Axa Sa Ord

Good morning to all of you, and thank you for joining the call today. So let me go through the key highlights of 1Q24. And I think the sentence that said it all is that we have achieved a very good performance in this first quarter. We delivered strong organic growth across all our lines of business, P&C, life and savings, health, and asset management. And this is obviously very consistent with our new strategic plan, which we presented to you in February. So we are growing all our businesses, leveraging our attractive positioning, in particular in PNC commercial lines and employee benefits, and our growth initiatives are starting to contribute. Overall, our total revenues increased by 6% to 34 billion euros. Our balance sheet remained very robust. with a solvency to ratio at 229%, reflecting our strong capital generation capacity. And we also continue our actions on climate. We have recently strengthened the access for progress index targets across underwriting, investment, and our own operations. But let me now go through the key numbers of the press release, starting with PNC. PNC revenues are up 7%, with growth both in commercial and personal lines. In commercial lines, excluding AXA Excel Re, we grew by 7%, and this was driven by favorable price effects across all markets, as well as higher volumes, notably in Europe and at AXA Excel. At AXA Excel Insurance in particular, prices were up 3% on renewables, which is a similar growth as last year's, so pricing is holding well. Excluding North America professional lines, pricing, including exposure, is slightly above loss trend. And as explained in February, there are different dynamics and we are managing the cycle proactively. We see a continued hard market in short tail lines, notably North America property, up 15%, while pricing is moderating in long-tail lines, with plus 5% in casualty, but this remains above loss trends. In North America professional lines, pricing remains soft, and we remain focused on profitability. In France and Europe, still in commercial lines, we continue to see favorable pricing at plus 4%, and plus 3% respectively. And we also continue to see good demand from corporates across SMEs, mid-markets, and large risks, and this is driving growth in volumes. So we are well positioned to capture the structural growth in this market, including through our growth initiatives in white spaces, mid-markets, and new risks. In personal lines, revenues were up 6% with growth both in motor and non-motor, up 3% and 9% respectively. Pricing was very strong overall at plus 10% across both motor and non-motor. In motor, pricing continues to accelerate across geographies, notably in France and Europe, except for Switzerland. And this was partly offset by lower volumes and the change in business mix in the UK, where we did, for the reasons you know, a full portfolio review, and we further strengthened our risk selection in addition to significant pricing actions. Overall, in personal lines, both frequency and severity are in line with our expectations in the first quarter. And therefore, we are confident in our margin improvement plan, which is, as you know, an important part of our 200 bps target for the improvement of our combined ratio in the plan. Finally, in reinsurance, as you know, the right sizing of property catlines were completed in 23. And so in 1Q24, the revenues were up 9%. driven by both favorable price effects in property and casualty and higher volumes in specialty. One last point on NatCat and large losses. Group NatCat experience in the first quarter was below its prorated annual budget, but we maintain our annual NatCat budget of 4.5 points of combined ratio for the year. And as for the large losses, we expect the potential impact from the Baltimore Bridge to be non-material at group level, i.e. less than $100 million before tax. Now moving to life and health. In life, premiums were up 6%, with very strong growth in capitalized GA savings with 19%, plus 19%, notably in Japan from 2008, strong sales of single premium whole life products, and in Italy, from the successful launch of a new product. We had also strong performance in unit linked, plus 8%, driven by successful commercial campaigns across our distribution network, and mainly in Italy and in France. We also saw a positive trend in protection, up 3%, notably from higher sales in protection with unit linked in Japan and in Europe, mostly from Switzerland. And lastly, in line with our strategy, premiums in traditional GA savings were down 14%. In health, premiums increased by 7% to 4.8 billion euros, primarily driven by favorable price effects, both in group and individual businesses, across our main geographies. In the UK, we continue to take pricing actions which will be earned over time, but we are also, very importantly, rigorously implementing the claims pathways to triage claims in order to manage our claims cost. That's, as you know, a very important aspect of our plan to improve profitability in our UK health business. On the net flows, so we saw strong flows both in protections and health, and that was particularly, partly, sorry, offset by continued outflows in traditional GF savings across most geographies in line with our strategy. In aggregate, our surrender ratio remains broadly stable versus full year 23 and improved versus 1Q23. Moving on to new business, life and health, PVEP and NBV were up 14% and 6% respectively, and this was attributable to the favorable impact of lower interest rates and good volume growth, as I just mentioned. New business CSUP was up by 1%, impacted by the model changes that we implemented in full year 23. So as you know, we update assumptions only at 1H and full year. At full year 23, we updated assumptions in France, which had an unfavorable effect on the new business CSM. And this effect impacts 1Q numbers, 1Q24 numbers, but not the 1Q23 that we reported. Therefore, the two periods are not directly comparable. NBV margin was down 0.4 point, and that reflects the unfavorable impact of lower interest rates and the effect of the model changes I've just mentioned. And overall, our business mix in life and health remains of high quality. One word on enforced management. As you've seen, the German transaction will not go through. There's been a significant change in market condition since the deal was announced, and that has caused both parties, Soraya and us, to reconsider their position. We have taken advantage of higher interest rates to close the duration gap, and there is now more value to the book today for us. The fact that we have terminated the transaction will have no impact on the targets disclosed by the group as part of its new strategic plan, Unlock the Future. But you also saw that we announced today, or yesterday rather, that Axelife Europe entered into a reinsurance agreement with Nuri, a subsidiary of Munich Re Group, which will cover around 3 billion euros of variable annuity reserves. This transaction is expected to result in a reduction of underlying earnings of around 20 million euros per annum from 2024 onwards. But as you saw in the press release, this will be compensated, earnings per share wise, by a 200 million share buyback. Finally, in asset management, Average assets under management increased by 2%, reflecting both favorable market effects and positive net flows. Net flows amounted to 6 billion euros. We had strong inflows from third-party clients in both our core and our alt platforms, and more particularly in real estate, which reflects XIM's superior performance track record in this asset class. Revenues were up 3%, mainly driven by higher management fees due to an increase in average assets under management. Last word on Solvency II. So we continue to operate with a strong Solvency II ratio at 229% at the end of March, up two points versus full year 23. So that comes from plus seven points from normalized capital generation, minus five points of accrued foreseeable dividends and annual share buybacks, plus one point from subdebt reflecting the issuance of 1.5 billion euro restricted tier one in January, but partly offset by the repurchase of around 1.2 billion euros of subdebt through a tender offer. And as you know, we intend to maintain our stock of debt stable over the plan, minus three points from expected regulatory changes, and plus two points from financial markets, mainly higher equity markets. So we're happy with our strong sovereignty ratio that reflects our capital efficient business model. So to conclude, We are off to a very strong start this year, and that's very consistent with our plan. And therefore, we remain confident in our strategy. We are very focused on the execution and the delivery of the new strategic plan targets. And that's all supported by the attractive and highly diversified business model, which allows to deliver predictable earnings growth. I'm now happy to take your questions.

Thank you, sir. As a reminder, to ask a question, you will need to press star and one on your telephone and wait for your name to be announced. To withdraw your question, please press star and two. The first question comes from Will Hardcastle of UBS.

Oh, hi. Thanks for letting me take the first question. It's only one, actually. to do with, if I look at the pricing, the premium, it looks like there's been volume reductions throughout the personal lines book, motor particularly. UK is enormous at a 50% price and 2% premium. You mentioned the mix shift there, Alban. I guess, is there any way that we can get an indication of how much the UK motor volume has reduced? Because obviously, we'd be looking in excess of 40%, but I assume that's not right. That would be really helpful. Thank you.

Thank you, Will, for your question. In fact, there are two things, or three, rather. Obviously, there's the very significant price increase that you saw, but there's also the fact that as we focus on the better risks, the average premium is also coming down, even though we increase the prices because we let go of the worst risks. And so you have the very significant price increase, a reduction in the average premium, and a bit of loss of volumes, but clearly not the 40% you mentioned. We're losing significantly less customers than that. Is that clearer?

It is. I guess we're not going to get a sort of a 5%, 10%, 15% volume reduction, are we? Is that asking too much?

That's a bit asking too much, yes. Thought it might.

The next question is from of JP Morgan.

Hi there. Thanks very much. I just wanted to ask a few questions. I'm sorry if it's more than two. Can you talk about the cash impact on the new deal that you've done with Munich Re on the VA book? So, I mean, obviously you're losing cash positive that you would have got from the German back book deal, although that would have been obviously offset by buyback. But what's the cash impact of the re-deal? Secondly, can you explain what the market conditions were that have made you happy to keep the book? I'm presuming it's interest rates. and what would it take for you to look again at this back book? So either to sell it or to reinsure it, what would it take for you to strategically change your mind on that? I just wanted to also ask about the commercial pricing momentum. So it feels like it's still kind of declining, even if you take out U.S. professional lines, in terms of the difference between pricing and loss-cost trends. Would you kind of agree with that? And then what would you say is your kind of expectation for the rest of the year and also for 2025 in terms of the commercial pricing momentum to deliver your plan? Thank you very much.

Thank you, Farouk. So the cash impact of the transaction on Axialife Europe is that we'll be able to release 250 million of capital that will be freed up by this transaction. On the German transaction, so as you remember, the transaction was signed in 22. Over 22 and still in 23, interest rates increased, and we had discussions with Asora. We both honestly wanted to do this transaction, but given higher interest rates, there is more value to the book to us. As I also said, we managed to close the duration gap. expectations on both sides didn't meet. And at the end of the day, it was better for everyone to call it a day and to say, we're not anymore on the same line, so let's decide to terminate. So we're fine with holding the book, but all our options are open. If somebody comes with a good price, we wanted to sell two years ago, we might sell. if we have a good offer. But as I said, given higher interest rates, given the right ALM and closed duration gap, it's not an issue if we keep the book. And third, on the commercial line pricing at Excel. So it's quite similar to the end of last year in the sense that Yes, U.S. professional lines are soft. That's very clear, which means that we are focusing on profitability. We are focusing on our current book of business, and we have increased the retention of our books of business because obviously you have better profitability with your current customers rather than looking for new customers in such a market. But for the rest, for all the lines, we see very good momentum. Bear in mind that at Excel, there is obviously a bias to Europe in the first quarter. And the pricing momentum in Europe is good. And you saw it around 5% to make it simple. But it's even better. in the US where you see property still up 15% like it was last year, but you also see some places in casualty also up significantly in the US. So that's why I said that overall with that pricing dynamic excluding North America professional lines, we are slightly above lost trend still. So what should we expect for 25? I don't see why the market should change abruptly in 25. We are coming to a place where prices increase with lost rent slightly above, could be in line. I don't see competitive pressure that would take the prices down or below lost rent at this stage. And you know that for the plan, our assumptions are that we maintain our margins at Excel, playing with the various cycles of the various lines of business.

Thank you very much.

The next question is from Dominic Omahony of BNP Paribas Accent.

Hello. Thank you for taking questions. So just to, one is just to clarify something else. I think you said, it sounds like the margin recovery in personal lines is very much on track and that ex-financial lines pricing remains above lost cost trend. But should I infer from that that including financial lines pricing probably isn't ahead of lost cost trends? Is that a fair inference from what you're saying? And then I just wanted to invite your thoughts on trends in North America casualty. I mean, some of your North American peers seem to be adding to reserves for the more recent vintages, so 2020 onwards. Interesting new reflections on how experience is running through the Excel book on those more recent vintages. Thanks.

So on your first point on North America financial lines, And it's true that profitability, which I sound like a broken record on that one, which was extremely high is now good on financial lines. And that's what matters to us. And as I said, we will manage this focusing on our customers rather than looking for a new business at any price. That's not our stance. So I separate it from the rest because for us, this is a specific line with a specific dynamic. And exactly for your question on casualty, what matters to us is whether we are above loss trend in those other long-term lines, and we are. And on the casualty reserves, so as you know, we review our reserves twice a year. before half year and before full year. We had seen the change in the trend, I think, earlier than our competitors. And really, what matters for reserve is change in trends. And we have not seen over the last month a change in trends on casualty. And what I mean by that is we haven't seen an acceleration. Now, we will do the reserve review in Q2, and we'll be able to tell you more at half year.

Very helpful.

Thank you.

The next question is from Andrew Crane of Autonomous.

Good morning, everyone. Can I ask, I suppose, three areas. One, could you go into a little bit more detail on German motor as to what the severity and frequency trends are there and how that's stacking up? Secondly, could you say, I know you said NACATs were below your prorata rate, but if you baked in man-made or large losses in Baltimore Bridge, are you basically on trend in the first quarter? And then thirdly, could you talk a little bit about reinvestment rates? You've got quite a headwind, I think, on the sort of discounting amortizations. But against that, there should be a decent pickup in the reinvestment rate on the portfolio. If you could talk a bit about that, that'd be great. Thanks.

Thank you, Andrew. So on German Motor, I think we are in line with our expectations. So we increased prices by around 17%. And at the same time, we saw no additional drift in frequency. So the price increases that we have implemented allow to correct for the drift that we had last year without additional drift this year. So we are in line with our expectations. And I mentioned frequency because that was the issue last year, but we have no issue on severity either. On NATCAT and large lawsuits, Large losses, before we had the Baltimore Bridge claim, that was also a good quarter. And so, NatCat plus large losses is also a good quarter. And on the reinvestment rate, so obviously it's a mix of many currencies, and notably if we not forget that we also invest in Japan and Switzerland, we invested at 3.8% overall over the first quarter. And obviously, it's a small positive compared to our expectations. But if I broaden that, I think the way I would characterize the first quarter is that we have a good number of small positives. Small positive on the on the reinvestment rate, notably on the dollar side, and therefore on the discount rate. Small positives in the pricing on retail, which is slightly better than expectations. So it's only Q1, obviously, but nevertheless, I think we, as I said, we're off to a good start, so thanks to all this.

What was the reinvestment rating for the year 23 against the 3.8%?

It was around 4%, if I remember well. It's slightly lower for the first quarter, but the currency mix plays a role. And the other reason is that, for specific reasons, we focused for the first quarter on liquid assets, and so we didn't get the additional premium from illiquid assets, but we'll get that later in the year. Thank you.

The next question is from Andrew Sinclair of Bank of America.

Thank you very much. First for me, just a point of clarity on the Baltimore Bridge, less than 100 million. Can you give us a little bit of colour in terms of the industry loss expectations for that and if that industry loss goes higher, are you capped out or are there any other non-linear elements we should be aware of for Baltimore Bridge losses? Second was just thanks for the commentary on the drop in contribution from new business CSM and the colour on that year on year. But just looking at in particular in France on the non-CSM other new business value in France, that was a really big jump up 41% despite protection GWP actually being slightly down year on year in France. probably surprised me about just keen to get a little bit of color on that big jump in that other new business value. And the third for me was just on Excel Re. I think the first time exposure seems to have grown in a long time. Is this just specialty that you're interested in, or do you have some appetite for growth in any other reinsurance lines as well? Thank you very much.

Well, thank you, Andrew. So on your first question on the Baltimore Bridge, so What we said about having a loss of less than $100 million, it's based on the assumption that the industry loss is around $1.5 billion in total. That being said, if the loss was to creep up to, say, $2.5 billion or $3 billion, our estimate is that it would still be less than $100 million for us because of the policy limits that we have. The only increase that we would get in our loss is the increase in the reinsurance reinstatement premium that we would have to pay. So it is in any case capped to a low level. On the new business value versus new business CSM at AXA France, if I understood correctly your question, A good part of it comes from the health part, which is in the NBV, but not in the NBV CSM. And on the NBV part, we have significantly increased prices and therefore margins. And that's probably the main reason why we increased the NBV in France. There's also a bit in protection in volumes. But that's health, which is really the issue, the cause of the improvement. And on the Excel RE, I think what we don't want to increase significantly is property cap. We want to be cautious on casualty reinsurance in the U.S., because we want to make sure that pricing, local pricing, reflects the profitability and the risks. But on other lines, we're happy to grow. Very helpful.

Thank you very much.

The next question is from Michael Hutner of Barenburg.

Thank you so much. I'll be really quick because, A, I compliment all my peers. The questions and the answers are fantastic. It's... And on health in France, in the UK, can you give an idea of the speed of the improvement? Will we see it already in H1 in terms of profits or H2? It sounds as if you've done a massive turnaround, but there's always this lag. Thank you.

Well, thank you, Michael. Look, it's a transformation. It's not as easy or as quick as the recovery in German motor. Because as you know, it's about pricing, but it's mostly about the change in the way we manage claims, the pathways, the use, so to speak, of GPs. And so you will see some improvement already in 1H, but we will be back to normal profitability, as we said, early 2025 or by the end of this year. So that would be a progressive.

And can you say how much it is, the swing factor, if you like, from, say, 23 to 25?

No, I mean, what we expect for the whole of 25 is to get back to the profitability we used to have until 22.

So 100 million, maybe 200? Sorry, I'm... I'm pushing, but you're so generous today.

Look, it's, let's say, between around 150 million.

Wow. Thank you so much. Thank you. Thank you, Alma.

The next question comes from Peter Elliott of Kepler Chevron.

Thank you very much. A couple of follow-ups, please, from me first. Firstly, just going back on the German deal, are there any financial implications of the cancellation of that deal? And secondly, I appreciate the economics are now much better than they were a couple of years ago. Should we assume that the main change really is in the risk profile of the business or, you know, are the earnings looking a little bit better as well? Then also a follow up on UK health, if I may. I appreciate how boring it is. You said just now, you know, it's not all about pricing. But if I do look at pricing and premiums, we're up five percent for health Europe. And it doesn't sound like, you know, you've had outflows there. from the uk um so i just it doesn't look like the pricing has been that strong but i'm just wondering if i'm if i'm missing something there um and and finally sorry it's a little bit off topic but just given your update on the adc at the uh the full year results would you better remind us how much income you're currently giving away to n star and and what your options are on that thank you very much

Sorry, I was writing down your question. And thank you, Peter. So on the German deal, the financial implications are simply, I mean, compared to today, nothing. I mean, we keep the earnings, which are a bit more than $30 million, and we don't do the share buyback that we would have done, and we don't get the cash, which was roughly $400 million. So Net-net, we would have gotten 200 million net cash that we're not getting. That's the difference. But we keep the 35 million earnings from the book. Again, it's duration match. It's okay. But if we had decided to sell it, that's because it's not fully in line with the nature of the live books that we want to have. So we were happy to sell it for that reason. It's obviously in better shape now than two years ago, thanks to higher interest rates. But as I said, if we find a good offer, we could sell it. On the UK health pricing, you will see in H1 that we will have increased prices further because we've done another set of price increases in April. And on the ADC, I don't have the numbers with me. The team is telling me 20 million what? 20 million per annum on the ADC.

Thank you. Great. Thank you very much.

As a reminder, if you wish to register for a question, please press star and 1 on your telephone. The next question is from William Hawkins of KBW.

Good morning, Orban. Thank you very much. What is the movement in the SCR that contributes to the seven points of operating solvency change in the first quarter, please? And then can you just remind me, to the extent that you emphasized that it was a normalized capital generation figure, Is it boosted by the light nat cats that you referred to or not? And then secondly, please, when you were making reference to maintaining the stock of debt through the plan in the context of what you've just done in the first quarter, can you just remind me what your specific intentions are with regards to the grandfathered RT1s? Are you intending over the next couple of years to replace it? Because obviously you can't replace it with allowable Tier 2s. Or are you assuming that your solvency ratio is so high that it doesn't matter if you allow for some deleveraging with the grandfather debt drifting down? Thank you.

Thank you. So on the SDR, within the plus seven points, there is a minus one point from the impact of the business growth on our SDR. And there was no particular boost from NatCat. NatCat was, as we said, a bit below the decorated number, but that didn't have a meaningful impact overall. On our stock of debt, so we plan to maintain our stock of debt absent M&A. That was clear in February. We plan to... manage proactively our stock of grandfather debt, but it doesn't mean that we will replace one for one, tier one and tier two by tier one and tier two. We might use also some senior debt to keep the level of cash that we have and overall arguing ratio, and that might have a slightly negative impact on our sovereignty, but we are talking potentially a couple of points.

Thank you.

We have no further questions. I will hand it back to Mr. Du Mayenel for any closing statements.

So thank you very much for joining this morning. As I said at the beginning, we are very happy with our numbers. Obviously a bit disappointed with the German transaction, but on one hand it's in good place now. We are open to all options, and we are very happy with the transaction that we've done with Munich Free on Accelerate Europe. So we are overall happy with our Q1. Thank you very much, and I'll see you at the latest in August for half a year.