Axa Sa Ord

Well, good morning, everyone, and welcome to AXA's 2020 half-year results. A warm and virtual welcome to all of you on the phone and on the webcast. Here on the call this morning from AXA We are joined by our CEO, Thomas Burbell, our CFO, Etienne Borrelon, our CEO for France, Jacques de Perity, our CEO for AXA in Europe, Antimo Perretta, our CEO at AXA Excel, Scott Gunter, and our Group Chief Risk and Investments Officer, Alban de Meynel. So welcome to all of you as well. All of those present here from AXA will be very happy to answer any questions you may have on the results. As per usual, the Q&A session will be at the end of the presentation and we'll take questions from those on the phone or those joining by webcast. Please just follow the instructions you've been given. We will be giving priority to those who are joining by phone. It's now my pleasure to hand over to Thomas.

Thank you, Andrew, and good morning, good afternoon to all of you. Welcome to the half-year results 2020. I will start with the key highlights on page A5, if you've got the presentation in front of you. What are those key highlights? Number one, our business profile that we have significantly shifted over the last couple of years towards more technical risk is well positioned for the current market dynamics. and you have seen it, the company is very resilient. We are benefiting from a hardening pricing cycle in P&C commercial lines, and certainly also one of the strategic segments, the health business, is growing nicely, and it reaffirms our strategic positioning and our strategic priorities. When you look at the revenues at minus 2%, very resilient due to the fact that we had a very strong growth in the first quarter and that obviously the second quarter was impacted by COVID-19. The earnings are at 1.9 billion for the half year, which is a very good result. given the fact that we have been impacted in all industries with COVID-19. If you look at it relative to last year, it's minus 48%. If you take COVID out, it is plus 1%. And it is very much in line with the guidance of 1.5 billion of net claims from COVID-19 that we have given on the 3rd of June. COVID-19, as you well know, is in the insurance industry an event, a crisis that impacts mainly the commercial line business. And therefore, we have seen the major effects in the commercial lines business and a very good resilience across all other lines of the group. At this point in time, in a crisis that is challenging for all of us, the balance sheet has proven to be very resilient. This is also due to the fact that we have shifted our business profile. 180% solvency ratio is the solvency ratio at half-year, and we are expecting upsides from disposals, roughly 6%, and also from the integration of AXA XL into the internal model of AXA Group in the second half of 2020. This is between 5% and 10%. At the same time, the cash remittance from entities remains strong. You've seen that we have upstreamed dividend for most entities, and we have at the same time reduced the debt gearing to the debt gearing range of 25% to 28% that we have aimed to be in by the end of 2020. You have certainly also seen that our regulator, the ACPR, has issued a second communication around dividends on July 28. Their first communication in the month of May was around postponing dividends from being paid in April to October. This most recent communication was about not paying dividend for the whole year, for rest of the year 2020. Therefore, to be in alignment with this very different position of the ACPR, the Board of Directors has decided not to distribute the exceptional reserve to shareholders that we have built. And this is also very much in line with the communication of the 3rd of June where we have said 50% of the dividend is being paid. The second half is being subject to the regulatory, financial and economic environment. And here we've clearly got a change in the regulatory environment in that the ACPR, our regulator, has expressed themselves much earlier than we thought on the question around dividend for the rest of the year. If you go to the slide A6, you see the growth of the minus 2% in revenue split up by the different lines of business. P&C is slightly down. This is due to the fact that we had a confinement and that... Activity was certainly very limited for many of our customers. Health business has been performing very well. As I said earlier, one of the strategic pillars of AXA, and we feel very comfortable and also confirmed. in pursuing our strategic efforts to strengthen and grow our health business. Life and savings has been the business that has been going back the most, minus 8%. However, if you look into the mix of these minus 8%, you see that the majority of the reduction is in the general account business and that the unit link business and the protection business has performed well despite the fact that we were in a crisis. If you go to A7, which is around the underlying earnings, you can see a couple things. Number one, the underlying earnings of 1.9 billion for the half year of 2020 is very much in line with what we have already communicated on the 3rd of June, which was the 1.5 billion COVID claims. And so if you take out COVID-19 and AXA Equitable, which we don't have anymore, you come to a reduction of 48% relative to last year. However, when you take away the COVID claims, we can clearly see that there is a progression of plus 1% underlying earnings, which demonstrates again the resilience of AXA Group in a very adverse financial environment. If you go one slide further to slide A8, you see the repetition by geography. First is clearly the fact that most of our geographies and most of our businesses are very resilient because when you look at last year versus 2020, including COVID, you see that most geographies, France, Europe, Asia and international, are exactly at the same level as they were last year. So the negative COVID effects and the positive COVID effects, mainly from a lower frequency in motor and higher growth in health, have really compensated one each other and shown high resilience. Obviously, we have also reacted very swiftly to the crisis with a very disciplined management of general expenses and keeping the investment margin stable. I said earlier COVID-19 is essentially hitting the commercial business and therefore you see that the main impact for AXA is at AXA XL because AXA XL is predominantly a commercial business and has no opportunity to diversify in a way with businesses that are benefiting from the COVID-19 crisis. When you look at AXA XL as a zoom, because we have certainly changed the CEO this year, you can see that the underlying trend is very positive. Very positive. Why? Because ex-COVID, we would have been at plus 9% of revenue growth. This is certainly due to the fact that Scott Gunther and his team is very focused on a very disciplined underwriting. And secondly, the underlying earnings ex-COVID would have been 0.5 billion. And if you then were to exclude the 100 million that we had to pay for civil unrest, you would be at 0.6 billion, which is very much in line with the 1.2 billion that we have aimed for before COVID has arisen for the whole year. What is very reassuring about AXA XL is that the pricing actions and the pricing trends are continuing. So in the insurance sector, you still got, despite the crisis, plus 14% price increase. And if you dig a little deeper, for example, into the U.S. business, the price increases are around 23%. And when you even go further into the lines of business that have, for example, experienced social inflation, you see that the price increases in excess casualty, for example, are at plus 80% for this year. On the reinsurance side, you finally also see more decent price increases at 7.5%. Scott and his team have been very fast in putting in a new organization that is simpler, that is more accountable, and that is really focused on underwriting discipline. And when you look at the dynamic between top-line development and claims inflation, you clearly see that top-line is growing more than claims inflation is growing, which is the ultimate test of a healthy insurance business. At the same time, we have continued with the underwriting actions that we have already announced at the beginning of the year, reducing our property cat exposure. We have dropped it. The revenue has dropped by 11%. This is a reaction of a reduced exposure, despite the fact that we could achieve 10% price increase. And when you look at the line sizing in casualty, we have really gone through the portfolio and reduced the maximum risk limits from 50 million per risk to 25 million per risk. So I'm very pleased with the transformation at XL. We are still in the hardening cycle and AXA XL should, after COVID, really show the fruit of this transformation. When you go to slide A10, you will see the effects on the balance sheet. The balance sheet is remaining very strong and resilient. The solvency to ratio is at 180% with the expected upside that I mentioned earlier. One upside coming from the further disposals, around six points. the other one coming from the integration of AXA XL into the internal model, between 5% and 10%. Both of these should be happening in the second half of 2020. Cash remittance remains very strong. As I said, we have upstreamed most of the dividends from the local entities. Cash remittance is at 4.9 billion, so the company is very solid. There should be no reason to believe that a dividend would not be able to be paid, certainly the second half. However, as I told you, we do need to respect the recommendation of our regulator that has been very clear and very strong not to pay any more dividends going forward for the year 2020. These 180% solvency at first year, at first half 2020, also include the accrued dividend based on the 50% pro rata of the full year 1919 initial proposal of €1.43. If I summarize and look forward, AXA Group is well positioned for the future given the current market dynamics. We continue to see a hardening pricing cycle in P&C commercial line, as I said earlier, plus 14% in the first half of 2020 despite the crisis. We see a continuing growth in the profitable health business We have benefited from plus 9% on the revenue side and plus 7% growth on the earning side. The business profile is now well adapted to the low interest rate environment. We shifted dramatically from financial risk to technical risks. Today, 74% of our revenue is in the target segment P&C, health and protection. We've also leveraged the crisis to accelerate on the digital interactions with our customers, making sure that our employees could work and perform customer service very smoothly and very fast during the lockdown. And we have clearly... stated and continued that we want to keep up the leadership around climate transition despite the time of crisis. We recently published a climate report in which you have seen that AXA is exemplary with having an investment portfolio that only has 2.8 degrees of Celsius warming potential relative to a market average that has 3.6 degrees This is for us a clear sign that we want to and should continue this journey on being the leader in the climate transition. Thank you very much and we are now moving on to the part of Etienne Boislaurent with a financial performance.

Good morning to everyone and thank you, Thomas. The objective, of course, of my presentation is to go through the P&L and the balance sheet of AXS 1H20. As you all see and know, COVID-19 is impacting materially our earnings and much less our balance sheet, which remains extremely solid. starting with the underlying earnings, the amount to 1.9 billion euro. This part was already commented by Thomas. I would like to highlight one thing related to the 1.5 billion euros. It's the fact that it's completely consistent with the June 3rd disclosure, which was made two months ago. This number has been confirmed during our closing. It doesn't mean that the amount might not be adverse deviation in the second half, but this is our best estimate taking into account all the elements we have at the moment. If we look at the performance per line of business, Property and casualty is, of course, the most impacted line of business by the COVID. It's down 72%, but up 3% excluding COVID. Life and savings is down 9%, hit by a lower technical margin, which itself is resulting from the COVID crisis. So it's an indirect impact. Health is up 7%, reflecting a continued strong new business and business momentum. Health is not the only line of business going up. There is also asset management benefiting up 5%, benefiting from higher assets under management. And the holding segment is as well up, thanks to a very strong cost discipline across the board. Let's move now to our largest line of business, which is P&C. As you can see, our revenues are resilient with hardening prices offsetting lower volumes. On the commercial lines, after a normal Q1 2020, the COVID crisis impacted Q2. The acceleration in prices highlighted by Thomas' introduction was partly offset by lower volumes. And these lower volumes are generated by two things. The first one is that part of our insurance premium are indexed on the business activity of our customers. So it's a mechanical effect, notably on business lines like marine or aviation, it's mechanical effect. The second one is on SME clients, we took some support measures in terms of insurance premium to support our most vulnerable customers, notably on the French market. On the personal lines, you see that after a stable Q1, Q2 was down 4%, mostly because during the period of lockdowns, there was hardly any new business. So, notably on the motor side. So, a pretty expected result. Moving to the profitability side. The combined ratio was up 6.6% to 101.7%. More than this increase is due to COVID-19 impacts. On the excluding COVID, the combined ratio is down by 0.1%. It results from higher net cuts, 3.4%, slightly above the normalized level, and certainly above last year, which was a Benin first half. Offset by, more than offset by, first, better prior year reserve developments, up to minus 0.5%, and second, by a very strong cost discipline, You will see that on all the lines of business. You will see that there is a positive evolution of our expense ratios across the board. I'm speaking here about general expenses, excluding the commissions, DAC, URR effects. The underlying earnings excluding COVID are up 3%. This results from this slight improvement of combined ratio, minus 0.1% excluding COVID. And on the other side, on the resilience of our investment income, notably in the first half, with an investment yield only slightly down by 10 bps to 2.7%, even if the investment yield might be a little bit lower in the second part of the year, partly for seasonality effect. Let's make a zoom on the COVID impacts, the 1.5 billion euros. They are, as was said by Thomas, mostly impacting the commercial lines, while the personal lines benefited from a drop in claims frequency during the confinement period. I'm speaking here mostly about the motor business. So business interruption is the most impacted line of business. It was expected. There are still some uncertainties related to the second part of the year, as you all know, on the legislative and litigation sides. However, we have booked some incurred but not reported claims to try to estimate what the impact could be, and this is within the €0.8 billion, which are net of reinsurance. The claims here are impacting not only XXL, but also France, UK, Germany, and Switzerland. Even cancellation, 0.5, remains bang in line with the first estimate which was given with our Q1 report. release in May beginning of May the other lines refer to liability DNO travel and credit where most of the notifications will occur at a later stage we think so it's still an estimate and lastly the solidarity measures of 0.2 are related to the support of our most vulnerable SME customers in France as I said earlier Regarding the geographies, excluding COVID, you see that the earnings is up 3%, so it's a good performance across the board. The explanation are the following. The NATCATs, you remember, were slight negative. They impacted Excel with the Australian events in January and the UK with the storms as well in Q1. a positive prior reserve development impacting France and Europe, and a relatively stable investment margin with some positives at Excel and some negatives in Europe. Relating to AXA Excel, you remember that we had a budget of 1.2 billion euros for this year, excluding COVID per construction. So you might have expected 0.6 in 1H. Here we show only 0.5. And the main difference comes from the U.S. riots, which occurred and which were absolutely not expected, the rest being pretty in line with our forecast. Let's move to life and savings. Gross revenues are down 8%, but as highlighted in the introduction of Thomas, there is some good news in that because our capital light products are up. I refer to protection and unit linked, while the capital heavy products are I mean the general account. And this trend is true not only on the top line side, but also on the net inflows side. You see that the unit link particularly is a good surprise because in the previous crisis, we tended to have massive surrenders on unit linked. Here, the clients, I think, were more mature, and our distributors as well, and there were some positive arbitrage, notably in France from GA, from general account to unit linked. The general account savings were down, particularly down, notably in France and Italy. Let's move to the profitability. The profitability, as you can see, is down 9% due to a lower technical margin, partly offset by a strong cost discipline. So this lower technical margin, I told you in the introduction, is the indirect consequence of the COVID crisis. Why? First, because with the lower interest rates, we had to adapt and update the discount rate on the annuities, in France notably from 2.5% to 1.5%. There were also lower surrender benefits because we granted grace periods for the customers not respecting their payments. And lastly, in France, we extended disability covers for employees, which was direct, and this during the confinement period. The investment margin was particularly resilient in 1H, notably due to very much lower crediting rates in France. The investment margin might be a little bit more under pressure in the second half of the year. The lower general expenses reflect, as said, the cost savings initiative, which were taken from the very beginning of the crisis with the objective, which was shared with all the managers and employees of the company, to offset the lower revenues with lower expenses. And I think this plan works pretty well. Let's pursue now on a positive note with health business, which continues its strong performance across all geographies and in both individual and group lines. As reflected in the gross revenues evolution, the combined ratio was slightly up, which might seem counterintuitive because the current year-loss ratio is benefiting from the lower frequency. which might revert in the second part of the year, but which was very good in the first half, and benefited as well from the strong cost discipline across the group. But the offsetting element was the less favorable prior year reserves development in some countries, notably in Europe and France. All of this with a pretty stable financial income resulted in underlying earnings up 7%, which is great news. Asset management is as well going up, so not only health, benefiting from higher assets under management. You see that the gross revenues benefited from growth. from these higher assets, which are due to two aspects. On the one side, positive net inflows in the 1H in both alternatives and core assets. And second, due to a market appreciation effect versus 1H19, notably on the fixed income part. And because the fees are lower on the fixed income side, you see that the gross revenues are increasing at a lower pace than the average assets under management. The cost-income ratio, once again, solid cost discipline, allowing a slight improvement. As a result, underlying earnings up 5%, which is a very good performance in the context. The net income decreased by 39%, mostly reflecting the high financial market volatility. Net realized capital gains, as you can see, 98%. reflect two realities. On the one side, the normal capital gains we realize each year, you know, of around 0.4 a year, which is unchanged. However, here, higher impairments offsetting this good performance, notably on real estate and equities. The second is the economic hedges. You know that we have reinforced our hedges on equity just before the start of the crisis. It's reflected in this solid number with a plus €0.4 billion gain. The change in fair value is... is this accounting noise reflecting the mark-to-market of IFS P&L assets. Here it's mostly hedge funds and private equity. These values can still continue to fluctuate until the end of the year. For me, it's something which does not reflect a P&L reality, but more a shareholders' equity reality. In an ideal world, we would love this to be booked in the OCI part. Exceptional and discontinued operations is 50% due to solidarity funds, which are not tax deductible, mostly contributed in France, but not only. Some other countries, we had to do that as well. And 50% to various asset depreciation. The integration and restructuring costs are related to the pursuit of the integration of Excel by AXA and some restructuring provisions like the most notable one being in Germany with the disposal of our banking portfolio and the goodwill and related intangibles are pretty stable. from half year to half year. It's time now to move to our balance sheet, which remains, as we said, very resilient. Shareholder's equity is remaining very stable. while the adjusted return on equity is subject to the COVID earnings impacts. So pretty mechanical, not much to say. The change in net realized capital gains reflects some gains on the GOVIs and the corporates mechanically as a result of the macroeconomic conditions. Equity is slightly down, but partly upset by hedges. which some part of them not being in the P&L. So the net income for the period and the dividend are pretty balancing each other, and there is the strengthening of the euro generating a negative impact on the forex and other up to 0.9. I propose to move to the solvency part, which is certainly more awaited and expected than the comments on the shareholder's equity. So solvency to ratio 180% pretty stable versus 1Q20, which was already disclosed at 182%, with, as was said in the beginning, upsides still expected in Q4, and I would say significant upsides expected in Q4. So if we go line by line, the operating return is one point only in the second quarter, reflecting the impact of COVID in the discrete quarter. The dividend accrual for 1H20 was explained by Thomas in the... In the beginning, we are accruing 50% at half-year of the announced dividend of last year, which was 1.43 euros. It's not a decision. It's purely the continuity of the methodology we are using each year when accruing for the dividend to be paid in the following year. Market impact excluding forex, minus one point. To be frank, based on the sensitivities, what might have expected a slight plus and not a slight negative, it's due to the fact that the changes in market conditions in 1H have moved quite a lot and the sensitivities needed to be updated, which is disclosed here on the right-hand side. and the main factor is that with lower interest rates level, the impact of the volatility adjuster on the corporate spreads is getting to zero, and therefore the evolution is... of the market impact is Benin in the quarter, but might have been slightly more positive based on the former sensitivities. The debt repayment of 1.3 billion euros performed in April was expected as well, minus four points. And as discussed already and presented by Thomas, following the very strong statements of the ACPR and the the very clear discussions we had with them, the non-distribution of the second part, second tranche of the dividend, contributes six points positive to this number of 180%. Regarding the Q4 indicative outlook, I would like to highlight that the two main transactions running, which are the sale of AXA Bank Belgium and the sale of AXA Eastern and Central Europe operations, is running well in line with expectations. And so we are very confident that this disposal will take place at the end of the year. ALE, the transaction had been announced in 2018, and there was a joint and mutual agreement between Sinven and us to terminate the sales agreement. Certain conditions were not met by the agreed lock-stop date, and therefore, given the complexity of of the transaction, including the regulatory complexity of the transaction, we have preferred to stop it. We are working actively on alternative solutions to optimize the liquidity of this company, which we should not forget has positive cash flows, which are expected, so it's a profitable operation. We wanted to improve a little bit the solvency and the liquidity. So the solvency, we would have had a gain of one point, which we will not get further to the decision. However, on the liquidity, this was a 1 billion euro transaction. We are working on alternative solutions, notably with reinsurance schemes, external or internal, to reduce the required capital requirements. sorry, the capital requirements, in order to bring upstream some further cash to the holdings. So this objective is still valid up to the end of the year, and we'll keep you updated on this. Let's move to the assets. What we can say is that our portfolio management during the crisis was very active. So what we did was being very proactive on the most vulnerable sectors. notably oil and gas, travel, leisure, transportation. These sectors represent 11 billion out of a total of 169 billion total corporate bonds. 70% are rated A or above. And what we did was to sell around 1 billion of this portfolio at a value of circa 90% of par to protect the ratings of our portfolio and to try to avoid the defaults. The second in the middle of the chart, you see that this result has been achieved. You see that very little has moved. To be completely transparent, there were some downgrades from BBB to below investment grades, which represent less than 0.3% of the total corporate bonds portfolio, which we think is a great achievement. Lastly, on the asset side, in the context of reducing interest rates or lower interest rates. We have tried to pick up or to invest in some attractive assets with sometimes lower liquidity but very decent profitability. This was the case notably in real estate where we invested in some programs, 2.3 billion euros in France and the UK. And in CLO tranches, so double A, triple A CLO tranches, we with a margin of around 200 BIPs, which we thought were very attractive. This is how we can get an extra margin on top of the court-fixed income of 1.3%, and we are confident that we can keep a reinvestment rate of around 1.5% until the end of the year. It was slightly above 1.5% in 1H. It might be slightly below 1%. 1.5 in the second part of the year, but as a whole, we are still targeting 1.5. The reserves in PNC remain strong across the group. Reserving ratio is up, reflecting notably additional COVID reserving. So it's one indication, but it's not the most powerful and indicative one. We think that the most useful information is the IFRS reserves in excess of undiscounted solvency to best estimate liabilities, which remains high. For the sake of transparency, we have... reduced the level of excess at AXA-XL, mostly on the non-US DNO liability lines. These lines had been identified when we set up the PGAP originally, and therefore there is no P&L impact in the numbers we disclosed. we continue to consider our level of reserves as prudent at the group level, which we think is very clear for everyone. I would like to finish the balance sheet presentation with the cash at holding and the group debt gearing. As you can see, the liquidity on the 30th of June amounted to 7.2 billion euros. It's 5.5 billion euros after the payment of the dividend in July, which we think is a more relevant number to be compared with the 3 billion of last year. This increase is mostly related to the high remittance from the entities. When I say high, it's business as usual, but it's high in the context of the crisis, 4.9 billion, and reflects as well the reimbursement, the 1.3 billion euro reimbursement of the sub-debt in the first half. The debt gearing... reduced further in 1H, reflecting, of course, the reimbursement of the debt. It contributed to an improvement of 1.4 in the ratio. Regarding the end of the year, we continue to think that we might slightly improve this ratio which we will keep in any case below the 28% upper range. We had set a target more of 26% on the 20th of February, given the context of the crisis, will be below 28%. I think this is for the balance sheet. So I would like just to give a before handing back over to Thomas, trying to summarize a little bit what we just said on the P&L and balance sheet side, which that we experience resilient revenues supported by hardening prices in P&C, capital like products in life and savings, higher volumes in health and acceptance management. Our half-year at 1.9 billion euros remains high, but negatively impacted by the COVID-19 claims, consistent with our 3rd of June disclosures. Most of these negative impacts are related to P&C commercial lines, excluding COVID claims and the deconsolidation of equitables. Earnings are up 1%. Lastly, our balance sheet remains resilient. We expect higher solvency to ratio at the end of the year. We expect our gearing ratio to remain below the 28% mark. And since March, we have been very active in managing our investments portfolio, our cash position, and our cost. And you can expect us to remain disciplined on these fronts. I'm now handing back over to Thomas for the Q&A session.