Allianz Se Unsp/Adr

everybody and welcome to the alliance conference call on the financial results of the second quarter 2023 as always let me start the call with the usual housekeeping and remind you that this conference call is being streamed live on alliance.com and youtube and that the recording will be made available shortly after the call If you want to ask a question after the presentation and you join us via web call, please click on the talk request button at the upper right-hand side of your screen. 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 over the call to our CFO, Giulio Tazzario.

Thank you, Oliver, and welcome from my side. And I'm happy to present today the results for the first half of the year and also for the second quarter. Overall, as you have already seen, we had a strong six-month result and also strong second quarter results. If we go to page three... We can see that the operating profit for the six months was 7.5 billion, which is 15% over the prior period and also 6% above the outlook of 14.2 divided by 2. From a general point of view, I would say we had very solid results in P&C, and I would say the development in commercial lines was really excellent. And also we have a good resilience in our retail business. Overall, the combined ratio for the six months is 92%. We are also benefiting from higher revenue and also from high investment income. So overall, almost 4 billion operating profit coming from our property casualty line of business. In the life health business, we see results in line with the expectation. And this reflects clearly the quality of the Inforce business. And on the new business margin, we continue to have a strong new business margin which are broadly at the 6% level, so that's a level which is even higher compared to the target of 5% that we set for ourselves. And then on the asset management, in this case clearly we know that because of the development that we observed, especially last year, the profitability has come down compared to a year ago. But we still are reporting 1.4 billion operating profit. We are still confident that we can get to the outlook of 3 billion by year end. And also that's important we see some momentum from an inflows point of view, especially at PINCO. The coordinate income is 4.7 billion, which is 90% higher compared to last year. Clearly, here we need to adjust for the effect of Statured Alpha in 2022. But even if we do that, we get to an increase in core income of 15%, which is consistent with the operating profits development. So overall, a strong set of results, I would say. across the different segments, especially under the current circumstances. And now if we go to the second quarter results at page five, you can see broadly a copy and paste of what happened in the first quarter over the six months with strong operating profit coming from property casualty, results in live with expectation with live health, And in asset management, we see an operating profit which is reduced compared to last year, but pretty much in line with the operating profit that we had in Q1. The coordinate income is with 2.5 billion, 23% higher compared to last year. That's a reflection of higher operating profit. Also, we have less restructuring in the quarter compared to last year. So that's also been a driver for the core and the income for the quarter. Again, I will go more in detail clearly through these numbers in a second. But as I was saying before, a good six months and also a strong second quarter. So we are also confident clearly as we look into the remainder of the year. Now getting to the solvency ratio of page seven. The solvency ratio has improved by three percentage points. And we should also remember that the numbers of the first quarter were not included in the deduction for the buyback of 1.5 billion. So from that point of view, there is even a stronger improvement of the solvency ratio. On the other side, we had also a net issuance of debt, which had a positive impact of 2%. But when you adjust for the buyback and for the net issuance, impact of the issuance of debts, there was still a two percentage point of negative impacts in Q2 versus Q1. So a nice delivery of the solvency capitalization from a sensitivity point of view, they are basically unchanged compared to what we had in Q1. At page 9, we have, as always, the waterfall of the capital generation. I think what is good here is to see that the capital generation, the organic capital generation, is coming up strong. And when you look at the business evolution on the requirements of $0.3 billion, this business evolution is all coming from basically property casualty. So right now we are in a situation, and we discussed this already a few times, where basically there is no real consumption or additional consumption of SCR coming from the life business. So all in all, 208 of solvency ratio, this is a clear indication clearly that we have capital flexibility that we can deploy as we go forward. into the remainder of the year and also as we look at 2024. Now we come, as always, to the segments view. And I will say page 11 is, in my opinion, a very strong page. You can see that we have a very nice growth rate of double digit. You can also see that this growth rate is widespread, basically across all entities. I think also what is really good here is to see the acceleration of rate change or renewal, 7.4%. I can also tell you that in retail business, we are close to 9%, and in commercial business, we are north of 5%. So from that point of view, I think this is a clear sign when you look at the rate change or renewal, when you look at internal growth, that there is a strong push in order to offset the inflation that we have been clearly seeing over the last 12 months. So that's, in my opinion, the most relevant page, I would say, as we think about the performance of the property casualty business, especially as we think about the performance as we move forward. into the second part of the year and also as we think about 2024. At page 13, we come to the development of the operating profit, which is up 200 million compared to last year. Here we have higher revenue. We have also a lower combined ratio. And then also, as we are going to see in a second, we have a better investment income. So all the three components together have led to this 11% increase in operating profit. When we look at the combined ratio, we can see that in commercial lines, we have a very strong performance of 86.3%. And this is a reflection on also the environment. We know that profitability in commercial line is generally very strong, but that's also a reflection of all the activities that we have undertaken over the last two or three years. And on retail business, you can see that the combined ratio is holding high. compared to the quarter of last year. So here there is clearly some pressure coming from inflation. But on the other side, we are taking rate increases. So overall, the combined ratio is holding pretty nicely. If we move to page 15. We can take a look at the profitability by companies, and clearly there are a few companies where the performance is lagging behind, like in the United Kingdom or in Australia. To a certain degree, we could say Spain. I can also say that generally the performance is lagging behind in countries where there is some real pressure. You can see this also here. on the disclosure coming from public companies listed in those countries. On the other side, we see also a lot of strong combined ratios. If I should highlight the combined ratios, clearly the combined ratio of GC&S with 88.3% for the quarter. And if you look at the six months, which is always a more representative measure from my standpoint, We have a combined ratio of 90.8, so that's a good development. And this is not only GC&S. We saw strong performance across our commercial lines in general. So overall, I would say a good combined ratio for the segment and also a lot of entities performing at a nice level. As always, there are a few entities where there is some room for improvement, but we're also taking action, so we are pretty confident that we're going to see a better performance pretty soon also in those entities. Now we come to the investment results, page 17, which is 80 million up compared to the second quarter of last year. Here you can see clearly the benefit coming from higher interest rates. This benefit is partially offset by the interest rate accretion, but net net. We are still clearly ahead of prior period. And when you look at the economic investment yield, it is over 4%. So that's also something that clearly should help as we move into the second part of the year and as we think about 2024. So all in all, I would say very strong results in property casualty, good performance in commercial lines, so very good performance in commercial lines. Good resilience in retail. We have growth. We have acceleration rate increases. We have investment income picking up. So there are a lot of clearly strength. And this helps also clearly to offset the inflation that we are currently seeing in some part of the business. Now coming to the life business. I would say that the new business margin is pretty strong, 6%. This is a reflection clearly of the fact that we are not sacrificing performance in order to give higher guarantees. So we are holding definitely the line and to this point we are getting clearly the benefit also of a higher interest rate environment. From a production point of view, you can see that in some geography, production is down compared to what we had last year. But we are not necessarily unhappy with the absolute level of production that we are achieving. And then you can see a nice dynamic in the United States with a 20% growth coming from Allianz Light. So all in all, when you put all the numbers together, we see stability of new business margin at a good level. and increase in value in the business. And I would like to tie this conversation to the CSM development. Overall, the normalized growth in CSM and the normalized growth in CSM is the sum of CSM on new business expected in first return and CSM release. Overall, we see for the quarter a growth of 1.5%. If you analyze this number, that would indicate 6% normalized growth on an annualized basis. If you look at the six months, which is always a little bit more representative because it's kind of smoothing some noise that you might have between quarters, we get to an annualized growth of 5%. So from that point of view, we have now the impression that our normalized growth might be a little bit stronger compared to the 4% that we have been expecting. indicating previously, but again, this is a new measure, a new metric, so we want clearly to observe how this CSM is going to develop over the next quarters before we achieve a definitive conclusion, but based on what we see right now, it might be that our normalized CSM growth is going to be more towards 5% and not towards 4%. Now coming to the operating profit, page 23, there is in general an expectation that the operating profit should be in line with the CSM release because the other elements have a tendency to offset each other, besides for some noise coming from operating investment results. You can see that in the second quarter this is the case. There is always some clearly volatility around the number, but fundamentally you can see there is a strong correlation between the CSM release and the operating profit as expected. For the second quarter 2022, This is not the case, but we discussed that already in the last quarter call. That's because of the first-time implementation of FRS17, and this has created some accounting noise for Allianz Life. When you look at the six months for the life business, we have an operating profit of $2.5 billion, which is exactly in line with the expectation. Now we go to page 25. You can see the picture by companies. And again, here what is eye-catching is the development in the United States. But again, this has to do with the effect of last year. Otherwise, you know, you see stable numbers generally in the quarter-over-quarter comparison. So all in all, I would say strong results also from our live business. We have a new accounting framework. We are learning the new accounting framework. I can personally tell you I like it, and I think that this is really a good way to get some insights in the development of the business, especially also as you look at the CSM development over time and also as you look at the operating profit and the different components of the operating profit, how they are moving over time. And with that, we come to asset management. Asset management, the third-party asset management are basically stable compared to the level of the first quarter. And we compare the current level to the one that we had at the beginning of the year. We are even 2% higher. So we can see that, in general, there is some stability. which has not been the case in 2022. So from that point of view, we get comfort that the kind of pressure we saw from rates going up in 2022 should not necessarily repeat in 2022. and this should bring the needed stability in our results moving forward. And if you go to page 29, we can look at the evolution of the third-party assets under management. You can see that there were some flows at PINCO in the second quarter of about $4 billion. I can also tell you that there was some sort of acceleration towards the end of the quarter And then we saw positive flows of $6 billion in July. So from that point of view, we might be at this kind of reflection point that we discussed already in prior course. When you go then to page 31 on the development of the revenue, they are clearly down compared to last year. That's because of the basis effect of 12 months of reduction in assets under management. When you look at internal growth, in reality, it's pretty moderate. We're down with minus 2%. And this is more or less consistent between PINCO and AGI. What is eye-catching in this slide is the development of the fee margin at AGI, which is significantly reduced compared to the level of last year. But this has to do with the Voya transaction. So from that point of view, clearly we have less assets and also especially assets that had a high margin. But on the other side, we don't have also the cost associated to the business. So from that point of view, you need to – you cannot take the reduction in fee margin and assume that this is a reduction in – profitability one-to-one, but that's much less the reduction in profitability than what might look based on this fee margin reduction. At page 33 on the operating profit, we have a Reduction of operating profit of 7%. This is actually in line with the expectation. So from that point of view, there is no surprise. And that's also broadly in line with the first quarter. When you look at the six months together, we have an operating profit for the segment of $1.4 billion, a little bit more than $1.4 billion. Our outlook for the year is $3 billion. So we are confident that we can get to the outlook. And the reason for that is, A, we see some momentum building up. Also from a flows point of view, we saw stability in the assets under management in Q2 versus Q1. And also, as you know, Usually the majority of the performance fees or higher proportion of performance fees is coming in Q4 compared to Q3 compared to what you have in Q1, Q2. So when you put all this together, we should be able to achieve our outlook of 3 billion starting from the 1.4 billion that we have right now. Corporate, I will not spend much time. It's in line with the expectation. Indeed, a little bit better compared to our expectation. And then I would come to the core income at page 37, which is up over 20% compared to last year. Here, as I was saying at the beginning of the presentation, we have a contribution coming from operating profit. You can see also that the restructuring is significantly lower compared to last year. Last year we had the impact due to the Voya transaction and the restructuring associated to it. And then also we had some lower tax rates, which is partially due to one-offs. Some part of it is due to seasonality, let's call it this way. So all in all, We get to a significant increase in core net income. If you look at the $4.7 billion of core net income for the six months, I think that's a good representation of a normalized level of core net income. So if you analyze that, you get to $9.4, $9.5 billion increase. That could be an expectation, you know, based on the level of performance that we see coming through right now. So in summary, a strong set of results for the quarter and also for the six months with growth in business volume. This is mostly coming from P&C, which is exactly where we like to see growth. It's driven by clearly rate changes that we are implementing. We see a nice development of the operating profit. We always should also keep in mind that last year we had a record operating profit, so we are building up strong growth on results, which were pretty good to start with. And then also the solvency ratio 208 is at a level that gives us clearly comfort as we think about capital deployment moving forward. So good results, and I'm happy to get your questions now.

all right thanks julio for the presentation we will now take your questions and the first question comes from andrew sinclair from bank of america andy please go ahead your line is open now

Afternoon. Thanks, everyone. Three from me as usual, please. First is on P&C. I'll go to the slide, Julio, that you were pointing to as the main one. Good figures for rate changes across the board. But just wondered if you could comment, really, where do you think that margins are now, rates are now at an acceptable level that you can push a little bit more for volume? where pricing has reached a suitable level. And in particular, I was just wanting to dig into a little bit on Allianz Partners, where there seems to be a huge acceleration of rate in Q2, up 2.3% in Q1, 11.6% for the six months ahead. Just interested on thoughts on that. That's my first question. Second was on life and health. Germany seemed to have a really pretty big drop in sales. Just wonder if you can give us a little bit more colour on what's happening there to business that you'd have otherwise captured, and likewise, are you seeing any impact on lapses? And third question was just on the solvency, and then 208%, great ratio. How should we think about that compared to, say, cash and an ability to put that to work? That's three for me. Thank you.

Thank you for your question. Maybe I start from the last one, the 208, and how it compares to cash. We are, again, on the cash side, we are in a very comfortable position. So that's also important because you might have a strong solvency ratio, but if you don't have a lot of liquidity... There is not much you can do about that. And we see that, you know, we get the cash remittances that we're getting from the OEs are consistent with our plan. You're going to see also the numbers at the end of the year. And from a cash position, we are definitely in a solid position. So we don't have any particular constraint, let's put it this way, in deploying cash. capital based on the solvency ratio that we see and also based on the capital position, the liquidity position that we have. On the liquidity, I would like also to stress something. If you look at our track record over time, you can see a very stable amount of cash remittances, and I would always lean there to the quality of the franchise. So and also just think about SM managers and let's forget about the incident with Starchad Alpha, but SM managers are producing a 3 billion operating profit. You put that after tax and that basically a dividend that you're going to get one to one. We have a company here in Germany, Stuttgart. They are producing 700, 800 million of dividend. We are extremely confident we are going to get that amount of dividend. We have Apicafau, which is a health business. There are other 150 million dividends. So you get 1 billion of dividend, which I would say, call it guaranteed, between inverted commas. from this entity here in Germany. Germany PNC is a strong contributor to our dividend. And so from that point of view, when you put it all together, you know that we are already starting basically every year with this amount of dividend, which is basically sure. So that's something very important to remember. On the other one, which is the topic regarding living and what is happening with the production there. First of all, there is an element which is a little bit actuarial. So when we show the present value of business premium here, The calculation is done on a present value basis, which means when rates go high, you have basically a lower present value in a business premium. So if you look at the comments that we put in the presentation, the minus 18% that you see there in reality is more like minus 8%. So from that point of view, it's still a negative number, but not as negative as it might look like just by looking at the headline number. What is happening there clearly in the bank assurance channel production is currently lower and the reason is the banks are pushing other products or maybe they are not pushing any product at all because they are happy to get the spread on the deposit. That's the only area where we are kind of seeing lower production in the broker channel or in the agency channel. Actually, production is coming as expected. But for me, what is important is not so much whether we're going up and down compared to a prior quarter or a prior year. It's whether the amount of production we are getting is enough in order to ensure that we have enough scale, that we have enough meat on the bones. And I can tell you that's absolutely important. The case, you know, I was the CFO of Allianz Live, and I was used to see volatility up and down, but for me the most important thing was to have a certain amount of production, and this is the amount of production that we get in general on our live business is enough. You can see this also reflected in the CSM. where we are still creating basically a CSM interception which is broadly in line with the CSM release. So we just need to get a little bit more growth and then you know the picture is going to look extremely very positive from my standpoint. On lapses we don't see lapses, especially we don't see lapses in Germany. So in Germany basically there is zero lapsation. We don't see, we saw some lapses in prior quarters in France, but they are moderating. And in Italy, you see some lapses in the bank insurance channel, but it's not the majority of our business. We have also 50% of that business only. So in reality, it's not really a problem from our standpoint. And when you look at the CSM, evolution. Actually, we don't see any impact on our CSM evolution because of higher lapses. So from that point of view, I would say lapse, which was an issue at the beginning of the quarter, at the beginning of the year, also because of what happened in the U.S., shouldn't be a concern as we look at our numbers. And then you had a question on the PNC margin. You know, for me, And the question was whether we can push now for growth as opposed to keep the profitability. First of all, as long as there is noise around inflation and we need to second guess what inflation might be doing, we are going to be on the cautious side. So from that point of view, that's not the time where you make experiments. So that's my tactical answer to the current situation. Then fundamentally, I personally always struggle with the idea to gain market share by changing profit target or changing pricing, because every time you do that, you end up in very dangerous territory. So if you want to gain market share, you do that. by having a superior business model by having better customer service by doing all these kind of things but using the price element to gain market share that can be something that helps you for a quarter two and then you pay everything back so fundamental is not the strategy that resonates, let's say, here at Allianz. And then you had a specific question about the health business, about Allianz partners and the renewal change. This is coming from the health business of Allianz partners. You know, it's not a long-term short business. It's more a short-term health business. But in that case, there is also some inflation coming through, and that's the reason why you see also price changes coming through in order to make sure that we can keep the profitability at the desired level. I hope this helps.

Very detailed. Appreciate that. Thank you very much.

You're welcome.

All right. Thanks, Andy. And we will take the next question from Peter Elliott from Kepler Chivreux. Peter, please go ahead. The line is open.

Thank you very much. I had a couple of questions on life, please, and one on the corporate segment. I appreciate that life is sort of 50% of the full year outlook and therefore in line. But I guess you're normally quite conservative in the outlook. And I'm not really aware of any sort of major headwinds in H1. So I'm just wondering whether this is a fair reflection of the run rate. whether you were a bit less conservative or whether there's sort of any reason that a run rate might be slightly better than we're seeing at the moment. Just wondering if you could elaborate on that. And then the second one also on life. If I look at the slide 21 of the CSM, the expected in-force return on the CSM, even if I adjust for the true up, We're still at 700 for the quarter, which is much higher than Q1. So I'm just wondering if you can help me understand why that is and what the right ongoing level is. And then finally, on the corporate segment, I appreciate you said it sort of roughly in line, but – I guess it was quite a decent beat against consensus, especially if you annualize that. And looking at it, I'm sort of thinking, well, the alternatives may be benefited from slightly higher dividends, but I'm struggling to see any other one-offs. So I'm just wondering if there are any one-offs there or if that's a sort of sustainable result. Thank you very much.

Thank you for your question. Starting from the life business, I understand the first question was about basically the outlook. You know, the point on the profitability in the life business on the operating profit is pretty sticky. So there are pros and cons. In the sense you should not expect this operating profit to go down. You know, it may be some volatility, but fundamentally the operating profit should go down. go up, but it's not going to go up in an accelerated way. So you can basically expect that the performance during a year is going to be pretty sticky and you're not going to see a major difference in the operating profit in Q1 versus Q4. If you want to be very technical, there should be a little bit of an increase. But we are speaking here really of rounding. So that's a little bit the way to look at that. The performance is going to be relatively sticky, gradually increasing. But we are at $2.5 billion at six months. Yes, one committee argument should be a little bit higher than $5 billion by the end of the year. But it's not going to be $5.1 billion. It should be a little bit higher than that. And then you have always the noise around the calculation. So think about a measure which is gradually going up. And there is a lot of stickiness, and this comes with the advantage that you should not have negative surprises, that suddenly this profit is vanishing. On the other side, it's something that is building up over time. This is something that, if you ask me, that deserves definitely a different cost of capital compared to what the market is doing. But I hope that over time this level of confidence is going to come through because that's really a stable increase in profit over time, and there is not much risk that this profit – you can have volatility, but there is no risk that this profit is going to go away, and then you know you are in a totally different situation. So that's on the life, and then you had a question on the CSM. Yes, okay, so you are right. Even if we adjust for the – Let's say for the true up, let's call it this way, in Q2, we are $700 million for the expected in-force return for the quarter. Another way to look at that, which is the same point you are making, you can look at the six months, and basically we get to something which is around the $1.4 billion of expected in-force return. So this points out. that we should have more enforced return compared to what we thought. When we did the first release around our IFRS 17 profit, we got it to something up to $2.5 billion. I would say, based on what we see, it might be that we are going to be even a little bit north of this $2.5 billion. And the reason for that is, first of all, the fact that rates have come up is creating a stronger unwinding of the CSM. And then the other point is also we are getting a little bit more of a return compared to what we have modeled before. Initially, so as of now, I would say there could be a fair expectation that we are going to be ahead of what we thought and we told you. But since this is a new calculation, I would really always be cautious and see what happens in Q3 and Q4. But as of now, yes, this would be our perception that we are going to be ahead compared to what we told you before. Then you had a question regarding the corporate business. Okay, on the corporate business, and I think we said this a few times, you know, the outlook that we have for the year is $800 million. We also said this is the part where we also put some contingency or explicit contingency. So from that point of view, I would say it's not surprising that we are going to be better than 200 million per quarter. I would also anyway consider that there is always some more expenses coming towards the end of the year. But I would say the number you see there, if you were to ask me, it's 40 million better compared to what an expectation might be. But, you know, 40 million is, we are speaking of nuance here. But keep in mind that there is some conservatism in the outlook that we put forward for the corporate segment.

Yes, it was perfect. Thank you very much.

Thank you.

Thank you, Peter. We will take the next question from Andrew Ritchie, Autonomous. Andrew, please go ahead. Your line is open.

Oh, hi there. A couple of questions. Could you just clarify, when I look at the commercial P&C result, it's helpful you break this out consistently now. I can see it's improved year on year, but it doesn't look like, you know, guessing what the discount effect would be year on year. The X discounting is improved year on year. So just give us a bit of color as to how you judge it. Or maybe there's some additional conservatism, particularly in the commercial, reflected on the undiscounted basis. So that's the first question. Second question on solvency, I can see looking at your sensitivities, particularly in the the full stress scenario, that that continues to sort of trend down as in the downside is falling. Is that just a reflection of market conditions or are you still doing some underlying de-risking or optimization? And the final question, do you have any updates? You provided us some color back in Q1 around the group's real estate and alternative exposure. In light of there's more debate on those assets, I've seen, I think, only one reference to a small negative impact from real estate in the French CSM development. But it was the latest in terms of the group, having looked at overall at your latest thinking on any stress areas in real estate slash alternatives and any update on things to think about there. Thanks.

Thank you for the question. Starting from commercial lines, I would say that clearly there is also some benefit coming from the discounting. If you look at the six months, you can see that for the group in total we have about 2% point of higher discounting. I would say this is also something that you can imply for the commercial segment. But regardless of discounting and impact coming from that, the performance that we see right now in commercial lines is very strong. So from that point of view, as you know, we put a lot of effort in improving the performance of EGCNS. We always told you that we were kind of conservative. on disclosing the real combined ratio of the GC&S. I can tell you that we still put some reserves on top in the course of the second quarter. So from that point of view, we see a very good performance at the GC&S. And also, this is not only GC&S. Keep in mind, we did a lot of cleaning in Germany mid-corp last year. We did a lot of cleaning in France too. So now you see basically the benefit of all this action coming through. And that explains basically the performance that we see now in commercial lines. On the de-risking, I would say we are not necessarily doing any additional major de-risking as we speak. So from that point of view, there is no major change that we are making compared to the situation in Q1 or the situation at the end of the year. So from that point of view, I would say what is also helping somehow is that clearly the markets are on a positive trajectory, and this usually tends to have a positive impact on the on the solvency ratio and also clearly then on the sensitivity to a certain degree sensitivity solvency ratio level are related as the market is more positive you get more solvency ratio you get better sensitivity and the other way around And now with reference to the real estate valuation, I would say there is a reference that we made regarding France. I can also tell you the sensitivity of the CSM to a 10% decrease in valuation of real estate is about 1.5%. So it's not really meaningful. And the point is we have a substantial future discretionary benefit. And that's something very important because usually when we put alternative assets, we put some of the alternative assets also clearly in our property casualty business on the surplus, on the net asset value side. But the majority of the assets that we are holding as alternative assets are going to be on the policy hold accounts. And always keep in mind that there is a significant amount of discretion in the way we clearly then benefit the policyholder. So from that point of view, yes, we might see some pressure coming from real estate to a certain degree. We have already seen some reduction in the valuation of the real estate. But as you look at our numbers, in reality, there is not much happening. And that's, again, because of the remarkable amount of future discretionary benefit. If you go into our interim reports, I don't remember which page. I think page 48. You're going to find a small footnote where we say what is the amount of future discretionary benefit that we have. That's 100 billion plus. And in the future, don't be surprised, we're going to start emphasizing these amounts stronger also in our presentation because I think this is a critical point. to understand really the economics of the life business. I hope this helps.

Great. Thank you. Cheers.

Thank you.

Thanks, Andrew. And we will take the next question from Michael Hattner from Berenberg. Michael, please go ahead. Your line is open.

Fantastic. Thank you very much. Thanks, Julia. I had one general question because you seem so generous today. Well, you're always generous on cash. So I don't have all the numbers and I've got them wrong anyway. But I just wondered, maybe you can explain in very broad terms how you think about cash, because you mentioned capital management. I always get very excited. So the impression I have is cash flow in the year is somewhere between $7.5 and $8 billion on a sustainable basis. Then you have the dividend, and I'm guessing here a bit over 400 million shares, maybe consensus somewhere around 12, so somewhere around $4.9 billion left. So you've got $1.6 billion left. 4.8, 2.6 billion left. And then you've done a buyback or you have a buyback of one and a half billion, so it leaves you one and a bit billion. And clearly here, is that it? Or is that, when you think about deals, you kind of think, oh, we only have one billion for deals, or... potential extra capital management, or is there something I'm missing here? That would be really, really. And then the second question, which is kind of related, the 3% normalized organic capital generation net of dividend up from 2% in Q1. Can you say, is this sustainable? Can we put 12% for the year or something? And maybe you can say where it's coming from. Thank you so much.

No, thank you for the question. And coming from cash, first of all, we like cash and we like cash immunity. So that's fundamentally the starting point. In terms of number, if I look at the flows of cash in the capital market day, we guided you to 23 billion of cash. cash remittances. This is after the deduction of holding cost and interest. And this $23 billion is for the three-year period. We are pretty confident that we're going to get this $23 billion of cash remittances coming from our company. So that's the way you need to think about remittances. So it's pretty much consistent with what we told you in the Capital Market Day of 2019. And then you need always to assume that clearly we have also cash here at the holding level. So from that point of view, I believe between the cash that we have at the holding level and also the flows that we can rely on, we feel very good about our liquidity position. I would say that's indeed one of the strengths. that we have and also keep in mind that since we are running the insurance or the reinsurance operation together with the holding operation in reality we have always always access also to other element of cash from a risk management point of view we don't do that but in reality there is a lot of additional cash that it could be available at the group level if needed, but I don't think we will ever need to go there. So the position is actually pretty comfortable. And on the capital generation, yeah, question is good. Should we see more than 10%? I believe eventually yes, because on the light side, there is no reason why We are not going to get even slightly better if you want, although you're not going to see a massive change from one year to the other, right? So there is nothing which is tectonic here. It's always kind of steady. But fundamentally, one might expect that the development on the life business is going to incrementally be positive and then on the pnc business is a matter of growth if right now we're growing pretty strongly so you see a premium growth of 10 percent if that growth is coming down because inflation is coming down automatically and we we keep the margin clearly at the level that we we want automatically we should see a higher generation. So fundamentally I would say yes, one could expect that the 10% is going to become higher, but okay, let's see what happens, but don't think this number is going to become 15% within one year. It can go gradually up and that would be the expectation. What is relevant really is the growth in PNC. There is always this notion that PNC is not capital intensive, but at the end of the day we need to put about 25% of HCR for one premium growth that we have. So keep always in mind if we are growing 1 billion, you put 250 million of HCR on top of what you had before.

Does this help? Thank you so much. Yeah, thank you.

You're welcome.

Thank you, Michael, and thanks for the compliment. We will take the next question from Vinit Malhotra from Mediabankar. Vinit, please go ahead. Your line is open.

Yes, good afternoon. Yes, thank you very much, Julio. So for me, two questions on the non-life, please, and one on PIMCO. Just on the non-life, if I go back to the combined ratio slide by market, so, you know, slide 15 today, I mean, Germany seems to have some bit of a more cautious commentary. It seems to be suggesting that the inflation in motor property, but also more favorable runoff for NATCATs. that seem to have helped us so i just want to just see your thoughts on germany uh that's the first question on this slide the second one is agcs i mean when i see 88 percent i my mind goes back to you're struggling to get 200 i know this isn't excluding the captives and fronting but there seems to be a lot of improvement from mid cop where you presented somewhere a 79 combined ratio. Could you comment on mid-corp? Because a lot of suppliers as well want to do mid-corp. And is there more competition? Is it something that has driven this AGCS numbers materially? So any thoughts on mid-corp and AGCS? Then the last one is, I think you probably missed it. The PIMCO has high performance fees. And you did answer to Andy Sinclair earlier, but also you said that the PIMCO flows in July, sorry, flows in June were turning around. Do you have a number for July for PIMCO by any chance? Thank you very much.

Yes. Okay. For PINCO, the number for July is 6 billion of inflows. And I can also tell you in May, we had a billion of inflows in PINCO. The pickup was 3 billion, more or less, in June. And now we see 6 billion. So you might say this might be the beginning of a trend. I like to think this way. Let's see what happens in August. But definitely we saw basically over the last three months, we saw basically almost 10 billion of flows coming from PINCO. So there is a nice momentum there. And then we see clearly what happens in the following months. It is logical to assume that there should be momentum coming through because the anxiety about rates going up should be much reduced compared to a few months ago. And now if you buy a fixed income portfolio, I would say you invest in a fixed income portfolio, you get some nice return. And we should never forget that PINCO is really a strong franchise, so if you want to put your money in fixed income, definitely you want to consider PINCO as a strong option. I'm not so sure about the question of performance fees. So there was a question regarding performance fees.

It felt a bit high so early in the year.

Yeah, I understand. Okay, good point. Yeah, there was some more performance fees in Q2, which is a good sign fundamentally. So from that point of view, you are right. I would say the performance fees in Q1 is something that we saw already in the past. The performance fees in Q2 are a little bit stronger. To a certain degree, there could be also an anticipation of some performance fees that we might see later, but we're still kind of positive that it's... Generally, the stronger amount of performance fees is going to come towards the end of the year. There is always some uncertainty around that, but when you look at the market conditions and so on, they seem to be supportive for a good performance fee level for the year 2023. And now to your question regarding, I think there was a question regarding Germany and the GC&S. On Germany, I'm not so sure I got the question, but I can speak in general about Germany. We see, you know, when you look at the quarter, we see a comparison of 90%, if you look at the... Six months, we see a combined ratio of 89%. So it's pretty stable around 90%. I would say what we see, so it's a good performance. What we see in Germany, there is some pressure coming on the retail side. So from that point of view, clearly on the retail side, we need to... pay attention that we are going to make the right moves in order to preserve profitability. And then we see good performance in the commercial lines, which is also the results, as I was saying before, the action that we undertook in basically last year and 2021. So that's the reason why you see basically this level of performance, which is pretty good with a combined ratio of about 89 to 90%. But there is definitely some work to do in order to make sure that we can keep the performance at this level in a country which is clearly very important for us considering the size. On your question regarding AGC&S and mid-corp, I would say the profitability that you see in mid-corp, which is very good, is not just the AGC&S part, which is mid-corp and AGC&S is the U.S. part of the business. And they are also performing nicely in this environment. In general, we see strong performance in mid-corp, and that's been an area of focus over the last few years. When I'm referring to the actions that we have been taking in France or the actions that we've been taking in Germany, I'm referring exactly to the mid-corp business. And that's also, so we see good performance. And as you know, we are now also putting together, if you want, from a steering point of view, from a management point of view, a GC&S together with our mid-core business. And we think this should help us in the future to get more growth because we can be more consistent in the approach to the brokers. We can also tap more into some markets. that we were not servicing before, and also we believe we might get some efficiency gain. If you ask Oliver Bates, it's an expectation that we're going to get a lot of efficiency gains coming from putting together things, and then also we believe that we can get to a better also technical results and we're also investing actually in infrastructure if you want to make sure that we have a state-of-the-art business in our mid-corp and corporate business.

Yes, thanks very much.

Thank you. Thank you, Winit. All right, we will take the next question from William Hawkins, KBW. Will, please go ahead, your line is open.

Hi, Giulio. Thank you for taking my questions. First of all, are there any noteworthy changes in investment allocation that you've been making through this year? Generally, the disclosure on that side is quite quiet, so I'm just wondering if there's anything interesting happening. Secondly, please, I'm sorry if I'm missing some detailed disclosure somewhere, but in your financial supplement, you're confirming that there's been a positive reversal of net flows for the life business. So we're back in positive territory after three quarters of negative flows. I can't see the breakdown of that. I'm sorry if I've missed it. So can you just be a little bit clearer about what's driving that return to positive flows? You know, some of your peers are still seeing outflows in places like Italy and France. So I'm not sure if you're actually in a better place in those markets or if you're still having outflows there, but there's good stuff going on elsewhere. So a bit more color around the shift from negative to positive flows in the life business, please. And then lastly, third question, I'm sorry about this old chestnut, but can you just remind me how you're managing Allianz from the point of view of the combined ratio that you care about? You know, in the first half, is it the 92% headline or is it the 95% if we ignore discounting? And from that baseline, do you have a general view? You know, there's a lot of moving parts, some positive, some negative over the next few years. Is this combined ratio a figure that should be improving from here, or could you be allowing it to get a bit worse in inverted commas because it's already pretty good and you can have growth and higher interest rates and that kind of thing? So the outlook beyond this year for the combined ratio, please.

Thank you for your question, William. So on the investment allocation, it was basically not changing the investment allocation. So the answer is very simple. Nothing really material happening. On the net flows, I would say they are coming especially from USA, where you see there is a strong growth rate there. Also Asia. Asia is a geography where we have a tendency anyway to see growth. flows and there was to a certain degree a little bit of an acceleration coming from Asia and then we see also flows basically in Germany so these are the three geographies basically which are somehow showing a dynamic which is explaining the positive flows. But I would say the primary driver is the development in the United States. This is what is clearly making a little bit of difference compared to what we had in prior quarters. On your question regarding the combined ratio, I would say, look, we look at combined ratio on an undiscounted basis. We look at combined ratios on a discounting basis. So there is a lot of thinking, clearly, about how this combined ratio is moving. I will not discount the discounted combined ratio because to a certain degree, if you want, that's the right economic view. And to a certain degree, you know, actuaries were used anyway to put into the price in the... potentially increase in interest rates. So from that point of view, I think you need really to look at both dimensions, and then you need to think, right? And then there is also a reality coming from the marketplace. So that's how we do it. So I will not give you an answer one way or the other. Clearly, in an environment, we're looking at the undiscounted combined ratio. and stressing the undiscounted combined ratio might lead to a better outcome, we are going to stress the undiscounted combined ratio. But I can tell you internally, I can tell you, I can see a situation that goes the other way around, where we're going to stress the discounted combined ratio. So you want to be also a little bit tactical, clearly, as you manage, you know, the relationship and the targets with the OEs. From a... Expectation point of view, we are going definitely to have conversation with our subsidiaries how we can improve our combined ratio moving forward. So from that point of view, our ambition would be... Anyway, to be able to improve this combination moving forward. But, you know, before we make statement about 2024, I think it's fair to go through the planning cycle with the OBEs. But you can imagine that our ambition is anyway to move forward and not to go backwards.

Thank you. Giulio, may I just clarify, sorry, Italy and France, again, I'm sorry if this is disclosed somewhere and I've missed it, but are Italy and France still having outflows in the second quarter? And if so, are they better or worse than the first quarter?

So I know that we have outflows in France, and I would say they are broadly in line with the development that we saw in the previous quarter. Okay, thanks.

Thanks, Will. If you like, I have all the details for you later, okay? All right. We are running out of time, so I will take questions from two more analysts who did not have the chance to ask them yet. That's Thomas and Ashik. And we start with Thomas Fossard from HSBC. So, Thomas, please go ahead. The line is open for you.

Yes, good afternoon, everyone. I've got two questions on the U.K. markets. Slide 16, and Julio, I can see you're commenting that actually the UK market is still, the environment is still difficult. Do you see some improvement already? And I was saying your 17% price increase. Can you talk a bit about the direction in terms of momentum and what we should expect now going forward in terms of combined ratio development in the UK? And related to the question, any comments you could offer on the FCA consumer duty and the implication on the ancillary income, if you've got any? Thank you.

On the second question, I'm not capable to give an answer right now, so on this one we should do some follow-up. Maybe Oliver can follow up on that one. And on the first one, which was regarding the UK, we are getting clearly looking for substantial rate increases in the UK. You saw that rate change or renewal 17%. And we can tell you that in the case of retail, we are basically approaching the 20% rate changes. So from that point of view, I think we are coming to a point where clearly the rate changes are going to be enough to offset the inflation that we see. And the expectation for the year is still to be more or less in line with the 96.8 that you see here for the quarter. So we might be slightly better and trend toward 96%. for the full year. And then next year, clearly, we expect to be at a combined ratio of 95 or below. But it all depends on the inflation amount that we see. In the UK, it's been pretty pronounced. So what I can say is that rate changes we are pushing through are substantial. So it's hard to imagine that we are not going to see stability at least. Let's start from there. And then also an improvement as we go into 2024. Thank you. Thank you.

All right. We will take the last question for today from Ashik Musadi from Morgan Stanley. Ashik, please go ahead. The line is open.

Thank you, Oliver. And hello, Julia. Just a couple of short questions, again, related to the P&C rate change. I mean, see, you delivered a fantastic growth in PNC, so not complaining that your growth was low. But a big part of the growth is just weight, basically. So it feels like organic growth in terms of volumes was still low. When do you think that you will pick up on volume growth as well? So that's the first question. And the second one is, I mean, you mentioned that on the rate change, retail was 9%. and i guess it is probably flattered by uk but i mean nine percent is certainly a number that i have not heard from anyone except some of the uk names but it's okay can you just give us some color what is this rate change x uk because it is it is a very good number and would you say there is any excess margin in that nine percent or is it mainly just covering inflation thank you

Yeah, okay, absolutely. So maybe because it's hard for me now to do the math and remove the U.K., but I can give you some ideas. So I will say between – I will not give you a specific number of countries, but between Germany, France, and Italy, we see rate increases between five and seven. When we go to Australia for the six months, we had about 10. Then there was a question before coming, you know, you see partners at 11.6. So this gives you an idea about the rate changes that we have in the countries. Also Spain, you can also see 7% rate increases in Spain. So you can see that broadly there is a nice momentum rate increases. I'm quoting here the retail business. So you can see rate increases basically that are between six and seven for a lot of European countries. And we expect this, by the way, to not necessarily to go down. So from that point of view, we see that there is pressure coming from inflation. we are going to even accelerate more these rate increases. So that's on the second question. The first question is when we are going to see growth in customer. You know, in an environment like this where you have to increase price, and I'm sure everybody is doing that to a certain degree, it's kind of maybe challenging to see really customer growth because anyway it's a very, very... It's an environment where clearly conversation with the customer might be a little bit more complicated. This said, we have put a lot of effort on our branding. You know, we've been now for a few years the brand number one. We think this should eventually pay off. We put a lot of emphasis also on the bottom-up voice of the customer. So you have the Net Promoter Score, which is something we show you all the time. That's also a KPI that has been improving. but we also put a lot of effort on the voice of the customer, which is improving. So all these kind of things eventually should translate in growth. My personal belief, also based on my experience as a CFO of a company a few years ago, you cannot really predict when growth is going to kick in, but you can put action in place that you can, you know... basically control what you can manage, and then eventually, in the right constellation, these actions and the right circumstances are going to create also growth in customer. But there's not something that you can easily put in a presentation, like on a, you know, plan, like you can put an improvement of the combined ratio. But I believe that we are taking all the actions that we need to take, and eventually... we should be able to get also to higher customer growth.

Thank you.

Welcome. Thanks, Ashik. All right, this concludes our today's conference call. We say goodbye to everybody. We wish you a pleasant remaining afternoon and a relaxed summer break.

Goodbye. Thank you, guys. Enjoy the summer break. Bye.