MURGY (MURGY) Q1 2026 Earnings Report, Transcript and Summary

Ladies and gentlemen, welcome to the Münich RE quarterly statement as at 31st March 2026 conference call and live webcast. I am Sergen, the Chorus Call operator. [Operator Instructions]. The conference is being recorded. The conference has not recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christian Becker-Hussong, Head of Investor and Rating Agency Relations. Please go ahead, sir.

Thank you very much, and hello, everyone. A warm welcome to Munich Re's Q1 earnings call. Thanks for joining this morning. I'm here with Andrew Buchanan, our CFO, and Andrew will kick it off with a short introduction, as always. Afterwards, we will go right into Q&A. Andrew, please go ahead.

Thank you very much, Christian, and good morning, everybody. Munich RE made a strong start to the year, delivering a pleasing net result of EUR 1.7 billion in the first quarter. This performance underscores the group's resilience amid elevated geopolitical and macroeconomic uncertainty. The direct impact of the conflict in the Middle East on our underwriting results remained very manageable. By contrast, heightened volatility in capital markets weighed on the performance of our investment portfolio. In short, the narrative for the quarter is straightforward. Strong underlying operating performance across all business segments, supported by benign major loss experience was largely offset by weaker investments and currency results. So let me start with the investment result. We achieved a return on investments of 2.9%, which was below our full year guidance. Rising oil and gas prices triggered renewed inflation concerns, prompting volatility across bond and equity markets. As a result, we recorded negative fair value changes in both our fixed income and equity portfolios. These effects were largely offset by positive revaluations in alternative investments and commodities, once again demonstrating the value of diversification also within our investment portfolio. At the same time, we used the increase in bond yields to our advantage by reinvesting at more attractive levels. Consequently, the reinvestment yield improved to 4.2%, which provides further support for the running yield. With respect to the running yields, this came in slightly below expectations in the first quarter and was broadly flat compared with Q1 2025, while remaining below the elevated level seen in Q4 2025. Two main effects explain this development. First, we experienced typical quarterly volatility in private equity distributions, which were lower than usual in Q1. Second, regular income was temporarily affected by the accounting treatment of inflation-linked bonds, which has not yet reflected the recent increase in consumer price inflation. Looking ahead, we expect a catch-up effect in Q2 driven by current CPI developments. In addition, higher reinvestment yields and the dividend season should provide further support. Beyond that, we also see potential upside from disposal gains and positive fair value movements in a more normalized capital market environment. Turning to the business fields, starting with reinsurance. Life & Health Reinsurance delivered a total technical result of EUR 500 million, slightly above the pro rata annual ambition. Overall, the quarter can be characterized as relatively quiet. The release of the CSM and risk adjustment was in line with expectations, while mortality experience was slightly positive. The result from insurance-related financial instruments developed favorably, supported by large transactions completed in the second half of last year. The stock of CSM increased further, driven by solid business growth and positive currency effects, providing a strong foundation for sustainably high technical results. In P&C reinsurance, we posted a strong Q1 result with a combined ratio of 66.8%, benefiting from very low major losses. Profit participation clauses led to a higher expense ratio, which offset lower basic losses. Reserve releases amounted to the expected 6 percentage points in the combined ratio. The discounting effect of approximately 9.5%, primarily driven by higher interest rates exceeded our guidance of around 9%. The normalized combined ratio of 80.3% is aligned with our full year guidance of around 80% and provides a solid basis for maintaining strong portfolio profitability in 2026. At the same time, we acknowledge some upward pressure on this ratio, reflecting the outcomes of the January and April renewals as well as a higher expected level of major losses, which we have increased by 1 point to 18% -- we see this updated outlier expectation as being comprised very approximately of 14.5% for natural catastrophe losses and 3.5% for man-made losses. This leads me to the April renewals, which produced a good outcome despite a highly competitive environment. We continue to manage our portfolio with strict discipline to ensure an optimal risk return profile. In line with our underwriting philosophy, we were prepared to reduce or discontinue our participation in business that did not meet our return requirements. This was, in particular, the case in casualty proportional business with limited impact on bottom line and also in property excess of loss. Overall, we actively reduced renewed treaty volume by 18.5% to maintain portfolio quality while largely preserving terms and conditions. Please be conscious that this decline refers to a rather small book that has been renewed in April. Pricing remains the main battleground, most notably in natural catastrophe business, which accounted for more than 30% of our renewal volume in April. This drove a risk-adjusted decline of 3.1% in our portfolio. As always, this price change is fully risk-adjusted, which means conservative inflation and other loss trend assumptions and model changes are taken into account. However, based on the very good starting levels, we deem the margins on the business we retained to still be healthy overall. I conclude the reinsurance part with Global Specialty Insurance, which delivered a pleasing result. The combined ratio of 83.7% was better than our full year guidance, supported by a benign loss experience and also lower expenses. In primary insurance, ERGO delivered a pleasing net result of EUR 235 million, making a promising start towards achieving the 2026 net profit target of EUR 0.9 billion. ERGO Germany reported a strong segment result of EUR 157 million. Technical performance in Life & Health improved significantly, mainly driven by a strong result increase in short-term health and travel business, supported by profitable growth and favorable claims and cost development. The CSM increased compared with year-end 2025 as positive operating effects in long-term health and life exceeded the releases into earnings. In P&C in Germany, ERGO achieved a good total technical result with an excellent combined ratio of 86.7%, better than our full year guidance, thanks to sound operating performance and low major losses. The international business of ERGO delivered a solid net result of EUR 78 million, driven by good operating development, which was partly offset by a lower contribution from joint ventures compared to the exceptionally strong prior year quarter. Technical profitability in the Life and Health part of ERGO International was below expectations, but this was primarily due to a one-off effect from a portfolio sale in the Belgian Life business. In P&C, a combined ratio of 89.5% came in broadly in line with full year guidance despite weather-related claims in Poland and the Baltics following severe winter conditions. I'm also pleased to report that the development of ERGO NEXT Insurance, our recent acquisition in the United States, continues very much according to plan. Turning briefly to capital management. The group's economic position remains very strong. the Solvency II ratio decreased to 292% as the full deduction of the new share buyback program was partly offset by good operating performance and hence, economic earnings. Let me conclude with a brief comment on the outlook. Our 2026 outlook remains unchanged, and we continue to expect a net result of EUR 6.3 billion. We do acknowledge that achieving our reinsurance revenue guidance of EUR 40 billion certainly has become more challenging than initially anticipated when we set the outlook 5 months ago. Nevertheless, this guidance does remain within reach. Some reasons why that is the case. Firstly, Q1 unfortunately included some negative premium adjustments that we do not expect to happen again over the remainder of the year. Secondly, we also see attractive business opportunities ahead. Q1 was a relatively quiet quarter in terms of large deal activity, which we expect to accelerate over the remainder of the year based on a healthy deal pipeline. This is especially the case for Life & Health, but there is also potential in P&C. With this, I'm at the end of my opening remarks and look forward to hearing your questions. But first, I hand back to Christian.

Thanks, Andrew. And yes, let's go right into Q&A. And I'd just like to remind you that you limit to 2 per person. So please go ahead.

[Operator Instructions] And we have the first question from Shanti Kang from Bank of America.

My first question is just on P&C and mainly on the normalized combined ratio, which was at 80.3%. That seems in line with your full year expectation. But I was just wondering if you could walk us through the moving pieces beneath that, particularly the interaction between the loss component buildup, lower earned pricing and that strong basic loss ratio. And then perhaps within that, on that loss component buildup, that's, I think, 1.1 point increase, which is above the kind of flat expectation, I guess. Should we interpret that as purely prudent recognition on new business and lower pricing? Or is there anything else to suggest that, that would be a kind of structurally lower future profit on the new underwriting years?

Yes. Good morning, Shanti. So let me try to break down the moving parts in the normalized combined ratio. So the first part I'll tackle is the loss component because you particularly mentioned that one. Now usually, we expect our loss component over the course of the year to more or less cancel out. So we expect the buildup of the loss component to be a bit higher in Q4 as we anticipate the large volume of business that we write at the 1/1 renewals. And we would expect, let's say, modest releases in the first 3 quarters of the year. At a high level, in theory, that's what we would normally expect. Now what happened this year is that you will have seen, of course, the renewal results last year, but also in 1/1 this year, we had negative price change. And so when our actuaries look at that, they always book in a prudent way. So going back to one part of your question. And so all else being equal, if they see a deeper price change in 1/1 than they perhaps had been anticipating back in December when they set the reserves, even with exactly the same level of prudence, that will result in a higher loss component. So the answer to your question is this extra loss component buildup in Q1, I would describe it as one-off in character. I would describe it as a byproduct of our prudent reserving approach. But I think you can consider it to be a mechanical consequence of the negative price change that we had in the January renewals, which probably leads us to think that over the course of this year, there won't be quite the same balancing out effect in the loss component that we would expect in a typical year on average. And that would be one of the reasons why we do see some upward pressure on the normalized combined ratio. Apart from that, what else would I say to answer your question generally? I would say, in terms of breaking down the normalized combined ratio, we obviously have our outlier allowance, and you know that we've increased that from 17% to 18%. I would say to you that some of that -- in fact, a significant part of that was already baked into the outlook for the 80% because, of course, we did have some advanced sight of the level that we expected outliers to be. And the 18% is really, if you like, a kind of retrospective manifestation in our external reporting of what our pricing people already know. But that probably would account for some upward pressure. But then I would remind you that we also have the interest rate effect where the discounting came in at 9.5% in Q1. And we have reason to believe, given the way interest rates have moved that, that discounting may indeed continue to be above 9% through the rest of the year. And those 2 things probably cancel each other out, at least to the first order. So you have a bit more outlier expectation from the 18% instead of the 17%, but you also have a bit more discounting benefit. And those 2 things would probably bring you back around to something like 80%-ish. And then what we need to see for the rest of the year is how our most recent renewal results earn in. And I think it's reasonable at this stage to say the distribution of outcomes has become quite asymmetric. In fact, I think I may have said already last time, it's probably unlikely we land under 80%. I think it's far more likely that we land above 80%, and there is some upward pressure. And we need to see how that develops through the rest of the year.

The next question comes from Andrew Baker from Goldman Sachs.

First one, just could you give a bit more detail on the mechanics behind the increase in the large loss budget? And I guess, specifically, just curious whether this is in any way tied to any compression in terms and conditions that you're seeing? And then secondly, just looking ahead to July renewals, it looks like there's a higher proportion of cat business and also a higher proportion of North America. So if you, I guess, continue with the discipline you've shown so far in January and April, is it fair to assume a pretty sizable premium volume reduction in July as well based on what you can see at this point?

Okay. Andrew, let's talk about the large loss budget first because I think that's, in some ways, connected also to Shanti's previous question. Part of this is a mechanical reaction to the reduction in prices that we've seen in the last couple of renewal dates. So I think it's not a secret that profit margins on nat cat exposed business have come down, I think, proportionately more than any other line of business. And so if you're expecting -- even if you're expecting the same amount of nat cat losses per unit of exposure, if you were earning less premium for that unit of exposure, and then if you express your large loss budget in percentage of premium, it follows naturally your -- the denominator of the ratio has gone down and the ratio itself will go up. And so part of what we're seeing actually is a reaction to that. There may also be some second order business mix things going on in the portfolio. If you look at the absolute amounts of business that we've given up, quite a large majority of that has been proportional. But I wouldn't want to overplay the business mix point. I think really the first argument that I gave is the important one. And it's probably also fair to say that the world is becoming riskier as climate change has an impact. And so as you would expect in all of our nat cat modeling, there are underlying trends going on there. that over time, gradually and slowly risk increases. And so it's all of those things together as a package. You did also ask about Ts and Cs as part of that. And my answer there would be not really. So I think probably the best achievement that the colleagues have achieved in these renewals is while battling on price and trying to secure the best volume price trade-off, they have kept the terms and conditions largely unchanged. And so what we have is still a pretty high-quality book in the sense that the potential for unexpected surprises where we end up covering things that we didn't expect to cover as a result of loose wording or generous conditions, that isn't really there at the moment. So it's a long answer for a short question, it's not really down to the Ts and Cs. And then moving on to July renewals. So I think you were asking to what extent is April a read across candidate for July, given, as you rightly pointed out, that those 2 renewal dates have similarly high nat cat shares. I would say to you, those are the similarities, but there are also some important differences. I think okay, the geographical differences is an obvious thing to point out. But I think it does make a difference. So in April, quite a significant part of the renewal volume, less than half, but still quite significant was Japan, a market with its own particular dynamics and where they've enjoyed since 2019, a really good run of loss-free years. If I think about our April renewals, there was also Indian proportional business in there where we saw, I think, what we consider to be very aggressive price behavior by other players in the market. And European casualty business, for example, quite a lot of motor business. And so it's different kind of business that we -- or at least a different mix, you could certainly say that we will have in July. And so the read across is not that clear. Obviously, capital is mobile. And so we have to assume that there is some indication from April about what July will hold. But also, if I look at -- if you go down into the individual contracts that drove the April renewal result, because we were only talking about EUR 2.5 billion of lifetime premium that was being renewed, when you're talking about volume of that low-ish size, 3 or 4 contracts or 3 or 4 client relationships going one way or the other can really swing the result quite a long way. So it's not necessarily indicative of what the global reinsurance market currently looks like. So yes, I'm acknowledging there is some read across, but I think there are also plenty of differences. I'm not too despondent on the volume topic, for example, for July.

The next question comes from Will Hardcastle from UBS.

I guess it's a bit of a follow-on from that revenue number, I guess. And just thinking about that P&C revenue delivery Q1 and the April renewals on the whole. I guess, how is that in the context of what you envisaged in your 5-year EPS CAGR plans? Clearly, they've come in below expectations from an investor perspective. But within your plan, have you assumed this type of cycle? Or is there a bit of a V-shaped cycle in the scenario? I'm thinking about the 5-year plan, not this year. The second question is just thinking about Q1 result, obviously, strong technical result. I'm wondering if there's any additional reserve prudency evident at all. It suggests by some perhaps of your peers that the Middle East reserves contain some contingency. But is the EUR 90 million you're putting up a specific notification? And what about the potential second order inflationary impact? Is there any proactivity on that?

Apologies, Will. I think I may have in my enthusiasm to answer your question, I may have actually put myself on mute, sorry.

No problem. I like your enthusiasm.

Yes. So let me try again. So you were asking -- you did not ask about the 1-year guidance. You asked about the 5-year plan and where this leaves us. So you probably remember, we published a range for P&C reinsurance of 0% to 3%, which we saw as being the compound annual growth rate on average over the 5-year period. And -- you mentioned V-shape. I personally had in mind a bit more of a gentle U rather than a V. But for sure, we, in our planning, anticipated short-term reductions in both volumes and prices. So directionally, not a surprise at all. And I feel that there are some factors that work in our favor towards the back end of our 5-year period. I mean I think there is still economic growth. I think that insured values will continue to go up, especially if inflation is higher. I think that those insured values need to be insured. And so I think the primary insurance industry will continue to grow. And I also continue to believe that reinsurance will be relevant and that we will participate in that growth. So I think there are just some powerful perhaps slow-moving economic forces of sort of negative gravity pushing everything upwards when you choose a time period as long as 5 years. I also think that there are really still enormous amounts of uninsured risk out there that need to be insured and should be insured. So if you -- if I take the least demanding interpretation of your question and I say, do I think that we can come back up to a level by 2030 that is above where we were last year and therefore, be inside of our range of 0% to 3%, then I absolutely do. If I can then move on to your question about the Middle East conflict and reserving for that. So firstly, let me address the EUR 90 million specifically. For anyone who missed this, we are splitting that EUR 30 million for reinsurance, EUR 60 million for Global Specialty. You mentioned notifications. We have little to no notifications, and so the $90 million represents IBNR. We also consider the $90 million to be somewhat cautious, but somewhat cautious as an estimate of direct losses that might arise as a result of insureds or cedents being able to claim directly on the primary insurance or the reinsurance that we have with them. So we are positioning the EUR 90 million in a more narrow sense. It's it's literally claims that we might end up paying if, for example, there are claims coming through the marine war market or the political violence and terrorism market, that kind of thing. So we're saying the EUR 90 million is conservative. We're saying it's not based on notifications, but it's a more narrowly defined number. We are not saying that the EUR 90 million is also contained some kind of blanket allowance for inflation. We don't consider that to be necessary at this stage, not because we're denying that inflation could be higher than expected. But I actually think we've we lived through an experience in 2022 that I think will probably turn out to be more severe than what we're seeing this year and where our processes and our financial management approach, I think, came through very well and proved to be effective. And I always talk about what are the lines of defense. The first line of defense is that the vast majority of our business can be repriced within 1 year. And as you'd expect, our pricing people and our economists are looking carefully at what that needs to be. The second line of defense is asset liability management, where a meaningful part of our asset portfolio is responsive to inflation in some way. And I mentioned in my prepared comments, we do expect a bit of a catch-up effect on our inflation-linked bonds in Q2 as the most recent CPI numbers kick in there. And then the third line of defense is reserves, which I guess is where your question originated. But there, I would have to say we -- in part of our annual reserve review, we have a reserve risk heat map where we think carefully about all of the white swans and black swans and other swans that could go wrong. And there's a whole, let's say, bucket that is broadly allocated to economic deviations or volatility and part of that is inflation. And so at the moment, I'm pretty comfortable that whatever inflation brings on the claims side, we can certainly digest. And so we didn't feel the need in Q1 to do some kind of opportunistic special booking.

The next question comes from Kamran Hossain from JPMorgan.

Two questions. The first one for me is on the reinsurance revenue guidance of EUR 40 billion. I just want just intrigued kind of given the softness in Q1, given it sounds like there are probably some end effects in kind of revenue coming down. How comfortable are you with that guidance of EUR 40 billion? Is there something coming up in the remaining 3 quarters of the year that might give that a bit more support? The second question is coming back to kind of the 5-year plan and the view. I believe back in December, it was mentioned that the 8% EPS CAGR by 2030 would be -- we should assume something fairly linear in terms of kind of how that comes through. Given that it sounds like the environment is a bit worse, your comments on the normalized combined ratio, renewals also getting a little bit worse. Are you still comfortable with kind of the approach that it should be a linear kind of 8% EPS or maybe kind of a little bit more -- I don't know what to give it, but a little bit more kind of reshaped or reshaped on the EPS front.

Okay. So on the EUR 40 billion revenue for reinsurance, you asked me about that level of confidence. And I want to try and pick my words here carefully because I think we -- I already acknowledged that, that EUR 40 billion number is certainly more of a challenge than we intended when we set the guidance back in December. And so is it more of a stretch? Yes, it is. Is it possible that we don't get there? It is possible. I think at this stage, it continues to be within reach. And I think there are some positives that could allow our revenue to accelerate a bit in the open quarters of the year. The -- just for the record, the accounting adjustments in Q1, you mentioned [ MDC. ] They are not necessarily all MEC. Some of this is very mundane in the sense that when you write proportional business, neither you nor your clients knows ahead of time exactly what the volumes will be. So the clients perhaps only discover after the year-end is finished what their own volumes were. And then there is unfortunately a bit of a time lag once we have all of the statements of accounts received from clients and process those that we then know how that has fed through to our own volumes. This is overwhelmingly an issue with proportional business where it's usually a fixed percentage of the business that's just being ceded through to us. And unfortunately, we're rather far back in the information chain. So we obviously do our best to process everything as soon as we get it. That's detail, but I just wanted to mention it so that you don't think that Q1 was again an MDC end issue. But I think coming back to the perhaps more important question of confidence level around the revenue, the accounting adjustments that I just mentioned do mean that Q1 was artificially a bit lower than it should have been. It means that it wouldn't be correct just to multiply by 4, even if we were not expecting any large deals to close through the rest of the year. But the reality is we are expecting large deals to close. And in particular, those transactions where the client is trying to achieve some kind of financial objective to support their own balance sheet, it's sort of more natural that those happen towards the later part of the year. in Q1, I described it as relatively quiet in Life & Health. I think that's a fair description of what actually closed because we didn't have many things actually closing in Q1. But that is not a reflection of the pipeline. The pipeline is healthy. And so I do see things that can close through the rest of the year that take us towards the EUR 40 billion. Then on the 5-year plan and the 8% CAGR on the earnings per share, am I still comfortable, yes. I think in order to be consistent, having just said that the EUR 40 billion of revenue for 2026 is more of a challenge than originally thought. All else being equal, it means that we would need more of a recovery or more of a catch-up effect through the rest of this year or in subsequent years in order to get to the 8% earnings per share. But I would also say I have some optimism based on the levels of growth that I'm seeing in some of the other parts of our group. We haven't talked about ERGO at all so far in the conversation. And NEXT Insurance is absolutely on plan, growing very strongly. And what's good there also is that we don't only rely on organic growth, but we are increasingly internalizing the business that they already have. once external reinsurance comes to an end, once the external fronting relationships come to an end, more of that business actually comes on to our own balance sheet. And so I'm also cautiously optimistic that in some parts of the group, quite possibly, our growth rates will exceed what we originally expected.

The next question comes from Chris Hartwell from Autonomous.

First one, sorry to come back on the revenue point. I think you sort of half answered with Cam's question just now. But I was just wondering if you can sort of help me sort of bridge the revenue attrition year-on-year. And you just mentioned the prior period premium adjustments. I was wondering if you can sort of put some context or proportionality to that. And also, some of your U.S. peers also had the year-on-year sort of year-on-year comparative impacted by sizable reinstatements last year, obviously related to fires. I don't know whether you saw some of that which also may be weighing. And if I can have sort of a part B on that question. We haven't really talked much about GSI, but the organic revenue there also looks pretty muted. So I wondered if you could give a little bit more color on the sort of subunits within GSI, where you're seeing growth, where it's becoming a bit more challenging. And second question to be a little bit cheeky. Just on capital, Solvency is still very high. I'm just sort of wondering what the renewals mean for capital deployment strategy and sort of where you're currently running versus your expected SCR build or SCR deployment that you were expecting?

Right, Chris. Let's go through those. So the revenue, I think you're picking on a a year-on-year comparison Q1 2025 to Q1 2026, which I think in many ways, has -- it's a story that needs to be unpacked because there is foreign exchange in there. The U.S. dollar, in particular, depreciated heavily in Q2 of last year, I think was the one quarter that really stands out in my mind as having the biggest dollar devaluation of all the quarters. So that's included in the year-on-year comparison. And I think if we look at P&C reinsurance stand-alone, where the volumes are down about 19% in that year-on-year comparison, you can basically say 1/3 of that was down to FX. The second thing that's -- and I suppose the volume reduction is real in the sense that we're a euro reporter, but at least one can say that, that should be one-off in character in the sense that we, on a forward-looking basis, don't expect the same level of FX fluctuations. The second thing that's in there is all of the NDC adjustments that we brought through last year, and we reported on those quarter-by-quarter, and I think we had some in Q2 and in Q3. And I apologize, but I simply don't have those off the top of my head, the amounts that we brought through. When we show the chart in our slides, those accounting adjustments are bundled together with the organic change. And the organic change is you can basically take from our renewal reporting last year and into this year. Now -- so I think we have probably all of the critical points all bundled together into this year-on-year comparison. I would say forward-looking, I think the accounting adjustments are behind us. We also have no reason to believe that FX will fluctuate again in the same way that it did last year. So really, the cone of uncertainty, I think, is a bit narrower now because it's all down to what will the renewals do and what does organic growth look like. You asked specifically about reinstatements. And I must admit, we don't -- we obviously don't know what the competitors or peers meant. I must say it's not a comment we particularly recognize. So I'm sorry, we we can't shed any light on that one this time. You asked about GSI and the growth there. Now if you look at our equivalent slide on GSI, and you can see the organic part of the growth once you avoid or ignore the FX part, is pretty modest. I think it's about 1.5% if you do the division. Unfortunately, there, again, one needs to allow for the fact that revenues last year, at least in the early part of last year, should probably have been lower if the EDC adjustments had been done sooner. And so if you strip that out, and you get to more of a kind of underlying organic growth rate, then you're probably above 3%. That's not a number we actually have on the slide. So that may be new information for you. It would be above 3%. Now the range of growth that we said we were looking for was more a range of 5% to 9%. So acknowledging that, that's below, I give my colleagues credit that on the GSI side, same as we have in reinsurance, nobody has a top line target that they will be compensated on. And we -- I think we've created an underwriting culture where it is okay to not write business that we're not comfortable with. And I think in the short term, at least, this is the better approach because I think in underwriting, maybe also sometimes a bit like investing, you can create as much value by avoiding mistakes as you can by chasing exciting opportunities. So I think our underwriting culture is also alive and well in GSI. There are some aspects of that market where probably we're still a bit underpenetrated, some product lines that we still would like to push into and maybe we need to expand our distribution reach a little bit. I wouldn't say that there's any one thing I would particularly want to mention today. But GSI is still a relatively young organization, and I think they still have some room to grow in that market where we're currently underrepresented, but actually where the Munich rename carries a lot of weight. And then coming to your last question about capital and deployment. In general, philosophically, we stick to what we said as part of the strategy, which is that if we find fewer attractive growth opportunities and we deploy less of our capital, all else being equal, we will tempt to return more. And we will try not to hang on to capital unnecessarily that is not needed to back profitable risk taking. Having said that, in the short term, I certainly am not about to announce any new change in our capital return approach today. I think the 87% capital return from last year is a very solid start to the 5-year ambition, and we do stick to our 80% plus that we committed to back in December.

Next question comes from Darius Satkauskas from KBW.

The first one is just on the point you made on capital. Why are you sticking to what you announced in December if the conditions are clearly a bit more challenging? You pruned a lot of the very capital-intensive business in April. And if that's the case in June and July, obviously, you're going to have a bit of excess capital earning nothing. And the reason you've gone out of it is because of sort of below expectation returns on capital. So why wouldn't you return that capital if that was the case? That's the first question. And the second question is, the SMO business contributed EUR 117 million in the quarter. Is this kind of a good proxy for quarterly run rate? I understand that revenue was not there in the quarter. But in terms of the contribution to the technical result, are we sort of ballpark what you would have expected in the first quarter or not?

Darius, on the capital question, I'm not sure actually that the business that we reduced considering also the mix is particularly capital intensive. So I said that a large majority of the business by volume that we gave up in April, but also in January was proportional business often with structured elements where actually our profit margin tends to be quite stable and where the business itself is actually less volatile than, for example, nat cat business. And so actually, the capital consumption of that business is probably on the low end of the spectrum for us as well. So I wouldn't say looking at the business that we gave up that that it has been especially capital-intensive or not intensive. And our capital return policy is designed to stand the test of time. So we are looking for a slowly increasing dividend over time, and we're only going to decide on our share buyback once a year. So certainly, we wouldn't make a snap decision about capital return just on the basis of one renewal. I think all of this will be considered in totality at the end of this year and early next year once we see how much profit we have in the pot, especially in distributable earnings under German GAAP. And bear in mind that the profit that we have to distribute will not only rely on price levels in P&C reinsurance, but it will rely on other things such as the investment return we generate and the tax rate that we pay. So there are quite some other moving parts. And I wouldn't want a knee-jerk reaction to say, let's say, just because we've had 1 or 2 renewals with negative price changes that this immediately triggers more capital return. I think I want to wait and see a bit longer how that develops. Darius, apologies. Sorry, colleague just reminded me, I think Darius had a second question, which was about the level of FIMO Re. Sorry about that. Broadly, the answer to your question is yes. That's what we had in Q1 is about the level that we would expect in a typical quarter. It's been supported a bit by the transactions that closed in the second half of last year. And those will continue to earn in, and I would expect a certain stability there. And there were no, let's say, exceptional items in Q1 either way. Sorry, I am now finished my answer.

The next question comes from Ivan Bokhmat from Barclays.

My first question would be on GSI. I was wondering if you could give a little bit more color on the underlying combined ratio there because we have a bit less in terms of the cat budget, et cetera. So clearly, we're on the reported basis, we're below the target. Maybe some trends there would be helpful. My second question is a bit broader and focused on the triangles. I mean it's slightly different disclosures now. So there's no group tab where you can look at the initial loss pick. But if I try to aggregate it by lines of business, I can only see a very modest reduction in the initial loss picks for the business. I mean, over the past 3 years, basically, they stayed pretty stable, whereas a lot of your peers have significantly dropped those initial loss picks for the new business. I was just wondering if you may give us a bit of a context of what level of prudence you've been assuming in those past 3 years of, let's say, harder market conditions compared to in the past? Was it would it be fair to say that compared to the previous market softening, you're a bit more prudent than you have been in the past? Or it's just there's some other effects there?

Okay, Ivan, your first question was about GSI. So regarding the combined ratio, perhaps it would be helpful for you to know that the very good combined ratio was driven by benign loss experience, but it's a little bit different from what we had on the P&C reinsurance side because actually, the outliers were not especially low in Q1 in our GSI business. they were actually pretty close to expectation, let's say, roughly the same as expectation. And so actually, on the GSI side, you could say that the good combined ratio is more attributable to really good performance on the basic or attritional loss side, which perhaps you take a slightly encouraging because it's probably a bit more sustainable than outliers, which can go up or down. But the second thing I would say and give credit to our colleagues in GSI is they are really also making some good progress on the expense ratio. So that certainly helps us there. I think it may have been a couple of points actually that the expense ratio is starting to look better, which is nice to see. So we haven't talked at all about our expense savings program so far. But that's up and running, and I think we are seeing some improvement there. Moving on to the triangles. What I would say to you there is our loss picks are always conservative. I'm not at liberty to tell you, for example, how -- what our loss picks on the reserving side look like versus pricing. I think that would be too commercially sensitive, and we wouldn't go into that. However, what I suspect is the case and probably our colleagues would say the same, is that we sometimes tend to underestimate the impact of a hard market in the sense that when a market is hardening, we perhaps don't realize how hard it really is. And so perhaps unintentionally or unwittingly, you actually end up with a bit more prudence in your loss picks than you perhaps thought, not necessarily by design, but I think that's perhaps just a dynamic that we've seen in past hard market cycles, and it may be the case again this time. And perhaps that's also, let's say, vindicated or justified by the fact that certainly, last year, if we look at our reserve performance on the property side, it was really excellent, suggesting that maybe we had buffers in there that maybe even exceeded our own expectations a bit. So there might be some of that, let's say, unwitting effect, but it's not a systematic strategy on our side, let me put it that way. I would also say probably if we started with loss ratios that are sufficiently conservative, then perhaps there's less urgency to move them when we see the first signs of softening. So perhaps we have the luxury of moving a bit more slowly on that.

The next question comes from Ben Cohen from RBC Capital Markets.

I had 2 questions, please. Firstly, just coming back to the outlook for the midyear renewals. Were you indicating that you see that there will be less competition and therefore, as well as maybe a better kind of volume effect, you would also expect a better price effect. Could you maybe just talk in a bit more detail on that? And the second question I had was on your investment portfolio. I think you pointed to some sort of additional re-risking that you took in the first quarter. And I presume that, that was sort of taking advantage of dislocations in the market. But are there other things going on? And do you think that you can kind of continue to get higher yields in the current investment environment versus maybe taking on more risk in this sort of environment?

Okay. Ben, the outlook for July renewals. to pick up the very first thing you said, am I -- did I mean to claim that there will be less competition in July? No, I didn't mean to claim that. So if it came across that way, that was unintended. I do think that there is strong supply in the reinsurance market, and I think that there is capital available to write risk. And so to some extent, I think that will play out in July similar to April. But what I was trying to say is that there is definitely a geographical character to this. So the July renewal is going to be with different clients in different places writing different lines of business. So I think any read across from April to July, while a reasonable idea is a best approximate. And the other point I was trying to make is when you're looking at a book of business of only EUR 2.5 billion, which was the case for us in April, that's not a very large book, and it means that the outcome on 3 or 4 or 5 of the larger accounts really swing the results either way. And so I think in our April renewal, the minus 18.5% volume change is the eye-catching number. And my point is that is, to some extent, an idiosyncratic outcome based on, let's say, a limited number of client negotiations. It doesn't follow automatically that you should expect the same number in July. Beyond that, I really also would need to wait and see. And as you can imagine, the clients are -- and our own colleagues are hard at work negotiating that set of renewals. And then changing tack, you asked about Q1 and rerisking. Now I think the concrete statements that we did make, and I think we have them in one of our investment slides, is that we had a small increase in the equity share, including derivatives that went up to 3.3%. I think it was previously 3.1%. So I mean, this is an incredibly modest -- while it is factually true, it's an incredibly modest increase in risk. And then we did also note that we further expanded alternative investments and emerging market government bonds, also meaningful but still small in the context of our overall portfolio. So I think it would be stretching the point too far if I said that we've seen dislocations in the market in Q1 as a sort of big buying opportunity or that we've really tactically jumped into a bunch of positions. I think that isn't really so much how our investment process works. And certainly, when we think about the kinds of alternative investments that we invest in, whether that's an infrastructure equity investment or a real estate fund or something like that, these are things that are developed over months and months with lots of due diligence and interviews with managers and a lot of preparation that goes into them. So I wouldn't want you to get the impression that there's been sort of some kind of short-term trading effect. I wouldn't say that. I do think that there is a broader point, though, about our investment yield, which is to say that I would like it to increase the regular income, particularly increase above the 3.5% that we showed in Q1. And I think the catch-up effect on our inflation-linked bonds will help. I think coming into dividend season on the equity will help. And I also think enjoying slightly higher yields will help too, noting that the reinvestment yield jumped up to 4.2% in Q1. So I think there are some reasons to believe that the investment result can be improved through the rest of the year.

The next question comes from Vinit Malhotra from Mediobanca.

I hope you can hear me. So most of my topics have been addressed. Just one thing remaining. We talked about the -- you talked about how the top line for this year should see some more larger deals. There are some other reasons like adjustments which should not happen just here. But also, I'm thinking that does this mean that the responsibility shifts a little bit more on the Life side for meeting the overall reinsurance target because Life has been phenomenal growth. Again, I can quickly work out a 15% ex FX growth in 1Q in the insurance revenue side, also strong CSM continues to be the way. Could you just talk a little bit about is this likely the outcome -- unintended outcome that Life colleagues face a bit more pressure to create the revenue? Then what are the risks in that business? What is -- where are these large deals coming from? And also if you're commenting -- if you meant by large deals also PLGV, did you mean more quota share expectations or structured book type of deals? So what your thinking on that as well, please?

So then, it's kind of funny. The first question you asked, I was sort of feeling very much in agreement with what you were saying kind of the first 3 quarters of your question, as you were saying, do we start to rely a bit more on the Life and Health business to help us reach our revenue target for the reinsurance business field in total. And I think that's a fair conclusion to draw because it's, in particular, the P&C reinsurance part where we are saying the ambition is now more stretched. And I'm saying that my optimism for the rest of the year arises more out of large transactions. So I think that's a reasonable conclusion to draw. And I think when we thought about the EUR 40 billion for the reinsurance business field towards the end of last year, we, of course, didn't know exactly how it is going to play out. And by having this one guidance for the entire business field means that we can also potentially have some cross-subsidization as we go along. So I guess I was I was sort of nodding along as you were talking. But then you did say one thing at the end that I would want to address. So you said, would there now be extra pressure applied to the Life and Health colleagues. And there, I would say no because we really -- in our underwriting and this underwriting can also be of deals and of treaties. We will keep our focus on profitability and bottom line. And nobody should be told that they must write some piece of questionable business just because it generates top line. So there could be some, let's say, behavioral side effects that I would not want to trigger internally. So that was the only part really of your question where I had a bit of a hesitation -- and you then moved on to perhaps asking for a bit more flavor on the kinds of deals that we could be talking about. For Life & Health, no change really there. On the one hand, we have our longevity business, historically the U.K. business, but also open for business in North America, where one of our strategic pillars is to continue expanding that. And then the second thing, and you've probably heard me talk about this a bit before, is the fact that there is this, let's say, structural shift happening in the global life insurance market, especially in the United States, where large books of in-force liabilities are being transferred, including assets transferred to asset motivated organizations or to vehicles that are backed by investment houses and where we have a role to play in derisking those by taking out biometric and lapse risk. And there's no change there, so that continues to be our strategy. On the P&C side, what you said is right. So we would, in particular, be thinking of quota shares, particularly with structured elements that might bring extra revenue with them. So I think you are on the right track there with your question as well.

Next question comes from Jochen Schmidt from Metzler.

Just a very brief question. The one-off in ERGO International due to the sale in Belgium, could you give a number here?

Jochen, I'm afraid we can't. As you can imagine, there are also other parties involved in the transaction, and that would be commercially sensitive. I'm not able to give you the number, and I'm sorry about that.

Next question comes from James Shuck from Citi.

So a couple of things from me, please. Just listening to your explanation about the moving pieces on the normalized P&C Re combined ratio. And you point out the numerator and the denominator effects from large losses. Just interested why that doesn't apply to the reserve releases as well because the reserve releases are coming from the back book across multiple years. and the numerator is declining. So why not increase the PYD expectation from 6%? That's the first question. And then secondly, just broad brush really, I just wanted to get some insight into the outlook for wind storm season in the U.S. and what kind of season depending on how that turns out, whether it's an active one or a quiet one or in line, how do you think that will play out on that cat pricing? Because at this point, to us, it just looks as if nat cat pricing is on an interninable slide down. So just keen to get your thoughts about what arrest that development.

Okay. James, on the first question, you're actually completely right in your basic logic that if the denominator gets smaller, then reserve releases could get larger. So mathematically, that all makes sense. And the only difference really I would point out at this stage is the 18% outlier expectation is a more forward-looking number that we -- I would say, I don't know if I use the word agile, but we update it on at least a yearly basis, and it's the output of our pricing processes. And so the 18% reflects, I suppose, what we already think internally in terms of what we are pricing into our business. There's more of a forward-looking number. The 6% reserve releases is a backward-looking number it's more of a slow-moving number based on our experience of what we have been able to release over the years after going through our detailed bottom-up process. And so at this point, I, of course, understand your point mathematically that all else being equal, if we're able to release the same amount of reserves from previous underwriting years at the end of this year, that could come out at a ratio higher than 6% just because the denominator is lower. That's all totally fine. And my only hesitation in committing to that already upfront is I really don't want to preempt the outcome of our annual reserve review. So I want to give our actuaries an opportunity to look into the portfolio deeply -- and I don't want to, let's say, impair their independence by telling them already at Q1 what the answer needs to be. I think we need a really intellectually rigorous and independent examination of our portfolio, and that's what I would like to see. I think when it comes to steering because, of course, you know we have the ability to position ourselves a bit higher or a bit lower in the best estimate range. I would say the precedent was already set last year in Q4, actually in the other direction because you'll remember that we showed 5% reserve releases for full year 2025, but it probably could have been 6% -- and so the precedent is set there that if the situation allows, we can be flexible with that number. But I just hope you understand I don't think it would be right to especially tie the hands of our reserving actuaries who need the opportunity to really look deeply into the portfolio and have a proper look. And then we see how it comes out at the end of the year. You asked about the windstorm season. So I think our scientists and experts are also on the record as saying at least statistically, scientifically in terms of what is modeled the expectation for this season is a bit below average. So they're expecting El Nino conditions. I think that leads to more vertical wind share, which I think disrupts the formation of tropical storms and hurricanes. You can see I've certainly got a lot more interested in the weather actually since becoming a CFO in an insurance company. I should just say that in the other direction, ocean surface temperatures, maybe not as incredibly high as they were last year, but still pretty high. So I think you still have these 2 offsetting effects. And net-net, the expectation is for a season that's a bit less severe than the expectation was last year. But actually, it's a good reminder, though, that we might on the basis of the modeling, expect, let's say, 15 tropical storms instead of 16 tropical storms or 7 major hurricanes instead of 8 or something like that. But in the end, it's going to come down a lot to do these weather events make landfall. And if they do, do we end up with a direct hit on an urban area that is densely populated or does it go through a wheat field somewhere. And in fact, these are things that you perhaps only have an idea about within a few days of the event actually hitting. And so I think -- and perhaps last year, we had a good example of that where there was plenty of storm activity, some very big hurricanes formed, but the only one that really did damage was Melissa. And so we might -- I hesitate to take too much encouragement from this stage from the fact that the scientists are saying the season will be slightly milder because, of course, in the end, we know how much randomness there is when it then comes to insured losses.

The next question comes from Iain Pearce from BNP Paribas.

One on ERGO, firstly, on insurance revenue as well, unfortunately. The organic change in both Germany and International was negative in ERGO year-on-year. I'm guessing pricing was positive in both of those units. So just trying to understand what's led to the reduction in volumes in both the ERGO divisions on an organic basis? And then the second one was just on the running yield on the recurring yield. If you could just give us some indications of sort of the headwinds that you saw from not receiving any PE distributions in Q1 and how you expect that to look over the course of the year? And what sort of tailwind do you expect from inflation-linked bonds if CPI stays roughly where it is at the moment for 2026, that would be very useful.

Right. To deal with the first one. And if we take ERGO Germany first, there are probably 2 things that I should mention in the context of ERGO Germany. The first is that the life back book, the classical traditional life business is in a runoff phase. And so even though there is new business that is on sale, the business that is sold, whether it's new life products or health or travel, perhaps doesn't always bring in the same level of premium that is running off from the back book. So you a little bit are having to run to stand still in ERGO Germany on the Life and Health side. And I think that effects perhaps we need to live with into the future. When it comes to the P&C side, I'm pleased to say that there, there was, to some extent, a deliberate conscious effort to focus on profitability in the P&C business, including particularly in the motor business. And so the colleagues really focused on making sure that they got the technical pricing right, even if it meant that fewer policies renewed when they came up to their annual renewal dates. And I think we're probably starting to see some of the fruits of that also in the good combined ratio that we had in ERGO Germany P&C. So a little bit of a trade-off there, favoring sound profitability at the expense of growth. Now when it comes to ERGO International, I mean, ERGO International, I think, clearly, we should, on average, expect higher rates of growth in ERGO International. And the negative organic change in Q1, this I would treat as more of a onetime effect. This arises from the Spain health business. There is one particular contract or one particular program that was discontinued already last year, I believe, but we were seeing ongoing effects coming into this year. And once that's off the books, then that should fall out of the growth rates. And really, apart from that, we can look forward to quite solid growth in ERGO International. I think I mentioned ERGO, next a bit earlier, where you have the combination of really strong organic growth in the businesses being written together with increased internalization of the business that they already have. And we are also going to -- this is a bit more of an accounting point, but you know that ERGO has also recently acquired businesses in the Baltics, and we will consolidate that into our accounts for the first time. And so I'm quite optimistic that the organic change, particularly on the ERGO International side is more one-off in character. And then your other question was quite a different one. So you were then switching attention over to the investment side. I'm afraid I don't have an immediate quantification for you of the impact of the inflation-linked bonds, exactly what that will bring into Q2. I would say, generally, we have been looking to grow the running yield by 10 to 20 basis points each year. And in general, I would be looking to get the number more towards the 3.7% that we had in Q4. But I'm afraid I don't have any more disaggregation of that available for you.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Christian Becker for any closing remarks.

Yes. Thank you very much to all of you for joining us today. If you have further questions, please let us know. We are happy to help. Otherwise, we hope to see all of you soon. Have a nice remaining day, and bye-bye.

Ladies and gentlemen, the conference is now over, and you may now disconnect your lines. Goodbye.