Muenchener Rueckver Ges (OTCPK:MURGF) Q4 2017 Earnings Conference Call February 6, 2018 8:30 AM ET
Christian Becker Hussong - Head of Investor
Jorg Schneider - Chief Financial Officer
Guilhem Horvath - Exane BNP Paribas
Thomas Seidl - Bernstein
Michael Huttner - JPMorgan
Andrew Ritchie - Autonomous
Kamran Hossain - RBC Capital Markets
Sami Taipalus - Goldman Sachs Group
Frank Kopfinger - Deutsche Bank AG
Vinit Malhotra - Mediobanca
Michael Haid - Commerzbank AG
Good day and welcome to the Munich Re, Preliminary Key Figures 2017 Renewals Conference Call. Today's conference is being recorded.
At this time, I would like to turn the conference over to, Mr. Becker Hussong. Please go ahead.
Christian Becker Hussong
Thank you, Cliana [ph] for the introduction, a warm welcome to everyone, ladies and gentlemen. Good afternoon, welcome to our call on Munich Re's preliminary key figures 2017 and January Renewals. Today's speaker is Jorg Schneider, our CFO and after my short introduction, hand it over to Jorg, he'll give a short summary of the main findings and afterwards we'll go right into Q&A, so Jorg, please up to you.
Thank you, Christian. Good afternoon, ladies and gentlemen. The severe accumulation of natural catastrophes dominated our full year result. The net profit of 392 million is far below our original target but in line with our revised expectations.
In Reinsurance our underlying profitability was sound for the exceptional size of our large losses. In primary insurance, we are well on track with our growth strategy program. Although, structural challenges in the reinsurance space will persist, the January renewals are evidence of positive price trends in the broader market. We will make use of these positive dynamics to drive forward the digital transformation of Munich Re as well as seizing profitable opportunities in traditional business.
The Q4 result of 538 million was decent both in Reinsurance and at ERGO. Sound technical profitability and a good investment result contributed to this. The FX effects from the strong Euro, which had an adverse impact on the non-operating result in the first nine months, had additional bottom line effect in Q4.
Our capitalization remains strong despite the adverse impact from natural catastrophes and continued high shareholder payouts. The proposed dividend of EUR8.60 per share remains stable. Concerning that our dividend policy also remains attractive and reliable even in challenging years.
Munich Reinsurance Company's German GAAP results of close to 2.2 billion was shielded from more than half of the 2017 Group major losses, thanks to releases from the equalization reserve. German GAAP earnings were also supported by a strong investment result including profits from intra group special dividends.
On the economic capitalization, as preliminary indication the Solvency II ratio at year end 2017 will be about 240% without transitions. According to a new bass in interpretation decision our year-end SFCR which will be published in May 2018 must reflect all capital measures which will be formally decided by then.
In order to align today's disclosure with the annual report and the SFCR we do our best to make the probable deduction already to date. This is clear for the 1.3 billion for the proposed dividend. But we're also deducting an additional 1.34 billion for capital measures, which could be formally decided before the publication SFCR. These capital measures comprise 1 billion for share buyback between the 2018 and 2019 AGMs and 0.34 billion for the redemption of a hybrid bond of GBP300 million, which has the first core date in June 2018.
The inclusion of these potential capital measures in the calculation causes the economic solvency ratio to decline by 19 percentage points. Apart from this, the Solvency II ratio remained almost stable in Q4 and on a like-for-like basis also against the end of 2016. For Q4, within owned funds, the positive earnings expectation largely affects capital market variances from widening credit spreads and FX effects, whereas the SCR declines slightly.
Let's turn to investments. Given the low interest rate environment, I'm pleased with the overall stable investment results. Our well balanced asset liability management and high degree of diversification once again proved beneficial. The ROI of 3.2% matches the 2016 return, as regular income and disposal gains fell only slightly, while the related expenses were lower than last year.
On a segmental basis, the derivative result was the main swing factor for the increase in the Reinsurance ROI and the decline of the ERGOs yield in the full year. The ROI in Q4 was strong at 3.4%, while regular income was at a normal level, disposal gains were high, especially at ERGO. The reinvestment rate remained stable at 1.9%.
Let me give you the highlights by business segments, ERGO exceeded the adjusted guidance of 200 million to 250 million with a result of 273 million. As predicted, the profit in the second half of the year was lower than in the first half, which was helped by a non-recurring effect. On a standalone basis the Q4 result above expectation in Life and Health Germany, but was impacted from small loss in Property-Casualty Germany and international.
The strong result in Life and Health Germany benefited from increased shareholder profit participation. The underwriting profitability of PC Germany was good, but the result was burdened as expected by investments from the strategy program. The combined ratio of 100.3% in Q4 was influenced by these investments, higher major claims and further strengthening of reserves. The combined ratio for the full year amounts to 97.5, which is slightly better than our guidance.
In ERGO International, we saw strong technical results in PC business, particularly in our Polish flagship and improvements in the Netherlands and in Turkey. This translated into a strong combined ratio for Q4 and the full year, well below our guidance of 97%. These good results were overshadowed by a negative one of true up effects like deck impairments at ERGO Belgium Life, which has been in rundown mode since the beginning of the year, too much for ERGO.
Turning to Reinsurance, in Life and Health the technical result including fee income came in very strong at 157 million in Q4. The full year number of 428 million comes close to our original guidance of 450 million, despite the 170 negative impacts from recaptures in Q2 and Q3. The main reasons are better than expected claims experience overall in Q4 mainly from North America and the UK as well as some one-offs that were partly offset by a negative result in Australia.
In P&C Reinsurance, the combined ratio of 114.1 for the entire year reflects the impact from the large losses. In Q4, the combined ratio was 103.9, also influenced by adverse large losses accounting for 12 percentage points of net under premium and reserve releases on basic losses of 3.1 percentage points. For the full year, basic losses reserve releases were 5.2 percentage points, which is comparable to our previous financial years, but below our initial guidance.
As an outcome of our annual reserve review, higher release would have been possible, but we refrained from using the strength of our balance sheet more actively. We followed our prudence reserving approach to react immediately to signs of deterioration, while allowing positive indications to develop. The overall result of the actual versus expected analysis has shown very favorable indications across major lines, risk carrying entities and underwriting years. I consider our reserving situation to be as strong as it was at year end 2016.
Since we continue to set the reserves for newly emerging claims at the top end of the estimation range, future reserve releases are to be expected with 4% of net premiums being a good indication. On a normalized basis, our combined ratio amounts to 100.9% for the full year, according to our usual and somewhat simplified calculation method. On the one hand this elevated number reflects price reductions experienced in the 2012 to 2017 renewals, on the other recurring factors played a role, examples are large cut and property losses below the 10 million major loss of threshold especially in Q1 and Q4. Hence, very cautious initial loss ratio peaks in some specific casualty portfolio. Overall, we believe that the underlying combined ratio has been consistent with our guidance of 100% for 2017.
Last but not least on the January Renewals, the market dynamics has finally moved back into positive territory, especially in the loss effected markets and lines of business. The non-loss affected business has also stabilized, across the whole portfolio we have achieved price increases of plus 0.8%, including interest rate change effects of as much as 1.6%. Furthermore, we're pleased about a very strong premium increase of 19%.
Most of this growth is due to a few very large transactions. We were able to make use of attractive opportunities in proportional casualty and property business. Over underwriters are optimistic that market conditions will further improve for the April and July renewals, which include a higher share of NatCat business.
We will provide you with this final result at our analyst conference on the 15 of March. Please let me add as a housekeeping remark that in the interest of your very busy diaries during the results season, we will organize a telephone conference this time instead of an onsite event.
Ladies and gentlemen, thank you for listening. We now look forward to your questions. I'll turn it back to Christian.
Christian Becker Hussong
Yeah, thank you. Not much to add from my side. We'll go right into Q&A and the only thing left for me to say is that as usual I would like to ask you to limit your number of questions to not more than two. Thank you and please go ahead.
[Operator Instructions] We will now take our first question from Guilhem Horvath from Exane BNP Paribas. Please go ahead, your line is open.
Yes, good afternoon. Thanks for taking my questions. First one is on the renewal prices and looking at the mix between Cat and non-Cat, I like to better understand what's your thought on the Cat side and the non-Cat side because if you look at the broker reports and the comments we hear here and there, it looks like the Cat business has been repriced high single digits and if you put that using your for renewal Cat mix, it looks like you had something like almost flat for the rest of the business. So can you elaborate a little bit on what you had on the 19% of your for renewal business here? And the second question is on the reserving policy, if I heard correctly, you said that we should expect 4 percentage points profit for the upcoming years, is it some change versus what you used to say regarding the 6 percentage points and this related to somehow more worries from your side on what's happening on claim deflation particularly in the US? Thanks very much.
Thank you very much, Guilhem. First on the renewal, so overall we were very satisfied with the outcome. At first glance it looked somewhat modest to have an increase of only 0.8%, but when you take into account that the bulk of the business is proportionate business, over 80% then such an increase is rather satisfying to us. So to give you a little bit of flavor, what we saw, the price increases in casualty and property proportion of business between 0.3% and 1% perhaps in Casualty Excel also around 1% and the highest increase is in Property Excel business of over 4%. In marine, also pleasing developments here driven by offshore energy business where there was an impact of this hurricane power, that's increased the awareness of the hurricane period. In aviation it was flat and in credit it went slightly down, which was also in line with the development of losses, so overall pleasing outcome of the renewal.
With regard to your question on the reserve, this 4% of net earned premium which is about 700 million per year is at the moment our best guess, but it sounds a little bit less than 2017 where we talked about 6%, but our confidence in the quality of our reserves is more or less unchanged, so no additional worries at all. You will always have negative developments in very isolated pockets like we had in 2017 with our specialty casualty business and some US motor business. But this is not a widespread phenomenon, this doesn't refer to a huge portion of our portfolio, we have good indications in other areas where we did not respond so swiftly, that means I personally would see it rather little bit north of 4%, but it's not tangible enough to make a clear guidance. Thank you, Guilhem.
Our next question comes from Thomas Seidl from Bernstein. Please go ahead, your line is open.
Yeah, thank you. Good afternoon. The first question goes back to pricing maybe a different angle here. So price increase may be - if you exclude the last one off maybe by 1 percentage point, you say your underlying combined is 100 because that brings you to 99 and I guess at 99 you're far from earning target ROEs or row rack levels. I wonder sort of what has been said, there is a target for underwriters and how do you think we can progress towards the more normal ROE in row rack levels you had in earlier years. That's my first question and if I may ask the interest rate health is I guess the same for everybody in the market, so I'm just talking about the price change here. Second, on the capital management you kept the dividend flat, but because of the 3% lower share counts and essentially if you're lowering the payout and despite H2B being above 4 billion, so I'd like what high levels and I guess a quite promising outlook on 2018 with pricing, interest rate and US tax reform, what was the rational I would like to understand from not having modest increase in the regular dividends?
Thank you, Thomas. First of all on pricing, you're right that we should concentrate on pricing on an isolated basis, but as you know the interest rate level on the market is an element of the calculation, also which is an element which you discuss with each of the clients and therefore we take it into account, without making the explicit number here, but when head-to-head in the back of mind because what is most interesting for us that is the middle range of the duration lets' between three and five year and it's US dollar yield and both - this is exactly the area where interest rates went up substantially last year. Apart from this we are little bit in a dilemma, on one side we want to share with you our internal considerations with regard to pricing, pricing quality, taking into account the full economic picture on the other hand we don't want to destroy our owned markets. But when we look at our returns on risk adjusted capital, they clearly went up in the latest renewals, that is for us the most important information we gather from it and we see still a positive momentum with the view on the April and July renewals, since more loss affected business will then come to the renewal.
On the dividends, yes, it's reduction of the sum of distributions, but as you know continuity is everything for us, continuity, reliability, predictability and as far as I remember we did the same for 2011 and 12 and for 2009 and 10 that when we had years which were affected by non-sustainable reductions of our profits, we kept the dividends stable, but we didn't increase for this element of the lower share count. And this is exactly what we did here. We felt that it wouldn't have fit into the overall picture if we had increased the dividend this year. On balance, the impact is pretty low and it has nothing to do with our confidence with regard to incoming earnings, growing profitability and stabilizing factor of the market. But thank you Thomas, also for your critical remark.
Our next question comes from Michael Huttner from JPMorgan. Please go ahead, your line is open.
Thank you so much. My collogue Ed was reading something else, I don't know which publication it came from, but maybe it was an interview where you said that profits for 2018 could be in the same range of 2 billion to 2.4 billion plus a bit and I just wondered if you can talk about how you see the moving parts, we just note of one reason that the profitability in reinsurance looks a lot better. And then the second question is, on the large deals, can you talk a little bit about the margin, I mean the volume is still fantastic. Do you kind of think, well, these guys are really writing wonderful new business or is it kind of when - like when I eat porridge, it fills you up, but it doesn't do a lot for. Thank you.
Thank you, Michael. First on the profit forecast, please - first of all I would like to ask you for some patience because we want to talk about - like always, we want to talk about our outlook for 2018 in the analyst conference in March. But, yeah, so I do not see a reason for a repetition of the very large losses of last years that means we're talking as an out or as a starting point from the range of 2017 forecast that were 2 to 2.4, let's say 2.2. There should be improvement from ERGO, but ERGO was five hit of the original expectation in last year. That means we cannot extrapolate from there. ERGO is well on track with its strategy program, but a little bit ahead of the forecast of the plans with the profit of this year. For Reinsurance, we expected improvements coming from one side from - one side from pricing and on the other side from volume effect, but there's also a spillover effect of 2017 and there we had small declines of pricing that means I wouldn't be too bullish here.
On your second question on the large deals, I expect them to be beneficial for our result, but as a CFO I would never call them wonderful, but our expectation is that they are adequately priced and that these are fair deals and that they - this is model example for win-win situations between our clients and our self.
Thank you, Michael.
Our next question comes from Andrew Ritchie from Autonomous. Please go ahead, your line is open.
Hi, there. I guess just thinking about the headwinds for 2018 earnings, you talked about tailwinds I guess. What were you guys thinking on investment income, the reinvestment rate stabilized in the second half? I assume where it would just cofactor in maybe 20 basis points over erosion on that front. Okay, I appreciate. The three to five year part of the curve in the US has improved. Related to the FX, FX always is a sort of problem for many of your results, but obviously there should still be a further headwind from the strong Euro through '18, maybe just talk us through how you think about that, how we should counterfoil it roughly. And the final question on tax, you adjusted EPL, but in terms of the ongoing tax rate for the group and the impact of US tax reform, can you just clarify that. Thanks.
Thank you, Andrew. First of all investment - reinvestment sum would stabilize for reinsurance more than for primary insurance, but as you know the reinsurance investment pretax - so after tax the bottom line effect. that means they're much more important for the IFAS result of the group and here we do not have any more reduction running yields because we reinvest more or less in line, if not slightly ahead of our - above our running yield of last year. So therefore, in reinsurance we're fine, in primary insurance we continue losing some running investment income, but with lower impact on our bottom line. FX effect, they were minus 300 last year and it is true that with the strong Euro we have some challenges, but they are lower than they were because we lowered the miss match and we lowered our exposure to the US dollar, our long US collar position, that means that should have a lower impact in 2018. He high Euro could have a negative impact with regard to the revaluation or to the valuation in Euro of our relatively high US profitability and we have a lot of US dollar dominated business also from other countries. That means on the profit piece of this, this means a relative devaluation that is not such a game changer and by the way I learnt, whenever people all were of the same opinion, it went exactly the other direction and so could it happen with the US dollar and the valuation of US dollar, Euro currency rate. Last item you mentioned was tax.
On one hand, we benefit from the US tax reform not only in the form a onetime revaluation of our differed tax liabilities which was some 75 million for 2017, but also on an ongoing basis, the lower tax rate - 14% lower tax rate for our relatively high U.S. income. On the other hand, as I mentioned, couple of times before, we had during the last couple of years in tendency very positive impact from the tax audit here in our German book, because there was speeding up effect of this tax audits, which are now very close to the present years which means - whereas in the past, each year, more than one year of legacy was finally booked and always with a positive impact since we were pretty conservative with our tax reserve, the same will not continue forever. That means, let's say, on balance, we ourselves would expect tax rates, which should still be between 20% and 25% for the group on average. So these two effects could balance out each other.
Just clarify, when you think of normalize earnings, so when you thought of let's say €2.2 billion range last year, what was the percent of dollars sourced earnings, just to clarify? You say we'd be within that?
Let us dig deeper into that during the analyst conference because it's so complex, this currency impacts here, because it comes in at various points. Our U.S. entities come up with the profit in the order of €500 million in good years, yes? So that gives you an indication we have a positive tax effect on that, which could be some €70 million, which is good. And on the other hand, there's a declining impact. But we have roughly $12 billion of denominated premium income, part of that in line. And therefore, to see the impact on the bottom line of Munich Re is very complex. I don't want to give wrong guidance here.
Okay. Finally, on the tax, is it required any rearrangement of the groups, intergroup reinsurance arrangements you have to keep more onshore U.S.?
Yes. This is true. Yes, we did also some first steps in that direction because this is flipside of the coin, the negative aspect that's sessions to an entity brought are punished by the base erosion and the U.S. tax in the U.S, which will be 5%, minimum taxation for 2018 and it will then increase to 10% and 12.5%. For us, it's a challenge because our capital management policy typically works on strategies that we channel risks and volatility to Germany to the parent company. And one of the strengths of the Munich Re that over 70% of the reinsurance business ends up in Munich Re AG. And that will become now a little bit more or not little bit that will become more difficult, but we find ways, especially premium intensities business with relatively low capital release should be finished. Whereas we can keep intact low premium business with a high capital release. This is a tendency, yes. But it's a lot of work behind the scene at the moment.
Our next question comes from [indiscernible] from UBS.
Just two questions for me, please. So just going back to the 1st January renewals, the 18% volume growth seems like quite a lot given what is fairly limited improvement in pricing, I appreciate that. Proportional [indiscernible] has talked about, I mean, being too conservative in the past. And it looks like we're seeing a bit of a change in risk come through in these premium numbers
And, I guess, how can you guys be sure that this is the right time to get more aggressive after being fairly conservative throughout the soft market, that's the first question. And secondly, I know, you want to wait until the annual reports talk about guidance. But obviously, in the recent few years, you've incorporated some benign weather it benefit into the numbers. I was just wondering if you could update is on the winter storms that you've seen through January? And how we might think about that benign weather impact for this year's guidance?
Thank you, Johnny. On your first question growth and market. So market shape at the moment in reinsurance, I would fully agree if our underwriters had swarmed out into the market and had returned 20% more premiums across the board, but this is not what happened. So we had the good luck that we were successful in after long, long, long negotiations unless than a handful of major proportional treaties, which have very little to do with the overall market conditions, yes. So I assumed they also benefited from better market dynamics after the storms in the end. But this effect might have been minor. And across the board, we continued with our very much risk where stance and our somewhat conservative stance.
So there is not a general change here. But I can confirm that in selected areas, we want to grow and specially selected areas where we feel more comfortable with the respected risk, where we've better data, where we have superior knowledge and these are the areas where we want to grow, but exactly not in a January renewal across the board by lowering our profitability standard. With regard to the weather, I do not have a good view on where we stand at the moment because it's just a little bit more than one month behind us. We had severe storms here, especially in Northwestern Europe and very carefully I would say that one of them brings us an impact in the order of mid 2 digit million amount. So not catastrophic up to now. But I wouldn't give a guidance of particularly good luck. But since it's very early and since we're still gathering information from our clients, I think, I shouldn't be more precise here. Not worrying extent of major losses up to now. Thank you, Johnny.
The next question comes from Kamran Hossain from RBC.
Just following up on the renewals. Will it be possible to understand how much the loss side of the business came up in your January renewals? And the second part of the question is, are you seeing any prices any west or going down? Any color on that would be really helpful.
Thank you, Kamran. It's a bit difficult. So as you can imagine, Christian, the IRR team and myself, we've been continuously asking our colleagues after renewal how much was loss effected? Not so easy to precisely identify because most of the losses disappear in a way in the large proportionate treaties. And therefore, when we talk about Caribbean business excel treaties or so, it's easy to identify what has been loss effected and what not. But I can only give you as an overview not more than a tendency. So some €1.5 billion of renewal business in January was written in what we call loss effected areas, which is Caribbean, which is some global clients business in especially USA, also submarine business. But not all of that business was loss effected.
So this was different when we talk about coverages for clients, which were very active in the Caribbean region. Here there were some contracts, which were total losses and where we achieved then price increases, which were very high, high double-digit, sometimes doubling of the premium and so on. But it's so difficult to precisely quantify that effect because after such an event we book most of the losses on artificial reinsurance entities in our internal bookkeeping because it's - at the beginning, all based on very rough estimations. And therefore, I begged for your understanding that I can't give you more flesh here. And could you please, Kamran, repeat your second question?
Can you just clarify on the first part of the question? Do you think there's more of the lost effect stuff to come? Or we have based of it, just indication of that. And the second part of the question was you still think prices going down anywhere any region and anything?
And so on your first question, for example, in the April, renewal submitted Puerto Rico, we renewed in the July renewal typically Latin America, Mexico and some U.S. global clients. So in relative term to the size of the renewal it's clearly - it's clear that much more business comes through a renewal in the later renewals, in April and July. Then with regard to your second question on price increases everywhere and did you refer to credit business here?
Price decreases anywhere?
Yes, the only thing where I can clearly say that a specific buffer [ph] price decreases that is credit business on a worldwide basis, yes? But that has anywhere very specific and individual circumstances credit business. And it doesn't follow so much the general market trends as the others. But apart from it, you can say that more or less everywhere we saw is stabilization.
The next question comes from Sami Taipalus from Goldman Sachs.
So the first one is just coming back to the growth. I'm still struggling a little bit to understand the significant decrease you mentioned in risk-adjusted returns, price improved by about a point, but that would take you back a very many years. So could you just breakdown a little bit to draw us here, you know, what drives the significant increase in adjusted return? How is it split between pricing and interest rates? Was there any other drivers like maybe, lower expectations of claims? Then the second question is on the AGB [ph] results and I'm just wondering if you could give us a little bit of outlook what should we expect in terms of moving past, looking into 2018?
On your first question, the translation from price increases and interest rate increases into an additional return on risk-adjusted capital. Just a rule of thumb, I would guess some half is coming from direct impact from price increases underwriting results, 1/4, like 25% is coming from the move in interest rates and another four is coming from reduction in the economic risk capital requirement, due to very specific elements of the measured business. What we're doing here is, when we talk about price increases, we already take in account the expectation of claims. So when we have a lower expectation of claims, which is mostly the case when we talk about proportionate business, then we have to have an estimation about what we expect, as rate increases and claim increases from the primary insurance. And we also take into account our latest judgment on inflation. So therefore, let's say, half should come from price increases.
With regard to the local GAAP result for 2018, let's assume, that we have a normal underwriting year with normal losses. Then we will have to restart refilling the equalization reserve because it had been reduced in 2017. The number we're looking at is low triple digit million amount that saved between €100 million and €200 million, but this is very difficult to predict because it is based on a calculation according to line of business. And it's also dependent on the difference between the average combined ratio of the last 15 years in this line of business and actual combined ratio - on loss ratio, sorry, loss ratio of the respected year, in this case 2018. And this is all very difficult to predict precisely. So that is a negative, yes. Then we have - in 2017, we had some intragroup transactions, especially tax driven distribution, which will not repeat in 2018. That means the 2017 impact from the major losses was to a large extent compensated by the lowering of the equalization reserve, and we had a positive impact from the investment side. If we adjust for everything then I would personally expect result, which is little bit lower than that of 2017. But it's less reliable than any IFRS prognosis.
The next question comes from Frank Kopfinger with Deutsche Bank.
I have two questions on the renewals, please. So first of all, could you shed some more light because obviously, the result overall of the renewals was more or less affected by these huge quota share treaties. And therefore, how much of the 19% growth was driven by these large treaties? And if you were to exclude those, how would the pricing look like? Obviously, I would expect it goes up, but you can give some sort of direction. And then, also within your outlook, you guided toward the pricing gaining further momentum towards April and July. Can you also give some sort of light what we should expect on this end?
Yes. On your second question, Frank, thank you for these questions. It would be pure speculation and not very helpful for you. So let's say on a like-for-like basis, it should be - price increases should be north of the 0.8% because there's a stronger element of non-proportional business and of natural catastrophe oriented business. Relatively double of what we have at the moment was - of what we have in January, but it's too early to talk about market dynamics. So we're confident that it has really turned and that this was not only, as we see in Germany, short spring, yes.
We think that the market understood that the loss incidents of the year 2012 to 2016, first half 2017 was far away from being normal and that should normalize also the market dynamics. On your first question, the quota share treaties proportional business contributed more than 70% of the renewed - of the new business of €1.6 billion so these large quarter share treaties alone. If we adjust for it's what we anyway do when calculating the price increases because we try to compare like-for-like. And to adjust for the portfolio mix effect then it would have been more or less in line with the experience, which we showed you, which is little bit less than 1% price increase.
The next question comes from Vinit Malhotra from Mediobanca.
Just following up on this sort of adjusted pricing that I'm interested in. You know, there's also a commentary that the accident loss ratio picks above pretty conservative in the fourth quarter. Maybe I have not picked it up correctly. But would that also have had a negative impact on what you have assumed to be the pricing increase. So just a clarification whether there's still any other one offish things like conservative loss ratio picks in that 80 basis points? And second topic is just to clarify on the reserve release outlook of 4%. You mentioned, Jorg, that there were always some casualty, is that one of the reasons why you're being more cautious, although you did you expect north of 4%, but is there something to watch out as you are trying to say, it's just to clarify.
Let me start with the first and give you little bit more of the background of the relationship between the various pieces. We had extra lost developments in the fourth quarter on prior year business, yes, and prior year loss. And they were in very specific areas as I mentioned before, it was speciality, U.S. casualty business but not huge amounts of business. And what we first did is, we increased the reserve with our biased towards the negative, which means the negative is typically booked immediately, and for the positive, we give it more time to mature. Then we looked at the same business for 2017 in the fourth quarter and took higher loss picks for the same business with an impact on the number of the fourth quarter only. But for the business for 2017 in total, therefore, this effect looks bigger than it actually is because there is a catch-up effect for the first three quarters in it.
And now on your question on the pricing increase, that is difficult to isolate here, but it's definitely not a major impact because when we do this renewal reporting, we look at the portfolios in total and that might have had a very, very small impact. But I don't believe it to be a serious one. Second question on reserve releases, more courses than last year, yes, to some extent this is true on the other side, we said last year, long-term - midterm and long-term, we're still sticking what to we say about the conservative in the reserve setting, that it is 4% on an ongoing basis, running of overtime with 4% reserve releases. But last year we said, oh, after the experience of a couple of year with substantially more and on the basis of at that time very low inflation, we felt that there could be more and it was more, it was 5.2, but it was not six, it would have been very easy, believe me to show a six. But would you have done it in a year which anyway was effected by such high level of major losses. So therefore, there is - in essence, not really a change between 2016 and 2017 and 2018.
Munich Re's reserve are very strong and even if our clients stop becoming or start becoming more cautious with their reserve releases, we have plenty of buffers internally because we have an independent valuation of reserves, we have management margins built in. And we saw in the example of the Octane rate changes, how resilient our reserves are against such moves. And I'm still absolutely confident that this was true also for the next couple of years.
The next question comes from Michael Haid from Commerzbank.
I cannot let you go without two questions on ERGO. First on ERGO 4, can you say a word on the new business generation, in particularly I'm interested in to what extent this discussion about the potential sale of the bank books affected your new business generation in the fourth quarter, negatively. And the second question on P&C Germany. You mentioned some further reserve strengthening. Can you say to what extent this is arbitrary? Or what triggered this result strengthening? And how much it was?
With regard to ERGO 4, and the new products, what we see is that our new business is below - for 2017, overall, is below the 2016 level, but is in line with our plan. And it had been pretty low in the first couple of quarters anyway because we're currently modernizing our products suite and we're currently coming to the market with very attractive products, be it capitalized savings products, be it visibility and we're very optimistic with regards to what impact that will have on our distribution. But I cannot deny, that the whole discussion about the sale of the [indiscernible] business was not helpful. But I haven't heard about major decline of our sales. Overall, we're satisfied and especially, this product initiative will definitely help our sales forces going forward. With regard to property-casualty Germany, they're on the move, I cannot officially say that it was arbitrary, but let's express it in a different way. We succeeded during the last 3 to 4 years to bring confidence level of property-casualty reserve in ERGO Germany to a level which comes close to that of the reinsurance organization and that had always been our aim.
There are no further questions from the phone. I will now turn the call back to your host for any additional or closing remarks.
Christian Becker Hussong
Thank you, nothing to add from my side. Thanks for your attendance for the questions. Please do not hesitate to get in touch and we're very much looking forward to meeting you throughout the remainder of the year. Thanks for joining us and have a great afternoon. Thank you.
That will conclude today's call. Thank you for your participation ladies and gentlemen. You may now disconnect.