Good day, and thank you for standing by. Welcome to the Coface publication of nine months 2022 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star-one-one on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Xavier Durand. Please go ahead.
Thank you, and welcome everyone to this earnings call. We're very happy today to report our first nine months of 2022. As you will see from the publication, it's been another great, actually a record quarter for Coface. A bit of a paradox as at the same time, I guess we're all aware of the risks out there in the economy. Just going quickly through the key numbers. You see that for the first nine months, we're reporting EUR 228 million of profit, so actually more than all of the last year, 2021. EUR 84 million in the Q3, which is actually our, I think, our best quarter ever. Turnover up 15.2% at constant FX and perimeter, almost 18% on a reported basis.
TCI continues to grow nicely at 16.6%. We still see some of the same trends at play that we've already discussed in the prior quarters. I'm not gonna repeat these. A few notable points. Client retention is at a record high, a new record high, I would say. Pricing is continuously down at -3% in line with the H1 of the year. Business information continues to see nice revenue growth, almost 16% in constant FX. You see the loss ratio is up, but still very good at 36.9% net ratio. The net combined ratio is up close to 8% at 63.8. The gross loss ratio at 30% is up 5%.
We're seeing continuous normalization of the environment, and I'll speak more to this in the later pages. The cost ratio is still very, very strong at slightly below 27%, and we'll talk about what's involved in this. You know, for Q3, the net combined ratio is just below 60%. I mentioned the results of the net profit. The return on average tangible equity stands at 16.4%. I'll just remind everybody for the note that the tangible equity per share is at 11.5. A couple of notable events, I think in the quarter. We managed to successfully refinance our Tier two, which was due in 2024.
We've actually de-risked that 2024 deadline, and we replaced the old debt with a Solvency II compatible debt, which is gonna help our solvency ratio. Second, Moody's has reaffirmed our rating, but this time with a positive outlook. I think in the face of the upcoming slowdown in the economy, I think that's pretty notable and a great recognition, I would say, of one, where we stand as a company. Second, I guess the consistency of our underwriting procedures. Third, maybe the contribution of the information business to a more stable business model. The next page really talks about Russia. We've looked at a page like this now for the last few quarters.
You can see that our exposure in the Trade Credit Insurance limits has gone down 75%, including the FX. If you exclude the FX impact, we would be well over 81% at this stage. 80% of what's left is really domestic exposures, which we're actually winding down as the contracts come up for renewal. The claims activity is still, you know, quite moderate. We've further increased our reserve levels, and I'll talk more about this when we get to the reserving pages.
We're really adjusting the business as we go, retaining the key risk and debt collections capabilities, while at the same time right-sizing, I would say, the front end of the business to reflect our stance on where this is going. That's really the story on Russia. Then I go to page seven, which is the usual pages on growth. I've already mentioned the overall growth numbers. As I said, TCI continues to hold up pretty nicely and driven by client activity and very strong retention. You're seeing some FX impact of the strong USD versus Euro in particular. Other revenues are up almost 10%. I've already mentioned the information business growing close to 16% in the Q3.
We're still seeing lower debt collection fees. I guess at some point this will turn around. Factoring has been pretty good at 13% growth. Another interesting feature I think is the nice reversal of the growth for fees, which as you know, has been decreasing now for several quarters, actually probably a couple of years, and is now up 6.7% in constant FX. On page eight, you see the split by region, and there's really not that much news here. You see Western Europe, Med and Africa, Asia Pacific, North America, Central Europe, all growing in the, I would say, 12%-17% range. Notable that Central Europe is growing as we are also winding down the Russian business.
Northern Europe, which is Germany, Northern Europe, growing at close to 10%. Still the outlier of Latin America driven by commodities and commodity prices at close to 30%. Pretty much growth everywhere driven by some of the same trends which you can see on page nine. What you see on page nine is continuation of the story that I've been giving for the last couple quarters. On one hand, our new business is the lowest that it's been in the last four years. I think we've been consistent with our philosophy, which is to create value through the cycle. We've been prudent and thoughtful in terms of underwriting new business in the face of what I would call a somewhat exuberant marketplace.
We've been very focused on retaining our clients, and you see our retention rate at 93.5%. It is yet another record for the business. That's coming at obviously a price where you see the price effect -3%, which pretty much means we've given up the gains that we've made during the COVID times in 2020 and 2021. Volume continues to be strong. That's both the rebound from COVID, the COVID times plus inflation driving 11% volume activity, which obviously benefits our activity as well. When I go to the loss page on page 10, it's been another great quarter. You see a 29.5% in Q3. We continue to see normalization happening.
The number of claims has been increasing since the middle of 2021 where we reached the trough. We're nearing pre-crisis levels in terms of the number of claims. However, we're not seeing the large claims that we would normally see. So the large losses are still below the average. We've taken deliberate action to increase the reserves related to Russia and whatever exposures we still have there. That's in the face of, as you know, the escalation that's happening over there and the mobilization. I think there's an element of prudence here. You can see that in the bottom right-hand chart with the new vintage being written at close to 81% reserve level.
At the same time, you can see that our business continues to perform because we're seeing very strong recoveries on the prior vintages. That's pretty much the story here. On page 11, we go into the regional view, and you can see that the four largest and traditionally more stable markets at the bottom have pretty much kind of stable and I'd say relatively benign losses. Western Europe at 23%, Northern Europe at 30%, Med and Africa at just below 30%. One exception is Central Europe, where we've booked some reserves on Russia. The three traditionally more volatile markets are also doing well. In North America below 30%, Latin America and Asia Pacific at 10% or even lower.
If you go to page 12, you see the same story spelled out by quarter. What you see at the bottom is, again, quite stable and good levels of losses in Western Europe. Northern Europe, you see a peak in Central Europe corresponding to what I've mentioned in terms of booking some reserves on Russia. You had seen a peak in Q1 already, and then we had both these exposures in Central Eastern Europe. Then the next quarter we moved them to the regions where actually the losses actually were showing up or the exposures were actually allocated. That's why in Med and Africa you had a peak in Q2, but then that did not happen in Q3.
Then on the top you see we had talked about one file in North America, which we booked for in Q2, and that did not repeat itself in Q3. Latin America has been pretty benign. In Asia Pacific, it's pretty much the reverse. We had a large old claim on which we found a recovery or a settlement and that drove actually the loss for the quarter to a negative. On the next page, we talk about the cost. You see that our overall costs are growing quarter-to-quarter close to where our premiums are growing at 16%. There's two components to that. The first one is has to do with the external acquisition costs, and you can see they're up 25 points.
The reason for this is there are in our contracts with clients some profit-sharing clauses, which, when the losses are low, means we pay more commissions, and that's really playing out. Part of this line is driven by the low losses that we're experiencing in the book. The second thing, second dark blue element here is the internal costs, which are up 13.4%. Again, within that, you have a few things, a few different things at play. One is the investments that we're making in the business information line.
The second one is that given the performance of the business, we anticipate that we're gonna have higher costs in terms of incentives and profit shares and with employees. When you take that stuff out, you're down to 9.8% internal cost growth. That's how I think we are continuing to drive positive operating leverage because our internal core internal lasting costs are growing less than our premiums. That drives the net cost ratio for the first nine months of the year at 32. Sorry, the gross is at 32.2 versus the net 33.8 that we have seen in 2019, and the 33 we had in 2021.
Just to note again that, you know, given that the claims environment continues to be relatively low, the debt collection revenues are so low. I guess that's the story for the cost, and I'm gonna pass it on to Phalla to take us through the next pages as we usually do.
Yeah. Let's go to the reinsurance page. Same record low, well past low losses and commissions during the reinsurance results. If you look at the premium cession rate, it is at 27.1%. This is basically similar to the cession rate that we have pre-COVID, pre-backstop period. I would say a little bit much more back to normal. If you look at the cession rate at 11%, I think there are two highlights. The first one, as you remember in Q1, we have put behind us, you know, the impact of the backstop, where we have relieved reserves that went back to the government that put in place the public schemes.
If you look at Q2, Q3, I think the claim cession rate is pretty low as well, and this is really linked to the low claims environment. Consequently, of course, the insurance results end up at EUR 129 million, EUR 128 million, and makes our reinsurers pretty happy. Net combined ratio, if we go to the next page, we're moving up from 56.1% to 63.8%. Two components here. Net cost ratio down almost 4%, four points. This is two items. Of course, cost discipline is, you know, our DNA, I would say, but also higher commission from the reinsurers, and this is thanks to the renewal terms and conditions that we got at the end of 2022. Net loss ratio up from 25.4% to 36.9%.
This is driven by the fact that, you know, they have the losses normalizing a little bit and of course, all the additional reserves that we put on Russia. If we move to the next page, which is a view of our financial portfolio, the mark to market value ends up at EUR 2.8 billion. Couple things to be noted here. First, you can see that we continue to de-risk our investment portfolio, and we have reduced our equity exposure now down to 3%. I think in favor of bonds is one thing. The second thing is that we're still maintaining a very high level of liquidity. We're at 18%, and this is really coming from, you know, we have a very strong cash generation resulting from the very strong business performance.
It's helping us to reinvest in a much higher yield than we used to do in the past. Then our hedging strategy is still in place. This also, I would say, accounts for our P&L impact this quarter. You can see that the net investment income is moving up from EUR 31 million almost last year to EUR 39 million this year, with an accounting yield without realized gain moving from 0.9%- 1%. I just want to highlight the fact that all the new money that we're investing now is above 2%. We will see over time, of course, the investment income going up by definition.
If we move to the next page, I also want to highlight that in the EUR 2.8 billion, it doesn't take into account the additional cash that we have received from the liability management. This cash that we're talking about, almost EUR 150 million, is sitting in the current account as we speak. It will be redeployed, of course, and reinvested in much higher yield than we see today. Liability management, I think as Xavier mentioned, we successfully did it in September. Basically here is way to de-risk the refinancing deadline that we have in 2024 on our sub-debt, I think a EUR 380 million Tier two loan that we have maturing in March 2024.
We have bought back 40% of it, and at the same time, we have issued a Tier two, I think fully fledged Solvency II Tier two sub-debt, ten years, ten-year bullet at EUR 300 million at 6%. This one will mature in September 2032. As a consequence of this, liability management transaction, we will have a temporary impact of an additional Tier two debt with additional impact on the Solvency II, boosting it for 10 points, of course, till March 2024. If we move to the next page, again, you know, super profit for nine months year-to-date, September 2022 at EUR 228 million, out of which EUR 84 million is coming up from Q3 only, with an operating income up 24% and a net income up 20%.
If we move to the next page on the return on average tangible equity, it stands at 16.4. If we go to the change in equity, 2.1 at the end of December 2021. Of course, we paid our dividend. We have recorded a very strong year-to-date net income. You can see that we still have the mark-to-market unrealized loss coming from our investment portfolio, given the increased interest rate impacting mostly, of course, the fixed income portion or exposure of our assets. As I already mentioned earlier in the Q2 call and Q1 call, you know that we are in a buy and hold mode, which means that this is really temporary. We have no intention to realize these losses.
In terms of return on average tangible equity, move up from 12.2 to 16.4. This is only made up by the technical and financial results net of tax. With this, I hand over to Xavier.
Just to wrap this up, it's been the best quarter in our history by many dimensions. A double-digit revenue growth, both in TCI and in the business information space. 16.4% our return on equity. A low loss ratio, despite the fact that we've actually increased our reserves on Russia. We're all aware of the risks out there. I mean, clearly, there are many signs the economy is slowing down. There's many clouds, I would say, on the horizon, and we've gone through the list many times. Tightening policies, political risk, geopolitical risk, obviously, the energy crisis in Europe, et cetera. COVID and whatnot.
In the face of that, I would say risky environment, we've remained true to our strategy, which is to apply continued underwriting discipline, to be consistent in our reserving policy. I think that's being recognized. If I think of the positive outlook by Moody's, I think that's one of their arguments. I think we're very focused on our clients, 'cause in the end, that's how we create value through the long term, is this real partnership with clients. We have very high retention, actually the best we've ever had. When we look at our NPS score, which is something we spend a lot of time on, it's also the best that we've had, and it's been up consistently.
I think the takeaway is, you know, we've got clear operating principles, creating value through the cycle, being disciplined. We're not gonna change the stance that you guys have now been accustomed to for the last almost seven years, six and a half years. We're gonna remain true to the values that have supported us so far. I think in this more uncertain environment, this is gonna be key in order to continue to perform. With that, I'm going to leave it to everyone for questions.
Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. Please stand by while we compile a Q&A queue. We will start with the first question. It comes from the line of Michael Huttner from Berenberg. Please go ahead. Your line is open.
Fantastic. Thank you very much. Well done for record results. I have three questions. First one, can you give a feel for what your main shareholder is thinking at the moment? Whether they want to invest more in trade credit or other activities. The second is, can you talk about a bit, a little bit more about the claims numbers and, you know, kind of the background, both to Q3 and maybe the current, just to give us a better feel for how the underlying trends are? Because it's just that we don't have the claims numbers. Third one is on business interruption. Sorry. Business information.
Moody's said this is a positive and it stabilized your business model. Then can you say once you stop investing, what would the margin be? Would it be a kind of 30% margin on, I think it's about EUR 70 million of revenues at the moment, annualized. Thank you.
Yeah. Well, I'll take your questions in the order. As far as our main shareholder is concerned, I think you should go ask them, because I can't speak for them. I really cannot answer that question, quite frankly. In terms of claims, I think we've been clear. You know, we started with a spike in claims in COVID in the Q2 2020, and then things reversed themselves as the government threw a lot of money, whatever it takes at the economies in different markets. That brought together a serious drop in claims, which I think we reached the trough in June 2021. We're like a year and three months later.
Since then it's been growing, probably slower than we would've anticipated, but still, the claims numbers have been rising and I guess, you know, we're in an environment where they continue to rise. Then I think it's pretty consistent with the environment that you're reading about everywhere. You know, tightening of monetary policies, increasing interest rates, some inflation that's pinching the wallets of people. There's some inertia in this whole thing, but I think it is pretty much what you would expect in a cycle. It's anybody's guess as to where exactly that goes. It will also be driven by the actions of the government. I think you'll see different. You're probably gonna see different situations by markets, depending on how wealthy they are and how much money they're willing to and constrained to spend by their constituencies.
Could you just maybe give us a feel for some numbers in terms of either the progression of claims or the trough and the. Just to get a bit of a feel. I don't know if that's.
No, I mean, the only thing I think I mentioned is we are nearing the level of the claims in terms of numbers that we had in 2019, but we're not seeing large claims like we would normally. I would say at mid-cycle. Then in terms of business information, what was your question? I'm trying to remember.
It's how much money you could make once you stop investing.
Well, the only time we've given an indication, I think it was at the end of last year, and what was the number, Thomas, was it 30?
Yeah.
I think it was a 30%, it was a 30% margin that we highlighted at the time. What we're doing, though, is we're investing right now, so obviously we're less concerned with the amount of money we make than with building the infrastructure, the back office, the sales capabilities, the value proposition and all this stuff, and the technology that has to go into a more mature and more scalable business. Then, you know, but I think that's really what we communicated.
When do you think you would open the tap?
You know, look, when you're faced with this stuff, I mean, it's pretty small business, right? I mean, it makes what, EUR 50-something million. For me, the potential out there is such that it wouldn't make a lot of sense to try to milk it now. It just doesn't make any sense. It's more important to create the value and build it up. Unless we really were under the gun and I don't know, and we just needed the income, but I don't think that's the priority here.
Brilliant. Thank you so much.
Thank you. We will now take the next question. It comes from the line of Hadley Cohen from Deutsche Bank. Please go ahead. Your line is open.
Hi. Thanks very much. Two questions, please. First, I'm just wondering, Xavier, I mean, you're now running at record profits at the nine-month level versus any previous full year. So I'm just wondering how you're thinking about that in the context of Q4. Now, I think there's always an element of seasonality in the Q4. I mean, to what extent are you thinking about being even more conservative in the Q4, assuming claims activity remains on trend as we've seen in the past few quarters? And leaving an additional buffer to combat potential volatility going into next year and beyond.
Put another way, you know, if we assume that you have another very strong quarter or, you know, claims activity remains in line with sort of what we're seeing at the moment, and you report a normal quarter in that respect, to what extent do you think it still makes sense to be paying out such a high payout ratio on that in terms of cash? Could you look to keep some, again, keep some additional buffer behind for potential volatility? That's my first question. My second question is a very, very simple one. Apologies if I'm missing something very obvious, for Phalla. The accounting yield ex realized gains of 1%, that is not annualized, correct? On an annualized basis, it's slightly higher than that, compared to the just over 2% that you're reinvesting currently. Thanks.
Yeah. I guess I'm trying to understand your first question, 'cause we never make forward-looking statements, so I'm not gonna tell you what's gonna happen in Q4. And by the way, I don't know it. I guess your question is more about the payout ratio, or something like this, or conserving capital in the face of a, of a.
Well, yeah. I mean, it's do you need to? If you have a similarly strong quarter, as we've seen this quarter or in previous quarters, do you need to report that all through to the bottom line or can you keep some of that back in terms of extra provisioning or reserving? Or if not, then does it make sense to reduce the payout ratio relative to what we've seen in previous years?
Look, we're gonna stay true to everything we do, which is we have some well-defined processes to define reserve levels and all that good stuff. We also have a payout ratio based on a comfort scale in terms of solvency. We're gonna stay true to this stuff. I mean, there's really no change in policy here as we go into the Q4. I'll remind everyone that our comfort scale says 80% payout ratio. When is that? When we get above the 175, right?
Yeah. I'm taking the last question. Yeah, you're right. This is accounting year for nine months. Okay? When I say that we are investing above two, it's really above two. You can see that the 10-year bond, the 10-year French OAT is at 1.70. Just remind everybody where the level of interest rate that we have today.
Cool. Thank you.
Thank you. We will now take the next question. Please stand by. It comes from the line of Benoit Valleaux from ODDO BHF. Please go ahead. Your line is open.
Yeah, good evening. Three questions on my side. One or two maybe on pricing. You still have a very low loss ratio, but at the same time, economic cycle continues to deteriorate. In this condition, what do you expect for next year? I mean, do you believe that prices might continue to decrease, or on the opposite, you expect some rebound in pricing? And similarly regarding reinsurance, what is your expectation at this stage regarding reinsurance? And might you change, or do you envisage at this stage, I would say, to change your reinsurance coverage or not for next year? The second question is maybe on capital. I know that you don't disclose solvency as at 18 September, but nevertheless, can you provide us any view on the trend that you can see, excluding what you've made on the, on debt, of course.
Second question also related to that. You will replace EUR 80 million debt by a new Tier two debt of EUR 100 million. In the end, after March 2024, there will be a decrease in your leverage ratio. I'd just like to understand, I mean, why have you decided to reduce your leverage, and why EUR 300 million? I mean, can you just explain us a little bit to understand how you have determined, I would say, these figures? The third topic, sorry, is maybe on IFRS 17. We are now at end of October, so I assume that you might start to have a good visibility on the implication of IFRS 17. Can you share please with us any, if you comment on your expectation on impact on net income, shareholders equity?
If on top of this, do you believe that under IFRS 17 you will be able to to maintain the level buffer you have on your design policy or not, or if you have a stronger constraint which might lead to some changes on that? Thank you.
Okay. Let me take number one first of all. In terms of pricing, I mean, the way this business works is, I know there's risks out there and there's mounting evidence that the economy is slowing everywhere. The clients don't wanna hear this until they really see it, you know. It's a game, right? On one hand, we see more appetite for clients to stay insured or become insured. On the other hand, those that are insured are, you know, showing us the low losses and saying, you know, they think it's worthy of continuing to discuss the price. Plus, I think the market is very aggressive.
I do think that the price compression that you've seen this year is. It will take a little bit of time for, you know, this to change in terms of cycle. In terms of reinsurance, I mean, this is the time of the year when we're in the discussion phase. Usually this gets concluded sometime in January, so I won't make any comment. I don't think. Again, I just remind everyone, reinsurance is not something you play with every year and you're just trying to outsmart your partners. They're 20-year partners, and they're here for the long term, so we're gonna be fairly consistent. I'm gonna leave.
Mm-hmm. I'll take.
The next two questions to Phalla Gervais here.
Yeah. Well, you know that we don't disclose our solvency at Q3. However, you've seen that in Q2 we have disclosed some of the stress tests. If you look at the financial stress test that we have disclosed at end of Q2, we're pretty resilient, right? In terms of business, we're still underwriting very good business. There's no reason, in a nutshell, there's no reason why we are deviating much from in terms of solvency ratio. In terms of debt refinancing, the liability management is something which is first you do a tender buyback the existing debt.
You know that the bondholders of existing debt, part of that is really sticking to what they have, and mainly the life insurers who were not in any way, being able to buy back a whole. It doesn't mean that we, the intention is to deleverage totally. We'll see what will happen and when we assess if there's a need to, you know, to come back to our 380 level at the end of March 2024. It's probably too early to say. For the time being, I think it was a good de-risking transaction, especially in light of the increased interest rates, and increased spread. I think we'll come back to you on the division. It's not an objective here. It's really to de-risk the refinancing deadline.
Okay.
Thank you.
Regarding IFRS 17.
In terms of IFRS 17, as we disclosed, you know, we are in a Premium Allocation Approach, which is no CSM, as I mentioned. We have finalized our first time application, which is the opening balance sheet of January 1, 2022. Again, well, we'll not disclose it because it's still under audit. You will have the formal information when it will be audited. Stay tuned. We'll get back to you on this one.
Thank you. We will now take the next question.
Well, I'm just one comment maybe on IFRS 17. We are a relatively short cycle business, right? I mean, when we book a contract, I would say after three years we pretty much know where this is going. The economic performance of the business is not gonna get impacted by the change in accounting methodology, right? The only thing we're talking about here is really the timing of it and how that gets played out in time. But you shouldn't see a change in economic performance of the business, nor should we change, I would say, our strategy or the way we run the business or our philosophy overall and our attitude towards the market or the opportunity though.
Thank you. The next question comes from the line of Thomas Fossard from HSBC. Please go ahead. Your line is open.
That's a very clear question. Thomas? I don't think we're hearing anything.
One moment please. Thomas has disconnected. I will go with the next question. It comes from line of Michael Huttner from Berenberg.
Thank you. It's my second chance. I have two questions. One is new clients versus old clients, and the other one is potential deals or deal pipeline. Understood from, so you're focusing on the existing clients, high retention, some price flexibility, and you're more cautious on new business. Can you give a feel for the profitability of an old client, what I call old client, versus a new client? Just to understand the mechanics but also the numbers, because you definitely have been growing more slowly than your peers on in total, but that seems to have been very beneficial. The second is on deal pipeline. Any indications, any ambitions, whatever. Thank you.
Deal pipeline, you mean, in the core TCI business? Is that what you're?
Anything. If you want to buy anything bigger, I'd be interested as well. Of course TCI is the main one.
Yeah. Well, I mean We don't look at old versus new. We look at client quality, portfolio quality. I mean, the way we underwrite a deal is we take a client and we try to understand first why they would wanna get insured and are we gonna be able to have a long-term partnership or not. I think that's a key criteria. If we're gonna be in that situation where we build a true partnership, then yes, we're interested. It's a client-by-client decision based on the quality of their portfolio, the volatility of their business, blah, blah and blah, blah. That's really how we look at it.
I can't really give you a profitability outlook for a new versus an old client because in the end we're gonna live together for 20 years. If we live together for 20 years, I keep saying this, but the price point at which we are one day doesn't mean much. It's really what we get out of a 20-year relationship with all the ups and downs and the cycles and all the stuff that we're gonna go through together. You know, that's really how we look at it. In terms of the deal pipeline, all I can say is what I've just said, in a time when there's no claims, there's less appetite in the market to get insured. In the times when things look a little bit more dicey or claims start going up, usually you see more demand. Right?
No, I mean deals, acquisitions.
Acquisitions. Well, I mean, the line on this one is always the same. You know, this is not an infinite market. There's a limited number of opportunities. I think we look at them and, if and when we see one that is available, two, is a good one, three, is at a price that we like, then we go for it. You know? There's a few conditions here.
If I push my luck just a little bit, a third question, which I think was the one that Hadley or you were discussing before, is basically on the payout ratio. 80% is the minimum. In the past, you've sometimes paid 100% even more using other tools, like buybacks. Given the current, how you see the market at the moment, where would you be in that scale?
Two things. We've always had more capital, I think, and you guys have reminded us regularly that we had more capital than we needed. We always said we're gonna use that capital for three things, right? Number one was core growth. That was at a time when the business was growing 3% to 4% or 5% a year, right? Number two was gonna be non-organic acquisitions. Number three was gonna be capital management with shareholders and returning what we don't need. It happens that this year we are actually seeing a lot of core growth, so we have to take that into account. It's a good way for us to employ capital, actually, if we believe in what we do. For the rest, I think it's the board's decision in terms of how they wanna play it at the end of the year.
Thank you very much.
Thank you. We will now take the next question. The next question is coming from the line of Benoit Valleaux from ODDO BHF. Please go ahead. Your line is open.
Yes, good evening again. Maybe it's a question regarding client activity, which has been a record level, but as you said, has benefited from the recent past rebound in the economy plus inflation. How do you see the outlook adjust on this line because do you feel that there could be some adjustment due to the decrease in GDP growth, some more negative economic outlook? But at the same time, we see we have some above normal level in terms of inflation. What is your view on that for next year?
You know, Benoit, I wish I had a crystal ball. I don't. It's anybody's guess, you know, where the economy is headed, but I think everybody would, at this stage, agree that there's some kind of a slowdown happening. Actually it's being led to that by the central bank policies, right? They're trying to tame inflation. In trying to tame inflation, they are gonna slow down the economy. The result of this is either they get stagflation or they get a recession. The margin between the two is pennies. If we get stagflation, you get lower growth, and you get more inflation than you like. If you get a recession, you get lower growth and lower inflation than you like.
Anybody's guess as to where this is going. It's really pretty much a policy navigation question here, which I don't know the answer to. In any case, we necessarily get impacted by this.
Okay. Because, I mean, is it fair to assume that, in any case, client activity should increase thanks to inflation next year? Should be positive, I mean, or?
I am not gonna tell you where the number is. We don't make forward-looking statements. I can tell you that what we've had this year is both the rebound and the inflation. Now, if the inflation is 30%, you'll see that. The inflation is zero, you'll see that too, you know?
Okay. Thank you.
Thank you. We will now take the next question. One moment, it comes from the line of Thomas Fossard from HSBC. Please go ahead. Your line is open.
Yeah. Yes, good evening. Can you hear me now?
Yes. Sorry, we missed you.
Okay.
Earlier.
Good evening, everyone. First question will be on the TCI exposure. I can remember that at the end of H2, you provided some numbers. But probably since then, the environment or the economic environment is clearer or the path towards a recession is, it may be clearer than it was a couple of months ago. Have you changed anything regarding TCI exposure or any update? The second question is, I think it's a bit related to IFRS 17. Actually, your PYDs remain pretty strong year to date, but also specifically in Q3. You indicated some good recoveries, not only in Asia.
I was thinking, is there something coming from, I would say, a couple of quarter ahead of IFRS 17 and maybe the need for you to exteriorize or to realize some of these PYDs, otherwise you running the risk of maybe losing part of it into IFRS 17 and to see that coming into your shareholders' equity. I was wondering if there were a bit of pre-IFRS 17 engineering in your Q3 numbers or if we should expect a bit of this in the Q4 number. The last question was relating to, yes, again, solvency and payout ratio, how to think about it.
I think that in the Moody's press release, they are quoting specifically 180% Solvency II ratio as a level they would like you to keep in order to maintain their view or their rating. How is this becoming a new constraint for you in terms of solvency? How potentially could this affect your payout policy? Thank you.
Well, let me start with this one. Yeah, they do mention. Hi, Nady. I mean, we're not here to satisfy every request or any criteria. It's not even a request.
Criteria.
Criteria that such and such agency or whoever else is putting on us. We have a clear comfort scale. We have a clear policy for capital management. We go through the cycle like everybody else. We're gonna stay true, and we have a dividend policy or payout policy that is consistent with this. We're not gonna change that, right? By the way, I think their 180 is they put that as a kind of milestone for improving the rating, I think is what they say, not maintaining it.
I mean, it'll be a discussion with them, but we're not gonna change our strategy just because somebody says, "You know, we'd like you to have this or that." In terms of the TCI exposures, I mean, we're pretty much continuing to adjust our exposures in terms of its quality, in terms of its sectors, in terms of whatever, to reflect the environment. These are actively managed. In terms of their overall scale, I think they pretty much usually go along with our turnover. You know, I think what we've showed, I think it was last time, is that the premiums grow somewhat in line with the exposures. I don't see anything different here. In terms of IFRS 17, what was the question again?
The PYD.
Reserves and PYDs and the need to take some actions to keep some of the fat.
Well, the thing is the methods might be different. In any case, nothing's lost and nothing's gained. It comes through. It's still in the balance sheet, and it will still be in the balance sheet. The question of how and when it gets recognized, that's the key. The key in IFRS 17 is, it's not something that we can discuss now.
No, my point, Phalla, was more on the fact that on the IFRS 17, you need to be on the estimates. I mean, looking at Solvency II disclosure, I mean, you've got some buffer clearly above your best estimates, which probably potentially is putting you in a clear comfort zone. Would you be able to recycle these reserve buffer into under IFRS 17? Or, I mean, does that mean that you will stick to best estimate and clearly you will lose part of the smoothing capability you've got currently?
Well, listen, we are on the IFRS four principle, so we're just applying the principle, as we say. Then, of course, we move into the IFRS 17 will be new principle that we'll apply at that time. As I said, I think we just have done our first time application, which is the 1st of January. Opening balance sheet, and this is being reviewed by the auditors. So I cannot. This is not something that we disclose now before the audit, right? Then of course, we. Again, I think keep in mind that we're really short-term business. We are what? Two years, three. Two years.
Three. Yeah, 2.5.
2.5 years max. I think that's probably one way to look at that. In two years' time, say, either IFRS 4 or IFRS 17 will be the same thing.
Okay. Nothing abnormal in PYDs in Q3 basically? No accounting engineering, purely operational.
That's a big word.
I cannot say that I'm doing any accounting engineering.
I mean, the two methods are different, and that's gonna be part of the disclosures when we launch IFRS 17. I don't think we're in a position to talk about this right now.
Okay. Thank you.
Thank you. There are no further questions at this time. I would like to hand back over to the speakers for final remarks.
No other questions? Well, look, what time is it? Yeah, it's right on the money, so I just wanna thank you all for logging in.
Sorry, sir. If that's okay, there's another question coming in.
Oh, okay. All right.
Apologies. One moment. It comes from the line of Michael Huttner from Berenberg.
Michael, welcome back.
It's a very quick question. Yeah. Yeah, thank you, sir. Very quick question. When's your investor day next year? Is it beginning of the year, end of year? When would it be?
Investor day? No, we have our earnings call. I was just gonna say our earnings call is gonna be the 16th of February.
But, um.
I don't think we have an investor day.
2020 you had an investor day. Is it every three years, no?
That's a four-year plan.
My mistake. Thank you.
You have to wait one more year. Sorry for this. They go by pretty quickly, though.
Thank you very much. Sorry about that.
All right. Thanks, everyone. Thanks for logging in. As I said, the 16th of February is when we have our next call. For the full year. Thank you, everyone.
That concludes the conference for today. Thank you for participating. You may all disconnect.