AXA SA (CS) Earnings Call Transcript

Okay. Well, good afternoon, and welcome to AXA's first half results presentation. Special thanks to those who have shown up in person, and welcome also to the people who are following us on the webcast. Presenting our results today will be our Group CEO, Thomas Buberl; our Group Deputy CEO, Frederic de Courtois; and our CFO, Alban de Mailly Nesle. We also have in the room our CEO of France, Patrick Cohen; CEO of Europe and Lat Am, Antimo Perretta; and CEO of AXA XL, Scott Gunter. So after the presentation, there will be a Q&A session. We'll first take questions from the room, and then we'll take questions from the webcast. And with that, I pass it on to Thomas.

Thank you, Anu, and good afternoon to all of you. Very happy to welcome you here in the room and on the webcast. As you have seen, the half year '22 is a great half year, and it shows that the strategy that we have chosen is delivering very strong results. As you remember over the last years, we have been very busy transforming the company from AXA being very much focused on financial risk at the time, to today being a business model that is very focused on technical risk, being a business model that is not following the cycle because we are very much in technical risks, commercial lines, health insurance. And most of you would agree that you would never give up your health insurance when there is a recession. And we are also today in a business model that requires much less capital than the traditional model that we used to follow did. The results that we show today is another proof that this new model is really delivering strong and a consistent performance over time. Because 11% underlying earnings per share growth is really a great achievement in a time where we certainly have seen a lot of movements around us. When we saw each other last time for the full year results versus today, we are in a different world. In addition to that, we have also materialized what we have said around our capital management strategy by announcing a EUR 1 billion share buyback. This is very much in line with what we said around how are we interpreting and living financial discipline, but it's also a very clear sign into the operational performance of AXA and also into the very strong balance sheet. And when we come to the very strong balance sheet, we have achieved a Solvency II ratio of 227%, a very high solvency ratio on a very solid balance sheet in an environment that is not easy to navigate. And this pivot that I mentioned earlier away from financial risk to technical risks is certainly absolutely key in gaining the significant strength on the balance sheet. But we have also continued our engagement for society. And in particular, on the climate transition and our leadership in climate transition, we have continued our progress to reduce the carbon footprint of our investment portfolio, along with the reduction targets that we have given. And I hope you agree with me that the relevance of this topic has never been as important, strong results following a continued focus on execution and certainly living up to the capital management policy that we have clearly stated. Going forward, we are committed to continue this journey focusing on execution, delivering consistent results, remaining cash obsessed and certainly delivering long-term value for our shareholders. If we go into the details. If the slide works, here we go. Let's start with the top line. The top line has grown 1% to EUR 55 billion. And when you look at the detail, it is clear that we are focusing the top line on a very high-quality revenue mix. Our aim is to privilege the growth in technical and fee-based business, and you've seen amazing results. We managed to grow 13% in the health insurance business, mainly driven by the strong development of our employee benefits franchise. We've grown our P&C commercial lines business, and this is XL, but also the business in Europe that have commercial lines, despite the fact that it is a difficult environment. And we've been very, very cautious and disciplined when it comes to our retail business. The Asset Management business has also grown by 4%, and it's important that this growth in the Asset Management has, in particular, happened on the alternative platform which is around real estate, around private credit. Those businesses are not only technical and fee-based business, but most of them have corporate customers on the other side. And you know as well as I do that in an environment in which it is important to roll over your cost and claims increases through inflation into price increases, this is a much easier discussion with a corporate counterpart than it is sometimes with an individual counterpart. So AXA, being more than 50% of its revenue in corporate customers, will help us going forward. But when I talk about high-quality revenue mix, I also talk about and I need to talk about what we have not done anymore and what we don't want to do anymore. You've seen that we have put the significant reduction of our net cat, natural catastrophe exposure in AXA XL reinsurance in place. It is realized. Scott and FT, his team, have done it, which has led to a reduction of our gross written premium of minus 21%. And we've also continued, in particular, in Europe and the leadership of Patrick and Antimo, to reduce the general account savings that we have and shift even more into capitalized business. So good growth of our revenue, but very much continued focus around a mix shift towards higher quality. When we then look at the bottom line, we see that the earnings have really grown strongly in a challenging period. And I would like to draw your attention to the organic growth, which is 7%. 7% and in a period in which we see many difficulties around us is a great achievement. It's a great achievement because it has happened in a time in which we were all faced with inflationary pressure, in which we were all faced with much higher market volatility than we used to be. The focus on technical excellence, the focus on cost and the immediate reaction when things shifted early on in February has really helped us to deliver these results and also shows you that the group is very diversified through its lines of business, through its geographical positions. And it's a very complementary mix that can also absorb if there is a shock here or there. We've seen that France, Europe and Asia have continued to be extremely sustainable and consistent when it comes to the earnings growth, and I'm very happy to see that AXA XL has continued to deliver a good performance. And this was not easy because, as you've seen, AXA XL was the part of AXA that has the highest impact when it comes to the war in Ukraine, EUR 300 million hit from Ukraine, which was absorbed otherwise in the XL business and enabled XL to deliver EUR 700 million at half year. All of the earnings levers are working well, and the 11% underlying earnings per share growth is the result of this. I would like to come back to the question around capital management. And capital management has 2 aspects. Number 1 is the question, how can we improve our cash remittance? Two big milestones have been achieved in this last half year. One is we managed to strike an in-force deal in Germany. This is a disposal that comprises EUR 16 billion. And we've also managed to successfully complete the transformation of AXA SA, the holding company, into an internal reinsurer. The focus on this cash obsession will continue. We want to make sure that we are striking more in-force deals and we're going into more detail in further exception. The second piece is around the question, how can we deploy excess cash in the best interest of our shareholders? We are committed to the discipline on cash deployment, and a very tangible proof of this is the announcement of the EUR 1 billion share buyback today. And you know that there is additional share buyback coming from the disposal of the German life book, once this transaction has closed, with the aim of compensating the earnings solution. Going forward, we will remain exactly on the same journey. We will remain very, very disciplined when it comes to capital management. And share buybacks will remain an ongoing part of our capital management toolkit. Let's look forward from here into the next months. We all know that we are in a different environment today. This environment is challenged by the consequences of a war in Ukraine, by disruption of global supply chains, and we see the effects every day, higher inflation, more volatility. And we have to ask ourselves, where is AXA positioned in this? AXA is well positioned in this environment because we've built a model that is resilient in this environment. Why is it resilient? And I said it earlier. Our business profile is resilient to economic cycles. We are, in the large majority, in businesses that do not suffer from recession. We are in businesses where we have counterparts that are mostly corporates, where you have the ability to price. And we are in businesses in which we are very strong leaders. We are the largest corporate insurer in the world. We are one of the largest health insurers in the world and our position in Europe is very difficult to beat. And this has certainly been seen already in the first half year. We managed to increase our commercial line pricing by -- commercial line premium by 4% with very favorable pricing. You've seen 13% increase on the health businesses. I mentioned earlier our very strong balance sheet. This gives us an extremely strong position to withstand potential market volatility that might still come. You've seen our solvency at 227%, a level that is extremely high. You've seen that the rate sensitivity of our balance sheet is significantly reduced. And you've also seen, and we'll come back to it later, that we are confirming our reverse strengths in a very different environment around inflation. All of this will enable us to continue our capacity to generate high cash. I said earlier that it was important for us to react very quickly. When we saw inflation coming, we reacted immediately. We always try and price our contracts above inflation. And in many of our areas, and in particular in the commercial business, we have achieved to do so, 5% P&C commercial lines business pricing in the first half of the year across the entire portfolio, thereof 9% at AXA XL. We started immediately to reduce our cost after the war broke out. And you've seen that we managed the first fruit of it, minus 2% on the noncommission expenses. And as I mentioned earlier, we confirm today the strength of our reserves even in an inflationary environment. It is important that AXA doesn't only remain solid and resilient as a business, but also reliable as an actor in society. And therefore, we want to continue our very strong focus on the climate transition because we believe that it is more than ever necessary to work on this, necessary to support in the current energy crisis. We've achieved roughly EUR 23 billion of investments in green investments as an investor. And for us, engagement in climate transition doesn't only mean to invest differently, it also means to underwrite differently. And therefore, we've also managed EUR 1.4 billion of premium in Green Business Solutions as an insurer. I'm very pleased to present these results to you today. I'm very confident when I look forward, realizing that there are risks around us, but our business is extremely well positioned to look forward in a very positive way and to continue the journey that we are on -- that we've been on for quite some time. Thank you very much. And I now hand over to Frederic de Courtois, who will go into some selected business areas. Thank you.

Good afternoon. Happy to be with you in London. And I'm very pleased with our results, very pleased with our direction of travel. I'd like now to spend some time with you with some of my key priorities. The first one, and without order of priority, the first one is in-force. The second one is inflation. The third one, which is a question you often ask, is the impact of higher interest rates on our Life & Savings business. And the fourth one is the quality of our investment portfolio. Moving to the next page on in-force. So in-force was, is and remains a priority. You have seen the disposal of the German book. And you know that the German book is a EUR 16 billion book. And as such, it's a good step on the objective and the ambition that we have, which is to dispose EUR 30 billion to EUR 50 billion over the planned period. This book had an average guaranteed interest rate of 3.2%. And I'd like to highlight a couple of points. And the first one is that this is a clean disposal, so we have no counterparty risk. The second one is that, with the consideration of EUR 660 million, it's a very good price because it represents 18x our -- the result of our book. As you know, we intend to offset any dilution with the share buyback that we will do at the closing. And if I look at the next 18 months, I can tell you, based on the German process, that the context remains positive. There is appetite for this kind of book, and we are continuing to work on other projects to achieve the targets that I have just mentioned. On the next page, which is obviously a priority and which is inflation, and this is a subject you all have in mind. I'd like to tell you more about how do we counterbalance the impact of inflation. The first priority for us is to continue to get the right level of pricing and technical margin. This is not new because we've done this over the past years. But obviously, it is more challenging. You see on the left part of the page that we have 3 different dynamics. The first part is AXA XL, for which we have achieved very good increase of prices. At renewal, we've achieved the plus 9%, which translates into plus 7% for the entire book. And this is comfortably ahead of our loss trends, which we estimate today at about 5%. So we have an increased margin on this. The second block of business that we have always on P&C, obviously, is non-motor and non-XL. So this is the business that we mainly have in Europe. And in this, the vast majority of our book is indexed on some kind of indices. If I take 2 examples, the first one is on property. And usually, we have indexation mechanism on the cost of construction. Just to give you an example, at the end of June, in France, this index was up by 8%. But this is also the case for non-property business. And I would like to mention casualty and workers' comp. For these 2 businesses, we have also some kind of indexation, either to the revenues of the client or to payrolls. On Motor, the situation is different, and we have a softer pricing in -- globally, in Europe. Why do we have softer pricing? Because it reflects lower frequency in still a very specific environment. Just to give you 2 figures, if I compare where we are compared to 2019, so to pre-COVID period, the frequencies in the first half of this year are still down by 9% and prices are up by 7%. So you see that we have room there. The good news is that what we start to see in some markets, and especially the ones where the margins were more stretched, and I mean the U.K. and Spain, we started to see price increases over the past 2 months, which means that the market is disciplined. So all of this is about price increase and indexation. What I like to make sure you understand is that even when we have indexation, we also have price increases in addition to these indexation. So the whole story is to look at what the price indexation is. And again, on this, on the middle bucket, it's on most of our business. But in addition to this, we don't hesitate to make price increases. In addition to all of this, we continue to be extremely disciplined and double down on all actions that we have already implemented in the past to mitigate inflation, and I mean procurement and orientation. If I take the example of AXA France, for instance, AXA France is able every year to compensate 2% of higher inflation, thanks to the work they are doing on claims, so procurement and orientation. So all of these, and I'm still on the left side, to convince you that we are extremely focused on maintaining the underwriting and pricing margins with all the actions that I have just mentioned. Of course, the other big topic is about reserves. And on this, we've done a deep and granular review over the past month, including looking at all inflation drivers for each of our lines. And you see here a flavor of this review we have done. Many of the inflation drivers are not directly linked to CPI. I mean they are linked to social inflation. They are linked to medical inflation. And you know all of this. And this is what we show on the graph on the bottom right. I think you need to have 4 topics in mind. First, as I've just said, not all business lines are linked to the CPA inflation. And if I look at our reserves, the long tail lines, which represent the biggest part of our reserves, are not linked to CPI. They are linked, for instance, to social inflation. The second comment is that limits, policy limits and reinsurance matters a lot, especially for AXA XL. The third comment, and you know this, is that we've always had a cautious approach on our reserving. And this is what you see year after year on our favorable reserve development. And the fourth point, and maybe the most important, is that we've taken a cautious approach on forward-looking inflation. We've also looked at various scenarios over the coming years. And what I can tell you is that in all 3 scenarios and after taking the impact of inflation into account, we have -- we still have very significant excess reserves. All of this makes us very confident on the strength of our reserves. If I look at the other impacts of inflation, of course, inflation has impact on costs. You see here that we've decreased noncomp expenses by 2% over 1 year, which I think is a good result in an inflation environment. And we are continuing to work on this. Of course, the target that we had announced on cost reduction over the planned period was in a different context. Of course, the context has become more difficult. What I can tell you is that we are doubling down on controlling expenses. On the right side, we should also see the benefit of inflation, if I may say, or the indirect benefit of inflation, which is higher interest rates. We already start to see the impact of this. And you see here that the reinvestment yield of our fixed income portfolio has significantly increased over the first half and we expect it to continue to grow over the second half. Of course, it's a strong mitigant to the inflation impact. On my third topic, which is the impact of higher interest rates on our savings strategy, the important message is that our saving strategy does not change. So we are often asked whether we are going to change our product mix, our strategy and so on because interest rate increase. The answer is no, our saving strategy doesn't change. And we believe our strategy in the current context is very relevant, very relevant for our clients, very relevant for our shareholders, and we are confident on the risk around our in-force book. So first topic is, is there any change or do we see any change in our lapse experience, especially on general account? And the answer is no, we have not seen any change in our lapse experience, which is an important topic. I think there are 3 reasons for this. The first one, and I'll take the example of AXA France, is that the book yield remains competitive, especially compared to risk-free investments. The second reason is that the client have low incentive to lapse because we have a long-term value proposition. We have tax benefit for these products. We have inheritance benefits. We invest on the long-term basis. So our clients do not have strong incentive to surrender. And the last reason for this, which is not mentioned on the slide, is about -- and this is something I'm saying often, is about our client base and our brand. Our client base is made of retail and affluent clients. And they have 2 characteristics. They don't trade every day based on the interest rate level and they trust the AXA brand. So these clients are not high net worth clients who react because interest rates have increased by 1%. So all of this help to explain because we have not seen any change in our lapse experience. The second topic on this page is that we believe that on the new business, we have an attractive value proposition. We have an attractive value proposition based on 2 kind of products now, so unit-linked and maturity guarantee products. On unit-linked, we continue to improve our products, and our products now include asset class like infrastructure, private equity, ESG funds. So our clients can find in our unit-linked products all what they want to find, and they're happy with this offer. If our clients are more risk-adverse they move to general account guarantee maturity product, which is a good value proposition for them and which will also for us has a much lower capital requirement than annual guarantees. So if you look at the mix in AXA France, so the mix of unit-linked and Eurocroissance in the total mix was 64% over the first 6 months against -- which is an increase of 9 points compared to last year. So which shows that our value proposition remains extremely relevant in the current environment. All of this leads to products which are capitalized and to a good revenue growth. If you see what -- here on the bottom right, the revenue growth in unit-linked and Eurocroissance, the revenue growth was 14% in the first 6 months, so flat for unit-linked and doubling on Eurocroissance, which means that clients are happy with our value proposition. So we believe that we have an attractive value proposition, and we don't plan to change this with higher interest rates. Moving to the fourth and last topic on the quality of our asset allocation. So you know this, of course. What I'd like to highlight is that we have a very high-quality asset allocation and that our asset allocation over the past years has not materially changed in terms of quality. If I look first on the fixed income portfolio quality, if I look at the rating, has been extremely stable over the past years, as you see, over the past 5 to 6 years. The majority of our allocation is on A grading. We have BB- allocation, which is only 2% of our portfolio. And I'd like to highlight that we have a credit team at the group level in addition to the asset management credit team. So we have a double credit review, if I may say, which help explain the quality of our credit portfolio and especially currently help us manage our exposure to cyclical industries. Middle of the slide, you see our exposure to equities and private -- to listed equities and private equity. You see that our exposure to listed equity, net of policyholder participation, net of tax and net of hedge is only EUR 2 billion. And this is a level on which we are extremely comfortable in the current market context. On private equity, we have an extremely diversified portfolio, less volatile and extremely diversified across vintages with a low exposure to VC. On real assets, and especially real estate and infrastructure, and I will especially insist on real estate, we are extremely focused on prime assets and ESG-compliant assets. And it has already been the case even more the case before, so what we see today is that there is still strong demand for these kind of assets. And we expect this to remain, again, if we remain focused on prime assets and ESG compliance assets. So it makes us confident that the -- this asset class will deliver predictable long-term cash flows. So again, on our asset allocation, nothing to add. And we believe, and we've seen it over the various crisis, including the last one, we have a very resilient asset allocation. Last but not least, before giving the word to Alban, I'd like to highlight again the quality of our results. What is interesting is that we've increased the results in all our 4 business lines. So this is an excellent performance with -- Thomas mentioned it, with a 7% organic growth of our results. If I look at P&C, we've increased by 4%, with a very good combined ratio below 94%; Life & Savings, with an increase of 7%; and a very resilient NBV margin, increase of the hedge result. And Alban will come back to fees and still increase despite the market turmoil of our asset management results. I've said it all. Alban, the floor is yours. Thank you.

So good afternoon to all. I'll try to be brief so that we have a bit of time for Q&A. I'll take you through our various lines of business, and I'll start with P&C. So on P&C, we had revenue growth of 1%, with good growth in both commercial lines and in personal lines and with a decrease in the insurance revenues, in line with our strategy, given the focus that we have on the decrease of our exposure to nat cat. So if I start with commercial lines, in both France in Europe, we had growth of 6%. We had a very strong price momentum here, as explained by both Thomas and Frederic. At XL, premiums were broadly flat with price increases of 9%. Again, strong price momentum there. Reinsurance was down 20%. We had told you that we would reduce our cat exposure by 40% along the year. That has been done at each renewal of the first 6 months, very regularly. So our cat exposure is now reduced by 40% on everything that we could reduce. Personal Lines, so personal lines are up 3%. That's a mix of 2% on motor, and that's exclusively price effect; and 4% on non-motor and that's half-half volumes and price effect, again, as we are increasing prices against inflation. Now if I move to combined ratio. So our combined ratio is almost flat compared to last year and at a very good level, 93.7%. And that's all the more remarkable as we had 2 headwinds in the first half. The first headwind is the fact that we didn't enjoy any longer the frequency benefits due to COVID in motor insurance that we had last year. And the second headwind is the loss that we had in linked to the war in Ukraine for EUR 300 million. The -- those 2 losses were not compensated by nat cat because the first half was not easier than the first half in '21. And you saw also that PYDs are stable at 2.4 points. So where did we get the earnings to offset those 2 headwinds? From 2 areas, a focus on attritional profitability, and second, a focus on expenses. And you see that our expense ratio is down 0.9 points in 1 year. Just a word on AXA XL. Its combined ratio improved by 0.3 points. And so as such, it managed to absorb the loss from Ukraine. And we still expect further improvement at AXA XL as we earn more prices. Moving to P&C profitability. So on underwriting result, that's the same picture, with almost the compensation of those 2 headwinds I've mentioned. Very good investment income across the board, that's due to various effects. The fact that we have some inflation-linked bonds that obviously had a better yield given the environment, some better funds distribution, but also the start of higher interest rates that we start seeing in our investment income. AXA XL earnings stood at EUR 688 million. Adjusted for FX, it's plus 1%. Again, a very good performance for AXA XL. If I move to Life & Savings revenues. So we had a very good mix as protection, unit-linked and capital-light GA represented 90% of our revenues. We had a very solid performance in protection coming mainly from Asia and within Asia from Japan. Unit-linked and capital-light GA were a bit down, but that's also because we had a high level of sales on those 2 kinds of products in first half '21. Key items to highlight. The first one in France. In France, unit-linked revenues are down by 12%. But that's exclusively due to a very large corporate contract that we had last year and that we did not replicate this year. Unit-linked for individual business is flat, so we are at the same level as last year, which is excellent. And you know that we are also proposing a capital very light product, which is Eurocroissance. And this one has doubled between the first half of '21 and the first half of '22. Europe, so Europe is down. That's mainly driven by Italy, with the sales through our banking channel, which are down in a generally difficult context for the Life business in Italy. And finally, on Asia, we had an elevated level of sales of the capital-light products in Japan that we didn't replicate this first half because of changes in FX. This product is more competitive in a different FX environment. Net flows we are focused exactly on where we want to be, i.e., protection, unit-linked and capital-light GA. And you see that traditional GA net flows are negative, and that does not include in-force actions. It is the sort of natural attrition of traditional GA that we have by focusing on other products. APE and NBV on the following slide, same picture. Here, we have also included health NBV -- health AP, sorry, as we do each time. Same picture in terms of mix, with very good growth in Protection & Health. One thing to highlight, we have grown our group business proportionately more than our individual business -- and you know that the NBV margin of our group business is generally slightly lower than for our individual business, hence, the slight reduction of the NBV margin that stayed at a very good level of 40.3% and NBV is flat. Life & Savings profitability, so up 7% or 9% at constant scope, an excellent performance with every driver working well. I will just highlight too the fees and revenues. That's due to the very good sales of protection business that we had, notably in Japan, and resilient unit-linked fees in the first half of the year. And investment margin, also up. We reached a level of 70 bps, so significantly above the guidance that we had given for this plan of between 55% and 65%. And you will note the fact that the reinsurance transaction in Hong Kong and the Singapore disposal cost us 2 points of growth in terms of earnings. Moving to health revenues, so strongly up by 13%. Group business, as I said when I commented the slide on APs, it's strongly up by 21%. That's mostly due to AXA France international employee benefit offering with 2 very large contracts that we have in the U.S. that gave us that significant growth. But you can also see that on the individual side, premiums are up 6%. And that's due notably to strong price increases. You may remember that in Mexico last year, we had an increase in our combined ratio in health because of COVID cases. We took strong actions and increased prices. And that, in particular, is what you see here with the increase in individual business. Health profitability. So it's, I'll say, only 2%. We had this time COVID losses in Japan. And if I exclude those COVID losses in Japan, we would be at plus 8% growth in underlying earnings on the health side. Nothing more to comment on this slide. Again, technical results and investment income are up. Moving to Asset Management. So obviously, our assets under management have decreased. That was expected given the rise in spread -- rise in interest rates, the widening of spreads and the decrease in equity markets. So that's EUR 86 billion. But what is very important is the excellent net inflows that we had at EUR 14 billion, coming from third parties and from our joint ventures in Asia, and in particular, in China. And those inflows from third parties went to both the alt platform and the core platform, alt being our alternative business; and core, our liquid assets business. So very good performance commercially at that asset management business. P&L of Asset Management. So gross revenues were up 4%. You can see that the average management fee increases. And that's where you see the resilience of our asset management business and the fact that we have both a core platform, but also an alternative platform which has higher fees, which also has less volatility in its assets under management. So better management fees, therefore, more revenues. Good efforts on the expenses and, therefore, cost income ratio that is down 1.1 point. And overall underlying earnings that grew by 3% in a difficult environment. So those were the various lines of business. If I summarize that, that's what we -- you saw at the beginning with Thomas' slide. So the underlying earnings at constant FX grow by 4%. But in reality, when we -- when you look at organic growth, which is what matters to us, it is plus 7%. Again, at constant FX. And we have minus 3 coming from the disposal that we had last year, such as the bank in Belgium, Greece, Singapore, et cetera. So very good performance organically. Now when you look at the underlying earnings per share, which, as you know, for us, are at current FX, they stand at a very good plus 11%. So 4% from earnings growth, 3% from favorable FX. That's obviously the strong -- the strength of the U.S. dollar, the Hong Kong dollar and the Swiss franc. And 4% coming from capital management, i.e., the reduction in the number of shares coming from the buybacks that we did at the end of last year and at the beginning of this year. Net income. So net income stands at EUR 4.1 billion, which is a stable number if you adjust for FX compared to last year. Just a few points to highlight. The first one is we realized, I would say, our usual amount of capital gains at EUR 279 million. We had a positive mark-to-market on some assets, notably private equity and some derivatives for hedging purposes. And the other item I want to highlight is the fact that we have fully written off the goodwill that we had on our financial participation in Reso Garantia. So that's EUR 144 million impact. So that was for our P&L. Moving now to our balance sheet. You obviously know that in our OCI, we have our unrealized capital gains. Again, given the rise in interest rates and the spread widening, those unrealized capital gains were down by almost EUR 20 billion. That's -- the vast, vast majority of that is fixed income. And you obviously know that it has no impact on our profitability as we don't realize those gains on fixed income. We hold those bonds to maturity. And you also know that Solvency-wise, higher interest rates is also positive. Apart from this, shareholders' equity was up EUR 1.5 billion. And you have the various impacts on the slide, nothing spectacular to comment. But that leads us to a very good underlying ROE of 15.8%, above of our target range of 13% to 15%. Moving on to Solvency II. So, up 10 points, and I will comment on the next slide where those 10 points come from. And as regards the sensitivity of our solvency, you see that they are the same or very similar to what we had at Q1. And the interest rate sensitivity, in particular is significantly lower than what we had last year, thanks to a tight monitoring of our duration gap. So moving to the next slide on where that solvency creation come from. Regulatory and model changes, that's mainly the change in Japan that I highlighted here 6 months ago. Normalized capital generation, that's EUR 3 billion at the upper end of our target range. And again, you will note that as far as SCR is concerned, we don't need more capital for the growth of our business. And that, again, is very important. That's the focus that we've had on capital-light products and on P&C and Asset Management. Economic variance, that's a mix of positive interest rates. Negative on equity, on inflation and on implied volatility. And finally, on dividend and share buyback. So you have the accrued dividend based on the paid dividend, as always. And the share buybacks, you have both the last one that we did, EUR 4.5 billion, and the one that we are announcing today. So the 227% figure that we show is after taking into account this buyback. So moving to investments. So Frederic already mentioned that, we invested at 2.4%. I remember that again, 6 months ago, I told you it would be 2%. It's better than that. It's 2.4%, obviously, thanks to the higher interest rates. P&C yield is up to 2.9%, but that's the same comment as I gave you earlier. And investment margin, at 70 bps that I already commented. And finally, on debt and rating. So our debt gearing stands at 26.9%. That's well within the range of 25% to 28% that we have given ourselves. You saw that we issued EUR 2.5 billion of debt, and that we repaid an amount of Tier 2 and Tier 1 debt in the first half. One word on the ratings. So on the financial strength rating, the -- it was confirmed that AA- were equivalent by the rating agencies. But you probably have noted that the rating agencies improved, AXA is a issuer credit rating to A+. And that's due to the fact that AXA SA is now no longer a holding company only, but also a reinsurance company. And with that, I will hand over back to Thomas for the conclusion.

Thank you, Alban. You've seen that the group is in excellent shape, and so we are all very confident to deliver on our driving progress 2023 plan despite the challenging environment. Why? Because our business model is well equipped also for that next phase, being a business model focused on technical business, fee business, which requires less capital, being very diversified and certainly having pricing power in a market in which we are having across the table, to a large degree, corporate customers. When you look at the different targets and where we are, plus 11% underlying earnings per share growth, is well above the range that we have given over a 3-year period of 3% to 7%, so we are confident to deliver at the high end of this range; 15.8% return on equity sits also very nicely slightly above the range of 13% to 15%; 227% solvency, up 10% from year-end is also well above the 190% target that we've given us; and certainly, the EUR 5 billion to EUR 6 billion cash remittance, on track for this year, will certainly also contribute nicely to the over EUR 14 billion cumulative cash upstream between 2021 and '23 that we have given. So our focus remains on discipline in execution, being very reactive, making sure that we are continuing this consistent delivery, and certainly making sure that we are maintaining financial discipline. Thank you very much, and we are now going to all your questions.

So let's just start in the corner with Will.

Will Hardcastle, UBS. I guess helpful today on the reserves and particularly the comments made there regarding the deep dive, just really trying to understand. On the AXA XL, how much of the comfort is being provided by this ADC cover? Is there any way you can give us perhaps what proportion of that is consumed already? And then on the softer pricing on motor, I guess I'm just trying to corroborate what you're saying here. You're sort of saying that there's some early green shoots on some of this pricing, there's a frequency benefit, but there's inflationary pressures. Are we saying that on a written basis, as of today, we'd be fairly comfortable on stabilization but pressure on an earned basis? Or is it still pressure near term before we can get to stabilization.

Thanks, Will. I suggest the ADC question for Alban and the softer pricing one for Frederic.

So on the ADC, today, the ADC is not attached. We have not reached yet the attachment point.

Frederic?

On motor, what I was trying to convey is that the market on motor prices has been pretty soft, 0 or slightly positive because the frequency benefits have been so big and are still significant that there is no pressure on the market to increase prices. However, as we've started to see some inflationary pressure, I'm expecting prices to increase also on motor.

Let's stay at the same table and move to Ashik.

First of all, congratulations for good numbers in a tough environment. Just a couple of questions. So first of all, I mean on XL, the combined ratio went down despite taking a big hit on Russia, Ukraine. So it would be good to get some color as to what are the moving parts there? I mean, why from where does the attritional getting better. I think there is a bit of an expense element here as well. So it would be good to get some color about what are the moving parts of the improvement. Just trying to understand the sustainability of this in the near term. Second thing is, I mean, you announced a big EUR 1 billion buyback, which has nothing to do with the offsetting the disposal impact, et cetera. So this is like a proper buyback that you're doing for the first time. Just wanted to understand what is the thinking process behind it? Is there a formula that we need to think about? What are the moving parts there? And what sort of discussion did you had with regulator before announcing this buyback?

Excellent. Thanks, Ashik, for your questions. Alban. I suggest you take the first one, and then I'll take the second one.

So thank you for your question, Ashik. On XL, it's a mix of different things. We had an improvement in the attritional loss ratio. But I think what has contributed more to the offsetting of Ukraine is the fact that there was a strong focus on expenses and the expense ratio at XL is down by 1.3 points. You also had positive prior year developments coming mostly from short tail lines and notably at nat cat that we had in the prior years. And you also had very good investment income.

On the question on the share buyback, Michael, we still do that one because that seems to be an important one. I was confronted with a question this morning, which was, "hey, why do you do a share buyback if you have got good results", which I found interesting. No, it's clear that when you look at the share buyback, which is true, it's a share buyback that is not related to any earnings dilution, it's relatively simple. I mean, as I said, the results are excellent. The business is performing well. We have got a very good outlook, and we are confident to deliver. And in the question around how do we deploy capital, we always said, look, it's important to fuel access growth and to make sure we've got the necessary investments into digital and so on, which we do. We invest about EUR 2 billion every year into the internal growth and digitization of the company. However, we clearly said if there is excess cash, and due to the fact that we've been much tougher and more obsessed on cash, there is more excess cash, we will apply also a very high financial discipline. And this was the discussion that we had at the Board, which led to this EUR 1 billion share buyback because we clearly said, "look, share buyback is and will be an ongoing tool of our toolbox." When it comes to the regulator, and this has always been the case, we have got a very good and a very proactive relationship with our regulators. So it goes without saying that we have been speaking to our regulator from early on, we have been discussing, obviously, stress test with them to make them comfortable around this decision. Michael?

[indiscernible] question because I was told you don't give guidance, but you're so confident. I was thinking maybe you could give guidance today. The outlook looks strong. So if there's anything you can say about the 11% and how sustainable that is, that will be so lovely. And then the 2 more boring questions. One on B 22. If I look at the Slide B 22, so this is P&C loss ratio, it gets worse everywhere. So I'm not saying it necessarily means the underlying is worth, but every ratio is up. So I just wondered -- and my interpretation, and I just wondered whether you could comment on that, is now you put all of the price increases into reserves. And I just wondered if you could comment on that. And the other one is a question about guidance. So 70 bps is the margin in Life, up from 67 or 68, depending on the period you choose. Can you say what it's going to go to?

So 3 questions from Michael. I suggest I'll take the first one. Frederic, you take the second one relating to B 22. And Alban, you take the third one around the guidance of the 70 bps. It is absolutely true that we are confident going forward. And the confidence comes very much from the fact that we have a model that is working well, that is acyclical and that we have built a balance sheet that is extremely strong. This confidence will lead us to continue to do as well as we can. When you think about what is the indication of the first half of this year for the second half of the year, I would like to remind you about the general seasonality in our business. Because when you look at what is the difference between the second half year relative to the first half year, in every year of a normal P&C company, it is the natural events that are most likely happening in the second part of this year. So that's where we are. We are trying to make all of what we have shown to you as sustainable as we can. We are fully aligned on this one. Frederic, B 22.

B 22, loss ratios. So a few comments on this. First, I come back to Alban's comment on cats because I was reading the Swiss Re report this morning on cat in the first half, which says that more or less cat -- in short cat, losses have decreased by 20% over the first half. For us, cat losses have been stable compared to first half last year. Why so? Because we are more exposed to Europe and France. And that if you look at the cats over the first half, itself has been better, but Europe has been worse. We had especially hail tail in France. But let's say, globally, it's a long introduction, globally, cat is not an explanation of the evolution of the loss ratio. Actually, the main explanation is not that we've put everything in reserves. The main explanation is about frequency benefits compared to last year. As Alban mentioned, we had extremely strong frequency benefit last year, especially in motor. We still have frequency benefits this first half, but much lower. The order of magnitude of the difference is EUR 300 million. So we have EUR 300 million less frequency benefit in the first half compared to last year. But if you look -- I'd like to highlight this because there have been quite a lot of discussion first days on motor. If you look at the evolution of our motor business, the motor business claims ratio has worsened, if I may say, by 3.8%, which is what you see on this page. As we've globally increased expenses, the combined ratio has increased by about 3 points, so 3 to 3.5, which is something, of course, but which is not dramatic. This is just the fact that the frequency is coming back to higher level, even if, as I said, it's still significantly lower compared to pre-COVID. I say last word before giving the word to Alban on inflation, and I'm sure you will have other questions on this. But we haven't seen a material impact of inflation during the first half. But let's rediscuss this because I'm sure you will have other questions.

So on the 70 bps margin, on the industrial margin on the Life side, first, Thomas alluded to seasonality. There is a seasonality in the investment margin because in the first half, you get dividends, for instance, that you don't get on the second half. That's the first point. Second, I think we had good fund distribution, as I said. Interest rates are higher. Obviously, we will manage policyholders participation going forward. But I see the 70 bps as a high level, and I don't expect that to grow further.

Let's go to Andy.

Andy Sinclair from Bank of America. Three for me, please. First was just on the Russia-Ukraine, EUR 0.3 billion exposure. Just really wondered if you can give us a little bit more color now we're a little bit further down the line and actually getting the numbers out. And what gives you the confidence in that number? Is it reinsurance protection? Is it just where you're exposed to? And is there any risks to that creeping? That's question one. Secondly, just on holdco cash. I'd imagine the profile still looks pretty tasty even after the buyback. I just really wondered if you could give us an update on holdco cash levels and what's to come in remittances in H2. And thirdly, I was actually just looking at Slide B 25 on reserving for P&C. It looks like maybe the net reserving ratio for long-tail professional lines had actually maybe reduced a little bit. I was just trying to understand what's going on there.

Alban, I suggest you take the first question. The second one, Andy, we don't really give any detail around holdco cash at half year. And I think the third one, maybe Scott can talk about the question around the long-tail professional lines. Alban?

Yes. Thank you, Andy, for your question. So on Russia and Ukraine, the EUR 0.3 billion covers the various lines of business that are affected by the conflict or the consequence of the conflict. What I mean by this, it's aviation with the planes that were grounded by the Russian government. And we are -- we have shares on policy covered for 300 planes. So we obviously don't ensure 100% of those planes, but we have shares on those 300 planes. Second, the second line of business, which is affected is what we call crisis management and that specific policies that cover -- I mean, some customers because we don't sell that to everyone on war, on terrorism, on riots. And obviously, there are some damages in Ukraine that were covered by those policies. And third one is marine. It's a bit like aviation. There are some vessels that have been retained in the Ukrainian harbors. And there is a risk. What I want to say on all this is that at this stage, we have extremely few claims. It's a provision that we have set aside with scenarios on what could happen. And so if I take the example of aviation, we know our exposures, that's 300 planes. We know what is in damage cover, all risk cover or [ Waha ]. What we don't know exactly is how long those planes will be retained by the government if they are ever given back to their legitimate owners. And as far as the war in Ukraine itself is concerned, and therefore, the crisis management policies, we don't know the scope and the length of this. So we have done a number of scenarios: more optimistic, average, more pessimistic. We have probability weighted them, and that's how we came to the EUR 300 million, EUR 315 million precisely. Obviously, that will develop. We will monitor this. It can go up, it can go down, and we will update this regularly. But I think given where we are, it will take some time before we have the final, final view on this. But at this stage, we are comfortable with the EUR 300 million that we have set aside.

Scott, on B 25?

The reserve number is actually only driven from the premium volume. And for the first half of this year, due to economic conditions, you've noticed there's been a lot less M&A activity. IPO work, we had a pretty big cutback in our volume of business, and that's reflected in the reserves we set for the first half, right. So it's strictly a volume -- a premium volume question.

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

Dominic O'Mahony, BNP Paribas Exane. Three questions, if that's all right. One is just a follow-up on....

Is that the new order now, 3 questions? Go ahead.

For now. So just a follow-up on Michael's question about the 70 bps. It's very helpful talking about the seasonality. Does that apply to the investment income within P&C as well? Should we see that as a bit of a high watermark plus/minus investment returns? Are there any other factors as investment term is very strong in P&C as well? Second question, Germany, but very pleasing to see that transaction come through. You mentioned on the slides that you think it's going to reduce your market sensitivity. Could you give us some order of magnitude? Is this 1 point or 2 of sensitivity? Or is this a major change to the group? Third question, I'm just looking at the capital generation slide. Just trying to bridge from the own funds generation, the EUR 3.0 billion to the underlying earnings on an IFRS basis, sort of nearly EUR 1 billion difference. Conceptually, I think these are roughly the same scope, Tell me if I'm wrong. What are the items there? I'm wondering whether, just as a full year, where there was a bit of a shift between the sort of the IFRS the best estimate of the IFRS prudence, whether that might be a reason why the numbers diverge. Any color you could give on the bridge between those 2 numbers would be very helpful.

Alban, all 3 for you.

Thank you very much. So on the seasonality in P&C fixed income, I mentioned inflation-linked bonds. And where it comes from, mainly is Turkey. If -- so you saw that our investment yield moved from 2.6% to 2.9%. If you exclude Turkey and Colombia, because I have in mind the exclusion of the 2 at the same time, it moved from 2.4% to 2.6%. So you see that in that 2.9%, there is one part that comes from inflation-linked bond. The increase overall is still high, but slightly lower. Yes, then second, you are right, there is some seasonality on the P&C side. But I would say, as opposed to the Life business, where the duration of assets is significantly longer. It is also more speed in renewing the P&C assets. And therefore, we will benefit from higher interest rates faster on the P&C side. On the German transaction and the sensitivity, I'd say it's a step in the right direction. It does not fully upset our sensitivities globally. And on capital generation, 2 things. First, on the Life side, it is slightly different because on the Life side, what you look at is NBV and the unwind in-force, which is slightly different from underlying earnings that can explain one part of the difference. The other part, you're right. There is also some allocation of excess reserves to best estimate in preparation for IFRS 17.

Let's go to Peter, and then we move over here because Will and Farooq will fall off other ones.

Peter Eliot from Kepler Cheuvreux. First of all, can I just quickly clarify the comment you made just now, on about your scenario that you ran on Russia, Ukraine. I understood it that EUR 300 million was your best estimate essentially. Is that what we're supposed to understand? And then secondly, just wondering if I could revisit your current view on the reserving position. I mean, I guess, quite lot has changed since you sort of set your guidance, the world is quite different. You've done -- you've got this review. AXA XL has started to release some reserves. So I'm just wondering if you could give us whether there is an update at all on how you expect reserve releases on the corridor that you've given us going forward? And then finally, on the expense reduction, impressive of that. I'm just wondering how much of that if any, we can attribute to scale, so spreading costs more thinly or whether it is all actions that you feel you've taken? I'm just wondering if you can give us the split of sort of the drivers of that 0.9 point improvement.