Allianz Se Unsp/Adr

Ladies and gentlemen, welcome to the Allianz conference call on the Allianz Group financial results for the second quarter of 2025. For your information, this conference call is being streamed live on Allianz.com and YouTube. A recording will be made available shortly after the call. At this time, I would like to turn the call over to your host today, Oliver Bates, Chief Executive Officer of Allianz SE.

Please go ahead, Oliver. Thank you, Andrew. I'm not sure what host means. Probably I play the bill, but I don't know why. But I'm very happy to talk to you today. Thanks for your interest on this beautiful afternoon in Munich. I would like to do an introduction into the discussion, and then Claire-Marie will go with you through all of your questions and a lot of the details that... you may be interested in. Let me just start initially, even though this is the analyst call about what we are going to talk about. That is the delivery of the strategy that we have discussed at the Capital Markets Day in December. And that's exactly what is happening now. As a reminder, while we report in three segments, P&C, life, asset management, reality, we run from a customer perspective, two businesses. We run a protection and a retirement business. And those are we are trying to drive further at this point in time in terms of value creation through three most important levers. There are many others behind, but the most important one are three. Driving smart growth going forward. As you know, historically, Allianz has worked very hard on bringing the brand forward, customer satisfaction forward, productivity up, but it's now time to translate the strengths of the foundations into growing market share. The second one is further reinforcing productivity. You can probably spend hours on the impact of AI on the one thing we know for sure in our industry. We now have the opportunity to really process unstructured data in a much more productive way than any time before. And we're going to leverage that not just in administration or call centers, everything everyone talks about, but also how do we serve customers better. And you can measure that in terms of expense ratio for sure, which we've been improving for a long time, again, in the first six months, but also other items, as you're going to see. And the further one, and given this, how do I say this properly, interesting political and economic environment, we need to further strengthen resilience because that's what customers want. And that's many of our shareholders want that too. What is the core message? Allianz has been for a long time a world-class product organization. We are exceptional at the products we design and sell and service. What we can do better is to help serve customers across products. And you will see that in the form of lower lapses over time and in the form of higher cross-selling. Some of that to come. Now on page A5, please move there. Just two examples from the first six months. One focus is on internal or growth in the P&C segment. The other one is on productivity. Again, highlighting it through the expense ratio. We can take other items as well. On the first one, it's very important. We've shown 8% growth and that's really important. of which 5% is pricing and 3% is volume. And the biggest contributors to volume have been during the first six months. And by the way, they often change over quarters. They may change year by year, but this time it has been alliance partners. So our platform business is keeping on growing very strongly. It meets very important demands. In our economy, AGCNS, Brazil is growing leaps and bounds after we have completely reformed the platform. And certainly last but not least, Germany, where all our investments in improving performance are really paying off. Now, you can take subcategories and say, yeah, yeah, yeah, that sounds great, but what happens in retail? What happens at partners specifically? What's happening in commercial lines? And you see that the commercial lines number, let me just explain, we had very significant growth in the health side of Allianz Partners. We account in the commercial line segment, so the 6% growth number that you see there is without partners, and that's at a very solid 6%. Partners, I mentioned, is 9%, and return lines is 8%. So across the segments, we see very, very, very good results. On the productivity side, the same picture as we've had the last seven years, and you see from 22, but we can go back to 2019, where we started with the journey in terms of seeing it. Remember, we are coming from 28.6% expense ratio in 2018. Now, this year, you are seeing for the first six months, 24%. That's 4.6% lower and every year 30 to 40 basis points improvement and we do not intend to let go. Sometimes per OE or per region some of these numbers may change because of a change in the product mix or the change in the distribution mix. In an aggregate level we do not expect this number to increase. change over the coming years. It's certainly not for the strategic cycle that we've talked about. Now, now let me take your attention to page A6, just an update on what we're doing on the portfolio. For the last 10 years, we've systematically said we refrain from big acquisition, we focus on bolt-on and things that bring us new capability. maybe new distribution access or new business model invention. So let me actually guide you through them. And I start on the right hand side with Sunlum. As announced before, we have stepped up our participation in the joint venture with Sunlum to 49%. We always said we want to do that, we want to be present, but we want to be present in Africa with a partner whose destiny and origination is Africa, so we are much better placed than where we were before. I think we're now at least three times the size of our next competitor in order to be able to exploit the opportunity. And remember, the JV covers all countries outside of South Africa, the home market of Sanlam. So that is important to say. I'll talk about India in a second. Let me turn to other investments that you could consider to be more traditional in Australia. We went into a strategic partnership with the Royal Automobile Association of South Australia. It is very good for us because it helps us to diversify also from a net cap perspective. So in terms of net capital consumption, it's also pretty good. And then in Allianz Direct, we've done a number of very targeted small acquisitions in order to build on the scale of the platform. Remember, Allianz Direct is one of the very few businesses that exist in our industry that operates across countries with exactly the same operating and IT platform. It's not like they look similar, they are identical. And now we need to integrate these portfolios to build the scale on the platform. You see that some of these acquisitions will only come into the numbers later this year or early next year. Now, more unconventional, you may say, are what we've done on Sconset 3. This is a continuation of the work we've done in 21, where we hiked off $36 billion in reserves. Now we have created an open or so-called open book or flow reinsurance structure in the United States in order to be able to to not just address in-force books but also new business that makes us competitive in products and segments that we were not competitive in before because of Solvency II and our capital model having different cost of capital. and we continue to work on similar solution like Sconsidry in order to optimize the usage of capital in the United States. Remember, because of the RBC model, actually compared to Solvency II, the U.S. is not very capital efficient because we cannot use the value of the new business as an offset to capital requirements, so we need to continue to work on capital efficiency while growing the franchise. The other one is Veridium. We have led a consortium. that has taken over the company. We're very happy to having just closed this one, having received regulatory approval a while ago, and we want to combine our expertise in terms of running life insurance books With the expertise on the investment side, we also deleted asset management service provider to Veridium. So we expect a significant boost on our ability to grow both PIMCO and AGI out of this partnership. And by the way, Allianz Investment Management is the partner for Veridium in terms of asset allocation. So that's just a little bit of a view. Let me then head to the most important strategic development of the quarter. We've just announced our partnership in India with Reliance Group. Many of you may know Reliance Group really well. It's not just the biggest petrochemical and chemical company in India, it's also the biggest retailer in India. And it's also the biggest mobile phone company. Just to give you some numbers that are quite staggering. If you think about Geofone, they have 494 million, so almost 500 million subscribers. They have, and that's very interesting, in the retail side, 366 million regular customers in Reliance retail. And just Geomart, which is sort of the Amazon equivalent, does 600,000 deliveries a day. By the way, last year, Reliance Retail recorded 1.26 billion sales transactions in their retail network. So it's a giant partner that we're starting our journey with. Now, a couple of you will say, so why are you starting with reinsurance, given the numbers you just mentioned? It's a very simple answer. We do not have any competition issues with our current partner, Bajaj. Therefore, there is no issue with non-compete. That's why we're starting now and we're launching with the renewal season that is in April of 2026. But as soon as we have fully exited our partnership with Bajaj, which is happening in a very amicable way, we are going to launch in commercial lines, in P&C retail, in health, and subsequently in all lines of insurance, and by the way, also insurance services as a partnership. I'm also proud to say that in difference to what we had before, we have a 50-50 relationship, but we are going to have management control. And that is a first, apparently, in the universe of Reliance. So we are very proud about that. Now, some of you will ask, so why did you then change? Again, a very simple explanation. While we founded the insurance company in 2001 with Bajaj, we contributed 100% of the capital that ever went into Allianz Bajaj. We brought the people, we brought the IT systems. At the time, we grew it together, but we could only own and control 26%. of the capital. And we could not agree with our long-term partner, Bajaj, to a very simple fact that Allianz would want to run the insurance business. We are not in the investment business for insurance. We are in the operating business. And as the Bajaj family eventually decided that they would not ever relinquish management control to us, we have had to decide to find a new partner. We are extremely proud to have partnered with the best partner that we can ever imagine India, that's the Reliance Group and the Ambani family. We are very, very proud and dignified by them partnering with us. And I gave you some numbers. The potential is gigantic. So that's what we have done in the first six months of this year in terms of working on the portfolio, strengthening growth, and there is more to come. The investors over the next couple of months following the same strategy that we've had for a decade now. Now let me turn your attention to page A7, just to give you an overview. For us, it's very important to continuously deliver. And there may be a quarter where some of you feel, well, this is a little bit light there, and why is this part of the portfolio not perfect? Just look at the growth profile, the financials delivered, and the balance sheet strength Property casualty internal growth, that is always, remember, without M&A and FX, 8% up over the first six months. New business value growth and life is 9%. Asset management, AUM growth, is a little lower given what we have discussed, annualized at 4%, but already in July, already July, i.e. already in the first months of the third quarter, we had $21 billion of net flows into PIMCO. So the growth continues extremely strongly. A lot of the FX translation effects are really noise, clamory. We'll talk about it. because the really relevant numbers, that's dividends coming out of the U.S., are hedged forward, and therefore that is something that we need to discuss. In terms of financials, operating profit is at 54% of full-year midpoint. The core EPS is 8%, and there we have been taking out both the tax we had to pay but also the gains on earnings. unique credit, and the core return on equity is at an annualized 18%, which is an outstanding number, particularly relative to what our long-term average used to be. Capital generation, I'm very proud of the finance team and our OEs, is significantly improving. We were heavily criticized in the past for operating capital generation. It stands at plus 13% for the first six months. Solvency remains strong despite all of the volatility, and obviously there's a connection between point one and two. And, of course, our rating have been confirmed, and we have very good results. outlooks on the reading. So the overall picture while every now and then something may move in a crazy world. I'd like to also mention one thing that I find very important. I've seen some comments around sort of, we had lower net cap but we also had prior year development. You know, I've been here 18 years, I never understand these questions. We do not need high runoff, and we certainly use every opportunity to be extremely prudent in setting our reserves, if I may say so. Now, with that, I hand over to Claire Marie to give you some more color on the details in all the segments around growth, profitability, and whatever you want to know. Thank you.

Thank you very much, Oliver. And good afternoon to everyone. So looking at page B3, here you can see, as mentioned by Oliver already, that the group has delivered excellent results in the first half of the year and in the second quarter as well on a standalone basis. This is clearly positioning us very well for the full year targets, but as well towards our capital market day ambitions, also as mentioned by Oliver. First what you see on this page is that we have a strong level of growth that is coming across our three segments and we continue to see that growth steaming from the three segments as we have seen previously. So we have a strong consistency here despite some FX effects that we have also seen in the quarter. So we grew at a total business volume of 8% at constant FX. As you can see on the page as well, it would have been double-digit growth at 10%. Our operating profit in the second quarter is even higher than the record level of operating profit we have achieved in the first quarter. So overall, our first half operating profit is at 8.6 billion, which is up 9%, clearly an excellent level, which is fully on track against our guidance of 16 billion plus minus 1 billion euros for the full year 2025. Here as well, as I have been mentioning for the growth, our three businesses are contributing to the positive development of our operating profit with the stronger support from P&C, as you can see on the page as well. We see as well an excellent development of our core net income, which did benefit from the sale of Unicredit Vita and GV in the second quarter. But if I adjust for this gain on sale and for the famous badge related tax provisions that we have booked in the first quarter, our core net income is up 6% and our core EPS is approximately at 8% growth, which is the midpoint of our 7% to 9% EPS growth rate that we have been mentioning during the Capital Market Day. As mentioned by Oliver as well, we continue to deliver an excellent level of IFRS ROE, which for the second quarter on a standalone basis is above 19% on a core basis. And I think even more fundamentally, I would say beyond the P&L item, our resilience remains strong in the environment today that is quite challenged overall. Our solvency to ratio emerged up at 209%, with an excellent capital generation of around 13 percentage points in the first half of the year. So overall an excellent set of numbers from growth to profitability and financial strength. Clearly this is making us very happy as you have heard as well from Oliver clearly in his introduction. So moving to next page and having a look at the P&C business before. Here we see a strong level of growth and an excellent level of profitability in both retail and commercial. In the second quarter, we achieved an even better level of combined ratio compared to the first quarter, and we have delivered an even higher level of operating profit, which was at a record level already in the first quarter. This is bringing our first half operating profit to 4.5 billion euros, which is up 12% versus last year. This is the outcome of first higher volume level, which we are earning through at an increased level of margin, with some offsets from FXFX in the investment results. First, we see a good top line momentum that is continuing in the second quarter. This results in an internal growth rate of 8% for the half year. The growth was driven by both price 4% and volume 5% in the second quarter on a standalone basis. The volume effect was higher compared to the first quarter, with very good volume growth from commercial lines, as you have seen as well, in particular from partners. And as mentioned already by Oliver, we see plenty of good examples in the quarter of our platform play. In addition to partners, we have Direct, which has been growing by more than 20% on an internal growth basis in the first half, with more to come, I would say, in the second half of the year, as we are integrating Friday and IptiQ, which are two acquisitions, you may remember, we did previously. Our pricing trends continue to be robust in general, with clearly quite some differences and nuances between geographies and line of business. But the average renewal rate at 6M is at plus 5%. The pricing continues to be strongest in retail lines, where we are at plus 8%. We are close to 10% in motor retail and mid to high single digits in all other retail lines. In commercial, the rate momentum continues to trend downwards and now stands at plus 1% across our portfolio, where mid-corp remains resilient and we see some softening continuing in the large corporate space at AGCS and Allianz Trade as an example. Our underwriting profitability is excellent with our combined ratio at 91.5. This is fueled by three main dimensions. The first one is that we have an excellent attritional performance as we are earning through our pricing and our underwriting actions. We have had a relatively benign NATCAT experience, but this has been counterbalanced by a conservative level of reserve setting, as already mentioned by Oliver as well, and we continue to focus on our productivity with our expense ratio 40 bps lower than last year at 24%. By segment, you can see as well on this page that we have strong improvements on our retail business, while the commercial profitability remains very good at 91%. Overall, it was an excellent first half for the P&C business. Our operating profit is 12% ahead of the midpoint of our guidance run rate. We have good underlying volume goals, we have an excellent underwriting profitability, and the positive developments are very broad-based, both from a line-of-business perspective, but as well from a geographical angle. Let's now move to life, and let's have a look on page B5. Well, here we continue to see a double-digit new business growth at an attractive new business margin of 9.6% in our preferred line of business, which is very important also from a resilience perspective. Our operating profit is up 5% versus last year, which is exactly in line with our outlook and also with our capital market expectations. What I find very interesting when you look a bit further into the details of our portfolio is that our life businesses outside of our two largest entities, Germany and basically Allianz Leben and Easy Life, contributes just over 60% of the operating profit and increases their contribution 11% year on year. So we have a high quality and we have a very well diversified portfolio on the life and health side. This is as well what we see in terms of new business growth for the half year, which is really broadly spread with double-digit growth in Germany, in Italy, in Asia, or CE as an example. As always, we do have the second quarter on a standalone basis, which is a bit lower than the first quarter in terms of growth. We always have some seasonality in Europe. In our growth development in life, we should also expect to have a bit of a lower growth in the third quarter as well. And on the operating profit side, the second quarter was a bit impacted by ethics and as well some weaker investment results, which are partly reflecting the market volatility we have experienced during this period. We are particularly pleased with the underlying CSM development in the first half of the year. Here are two points to mention. First, our CSM growth adjusted for FX effect is almost 4%, which clearly demonstrates our low level of non-economic variances in the ground environment. And secondly, our normalized CSM growth is around 3%, which is clearly a strong level of growth relative to the 5% annual expectations we do have for normalized CSM growth. So in life and health, we see... A strong market appetite for our products, which is continuing and be fueled by the secular trends we have discussed in the Capital Market Day, the quality of the Allianz brand and the trust in our resilience. This clearly allows us to build sustainable value that we are going to earn in the future as we are going to earn the CSM going forward. Let's move to B6 and let's look at our asset management segment. Well, here as well, we are delivering very good results in a very volatile quarter. First, when we look at our results, you need to keep in mind that more than 70% of our third-party asset and our management are U.S. dollar denominated, meaning that it's very important to look at the underlying to judge the performance. And from all three segments, you need to note as well that asset management is the most impacted by the U.S. dollar volatility. Corrected for FX effect, our asset and our management growth is around 4%, with net inflows at 42 billion, which means an organic growth rate of around 4% annualized. This is clearly very strong for a pure active manager, in particular in the volatile market we had experienced in the first half of the year. The inflows we have experienced mainly emerge from PIMCO, and here are some colors I'd like to give. First of all, PIMCO continues to see an excellent traction in its active ETF proposition, which is now sitting at 40 billion euros of asset and our management, and we have seen 10 billion year-to-date of net flows into that proposition. Beyond the fixed income strategies, we have seen as well the credit and the private alternative strategies as being the ones which have attracted most inflows this year. And into July, as mentioned by Oliver, we continue to see more than 20 billion of inflows, where clearly I think the offering from PIMCO continues to be supported by a strong outperformance in terms of alpha for our customers. of our strategies, which is being delivered over time. So really structurally in a five-year, three-year, one-year approach, you consistently see that outperformance. And in the challenge environment we are experiencing currently, this is also a huge opportunity for PIMCO to create more values for customers. Clearly, our profitability in the asset management segment is very resilient, with an operating profit which is up 5% in the context of negative FX effects and lower performance fees. Excluding performance fees and FX adjusted, our operating profit is up 7%, which demonstrates the strength of the underlying in a volatile environment. At both our asset managers, our third-party asset and our management margin remains very stable, as you can see as well on this page, in a competitive environment. And our focus on productivity is unchanged, as the development of our cost-income ratio clearly highlights as well on the page, as we are emerging at 61.3%. While we may continue to see the translation effects from the U.S. dollar into our numbers in future quarters, our strong track record on managing productivity, efficiency, and profitability provides resilience into our numbers. We are confident on continued net inflows and our ability to create value for our customers and shareholders as well on the asset management side. Let's move to page B7 and let's have a look at the development of our solvency ratio. We remain strongly capitalized with our sensitivities broadly unchanged, as you can see also on this page. Some elements maybe to highlight when it comes to the development of our solvency ratio since the beginning of the year. We have an excellent organic capital development at 13 percentage points year-to-date. As a reminder, for the full year 2024, we were at around 20 percentage points, and we expect to achieve more than 20 percentage points for 2025, with our medium-term objective to improve the run rate of our operating factor generation to 24 to 25 percentage points in 2027. As an organization, we have been very focused on this metric, and we see some of the early benefits of this in the improved generation year to date. We as well add in the first quarter some positive variances, in particular from life, which I don't think are to be fully extrapolated into the second half of the year. Our operating capital generation is partially offset by the cost of the 2025 buyback program and the normal dividend accrual, as you can see here, with minus 11 percentage points. Then we have a small negative market impact, and we have a positive contribution from the management actions we have taken, mainly from the reinsurance transaction at EasyLife and the disposal of the Unicredit VitaGV. Those results reiterate our confidence on the strength and resilience of our capital position. At this stage in the year, we feel even more confident in our ability to improve our capital generation as we advance the initiatives outlined at the Capital Market Day. Let me conclude on page B8. Clearly, our results are excellent. We see continued business growth stemming from all three segments and a record level of profitability. This positions us very well for the second half of the year and allows us to reiterate our outlook of $16 billion plus minus $1 billion operating profit for 2025. More fundamentally, this has positioned us very well for the delivery of our capital market ambitions. As mentioned by Oliver, as an organization, we are focused on working on the initiatives along the three levers, driving smart growth, reinforcing productivity, and strengthening resilience. And I will say the energy and the creativity also in cross-sharing the initiatives we have experienced during COVID. The meetings we had with the Board of Management of each and every operating entities together with Oliver in May is very much comforting in our ability to deliver against our ambitions. With that, I thank you all very much for your attention, and I hand over back to you, Andrew, for questions.