Welcome to the Ageas conference call for the full year results of 2021. I am pleased to present Mr. Hans De Cuyper, Chief Executive Officer, and Mr. Christophe Vandeweghe, 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 and 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 Vandeweghe. 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 full year results of Ageas. As usual, I am joined in the room by my colleagues of the executive committee, Christophe Vandeweghe, CFO, Emmanuel Van Grembergen, CRO, Antonio Cano, Managing Director, Europe, and Filip Coremans, Managing Director, Asia. 2021 marked the final year of our strategic plan, Connect21. As you know, the last few years have been challenging with the disruptions brought by the COVID pandemic. Additionally, we faced this summer the most devastating floods that we have ever experienced, resulting in a total negative impact from adverse weather amounting to EUR 160 million in Belgium and the U.K. combined. Lastly, the economic environment brought additional headwinds with rising inflation in Europe and continued decreasing yields in China.
In light of all these challenges, I'm particularly happy and proud to report that we have managed to reach all the targets that we had set for this strategic cycle. This remarkable achievement once again demonstrates the strong resilience of the group. Thanks to a strong fourth quarter, we have recorded a full year result at the high end of our guidance of EUR 860 million-EUR 950 million. Indeed, our net results amounted to EUR 945 million when excluding the EUR 101 million related to the RPN(I) revaluation. This result translates into an EPS of EUR 5.1, corresponding to an average EPS growth of 11%, largely exceeding our targets of 5%-7%. This solid result was achieved with a strong commercial and operational performance across all entities.
Indeed, we enjoyed a strong sales momentum with a double-digit growth in inflows. Our combined ratio stood at an excellent 95%. This performance is quite impressive considering the extreme weather suffered in Europe, which impacted our combined ratio by 6%, and the fact that claims frequency in motor has now returned to pre-COVID levels in all our markets. Regarding our life activity, despite the continued low interest rates, the guaranteed margin amounted to 99 basis points, significantly above our target level of 85-95 basis points. As for the unit-linked margin, it has significantly improved over the strategic cycle and stood at 35 basis points in the middle of the target range. This steady improvement has been driven by volume growth in Belgium and Portugal, combined with the change in product mix in Portugal.
Although it was not a specific target, I would also like to emphasize that we have received this year a record amount of EUR 275 million in dividends from our operating companies. Next to the solid contribution received from all our consolidated entities, we benefited from an exceptionally high cash upstream of EUR 185 million from our JVs in Asia and Turkey. These dividends received more than covered the dividend paid to our shareholders in June, the yearly holding costs and the payout on the ongoing share buyback realized in 2021. On top, we ended the year with a strong cash position of over EUR 1 billion.
Given our high net results, combined with our solid solvency ratio standing at 197%, comfortably above the target of 175%, the board will propose to increase the gross cash dividend to EUR 2.75 per share compared to EUR 2.65 per share last year. It is now time for us to focus on our ambitious targets for Impact24, including strong commitments in terms of ESG. As you may remember, we have for the first time set concrete and quantified ambitions on sustainability, and we are already making significant progress in this area, which is reflected in the steady improvement of five out of our six ESG ratings.
As for 2022, we aim to achieve this year a group net profit excluding the impact of RPN(I) above EUR 1 billion, subject, of course, to the evolution of the financial markets and to any extreme and unpredictable event that could impact the claims. Before handing over to Christophe, I would like to mention the recent sale of our commercial alliance portfolio in the U.K. This transaction, which is fully in line with our strategy to focus on personal alliance in this market, will contribute EUR 45 million to our net results in 2022. I also take this opportunity to announce that under Impact24, we have decided to adjust slightly the reporting per segment to align with the responsibilities of the MD Europe and Asia within the executive committee.
As from Q1, we will therefore report on four entities, Belgium, Europe, which will include the current Continental Europe and the U.K. segments, Asia and Reinsurance. Now, ladies and gentlemen, I will give the floor to Christophe for more details on the results.
Thank you, Hans, and good morning, ladies and gentlemen. Indeed, as mentioned by Hans, we recorded in 2021 an excellent result, which was supported by a strong fourth quarter across all the regions and particularly in Asia. Before digging into the details of each segment, I would like to start by a comment on our commercial performance. Hans referred to our double-digit increase in inflows. This resulted from a combination of organic growth in all our segments, in both life and non-life, further supported by the contribution from Ageas Re and Taiping Re. Furthermore, it is worth noting that in Europe, the increase in life inflows was driven by unit-linked products both in Belgium and continental Europe, thus showing the progressive transition toward less capital-intensive products.
In Asia, the commercial performance was solid across the region, with a specific focus on profitable new business regular premium. As usual, I will now give you more detail on the performance per segment. In Belgium, on slide eight, our non-life result was impacted by the exceptional floods of July. Since our nine-month results, we have received additional claims related to these floods, which now amount to EUR 0.5 billion compared to EUR 0.4 billion previously. This additional cost weighed on the Combined Ratio in the fourth quarter. However, this was partly compensated by reserve release in P&C following changes in the indicative tables.
In the presentation, we have provided you with both the published Combined Ratio, standing at 97.4%, as well as the Combined Ratio without these two impacts of the flood and the change in the indicative table, and this adjusted Combined Ratio amounts to 96.3%. You can see that on slide 26. In Life, the guaranteed operating margin exceeded the target, thanks to strong investment results supported by real estate capital gains, while the Unit-Linked operating margin remained at the same high level of last year. In the U.K., slide 9, the Combined Ratio stood at 96.2%, a satisfactory level despite the adverse weather we had in the second half of the year and claim cost in motor, which are almost back to pre-COVID levels. Let's go to continental Europe, so slide 10.
Let me first remind you the EUR 19 million positive one-off that we had last year. With this, I can safely state that we had a strong result on this segment on continental Europe, and this strong result was underpinned by a solid underwriting performance in Life in particular. While the guaranteed operating margin remained firmly above the target, the Unit-Linked margin continued its steady improvement following a change in product mix, and for the first time, ended the year within the group range, which is 30-40 bps. Additionally, in Turkey, Ageas had good performance and contributed EUR 11 million to Life results since its acquisition in May 2021.
In non-life, the Combined Ratio of continental Europe remained at an excellent level below 90%, despite the normalization of claims frequency in motor and increased claim cost in health in Portugal. In Turkey, the contribution from Aksigorta was impacted by adverse claim experience and of course, inflation. In Asia, slide 11, we recorded a remarkable net result of EUR 403 million, supported by a solid underlying performance. The fourth quarter, which is traditionally a low quarter in China in preparation for the New Year sales, was unusually strong, partly because the books were kept open later in December. As announced during the deep dive session in Asia, which took place in December, we included in the presentation an underlying view of the net result.
This underlying result, which corresponds mainly to the IFRS result, excluding net capital gain and the impact of the discount rate in China, amounted to a strong EUR 501 million, significantly up compared to last year. This increase was driven by a [inaudible] life operating performance in China, Thailand and Malaysia. More specifically on China, this resulted from the growth of the business, further supported by a more favorable effective tax rate. In non-life, all the entities contribute positively to the full-year results. Let's go to reinsurance. We are on slide 12 now. The reinsurance benefited from a very favorable fourth quarter following reserve releases coming from the reinsurance protection business and also from the quota share with Belgium.
The general account on slide 13 amounted to negative EUR 225 million, driven by EUR 101 million negative impact from RPN(I). Operating expenses remained in line with last year, while interest costs increased following the debt issuances realized in the past two years. I would like to take this opportunity to mention that given our strong cash position and in line with what we previously announced, we set up in the fourth quarter intra-group loans for some of our OpCos. Additionally, in anticipation of a rising interest rate, we decided in December to hedge our floating rate liability for a 30-year duration as from 2025, because we are already hedged until 2025, and this new hedge will start as from 2025 for 30 years. Moving now to our solvency and free capital generation.
Our group Solvency II ratio on slide 14 went up this quarter and reached 197%. It benefited in the fourth quarter from model changes, mostly in Belgium. Additionally, we have included our Turkish life joint venture, AgeSA, in our Solvency II scope. If you exclude the impact from model adjustments and change in scope, the group solvency was down 1%, would have been down by 1% in the fourth quarter and 7% over the full year. This decrease was mainly due to market movements, mostly RPN(I) revaluation and inflation, whereas the operational performance remained strong.
The Operational Free Capital Generation on slide 15 amounted to a strong EUR 173 million in the fourth quarter, of which EUR 165 million on the consolidated scope, which is this quarter well above our quarterly guidance of EUR 130 million. The full year Operational Free Capital Generation amounted to EUR 629 million. It benefited from both a solid operating performance from the consolidated entities and from a recorded amount of EUR 185 million dividends from our non-controlled participations. The re-risking of the portfolio, which weighed on the Operational Free Capital Generation in the first nine months of the year, slowed down in the fourth quarter, with some divestment in real estate in Belgium and also from some reclassification of some equity in this long-term equity bucket.
With this, I have completed my presentation on the segment. 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 and one on your telephone keypad. That's zero and one on your telephone keypad. Our first question comes from David Barma from BNP Paribas Exane. Please, go ahead.
Yes, good morning. Thank you for taking my questions. I have two on Asia, please. The first one is on the earnings contribution in 4Q, which was very strong on an underlying basis. Can you help us understand how much that was driven by the delays you mentioned in the marketing campaigns and if that's a big driver, should we expect 1Q to be materially weaker than the usual? My second question is on Taiping Re. You mentioned it a little bit in your disclosure this morning, but can you help us understand a little bit the performance of Taiping Re in 2021 and the contribution to the P&L? Thank you very much.
Thank you, David. Well, the first question I'll hand over to Filip. The second one will go to Antonio for Taiping Re.
Yeah. Thank you, David. Filip Coremans here. For your question on indeed extremely strong fourth quarter and a bit unusual to see that indeed if you look at the previous years. There is no negative overhang of that strong fourth quarter, and let me explain a bit what happened. First and foremost, you can see that the fourth quarter in Asia has little support from capital gains. In fact, we had a little less. The VIR impact was still material with EUR 50 million, so that drove the underlying up to EUR 500 million. What was not there is indeed a delay in the sales.
In previous years, and that's typically what happens in China, the company starts to prepare already for the opening campaign of the next year, which means that, the cost overrun, from that perspective, still continues, but there is little compensation by new business. Now they continue to sell, and they had a fantastic, I would almost say, year-end campaign. The APE in China on the last quarter was 37% up, in comparison to previous years. Now knowing what you know, because we gave that insight during the Asia deep dive on Asia, on China, that translates in a residual margin build-up and a future release. The underlying is a strong base where we start from, with the new year. Now, will that impact the growth of this year?
Of course, you have already seen that the month of January was a bit slower, but that doesn't mean that the year will be entirely impacted by that. Chinese New Year was a bit earlier than other years. The overall sales in the bank channels in China were almost at the same level as previous years. The agency channel was a bit lower, but that is too early to tell. The ambition of Taiping Group is certainly to catch up in the month of February, March, but we will be more clear on that by the end of the first quarter. What can I say? A very good qualitative results over the last quarter in Asia. Yes. Hello, good morning to you.
On the question of Taiping, first, I would say we had a positive contribution to the net result of Taiping Re last year, which is quite satisfactory given the fact that as you know, it was a rather heavy cat event year. There were the German floods, where they had some exposure, some U.S. exposure, Malaysian floods, and in particular, also the Chinese floods. It was a very bad cat year for Taiping Re. Nevertheless, they reported a positive result. And looking forward, renewal season has gone well. The reinsurance market overall is hardening, so the prospects are quite good, actually.
Thank you. Just a little follow-up on the point before. What's your assumption for the year impact in 2022, please?
Sorry. You were asking what is our assumption and expectations on the VIR impact for 2022?
Yes.
Yeah. It is very volatile. As you can have seen, the long bond yield in China, it went up and down in cycles. Now it's around 2.85, I presume, today. We did two simulations, David. We simulated at 2.75, which was a bit low and that we were seeing, and we simulate at 2.85, and that gives an expected impact between EUR 200 million and EUR 150 million of our share net. Depending on where that rate ultimately will land, and of course, with all the caveats of curve effects and so on. That is the broad range of our expectations.
Okay. Thank you very much.
We have another question from Michael Huttner from Berenberg. Go ahead.
Thank you. Good morning. Fantastic results. It looks as if 2022 will be even better, which is lovely. I was going to ask on cash. My understanding, and I may be wrong, is that the EUR 725 million will go up in 2022, but Asia will go down. I just wondered if you could give more color on these two movements and where the extra comes from in Europe and how much Asia could go down. I never believe Asia will go down. I'm a big fan, but it's, you know, who knows? The second on the U.K. It's a bit like me and my battle to lose weight. It's completely a waste of time. I'm fine.
I don't mean that in the case of the U.K., but in the U.K., what I've observed over the past two or three years, so you had the, I think it was the Tesco joint venture and then now the commercial business and you still say, "Yeah, we're committed, we're committed," but you're committed to a smaller and smaller piece. I just wondered what the ultimate outcome could be. Is it that you say, "Oh, we've sold so much now we want to buy back something?" Or is it you say, "Well, at some stage it becomes marginal." Those would be my two questions. Thank you.
Thank you, Michael. Well, first on guidance. We give a guidance above EUR 1 billion. We do not say that we give a lower guidance on Asia. Important to know is that we spoke about underlying performance of EUR 500 million, and that is adjusting half for that volatility between Vii on the one hand and compensating capital gains on the other hand. In that EUR 1 billion, we assume at least a similar underlying for Asia.
If I may, I understood that your question also related to the dividend upstream capacity of Asia, right?
Yes.
As Christophe indicated in his speech already, we last year, or this last year, we benefited from indeed an exceptionally high upstream because the results of China were extreme in comparison to IFRS. On Asia, we have a 67% payout ratio, if you look on the IFRS results. What we expect, but of course, I have to await the outcome of the local Boards there, is that the payout ratios on local results will be fairly stable. Indeed, that exceptional high result from China will be more closer to what we have seen, but I leave it to them to announce their results, obviously. We look at stable payout ratios, but on a slightly lower local result, which is a more normalized flow.
On strategy, no change for the U.K., what we have announced earlier. We have said we would focus on personal lines, and that's also where the origin of our business in the U.K. lies and where the strength in the U.K. market has always been, with the focus on broker distribution, direct and distribution. No change. This is all part of execution and implementing of the strategy. We have also said that for the short term, we would not look at M&A and inorganic growth in the U.K. What we see over last year is that if you take out the effect of Tesco, that we are back to growth on that core business and with a very strong profitability. I think we are very happy with our current performance in the U.K.
Okay. That's very helpful. Thank you.
We have another question from Farooq Hanif from JPMorgan. Please go ahead.
Hi, everybody, and congratulations on what's obviously very strong results today. I just wanted to clarify actually for my question, the comment you made on the payout ratio in Asia. So did you mean a 67% payout ratio on the IFRS result that you report or the statutory results in or the IFRS results in China? Just wanted to quickly understand that. But my actual questions were, firstly, with the changes you made in model assumptions in Belgium and Turkey, will there be any impact on capital generation going forward that you could talk about? Then question two is just whether you could give some update on the storm losses that we've seen in February with Storm Eunice, Storm Dudley and Franklin, the recent storms, if there's anything you can say about that. Thank you.
To be crystal clear, I'm referring to the payout ratio on the local results. It's the local result will determine the dividend upstream capacity as well as the payout ratio. There, China last year operated at a payout ratio, I think at 36%, and that is the one I'm referring to mostly on local results.
Okay. On future capital generation and solvency, Emmanuel and Christophe.
Okay, I'll take that one. Indeed, we implemented, as you know, we always concentrate our model changes in Q4. That's what we aim to. We had two major model changes. One mainly impacting Belgium, where locally they revised their investment policy.
In the past, when some securities were downgraded to a certain level, there was an automatic sale. That is not anymore the case, it has been revised, and it has been reflected in the models. That is, let's say, the biggest positive impact that we have seen. Then there's a second one, which is a refinement on profit sharing that we do on a regular basis. All in all, moving forward, will this have an impact on Operational Free Capital Generation? That will not impact the Operational Free Capital Generation.
Is that also the case, if I may ask, for the Turkish consolidation?
Now, for the Turkish consolidation, we will indeed now recognize also, as we have communicated, we have recognized now our life business in Turkey. It's recognized in our solvency calculation, but that will not have an impact on our free capital generation.
Okay, thank you. Quickly on the storms, recent storms, if there's anything you can say. Thank you.
Yes. On the storms, it's still a bit early days to give you final numbers, obviously. Our current view is that the retention level, our reinsurance treaty in Belgium, will be hit. Not so in the U.K. The combined net effect, our share, we estimate is somewhere between EUR 65 million and EUR 70 million, whereby the U.K. would be in the EUR 20 million area.
Okay, thank you. Just on the, I apologize if I ask so much, but the retention for individual events, what is that level in Belgium, if I may ask?
On the retention in Belgium, our cut is EUR 50 million. The question will be, with the risk of getting a bit too technical, whether it's gonna be considered as one or two storms. The attachment will still be out there. Should it be two storms, then the retention level might not be hit on a traditional cut, but then we have an aggregate treaty that would then protect us.
Okay. Thank you so much.
We have another question from Steven Haywood from HSBC. Go ahead.
Good morning. Thank you. You mentioned about the guidance earlier on net profit. I think it's the guidance for 2022. Can you just confirm that? Also the guidance for 2022 cash upstreams, have you got any guidance? Would you be looking for over EUR 700 million again, or would this be upgraded? Secondly, from me, I wonder if there are any comments you can make about the chairman of China Taiping and the investigation. He's currently under investigation for certain potential corruption. Thank you.
Well, let me take the first question on the guidance, Steven. Indeed, we give you a guidance above EUR 1 billion. And that is, I think, very much an up compared to our performance this year. Related to the upstreaming, we had above EUR 700 million upstreaming of dividend. We expect at least the same, slightly higher for 2022. We also see positive on upstreaming, meaning that we assume again for 2022, that the upstreaming will be able to cover our dividend, our corporate center cost, and also the remaining outstanding share buyback. On the chairman of Taiping, I don't think we can comment a lot, but Filip can give you a
Yes, of course, you will appreciate, Steven, that we cannot comment on ongoing investigations. Of course, we follow up closely together with Taiping Group, and Taiping Group is fully collaborative with the authorities on this matter, as you can imagine. Maybe two additional points. You will have read that the allegations they mostly relate to Hong Kong-based entities and counterparts. All of which Ageas is not a shareholder. Of course we also did internal investigations and as far as we can see, the Taiping, like the Chinese entities, are not involved, which is very comfortable. Then to top it up, of course, our investment in Taiping Re, which is in Hong Kong, post-dates the allegations.
To dot the i, it is not the current chairman. This is the ex-Chairman who left the company in 2018.
Okay. Thank you. That's quite comforting to hear. Thanks.
We have another question from Fulin Yang from Morgan Stanley. Please go ahead.
Thank you. This is a very good set of results. Congratulations. Two questions. The first one is a bit of follow-up on the Taiping Group ex-chairman because Taiping, I kind of understand that the entities you directly own or invest in has probably very remote chance of getting connected in any sense. However, indirectly, because TPL arguably is the largest asset owned by Taiping Group and also the kind of cash, let's say, generating entity for that group. As a result, if Taiping Group's balance sheet is weaker than people thought, then would it have knock-on impact to how they manage Taiping Life business? For example, will they try to upstream more cash, for example, from Taiping Life into the group?
I just wanted to understand that from your perspective, like, how have you had any conversation on how you manage Taiping Life going forward? I think that's the first question. The second one, I just wanted to confirm again, sorry, the guidance. I understand that you gave a guidance for the group EUR 1 billion. Did I hear right that you indirectly gave a guidance for Asia of EUR 500 million? You're kind of saying this is underlying, EUR 500 million is underlying for Asia, and then you just use that for the number fitting to that EUR 1 billion. Is my understanding correct? So does that mean you indirectly upgrade Asia net results from 350 to 500? Is that understanding correct?
Thanks to you, Fulin Yang. Well, first of all, just to repeat what Filip has said there on the ex-chairman. The entities of CTIH under question are all Hong Kong-based entities. We do not talk about the Chinese entities. Secondly, it is also an ex-chairman. Meaning, it's a chairman who was there before we were even investor in Taiping Reinsurance. In that sense, I think our entities have not, I think, been exposed to what we can read in the news. I think it's a bit a far jump to link this topic to the cash generation coming out of the entities of CTIH. I think we cannot say anything about that.
As you know, we are very much aligned with our partner on dividend upstreaming as well as solvency requirements for our Chinese entity. We are very much aligned, and I cannot imagine why this topic would give any change in that policy or in that alignment. On your second question on the guidance above EUR 1 billion. We have said that when we gave the overview that the underlying for Asia is at EUR 500 million. Underlying means if we take out the VIR effect and the compensation partially or fully of VIR by capital gains, that's what we call underlying. That's also, I would say, the real performance of the Asian region.
In that sense, when we build up the above EUR 1 billion profit guidance, indeed we assume that underlying will be in the same range. But that being said, subject to exceptional movements in VIR and capital gains, meaning that what we today see for VIR, what Philippe has explained that on interest rates EUR 150 million-EUR 200 million, that we assume as being covered by our guidance. If it would really go out of this range, okay, at that moment we will have to reconsider. That is the same by the way. Yeah. That's why the same by the way for extreme weather. The extreme weather we know normally is also part of this guidance.
If you see for this is what we have been doing in Belgium in 2021, where we even went beyond the legal obligation. Of course, these are highly exceptional interventions of us in the CatNat area. Of course, these we cannot assume at the beginning of the year with our guidance.
Okay. Thank you. Your EUR 500 million number for Asia has the budget of EUR 150 million-EUR 200 million for the lower interest rates. That's already in that.
To dot the i, because we're talking on two levels here. We have not said that we have a EUR 500 million profit guidance on Asia. Yeah. We said that the total guidance on Ageas Group is EUR 1 billion, in that there is an underlying result of EUR 500 million base from which we start on Asia. We take into account an expected fair impact of EUR 150 million-EUR 250 million, and we make assumptions, but we have not specified that on capital gains and losses realization. It doesn't mean today we will not elaborate on that guidance. It doesn't mean that the result of Asia is assumed to be EUR 500 million in the one billion. Huh? Be clear.
The equity market volatility is extremely high, and so it is a bit unpredictable what the capital gain realization pattern will be throughout the year. It will become more clearer when the dust settles a bit on the recent turmoil.
Okay. Thank you.
We have another question from Farquhar Murray from Autonomous Research. Please go ahead.
Morning. Apologies, I had an IT problem earlier. Two questions if I may. Firstly, on the solvency model changes, could I just ask if those model changes carry through into the regulatory PIM ratio, and does it see a kind of similar 11 points benefit at year-end? If it did, could we have expected maybe a carry-through into remittances? I'm just wondering what we could say on that. Then secondly, just coming back to the Caixin story regarding the former chairman of Taiping. I mean, as I understand it, the story very clearly says that the loss that's the investment loss that's being discussed is kind of in a subsidiary that clearly you aren't part of. Is that a fair understanding? And you say you've got comfort that it doesn't affect the subsidiaries you own.
Can you just give us a bit of detail around how you get that? As you say, you've done a degree of internal investigation. I think some of the board members on the investment committees are actually your guys in the first place. Can you just maybe elaborate on how you get comfort around this? Thanks.
All right. I'll take the first question on the model changes. On Pillar II, we have an impact of + 11%, and part of this impact is also on Pillar I. Not the full 11% is reflected in Pillar I. As I mentioned, we have mainly two model changes. One is only impacted Pillar II. That is one where AG Insurance revised its investment policy, and that one is only impacting Pillar II. Why is this? Because in Pillar II, as you know, we have another approach to assess credit and market risk than in Pillar I.
The part of the other model change, where the impact is lower, it's about a fine-tuning of profit sharing, and that one is impacting Pillar I and Pillar II in the same way. You also have to realize that, as you can imagine, it was quite an intense discussion about these material model changes. It passed all the governance at AG Insurance in Belgium, but also at group level. On top of this, there are model changes that are also following recommendation of all the validation teams. On the last part, you know that we, from a capital management point of view, but also from a risk appetite point of view, I would like to remind you that we manage our business based on Pillar II and not on Pillar I.
If that's the case, could you have distributed and remitted the benefit of the model change?
Yeah, that could be, yes. It is as usual, we have our usual process of our dividend policy from the remittance from a local operating company to the group. That gives a little bit more room from a Solvency II point of view.
Okay. Thanks.
On your second question, I can only repeat what has been said there because, as you know, there is investigation by the authorities ongoing. The entity mentioned in the media is about Taiping Financial Holdings. This is an entity we are by no means, not directly nor indirectly, related to in our partnership in China. In that sense, I think the amounts mentioned there in the press have no impact on us. In Taiping Life, of course they will also do their own homework, but at this moment, we have no reason to be concerned about this. As far as we know, and that is also the case in the media, Taiping Life has not been involved in this.
Again, in Taiping Reinsurance, that is a Hong Kong entity, but these allegations date from a period we were not shareholder in Taiping Reinsurance.
Okay. Thanks.
We have another question from Jason Kalamboussis from Credit Suisse. Please go ahead.
Hi. Morning, everyone. Just to follow up on the sort of Chinese guidance. I mean, even if we sort of normalize the realized gain interest rate impact, it sounds like the Asian entity is gonna be contributing pretty close to 50% of earnings based on the sort of guidance numbers you've talked about. Does that change your view of earnings mix for 2024 and the sort of 50/50 split between Asia and non-Asia that you guided to at the Investor Day? The second question was just on the U.K. business and what you're seeing in terms of new business pricing and what your new business pricing strategy is in the U.K. following the implementation of the General Insurance Pricing Practices reforms. Thanks.
Okay. On the first one, let me repeat. We give a group guidance on net profit above EUR 1 billion. We have seen for Asia an underlying, not a profit, but an underlying performance of EUR 500 million. We are quite confident on the underlying performance, but at the same time, we still assume, as Filip has explained, a negative impact coming from the VIR. So we do not give guidance per segment what the net profit will be to build up that EUR 1 billion. I think that the world today is too volatile, but I think what we have been able to show in recent years, that we do benefit from all this diversification. And that sometimes you have a region outperforming and at the same time, a region underperforming.
That's why we are confident to give you that above EUR 1 billion, but we cannot give you now, at the beginning of the year, a breakdown per segment. Please do not confuse the EUR 500 million underlying performance in Asia, which we assume as solid and stable. It is not the same as the net profit, because you also have the elements of VIR in China as well as capital gains, where in the current interest rate environment, we still do expect a negative impact. Maybe on U.K., I understand your question was very specific on the impact of pricing of the FCA pricing review. It's still a bit early days, but we've seen a lot of volatility in quoted prices on aggregator sites.
From some people doing nothing to some people rising rates up to 15%, then adjusting. Very volatile. As you know, our business, the biggest part of our business is through brokers, where we're actually not that directly impacted because we offer technical rates. We were not doing this price discrimination between renewals and new rates. In that sense, not a lot has changed. Can be that brokers themselves obviously adjust their markup. On our direct channel, where we're also increasingly active, there we've had across the board slight rate increase in order of 5%. Again, as I said in the beginning, it's still very volatile. Everybody's trying to find like a new equilibrium.
It will also be very interesting in the coming months to see what the renewal behavior is of customers. The logic being that the FCA pricing review would lead to less churn, so more stable portfolios as new business rates and renewals should be the same.
Perfect. Thank you.
We have another question from Benoit Pétrarque from Kepler Cheuvreux. Please go ahead.
Yes, good morning. Yeah, two questions on my side. The first one will be on the wage inflation in Belgium and like the automatic indexation. You know, how much effect you expect in 2022 on your cost base in Belgium? And do you plan any kind of management actions to offset the wage impact of wage inflation on the cost base in Belgium? The second one is again on the billion target. Did you include the impact of the storm in that guidance? And could you remind us what is your budget for weather effects for 2022, please? Thank you.
Okay. Thank you, Benoit. Well, first of all, wage inflation in Belgium, that happens in the beginning of the year. That means that the inflation we have seen mainly in Q4 last year is already, I think, included in our budget, in our assumptions, for this year. Additional inflation happening in 2022 might have an impact on the wages in 2023. In that sense, the review is only once a year. We did see the salary cost increasing by 4%-4.5% in Belgium due to this effect in 2022. That is all included in the statements that we make for 2022 today. Similar goes for your second question.
The type of storms that we have seen last weekend, well, when we plan and we budget for the year, we assume them more and more as normal and recurring. In that sense, I think we can comfortably say that the storms of last weekend is not impacting the guidance for 2022 that we give you today. Let's not forget, and I can only repeat, what happened last year, yeah, was indeed not foreseen in our planning for the year because the Belgian insurance sector and our entity AG committed to do a compensation, full compensation to all the victims of the floods, which was double the limit in the legislation.
Of course, those type of, we hope, one in only so many years, and I think one in 200 years, I think, yeah, this was a storm one in 200 years, or flood one in 200 years. That these things happen, and of course, they are not foreseen in the guidance. That is not the case for the storms of last weekend. This is a type of impact taking into account our reinsurance program that is included in our guidance.
Yes, thank you.
Maybe a short follow-up on the inflation. The official rate for 2022, published in January, is 3.6%. That's the automatic indexation in Belgium. Keep in mind, in our household portfolio, we had also an indexation which follows a slightly different index, that we have indexation of slightly over 4%. We have added about 1-1.5% to consider the climate change impact. In that sense, the bulk of our business is kind of indexed for that wage inflation also.
Yeah, thank you. Just one more question if I can. Looking at the kind of sharp increase of interest rates, how do you see the remuneration on Branch 21 to move into 2022? Do you expect, you know, rates to start to increase? What is your view on margin developments on new business or new Branch 21 business in 2022? Do you think you can, well, actually start to make more money on the guaranteed business in Belgium? Thank you.
Well, I think a rise of interest rates is not having an immediate effect on the profit-sharing contribution to the customers. Remember that the total return customers are having today are still well above the risk-free rate. They are hanging around 1.75%- 2.10%. Sorry, 1.75%- 2.10%. A big part of profit sharing is also coming from the realization of capital gains on real estate as well as on equities. Of course, a gradual increase of interest rate is beneficial for our guaranteed business and could lead over time to basic pricing, and that meaning raising the guaranteed interest rate.
I think this is too short to take such a decision right now. That is not, I think, in the pipeline for the short term. To do that, I think interest rates have to stay stable at a higher level for a longer time. I do not think there is a specific link towards profit sharing. That being said, under Impact24 we have recommitted our operating margins in life and guaranteed, and that is our guidance on the definition of profit sharing as well.
Yeah, great. Thank you very much.
We have another question from Michael Huttner from Berenberg. Go ahead.
Thank you very, very much. I have two questions. The first one is on the reinsurance and the change you announced that it's now a separate core entity or something. I just wanted to know, you remember, I can't remember when you said you had the ambition of having a fourth core entity. Is that it now? Is this, have you said it is reinsurance and we'll invest more here? The second one is IFRS 17, which comes into force in 2023, and maybe you will be preparing for this. I just wondered whether you can give us a feel for what the preparations, the anticipation of IFRS 17 could mean for the profits this year. Thank you.
Well, first of all, Michael Huttner, it's not specific to reinsurance, your question; it is about the segment reporting. Now, what we have said is actually, if we want have segments which are more or less, I would say, sizable enough to report on, then I think it is a logical evolution for us to change reporting to Belgium segment we have always had. We have Continental Europe and U.K., we will collapse the two and we will call it Europe. We have no change in the segment Asia. Let's not forget, the partnership in Taiping Re falls under the segment Asia. We have indeed, the fourth segment, which is reinsurance, both the protection business as well as the quota share business we are having in reinsurance. It is not something new.
It is just the way we are gonna report in the new strategic cycle of Impact24. On IFRS 17, I give the word to CFO Christophe Vandeweghe.
Yeah, thank you, Hans. On IFRS 17, we have a big project organization around this as you may guess. We have not disclosed anything so far, but we have recently completed the so-called dry run three. It means that we have the first figures on 2020. What we are now preparing is the opening balance sheet. As you know, the opening balance sheet takes place January first of this year, 2022. We are well on track on each and every theme of this. What we have to work on during 2022 is the reporting aspect. All the, I would say, the technical things are in place.
Now we have to work on the disclosures, especially for you, and to make things easy to understand, which, you may guess is a challenge. We will communicate during this year, 2022, about our ideas and how we want to present this result. Maybe one word of the scope. We are faced with specific issues in Asia. The fact that we have to consolidate all the JVs in Asia. There is no problem in Europe, where all the different entities are quite on track. We have seen this during the dry run 3.
On Asia, status of maturity is slightly different, and we will have to face one specific issue in Thailand, where they have decided to postpone by 1 year the implementation of IFRS 17, and we are working on a solution to cope with this problem.
I would say very everything is well on track with some specific issues. We will further comment in the future result releases.
Okay. Thank you very much.
We have another question from Steven Haywood from HSBC. Please go ahead.
Thank you for taking my next question. You mentioned in the press release about a reserving review related to the U.K. motor practice. Could you give a bit more information on that reserving review, what it relates to and the impact in the fourth quarter? I'm not sure I got this earlier, but did you say that, you know, Ageas is seeing U.K. motor price increases of around, excuse me, 5% level? Or is that the answer to a different question? If you could give some idea of where Ageas' U.K. motor prices are moving and potentially the market, that would be helpful. Thank you.
On the reserving review for the U.K. We referred to it in the reinsurance section. You are aware that in our protection program, we are also one of the insurers of Ageas U.K. There we have our independent view on reserves, and we have reviewed the outstanding, particularly the large losses for the U.K. We have seen that there is a positive runoff, so that has been adjusted downwards. You could say it's a kind of time lag in the way that Ageas U.K . Itself adjust their reserves and when the reinsurance activity does that. That's done quite independently.
As you might know, we insure obviously only the large losses, and it's particularly there where you have this review, so it's much more noticeable in the reinsurance account than in the U.K. On the motor pricing in the U.K., I've already shared a few thoughts about it, very volatile. In our broker channel, we haven't really adjusted our so-called technical rates towards brokers. In that sense, there is not a huge difference there. They're just the normal adjustments taking into consideration inflation, et cetera. In our direct market where we are kind of adapting to this new pricing regulation, there is where I mentioned we have a 5% rate increase, which is what we actually see the market moving to now.
That, again, it's still very volatile. A lot will depend also on what the renewal behavior is, of customers. This, we know that has a big impact in the way these models work for brokers and aggregators.
Thank you very much.
We have another question from Fulin Yang from Morgan Stanley. Please go ahead.
Thank you. Sorry, a follow-up question. I just wanted to understand the cash from reinsurance versus the net results from reinsurance, 'cause I think there is a big gap between the two in 2021. I think longer term, in theory, should we see kind of the two numbers pretty much in line and should be, I think. Is that correct? And also when should we expect to see these two numbers kind of converge? Thank you.
Well, I can take that. You're correct. As of 2022, over the results of 2021, the cash movement will be equal to the IFRS net profit for insurance. The convergence will be perfect as of next year.
Okay. Thank you. That's helpful.
Fulin, to make sure, it is already part of Ageas. The reinsurance is directly in Ageas, which is actually a virtual move from the reinsurance segment on the same balance sheet of Ageas, which we also assume as being part of our upstreaming because it is becoming a more important strategic segment for us.
Oh, so you mean in the future, the upstream number will include the reinsurance?
Yes. Indeed.
Thank you.
Indeed. Yes.
Okay. Okay. Thank you.
As there are no further question, 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 for you. In a very challenging environment, we have reached all the targets that we have set for our strategic cycle and recorded a full-year result at the high end of our guidance. We have enjoyed a strong sales momentum across the regions with a double-digit growth driven in line by capital light products in Europe and strong value-added regular premium products in Asia. Given our strong results, the board will propose to increase the dividend to EUR 2.75. It's now time for us to focus on our next strategic exercise, starting with confidence, as demonstrated by our net profit guidance for 2022 of EUR 1 billion, of course, excluding the effect of RPN(I).
With this, I would like to bring this call to an end. Don't hesitate to contact our IR team should you have outstanding questions. Thank you for your time, and I wish you a very nice day.