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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you very much, and good morning, ladies and gentlemen. I'd like to welcome you to our conference call, presenting our results for the first quarter of 2019. As usual, I'm joined by our CFO, Roland Vogel. Overall, the first quarter of 2019 marks a good start to the year. The increased demand for reinsurance as well as our good competitive position within our markets allowed us to grow our portfolios, both on the property/casualty as well as on the life and health side.Even more important, we were also able to grow the bottom line, as the net income coming in at EUR 294 million, 7.4% higher than the first quarter of 2018, which already was quite a good quarter for us. This in fact marks the 42nd consecutive profitable quarterly result of Hannover Re, of which I had the privilege to report to you the last 40 as CEO of the company.This is also the last quarter I will report to you. As tomorrow, after the finish of our AGM, Jean-Jacques Henchoz will take over as my successor.Due to the strong earnings and significant increased valuation reserves, the book value per share increased by 12.2% to reach a new historical high of EUR 81.69. Nevertheless, we managed to keep the return on equity to 12.6%, well above our minimum target, which comes in at 9.4%, being 900 base points above the so-called risk-free rate.The Solvency II ratio stood at 246% at the end of 2018 and should be somewhat higher at the end of the first quarter.The result of our property/casualty business was again very strong with growth of the technical profits of 25%, based on increased premiums to the tune of about 20%.Regarding our life and health business, we saw a significant increase of our profitability as the group net income increased by 73.2% to EUR 89 million. This is in particular gratifying because already the first quarter of last year was a good quarter to us, and we could record favorable results with better-than-expected results from our U.S. mortality business. This continued in the first quarter of 2019. However, we saw some weak performance of our Australian disability business as a result of significantly deteriorating trading conditions.On the other hand, our financial solutions business and here, in particular, those treaties that are deposit accounted, developed very favorable, which resulted in a significant increase of the contribution to the bottom line from the other income and expense line.Once again, the income from investments developed above expectations as the RI from assets under own management coming in at 3% and thus, exceeding our minimum target of 2.8%.On this note, I would like to hand over to Roland, who will explain these favorable figures in more detail.
Yes. Good morning, and thank you, Uli. I will try to keep my comments brief as the Q1 2019 results do not include too many one-off effects worth commenting on.I would like to take this opportunity also to point out that we have published our Solvency II so-called SFCR report for the full year 2018, adding a bit more detail to the solvency ratios, which we have already published together with our year-end results. You will find them on the company website. We have also put together 1 slide on the solvency capital generation in 2018 and have added it to the appendix of this slide deck.On next page, we see that we've continued to see very attractive top line growth in the first quarter 2019. Adjusted for currency effects, gross written premium increased by 16.1%, driven by favorable business production in both business groups. But again, with a pronounced contribution from P&C. Due to the changes on premium and slightly reduced retention in life and health, net premium gross was a little less dynamic. However, I would expect this difference between gross and net premium to narrow down until year-end because the change in unknown premium will naturally decrease when we earn it over the course of the year.Other income expenses on a group level increased mainly due to another increase from deposit accounted financial solutions business and life and health. The tax rate is back to a normalized range, still it could have been even slightly better or slightly lower. But the deterioration of Typhoon Jebi, to which we will come in a minute, has hit especially our Bermudian operation and led to a lower-than-expected contribution from the low tax environment.The previous year's figures have been inflated by the onetime effect from the U.S. tax reform, as you might remember. Altogether, group net income increased by 7.4% to EUR 249 million -- EUR 294 million, sorry.On the next slide, the operating cash flow in the first quarter was particularly strong, driven by attractive reinsurance clause as well as pleasing results on the investment side. On top of this, increasing valuation reserves and currency effects supported the growth in assets by around EUR 800 million and EUR 650 million, respectively, leading to a record high level of assets under own management, close to EUR 45 billion.Similar developments are also visible on the capital side, here on the next slide, in addition to the favorable earnings in the first quarter. The increase in OCI boosts the growth in shareholders' equity to 12.2%, largely driven by the valuation change due to the decreased interest rates and lower credit spend.On top of this, the EUR 600 million change in unrealized gains includes around EUR 100 million resulting from a reorganization of the shareholder structure of Viridium Gruppe, which became necessary in connection with the acquisition of the Generali Lebensversicherung. This will most likely lead to a reflection of the appreciation of that value in the Q2 P&L.The composition of the total capital on the right-hand side of this slide here is unchanged with a high degree of flexibility around the hybrid bucket, as we mentioned before.On the next slide, the P&C gross premium increased by a remarkable 19.4% on an FX-adjusted basis. This is driven by both our structured reinsurance business and by diversified growth in the traditional book. This is in line with the developments, which we have reported for the January 1 renewals. However, the growth rate in structured reinsurance in particular should come down slightly over the course of the year due to the pattern of premium recognition for some of the larger treaties.Net premium earned growth is a bit less pronounced because of the unearned parts as well as growth in the ILS markets, where our net retention, as we all know, was 0.A 2% of net premium income major losses were remarkably below the already benign first quarter of 2018. As in previous years, we stuck to our reserving practice and reflected the large loss expectation as part of our IBNR reserves.When it comes to the runoff profit, we've seen some negative developments from larger losses, in particular, Typhoon Jebi, for which we have increased our loss estimates by almost EUR 50 million, based on a higher-assumed market loss. Apart from this, the reserve development in the first quarter was as always or as nearly always positive and still in a usual range.As we have not changed our initial reserving approach, our current assumption is that the confidence level of our P&C loss reserves has not changed compared to year-end 2018.Altogether, it's gratifying to see the underwriting result increase by more than 25%, even stronger than the premium growth. And that the combined ratio of 95.7% is clearly below the full year maximum target of 97%.While our investment income was stable, net investment income decreased due to a lower contribution from realized gains as the overall turnover in the portfolio was not driven by the huge capital transitions we had last year, resulting from the U.S. tax reform.Other income and expenses did not include any material one-offs. Altogether, group net income of EUR 235 million is down by 6.7% compared to a very good first quarter in the previous year and also affected by a higher tax rate, which I had already mentioned earlier. The operating result is almost stable.As mentioned on the next slide, major losses were very benign, adding up to EUR 59 million in the first quarter. Therefore, the unused budget amounts to more than a EUR 100 million. The list of major losses in the first quarter is obviously comparatively short. Along with a 2 net cat events, only 1 marine claim and the Ethiopian Airlines aviation claim made it on to the large loss list.I might say that, of course, it is rather early to comment on the Russian airline crash, but we don't expect it to be included on the large loss list.On the next slide, we sorted our business groups down based from premium contribution. As you can see, numerous lines of business and regions contributed to the good underwriting result with combined ratios well below the maximum target. You might wonder why the combined ratio for our structured reinsurance and ILS segment is at a very good 94 -- 95.2%, after we had told you over the past years that this business line actually has an inflating impact on the reported P&C combined ratio, due to the low-risk nature of the business.The good profitability in the first quarter can be partly explained by the strong contribution from the ILS component of this business line, in which we have seen increased demand and successfully expanded our business volume. Additionally, though, structured reinsurance business, which is by far the larger component here, reported favorable profitability. The combined ratio effect of these 2 factors overall led to the good result.A few lines also exceeded the tolerable range, most notably U.K., Ireland and London market, as well as our cat business. The former was affected by a rather weak technical profitability of the Lloyd's business that we support. Just to be clear, I'm not referring to our subsidiary agenda, which is actually included in the facultative different direct line of business, but our other Lloyd's activities.Furthermore, the combined ratio of our cats or nonproportional cat business looks rather weak, despite me having told you that the large loss experience was very benign. This is mainly driven by the development of the Jebi loss, which is more or less fully captured within this business line. Overall, the combined ratio of our highly diversified book is favorably below the target combined.In life and health, gross written premium is up by 9.6%, adjusted for FX effect. New business production was particularly favorable in Asia and also in South America.The in-force management actions within our U.S. mortality book in 2018 led to the expected improvement in the result, even though they're different compared to the previous year. It's less visible in the technical result because the underlying mortality was particularly good in Q1 2018. And the first quarter of 2019 also included some smaller recapture losses, where we captured effects of some EUR 10 million. The main reason for the decrease in the underwriting result is an underperformance of our disability business in Australia. Uli had mentioned that already. And additionally, other business was also slightly weaker overall than the strong 2018 first quarter, without any larger individual effects.Other income increased compared to the previous years, especially the fair value changes through P&L, boosted the net investment income to EUR 104 million. Other expenses -- other income and expenses mainly driven by the further improvement and the contribution from financial solutions business recognized according to the deposit accounting method.EBIT increased nicely by 21.3%, clearly outperforming the 5% gross target. Group net income increased even more strongly, which is a result of the unfavorable tax ratio, resulting from the U.S. tax reform in the previous year.On the next slide, the development of our investments in the first 3 months of 2019 was very satisfactory. Return on investment of 3% is above our return expectation for the full year, with increased ordinary investment income compared to the already good figure in 2018.Realized gains decreased due to the lower portfolio turnover, already mentioned. Consequently, the realized gains are almost entirely driven by the sale of 1 real estate property at very attractive pricing. This decline was offset by the change in fair value of financial instruments, to which the ModCo derivative contributed EUR 5.3 million.Given that interest rates in our major currencies decreased and credit spreads also trended remarkably lower, the unrealized gains on our investments increased significantly compared to year-end 2018 to reach a level of EUR 1.8 billion, which means an increase of around EUR 800 million within only 3 months. It's always good to have such buffers, as we all know. But as we all know, this automatically comes together with a decrease in reinvestment yields and an irrespective track on the future ordinary profits.On the next slide, you can see that we did not change our asset allocation remarkably in the first quarter. The overall diversified contribution to ordinary investment income is again supported by the results from real estate and private equity but not to any extraordinary sense.I think this concludes my remarks. And as always, I leave the target matrix and the outlook to you. I think, Uli, the target matrix is nice to be presented this time.
Thank you, Roland. Yes, you're absolutely right. The target matrix shows that the numbers of the first quarter of 2019 support all of our midterm target to the extent applicable. This confirms again that we had a good start into 2019.Coming to the renewal. In the first quarter, the traditional property and casualty treaty renewals from 2nd of January to 1st of April 2019, with the later date being the most important during that period, pretty much confirmed the trends that we had already seen at January 1 renewals. This means that loss effect to treaties were meaningful increases, but lost reprograms, overall, very new and largely flat, but benefiting to some extent from rate increases in the primary market in many territories. Overall, the rating level is above the comparable level for 2017 and 2018. But is still significantly below the levels we have enjoyed in 2015 and prior years. This is the result of continued competitive markets. There are many market players seek to increase their market share. At Hannover Re, we saw an increase of our premiums, based on unchanged exchange rate of 6.6% to EUR 984 million. This was predominantly result of increased pricing as we kept our shares largely unchanged and to balance between new, canceled and restructured business was only modestly positive. The most important renewal was the 1st of April Japanese renewal as many of the natural catastrophe programs had suffered from a series of losses in 2018, in particular, the ever-increasing losses from Typhoon Jebi.Loss-affected wind and flood programs in Japan, which were the majority of those programs that the loss affected as well as the combined wind and flood and earthquake cover loss affected increased anywhere between 10% and 30%. Some higher increases were even seen, the sum of the aggregate excess of loss cover, most of which had a total loss last year.On the other hand, loss-free programs and in particular, earthquake-only programs saw flat renewals. And also, some meaningful capacity was bound on multiyear terms and thus, rate could not be increased. This resulted on average in an increase of the prices just under 10%. If we did not want to put additional pressure on pricing, we kept our participation stable. And thus, our premium increase was almost exclusively the result of increased prices and for coming in at around 10%.From the other lines, in Japan, we saw some opportunities to grow our participation, which resulted in increased premiums to the tune of 8%.Regarding the renewals from North America, we saw rather favorable trading conditions. And thus, we were able to increase our volume by 18%, stemming both from non-cat property and casualty business with the emphasis lying on casualty.Outside Japan and the U.S., catastrophe excess of loss business renewed quite stable and the rate and quality did not entice us to grow the portfolio.Due to selective underwriting, we saw some meaningful decreases of our premium volume at market share in the agricultural business, where we also saw some increased exposure due to certain weather phenomenon. On the marine side, the most significant renewal in the first quarter was the marine liability renewal, which is a rather large program, also known as protection and indemnity business. On this program, we increased our volume quite significantly, based on our proprietary terms. However, if we look at the marine business, including the January 1 renewal, we kept the premiums largely unchanged.Unchanged, we also left the guidance for the current year, even though the development so far during this year provided us with an additional comfort level, that the guidance should be achievable, provided, of course, if the large losses are not significantly above the large loss budget and there is no dislocation of the capital markets. This firstly has to do with the numbers of the first quarter, they're regarding premium growth and return on investment, if that's our guidance.Furthermore, Roland already mentioned that in relation to our continued shareholding in Viridium, we will see the realization of off balance sheet valuation reserves to the tune of EUR 98 million, which will support our investment income and will, of course, be reported in the life and health business group.Regarding the dividend payout, again, provided that we reach our guidance, the dividend of 2018 should provide the minimum benchmark for the dividend of 2019. So it's very likely that we will again be paying an extraordinary dividend.Regarding the outlook of the property/casualty business for 2019, you can see that many segments, the arrows pointing upwards. So we expect healthy growth on our property/casualty business for the entire year. Also, the profitability, while it's not perfect, should still allow us to overall earn the cost of capital so that the growth should be supported by the commensurate profitability.On life and health, we expect to see a significant increased profitability, mainly as the result of our U.S. mortality business, should improve considerably because the burden from the recapture charges, which are one-off burdens, of course, were reduced very remarkable. The financial solutions business, again, they carry the bite of the profitability, which we already have seen in the first quarter. On longevity, we expect to earn the cost of capital. And when it comes to premium growth, most of that surface on the morbidity solutions business. Therefore, positive outlook on the life and health business.Altogether, on the P&C side, for 2019 and in the medium term, we expect that our strong competitive position and our lower admin expense ratio will allow us to outperform the market. On life and health, reduced burdens, already mentioned, from U.S. mortality business will allow us to grow the profitability. And this does even include the negative developments that we have seen in Australia, which we believe we have well under control.Finally, on the investment income, continued positive cash flow, should mean that in the midterm, the trend of the income from assets under management should be modestly upward.On this positive note, ladies and gentlemen, we come to the end of our presentation. And we would be more than happy to answer your questions. Thank you very much.
[Operator Instructions] First question is from Farooq Hanif of Crédit Suisse.
I had 2 questions, if it's okay. Firstly, on your Solvency II slide in the appendix. Can you explain the operating impact of 0.4%? What the impact of operating variances has been? So that if we had looked at a very clean quarter, just to get an idea of what the operating growth would have been without those variances? That's question 1. And then question 2, going back to Viridium, I just want to understand a little bit more about how we should see the development of your shareholder value in Viridium going forward. Will it simply be a match of unrealized gains coming through in life and health re? Or will we -- could we expect dividends or other realizations in the future? So how should we think about modeling that?
Well, maybe I start with second question and maybe Roland can answer the first one. Viridium, I mean, we have basically seen when we originally invested in Viridium that our investment was really paid back almost completely by dividends and retiring preference shares. That meant that the book value we had in the book for Viridium was below EUR 1 million. Now of course in the process of some reshuffling within the funds of our majority co-investor, we have to realize the proper value for the Viridium business up until the purchase of Generali Life. And that is where the one-off positive comes from. Of course, we invest through the monies now in order to support the purchase of Generali Life. And if the development is similar to what we have seen now, we will see in the future contributions from dividends and maybe again retiring of preference shares. That is all if the future is the reassembly of what we have seen in the past, where we have no reason to believe that, that should not be the case. Then your first question, apparently, was a little more difficult.
And I must admit we are not in a position to really comment on the details. Now I also have to admit, if you perhaps can repeat it, we can come back to you later. If you just...
I just wanted to, for the sake of modeling Solvency II going forward, the operating impact that you show 0.4 points is a smaller part, obviously and clearly, there are some negative variances in that. Because I'm sure you, on an operating basis, will grow more than that. So I wanted to get some -- if you could break down the operating impact between what is operating operating and what is nonoperating operating, if you understand what I mean.
Again, I've done this, and we have published all the information. As this was Q1 call, I don't have the details with me now.
But we can send you the answer.
Yes.
Could I just ask quickly on -- apologies for my lack of knowledge, but how much are you investing in Generali Leben?
That's probably proprietary information, I would say, because I don't think the price was necessarily published. So I would not give you that answer but it is below triple-digit million. So it's double-digit million.
The next question is from Kamran Hossain of RBC.
Just 1 question on life insurance. Could you give us a hand on, I guess, what the underlying result looked like, first as your kind of EUR 400 million to EUR 450 million guidance, you talked about in the past? I'm just trying to work out whether it feels like the guidance still is pretty conservative or not.
Well, I don't think we said EUR 400 million to EUR 450 million, we said above EUR 400 million. And that is quite conservative now.
Okay. Brilliant. So -- and in terms of I guess the quantum of Australia versus the best U.S. mortality experience, how does that kind of balance out? Or does that net out to pretty much...
Well, as Australia are lower double-digit million, negative impact that we expect for the entire year. I mean, it's not that -- it's nothing we can do about. Of course, I mean the negative impacts largely were coming from the investigations of the Royal Commission, which of course distracted the market players to some extent. And also basically increased the disability claims, both on TBD as well as DII. But I mean, of course, on our Australian business, and this is the new business that we write, we have the ability to increase rate. So we will rectify the situation and definitely will not accept any new business there, where we are not confident that even under the new trading conditions, we could reach the necessary profitability. So we don't really see that as the long-term fundamental problem because, I mean, the runoff of our legacy DII has been -- has actually been quite positive. So I mean, it is something that we have to deal with, but nothing to be unduly concerned about.
The next question is from William Hawkins of KBW.
Uli, congratulations on your tenure at Hannover Re. I hope you have an enjoyable future.
Thank you.
So yes, just picking up on what Kamran just asked. A little bit more detail on Australia, please. I think you've just indicated, so just to double check, to the extent that there is any remedial action required for the rest of this year, it's measured in the double digits of million. Just to confirm you said that. And to help me understand...
Yes. That's correct.
That was correct, yes?
Yes. It is correct.
Great. Roughly speaking, what are the reserves to all the sum insured that are in this portfolio that's affected? That's kind of question number one. And then question number 2. Can you just help me understand a little bit more the reserve development movement this quarter in non-life? I can't remember, so if you can just confirm for me what you think is the normal level of positive reserve development. Because my suspicion is that the Jebi figure alone should have wiped that out. And so to the extent that it clearly hasn't in your overall results, if you can just be clear, was there a positive -- a specific positive that offset Jebi? Or was all of this just kind of lost in the realm to give you billions of reserves?
Thank you, William. Well, I mean, on the Australian business, that is basically business largely that we have written from 2013 onwards. And it is what's called lump-sum business as well as the DII business. And of course, the expectations are that this business has the future positive cash flow, and that is reflected in the rather low reserves, I would say. What happened -- I mean, and I should also say that there are significant differences, the way we write DII here as compared to the legacy DII. And the most important difference here is that we can increase the rate. And we have already increased the rate on this business and the part in order to keep it profitable, and we are engaged to do that now again. So that should then force the DII problem. We also have -- other than on the legacy DII, the retention of the ceding companies were always rather low on the new business as the retentions are quite meaningful. Therefore, you have much better alignment of interest than the nonlegacy DII. But we also have seen that the lump-sum business which is life and TBD, which historically has actually been quite profitable, whilst not being negative, the profitability has more than halved on that business. And this is due to the fact that the TBD payout has actually increased rather significant. So there's a little bit of a need for increase of rates as well. And that is really how we think we should solve the problem. The good thing on both ends is that -- is the full alignment of interest which helped with our ceding companies, which makes the overall corrective actions a little bit more easy.
So I'm sorry to come back and drag the call. Just to make sure I understood what you just said. The issue that you're talking about is nothing to do with the legacy business that you had addressed with the big charges back in 2013.
No. Nothing.
So even the new business that you started writing has actually proven to be not as good as you'd originally had?
That is a new business, and that is the result actually of the ramifications of the investigations of the Royal Commission. But that's a market-wide phenomena. I mean, if you look at the market figures for Australian Life business in the second half of 2018, you will see a significant deterioration of source results. And unfortunately, we couldn't isolate ourselves from that. And on the cost reserves, Roland, if you might take.
Yes, I can take that. Well, I think with all uncertainties, I think the numbers we gave over the last calls about expected or to-be-expected runoff result for quarter should be around a positive EUR 100 million. Again, we have sometimes larger transactions, which can interfere here, but this is to be expected. The Jebi loss development, as I mentioned, was EUR 48 million or EUR 49 million. And the calculated runoff results, including that for the first quarter was around EUR 70 million. So if you add that then the overall runoff would have been without Jebi around EUR 120 million or EUR 130 million in that area. The rest of the positive and negative were really in line with expectation, nothing extraordinary, which is worth mentioning here.
The next question is from Sami Taipalus of Goldman Sachs.
The first one is -- just sorry to sort of bore you on the life and health reinsurance business. But I didn't quite get a feel for your comments about the underlying profitability there in the first quarter. You've obviously had some negative drag from Australia. But it also seems like, maybe the U.S. mortality was a bit stronger than expected and the investment income was, I guess, also quite strong. So could you just comment on whether you know it would be -- would it be sensible to annualize this run rate or do you think that you will slightly sort of ahead or behind that? Just a bit more insight into the moving parts there would be great. And then second, on the structured reinsurance business. I didn't quite understand how the moving parts you mentioned upfront would have affected the results. So if you could just run through that a little bit more in detail. I mean, maybe I'm wrong, but my understanding was that this should be quite a stable business in terms of margin. So it'd be great to understand what drove that relativity.
Well, I would say on the life and health side, there were not extraordinary developments in the first quarter. Maybe with the exception of, I mean, the derivatives here, mainly the ModCo derivative. So I mean from that point of view, I would probably caution to take the -- outside Viridium, to take the first quarter time times 4, but if you want to take something times 4, probably north of EUR 100 million, I would say, just only slightly north of EUR 100 million. This, of course, considering that there is significant volatility on a quarterly basis, which, of course, reduces a lot if you look on an annual basis and if you look on its re average, the volatility is very low on the life and health business. When it comes to the structural business, we make it a little bit difficult for you because we -- I mean, aggregate the structured business with the ILS business. And the ILS business is really a business that we don't keep retention, but only keep path of the premiums at the fee, that means that the combined ratio on structured business normally is well below 10%. And then if you, of course, add that to the higher combined ratio on the structured business, it looks little bit nicer. The ILS business in the first quarter has actually grown, so the profitability from the ILS business has grown as well. It's had a positive impact on the combined ratio. Otherwise, the structured business was largely in line with expectations, coming in with the combined ratio around 98%. Thus, nothing went wrong and something went little bit better than expected. But we expect that between 98% and 99.5% every quarter. So 98% was on the positive side of that bracket.
Okay. So just to be clear, it's a pure mix shift basically you had an unusually...
Exactly. Exactly.
The next question is from Andrew Ritchie of Autonomous Research.
Uli, just to echo William's comments, congratulations on your tenure and good luck for your retirement. Maybe as it's your last opportunity, could you give us a sort of overall view on reinsurance market condition? Your tone sounded slightly more cautious than maybe at the time of the full year in terms of quite a lot of capacity coming back in opportunistic. Maybe in light of that just give us a sense of how you think the midyear renewals may pan out? The second question, just a small question. What exactly happened in U.K. London market, where you had a very high combined ratio of 122%? Is that large loss-related or Jebi-related?
Well, the overall reinsurance market, and I'll concentrate on the P&C side because it's more cyclical than the life and health side. I would say here, really characterized by most of the market players, wanting to add capacity to the market and increase their share. And you have -- we haven't seen, maybe with some exceptions from the ILS capacity, any withdraws of capacity. That underlying means that the market is still a bias market and quite soft. There is, of course, some discipline in the market due to the rather disappointing results of the market as a whole in 2017 and 2018. But I mean, we haven't seen any capacity reductions or capacity withdraws. And therefore, it remains a competitive market. I mean, as I said, the price level is a bit better than the previous 2 years, but it needs fair amount of desire because coming close to the 15% level would actually be probably more risk adequate. We have a slight advantage here with our expense ratio advantage which we actually extended in the first quarter 2019 to reduce expenses on the life and health side with increased volumes. So that's quite positive in a difficult market. As far as the London market is concerned, it wasn't really the effect of development in Typhoon Jebi. That was more on some of the Lloyd's business that we support through what's called trade capital, where we provide a quota of share to a corporate name. And thus, have a provision like corporate name ourselves, so we participate in the capital of the Lloyd's Syndicate. And we then book the results as premium and losses. And I mean, the rather unfortunate development of the results in the Lloyd's market is also shining through on those kind of participations.In addition, on the U.K. motor excessive loss business, we still, I mean, booked the reserves also on the new business, based on minus 0.7% discount rate, which means that we booked rather high combined ratios because pricing in that market is a lot -- works on a lot higher discount rates than minus 0.75%. It's probably on average, I would say, the U.K. motor excessive loss pricing might be at 0.5% discount rate. And as we booked the initial loss reserves, there's minus 0.75%. Of course, we booked very high combined ratios that also had contributed to this rather high overall combined ratio. Naturally, should the U.K. government feel fit to reduce or to increase the discount rate, then of course also the reserves on the newly written business will presumably come down.
The next question is from Michael Haid of Commerzbank.
Just one question left for my side. The Typhoon Jebi you mentioned the EUR 48 million or EUR 49 million net increase of reserves. Could you also give us the cross figure for the increase of reserves? And to what extent did the whole account covers play a role in this additional reserving?
Well, first of all, the whole account cover did not play a role because the Typhoon Jebi loss, now it's pretty close to the retention of the whole account cover. That, of course, would not allow it to grow a lot further. If we look at the actual advice and paid losses at the end of the first quarter and compare that to our reserves that we have at the end of the year 2018, there was still quite a bit of distance between our reserve and for paid and advice covers. However, due to our reserving practice that if we get advice losses to a layer in the program, we would normally put a reserve on the next layer up as well. And that -- despite the fact that from the pure advice losses we could have kept the reserve unchanged due to this method. We increased the -- our own reserves on Jebi quite significantly.
So the gross and the net figure are fairly similar?
No, the gross figure is a lot higher because that again has to do with the K transaction because basically all the Jebi losses from Japanese natural catastrophe excess of losses they all ceded to the K. And also, of course, on our ILS business, the front fair amount of Japanese excess of loss business to transform the business into the capital market. There, of course, that shows up on the gross loss as well. But of course, this has no effect on the net loss.
The next question is from Vinit Malhotra of Mediobanca.
Just 2 quick follow-ups. In the terms of last quarter, we were discussing at length, the combined ratio, the 97% and the business mix and the structure. And now we've produced even below 96% and structured well even low growth as you said. Is there something that should drive us to 97%? Or even this kind of 96% level should be achievable, given what you know today? That's the first question. Second question is just a very small numbers one. The funds withheld in the investment income, there's been sort of a big jump which has taken us back to the levels of 14%, 15%, 16% even, but not seen in the last few years in a quarter, the EUR 70 million-plus range. Is it just one-off? Or just something to note here, please.
Well, in terms of sales in life and health, I mean, that's some new business that we wrote on a fund-for-sale basis and, therefore, you saw that increase. Of course, you should always bear in mind that the definite income on the funds for sale a part of the overall margin of those treaties. So I mean part of that is all this offset by losses on the underwriting side so that the overall margin of the treaty is in line with the way it has been quoted, of course, earnings cost of capital. I mean, as far as the combined ratio is concerned, I have to say that the first quarter of 2019 really the underlying loss development outside the major losses was actually quite favorable, but there is no guarantee that, that will stay for the entire year. One would say that the underlying loss development below the major losses in 2018 overall saw relatively high losses and slight improvement or at least in the first quarter quite good improvement on that end in the first quarter of 2019. But I mean, quarterly results on reinsurance always have been a bit difficult to interpret because naturally I mean, it's volatility on a quarter-by-quarter basis, even with the underlying loss ratio. So I mean, a lot of it is actually casualty and things like that. But I mean, in the first quarter, just there have been pretty good underlying.
The next question is from Frank Kopfinger of Deutsche Bank.
I have also 2 questions. First question is on the other income line within the life segment, the EUR 62 million in Q1. Is this -- should this be seen as the normal level going forward also? And then secondly, on the Boeing loss or the airline loss, which we report on. My understanding is that this reflects the loss for the airlines. Is there any risk that due to liability issues, this is going up?
Well, I would say, the other income line from the private account treaty was quite positive in the first quarter so just multiplying this by 4 would probably be quite optimistic, but it's relatively close to that. I mean -- and that's actually quite a reliable number, I would say. On Boeing, well, I mean, 2 issues. Of course, the Boeing losses when it comes to Boeing itself, also includes the line air loss from last year, because if I understand it from our experts, the grounding loss would actually fall on the line air loss being the first one that showed an issue that finally was resulting in the grounding. So the grounding liability, which is supplemented at EUR 500 million, is not featuring in the Ethiopian Airlines loss. For us, I would say, yes, I mean, of course, there is the possibility based on U.S. jurisdiction on the passing the legal liability losses than there is a product liability case against Boeing and at least claimant lapse as that is the case. That might drive up, of course, the liability losses as the awards in the U.S. court systems generally tend to be somewhat higher than in other jurisdictions. So we have to see how that develops. On the other hand, I mean, for us, on the net side, I'm not too concerned because we have for all the comprehensive specific rental session protection that would limit our losses from these aviation disasters. Naturally, I mean, aviation excessive loss is part of K, so little bit more than 40% of all our losses from the excess of losses would be covered by K. And then we have in addition to that the excess of loss on excess of loss protections. If you look at the direct facultative and pro rata, we have a comprehensive program covering that. And there, regardless how much the losses would increase on a per loss basis this -- on this basis, is 2 losses together will probably not exceed on a net basis, $5 million. That's just the way our protections are constructed there.
[Operator Instructions] There are no further questions. I hand back to the speakers.
Yes. Thank you very much for listening in to our first quarter conference call. Apparently, most things are pretty clear, so we think we have a record time for the conference call. I cannot promise you that this will still be the case on the second quarter or half year. But yes, thanks for listening. And all the best to you. Have a nice day.