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.