Q3 2025 Hannover Rueck SE Earnings Call
It's usually 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 prudence to our PNC 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 and health reinsurance, the revenue is growing moderately.
The new business generation increased by 16% to $575 million, including a favorable contribution in the third quarter.
The reinsurance service result of €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 €60 million in the second quarter, we have realized another €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 the solvency ratio of 259% in the third quarter. The operating capital generation was slightly above $1 billion.
We have also been successful in deploying capital, so the recognition of planned growth for 2026.
It had an impact of around 6 percentage points on the solvency ratio.
Furthermore, the quarterly AC 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 nine-month 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, it was partly mitigated by negative currency effects.
The risk adjustment decreased by 7.8%, mainly driven by some model refinements in PNC.
As well as a negative currency effect and a new retro session in life and 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 is 22%.
is further confirmation of our success.
And on that note, I'd hand over to you, Christian. Yeah, thank you, Clemens. And, uh, good morning everyone. Also from my side.
So, on the next slide, our PNC business is growing nicely on a diversified basis, including a strong contribution from structured reinsurance.
The top line for 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,
Of 86%, as well within the target range below 88%.
The impact from large losses was €459 million below budget, which has nevertheless been booked in full as usual.
The budget should be sufficient to cover the expected losses from Hurricane Melissa. This means that the 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 pruning.
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 provision 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 a loss realization for fixed income of around $320 million.
The currency result was significantly positive at €219 million.
Driven by the weakening of the U.S. dollar over the course of the first half of the year.
The main contributor to the PNC service result is the CSM release reflecting the recent renewals in a very attractive market environment.
As in 2024, the DCSM 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 runoff result has been positive in most regions and lines of business. However, as explained, we have used a strong underlying profitability and the overall strong results situation to add additional provision to our reserves.
This is the main reason why we are reporting a negative runoff result of minus €465 billion.
Apart from this, the run-off 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 PNC 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 €2.6 billion.
on the next slide.
In life and health, reinsurance revenue increased by 2.2%, adjusted for effects.
The revenue increased in Financial Solutions and longevity.
In traditional business.
Revenue moderately decreased, mainly in Greater China.
To result for the 9 months of 2025, it is based on favorable underlying profitability. The more the experience variance was positive in all reporting categories.
Assumption updates for onerous business, and the more cautious position with regards to our Mobility business had a negative impact in the reporting period.
Altogether, during the Insurance Service, the result of €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 €30 million in the third quarter.
Altogether, the EBIT contribution from our Life and Health business group was €645 billion.
On the next slide, we are looking at the IFS components of the service result. The CSM release is the main profit driver and is within the expected range.
The same is true for release and risk adjustment.
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 and Greater China, where we have updated our assumptions and taken a more cautious position, reflected in an increase in the risk adjustment.
As Claude highlighted at our recent Investors Day, I should focus here on a more holistic economic view, as well as assumption changes and experience variance.
Heading 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 policy here today.
Development on the right side is clearly important; currency effects.
The CSM generation, which includes the new business CSM and extensions on existing contracts, amounted to a favorable €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, which is 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 is strong operating cash flow.
Inflation-linked bonds contributed $110 million.
Additionally, the contribution from Alternatives was very solid.
And as explained, we have used the overall results situation to accelerate the realization of the top book in the third quarter.
In total, we are looking at a realized fixed income loss of €324 million for the first 9 months.
The corresponding higher locked-in interest rates will support the 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 of which are helpful in the overall trading environment.
The impact from the change in ECL and the fair value of financial instruments remains 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, there is 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, um, depending on the business development and 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 €2 billion on our balance sheet, shown at the bottom of the site.
Apart from the strong movement in fixed income, you can see that the unrealized gain within the OCI has changed materially in the category "Others." This reflects the sale of our stake in Veridiam, concluding a highly successful financial investment for Henry.
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 for comments on the order.
Thank you, Chris.
So, despite the significant increase in reserve currency and the realization of fixed income losses, the reported group net income of close to €2 billion after 9 months is running nicely ahead of our plan. Consequently, we have increased the target to €2.6 billion.
The new Target assumes a full realization of full utilization of our large loss budget at year end.
As of today, we do have a significant budget available to cover potential losses in the remainder of the year.
This might provide the option to continue realizing some fixed-income losses by year-end.
And additional flexibility for the assumption setting in our annual.
Reserve review.
These comments also need to be considered in light of 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 and Health Service result remains unchanged.
As explained, the FX-adjusted growth in PNC revenues was influenced by the refinement in the end calculation, excluding this effect at 7%. The 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 €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, we are providing options to further improve the basis for future earnings growth.
So, Future Honest, growth brings us directly to the guidance for the financial year 2026.
The new group net income target for 2026 is at least €2.77 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 PNC business, excluding structured reinsurance, is expected to grow in the mid-single-digit percentage range. The reason 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. Hence, we have decided to exclude this part of our activities from our Topline guides.
All in all, it is possible that the revenue development in structured reinsurance might remain dynamic in 2026, similar to 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, it provides some uplift compared to the previous target.
Furthermore, the pricing environment is expected to remain at 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 regard to our reserving, we feel very comfortable with the overall confidence level of our reserves.
The option of adding less to reserve prudently this year, compared to previous years, further reinforces our 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 results to around €925 million in life and health reinsurance.
For the CSM.
And 6% to 8% for the risk adjustment.
Furthermore, our strategic midterm target for CSM growth of around 2% remains valid.
The return on investment is expected to reach around 3.5%.
So, altogether, the new guidance highlights cannabis' 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.
We will now begin the question and answer.
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The first question comes from the line of Shanti Kang from Bank of America Merrill Lynch. Please go ahead.
Hi, morning. Uh, thanks for taking my question. So, um, the first one was just on the Q3 modder refinements that you made in PNC. Could you just give us some color on what was driving those?
Um, for this quarter, and then, um, my second question is just going into the renewal period in January, what you're sort of expecting from conditions there. Um, and then my last question is just on the guide.
For 2026, that’s less than an 87% combined ratio. And that's got the higher discount rate between 9% and 10%, as you mentioned. Um, what's really driving that assumption? Has the duration of the book changed or are you assuming continued long-tail reserve releases? Um, I'd expect that to come down with rates, so any color there would be helpful. But thank you.
Yeah. Uh, hi. Hi Shanti. And thanks for the question. So I'll take the the first month the queue, uh, uh, 3 model refinement in in the PNC book that, um, relates to the, uh, risk adjustment. So there have been, uh, some um, yeah seldom um, combinations of of contracts where the uh, risk adjustment just by the, the, the, the, the methodology that is applied in the data was larger than the expected, uh, uh, losses and the cash flow for the losses. And so we, uh, we find that in, uh, capping the risk adjustment.
Husband to the maximum amount of the, uh, loss cash flow. So to, uh, erase the outliers that we, uh, figured out, we have here and there in the book, that's basically everything. So, no reference to the underlying business itself.
Yeah. And when it comes to the renewals, Shanti, I mean, as we have said on previous occasions, we are expecting a broadly similar market momentum compared to what we have seen in 2025.
We have we have not seen, uh, too many firm order terms from the renewals yet, so there are too few data points. Uh, to give give you an update on on, on that expectations. So from that point of view, we are still expecting, uh, similar momentum. As I said, uh, which would be, uh, mostly on price and, uh, stable on retention levels and terms and conditions.
Funny, good morning. It's, uh, it's Clemens here. So, on the last one, on the, uh, underlying drivers for the 87% combined ratio guidance for 2026, couple of points here. One is the discount rate, as you mentioned, but there are a couple of other, uh, drivers that have led us to.
Go for a slightly lower combined ratio. Is that what we are in its...
Yeah, it's not that we expect.
Portfolio composition: we do expect growth on a diversified basis. Also, as we go into 2026,
Um, in reflection on that, we still believe that the quality and profitability of our portfolio will remain strong, even if there is more pricing pressure as we go into 2026.
Um, so, um, it's also not led to the fact.
is unchanged; however, just adding a bit less.
To, um, the overall confidence level will already have an impact on our, uh, on the combined ratio. Uh, so, so overall, uh, this is basically a reflection also of the fact that we have seen that the underlying combined ratio was strong.
in in 25 and and
That has led us, uh, to that decision.
Okay, thank you.
Please go ahead.
Great. Thank you for taking my questions. Um, the first one, sorry. Just to get back to the combined ratio target for 2026.
I guess if I look at the 25th and 88 percent, you add back in the discounting of 6 to 7%, you get to sort of less than 94 to 95% on discounted, 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 lesson 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 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% combined 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? Thank you.
And you would just be, if you are starting, and then probably Christian can also sort of complement. Uh, and that is, in fact, the discount in the, uh, let's say, the management of the volatility of the discount, which we have done in the past, also has a compensating effect. Um, so that had an impact on our underlying combined ratio last year. As you know, it was a tailwind.
uh, when you compare the discount Impact versus the unwind of that discount and we have also we've always uh uh taken the approach
To not take advantage of that tailwind, but to increase our loss assumptions, uh, in roughly, uh, in sort of the size of that delta, that has also fed into our 2026 combined ratio assumptions. So, there is, and I'm just looking at this, and there's still expected to be a slight tailwind. Uh, so therefore, that will also have an impact on the combined ratio in our assumption. So, there is a smoothing impact. Overall, if we look at the combined ratio,
Uh, yes, Andrew and I can absolutely confirm this view going forward. So, uh, as Clemens also briefly mentioned, we think with our combined ratio guidance more over the cycle and midterm, so this is not changed here. So this is no short-term impact from changing interest rates. This is, uh, really just the overall balance of profitability, uh, and the, uh, positive, uh, impact that we currently still see. We are in 2025 around 2% of this tailwind. This is well covered by our very, uh, prudent and conservative, uh, reserving.
Great. Thank you.
We now have a question from the line of Cameron Hussein from J.P. Morgan. Please go ahead.
Hi, um, 2 questions. The first 1 is just on the decision making process around like some of the financial statement in the quarter. Um, I hear what you're saying on, you know, taking, you know, adding a little bit less Prudence into the reserves and doing more on kind of realizing losses and therefore, allowing the fixed income to, um, I guess returns to pick up going forward. What, what some decision-making behind that was there really, you know, is it an either or did you do you know, 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? What might be like an acceptable level?
Later in the year, we heard it might have been 88 for the medium term, and now it's moving to 87.
Trying to understand why now, um, and is the 87. Now the medium-term guidance of it's not going to get worse than that for the medium. Thank you.
Yeah. Thank you. Uh, Cameron Christian. Here. I'll take uh, the first 1. So uh, you asked for the decision making uh uh process. And there is no fixed rule. There is no automatism and there's also no either or so. We we, we have to assess the business. Look at the development and we, we can pronounce 1 measure over the other or we could balance both. And I would explicitly not do that. Out for for, for the future. So here, uh, as we are already at the quite comfortable, uh, reserving level for our PNC business, we decided to focus more and act, a bit opportunistically to lock in the higher interest, uh, rates but this is and I want to to, to emphasize this, this no sign at all that we reach the maximum level of reserves or something like this. So now there's still room to continue with our very prudent reserving approach also in the future. And we will see
Uh, this, uh, is used also for the rest of the...
Year, come on, just on the overall guidance for 2026 and a little bit of color here. So you should still see this guidance.
The way we come up with overall guidance has not changed.
Uh, at all compared to previous years. So you should still see this guidance inside of.
having this in some billions.
Some, some level of potency into that overall guidance. Also for 2026.
I think this is a reflection of a strong underlying result both coming and life and health. It has allowed us particularly in the third quarter as you would have noticed, come on to, to realize some some, 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 the rate of that,
Increased.
Uh, run rates in our fixed income portfolio, already into next year, so that has driven a bit our overall, uh, guidance for, for 2026 on the combined ratio in particularly in particular. This is, uh, um, also a reflection of that. We've seen a strong underlying combined ratio this year, then we have the discount impact again, which is smoothing to some extent, uh, by way of not taking full advantage.
And overall, we wanted to bring it, uh, in fact, to a more realistic combined ratio. Still no change in prudency when it comes to our reserving approach, but we do consider this 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.
That's great. Thanks very much.
The next question comes from the line of Chris Hartwell from Autonomous Research. Please go ahead.
A good, uh, good morning, to stay a couple of quick questions. Um, first 1 is on the light side, uh, new business appeared quite strongly in the quarters. Just wondering if you could give a little bit more color on that. And, and, and second is and probably a little bit of an extension to, uh, the previous question from from camera. Um, you commented that, um, the, uh, the target for 2025, um, is not a reflection of the, uh, the loss benefits so far. Um, and I guess I was a bit intrigued, um, by your comment that there are more upside risk than downside, uh, for forward, earnings guidance, particularly give on, um, I I guess the historical, um, the nature of finding, um, I realized losses or, or Prudence or, or, or or so on. So it's just again, wandering on your sort of thought process. Um, if Q4 does uh or doesn't throw up anything particularly exciting on the on the loss fund and and if I can have a sort of a party on that second 1, um you also sort of commented about Melissa. Um,
Being, um, sort of contained, within budget. Um, but given how much budget you have um, still available from the first 9 months. Um, you know, that seems to um, you know, put a a number in a range of like zero to, you know, almost 500 million. So I was wondering if you can give a little bit more color on your Melissa exposure. Thank you.
Machine that we have written in Q3. And I know the new business, uh, the business CSN Life has this transaction. And this really depends on some bigger transactions. This is the case here in Q3.
Based on the guidance for 2025, if we are 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 two things that we will consider a year. 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 have 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, uh, tailwind that we might see in Q4 would also have an impact on the PMF.
But again, that's something to consider.
8.
Yeah, and then on Melissa Chrisman, I, I don't have a number for you yet. It's still early days. So we are still Gathering all the information, but, but to narrow the range a little bit for for, for you. Uh, if you look at the 450 million unutilized budget for Q3, uh, we are not expecting Melissa, uh, to use all of this 450 million. On the other hand. We expect this to be a, 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, hope that gives you a little bit of a caller, but we don't expect that the $450 million unutilized budget is fully used for Melissa.
Great, thank you very much.
We now have a question from the line of Darius that calls us from K. K. K.
W.
Um oh hi there. Uh thank you for taking my questions. Um, can you tell us what was the Market's impact in the course and your soul and security ratio? Um, and then the second question is I, I know you sort of carry the um, reserves and Life Health of best estimates, uh, but obviously you, you you quite a conservative in your assumption. Some just wondering how much of the new business loss component, um, impact in life and health, would you?
52. Building prudence in regards to China morbidity and what was needed due to the underlying trends. Thank you.
So uh hi Dario uh Christian. I take the the first 1 on soul and see if I got you. Uh alright. You asked for the impact of of the market impact on the solvency ratio and there I can say that uh the impact of risk we raid and spread together were rather neutral
And this brings us to your question on the life and has lost components. I mean, the new business loss component, as we said, is very small, it's it's just about 10 million, uh, and 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 Mobility business.
No, my question is more, should we see it as sort of, uh, reserved strengthening, or is there an element of prudence in that number? And how much would it be? Sorry, sorry, sorry. I, I got, you know, it's really an element of prudence. We did it via the risk adjustment, so it is pure potency.
Thank you.
The next question comes from the line of EA in Pierce, from BNP Paribas. Please go ahead.
Very low do-do. Could you just give us a bit of an explanation as to what drove that, and I think to go forward to think about with tax rates? Thank you.
Um, okay, Ian uh, I'll I'll take uh, the the 3 questions here. So, first on the insurance Revenue in PNC, just to give you the walk again. So uh, we had an fx impact of roughly uh 2%. Uh and the ndi impact was uh year to date around 7.5% and uh I mean you can do the math yourself, I know but it's roughly 1 billion Euro of uh impact uh and uh I would expect that we see uh not the same amount uh for the fourth quarter. It will go down substantially and for q1 and Q2 the next year I would virtually uh expect that it's just uh uh yeah not not substantial or relevant anymore.
And the last uh um impact that I mentioned was the timing of booking of some larger contracts and uh, this uh, is an amount of a bit more than 100 million. So 0.5, uh, impact on the, uh, gross rate in PNC.
The, uh, next question was, uh, regarding the discount rate and here? Um, yes, you referred to the, um, um, capital market and where rates, uh, currently are. But here you have to see that we are talking about the earn-through of the interest rates. 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, uh, interest rate environment.
The last question, we refer to the, uh, high or the low tax rate so high, uh, 1 of impact here. And uh, this is the uh, um Coming reform of the German, uh, corporate income tax. So to remind you all, uh, starting in 2028, the corporate income income tax in Germany, will be lowered by 1 percentage points, uh, each year, for consecutive 5 years. And this is the reason why we could release um substantial amount from our deferred tax liability that we carry under IFRS. And so this is a bit more than 8% percentage Point uh, positive 1-off impact. And yeah, I said it's the 1 off.
Thank you.
The next question comes from the line of Vinit Malott from Major Banca. Please go ahead.
Yes, good morning. Thank you. Uh, so one, uh, hopefully three quick ones. Sorry, uh, in the combined ratio, you know, I'm just curious about the slightly lower prudence in Q3 where obviously treat you.
As also a let's say a good a quarter as to q and maybe it's a little bit of 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 uh, reason that you kept the students a bit lower in Q3? Uh, so that's 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 why is it that? Why do you think that this is becoming a little bit of a
Maybe a headwind even um to the growth. Uh if if if my if my understanding of the comment is correct, then lastly this uh this kind of Step Up in realizing Bond losses.
Uh, you know, I think in the CMT or investor day of last month.
We talked about maybe a 10 basis point pickup in yield, uh, with these measures.
Could we expect that to kind of go up a little bit? Because that's hopefully the motivation behind that. Thank you very much.
More for 9 months of the year. And as you know, we've already increased our resiliency reserves substantially. So from the overall view, it was a good opportunity. Now shift a bit more to, uh, focusing on the investment side and use. Uh, yeah. Opportunistically the uh, uh, realization of hidden losses to, uh, increase the resiliency here and feel a bit, the future earnings by that measure. And uh, maybe I directly jump to the third 1 and take that also. So, um, as you, as you said, um, and I elaborated on that on the investors day, we expect just from the role over from our investment book, uh, roughly 10 basis points. Increased, uh, uh, run yield each year going forward and you are completely right with your assumption by the 3 or 300 million of uh realizations. We
Did in the 3 months. Uh, this will, uh, give another upside of around 7 to 8 basis points, would be my rough guess. And this is, uh, already also reflected in the new guidance on the ROI. As now we started in 2025 with the guidance of 3.2, and now we, uh, face 3.54 in 2026. And one of the drivers here is exactly the realization of losses.
And then then on the structured, uh side and please keep in mind uh, the guidance given is for 26, only for an over the cycle, uh, State and we are making on the structure to the side. Uh, but uh, I mean, some some of the buying when it comes to, uh, risk remote, reinsurance can be transitional.
So when we have uh uh looked at the guidance for for next year, we had a few clients telling us that they will reduce their sessions. Uh, 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 side line is protected better compared to the average, uh, but but nonetheless given given reduced sessions. Uh, we we have a little bit of a headwind.
Uh, on the other hand, uh, we can say that the demand for structure products is still strong. So we have a very good pipeline. Uh, we have already closed a few transactions, but as part of the pipeline, there are still quite a number of deals, uh, where, uh, these negotiations are not such that we can say, with with 100% confidence, uh, that's that, we will close the transaction and therefore, given the bulkiness of the business, uh, to be
Be on the closest 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 structured side of things.
Okay, thank you very much. Thank you.
The next question comes from the line of Will Hard Castle from UBS. Please go ahead.
Good morning, everyone. The first one is coming back on Afraid, on the uplift in the discount rate of 3 percentage points year on year. It's a really large uplift. I appreciate you said to Ian's question that it's a 3-year rolling lock in rates. Is there anything else underneath 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, is that right? And you're willing to say,
Are you willing to say essentially that you'd be operating better than that? Crossing cycles underneath the bonnet at the moment and for 2026, I'm just trying to work it out because you've improved at 1 point, the 3 points more, discounting benefit. You're suggesting that reserving.
Prudy won't need to be as many editions either.
So you know you might have something like 5 points of improvement. You're on, you just, from those things. So I'm trying to back out essentially what's the year-on-year deterioration that you're assuming from an underlying level. Are you able to help us out on that? Thanks.
Driving this and 1 is to earn through. Uh, we see here, I already mentioned from the different up to 3 under years. And of course, we also see the reserve, uh, increases and Reserve actions here. So as we, uh, added and not just, uh, uh, expect this for 2025 and, you know, the, uh, numbers on reserve and potency build up also for 2024. Um, this is predominantly done in the long tail and very long tail lines as well. There's also the the most, uh, substantial uh, uh, portion of the reserves, and of course, this also drives the duration of the overall portfolio a bit and gives another increase, uh, a bit like self-feeding, uh, on the discount, uh, increase. So it's not the 1 driver, it's, uh, really or composition of that. And last, I would also mention that as we, uh, no, no, no, have quite some experience on ifs, 17.
And and IRS 9, I think we are also a bit more confident in doing forecasts and uh, uh trying to to to yeah, utilize our models and our predictions uh, with the, with the methodology here.
well, and on the combined ratio, um, yes as as you mentioned, it is a mix of certain
Factors that?
Are all men 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.
Um, 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. Um, 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.
Thanks. And so I guess just to verify on that, do you think 2026 is...
It's likely a better than.
Cross cycle all else, equal.
On the combined ratio, you mean, or yeah, yes, on that versus that 87.
Yeah, I mean, the, the underlying, uh, the underlying combined ratio, uh, is expected, uh, to be below the 87%, of course with. But again, it allows for some, you know, for some
Uh, for some problems. The
Depending on, uh, how the renewal goes out, the price of environmental change.
That's great. Thank you.
just a reminder, if it was
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We now have a question from the line of Rulan Fender from PHS. Please go ahead.
Yes, good morning. Good questions on the live side, please.
Um, you had quite solid results on the live new business in this quarter. Could you talk a little bit about the composition? Was it more Mobility, Longevity, or Financial Solutions in the end?
Then secondly, regarding the reinsurance service result, you added $50 million towards $26 on your guidance.
If this is entirely fueled by a better loss component, could you elaborate a little bit about your expectations regarding the loss component going into next year? Thank you.
Yes, thank you very much. It's, it's called talking. So you talked about the new business CSM and in particular, about Q3. I guess, again, I said it before already, it's driven by one auto transaction, and this transaction is coming from the Financial Solutions business.
That's the question to your first. Um the answer to the first question. Uh then afterwards, the The increased reinsurance Services of 50 million is mainly I would drive driven by the increase of our business in general. Uh, as I told you probably in the investors that are going to whether we were there with the size of our portfolio. You always have to expect some uh, loss components that this loss component the same as you can expect some experience variances and changes in estimates. We have obviously included some improvements in this figure that we have shown there but say it's coming really out of the growth of the lifestyle businesses.
Okay, thank you.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Clemens Jung for any closing remarks.
Yes, thank you very much for your interest this morning. Uh, just to reiterate, I guess the overall new guidance highlights Hannover Rück'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, uh, that will allow us to grow our earnings throughout the cycle. Together with these capital returns and sustainability, we will create value for our shareholders with that. Thank you again, and speak soon.
Ladies and gentlemen, the conference is
Participating in the conference, you may now disconnect your lines. Goodbye.