Axa Sa Ord

Hello everyone and welcome to AXA's 2021 half-year results. It's great to have you with us. Live from our studio here in Paris, I'm joined by our group CEO, Thomas Beubel.

Thank you, Andrew.

Our new deputy CEO, Frédéric de Courtois. And our CFO, Albon de Mainel. Welcome to you all. And we also have with us via Teams some members from the Management Committee, and we're happy to welcome our CEO from AXA France, Patrick Cohen, and our CEO from AXA Excel, early, I think, in US time, Scott Gunter. Welcome, Scott. And our CEO for Asia, where I think it's probably a bit later in the day, Gordon Watson. Welcome, Gordon. And our CEO for AXA, I am Marco Morelli, who's on vacation, not wearing a tie, so I'm not quite sure what time of day it is for him. But welcome to you all. There will be a Q&A session at the end of the presentation. We're happy to have also joining us by teams today, the equity analysts following AXA. Thanks to you all for joining us today also. And if you're following us via the webcast, then you can also have the opportunity to ask questions in writing via the webcast link. And it's now my pleasure to hand over to Thomas for his introductory remarks.

Thank you, Andrew, and good morning to all of you. Very happy to be with you today on that sunny summer day. In particular, in light of the very strong results that AXA has posted today, it really shows that we are delivering on the strategy that we have started as of 2016. And when I go through the key highlights, 54 billion of revenue, plus 7% relative to last year, and plus 5% relative to 2019. The Solvency II ratio at 212%, up 12% relative to the full year 2020, so a very strong balance sheet. The group underlying earnings at 3.6 billion, doubling relative to last year at the same time. And if you take COVID away, it's still plus 12% ex-COVID. The major contributor and major uplift of this result has clearly been Excel. I'm very happy to see that Excel has posted underlying earnings of 690 million, and we have, with this result, all confidence to really look at 1.2 billion, the aim that we have for this year. So you see a very strong performance across all dimensions, all countries and all business segments. Very happy with these results. And again, it shows a very strong delivery of the strategy that we have chosen and implemented over the last years. If you go into the details, you will see that the shift to technical risk The focus on our main countries and also the simplifications is very much at the core of these results. As we mentioned at the investor day, if you look at AXA today in its simple form, you have France and Europe, you have Excel, and then you have two growth options, Asia and AXA-IM. On France and Europe, we see a very sustained delivery. Growth across all segments and certainly also delivery of margin and expenses. Revenue plus 6% and the underlying earnings ex-COVID plus 7%. AXA XL, I mentioned it earlier, the turnaround is really bringing the fruits of the hard work that Scott and his team have done, very much coming from disciplined underwriting, and I reiterate again, our target for 2021 is 1.2 billion, and with this stunning result of 619 million, which is more than half the budget, the yearly budget, we should be in a very good position to achieve the 1.2 billion this year. Revenues have been very strong, and I'll come back to that in a minute, plus 7%, and the underlying earnings ex-COVID plus 40%. The two growth options, Asia and AXA-IM, show also very good results. Asia, revenue is up plus 9%, and the underlying earnings ex-COVID are up plus 6%. And the star amongst the numbers in progression is clearly AXA Investment Managers, revenue up plus 17%, and the underlying earnings up plus 32%. So all in all, an excellent performance, and I really want to use that opportunity as well to thank AXA all the teams at AXA and all of our agents for this great work that has been done in the first half of 2021. I would like to zoom again on AXA XL because we've been talking about it a lot and want to really share with you again where this improvement, the 40% of underlying earnings come from. and it very much comes from the underwriting result. You see that there is a very strong underwriting performance, 400 million of additional underwriting results, and no PYDs, so no prior developments. which shows that we have entirely benefited from a very disciplined underwriting. Scott and his team have gone portfolio through portfolio, line by line, to really see which exposure do we want to sustain, which one do we cut, how do we shift our business mix. and at the same time benefiting from a very strong pricing momentum that has continued through 2021, 15% on the insurance side, 10% on the reinsurance side. And when you look forward, you see that this momentum is continuing and we will continue to be disciplined and benefiting from this. The portfolio re-underwriting is very well advanced to that, and we are now as well positioned to take benefit of further growth in this market. At the same time, we have also, as we normally do, reviewed all of our reserves in all lines of business, and I can tell you that we have seen that the view on the long-term reserves has remained exactly at the level of 2020. But the review of the COVID reserves and the shorter-tail reserves has shown an excess. And the excess we have used to be very prudent. On the one hand, we have booked against the deductible of the ADC. And the remainder of the excess has gone into the unallocated reserve. Which means that we are following exactly what we said. the budget of the 1.2 billion and achieving the profitability is first, whatever is in addition will be used to strengthen excess reserves. If we go at the level of the underlying earnings per share, we'll see that the strong improvement on the profitability has really transformed as well and has been transferred into a significant increase of the underlying earnings per share. Plus 97% relative to last year to €1.48 per share. If we again take away the impact of COVID, we see that it's still a progression of plus 7%, which is very strong. On the net income side, for one of the first times in access history, we see that the net income is actually stronger and higher than the underlying earnings. Net income increases by 191% to just under 4 billion. And this shows that we have really benefited from a strong growth in the underlying earnings, but also from very favorable conditions in the financial markets. But AXA is not only about financial performance. We are also a very strong actor in society. and in particular around climate. We have really advanced in our commitments and our commitments are now even more in action. Three areas I would like to mention as a progress relative to last time when I spoke to you about climate. Number one, we've launched around our General Assembly the AXA for Progress Index. It was important for us to not only say what we want to achieve, but also to say how we want to achieve it, and making sure that we have some very concrete targets. Seven shared group commitments have been defined, and for three of them, they have also been implemented into the compensation of our senior executives. Secondly, you have seen that a couple of weeks ago, we have published the 2021 Climate Report. This report shows that our warming potential of our investment portfolio is at 2.7 degrees Celsius, well below the market that is at 3.2. And lastly, there is a new initiative that has been launched on top of the initiative around net zero investments, which is the Net Zero Insurance Alliance. AXA has taken the lead. We are currently amongst eight insurers. It has been started and rolled out at the G20 in Venice a couple of weeks ago. and the whole action plan and the broader launch is planned for the COP26 in November 2021. Thank you very much. Again, very strong results, and I now hand over to Frédéric de Courtois, who will go more into detail around the half-year 2021 business performance.

Thank you, Thomas. Good morning. I am Very happy to be with you again. And I am also very happy to be back at AXA. I believe AXA has a lot of potential. And I would like to share with you a few initial thoughts on why do I have this conviction. AXA has a good governance with a constructive dialogue between the board and the management team. AXA has a strong management team. We also have a high-quality business mix, and the shift towards P&C health and protection has been largely executed. If you look at these three business lines, they represent more than 80% of revenues and 80% of earnings. If you add up to this unit-linked and asset management, They represent more than 90% of revenues and earnings. AXA also has a super franchise in Europe, France, and AXA XL. And AXA has a huge growth potential in AXA investment managers, especially on the alternative side, and in Asia. And last but not least, AXA has a strong discipline on capital and cash, and we are going to further accelerate this with more life in force actions. So after these initial thoughts, let me discuss about business. And you have seen, and Thomas has mentioned it, that we had a strong business performance in the first semester of 2021. And I would like now to comment on our four business lines. If you look first at the PNC and especially at PNC revenues, you see that revenues are up by 4%. And this is made of two parts. The first one is the commercial lines revenues, which are up by 6%, with a favorable price effect by plus 7%. If you look specifically at AXA XL, revenues are up by 7%, driven by a contribution of 11% from price effect, which is partially offset by exposure reduction. The second contribution to this is from personalized. Revenues are up by 1%, with especially higher volumes in non-motor lines. If you look at the motor business, pricing has been broadly flat in Europe and France, which is a good achievement in the current context. If I look now at the P&C earnings, you see here that underlying earnings are up strongly to 2.2 billion euros, up 13% excluding COVID. This is mostly due to a strong increase in currency underwriting results, mainly at AXA XL, from higher pricing and portfolio re-underwriting, as Thomas mentioned. This is partly offset by lower investment income and some adverse forex. If you look on the right at the combined ratio, you see that we have a very good 93.3% in H1 2021, once again linked to the excellent technical performance. If I turn now a bit into details, excluding CAT, the current year combined ratio strongly improved by 2.6 points from higher pricing and re-underwriting measures at Paxra XL, and also from frequency benefits in France and Europe, and also from lower expenses. Prior year reserves development are relatively stable versus last year, at minus 2.2%, including the cost of the French settlement offer, which is booked in prior year. We have, during the first half, higher NATCAT, compared to last year, and slightly higher than our load in this first semester. Looking now at the overall picture in P&C, you can see that we have, as I said already, a strong currency of technical profitability, driven by the successful turnaround at AXA XL. We have a neutral impact from frequency benefit and settlement offer, in line with the indications we've given in our June press release. We have more favorable prior year developments, which are partly offset by higher CAT and higher large losses. And at the end, all of this leads to a combined ratio at an excellent 93.3%. A last comment on prior year developments. they are due to remain at or above the high end of our range, the 1.5% to 2.5%, given the strong reserving position. Looking now at our second business slide, so the life and savings, the first important element to notice is the very strong quality business mix with a high share of protection, unit-linked, and the capitalized general account. If you look overall at revenues, they grow by 12% compared to last year. And this is also a 4% growth compared to the first half of 2019, so pre-COVID. I would like on this to highlight three things. First, the strong performance in France, which grows by 20%, driven by individual savings business. This comes from higher unit link sales, notably in retirement, but also on Euro-Croissance capitalized products. Our unit link and Euro-Croissance rate is now at 55% of individual savings, which is 16 points higher than the market. This very strong growth is driven by the strong commercial performance from our proprietary networks. The second element I would like to highlight is the strong momentum in Asia with a growth of plus 17% coming mainly from Japan and Hong Kong across protection and again capitalized general account products. If you look at the translation of all of this in the net flows, they also reflect the high quality of our life and savings mix towards more free business, more technical risk, and less capital intensive spread business. Let's look at the sales momentum. You see here, talking about the new business, that AXA has been very successful in shifting the mix towards very high-quality business. APE is growing by 9% compared to last year, and this is even higher at plus 11% compared to pre-COVID levels. The very high quality of this mix translates into higher value creation with an NBV, in strong growth at plus 15% and increased NBV margin at plus 2.5%. Looking at the life and saving earnings, life and saving earnings have grown by 10% with higher technical margin on one hand and resilient investment margin on the other hand. The technical margin benefited from First, strong volumes and improved claims experience, especially in France and Switzerland. And second, due to the non-repeat of some exceptional H1 2020 elements, mostly the extended disability coverage and lower annuity discount rate in France. you see that our investment margin is stable and extremely resilient at the 69 basis point as lower investment revenues have been broadly offset by lower crediting rates. In the other column on the right, the strong momentum on the unit link fees is compensated by a series of effects from tax and also the effect of disposals in Central and Eastern Europe and Greece. Looking now at our third business line, which is health, we have growth in most geographies, with especially good performance in group business in France, and a combination of positive price and volumes effect in Mexico. The combined ratio is broadly stable. We have, on one hand, the non-repeat of lower cleanse frequency in the first half of 2020 in the context of COVID. And on the other hand, the offset by some favorable prior year reserves development in H1 2021. The underlying earnings are up by 5%. which is a good result considering the reduced frequency last year in the COVID context. Looking now at asset management, which is our fourth business line, you can see a strong performance across the board with higher asset under management and better business mix from alternatives and third parties. Average asset under management increased by 7%, up to 868 billion, which is a record high level for AXA-IM. Strong net inflows at 18 billion from all business lines, so Alternative, Core, and JVs, with also a strong contribution from third-party business. Obviously, all of this has a positive impact on XIM earnings, and this better business mix leads to margin expansion, and revenues were up by 17%. It also leads to an improved cost-income ratio to 67%, decreasing by 3.6 points in H1 2021 from cost discipline and higher revenues. Consequently, underlying earnings in AXA-IM are up 32% to $117 million. This is very much driven by the growth and the quality and the performance of all our businesses, and especially our alternative franchise. Thank you very much, and now I hand over to Alban. Alban.

Thank you, Frederic, and good morning to all. So on slide 21, you see the summary of our underlying earnings as presented by Thomas and Frederic, and you see that we had an excellent first half with good growth in health and double-digit growth in all our lines of business, even if you leave the COVID effect aside. One word on the line holding and other, it's... slightly down because of the non-repeat of an exceptional investment income that we had last year in our German subsidiary. But overall, underlying earnings grow by 101% or 12% if you leave aside COVID. Now, if we move to net income, the net income is also strongly up, but 191%. Obviously, that comes from the increase in underlying earnings, but it's also due to gains on financial assets with realized gains mainly on equities and real estate for $257 million, but also the positive mark-to-market of some assets through P&L, mostly private equity and hedge funds, by 290 million. And there is limited impact from our other lines, be they exceptional operations, integration or restricting costs, or intangibles. So if I move on the following slide to shareholders' equity. So shareholders' equity is slightly down this semester. That comes mainly from the unrealized capital gains that are down because of the rise in interest rates. The net income of this first half more than offset the dividend that we paid in the first half. We have changes in pension benefits that are positive thanks to the rise in discount rates themselves due to the rise in interest rates. And finally, Forex also has a positive impact, thanks mainly to the depreciation of the euro against the dollar. So overall, Sheldon's equity stands at 68.4 billion. And our ROE is a strong 16.6% for this first half. Obviously, there is a bit of seasonality, as you know that we pay our dividend in the first half. But nevertheless, we are extremely confident that we will be within or above our range of 13 to 15% underlying ROE for the full year. From capital to solvency. So our solvency is a strong 212%. That's up 12 percentage points from the end of last year, mainly driven by operating return at 12 points, which is above our target range, which is 18 to 22 points for a full year. So 12 points for this first half. The dividend accrual is six points, and you know the methodology. It's half of the last dividend we paid. Market impact is a positive three points. mainly thanks to the rise in interest rates and to a lesser extent to equities. You will remember that we issued a $1 billion Tier 2 green debt earlier this year, and that brings us four points of solvency. For us and others, that's zero, but in fact it's a slight negative coming from an increase in equity exposure because we have unhedged part of our equity exposure or reduced our hedging, and a slight positive from model changes, but the net of zero. And as to the sensitivities, they are very much the same as the one we presented to you in our last quarters. A word on investments. So, first, the reinvestment yield of our assets in this first half, overall 1.3%, and that's a mix of 0.9% on our core liquid assets, so government bonds and corporate bonds, and 2.3% on the alternatives, i.e. real estate debt, infrastructure debt, or senior trenches of CLOs. And you will see that we have kept excellent rating for all those fixed income investments, still double A for our government bonds and still single A for our corporate bonds and our alternative assets. So that's for the reinvestment in this first half. If we move to now the yield that we have on the P&C business and on the live side, So in the PMC business, the yield is slightly down from 2.8% to 2.6%. That's due to two things mainly. One is the fact that we had higher than usual private equity distribution last year, notably at AXA XL. And the second is simply the fact that our reinvestment yield is lower. And on the... Life and savings investment margin, as Frédéric mentioned, is a very resilient 69 bps above our target range of 55 to 65. That's the result of our very dynamic management of our in-force book and a very tight duration gap mainly. And finally, a word on our debt and on ratings. So our debt gearing is up to 27.6% within our target range of 25 to 28%. And again, there is a bit of seasonality given the dividends and therefore the impact on the net assets. And the increase is due to the $1 billion tier 2 debt that we raised earlier this half year. you see that all three rating agencies confirmed our ratings this semester, and Fitch even increased or improved its outlook on us from stable to positive. So just a word of conclusion before I hand back to Thomas. As you see, that's an excellent set of results with 3.6 billion of underlying earnings, a 7% growth of our underlying earnings per share, 212% solvency ratio. But we believe we can grow further from here. We believe that the economic recovery will lead to higher revenues, notably in our preferred lines. We will keep on focusing on our technical excellence in all lines of business, but of course at Excel in particular, which should at Excel thanks to better pricing, better underwriting lead to growth in the new business in 2022. You know that we have our cost savings program over the plan between now and 2023. And all this, plus the fact that we will, as Frederic mentioned, focus on our in-force and make sure that we use as little capital for our life business as possible should lead to better results. And now I hand back to Thomas.

Thank you, Alban. Thank you, Frederic. As you have seen, a very strong set of results really showing that our strategy of moving towards technical risk, of simplifying AXA and of focusing AXA on the core countries really is showing its truth. Again, plus 7% on the revenue, a very strong balance sheet with 213% solvency tool ratio, well above the objective of 190% that we've got. 3.6 billion of underlying earnings, which is plus 12% ex-COVID, leading to an underlying earnings per share growth of 7%, well at the upper end of our range of 3 to 7. And certainly a key driver of these results, the recovery of AXA XL's earnings, strong underwriting discipline, benefiting very much from the strong pricing cycle. And you've also seen that these results are all based on recurring elements. So we are now moving towards your questions and hopefully all of our answers.

We have a first question from Andrew Sinclair from Bank of America. Please, Andrew, switch on your microphone and go ahead.

Thank you very much and morning everyone. What does it mean for earnings? And is there anything else in the hopper for back book management in other regions? Thanks very much.

Thank you, Andy, for your three questions. So I suggest that Alban is answering the first and the third one, and Scott, that you will take the second one. So the first one was on the holding company liquidity, knowing that we'll only publish that once a year at the full year. Second one was on the exposure development in reinsurance for Scott, and third one on the Hong Kong Reinsurance Transaction. And are there any further questions? potential transactions, Alban. Alban, why don't you start with one and three, and Scott takes two afterwards.

Thank you, Andrew. So the holding company liquidity, so you know our targets in terms of remittance over the plan. We believe that's better seen once a year, so we will present that with our annual results in February. That being said, what can I tell you? Remittance over the first half was good, even better than what we had planned. Our cash at the holding company level is above the upper end of our target range and it should further improve by the end of the year with further remittance coming from our subsidiaries and the disposals that we have announced. On your second question on the Hong Kong transaction, so it's a book of 3.7 billion euros with relatively high guaranteed rates between 3% and 4%. It's a traditional savings book. And so you should see that as a risk management transaction, getting rid of that book through reinsurance. That will lead to an increase of two points in our solvency ratio that we will book in Q3 and an impact in net income for H2, a negative impact, of 0.1 billion. Shall we see more of that kind of transaction? Yes, most probably, because we want to focus on those backbooks in Europe and elsewhere in order to reduce the capital consumption of those bag books. So, yes, you should see more of that.

Thank you, Alban. Let's move to Scott.

Sure.

Sorry.

Sorry, I was just following up there, Alban, on the liquidity. I think you previously said that we could look for liquidity to end 2021 around the same place it started, which I think was 4.2 billion versus the 1 to 3 billion target. It sounds like it might be a little bit better than that now. Is that fair to say?

I think, I mean, it all depends on some further remissions, some further disposals, but keeping the same target is a fair assumption, I would say.

Good. More to be seen, Andy, at the full year 2021. Scott.

Sure. Thank you, Thomas. Andrew, to answer your question, if you look at the slide, you'll notice that CAT property grew less than the rate number, so we actually did a little bit less CAT than planned for the first half of the year, and that was mainly driven by the fact that we were seeing the pricing that we were looking for on some of the deals, so we did a little bit less CAT. On the other lines, we did see some very attractive opportunities in property, particularly the U.S. non-CAT property business, as well as casualty and specialty, so We grew those portfolios a little bit more, and there's a little bit of noise in there from prior year. We've got some positive prior year adjustments going into the first half. So all up, we grew that portfolio where we wanted to, and we shrank it. We didn't grow the cat as much as the rate increases that we got. Interesting.

Thank you very much. Thank you, Scott. Let's move to the next question.

Our second question is from Dominique Omani from Exxon. Please switch on your microphone and go ahead, Dominique.

Thank you. Thank you for taking my questions. Three for me as well, if that's okay. One, just on the pricing environment. On commercial, it seems, you know, pricing continues to be quite strong. Results are very pleasing. PSL, actually, it seems for the wider market, how much of the more impetus really is there in the market on commercial pricing? And I guess relatedly, you reported strong commercial pricing, but personal line seems to be a bit weaker. How do you see the price-invested claims inflation dynamic impacting the combined ratio going forwards? Secondly, just in asset management, very pleasing cost-income ratio. Is that a run rate number? or other sort of factors to think about when we're thinking about the outlook for cost. And then just one sort of detailed point. You mentioned the relaxation of the equity hedging, I think, and the impact on the solvency ratio. Is that something you're looking to take further, and how many points could that cost? Thank you.

Thank you, Dominic, for your three questions. I suggest, Alban, you are answering the first part of the question when it comes to the broader commercial, and then, Scott, you could add to it from a pure Excel perspective. Marco, if you could ask the second one around the question of is the cost-income ratio a sustainable one, and then third one around the relaxation of the equity hedges, Alban. Why don't you start with the first one and then hand over to Scott.

Yes, so I will not comment Excel as Scott will do it. On the other geographies, we see generally in commercial lines good momentum in terms of pricing between 1% and 3%, so obviously not as high as Excel, but nevertheless a nice dynamic here. On personal lines, it would be different between motor and non-motor. Motor was affected... in the sense that you still had in the first half of the year some frequency of benefits for most of our competitors, and therefore price was probably softer in that first half. But in non-motor personal lines, you could see some price increase around 1 to 2%. So that's for the pricing environment. So maybe I'll answer the last question.

Scott, why don't you complement that question on the XF pricing looking forward?

Sure, Thomas. As you've seen in the presentation, we're running about 15% rate increase on the insurance side and about 10% on the reinsurance side, in caps, about 10%. And those increases are obviously running ahead of, generally speaking, running ahead of loss trends. And there's no indication right now that that sort of trend won't continue. With the headwinds of whether it's weather volatility, social inflation, low interest rates, we expect the market that we're in today to continue for the foreseeable future. It'll move up and down by product, but we expect that the kind of market that we're in will continue.

Thank you, Scott. Let's move to the second question, Marco, on the cost-income ratio asset management.

Good morning, guys. The way we are managing our asset management business is to make sure that the growth of the top line of our E&L is higher than the growth and the trajectory of our overall cost base. However, I do believe that you can really throw the line in terms of the rebalancing of your cost income with full-year reserves rather than interim ones. However, as I said, the aim is to make sure that within the three-year plan, the growth and the stiffness of the curve of the revenues is higher and more visible than cost management trajectories.

Thank you, Marco. Let's move to the last one on the relaxation of the equity hedges.

So the equity hedges, that relaxation causes 3.5 points of solvency in the first half, but as I said, compensated by the positive model changes. We are fine at that level, so we don't plan to further de-hedge in the second half, but obviously that can change with the equity markets, but that's not the plan.

Thank you. Thank you very much. Thanks, Dominique, for your questions. Let's move to the next question.

Next question is from Louise Miles from Morgan Stanley. Switch on your microphone, Louise, and please go ahead.

Hi. Good morning, everyone. Thanks for taking my questions. Just three from me, too. Just going back to the fact that you mentioned you'd do some more in-force action on the live books, I'm just wondering, do you have a preference for reinsurance solutions versus complete disposals? Obviously, if you do a complete disposal, you're probably going to get a bigger release of SDR, but those can also take a lot longer than obviously doing just a reinsurance transaction. So just interested in your view on that. My next question is on your partnership with Microsoft and where you're building out the digital health platform. I'm curious as to how this differs from Emma. I know that you said that the what you're building with Microsoft, you want to make global. So presumably in Asia, your customers are going to have access to both Emma and this Microsoft proposition. So I'm just curious, will Emma end up being decommissioned or are the two very different? And that's why it makes sense to have both. And then finally, can you give us an update on the Axa Bank Belgian disposal? Thanks.

Thank you, Louise. So, three questions. One on the Infos. I'll answer that one. The second one on Emma versus Microsoft. Nobody else but Gordon could be a better place to answer this question. And then the third one on what is the update on AXA Bank Belgium. Alban will answer that. So on the first one, more in-force, yes, we clearly said there is more in-force to be done. We are looking at the larger books, obviously, and all possible options from reinsurance to disposal of a book to a complete disposal of legal entities is possible. When you look at the reinsurance topic, obviously you always have to be very cautious around managing counterparty risks since there are not plenty of reinsurers, so there is a natural limit to it. But we are looking at all options in the larger portfolios, and this is one of the priorities of Frederic and Alban to go further after we've now seen the Hong Kong transaction. Gordon, on Emma and Microsoft.

Cheers. Thanks, Thomas, and thanks, Louise, for the question. I think clearly no one's going to kill Emma. Emma is very much a front-end platform that we use, and DHP is our health data backbone. Emma is a holistic digital platform for lots of all our business. We now have 2 million users. We had 500 customers. thousand in the first half and we each see e-services say in the Philippines 72% of all the health business now but this digital backbone that we have global where they deal with Microsoft will give us a lot more data than we've had before and this will allow us to be much more proactive in the future and when we get data from many sources how we can enter substandard lives I don't like to use that word but life's People like myself who maybe have a perfect health record. But because I have a certain lifestyle, et cetera, et cetera, and we have all that data, perhaps I could be rated a lot more properly the way that I should be based on the way my lifestyle is, et cetera, et cetera. That will also give us global data to deal with pharmaceutical companies, et cetera, worldwide. So I think it's a real game changer. But Emma really humanizes our brand. She is our interaction point. For our customers, you know, and our employee benefits, say, in a country like Hong Kong, you know, more than 50% have digital transactions with her. But that's for all lines of business. And the deal with Microsoft is really our digital global health backbone for health. So we're very much looking forward to that happening in Asia. It will evolve and start in Europe.

And on your last question on Axelborg, It's still in the regulatory approval process, but we are still very confident that it will close probably in Q4 this year, but by the end of the year.

Thank you, Alban. Thanks, Louise. And let's move to the next person who probably will ask three more questions.

Next question is from Pierre Chedeville from CMCIC. Pierre, could you please switch on your microphone and go ahead?

Yes, good morning, everybody. I have effectively three questions. First question is regarding AXA-EM. We have seen at Amundi and BNP Paiba AM that performances were very strong in Q2, quite exceptional, and I wanted to know if it's the case for AXA-EM or if it's not. Second question is regarding investment margin in life and savings. We can see that we are above the guidance at 69 basis points, and we see that even if there is pressure on interest margin, your crediting rates are also declining. So I was wondering if you were not a little bit too cautious with that guidance of 55 or 65 basis points. for the two coming years, considering the fact that maybe we could have some rise in long-term interest rates. And my last question is about the reinsurance part of AXA Excel. We have seen some articles a few days ago, a few weeks ago, mentioning that you could be interested to see it. Of course, I will not ask you to comment on that, because you will not. But I will ask my question differently. Could you tell us in your view or remind us in your view what is the great interest to keep the reinsurance part of AXA-IL XL in your business model. Thank you very much.

Thank you, Pierre, for your three questions. I suggest that Marco is answering the first one around the strength of the performance fees in Q2 at AXA-IM. Alban is going to answer the second one around, is the guidance on the life in savings investment margin too cautious? And on the reinsurance one, I will answer that. I'll do it straight away. The reinsurance business for AXA brings certain advantages. Number one is we can diversify our risks more because, yes, AXA is global, yes, AXA is in many markets, but some markets we are not in on the primary insurance. If you take, for example, the U.S. primary market on auto insurance, on homeowner's insurance, we are not present. And through the reinsurance, we can take a position which adds to the diversification globally. Second topic, the reinsurance also gives us access to emerging markets in which the primary insurance is not yet well developed. And thirdly, alternative capital is very present in the reinsurance market and we can also benefit from it. So there is quite a few substantial advantages that the reinsurance business does bring to AXA. Let's now go to the first question, or your first question, Pierre, on AXA-IM. Marco. Hi, Pierre.

The impact of performance fees in our top line of the P&L is literally negligible. We've always been running the AXA-IM growth on core, namely on management fees. Why? Because we do believe it's a more sustainable middle- and long-term kind of approach. So it counts almost nothing in our P&L.

Thank you, Marco. Let's go to Alban on the investment margin life and savings.

So, hello, Pierre. You're right to say that we have managed to keep a good investment margin almost flat compared to last year, 69 basis points. I'd say, though we have a tight duration gap, you've seen that we have margin between our investment yield and our guaranteed rate. You see that our reinvestment yield is nevertheless down and naturally over time. that will take our investment margin down. Probably, I agree with you, to the upper end of our range rather than to the bottom end.

Thank you. Thanks, Alban. Thanks, Pierre. We move to the next question.

Next question is from Cameron Hossein from RBC. Please, could you please switch on your microphone and go ahead?

Hi, good morning. Three questions for me. First one is on the flood losses. Thanks for the, I guess, the preliminary estimate that you gave this morning. To what extent is your loss capped at $400 million or close to $400 million? And is it safe to assume, given your confidence in the Axial XL UE for 2021, that these losses really sit elsewhere in the business? The second question is just a clarification on the positive COVID development that you've talked about in AXA-XL that you put into the, I guess, the bulk IV&R. Can you just quantify how much that was or how much that would have benefited or how much that costs the combined ratio in the first half? And the third question is, given your very strong capital position with, you know, further benefits to come from AXA Bank Belgium, what do you have lined up for the surplus at the moment?

Thank you, Cameron, for your three questions. I suggest that, Alban, you take the first one on the flood losses and the question, is it kept to 400 million? You also take the second one on where has the positive COVID development occurred and how much was it? And I'll take the last one around our capital position and what we have lined up, if I have to quote Hussein. Go ahead.

So those flood losses obviously affect primarily our German and our Belgian operations, but also Excel to a certain extent. Our insurance protection, which we have a retention of 350 million euros, covers all our insurance business. So the maximum loss for our insurance business is 350, but it doesn't cover everything. our reinsurance business and therefore Excel Re. Hence the fact that we are above and therefore at 400 million today estimated loss for that NatCap. On COVID, so I understand you're referring to the COVID IVNR that we had at Excel. So we identified $400 million, of excess IBNRs on COVID reserves at Excel and that's what we used, as Thomas described, to reallocate to either the ADC deductible or to the unallocated reserves.

Yes, and Cameron, on the last question about our capital position, first of all, we are extremely happy about that position because a Solvency II ratio at 212%, given that we have no equivalents anymore in use, is a very strong figure. We've been, I hope, very clear around our capital management and our capital management discipline when we launched our plan, Driving Progress 2023, which was in two parts. One was, if we do have disposals, we are going to compensate the earnings dilutions at the closing of this disposal and this concerns obviously all disposals that have happened so far after the 1st of December. This concerns currently Greece and Malaysia. And the second piece of information we've given was around investments, that whenever we do undertake investment decisions, that we always benchmark these investment decisions against the own situation of the AXA share price. And obviously, we will not hang on forever on these investments and the money if we do not find the appropriate means to invest it. But our aim is always to find, obviously, investments to grow the business and develop the business.

Thank you.

Thanks, Cameron. Let's go to the next question.

Next question is from Peter Elliott from Kepler Chevreux. Peter, please switch on your microphone and go ahead.

Yeah, thank you very much. So the first question really was on the very strong PYDs we're seeing in France. I mean, I think it was 5.3%, you know, despite the very strong adverse impact of the restaurant settlement. So it's a double digit, I think, in total. And that comes after you released 0.6 billion last year as well in 2020. So I guess two questions around that. Firstly, how do the French reserves now compare to Solvency II best estimate? And secondly, I'm just wondering, you know, how are you managed... around the releases that we've seen, obviously are all very, very welcome, that you're still expecting, you know, the upper or even above the upper end range going forward. But it'd be very helpful to understand how so much has been released recently. And then if I could also add, it's looking like the future of, you know, NPS, Montecascio di Siena might not be independent going forward. I'm just wondering if you can add any comments about your strategy in Italy, anything you can say on how we might think about that. Thank you very much.

Thank you, Peter. This time only two questions. So I suggest that Albon takes both questions. Number one was obviously on the strong PYD in France, the 5.3%, and maybe you can clarify as well this number, and then to answer as well how the French reserves look at relative to the best estimate. And secondly, MPS in Italy, our future together with MPS in the same context or a larger context with somebody else on board. Albon.

So, I'll start with MPS. So, fundamentally, Italy is a very strategic market for us and our partnerships with BNPS works extremely well. So we learned, like you, about the start of an agreement between the Ministry of Finance in Italy and Unicredit. We will follow that extremely closely. It's too early to comment, but clearly we want to reiterate that the Italian markets and that bank-surance partnership are strategic. On your... Question on the PYDs in France. Yes, you're right. We have seen strong PYDs. Nevertheless, AXA France keeps very, very cautious reserving and more than the average within the group. It represents probably 30% of our excess reserves within the group and therefore there is room for such PYDs. And I'm extremely confident also in the prudence of the current year losses.

Very good. Thank you, Peter. And I know it was not your question, but it's very much linked to it. I would like to ask Patrick Cohen quickly to give us an update on the restaurant owners and the transaction because I guess that is very much behind your question. Patrick.

Thank you, Thomas. And good morning to everyone. So, as you know, we've decided to offer a settlement to our 15,000 restaurant policyholders that are holding a standard contract with non-damaged business interruption coverage. We mobilized for that $300 million to offer them a fixed and definitive lump sum payment. And we're glad to share with you that four weeks after the start of this process, the settlement is progressing well. And in line with our expectation, we received positive marks of interest from more than half of all eligible clients. And if we look at the numbers now, we have more than half of the 15,000 eligible customers that have started the settlement process with us. And the momentum is accelerating, which is good to see. We understand this is coming from the fact this is a simple offer. It's an attractive offer. Our distribution networks are fully mobilized on it. And we're seeing the historical ties between our agents and the restaurants further strengthen since we've announced that settlement. To give you a perspective, we have 20 new restaurants insured by AXA France every day. So we're confident we'll stick to the numbers we gave you for $300 million settlement cost.

Thank you, Patrick, and thanks, Peter, for your questions. Let's move to the next question or question.

Next question is from Andrew Crean from Autonomous Research. Please, Andrew, switch on your microphone and go ahead.

Good morning, everyone. It's Andrew Crean here. A couple of questions. Could you give a bit more candour around the excess capital? Because it's now nearly $7 billion above the $1.90 target. Now, I understand that you don't really want to be very clear on this, but can you give a timeline as to when you can give clarity and whether at the moment your obfuscation on the issue is about concerns over the regulator which should, I would have thought, be dissipating at this point. And then the second question is, over two or three years ago, you talked about 26 smaller businesses which you were thinking of disposing of or going to run for cash or dispose of. You've sold a few of those, I think about seven or eight. Should we think that the rest are going to be run for cash and should not be seen anymore as potential disposal candidates? Thank you.

Thanks, Andrew, for your two questions. I suggest that the first one is answered by Alban around what is the excess capital, and there we have to differentiate between cash and non-cash above the 180%, and I'll go to the second one around the 26 smaller businesses.

So, Andrew, you know what we've said last December in terms of capital management. We have that range of cash that we want to keep at the holding company level, but fundamentally what we are saying is that we want to use excess cash or excess solvency with discipline. So what that means is that, as we said, we would offset the dilution of the disposals through share buybacks that you've already seen Malaysia and Greece. Greece is closed, but Malaysia will probably be closed next year. The timing of the corresponding share buyback will be determined by the board, so we will see that. And you know that as far as acquisitions are concerned, we want to compare them, compare the benefits to also share buybacks, which means that we will do acquisitions in countries where we are already present, in our preferred lines of business in order to have synergy. That's our plan and it has not changed since last December.

Andrew, on the 26 smaller businesses, we said at the time that we are managing them with a private equity approach, which we have done because all of these businesses are performing well. We have, as you mentioned yourself, sold quite a few. We are still not at the end of that journey because we said we need to continuously re-look at these businesses, but some of them are still very interesting to us. If I take, for example, Luxembourg that was on that famous list of the 26 countries, we have brought together Luxembourg and Belgium to manage them in an even much better way. So the journey is not over yet. The journey is probably for a large degree done, but not all of these 26 will be ending up as disposals.

Could I just follow up on the regulatory issue as to how you're seeing the regulator and the ATPR at this point?

Well, I mean, look, as you know, we always have a very active, very fluent and also very regular dialogue with the regulator. We obviously have spoken about those issues with the regulator the last time at the point of the full year results. As you know, the general dividend ban was for European financial institutions is still in act up to the 30th of September. It was mentioned that it will be lifted certainly for the banks. And so there is no reason for us to talk to the regulator before the 30th of September. Thank you, Andrew. And let's move to the next question.

Next question is from William Hawkins from KBW. Please, William, switch on your microphone and go ahead.

Hello, gentlemen. Thank you very much. If I just look at the attritional accident year loss ratio of all of your businesses, excluding Excel, would you say that they have still had a benefit or some kind of headwind from COVID? So if we're looking outside of Excel and before reserve development and NACATs, as your loss ratio has still been benefiting from frequency related to COVID or not. And then secondly, maybe to help my understanding, Thomas, on what you're saying about when you're doing buybacks, you're very clear that you do buybacks to offset dilution if you sell a business, but that doesn't seem to cover if you do a reinsurance deal. And I'm not sure why you would make that distinction because, as you say yourself, when you're looking at life in force books, you're kind of neutral about whether it's reinsurance or selling. So why would you not do a buyback to offset a reinsurance deal? like you've just done on Hong Kong. And as a subset of that, can you just say what are the lost earnings from Hong Kong for 2022, please? Thank you.

Thank you, William, for your two questions. I suggest that, Alban, you are answering the first one around are there any frequency benefits in the accident-year loss ratio, and also talk about the second one, what are the loss earnings on reinsurance, and I will come back to William's question around is reinsurance covering the offsetting of delusions.

So, hello, William. As you may remember, when we announced the transaction that we proposed to the restaurant in France, we said that it would cost 300 million, but that would be offset by 300 million of frequency benefits in the first half. So we confirm those 300 million of frequency benefits before tax in that first half. I would nevertheless probably highlight the fact that I think the – The current share claims, as I said, are reserved prudently in our accounts in that first half. And on the lost earnings of Hong Kong, it's roughly 20 million.

And William, back to your question around the reinsurance in Hong Kong, what always has to be differentiated when you sell a company or a country on operation, you will get the cash and mostly the shareholder is the AXA SA holding. So the cash arrives immediately at the AXA SA holding, which is then also being able to be leveraged for potential share buybacks. When you look at the Hong Kong reinsurance, this is a capital release that would go into the Hong Kong entity and so it would be very much subject to the regulatory approval whether this money could be upstreamed and when it could be upstreamed to AXA SA Holding. And since we have not had the discussion with the Hong Kong regulator on this topic, And since the Hong Kong regulator has also implemented a new regime last year when it comes to the question which interest rates and which mix of interest rates between short-term and long-term interest rates is used, this discussion is unfortunately still a little premature. Let's move to the next question.

Next question is from Oliver Steele. from Deutsche Bank, sorry. Please, Oliver, switch on your microphone and go ahead.

Actually, I switched off my hand, but a couple of questions nonetheless. The first is a technical question on the margin on revenues on the life insurance side, which dropped from 11% to 9%. I'm wondering what caused that. Actually, I'll leave it at that in terms of questions as the others have been asked.

Thank you, Oliver. It's quite rare to only have one question. So, that's good. The margin revenue on life from 11% to 9%, Alban, do you want to take that question?

So, on the fees and revenues on the live side, what we have is higher fees coming from our unit-linked business, and simply because we have higher volumes. On the expense side, we've had higher commissions for new business that offset a significant part of the higher fees that we received and the net is assumption changes offset between DAC and URR. And as you will know, when interest rates go up and when markets go up generally, you lengthen the duration of the amortization pattern of DAC and URR. That's the reason for those changes.

Thank you, Oliver, for your question. Let's move to the next question.

Next question is from Farouk Hanif from KD Swiss. Farouk, please switch on your microphone and go ahead.

Hi, I hope you can hear me. Farouk. Can you hear me?

Yep. We can.

Great, thank you. Perfect, right. So just going back to reserve releases at first. Obviously, if you didn't have the restaurant settlement, your reserve release would be about roughly three points. And it's been mentioned before that you're looking at having excess levels of reserve release as you move into IFRS 17. So I'm just wondering whether that three percentage points is just compensation for the restaurant settlement or whether you think actually you could be above your guidance range in the next few periods on reserve releases. Second question is on AxleXL, you have quite a big difference between top line growth and pricing. So you've clearly been putting into place all of this re-underwriting, this Nick shift that you've told us about. Is this going to continue in the second half or could we see a bit of an uptick or a reducing of the gap between pricing and revenue growth? And then what about 2022? And then the third question is on the operating return in the 12 percentage points in Solvency 2. You mentioned this was kind of above your guidance range. Can you talk a little bit about the drivers behind this and what might happen in the full year if those drivers continued? Thank you.

Thank you Farouk for your three questions. I suggest, Alban, that you take the first one around what is our policy of excess level of reserves before IFRS 17 is introduced. Second one, Scott, I would like you to talk about, is there, after having significantly worked on the re-underwriting of the portfolio, an opportunity to reduce the delta between pricing and revenue growth? And then, Alban, if you could give Farouk some more detail on what is behind the 12% of the operating return.

So on the reserve release, as Frédéric, I think, mentioned, I think we are fine at the upper end of our range, which is 1.5 to 2.5, at that upper end or even slightly above. I don't think there is any particular issue in the semesters to come to be there.

Scott, on the second one?

Sure. Hi, Brooke. As you know, once you take a decision from an underwriting standpoint, it takes 12, 18 months to work its way through the portfolio. But we would expect the back half of 21 into 22 to feel less of the effects of the re-underwriting of the portfolio. As the pricing in the marketplace continues to improve, we're seeing more and more opportunities that fit our pricing terms, and conditions and adequacy than we saw, say, 12 months ago or 18 months ago. So, you know, the team is excited for the opportunity to look at the business and go, you know what, this one we're getting adequately paid for. So I would expect that delta to decline as the months go by and into 22.

Thank you, Scott. And Albon on the 12% and Vita.

So what drives operating returns? When you look on the P&C side, it's very much our underlying earnings and not so much the investment income because you know that we in Solvency 2 use the current rates and not the accounting yields. But so the very strong performance on the P&C side, the technical one, is the driver on the P&C side. And on the live side, it's the very strong NBV that we had this semester. And to that, you add the nice performance of asset management. That's not significant compared to the rest, but nevertheless, it is a nice performance without capital requirements, and that goes also in the operating return.

So just on that point... It feels to me like you could be at least at the upper end of your guidance on that too, operating yourself.

So there is obviously some uncertainty, NatCat being one of them, so we should see. But clearly it has been a good operating return for the first half.

Thank you very much.

Thank you Farouk.

Let's move to the next question.

Last question is for Michael Hotner from Berenberg. Michael, please switch on your microphone and go ahead.

Yeah, thank you. Can you hear me? We can hear you, Michael. Fantastic. So, A, these are amazing results. Really, really well done. I had actually four questions. I'm really sorry. You've raised the guidance as far as I can see on a number of things, reserve releases, kind of life margin. So I'm wondering why didn't you raise the guidance for the 7%. The second is on the reserving itself. My guess is you're reducing the best, how to say it, the sum for two earnings, so the 12%. is just 2.9 billion, and your reported underlying earnings is 3.6. So I'm just thinking that maybe the reserve releases mean that you're actually reducing the total of best-estimated liabilities, but I don't know. It's a question. The third one is on the loading. So you're above the target range of a half-year for your net cat loading, both at AXA Excel And in Europe, and in Europe, of course, we've got these extra flood losses of 400 million, which I guess for the second half is about two points. And I'm just wondering whether you're maybe thinking of raising these. And then, yeah, I'll stop there. Sorry. I've taken up too much time. Thank you.

Thank you, Michael, for your three questions, and also thank you for complimenting us on the amazing results. First question, Alban, the raised guidance, why not raising the 7% if we have raised the rest? I'm not sure we have raised, but you will get some more clarity on it. Second one, on the reserve releases, does it mean we are reducing the total best estimate? Alban, that's also for you. And I guess the third one, you are also best placed to do it. With the catloading in XL and Europe that is above what we have seen, should we be raising the famous 6%, I guess, in XL?

So on the increased guidance, I haven't noticed that many increases in guidance as you mentioned. The only thing I think we said was that for prior year developments, we would be at the upper end or perhaps slightly above our range. But I think that's all. On the rest, and notably on growth, we've seen that in the first half, but it's an observation. It's not a raised guidance, and the 3% to 7% guidance still holds, even though in the first half, again, we are at the upper end of that range. On the reserves for 7C2, what you've seen, it's not a reduction in the best estimate. The prior developments come more from the excess reserves above the best estimates. And therefore, the amount of excess reserves that are already in our solvency to solvency. And last, on the cat loading. So, if I look at Excel first, and if you look at the decimal, we were slightly above, but only slightly above our cat budget or half our cat budget at half year. And it's the same for the group. I have here, we were very much in line with the budget we set ourselves, which is directly coming from our cat modeling. So then we have, sorry, yeah?

Yeah, sorry, I'm interrupting, I'm really rude, but the, how to say it, the heavy cat part of the year, the second half, right, so that's and we've obviously had a flood loss figure. So to say I'm slightly above a tough year, I'm kind of thinking it's not a comfortable maybe.

So when you look, in fact, we are not used to it any longer, but the first half of the year, you do have windstorms usually in Europe. And when you look at our own modelling and our geographic exposures, probably 52% of our losses should occur in the first half of the year. That being said, what we saw over the last three to five years, I agree with you, is a significant season of hurricane in Q3 in the U.S. So we'll see. What I can tell you is that, as was mentioned, we have 0.4 billion of losses coming from the floods in Germany and Belgium. And after this, our aggregate protection will kick in for an additional 650 million loss if we ever reach it. So that's the amount of potential additional loss that we could have after the floods.

Thank you, Michael. Since that was the last question, I would just want to ask if there are any other questions on the webcast.

Yes, this was our last question. We are now moving to the webcast questions.

So the first question comes from Colm Kelly from UBS. He has a question on holding company cash. Is the 1.3 billion holding company cash target a hard target or a soft target? For example, by the end of the current plan period, which ends in 2023, do you intend to strictly adhere to 1.3 billion target range and keep holdco cash in this range? Or are you open to keeping holdco cash above the top end of the target range if there are good reasons to do so?

So that target range of one, two, three billion at the whole level, it's a target. And I think we want to aim for the upper end of that range in the holding company level. So rather three than one. And that's what we are aiming for fundamentally.

Perfect. Exactly. Are there any more questions on the webcast?

Yes, so Ashik Musadi from JP Morgan has three questions. Number one, given that price increases continue to remain strong in Excel, what is the visibility that Excel earnings could be higher than $1.2 billion in 2022, as there should be some more underwriting earnings feeding into earnings? Number two, can you give some color on how casualty reserves have developed, i.e., Did you take any benefits from the NSTAR reinsurance program? And number three, the final question. The Excel investment margin was lower by $200 million year-on-year at 1H. So that's basically $0.4 billion annualized versus your previous guidance of $0.1 to $0.2 billion. Is that a new normal, and what is the trajectory around that?

Albon, I guess you will take those three, one around the price increases and what does it mean for 2022. Could we be exceeding 1.2 billion? Second one around the charity reserves and have we used some of the NSTAR ADC? Third question around the Excel investment margin being lower by annualized 0.4. How does it compare to our guidance that we've given of 0.1?

So on the price increases and the 1.2 billion, so Yes, I mean, Excel needs to participate broadly in the 3% to 7% underlying increase that we have set ourselves for the plan. So that's what we are expecting from Excel. There are price increases, but you should also remember that there is claims inflation, loss trend, notably on the long tail lines, that's probably around 5.5%. So you shouldn't take the price increases as directly going into P&L for next year. But we do expect Excel's earnings to grow. On casualty reserves, so what we did was to use the excess reserves that we had observed notably on COVID to book the deductible. But the NSTAR reinsurance transaction is not touched, it's not in the money, so to speak. And third, on Excel investment margin, so last year we had an elevated distribution of dividends from private equity funds. That was a one-off and not to be repeated. What is to be more extrapolated is the investment income that we had at AXA Excel for this first half.

Thank you, Alban. Are there any further questions on the webcast?

There are no more webcast questions. Thanks to everyone.

Thank you. Thank you very much for your questions and for having attended this conference around our half-year results. I wish you a great rest of the day and hope to see you soon all in person again. Thanks to my colleagues for having participated and actively answered the questions and thanks to the IR teams for having prepared this very successful day. Thank you and see you soon.