Ladies and gentlemen, welcome to the ageas conference call. 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 and answer session. Please also note that this conference is being recorded. I would like to hand the call over to Mr. Hans De Cuyper, Chief Executive Officer, and Mr. Christophe Boizard, Chief Financial Officer. 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 results of ageas for the first quarter of 2021. As usual, I'm joined in the room by my colleagues of the executive committee, Christophe Boizard, CFO, Emmanuel Van Grimbergen, CRO, Antonio Cano, Managing Director, Europe, Filip Coremans, Managing Director, Asia. We are aware that today is a busy day for you, with several insurers reporting their results, so we will do our best to keep this call short, starting with limiting our usual introductory remarks to the key elements. Anyway, the strong performance recorded this quarter does not require extended explanations, and we will come back to you in three weeks' time for an update on the strategy. The impact of the ongoing COVID pandemic is decreasing quarter after quarter.
It continues to influence our results with lower real estate revenues in life, compensated by lower claims frequency in non-life, but to a lesser extent than what we experienced in 2020. In life, despite the lower contribution from real estate revenues, we recorded a solid operating performance with both guaranteed and unit-linked operating margins within our target range, thanks to a sound underwriting performance. Additionally, the realization of capital gains in Asia further supported the group life net results, which amounted to a high EUR 227 million. In non-life, the continued lower claims frequency in motor resulted in an excellent combined ratio of 91.7% and strong non-life net results of EUR 91 million. We also delivered a solid commercial performance this quarter, recording growth both in life and non-life.
In life, inflows were driven by the successful new year opening campaign in China, while non-life inflows benefited from a strong performance in Belgium and the inclusion of Taiping Reinsurance. This strong start to the year gives us confidence to strengthen our full year guidance. We now expect to achieve a group net profit excluding the impact of RPN(I) between EUR 900 million and EUR 950 million, which corresponds to the upper range of our initial guidance. Lastly, a quick word on our cash and solvency position before handing over to Christophe. Our cash level amounts to EUR 1.2 billion, of which only EUR 13 million remains ring-fenced for the Fortis settlement, which provide us with great financial flexibility. We have received this quarter EUR 73 million dividends, mainly from Portugal and Turkey. Additionally, AG Insurance and China Taiping have approved the upstream of a dividend of respectively EUR 411 million and around EUR 140 million.
For the full year, we expect the total dividend upstream above EUR 700 million, which represents a significant increase compared to the years before. As for our solvency, it amounts to a strong 195%, comfortably above our target of 175%. As you may have seen, we have finalized the acquisition of a 40% stake in AvivaSA, the fifth-largest life insurance company in Turkey, which will provide us with a balanced life and non-life presence in the fast-growing Turkish markets alongside our long-term partner, Sabancı. Additionally, the sale of our stake in Tesco Underwriting in the U.K. is now complete. Overall, as these transactions are for similar amounts, the impact will be limited on cash and neutral on solvency. Ladies and gentlemen, I will now hand over to Christophe for a short comment on the segments.
Thank you, Hans. Good morning, ladies and gentlemen. In Belgium, on slide five, we achieved a strong performance in both life and non-life. In life, despite the continued lower investment income from real estate, the guaranteed margin amounted to 85 basis points, thanks to a sound underwriting performance and the realization of capital gain. See the detail of the capital gain on slide 18. In non-life, the combined ratio still benefited from lower claim frequency in motor and better-than-last-year weather conditions. On the commercial front, the decrease in life inflows was compensated by the strong growth recorded in non-life in all business lines. We are gaining market shares here. In the U.K., slide six, the excellent combined ratio reflected the ongoing low claims frequency in motor. Inflows remain stable scope on scope with the growth in household compensating from the lower demand in motor due to the COVID-19 restrictions.
A quick reminder, scope on scope means without Tesco. In Continental Europe, on slide seven, the performance was solid in both life and non-life. In life, the guaranteed operating margin amounted to 131 basis points, thanks to a sound underwriting performance. In non-life, the combined ratio stood at 86.1% thanks to lower claim frequency in motor, partly offset by higher claims in accident and health. The contribution from Turkey was impacted by some large claims and an adverse FX evolution. When comparing to last year results, please keep in mind that the first quarter of 2020 included a one-off reserve release of EUR 20 million in life. Still in Continental Europe, inflows remain solid this quarter. In non-life, the increase in unit link fully compensated the decline in guaranteed products, in line with our strategy, while non-life inflows increased by 15% at constant exchange rate with growth in all product lines.
In Asia, slide eight, the high net result was driven by a continued solid operating performance in life, further supported by the realization of capital gains, thanks to Taiping Asset Management's smart decision to benefit from stock market heights in January. This more than compensated for the adverse evolution of the discount rate curve in China, negative impact of around EUR 40 million this quarter compared to a negative impact of EUR 28 million last year. Inflows were firmly up, driven by high new business volumes recorded in China during the successful opening campaign and the contribution from Taiping Re. The contribution from Taiping Re to the inflow at 100% amounted this quarter to EUR 154 million in life and EUR 335 million in non-life. The reinsurance segment on slide nine reflected the lower claim frequency recorded at the level of the ceding entities. Moving now to the capital position.
As mentioned by Hans, our group Solvency II ratio, so see slide 11, stand at a strong 195%. It was up by 2% this quarter following the favorable market movements, mainly the increased interest rates. Our operational free capital generation, on slide 12, amounted to EUR 114 million, including EUR 40 million dividends from our non-controlled participation. This is below our usual run rate of roughly EUR 130 million, as our own fund generation was mitigated by an SCR increase driven by asset management actions. We have indeed pursued the re-risking of our portfolio in response to the continued low interest rate environment. This should bring additional own fund generation in the future. Having said that, we are at the start of the year, and I propose to come back with a more detailed analysis of the free capital generation at the next closing.
In the meantime, we confirm our usual guidance for the full year of EUR 500 million-EUR 540 million. This is the end of that shorter than usual presentation, but apart from the COVID impact, +EUR 38 million in non-life and -EUR 19 million in life, and the capital gain mentioned in Asia, it is fair to say that we had a quiet quarter. Thank you.
Thank you, ladies and gentlemen. If you wish to ask a question, you have to press O one on your telephone keypad. It's zero, followed by one on your telephone keypad. Ladies and gentlemen, if you wish to ask a question, please press O one on your telephone keypad. We have a first question from Michael Huttner from Berenberg. Please go ahead.
I had two questions. One is basically your buyback, and the other one is the increased guidance. Why not more? On the buyback, your very wonderful IR team explained the ins and outs and all the options, et cetera. Really, I would like to get a feel for how strongly you feel about it, you know. Talking about the mechanics is not so interesting if maybe we get the numbers surprised like we did last year with Taiping Re. I just wondered if you can talk about your appetite for buyback versus yields at the moment. The second one is on the increased guidance. Asia, China, whatever, beat by whatever consensus, EUR 47 million, I think, in the quarter. You raised your guidance by EUR 50.
I'm kind of thinking, well, hang on, some of the stuff you did now, it feeds through to higher earnings also in subsequent quarters. You've got 11% more assets in Asia that create more fees, et cetera. I just wondered what is the offset? What are you being cautious about? Thank you.
Yep. Thank you for your questions. Let me take the two questions. First of all, on buyback, well, I can only repeat what we said previous quarter. That means that this year we are still guided by the Connect21 commitments, and that is an assessment that we will make after the second quarter results. We are talking here more around the month of August. I cannot tell you more now about a potential share buyback, except the fact that we respect the commitments that we have made under Connect21. Second, related on the guidance. Indeed, what we have done is we have actually raised our guidance on the Asian part to EUR 400 million, and that brings us more confidence in the range EUR 900-EUR 950. Your question, why not more, is that the remainder of the year still has some, I think, important uncertainties.
First of all is which other COVID impact we will see. As you know, we have always two COVID impacts. The first one is the claims frequency in moto, but we see the effects becoming less and less month after month. We are definitely not anymore at the levels that we have seen last year, as well as in January. On the other hand, we have the real estate revenue, and that is to a big extent, the parking revenue from Interparking. There actually, we assume that the current drop in revenue, which you could see between 40% and 50% month after month, that will probably last a bit longer, and we expect it more, I think, to normalize after summer instead of before summer.
Let's not forget that some of our parkings are situated at airports. I think it's clear that air travel is not yet fully recovering. The third important element is the interest rate evolution in China. You know that with the VIR, we have an automatic adjustment there from interest rates, with a smoothening mechanism into the reserves. Previous quarter, we had said that we expected an impact around 2/3 of last year. Last year was EUR 116 million. With the evolution of interest rates, we expect it now to be more in line with what we have seen last year. With those uncertainties to stay for the rest of the year, it is too early to raise our guidance more than EUR 900 million-EUR 950 million.
Can I just ask quick follow-up? How much was the quarter number, the Q1 number for the interest rate?
EUR 40 million, four, zero.
Four, zero.
Four, zero. Yes.
Four, zero. Yeah, cool. Thank you so much. Thank you. By the way, on the buyback, you still hungry for more? Very well. That's all. Thank you.
Thank you. Going to the next question? Yes. Okay. Next question from Ashik Musaddi from JP Morgan. Please go ahead.
Thank you. Good morning, Hans. Good morning, Chris. Just a couple of questions I have. First of all, you gave a guidance of north of EUR 700 million of cash remittance this year. The way I think about this is, the last year's dividend cost was EUR 485 million, I guess, and holding company cost, let's say EUR 100 million. Is it fair to say that if you do a buyback of EUR 150 million, that would entirely be covered by these cash flows? Because in part, your buyback was only partly covered by cash flows and partly by excess capital, but it looks like the way cash is going up, it is fully covered.
Just related to that, is it fair to say that this increase year-on-year is more or less recurring in nature, like it's just a normal business trend rather than you are getting a one-off cash from somewhere? That's one. Secondly, any guidance on what sort of real estate gains and equity gains we might still get for next three quarters? Do you think that we have more or less exhausted on the capital gains on equity side, or you think that there could be more as well? I'll stop here. Thank you.
Okay. Thank you, Ashik, and good morning. For your two questions, well, they are more global, I will take that. First of all, indeed, we expect an upstreaming above EUR 700 million from our different operations around the world. We expect if, and please, if we do a share buyback, and that's in line again with the Connect21 guidance, we expected that it would be covered by the cash upstream and that we would not eat in our capital or cash position to do this. Of course, this also is linked to the amount, that if we do a share buyback, it also depends on the amount that we will do. Let's not forget, we are still under the guidance of National Bank of Belgium and EIOPA on the distribution for this year.
Secondly, on cap gains, we don't give forward-looking guidance on cap gains because it's always highly uncertain with the financial markets. The only thing I can tell you is that in the first quarter results, there are almost no capital gains from real estate. They are mainly coming from the equity portfolio. We still have the real estate capital gains scheduled and are ongoing for the rest of the year. We expect the results to come in mostly in the second half of the year.
As you can hear, the state and we usually try to achieve the global return objective that we have around 5%, and we complement the income by capital gain. You will remember that we gave some guidance about what is necessary, and we said it was between EUR 80 million and EUR 100 million a year. We will stick to that. The aim is to be at 5% return on real estate.
Okay. That's very clear. Thank you.
Thank you. Next question from Fulin Liang from Morgan Stanley. Please go ahead.
Thank you. Just a couple of questions. The first one is, it's a very good capital gains in Asia, more than EUR 100 million in a quarter. Did I understand it correctly, you said because of like Taiping took the opportunity to realize the gains, does that actually implying that they reduce the overall exposure in equities, therefore we would see less volatility in the future or they just recycle the proceeds back into the equity markets again? That's the first question. Secondly is, could you give us a little bit more kind of, we understand there's a very good opening sales in China, could you give just more color on what's the product mix there, channel mix there, and what's the margin? Is margin better or worse? That's kind of more color would be helpful.
Lastly is just very quickly because I missed the first couple of minutes of the presentation. Did you actually upgrade Asia guidance as well, just in line with your group numbers?
Okay. Morning, Fulin. I pass the questions to Filip. They are all related to Asia.
Okay. Thank you so much for your questions. Let me take one by one, maybe first on the capital gains. Our CFO, Christophe mentioned that there were some smart realization of capital gains, certainly in terms of timing. Indeed, almost all the capital gains, at least in China, they were made by the end of January. The investment mix has not changed. These have been redeployed into equity markets. Now that redeployment has happened gradually over the quarter and just on a very high level, the unrealized capital gain position on the equity position in China compared to the end of year despite the realization of these capital gains is hardly changed, in fact. They realized on the high and deployed over the quarter. The asset mix has not changed, so it's still in equity.
The unrealized capital gain position is actually in euro terms, only EUR 18 million down on this realization. They did a good job in timing, let's say it like that. Secondly, on the commercial development. Indeed we can be very positive forward-looking because we will disclose more on this as we usually do with our half year figures. You can see in the additional disclosure that the growth across Asia region and certainly in China in terms of new business, has been extremely solid in the first quarter. The APE new business is up 37% for the whole region.
Mainly driven by China, but we also saw strong development, and you can see that on slide What is the number and where do we have the 16, where you see that also strong commercial development in the Philippines and Vietnam and actually Malaysia, but more in Singapore was there. It's very broad-based. The quality of the business has also been significantly better than last year. I can already tell you that we had positive VNB margins in all channels. In China, both in banca as well as in the agency channel. The exact figures will be disclosed in respect of our partner disclosing their first half year. Already end of last year, the shift to quality VNB margins were there.
It has been continued. The growth in VNB will be higher than the growth in APE, I can tell you that. The third question was the guidance. Yeah, at the end of last year, based on the underlying, we said we give a minimum guidance of EUR 350 for Asia region. Indeed, we have raised that EUR 350 to a EUR 350-EUR 400 range. We think that the EUR 400 is achievable. To make that picture then complete, that includes the comment that Hans gave. That is after a slightly raised expected VIR impact for this year, almost at the same level as last year. Which was EUR 160 million last year.
Okay. Thank you.
Thank you. Next question from Steven Haywood from HSBC. Please go ahead.
I just wanted to follow up on your, rerisking your asset management actions here. You've done a good amount in the first quarter. Can you give more detail on what type of assets you're rerisking into, what the potential yield uplift is, and also how much more rerisking have you got to do this year? Is that going to be an impact on the capital generation going forwards? Secondly, I just wanted to confirm your capital generation guidance, because I think my line cut out then. Was it EUR 500 million-EUR 540 million for the year? Thank you.
Okay. I'll give this to Christophe. I always comment on the free cap. Yeah.
Indeed, the guidance is confirmed for the full year at EUR 500 million-EUR 540 million unchanged. Coming back on the asset management, here, the rerisking idea is not something new, but something that is ongoing for several quarters. What we are trying to do, while, obviously respecting all the policies, the risk appetite and all this, is to go toward more yielding assets. To give you a sense on this Q1 period, the new money yield amounted to 1.5%. You may imagine, but that cannot be achieved by simply buying sovereign debt. We achieve 1.5%. What can we do here? The 1.5 is on fixed income. What we do is we do a lot of loans. This is not new. You know all the story about the Dutch mortgages, very fashionable asset class.
We were among the first, we keep on investing in this, we are not far from reaching some limits. We have other asset classes, which very much looks like this one in France, where we invest along with our partner, Natixis, in social housing, HLM. This is where we invest more in loans. Beside this, there is this trend, slight increase in the equity exposure. Having in mind that we will try to take benefit of the long-term equity opportunity, this will go even further when IFRS 9 will enter into force in 2023, where our intention is to take advantage of this new option, fair value to OCI. Which will allow us to escape from the impairment risk going through P&L.
In a nutshell, more loans after the Dutch mortgages we are investing in France, but same kind of assets. Then slightly increase the allocation to equity.
What I can add to make it complete is also some exposure in real estate increase, and that is mainly coming in the area of logistics and warehousing.
Okay. Thank you very much.
Thank you. Ladies and gentlemen, if you have another question, please press O one on your telephone keypad. We have a new question from Farquhar Murray from Autonomous Research. Please go ahead.
Morning, all. Just two brief questions, if I may. Firstly, on the pricing strategy in Belgium non-life, could I ask how motor renewals are running at present? Is there any kind of pass-through of frequency benefits going on in the market, or is the actual market looking through that into recovery? Secondly, how does that experience compare to what you're seeing in the U.K., just as a point of reference? Thanks.
Hi. Good morning. Antonio here. I'll answer that one. On the motor renewals in Belgium, I would say that there's nothing really changed, considering there are big increases, but they tend to follow the indexation. No significant impact on motor renewal rates in Belgium. On the U.K., I guess you're aware you've seen the latest numbers of the market. I think the latest data point coming out was a -7% quarter-on-quarter for motor. That's what we observe in the market. Our rate movements are a bit less aggressive, let's put it that. We have not carried out average decreases at that rate. There is a clear difference between how the market in the U.K. behaves and Belgium.
Okay. Thanks very much.
Thank you. Next question from Michael Huttner from Berenberg, once again. Please go ahead.
Thank you so much for this opportunity. I'm really sorry. Just two questions. One is, I have a feeling, but I just wondered maybe you could say a bit about it, that you may be, in order to prepare for higher accidents as the lockdowns end, you might have reserved more or released fewer back book reserves. Just wondered if you can say anything about that. I'm probably wrong. Then the other thing is Asia. Asia seems to be going on one of those curves which seems to go up to the sky. What's it called? Exponential. Can you say, I mean, you've raised guidance this year, and clearly as the interest rate challenge maybe ends next year, would have higher earnings as well, higher earnings contribution. Can you say a little bit more about how we think about this midterm?
Should we expect, I think in the past, and I remember it is probably wrong, we saw more pedestrian growth, about 13% a year, but this feels much faster now. Thank you.
Okay. I'll give the first question to Antonio because I think it's mainly U.K. Belgium related, and Filip can respond on Asia.
On the first question, whether we're adjusting our reserves given COVID or whatever, no, we don't change the reserving approach. What you see is more mechanical effects. The IBNR patterns and things like that tend to change somewhat because of the reporting patterns. There's no deliberate strategy to set more aside. It's just the normal mechanics that overall you could say that the ratio of reserves towards earned premium would slightly go up. That's more a mechanical thing. There's no deliberate strategy behind there. Just business as usual.
Hi, Michael. Thanks for your additional question on the longer term guidance of Asia.
Now, I'm going to be a bit evasive on answering that because I think we will give a longer term outlook perspective when we talk to you guys in a month or so around our Impact24 strategy. Indeed, Asia is starting, but a little bit as expected, as indicated at the end of last year. We are aware of the VIR impact. Okay. It moves obviously with interest rates, and it is now slightly higher that we expect for this year than what we indicated at the end of year. That is also because we have very strong growth. If you look at the growth of that balance sheet, it was up 11%. The results actually of this quarter, because if you take VIR and capital gains out, you may have the impression it's rather flattish in comparison to the first quarter last year.
Let's not forget that 37% growth in APE and related channel development costs in China, because we're building up agency network. That they have some strain in that result, which will moderate out throughout the year. We feel that we are exactly on track to deliver what we promised. For the longer term outlook on the region, I would like to reserve the answer until we talk about our Strategy '24 .
Can I ask a really cheeky follow-up question? In three years time, will we have the next strategic updates be in Hong Kong or Shanghai?
I am taking Chinese lessons, yes.
Thank you so much. Sorry about that.
Thank you. Next question from Colm Kelly from UBS. Please go ahead.
Yeah, thanks. Just following up on the answer to Asia there. I suppose you're indicating, look, there's higher strains due to the impressive growth in the quarter, and that's depressing the year-on-year underlying earnings growth. Clearly that's something you want to balance all three and generate significant growth in all three at all times in terms of growing new business at a strong rate, but also growing earnings and cash flow. It didn't quite exhibit that in Q1. Clearly, it needs to exhibit it going forward. Can you just help to indicate how the balance of those three are expected to develop from here? That's the first question. The second question is just around long-term equity. You indicate that the tailwinds there from a regulatory perspective should help to increase appetite for equity investment.
You're currently, I think, allocated around 5% of assets to equity assets. Do you have any indication of where you would like that allocation to get to, based on the guidance that's been provided by the regulatory authorities? Do you have any sensitivity, in terms of capital generation as to how much uplift to capital generation you would get from, say, a 1% increase in allocation to equity, perhaps coming out of something like sovereign bonds? Is there any indication of the potential uplift from that? Thank you.
Yeah. On the Asian one, again, I think we'll provide more guidance on that during the Impact 24. Just three ballpark figures that give you a feel of what is happening there on a very high level. If you look at our disclosures first on operational free capital generation, we only put Asia there in a footnote. Why? Because obviously it is not Solvency II. When you look at the figure that we mentioned there last year and this year. In terms of our ballpark estimates on the operational free capital generation in Asia, it went up from EUR 369 million last year to EUR 413 million in this year's report. That's one. Secondly, when you look at the result, we raise it now to a range EUR 350-EUR 400, slightly below that still. Meaning there is still strain.
Thirdly, if you look at the evolution of the dividends that are flowing out of the Asian region, this year, in the EUR 700 million that Hans indicated, you saw the step-up of China, but roughly EUR 170 million is now coming out of Asia. Take these three together, and that is the situation. More of half of the earnings and certainly more than half of the free capital is still being redeployed and invested in growth in the region. Slowly but certainly, these three figures are moving up in tandem, but there is still a lead on capital generation followed by the profits, which are always emerging due to strain a bit later, and the dividend flow is also increasing gradually but slowly. I think all macro indicators there are good on the figures that you can find in our results back.
Maybe more generic on long-term equities. First of all, in free cash generations we assume over the cycle a return of 7%. That's what we take, whether it's long-term equity or normal equity, that's what we take in FCG. Of course, you do have the benefit on the sources side because capital charges is roughly half. Okay, it depends on at the moment, roughly half. On IFRS this year in the first place, it's the dividend yield, and then it's the realized capital gains that at the end of the day will run into the IFRS results. Anyhow, that's all going to change once IFRS 17 is coming on board, and then we will have to revisit that.
Okay. Thank you.
Thank you. We have no more questions for the moment. Ladies and gentlemen, if you wish to ask a question, please press O one on your telephone keypad if you [inaudible] on your telephone keypad. We have a new question once again from Michael Huttner from Berenberg. Please go ahead.
I'm really sorry. This is very naughty. Can you say a couple of words of the format of your presentation, so Connect21, and it's all called Impact24, in a month's time, please. Thank you.
We will share that with you in a month's time.
Okay. Thank you.
Thank you. We have another question once again from Ashik Musaddi from JP Morgan. Please go ahead.
Thank you. Just sorry again for going back on Asia. It is an important topic, so that's why coming back on that. If I think about what you're saying is you have raised the guidance by about EUR 50 million for Asia, and at the same time, the underlying earnings are impacted EUR 40 million by higher interest rates, lower interest rate impact. It feels like the increase in the guidance on an underlying basis is about EUR 90 million. Is it possible for break back in terms of how much that increase is underlying and how much would that be capital gains-driven? That would be the question. Just as a follow-up, I think in the past, you have guided for about EUR 100 million capital gains in Asia, if I remember correctly. Can you just confirm that if possible? Thank you.
Ashik, obviously, this is not science. This is financial markets, Ashik. Indeed, you think about it, we say we go for a range EUR 350-EUR 400, and we realized now roughly EUR 150. That means we have EUR 200-EUR 250 to go. We also gave guidance that valuation interest rate impact could be at a similar level as last year, meaning that we had EUR 40 million now that at least to our estimate, EUR 60 million is to come. If we look at the underlying that I mentioned, excluding fair and capital gains, we had a run rate of about EUR 90 million for the first quarter, where I said that this held back a little bit by strain.
If you put all these in the mix, you can see that indeed, there is still some requirement of additional capital gains to compensate some of the VIR impact to reach our target.
Okay. That's good. Thank you.
Thank you. We don't have any more questions. Back to you for the conclusion.
Ladies and gentlemen, thank you for your questions, and to end this call, let me summarize the main conclusions. Our strong net result was driven by a solid performance in both life and non-life. Inflows were up, thanks to a good sales momentum, especially in China and in Belgium non-life. This strong start of the year led us to strengthen our full-year guidance to EUR 900 million- EUR 950 million. 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 would like to wish you a very nice day.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.