Muenchener Rueckversicherungs Gesellschaft in Muenchen AG Q3 2023 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 : Two questions from me. The first one is on capital management. And I guess you've kind of -- the earnings for the year has gone up. You've beaten your EUR 4 billion target. Do you think now is the right time to think about increasing the share buyback? Or given the level of earnings and taking into consideration they look relatively sustainable, should we expect a step-up in the share buyback from EUR 1 billion into next year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 08, 2023 / 10:00AM, MUVGn.DE - Q3 2023 Muenchener Rueckversicherungs Gesellschaft in Muenchen AG Earnings Call The second question is on reserving. Clearly, your reserve movement overall was very positive. So just slightly ahead of your 5% guidance. Could you maybe talk to whether we've seen movements within that? So actually whether you've had better development in short-tail classes, property, specialty, et cetera versus longer-tail classes and how that's developing? And whether there are any issues or concerns or worries that you have on that at all on the long-tail side. Christoph Jurecka - Mnnchener Rnckversicherungs-Gesellschaft Aktiengesellschaft in Mnnchen - CFO & Member of Management Board Kamran, thank you for the question. First of all, on capital management and your question, if now is the right time. I think we have, first of all, a little bit defined what now means. Because as you know, our general process is to discuss questions like that also internally only after Q4. So therefore, let's assume for a moment now it's after Q4 and the year continues as we expect it to continue and we very nicely achieved the EUR 4.5 billion target. In that case, I mean, it's very obvious that we're on a higher earnings level now. And as you know, our entire company and the Board and whoever is responsible here, we always have been shareholder-minded in the past in a sense that whenever possible, we distributed earnings and repatriated capital wherever possible. So it feels like a very natural question you ask. And also internally, it's a very natural discussion to have, to increase payout. And if by dividend, by buyback, I mean, all these are technicalities we are going to discuss then later on. But I can clearly confirm we are highly dedicated to continue to give shareholders a very attractive contribution also in our success and our results as soon as it's achieved. Second question, reserving development. Also there, first of all, the process disclaimer. And we are always doing our holistic reserve review only in the fourth quarter. So whatever I tell you now is very preliminary. But I think a lot of that was disclosed during the year already, was pointing at very positive developments on the reserve side for us. I mean we consistently were showing a 5% positive impact on our normalized comment ratio from reserve releases throughout the year already. I mentioned in my introduction already that we feed it in the additional benefit from discount above the 5% and at least that amount into our reserves during the year already to increase the reserve strength. And if you remember, end of last year, we set aside an amount of EUR 1.3 billion for inflation impacts. So I think there should not be a single doubt about our reserve strength. We are very much on the safe side. Talking about the individual businesses. Obviously, when you think about property, you think about maybe inflation on building costs, stuff like that. So the inflation assumptions are key. Currently, I don't have any indication. But again, the review is ongoing. I have no indication that the inflation assumptions from last year that they are not holding, so that the money was set aside. At this point, I'm not aware that it would need to be increased. On the casualty side, I'm also not aware of any issues. Earlier today, I got a question already, if that's only on the discounted level, also the nominal level of the reserves. But also on the nominal level, I'm not at all concerned for casualty for us given where we currently stand on the developments as I currently see them. So no, all good, I think, on the reserve side, safe as ever and looking forward for the reserve releases to come.

Question: Tryfonas Spyrou - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : I guess just following up, Christoph, on the results for next year. How should we think about the uplift from investment income to come through and help with the results? It looks like the higher IFIE chart would be managed somewhat by the buffers using the discounting package, presumably, you have a much higher investment income coming through given your realizing losses this year. So should that more than -- should that be a net contributor to the result next year over and above the IFIE? So that was my first question. I guess the second one is on the -- some early thoughts on renewals for January next year and your appetite for growing volumes further and which areas you're looking to deploy your balance sheet? I guess, any early thoughts on the risk-adjusted price increases you're looking to achieve? Christoph Jurecka - Mnnchener Rnckversicherungs-Gesellschaft Aktiengesellschaft in Mnnchen - CFO & Member of Management Board Yes, thank you for the question. Yes, -- and then for the reminder on the investment result, I should have mentioned that before, of course, it's also a significant driver for next year's result. Already this year, our regular income -- our running yield is significantly higher than prior year. And of course, wherever we reinvest money now, it comes again with a higher yield. So the upward trend in the investment result only from that effect is obvious and something we would expect for next year. Then against that, of course, then the question how much losses are we going to realize? And there's always 2 elements for that even without any management overlay, like what we do this year to dampen results. Even without that natural turnover in our fixed income portfolios very often still comes with the realization of losses as long as we still have unrealized losses. So therefore, the investment planning for next year, in any case, REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 08, 2023 / 10:00AM, MUVGn.DE - Q3 2023 Muenchener Rueckversicherungs Gesellschaft in Muenchen AG Earnings Call we'll foresee the realization of losses on fixed income books. And on top of that, just to remind you, IFRS 9 is quite volatile in nature as we also did see that here. So there will be for sure, some noise in one or the other way, it could indeed go either way on top of that, which is difficult to reflect in the plan. So -- but yes, my answer would be in the investment result. The trend will go to higher earnings, given higher running yield. And then the connection to IFIE maybe that's something you asked as well. I mean the IFIE, there's 3 components you have to look at. The IFIE will go up, of course, for the higher unwind. And parallel investment yields will go up due to higher reinvestment, that's for sure the case. And then it's also the question what happens with the discount, how much of the discount is being used to reserve strengthening? And how long are you doing -- are you going to do that or not anymore next year? And all these 3 things are moving parts, which, to some extent, have to be looked at together. But yes, all the 3 are relevant for next year's earnings expectation. General renewal, we continue to be very confident. I think in many business lines, prices are now on an attractive level. If you talk about the big nat cat layers, we wouldn't expect our margins to go up significantly from the point where they are, but also do we not have any indications that the market would soften at all. So I think it's in a good place. Differently on casualty, I think there is a space and also the need for rates to go up in at least certain segments and certain markets. So a differentiated picture. But overall, I think I can just confirm what we already said in the last few calls, a very attractive environment for us as a reinsurer generally, and we don't think this is going to change anytime soon.

Question: William Fraser Hardcastle - UBS Investment Bank, Research Division - Analyst : Two questions. Q3 P&C revenue growth looks like it's been heavily impacted by FX. Can you give us a view of what it would be year-on-year in Q3 at constant currency? And then second one is undoubtedly the commentary on the income guide is really strong. I do feel like you're becoming increasingly challenging to model because there are so many buffer areas. But if I may -- if we strip out the discount benefits, et cetera, how big do you think the year-on-year economic improvement is on the underlying combined ratio? Sort of trying to understand what the margin benefit has been of this hard market. Christoph Jurecka - Mnnchener Rnckversicherungs-Gesellschaft Aktiengesellschaft in Mnnchen - CFO & Member of Management Board Sure, Bill. The differentiation between organic change and FX change is something we show in our slides. So if you look at the insurance revenue development on our slides, you can see the differentiation. I'm trying to find the right page now, as we speak. Without FX, it's 6.5%. Now can you remind me of the second question, sorry? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 08, 2023 / 10:00AM, MUVGn.DE - Q3 2023 Muenchener Rueckversicherungs Gesellschaft in Muenchen AG Earnings Call

Question: Darius Satkauskas - Keefe, Bruyette, & Woods, Inc., Research Division - Analyst : Two questions, please. So the first one is your discounting benefit was very high this quarter. Is there anything unusual there in terms of having large losses in high interest rate geographies? Or is 10% what we should be baking in going forward now, assuming interest rates remain unchanged? And my second question is, you mentioned the potential rebasement of payout ratio. How should we think about the potential additional capital [return]? Would you consider adjusting the ordinary dividend? Or is it really about buybacks or specials? Christoph Jurecka - Mnnchener Rnckversicherungs-Gesellschaft Aktiengesellschaft in Mnnchen - CFO & Member of Management Board Darius, thank you for the questions. The payout ratio, I don't -- didn't say the payout ratio was kept stable necessarily. I was talking about that if you have higher earnings, then obviously would -- the contribution we would need to give or want to give to shareholders will also increase. So the absolute amount. It would not necessarily mean that the payout ratio needs to be -- or will stay the same. We will look at the payout ratio as well, but we were generally much more looking at the absolute amount. And also look at the various ways how to do the dividend versus buyback, but then, of course, also look into growth opportunities, how much would we need to deploy for organic growth and all these kind of considerations. And then the outcome of these considerations in January, February next year will be a dividend and the buyback. And then we'll see what the payout ratio is. But it's really that way around, not the other way around. We're not looking first at the payout ratio and then define what we do. I think that's just to make everybody aware what we are doing.