Swiss Re AG

Christian Mumenthaler - Chief Executive Officer David Cole - Group Chief Financial Officer Eddie Schmid - Group Chief Underwriting Officer Guido Fürer - Group Chief Investment Officer Philippe Brahin - Head of Investor Relations

Edward Maurice - JPMorgan Andrew Ritchie - Autonomous William Hawkins - KBW Frank Kopfinger - Deutsche Bank Kamran Hossain - RBC Capital Markets Vinit Malhotra - Mediobanca Daniel Bischof - Baader-Helvea Stefan Schürmann - Bank Vontobel AG Sami Taipalus - Goldman Sachs Thomas Seidl - Bernstein James Oram - Citigroup Vikram Gandhi - Societe Generale

Good morning, and good afternoon, everybody. And welcome to our 2017 Annual Results Conference Call.

I'm here with David Cole, our Group Chief Financial Officer; Eddie Schmid, our Group Chief Underwriting Officer; Guido Fürer, our Group Chief Investment Officer; and Philippe Brahin, our Head of Investor Relations. Before we go to Q&A, there are several remarks I'd like to make both on results we reported today and on the recent developments.

In early February, we informed that we're engaging in preliminary discussions with SoftBank, who approached Swiss Re regarding a potential partnership and minority investments. We are carefully assessing the strategic and financial implications of such a partnership.

There is nothing in our current discussion with the SoftBank that would support the issuance of new capital. Yet discussions are still at an early stage with no certainty on the outcome, there are no further comments which we can make at this stage.

Turning to our annual results. 2017 was smart by series of natural capacities around the globe and was therefore a year in which Swiss Re heavily supported its clients and their customers.

In total, we expect to pay $4.7 billion in claims. Despite these events, the Group reports a net income of $331 million, reflecting the benefit of having diversified earning streams and supported by strong investment results.

The P&C Re business segment result reflects the impact of bearing $3.7 billion of estimated large net cat claims. The strengths of our reserves remains intact and we benefit from favorable prior year development across all the major lines of business.

We’re very pleased with the result of Life and Health Re business segments, which is continuing to show profitable growth and improved underwriting performance and strong investment results. Corporate solutions results was also impacted by significant natural capacity losses in 2017.

We’ll continue to invest into the business units, enabling the further rollout of the Primary Lead initiatives, particularly as we have a positive outlook on the long-term opportunities in commercial insurance. Life Capital generated strong gross cash of $998 million, and paid $1.1 billion dividends to the group.

We're happy to have attracted MS&AD as the third party equity investor and reassure, enabling us to pursue further close book opportunities. Meanwhile, the open book business is continuing to grow dynamically.

The group investment portfolio delivered a very strong ROI supported by net realized gains from sales of equity securities. Our investments portfolio is although well positioned to benefit from future returns.

Today, we also report the estimated outcome of the January renewals. Volumes were up 8% and we're able to achieve price increases of 2% as we remained focus on quality.

I believe there is strong possibility that rates will continue to improve throughout the year. Overall, I would say the outlook for P&C is stronger than it has been for the last four years.

Given our very strong capital position, we also announced this morning that the Board will propose for the 2018 AGM a 3% increase in the regular dividend to CHF5 per share, as well as a new share buyback program of up to CHF1 billion. Unlike in previous years, there will be no other preconditions to the commencements of the proposed share buyback program beyond the board approval, considering our unchanged capital management priorities.

With that, I hand over to Philippe to introduce the Q&A session.

Thanks you, Christian, and good day to all of you also from my side. So as usual, before we start the Q&A, I would like to remind you to please restrict yourself to two questions each and register again if you have follow-up questions.

So with that, operator, could we please take the first question?

Thanks for taking my questions, two please. The first is just a bit more detail on the combined ratio guidance.

I’ve been expecting most of it benefit from price increases to come through in 2019. So if you could just talk about how much benefit do you think is still to come into 2019 year?

And may be if you could give us a little bit of help on reserve releases, I know you plan to reserve to best estimate. But some guidance on how much that might contribute would be helpful.

The second question relates to your over the cycle ROE target, which based on where U.S. rates are, is 9.9%.

I understand your price quality metric is rated at the level to meet this target. So should we assume if you're 103 that you feel quite comfortable with that?

And I noticed from consensus that the ROE expectation is 8.8% that seems like quite a large gap so could you help, please?

Eddie you take the first question and maybe David the other one.

Thanks Edward for the question on the combined ratio, estimate for 2018, you should put at 99 obviously that reflect the improvement in price quality as seen at 1/1. But as you pointed out, if you look at it on a GAAP basis, there is always a time delay to be considering.

So if you, for example, look at the earn on the GAAP in 2018, now 50% of tax is extra basis we wrote in 2017, so that explains how we earned over time, the business we rolled now, to a significant sense it will be earned into 2019. So that explains the delay and those are the 99 estimates still includes business view later in the year.

So it’s hard to give a pre-size number, but clearly the improvements we have achieved now, they will not be fully earned this year but they will significantly move into 2019, that’s how I would summarize it.

And there was a point of reserve release, which basically in terms of any estimate, as usual nothing has changed in there to the combined ratio?

No, we don’t give an outlook on reserve releases. We stick to these best estimates, its 3.3% prior the development on 2017…

Our estimate looking forward is always on the base of assumption of zero prior year development. As toyour second question, so I’ll just refer you to slide 15 of our results announcements, which you’ll see the return on equity and developments over the course of last couple of year and also looking at the lower end of the page you see the P&C Re segment that you were referring to.

Now over the last five or six year, we had a return on equity certainly benefiting from a number of years was relatively benign, large cat losses as well as some positive PYD of closer to 20 and in some years above 20 as you may recall. Clearly in 2017, we're significantly below that with net loss for the year.

Our target is 10.15% we think still absolutely appropriate, it’s through the cycle target. We don’t try to predict exactly when the cycles will come or go.

We don’t with close sight predict exactly which year actual losses will be above our estimate versus below our estimate. And if you look at our results over the last several years, the quality of our portfolio, you look at quality of what we have now written and you think about it indeed on through the cycle basis as opposed to in a moment and time basis, you're referring to a spot interest rate then yes, we remain comfortable that the business that we’re riding will facilitate that we achieve our objectives, including the ROE target from this cycle.

Two quick ones, could you give us a sense as to what you think the average rate improvement might be in CorSo, in 2018? I appreciate it's obviously skewed to the U.S., it's quite skewed to big ticket properties.

So I guess it'd be fairly material. But just some sense as to what you think you might achieve in terms of average rate across the book as it stands?

Second question on ROI. How should I think about the outlook for the overall ROI?

I mean, clearly, it was very strong in 2017 helped by gains. Should I assume the running yield is flat, and also the gains that need to possibly adjust downwards, but also the changes to the U.S.

GAAP, could result in very substantial volatility through your P&L. Is there an intention to breakout the normalized ROI and/or adjust your ROE targets given the implications of that?

Thanks.

Eddie, you take the first one and Guido the second one.

It's really hard to give an average. As you understand, the portfolio is quite diversified and so we have clearly seen that with changing the times for commercial pricing on the back of the large net cats in 2017.

So we clearly see significant rate improvements in U.S. and in the Caribbean where are most of the losses have it on property account, particularly on large account.

And to a lesser extent on other lines of business and defer the rate, all from U.S. the lower impact will be.

And again as a single time delay also in the earnings on the corporate solutions side, a lot of the business will renew actually in the middle of the year. In China it's only around 10% to 11%.

So we still need to see. But clearly, we'll put a high focus on driving quality in our corporate solutions segment, so push for increases, not just for property cat effective programs, particularly also on the casualty side where we actually have proven the quality over the last couple of years and this will continue.

So we’ll push for rates. And yes we're quite optimistic that we can achieve quite a big percent.

This really backs up our commitment into the commercial space. We have proven a lot in a few years back, we now have moderated the growth for the last two to three years.

I think now with the back of rate increases, we can again benefit to be more also on the volume growth side.

Thank you. Guido?

On the return investment outlook I think good to typically look from that we have various sources are coming. As you've seen this year, we had just on the net investment income $3.1 billion, which corresponds to about 2.7% return on investment and then other $1.5 billion in realized gain.

If you go back to last few years, it was always a good contribution from realized gain, different sources. Again this year, we had a particularly strong year on the equity side, and on alternatives, which lets to additional contribution.

But overall, gain realization was always part of each and is yearly results. The tight sources defers depending on what financial market of CorSo are doing, this year was particularly good on the execution side, running yield is the fixed income forward guidance 2.9, we show now for two years, very stable.

If you look a bit what interest rate has done, they rather came up and of course if the trend continues, it helps us on the new investments side. That's why running yield is clearly good point as an input for fixed income.

It's hard to see gain realization was always a component, that's why we assume there will still be an important piece going forward because we manage the portfolio. And if we see economic possibility to take some of the gains, of course we do it.

Hard to predict what the year brings, but the other part of your question was the change in accounting that means from now of value change goes to the P&L. And then of course it's impact to return investments.

And if we have a 10% correction in the market, this if CorSo goes directly now into return investment calculation. Now the traditional portion of the portfolio, which is basically newly affected by this accounting regime is currently $4.8 billion.

That means if you have a 10% drop, you would see an additional volatility of approximately $500 million in the respective result, this gives you an idea. Importantly that we look to the result and again such change in equity always impacted the economic position of the group.

So far many things have not flown directly to the return investment, this change with respect to equity. But from an economic point of view, there is no change, and it’s just from presented.

Of course, we will always make the distinction what has been related to moves, mark to market moves in the market and basically what has happened based on portfolio action. That information can be provided for sure.

To give the guidance, as you know, you need basically a crystal ball what the equity markets are doing.

Can I just ask a follow-up on the -- especially the Corporate Solutions at least the average rate will be more than for the reinsurance book. Is that a fair statement?

That's hard to differentiate. On the reinsurance you have -- the non-proportional side, which goes up quite significantly proportional as it is lower…

And current weighted average?

Our weighted average…

Well, the weighted average you told is [3%]…

It's hard to say. I would need to think about it more carefully here.

I'm slightly picking-up on Andrew's two questions. On Corporate Solutions, given that you did have a very tough 2017, I was thinking it might be reasonable to expect a bit more clarity on how optimistic you are shorter term for that business.

So I know you've dropped combined ratio guidance for this year, and that's also understandable but sort of not. So could you just try and be a bit clearer, you've just another billion in, you still got the 10% to 15% medium term ROE target.

But maybe we should even -- on the one hand, I would hope for payback that would be generating a greater ROE than that. On the other hand, you still think the restructurings and maybe the environment is going to be tougher.

So I'm really not clear about the earnings momentum for Corporate Solutions. So some clarity there will be helpful.

And then secondly, when we look at the great return you've done in Life Re, the 15% ROE, that's clearly smashed through your 10% to 12% target. But again, I am finding it hard to see whether that's telling me that you are sustainably doing better returns in that business, or if it's all just market noise.

So I mean, should I just assume that the 15%, say versus 12%, is just capital gains and strip that out? Or can we be any more -- any clearer in terms of why you've done well last year?

Thank you.

So I'll try to pick-up both, and then Eddie if you want to complement on what say on Corporate Solutions piece, please do so. So yes, we had a tough 2017 and it was tough for two reasons.

I think both of them are very visible, not really specific to Corporate Solutions, if you don’t mind, I'll say it that way. Obviously, the pricing environment going into 2017 and throughout most of 2017 continue to be very strange.

And that reflected in the fact that we were moderating our growth, we were putting our portfolios, as well as of course the large losses that being emerged, particularly in markets that we are disproportionately represented, so the North American market historically, they’re very large part of the overall Corporate Solutions business mix. Now, we’ve been investing in this business and we’ve been managing this business, we mentioned now for many, many years, it’s been spread out now, separated out as a operating model since 2012.

But we have very good view of historic performance in this business. There’re a couple of things that we think people should bear in mind if you short term performance.

And we certainly looking at short-term performance, but not losing sight of the long-term objective that we have. We obviously continue to invest in the footprint expansion, as well as the primary lead capabilities.

We’ve said to you in the past that we think that’s probably in the neighborhood of between 3% and 4% of the combined ratio, manifested itself from the expense side. Incremental to what we would have, once I think we get to a little bit of a steadier state in a different scale.

We've also in the past referred to this total financial contribution, which basically reflects the -- only the development of reserves, it is for the moment either investment income in all those reserves but development of the reserves that we’re -- as part of the carve out left behind, and we said that’s also been somewhere in the neighborhood of 4% or so of PYD on the corporate solutions related to book. Now, the reported number as you see over the last handful of years is 3.1%, clearly below the 10% to 15% guidance.

I think if you look at it and you factor in just a few of the things I just talked about, you actually will find yourself nicely above the 10%. As we go forward, we put the billion into Corporate Solutions not to cover the losses.

We're very clear about that. Corporate Solutions was adequately capitalized for all of its claims in 2017.

We put the capital in because we believe that there will be interesting opportunities to rise and track the business and to show further growth going forward in Corporate Solutions. We do expect the pricing situation, not only in the loss impacted areas but also more broadly, if you think about some of the things other significant players are now communicating regarding their views of pricing adequacy and the need to move pricing to a more sustainable level.

We do anticipate that pricing levels will continue to show an infection point from what we have seen over the last several years. We’ve been down fairly steadily since just about 2012.

The degree of that decline started to moderate already a year or half, two years ago. At this point, you will see that in the back of our presentation.

Our own estimate is for positive pricing moves throughout the course of 2018. As Eddie said, we’ll be working very hard to achieve that.

Eddie, do you want to add something?

No I think you have pretty much given the story here. I mean just to add one data point.

If you look at the portfolio in core so we’ve written in fourth quarter 2016 versus fourth quarter in 2017. So the fourth quarter is already benefiting from the losses and as for that portfolio, we have about 4% improving price quality.

And the prices will not move in one go, but they will now gradually over the next probably 18 month, rev improved most affected of course in U.S. property cat.

And that is a significant part of portfolio and that’s driving also in other parts. And it’s even given overall number, but the movement is clearly there.

And we also saw of course in Australia after Debbie some very clear pricing movements there as well. Let me pick up your second question, William, so 15% plus ROE in 2017, significantly above our 10% to 12% target.

We had good underlying performance. If you look at the overall biometric side of things and you look at the actual versus our expected, actually more or less in line, may be if you look at it in entirety that’s little bit better than what we would have expected.

And that was then supplemented by the realized gains. Now the realized gains whereas Guido had referred to are really economic or not about managing our short term P&L, either looking at the valuations of the various instruments to come equity side or here and there where we had to I think reposition our portfolio as a result of statutory update of liabilities in one or two markets.

We maintain the 10% to 12% -- we maintain our growth outlook for that business. I think we’re very comfortable that the quality of the book that we have, increasing diversified earnings streams that we have support that outlook of 10% to 12%.

Two questions, so my first question is on the buyback. So you adjusted the conditionality on the buyback.

But you haven’t been precise of when you really want to start. So can we assume that you start right after the AGM given that the Board will decide to do so?

And then secondly, on topic of large capital, obviously, there's some news flow today with the Phoenix deal. Do you see that this has any impact on your business strategy going forward?

So the buyback, yes, so number one, I think the announcements today around capital are two-fold, both the increase in the dividend, as well as the intention to request the authorization for new share buyback, really underlying our statement regarding the capital position of the firm, which remains comfortably above our targets. The change in approach, change in communication, I think is reflective of a couple of things.

Number one, this is the not the first year we do, we now have three years under the belt. We’re seeing how the market has responded.

We also have of course seen in years it was relatively low. Net cat losses as well as in 2017 clearly are more significant, well above expectations in terms of losses.

I think we've tried to listen to feedback from their front and we came to the conclusion that we could be a little clear with the market at this point in time, that the capital position of the firm is strong, that we would do away with that conditionality regarding waiting to see what happens with third quarter windstorm in North America. The actual timing of the launch is really at the discretion of the Board, could happen at any time subsequent to the authorization, to be given at AGM with the intent of CorSo having it concluded in advance of the next AGM in April 2019.

But the Board would want to look at the specific circumstances and determine exactly what the right moment maybe and how to go about the implementation. But it's quite clear, we've stepped away from the precondition, I think we're second to the market and the capital position of the firm is comfortably above our targets.

And therefore, we think it's appropriate to get authorization and change the communication. I think on the second question, I will ask Christian if he wants to respond.

So we were not surprised, because we see a very active market right now in the UK. Obviously, you have to pick your battles because everyone of this is a significant work in consolidating on our platform.

So this year, we focused on the L&G transaction, which was also ideal in terms of size compared to the investment that MS&AD was prepared to deliver plus L&G is an excellent client of ours. So I think the only thing it shows is there's a lot of activity going on in the UK market right now, that the solution itself is well recognized, and it's probably where things will go.

And so I take it as a positive.

Three questions, the first one, just coming back to Corporate Solutions I guess following the losses in 2017. Could you talk us through how your protections for Corporate Solutions for the Reinsurance cover there, et cetera, has changed going into 2018?

So that's the first question. And the second question is, I'm kind of with you on the pricing.

I think I'm a believer in the fact that pricing will improve throughout the remainder of the year. I guess, all of those things there's this massive pool of capital out there waiting to deploy.

We heard from one of your peers yesterday that in some cap bond funds you have that kind of soft closes that's still 25% in cash, not fully invested. What's the argument back to that, prices versus too much capital still in the industry?

Any color or thoughts would really be hopeful. Thank you.

Thanks on the CorSo of reinsurance protection, so it's fair to say that CorSo lost [indiscernible] higher than with peers, because again there’s a significant part of the business in the U.S. So it is also more prone to exposure and to intentionally only both are really severity driven protections in the past, so it comes with the expected the higher volatility, because the returns really carry that on the overall balance sheet.

But we review of course the returns protection on an annual basis and into 2018. We actually decided to lower detection point, so the protection attach is a little bit weaker.

And also we added so called EBIT cover, so also second and third events will be covered in a year similar to what we’ve seen in 2017 with a series of let's say medium size cat event. So of course though into 2018 it’s better protected so the volatility it stands, I am sure something similar happen again.

On pricing and alternative…

I'm happy to take that question that probably would take a long time to go through all the different aspects here. In our view long-term we think some of that capital will stay, because natural catastrophe -- in the natural catastrophe field because that’s a natural place to be.

And reinsurance has been scares there for decades, and there is still a huge protection gap. So overtime, we think capital market has to play a big role here.

So I certainly think that alternative capacity will stay, either in form of cat bonds, which is a bit more limited and hard to do or in form of actually reinsurance, the collateralized reinsurance. I have to say that these price levels, when we calculated, I am afraid there is a little aspect of what we saw in the financial crisis, a decoupling of people who understand the risk and people who take the risk.

That has been appeared where not much has happened, and so some of the returns look good. But I'm not sure that everybody in the capital market value chain is completely aware of where prices are, because in contrast to us, they don’t have diversified capital and they have to completely collateralize it.

So I have a little doubt here, whether we’re not in a non-sustainable territory right now, but I'll leave it at that. I think the implication is that certainly overall in the net cap field, which historically has been a big driver of profits you would see some capping of how far prices can go up.

All the other lines I think through that will get under pressure, because the reinsurance still need to make profits, they still need to earn cost of equity and they need to be active in all these other lines, which cannot be taken by this capital. So there’s overall from the reinsurance side but also on the primary side, the push for higher rates, which doesn’t uniquely come from this capital that it’s just there for the cap at the end.

So you can clearly see that, for example, the big core so type players in the U.S. they all push for high prices, because that’s independent of alternative capacity, because they know their value chain, their piece of the value chain needs higher rates.

So I don’t -- in other words, I don’t think no matter how long is caused that completely unsustainable rates for the whole value chain will be boring. So I think prices have to go up.

But it’s clear that on a medium to long-term, there is a dampening effect on this line of business coming from this alternative capacity.

If I may just add, if you look at all the alternative capital, which is about $80 billion, that’s still heavily focused only in U.S. cats, because that’s really the outstanding peak period on the global basis and it’s really hard to imagine how this capital can also be efficiently deployed in other lines of business and the markets where diversification of global balance sheet is a major competitive advantage, both for U.S., which is really a huge peak and the global risk landscape, their alternative capital actually has a role to play.

So I was more curious on another number in the quarter, which was spiked off in 2017 which is the PDY. Just in second half, it seems to be $144 million or from what I understand from 2015 accident years.

So how -- I know you guide for 0% going forward, but because these numbers are quite material, David. Could you mind just highlighting how we should think about CorSo of PYD from these prior year casualty kind of losses going forward?

So that’s the first question. And just the second question is more, how do we understand this renewals disclosure this time?

Because I mean this obviously the second year you’ve excluded the large transaction. So the way I see it was last year up for renewal was $8.5 billion, and you have renewed $8.1 billion.

Is that not the right way to do it and why not would you say that it’s the right way to think of the renewals data? Thank you.

I’ll turn to Eddie and to the Christian as well.

I will take the first question on the CorSo PYD development. For 2017, its 7.8% prior year development, actually with the overall reserve base, which is very comfortable how this stands.

The majority of this can really be put down to individual large losses, so there were couple of all the net cat losses that developed to some extent, one in New Zealand and other one from an older U.S. hurricane.

But the most developed mix really seen from some larger U.S. liability losses goes back to accident year 2005.

And these are really just in the nature of that business. So until liability really assigned to a party goes to several instances and U.S.

court systems where it took couple of years until the final liability of this signed and then with CorSo playing mainly on an excess layer basis, it’s just the time delay. I would say this is really linked to these sell of large liability losses that explains the large part of the 7.8%.

Then it goes a bit back to what I explained earlier that CorSo has taken quiet and CorSo’s approach on U.S. casualty business.

So it started to prune a bit particularly [umbrella] business. We actually still maintain a fairly cautious view particularly on large commercial REITs exposed to liability at this underwriting action start to take benefit.

But obviously, it was the time lag. It took a bit of time to come through.

So I really would describe this as a one-off based on these several losses, and now there's a more broader thing in the reserve base of Corporate Solutions.

Yes, I mean on the renewals, that’s always a bit of a pain point because as you can see everybody does something different. And I would certainly welcome some standards that we could all make it more comparable but that's not the case today.

So we try to make something that makes sense from our perspective. And the way we report and I think that's same last year is we try to determine all the pieces of business that will be replaced in the market, so that's the definition of up for renewal.

And then see can we renew those or add new volume compared to that. And this year, there's always pieces of business that were renewed last year, that's not renewed this year.

It's just a two year deal, a three year deal, it's not -- if it's a one-off large transaction by somebody who’s placed again, this can drop. So it's hard to reconcile back to last year.

But basically before the renewals, we make bottom uplift of things that are up for renewal and then we look -- and that's a definition. So if a large transaction is not renewed and we know that, it's not going to be part of that.

And then we compare what we actually achieved compared to that. I am aware there's different ways you could do it, but that make sense from a managerial point of view, because why would we add things you know we’re not going to renewed to that number, but you could.

And it’s not an exact science. I think the other thing that I think you’re all keenly aware is that the correlation between top line and bottom line is extremely weak in reinsurance, which makes it really hard to compare notes.

So you can have a piece of business with very little volume and it’s a huge margin, you can add in particular with large quarter share typically are very, very thin margins. So the volume doesn't tell you much about the actual profitability of this, if you don't combine it, it is a combined ratio or something like that.

The first is on Life Capital. I would be interested to know how we think about the 6% to 8% ROE target longer term.

And I appreciate there's still significant amount of unrealized gains. But I guess after the L&G and Guardian deal, probably more than 40% of policies are now from these two transactions whereas as the old Life Capital business is running off and then there is some top to growing open book business, and presumably that's all priced at an ROE of 11%.

Then the second one on the U.S. tax reform.

I think you said I mean other than the '17 impact, could you tell us how this will impact structure of your reinsurance and CorSo business and which tax rate we should assume for '18 and also for the mid to long term.

So Life Capital, we have 6% to 8% medium term target. And the business unit is really comprised of two different underlying activities, the close Life book, which I think is getting closer and closer to that 6% to 8% target as a result of some of the transactions that we have previously disclosed, you're well aware of those, that obviously is coming through as we fully integrate those activities.

And we will continue to average up the ROE of that business. And to be very clear, why was that business stuck with such a low ROE.

It wasn't because the performance of the policies was completely different. What we expected was because in previous years, there really was a harvesting of the income on the investment portfolio side, which was difficult to replace.

So we've decided that we're going to manage that business incredibly efficiently, bring it to a highly effective scalable platform and then average that ROE up by riding attractive new transactions, which is exactly the path we've been following. Well, the second actually was in this unit of course is open book business and I think everyone is aware of that businesses on the one hand small but growing.

Here the more successful you are the more impact it has on the negative contents in the first handful of years on the reported ROE. So we're riding what we believe are very attractive transactions, continuing to build volume on those platforms.

But the reality is that in the short-term of course that has a negative pull on the reported ROE. I mean you yourself I think correctly pointed out, we still have these unrealized gains and on our shareholder equity base of about $7 billion, roughly a third to that or $2 billion or so is actually is unrealized gains.

And we’re not to complaining about it we just recognize it for what it is. As and when we write additional new transactions, acquire new portfolios on the close side as and when we get to a certain scale on the open side and as where interest rates will go up and it wouldn’t be surprised me to me see this ROE move very quickly up into the -- and perhaps at some point in the future beyond up into the target range.

It really is a medium term target is to be clear, and that was what it was when we originally articulated it sometime ago. To your second question, so the tax reform in the United States, as well seen it has a net benefit of about $93 million to us, basically reflecting the fact that although we were relatively balanced, deferred tax asset, deferred tax liability.

And any impact of the reduction in the corporate tax rate from 35% to 21% in the U.S., given the fact we had slightly larger deferred tax liabilities was a net positives impact in 2017 of $93 million. Going forward, it’s quite clear that we as long as others will be looking at the new rules.

First and foremost, to make sure that we really understand how they’re going to be interpreted and applied. There is also the possibility there maybe some as yet technical corrections seen of course the year.

So that's something that we obviously are following very closely. And as we always do with our business, we look to see how do we best optimize across the group, taking advantage of diversification, taking advantage of liquidity across the group, to ensure that we’re going to get the outcome.

And we've never been affirmed that in the past has taken advantage of the low tax locations, and we certainly have used Switzerland, it's our home base that have a statutory rate of 21%, I don’t think it falls into the same bucket of some other prices that have been the target and some of the attention in United States. So we don’t have to go in and address those types of situations where we’re brining things into very low tax rate jurisdictions.

But we don't look at our overall capital levels, we look at our internal group retro sessions, we look at financial flows across the various entities. Let me get to the heart of your question, because you ask for forward-looking view of overall tax rate.

And I’ll just recall what I just said about this Swiss franc 21%, at this point in time the U.S. rates gone down to 21% as of January 1 and going forward.

I think for the Swiss Re Group as a whole, we would say something between 19% and 21% is probably about the right number in terms of forward-looking assumptions.

Two questions, and first one coming back to renewals, you have a nice 8% growth. Can you maybe give us some more color of how much of large transactions were included there?

And maybe also, how much of large transactions renewing were outside of these renewals, and maybe adding to growth and going forward? Then the second one on claims inflation, just generally your expectations in terms of claims inflation, maybe based on the major markets like U.S., UK and Europe?

So the 8% in terms of where this come from. I think its broader based, so there is no more business that we deployed a bit more capital, but there is also number of large transactions, I cannot name the individual ones, but they were several ones, I would say quite a bit of them in Asia, but also in the U.S.

If I reflect back on the P&C side in 2017, about 28% of the bottom line actually comes from large transactions. So you see the significant contribution, but it’s a little bit lumpy and when you really get they have been, it’s hard to predict.

So it contributes again to the growth, but I couldn’t give you a clear breakdown and what they play a role again in the renewal numbers 2018.

And maybe on the claims inflation, U.S. Europe what we observe…

So inflation is clearly bit higher on our radar, but actually we always observe it very carefully as it’s really the key underwriting consideration for our longer tail businesses. When we set our costing parameters, we always take the latest full cost not just receive guide but really the claims inflation on medical cost, on wage costs.

So that’s steadily reflected in the weighted cost of business.

Just two, so on that Life Capital first. You’ve obviously had quite strong cash generation there and you reach the target on the cash generation.

Are you going to provide an update on a new cash generation target there at any point or how should we think about the cash generation here going forward. And then the second question is on the renewals.

Is it possible to just break out the movement in price quality between rates, expenses and interest rates? Thanks.

Indeed, we had a wonderful, I think, delivery during most 2016 and also 2017, so having mostly picked up at this point, we say we're basically at $1.7 million of gross cash generation over those two years. More of that’s in line with what we said the target will be for 2016 through 2018.

Now, obviously, we're just at the beginning of 2018. Two things, yes, I do believe we’ll come during the course of 2018 and update to that figure looking forward.

I think it would be also appropriate to say that we’ve been very pleased with the level of cash generation coming out of the close, like those are very much in line with our expectations. And that’s clearly something that we would expect to continue to see going forward.

As also Christian indicated, we’ll continue to be looking for opportunities to invest in that business. So short answer is that I anticipate that during the course of 2018, we’ll come back with some communication regarding period, going forward.

The question on the decomposition of the price increase. So overall, we see a 2% improvement.

I would say the majority is really quality improvement. So really premium we get for the exposure we take on board.

I can also state down a bit more on the non-proportional side, which has kept business non proportional business we received more something like 6%, so that’s real quality improvement. Proportionally, it is a bit less than 1%.

Expenses, I wouldn't say is a significant sector. And you also point correctly to the interest rates.

So our measure isn’t an economic one so the cash flows are discounted. But out of the two, I cannot give a precise number, but it's a small part of that 2%, it's contributing to the improvement, that's fair to say.

First question on the casualty line of business, in both reinsurance and CorSo, you increased volume by some 30%, in 2014, if I am not mistaken and quite similar in both segments, the combined ratio went up 20 percentage points to quite unsustainable levels for different reasons like reserve increase, asbestos and what have you. My question is, could you share level of CorSo, what went wrong during this period.

And also going forward, what are you going to do other than the quite modular pruning you have done so far to correct the situation, that's the first question? And second on tax, you outlined the future tax rate.

I also looked up in the risk section of your report, you mentioned three items, changes to operating model, increased costs also related to different capital requirements and thirdly, reduced access to liquidity. I wonder if you could comment on those three items.

How that might impact Swiss Re going forward?

First one on the casualty book, which you correctly reflect, few years ago, we grown the casualty business quite a bit, it was actually came out of a position where we were clearly on the rate on casualty. And there're still so opportunities, particularly on large transactions.

I think where we have really seen some adverse development is a particular case of U.S. motor business, which is not a Swiss Re specific issue, that's the whole market and has suffered quite a bit with more frequent driving again un-experienced driver, distracted driving.

So the loss frequency and severity has increased a lot, and we were also affected by that. I think that explains a significant part of the performance we’re not happy with.

But it’s fair to say that market overall in U.S. but also what we did on the regional side on the CorSo side, now see significant improvement.

So rates are going up in this segment. Also, besides motor on U.S.

liability, we see now some movement. Also, it reflects on the one-one renewals, it's not just the cat affected business that has significantly improved in quality, it's particularly also the casualty line.

So U.S. motor but also European motor, and U.S.

liability has improved in price quality. So we are not at a much better level, but we also keep monitoring the casual lines very carefully, because the loss trends really need to be on top of the charts accordingly.

Thomas, I'll come back to your question on tax. I guess, the three things you cited and as Eddie just provided out of our report are not surprising in and of themselves.

I mean we operate in many different jurisdictions. And as you know, have done for 150 plus years.

We're always confronted changes in local rules and we look of course across the organization to say how do we best wish to respond. And likewise, I think it's important to point out that we're not alone in this and looking at these changes now in the U.S.

But maybe our customers are also thinking about what it means for them. So we just wanted to point out that there're changes in the world.

If we did nothing, it could potentially have a negative impact on our operations. But it wouldn't surprise you to know that we're actively looking to see how best we can respond and make sure that we continue to optimize across the group.

I guess a little bit more feeling for you, there is a possibility that we’ll leave a little bit more risk behind in the U.S. as opposed to moving in across through IGRs that may bring with it additional capital and liquidity requirements.

But it’s early days, we have the number of different initiatives that we're thinking at. We're going to wait to see exactly how the rules or finalize from their guidance given around some of the technical aspects of the rules.

And as and when we have clarity about that, we will I think make appropriate adjustments.

I just got one question left please, if I may. If I look at the license house re-balance sheet, both sides seems to have increased quite significantly by about $7 billion since the first half, driven mainly by reinsurance, assets and liabilities.

Is there a new retro-session agreement with Life Capital or something, because the intervene consolidation adjustments have also got as well. And if so, how this likely to impact Life and Health Re’s financials, or is there something else going on there that I’ve missed completely?

James, give me just a second, I'll come back to you. We won't forgot about it, I'll come back to you in just a second and make sure I get a good answer for you.

Thanks.

I'm afraid both my questions are related to cost. So first of all, how do you see the pricing environment developing in primary versus excess markets, the group is actively focusing on being the primary lead.

But that is what some others are also doing, talents for example. So just wondered if that space is already getting crowded, and also the reasons why pricing should be better in one versus the other?

And secondly, I just wanted to ask what's the magic around the 0.9 percentage points improvement in cost or admin expense ratio. When you have continuously invested in business expansion, while also maintaining the investment in growth, represents 3% to 4% of your combined ratio.

Thank you.

I would take the first one regarding, let's say, difference in pricing movement from excess layer business versus more primary lead business. If you look at the picture over a number of years, the segment where CorSo was most from is the large corporate high access layer business and that’s by the nature more volatile, not just from a loss perspective rather in terms of price changes at the mid markets, the smaller risk there are, quite more stable.

So that the price trends over the last years were more moderate in this primary lead business. If it now comes to positive drive momentum, it's fair to say that we would also expect more increases in the volatile high access layer business that has also been hit by some losses and a bit slower in the primary business.

So clearly, that a difference but it's hard to give the number how big that difference is.

And on the admin expense ratio is due to higher premium around, that's the background of the ground…

And if I may, James, I'll come back to your question. I just wanted to check and make sure I give you a complete answer, because you were basically in the right direction here.

So that really is related to a couple of different business shifts across the group. The two that I'll point out is the primary drivers of those changes where the IGR end of our group life business ellipse out of the Life and Health Re balance sheet, as well as remove some of the non-Asian business out of this new Asian entity that we launched.

We actually moved it from Switzerland to Singapore, it’s very complex story, I’ll try to save you all the details. But basically, there was a business shift as non-Asian business, how does that entity, what we have also executed during Q4 of 2017.

So really it was driven by some internal shifts across the Life Capital and Life and Health Re.

Just very quick follow up. First of all, you mentioned that CorSo has brought more reinsurance.

Just to clarify, I am assuming that’s intra-group not third party reinsurance. And then the other question is on Life Capital.

Can you give us what the losses are for the front -- the open books business? I am assuming is in that loss position given new business range and what the number is.

And also in relation to Life Capital, the cash generation has only been a good forward indicator for dividend payments, which obviously you extracted in the first quarter of the subsequent year. I guess, I'm a bit confused as to how think about dividends from Life Capital now.

Because you actually raised capital in Q1 in effect by MD&AD contributing a capital increase to fund the L&G deal. But at the same time, the cash generation is very strong, you also want to pay a substantial dividend.

So may be just clarify the guidance on dividend policy on Life Capital now? Thanks.

I’ll take the first one on the CorSo reinsurance protection, and you’re right that’s still the majority is internal. So it’s ceded to the reinsurance balance sheet.

So it’s -- the margins healthy in that business with everyone to keep that margin within the roof. So as in past, there is some external but the bulk is ceded from CorSo to reinsurance.

And Andrew thanks for your question about Life Capital. So you're right.

The open book business is bringing some drain with it earnings drain as we build up. We haven't disclosed those numbers.

And certainly, at some point in the future, we will. But at this point, I just confirm that indeed there is a negative drive on ROE for the unit as a whole.

And to your comment about cash generation, absolutely, I mean the cash generation here has been fantastic. One small correction, we typically get dividend out of corporate solutions and reinsurance and of course at Q1, but in life capital, it typically is during the course of Q2 because we have little bit of additional regulatory discussions to go through.

So it’s not to be disappointed if you don’t see something in Q1, but certainly in Q2 of 2018, I would expect another healthy dividend coming out. Amongst others expecting the transactions that you referred to but also just a good ongoing cash generation coming off of that business.

So I believe that it’s quite important that we maintain good discipline around expectations in that business and see a steady state of dividends coming up. We do continue to invest in the business, investing in -- from time-to-time large blocks of course, as well as investing in the open book business.

So dividends certainly I am always happy to see dividends from our capital and in terms of timing more Q2 as opposed to Q1.

Thank you, David. So we have come to the end of our Q&A session.

So thank you very much all of you for joining today. Don't hesitate to reach out to any member of the IR team if you have follow up questions.

And we very much look forward to see many of you in Zurich on the 4th of April where we would have our Investor Day. Thank you.