The following is excerpted from the question-and-answer section of the transcript.
(Questions from industry analysts are provided in full, but answers are omitted - download the transcript to see the full question-and-answer session)
Question: William Fraser Hardcastle - UBS Investment Bank, Research Division - Analyst
: Two questions. The first one, Solvency. We've got a 225% [TRIN], which is very strong, and it's beaten consensus by nearly 10 points, I guess. What
we're doing wrong from the outside? Or is this stuff that's benefited the ratio that we couldn't have forecast externally? And did these benefits
come on the SCR or [eligible] funds. And the second one is on the reinvestment yield. Clearly, I guess you've gone up 20 bps Q-on-Q, which is quite
sharp. And just trying to really understand what asset reallocation or duration shifts have been taken. And which segment is likely to benefit after
-- all through life and health, for example?
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AUGUST 10, 2021 / 12:00PM, MUVGn.DE - Half Year 2021 Muenchener Rueckversicherungs Gesellschaft AG
in Muenchen Earnings Call
Christoph Jurecka - Mnnchener Rnckversicherungs-Gesellschaft Aktiengesellschaft in Mnnchen - CFO & Member Management Board
Yes. Well, Christoph again here. Solvency, I think outside in, it's pretty hard to predict precise numbers on the Solvency II figures for a number of
reasons. First of all, let's focus on the growth. As I mentioned, business SCR increased. What you cannot really see from the outside perspective is
the amount of diversification in that growth because it very much depends on also how broadly you distribute your growth across the various lines
of business. That's one example where it's really hard outside to come up with the precise numbers.
The other topic is also operating economic earnings. As you know, there are certain elements where this economic earnings concept is pretty close
to IFRS, but there are other areas where it's completely disjoint to IFRS, where you, for example, account already for the full expected future earnings
in the economic earnings in opposite to IFRS, where you only have the first year in your earnings. And these are just elements which are not at all
accessible from the outside perspective.
On the sensitivities, we also have to say, and I think we had told a couple of times already in the past, and also the sensitivities, they are linear
approximations, but there are convexity effects on top of that. So even the sensitivities on capital market parameters are not always 100% precise.
That's also something you have to keep in mind, especially in a situation where we also might change hedging strategies and ALM mismatches.
Because in all these sensitivities, in this economic world, everything is fully mark-to-market, but then obviously, you very quickly see change hedging
approaches. You quickly see ALM mismatches, which are changing. You see different FX exposures. And the sensitivity we provide you with at the
beginning of the year, they are obviously based on the status quo back then.
So having mentioned all that, if you combine a few of these effects and they all go into the same direction, then you end up with a comparatively
big gap, like in this quarter, where the consensus I would agree, is very far away from our 225% we have now been releasing. And let's say, more
normal quarter, some of the effects are offsetting each other. And then the consensus estimate is sometimes much closer to where we actually
are. But fundamentally, these differences are always the same.
The second question, reinvestment yield. Well, I mean, the interest rates, especially in the Eurozone, they increased little, which was helpful in this
quarter. But on top of that, what we also did is we again looked into the duration of our reinvestments and also slightly increased the amount of
investments into some emerging market bonds versus maybe more covered bonds or more Eurozone fixed income instruments. So I think it's a
mix of the both, which led to the fact that the 1.7% is now a little bit higher than the 1.5% we saw last quarter.
In any case, I mean, the reinvestment volumes are never huge. So the marginal impact is not massive. And what I said in my introduction is that
it's just some easing effect from that 1.7% versus the 1.5% we had last quarter. We shouldn't overestimate that. And again, we are on a very low
level. All in all, the investment risk is -- if you compare it to also the insurance risk, so the balance is unchanged and the slight increase of SCR also
on the investment side, I've been mentioning before, is fully within the limits of our risk strategy. So fundamentally no change.
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