what's nice is that IFRS 17 aligns to that much more than IFRS 4. So it hasn't changed any behaviors, but you probably see a much more aligned accounting to the way the business was already being run.

On the second point, I mean, Claude can comment also. I love financial solutions business. I think we both love financial solutions business. And our appetite is to write as much financial solutions business as we possibly can. So just to be very clear on that, we will continue to write financial solutions business. We do see more competition in this space. We do see more and more peers coming into that financial solutions business. So we will have to fight hard to maintain our growth in financial solutions. So we absolutely want to continue to grow the financial solutions business, and I think we will continue to grow the financial solutions business.

When I spoke about financial solutions reducing the proportion of financial solutions reducing from where it is today, and that would be by growing the traditional business, particularly where we have been underweight, I would say. So it's not in any way a reduction in appetite for financial solutions business. Quite the contrary, we'd like to write as much of that as we possibly could.

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

Okay. Then the next question comes from Andrew.

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

Let me make one example, and it's with you, by the way, longevity, but I had longevity before. So that's why I know the detail there. When you look for something longevity, we had positive changes in estimates. But what you need to understand, it's not that we said, oh, we see that people are living less long than we expected, so we can release reserves. It's not about this. It is about the inventory. So every year, we look into our book and we -- I told that you probably we look into every single policy, policy by policy, right? And we look into who died. And given that we have a mini reserve for adverse deviations of every single person in the book, everybody who died releases this mini reserve of adverse deviations, and this is leading to a change in estimates.

So don't believe that we're changing our estimates on longevity every year. I mean what's going on that we change our estimates on how people are dying every single year, that makes no sense, right? So longevity is certainly, I would say, systematically going to produce more positive results than expected because of this detail that was just explaining to you.

Brona, you have the other.

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

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

Okay. Well, in the interest of time, I thank you for your questions. And Claude and Brona, thank you for answering those.

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

Sorry, thank you. Thank you, Karl. So when I made my introduction, I said there's a lot of passion when we talk about the business, a lot of love for the business at Hannover Re, as you can tell. And that's all the way through the Executive Board. What I didn't know, that's my key takeaway is that there is so much passion for IFRS 17 accounting in the Executive Board, which we've just learned Claude. So thank you very much. That was very good.

I think what all presentations that you heard, I mean we spoke about a variety of topics in those presentations, all sorts of topics. I think when I just reflect on them, I think what all presentations had in common was confidence. Confidence to grow, to continue to grow our business, be it in P&C or be it in life and health. The confidence -- and our colleagues alluded to it, Claude, Sven, you said in a given year, the business can be a bit volatile when we talk about structured business, et cetera, when we talk about how do we react to market cycles. But midterm, long term, we are very confident due to many of the reasons that we alluded to are very confident that we will continue to grow our book of business.

What also was very clear is that there is a lot of confidence that we will continue to grow our earnings. by way of fueling it with new business. We've heard on the life and health side, you could tell, I think that there are plenty of opportunities to grow for us. And the same is true on the P&C side, be it in a traditional business, again, all according to market cycle, be it in a structured business, where in a given year, it is transactional. It can be volatile. But clearly, we are very positive on the pipeline also on the P&C and on the life and health side. So that earnings growth is not only fueled though by new business that we are confident to create. It's also backed by the resilience that we've been able to build in our assumptions.

And if I just start probably in a different order and start with the investments, and Christian you alluded to it. I think we've been able to build a portfolio on the investment side that is highly diversified and that even provides stable increasing investment income in difficult market environments as we've seen in recent years. So reliable earnings contributions on the investment side is something that we expect going forward with the assets under own management to grow and the higher yields that we see, the higher market yields still finding their way into the running yield of our fixed income portfolio. So that will already increase the contributions from the investments.

On the life and health side, I mean, one of the earnings contributors and Claude alluded to it, clearly, the new business contribution. And whilst that might really just on the face of the presentation of the new business creation looks like, is there really a lot of new business CSM coming? Or is that mainly assumption updates. I think it's true that already in the initial recognition, we are very cautious in setting the assumptions. Therefore, I would say the new business value that we show in our new business CSM is a bit subdued by the fact that we are very conservative. And you will see some of that new business creation coming through by way of assumption updates later on.

We spoke about, and Ivan, to your question on are there similar buffers or resiliency on the life and health side. So we roughly look at EUR 6 billion of CSM at the moment on the life and health side, which are by definition, as we heard, future profits. But we are also looking at the risk adjustment on the life and health side of around EUR 3 billion, which no coincidence and some of the capital models are considered future profits as well, hard capital. So therefore, to that point, our confidence on the earnings on life and health are also fueled by the fact that we are sitting on EUR 3 billion of risk adjustment, which by definition of IFRS 17 are also contributing and find their way into the P&L going forward. Some of that is more fungible than other elements of the risk adjustment, but there are ways to manage our earnings also on the life and health side.

On P&C, again, I think that confidence that we will continue to grow our earnings is fueled by attractive opportunities in the market and Sven alluded to the fact that this is still an attractive market environment. And I think here, really our low cost ratio will give us an advantage to grab market share, to grab business in a profitable way, even in more difficult markets. So growing the business will fuel that confidence. But at the same time, and I just want to be clear on this, we do feel quite confident with the buffers and the resiliency that we've built over the last couple of years.

Whilst this is not a ceiling just by, let's say, we will not change our prudent reserving approach. But just by way of not adding additionally as we did probably very substantially in the last couple of years, just by way of not adding additionally to these buffers to the reserve resiliency, this will clearly have a positive impact on our combined ratio on our reinsurance service result in P&C, which we expect to grow even in softer market cycles.

So overall, again, I think, and I hope you find this useful and you have sense that there is a lot of confidence that we will continue to grow our earnings and that we will, in combination with a higher payout ratio on our dividends, continue to create value for our shareholders. And as we saw earlier, on a sustainable and very reliable way. That's clearly our ambition.

So thank you again for taking the time out of your busy schedules to come here to Frankfurt. Thank you for taking the time in the webcast and follow the sessions. Thank you again for your interest in Hannover Re. And I want to repeat, Karl, thank you to you and your team, big shout out to all the work that has gone into this. I really find it enjoyable, and I hope you all found it enjoyable. Thanks again, and see you soon.

BACKUP EXPORT

Good morning, everyone, and welcome to our earnings call on the half year results 2025. Today's speakers are Clemens Jungsthofel, our CEO; and Christian Hermelingmeier, the CFO of Hannover Re. For the Q&A, they will be joined by Claude Chèvre and Sven Althoff.

And with that, I hand over to you, Clemens.

Thank you, Axel, and good morning from Hannover. So I'm pleased to report that the business performance in the first half of 2025 leaves us very well positioned to deliver on our profit target for the full year. The group net income of EUR 1.3 billion reflects a strong underlying profitability and additional positive effects from currency translation and from tax. As we had not planned for such positive effects to be explicit, this left us in a very comfortable position where we could use the extra level of profits to further strengthen our company's balance sheet. We have added additional prudency to our P&C reserves. We've taken a more cautious view on certain pockets in our life and health portfolio, and we have realized some losses in our fixed income portfolio.

All of this improves our already strong capability to manage volatility, deliver on targets and to pay a steadily increasing dividend. In P&C reinsurance, we have continued to grow our portfolio in an attractive rate environment. As explained at our Q1 conference call in May, the refinement in the calculation for the nondistinct investment component has a negative base effect on reported growth numbers. As it does not impact earnings, this is no cause for concern, also not when comparing to our 7% growth target. On an adjusted basis, the growth is in the double digits, clearly ahead of the 7% mark. The large loss experience in Q2 was rather benign, particularly on the NatCat side, mitigating the significant overshoot of the budget in Q1. Hence, the overall impact from large losses only slightly exceeded the budget for the first half of 2025.

As mentioned, we have used the overall positive result situation to add further prudency to our P&C reserves with a corresponding effect on the reported combined ratio. Nevertheless, adjusted for the large loss impact, the reported 88.4% is in line with our target, clearly pointing to a better underlying number. In life and health, reinsurance revenue remained rather stable. More importantly, the new business generation was clearly positive at EUR 365 million, supporting our growth targets for the overall CSM. The reinsurance service result of EUR 445 million reflects the overall positive business development and a precautionary increase in the risk adjustment for morbidity business in China. Altogether, we are well on track to deliver on our target for life and health for 2025.

The investment performance was very satisfactory. The return on investment of 3.3% is in line with the target despite around EUR 60 million in active realization of fixed income losses in the second quarter. Finally, the capitalization remains strong with a solvency ratio of 261%. The decrease versus Q1 is mainly driven by the redemption of the hybrid bond, some smaller model changes and the next step in our quarterly accrual of foreseeable dividend. Furthermore, the additional prudency in reserving is dampening the operating capital generation in P&C.

Shareholders' equity decreased by 6%. Major driver here is the negative impact from currency translation. Economically, our asset liability matching is very good, not only for duration, but also for currency. However, an accounting asymmetry is artificially splitting the valuation impact of the weakening U.S. dollar, leading to a positive P&L effect and the negative OCI impact. The CSM increased by 3.8%, mainly reflecting the new business generated by both business groups, partly mitigated by negative currency effects. The risk adjustment decreased by 9.2%, mainly driven by some model refinements in P&C as well as negative currency effects and a new retail cession in life and health.

Altogether, the performance of both business groups and our strong balance sheet, including the CSM and risk adjustment, give me considerable confidence in current and future earnings growth. The return on equity of 23% in a period with a large loss experience around the expected level is further confirmation of our success.

On that note, I'll hand over to you, Christian.

Yes. Thank you, Clemens, and good morning, everyone. Our P&C business is growing nicely on a diversified basis, including a strong contribution from structured reinsurance. The top line growth is slightly below our 7% target for the full year. As Clemens mentioned, the reported number is impacted by a refinement in our accounting. However, this modification was not fully reflected in the first half of 2024, resulting in a one-off effect when comparing the revenue to the current year. Excluding this base effect, reinsurance revenue would have increased by more than 10%, clearly supporting the target achievement. Importantly, there is no impact on earnings due to the corresponding effects in the service expenses.

Furthermore, the accounting impact on reported growth should decline over the course of the year, and I would still expect that the reported FX adjusted growth will also end up in line with our target of at least 7%. The combined ratio of 88.4% includes a moderate negative impact from large losses, ending up EUR 41 million above our budget. As Clemens already explained, the underlying profitability was even stronger in light of the additional balance sheet strengthening with an increase in reserve prudency. Finally, the combined ratio includes a discount effect of around 9%. As usual, the increase in prudency for our reserves is biased towards long tail lines with a higher level of discounting.

Overall, the discount effect is still higher than the interest accretion in the reinsurance finance result. As explained before, we have been very prudent on the reserving side as an offset. The favorable investment result primarily stems from the increased ordinary income from fixed income securities and very solid returns from alternative assets. For the sake of completeness, the amortization of our inflation-linked bonds added EUR 69 million. Furthermore, we have used the opportunity offered by a strong result overall to moderately realize hidden losses on our fixed income portfolio. In Q2, this effect amounted to around EUR 60 million. The currency result was significantly positive at EUR 232 million, driven by the accelerated weakening of the U.S. dollar over the course of the first half year.

The main contributor to the P&C service result is the CSM release, reflecting the recent renewals in a very attractive market environment. As in 2024, the CSM release includes smaller catch-up effects due to a prudent release in previous periods. The experience variance mainly reflects our prudent reserving on the business earned from current underwriting years and the overshoot of our large loss budget. The runoff result has been positive in most regions and lines of business. But as explained, we have used the strong underlying profitability and the overall strong result situation to add additional prudency to our reserves. This is the reason why we are reporting a negative runoff result of minus EUR 419 million.

Apart from this, the runoff result also includes our updated view on the Russia-Ukraine aviation loss and a moderate increase in the best estimate for some pockets of U.S. liability business. The loss component from new business is quite low, confirming the attractive rate environment in P&C reinsurance. The CSM growth is mainly determined by the successful renewal period in 2025, resulting in a strong new business CSM of EUR 2 billion. Compared to the previous year, the number increased moderately. This development mirrors our renewal reporting, growth at slightly lower risk-adjusted prices and the reduced cession rate to our retro program.

Let's now move on to life and health. Reinsurance revenue was rather stable, increasing by 0.3%, adjusted for FX. The revenue increase in financial solutions and longevity was offset by a decline in traditional business in Greater China and the U.S. The new term traditional business refers to our combined mortality and morbidity business, reflecting a change in our internal reporting lines. The results for the first half of 2025 are based on favorable underlying profitability with a positive experience variance in all reporting categories. This strong basis allowed us to take a more cautious position with regards to our mobility business, in particular, in Greater China.

Altogether, the reinsurance service result of EUR 445 million is fully in line with our full year target. The investment result mainly reflects good ordinary income from fixed income. Altogether, the EBIT contribution from our life and Health business group was EUR 470 million. Looking now at the IFRS 17 components of the service result. The CSM release is the main profit driver, and the release in Q1 is within the expected range. The risk adjustment release has normalized after an extraordinary low release in the first quarter. The experience variance is clearly positive, based on a diversified contribution by line of business. Looked at in isolation, the experience variance for the second quarter was negative.

This is connected to our U.S. mortality business and includes an adverse impact from large claims. Overall, this should be viewed in connection with the first quarter, where we have recorded a positive impact from the same business. Overall, developments are within normal quarterly volatility and not connected to any underlying trend. The main driver for the loss component is our morbidity business, particularly the critical illness business in Greater China. Here, the negative impact is not based on new trends resulting in assumption changes, but rather the overall level of profitability allowed for a more cautious positioning, reflected in an increase in the risk adjustment.

With a more holistic and economic view on assumption changes and experience variance, I would like to point out that both the sum of assumption changes in the CSM and the loss component as well as the experience variance are positive in the first half of 2025. This again confirms the overall cautious initial assumptions in our diversified portfolio. The CSM development on the right side is clearly impacted by the currency effects. The CSM generation, which includes the new business CSM and extensions on existing contracts, together amounted to EUR 365 million based on a diversified contribution from financial solutions and our traditional business. Changes in estimates are driven by updated assumptions for our longevity business.

Altogether, the total CSM would have increased by 3.8%, excluding the currency effects, so nicely ahead of our 2% target. The development of our investments was again very satisfactory. The ordinary investment income reflects the continued rollover in a higher yield environment and a strong operating cash flow. Inflation in bonds contributed EUR 69 million. Additionally, the contribution from alternatives was very solid. In light of the positive currency result and a rather low tax rate in the second quarter, we decided to also strengthen our balance sheet on the investment side and took the opportunity to moderately realize some losses in our fixed income book.

The income from the change in ECL and the fair value of financial instruments remained moderate. All in all, the return on investment of 3.3% is slightly above our 3.2% target despite realizing around EUR 60 million in losses in our fixed income portfolio. At the bottom of this slide, you can see that the unrealized gains within the OCI have changed materially in the category Others. This reflects our participation in Viridium accounted as an asset held for sale. You have probably seen the latest news on this topic. We have decided to sell our entire stake later in 2025, concluding a highly successful financial investment for Hannover Re.

To conclude my remarks, the business performance in the first half of the year was satisfactory. The positive impact from currency and tax has been used to further strengthen our balance sheet, we are well positioned to deliver on our targets in 2025 and in our continued positive earnings trends going forward.

And on that note, I'll hand back to you, Clemens, for your comments on the outlook.

Thank you, Christian. So the midyear renewals, I would say, lined up well with the trends reported in January and in April. The market environment is characterized by an increase in reinsurance capital and the willingness to deploy this capital in an attractive market environment. The resulting increase in competition has created some pressure on pricing, most pronounced in property cat. Renewals in other lines of business are more stable. Casualty pricing in the U.S. was stable or up slightly, supported by the underlying rate increase in primary business.

The overall risk-adjusted change in price was minus 2.9%. Terms and conditions, though, as well as attachment points remain broadly unchanged. Overall, the rate and accuracy remain attractive, and we continue to expand our portfolio on a diversified basis. Looking at the outcome of the midyear renewals. This has been marked by a reduced placement for a large individual treaty in the U.S. Adjusted for this, the premium growth would have been 4.5%. On top of this, we benefited from favorable demand for structured reinsurance, posting double-digit growth in the first half of 2025.

To summarize the year-to-date renewals in 2025, Hannover Re has grown the premium volume by 5.4% and despite the reduced volume from one large treaty. The underwriting year 2025 marks the third consecutive one in a very attractive market environment. The quality of our portfolio and the business we earn going forward will remain strong. As the result of the first half year fully supports our expectation for 2025, we've kept our guidance unchanged. We continue to expect growth in P&C revenue of at least 7%. On an underlying basis, we are very well on track. While on a reported basis, including the aforementioned accounting impact, we might end up closer to the target.

The combined ratio is expected to come in below 88%. The large loss experience in the first half year was close to expectations. This means that we have almost a full budget available for the second half. Additionally, the overall level of prudency and the added amount in Q1 and in Q2 provide considerable confidence in our target delivery. The life and health service result is expected to come in above EUR 875 million, and we are targeting a return on investment of at least 3.2%. Altogether, we are highly confident that we will achieve our net income guidance of at least EUR 2.4 billion.

This concludes my remarks, and we would be happy to answer your questions.

[Operator Instructions] And the first question comes from Michael Huttner from Berenberg.

I had two questions on numbers. The first one is on solvency. I just wondered if you could give us the detailed breakdown of the move from 272% to 261%. I guess the more detail we have, the better to understand it because that's the number which I can't square at all.

And then on Viridium, so I'm looking at Slide 13. I see the others, and you highlighted the difference in participations, would mostly be the Viridium coming out of it. So plus 355 to minus 58, that's kind of I guess, the EUR 410 million gain. I just wondered if that is the gain you would expect? And how will that be booked? Is it part of your EUR 2.4 billion profit target? And how much cash will you get?

Yes. Thanks, Michael, for your questions. The first, if I got it right, concerning the delta in the Solvency II ratio, can elaborate a bit on that. So half of the 11 percentage point difference is just related to the repayment of the EUR 500 million hybrid bond. So this was communicated before and as expected. And the second half of the movement is quite a mix of different effects. So some, of course, growth related impact, minor model updates, spread movement and updating of the underlying data. And you have to consider that our very prudent reserving approach dampened with the operational own fund's generation, so this is also reflected here in the solvency ratio.

Just the last, would you -- could you give us a little bit more -- any numbers on these things so kind, but I understand if you'd rather be vague.

Yes. So consider them all to be in a low single-digit space. So there's really none of them outstanding. This is, from my point of view, really the quarterly volatility in internal model when you rerun it. So nothing standing out there.

Michael, on Viridium, you've pointed at the number. I don't have an exact number off top of my head, but the overall gain will be in, I would say, the mid triple-digit million area. And that is due to the accounting regime, the accumulated value and gain in the other comprehensive income as we have opted for valuing this investment through the OCI and not through the P&L. This will be basically a recycling from OCI to retained earnings straight away. So this will not touch our P&L. So this is not part of our EUR 2.4 billion guidance. And in terms of cash -- sorry, Mike?

Yes, yes, that's exactly -- sorry.

No. And in terms of cash, that's largely the amount. Our book value is sort of has been in the double-digit area, I think, clearly, the fair value on our IFRS balance sheet, as mentioned, but that is largely sort of the cash that we will receive.

Can you help me on that? And I don't know where to look for this other item you just mentioned.

Yes. The cash position, you won't see in our half year financial statements, I think. So it's part of the overall cash flow, of course, and that will show up in our cash flow -- in our operating cash flow.

I understand, but just -- I don't know, it's hard to ask the question. How much cash will you get? I think that's the best way I can ask it.

Yes. So given that it's a double-digit accrued book value on Viridium, it's mainly -- so the number -- sort of the triple-digit million number that I alluded to earlier, Michael, is roughly also the amount of cash that we will get.

And the next question comes from Andrew Baker from Goldman Sachs.

First one, just on P&C Re. I mean, you've alluded yourself that the underlying combined ratio when you sort of normalize for prudency taken in current year reserves, the runoff results versus a normalized assumption. Obviously, large losses versus budget is running very favorably versus your planning target. As we think about the rest of the year, obviously, I appreciate it will depend on losses, but just assuming large losses are in line with budget, should we expect you to show any of this underlying combined ratio strength into earnings? Or will your preference continue to be sort of strengthen the balance sheet and look more towards that 88% combined ratio level? So that's the first.

And then the second one, just on the Russia-Ukraine reserve. Can you just remind me, or I guess, tell me what the reserve stands at now? And then also, was the increase just prudence? Or as a result of any specific new information that you've had in the period?

I'll start with the second question, Andrew. So our aviation reserve on Russia-Ukraine is in the mid-triple-digit region. The reason why we have now increased this number by a low triple-digit figure is related to the decision of the High Court in the U.K. We still have the situation that we don't have reserves given to us by our ceding companies for the most part. So therefore, our reserving is based on the scenario analysis. And given the ruling in the U.K., we have somewhat adjusted our assumption on the average settlement values across all claims and how these are split across the risk coverage and the war coverage and that adjustment in our scenario analysis led to a low triple-digit increase and the overall loss still stays in the mid-triple digit region.

On the P&C side, well I'm sure Christian and Clemens will add to that. It's, of course, too early to tell. It all depends on how the losses fall. You know that we do our reserve study in the fourth quarter. And taking all of this together will then put us into a position, how much are we going to let through the -- into the P&L at this stage. All we can say is that we are happy with our guidance of being below 88% for the full year. And the rest depends on both the reserve study and the major loss experience.

Then the next question comes from Shanti Kang from Bank of America.

So I just had one question on the P&C reserve strengthening. So I was just wondering if you could possibly quantify how much that contributed to the combined ratio for this quarter or this half of the year? Or perhaps if you can't give the exact figure, if you could frame it in terms of what the impact would have been without having the additional prudence on the combined ratio?

And then the second question is just on the increase in the risk adjustment relating to China morbidity. Could you just give us an update on these lines and the philosophy going forward of how that drag is going to continue? I know that you guys have taken action here in the past. So just what has changed now to kind of warrant that further increase would be helpful.

Yes. Thanks for your questions. And maybe I'll start with the P&C reserve strengthening. If you look at our runoff result of EUR 419 million. So as Clemens just at the beginning already mentioned, you could assume that by the running business, we would see a positive impact here and the positive runoff result. And even if we consider the Ukraine reserve strengthening that Sven just mentioned, it would still be above 0, so non-negative. And the rest, and as you know, we do not fully detail reserve study at this point of the year. But just to give you a feeling for the volume, this could be the -- yes, today, today estimated amount of prudency buildup. So if you start with the 88% (sic) [ 88.4% ] combined ratio, you could deduct a couple of percentage points, but it's too early to be really precise here.

Yes, maybe on your question on CI China, I mean, we haven't seen -- observed any negative trends or any additional more claims in this portfolio. It's simply that we have had very good results, as Chris and Clemens already alluded to in life and health, and this allowed us to take just a more prudent approach with this portfolio. So that's why we increased the risk adjustment.

And just -- sorry, just on that, how -- what's the kind of time horizon you're expecting that to sort of continue that -- those additions? Can you kind of conceptualize that for us? Or is it still quite unknown?

But the point is that on life and health, you are always on the best estimate assumption. So in principle, what we have done right now with our best estimate. But as you know, best estimate is always 50-50. So I cannot give you any time horizon on this one.

And the next question comes from Kamran Hossain from JPMorgan.

I just want to come back to the kind of underlying profitability and kind of what the implications are. I guess given the math, I think at Q1, you said 100 triple-digit positive development should happen every quarter. So you take the EUR 400 million, you had a couple of hundred million on for each quarter. You take off for Russia-Ukraine, you're probably like EUR 500 million for -- to the first half. So it gets you to kind of low 80s combined. Just really interested in kind of the philosophical view about this within Hannover Re. Clearly, there's a material gap between your target.

So the better 88 and kind of where you're actually watching the business. When do you start to close that gap? Is this something where you've got the EBIT target, obviously, kind of 5% growth out to 2026 so no need to kind of dip in and do a little bit more at this stage? Just interested in kind of views on that. And then the second question is just on the reinsurance treaty that you kind of flagged. Kind of what kind of treaty it was that you gave up and why, in particular, you decided to come off that business?

Yes, Kamran, I'll start with the second question. So this was a U.S. proportional treaty. The ceding company was what you call an insurtech. It could have been written in the structured bucket because the risk transfer on that transaction was not very significant. We wrote it in the traditional basket. The reason why we have less revenue coming from that contract is the fact that the ceding company significantly increased their net retention on the quota share. When you look at the cession that is remaining, we could actually increase our share.

So from a market share perspective, you could argue, we even increased. But overall, the cession reduced significantly. And without that, we, as we said, would have grown by 4.5% at the first of January -- first of July renewal, which gives you an idea about the potential size of the loss premium. But as I said, we could also have written that on the structured side, which also means that from a reinsurance service result point of view, the margin on this, as it is a risk remote quota share, was not significantly high. So we don't expect a significant impact on our reinsurance service result capabilities.

Yes. Regarding, Kamran, your first question. So first of all, to comment on your back of the envelop calculation, that sounds plausible, to confirm that. But looking forward, as said, we have to stay prudent here. We will wait for the hurricane season and the loss development. And in Q2 or November, we will look at this where we stand and then it's time to decide if there is an impact or where to go at.

Sorry, I was probably more thinking about not '25 because you're quite a long way through the year just in terms of what that might mean into next year. And I know you're not going to have guidance until Q3, but just philosophically, is there any incentive for you to kind of push the EBIT a little bit harder than, I guess, the '24 to '26 target suggests?

Yes. I guess I have to disappoint you here. But unfortunately, the same comments refer to that. So we think it's not the time to already give an outlook on that.

And the next question comes from Chris Hartwell from Autonomous.

Just a couple of questions from me. First of all, on the life side of the business, it seems to be quite a few sorts of moving parts within that. I was wondering if you could sort of help me understand a little bit around some of the sources of volatility. I mean U.S. mortality, I'm assuming is the same type of thing that we've seen emerge from some of your peers, but I wonder if you could just comment a little bit more on why you're experiencing that? And also on the CSM change on longevity. And actually, I think you mentioned earlier in your opening remarks that you have a new retrocession on the life side. I was wondering if you can maybe let us know what that is going to help with. That was a big first question, of course.

And the second question is just sort of keeping on the philosophy subject on the investment side this time. You've taken EUR 60 million of realized losses. I mean, that's -- it's a very, very small sort of drip in the ocean of what the ultimate unrealized loss position is on the fixed income book. So I was kind of wondering really on this philosophy of taking that? And I presume there's a benefit on the other side of that through the reinvestment rate. So I was wondering if you can maybe help understand where that's moving to and effectively the benefit to that.

Maybe I'll start with the last one. Good question. So it's not a change in philosophy, but as towards quarter end, we could already see that we would have another very positive, at least very positive accounting FX results under IFRS, and the tax ratio would be quite low. We just took the opportunity because of the overall good results to start realizing here this EUR 60 million. And as you said, it's reinvested immediately. So the running yield in the book will go up, and we will see the returns then in the future. So it's just a shift of that, and we think this is the right environment to do this. Will this continue? This depends on the overall development. So it's not the target at all. It's a reaction to the overall high profitability we saw in all the business groups. And this is just one option to reduce the hidden losses. So let's see how the next quarter looks like.

Yes, maybe on the life and health, I mean, first of all, I mean, what Christian also said in his introduction is that you need always look into experience variances, the loss component and changing estimates together because it's mainly the same concept and the three together are positive and you know that our best estimate assumptions are very positive.

Now on experience analysis -- sorry, on the experience variance in Q2 stand-alone, you're right that it was negative. And you're absolutely right that we were suffering the same as some of our competitors, which was some volatility on the mortality book in the U.S. It's not due to any trend and negative trend that we're seeing, but it's a few bigger risks that cost us a bit of money. So you could say it in a way the wrong people have died, the people with a higher sum assured have died in this quarter, and that led to this negative experience variances from the U.S. mortality.

On the change in estimates in Q2, it's as you said, also, it's mainly due to the longevity business. You need to see that the longevity book is quite big and minor changes in best estimates leads to this change in estimates, which appear to be quite big. So it is -- it is not a trend that we're seeing. We're not expecting these change of estimates for the next 10 years being positive every single quarter. But it's really that we check, we analyze our portfolio once a year, and we go and treaty by treaty. And when we see slight positive deviations, then we see this positive change in estimates. The last one was on the retro, I think, Clemens, do you want to take that one?

Just a retrocession on one portfolio that we have and that had an impact on the KPIs in that sense. It was just one retrocession contract that we have implemented in life and health.

Okay. So if I can just come back to the first question on the reinvestment return, I'm wondering if you could just let me know where the reinvestment rate is relative to the running yield, please? I don't know whether that's somewhere in the disclosure. I haven't seen that yet.

Yes, absolutely. Happy to do that. So we are at a running yield of 3.4%, and the reinvestment yield is around 4.1 percentage points.

And the next question comes from Will Hardcastle from UBS.

Let me take the questions. I guess, first of all, just what's the thinking on P&C retro at this juncture? Are you more likely to increase or decrease your assessment rate in what's a declining pricing environment, but what you still consider very strong margin availability? The second one is, there was two post events disclosed in the report, and you've discussed Viridium, so thanks for that. And the second one is related to German tax reduction. I guess, are you able to discuss what percentage of your earnings get paid this way or any sort of impact and timing of how this would be through earnings?

Well, on the P&C retro side, we are currently in the planning phase for next year. Our base assumption is that when it comes to our property and specialty protections, we will buy more or less exactly what we have purchased in '25. So no intention to buy significantly more or less. Of course, we will observe the market. And if we should find later in the year that the pricing offered by the retro market is particularly attractive, we may buy a little more. But of course, also, the retro pricing is fully dependent on how the rest of the year is going to perform from a major loss point of view. So therefore, base assumption is we are going to place what we have placed in 2025 again.

I'll take that one with the potential tax impact. So to clarify on this, nothing is considered in the Q2 figures for that legal change we have in Germany. I don't have the exact share of the taxable income here at hand. But as we write a lot of business out of Hannover, you can consider this to be substantial. And as we book deferred tax liability and for the future, we have this 1 percentage point reduction over -- per year over 5 years. We expect that this will have a positive impact. We will see this in the second half of the year. We are working on the exact calculation, so we are ready to disclose and book this.

Then the next question comes from Iain Pearce from Exane BNP Paribas.

The first one is just coming back to the solvency, the sort of 6-point negative organic capital generation or sort of ex-debt movements in the solvency. Can we just get some more detail because we really can't square this? You flagged a few small headwinds from model updates from booking growth, but you clearly made some good profits in Q2. You've written some profitable business. The IFRS framework allows for prudency a lot more than the Solvency II framework does. So it feels like there must be something a bit bigger than what you're sort of alluding to as a headwind. So can we just get a bit more detail on the moving parts on that number?

And the second one is on the 7% P&C revenue growth guidance. So 6% on constant currency basis in H1. The renewal volumes are obviously down in the June/July renewals. If you could just give us some confidence as to why you think you'll get there, particularly with the accounting change as well and how much of a headwind that's expected to be in H2?

So on the first one, the asset cost, the ex-debt, 6% impact, maybe to give some more view on that. So yes, there is a positive operating profit flowing into or in the direction of the own funds. But on the other hand, you have to consider that we have to deduct the pro rata dividend. So this balances out to a certain extent. And then the big impact besides all this low single-digit point I already made, it's really the reserving and the runoff loss that you saw, this also is reflected under Solvency II. The reserve is increased, the reserve risk on that is calculated via Solvency II. So this is the main -- or one of the substantial impacts that reduces the otherwise positive capital generation that you related to.

Yes. And on the premium development P&C, as you can see on the outlook slide, we have grown from an underwriting year perspective on the traditional side by 5.4%. We keep growing double digits on the structured side. So from an underwriting year perspective, this is there or thereabouts when it comes to the 7% calendar year, financial year guidance and the tailwinds we are certainly getting is from underwriting year '24.

So as you have seen on our slide, the underlying growth has been double digit. And the only reason why it's showing up at 6% is the accounting change we did last year on the non-distinct investment component. So the variable commissions in a proportionate business, and we expect that the effect from that change is going to reduce in the second half of the year. So that overall, we are confident that the 6% will move towards the 7%.

And the next question comes from James Shuck from Citi.

Two things. Sorry to do this, but I wanted to return to the solvency roll forward since Q1 into Q2. And I listened to your answer just then, but I'm still confused. You mentioned positive own funds generation in the quarter, and you deduct the pro rata dividend, and that gets you roughly kind of neutral-ish, which I find surprising because the OFG certainly on a full year run rate basis should be well in excess of the dividend. And you then mentioned that the reserving and the runoff losses need to be deducted from that as well.

It seems to be double counting because it's either deducted already from the OFG or you deducted afterwards. I kind of end up in the same place that Iain is at, and that is, I can't reconcile the 6-point decline in Q2, excluding the debt. Now the only piece that's kind of left to me is growth. And I'm kind of keen to see, has there been a material step up in the growth expectations or the expected increase in the FCR for the year ahead? But perhaps you have another go at reconciling that; I'd find that helpful.

And then secondly, the growth that you're putting on to the books now as it was last year, is coming a lot from structured business. So I think that's what's giving you the confidence in the top line growth outlook, you mentioned 10% in structured in this period. I guess another way of answering -- asking questions, kind of are there any mix effects when you think about the combined ratio? So it's structured to come on to the books at a higher rate than the rest of the treaty book. Ultimately, what I'm trying to get at is for a P&C reinsurance company, is growth is getting harder to come by. The P&C Re CSM -- new business CSM growth was plus 7% in the period. So you're still confident that you can grow that at similar sort of levels next year? Thank you very much.

Yes. I'm happy to start with the second question. So we are growing stronger in structured, but I would argue that was 5.4% in the underwriting year. We keep growing strongly also on the traditional side. But the impact under IFRS 17, unlike IFRS 4, of a more pronounced growth in structured, this is not diluting, for example, the combined ratio. Most of the growth in structure is coming from a proportionate business where we have significant ceding commission structures, which is the way how to minimize the risk transfer under those contracts. So therefore, from an IFRS revenue point of view, the -- it's considerably less compared to the old IFRS 4 premium view. What's the margin of staying, of course, the same in the reinsurance service results. So therefore, from a combined ratio point of view, we don't back the dilution from a stronger growth trajectory in the structured business, and the same goes for the CSM generation.

And regarding solvency -- and thanks for the opportunity to clarify again here as you are completely right. So the on funds or the profit generation is not completely neutralized or balanced. This is not what I meant by dampened. And so there is an effect. But as you also pointed to, of course, the FCR is also increasing. I mean, we talked about the growth, you have to take all the accounting effect from the nondistinct investment component, we see under IFRS out of the equation. So it's a double-digit growth in the P&C business, and this leads, of course, to a higher FCR.

But I have to repeat here. This is really quite a substantial list of different points like also update in these spreads. The prudency booking, as I elaborated on, we have a small impact from currency. We have minor model updates and data updates. We have the growth impact, anti-hybrid. So it's really several things and not the one big point that is changing here, the solvency ratio.

And the next question comes from Vinit Malhotra from Mediobanca.

So I have two questions, please. The first one is on the growth. So the 5.4%, Sven, you mentioned. And I agree with you, it seems to be a bit more -- a bit stronger than some of the peer group. And I'm just curious whether you think there's any line, you're winning some share? Or do you have a different view from the market in some areas? So that's the question on where this is coming from.

And second question is on the purpose of the higher reserve buffer, I understand that you have the ability because of the Q2 being very low last quarter. But also, if I go back to 1Q, you had mentioned that -- or I think you had mentioned that some of the reserve buffer is to manage the cycle. Now with such more higher level of reserve buffer buildup, is it because you think the cycle is turning a bit quicker? Or it has nothing to do with that? So I'm just curious about the purpose of this much stronger reserve buffer than expectations.

Well, the growth, Vinit, is really coming from almost all of our segments. So it's very diversified. The main driver continues to be the underlying growth of our ceding companies. So even if we keep our shares the same, we often can show some growth. We keep growing our NatCat risk appetite a little bit where in many parts of the world, we are underweight, and we still -- despite the softening in rates, feel that we are an attractive rate environment. So this is an area where we have a little stronger growth than the 5.4%.

But other than that, with maybe the exception of APAC, where the premium volume is more stable, we are really showing growth in all the segments and the most pronounced as we said, is on the structured side. So a very pleasing situation from that point of view that it's not only coming out of one basket, but that is a true reflection on our global diversified portfolio.

And the NatCat region is somewhere U.S.-driven or EMEA driven, you think, Sven?

Well, that's again, I mean, global development. So there's some growth in the U.S. as well, definitely, but we are also growing in the rest of the world. So it's not one region in particular. But the U.S. is a growth area for us as well as we still feel that the rating environment that is offered for U.S. cat business is attractive despite the first reductions.

And regarding your question on the steering of buffers and the cycle, so there is no change in the philosophy, how we deal with this to be here on the prudent side, to be able to cover the volatility, of course, from large losses, but also from the cycle and deliver stable results. But we have to see and have in mind, this is just 1 quarter, and this is a long-term -- mid- and long-term steering philosophy and policy, and this is not changing because of 3 months. So let's see how the year develops. And then we can take our conclusions where we stand and how much room is to maneuver.

And the next question comes from Michael Huttner from Berenberg.

Sorry about that. And still on Viridium, what's the solvency impact? And then the other question, I think it's pretty much been asked in many different ways already, but maybe this way is slightly different. Your peers have also mentioned that their earnings through the 2024 pricing, so not '25 and not the lower, the more the higher. So I just wondered whether the many adjustments you've made in terms of reserving, et cetera, is effectively to correct for what I would regard as overearning? And it's probably not the right term, but earning 2024 profit levels which are probably not going to recur for a while?

So maybe on the first one, solvency impact of Viridium, I don't see a substantial impact from that. So we just changed the investment into, yes, cash at the balance sheet. So this is just shifting between the categories. So no substantial impact, stand-alone.

Well, on the P&C underwriting environment and how this is earning through, I mean, as Clemens and Christian said, I mean, the headwind we really had this half year was from the currency and partly also from the tax side. So this has triggered certain adjustment in our reserve position. The earning of the underwriting year 2024 and the profitability coming with us is very much in line with our original expectations. So the tailwind we are talking about is really coming more from the currency and from the tax side.

And the next question comes from Henry Heathfield from Morningstar.

I was just wondering if you could talk a little bit about the risk-adjusted pricing? It's kind of been increasing from 2.1%, and the January renewals, 2.4%, and then 2.9%. And I was just wondering if you could kind of elaborate a bit on how much that's impacted by the shape of the renewals really, if at all?

And then on the second question, in the first quarter, the running yield was, I think, 3.5%, reinvestment of 4.3% and the return on investment, 3.5%. And then in the second quarter, that's come down -- the return on investments come down to around 3.3%. And so I was just wondering if you could talk a little bit as well about your confidence around the return on investment target of 3.2% and you're meeting that at the year-end?

On the P&C pricing side, I mean, the situation throughout the year has not really changed in the sense that outside property cat, the business is plateauing at a very high level. So very few reductions on the pricing side. Terms and conditions are stable, retentions are stable. And that was also true for the material renewals, where we continue to see a softening in terms and conditions when it comes to price is in property cat. And of course, the midyear renewals are particularly heavy in peak territories like the U.S. and Australia.

And here on the excess of loss side, we did see high single digit or lower double-digit reductions throughout most of the renewals. The exception, of course, for the U.S. with those programs that had an impact from the California wildfires. They, of course, did see some increases. And that mix of the portfolio has resulted in the minus 2.9. But the fundamental situation is still the same that for the most part of the business, we are talking about, rather stable renewals at a high level. With pressure on pricing, but not retention, not terms and conditions on the property cat side.

Yes. Looking again at the investment result. So as you said, we have 3.3% return on investment for the first half year. If I just take out the EUR 60 million of active realizations, this is just shifting through the accounting, we would have had 3.5%. As also mentioned already, we have a reinvestment yield slightly above 4%. So if there are no surprises or substantial shifts in capital markets, I have no reason to think that we should not meet our target of at least 3.2%.

Then the next question comes from Darius Satkauskas from KBW.

Just two, please. I'm really sorry to come back to Solvency II, but I'm still a bit confused. Are you telling us that including the prudence added, the net operating capital generation match the dividend accrual in the quarter? Are you able to tell us what the gross capital generation was? Or rough idea how it compares to 2024 first half?

The second question is on just life and health reserve additions. So you get reserves at sort of best estimate, but clearly, you've added to the risk adjustment. Are you happy with the stock of risk adjustment right now? Or should we expect that you may continue to opportunistically add to this going forward because of all the inherent uncertainty in some of the portfolios?

Yes. Coming back to solvency then again. And sorry, if I confuse some of you. So to reiterate that the dividend accrual, the pro rata is not offsetting the complete operating profit generation here, and you have to consider here especially that we only accrue the ordinary dividend here, and this is not what I meant. So to clarify that again, this is not the case here. And I think I don't have to repeat all the several influences on solvency.

Yes, on your life and health question on the risk adjustment, I mean, this is really pure prudency that we're adding here. And whenever we can, we will continue to add prudence into our risk adjustment. Risk adjustment ultimately is going to become results, obviously. It's just a question of timing, when the results are going to be shown.

Then the next question comes from Jochen Schmitt from Metzler.

I have one question only for taxes. You mentioned a potential gain in the second half. Could you consider to use this headroom to realize, for example, some losses on fixed income? Or would the potential tax gain just lift net income? That's my question.

I think that's too early to tell for us. Let's see how big the impact really is. As I said, we expect a positive one with the tax liability and the lower tax rate in the future. This should be the direction, but let's see how this works and then let's see the overall results development and then we can see if there is room for renewal.

[Operator Instructions] And the next question comes from Emanuele Musio from Intesa Sanpaolo.

The first one is on the structured reinsurance growth. You said 10% growth, and I was wondering what proportion of your book is in structured solutions nowadays. And what is essentially the key driver of demand here, given most companies nowadays have a strong balance sheet? Is this perhaps related to the softening cycle? Then what do you think it is a sustainable trend, a sustainable rate of growth for this line of business? And if you can remind me what is the capital absorption for this growth contributor?

And then another one, perhaps not an easy one. A few years ago, basically, you topped your reserve buffer and were not able to add redundancy significantly. I'm wondering how far are you from that point, if you can give some guidance, please?

Yes, I'll start with your first questions on structured reinsurance. So this is a lower double-digit percentage of our overall portfolio on the P&C side as measured by revenue. When it comes to your question, is this a sustainable area for growth? The answer to that from our point of view, is a clear yes. I mean, more and more ceding companies are embedding this into their overall capital planning. They are running sophisticated internal capital models, whatever the solvency regime they're in.

And so it's just an alternative way of how to capitalize the company and the underwriting side of things. So that demand will not go away. Where there is a certain degree of cyclicality included certainty in relation to the higher retention levels, which we have seen in the market since the underwriting year 2023 because this is potentially giving ceding companies a concern from a frequency earnings volatility point of view, and there are excess of loss structures available that can deal with that volatility over time.

So to the extent that the retention levels are holding up also in the future traditional reinsurance renewals, that demand will stay intact in case the market should be prepared towards the traditional business at lower retention levels. This demand may slightly drop, but the most significant part of our structured reinsurance business is coming from the capital management solvency related side of the equation in any case, where we see that demand to continuously grow.

No, no, I was just reminding you about the reserves, if you can answer that, please?

Yes. If you could please say that again because we could not understand here every part of your question regarding the reserves.

Yes, I think it was 2015, and you were not able basically to add substantially to your reserve redundancies. So I was wondering whether you are close to a situation on the debt or there is still a little bit of room ahead to add more to your reserve buffer to your redundancies?

Yes. Now I got it. Thanks for repeating this. So I don't see that we are hitting here, a certain limit. Of course, this has all to be managed within the different regimes we have to apply. But I don't see that we are already limited there in a remarkable -- to a remarkable extent. So this is still manageable from my point of view.

Then the next question comes from Michael Huttner from Berenberg.

This is last one. Germany P&C motors turning around incredibly fast. Is that part of the reason you're so confident on the margins? Could you maybe give some light, please?

Well, I mean, German motor, of course, is turning around, as you say. As part of the overall portfolio, it's not a dominant part of the portfolio. But of course, it's supporting both our revenue growth ambitions and our overall profitability ambition. So it's baked in. But it's only a part of the overall portfolio. So it's not carrying the global portfolio because at this stage, as you can see from the still, rather low loss component, which we are showing in the first half of the year. The business is still rated attractively on a global basis across product lines.

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

Yes. Thank you all very much for your questions. We fully appreciate that these numbers need a bit of effort to look through this. It gives you an indication, I hope, as we have been able to deliver the message that we have applied prudency really across our profit engines, not only because the underlying results in P&C and in life and health are very strong already. Also, the investments are faring well. And then as Sven reiterated again, we really had the tailwind from taxes and from currency, which we didn't just want to let fall through to the P&L this early in the year.

So on P&C is really that we have added, again, substantial prudency and just philosophically because we've heard that question rightly a couple of times. That has not changed at all. And just to remind you, the way we look at our combined ratio, the way we look at our guidance on our combined ratio is very much through the cycle, mid- to long term. So the fact that even if we go into softer market environment, this combined ratio will most likely remain where it sits at the moment. So therefore, it's really our philosophy to look through the cycle when it comes to that.

On life and health -- just a reminder, I think this quarter as well that there is imparity between loss component and CSM. And I think it's fair to say that in the first 6 months of this year as well in the recent financial years, we've been able to demonstrate that if you sum those two up, if you look at the results of CSM and loss component, hence, our experience has been on the positive side, which I think is an indicator to your question, and Claude alluded to it, that we are more on the prudent side, even excluding the risk adjustment, more on the prudent side, in our best estimate setting.

And then the risk adjustment, of course, adds a layer of prudency. All that allows us to deliver on our targets through the cycle. And I think these first 6 months have been able to even increase that capability to deliver on our targets and to manage really mid-, long-term through the cycle. So thanks again for your questions and have a good day.