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Good morning, good afternoon, ladies and gentlemen. Thank you for standing by. Welcome and thank you for joining the Munich Re quarterly statement as at 30th September 2022. [Operator Instructions] It's my pleasure, and I would now like to turn the conference over to Christian Becker-Hussong. Please go ahead, sir.
Thanks for your introduction. Welcome, everyone, to our Q3 earnings call 2022. Today's speaker is Christoph Jurecka, our CFO. And the procedure is, as always, Christoph will start with a short introduction, and then we will go right into Q&A. Thank you. And Christoph, Please go ahead.
Thank you, Christian. And yes, good morning also from my side from a very sunny morning in Munich. As already indicated in our prerelease, we achieved a net result of EUR 530 million in Q3. It was a heavy nat cat quarter dominated by Hurricane Ian, which left its mark on our results. As one of the most powerful storms to ever hit the United States, Ian accounted for an insured market loss with a broad range of around USD 60 billion according to our preliminary assessment. However, large loss volatility is inherent to our business model and we have been increasingly well paid for taking volatility of our cedents books. Even in a very challenging third quarter, our overall profitability remained very solid with a group ROE of 8.5% as the diversification between business segments and result drivers has paid off. Strong earnings in life and health reinsurance and that ERGO compensated for losses in P&C reinsurance to a considerable extent, while the very strong FX result compensated for a lower investment return. The continued expansion of less cyclical business will further reduce Munich Re's earnings volatility over time. In Q3, we achieved an investment return of 1.6%, exactly the same number as in Q1 and Q2. The ROI in reinsurance, which has a more direct impact on the net result, was adjusted breakeven while the ROI at ERGO held up relatively well. Write downs, mainly on equities in both fields of business, were largely offset by disposal gains at ERGO, while ongoing rising yields were detrimental for the derivatives we use to manage duration in reinsurance. The positive flip side was a further rise in the reinvestment yield to around 3%, providing a further margin of comfort for gradually increasing regular income going forward. As also mentioned in the last quarter, the losses on interest rate derivatives are purely accounting driven. Economically, our interest rate position is well matched. For the first 9 months, these uneconomic interest derivative losses amounted to roughly EUR 1 billion. Finally, when assessing the investment result, the currency result of around EUR 850 million in Q3 and almost EUR 1.4 billion for 9 months should also be taken into account as FX is an actively managed asset class for Munich Re. And if the FX result and the uneconomic losses were added back to the investment result, the annualized ROI for the first 9 months would be close to 3%, which I feel is quite pleasing. Turning to reinsurance. The life and health technical result, including fee income of almost EUR 300 million, came in well above the pro rata annual ambition. In line with our assumption that the largest share of COVID-19 claims would be incurred in the first half of the year, COVID-19 losses declined to EUR 35 million in Q3. Apart from COVID-19, claims experience was favorable in Asia, Australia and Canada. While rising interest rates had a positive impact on claims reserves of around EUR 30 million, mostly in Canada. Fee income was very strong once again and continued its pleasing growth path. As a consequence of the sound performance in the first 9 months, we have substantially increased the guidance for the technical result, including fee income, to EUR 800 million for the full year, even though we might see higher-than-expected COVID-19 claims of up to EUR 400 million. In property-casualty reinsurance, we posted a combined ratio of 108.2%. Major losses accounted for almost 27 percentage points with the lion's share of 19 percentage points attributable to Hurricane Ian. As a result, our full year major loss budget was largely exhausted in the first 9 months. However, our commitment to confirming our 2022 group earnings target is based on a fully available major claims budget of more than EUR 1 billion for the isolated fourth quarter. Furthermore, the technical performance of P&C reinsurance remains healthy with a normalized combined ratio of 94.3%, continuing the trajectory towards 94%. At this point in time and with the exception of motor insurance, we do not see elevated inflation developments in our underlying data on a both basis in traditional reinsurance. However, to what extent we will have to further react to inflation risk at the end of the year for either the current or prior years will be analyzed in more depth in our regular annual reserve review in the fourth quarter. Either way, we expect the outcome to have clearly manageable impact on our earnings. Despite the ongoing strong profitable growth, reserve releases on basic losses remain at a high level of 4%. In primary insurance, ERGO continued its pleasing financial development. The net result of almost EUR 450 million was clearly above the normal quarter. While benefiting from a positive one-off effect in the Life and Health Germany segment of around EUR 200 million, growth and underlying performance across all segments were very healthy overall. Even adjusted for the one-off effect, ERGO's Q3 result would have exceeded the pro rata expectation for a single quarter. Our German Life and Health business delivered a net result of EUR 344 million, which was driven by good operating performance, a resilient investment result and a very strong currency result. The net result benefited from a one-off effect in life that was due to updated IFRS profit sharing assumptions triggered in part by increased interest rates. The positive development of the technical results in Q3 were supported by health, mitigated by a normalization of the claims development in travel, while our life business was in line with expectations. The high currency result had a negative impact on the operating result, which nonetheless remains strong. In P&C Germany, we achieved significant premium growth above market expectations and very good operating performance. The combined ratio of 87.2% in Q3 benefited from favorable basic loss development, large losses below expectations and continued premium growth. The 9-month combined ratio of just above 90% fully supports the full year guidance. Our ERGO International business posted a pleasing net result with further premium growth despite divestments in the previous year. The quarter was particularly strong in Belgium due to an exceptionally high result in our life and health business. However, the combined ratio of 93.8% in Q3 was higher than expected. This was chiefly due to our health business in Spain with lower positive seasonality than usual and higher expenses in our legal protection business, mitigated by good developments in the Baltics, Poland and Austria. Overall, the 9-month combined ratio was elevated due to less favorable financial developments in Poland and Spain. Some short remarks only on capital management. The group's economic position remains very strong, and the solvency II ratio increased slightly 254% in Q3 due to increased interest rates partly offset by high nat cat losses and business growth. I would like to conclude with the outlook for 2022. Even though it has become significantly more challenging to meet our 2022 profit target, we reiterate our guidance of about EUR 3.3 billion for the group as a whole based on the encouraging underlying performance in all lines of business and subject to the realization of anticipated positive one-off effects, particularly regarding investments. This confirmation of the guidance testifies to the diversification of earnings drivers our group continues to benefit from, reflected in some counterweighting adjustments of some of our divisional financial targets. Mainly due to Hurricane Ian, we now expect a higher combined ratio of 97% in P&C reinsurance. Consequently, we have reduced the net income target for the reinsurance segment by EUR 200 million. Also the outlook for the technical result, including fee income in life and health reinsurance, has been doubled to EUR 800 million. I'm aware that the IR team received questions on the 97% combined ratio outlook for the full year 2022. Please bear in mind, on the one hand it is about rounding. So we mentioned approximately 97%. If you do the math, approximately 97% for the full year covers quite a Q4 combined ratio range from 95-ish to 98-ish. On the other hand, the outlook reflects seasonality. We have more than EUR 1 billion budgeted for major losses in Q4, so more than the simple quarterly average of around EUR 1 billion. Other than that, our general messaging on the outlook is a positive one. In terms of the starting point for the combined ratio outlook for 2023, now leaving IFRS 17 aside for a moment, I think the development of the normalized comment ratio towards 94% we have shown in Q3 is reflective of a positive underlying trend, even though some uncertainty with respect to the year-end reserve review remains. Now back to 2022, lower earnings in reinsurance are expected to be fully offset by a correspondingly higher net result at ERGO in spite of a higher combined ratio in international business, mainly due to the Q3 one-off effect in Life and Health Germany. The increase in the expectation for cost of written premiums to EUR 67 billion for the group is mainly driven by reinsurance and the profitable expansion of our business in the course of the year. Overall, I believe our ambition to deliver on the EUR 3.3 billion target is a strong commitment given the challenging macroeconomic environment, another year of high natural catastrophe losses in the industry and the impact of the war in the Ukraine. This environment should provide tailwind for further rate increases next year as Munich Re will be well positioned to capitalize on its superior market position. With that, I look forward to answering your questions. But first, I'll hand back over to Christian.
Thank you, Christoph. Not much to add from my side. We can go right into Q&A. And I would like, as always, to ask you to limit the number of your questions to a maximum of 2 per person in order to give everyone a fair chance to participate. And if you have further questions, then please go back to the queue, and we are happy to take you on board for a second time. Thank you, and please go ahead.
[Operator Instructions]. We have the first question from Freya Kong from Bank of America.
Firstly, could you give us some color on what's driven the top line upgrades at the group level? How much of this is FX driven versus strong underlying growth and which business lines are you growing strongly in? And secondly, Christoph, you talked about continued expansion in less cyclical business will reduce Munich Re's earnings volatility over time. Could you give us more color on this statement? Do you mean stronger profit contribution from life and health in ERGO.
Yes. Thank you for the questions. The top line is, of course, significantly influenced by FX. But the good news is that the bigger share of the growth is coming from operating developments of real from operational growth where we capitalize on our good market position in several markets. When it comes to lines of business, there's not a clear picture. We are very happy to write business globally across the globe as soon as it meets our underwriting guidelines and our profitability thresholds. And so what we see is really growth across the globe, all lines of business. Similarly, in traditional reinsurance, like in our risk solutions business in reinsurance. But then also ERGO, as I mentioned before, is showing significant growth, outgrowing market expectations, at least in some of their markets. On the second question, less cyclical business, yes indeed, there are certain lines of business which we assume to be more stable in the earnings development. First and foremost, of course, life and health reinsurance. But then, of course, also ERGO, which is much more stable than the more cyclical traditional reinsurance business. And then also our risk solutions business, there are several units in there which have a much more stable business compared to the very cyclical and not cat-borne traditional reinsurance business.
The next question comes from Vikram Gandhi from Societe Generale.
It's Vik from SocGen. Couple of questions, please. Firstly, Christoph, I just wanted to get your thoughts on what Munich Re's thinking is with respect to a potential move to named payrolls rather than all risk coverage going forward? And what would you see are the points of contention from other reinsurers as well as cedents? Because I'm looking from outside, it doesn't look as though the entire industry, reinsurance industry, is aligned on this. I mean, after all the efforts to remove silence cyber, then the COVID experience on what is covered, what is not. And then with Russia-Ukraine where we see more and more lawsuits coming in, I would have thought [ name Peril ] probably is the name of the game going forward. So that's one. Second is a regular one from me. Any update on the IBNR position and COVID reserves, and whether we should expect some releases by year end given the developments on BI in Australia and the U.K.? And how concerned are you that any release in this regard may end up offsetting a potential increase with respect to the Russia-Ukraine situation? That's all.
Thank you. I mean if I look at your first question, please forgive me, I will not give any very precise answer to the specific discussion you're referring to. But from a more general perspective, I think the business model of Munich Re is a very stable one. And as much as you could see in Q3 also, we are also, of course, affected by cat events once they occur, we are able to mitigate the impact from these events quite nicely in our diversified business model. So therefore, I think the pressure to change something is less pronounced for us than with others. And therefore, I think we will just continue to do what we are doing and make money with taking risks off the balance sheet of our cedents and that makes a lot of sense for us. The IBNR around the COVID side, there I mean the COVID reserves are part of, as you know, our reserves overall. And we are going to look into that in the course of our Q4 reserve review. And we are generally looking at reserve prudency on the overall level of our reserves. And we are not so much commenting on individual buckets where we either would benefit from releases or would have to face some increases. And we did so in the past when you can probably remember that for social inflation in certain buckets of our reserves, we had to increase reserves in the past and we did not highlight it to a large extent, but were able to fill that with reserve benefits we had elsewhere. And that's just the way we look at it. So it's an overall reserve review and if there is a shortage in one end, we use redundancies on the other hand to finance that. But always keeping in mind that the overall level of cautiousness should be sufficient and should be in line with our conservative steering and prudent reserving approach. And then we'll take it from there in the fourth quarter when we go into the reserve review. The COVID IBNR in itself is significant still. And the amount of IBNR nearly didn't change at all in the last quarter. So in that regard, it seems that we are coming closer and closer to a situation where the data is pretty reliable.
The next question comes from Kamran Hossain from JPMorgan.
The first question is on '23 and I guess how excited you are about the reinsurance backdrop. Do you expect all clients in all regions generally to be paying more or do you just think this is a property cat call in the market? Because we've heard descriptions of the market being kind of like post-Katrina, which was a bit kind of property cat and kind of I guess in 2005 was kind of pretty U.S.-focused. So just interested in whether you think this is a kind of a widespread hardening in all lines, reappraisal of risk everywhere. The second question is on capital. Clearly, on a solvency II basis, it was not an issue at all. Can you just maybe talk about rating agency capital, how this allows -- how much room you have to grow under that? And maybe how that also interplays with potential capital returns, including a buyback?
Sure, Kamran, thank you. First of all, hardening market, I think it's, of course, early. We're just going into 1/1 renewal in a couple of months. But I think there are clear indications that we are talking about a wider set hard market and that this would not only affect selected lines or selected countries. There is many reasons for that. Claims history, of course, but also then alternative capital and what we are seeing in that market. So I think we can be optimistic in that regard. But finally, of course, it's too early to tell. Capital, indeed according to solvency II, we are clearly above our optimal range. But yes, as you mentioned, there are other restrictions we have to manage as well. I think the most prominent for Munich Re always has been the local cap restriction in the past where, as you know, we don't manage it on a single year basis, but look at it on a more accumulated basis and look at our retained earnings position overall, distributable earnings position overall. And there last year-end, the buffers were filled quite well. So there I do not see any major restrictions. On the rating capital side, the situation is a little bit hard to assess, to be honest. As you know, the S&P model is under review. So we were lacking a solid ground in a sense to what will happen with the model and at which point in time. So therefore, I think the situation is more uncertain than maybe in the past. But generally, I mean the one topic in that model which I personally also felt quite hard to understand is that with rising interest rates in the S&P model, your capital redundancy would suffer, which doesn't make sense economically at all. And as you know, in solvency II, we are benefiting to a large extent from the rising interest rates. So in a sense, there are certain model artifacts in some of the rating models where I would be very optimistic that they will go away in the future as these models are being reviewed. Of course, I don't know what the outcome will be. But of course, it would make sense if all the rating capital models would show a better capitalization with rising interest rates. But other than that, I cannot comment any further on rating capital today just due to the uncertainties as they currently are. But again, the general picture is we are very strongly capitalized and even more now than 3 months ago or 9 months ago. So over the year, we have been building up our capital base quite significantly.
The next question comes from Andrew Ritchie from Autonomous.
First question, I just wanted a comment on what you're thinking about the nat cat load, the 8.5 points. I mean you're running at 10.9 points to 9 months, just assuming a budgeted Q4 is still going to be probably above budget by the end of the year. And yet industry insured losses are probably around EUR 100 billion, which is not really that unexpected now. So whilst your hurricane in loss was probably lower than we would have expected, the overall cat load is still seemingly pretty high for what might be a sort of normal level of industry losses. And so the question I get from investors a lot is, is this still an issue? Is this a pricing thing? Is this a term to condition? What would you comment? Are you surprised as well that it's another year where you're running above? And does it suggest you need to do more work on that front? Second question, Christoph, I think there's a danger of us being a bit confused by what exactly you're messaging on the 4Q reserve review. Because if I look at the comments you've made today, first of all, you told us that it was only really motor where you were seeing inflation effects. Then you told us that you were confident in 94% being roughly the right starting point run rate normalized for '23. And then you also said though that there may be sort of true of effects with the reserve review in Q4. So I'm left a bit confused as to what exactly your messaging. Presumably, the reserve review, I know is concentrated in Q4, but you must have had some hints or indications already. What exactly are you trying to message in terms of the areas that you might need to address? And how confident should we really be in that 94% as the starting point run rate?
Sure. And I start with the first question, the nat cat load. I mean I think that's a difficult question. I mean we had this 1 big single event here in the third quarter. If that single event would not have happened, we would have come out significantly below the nat cat load. Now this 1 event happened. But if it slowly dies and if we're talking of stochasticity, sorry hard word, then it's -- if you have 1 event -- or not the 1 event, it can make a big difference and it does. So therefore, I'm not particularly concerned. And in any case, I mean Q4 is still ongoing, but there's a fair chance that we will end up reasonably close to the 8.5% anyway. So we have to wait and see for that. And then we'll review the cat load beginning of next year again, as always, and then come up with a new guidance. And if it's higher, then it's high and then we will talk about that. Does it concern us? No, not at all. I mean we are looking at cat price at the right level as being one of the most profitable lines of business and that didn't change. And as you can see, we are also able to stabilize in quarters where the volatility hits us. So in that regard, we feel quite comfortable. And then we are adjusting the models regularly anyway, as you know, and then we'll take it from there. But again, if the number needs to be adjusted in an upward direction, then of course we're going to do that then for the upcoming next year. Reserve review, yes, that -- I mean, it's always hard to comment on something which is still ongoing. And the difficult thing with the reserve review is you only know what the outcome is once you've gone through all of your reserves, and bits and pieces you see before are not really telling because it's really the overall picture which makes sense. So therefore, it's a little bit hard to comment despite the fact that you're right. I mean we're in the midst of the process. And as you can imagine, it's a Q4 exercise, but we're in November already. So of course, we started the exercise already. What can I say? Well, the starting point is, of course, a significant amount, not only of IBNR, but also bulk reserves we hold in our reserves. And they give a significant amount of buffers which we start into the reserve review. Just to remind you, only last year-end we strengthened our reserve significantly without the necessity to do so. But just as it was affordable back then, we did increase the level of cautiousness in our reserves end of last year. So that's the way we usually do it. If there's potential to strengthening reserves, we do so. Now this year, obviously the open question is inflation, as you mentioned. And well, in our primary insurance businesses, the question is somewhat simpler because there you get the claims data in -- from a timing perspective, quite close to the claims event in itself. But in reinsurance, you have a delay. And that was my comment that the only data where we really see inflation already in traditional reinsurance is basically motor data, so motor business. Whereas in the other lines, we don't see anything yet. And then obviously that doesn't mean inflation would not hit us. But the difficulty then is that it will all be very much assumption driven. So we have to take out our price assumptions again, look at the environment, look at what has changed so far. And then we'll make -- we'll have to make a call line by line and then probably treaty by treaty if the reserve assumptions we have been setting initially are still the right ones or even potentially we need to act on that. And if we do so, obviously, I mean having these large reserve buffers in place, we could easily finance a significant part or everything from that, easily finance that out of existing buffers anyway. So then it would be a reshuffling basically from a bulk reserve or from an IBNR we generally hold into specific lines of business without any result impact at all. And that's why we were saying that we don't expect any major impact from the reserve review on our year-end result at this point in time because personally, my clear assumption is that whatever we'll find on the inflation side, we'll be able to cover that by the existing reserve buffers we have elsewhere. Just like the example I was giving earlier in this call on the social inflation in the past where we had to react here and there, and had certain books where we strengthened reserves. But basically for the outside world, it was not visible at all and the 4% reserve for these was always still possible, by the way, despite the significant growth we are showing. Now currently, I do not have any indication that the 4% will no longer be possible. I do not have any indication that our result target will no longer be possible. And the only indication I have is that inflation is something we will have to look into to a large amount of detail in the fourth quarter now. And then going one level deeper, of course there are certain treaties, certain parts of business which we did price in the 1/1 renewal this year with the assumptions back then, inflation assumptions back then where from today's perspective, we would say, well, inflation now is higher than back then. But then in the reserve review, you look at all assumptions, again, claims experience as well as the inflation assumptions, all the things you were looking at back then, and then still the assessment is maybe not as simple as it might be on first sight. So long -- to cut the long story short, nothing to be worried at this point in time. Going forward, the assumption clearly is that we are able in pricing to transfer inflation -- the higher inflation that we have now completely into the price and on to our clients such that going forward, there will be no negative impact from the higher inflation. And again, for this year, we're looking into that as we speak. So this was very long now. Clear enough. Sorry for the long answer.
The next question is from Vinit Malhotra from Mediobanca.
Yes. So my 2 questions. Just first of all, just Christoph, you mentioned the high nat cat quarter. But if I -- I mean, excluding Ian, the 3Q is about 2.5%, 2.6% of premiums, which is around half the run rate of the other 2 major reinsurers, roughly speaking. I mean is there some PYD to flag? Is it some comments we made because other than Ian, this was a very, very good quarter then. So that's the first question, PYD from major losses. Second question is the life technical results. I mean if I were to do very simply just to add 400 million to 800 million, get 1.2 and then we noticed there's about 94 million noted for interest rate effects, could you please remind me of any other positive one-off or maybe just underlying trend which was very good or go with mortality lagging effects which are positive or something which should mean that going forward the technical result is not so high or something to that effect where cleanup the technical or something like that?
Thank you, Vinit. PYD, as you know, that's something which has happened just as normal course of business every single quarter for us as well. And sometimes it's negative, sometimes it's positive. As it's just fluctuating, we're usually not really commenting a lot on that. I think the only thing I can confirm for this quarter is there was some positive PYD. But yes, that's it. And referring to your comparison with our peers, obviously, that's not something I would like to comment on. The life re question, there I mean we are facing an exceptionally good year. And you were referring to interest rate, but there are many aspects where I would like to underline that this is really an outstanding performance. It starts with very good new business. On top of that, also the technical experience has been very good in many markets. We've been benefiting from that as well. We also had a few, but not really outstanding, this big in-force transactions as well. So all in all -- and then the fee income has also been growing substantially again. So all in all, I think what I would say is that the business has been just outperforming all expectations significantly and up to an extent that we cannot say that's the new normal. It's just too good to be expected to be the good new normal. In other words, nearly too good to be true, to be honest. So therefore, I would really warn you not to take the 800 and add back the COVID claims of 400 million. And regard the 1.2 billion as is the new run rate. That would be really the completely wrong perspective in my view. But I think internally and with our usual cautious view, what we would probably confirm is that initially at the year, we would have probably said, well, the run rate of the underlying profitability was around 700 million. Maybe it's 800 million now. Maybe it's a little bit above that, but don't just take the 800 million and add back the 400 million -- or add on top of that the 400 million. That would just be adding all potential positives up and define it as a new normal that would be unrealistic.
The next question is from Ashik Musaddi from Morgan Stanley.
Just a couple of questions. One is on the top line. So I mean top line was really strong and you mentioned that there was a bit of FX, but there was an underlying growth as well. So would you say that you were surprised about that strong organic growth? Or would you say that this is what you're going for, given that you have capital, given there is pricing momentum in P&C, in life, as you mentioned just in the previous question, on Vinit's question? So I mean, how does it translate for next year? I mean, would top line going to continue to remain strong next year, given the pricing momentum in life, P&C and your capital position? So that's the first question I have. And the second question is just with respect to inflation, I mean is there any surprise inflation that you are seeing or say, any update on social inflation or anything that you're seeing right now? Or we still need to wait to see that like next year, we will -- is when we would expect that? Yes, those 2 questions.
Yes. Thank you, Ashik. On your first question, I mean top line, I think we have been surprised by the U.S. dollar development compared to euro, but operationally I wouldn't say we have been surprised. Obviously, we are pleased by the development but not surprised. We always said we were happy to grow into the hardening market. And as soon as our profitability thresholds would be met, we would be happy to do so. And obviously, there are -- I mean there's a very good market for us with flight to quality and quality reinsurers being really demanded. And so we were really very happy that we were able to capitalize on our business model and our strengths. So very pleased but not surprised, organically surprised by the FX development. On the social inflation, I think there is not really a lot of news every -- from one quarter to the other. In any case, we continue to be very cautious in that area because we think it's really high risk and I think last time I told you already that in the 1/7 renewal, we have been particularly cautious in that area. So I mean that's unchanged, but not a lot new really to report.
The next question comes from Darius Satkauskas from KBW.
As Darius has technical issues, he asked me to read out his questions. Although I think the first one has just been answered. Darius writes, "I'm trying to figure out life and health earnings power. You previously guided to a net technical result, including fee income adjusted for COVID of 700. Today, this has been increased to 1.2 billion. Any one-offs or has the underlying earnings power materially improved?" I think, Christoph, you just answered that more or less.
Yes.
And the second one is how much did the expected growth impact your solvency II ratio in the quarter?
That's a very specific one. I would have to look that up. But as the overall impact is positive, what you can see is that we still were able to improve the capital situation. So we were generating more capital than what we needed for the growth. And other than that, maybe we look up the number, and I'll come back on that question later.
Yes. We can take that off track, and I'll come back to you, Darius. Thank you.
The next question comes from Derald Goh from RBC.
Christoph, 2 questions, please. The first one is just going back to P&C REIT growth. So the strong organic growth that you're alluding to there, can you give us a sense as to how much of that is from new business compared to other things like indexation, et cetera? And how might this change at 1/1 as rates go up? Is there a risk that we might actually see lower sessions from your cedents to manage reinsurance costs? And the second question is just around this investment one-off that you're flagging in the fourth quarter. Could you maybe comment a bit on what are the sources there and maybe quantify what the magnitude is, if possible?
Sure. On the P&C Re side, yes, a lot is price driven obviously. So we are talking about hardening markets. So already an unchanged business volume would come up with higher premiums, come with higher premiums now. But on top of that, we are, of course, also going by taking higher shares, for example, but also having -- also with new clients. That's something we are not disclosing. So I cannot give you the detailed split, but all 3 components play a significant role. And again, I'd like to underline the pricing impact is very significant. The investment one-off, there I have to ask you to understand that obviously, I mean, we are talking about a couple of a few one-offs here. And it's hard to talk about them before you realize them. I mean we cannot educate capital markets about things we would like to do. That would be very stupid. The one transaction I can mention because it's public knowledge anyway is the planned joint venture with Hannover Re on the alternatives of private equity side. That will have a positive result impact for us in the fourth quarter.
The next question comes from Ivan Bokhmat from Barclays.
The first one would be on the investment results, specifically on the pickup and the reinvestment yield. I mean, it's been quarter-on-quarter not very meaningful, about 20 basis points. So I was just wondering if you could provide any color on the asset allocation decisions you've made or whether you expect that 3% that you flagged now to accelerate meaningfully in the subsequent quarters, considering where the rates are at the moment? And second question I wanted to ask you is related to the casualty business at the renewals. I mean we are looking at perhaps stronger investment results and also a lot of your smaller peers have not been quite as attractive to the P&C cat business. As we get closer to renewals, what are we seeing on the casualty prices? What are we seeing on the casualty profitability? And where do you think would be the lines where would that need the most to get fixed? What's attractive? What's less attractive? I'm getting between the lines. You mentioned motor reinsurance, so I'm just wondering if that's something there you're more cautious on into next year.
Sure. On the investment result, generally we all have to be very careful when it comes to interpreting the reinvestment yields in a single quarter for a number of reasons. Obviously, I mean it depends a lot if we reinvest in our P&C books or in the life books or in the health books where duration can vary a lot between these different books. On top of that, obviously all the credit structures play a significant role. So reinvestment generally depends on the investment strategy and where you do what in the particular quarter. And on top of that also liquidity management and let's call them treasury activities also interfere with the reinvestment yield. So for example, if we collect a high amount of liquidity because we need it for some operational reasons, then we reinvest in very short duration papers in a quarter. And maybe the next quarter, the liquidity situation is a different one. And then you immediately invest more long term and immediately the reinvestment yield looks completely different. Having said that, in Q3 we had some activities on the liquidity side and some investments in very short duration papers, which impacted the reinvestment yield going forward. And with further rising interest rates, as we have been seeing after Q3 already, obviously there's room for upside. And then how quickly it will really then lead to significantly higher earnings depends on the one hand side on the reinvestment yield. But then on the other hand, of course also on how quickly you reduced unrealized losses. We have found the fixed income portfolio. So in theory, if you would realize all of them immediately, as of a sudden, of course, the yield in the book would be significantly higher. So let's say, the turnover rate on fixed income instruments also plays a significant role in how quickly higher earnings would come in, but of course at a price because then you realize losses first and to benefit from higher earnings later on. We look at it from a very balanced perspective with the portfolio by portfolio. And therefore, I think what we have been seeing in the last 2 quarters is not far away from what I would expect more long term also to happen. On the casualty side, I don't think anything specific to comment. I also would be cautious not to comment on any lines, also particularly as we're having discussions with our clients with the upcoming 1/1 renewal also at the same time. Generally, as I said before, it's particularly in line with social inflation plays a role. We are very careful and cautious. And yes, of course, also motor is affected by that, but it's not only motor. By far, not only motor. Full stop.
The next question is from Thomas Fossard from HSBC.
Two questions. The first one would be on ERGO. So I can understand that actually why your change of guidance for the current year, moving it from EUR 600 million to EUR 800 million. But could you comment a bit more on how -- I mean, actually there is a lot of different moving parts, of course, year-to-date and some one-offs as well. What I'm interested is what really has changed in the underlying earnings power of ERGO, especially going into 2023 or 2024. Anything that actually you would like us to take from the call thinking about ERGO for the next coming years. And the second question would be more related to the P&C Re nat cat exposure of Munich Re. I think that in the past, maybe among the reinsurers, you've been the one with the less pushing back on taking additional property nat cat risk. Could you tell us at this stage what's your appetite into 2023? And if you're starting to reach, I would say, some constraints in terms of risk exposure in any peak zone or geographies?
Yes. ERGO, I think ERGO is doing brilliantly in a sense that they are exactly on track when it comes to the delivery of our Ambition 2025 strategy. And on top of that, in this quarter we had this one-off effect of EUR 200 million. But this is, of course, nonoperational. So by looking into the future, this EUR 200 million should not influence the guidance going forward. So this EUR 200 million have to be deducted. But on top of the underlying profitability, as we saw them, then of course also with growth and going forward, it makes sense to project that until 2025, looking at the 2025 targets as communicated by ERGO back in our Investor Day. So I think nothing changed -- nothing significant really changed, but fully on track and doing very well operationally. On the nat cat exposure, there again I have to stay very general. And I have to ask you for your understanding for that because obviously, I mean, it wouldn't be a great move commercially if I would comment on individual parts of our business where we would try to be -- grow less in the future or even reduce in the future because then obviously our clients would be very, very grateful for getting that information from me from that cause. So I cannot really comment on that on to a very deep that level. But more generally, of course, there is not unlimited potential for us to grow each individual payroll as like we want to or like the market is asking us or like our clients demand that because in our internal risk management practices, of course, all these payrolls and all the risks, they are closely monitored, and we have limits until which we can go. And once we reach the limit, then obviously we have to manage the exposure around that limit or to stay below the limit. So therefore, sorry for the very general answer, but there's no unlimited growth very obviously in none of the payrolls for us.
The next question is from Iain Pearce from Credit Suisse.
The first one was just on life and health and the positive claims experience you've had there. It seems like it's pretty sort of across the board. I was just wondering if you could give us a little bit more detail if there's anything in particular by sort of line of business or market that you would flag in terms of favorable experience. And also if there's anything you think that might be sustainable in some of that favorable claims experience. And the second was just on what you're seeing on the motor business. Obviously, you flagged sort of higher inflation there. Is that inflation running ahead of the rate improvements you're seeing in the motor line of business and coming through as a headwind on the normalized? And are you seeing pricing pick up in that line of business as well?
Yes. As you said, the favorable experience pretty much across the board, maybe with the exception of mortality in the United States so far. I mean that's not a new phenomenon. And I think the jury is still out there, to what extent that's COVID-related. It probably is, but I mean you cannot be sure. So probably at least some of it is indirect COVID exposure. We were just reporting this not really precise in the sense that it all got the COVID tag on it. But other than pretty much across the board and yes mortality maybe being the most significant driver, but nothing specific I think to comment. On motor, I think that depends a little bit market -- by the various markets. I was, for example, commenting on the ERGO side on the Polish market and being one of the drivers for higher combined ratio guidance now for ERGO International also that year that there is clearly an aspect of inflation in that, but equally also an aspect of competition. In other markets, what we also sometimes see is that frequency is still lower than expected, thereby somewhat offsetting some of the severity effects from inflation. So that it's hard to give a general answer on the motor markets overall. I think what the only really overarching message I can give is that obviously everybody who does motor business in an environment like that has to be really careful when it comes to inflation assumptions. Maybe I can follow up on the question from Darius on the impact of business growth on the solvency II ratio quickly. That would be minus 2 percentage points.
We have a follow-up question from Mr. Bokhmat from Barclays.
I've got one more rather unrelated question relating to lapse risk and higher interest rates. I was just wondering how you think about those with relation to the traditional life book in Germany? And also maybe within the life and health re business, whether higher interest rates and change in lapse assumptions lead to any revisions of your kind of economic profitability view?
Yes. Well, thank you, Ivan. The -- yes, so we don't see it at all at this point in time, our data. And for example, German Life. And I wouldn't expect it to have a measurable impact at all, given also my personal experience that the drivers for people lapsing are completely different from macroeconomic circumstances around that business. So therefore, I would be pretty relaxed in that regard. On top of that, it would also very much depend on which policy would lapse at what point in time. Some of them would be positive for us. Others would be negative for us. So even the general picture would not be completely clear. But again, at that point in time, it's a very theoretical debate. We don't see anything.
There are no further questions at this time. And I hand back to Christian Becker-Hussong for closing comments.
Thank you. Nothing to add from my side. Please, if you have further questions, you know where to find us. Thanks again for joining us today and hope to see you all soon. Bye-bye.
Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone. Thank you very much for joining and have a pleasant day. Goodbye.