Hannover Rueck (OTC:HVRRY) reported third-quarter financial results on Monday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Hannover Rueck reported a strong financial performance for the first nine months of 2026, with a group net income of 2.1 billion euros and a combined ratio of 83.7% in P&C reinsurance, comfortably within the target range.
The company highlighted success in diversifying and expanding its portfolio, leveraging strong client relationships to drive growth, and noted that reinsurance rates remain risk adequate despite increased competition.
Investment performance was robust, with a return on investment of 3.7%, above the target of 3.5%, and the solvency ratio stood at 242%.
Capital requirements increased by 1 billion euros due to growth opportunities, but the company maintained strong operating capital generation of around 2.1 billion euros.
Management expressed confidence in achieving full-year targets, with the potential to exceed them due to benign large loss experience and strong investment performance, providing flexibility for further strengthening the balance sheet.
Hannover Rueck plans to maintain its guidance for 2026 and will provide detailed guidance for 2027 and a midterm outlook at the upcoming Investor Day.
There were discussions on potential growth in NatCat exposure and maintaining strategic retro protection structures, while the company also managed assumption updates in Life and Health reinsurance prudently, without any observed negative trends.
Full Transcript
Matilda (Conference Call Operator)
Ladies and gentlemen, welcome to the Hannover Rueck conference call. I am Matilda, the conference call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a question-and-answer session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. Unauthorized recordings for publication or broadcast are not permitted.
At this time, it’s my pleasure to hand over to Carol Schweinde. Please go ahead.
Carol Schweinde
Well, good morning everyone and welcome from Hannover to our earnings call on our results for the first nine months of 2026. Today’s speakers are, as always, Clemens Jungsfilge, our CEO, and Christian Hermerlingmeyer, the CFO of Hannover Rueck. For the Q&A, they are joined by Claude Schebel and Sven Althoff. And with that I hand over to you, Clemens.
Clemens Jungsfilge (Chief Executive Officer)
Yes, thank you, Carol. And good morning everyone from Hannover. So let’s dive into it. In essence, we are very pleased with the business performance in the first nine months of 2026. The underlying profitability is very strong in both business groups and furthermore our balance sheet and the resilience have been further strengthened and will of course support future earnings growth. The overall loss environment in P&C reinsurance has been benign and, together with the overall increase in reinsurance capacity in the market, this has clearly intensified competition in P&C reinsurance.
Nevertheless, reinsurance rates do remain risk adequate on a broad basis. We have therefore continued to expand our portfolio on a diversified basis, highlighting our strong ability to grow the business. Our strong client relationships are a key driver of this growth and underpin demand for Hannover Rueck as a reinsurance partner. So let me return to our overall performance in the first nine months of 2026. With the group net income of 2.1 billion euros, we are well on track to deliver on our group net income target for the full year. In P&C reinsurance, the combined ratio of 83.7% is comfortably within our target range, which is below 87%, and in line. As you know, with our usual approach, we have booked the full large loss budget for the period, despite actual large losses coming in significantly lower.
Furthermore, the strong underlying profitability gave us room to further increase our reserve resiliencies in the first nine months. So P&C revenue growth has clearly improved in the third quarter in line with our expectations, as you will recall from the calls in Q2 and Q1. Overall reported top line growth remains affected by currency effects, lower volumes in structured reinsurance, and changes in commissions and in non-distinct investment components. However, the momentum in our traditional business has clearly picked up and we expect this positive trend to continue. The lower end of our 2026 growth target remains within reach.
The new business CSM of 2.3 billion euros reflects our successful renewals in 2026. The very small new business loss component confirms the continued high quality and the attractive profitability of the new business that we’ve been writing. On the life and health reinsurance side, this also continues to perform well, confirming the positive trend in recent quarters. The new business CSM generation of 503 million euros supports our business plan and the outlook. The reinsurance service result of 717 million euros reflects healthy underlying profitability and we are well on track to achieve our full year target.
The investment performance was again very strong. The return on investment of 3.7% is comfortably above our 3.5% target and it was not driven by any material extraordinary items. Finally, our capitalization remained excellent with a solvency ratio of 242%. Operating capital generation was strong at around 2.1 billion euros in the first nine months of 2026. At the same time, the capital requirements increased by around 1 billion euros, more than offsetting the positive impact from capital generation on the solvency ratio. Importantly, this increase reflects attractive growth opportunities and therefore successful capital deployment in a still favorable market environment. Turning specifically to the third quarter, the capital requirements increased particularly strong as they do reflect for the first time our planned growth for 2027.
At the same time, the own fund generation was below average. That is due to, firstly, in P&C reinsurance, new business contribution is seasonally low in Q3 as a smaller share of business is renewed during this third quarter. Secondly, assumption changes in life and health reinsurance had a negative impact overall. Operating changes in own funds and capital requirements reduced the solvency ratio by 7.5 percentage points in the third quarter. Together with the quarterly dividend accrual, this explains the decrease in the ratio. The shareholders’ equity rose by 5.7%. In addition to the positive contribution from our nine-month results, currency effects were also positive. The CSM grew by 8%, mainly reflecting our successful new business generation. Across both business groups, the risk adjustment increased by 4%, driven by new business written in P&C. The significant value creation shown on this slide is confirmed by the strong return on equity of 21.1%, which compares favorably with our reinsurance peers, despite booking the full large loss budget and the additional increase in reserve resiliency. And on that note, over to you, Christian.
Christian Hermerlingmeyer (Chief Financial Officer)
Yeah, thanks Clemens, and good morning everyone. Looking closer at our P&C results, you can clearly see the high quality of our diversified portfolio despite an increase in the frequency of large losses in the third quarter. The overall impact of large losses was 470 million below our budget for the first nine months. But as usual, and you know that, we booked the full year-to-date budget. Furthermore, the nine-month result, with a strong combined ratio of 83.7%, includes a material increase in reserve resiliency, and this highlights the even better underlying profitability of the portfolio.
Looking ahead, we have significant scope to maintain reported combined ratios at attractive levels below our target. Clemens has already mentioned the main drivers of developments in the reinsurance revenue. Looking at the details here, higher commissions and contract features such as profit and sliding-scale commissions had an impact of 1.6 percentage points on reported revenue growth in traditional business. This effect is smaller than at the half-year stage and, together with the healthy underlying growth from our successful renewals, contributed to a marked improvement in revenue growth as we indicated in our last earnings call, and this positive trend is expected to continue towards year end.
Furthermore, we recorded additional growth in structured reinsurance and ILS, partly offsetting the reduction in volume from large individual treaties renewed at the beginning of the year. The strong operating cash flow continues to increase also our asset base and, together with higher interest rates boosting the ordinary return on our fixed income portfolio, has driven the increase in our investment result. The other result does not include any noticeable items. The currency result was minus 40 million, so overall EBIT increased by 20%. And as a reminder, the nine-month result in 2025 included more than 300 million in actively realized hidden losses in our fixed income portfolio.
Looking now at the IFRS 17 components of the P&C service result, the main contributor is the CSM release fueled by successful renewals in 2025 and 2026, and our prudent reserving approach is again the reason for the negative runoff result and explains a large part of the negative experience variance. Without the increase in resiliency, the runoff result would have been materially positive. The underlying combined ratio is therefore significantly below the reported 83.7%.
Going forward, this means that we have significant scope to offset the impact of lower reinsurance rates if markets would continue to soften, initially just by adding less to reserve resiliency and then subsequently by maintaining it at a stable level. The increase in CSM is mainly driven by new business written in the successful 2026 renewals with a diversified contribution from different regions and lines of business. The new business CSM amounted to 2.3 billion euros and, compared with the previous year, this is a decrease of around 300 million.
Slightly more than half of this reflects the combined effect of price and volume changes in our portfolio. The remainder is attributable to currency and discount effects. Let’s now move on to life and health. Here, the reinsurance revenue increased by 9.5% adjusted for currency effects. This positive development is driven by US Financial Solutions and diversified growth opportunities in traditional business. Due to the structure of some of the deals, a large part of the gross revenue contribution from US Financial Solutions is not showing up in net revenue to the same extent. The overall performance in life and health reinsurance remains strong.
The experience variance stays clearly positive despite some claims volatility. In our Australian disability business, the contribution from Financial Solutions and many parts of our traditional portfolio were favorable. Altogether, the reinsurance service result of 717 million euros for the first nine months, including another good result in Q3, puts us well on track to achieve our full-year target. The investment result mainly reflects the good ordinary result from our fixed income portfolio but also includes a negative impact from the valuation of a participation.
The currency result here was minus 52 million euros, driven by a broad mix of currency movements against the euro. Looking again at the IFRS 17 profit drivers, the main contribution comes from the CSM release. This is slightly above our expected range, mainly driven by our Financial Solutions business, including some deals with a relatively rapid release pattern compared to the rest of the book. The risk adjustment release is also ahead of expectations, mainly driven by a higher release in the third quarter. In this third quarter we reviewed the assumptions for larger parts of our life and health portfolio in greater detail.
The outcome also affected these components shown on this slide. The main driver of the loss component is updated assumptions for onerous business, mainly in morbidity and to a lesser extent in mortality. These assumption updates include a prudent increase in the risk adjustment and should also be viewed in the context of the overall favorable underlying profitability, including clearly positive experience variance. The higher risk adjustment release should also be viewed in the context of these assumption reviews.
We do not generally expect the release to exceed the indicated range of 6 to 8%. The favorable new CSM generation of 503 million is driven by diversified contributions from Financial Solutions and traditional business and is supporting the positive outlook for our life and health business. Given the transactional nature of the business, fluctuations between individual periods are, as you know, normal, and the performance in 2025 was exceptionally strong on this metric.
Changes in estimates are mainly driven by model updates in longevity and including positive currency effects. The CSM increased by 4%. Also, our investment performance was again very satisfactory. Return on investment of 3% is comfortably ahead of our 3.5% target. The growth in ordinary investment income mainly reflects the continued growth in asset volume and the increase in interest rates over the course of this year. And additionally, the active realization of losses in our fixed income portfolio in the previous year supported a sustainable increase in our portfolio yield. Given the significantly higher level of unrealized losses shown at the bottom of the slide, this will again be an option to consider in the fourth quarter of this year if the large loss experience remains benign.
And to conclude my remarks, the first nine months of 2026 have been very successful for us. Our strong underlying profitability puts us in an excellent position to deliver on our full year target with an even stronger balance sheet. And on that note, I will hand back to you, Clemens, to discuss the outlook.
Clemens Jungsfilge (Chief Executive Officer)
Yes, thank you, Christian. So yeah, as you said, Christian, so well on track to deliver on our targets 2026. As for our growth target in P&C, we do believe the lower end of our target range should still be achievable. More importantly, the profitability of our P&C portfolio is strong with a combined ratio of 83.7%. As explained, this does include additions to the reserve resiliency and does not recognize the benefit of large losses coming in €470 million below the budget.
Furthermore, our return on investment is comfortably ahead of target and the reinsurance service result in life and health, as mentioned, well on track to meet our full target of around €925 million. So altogether the benign large loss experience and the strong investment performance are increasing the likelihood that earnings will land ahead of our targets for the full year. This gives us additional flexibility to further strengthen our balance sheet, either by adding to the reserve resiliency or, as we did last year, by actively realizing hidden losses in our fixed income portfolio and reinvesting at higher yields. Both measures would support our ambition to deliver continued earnings growth in the coming years.
Against this backdrop, we have decided to maintain our guidance for the current year with a clear ambition to meet expectations. We will share the details of our earnings outlook for 2027 and our midterm outlook at our Investor Day on the 25th of November. So this concludes my remarks and happy to answer your questions.
OPERATOR
We will now begin the question and answer session. Anyone who wishes to ask a question, please press star 1 on the telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star 2. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. In the interest of time, please limit yourself to two questions. Anyone who has a question may press star 1 at this time.
The first question comes from the line of Shanti Kang from Bank of America. Please go ahead.
Shanti Kang (Analyst at Bank of America)
Hey, morning. Thank you for taking my questions. The first one was just on the new business CSM, which was down 300 million year on year, you said, and about half of that was attributed to softer conditions. I was just wondering if you could help us characterize how much of that was rate coming off versus lower volumes versus mix shift. I’m just curious to get your thoughts on what that drift year on year is actually telling us. And then the second one was just on the traditional P and C revenue growth target.
Obviously you said that you’d reiterate the low end of the mid single digit guide. I’m just curious if there’s anything you could pinpoint us to specifically to support that pickup in Q4 because obviously we were expecting a bit of that in Q3, but if there’s anything specific we could look to for Q4 that would be helpful. Thank you.
Sven Althoff
Good morning, Shanti, it’s Sven. So on the second question, the underlying premium growth on the traditional business is at around 3.5% higher compared to where we were after the first half of the year and we expect that trend to continue. If you look at our main renewal dates, you will remember that the growth we have shown at 1st of April was significantly over and above the growth we have shown at 1.1. And also for the mid-year renewals we had a higher growth rate to 1.1.
So therefore the earn-through from the later renewals of the year will influence the premium development also in the fourth quarter. And as we had the positive catch-up now in Q3, we expect that there will also be an incremental catch-up in Q4 in order to then reach the lower end of our full-year guidance. When it comes to CSM creation, I mean as we said in the past, the rate decreases we have seen across the entire book, so approximately around -4% for the full year for the traditional P&C business, should be roughly 2 percentage points on the combined ratio. So that’s the—yeah, that’s the most significant driver for the lower CSM generation in 2026. Volume plays a much less significant role given that the traditional premium actually grew year on year by 7%.
So when it comes to business generation, that gave us tailwind rather than headwind in the CSM generation.
Shanti Kang (Analyst at Bank of America)
Thank you.
OPERATOR
The next question comes from the line of Will Hardcastle from UBS. Please go ahead.
Will Hardcastle (Analyst at UBS)
Good morning everyone. Just coming up back on the solvency. Can you talk me through the incremental capital requirements in P&C for growth? I think you said capital requirements have gone up about 1 billion year to date, which is a really big number. I guess trying to understand there really the expectations on growth, you know, how much growth you’re going to be assuming in cap? Maybe. And I guess just to put it into context, would this imply consensus is maybe too shy on 2027 revenues or not?
I’m trying to think about the earnings uplift on that and any, you know, given the actual that level of SCR deployment. Second question just on larger man-made losses, it’s two specific losses just to call out. Your largest loss was Colombia earthquake. Is there potential to recover more than what you’ve assumed from retro protections there? Or is it falling shy of where those perils or attachment points are? And then there’s two credit losses in the quarter. Anything specific to call out or is it any danger that this risk is a bit more systemic? Thank you.
Sven Althoff
Good morning, Will. It’s Sven again. So let me start with the loss question. Right now we only have some of our retro protection respond on the Colombian loss given its size. In case this should move out on a gross basis, there will be additional recoveries also from our event tower. So from that point of view the development on a net basis should be slower compared to the gross basis, but only in case it does further develop. The two losses shown as credit—that’s two very different losses. The one is coming from a potential insolvency from a retailer in South America and the other one is a potential government debt topic coming out of Africa which may or may not be restructured and therefore may not produce losses in the end. But we decided to take a prudent approach and book at least some of the potential losses into our Q3 number in case the restructure should not be successful.
Christian Hermerlingmeyer (Chief Financial Officer)
Let me take the solvency question, Will—Christian speaking here. So indeed the 1 billion SCR increase shows the successful deployment of capital. But let me give you here a broader view, as this also reflects the profitable growth in P&C and life and health that we are already seeing this year. And also you have to take into account that the assets under management are significantly growing and we see a very healthy operational cash flow of around 5 billion after just nine months in 2026.
And in Q3, as we already indicated, there is in addition the uptick in capital deployment with our look forward as we take the full plan, for example NATCAT capacity, into account for the next 12 months renewals. So therefore it’s more pronounced. Looking at details here, and you also asked for guidance looking forward, I have to ask for a bit more patience as we will talk about that at the Investor Day on November 25, of course in much more detail and being specific.
Will Hardcastle (Analyst at UBS)
Thank you. Just as a real quick follow-up on the NATCAT component, you said that’s a new thing. Do you normally take the next 12 months at Q3 though for NATCAT or is that new? You normally only take the next quarters?
Christian Hermerlingmeyer (Chief Financial Officer)
No, that’s the usual Q3 plan update. After doing the planning process here and aligning on that, then we take it into account in Q3. That’s a regular procedure.
Will Hardcastle (Analyst at UBS)
Yeah. Thank you.
OPERATOR
We now have a question from the line of Andrew Baker from Goldman Sachs. Please go ahead.
Andrew Baker (Analyst at Goldman Sachs)
Hi. Thank you for taking my questions. First one, I appreciate interest rates are a bit of a moving target, but how should we be thinking about the discount benefit for next year in the P&C combined ratio? And then can you just remind me your approach for setting up an interest rate reserve as I believe that’s something you’ve done previously. And then secondly, just on the investment side, would you just give us a quick update on the current reinvestment yield versus portfolio yield?
Thank you.
Christian Hermerlingmeyer (Chief Financial Officer)
Yeah, happy to answer your questions, Andrew. So maybe starting with the last one, the reinvestment yield at the end of Q3 was around 5%. So of course significantly up compared to the last quarters. And the book yield now stands at around 3.8%. So also an increase as you would have expected. Looking at the discount, I mean when we go back 12 months, we planned and indicated with a discount of around 8 or 9 to 10%, and now we are at 12. And you have to see—and this relates also to your last question with the IFE versus the discount, so the reinsurance finance result or the unwind of the discount—looking forward, I would see this not materially moving. And why is this? Because we have the high interest rates, that’s true, so we should not see the 9 or 10% but more.
But you have also to take into account that in the 12% we see today, there’s also an impact from our prudent reserving actions. So where do we book the resiliency reserve? The substantial, or the most substantial, part is booked in long-tail lines like casualty. And so there you have a positive or an extra impact because the volume goes up of reserves with a long tail and therefore the discount is increased. So we have effects going forward. This will be positives and negatives.
So you should not expect overall substantial movement of that.
Sven Althoff
Just to add to that on the combined ratio outlook for 2027. So the guidance we will give a bit more detail during the Investor Day, and that would include also an indication on the discounting factor that we are going to apply to the combined ratio 2027.
Andrew Baker (Analyst at Goldman Sachs)
Perfect, thank you. Just to clarify, when you say not substantially moved, do you mean versus the 12 or the 9 to 10%?
Christian Hermerlingmeyer (Chief Financial Officer)
No, I’m tempted to say we give that on the Investor Day but I clearly talk where we are today as a starting point.
Andrew Baker (Analyst at Goldman Sachs)
Perfect, thank you.
Christian Hermerlingmeyer (Chief Financial Officer)
But that should not deviate a lot, Andrew, just to complete that,
OPERATOR
The next question comes from the line of Vinit Malhotra from Mediobanca. Please go ahead.
Vinit Malhotra
Yes, good morning Tarek. So for me, one on P&C, one on Life, please. So just on P&C, there was a commentary somewhere in your prepared remarks that looking forward you expect significant scope to maintain combined ratio below target. Now obviously when we see the runoff in Q3 — would you remind me the quarterly guidance on runoffs? But when I look at the number it’s probably 200-odd million at least on the prudency. When we see all that, how can we square this comment?
I’m just curious whether you could add a little more to that, sort of, let’s say positive outlook today. Second thing is on the growth on solvency — I think last year it was six points of growth taken in Q3 and this year you said about half of the seven and a half. So is it kind of fair to assume that a similar kind of growth could be expected next year versus this year? And I appreciate if you can only comment at Investor Day but just because this came up.
And lastly, on the Life re-assumption changes — this also happened in 1H — and I’m just curious whether the timing for taking those assumption changes in morbidity: are they because of a conservative approach in a quarter with low cats, or was there some trend you have seen which prompted now maybe two or three quarters of additions to this line here? Thank you.
Christian Hermerlingmeyer (Chief Financial Officer)
Yeah. So Vinit, thanks for the question and, yeah, I basically can reiterate on the runoff result and you’re right, we gave the guidance of maybe 150 to 200 would be a, let’s call it a normal expected runoff result. Of course there are always moving bits and pieces and, as we already indicated, we used the room to maneuver, the opportunity to strengthen the resilience reserve. And we also are quite conservative on parts of the portfolio like casualty, to name that.
But that’s also some motive we talked about and this is in addition to the resilience buildup. So your expectation going forward should be reconfirmed. And to the solvency, maybe just the comment: to be honest, it’s a bit hard to compare really quarter three, 2026 with 2025. There are a lot of moving bits and pieces and, if I remember correctly, for example the economics impact was a quite different one last year and there have been special things like payback of a hybrid bond and things like this. So to the gross assumptions, I’m afraid I have to ask for some patience as we will talk about 2027 then in detail at the Investor Day.
Claude Schebel
Vinit, on your Life and Health question. I mean, first of all, maybe I would like to reiterate that with a reinsurance result of 717, we’re well on track to achieve our full target in Life and Health. And also the experience rounds and the changes in estimates, if you look at them over the nine months, they remain positive and it’s all good in Q3. And that’s what you’re talking about, the Q3 standalone. You need to see the various movements that you have observed on the loss component, the changes in estimates and also the risk adjustment together.
And they’re all driven by our assumption updates and prudent assumption strengthenings of our traditional business, mainly, as Christian said, on the morbidity side and on the mortality side. Obviously also your question is, is there a trend that we observe? I can tell you there is no trend that we’re observing at all. We usually perform these updates often in Q3. We have done this also already in the past. So the Q3 standalone quarter is maybe a little bit misleading if you look at it in terms of the full-year performance that we’re going to see on the Life side.
Vinit Malhotra
Okay, thank you. Thank you.
OPERATOR
The next question comes from the line of Cameron Hossein from J.P. Morgan. Please go ahead.
Cameron Hossein (Analyst at J.P. Morgan)
Hi, good morning. First question for me is on reinsurance revenue, and I know you’re not going to give us any numbers ahead of the IR day in a couple of weeks’ time. But if I think back to this time last year, the revenue guidance you put out, I think for the first time that I can remember, excluded structured, and clearly structured has been a pretty kind of huge headwind to your revenues this year. Do you think for the guidance you give us in a couple of weeks’ time you’ll be able to set the revenue guidance on an all-in basis like it has been historically? I guess at this stage of the year, I would assume that structured will still be a kind of headwind, tailwind, etc. And the second question, still on the revenue point, on the NDIC impact — if we see lots of terms changing next year, and maybe they will, maybe they won’t — would that make the NDIC a continuing drag on revenue, if terms did change? So just two there, sorry, very theoretical. Thank you.
Clemens Jungsfilge (Chief Executive Officer)
Cameron, this is Clemens. Thanks for the question. So again, we will provide details at the Investor’s Day on the revenue guidance. However, let’s just be clear today: it will be a guidance that will include both traditional and structured reinsurance P&C business, as we did in the past. So we will give you a growth expectation that includes structured and traditional business, even if there were special impacts or whatever from structured or from traditional.
We will provide details then on the underlying growth expectations there, but expect one number at the Investor’s Day. And on the second one, I just give that probably to Sven or to Christian.
Sven Althoff
Yeah, unfortunately it’s really early days when it comes to the renewal, so we don’t have any — at least not enough — data points to make any comments. Theoretically, of course, it could be a renewal where NDIC topics continue to be a feature. On the other hand, I mean NDIC is not necessarily a bad thing when it comes to negotiating terms and conditions because it’s the result-dependent commissions, so they only have to be paid if the underlying profitability is good, versus increases in flat commissions which you have to pay regardless of how the underlying profitability is.
So this is not implying that we see any trend for more NDIC, but just a general comment if you compare the two streams of commission. Thanks very much.
OPERATOR
We now have a question from the line of Ian Pearce from BNP Paribas. Please go ahead.
Ian Pearce (Analyst at BNP Paribas)
Hi, morning. Thanks for taking my questions. The first one was just on the capital deployment topic again — just thinking about mics and the potential impact of mics on the higher capital deployment. Is there anything that you want to flag in terms of sort of more expected growth in CAT, or particularly any changes in retro assumptions that you’re making that’s leading to potentially higher capital deployment or higher capital intensity in your new business assumptions for 2027?
And then on the Life assumption update, can you just provide a bit more detail around the areas within morbidity? I mean, clearly we’ve had some challenges in some of your Asian businesses in the recent past. Is it in that particular area again where you’re seeing this? And are these assumption updates based on any observed experience, or are they just prudent additions based on the positive experience variances and CSM release that you’ve seen in the quarter?
Sven Althoff
Thank you. Yeah, thanks, Ian. On your first question, let me start with retro. We are planning to place very similar retro structures in line also with the underlying growth of our business. So no changes intended on that side. When it comes to future growth on the NatCat side, we have created the headroom to potentially have further growth on the NatCat side. But given that we don’t know how the renewal is turning out at this stage, it’s not an area which we will definitely grow.
We have only created the headroom in case we find the market conditions attractive to have further growth on the NatCat side. But it’s too early to give you an outlook on that side.
Claude Schebel
And maybe on the Life and Health question, this is Claude again. I mean, the assumption updates, as I said, the major part of the assumption updates are for morbidity, but there is also part for mortality, obviously. And when you look into the morbidity book, as you correctly said, the major part of these morbidity updates are coming from our APAC portfolio — that hasn’t changed. Is there a trend, a negative trend? Not at all. We did this for prudency, really, in Q3 and for nothing else.
Ian Pearce (Analyst at BNP Paribas)
Thank you.
OPERATOR
As a reminder, if you wish to register for a question, please press star and 1 on your telephone. We now have a question from the line of Ben Cohen from RBC Capital Markets. Please go ahead.
Ben Cohen (Analyst at RBC Capital Markets)
Yeah, good morning, everyone. I just wanted to ask, I guess more qualitatively, in terms of the discussions that you had with clients or potential clients at Baden-Baden, if you could just give us some indications in terms of how much new demand they’re talking about, kind of where the pressure points are for clients, the sort of things that you might be thinking where you can provide additional help or maybe less help going into next year. And the second question was just, I saw that you increased the gross loss for your Iran war estimate. Just wonder if you could remind us, is that now essentially all going to third parties if that increases? And could you maybe talk about where the drivers of that increase were to give us some sense in terms of if there’s maybe more to be taken? Thank you.
Sven Althoff
Yeah, thank you, Ben. On the second question, up until Q2, this was all really IBNRs which we have booked. And when we book IBNRs, we are booking a gross-for-net position. So where we have seen the first client reserves is coming from the political violence side of the potential losses. And given the overall benign loss environment, we have decided to keep the net loss unchanged at 200 million and have just booked the client advices as additional gross losses in order to reach that point.
So, obviously, with being contract-specific, we can start allocating to our retro sessions. And that has created the gap between gross and net, but not really a new view on the loss itself. And the amount of information coming from our cedents is still rather limited and therefore the absolute majority is still booked as loss-specific IBNRs. When it comes to your first question: well, we were not given a lot of details during Baden-Baden and prior conferences. When it comes to the additional demand question, we have the feeling that there will be some. Particularly if you compare that to the underwriting year 2026, where most clients decided to keep the savings they have achieved on the renewals to improve their net profitability in 2027, we have heard more often that clients are minded to reinvest at least some of the anticipated savings.
But how they do that is very client-specific. Some are talking about buying more vertical limit, others are talking about trying to lower their retention levels. And the third category would talk about buying a little more on an aggregate basis. So from that point of view, there seems to be a little more demand growth compared to 2026. But how exactly that will materialize we will only know in a few weeks’ time.
Ben Cohen (Analyst at RBC Capital Markets)
Thank you. Anything to call out from a sort of geographic basis?
Sven Althoff
Well, I mean, the bulk of the business that is renewing at once is certainly from Europe. Almost all European business renews at 1.1. So the conversations, of course, were more European and in part also North American specific. So really the bigger parts of our portfolio we are talking about when it comes to 1.1.
Ben Cohen (Analyst at RBC Capital Markets)
Okay, thank you very much.
OPERATOR
Thank you. The next question comes from the line of Henry Hetfield from Morningstar. Please go ahead.
Henry Hetfield (Analyst at Morningstar)
Oh, good morning. Thank you for taking my questions. I was just wondering if you’d give us an update on the negative experience variance in total and permanent disability cover in Australian group life, whether that’s deteriorated since the second quarter and whether you’ve been able to reprice that portfolio. And then just on the investment portfolio, I noticed that the unrealized losses in fixed income have moved up quite heavily and just wondering if there’s any of those losses concentrated in near-term duration bonds.
Thank you.
Christian Hermerlingmeyer (Chief Financial Officer)
Many thanks for the question on the TPD Australian experience. It hasn’t deteriorated since the second quarter and we’re about to reprice the business as soon as it comes. This is mainly group business which reprices through the whole year and also into the next year. So we will see these price increases coming through. On the investment question, there’s no specific concentration on a specific bond class or an issuer. It’s really throughout the book in line with the overall interest rate movement. Thank you very much.
OPERATOR
The next question comes from the line of Roland Fender from ODDO BHF. Please go ahead.
Roland Fender (Analyst at ODDO BHF)
Yes, good morning. Two questions from my side, please. Firstly, could you provide us an update on your inflation linkers? Do you expect here more positive impact next year looking at higher inflation rates? Secondly, looking at asset quality in your investment book, do you need to test valuations on real estate exposures, infrastructure exposures or private equity in the recent market environment? Do you see some risk of write-downs coming through?
Thank you.
Christian Hermerlingmeyer (Chief Financial Officer)
Yeah, thank you, Roland, for the questions. And let me start with the second one. The strategic asset allocation stays rather unchanged; no big moves or thought around that. And looking at the illiquid part, you know that’s not the tactical play we do there and that’s not the place to do that at all. So this stays rather continued reinvesting in line with what we’ve done in the past. But having said that, of course we look closer and the real estate book is under monitoring. Just looking at these Q3 results, there are positives and negatives from revaluations, but as you can see in the overall numbers it’s not really significant. And we see quite a good level of comfort also going forward as the biggest part of our real estate investments is on our direct balance sheet. So there is some valuation headroom that buffers market impacts that might come.
But let’s see how that develops. This brings me to your second question on the inflation linkers. Also here we are sticking to our principles and our hedging of the parts of the inflation risks of the liabilities. So the overall volume has not really changed. I think we are close to 5 billion on a nominal base. And of course when inflation—and we are already seeing this—is getting upwards, then the amortization will be a positive one. But as this is a hedge and not an investment part, this will be part of the ALM going forward and bringing us to a more balanced position to the inflation environment, wherever it might go.
Okay, thank you.
OPERATOR
Once again, to ask a question, please press star and one on your telephone. We have a follow-up question from the line of Will Hardcastle from UBS. Please go ahead. Mr. Hardcastle, your line is now open. You may go ahead with your question.
Will Hardcastle (Analyst at UBS)
I’ll try again. On the fixed income exposure, slide 23, it looks like there’s a material shift from Asia to rest of the world quarter on quarter. Is that just a classification change or any action or material shift in allocation? And I guess are you able to give us what reinvestment yields have been for you in Q3? Thank you.
Christian Hermerlingmeyer (Chief Financial Officer)
Yeah, so actually I would have to—let me start with the first one. There is no asset allocation shift, also not in the fixed income directed to Asia. I’m not aware of any significant movements there. Maybe we have to get back to that for details, but that hasn’t happened. And the reinvestment yield, to repeat that, is around 5%, and the book yield after Q3 is 3.8.
OPERATOR
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Clemens Jungsfilge for any closing remarks.
Clemens Jungsfilge (Chief Executive Officer)
Yes, thank you all very much for your questions and the debate. As mentioned, we are well on track to deliver on our 2026 targets. Furthermore, we have taken the opportunity to strengthen—further strengthen—our balance sheet, strengthen our resiliency reserves, and as mentioned, the likelihood that we will do so and add to that even in Q4 is very high overall. That clearly underpins our ambition to grow our earnings also going forward and to deliver that earnings growth with less volatility, even in a more challenging market environment, even if there are headwinds.
It is a clear ambition and we will talk about that in our strategy update, which we will talk about at our Investors Day. And again, we will also give details on the guidance 2027 on our Investors Day. With that, we very much look forward to seeing you in London in about two weeks for our Investors Day. Have a good week. Thanks again and speak soon.
OPERATOR
Ladies and gentlemen, the conference is now over. Thank you for choosing ChorusCo and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
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