Half Year 2023 Muenchener Rueckversicherungs Gesellschaft in Muenchen AG Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Kamran Mark Hossain - JPMorgan Chase & Co, Research Division - Analyst : 2 questions from me. The first one is just on the (inaudible), and I think it's very reassuring to hear you say that you'll probably like you to exceed it. Just because we're -- I guess we've seen and IFRS 17, we don't always really know what the different quarters will do in terms of seasonality or other effects. The other thing to flag in the second half of the year that we should really bear in mind when we're going and updating and kind of working on our IFRS 17 numbers. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 10, 2023 / 9:30AM, MUVGn.DE - Half Year 2023 Muenchener Rueckversicherungs Gesellschaft in Muenchen AG Earnings Call So any kind of things that we might expect, whether that's kind of (inaudible) et cetera in Q4? The second question is, given the kind of strong earnings base, it's a much larger base than it's been for many, many years or kind of overall time. Now, dividend has obviously been strong and consistent. The share buyback has been for many years. At what stage do you think you would look at that share buyback and think actually we can put that sustainably up to a higher number than EUR 1 billion. Christoph Jurecka - Mnnchener Rnckversicherungs-Gesellschaft Aktiengesellschaft in Mnnchen - CFO & Member of Management Board Okay. Seasonality. There is a few items where we have some seasonality either in our business or in IFRS 17. To start with large losses, I mean, you know that we generally talk about our expectation to be 14% on average across the year. So for every single quarter. But in reality, the second half of the year is more prone to large losses than the first half of the year. So that's already the first source of potential source of seasonality, obviously, depending on the actual outcome. A second source of seasonality is acquisition costs, what I discussed before for ERGO Germany, for example, where in certain quarters, particularly in the fourth quarter, you have higher acquisition costs than on average due to the fact that a lot of the book is being renewed in that quarter. And there's a similar fact also in P&C reinsurance with a loss component built up or release is also subject to seasonality. We're in the fourth quarter as we have the big renewal even in times where margins are extremely attractive as they currently are, we still would expect the loss component to be built up again due to the fact that we have this very low granularity in the way we book it, and we always put the additional prudency on top. And even including the prudency even in the most profitable book, you would always find a few pockets where you book a loss component. So that's also a seasonality we generally see. Part of the idea of the way see the earnings, this is really to manage those areas. But obviously, they will not go away, so they will always be part of (inaudible) to interpret our numbers. Second question, buyback dividend. I think what is very obvious is that we currently are on a different run rate when it comes to earnings than where we have been a few years back. Our buffer when it comes to capital, they are also well filled. Solvency II is very high, but also according to all other capital metrics, we do not see any significant restrictions. The usual process for us is to consider our capital measures in the first quarter after we saw the Q4 result just because the seasonality you were asking for is hitting us very much in the second half of the year. A lot of the large losses happened in the second last half of the year. So therefore, it always feels better to await how they really turn out to actually happen. And then we will make up our mind in Q1 next year, what actually the payback can be and what dividend and share buyback will be then going forward. But obviously, it's very clear. If our result comes in as expected, buffers all being filled up and solvency being at a very high level also in historic terms. Obviously, we will consider all of that in our decision and currently very clear that there will be (technical difficulty).

Question: Tryfonas Spyrou - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : I've got 2 questions. The first is on (inaudible)I was wondering if you can perhaps share some additional color on what specific lines and geographies you reduce exposure at the midyear and whether this is made up of a single large contract or many sort of individual smaller ones? And I guess, on the expansion in Nat cat, would it be fair to say that cat bond you issued was as a result of the higher than previously anticipated growth in this area. So that's the first question. And the second one is, I was wondering if you can maybe share some comments on the performance of the global specialty insurance in Q2 and have year-to-date, you mentioned a low 90s combined ratio is an ambition presumably over the cycle. I was wondering whether you can share where you sort of currently stand and whether there are any particular lines where you're kind of more cautious or more excited about. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 10, 2023 / 9:30AM, MUVGn.DE - Half Year 2023 Muenchener Rueckversicherungs Gesellschaft in Muenchen AG Earnings Call Joachim Wenning - Mnnchener Rnckversicherungs-Gesellschaft Aktiengesellschaft in Mnnchen - Chairman of Management Board Thank you. Let me take the first one. I understand the first one, like you are interested to know which are the lines where we reduced our exposure. In the traditional P&C reinsurance side, it was clearly the proportional casualty lines. And we reduced them further after having reduced them already in the years before. And the second one is that in the developed markets, in Asia, in Europe, but also in the U.S., we have reduced our property proportional exposures, where possible, we transform them into nonproportional structures or shrink our participations or just exited them. Those are the 2 lines. A third one is on cyber, where we thought that wording wise, we don't get to terms. We prefer not participating. These are the 3 areas that would come to my mind. With regard to the global specialty insurance, what are the sweet spots, what are the not so sweet spots, frankly, compared to what we have been doing in the last years, the strategy or the appetite hasn't really changed, though, in that sense, I would say, continuity in a good sense. Christoph Jurecka - Mnnchener Rnckversicherungs-Gesellschaft Aktiengesellschaft in Mnnchen - CFO & Member of Management Board Maybe the (inaudible) question quickly. What I can confirm is that the issuance of the cat bond felt in a time where the cut market generally was an attractive market for investors for more investors showed interest in that, and we were benefiting from that.

Question: William Fraser Hardcastle - UBS Investment Bank, Research Division - Analyst : I guess just on -- it's very clear that reserve release is still very strong with buffers increasing. I guess going a bit more granular. Was there any line of business? Is the spread of it perfectly normal, I guess, as continued talk and discussion on social inflation, I'm just trying to understand if there's any adverse trend beyond your expectations year-to-date that you're seeing there? The second one is just on the SCR reduction. You did mention the use of the cat bond. I guess can you just go into a little bit more detail on the quarter-on-quarter reduction? Anything you can give on -- in terms of those specific actions taken probably on the cat bond or market move benefits there? Any color on that cat bond and size that you can give us? Joachim Wenning - Mnnchener Rnckversicherungs-Gesellschaft Aktiengesellschaft in Mnnchen - Chairman of Management Board Thanks for the question, Will. I take the first one on social inflation, and the second one, Christoph will deal with. Do we see any change in the trend of social inflation, which we prefer calling legal abuse to be a little bit more provocative. No. But that's a bad statement because that means that we assume an ongoing trend of increasing liability losses, which are the consequence of the litigation industry that we know, particularly in the REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 10, 2023 / 9:30AM, MUVGn.DE - Half Year 2023 Muenchener Rueckversicherungs Gesellschaft in Muenchen AG Earnings Call U.S. market, the consequence of which is that we would technically expect ongoing increasing rates and/or reducing coverages or reducing limits, Christoph. Christoph Jurecka - Mnnchener Rnckversicherungs-Gesellschaft Aktiengesellschaft in Mnnchen - CFO & Member of Management Board I don't think there is a lot of now that I can add that the cat bond obviously, helps us to reduce our exposures in the payrolls, which are covered by the cat bond. Specifically, we talked about it already, the North Atlantic windstorm in parallel. The underwriting action we took, I think we mentioned a lot of it already. So we reduced proportional. We increased the excess of loss business. We looked a little bit into the distribution geographically also, it's somewhat more diversified now than before. Prices went up, obviously. So a combination of all these things is the obviously, also having an impact on the SCI in the model. And this is how the SCR goes down. But it's not like there's this one single silver bullet, which immediately helps us to have a completely different portfolio. Of course, not if it's really treaty by treaty, the underwriting actions we have been commenting on already.

Question: Darius Satkauskas - Keefe, Bruyette, & Woods, Inc., Research Division - Analyst : Just one question, please. So if I go back to your sort of full year presentation, when you talked about general renewals achievements, your rate increase -- risk-adjusted rate increase was 2.3%. And I think you based your combined ratio guidance for 2023 on the assumption that you achieved roughly similar sort of rate in the upcoming renewals. Now clearly, renewals in April and July and June have been much better. And so, I think back then, you sort of assumed that 1 percentage point roughly will be still one in 2024. So implied combined ratio from 85 million -- is that still the right number to think about? Because obviously, it's double the rate when you initially issued that guidance for 2023. Christoph Jurecka - Mnnchener Rnckversicherungs-Gesellschaft Aktiengesellschaft in Mnnchen - CFO & Member of Management Board Sure. Yes. I mean generally, we knew already also back when we did our planning or our initial outlook that the renewals would not all be the same because the not cut portion is different in the 3 renewals. And as you know, 141.7 is more cut heavy than 11. Therefore, in that regard, you already knew that the outcome would be slightly different. So -- but where I would agree is that now it's particularly 1.7% was even better than what we expected. Still, it takes some time until you earn it, obviously, and then finally, again, I come back to my initial comments. Of course, we booked also conservatively.