Axa Sa Ord

Good morning and welcome to AXA's first quarter analyst and investor call. In today's call, our group CFO, Albon de Mainel, will cover two topics. In addition to commenting on the activity indicators for the first three months of 23, Albon will also review the highlights of 2022 financial information restated under IFRS 17 and IFRS 9 that we also published this morning. In order to enable you to better assess the group's earnings trajectory under the new accounting standards, we're also providing on an exceptional basis an underlying earnings target for 23. This outlook is unaudited and subject to several key assumptions. Please review the disclaimer slide of the presentation for important qualifying information. After the presentation, our group chief accounting and reporting officer, Gregoire de Montchalin, will join Albon to take your questions. And with that, let me hand over to Albon.

Many thanks, Anu. And good morning to all of you. Thank you for joining the call today. So as you see, it's slightly different from our usual quarterly calls because, as Anu said, we will cover two topics today. And therefore, we prepared a small presentation and we will spend a bit more time so that you have enough time for your questions at the end of the call. So let's start with Q1 2023. What are the key highlights of our results? First thing to say is that we performed well in this first quarter, and the headline growth is 1%, but in fact it masks very strong growth in our technical lines, and in particular P&C. We were off for a very good start in 2023. That was partly offset by the rising of non-prioritized businesses and some weaker revenues in unit links and asset management that reflects a more challenging environment. When we look at our life and business, life and health business in particular, Our priority is the quality of our business and the focus we have on capital light products. And that's what we've seen in this quarter. And that's thanks to the very strong efforts of our distribution networks, in particular the proprietary ones. A word on balance sheet, but we'll come back to that later. You see that our sovereignty ratio stands at 217%. two points higher than at the end of 2022, and that's supported notably by a very strong normalized capital generation of seven points this quarter. But there again, I will come back to that later. We have, as shown in the slide, all confidence on our asset mix, which is a high quality, which is what you want in these volatile and uncertain times. As Anu said, we are giving exceptionally guidance for the underlying earnings of this year. We believe they will be above 7.5 billion under IFRS 17 and 9, which is obviously our new framework. But I'll come back to that in the second part of this presentation. So moving to the next slide and looking at our growth momentum. Again, I think the important message is that we are growing where we want to grow. So we're growing in P&C at 6%. First, commercial lines. Commercial lines, we grow at 7%. On the insurance side, we see that Excel had a good growth of 4%, with clear signs of pricing re-acceleration across the portfolio, except for North America professional lines. When you look at our renewal prices at Excel Insurance, excluding North America professional lines, we are up 8%. So that's better than the end of last year. On personal lines, there again, we have good growth at 4%. with a specific focus on motor with plus 6%. That's obviously due to the pricing efforts that we make to offset the inflation on claims cost. And non-motor is up 2%. So both reflect there again an improving environment. On health, so health you know that we – cancelled or not renewed two large contracts that we had written at AXA France and for which the experience was not in line with our expectations. If you exclude those two contracts, we have good organic growth at plus 7% in both individual and group health and in all our geographies. And finally, protection, which is also one of the technical lines that we want to grow, is up 2%, notably thanks to Japan and Switzerland. So that's on the technical lines, and you see that we are growing on all fronts in line with our strategy. Now, coming to savings. you know that our focus for savings is unit-linked and capital-line GA, and in particular, GA at maturity. So our revenues on unit-linked were suddenly a bit lower than expected in the first quarter, mainly due to, again, the volatile environment. But what we want to highlight here is the fact that we want to work on those two legs, Unitlinked on one hand and products with guaranteed maturity such as Eurocroissance that we have in France. And when you look at the French business in particular, you see that the net of those two is a positive, plus 5%, because in times where it's more difficult to sell unit linked, customers are happy to have products that give guarantees at maturity while allowing them to invest in slightly more risky assets than traditional general accounts. So, last point I want to highlight is the businesses that we don't prioritize. Xcelery, you know that we are reducing our property cat exposure. In volumes, that's minus 35% exposure. That's offset partially by price increases that were strong in Q1 in Profit Cat Reinsurance, but we also had good growth in other lines at Excelry, notably Casualty, mostly coming from prices. and the other one, as I said, is traditional general account savings, capital heavy. To the same extent, we do enforce transactions like the German one that you are very familiar with. We are not unhappy to see that our net flows in traditional GA savings is negative. So all this leads to a very good high-quality mix for Q1, focused on our technical lines, and obviously very consistent with our strategy. And we want to carry on growing on that basis. So if we move to the next slide on pricing, which obviously is an important topic these days, what do we see? As I said, for Excel, both insurance and reinsurance, we see a good pricing dynamic. The price increases on renewal at Excel, as I said, 6%, but 8%, excluding North America professional lines. And we do see a reacceleration in most lines. Property is up 9%. Casualty is up 9%. Property in the U.S. is up 18%. So that's very good numbers. We showed the good dynamic that we have at Excel Insurance and the same on reinsurance, but that was expected. And we discussed that already in February. In commercial lines, excluding AXA XL, so you saw in the previous slide that we had a 7% growth overall in France and Europe, and that mostly comes from pricing at plus 5%. Keep in mind that in Q1, The weight of Switzerland is higher than for the whole year because notably on commercial lines, contracts are renewed at 1.1. And you know that in Switzerland, there is very low inflation, if any, and therefore hardly any price increases. So that somewhat underestimates the overall price increases that we see. Same on personal lines. You see 5% here. In fact, excluding Switzerland, we are at 7% overall. And again, and I'm sure you will have questions on this, again, that is sufficient or more than sufficient to offset claims inflation. So you see that, be it commercial lines or personal lines and in whatever geographies, we managed to have price increases over and above inflation, which is obviously supportive for our technical margins. Let's move to the next slide. So this is our presentation of new business with PVEP and NBV. Obviously, with the changes in interest rates, there is a strong impact coming from interest rates in the minus 17% that you have, for instance, on PVEP. So it doesn't, and the same on NBV with minus 11%. What matters for us here is that the NBV margin, which once again shows the quality of our business, is up by 0.4 point at 5.6%. The fact that we decrease our PVP or NBV because of interest rates It's not an issue because what it means notably when it comes to new business CSM is that the unwind of that NB-CSM will be done at a higher rate and therefore it's positive. And you will also have in mind obviously that when it comes to our strategic lines which are protection and health, the impact of higher interest rates is obviously higher than for traditional general account. That's why, there again, the impact on our PVP can look significant at minus 17%, but nothing to be concerned with. If we move now to our solvency to ratio, So as I said at the beginning, it's plus two points compared to the end of last year. That's on the basis of several positive items. The first one is the operating return. The operating return is seven points, and that's better than what we had in the past, and we believe that's recurring change, which leads us to change our guidance. We believe that this year in particular, our normalized capital generation should be between 25 and 30 points. And this is due to the fact that in PNC earnings, part of our earnings in the past was made of the release of excess reserves. Those excess reserves were already in our solvency to capital base and therefore the release did not generate more solvency. Now, under IFRS 17, our P&C earnings are made of PYDs coming from, are made of current year profitability, obviously, but also PYDs coming from our best estimate liabilities, and therefore, they directly go entirely to solvency creation. So that's the first point. The second point is the fact that we have higher interest rates also means that we have a higher discount and therefore a better combined ratio and profitability, which there again enhances our sovereignty capital generation. And the last item that explains that seven points capital generation is purely mechanical. Last year, notably thanks to higher interest rates, our SDR went down, and therefore, there is a pure denominator impact in our capital generation. So, the message is good capital generation overall and better alignment between sovereign C2 earnings and IFRS 17 earnings, so to speak. On the other impacts that you see on this screen, crude dividend minus four, that's simply last year's dividend divided by four, as we usually do. No impact from market overall. Obviously, there were some pluses and minuses. Minuses on interest rates, but pluses in equity and volatility. Net is zero. Management actions. I want to spend one minute on this, so it's very positive, five points. We took advantage of higher interest rates in this first quarter to further reduce our duration gap. By further reducing it, we reduce our STR and therefore improve our solvency, but we also reduce a bit the sensitivity of our solvency to interest rates. So that's positive also for the future. And last, minor six points from regulatory and model changes. You had in mind what we had discussed In February and last year, the minus 9 points that we're losing from IBA transition and the change to a Europa reference portfolio, that was partly offset by some other model changes. So that's how we come to minus 6 and the 217% that we have here. So overall, when I look at Q1, we see high-quality revenue mix. We see a very good pricing momentum, notably in P&C, and a good business profile overall in the current uncertain macroeconomic context and a strong balance sheet in addition to that. That's why we are confident in our ability this year to produce attractive results. I'm going to give details on in a second as we move to IFRS 17. If you allow me one second to have a bit of water. Let's move to IFRS 17. And one of the main messages that we want to give here, as I said, I think, in February, is what matters for us is Foliar 22 under IFRS 4. Don't look too long at Foliar 22 under IFRS 17 because there are a number of elements that distort this number. And that's why we wanted to give you again, exceptionally, that guidance for 2023 so that we would all have in mind the same profit expectations for this year. So, what do we say on these lines? We simply reiterate the messages that Grégoire, Renaud and I gave you last November which are the following. One, the fact that our earnings power under IFRS 17 is not different from the one that we had under IFRS 4. And that's why we have that guidance of 7.5 billion which is net of the FX headwind of minus 0.1 billion, coming obviously from the weakness of the US dollar. So 7.6, if you adjust for that, and therefore 5% growth over the IFRS 4 numbers. So that's an important message. And as we saw with the numbers we just discussed on sovereignty, our accounting change does not have any bearing on our solvency. You saw that we are 217% in Q1. Nor will that accounting change have any consequence on the cash remitted by our entities. And that's why overall with that guidance, we are happy to reaffirm once more the fact that we will meet are key financial targets of this plan, and we will exceed the UAPS target of 7% that we had given ourselves and the cash remittance target of 14 billion that we had also set ourselves. So no news on this, but we are reaffirming that. So now let's move to the next slide with a bit more detail on that guidance. And again, I will give even further details as we move to PNC life and health in the coming slides. So, the underlying earnings this year should be above 7.5 billion. Again, net of the 0.1 billion FX Edwin, which is mostly PNC. The 4.7 billion target for PNC is with obviously normalized NatCat. You know that our cat load is four points of combined ratio. That guidance is based on this assumption. And overall, it comes with improved technical results. compared to 22, and we'll go into more details, but lower financial results, and notably because of higher unwind on the PNC side. Life and health, and I insist that it's life and health and not life and savings, because there could be some confusion, and here we tend to report life and health together. It's $3.3 billion in It should be $3.3 billion this year, slightly above what we had under IFRS 4 in 2022. Asset management and others, a slight deterioration by minus $100 million coming from higher interest rate expenses at the hold-core level and also the fact that we will have lower revenues in asset management. simply, as you saw, because we had slightly lower average assets under management in Q1. So that's what I wanted to say on this slide. Now, let's look at more details on Q22. So, on the left-hand side of this slide, you have our combined ratio, the actual combined ratio in IFRS 4 and in IFRS 17. So, you will recognize the 94.6% combined ratio under IFRS 4. Under IFRS 17, in 22, you have a one-off impact, which is the following. You see that we had PYDs of minus 2.9% under IFRS 4, but these PYDs were made of the release of excess reserves. And you know, because we discussed that in the past, that it was on purpose. because those excess reserves disappear with IFRS 17. And so we wanted to create those PYDs out of those excess reserves. And so you have them under IFRS 4. You don't have them under IFRS 17, precisely because you don't have excess reserves, I mean, official excess reserves under IFRS 17. And when you just remove the 2.1 billion of excess reserve release that we had, you move from minus 2.9% to plus 1.7%. So that's very specific to 2022. That's not something that will happen again in the future. And I insist on this because, again, we don't have those excess reserves any longer in IFRS 17, and there will not be that distortion anymore. That's why we wanted to provide you with what would be a normalized combined ratio in 22. And there we normalize for two things. We normalize for NADCAT, which, as I say, should be around four points of combined ratio. And we normalize for PYDs. So on this, Our new guidance for PYDs is that we said in the past that it would be in line with long-term experience. Now we are a bit more precise, and we're saying they should be between 0.5 points of combined ratio and 2 points of combined ratio. So for illustrative purposes, and illustrative purposes only, here we put 1.25% of combined ratio, which is simply the midpoint of that range. And you see that with that normalization of NatCat, the loss ratio that you know, the discount ratio, that you now have under IFRS 17 and the PYDs, the comparable combined ratio under IFRS 17 for 22 would have been 93.7%. I draw your attention to the fact that we have only normalized NADCAT and PYDs. We didn't normalize anything. For instance, the Ukraine loss is still in that number. So that's for the technical part. On the investment income part, sorry, the financial result. The financial result is made of two components. One, the investment income, which is very much in line under IFRS 17 with what it was under IFRS 4. But there is a second component, which is the unwind of discount. And that, unwind, costs us in 2022 500 million of earnings pre-tax. So our financial result under IFRS 17 in 2022 is lower by 400 million than what it was under IFRS 4. So the global picture which is true in 2022 and which will be true in the future is that you have obviously a better combined ratio under IFRS 17, but you will have a lower financial result because of the mechanics that we have just seen. Now, if we move to the next slide, so that's where we go into the the reasons where we believe that our P&C earnings in 2023 should be at least equal to 4.7 billion. So first, we believe we'll see an improvement in our technical result. You saw the numbers for Q1 in terms of pricing, and this is supportive. for our technical results and our loss ratio. Second point, NADCAT load of around four points, so less than what we had under IFRS 4 in 22. Obviously, this is an assumption, but you may have seen in our press release that to date, our CAT experience is in line with expectations. Third assumption underlying that number is, as I said, the fact that PYD release should be within the range of 0.5 to 2 points. Fourth, hopefully, we had the loss coming from the Ukraine war last year and hopefully we will not have a similar loss in 2023. And finally, the discounting of current year claims reserves at a higher rate in 2023 than in 2022. So that will support our technical result. Conversely, as far as the financial result is concerned, the unwind of the reserve discount will be higher in 2023 than it was in 22, simply because we accumulate reserves and discounted reserves at a higher rate year after year. So the unwind is by construction higher. There's a second effect which has nothing to do with accounting, which is simply that last year we had an elevated level of funds distribution, notably private equity, and in 2023 that amount will be lower. And all in all, I said $4.7 billion. Now moving to life on the next slide. So this is the 2022 earnings. As you know, our life and health earnings are mostly driven by CSM release. You see that out of 2.9 billion of earnings that we had in 22, 2.5 come from the CSM release. In addition to that, we have slightly negative long-term technical results. What will you find there? It's the fact that it's mostly the experience and it's also the non-attributable expenses. In 2022, we had a positive experience variance, which reflected our prudent approach to reserving. We think that it will be – that's why it came as an offset to the non-attributable expenses at minus 0.1. Short-term technical results in life, that's mostly our protection business in France. which is accounted for under PAA and not VFA. That's why it comes here as short-term technical result. And you add to that the non-VFA financial result, which is, there again, the investment income that we have minus the unwind of the discount on non-participating business. And there in 22, like in P&C, we have benefited from a high level of fund distribution and therefore our investment income in 22 is higher, was higher than what we can expect in 23. And so overall, we have 2.9 billion of underlying earnings in 2022, as opposed to 2.6 billion in IFRS 4. As you know, the mechanics are different, so we can compare the numbers, but we cannot really compare the various components. But what you should have in mind is that There is no accounting distortion on the life side, as opposed to what we saw on the P&C side, but our life earnings were probably at a high level, given some positive one-offs that we had on the actuarial side and the fund distribution that we also enjoyed in 2022. Moving to the next slide on the stock of CSM. So here, I think the important part is what is in the box and what we are called recurring items. The way to think about CSM and CSM release and new business CSM is the following. New business CSM is built on a risk neutral basis. So it will come and increase the stock of CSM. But in addition to that, year after year, you will also have the unwind of the stock of CSM at the risk-free rate, plus the fact that you have investment income in excess of that risk-free rate. And that comes from risk premium on the equity side, that comes from spread on bonds, and so on and so forth. So that's a natural component of the CSM increase. And then you have the CSM release. And you see that when you take those three elements, we are neutral, the first two, offsetting the third one, which, as you know, is released on a real-world basis. And that's why the new business CSM and the CSM release are not directly comparable. You need to add, in addition to that, the unwind and the excess investment income. Then if I move to the other components, We had some economic variance which was minus 0.6 billion in 2022. This is the same economic variance that we saw last year in our solvency. So nothing new on this. And there again, it's quite comforting to see that solvency and accounting are more aligned than before. So you know that we last year benefited from higher interest rates, but we also had higher volatility, lower equity. And so net-net, it was a negative, but there again, very much in line with our solvency. And we had a positive operating variance of 1.3 billion, and that's mainly coming from one-off model changes. So that's the dynamic of our stock of CSM in 2022. And in total, it increased from 24.6 to 25.5 billion. If we move to the next slide on health, so that's very much the same mechanic as the one we had for life, so I will be shorter. There again, our health profits come mainly from CSM release. The only thing I want to comment here in addition to that is the fact that the long-term technical experience, which you see here as a negative, that's the COVID claims that we had in Japan last year that we told you about. That's something that should not repeat in 2023. And the short-term technical results, so that's 0.2 billion, that comes from our health businesses that are short-tail, such as, for instance, the U.K., And last year, it was impacted from those two famous international contracts that we had in France and that we did not renew and that had a negative impact on our health earnings in 2022. But overall, underlying earnings on the health side, very much in line with what we had under IFRS 4. So on the slide, if I do the same exercise of going through the CSM stock on the health side, the same box, we have the new business CSM, we have the underlying return and in-force, we have the CSM release. You see that on a net basis, that's very balanced. And the new business CSM and the underlying return offsets the CSM release. Economic variance, so here it's more negative than on the life side, and that's completely normal. Health is first and foremost a technical margin business as opposed to a financial margin one. And so as you discount at a higher rate those technical margins in the future, that will have more significant consequence for a health business than for a savings business. That's why you have a minus 1 billion here. But there again, it's not bad news as such. It's like the comment I made earlier on our PVP and new business this year, as it just means that the unwind will be done at a higher rate in the future. You know that, be it for life or health, the message we gave you in November is that the amount of CSM release should be very stable, even if we have some ups and downs in the stock of CSM. Moving now to the 2023 target that we have for life and health. So you see that it's a slight increase, 3.3 billion compared to 3.2 under IFRS 4. Again, we have a lot of visibility on those two businesses thanks to the CSM mechanism. And so we have a good view on the CSM release. In addition to that, we will not have the health claims that we had last year in Japan and France, but We also had some positive model changes in Japan on the live side last year. That will not repeat themselves in 2023. And on the financial results, exactly like in PNC, we will have an unwind of our reserve discount, which will be done at a higher rate. and we will not have the same level of funds distribution. So same mechanism, same impacts as on the P&C side, good level of technical results driven by CSM for life and health, but lower financial results for the reasons I explained. Quick word on net income. So I will not comment the impacts directly related to the lower underlying earnings. You know that we took the options as far as equities are concerned, not to have the volatility of equity in our P&L, and it will be booked through shareholders' equity. But it doesn't mean that capital gains on equities disappear. They simply go directly to retained earnings without going to P&L. And when I comment our realized gains on equities and our shareholders' equity in a few seconds, you will recognize that amount. So no equity capital gains in an IFRS 17 P&L. So what will you see in the future? You will see capital gains coming mostly from real estate. We could have occasionally capital gains and losses coming from fixed income, but you know that it's not our practice to realize fixed income gains and losses simply because of ALM constraints. So that's the main impact. The last one on the other is simply because it comes from assets that were no longer eligible for mark-to-market in the CI and that go to P&L. A word on shareholders' equity. So you have side by side the movement in shareholders' equity under IFRS 17 and under IFRS 4. The main difference and by far is naturally the change in OCI. That was minus 27 billion under IFRS 4 because of higher interest rates mainly. You see that it's only minus 5.4 under IFRS 17, simply because most of the changes that we had on the asset side because of interest rates was offset. by the same impacts of interest rates on the liability side under IFRS 17. And so you see that ROCI, and therefore more globally our shareholders' equity, is much more stable under IFRS 17 than it was under IFRS 4. The other two differences One, the realized gains on equities, what I've mentioned a second ago, that you see here now directly in retained earnings. And the other one is the change in pension benefits. It's simply because part of the positive impact that we had under IFRS 4 was already taken into account in our opening balance sheet at 1-1-22 and therefore did not go to the change in shareholders fund in IFRS 17. That's the overall impact but you see that in total our shareholders equity at the end of 22 was very similar to what it was under IFRS 4. And as a conclusion before we go to your questions, so you see that be it on the PNC side or on the live side, we are very confident in our 2023 underlying earnings target. That is thanks to, well, first, the quality of our business, the fact that it's extremely resilient in this environment, the fact that we have good pricing dynamic in the first quarter. And finally, on life and health, the fact that we have good visibility on the CSM. Shareholder's equity, as I said, broadly stable versus IFRS 4. And I reiterate the fact, but I think you all know this, that those accounting changes have absolutely no bearing on our cash remittance and our sovereignty to ratio. And that's why we reiterate again the fact that we will either meet or exceed our driving progress 23 key financial targets. As we explained before, we will exceed the two that concern the UEPS CAGR and the cumulative cash remittance. I stop here.

Operator, we're ready to take questions. The first question is from Andrew Sinclair from Bank of America. Please, Andrew, switch on your microphone and go ahead.

Thank you and morning, everyone, and thanks for the new disclosure. The new financial disclosure supplement is really good. Three from me, please. First, just wanted to understand a little bit more about cat budgets for the year. I know it's four percentage points at group level, but what's the budget for Excel for the year for that cats? And at both Excel and group level, how much seasonality should I think about when you're saying you're in line with expectations for Q1? That's my first question. Second, I was just looking at the discounting impact on the combined ratio in 2022. When I was going through the pack quickly this morning, it looks like you're getting about double the discounting benefit in France compared to broader Europe, 3.6 percentage points compared to 1.9. what's the driver of that? And similarly, why did Excel get less discounting benefits, say, than France? I might have thought Excel might be a bit longer tail and maybe get more US-focused higher yields than elsewhere. So I just came to understand that. And third was just on capital, the reduced duration gap. You mentioned some lower sensitivities. Just wondered if you can put any numbers around that, how they would look today. Thanks. Yeah.

So thank you, Andrew, for your questions. Generally, the way to think about our catalog is to say that PNC in France, in Europe, and Excel Insurance, that's roughly the same catalog, around 3.6%, 3.6%, 3.7%. And the difference is made with Excel Re, which by definition has a higher cat load given the nature of the business. And that's how you get to the 4% overall. On the discounting impact, so when you compare France and Europe, bear in mind that in Europe you have Switzerland. And Switzerland obviously has lower interest rates and therefore the discount and the unwind is made at a lower level. And on the Excel, just give me one second. Yes. So on Excel, sorry for that. You should have in mind that Excel is a business which is more heavily reinsured than the rest of our P&C business. And therefore, the unwind... applies to lower reserves and therefore, as such, is lower than what you would see typically in France and Europe. And on your last point on the reduced duration gap, so the sad thing is that we have not put it officially in our Q1 numbers. I can't disclose it. I don't want to risk the selective disclosure here. It is a reduction. It's not massive, but it goes in the right direction.

The first question I get about cap budgets, just to confirm, what is the cap budget and percentage points for Excel for the full year? Because I'd assume that's more than four percentage points that we have at group level. And just seasonality, I mean, should we be thinking we're around about that 3.6 points for most of the units and 4 points overall for Q1 or is it a bit less because of that seasonality?

So I don't have the number for Excel in total because that's not the way I think about it. Again, I think about it as insurance versus reinsurance. That's why I gave you the 3.6, 3.7% for Excel insurance from which you can deduct by having the sum and the fact that it's 4% for the whole group what it is for Excel reinsurance. And in terms of seasonality, obviously, you have probably given our portfolio a higher level of cat losses in Q3 because of hurricanes in the U.S. Now, you saw that in Q1, we had a significant earthquake in Turkey. And despite that, and there's obviously no seasonality on four earthquakes, despite that, we had a good quarter.

Thank you very much.

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

Thank you very much. First of all, just to follow up actually on that duration gap, I mean, given you said the sensitivities haven't come down massively, I just suggest there's more you can do there. So I'm just wondering if you could comment on that and sorry if I missed it, but are you able to tell us what the duration gap is at this stage? Second one on capital management. I'm just wondering if you can share your latest thoughts on capital management. And I'm thinking there, you know, whether the lower SCR gives you opportunities, especially going forward, or whether you've updated your thoughts on the appropriate debt gearing at all. And maybe on that one, any thoughts, any discussions you've had with the ratings agencies as to how they will think about their definition might be helpful. And then finally, likewise from me as well, thank you very much for the concise and clear financial supplement. I think I'm right that you've given us analysis by line of business and by geography, but not the granular detail of P&C lines of business. So, for example, I don't think we have French commercial business. So it's great to have a concise and reduced bins up. But I guess the downside is that it makes it difficult to build a bottom up model that simultaneously forecast both line of business and geography. So I guess the question is there. Can we assume maybe that going forward, your focus might be a bit more on line of business? So we maybe don't have to worry so much about forecasting geography. Yeah. Just any thoughts or help you give that would be helpful. Thank you very much.

Okay, thank you very much for your questions, Peter. So on the duration gap, it was 0.5 at the end of last year, it's 0.3 now. But what you should have in mind is the way we think about duration gap is the economic one between our assets and liabilities. What we don't hedge, what we don't take into account in that duration gap is the management of the risk margin or the fact that some of our SCR, some parts of our SCR, are sensitive to interest rates. And so, because we want to have an economic hedging of our interest rate risk, we don't take the risk margin. Therefore, even with such a low duration gap like 0.3, you still have sensitivity coming from the variation of the risk margin in our sovereignty or that of our SCR. I hope that explains the difference, which also means, by the way, that at some point we could move to a duration gap where assets would be longer than liabilities, which is not the case today, which to some extent would cover also the sensitivities that I just mentioned from risk margin. But today, our assets are slightly shorter than our liabilities. So on capital management, and I'll start with debt gearing. On that one, You saw the range that we gave. That's until the end of the year. Early next year, we will give you our next plan. I don't think the debt gearing should change as a target, but we will give you more on this next year. I think we're comfortable with the level of gearing that we have today. On the lower FCR, I'm not sure exactly what your question was.

No, it was just whether that gives you more flexibility and maybe whether the scope for it to reduce further in the future. I guess it was an open question, but just if there was anything you could add, then there will not be.

I mean, not really. I think the lower SDR is a combination of the fact that, as I said, we had lower interest rates and the fact that our growth in our technical lines does not necessitate more capital and also because we reduce our SDR by reducing our exposure to capital leverage in our account. So that's the dynamic at stake. On rating agencies, it's a discussion which is taking place because they are adapting their models to the new accounting framework, and this is not yet finalized. And finally, on the... On the detail, effectively, we wanted to give you clarity on quite a few numbers, but we will not go into the details of, say, commercial lines in France or personal line in Germany. We will not do that.

Thanks very much.

Next question is from Will Huttcastle from UBS. Please, Will, switch on your microphone and go ahead.

Yeah, thank you for the questions. The first one is just whether you can update on LAPS experience in the quarter, any geographies or distribution channels, any comments that would be helpful. Second one, there's a fair bit of distortion on that P&Z pricing from the mix. You mentioned pricing is generally ahead of inflation when we're talking about personal motor. Is there any geographies where this isn't the case or where it's not being passed through by the market and any update you can say on inflationary trends and whether they're sort of remaining stubbornly high or easing in any geographies quicker than others? Thanks.

Thank you. So the lapse experience, the general answer is no change to our lapse experience, but for two small pockets, One that's in France, some corporate business that we have. So it's not corporate pension, to be clear. It is the fact that in the past, we used to have some corporates, generally family holding companies, that would simply invest their cash into insurance policies. And so they are pretty sensitive to the interest rate that we can offer. And as they can find better rates elsewhere, there were higher lapses there. But it's a small business, and the remaining reserves on this are 3 billion. So you see that it's not an issue. The other place where you had higher lapse rates That was in Italy in some of the business coming from BMPS for somewhat identical reasons. In other words, the... The customers of BNPS, like of other banks, offered Italian government bonds that have yield higher than what we can offer. And there again, you saw some increase, but nothing alarming. And at the end of the day, it's a rather small business for us. In general, we don't see, as I said, an increase. And that's mainly for two reasons. One is... The focus that we've had over the years is on long-term business for our customers. They are saving for their pension, generally. And therefore, their insurance policy is not like a bank deposit, and they will not move every time there is an up and down on the interest rate. And very often, they also have a unit-linked policy with that. And the second aspect is that most of our business is done through proprietary distribution. When I look at France, for instance, 80% of it comes from proprietary distribution. And there we are able to give advice to our customers. And they see the value of that advice. They see the value of having an insurance policy, notably with tax benefits and so on. But that's why we haven't seen changes in our business. Now, in P&C pricing, so the first part of the answer, which is simple, is that everywhere we have seen changes price increases that were sufficient to offset or more than offset inflation. The only exception to that is North America professional lines where there is significant competition and prices are down. That being said, the line is still very profitable, even with that kind of price pressure. So let me now take you through something I also gave you in the other times we talked about inflation, which is a comparison between the claims inflation that we have in motor and the pricing measures that we have taken. So what you see in Q123 is claims inflation growth of any elements, any actions we take to offset it, which is around 7%. It's 7% in France. It's probably 6% in Germany. It's 8% in the UK. In Switzerland, it's less than 2%. But if I take the example of France, so you have the claim inflation of 7%. As I told you the other times, we take some measures like procurement, orientation, and so on, which allow us to reduce the cost of that inflation by two points. So we're left with five. Frequency in France is relatively neutral. It is a headwind in Germany. It's a tailwind in Belgium. But overall in Europe, it's neutral. But coming back to France, you have those five points of claims inflation. You have minus one point coming from business mix. And then our price increases that represent four points. So all in all, we maintain our margin in France. I gave you France. The same is true for Germany, for Switzerland, for Belgium. Obviously, the country which is remarkable is the UK for many reasons. But on that one, because price increases are very high, we're talking about north of 25% year on year, which means that today, I believe, the business that we write today is profitable on the writing basis, which was not the case last year.

Thanks, Albon, very helpful. I'll say as a compliment that we're remarkable.

Next question is from Farouk Hanif from JP Morgan. Please, Farouk, switch on your microphone and go ahead.

Hi, everybody. Thanks very much. Firstly, going back to operational capital generation. So you've talked about how there are various impacts that have raised you to 25 to 30 points, one of which is the SCR, but the others are obviously kind of own funds related. So can I just confirm that what you're saying is that your operational capital generation in nominal terms, in euro amounts, is actually also increasing? Could you just talk about that? Second point is, again, going back to the comment you just made to Will on pricing versus inflation. I mean, you gave the impact of France is broadly neutral. Do you think your combined ratio overall at the group level is going to expand? you know, in 23 and 24 due to pricing versus inflation. So do you see a positive margin impact in 2023? And then two very quick questions, really sorry, but the discount rate effect in PNC, how sensitive is that in 23? We've seen yields come down. How should we think about that? And lastly, the CSM release is 9%, so it's the lower end of your range, you know, Should we also think that there's upside there going forward? How does that work? Thank you.

Thank you, Farouk. So operational capital generation. So yes, in nominal terms, there is an increase. I think if we say that we are at 25 points over the year, which is the low end of our range, that's five to six points above the previous range. And I would say one to two points comes from the fact that The SCI is lower, and the rest comes from the simple fact that we generate more capital in absolute terms. On the combined ratio, as I said when I talked about the guidance, I think the pricing environment is supportive. And so, overall, I believe that, yes, there is room for improvement in our combined ratio. Obviously, I'm talking undiscounted combined ratio, everything else being equal and leaving aside, obviously, CAD volatility and so on. So, yes, I think it is supportive. Third, on the discount rate impact. So, I'll give you two things. The first thing is the fact that we use rates on a quarterly basis and one quarter in advance, i.e. at the end of December of any given year, you will know the rate at which we will discount Q1. And so you have those rates in our documents that we give you for Q1 and Q2. That already gives you half of the year as far as discount is concerned. Then I will give you my own rule of thumb on how I approximate discount. Fundamentally, so the discount applies to the net claims of the year. So if you start with 100 of premiums, you have 55 of net claims at AXA in P&C. And the discount applies to the part which is non-paid. And the part which is non-paid is another 55% of those 55. So that's the basis to which you should apply the discount. And then the duration of those claims is around four years. So with that, I think between the rates, the duration, and the basis, you have everything that you need to approximate the discounted impact on any given year. To be clear, that's my rule of thumb. It's not the precise calculations, but that's reasonable enough. And on CSM release, as we said, What is stable and growing, obviously, is the amount of the CSM release. And that's because it's done on a real-world basis. So if you have a higher stock of CSM, then probably the release ratio would be lower. And if you have a lower stock, then the release ratio would be higher. And what matters, obviously, is the new business market. contribution year after year. That's what will drive in the end the amount of CSM that you will be able to release. I hope I was clear on all those technical issues. Very clear. Thank you very much.

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

William, we don't hear you.

William? Apparently William is having problems to get connected. William, can you please switch on your microphone and go ahead?

Hi, sorry, can you hear me? Yes, we can. Hello, William. Hi, I apologise for my connection. Can you just, the 217% solvency ratio, what were the numerator and the denominator for that, please? And also within the role forward, what's the numerator and denominator behind the zero percentage point from financial markets? Because I know the net is zero, I'm a bit confused about what's happening top and bottom. I think you already gave some deep

William V. can't hear you.

I hope you can hear me, and I will answer the first question that we have heard on solvency. So the 217, the denominator is $27.4 billion, which is slightly above $10. what it was in fully 22, 27.2. And the numerator is 59.6 billion. And I understand your other question was on the market impact, which was zero overall. So it's minus two from interest rates, minus two from spreads net of VA, plus two from equity markets, plus one from implied volatility, plus one from Forex. So zero overall. I hope you could hear me.

All right. Next question is from Henry Heathfield from Morningstar. Please, Henry, switch on your microphone and go ahead.

Morning. Oh, yeah. Thank you for taking my question. Just going back actually to slightly on Farouk's question on the discount rate and the unwind. Seems to have quite a big impact on your earnings in P&T. And so I was wondering if there is like a long term rate that you might be using in kind of strategic planning, whether that has any bearing or impact or whether the change is just put through to adjust profitability somehow and no impact on long term planning. And then you mentioned as well that there's a higher discounting impact on technical business. This was regard to the health business versus discounting impact on the savings business. I was wondering if you just might be able to illuminate me a little bit on that. And then finally, on capital generation, just on the nominal amount, would it be fair to assume a number around six and a half billion annualised, give or take a couple of hundred million?

Thank you very much.

So on the first one, the discount and the unwind, the way we think about it, the unwind will increase as we will pile up, so to speak, generations of different discount rates year after year. And given the trend in interest rates, that will increase. That being said... it should be offset by the increase in the investment income because we will also invest at higher investment income. There is a specific effect in 23 that I mentioned quite a few times on the private equity funds distribution, but that has nothing to do with the fact that our investment in fixed income are also done at a higher rate year after year. On the discount impact, This is obviously a very sensitive assumption in our business. There will be some volatility. Now, there are other aspects of the P&L, I'm thinking of PYDs, for which there can also be some volatility up or down. And so I don't think that overall we should have too much volatility in our earnings and Very clearly, our aim is to provide our shareholders with regularly growing earnings and cash generation. That's the philosophy of our strat planning. On the technical margin versus savings. On technical, the combined ratio that I have on health is independent from interest rates. And so, for a given level of combined ratio that will be projected, the earnings will be discounted at a higher rate and therefore will be worth less. Now, when interest rates are higher for a savings business, you know that the discount rate in a risk-mutual environment is the same as the investment rate. And therefore, what you have is a better theoretical yield on your assets with higher investment rates, which in particular means that the value of your options and guarantees goes down. And therefore, in many instances, for a savings business, the higher interest rates will have a positive impact. So it's more positive for savings than it is for protection and health. I hope it's reasonably clear. And your third question, sorry, I'm not sure I got it.

Please, can you unmute yourself?

Sorry, just on the third question, I was wondering whether Just on the capital generation, whether around a 6.5 billion normalized annualized figure, give or take a couple of hundred million would be a decent ballpark number to be thinking about.

I think the best way to think about it is the 25 to 30 points of capital generation applied to our SCR. That's the way to get to the right level.

Perfect. Thank you.

Okay, next question is from Michael Hockner from Barenburg. Please, Michael, switch on your microphone and go ahead.

Thank you so much, and thanks for this lovely presentation. You were talking about pricing in France. I didn't... I'm looking at your press release. The figure I see in personalized is not four, it's 1.9. So I'm guessing I'm reading something wrong. Maybe you can explain the mix of your business in France and how you see that. The second is on the... operating capital generation. So we've spoken a lot about that. So you're kind of saying it's now beginning to converge with earnings, which is, I think, what Henry was saying. But you were saying maybe we're getting close to 7 billion. The other one is 7.5 billion. But within that, I had a question. The feeling I have, and this was from the previous conference call today, is that in a period of rising interest rates, you do have because the discounting comes before the unwind and the discount, or if interest rates are higher than last year, however, that you do have earnings which are slightly above the normal run rate. Is that roughly fair? Would that explain the difference between the underlying earnings and the operating capital generation? And then the I had one silly question and one even sillier question. So the silly question is deals. I'm not sure if you can speak about that, but 217% sounds like you've got plenty to look at stuff. And I just wondered if you can give an update on what's happening there. And then the final question, and here's really a place to thank you for having made AXA a really simple company to understand that. Thank you very much. But does it mean that machines can do it? I was speaking to somebody and they said that the LSE has a program of building models automatically. And I was thinking, that means I don't have a job anymore. How do you see that? Thanks.

Okay. Thank you, Michael. On the first one, I understand your question on the reconciliation of numbers. The 4% I mentioned, is the number you mentioned on the price increase. divided by the loss ratio. In other words, it's as if you dedicate the full amount of price increases in France to claims. And why do we do that? Simply because the expenses are addressed separately and we put a lot of pressure on expenses so that they do not increase with inflation. So that's That approach is specific to France, not for the other countries. But that's the reason why we say it's a 4% price increase in France, because that's the part that goes to claims. On the convergence with earnings, so there is a slight impact coming from the higher discount, and that's what I highlighted as well, so I agree with you. But the main impact in our greater capital generation comes from the fact that underlying earnings, notably on the PNC side, are extremely close now to sovereignty capital generation, and they were not in the past because of that distortion coming from excess reserve release. On the 217% gap, I guess you were alluding to some potential capital management initiatives. On this, as we said in February, the board looks at capital management, in particular at share buybacks, once a year, and so don't expect another share buyback this year except the one to offset the dilution coming from our German-enforced transaction. And on the fourth one, I'm not completely sure what you meant.

It's a really silly question. We now have a really very simple framework. If I were a generalist, I would be sending lots of chocolate to Anu. I mean, tons of chocolate. I know Anu doesn't need chocolate, but never mind. Because you really can build a model very, very simply now. But it does mean that you don't need analysts anymore. And I just wondered how, this is a really silly question, but in two seconds we just press a button.

That's your modesty speaking. I'm pretty sure that Generalist, though we try to make it simpler and clearer, will need your help to understand IFRS 17, the link with Solvency 2 and so on. You still have good days of work with your clients.

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

Good morning, everyone. Thank you. Given my age, I'm not as worried as Michael is about being supplanted by a machine. Never mind. A few quick numerical questions, then a slightly more fundamental question. So numerical questions. What was the rate decrease in North American professional lines? And secondly, in euros, millions or billions, what was the impact of elevated fund distributions both in the PNC and life businesses last year? So get that right for this year. Thirdly, I just want to see, obviously people's solvency to coverage ratios are going to go up. You obviously beat in the first quarter and now you're looking at higher levels of operating capital generation. Does that flow through to higher levels of cash remittances to group levels so that we can then have a look at the amount of buyback which is annually possible? And finally, I'll reiterate what Michael said. I think it's fabulous you've got this thing, the financial supplement, down to 23 pages. The one bit that I would like to see, or a couple of bits I'd like to see, is one, a reconciliation between underlying earnings and operating capital generation by business. I understand what you said just a minute ago that you're very much aligned on the PNC, but it would be good to have that. And secondly, whether or not you're going to continue with net flows analysis.

Okay. Thank you, Andrew. So we don't communicate on the rates decrease in North American professional. It's – how should I qualify it? It's important, but not to the point that that line is not profitable any longer or that overall our pricing would not be above lost trend. And it was really very profitable in the past, so I don't see that as an issue. On fund distribution, I think what you should have in mind is a couple of hundred million difference between 22 and 23. On cash remittance, obviously the fact that on the PNC side, our earnings are made of best estimate PYDs. gives us comfort on the fact that the remittance can grow. And you know that we said it would grow. So we have full confidence in this year to be at the upper end of the range we had given you, which was $5 billion to $6 billion cash remittance for 2023. And we believe that it can grow further in the following years because we grow earnings, because of what we've just said, and because, as you know, we are working on the couple of entities that were not yet at the right level of remittance. And, Anu, do you want to take the one on the reconciliation? Sure.

So, Andrew, we will take on board your suggestion to reconcile UE and OCG, but you will see that, you know, when you map our Solvency 2 capital generation and match it with UE, it should be very similar. But we will provide that. On the net flow, we do provide life and savings net flows. Were you thinking more account value roll forward?

Yeah, no, I was just flicking through the supplement and couldn't see. used to have between start year and end year life reserves.

Yes, I think that's actually a function of IFRS 17. And we are in VFA and BBA contracts, which cover both GA as well as UL, reported through CSM. We're showing a CSM roll forward, and we show PBFCF, but we're not showing the reserve roll forward. But we are giving you net flows on a quarterly basis in the activity indicators.

Great. Thanks very much. And qualitative comment on the reconciliation between earnings and capital generation. I mean, obviously, you would know that, Andrew, but just for the benefit of everyone. On the P&C side, it will be very close, as we said. On the live side, the difference is the following. What creates solvency is new business and unwind of discount and additional investment income in excess of risk-free rate, whereas what creates earnings is the release of the CSM. It so happens, as you saw in our numbers, that they are reasonably similar, if not equal. So there is not a big difference. But there is a difference in the way solvency is created versus earnings.

All right. Last question is from Dominique Omani from BNP Exxon. Please, Dominique, switch on your microphone and go ahead.

Hello, folks. Thanks for questions. Just two left, if that's all right. So on the cap gen uplift from this, I guess the end of the releases from the potential margin, could you give us a sense of which geographies this effect is most pronounced? I'm trying to work out whether this is something that's going on mainly in the Solvency II jurisdictions or, for instance, in the Bermuda jurisdictions. And by implication, whether it actually has a tangible impact at a local level or whether this is really about the way the group reporting works. And then the second question is just on the duration gap. I was wondering why you're closing it now. And I guess the context is that when I talk to folks about managing lapse risk, one of the things that I've been told is that you want to sort of structurally remain a bit short in order to sort of manage that risk. It sounds like that risk isn't a problem at the moment, but why closing the duration gap now given where we are on the rate curve? Thank you.

Thank you, Dominic. On your first question, so if I understood it well, The difference between 22 and 23 come from the release of excess reserves or not. And we had no such excess reserves or most in AXA-Excel. So effectively, it will be more the European entities for which there will be a difference in terms of capital generation coming from the better alignment between earnings and solvency. Excel, that will be very, very similar. On the duration gap, for us, there are two different things. The first one is the duration gap as such, which is an ALM issue, and we thought that the level of rates that we reached in the first quarter was such that it would be interesting to take benefit of that and lengthen the duration of our assets. I believe that the neutral position that an insurance company should have is to have slightly longer assets than liabilities, because that's the one thing you would benefit from in case a market crash, because you would gain money on the interest rate side while you would lose on equities and other assets. So that's my belief. And today we're not there yet, but we wanted to close further the duration gap. And then there is another aspect, which is liquidity and how you manage potential surrenders and lapses. So on this, we have a very strict liquidity framework and And the first source of liquidity is obviously the incoming premiums, the coupons, the maturities from your bonds. And that's already a very significant source of liquidity. And then we take measures regularly to make sure that even in stress scenarios, we would have the ability to cater for additional surrenders or lapses without triggering capital losses.

Thank you. Cheers, Ola.

Okay, we have one more question from Benoit Vallaud from Odo. Please, Benoit, can you switch on your microphone and go ahead?

Yes, good afternoon, Alban. Thank you very much for this very clear presentation. One short question on my side on France, and more specifically on your combined ratio. When I look at your page 8 of your financial supplement, you're reporting a 104% combined ratio in 2022 under IFRS 17. So there's a huge gap versus the 89% reported under IFRS 4. And when you take your reserve releases, it was a 6.5 percentage point last year. So I just wanted to understand why you reported such a huge gap. Did you change your best estimate last year in France, for example? And maybe linked to this, I know that you don't provide any guidance in terms of commercial going forward, but do you see any reason why commercial in France should be higher than the commercial in Europe? Thank you.

So thank you for your question, Bernard. What you see for France is what I described in one of the slides on IFRS 17 when I showed that overall in 22, we released excess reserves, and those excess reserves do not exist under IFRS 17. And that's why at group level, we had a higher combined ratio, and that's why you see it as well in France. And when I combine that with a previous question on the fact that those excess reserves were not at Excel, but mostly in Europe, it's normal that France and some other European entities may be more impacted. But again, it is a one-off in 2022. We wanted to release PYDs from excess reserves in 2022 because precisely they disappear under IFRS 17 and we will have PYDs in the future coming from best estimate liabilities and in the range of 0.5% to 2% for the whole group. On your second question on France versus Europe, France is one of our largest markets with very good profitability and there's no reason far from it why its combined ratio should be higher than others. Obviously, we want a good combined ratio and we have it in France.

Operator, do we have any more questions?

No more questions on our side.

Okay, then I thank everyone for joining the call this morning. If you have any follow-ups, then don't hesitate to reach out to the investor relations team. Have a good day.

Thank you very much. Have a good day.