Allianz Se Unsp/Adr

Good afternoon everybody and welcome to the Allianz conference call on the financial results of the first quarter 2023, which are for the first time based on the new IFRS 9 and 17 accounting standards. You know that already before we start the call I have to do some housekeeping. So let me remind you that this conference call is being streamed live on Allianz.com and YouTube. and that a recording will be made available shortly after the call. If you want to ask a question after the presentation and to join us via web call, please click on the talk request button at the upper right-hand side of your screen. And if you join us via telephone, please press star five. All right, that was all from my side for now. And with that, I turn the call over to our CFO, Giulio Tazzariol.

Thank you, Oliver, and a good day to everybody. I'm pleased to present the quarterly results of Allianz, which are very, very good. So we had a very good start into the year 2023. But before we do that, we're going to spend some time to talk about the results of 2022, just to establish the comparison between the new method and the old method. So if we go to page... Five of the presentation, you can see that under the new method, the operating profit for the year 2022 was 13.8 billion, which is pretty close to the 14.2 billion of the old method. Here we have some offsetting effects. In the case of property casualty, we see there is an improvement. of the operating profit compared to the old system. This is primarily coming from the discounting. On the other side, you see a low operating profit on the LFL side. This has to do with some technical effects. So from that point of view, this is just related to the first time implementation of FRS 9 and 17. I'm going also to come back on these points later in the presentation. Then I'd like to draw your attention to the net income and also to the shareholder core net income. As you see, the net income is about $300 million lower in the new basis compared to the old basis. That's a reflection of the low operating profit. And also, as you remember, 2022 was pretty volatile, and the new system tends to be volatile. a little bit more volatile compared to the old system when capital markets are moving. That's also the reason why, and we discussed that already in the December presentation, we have decided to adjust the net income for volatile items. And when we do that, you get to a core net income, the way we call this, adjusted net income of about $7 billion. We adjust for the fair value swings, so for the swings on assets which are marked as fair value, where we don't have an offset coming from the liability side. And also we adjust for the P-gap swings. which are, in any case, in our case, a very small amount. So I'd like to draw your attention to the core net income because that's also the way we are going to monitor our performance. So the primary KPIs are going to be clearly operating profit, as always, and then we are going to focus on the core net income. So all in all, I would say nothing really major changes on the aggregate level. If we go now to page 7, Look at the P&C business. Here you see 600 million more operating profit. Basically, the additional operating profit is coming from the net effect of discounting and unwinding. I know that you know the mechanics by now clearly in the course of 2022. Since rates have gone up, we get a higher benefit for discounting compared to the unwinding, which is based on the insurance rate level of the preceding years, and as you know, the preceding years had a very low insurance rates environment. You see this geography also reflected in the insurance service results, which is going up compared to the old system because of the discounting, and then the operating investment results is going down compared to the old system because of the unwinding effects. The combined ratio is lower Under the new methodology, that's because of the discounting impact. Structurally, if you remove the discounting impact from the combined ratio, the combined ratio has a tendency to be higher, and that's because it's based on a gross basis. when we look at the denominator instead of being based on a net basis. So that's, in short, the story on the P&C side. Net impact of discounting is positive in 2022 due to the rate environment. Now we come to page 9 on the development on the life business. In this case, you see that the operating profit was substantially lower. We are doing here normalization. We are basically normalizing for the hedge results of Allianz Life. The point here is when Allianz Life is doing the hedges, they are doing the hedges also based on the accounting. that is in place and clearly the hedges were calibrated last year to the IFRS 4 accounting. The new accounting clearly that we need to implement retrospectively has a different sensitivity and that's the reason why we got an accounting mismatch. If we had had this kind of accounting, the IFRS 17 accounting also last year, our hedging program would have been different. On top of that, also, we refined the methodology of how we run the FRS-17 calculation, but we implemented this new methodology only in 2023 and not in 2022, so that's also leading to... part of this normalization that we do. So all in all, when you normalize the numbers, you get basically to an operating profit which is broadly in line with the whole basis, and when you look at the net income, it's absolutely in line with the whole basis, and that's because we have some geography issue between the operating profit and the below-the-line item. So the bottom line is in the neural presentation reality, when you look at the net income or core net income, but for the life business is more or less the same, you're not going to see a much different number compared to the old system. Now we come to page 11 and that's about the reconciliation between what we call the comprehensive shareholder capital, which is the sum of the shareholder equity in the CSM, and the solvency to own funds. And here we are removing the usual suspects, like the TR2 subordinate liability, the foreseeable dividend distribution, so we are removing the items which are by definition, different methodological approach. And what is relevant in reality in these slides is the last item, which is other. As you see, there is basically no major difference once we remove all the other items between the comprehensive shareholder capital and the solvency tool on fund. So the message in this slide is basically that the two bases of valuation are broadly very consistent from a technical point of view. And with that we come to the IFRS 9 and 17 leverage. This is the way we are looking at leverage, which is basically the comprehensive capital in relation to the amount of debt that we are holding based on this new methodology. The leverage ratio is about 24%, which is lower compared to the leverage ratio based on the old system. We don't know yet what rating agencies are going to do, and by the way, rating agencies are going to follow different approaches, but we think that's also a way to look at the leverage ratio, and that's also, I believe, a way to look at the leverage ratio, which is going to be pretty standard also in the industry. And that was just, you know, a very short update on the numbers for 2022 based on the new system. But I believe the best way to familiarize with a new account is to speak about current numbers. And as I said also in the press call, no matter what kind of accounting we are using, We are going to provide clearly good results. And the reason is the underlying performance and the fundamentals of the business are very strong. So any accounting system is going to reflect this strong performance. When we look at the first quarter, we had a very good start into 2023. From a revenue point of view, we continue to see strong revenue in property casualty, WDG growth. In the case of life health and asset management, revenue are subdued, but that's not clearly a surprise considering that there is still some instability in the market. The operating profit is ahead of last year, but also more important is ahead of the outlook. So if you take our outlook Divided by 4, we are basically 5% ahead compared to that number. And this is coming both from property casualty and from the life health business. In the case of asset management, we are a little bit behind. The outlook divided by 4, but that's normal because we are going to get the performance fees at the end of the year. So also in the case of asset management, we are positive that we can achieve our outlook for 2023. The operational KPIs are going in the right direction. So basically, if you take out the cost-income ratio for asset management, you're going to see an improvement in the operational KPIs. And we saw also positive flows at AGI and PINCO in Q1. And then the coordinate income is at 2.2 billion. Here we have also the impact from the potential disposal of Allianz in Lebanon. If you adjust for this impact, which is an accounting impact, it's not really an economic impact, the shareholder commodity income will be north of 2.3 billion. If you analyze the number, you get to 9.4 billion of core income for the shareholder. which is also what would be an expectation for this new KPI. So all in all, very strong performance on the operational side, and also when you look at the corn, I think a solid number, especially once you adjust it for the accounting pet coming from the potential Lebanon transaction. Also, what was positive is the development of the solvency ratio, 206, if you look at the sensitivities are pretty much unchanged compared to the sensitivities that we had at the end of the year on wednesday nights we announced the buyback so we continue to deploy capital which is clearly a sign of the comfort that we have with our capital level and also with our clearly liquidity situation so from that point of view we continue to create profit capital liquidity And that's also very important. We continue to deploy capital. If you go to page 21 on the evolution of Solvency II, basically the capital generation is in line with our expectation. The markets have been benign, so we benefited from the market environment a bit. And then also what is important under capital management, management action, you see the deduction for the accrual of the dividends. But also there was about one percentage point, a little bit less than that, of impact on the solvency ratio because of an investment that we did in innovation group. So we continue to invest basically in capabilities that should support our technical excellence on the property casualty side. So, you know, 206 solvency ratio, if you adjust for the buyback that we announced on Wednesday, the number is very robust at 202. And now we come to the segment view, starting from PNC. Overall, you see a very good growth rate of double digit, of 11%. And also you can see that overall there is a good growth rate at most entities. Also, what is important, the change in renewal is pretty solid and accelerating compared to the change in renewal that we had also during the course of 2022. So you see a constant acceleration over time. So from that point of view, what this slide is showing is that we have been accelerating. reacting strongly to the challenge of inflation, and this also bodes well clearly for the operating performance. When we look at the operating performance from a bottom line point of view, you can see that our operating profit at page 25 has gone up by about $350 million. The improvement in the operating profit is coming from the so-called insurance service results, which is if you want something similar to the old underwriting results. And this is explained by the improvement of the combined ratio by about 2 percentage points. Clearly, in the quarter, we benefited from a lower amount on net CAT compared to last year, but also you can see that Arnoff has been very conservative. So, all in all, we were extremely happy with the performance of our entity, and we didn't really push this number so that's very important 91.9 is one percentage point better compared to the number that we put forward as an outlook for 2023 we are running stronger than that and we feel very good about the underlying performance behind this number when we think also about the quality clearly of the number because one thing is the number and the level One thing is the quality, and the quality is really good. And we can see this reflected also on the performance by OE at page 27. You see a lot of good combined ratios. So a lot of our companies are performing at combined ratios which are under the new method below 90%. And then I would also like to highlight that in Brazil, Latin America, we are making good progress. And in Spain, considering the market environment, we have also solid performance. In the UK, I would say the numbers are good considering the market environment. We benefited from lower net cash. So from that point of view in the UK, the situation is still a little bit more complicated than in other countries, as you see also from the disclosure of the competitors. But overall, we are taking strong action. And again, when you look at the total portfolio, we have really a very strong performance across a lot of entities. So we are also very confident that we are continuing to see strong numbers in the following quarters. And now we come to... The investment income, page 29. It might look surprising that the operating investment results go down, but in reality, with the new method, we have a situation where the accretion of the interest rate is going somehow to compensate for the increase in investment income. coming from clearly the higher interest rate environment. So from that point of view, we need to start thinking differently about the evolution of this KPI, which is going to be more flattish year over year. In our case, then, in this case, we have a drop compared to last year, just because last year we had positive effects in the valuation. results and others. So the main message here, it's kind of a trend that you should expect to stay at that level. Based on the whole system, because I'm sure the question will come, what would have been the number? The number would have been north of 800 million. So, again, it might look surprising, but in reality it's not surprising at all, and that's very consistent with our plan. So, all in all, 1.9 almost of operating profit in property casualty. If you remember, our outlook was 7 billion. So, if you analyze 1.9, you get to something close. If you analyze the number, you get something like 7.5. So we are definitely ahead of our outlook for the year. We expect also that we will continue to see this kind of run rates in the following quarters. And now we come to... life. On the life business, page 31, when we look at the production, we see there is a drop in production of about 12%. Here, we need to consider that we had the impact of the discounting, which is a more technical impact. So if you remove that effect, you get to a growth rate of minus 6%, which is clearly much better than minus 12%. It's not surprising that in this situation where there is still some uncertainty, the production of unilinked or single premium is going to be lower. On the other side, the new business margin is going up, so we have a very strong new business margin. This is a pre-test number that's important. So if you do an after-test number, you're going to get closer to the 4% that you were used to see based on the Solvency II approach. But what is important, we are seeing an increase in the new business margin. So when you put together the Production evolution, the new business margin evolution, you get to a very new business of more than $1 billion, which is relatively stable compared to the prior period. And more importantly, it's also a healthy level of new business. At page 33, we are showing now the evolution of the CSM. And we like to focus on the so-called normalized CSM growth, which is the sum of CSM at inception, which is basically the CSM on no business. Then we have an expectation of a certain growth of the CSM. And then we add the CSM release into the profit. So we like to look at the combination of these three figures. And in our case, we have a growth rate for the quarter of about 1%. So if you analyze that number, you get basically to an annualized growth of 4%. Why we like to look at this number? Because to a certain degree, there is high correlation between the growth in the CSM and the the future growth in the operating profit. So overall, I would say a good growth for the CSM. We see here a comment on the non-economic variances and assumption change. The 1 billion is a large number, but that's all driven by a change in the way we are including Mexico. In our CSM, basically, we are excluding Mexico, the Mexican business from the CSM, because this is not necessarily a business that has to be accounted under FRS 9 and FRS 17. If you adjust for that change in approach, the economic variances, the non-economic variances and the assumption changes are a very small number of about 200 million. And with that, we can go to the next slide, which is on the operating profit drivers. The operating profit first is a bit ahead of our expectation, which is a good thing. And on the same time, it's very much consistent, I would say, when you look at the single drivers with the expectation that we set when we had the call in December. So if you go back and look at the document, you're going to see that the single drivers are within the ranges of the expectation that we gave you. Fairly a number that tends to be more volatile. We said that from the very beginning is the operating investment results. It was extremely volatile last year because of this accounting mismatch. It was referring to due to the first time implementation for Allianz Live. So definitely the number is too low compared to a normal expectation. On the other side, the first quarter 2023, new number might be a little bit on the high end of the potential range. But as you understand, it's also a new calculation for us. So in order to be able to establish what is a run rate on this dimension, we will need a little bit more experience. The bottom line is strong performance from the live segment. Again, you can see that under the new methodology, we are recording performance. a good profitability, basically at the same level you were used to in the old system. There is a KPI that we are not showing anymore, which is the difference between the current yield and the guaranteed evolution. If you remember, the spread was about 230 basis points. Last year, this number is going up by about 20 basis points. as we speak, because of the production that we have put in our system and because of the higher rates. So from that point of view, there is a nice trend underlying clearly the solidity of our life business. At page 37, we are showing the numbers for the selected entities. I would say that when you look at the normalized CSM growth, it's pretty consistent across the different entities. And when you look at the operating performance, you can see also a good level of operating performance, so no major surprises, no surprises compared to what you were used before. And on that one, I would also say For the majority of the OEs, you can see there is a tight relationship between the CSM release and the operating profit. There are two exceptions. One is Italy and one is CE, Eastern Europe, Central and Eastern Europe. And here you see that the operating profit is higher compared to the CSM release because some of the business in Italy and CE is not accounting for under FRS 17. So bottom line, strong results on the light side with good new business margin and also an operating profit which is slightly ahead of our expectation. And also from a quality point of view, you can see the consistency between what we told you a few months ago and what is happening right now. Now we can go into asset management, and I will skip directly to page 41. Here you can see that the third-party assets under management went up by about 2%, and this is driven on the one side also from the movement of the markets, net of the effects, but then there is also a contribution coming from flows. As we always said, if the situation is stabilising, we're going to see flows coming back. And especially at the beginning of the year, the situation on the capital market was more benign. And this explains also the positive flows that we saw at PINCO. So from that point of view, there is a reverse of the trend that we saw in the course of 2022. At page 43 on the revenue, it's not surprising that revenue are down. That's a consequence of the development of 2022. What is a positive, you can see that the fee margin is going up. That's the case for PINCO, and also for the segment, because PINCO clearly represents the majority of the segment. In the case of AGI, you see fee margin decreasing. That has to do with the Voya transaction. On the other side, we need also to recognize that the expenses are not there anymore. So in reality, from a profitability point of view, The transaction of oil is more or less of a wash, which is better compared to the initial expectation that we had. And now we come to page 45. On the operating profit evolution, the operating profit is down versus last year, but that's in line with our expectation. So if you remember for the year 2023, we have an outlook of $3 billion. If you take the quarterly number and you annualize that number, you get to $2.9 billion. If you think that we get the performance fees at the end of the year, it means that we are well on track to achieve that target if markets are stable or not completely erratic by the end of the year. So bottom line, solid results in asset management in line with expectations. Also, we saw flows coming back in the first quarter and also year-to-date. Page 47 on the corporate segments, I would say it's in line with the expectation to be better compared to last year. And that's because of some more profit coming from our banking operations in Italy. And then at page 49 on the net income and look at the non-operating items, you see that the realized gains and losses are lower compared to last year. Last year in the first quarter, we had the disposal of a participation. And also, we had some realized gains on bonds. On the other side, you see that the restructuring expenses are lower compared to the first quarter last year, where we had also the restructuring coming from the – partially from the Voya transaction and then – oh, sorry, from the – some restructure in Germany. And then what you see here is this volatility coming from the SS measure FA value. This is also the volatility that we remove below the line. It's not one to one. There are some elements that we are not removing from this line item, but the majority of This volatility is removed in the definition of core net income. So all in all, 2.2 billion core net income. As I said before, if you remove Lebanon and you analyze the number, it's a strong core net income of 9.4 billion as a sort of net. what could be an expectation, a normalized level for the year. And now we come to the last slide. So overall, again, a strong set of results. I would really say excellent start into the year with strong operating performance, I would say, across the board. We are 5% ahead of our average. Outlook divided by four. We also see good momentum. So we believe we are going to carry this good momentum in the second quarter and also in the remainder of the year. And also we announced a buyback just the other day of 1.5 billion. We are also at the same time investing in the business, as I was saying before. So I would say that we are very pleased with the results, but especially today. We are pleased with the momentum that we see flowing through our businesses. And with that, I would like to open up to your questions.

All right. Thanks, Giulio. Thank you for your presentation. We now will be happy to answer your questions. And we will take the first question from Andrew Sinclair, Bank of America. Andrew, your line is open. Please go ahead.

Thank you. And good afternoon, everyone. Three for me, please. And thanks for all the new disclosure as well. Three for me. First is on the P&C business. You talked about the quality of results. And I feel you've kind of been making a similar message for the last few quarters about booking the current year conservatively when you're getting so much investment income, etc. But Without detailed reserve triangles, how can we really see that that prudence is being built? Where can you give us some numbers just to provide some comfort about the extra prudence going into reserves? That's question one. The second question was on capital return. Why was 1.5 billion the right number? Solvency ratio is still over 200% post the buyback. Just thoughts on what could come next. I realise you just announced one, but what are the thoughts on further buybacks versus M&A? And third was just on life. You talked about the hedges in the US and that they're going to be adjusted for the new accounting, particularly in the US. It sounded a little bit strange to me. I mean, I'd have thought hedging would be focused on the economics rather than the accounting. Can you just tell us a little bit more about what hedge changes you've been making there and how you can feel comfortable that those economics are well hedged?

Thank you for your question. So starting from the first one, which is about the prudency and how you can get comfortable with the prudency. But one way, in reality, one way to do it is you spend a lot of quality time with the chief. Actually, you go through all the numbers and then you're going to get the confidence. The other way to do it is just look at our track record. And you can also see when NECAT are lower, The runoff is magically lower. When the cattle are higher, you see that there is more runoff coming through. So we are managing to an outcome at the end of the day. You can see that over time, we have been extremely consistent. So the proof point is just look at the consistency on how we deliver numbers. Just go back. Through some analysis, you're going to see low neck height automatically. You see a little bit more runoff. You see also less runoff. You see also the attritional loss ratio tends to be a little bit higher and vice versa. And this is a sign clearly that we have a lot of balance sheet strength. And also that when we have a situation like this where the neck height are lower, we're going to use this method. situation clearly to also to even further strengthen the balance sheet, let's put it this way. So we are managing to an outcome. So we said that, think about 2023, the combined ratio we said 93%. Now we are running 91.9 with the high quality and we can assure to you we are not being swayed to achieve this 91.9 combined ratio. But yeah, The other way is you need really to spend a lot of time with our actuaries, but we are not going to give you access to clearly our actuaries. But really, seriously, look at the numbers. Over time, put the numbers down in a table, and you are definitely going to see this kind of pattern, also just look at the static combined ratio. We are speaking of, in general, very strong numbers. Also look at the combined ratio across the entities. You also don't see a big dispersion. of combined ratio where maybe a couple of entities are posting 80 combined ratio to say for a lot of businesses performing maybe not so good. In our case, you see rather a lot of companies performing very good, and then maybe you might have a couple of companies having a little bit of a more elevated combined ratio. So that's also something I do. I always, you know, when I look at other companies, companies, I always look whether the combined ratio is equally distributed between the entities, or you have somebody carrying more of the weight. I would say in our situation, you can see that there is a lot of quality across the board. So that's on the combined ratio, so message we're feeling very good about the performance in PNC, and again, 1.9 billion operating profit. Analyze the number is 7.5 and again we will definitely have strong numbers also as we go in Q2, Q3 and Q4. On the buyback question, look we just did a buyback right now so I'm not going to speak about when the next buyback is going to be. Clearly, you know, our strategy and philosophy is always to combine capital deployment both in the sense of remittances, but also we like to invest in our future. That's also important. We can do both. We have been proving that over the last years. If you take our Buyback budget, you take basically what we invest in M&A is pretty much 50-50 over time and we're going to continue to use this philosophy over time and clearly not going to make any statement about what could happen in the next three or six or nine months, but fundamentally what we do is to use both clearly opportunity buyback and M&A, I believe that's the best strategy in order to ensure strong performance in the short term, but also building up the franchise for the mid and long term. The final question is about the hedging. You know, that's a classical situation that you have when you have an accounting change. And clearly when you set your hedging program, you're going to look at what the economic of the hedging program are. But you need also to look at what the accounting is. And by the way, the economics is also just a model. Sometimes we speak of economics and we tend to emphasize this economic as being the absolute truth, where in reality it is also a model. So the point, the philosophy has always been to try to strike the right balance between economics of the hedges also considering the accounting situation. Clearly, if you do a change exposed of the account, you're going to get this volatility. So there is no issue with the hedging at all. Indeed, this shows to you the hedges of Allianz Lite, they were doing what they were supposed to do in the old account. And now that we've fled to the new account, you saw the numbers in Q1. They show you also with the aligned hedges that the hedges are responding properly. So that's just about the implementation of retrospective change in accounting. It's more about accounting as opposed to be about the hedges. I hope this helps.

Very good. I appreciate it. Thank you.

All right. Thanks, Andrew. And we will take our next question from Peter Elliott, Kepler Schiphol. Peter, please go ahead. Your line is open.

Thank you very much indeed. A couple of follow-ups actually on Andrew's questions, actually, if I may. Firstly, on those hedges, I guess another way to ask the question is that if you had calibrated the hedges to IFRS 17 a year earlier, Would we have seen any impact outside of the accounting, so on cash or on anything else? That would be the first question. Secondly, on the runoff, the runoff ratio this quarter is three points lower than it was Q1 last year when it was 4% on the old accounting. So can I just do the maths and say that on the old accounting we would have had a 1% runoff this quarter, or is that the wrong way to looking at it? And maybe related to that, I don't know if I might give you an opportunity to say, you know, your degree of comfort on the inflation reserves and how they've developed over the last quarter. And then finally, third question, wondering if you could comment on the persistency you're seeing in life, both ideally by geography and channel. Thank you very much.

Thank you for the question. So on the hedges, have we hedged differently last year? But the operating profit last year would have been all over the place. And clearly you get anyway different cash flow because the different hedges are going to provide different cash flow. So from that point of view, sure, there would have been a difference. Now, you should also look at the things not just last year. You should look over the last 15 years. If we had IFRS 17 accounting in the last 17 years, we would have had different hedging programs all along. So that's basically the answer. But what we try to do is always to hedge. also based on the prevailing accounting. Also we take into consideration also clearly for the statutory accounting, so we try to find the right balance between what we think should be an economic hedge, what should be statutory hedge and also what is an FRS hedge. And the things are holding together pretty well, just when you have a change in accounting, clearly the system retrospectively can introduce some noise. When you put this noise, compared to the size of the company, honestly speaking, it's relatively minor. On the runoff, if I understood your question properly, you were asking what is the difference in runoff between the two periods. The risk adjustment is 80 basis points, basically, in both years. So if you exclude the risk adjustment, the runoff would have been 1.2. present in Q1 2023 and 4.2 in Q1 2022. So take out 80 basis point or risk adjustment. That number, the 80 basis point, is supposed to be relatively stable. It might be 90, it might be 70, but it's not going to double, so you can assume something of that magnitude also for the near future. Then on the inflation reserve, since the last time I talked about the inflation reserve, I just got questions. Even my grandmother was asking me about the inflation reserve. I can just tell you, it went up a bit. And that's also an indication of the solidity of the choice that we made in Q1, but I'm not going to speak about the number, but it went up a bit. And then the final one was about the persistency on the light side. I would say that in general we see good persistency. I can speak about the U.S. Lapses are very much in line with the expectation. Also in Germany, we don't see a pickup in lapses. Also in general, we don't see a pickup in lapses in Italy and France, with some exceptions. So there are some portfolios and distribution channels where you see a little bit of an uptick, but nothing really major. So either there is not much really happening or nothing happening, or some situations really just specific to some smaller books or some distribution channels. So no concern on persistency or lapses from our side. Great. Thank you very much. You're welcome.

Thank you, Peter. We will take the next question from Michael Hutner from Birenberg. Michael, please go ahead. Your line should be open now.

Thanks, Oliver. And thanks, Julia. Thanks for the presentation. Sorry, it's a bit noisy. I have three questions. One is you're talking about strong momentum so much. I was wondering if you could give us a little bit more on the topic of You mentioned a few numbers, 9.4 billion for net income and stuff. So maybe you could kind of put more flesh to the bone. I know you've done a lot, but I'm trying to get to hope that the share price will get to 300. Then on the life cash flow, so this is my favorite topic. I'm not sure if it's relevant, but obviously you've seen what the subsidiaries are paying. You probably thought what they'll pay next year. Can you give us a feel for what's happening now? particularly with respect to Anyan's life. So my expectation would be that it goes up quite strongly because, well, the solvency is super strong. It's flat, I think, but it should be. There's no cloud on the horizon as far as I can see. or anything. And then the final is on alternative assets. I think I can never remember whether it's me just hoping or you saying that you're kind of de-emphasizing them, but I wonder if you can talk a little bit about this. Certainly, you've seen a lot of investors, and it's the one topic about Allianz where they do worry a little bit. And if I allow the fourth one, just purely optional. You asked about life-persistency. I just wondered about non-life-persistency to give a feel to how strong the market is. Thanks.

Yeah, you know, it's not always easy to understand you. So I try to answer, and then you tell me whether I got the question or didn't get the question. So the first question, I think it was more general about the momentum and why I'm positive about the momentum. I'm positive about the momentum because of, you know, look at the numbers. We have... double-digit growth in PNC with an acceleration on the rate changes. If you think also about the dynamic of the earned premium, clearly we are getting more and more earned premium, which has been priced for a different level of inflation. Also, inflation reality is now accelerating, so we are getting very good numbers already now without making major efforts, so that's definitely boding well also for the next quarter. We're already now ahead basically of our outlook for 2023 in PNC. On the light side, you see also consistency in the delivery across the OEs. We also know that higher rates are positive. for the live business because we are matched. Let's start from there. So from that point of view, you could say who cares if you have higher rates, but we know that anyway there is always a little bit of leakage in the system, so the fact that rates are higher is also definitely something strong. When you look at the solvency ratio, evolution, you see that the capital increase in the solvency ratio is coming from PNC, which is a good thing. And life, we see in reality that the capital intensity, the business evolution, when you look at the solvency 2 OEs is even positive. So there is a release of SCR on the business evolution coming from the solvency 2 OEs. And also in asset management, I would say, you know, last year was very, very tough. But now we see there is assets under management are going up. There are some flows coming. We are basically right now, if you take the number, you analyze the number, the operating profit, we are basically almost at the outlook level. And we know that performance fees are coming at the end of the year. So if the markets are stable, we are definitely going to even see a better number compared to the $3 billion. But we will see what happens with the capital market. So that's the reason, the momentum, why I feel good. The other question that was a little bit more challenging was cash flow. I don't know, I think you were referring to cash flow at Allianz Life, but I'm not sure.

Yes, please.

And you're referring to cash flow from a point of view of policy or the cash flow, I guess.

No, no, no. Actually, I was hoping that you would say there's a lot of cash coming as a dividend. Ah, distribution.

So Allianz Life already paid about 200 million dividend in Q1. So then, by the way, they pay dividend on a quarterly basis, more or less, or semi-annual. So we already got 200 million of dividends. dividend coming from Allianz Life and by the way they are growing which in their case grow tends to be a little bit of a drag because they are not on Solvency 2 from a capital absorption point of view so they have a nice growth rate they paid already 200 million of dividend we might see clearly further dividend in the remainder of the year so no no pretty good situation from a cash flow point of view. And not just Italian life, by the way, in general. We are getting good remittances from our companies. And then the last question was about alternative assets. Look, alternative assets is... The following, so we are not necessarily divesting now from alternative assets, so it's more about the new money that we are getting is mostly invested, not necessarily with the same allocation to alternative assets like in the past. So we are still anyway clearly having allocation to alternative assets, but right now we see clearly that also more traditional fixed income can be very appealing. Just to give an idea, because we always speak about cash flow in general, we had about 25 billion of new money investment in Q1. And so that's more what we are using somehow to slowly, slowly recalibrate the portfolio toward less alternative asset allocation. But we are now speaking now of major changes. Okay. Thank you very much. Welcome.

Thank you, Michael. We will take the next question from Andrew Ritchie from Autonomous. Andrew, please go ahead. Your line should be open now.

Oh, hi there. A couple of questions. Julia, you seem to be giving guidance now on core net income. Can we just be clear what that is or how it's defined? Yeah. because obviously it's a sort of self-measure you've come up with. I think it excludes purchase gap accounting impacts, which is clearly new. What investment impact does it exclude? I think it's to do with the thing that might include things like private equity marks that might be excluded in that measure. But can you clarify exactly what this new measure of core net income excludes? Second question, the life CSM appears to have gone down quite a bit in 2022 and then hasn't done much in Q1. Then you flagged some negative variances outside of the Mexico treatment and the new business CSM is more or less equal to that running off. So I'm not clear if I think things like life CSMs are ever really going to grow other than the unwind. Can you give me some insight there? The other question related to life, what additional work or analysis have you done on asset stress in AZ Life, particularly real estate? It has, I think, the single biggest concentration of commercial real estate within the group is in AZ Life. What additional work have you done on looking at that portfolio and and assessing the quality of it. And the final question is just a clarification. The risk adjustment impact should be neutral, but if the portfolio is growing, it won't be. So was there a small drag on the combined ratio from risk adjustment, i.e. more risk adjustment going into the new business than what's running off the back book?

Yeah, thank you for your question. Maybe I'll start from the last one. Yes, in theory, so when you have growth, you should see a tiny drag. Now, in our number, I didn't look at a double digit after the comma. So that was 0.8 and 0.8 on both. But you are technically right, because there is always some noise, by the way. You're technically right. In reality, the risk margin should be a little bit of a drag, but nothing really material. So that's on the risk adjustment. Maybe starting from the first question, which is the coordinating income, basically what we are adjusting beside the P-gaps, which are very tiny in our case, and the reason why we are adjusting for the P-gap is on the one side is a non-cash item, but even more important, we can have a long debate about once you do the purchase price allocation about all this calculation. So it's a very interesting... dialogue that you can have with a lot of technical people. So at the end of the day, it's something really arbitrary. But also, I would say the depreciation, these big apps, doesn't follow at all the economic or the deal, because it's pro-rata. But most of the time, you know, the The profit is not necessarily emerging equally, and especially not at the beginning, so we decided to remove it. It's really an immaterial amount in our case, but the logic is such that it can create some emotion, so we decided to remove it. on the most important part which is the removal of the fair value swing these are swings coming basically either from funds because funds cannot be they had to go through the pna these funds can be private equity funds but they tell you we have a lot also of emerging market funds bond funds so when you look at the adjustment that we did for 2022 which is north of 500 million. A lot of that adjustment has to do with swings in bond funds or also on bonds, which are failing the test, the SPPI test. So in reality, a lot of the volatility is coming from interest rates. It's not coming from... private equity of equity funds. There was also a component coming from equity funds, but last year there was a huge component coming from, in reality, bonds, and the point is we don't have a possibility to trade those bonds or funds differently. And then you had a question about the CSM and why the CSM went down last year. That has to do with the increase in interest rates, which has basically led to... a lower CSM because at the end of the day the profit that we do in the case of Allianz Leben tends to be a profit which is pretty safe so when you have an increase in interest rate you're going to get basically a lower amount of of CSM and also last year anyway we had equity market going down so there was definitely a lot of dislocation in the markets but we had also this kind of effect coming from rates going up and then we have a final question was on Allianz live yes we looked at Allianz live we look at Allianz live Not only from the point of view of the commercial loan portfolio that they have, but also we looked at Allianz Live from a lapse point of view. Again, we are not seeing any lapses, but we did anyway a test. What would happen if we have... Two times the lapses that we usually see, and because of the surrender charges that we had, because of the income benefit that clients would lose, because of the NVA adjustment, we could sustain an increase in lapses of two times without any major impact. Then we also looked at the commercial loan portfolio. It's about $15 billion. It's a very high-quality portfolio. I know everybody likes to say the portfolio is high-quality, but I can tell you loan-to-value is about 55%. The debt-to-service ratio is about two times. It's also a diversified portfolio. So we clearly then look at the individual position, and there is really... There could be a couple of small items that might be in yellow, but otherwise there are no items which are having a color which is not green. I can tell you I was in Ariant Light during the financial crisis of 2008, and we didn't see which was it. clearly a big test for a commercial loan portfolio and we didn't see basically any meaningful impact on the commercial law so think about high quality also very well diversified portfolio we have cnbs is about five to six billion high quality triple a the majority of it so we we are definitely not chasing the high risky part of the commercial loans or CMBS. We are very much focused on the quality and this is clearly very helpful when there is some tension building up in the market. So no concern on that portfolio.

Can I just clarify on the life CSM? Would you expect in the medium term CSM new business to exceed The CSN release.

Okay, in the near term, it might be that it's going to be pretty even, because right now, as you see, the non-business value tends, the production tends to be a little bit on the low end. I would definitely expect that once we get back to a more normal level of production, that we will see the CSM at inception being higher than the release. For the time being, you see this number, 1%. This could be what you're going to see, plus or minus, also in the next quarters. Eventually, I would say we should go back to the level of production that we had, if you want, before the Ukraine war. And considering that we are going to keep a non-business margin north of 5%, then the combination should lead to a CSM at the inception, which is higher than the CSM release. But for 2023, I will be a little bit on the cautious side based on what we are seeing right now.

Okay. Thanks very much.

Welcome.

Thank you, Andrew. We will take our next question from Ashik Musadi from Morgan Stanley. Ashik, please go ahead. Your line is open.

Thanks, Oliver. And hello, Julia. Just a couple of questions I have. I mean, there is a big benefit coming out of discounting in this period. So can you just help us understand how to model the discount benefit? Shall we just care about the movement in interest rates in a given quarter? Why work with the delta? Or is there any better scientific way of thinking about how to think about discount benefit quarter after quarter or year after year? So that would really help. Second thing is the CSM expected growth. I think that's just the unwind of the discount rate. Can you just give us some assumptions behind that? I guess it's too early to ask for this, but I just thought, okay, why not? Any thoughts on what are the assumptions with respect to interest rates, equity market, real estate, et cetera? Any thoughts on that would be helpful to get some sense. And just last question is... I mean, clearly you mentioned to one question that Michael asked about alternative assets that the new money allocation is more heading towards traditional rather than going into alternatives. And why would that be the case? I mean, is it because you think that you have reached more or less a ceiling on alternative assets? Or is it just because, okay, the traditional way of assets is giving you enough returns to meet your guarantees and the spread. So what's the point? Why bother about going into all the alternatives? So yeah, that three questions would be very helpful. Thank you.

Thank you. So maybe starting from the discount. Yes, there is a technical way, obviously, to describe the discounting. So I would say if you look at the annual basis, I would say that you can take a duration of about two months. And then you need to apply what the discount rate is. Let's say now for the Allianz Group could be something slightly below 4%. And then you need basically, you can take our loss ratio, and you take 50% of the loss ratio, and you apply this 50% of the loss ratio to the insurance revenue. So if you do that kind of calculation, then maybe Oliver Schmidt tomorrow or Monday can give you The repeat of that and you get to the number. So think two years duration, about 4% of discount as we speak, and then take 50% of the loss ratio times the insurance revenue. This should be a good process for the discount that you see on a yearly basis. When you look at a quarter, there can be a little bit of noise, both on the amount of discounting and also on the amount of interest accretion. But I don't think we need to get into these nitty-gritty things because eventually the two effects are more or less offsetting each other. But there is definitely a way to... learn how to project a discounting. The call might not be the right venue to do that, but absolutely we can help you out with understanding how this line item is going to move. On the CSM and the expected growth, I would say this unwinding is supposed to be more or less at this level. It's not going to change significantly because of changes in the economic parameters. So clearly, if the economic parameters are changing, you're going to see a swing in the CSM, but that's reflected in the economic variances. But this is not going to be enough to change substantially the expected growth, because the expected growth then is always based more on an expectation, you know, for the future, which is not going to be overly sensitive to changes in the projection scenario. And the final one on the alternative, I would say the following. Clearly, first of all, maybe also let me be a little bit more specific. So we are kind of emphasizing the alternative, but also it's a choice between alternative equity versus alternative equity. So I would say that for alternative fixed income, there is still a level of appetite that is a little bit higher compared to the level of appetite that we have for alternative equity. The reason for it is just a capital efficiency point of view. Because at the end of the day, right now, by investing fixed income or alternative fixed income, you can get a really nice yield. And that's enough for us to offer a good value proposition to the customers. And these assets are carrying a lower charge compared to clearly alternative equity. So that's the reason we're getting a good yield at a capital efficiency which is superior.

Very clear. Thanks a lot for all this, and I'll connect with Oliver later on. Thank you.

Welcome. Thank you for this, Ashik. We will take the next question from Vinit Malhotra from Mediabankar. Vinit, please go ahead.

Yes, good afternoon. Thank you, Oliver. So, my three questions, one on each segment, please. The first one is just looking at the P&C growth and the rate dynamics on flight, I think it's like 12. Hang on, let me just tell you the exact slide. It's not 12, sorry, it's 23. I beg your pardon. So it's like 23. I mean, what it seems to suggest is that, say, France or Spain, there's 8% of rate growth But volume or internal growth is much lower. So I'm just curious, you know, are you trying to manage some exposures in these key markets? I mean, there are other examples on the slide. So, you know, when you just talked about confidence and momentum, and I'm just wondering whether we need to discuss some of these exposure reductions, which are implicit. That's a fancy question. On the life side, I would say that the CSM sensitivity, so thank you for providing that, to equities seems to be much higher than to interest rates. Maybe it's an optical presentation topic, but is that because of the VA book is at life? But I'm surprised that interest rates are not bigger. And this is slide 33. And last topic is a bit more conceptual on PIMCO. You know, we've talked about how stabilization or stabilizing rates, interest rates would help. Do you think we are somewhat nearer to that than we were before? I know March must have been terrible, but just curious to hear your thoughts about that topic too. Thank you.

Yeah, so starting from the – thank you for the question, first of all. Starting from the PNC growth, I think you were focusing on France and Spain. First of all, I have to say sometimes, you know, the way we – the base for the calculation of the rate change and renewal – It's based on some calculation which is not 100% consistent compared to the internal growth. So you need always to take these numbers to a certain degree with some grain of salt. I can tell you in the case of Spain, clearly the main focus has been strong pruning of the portfolio. Not pruning, because it's not so much about pruning. The situation in Spain, as you can see in the market, the combined ratio is going high very strongly, so there was a strong reaction from the company. You can also see that our combined ratio in the first quarter tends to be better compared to what you have seen so far. So in the case of Spain, there is definitely a lot of push on premium increases, also the cost of volume, and there was also... anyway a pruning specific in mid-corp. So that's the situation in Spain. In France I would say there is less of a strong need of action like in the case of of Spain and in that case of France, I would say the disconnect that you see between internal growth and the rate change and renewal is more due to, if you want, a methodology that is used for the calculation. So that's a little bit more of noise as opposed to be an indication that volume in France is really going significantly down. On the CSM and the sensitivity to interest rates, I have to say I'm also a little bit surprised that we don't have a little bit more sensitivity. That's anyway the reality of the numbers that we have right now. We saw more sensitivity in the past. That's, again, bear with us. This is a little bit of a new calculation. We're going to see how the CSM sensitivities are going to move over time. You might have also set the effect, by the way, by OEs, but I was also kind of pleasantly surprised to see that we had this kind of stability. I had to say something anyway. If you look at the solvency to ratio, in reality, the solvency to ratio is also very stable when you look at interest rates. And indeed, the volatility that you see on the solvency ratio is mostly coming from the ACR. it's not coming so much from the own funds. So from that point of view, in reality, the two calculations are giving a similar message that we don't tend to be very sensitive to interest rates. This said, I would have expected also a little bit more sensitivity to the CSM. But these numbers are not going to change substantially in the next quarter. So the main message is, as of now, we look pretty immunized from rate changes, and you see that both in the CSM calculation and also you see that in the calculation of solvency 2. And regarding PINCO, if I understood your question, the question was about what kind of momentum we see on PINCO insurance rate trend and so on. I can tell you right away, in the beginning of the year, when the If you remember in January, February, there was definitely a positive sentiment. We saw flows coming back pretty strongly. And then I would say starting March and also April, we saw basically flows being relatively flat. So when you look at the flows that we had year-to-date, they are basically coming from the first weeks of 2023. On the other side, also, you didn't see outflows, you know, in the last two months, if you want. So it looks like the situation now is more stable compared to what we had last year. And I would expect that the trend is going to be or the possibility to have a positive trend is higher compared to the possibility to have a negative trend. And the reason is once we are going to have All this noise about the debt ceiling behind, once I believe we are going to have a confirmation that inflation in the U.S. is stabilizing, automatically there will be less read across that the rates might go up, and this is going to lead... to investors being willing to or being going to fixed income solution. So if you ask me, I would even expect that at some point in time we're going to see very strong flows coming into PINCO because a lot of investors will look for fixed income solution. At the moment, I would say it's still a little bit choppy. Clearly, so for the time being, it's difficult to say what direction we're going to have in the next three, four months, but I'm pretty positive that mid-term we're going to see really good numbers coming through. Thank you. Thank you, Julian.

Appreciate it. Thanks, Minit. Our next question will come from Dominic Omehoni from BNP Paribas Exxon. Dominic, please go ahead.

Hi, folks. Thanks for taking questions. I've just got a couple of quite detailed ones remaining. First is back on the P&C pricing slide. I was just slightly surprised to see the rate change for AGCS at about 2.3%. On the face of it, it doesn't look like the sort of number that you'd want to cover inflation and reinsurance costs, but I wonder whether there's more context and colour on on the rate you're achieving there that might explain why you're nonetheless very happy growing at 22%. And then the second question was really a pull-up on the lapsed surrender persistency topic, and it's a very specific topic. How much exposure do you have in Allianz Lieben to annuitization options? Have you seen any sign of your customer base saying, changing the rate at which they exercise those annuitization options. Thank you.

Okay, maybe aside from the second question, I don't know what is the percentage of policy with the annuitization option. I can tell you anyway, we don't see customers changing their behavior. So I know for sure that there is no change in behavior, but I couldn't tell you now how much of our... business as an utilization option. So now apparently it's about 70 to 80%. I don't think it's anywhere used at that level. So one thing is to add an utilization option, but the utilization option is very low. We don't see any change in this utilization option. So that's on that item. Otherwise, regarding GC&S, I'll just tell you the 2.3% that you see on the slides, we had a follow-up with the GC&S on that number, and we think the right number is more about 4% to 5%, which is basically in line with the inflation that GC&S is seeing. It's always different, clearly, by... by line of business, but fundamentally what TGCNS is doing is pushing rate increases which are in line with the expected inflation, which is also around mid-digit across the book. And also the retention ratio at TGCNS is pretty healthy, so we are above 90%. You can see the combined ratio is very strong, so we are thinking that there is the right amount of rate increases coming to match inflation, also to preserve the profitability of the business.

Very good, thank you.

Thank you, Dominic. We will take the next question from Thomas Fossar from HSBC. Thomas, please go ahead.

Just a clarification on the momentum for the price increase. You're saying 5.6% in Q1. If I'm looking at the previous quarters, it was up 7.5% in Q4 and 6.7% in Q3. So the question is, are we now past the peak of the price momentum, and given the timing of the renewal of your main countries, I mean, should we have now the pretty final picture of what you expect the price increase to be in 2023? Thank you.

Okay, so I would say, first of all, when you look at the numbers, always also make sure that you look at it by OE, because clearly you're going to see different trends when you take trade into the equation or outside the equation, so that's also very important. But in general, I would say... I would expect that we are going to see this kind of rate changes being stable at this point in time. So I would not expect that you are going to see an additional acceleration, but they should stay stable because these are the rate changes clearly that are needed in order to match the inflation, let's put it this way, that we are seeing right now. I want to be anyway very clear. In reality, you know, we don't see a lot of bodily injury inflation yet. So that's something very important. When we think about spare part inflation, that's a little bit of a different game. I already said in the call last time that basically if you increase inflation, spare part inflation by 5 percentage point, that's equivalent to 1% of loss ratio. I'm speaking here of motor. Another way to look at that is is if you have an increase in spare part inflation of 5%, the inflation that you get in your book is 25% of 5%. So it's like 1.25. So think about that. You see 8% of spare part inflation. This means, in reality, 2% inflation. for the book. Against that, we get some nice rate increases. So I think what we are getting right now is definitely adequate to match inflation, also to match an expectation that bodily injury inflation might go up. That's exactly what we are doing. We are not just trying to keep the spare part inflation in the price and to put into the price, but also anticipating potential inflation down the road. And I would expect that you're going to see these kind of rate changes stay also in the course of in the remainder of the year. Welcome.

All right. Thanks, Thomas. Thank you, Giulio. We do not have any further questions for now. So thanks for joining our conference call today. We say goodbye to all of you and wish you a very pleasant remaining afternoon.

And ask a lot of difficult questions to Oliver next week about IFRS 917. No, thank you, guys. And we know it's a lot of change coming. I hope that we could give you a good disclosure. And with that, thank you for your time and for your calls. And to the next time. Thank you. Thank you. Bye-bye. Cheers.