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