Welcome to the Ageas Conference Call for the 2022 ninth month results. I am pleased to present Mr. Hans De Cuyper, Chief Executive Officer, and Mr. Christophe Boizard, Chief Financial Officer. For the first part of this call, let me remind you that all participants will remain on a listen-only mode, and afterwards, there will be a question answer session. Please also note that this conference is being recorded. I would now like to hand over to Mr. Hans De Cuyper and Mr. Christophe Boizard. Gentlemen, please go ahead.
Good morning, ladies and gentlemen. Thank you all for dialing into this conference call and for being with us for the presentation of the nine-month results of Ageas. I'm joined in the room as usual by my colleagues of the executive committee, Christophe Boizard , CFO, Emmanuel Van Grimbergen, CRO, Antonio Cano, Managing Director of Europe, and Filip Coremans, Managing Director, Asia. As you know, financial markets have further deteriorated in the third quarter. In China, the CSI 300 index lost another 15%, totaling a decrease of 22% over a year. As previously communicated, this resulted in significant impairments in Asia with net capital losses amounting to EUR 125 million in the third quarter. Additionally, claims inflation worsened in the U.K. from 10% in the first half of the year to 13% as at Q3.
The overall impact of inflation in Q3 in the U.K. totaled EUR 38 million. Lastly, the continued hyperinflation in Türkiye resulted in an additional accounting adjustment of EUR 12 million on the quarter. As mentioned in our earlier press release, these three market elements had a cumulative negative impact of EUR 175 million on our net result over the quarter.
However, I would like to stress that if you exclude from our nine-month results the volatile elements brought by the markets, and that is to say the net capital losses in Asia, combined with the continued decrease of the discounting curve in China, as well as the positive capital gains realized from the two M&A transactions realized in the U.K. and in India, then the group result excluding RPNI would amount to EUR 813 million over nine months, and that is up 11% from the comparable result last year. You can find the details on this calculation on slide four of the presentation. This number illustrates the very solid operating performance realized across segments. This is also reflected in our operating KPIs, which are all standing within our target range.
In Life, despite the lower investment income, the guaranteed operating margin reached a solid 87 basis points, while the unit linked operating margin stood at the top end of our target range at 39 basis points. In Non-Life, the combined ratio amounted to a strong 94.4%, and we reached our target in all product lines. Our non-consolidated entities also recorded an excellent operating performance with an underlying result in Asia after the adjustments mentioned before, amounting to a high EUR 458 million over nine months, significantly up compared to last year. In terms of commercial performance, inflows increased by 3% year to date. We enjoyed a solid sales momentum in Asia, and particularly in the third quarter, as the strong growth in new business drove the Asian inflows up by 16%.
Our cash position remained at a high level of EUR 1 billion, which provides us with adequate financial flexibility. Our solvency stood at a high 225%, and that is up by 28 percentage points over the nine months as it benefited from the group's strong operational performance and the rising interest rates. As previously communicated, the deterioration of the financial markets will likely prevent us from reaching our initial guidance of EUR 1 billion excluding RPNI for 2022. However, we maintain our commitment in terms of dividend for the year, and we already distributed two weeks ago an interim dividend of EUR 1.5. Before handing over to Christophe for more details on the results, I would like to add a comment on our long-term strategy.
In our Impact24 strategic plan, we put a strong focus on pursuing new growth opportunities, and we have recently made some significant strides in that direction. Reinsurance was identified as a key engine for future growth, and we have announced our plan to accelerate in this area by entering into third-party reinsurance. Additionally, in order to grasp the opportunities offered by digitization, we have partnered with eBaoTech and Amazon to leverage the strengths of digital platforms and ecosystems, and we invested in the Belgian start-up company Transition to further develop the artificial intelligence-driven strategic intelligence platform. Now, ladies and gentlemen, I give the floor to Christophe.
Thank you, Hans, and good morning, ladies and gentlemen. As usual, I will give you more details by segment. In Belgium, slide six, we, as usual, enjoyed a strong performance in both life and non-life, and our net result amounted to EUR 334 million, significantly up compared to last year. In life, the guaranteed operating margin reached 86 bps, despite a lower investment margin due to the seasonality of realized capital gains. The unit linked operating margin continued to exceed our target range, amounting to 41 bps. In non-life, the combined ratio stood at an excellent 92.9% over nine months, demonstrating a sound operating performance and the resilience of most product lines to inflation. In Europe, slide seven, the group net result amounted to EUR 116 million. In life, we recorded a solid result.
The guaranteed margin, although below the high level of last year, exceeded nevertheless our group target range by amounting to a strong 97 basis points over nine months. In the meantime, the unit linked margin continued its steady improvement and stood at 33 basis points. In non-life, the result suffered from the worsening of claims inflation in the UK, which reached 13%, whereas 10% was foreseen in our reserves. We have taken appropriate measures to address this situation by strengthening our reserve for outstanding claim to adequately reflect the current inflation. We have prioritized profitability over volumes, and we have thus already adapted our prices accordingly. However, it will take a few quarters before it is fully priced in our book. In Turkey, the persistent hyperinflation resulted in an additional accounting negative impact of EUR 12 million in the third quarter, totaling EUR 28 million over nine months.
In Asia, slide eight, the nine-month result, which amounted to EUR 167 million, was severely impacted by the market environment. The sharp decline of the Chinese equity market resulted in EUR 173 million net capital losses year to date. Additionally, the continued decrease of the discount rate curve in China impacted the net result by EUR 168 million over nine months. However, when excluding these market impacts, as well as the EUR 50 million accounting capital gain recorded in India following the increase of our stake in the life joint venture, the underlying result amounted to a very high EUR 458 million, significantly up compared to last year. This illustrates the excellent operating performance recorded across the region.
Therefore, we feel confident in our ability to reach our guidance of an underlying result of EUR 500-EUR 550 million in Asia for the full year. The reinsurance segment on slide nine, our result amounted to EUR 48 million, driven by the traditional protection business, which benefited from reserve releases, whereas the quota share reinsurance included the impact of higher inflation in the UK. Before commenting on our capital position, I would like to add a word on our investment portfolio. The revaluation of our bond portfolio in the context of higher interest rates resulted mechanically in a decrease of the unrealized capital gains. By contrast, on the assets that we actively trade, like our real estate and equity portfolios, we still benefit from a strong level of unrealized capital gains of respectively EUR 2 billion and EUR 500 million.
As mentioned by Hans, our group Solvency II ratio, I am on slide 11 now. With the group Solvency II ratio increased to a high 225%, largely above the group target of 175%. The strong contribution from operations amounting to 17 percentage points over nine months, including 6 percentage points in the third quarter, largely above the market, largely above the impact of the accrued dividend, clearly illustrates the group's solid underlying performance.
This translated into a high operational free capital generation of EUR 846 million for the whole group over nine months. Slide 12. The Solvency II scope companies contribute EUR 651 million. Please note that this number includes the impact from the sale of the commercial line in the U.K. for an amount of EUR 60 million. Even if we restate by this EUR 60 million, we end up with a very high number. This high number was achieved with the strong support of Belgium, whose contribution roughly doubled compared to last year. Main reason for this is a reclassification of part of the equities to long-term equities with the decrease of the SCR associated to this. On the Solvency II scope companies.
On the non-Solvency II scope companies, mainly in Asia, the operational free capital generation amounted to EUR 317 million, and the general account consumed EUR 122 million. One last comment on the non-Solvency II entities. The high operational capital generation of EUR 830 million does not fully result in a free capital generation of the same magnitude due to the capital required to support the growth. I have now reached the end of my presentation and we are now ready to answer any question you may have. Thank you.
Thank you, ladies and gentlemen. This concludes the introduction, and we now open the call for questions. May I ask you to limit yourself to two questions? The Q&A session will then follow. If you wish to ask a question, please press zero one on your telephone keypad. That's zero one on your telephone keypad. First question from David Barma from BNP Paribas Exane. Sir, please go ahead.
Thank you and good morning. My first question is on solvency. Could you please talk a bit about the drivers of the neutral effect from markets in 3Q and if you can give us a rough estimate of the updated market sensitivity on rates especially. You mentioned a model change in the third quarter. What's included in there, please? My second question is on cash upstream. Are you able to give us a guidance for 2023 cash remittances at this stage? Thank you.
Yeah. Good morning, David. The first question I give on Monday for solvency.
Okay, thank you, Hans. Yeah, good morning. I would like to take you to slide 45, where you have the evolution of our solvency. Your question is more specific on the impact of market movement, which is neutral in the third quarter. What we have observed in the third quarter are for the different market drivers, some small pluses and some small minuses, but not really big impacts. I guess behind your question is also interest rate because we are in a environment where interest rates increase quite sharply.
At the end of the day, we have also really to realize that the move in interest rate is not only the increase, but it's also the fact that we have a non-parallel increase in interest rates. The short-term ends of the curve increase much more than the long-term end of the curve. We are now in Q3 with a flattening of the curve. That impact is, let's say, but less positive than what we can expect out of the sensitivities.
That's one aspect and the other one, and also linked to interest rate, is the fact that when you have a rise in interest rate and your guarantees are out of the money, which is the case today, and it was not the case at the beginning of the year, where interest rates were close to zero or negative. Then you start also to have an impact on your mass lapse, and that you can see also in on slide 52, where you have the composition of our SCR by driver, and you see that the life underwriting SCR is increasing quite materially while the market SCR is decreasing. That was, I think on your first question.
Then the second question was more focused on the model change that we introduced in this quarter. The model change that we introduced this quarter is related to mass lapse. It's to a certain extent a regulatory driven model change which better meets the Solvency II regulation. But just one word on the technicality, what we have done is now also including all variable cash flows, like variable expenses or commission, and that is a better reflection of the impact of mass lapse on our SCR calculation. That there's an impact that is explaining
A material part of the model change, at the end of the day, is a more regulatory driven model change.
Okay. Thank you, Manu. David, on your second question, guidance for cash upstream, of course, it's too early to give you concrete numbers. First of all, if we look at our consolidated entities, you will see in the detailed solvency that solvency is actually very strong everywhere, and so that we would not see any issues on the normal upstreaming level. For instance, as you know, for Belgium, for instance, that is 100% upstreaming of the net profit. The only question you might have is, of course, related to China, because as you see, China result is heavily impacted by the capital gains situation. There again, it is too early to make conclusions. Let's not forget that dividend is applied on China on the local cost result.
Of course, there is also a relationship with the solvency. Now that being said, we have no concerns on the overall Impact24 commitment on upstreaming. We stick to that. Secondly, with the strong solvency that we have at group level, as well as the strong cash position, that even if there would be any volatility coming from the dividend from China, we will be able to absorb that at group level. That's why we can reconfirm our guidance on the dividend for next year.
Thank you.
Thank you. Next question from Michael Huttner from Berenberg. Sir, please go ahead.
Thank you so much. I had two questions. One is on the VIF for the year, and maybe because I still don't understand it, maybe you can say whether the VIF is a loss or you ever get the money back at some stage. The second is on the excellent results in Belgium and Europe in non-life. I just wondered if you could talk a little bit about the impact of inflation on the Europeans. What would be the number excluding or normalizing for Turkey and the U.K.? For Belgium, is the 89.7% or the 92% at nine months, how sustainable that is? Thank you.
Okay, Michael, thank you. The first one I'll give to Filip, and then Antonio will zoom in on the inflation in Europe for you.
Yes. Thank you, Michael. On valuation interest rate impact, let's first recapitulate what we said. We had this year EUR 168 million impact for Q3. Last year that was EUR 136 million. Our outlook of that we shared with the analysts beginning of the year was a range of EUR 150 milllion- EUR 200 million expectation for the year. That was in a range of interest rates in China 2.75-3.85. Today, the long-term interest rate is around 2.70, hovering around that. Our expectation for real impact by the end of the year, for this year, is hovering around EUR 250 million. There is still a material impact to be expected in Q4. Now, VIF is a strange animal indeed.
As you say, is it a loss? Is it not a loss? It's an ambiguous concept, and the reason is because only the liabilities in the non-par front are revalued with that valuation interest rates, but the assets are kept at amortized cost to maturity. What it actually does, it increases a little bit, obviously, the margin looking forward, because the yield on the bond portfolio stays quite level, where the liabilities are valued at a lower interest rate. There's a marginal uptick every time you see that real impact. Over the cycle, obviously, it depends on the asset liability management gap and rates looking forward. In fact, it is smoothing out a margin increase over the years, which corresponds with the bonds in the portfolio. That is why in the underlying, we take it out.
It's a cyclical effect that is partially non-economic, but that is what we explained before. I hope that clarifies and reconfirms.
Very clear. Thank you.
Thank you.
No, no. There was still a second question. Hi, Michael.
Perfect. Okay. Sorry.
I'll try to explain a bit the good results, non-life in Europe and inflation. It's a big question, and I'll try to answer it as simply as possible. Belgium, you could say that inflation at the end of the day has no or limited impact in the results, as we have been able to adequately start increasing prices. In fact, it's a practice we always do. The bulk of the business, more than 50% of the business for sure, is kind of automatically indexed. It's mainly the household book, but also in other lines of business, we have the discipline to correctly and gradually increase rates. There you could say we're kind of anticipating or in lockstep with the inflation. Portugal also very limited impact.
The impact we see there is more on medical inflation, but it's difficult to put a number there because also the mix of claims changes. For simplicity, let's say that it's limited.
Now, in Turkey, obviously it's extremely complicated that we still have inflation running at 85%. There I could refer to the numbers that Christophe was referring to, the impact of hyperinflation on inflation accounting, which was EUR 28 million year to date. You could say that's the impact of inflation. Obviously, it's much more complicated than that in Turkey. Then in the UK, the inflation, as I said during the last call, it's on the material damage, so attritional damages where we see the inflation. We don't see any inflation on the large losses. There we have seen an uptick in that attritional inflation from 10%-13%.
Again, that's a simple number, but behind it's slightly more nuanced because we do model that at product and even peril basis, so it's a mix of. That has meant that, yeah, the results of the quarter itself has been impacted because of this high inflation, and also the outstanding attritional claims reserves have been impacted. That was the number that I think Hans also mentioned in his introduction of EUR 38 million.
Can I just ask one quick? What I really want to know is the number for next year. Is there, based on all this, can you give a feel for where? Is it up or down in terms of combined ratio? Will it be?
Uh.
slightly more expensive or less expensive given the
Uh.
pricing inflation, frequency, et cetera?
I think anybody's guess is good enough here. I mean, the expectations are that inflation will start to decrease gradually, so we would have less of a negative impact of inflation. But putting a number there, I don't dare. You have some markets, Michael, where we catch up, premiums catch up with inflation or sometimes with a bit of delay. There, I think we might see some effect, but indeed it is very difficult to estimate where it will go.
Brilliant. Thank you very much.
If I just can add, I think in Belgium, we have this automatic indexation, and we are keeping step with inflation. Don't expect there better or worse results. We can kind of neutralize. In the U.K., we have been rising our prices during the year on a cumulative basis. Over the last 12 months, we are close to a 20% increase of our prices. Now, inflation is slightly below that. If inflation drops and the premiums that we've issued these months start to flow through the earned numbers, you would expect a positive evolution in U.K. result, obviously.
And so-
Turkey will, well, a lot will depend on the political situation.
Of course. That's really helpful. Thank you.
Thank you. Next question from Michele Ballatore from KBW. Sir, please go ahead.
Yes. Thank you. Again, on inflation, of course, I mean, I think procurement, I believe is an important component of your tackling with inflation in Belgium. I'm wondering, on this specific factor, what is the outlook for next year? There are some contracts that will be renewed, on the upwards, let's say, and also in the UK, if you have the same kind of effect. The second question is on Taiping Life. The core solvency ratio, I believe is 103%. What is the impact for the dividend outlook from this company? Thank you.
Hi, Michele. I'll take your first question. Indeed, procurement is an important aspect of the Belgian operations and why they're keeping inflation impact under control. Indeed, some contracts will renew in upcoming months. We'll see what the outcome. Obviously, the prices will go up. Then again, even today, we are already increasing our rates, so we're kind of already anticipating the increase of costs that will flow through for these types of contracts next year. I think the difference will still be slightly positive. In the UK, we do not typically have these long-term contracts.
As you know, the U.K. has a peculiar way of working with what is called third-party damage, whereby it's actually the insurance company of the counterparty that is not at fault that passes on its costs. That is much more difficult to control. For the claims that we manage, we also have these types of arrangements, but they're less important than in Belgium.
Thanks.
Thanks. On your question on outlook on solvency dividend on Taiping Life, maybe a few comments. First and foremost, the 103 is the core solvency ratio.
The lower benchmark on that is actually 50% from a regulatory perspective. The comprehensive solvency ratio of Taiping Life is at 206%. It is noticeably down versus the previous quarter because of the cap system in 0s that is a factor. Now, the second thing I want to say, dividend does not necessarily depend on the result only of Taiping Life, not under IFRS, but also not under CAS, but on their retained earnings. There is room. The question then is, will they be able to have sufficient solvency at the end of the year to allow a normal or reasonable dividend upstream?
That is definitely the intention, to do that if that is possible, because you have to think of Taiping Life a bit like AG for Ageas, Taiping Life to CTIH. It's their flagship, and CTIH does require a dividend upstream from its entities to service its debt, and its operating expenses. It's the parallel is more or less like that. The intention of CTIH, Taiping Life, is definitely to pay a reasonable dividend if solvency permits, and it's something that we work on. Now, looking forward, even if solvency were to come under pressure, there is still the possibility for Taiping Life to look at other capital instruments to support that looking forward, because the Chinese regulator has opened that window last year.
We look at reasonable dividend expectations on Asia for sure, on China, potentially. As Hans indicated, even if that were to be lower for a year, it wouldn't disrupt our dividend commitments as a group.
Sorry, you were referring to other capital instruments. Can you clarify that? Go ahead.
Taiping Life has no core Tier 2 instruments outstanding at this moment, and that's a window that the regulator has opened last year.
Okay. Thank you.
Thank you. Next question from Vikram Gandhi from Société Générale. Sir, please go ahead. Sir? Okay, maybe, Mr. Gandhi, you are not on the Q&A. Now we can take Jason Kalamboussis from ING. Sir, please go ahead.
Yes. Hi. Just having some quick little clarifications. One, could you talk in Belgium specifically about workers comp, which you are seeing there, with price increases you have already put through, and how do you see that for next year? The second is just quickly on the reserve releases. Can you specifically say how much it was in the U.K.? They seem to be much larger than anything we have seen for a number of quarters. Do you expect this to be also the case in Q4 if inflation stays at these levels? Quick question is just on the effects in Q3. How much of positive effects are there in the Asia numbers? Thank you very much.
Hi, Jason. Maybe on workman's comp in Belgium, just be aware that the rates that are applied are rates like percentages on the salaries. So if salaries go up, automatically your premium goes up. It's also obviously the average claim. So there is kind of an automatic indexation. On top of that, we did increase the rate itself, certainly for some segments. So all in all, you could say that the business has a kind of certainly partially automatic indexation mechanism built into it. We don't see any worrying signs for now on workman's comp in Belgium. On the reserve releases in Europe, that's to a very large extent linked to motor, U.K. motor large losses for bodily injury claims.
Remember we had in 2019, 2020, a kind of a big spike, certainly compared to our peers in the cost of large losses. A lot of that were provisions set up for losses we thought would wind up being a serious losses. That's no longer the case. That's a trend we're actually seeing during the course of 2021 and 2022. In that sense, there is really nothing special to mention there. They are quite significant, the releases in the U.K. for those large losses. They have been in the last quarters. Again, these are the large losses. It's a very different story than the attritional smaller claims where the inflation is playing out.
I would say in the other regions in Europe, you also see the normal release of previous years as we've seen in the past. Yes, the number might look high, but there is no really specific story behind it.
Okay, Jason, on your second question, the positive effects in the Asia numbers. Well, if you talk about exceptional effects, there is only one. There is the EUR 50 million capital gain realized from our step-up in Ageas Federal Life Insurance in India for the quarter. By the way, when we present the 813 result, we have already adjusted for that, and also when we talk about
EUR 458 million underlying for Asia, we also have adjusted for DTA. All these numbers are filtered with the exceptional capital gain in India. That's actually the only, I would say, positive exceptional effect in Asia.
Hans, we can mention the FX, and the FX on Asia is +EUR 15 million.
Perfect. Thank you very much. Just on the prior year reserve releases. I understand that so related to 2019 and 2020, but is this likely to continue in Q4, first quarter of next year? I mean, is there still a lot to be released or we're reaching a bit the end of on that front?
There's always volatility in these releases, but given that our reserving policy has not fundamentally changed, and if the ultimate settlements are not fundamentally changing, you should expect a continued release of previous years, yeah.
Okay. Thank you very much.
Thank you. Next question from Vikram Gandhi from Société Générale. Sir, please go ahead.
Hello. Can you hear me?
Yes.
Hello?
Yes, yes, we can hear you, Vikram.
Hello. Can you hear me?
Yes, Vikram, we can hear you.
Okay. Excellent. Thank you. Sorry about this. I've got two quick questions. One is on the reinsurance, which you flagged is an area of growth. A few things related to that. How comfortable are you growing the reinsurance exposure in the current environment? What are the lines of business that the group is likely to focus on? And whether this growth might need capital injection into the reinsurance unit. I mean, from an NCP movement perspective, since I'm aware that it's the whole code that drives reinsurance. Technically there's not going to be any cash movement. From an NCP evolution perspective, maybe we see from left pocket to right pocket movement. That's question one. The second one is on the U.K. and continental Europe.
Now the group, of course, is reporting them as one segment, which is Europe. Can I just check whether internally there are still two different solvency ratios running in parallel? Since I think it's still two different entities we are talking about. If so, would you be able to share what the individual solvency numbers were at the nine-month stage?
Okay, Vikram. On reinsurance. The current scope of the reinsurance activity is the internal reinsurance of quota shares, LPT treaties with the European entities. That continues. That is in fact business that we know, that's a business written by AG, the UK, Portugal. There is what we call the protection part of reinsurance, which you could say is the actual reinsurance whereby the cedent companies go to the market, and there we act like an internal reinsurance alongside external parties. There we tend to keep a very small slice of that business. We ourselves also place that back into the market. That again, that's UK, Belgium, Portugal, but therein there is also some internal protection covers that we offer to our JVs, say Thailand, Turkey, India.
I think that's probably what you're referring to. As of January next year, we're gonna start writing reinsurance for the real third parties. That's gonna be a very gradual movement. We do it very slowly. We are just increasing the breadth of our teams to do that. We will focus obviously on risks that diversify well with the risks that we have within our own group already. European windstorm, we have plenty of that. We're gonna look at other CAT covers across Europe. The focus will be Europe, by the way. More Southern Eastern Europe CATs. We have some appetite also for motor treaties. We might participate in some terrorist pools, but it's gonna be very gradual.
On the capital allocation to that, as you're saying, it is a bit left pocket, right pocket. We estimate a limited ring fencing of capital around that, starting with about maybe EUR 30 million for the first year. We're not going very fast, but steady. It's a bit of a pity that we can't be a bit more aggressive today. We won't, by the way, because the market seems to be very hard. Price conditions, etc., are really tough for cedent companies. Okay, on solvency, I give it to Emmanuel.
Okay. Thanks, Hans. On solvency, I'll take you on page 11, where you have indeed the solvency of Europe. Beginning of the year, 171%, Q3 189%. It's a combination of several entities, of which the two main entities are Portugal and UK. We don't disclose entity by entity, but what I can say is that one, all entities are well capitalized and within our target capital range and are capitalized. There is absolutely no issue.
What I can also say as an additional comment is that certainly Portugal is the entity within Europe that is the highest capitalized in that region.
Okay. Wonderful. That's fantastic. Thank you.
Thank you. Just a reminder, ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypads. Thank you. Next question from Robin van den Broek from Mediobanca. Please go ahead.
Yes. Good morning, everybody. Maybe a follow-up question on the solvency of Taiping Life. I noticed that their core solvency has dropped to 103%. I was just wondering what this exactly means and if there's a risk of a capital injection coming. Because according to my understanding, I think a Tier 2 issuance would not feed into this core solvency ratio. That's the first question. Secondly, is it correct that wage inflation for the insurance sector is only coming through for the first of January 2023? Can you comment on what the wage inflation will look like based on current expectations and maybe any plans to offset this pressure on your profitability.
Thirdly, yeah, I guess this is something a little bit more difficult for you to comment, but I'm gonna ask anyway. The situation around Fosun and their liquidity needs, yeah, seems to be evolving. I think a few weeks ago, there was commentary that they have to sell $11 billion of assets to basically fulfill their liquidity needs. According to the article that I read, it didn't really seem that Ageas was mentioned as one of their core holdings. Can you talk about the conversations you've had with Fosun as a shareholder, and maybe also talk about the potential of the Belgian government funds that basically stepped in to pick up Ping An's stake before? If there's any willingness basically to see something similar happen there.
Those are my questions. Thank you.
Maybe repeating what I said before, the core solvency ratio in Taiping or in China is the benchmark there is not 100%. It is the minimum capital requirement ratio 50%. So from a capital injection requirement perspective, that is not gonna be triggered by anything near 100%, right? That's one. The comprehensive solvency ratio is still at 206. Secondly, related to strengthening core solvency ratio. It indeed comes from own fund, let's say core tier one. But also the possibility, and that is what I refer to as being opened by the regulator for the issuance of core tier two.
For example, given a very long-dated subordinated core Tier 2 instruments like Perpetuals and so on, could be used to strengthen also the core ratio. Okay, I'll take your second and third question. Wage inflation. I think the automatic wage inflation actually we only have in Belgium. We can expect a number there around 10%. Indeed, that will come in in January for the Belgian business. That being said, Belgium also does manage its business with an overall expense ratio and expense level. They, of course, are carefully considering mitigating actions to absorb maximally the impact of this wage inflation. As Antonio already said, more than 60% of the non-life products also are automatically premium inflated.
The cost charge in that premium is also inflated with the same percentage. We don't expect the impact on bottom line to be material. In the other countries, there is no automatic. That will all depend on the market evolution, and that will be fully in line with peers. The last question on Fosun and their liquidity needs. Indeed, we have seen, I would say, some messages around Fosun in the press. Of course, we have open contacts with Fosun as a very important shareholder. The only thing I can tell you is what you have read in the press.
The Belgian newspaper was in contact with Fosun, and there they clearly got a message that at this moment, Fosun was quite happy with the profile of Ageas and its management and that at this moment, they were not considering selling their stake. That is, I think, the only information available. Indeed, FPIM, as you know, has become, I would say, also an important shareholder for us with 6.3%. That was indeed one single transaction which they bought from Ping An. Of course, we would not be part of any discussion if there would be one between Fosun and FPIM. I can't comment on that one besides what is publicly available information.
All right, great. Thanks for the color.
Thank you. We have a new question from Michael Huttner. Sir, please go ahead.
Thank you so much. I had three. One you've kind of answered, but on the operating capital generation, the EUR 846 million figure, can you say what the run rate is? Because you did say the model changes, and you also reclassified the equities. Then secondly, on the UK, so you sold the commercial lines, you sold the Tesco business. You've basically, as I understand it, you've got mainly U.K. Motor left and you've kind of merged it with the rest of Europe, so it's become a little bit invisible. Does it mean that you might sell the rest or you're considering or you're reviewing, or whatever form of words you could use.
On the reinsurance capital consumption, the EUR 30 million figure is lovely. It's very reassuring. Can you just say you know, you you've got the Taiping Re is how much capital is that consuming or growth or whatever? Thank you.
Michael, I will give you the answer on all your questions. The question related to the operational free capital generation. First, let's maybe elaborate a little bit more on the UK. The sale of the portfolio could have been interpreted as an M&A and excluded from the operational free capital generation. But we decided, but it was before, it was already there at the end of Q2, to include in operational for two reasons. The first one is that there is no sale of an entity, and then it was more a management decision, and management decision are typically recognized in operational free capital generation. The specific mention I gave in my speech, we have EUR 48 million of capital gain.
We have some release in the SCR, a little bit of a loss on geographical diversification, and the total impact is EUR 50 million. The purpose of isolating this is to demonstrate that even if you restate by this EUR 50 million, the OFCG on the European side is quite strong. We don't have really a run rate. What I can refer to is the guidance we gave before when we only disclosed the European part. If you want to make the parallel with the former guidance, which was to achieve on the consolidated part between EUR 500 million and EUR 530 million a year, you could make the following simple calculation. You take the operational free capital generation for consolidated entities. You deduct this EUR 50 million, which is kind of exceptional.
You have to deduct the consumption of the general account, which was included before, and you end up with a figure which is around EUR 470 million. If you compare with the 530 for the whole year, we are above. At the end, my simple answer is vis-a-vis the former guidance we are above. What we are studying is to issue a new guidance on the consolidated Europe plus Asia, but that's not available now.
Very clear.
Thank you, Christophe. Well, let me comment on M&A, UK, where you have seen, of course, and that is in line with what we have said in the quarters, that we are focusing, bringing focus in our U.K. business on the retail market. That's why commercial line was divested for us. U.K. is a core market for us. We are not changing our view because we have now been impacted for a quarter by inflation. We do assume also with the new pricing guidelines, that a permanent effect of inflation will, at the end of the day, drip into the premium setting and restore profitability. Remember that over the last two years, we had very attractive profitability in the UK.
We are not changing our view on the U.K. as a core market, but it will be a very focused business on specific segments. Then on Taiping Reinsurance, I give it to Antonio.
Yeah. On Taiping Reinsurance, first let me clarify the EUR 30 million I mentioned. That's the external reinsurance business we write out of the balance sheet to adjust. It is totally unrelated with the Taiping Reinsurance activity, yeah. The Taiping Reinsurance activity has its own capitalization and solvency. Just to add, bear in mind, in fact, we have two entities there. There's the Hong Kong-based entity, which has a solvency, I remember, around, certainly above 200%, I think 230%. Then there's the mainland China operation of Taiping Reinsurance, which is also comfortably capitalized. So in that sense, there is no specific capital drain from Taiping Reinsurance.
Brilliant. Thank you.
If I may add, Antonio, the solvency ratios of Taiping Reinsurance as well as Taiping Reinsurance (China) have been published. I think last week or the week before. You can find them. In fact, on Taiping Reinsurance, the solvency ratio is at 293%. On Taiping Reinsurance (China), it's at 177%.
Very helpful. Thank you.
Thank you. We have a new question from Jason Kalamboussis. Sir, please go ahead.
Yes. Hi again. Two quick questions. The first one is on Asia. Could you give us some color? I mean, the second quarter, we had the lockdowns, but you have benefited, I think, from a bit of exceptional critical illness sales that were accounting for about EUR 50 million that helped there. So are these EUR 50 million kind of going to come off somewhere, more specifically in Q3, would help to have good underlying figures? And do you see finally the Q4 as being a bit seasonally low as usual, or do you see it being different like it was last year? And the second question is just on SFPI, FPIM, just a question. Do you see the Belgian government, is there a limit?
I mean, if they were to take, for example, Fosun was to sell the stake, do you have any limit above which you would feel uncomfortable for the Belgian state to be in there? With the 6.3%, they take the whole stake of Fosun, if it was for sale, and they go to 16%, you know, Is there a level above which you as a CEO don't feel comfortable, Hans? Or you would say, you know, actually, I don't have any say in the discussion, full stop, whatever the level of the Belgian government is within the company. Thank you.
Jason, just if I may ask you clarify, we're talking about the result or about the commercial development?
About the commercial development, but with an impact on the results.
Yeah.
That means, you know.
Okay. I think commercially I go back to the beginning of our messages. Commercially as well as fundamentally underlying operational performance is very much on track. We see resilience in China, both in growth retained premium as well as in new business. We have seen quite strong rebounds in Southeast Asia commercially. In terms of results, the best guidance we gave is what Hans said at the beginning. We see the underlying result develop quite well, as you notice from the slides. At the beginning of the year, we said we think that underlying Asia would reach something around EUR 500. We're now guiding EUR 500-550 range. From what you can see that it's trending to the higher end of that range.
Yeah, if
Secondly.
I was looking for the products as well in China. Within the products that you're selling, is there any change between second quarter, third quarter and the commercial momentum there?
Well, the commercial momentum in China, I think is quite resilient. Year to date, we saw about 12% growth in GWP. But corrected for FX, it was about 2% over the Q3. Actually, it was a bit higher even, because in Q3 we had a better momentum, I would say. It was 15%-17% up in the quarter, 6% corrected for FX. So we saw strong resilience there. Yeah. The new business volumes overall, and I think it's also in the press release, were quite strong. I think year to date, new business volumes were up, I think even 13% or more, actually more in China. The VNB margins in China are slightly under pressure because of the lower interest rate.
In terms of VNB, we don't expect the same growth pattern. Fundamentally, it is delivering. The fourth quarter is always a little bit a question mark, how fast we will start the year-end campaigns. That is still being discussed. At this moment, the first figures for the fourth quarter coming in indicate continued strong momentum.
That's very good. Thank you.
Okay, your second question on FPIM. Well, first of all, of course, we always welcome shareholders who have confidence in our strategy, and we're very happy with FPIM as a shareholder. Remember that FPIM came in a little bit on an incentive given by the government. The government has identified a few industries, four to be exact, on which they want to make sure that Belgium can keep on playing a key role in that industry in the country. Financial industry is one of them. Of course, naturally, you come at Ageas. They are very busy today in all these four industries on investing and so on. Whether I do more, honestly, I don't know.
I'm also, of course, not part of that discussion, but I'm absolutely not uneasy about it. Again, today, FPIM has a 6.3% share in Ageas. They do not have a board seat. The contacts we are having with FPIM at Ageas level are like we are having with all shareholders and specifically the important shareholders. They also require information, nothing more, nothing less. They do not execute any influence on the management or at the strategy. All that is done by management and the board of directors. There is, of course, investment partnership with FPIM already for many, many years, but that is fully at AG.
AG is an important investor, for instance, in Belgian infrastructure, and we often or they often do that together with FPIM, but that is completely separate from the shareholding that FPIM is holding in Ageas today. By the way, that is nothing new. Investing together in Belgium is already happening for many years.
Great. thanks. Very clear.
Thank you. If there are no further questions, I would like to return the conference call back to the speakers.
Ladies and gentlemen, thank you for your questions. To end this call, let me summarize the main conclusions. Disregarding the volatility brought by the financial market, the group delivered a strong operational performance, reaching all the operating targets set in the consolidated entities and recording a high underlying result in Asia. This solid operating performance contributed to driving the group solvency ratio further up, amounting to a high 225%, and it resulted in a strong operational free capital generation of EUR 846 million for the whole group over nine months. With this, I would like to end this call. Don't hesitate to contact our IR team should you have outstanding questions. Thank you very much for your time, and I would like to wish you a very nice day.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you very much for your attending. You may now disconnect your lines.