Muenchener Rueckversicherungs Gesellschaft in Muenchen AG Q1 2022 Earnings Call Transcript

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

Question: Kamran M. Hossain - JPMorgan Chase & Co, Research Division - Analyst : And the first question is on, I guess, on the guidance and sticking to EUR 3.3 billion. I guess as you outlined in the statement and I guess in the remarks just now, there was some uncertainty in relation to that number. Capital markets, who knows, but I guess more on the kind of large loss side from kind of Russia, Ukraine. When we think about -- I guess, when we think about your confidence in that EUR 3.3 billion number, are there any obvious offsets elsewhere that you have kind of in place that could help to kind of offset claims from Russia, Ukraine that would help you get to that number, particularly thinking about kind of COVID or large loss reserves? Is there anything kind of in that bucket that might help? And the second question is on the April renewals. I think price very -- risk adjusted is very, very, very slightly down. Can you maybe talk about how cautious you're being on your assumptions? I assume you're probably not going to give a nominal versus kind of risk-adjusted price, but we're very interested to kind of hear about what the spread between those 2 numbers is. And whether kind of, historically, you're at kind of very high levels, given that what seems like a very kind of uncertain risk backdrop? Christoph Jurecka - Mnnchener Rnckversicherungs-Gesellschaft Aktiengesellschaft in Mnnchen - CFO & Member Management Board Yes, Kamran. First of all, all the guidance. Indeed, the uncertainties are high, but I mean, they are always high for us, aren't they? And the reason that I highlighted the EUR 3.3 billion large loss budget so much in my introductory remarks was that this is a significant number. Also if you look at the growth and also having in mind that 12% was last year's large loss budget, we increased it to 13%. So that's a significant number. And I mean the volatility of claims we're having is any way large. So that the Ukraine-Russian piece alone is not at all a concern because it's an order of magnitude where claims could anyway be higher or lower every single year. So therefore, in a sense, it remains to be seen how the overall large loss situation will evolve. And you know that our calculation doesn't work like for a particular claim, we are putting aside that much of money and the remainder is just unused. But this diversification across various sources of REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 10, 2022 / 9:00AM, MUVGn.DE - Q1 2022 Muenchener Rueckversicherungs Gesellschaft in Muenchen AG Earnings Call losses and that you benefit in some years from not having as many losses like in others in certain lines, but in other lines, you have done more losses and it all finally works in the calculation overall. I think that, that's part of the reason why we are still so optimistic to achieve our guidance. And on top of that, yes, of course, I mean, you mentioned COVID, but more generally, I mean, our balance sheet is prudent. We have a lot of prudency in our claims reserves when we had our Q4 call in February. I think I highlighted that we even increased the prudency without the necessity to do so, but deliberately decided to do so when we started into the current year. And now, of course, we enjoy that as an additional prudency, call it, buffer in our reserves, which, of course, will eventually support us at some point in time. And there are others. So that's probably not a single reserve on our balance sheet where we are not, to some extent, prudent tax provisions. So you name them, whatever. So that all together makes still very optimistic at that point in time that we can achieve the EUR 3.3 billion net income target this year. But obviously, I mean, 3 quarters to go. So let's wait and see. On the renewals, yes, I mean, we always try to be cautious in our assumptions. But I think it's fair to say that this time, we particularly focused on the inflation topic because it's so much on top of everybody's mind. And so we really try to as much as we can fully include that not only now in the calculation of the number we are giving you, but more importantly, particularly, of course, also when we do the underwriting. And therefore, also there, we focused a lot on the inflation assumption. And frankly, we had discussions with our clients, which were not always consensual. So maybe it's more kind of episode, I can tell you, but we did not continue some of the treaties we have just due to the fact that our assumptions were more conservative than what our clients would have assumed from an inflation perspective only. So this gives me some comfort that we took a conservative stance this time. And then again, like for the outlook for the year as well for the future development, who knows, finally. So it will remain to be seen if this is cautious enough. But to start with, it feels much better to be in a position where we fully took care of that in our numbers instead of the other way around. And now let's wait for the future development.

Question: William Fraser Hardcastle - UBS Investment Bank, Research Division - Analyst : Just following up on the ZZR interaction with the rapidly increasing interest rates. Yes, can you try and help us to quantify the likely year-on-year incremental cash requirement and how that compares to recent years? Or at least in terms of scale, I guess, we could feasibly be concerned given there's not many fixed income assets to realize gain from, as you said. If we look at Slide 32, just a better understanding perhaps of what's included within the EUR 4 billion non-fixed interest securities, just wondering how liquid these are. Second one, on Russia, I'll give it a go because it's not been noted yet. Just trying to confirm if there's anything in here for the aircraft leasing? More importantly on that, even if you don't want to say for that, but do you have reinsurance or retro protection to limit the exposure here? And are we talking about this on the primary side or the reinsurance? Christoph Jurecka - Mnnchener Rnckversicherungs-Gesellschaft Aktiengesellschaft in Mnnchen - CFO & Member Management Board Yes. ZZR, first, maybe if it's of general interest, a quick reminder on how the mechanics of the ZZR works in general. So it's a provision which we have to set up to close the gap between the interest rate in the market and the guaranteed interest rate, which has traditionally been sold 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. MAY 10, 2022 / 9:00AM, MUVGn.DE - Q1 2022 Muenchener Rueckversicherungs Gesellschaft in Muenchen AG Earnings Call German Life Insurance. And the bigger the gap is, the more you have to fund to set it up. But it has been funded heavily for the whole industry already over the last decade or so. And so therefore, the remaining number to be funded is very low. And on top of that now with the interest rates going up, I think at least some players in the industry are if -- especially if interest rates would continue to rise, relatively quickly now in a situation that they would be in a position to release ZZR. So no longer fund it, but release it, given the fact that then the market rates are maybe even higher already than the relevant rate used for the ZZR calculation. So it might turn depending on future interest rate development in Europe, the sort of euro rates. Therefore, from a liquidity perspective, I think that was your question, no concern at all because funding requirements go down significantly anyway. But at the same time, the unrealized gains we still have, they are liquid enough that we don't need to be concerned here. Despite the fact of the reserves we still have, of course, a significant portion is also quite illiquid because we have illiquid investments. You know that participation in some private equities, these kind of things tend to be less liquid. But the part of the reserves, which is still liquid, especially for ZZR is clearly, clearly sufficient. That's our current view. On Russia-Ukraine retro reinsurance, I think, I mean, retro is a different story, but reinsurance cover, we hold, supporting the primary reinsurance business. We have in that area. Retro side, we do not assume that we get any offset from that.