Scor Shs Prov Regpt

Good afternoon, ladies and gentlemen, and welcome to the SCORE Q2 2024 results conference call. Today's conference will be recorded. There will be an opportunity to ask questions after the presentation. In order to give all participants a chance to ask questions, we kindly ask you to limit the number of your questions to two. At this time, I'd like to hand the call over to Mr. Thomas Fassad. Please go ahead, sir.

Good afternoon, everyone, and welcome to SCORE Q2 2024 Results Conference Call. My name is Thomas Fossard, Head of Investor Relations, and I'm joined on the call today by Thierry Léger, Group CEO, François Dvarin, Group CFO, and Jean-Paul Konechente, CEO of SCORE PNC, as well by other COMEX members. Can I please ask you to consider the disclaimer on page two of the presentation? And now I would like to hand over to Thierry Leger. Thierry, over to you.

Thanks, Thomas, and hello, everyone. Let me start with my four key messages today. First, in P&C, we maintain attractive margins, grow in preferred lines of business, improve diversification, and continue with our reserving discipline started last year. I'm very satisfied with our P&C business, and I see a lot of development potential. Second, in investments, we produce stable and elevated returns with a high-quality fixed income portfolio benefiting from continued high reinvestment rates. Third, in life and health, the Q2 results have been very negatively impacted by an ongoing reserve assumption review. I'm very disappointed by our life and health results and have decided to respond decisively with a three-step plan to restore profitability in a sustainable way. Orr's score has a great franchise, and I'm confident in our ability to overcome the life and health issues and fight back to our forward 2026 path. In terms of numbers, for H1, our two key targets are only partially met at half year. With a solvency ratio of 201%, we remain within our target range of 185 to 220%, despite a 20 percentage point impact from the ongoing life and health reserving assumption reviews. The economic value has reduced from 9.2 to 8.4 billion euros. This is well below our 9% growth target. At SCORE, we drive value through our three key businesses, P&C, life and health, and investments. In P&C, I said it already, the combined ratio for the first six months is at our target level of 87%. The excellent performance of the first six months allowed us to accelerate our reserve buffer building. Moving into the U.S. hurricane season, I remind you that we are very much underweight in our net cat exposures. In life and health, the insurance service result stands at minus 257 million euros for H1, primarily due to the life and health reserving assumptions review impacting Q2 with minus 500 million euros. With this, we now expect our full-year life and health ISR to be well below our target range of 500 to 600 million euros. In investments, the H1 2024 regular income yield is strong at 3.5% at the higher end of our guided range for the full year 2024. François will later provide you with more details on all of these areas. As I said, the solvency ratio remains within the optimal range of 185 to 220%. This was achieved despite a minus 20 percentage point hit from the Life and Health Reserving Assumptions Review and shows the resilience of our balance sheet and our ability to manage the solvency ratio within the target range. The solvency ratio would have been 221%, excluding this impact. supported by strong operating capital generation, notably from the P&C and investment activities over the first half of the year and after taking into account the capital consumption for new business and the dividend accrual. There was also a positive impact for market movements. I remain confident in our ability to manage the solvency ratio within the optimal range of 185 to 220% for the rest of the year and beyond. We are also pleased that S&P have confirmed our A-plus rating and the stable outlook following the capital advocacy assessment test last week. Despite our difficulties, On the life and health side, my strategic priorities for the second half of 2024 remain largely the same. It's first of all about building and capitalizing on our four key strengths. Our excellent client franchise, our strong balance sheet, our diversified business model with BNC, life and health, and investments. And it's based on my confidence in our employees and our technical expertise. We continue to allocate capital strategically to the most profitable and diversifying lines of business. The P&C renewals of the last six months are the best proof of this with strong growth at even higher technical margins thanks to improved diversification. However, in life and health, my priorities have changed and I'm now fully focused on our three-step plan to restore profitability in life and health. More on this in a minute. In P&C, overall, our year-to-date P&C premium is up by almost 16% at unchanged attractive margins, and we continue to improve our diversification, leading to an additional improvement in our combined ratio. This is a testimony to our strong client franchise and our ability to shift business to better performing and better diversifying lines of business. And the momentum continues to be favorable with positive June-July renewals. Our underwriters continue to expand in our preferred lines and key areas of diversification. In specialty lines, we have successfully grown the lines identified as key areas of potential in our Forward 2026 strategy, notably engineering, and marine and energy up by 20%, as well as IDI inherent defect insurance up by more than 15%. Alternative Solutions has more than doubled in size to become a major growth contributor already and with more to come. With recognized expertise in this segment, our Alternative Solutions underwriters continue to receive a high volume of submissions and were also able to proactively propose innovative solutions to our clients. We remained very selective on U.S. casualty dough, with stable premiums on a gross basis. Since the rest of the portfolio grew significantly, the relative size of U.S. casualty continues to reduce, and we are securing more retrocession of U.S. casualty, reducing our net exposures additionally. In what is a slightly more competitive environment, SCORE anticipates a continued disciplined market for the upcoming renewals. I told you already that I was disappointed by the life and health results and that I intend to act quickly in a very determined way. There are multiple root causes that require a very differentiated approach. A lot of our life and health business is in good shape, and we enjoy a top-tier franchise in this segment. We will have to act broadly and surgically at the same time. The board and the management of SCORE are committed to addressing issues early, communicating transparently, and adding fast and acting fast and with determination. We have shown this in P&C. And we will do the same in life and health. There are no sacred cows and I will not rest until our life and health business is back on track. Therefore, I have decided to take over the leadership of life and health and to launch with immediate effect an ambitious three-step plan to restore the profitability in life and health. All steps have been launched simultaneously with no time to lose. Step one is about adjusting the reserve levels to the latest experience and trends. As said already, we act proactively and transparently. This is a deliberate choice of the management and board. The 2024 reserve assumptions review is, of course, still ongoing. Final results will be communicated once the reviews are completed and have gone through proper governance. Step two is about maximizing the value extraction from our reinforced book. 90% of the annual P&L of our life and health business comes directly from the Inforce. It is also where the majority of our life and health capital is allocated to. We will create a more centralized steering of our life and health Inforce business with enhanced KPIs. There are multiple tools available to deliver higher and more stable profits from the Inforce book. Step three is about increasing the diversification and profitability of our life and health new business. We will more proactively steer our business to higher margin and better diversifying products. We will continue to innovate with our clients, but have a stronger emphasis on product design. And finally, we will look at the product mix between mortality, morbidity, and between traditional, structured, and longevity business. I will work closely with our life and health leadership to implement the necessary actions swiftly. The impact of these actions will start to be seen early 2025 at the latest. I have full confidence in our life and health franchise and in our ability to produce higher quality and more stable results going forward. I conclude before handing over to Francois. P&C and investments are performing very well. but I'm disappointed by the life and health results. We have a three-step plan in place to restore profitability in life and health. We have started to take actions and we move fast and in a determined way. We will update you in December on the life and health strategy and the forward 2026 targets and assumptions.

Francois, please. Thank you very much, Thierry, and good afternoon, everyone. Let me cover first the topic of our life and health assumption review before moving specifically to the presentation of our Q2 results. To start with, let me give you some background on our life and health assumption review process. Each year, our actuaries review the entire life and health portfolio. This includes regular assumption review, experience studies, and model refinements. In addition, we conduct a few deep dives. Over a three-year time frame, deep dives cover 100% of the book. The last significant number of deep dives was performed in 2022, ahead of the transition to IFRS 17. In 2023, the review was performed consistently, but consequently included fewer deep dives. Also, the experience variants over the full year 2023 were positive and did not signal a need for additional specific review. Our 2024 Assumption Review Program was set in Q1, with deep dives focusing this year on the U.S., our biggest mortality portfolio, Canada, and South Korea. We decided as well to review extensively, after one year under IFRS 17, the biggest block of business classified under Ronero's contract at transition, namely Israel. Given the initial indication of this annual review, I asked for an acceleration of the estimate of the overall impact at TRN 2024. We saw the materiality of the impact and communicated our best estimate view with no delay. This best estimate view includes the maximum deviations expected by the end of the year. In H2, we will provide you with more detailed insight on this work once finalized. You can see on this slide the main geographies and segments which are the focus of the 2024 deep dives. Before going into the details, let me remind you that the goal of this reserve adjustment is to strengthen the robustness of the cash flow projections. Their economic impact can be booked either in ISR or in CSM under the IFRS 17 framework. Reflecting our business mix, our largest portfolio review is in the US. Our focus was on the long-term future projected cash flows and, as you would expect, we looked at a range of assumptions. from lapses, premium, net amount at risk, to long-term claims assumptions. We have a strong track record of implementing portfolio action in the US, and we will continue to use this lever to enhance value from the Inforcebook. In Canada, we have adjusted long-term future projected cash flows related to lapses and claim assumptions. In parallel, we have significantly revised upward product pricing. Then, if I move to South Korea, we see some negative experience emerging from the morbidity portfolio, and this will be reflected in future projected cash flows. We have already significantly reduced the volume of this portfolio in recent years. Finally, in Israel, the portfolio has been in runoff since 2019, but we still see some negative claim experience in the legacy long-term care block. This is an anonymous block of business since the transition to IFRS 17. We are confident that we now have a more conservative position vis-à-vis the evolution of this book in the future. One of the first actions we have taken, Thierry and I, as a new leadership team in 2023, was to reorganize the reserving function, which is now reporting to me under one single line of command. We wanted to ensure that we have a clear accountability and full financial clarity on our reserves. As CFO, my responsibility is to determine the level of the reserve within the best estimate. These reserves are independently reviewed by the group chief actuary. The 2024 Life and Health Assumption Review was therefore launched under this new process in Q1. Our intention, as I mentioned it in the past, was also to add resilience to our life and health reserves, as we did in PNC since July last year, and to establish a strong base going forward. As a result of the overall assumption review booked in Q2, we have added 300 million of prudence into our life and health reserves. Please bear in mind that this is not a one-for-one translation into resilience, and we will assess the amount of resilience in our life and health reserves at the end of the year after the finalization of the annual review, like we do for PNC. This may also translate into a higher confidence level for the group at the end of 2024. Let's now move on to the next slide. This slide summarizes the impact of the life and health assumption review detailed in the presentation. Let me add two final remarks on this. First, our expectation for the size of the remaining life and health adjustment in H2. We confirm that our best estimate for this additional impact is in the range of plus or minus 100 million in ISR and plus or minus 400 million in CSA. Tigon remark, regarding liquidity, the action we have taken have no impact on the group liquidity position at TRN 2024. We aim to continue to improve the level of operating cash flow over the strategic plan, and we will give you more guidance on this when this review is finalized. Moving on to the presentation of our Q2 results, as usual, I will focus on figures excluding the mark-to-market impact of the option on shares. Let me share a comprehensive overview of this Q2 results. As Thierry mentioned, While the results of Q2 are significantly impacted by the Life and Health Assumption Review, we are particularly pleased with the strong performance of our P&C and investment activities. In P&C, the very strong underlying performance allows us to continue to build buffers in our reserves. We recorded a double-digit growth in premium during our year-to-date treaty renewals, benefiting from still very good pricing conditions. Jean-Paul will provide more color on this later in the presentation. We continue to generate very strong investment results, as demonstrated by a high regular income yield of 3.6%, supported by a 4.8 reinvestment rate. In life and health, the insurance service results stand at minus 329 million, impacted by the assumption review, which is partially offset by positive effects from portfolio action in the U.S. Overall, we record an adjusted net income of minus 283 million, translating into an adjusted return on equity of minus 21.9% over the second quarter. Our economic value is down by 7.3% at Constant Economics to 8.4 billion, primarily driven by the Life and Health Assumption Review book this quarter. Let's now focus on PNC. PNC delivered a very strong result again this quarter. The new business CSM reaches 240 million, supported by successful 2024 renewals. This is broadly 30 million lower than for the same period last year, as it reflects the late finalization of some retrocession cover this quarter, which were recognized on the first quarter in 2023. In addition, we see the effect of the reduction in our SBS portfolio as we dynamically manage our portfolio growth to reflect the reinsurance cycle. The P&C insurance revenue is up 8.4% at constant FX versus Q2 last year, Half of this growth is the result of successful renewal since the start of the year. This other half reflects a positive one-off true-up. Let's now move on to the underlying performance of our P&C book, which has been very satisfying. Our P&C combined ratio stands at 86.9%, in line with our forward 2026 assumption of below 87. The NATCAT ratio is at 9.9%, in line with our budget, during an active NATCAT period marked by several mid-size events. This ratio includes the conservative approach we have adopted on a few events, like the recent flooding in the Middle East, Germany and Brazil. Our attritional loss ratio of 77.6% remains very positive as it includes the impact of the new Caledonia civil unrest and additional prudence built into our PNC reserves. On the discount effect, remember that we revised our discount effect expectation to a range between minus 7.5%, minus 8.5% for 2024. It is in line at minus 8%. Overall, it is a very strong quarter for PNC, allowing for the build-up of additional presence. Let me focus now on life and health. The life and health business generated a strong level of new business CSM of 145 million, supporting by growth in protection business across all regions. This quarter also saw the positive impact from a large deal in EPAC. We continue to have a healthy pipeline of potential deals for the upcoming quarters. Life and Health record an insurance service result of minus 329 million in Q2, primarily due to the impact of the assumption review. The CSM amortization stands at 59 million. This is lower than expected due to a lower level of CSM stock and some catch-up from Q1 related to methodology refinements. We are currently assessing the implication of the life analysis assumption review on the CSM amortization rate. We will provide you with an update on this later in the year. On a year-to-date basis, if you take Q1 and Q2 together, the annualized amortization rate is 6.8%. Let's now have a look at the significant one-off during the quarter. There is a positive impact of $143 million driven by portfolio action in the US. we had a favorable arbitration outcome for a large U.S. contract. The cumulative negative effect of minus $509 million is driven by the assumption review, which includes three points. First, additional prudence for $200 million. Second, $278 million for the lost components, which relates to changes in assumptions for contracts that are already on errors. This is booked for the Israeli portfolio allowing for recent experience and adjusting for future lapses, inflation, and cash flow payment assumption. And finally, we added 31 million IBNR reserves in Korea based on the latest claim experience. Some comments on the other underlying element of this quarter. The risk adjustment release of 29 million is in line with our expectation. The experience variance of minus 26 million and the impact of Oneros contract for minus 29 million reflect adverse claim experience and negative movements in loss components across several geographies. Moving to investment now, we benefit from continued very strong performance on the investment side, with regular income yield reaching 3.6% this quarter, supported by a reinvestment rate of 4.8%. Recently, we have taken a tactical approach to selectively reinvest at higher duration and benefit from the attractive level of interest rate. As a result, The average duration of our fixed income portfolio slightly increased during the quarter to 3.4 years compared to the previous quarter. With 9.7 billion of cash flows expected in the next two years and the still elevated level of reinvestment rate, we are really confident on the continued strong performance from investment. The group economic value stands at 8.4 billion euros, down 7.3% due to the life and health CSM adjustment estimated at 1 billion. Excluding the impact of the assumption review, the economic value would have increased by 0.3 billion at constant FX, reflecting positive value generation over H1. Our solvency ratio before the impact of the life and health assumption review is very strong at 221%. It reflects, as mentioned by Thierry, a strong operating capital generation from P&C and investment and a positive impact from market variances. Taking into account the impact of the assumption review, which counts for 20 points, our solvency ratio stands at the end of the quarter at 201. It remains well within our optimal range of 185-220%, and we are really confident in our ability to maintain it within the range. With the solvency ratio in the optimal range, SCORE's capital management framework remains unchanged, including the dividend policy. Our capital position remains strong, as evidenced by the recent affirmation of our A-plus rating by S&P following the announcement on the 15th of July. We take additional comfort from the fact that ratings are forward-looking and ours has a stable outlook. Our economic value per share stands at €47 compared with €54 at the end of Q1. As announced on the 15th of July, the group economic value growth target of 9% per annum at Constant Economics is unlikely to be met in full year 2024. Our economic financial leverage increases compared to the end of 2023 to 22.7%. I will now hand over to Jean-Paul to comment on the PNC renewals.

Thank you, François, and good afternoon, everyone. I'd like to share with you more insights on the year-to-date PNC renewals together with a closer look into the June and July renewals. As you can see from the first slide, where we give you a retrospective of the year, and this completes the overview that Thierry provided you in the introduction. We have achieved strong growth across all renewals towards a portfolio mix that leads to a better expected profitability, where we estimate 1.4 points better than last year. Beyond price, on CatXL renewals, discussions focused on terms and conditions, and in particular on attachment points. Competition increased on the higher layers, but market discipline remained very strong in the lower layers. And as a result, the overall price adequacy of CATEXO business remains very high. Moving to the next slide, we offer an in-depth look at the June-July renewals for score, showing a substantial 24% growth overall in all regions, and echoing the positive trends seen at the earlier renewals. Alternative solution more than doubles in size, while specialty lines achieved 25% growth. We have reduced premium volume on U.S. casualty, as we continue to see market improvements as insufficient to cover the increased expected claims cost. We continue to expect double-digit claims inflation between 10 and 15% for U.S. casualty, depending on the segment. We therefore maintain a flat capital allocation to U.S. casualty throughout the year, allowing us to support selected key clients while remaining cautious and underweight overall. The issue of climate risk remains a major concern in our industry, and caution is widespread, leading to increased demand for catastrophe protection. With the June and July renewals on a like-to-like basis, we are beginning to see a moderate reduction in rates, driven by adequate market capital and increased capacity from incumbents. However, price adequacy remains overall very strong. For our part, we have grown our CAD portfolio selectively while keeping exposure growth in CAD flattish year on year. In conclusion, I'm confident that absent major changes such as a large CAD event in the second half of 2024, the market will remain broadly where it is today for this foreseeable future with small price changes and attractive price adequacy. In this environment, we'll continue to expand our portfolio, leveraging our strong client relationships to successfully deliver on the ambitions of a forward 2026 plan. And with this, I hand back to Thierry.

Thank you, Jean-Paul. Quick summary before moving to Q&A. So two out of our three engines are going really well. Life and health has issues, but we have a three-step plan in place. And I have high confidence in our franchise and our people to overcome this and engage back on our forward 2026 plan. With that, I hand over back to you, Thomas, for Q&A.

Thank you very much, Thierry. On page 30, you will find the forthcoming schedule events. With that, we can now move to the Q&A session. Can I remind you to please limit yourself to two questions each? Thank you, and operator, we can move forward. Thank you.

Thank you, sir. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal tree to our equipment. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We do have our first question. We do have our first question from Tyronus Spirou with Barenburg.

Yes, hi, good afternoon, and thank you for the presentation, really helpful comments. Just on the life and health of CSN, maybe we can please share some additional thoughts on how the previous reserving assumptions were not sort of appropriate, maybe across its geography and line of business. And again, what were the exact circumstances that led to this last simulation in the first place? For instance, on the long-term care contract, for example, one would expect more aggressive initial mortality assumptions would perhaps lead to negative claims experience if people end up living longer. But again, such mortality assumptions could have an opposite, more favorable impact on the mortality business. so the two appear not to be consistent given both hooks took a hit. Any call around that? And then second question on the same topic, life and health. Maybe you can help us quantify what would be the potential solvency to impact that QCCAM from the additional actions. You're looking to take a QCCAM around half a billion pre-tax. On my numbers, this looks to be around six or seven points on solvency. Is that a fair range to think about? Thank you.

Thank you, Triff, and good afternoon. Thank you for the two questions. On your first comment, do we have an issue in the past? No. Reserves at Q4 2023 were at best estimate. I explained the governance and the reserving process we've got on the live book. For such a long-dated portfolio, when you have cash flows over a period of 60 or 80 years, You review all the assumptions every year, but you don't do deep dives every year on the entire portfolio. So I would say every three years, we have covered 100% of the portfolio. As I mentioned, we did an extensive review in 2022. And if you look at the impact in 2022 under Solvency 2 and IFRS 17, there was already an impact. It was lighter given this agenda of 2022. It was lighter in 2023. Again, Thierry and I, when we took the lead during the summer last year, the process was launched and we have no early signal of deterioration of the performance of the portfolio. So the roadmap for 2024 was determined early 2024, totally disconnected from the negative expense variance we observe in Q1. What you see, and we give details in the presentation, is that we review many assumptions. We selected by far the biggest markets, U.S., Canada, it's a big market as well for us. Korea, it's a big market in APAC. And I wanted to check also our assumption on the runoff book in Israel, which is classified as Oneros, and that's the bulk of Oneros contract at the transition. So what we identify everywhere, it's not linked to a change or a revision of mortality trend or assumption. It's more technical assumption that we check in each market. Depending on the nature of the portfolio, it could be mortality assumption that we check in the US and Canada. But again, it's not trend or future mortality improvement that we have checked. It's more technical items such as lapses, net amount at risk, and so on. Morbidity, that's most of the portfolio in Korea is morbidity, and in Israel, we can come back on it, but that's really a long-dated, long-term care portfolio, so that's also exposure to morbidity. On your second question, the potential impact... by year end. So we gave you today, we reiterate our best estimate view, so which is what we booked in Q2 and the confidence interval of what we booked both into the ISR and the CSM. If you take into account the impact of what we booked in Q2 and you see the 20 points impact, you can, I guess, compute the maximum impact on the solvency ratio So that's why really the management, Thierry and I, we are really confident in the fact that we will maintain the solvency ratio in the optimal range. I just remind you, to you and to everybody, that the optimal range is starting at 185% and not above.

Thank you for the comment. Just to clarify, you mentioned that the range you gave, so the maximum potential impact that could come, is already included in solvency as of today.

No, they are not.

Okay, thank you.

It's the best estimate. So the best estimate, we are at the midpoint. So what is booked in Q2 is the midpoint. So in CSM and ISR. And this is what is in the solvency ratio as well.

Okay, got it. Thank you.

If not, it means this is not the best estimate.

Thank you.

And we have the next question, please.

Yes, our next question comes from Cameron Hassan with JP Morgan.

Hi, good afternoon. A couple of questions for me. The first one is just on the life and health book. I guess both are on life and health. What are the drivers for whether the second half ends up being as bad as minus 0.4 billion or not? Is this further deep dives? And when should we expect this, before the IR day in December? Just in kind of any details would be useful there. Second question is on CSM amortization. Clearly, CSMs come down a lot. You want to get cash flows being more robust. How should we think about the amortization from this point onwards? Should it be slower or faster than the kind of 8% that you've historically talked about? Thank you.

Thank you, Kamran, for the two questions. What we booked, again, is the best estimate, so we give you the range and the confidence interval for the potential additional heat on the CSM or ISR. We don't add new deep dives, so we progress well in the analysis. It's the best estimate, so we have to finalize all the analysis to respect, as mentioned by Thierry in the introduction, We have to respect the entire governance on the reserving process at SCORE. So it's the best estimate of the best estimate, what we book in Q2. We will give you the definitive position the 12th of December during the IRD on the ultimate and final results of this lifespan health review for 2024. On your second question, That's true. You have a stock effect, so we have less CSM and a change. So the only thing I can say is that the amortization of the CSM over the first six months is at 6.8%. And we will see when we will update the forward 2026 targets and assumptions the 12th of December. We will see if we change the guidance for the next few years. Thanks, Francois.

Thank you, Caroline. Can we move to the next question, please?

Our next question comes from Will Hardcastle with UBS.

Hi, thanks for taking the questions. The first one is just thinking about the added conservatism that you've put in. I guess, is it a structural uplift to this reserve buffer, essentially, and you want to run the division with? Or is this extra prudence, you know, you'd expect it to flow through the P&L over some form of time, If that's the latter, over what time period, I guess, would be helpful. Just coming back to thinking about that amortization rate, it seems like your answer to the last question is sort of pushing us more to the H1 type amortization level. I guess, how do we need to think about it in terms of the difference between your typical amortization rate on the the protection business versus longevity. Is there a material difference or is it very specific to the geographies?

Thank you. Thank you, Will. So on the first one, on the buffer and the prudence, if you remember the call exactly end of July 2023 with Thierry, we initiated this prudence and resilience strategy on the PNC side, so what we call today the buffer strategy. We mentioned that we have an objective to build at least 300 million of buffers in the PNC reserves by the end of 2026, so the end of the strategic plan. Those buffers, the intention is to use them when we will have high CAT activity on the portfolio or when we will be in the low part of the PNC cycle. That's something we discussed and we were transparent with you over the last few quarters. We were thinking also to a similar concept, so adding buffer or prudence into our life results. That's something we do. So instead of building them progressively, like we do for PNC, and we are well on track on the PNC side, we have initiated the strategy with the amount we've got in mind, so $300 million for life as well. Please note that we changed this quarter the way we booked the prudence, both for PNC and life. This has been done in full agreement with our auditors. So now the So the buffer in PNC and the additional prudence in the life and health portfolio is booked under IFRS 17 as an add-on to the risk adjustment. So it's no longer allocated to the reserves under IFRS 17, but it is booked as an add-on of the risk adjustment. So that's why if you look at the evolution of the risk adjustment on the PNC side and the life side, you may see higher amount compared to previous quarter. This is due to this effect. On the amortization rate of the CSM, I think it's a little bit too early. What we did, and we are at this level of the review, is just a best estimate view of the impact of the deep dive. Now we are moving to the allocation at portfolio level and country level. So we will really understand the impact on the cash flow themselves by the end of the year, and that's where we can answer to your question on the real future amortization rate of the CSM.

Thank you, Will.

Can we move to the next question?

Our next question comes from Vinay Malhotra with Mediobanker.

Yes, good afternoon. Thank you very much. Some of my questions have been addressed. I'm just curious about a few things. Firstly, Terry, you're going to take management responsibility on yourself for the life business. And I'm just curious whether do you think there's any, is this temporary or there's any transition or do you see that it could be, you know, a bit of a distraction from the whole group or just curious on your thoughts on that process. Then just staying on the life topic, just to maybe follow up two or three very quick points, please. One is the 400 or the 0.4 potential positive that I think Cameron also mentioned on the CSM into H. What could happen then? Or what's the likelihood of that positive? Is it 50% chance because you said it's midpoint? And the reason I ask is because also there was a comment in the 1Q call where you indicated that the review was ongoing and there could be positive outcomes as well. So I understand that that didn't happen because the deep dives were worse. We're just curious about this potential 2H positive for CSM. Thank you.

Thank you, Vinit. Maybe I will start by the second question and we'll hand over to Thierry for your first question. Where we are, the progression rate, if you wish, on the review of the reserve is just above 50%. So we don't add new deep dives. It's just now ongoing analysis and finalization of the analysis. So what we booked is really the best estimate. So it's not the best estimate at the end of the year. It's the best estimate as of today. So with all the information we've got, This has been reviewed by my reserving team, and this has been reviewed by the group chief actuary independently. So I would say if this is the best estimate, there is a 50-50% chance that we should be at the best estimate above or below. We just give you the confidence interval. On the first question, I give the floor to Thierry.

So we were very clear. So my intention is now... as you said, and as I said, to really focus on life and health. You know, when such an issue comes up, you can imagine that a lot of my attention goes there anyway. Of course, it's still different than to manage such a unit besides being the CEO. That's for sure. So you can imagine that I have no intention to stay in that double role forever. But I think the Most important thing for me is to start fast, drive the changes very fast. So the first phase will be for the more obvious changes that we can implement very quickly. And then over time, they will become more, I would say, a little bit finer. They will be more in the details. And at some point when I will have the Confidence that we are back on track, confidence in the future of that business. Certainly, it will be a good time for somebody else to take over. So just that you have a feel, right? So I don't intend to stay only a few weeks. I also don't intend to stay years. So it must be a few months.

Sure. So I have a few follow-ups. I'll come back later in the queue.

Thank you. Okay, thanks, Vinit. We're going to move to the next question, please.

Our next question comes from James Chuck from Citi.

Thank you, and good afternoon. My first question is on the level of capital in the life and health research, sorry, the required capital. So the SFCRs kind of show, I think there's new disclosure this year that shows you've got $8 billion of undiversified life and health recapital that's reduced by 60% by diversification. So it looks like nearly all of your diversification benefit applies to this block of business. My understanding, although you don't disclose it, is that it's quite mortality heavy. If you're able to give any insight into how much of that SDR undiversified is mortality, that would be helpful. But really my question on this topic is how comfortable you are with that level of diversification. It obviously screens much higher than others, even at the business unit level. Secondly, I'm hearing your comments about Q1, Q2, you didn't see these trends until early part of 24. You did a life and health retransaction with Kovea 30% block. Kovea started booking losses on that block potentially in 22, but certainly in 2023. So it looks like they've kind of spotted that earlier. I'm just seeing a bit of a disconnect between what they're booking and what you're booking, and I'm keen to understand that. And equally, if you're able to provide any update on the arbitration case, that would be helpful.

Thank you. Thank you. Thank you, James, for the two questions. I will ask to Fabian Hofer to answer to the first one on the capital and the solvency issue. Thank you, Francois.

So probably most helpful is to look at our publication of the SDR breakdown that we did at year end and that we usually do. It's page 70 in the appendix. So where you see you have roughly from the 10.5 billion undiversified capital, so it's the sum of our five key risk categories, you have roughly 31% going to life on writing. In a diversified view, this is then a 35% of our 4.4 billion STR. And so you see that the contribution to a standalone view or a diversified view is not fundamentally different. When you look at what is mortality contributing to that, it's roughly 25% of the 35, or no, 25% of the total 4.4. The split is roughly 70-30 from the overall life-long writing risk into mortality and other components.

Thank you, Fabian. James, on your second question, I just remind you that we have three relationships with Covea. First, Covea is a client, and we provide P&C reinsurance to Covea, and we have a good relationship with them. As you mentioned, since 2021, Covea is a retrocession partner for SCORE, and under the terms of the agreement, we sell 30% of some portfolio to Covea. And third, Covea is a shareholder. As you know, there is an ongoing procedure, an arbitration to name it, so we cannot comment on it. What I can say only is that if you refer, so I cannot comment, of course, on what Covey has booked on their side. What we saw over the last few quarters is some numbers or some figures in the French press. The only thing we can say is we do not recognize those.

Operator, am I still connected?

We still have you.

I have no audio. Yeah, I think we lost the Paris room. Can you reconnect them?

One moment. You're now reconnected.

Hello again. Sorry, we have a technical issue here in Paris. So, James, maybe I will – I don't know when it was cut, the line was cut. So maybe I will start again on the Covea question. So, again, Covea is a partner of SCORE. We have a relationship with Covea in three ways. First, they are clients of us. We provide PNC reinsurance to Covea. It's a retrocession partner, as you mentioned it, and we signed with Covea an agreement in 2021 where we ceded a significant part of the life and health in force portfolio. And third, Covea is a shareholder of SCORE. So we respect Covea as a partner. As you know, there is an ongoing procedure taking place that has been initiated by SCORE. So we cannot comment on it. This is an arbitration. The only thing I would like to mention, first, we cannot comment. I don't know what Covea booked on their side. What I saw in the French press over the last few quarters is mention of figures that we do not recognize. But that's the only thing I can mention. All the figures we present today and we have presented last week in the press release, all the figures are net of retrocession, including the retrocession to Covea.

Could you perhaps clarify? Thank you, James. Okay, I'll return to the queue.

Go on, James. Oh, go on. No, no, James, go on.

Yeah, I just want to clarify on the arbitration case, because you said it's initiated by SCORE. Could you just confirm that the initial reinsurance payment has actually been received from CAVEA?

That's an information I think we do not comment on during the procedure.

Okay. I can understand. Thank you. Thank you so much.

Thank you. Thank you, James. Can we move to the next question, please?

Our next question comes from Darius Satkauskas with KBW.

Hi. Thank you for taking my questions. The first question is, So you said you did a deep dive looking at 100% of the book with the IFRS 17 implementation. So I'm just a bit confused about the reserve review. So, you know, less than two years later, another partial review essentially wipes out a billion of CSM. So were there no signs or did you not look at the same things as you did this time? I'm just trying to get comfort that, you know, another reserve review down the line will not lead to another material surprise. So that's the first question. The second question is, There's been a positive of $150 million or so benefit from management action. Do you see more positive outcomes as you work through repricing your U.S. mortality book going forward? Is that something you should expect? And the third question is, is there anything in the pipeline in terms of management action that could support your solvency ratio in the second half if the hurricane season ends up being very active or interest rates come down a bit? Thank you.

Thank you, Darius, for the three questions. So the first one, what I said is that the deep dives, they don't cover each year 100% of the portfolio. Each year, we review all regular assumptions on 100% of the portfolio. We look at experience studies and model refinements, and that's in line with our recommendation of the group HG Factory. Then we decide, and we have early each year, a roadmap of a few deep dives determined by the CFO and the chief actuary. Those deep dives, they should cover 100 of the portfolio on a three-year basis. So as you mentioned it, in 2022, and you have the list of the deep dives we did, that was in preparation of IFRS 17. we are at best estimate each quarter and each year. And each time it has been reviewed independently by the group chief actuary and it has been reviewed independently by our two auditors. So I would say that's why it was a little bit of a surprise and we decided to accelerate the review when I started to show the indication of this review for 2024 we reached a certain materiality level and without no delay and with full transparency, we communicated almost in real time to the market. Now to the second question on management action. You see, I mean, it's not just in theory when we speak about management action. So I remind you what is a management action. that the ability that we've got in most of the contract, the treaties we've got in the U.S. on the mortality book, especially on what we call the YRT, so the yearly renewable term contract, we have this ability to increase rates, so to ask to our seeding clients to increase rates. When we increase the rate, so when the technical profitability on a cash basis starts to be detrimental to score, the client has a few options. Many times he has the option to accept the rate increase, he has the option to recapture, so in this case we move back the technical provision from our balance sheet to the balance sheet of the client, and he has also the possibility to litigate and we go to arbitration. This quarter, you see the effect of two management actions in the U.S. portfolio. The first one, that's an arbitration on a large treaty that was launched after a rent increase notified to the client in 2019. The client decided to go to arbitration, and we had, during this quarter, a positive decision from the panel in the U.S., so in favor of SCORE, and the client has accepted the rate increase and not decided to recapture following the decision of the panel. So that's what you see in the ISR for $143 million. So that's the first management action, which is sold. So you see that here the amount is large. This is, again, a large treaty in the U.S., but you see the positive benefit when we say we add value and we actively manage the enforced portfolio. You see the benefits. You have a second effect. We have a second management action that has been launched this quarter, and you see the impact on the CSM. When we launched a management action, which means we notified, and that was the 26th of June, we notified this client in the U.S. our decision to increase rates on the treaty as of 1st of September 2024. So the client has 60 days to accept our decision to go to arbitration or to recapture. The booking position, the accounting policy we have adopted is when we notify the rate increase to the client, we book prudently under IFRS 17 the worst case scenario. So the worst case scenario from a pure accounting perspective is the recapture scenario. So what we booked in Q2 following the notification to the client of this rate increase is a decision of the client, which we don't know. We don't know. They have 60 days to notify the decision. We booked the potential decision of the client to recapture. So that's why you have a hit. Then we almost put at zero the PVFCF and the CSM on this contract, and that's the hit that you see for $140 million in the CSM. It's a pure coincidence that the two amounts are equal or almost equal. That's really two different management actions. So you see that there is one in action. We may see in H2 the outcome. If they go to litigation and arbitration, it will take maybe more quarters. But you see that we have a pipeline. Except this one, we don't expect to see a decision of a client in H2. on, and that's, I think, an answer to your... The solvency to management action. Oh, yeah. So the management of the solvency to, sorry, for the third question. So we are at 201 solvency ratio at the end of June, including the impact of the life and health review. Compute the worst-case scenario. Take the maximum heat we mentioned in ISR and CSM. compared to the 20% we booked, you could imagine the impact on the solvency ratio. So that's why we remain confident, and we state again what we said last week, we remain confident on our ability to maintain the solvency ratio in the optimal band, 185-220%. If needed, we have tools to restore on a short-term basis or on a medium-term basis the solvency within the optimal range. On a short-term basis, of course, we are monitoring solutions on the retrocession market, and we could put in place very quickly tailored retrocession schemes to restore very quickly the solvency ratio if needed. Again, I remind you what I said during the speech, the dividend policy kicks in at a solvency ratio of 185%. Maybe I will hand over to Fabian to explain a little bit on a more medium or long-term horizon type of solution we could implement to increase the solvency ratio.

Yeah. I remind you that we have now put also again back our solvency scale on page 62 that shows, in some sense, the whole range, how we manage the solvency ratio in our optimal range. I mean, what I'd like to highlight is really the capital generation that we have seen in H1, over 12%. So through the strong P&T market and the investment performance of us, we have generated a lot of capital that we continue to do. And one of the key things is our capital deployment framework, really to continuously optimize, in some sense, the capital that you generate versus the capital we deploy Then you see the other things that also Francois has highlighted. We could reshape portfolios, sell portfolios, and also do something on the investment side, but you see that you have quite a good diversification there, so that's maybe the least effective tool.

Excellent. Thank you very much.

Thank you, Fabien.

Operator, can we take the next question, please?

Our next question comes from Daryl Goh with RBC.

Hey, afternoon, everyone. First question is on P&C. So you're attritional. You're saying it's 77.6%. Looks to be quite a meaningful step down from sort of the 79% level in the last few quarters. Now you say that includes the riots as well as some additional prudence. So the question is, what is a normal run rate in the coming quarters, and maybe you could comment on how much to put aside in the reserve bill for P&C, please. Thanks. The second one, I guess going back to life and health, maybe it's a bit unfair. As a conscious, you know, you deal with a different set of management teams because if you spoke about the 2022 timeframe as you're prepping for the FR17 transition, In the back end of 22, you also released some $500 million of reserves in the Life and Health book. So I guess to what extent the issue that we're seeing today is a consequence direct or not from those releases as well. Any color there, please? Thanks.

Thank you. Thank you, Dehal. On your first question, so on the attritional, we are very satisfied. You remember it was a call last year where we said with Thierry that we were not happy with the attritional loss ratio of PNC. And we mentioned at Q4 that we were at the level that we expect on this portfolio. So I would say if you have to normalize the run rate, this is at this level. Keep in mind, as you mentioned it, this attritional loss ratio is include the amount of buffers we added now to the add-on on the risk at the PNC risk adjustment this quarter. We do not quantify before the end of the year what we put aside each quarter because we have to wait the annual review of the PNC to really know the amount of excess reserve we've got above the best estimate. What I can tell you Qualitatively, if you say that the agenda is to have 300 million by the end of 2026, so you divide by three and four quarters, we are this quarter well above what this trajectory means. So which means it's an excellent quarter on the PNC side. And we again, as in Q1, we accelerated the buffer strategy on the PNC side. Now, your second question on the life and health review in 2022. So that's true that in Q2 2022, a significant amount of life and health reserve has been released. It was under IFRS 4. It was under IFRS 4. And I remind you the change of paradigm or the change of framework between IFRS 4 and IFRS 17. So under IFRS 4, we were, as insurance or insurance player, we were booking technical reserves plus what we call pads on top of those reserves. Then with IFRS 17, we moved to a more forward-looking and economic framework for measuring insurance liabilities. So at this period, there was a total disconnect between the IFRS 4, IFRS 17 framework. The only constant framework between 2022 and today, that's Solvent C2. This is Solvent C2. So the release that was done under IFRS 4 was done in this framework. And at the end of the year, 2022, as we said during the call of presentation of the Q3 and Q4 results in 2022, under IFRS 4, given the framework, the technical reserves were at best estimate. Now, if you look into the detail, into the comparatives we published under IFRS 17 since, you see a negative hit in Q3 and Q4 on the live side. That's linked to the deep dive. And again, if you look at Solvency 2, Look at the Solvency II. It's stable. The framework and the norm is constant in 22, 23, and 24. You will see a significant hit as well under Solvency II in 2022.

Thank you.

Thank you. And we're going to have the last question. Thank you.

We'll go next to Saison Lakhani with HSBC.

Suzanne?

Caller, your line is open.

I think, Thomas, you should call HSBC to understand if they have technical issues.

Suzanne, can you hear us? Otherwise, I will call you back after the call. So thanks very much, everyone, for attending this conference call. We have extended slightly the duration of the call in order to allow the maximum of your questions to be answered today. The investor relations team remains available for any follow-up questions. So please do not hesitate to give us a call. As a reminder, the school will release its Q3 2024 results on the 14th of November with a call at 11 a.m. And we will host a CMD on Thursday, 12 December. More details to follow on this. And with this, I wish you a happy Tuesday and talk to you soon. Thank you.

This does conclude today's call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.