Good morning, everyone, welcome to AXA's 2020 full year analyst presentation. It's good to have you with us. The presentation this morning will be made by our Group CEO, Thomas Buberl, and our Group CFO, Etienne Bouas-Laurent. Also joining us for Q&A this morning, at the end of our presentation, will be the CEOs of AXA in Europe, in France, and AXA XL, and our Group Chief Risk and Investment Officer. Sadly, we can't be with you physically in London this morning. We're very happy to welcome you virtually here to sunny Paris. To enable a fluid and direct interaction between our analysts and the management this morning, we've invited our analysts to join us here by Teams. Welcome to you all as well. If you've connected by the webcast, you can also ask questions if you wish in written form.
Just follow the instructions you've been given. Now I'm very happy to hand over to Thomas for his introduction.
Thank you, Andrew, good morning to all of you. As Andrew said, we are very sad not to be with you in person and hope that hopefully for the next full year, we will be in the old physical format again. Let me start with the key highlights of the full year of 2020. Those are four key highlights. The first one is very much around our revenues. EUR 97 billion of revenues is almost stable relative to last year in a very difficult context. We've seen that the business momentum is good, that particular in the preferred segments, it has really been very good, + 5% in the last quarter of 2020. We obviously are very confident that this is continuing throughout 2021. Second very key message is the stability and solidity of our balance sheet.
200% of Solvency II coverage represents this very strong balance sheet. It shows that our shift towards technical risk, in particular, the benefit from the integration of AXA XL into the internal model with 13% of benefit, shows that we are very strong as a group in one of the most difficult crisis in the last 50 years. Third message is about dividend. The board of directors has decided yesterday a proposed dividend per share of EUR 1.43. It was important for us to get back to an attractive dividend, certainly to get back to a proposal of the initial dividend of 2019 full year. Fourth important message is EUR 4.3 billion reported underlying earnings. This has to be seen in a context of a very severe crisis, it also has to be seen going forward.
Many of the negative effects that we have seen in 2020 will not repeat. We are very confident in our outlook. Given the very good business momentum, that we can achieve the 3%-7% underlying earnings per share growth based on the normalized rebased underlying earnings of EUR 6.3 billion. If we now go a little bit in more detail, and before I do that on the numbers, I would certainly like to talk again about AXA's contribution to society during this very difficult period of COVID-19. As you know, we had many challenges, starting with our employees around a simple question: How can they continue to work in a safe environment? How can they continue to serve their customers?
Up to the point, how can we help our customers that have found themselves in very difficult situations and are still in some of the sectors in difficult situations, up to the point where we really wanted to make sure that as an actor in society, we do contribute to relaunching the economy and stabilizing the economy. This was very much the driven spirit of our 2020 engagement. On the one hand, protecting our clients and employees. We've spent and paid over EUR 1.5 billion in claims and solidarity measures to our customers and to society, and we focused very much on how can we guarantee a high employee well-being in a situation that is very different and that requires to work at distance.
Supporting the economic recovery was very much around supporting the SME, making sure that we provide capital to the SME in order to relaunch growth, in order to relaunch investment. EUR 700 million have been invested in France into SMEs to help them to prosper. Certainly, when we think about the investment in people and research, we continued our engagement into research, and certainly we recruited, despite that difficult crisis, 5,000 people in France, and 30% of those 5,000 people have been young people, in order to make sure that we are a very strong actor, a very active actor in a difficult situation of our society in this difficult moment of COVID. Where has that led to?
When you look at how the franchise of AXA has developed, I'm very proud to say that despite those difficulties, our distributors, our employees, and our customers have really seen an enhancement in their satisfaction. On the distributor side, we were able to increase the use of digital means from 67% to 91%. This was really the key to make sure that we could continue a good customer service in a time where we couldn't rely anymore on the traditional mechanisms. The digital investments that we have made have significantly helped us to continue the very good service. I mentioned earlier that employee protection was one of the absolutely key elements and first priorities that we have.
We managed very quickly to transfer all of our colleagues into a safe environment of distant working. This was really the fruits of a very long-term, very intense strategy and engagement of investing into digital. This has led to the fact that our employee satisfaction has increased by 14 points during the crisis to 35 points, which is way above the benchmark of global high-performing companies. All of this has resulted in an increase of our customer satisfaction, which made me personally very proud. In a period of a crisis, you have very difficult situations. You are faced with very tragic moments. We did our best to help everybody, to help our customers. I'm very proud to see that today, in 94% of our markets, we are at or above the market average in terms of customer satisfaction.
This is a fantastic result, and I would really like to thank all of my colleagues and certainly all of the AXA agents and the distributors for this excellent result. If we go a step further and have a look what has really happened in the underlying dynamics, it is very clear that we see some very promising trends that are significant opportunities for the future. One is clearly the growth in our preferred segments. I mentioned earlier that we've seen a dynamic of + 3% over the first three quarters of 2020. In particular, in the last quarter, we've seen an acceleration to + 5%. This makes me very confident that we have a good momentum also for 2021. On the P&C profitability, we could also advance.
If you exclude the effect of COVID-19, if you exclude the abnormally high natural catastrophes, we managed to bring down the combined ratio to 94.2%. Lastly, we also continued during that very difficult period of the crisis to continue to shift our business mix away from general account, which has experienced a negative net flow towards more unit links, fee-based business, which has seen a very attractive, good, positive inflow. XL was clearly the business that was mostly hit by COVID. Most of the other geographies had another business, which was mainly the personal line business, that could compensate the negative effects. As you see in a moment, we have a very high stability of Europe, of France, where this compensation mechanism has worked very well.
Since COVID is very much a crisis of the commercial line business, and since XL did not have the opportunity to compensate with another business, we obviously see the biggest effect there. However, we've taken very concrete measures at XL under the leadership of Scott, who is with us today, to make sure that we are very focused on our target of EUR 1.2 billion in 2021. What have we done? We have firstly been very disciplined in the re-underwriting of our contracts, making sure that we get the right profitability, making sure that we exclude the risk of COVID as much as we can, and benefiting from a very strong momentum in pricing. You've seen that up to the Q3 of last year, prices have increased by 20%, and in Q4 it even went beyond to 22%.
We've seen with the renewals in Europe that this trend of price increases is continuing, and we are very dedicated to continue this very strong discipline on the underwriting side to make sure that we are using this great momentum of increasing prices. At the same time, we have continued to take measures to manage our volatility down. Volatility on the natural catastrophes, which means that we have increased our prudence by the higher cat load of 6%, but also managing down our volatility on the reserves of the long-tail business through the adverse development cover with Enstar that we published this morning. All of this makes me very confident that we have taken the right measures. We have a strong base.
We are confident on the reserves at XL, and we will be achieving the EUR 1.2 billion of desired target for 2021. When we look at the other businesses, as I said earlier, we see very high resilience. France and Europe, the strongholds of AXA, have managed to keep their result even between 2019 and 2020, despite the fact that we have experienced significant losses from the COVID. The balancing effect and the diversification effect has worked very well. We've also seen in other geographies, for example, Asia and the international markets, that our pivot towards health has really advanced well. Health is now considered as the number one risk for everybody. It's on everybody's mind, and benefiting from this trend, being in a position of having such a strong global franchise on health will really help us to capitalize on this trend in 2021 and going forward.
Certainly, on the investment management side, we have seen a very high desire for longer-term alternative and illiquid assets. Having one of the most important franchises on alternatives in Europe helped us really to accelerate our growth on the alternatives and to make sure that we have really boosted our performance there, which is also a good indicator of how this will continue going forward. When we look at how does 2021 look like, I am personally extremely confident. Why? Because we have taken the right measures and the right decision at XL to really accelerate the turnaround. Very strong measures on the discipline on underwriting, very strong measures on the reduction of the volatility on nat cat and the long-tail reserves. All of this in an environment that remains extremely favorable when it comes to price increases.
Secondly, we have a very strong foothold with France and Europe, very strong results despite that difficult crisis, sustained delivery over the crisis, and we have a clear program in place under the leadership of Jacques and Antimo to continue this. Certainly, benefiting from the growth options in Asia, in the international markets, and in AXA IM. We are well positioned. We are on the right trends, be it the alternatives, be it the health business, in order to make sure that we can achieve the 3%-7% underlying earnings per share based on a normalized earning capacity of EUR 3.6 billion. This ends my section, and I would like to now hand over to Etienne. Thank you.
Thank you, Thomas. Good morning, everybody. Happy to be with you to present our full year 2020 results and share some insights on the outlook for 2021 and beyond. Let me start with group revenues. Overall revenues were EUR 97 billion, down only 1%, demonstrating the resilience of our business model in a challenging year. We recorded strong growth in the first quarter, followed by a tough second quarter impacted by strict lockdowns. We saw a rebound in the third quarter and an acceleration in the fourth quarter, which bodes well for 2021. Each of our preferred segments, P&C Commercial Lines, Health, and Protection, performed well, proving the pertinence of our strategy. Revenues in preferred segments, which represent around 2/3 of our total revenues, were up 3% overall in 2020 and return to pre-COVID growth rate in the fourth quarter at +5%.
Going forward, we are well-placed to continue to grow in our preferred segments, notably with continued strong pricing momentum in P&C Commercial Lines and increased awareness for COVID. Let's now move to underlying earnings, which of course were impacted by COVID and nat cats in 2020. AXA's underlying earnings were EUR 4.3 billion in 2020, down from EUR 6.5 billion in 2019 from three key items. First, the non-recurring contribution from Equitable Holdings. Second, COVID impacts, and third, nat cats, which were EUR 0.2 billion higher than in 2019. If we look at it by line of business, here are the key elements which are important to retain. P&C earnings, excluding COVID and excess cats, were 2% higher, driven by current year technical margin improvements. In Life and Savings, the technical margin was partly impacted by non-recurring items, as already seen in the first half, while investment margin remained resilient.
In Health, we have a good top-line momentum across geographies and in Asia in particular. Earnings growth was offset by adverse regulatory changes in France. Asset management performed well, boosted by the alternatives division. Holdings and others improved mainly from higher non-recurring investment income. As Thomas just explained, we have set the starting base for underlying earnings of our 2023 plan at EUR 6.3 billion, adding back COVID impacts and the excess cats from 2020. This is in line with 2019 earnings on a like-for-like basis, which is a strong level considering the changes in economic environment. Let's look at more details for each of our lines of business, starting with P&C. P&C revenues are up 1% overall. In commercial lines, we recorded 2% growth for the year with a strong rebound in the second half, +2% in the third quarter, +7% in the fourth quarter.
Pricing momentum remains strong, as Thomas explained, notably at AXA XL, with insurance prices up 22% year-on-year, in line in the fourth quarter. We also had strong January renewals in reinsurance, with prices up 9% year-on-year. We expect to see continued pricing increases in 2021, and this will lead to further margin expansion. Personal lines revenues declined by 1%, mainly from lower new business during lockdowns in France and Europe, mostly in motor. The number of contracts remained overall stable, and pricing was flat. Moving to P&C earnings, the key point to highlight is that where earnings were actually higher, adjusting for COVID and cats. Earnings were impacted by EUR 1.5 billion of COVID losses and by higher nat cat charges, notably from a very active hurricane season in the North Atlantic. Looking through that, we recorded a higher current year technical profit, which more than offset lower investment revenues.
We also had slightly less favorable prior year reserves developments. As a result, excluding COVID and assuming normalized nat CAT, P&C earnings were up 2%. The combined ratio shows a similar picture. The current year combined ratio, ex-COVID and CAT, improved by 0.5 points from both lower loss and expense ratios. Going forward, for P&C, we remain confident that higher technical profits will more than compensate lower investment revenues. As a reminder, our target combined ratio is 93% by 2023. Let's now take a detailed look at COVID impacts, which are confirmed at EUR 1.5 billion and in line with our initial June 2020 estimate. This continues to represent our best view of ultimate losses linked to COVID. In the second half of 2020, we saw additional impact in commercial lines, notably at AXA XL, offset by reduced frequency in retail lines.
In business interruption, we have assumed some incremental claims from the introduction of new partial lockdowns and also from court decisions in the U.K. and Australia. As you know, some uncertainties remain in France. In other lines, credit, financial lines, liability, and travel, we have anticipated some more impact, even if we have seen very limited claims so far. IBNR is at 90% for these lines. Event cancellations remain pretty stable. On the other hand, and offsetting these additional impacts, we saw further benefits from reduced frequency in retail lines, notably in motor. In order to reduce our exposure going forward, we have revised the policy wordings for all our non-damage business interruption contracts across the group and strengthened the exclusion of pandemic triggers. The rollout of these revised wordings is ongoing as contracts are renewed. Moving on now to AXA XL.
We confirm the EUR 1.2 billion target for 2021. First, some color on 2020 earnings. Underlying earnings were minus EUR 1.4 billion impacted by COVID, CATs, and U.S. riots. COVID impacts have been booked at EUR 1.7 billion, mainly from business interruption, event cancellation, and other lines, as I just explained. Natural catastrophes were EUR 4.5 billion above the assumed 4% CAT load for 2020, linked to the high frequency of mid-size storms in the Atlantic. We also had $0.1 billion claims from riots in the U.S., as mentioned in the first half. Adjusting for these three items, normalized earnings were EUR 1 billion, in line with guidance provided by Scott in December. In comparison with 2019, we did benefit from higher pricing, more than offsetting higher claims cost in long-tail lines. For 2021, we are confident on our EUR 1.2 billion underlying earnings target.
We expect EUR 0.5 billion earnings uplift from higher pricing and underwriting measures, net of claim strengths. The year is starting well on that front. Remember, we are now assuming a more cautious cat load of around 6% of combined ratio, compared to 4% previously, and we expect EUR 0.1 billion headwind from lower investment income. Overall, in 2021, we expect around 70% of products will deliver combined ratio of 96% or below, and the overall combined ratio for AXA XL to be 96%. Let's now move to life and savings, starting with revenues. You will see that our business mix continues to improve. Revenues were down 6% in 2020, driven by lower general account savings in the context of COVID, especially in France and in Italy. Protection revenues were resilient at + 2%.
Unit linked revenues were down 1%, but up 3%, including unit linked products booked as mutual funds in Italy and Belgium. In France, we continue to see strong appetite for unit linked products, which represent 48% of revenues in individual savings. This is 10 points higher than the market average. Net flows also demonstrate clearly this change in business mix. Less spread business, more technical risk, and more fee business, in line with our strategy. Going forward, we expect a rebound in life and savings revenues as COVID impacts continue to recede, with further growth from protection and unit linked. Let's now move to earnings for life and savings. As you can see, a very similar picture compared to the first half. Earnings were down 7%, mainly driven by lower technical margin linked to a combination of factors already reported in the first half.
Investment margin was stable at 67 basis points, as lower investment revenues were broadly offset by lower crediting rates. Expenses were lower, reflecting good cost containment measures across geographies. The technical margin should improve next year from current levels, while investment margin could see some dilution given the low level of interest rates. Remember, our guidance is 55 basis points- 65 basis points for investment margin during the plan period. Moving now to our growing health business. Revenues were up 6% across geographies in group and individual businesses. In Asia, revenues were up 9%, mainly in China, with higher volumes from new partnerships at AXA Tianping. We also saw higher volumes in Japan and tariff increases in Hong Kong. Underlying earnings were down 1%, revenue growth being offset by a higher combined ratio. In France, the benefits from reduced frequency during lockdown were broadly offset by the exceptional tax introduced by the government.
We also saw increased claims frequency from a recent healthcare reform. Going forward, we expect health earnings to go back to a normal growth trajectory, broadly in line with revenue growth. Moving now to asset management, which continues to be boosted by alternatives. Assets under management were up 7%, reaching a record high EUR 858 billion. Alternative assets under management were up strongly by 14%. Net inflows were strong at EUR 14 billion across core alternatives and our Asian joint ventures. Revenues were higher, driven by alternatives, which represent around 40% of total revenues. Underlying earnings were up 6%, largely reflecting higher assets under management, a strong performance in a challenging year. You can expect us to keep growing our high margin alternatives franchise, which contributes around half of our profits. Alternative products continue to be very attractive in a low rate environment.
Let's move to net income, which amounted to EUR 3.2 billion. Let's go through the key drivers. Net realized capital gains were EUR 337 million, significantly higher than in first half, reflecting more favorable market conditions in the second half. For gains and losses on derivatives, we had positive from equity hedges and losses from interest rates and Forex hedges. For change in fair value of AFS P&L assets, we saw a decrease in funds value from private equity, hedge funds, as well as fixed income funds. Exceptional operations reflect the impact from announced disposals, the impairment of some non-consolidated assets, contributions to solidarity funds, and a change linked to the discontinuation of our management liability and financial institutions business written by AXA XL in the U.K. and Lloyd's. Integration and restructuring costs are mainly linked to the integration of XL and restructuring initiatives in France and Europe.
Moving now to shareholders' equity, which increased by EUR 1.7 billion to EUR 71.6 billion. Net income was partially offset by the dividend paid in July. Higher unrealized gains from lower interest rates were broadly offset by forex impact linked to the strengthening of euro against major currencies and higher pension benefits. Solvency II now. As you can see, a strong solvency ratio at 200%. The ratio was at 20 points in the fourth quarter, benefiting from 13 points uplift from the integration of AXA XL into the group's internal model. This captures the diversification benefits from combining XL with AXA, which resulted into lower capital requirements. The solvency capital requirement reducing by about EUR 2.5 billion to EUR 27.5 billion. Note that this ratio does not reflect yet the expected 4 points benefits from the disposal of AXA Bank Belgium.
We remain confident the transaction should close in the upcoming months. Lastly, you will have noted that market conditions have improved since the end of 2020, and this bodes well for 2021. Turning to assets now. We remain very disciplined and have maintained a stable mix of high-quality assets. Our asset mix has remained stable with 80% in high-quality fixed income. The average rate is A A for govies and A for corporate bonds. Other fixed income assets are also of high quality. ABS are primarily AA A CLOs, and mortgage loans are highly secured. The remaining 20% of assets are well diversified and include real estate and listed equities. Our exposure to vulnerable sectors is very limited, representing less than 2% of total assets following de-risking actions implemented in the first half of the year. As expected, we saw a slight reduction in our book yield.
The reinvestment rate was 1.3% in full year 2020, leveraging our expertise in low-risk alternative assets. Looking now at cash at holding, we continue to benefit from ample cash flexibility with more than EUR 4 billion at full year 2020. This is above our desired range of between EUR 1 billion and EUR 3 billion. The main drivers of cash movements during the year were as follows. Firstly, a strong cash remittance from our entities at EUR 4.8 billion. In the second half, the capital injection in AXA XL was offset by remittances from Switzerland and Japan. Second, we had EUR 1 billion proceeds from the disposal of CEE and EUR 1.2 billion from crystallized gains on equity derivatives and commercial paper.
These elements were partially offset by EUR 1.7 billion of dividend payment, holding cost of EUR 1 billion, as well as the rebuild of cash flexibility at entity level amounting to EUR 1.4 billion. Finally, financial debt and gearing. As promised, we reduced gearing significantly over the past two years at a level now well within the 25%-28% target range. The gearing ratio was 26.8% at full year 2020, reduced by 2 points from full year 2019, primarily from debt repayments of EUR 1.3 billion in April and EUR 0.4 billion in December. In conclusion, and before handing over to Thomas, top-line momentum is good, notably with strong pricing and successful January renewals in P&C Commercial lines. P&C earnings ex-COVID, ex-CATs were higher with current year technical margin improvements.
We have taken measures on AXA XL reserves, and we are on track towards the EUR 1.2 billion underlying earnings targets for 2021, growing profitable business in an attractive market cycle. In life and savings, the business mix improved further and earnings are resilient. In health, we have a good top-line momentum across geographies. Earnings should grow in line with top line going forward. Asset management performs well, boosted by alternatives. The Solvency II ratio is strong at 200%, and the holding cash position is above our guidance. The outlook across our key financial metrics is positive, and we are confident on our planned targets as communicated last December. Thomas, I hand over to you.
Thank you, Etienne. Coming to the conclusion again, you've seen that the year 2020 was a strong year in a very difficult context, and that is what is most important. We have very good business momentum and good perspectives for 2021, which makes us all very confident for 2021. Why? Because we've been very stable during that crisis, being able to have a revenue that is almost stable relative to 2019 with a good dynamic in the preferred segments.
All of this based on a very strong balance sheet, 200% solvency is very solid, enabling the board of directors to propose a dividend of EUR 1.43 per share, and being able to come back to a normality of dividends, and certainly being very clear and very confident on a good outlook that we can achieve our 3%-7% underlying earnings per share in 2021, based on a normalized earning capacity of EUR 3.6 billion. Which also means that the COVID losses that we have seen will not repeat in 2021. Thank you very much for your attention, and we are now moving to your questions.
We have many questions. The first one is from Andrew Crean from Autonomous. Andrew, please turn on your microphone and go ahead.
Good morning, everyone, very good to see you all. I've got three questions, if I might. Firstly, you've said that XL's profit improvement, EUR 500 million is coming from pricing rising above the level of claims growth. Could you give us some detail around that as to what level of pricing versus what level of claims inflation you have there? Secondly, could you give us a little bit more detail around the EUR 1.43 dividend, and particularly give us some insights into your discussions with the ACPR and just how interventionist they are or not interventionist, hopefully. Thirdly, your solvency margin, once you sell Bank Belgium will be 204%. If you retain more earnings than dividends, you could be well above 210% by the end of the year. You have got some disposals in, and I think there's rumors of other disposals coming.
How should we look at that relative to your 190% target? Is there any possibility of you being able to execute buybacks this year or even make up the shortfall in the 2019 dividend? Thanks.
Thank you, Andrew, for your three questions. I suggest that we ask Scott to answer the first question, which was around how do we get to these EUR 500 million of pricing improvement above claim inflation. I will then take the second question, which was around the dividend behind the scenes, what have been the discussion with the ACPR. I would also take the third question on our solvency margin and the potential for share buyback. Scott, let's start with you. I think you are still on mute, Scott.
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Now you can hear me. Sorry. Hi, Andrew. How are you doing? Good to see you. In terms of the EUR 500 million , the rate is going to earn in, obviously, from 2020. That earns into 2021, plus the rate we're getting in the first quarter will also predominantly earn in for 2021. If you take the 2020 number, say around for the insurance, around 17% rate, and then use a loss development factor or a claims cost inflation number around 4%-5%, you see the difference there. We have about a 12-point margin on the portfolio that generates about EUR 500 million . That's the rough back of envelope math that we use to calculate that. Hope that answers your question.
Thank you, Scott. Andrew, let's go to the second question, which was around the dividend and the ACPR. As you can imagine, we've got a very fluid relationship with the ACPR. We've also had a very active dialogue around the dividend, but not only because we also had a very active dialogue around the question of our financial situations and stress test. As you could see today, the financial situation, the solidity of our balance sheet is very good at 200% solvency. The ACPR has clearly communicated last week that dividends should be looked at with the angle of prudence. Our board has certainly taken all of these considerations into account when they decided yesterday, but not only the ACPR considerations, much wider.
That's why it was very important for me earlier to also show you what we have done on a wider society basis and certainly for our customers at large. Because a dividend decision should be and is taken at AXA in a balanced approach across all stakeholders. Given our financial situation, given the fact that the board has considered that the decision of EUR 1.43 is in alignment with the principles of prudence, we are very happy to announce that attractive dividend today to the market. Your third question on the solvency margin, it is absolutely true that if we conclude the transaction with AXA Bank Belgium successfully, we would be at 204%, and we certainly hope that the generation of solvency from operating return beyond dividend payment will also add to the stability of our balance sheet and the solvency.
As you will remember on the Investor Day, we have been very clear that we want to target our solvency around 190%, that we are not relating it to any share buyback or other criteria anymore. Share buyback was very much seen under two angles. One, if we do make further disposals. Disposals that were announced after the Investor Day on the 1st of December of last year, that those proceeds would be used after closing of the transaction to neutralize the earnings dilution. We said further that when it comes to investments and looking where can we really deploy the capital, that we would really do that with high financial discipline and always looking at where is the multiple of AXA at that point in time. This should give you a very clear idea how we are looking forward at this.
It is important to know that COVID is not over yet, so we are very proud of having a strong balance sheet, but we want to make sure that we continue to build the strengths and keep the strengths up. Let's move to the next question.
Our next question is from Peter Eliot, from Kepler Cheuvreux. Peter, please activate your microphone and go ahead.
Thank you very much. Three questions from me, please. The first one was just looking at the reserves in excess of best estimates. If I look at France, they fell by EUR 0.6 billion across the year after being up, I think, at the half-year stage. I'm just wondering if you could sort of explain what's happening there, especially for France. The second question was just on the protection of the long tail lines that you've done at AXA XL. I'm just wondering if you could give us a little bit more insight into that decision, and maybe the timing. I guess obviously you've had that book for some time, but the decision is being made now, so some more insight there would be great. The third one, event cancellation?
I think I'm right that you now assume that events are canceled up until the end of 2021, as opposed up to 2024. The cost has only increased by EUR 0.1 billion. I have to admit, I'm pleasantly surprised that it was so small, and I'm just wondering if you could explain again what you're assuming there. Does it include the Olympics, for example, and any other events like that? It would be very helpful. Thank you.
Thank you, Peter, for your three questions. I suggest that the first question will be answered by Alban de Mailly Nesle. The second question, the first question was very much on the reserve movement in France. The second question was on the protection of the long tail lines. I would like Scott to talk about it, and certainly, when it comes to the event cancellation, I would also like Scott to talk about it. Maybe a general comment on our reserving situation. As you've seen, and the slide is now being shown, the reserving ratio has increased in the full year 2020. Despite the fact that we have the phenomenon you mentioned in France, the excess reserve above the undiscounted Solvency II level remain at a very comfortable level.
The same is true, as I said in my statement around XL, we have high confidence on the reserves. The reserve review at full year 2020 has really shown that we are very comfortable. We have excess reserve of EUR 200 million, and certainly when it comes to the COVID reserves, as Etienne has pointed out, we've also been very cautious since 65% of these are IBNR, incurred but not yet reported. All of this is really with two angles. One is to keep a very strong reserving position for the group. Secondly, to make sure that at the XL level, we really have managed well our volatility when it comes to the reserve. A last piece, which is around the prior year development, you have certainly seen that the guidance that we have given is EUR 1.5 billion-EUR 2.5 billion.
Last year, we were at EUR 2.1 billion, which is below what we could have gone. I think we should keep this in mind when we talk about the reserves. Alban, if you could please talk about France in particular.
Thank you for the question, and hello. Yes, I think, Thomas, you've said most of it. What I would just add is that the reduction in this amount comes from the prior year development, the positive prior year development, which at group level, is still well within the range that we have indicated. Overall, the ratio of reserves to premium in France is very stable at 250%. We have not deteriorated at all the prudence in AXA France reserves.
Thank you, Alban. Let's move to Scott on the ADC and the second call. The third question was on the event cancellation. Scott.
Hi, Peter. To answer your first question on the ADC, first of all, as we mentioned earlier, we're comfortable in our current reserving position. As we mentioned during the Investor Day, one of our key priorities is really managing our earnings volatility. Thomas mentioned it during his opening comments around we've taken action on line sizing, net line sizing. We've taken action on CAT, we've been more prudent and our CAT load. What we've decided to do is another way to help manage earnings volatility is on the reserve risk side. Obviously, working with the whole team, we've decided that one way we can help that, the earnings volatility, is to purchase the ADC. On my mind, it helps achieve one of those key priorities for us, which is improving or reducing our earnings volatility.
With respect to the event cancellation, when COVID first happened back last year, we took a hard look at our entire event cancellation portfolio. Then you sort of make estimates about when things are canceled, when they're going to be canceled, and the vast majority of the exposure was obviously from sort of a March to March basis. However, there were events that purchased coverage going into 2021 and even a little bit into 2022, but it's relatively small compared to the rest of the book.
At the end of last year, we took a look, okay, what's left? What's happening in those kind of events? We do expect a lot of events to occur, perhaps with fewer attendees or no attendees, et cetera. We put a little bit more provision into event cancellation for the remaining part of the events that we insure. You mentioned the Olympics specifically. We have done our analysis, and we are comfortable, we do not expect it, but if the Olympics are canceled, we expect to be able to handle that within the event cancellation reserve that we have set up.
Thank you, Scott. Let's move to the next question.
Yes, we have another question from James Shuck from Citi. James, please turn on your microphone and go ahead.
Thank you. Good morning. Thanks for taking my questions, and congratulations on the new innovation for this Q&A. I had three questions, if I may. I just wanted to return to the best estimate margins. That's reduced from 8.7% to 7.5%. You're eating into that best estimate margin a little bit, and part of that has come from France. The overall PYD for the year is 2.1 points. If you adjust for that reduction in conservatism, it seems like there's some adverse movement happening elsewhere. If you could just elaborate on that and whether you think 7.5% is an appropriate level going forward. Secondly, on the ADC, and the reinsurance in general. The ADC looks like it's costing EUR 20 million in lost investment income. We have the reduction in the retention rates across the reinsurance that you're buying.
Just interested to know how that gets charged to XL. Does it all come through XL, or is there a central item that flows through? Equally with that, could you just elaborate on the long-term reserves that are not forming part of the ADC? It looks like you have about EUR 17 billion of total long-term reserves, about EUR 11 billion are transferring. I know it's 2019 and prior, maybe that is the answer. I'm kind of interested about the large loss potential and how that feeds into the aggregate. Are the reserves that are transferred to Enstar, do they still feed into the aggregate cover? A final, just quick question on the own funds generation. I saw this positive development, EUR 1.2 billion operating experience variance for life and savings. There's a negative on the P&C, I think EUR -0.7 billion.
Could you just elaborate a little bit around that? I saw that you had contract boundaries being a positive factor from Japan. Is there any progress with conversations with the regulator around contract boundaries in France? Thank you.
Thank you very much, James, for your four questions. I suggest that they will be, first one on the best estimate being taken by Alban, is 7.5% enough? Second question was on the ADC, and how does it work with the rest of the reinsurance and the charging mechanism to XL and the central unit. Alban should also answer that question. The third one is around the long-term reserves. What is the large loss potential, and how does that fit in with the reinsurance structure? I guess, Alban, that is also your question. And on the own funds, I give that to Etienne. And the question, do we have any boundaries of contract discussion with the ACPR? Alban.
Thank you very much for those questions. On the first one, the best estimate margin, you have seen that there is a reduction in AXA France . The other part of the reduction is with AXA XL, with the use of the P-GAAP reserve, and that's why we have a reduction there on the excess overall at group level. Is the resulting amount at 7.5% in line with what we want? I think there is no target on that one. What I can tell you is it's above the minimum of our risk appetite. Therefore, we have margin there. The second part on the ADC, it's going to be all charged to AXA XL, any cost, any particular, the loss of investment income. On the third one, the long-term reserve, that would not be part of the ADC.
What is said is that it is the legacy XL. What we mean by this is that the AXA Corporate Solutions long-tail reserves on casualty, liability, or professional are not part of it. Simply because, from an actuarial standpoint, it is still two different triangles, to put it that way, and it was easier to tackle the XL part. We see also less volatility in the AXA Corporate Solutions reserves that focus on Europe. I am not sure I have understood your question on the large losses and how that feeds. If you can say that again so that I can take that question.
Thank you. The question was really around to the extent that you might see adverse development on the reserves that are transferring to Enstar. Do those reserves still feed into your group aggregate cover? Any large losses, do they come back into the group aggregate?
Okay, sorry. The group aggregate cover covers property and property losses, notably cat. It's not the same covers. The ADC covers long tail lines, casualty and professional, that are not covered by the aggregate. That's two different protection mechanisms. I hope I've clarified.
Is it clear, James?
It is, yes. Thank you.
Very good. Let's go to the first question, the own fund generation, Etienne.
Yes. Hello, James. I guess that your question relates to EOF report, where you see that we have EUR 3.5 billion of operating free cash flows. We had, indeed, some exceptional movements due to Japan impacting, or the non-recurrence of an exception in Japan last year, which impacts negatively the evolution this year, because it was a reinsurance contract. I think the reference to the boundary of contracts, there was no evolution this year. I guess that the EOF reflects this one-off in Japan for the life business. Second, unfavorable market conditions, which will reduce the free operating cash flow in life. Of course, the lower contribution from the P&C earnings.
Excellent. Thank you, Etienne. Let's move to the next question.
The next question is from William Hawkins from KBW. Please, William, activate your microphone and go ahead.
Hi. Thank you. I hope that you can hear me. Just a little bit more detail to help understand the ADC. Thomas, how are you thinking about the all-in economic cost of what you've just done? Obviously, ultimately, this is an additional cost to the original acquisition of AXA XL. You've given us the EUR 20 million run rate, but I'm wondering how you're thinking about the economic cost of that transaction. Secondly, to understand your view about the level of protection that you've got, how long, if at all, will it take to eat through that EUR 1 billion of cover? It's not at all unusual that ADCs are completely exhausted over some period of time. Will this one be exhausted? From your point of view, is this really tail protection, so the risk that it gets entered into, let alone exhausted, is limited?
That's point number one. Question number two, please. You've already touched on this to Andrew, I wanted to come back. The baseline that you set for earnings and the dividend that you've paid, you've described both of them, I think Etienne was talking about them, effectively being the same as 2019. Relative to your long-term business plan, you've effectively lost a year of growth. Put another way, this year's dividend should really have been EUR 1.5 if we hadn't had the catastrophe of the past year. Should we be looking really at your reset as one year's worth of lost earnings growth and lost dividend growth? Do you think that over the life of the business plan, we'll be able to make it back to what should have been the original trajectory?
Lastly, please, I just wondered if you could be a bit more explicit on the outlook for running yield. I haven't finished updating my model yet, but it does look like the XL investment income was about flat 2020 on 2019, and it's the rest of the world that took the brunt of the decline in investment income, which was about EUR 250 million. How should we be thinking about the euro changes in non-life investment income for XL and the rest of the world? Thank you.
Excellent. Thank you, William, for your three questions. I suggest, Alban, that you speak again about the adverse development cover. Again, what is important is to position the adverse development cover, as Scott mentioned it, as a tool to reduce volatility of the earnings. Since I've also said earlier that we feel very confident about the XL reserves, you've seen that we have EUR 200 million of excess reserves. Enstar has certainly looked at the reserves in detail. We feel that this is the right time to really move forward and reduce the volatility on the earnings and the reserve movements of this long tail block. I would like Alban to go perhaps a little more into detail again on the economic cost and the logic at this point, and then we come back to your other two questions.
I would do the dividend one, and Etienne would do the one on the outlook of the running yield. Alban.
On the ADC, I think the way we see it from a price standpoint is obviously there's a willing buyer and a willing seller. As such, it's a fair price. I think we see it as a right balance between a cost which is completely absorbable by XL in its earnings. It doesn't change the target that we have for this year, for instance, and protection against volatility. If I take the second part of your question on the ADC, what we have booked in our reserves at full year 2020 is our view of the ultimate cost of those lines. At this point, we don't think that it will be used up in a given number of years in the future. There is volatility in those lines of business, we know that, and we thought it was a good idea to put that behind us.
Thank you, Alban. On the second question, William, on the dividend. Obviously, last year and last year's dividend debate in the crisis was a very unfortunate one since France was very different in its treatment to dividend payment relative to other countries. For us, it was very important to get back to normality in the dividend payment, and therefore, the EUR 1.43 that you have seen, if you relate it back to the adjusted earnings, normally we've always given a guidance of 50%- 60% of adjusted earnings being the dividend. We've obviously gone very much beyond it as a very clear decision and sign to get back to a normality in dividend payment. From here going forward, we have said clearly that we want to increase the underlying earnings per share between 3% and 7% over the next three years.
For me, an attractive dividend trajectory should follow the development of the underlying earnings. Let's move to the next question, which is the outlook on the running yield. Etienne.
Hi, Will. Two things. First, when you look at the normalized earnings of XL in 2020, EUR 1 billion. Part of the difference to the EUR 1.2 billion, which was our initial target, is related to lower investment income. You will see that for 2021 in the roll forward, we will have another minus EUR 0.1 billion, which is reflecting the lower investment income yield.
Thank you, Etienne. Let's move to the next question.
The next question is from Michael Huttner from Berenberg. Michael, please activate your microphone and go ahead.
Fantastic. Thank you so much. This is remarkably efficient. I'm not efficient, but you are. I had three questions. I'll do them really quickly in case I get cut off or something by my picture. France, what's the profit starting point, or rather, what I really want to know, what's the profit for 2021? It sounds funny, but the France results were fantastic, right? Almost flat in a difficult environment. In there, I counted, and I may be wrong, EUR 0.3 billion of COVID kind of benefit, frequency, less business interruption, other stuff. Maybe I'm wrong. That'd be my first question. The second is on AXA XL. As Scott, you gave us a figure for 2021, the rate rises of 12%. Of course, you don't have EUR 4 billion or EUR 4 billion and change of commercial lines. You've got over twice that.
There's over twice that benefit to come. I just wondered, does it mean that we should put in for 2022, EUR 1.7 billion? EUR 500 million on top. The last one is on cash. We have EUR 4.8 billion remitted for 2020. I really like this. I'm really lazy here. Maybe you can say what we should expect for 2021. Is it up or down and kind of order of magnitude. It's really lazy, I'm sorry.
Good. Thank you, Michael. Let's help you in your laziness, if I use your words. Number one, on France, maybe Jacques de Peretti, you could elaborate a little bit, what were the tendencies in 2020, and how do you characterize the results? Scott, if you could take the second question on AXA XL and how do the rate rises really transfer and transform themselves into the required budget of EUR 1.2 billion. Etienne, if you could take the last question of what is the expectation for cash remittance for 2020. Is it EUR 4.8 billion up or down? Jacques, let's start with you.
Thank you, Thomas. Thank you very much for this question that underlines the resilience of AXA France in this very difficult time and the capacity both to be close to our customer and also to be resilient in term of results. We have been touched by the COVID-19, of course, and let's say that we have been touched by roughly EUR 300 million net of reinsurers on COVID-19. This has been partly offset by cost reduction, first, EUR 100 million, roughly. Prior year development, which has been already underlined, which was very strong in France, and also a lower income taxes. All of that permits to AXA France underlying earnings to drop only by EUR 47 million, -3% compared with 2019.
Thank you, Jacques. Let's move to Scott on the second one.
Michael, I think I understand your question. You probably want a little more detail on how we ended up at the EUR 500 million benefit in 2021. Roughly how we look at it is, we have the rate that's earning in from 2020, plus a little bit of 2021 that we're getting in the first quarter. We look at that in conjunction with, for example, the loss cost trends, somewhere between 4%-5%. It varies a lot by product, obviously. We have to build in things like the cost of reinsurance, some of the cost of our reinsurance on the insurance side, as well as the retrocession we buy on our reinsurance portfolio. We build those costs in, and those costs have gone up.
When you put everything into the mix, what falls out is about that EUR 500 million of additional income, underlying earnings income for 2021. Right? There's a bunch of number of factors in that, but that's kind of how we look at it. Hope that helps.
Thank you, Scott. Let's move to Etienne on the cash remittance.
Hi, Michael. As you know, 2020 has been an exceptional year, and with the lower operating free cash flow, as you can see in the EOF report, and therefore one might expect a lower level of remittance for 2021. This is, I guess, in line with the discussion we had already during the Investor Day.
Thank you, Etienne. Let's move to the next question.
Next question is from Pierre Chédeville from CM-CIC. Please, Pierre, could you please activate your microphone and go ahead? Thank you.
Yes. Good morning, everybody. First question is relating to the asset management as we see a strong recovery since few quarters of this division. I have a question regarding performance fees this year against management fees. Did we see a good resilience of performance fees in this context? Also, I wanted to be clear, when Etienne said that alternative represented 50% of revenues, I wanted to be sure that I have clearly understood. Above these detailed question, I wanted to know if one day you could consider a spinoff of AXA IM, considering the valuation PEs that are much above in asset management industry than in insurance. Is it something that you could consider? Of course, while taking a majority stake, of course. My second question is about the target of EUR 6.3 billion in 2021.
I wanted to know if it's a starting point or if it's a target. Would it be possible for you to get to EUR 6.5 billion, for instance, considering the fact that we observe an increased interest in interest rates in U.S. but also in Europe that could improve, as Etienne already said, somewhere your investment margin. My last question is regarding remote work. It seems to me that AXA wants to be a pioneer in this area, in these terms of organization. Can we imagine that we could see real estate capital gains coming forward due to reorganization of work inside worldwide AXA? Thank you very much.
Thank you very much, Pierre, for your questions. I suggest that Alban is taking the first one on the asset management when it comes to the resilience of performance fees, and Etienne is taking the question around is the target a starting point or an end point. I would like to quickly comment on your two other points. First was the question of does a spinoff of AXA IM make sense in terms of valuation? As you know, AXA Investment Managers, for us today, is a very core entity to the AXA Group because it is important in a time of low interest rates, in particular, to be able to source the right amount of alternatives and be able to generate a good return for our customers.
Therefore, AXA IM is core, and we are also very proud about the fact that we have such a leadership position on the alternatives. It is clear that if there is an opportunity arising that could make it interesting to grow our franchise, in particular on the alternatives, we will certainly always have a look at it in the interest of our shareholders. However, as you mentioned yourself, what is very important for us is to keep control in a setting like this, and you have to think very carefully whether this makes sense because again, today, we have the necessary size, we have the necessary capacities, we can live very well by ourselves.
Maybe on your last question around the remote work, it is true that AXA has been very good in transferring all of the employees in a remote service setting, also being able to continue the customer service. We've seen now, let's say, two extremes, being 100% present and being 100% remote. I think all of us have experienced that, and we understand that the two extremes is not the scenario that we probably desire going forward. Therefore, we were one, as you said, of the pioneers of pushing very much what we call the smart working principle, which is to find a good blend between physical presence, because we do need to interact, we also do need to make sure that the culture of AXA continues to develop and is also transferred to the new recruits.
On the other hand, we also want to respect the way people are more flexible in the way they work. This is now and has already been, I have to say, integrated in many of the real estate strategies of our local entities. For example, you see that in Belgium or in Germany or in many other entities, we already had a philosophy where people were present for three days and had a remote situation for two days. This enables us, obviously, to create a very different workspace, a more collaborative workspace. We can really benefit from the technical and technological investments that we have done. It does obviously lead to a concentration and reduction of our real estate. We are continuously working through this now and making sure that we get to a ratio of around 0.6 workspaces per person.
Alban, let's talk about the resilience of performance fees, and thereafter, Etienne, around the EUR 6.3 billion target or destination. Alban?
Thank you for the question. There was also a question on the breakdown of revenues between alternatives and the core. Yes, it's roughly 50/50 between the two. There is obviously less AUM in alternative, but the average management fees is significantly higher than for core. Hence, all the benefit of the growth that we forecast for that part of the business of AXA IM, the alternative part. On management fees versus performance fees, performance fees were slightly down last year at AXA IM.
Excellent. Thank you, Alban. We move to Etienne.
Yes, absolutely. The EUR 6.3 billion is of course the starting point and not the end point. Why so? If you take the EUR 4.3 billion earnings achieved this year, we have to add up the non-recurring COVID losses of EUR 1.5 billion and the EUR 0.5 billion excess nat cat of this year. All this adds up to EUR 6.3 billion. Of course, we want to achieve a growth from this point, and we want, of course, to grow our earnings.
Excellent. Thank you, Etienne. Thank you, Pierre, for your question. Let's move to the next question.
Next question is from Jon Hocking from Morgan Stanley. Jon, please activate your microphone and go ahead.
Hi there. Morning, everybody. Can you hear me?
Yep. We can, Jon.
I've got three questions, please. Firstly, on XL. Scott was talking about sort of wanting to reduce the earnings volatility going forward at XL. You've got a very skinny reserve buffer there, the EUR 0.2 billion. I realize you've got the ADC to back that up. Is there a desire here to rebuild that reserve buffer over time so you have got a little bit more earnings protection? Is that baked into the EUR 1.2 billion this year, and then the business plan thereafter? That's the first question. Second question, just on the P-GAAP usage at year-end, the sort of EUR 0.5 billion that was used. Can you give a little bit more color, please, in terms of what reserve adjustments-
Yeah
were made?
Sorry. It is so tough. I am completely distracted. Carry on. All is well.
The final question, there's the slide where you've got the cash injections into business entities, the EUR 1.4 billion. I think EUR 1 billion of that was the XL adjustment in the fourth quarter. Is that correct? If so, what's the balance of the EUR 0.4 billion, and which other entities did you inject cash or capital into in the fourth quarter? Thank you.
Sorry, Jon, could you repeat your second question? I think Michael's microphone was not, was it the P-GAAP usage, huh?
Yes. Where that got used by line of business.
Exactly. Okay.
whether that was all XL or whether it was the other part of the business as well.
Excellent. Thanks, Jon. I suggest, Scott, you take the first question, which was around bringing earnings volatility down. We have a skinny reserve buffer. We have the ADC now. Is it in the plan to build up the reserve buffer? Etienne, second question for you on the P-GAAP usage, and then also third question for Etienne, the cash injection of EUR 1.4 billion, where is the EUR 0.4 billion being used? Scott?
Thank you. Thank you, Jon, for the question. Yeah, as we look at sort of 2020, 2021 going forward, we want to make sure we constantly look at the performance of the portfolio and constantly make sure that we have adequate reserves. I think what happened 2019, 2018, and 2017 with the social inflation was definitely, not just only to us but the entire marketplace, a shock to the system. You see a lot of that in the marketplace about what happened in those years and the action taken. I think with the ADC and with the reserves that we have, I think we've got that adequately covered off.
We just have to make sure as we go forward, as we look at the portfolios constantly, keep that in mind as we set our IBNR numbers for the 2020, 2021, 2022, and make sure that we have sufficient reserves on those portfolios. I'm confident we're going to be able to do that.
Thank you, Scott.
Just to come back on that, Scott.
Yeah, go ahead.
Given you've got a gap between the rate and the loss cost inflation, would you expect it's reasonable to think that you'd get positive runoff from XL in future periods?
Yeah. If you would look at it from a math stat point, you could see that, but we're also very cautious on the social inflation. It was a big mover in those years, and it's not quote unquote over yet, right? The loss cost numbers, you make your best estimate, but I think it's a bit of a fool's errand if you just say, "Okay, it's over, it's done." We go back to more traditional loss costs. We're watching that very carefully, and things could happen, right? We're very cautious on the social inflation numbers, particularly in the United States. It's going to take a few years to figure that out. I'd rather lean in a little bit more on the cautious side, than sort of what happened in 2017, 2018, and 2019.
Jon, to add to it, I think what's very important is, the ADC gives us a very good momentum now to reduce the volatility. Our aim is to build up the buffer over time, the very focus is at this year to get to EUR 1.2 billion. If we are in excess of EUR 1.2 billion, we'll certainly think about increasing the reserve buffer. As we go along, and as those price increases that Scott has described earn through, we will certainly have the opportunity to strengthen the reserve buffer. Not forgetting that actually at the AXA Group level, we have a very solid and sufficient reserve buffer. Etienne, on the two questions, P-GAAP and cash injection.
Hi, Jon. Let's put it that way. The unallocated excess reserves, which amounted to EUR 0.5 billion at half year, are now EUR 0.2 billion. Right? We allocated EUR 0.3 billion during the second half of the year. Regarding your third question on the EUR 1.4 billion. The EUR 1.4 billion is not a capital injection, because the capital injection is accounted for in the line cash upstream. I said in my introduction that this capital injection at XL had been offset by upstream from Japan and Switzerland in the second half of the year. The EUR 1.4 billion is purely the reimbursement of internal loans and especially at AXA France Vie.
Thank you, Etienne, and thanks, Jon, for your questions. Let's move on to the next question.
Next question is from Farooq Hanif from Credit Suisse. Farooq, please activate your microphone and go ahead.
Farooq, please.
Farooq, could you activate the microphone? We cannot hear you. Okay. We're going to move to Nick Holmes. Could you please activate your microphone, Nick?
Yes. Hi there. Can you hear me?
Yes, Nick, we can hear you.
I'll keep it brief. Just one question, which is with Asia, can you update us on your plans? We've been fairly conspicuously silent on Asia so far. I think you had a target for 100 million customers in Asia by 2030. This may be an old target, I just wondered if you could discuss the ambition that you have in Asia and what your plans are to get there. Thank you very much.
Thank you, Nick, for your question. It is true that we have been silent. However, I have been mentioning Asia, in my part. It is clear that Asia is a very important part of AXA because we have a very good presence across the majority of the countries. We have, under the leadership of Gordon Watson, the right team in place. When you look at the performances across the different countries, you have seen that in Japan, we have a very strong momentum on growth in the health space. We have in China as well, a very strong momentum on the health side, being the largest foreign insurer in China. Hong Kong has just this morning been recognized as the best insurer of the year, also with a very strong momentum on the health side. We have very strong growth plans in place.
We have the right talent in place, and I have no doubt that we will get to the 100 million customers, because we are only in 2021 today, and we still have got nine years and 10 months' time to get there. Let's maybe try and see if Farooq is now ready to have an activated microphone.
Yes.
Yes. Farooq.
Hello. Great. Thank you. Three questions, please. Firstly, on the reserve buffer. By 2023, you will no longer have a reserve buffer because of IFRS 17. I'm wondering whether it would make sense for you to be on the upper end of your EUR 1.5 billion-EUR 2.5 billion o r even above that to use them up, because academically, not going to exist, basically, going forward. If you could comment on that, please. Secondly, on your nat cat program, I see that you reduced your limits. On your aggregate and on individual kind of catastrophic losses. I'm wondering in that context, whether the six percentage points budget for XL seems to be more on the conservative side. The last question is, could you tell us now what the capital ratio is for AXA XL in the Bermudian solvency regime? Thank you.
Thank you, Farooq, for your three questions. I suggest that Etienne takes the first and the third one, and that Alban takes the second one. Just to be clear, it is true that IFRS 17 will not channel the PYDs through the P&L, but those reserves don't disappear. They'll just be added to the funds or the shareholder equity. Let's start with Etienne on the reserve buffer.
Hi Farooq, thank you for your questions. I think it's a bit early to speak about IFRS 17. Before the introduction of IFRS 17, we are going to communicate a lot with all of you in detail. It's a bit early. It's true that this is an opportunity to review the reserves, to review the shareholders' equity. So far, our main driver is to ensure that the earnings pattern as a group will not be impacted in a significant way. This is where we are looking at. It's too early to make further comments on the individual treatments of different countries or different situations.
Maybe you take the third question as well, the capital ratio at XL in Bermudian.
Yes, absolutely. You remember, Farooq, that when we decided to proceed with the capital injection of EUR 1 billion in November at AXA XL, what we told you is that it was designed to allow XL to capture any business opportunities going forward in 2021, and to be able to distribute dividends going forward into the plan. What does it mean? It means that the capital solvency of AXA XL is well within our risk appetite framework, and we have not changed our mind on this topic.
Farooq, don't forget, the ADC will add to the local solvency of XL. Alban, on the nat cat limits aggregation and the 6%.
Hello, Farooq. On the nat cat, as you pointed out, we have increased to 6% the cat load for AXA XL. What that means in practice is not only a budget number, but it's also the fact that as XL wants and needs to be profitable with that cat load, it means price increases and more stringent risk selection in order to make sure that we write business which is profitable with that cat load. On the volatility at group level around the total amount of cat. What we have done, to some extent, we have wanted to align the cat load to the recent cat losses that we've had over the last, say, five years.
We wanted also to focus on what cost us money in terms of volatility, which is a number or an accumulation of small to medium cat. That's why we put the emphasis on that part of the curve, the one in five, the one in 10, and we have slightly increased our risk appetite, slightly, for the one in 20 years. That translates into the adjustments that you see on page B.30, and I take that opportunity to highlight what I think is a typo on that slide between the retention and the capacity for the aggregate. The retention is EUR 1.25 billion, and the capacity is EUR 650 million, because I think the slide could be interpreted in the other way around.
Thank you, Alban. Thank you, Farooq. Let's move to the next question.
Next question is from Andrew Sinclair from Bank of America. Andrew, please activate your microphone and go ahead.
Thank you. Hi, everyone. Three from me as usual, if that's okay. Firstly, was just on the adverse development cover. Very helpful announcement on that today. Just really wondered, are there any sub-limits within that EUR 1 billion of cover that we should be aware of? Secondly, was just on the reimbursement of cash subs, how much is left to be reimbursed between the different business units that lend money for XL? Thirdly, was just actually going back to the XL reserve buffer, sorry. You were saying if you earned over EUR 1.2 billion, that you'd potentially look to further strengthen the reserve buffer in XL. How long would you keep going with that? What would be the level of buffer where you think you would no longer look to build? Thanks.
Very good. Thank you, Andrew, for your three questions. Alban, I think you should answer the first questions on the sub-limits. Second question on the reimbursements, Etienne, you are doing this, and I'll get back to you on the third one around the reserve buffer.
On the first one, on the ADC, the answer on the sub-limits, it's simple. There are no sub-limits. We take the aggregate of the reserves, and that's that amount against which we are reinsured.
Very good. Thank you, Alban. Etienne?
Yes, we said one year ago, actually, that we intended to reimburse around EUR 2 billion. We have reimbursed EUR 1.4 billion. There is EUR 0.6 billion missing, and actually the EUR 0.6 billion missing corresponds to the proceeds of AXA Bank Belgium, which we'll get in a few months.
Andrew, on your second question, as it concerns for this year, our aim is to get to EUR 1.2 billion on the basis of reserve that we consider adequate and that we are very confident about. You've seen the excess reserves. You've seen also that in the COVID reserves, we've been very conservative, and you've seen the ADC to reduce the volatility. We are very confident and very focused to achieve the EUR 1.2 billion. If there is, this year, possibility to go beyond, we will certainly consider this to be part of an idea of reserve strengthening. It should not give the impression that the limit of the XL earnings is EUR 1.2 billion. I do expect that EUR 1.2 billion is the starting point for 2021, and that we progress from there onwards.
Once we have a clear progression, and we overachieve that, you have to always see it in this way, then we would consider to strengthen the reserve buffer, because we look at the XL reserves as a part of the entire group. What you see is that we are very well reserved at XL, but across the whole group, we have even a larger buffer, as Farooq pointed out earlier, IFRS 17 will redefine the game once it comes. Therefore, we look at XL as part of the AXA Group and as the overall reserve base of the Group is concerned. Again, on this topic, both XL and Group, we feel today very comfortably and very confident on the reserve base. Let's go to the next question.
Next question is Dominic O'Mahony. Dominic? Sorry, Dominic O'Mahony from Exane. Please go ahead, Dominic.
Hello. Thank you for taking our questions. Three from me as well, if that's okay. First, very specific question, just on the cash flow dynamics. Can you remind us how much special dividend you've released from the Swiss Life transformation a few years ago, and whether there's anything left to come from that? Indeed, whether it's already in the cash guidance that you gave us at the capital markets day. Then secondly, thinking more broadly about efforts to release capital from the life back books, of which the Swiss transformation is, I guess a very good example. I think previously you suggested there might be a reinsurance transaction on AXA Life Europe. Could you give us any update on where we are with that? More broadly, could you give us any sort of sense of how you think about releasing capital from those books beyond simple M&A?
For instance, is there an opportunity to replicate Swiss Life transformation in other areas, maybe in different ways? A third question, more on the operations of the business. Thomas, you mentioned AXA Tianping. You've been owning that 100% for a while now. Has that enabled you to do things that you weren't able to do before? You mentioned, of course, expansion into health. Could you perhaps give us a little bit more granularity on developments in that business? Thank you.
Excellent. Thank you, Dominic. I suggest that, Etienne, you are talking about the first three questions. One was on the GL 2020. How much was it? What is still left? Secondly, AXA Life Europe. Where are we on the reinsurance transaction? Thirdly, what and how could we release more capital from life back books beyond M&A? I would then come back, Dominic, on your last question, AXA Tianping. Etienne.
Yeah. Hello, Dominic. The cash flow. GL 2020, it is around EUR 2.5 billion program as a whole, over several years. In 2020, we had a positive cash upstream of around EUR 0.9 billion, and there is EUR 0.5 billion left for next year, I mean 2021. Considering the life back books, it is true that we say that half-year that we were working on a reinsurance transaction with AXA Life Europe. It will be an internal reinsurance transaction aimed at increasing the solvency of AXA Life Europe, and with the ultimate objective to ask for the authorization to the regulator to distribute a special dividend. This is ongoing, and once again, I hope we will come to an end on this transaction before the 1H closing. Are there any other transactions in the pipe comparable to the GL 2020, so the Swiss Life Group transformation? As spectacular as this?
Not, I would say. You know that we are looking at various situations. We have, of course, already in-force measures to reduce the amount of general account in our various countries. It's the case in France. We spoke about it. It's also the case in Japan, for instance, where we are very active on in-force measures. Second, we are looking at, from time to time, reinsurance transactions.
Under the condition that they financially make sense. More to come in the upcoming months.
Thank you, Etienne. Dominic, on your last question on AXA Tianping, health revenue in Asia has grown by 9% last year, which was primarily driven by AXA Tianping. As you pointed out, we haven't been 100% owner for a long time, but we immediately made sure that we also exercised our rights and powers as 100% owner, making sure that we've got the right talent in place, making sure that we shift the business mix to health. Actually, the majority of this 9% growth that I've just mentioned is actually driven by AXA Tianping, mainly from partnerships with digital platforms.
We work a lot with WeSure, we work a lot with Shuidi, which are two very leading platforms through which we sell a so-called cancer drug and medical reimbursement product because in China, cancer drugs are extremely expensive, and we are combining this insurance offering with a procurement offering through direct access to the producers of those cancer drugs. In addition, AXA Tianping has also concluded a collaboration with Beijing Life, which is also focused on how can we continue, through corporations, the push in health product. Lastly, since we are looking at China in a larger context, Hong Kong and AXA Tianping are working very closely together.
This should also enable us, on the one hand, to benefit from knowledge transfer from Hong Kong into China, but also to make sure that the so-called GBA, the Greater Bay Area, which is the southern China part, which is highly promising and where we've been one of the first ones to be present, to also make sure that we bundle our forces to really be able to make a start and make a good growth in this area as well. Let's move to the next question.
Next one is Kamran Hossain from RBC. Kamran, please go ahead.
Hi, morning everyone. The first question's about P&C overall. Would it be fair to say that 2021 should have a net benefit from COVID? As you said, COVID's mainly a commercial lines risk, that's kind of gone away or is behind you. Personal lines frequencies should continue, especially in Q1. The second question is, can you talk about how you're protecting against secondary perils or in the money perils at XL? My understanding is that availability of cover here fell away pretty sharply at the January renewals, but any kind of color or comfort on that would be really helpful. Thank you.
Excellent. Thank you very much. Kamran, maybe if you could be a bit more specific on your second question, which are those in the money perils that you are thinking about when you ask the questions?
I think wildfire.
Oh, okay.
snow storms, et cetera.
I see. Very clear. Okay, excellent. I will take the first question, and then Alban will take the second one. As we said, the year 2020 has been highly driven by COVID and certainly by, in many instances, coverages that we will not insure anymore. We spoke about the events or coverages in which, at renewal, we have excluded the COVID coverage. In the majority of our cases, and we have launched an internal project to really go through all the clauses of the so-called NDBI, non-damage business interruption, to change all these contracts. This has, to a large extent, already happened, but there is still some work to be done in 2021. Obviously, those contracts would still have coverage, but it's the smaller minority of the total contracts.
You obviously have the effects of confinements, in which we still see a lower frequency of accidents, lower frequencies of cars moving. The nature of these confinements are not the same anymore as we've seen in the first confinement. The first confinement was really characterized by a complete standstill. Today, we see confinements that I would characterize are more pragmatic, in which there is a lot of movement on the roads. If you imagine yourself being in Paris today, you are in the same traffic jams as you used to be a year ago or two years ago. We don't actually see a reduction more than, I would say, 5%- 10% of the activity when it comes to driving and moving cars.
I believe that going forward, there will not be a net benefit from COVID, but I predict that we will see the same ironing out effect that we have seen in the year 2020 when it comes to France and Europe. Alban, on the second question around the in the money perils and the protection against them.
For me, there are two. You mentioned Texas, but I'm sorry to say that it is way too early to be able to give you any decent numbers, because we've had a few claims, but there is no conclusion that you can draw from those few claims. You need to see what comes out of it. You've seen that estimate for the overall loss are extremely different from one source to the other. I'm sorry, I can't give you any number on that. On COVID, I think the more interesting part is the coverage through reinsurance. You're right to point out that reinsurers, which sounds logical, do not provide any longer any reinsurance protection against COVID losses in 2021. If that was your question, would I?
The question was more angled towards secondary peril reinsurance protection and the availability of that still, especially for XL. It's unmodeled perils, things similar to the Texas snowstorm, that maybe wouldn't be in people's models, wouldn't be a focus, and whether you've been able to buy protection for those kind of events, which have been a scourge for the industry in the last three or four years.
Sorry. Clearly, it is not because it's not completely modeled, and I agree with you, the industry's modeling of wildfires in California is not at par with typical cat modeling. It's not a reason not to buy protection against it. Our reinsurance cover would protect us against that kind of property losses that we would have coming from wildfires. We have in our own cat load, an amount which is obviously less precise than for other cats for that kind of perils.
Excellent. Thank you, Alban, and thanks Kamran for your questions. Let's move to the next question.
Before we move on to the webcast questions, the final question from Teams is from Thomas Fossard from HSBC. Thomas, go ahead. Thomas, could you please open your microphone? We can't hear you. Unfortunately, we cannot hear you. Okay, I think we can hear you now.
Yeah. Sorry about that. Good afternoon, everyone. Two question left. First one would be on the 13 points benefit in your Solvency II ratio coming from XL. That was about the 5 points- 10 points guided. Maybe you can mention if there were any specific benefits from ADC cover. I guess so, but maybe you could quantify this. The second question would be also related to Solvency II, just to have your thinking around inflation and if you were thinking about factoring into your internal model inflation shock scenarios given the potential long-lasting effect of COVID-19 regarding monetary easing. Is that something you're thinking about to do? Thank you.
Very good. Thank you Thomas for your two questions. I suggest, Alban, that you treat them. The one was, is the benefits of the ADC in the model. Second one is on the Solvency II, how do we factor inflation in the internal model?
Good morning, Thomas. On your first question, the ADC is not in the 13 points. You shouldn't expect much at group level, when it is in the model. The 13 points are indeed above the 5 points- 10 points that we had given as an estimate. It's true that it reflects the benefit of diversification that we have between XL's risks and the others. The ADC is not part of that. On inflation. We do already have an inflation module in our internal model. There are pluses and minuses to inflation. In minuses, obviously, high inflation will compound the cost of claims. It's already included in our premium risk and our reserve risk. It also have positive impacts because high inflation also means higher interest rates, and as you've seen with our sensitivities, that's a positive to our solvency.
Inflation is not negative only.
Thank you, Alban. Thank you, Thomas, for your question. Let's move to the next question.
We're now on to the questions from axa.com. The first question is from Ashik Musaddi from JP Morgan. Combined ratio in France, excluding COVID, was 88%, and in Europe, excluding COVID, was 92.6%. Would you say that this is structural in nature and similar combined ratio could be expected going forward? Can you give us some color on negative impact of low interest rates on P&C earnings for the next few years, assuming rates don't increase going forward?
Thank you, Ashik, for your question. I suggest we split the question in two. The first question, I would like Jacques de Peretti to give us an answer based on his experience in the French market, the combined ratio X and with COVID. Then Etienne, if you could take the second part of the question, which is the negative impact on low interest rates in P&C. Jacques.
Thank you very much, Thomas. Concerning the French market, it is true that our combined ratio without COVID is good and better than last year. A part is due also to the better.
Prior year reserve release compared with last year. This part I cannot think it is necessarily possible each year. On the other part, definitely, we have a very good book, which is each year improved, thanks to, first, our new product. Secondly, the reduction of our expenses, the decrease of our expenses, and the decrease that will come in the coming years. Also the capacity we still have to increase the rate. On the commercial line, for example, this year we have proved that we were able to increase more than last year, the rate. We are very confident in the capacity to reproduce this sort of combined ratio in the coming years.
Thank you, Jacques. Let's move to Etienne.
If we are speaking about trends, let's take a step back. Years ago, the objective in terms of combined ratio was 100% because all the money was made on the investment result. As you can see, it's not anymore the case today. Today, everyone is trying to reach levels which are in the low 90% because the financial income is not what it used to be. If we were to have a further deterioration in financial income, there would be an adjustment on the technical result. There is an offset in terms of trends which make the P&C business attractive for the long term.
Thank you, Etienne. Let's move to the next question.
The next and final question is from Frédéric Tassin from Aviva. What is your view on the consolidation operations that are taking place in France?
Thank you, Frédéric , for that question. To be impolite, I would actually have to ask you that question, but I won't. I think you see as a general trend, and AXA has started this movement as early as 2016, in which we, at the time, segmented our portfolio in what are the large markets, what are the markets that we want to develop in, and then what are markets that we want to manage in a different way and where we also have a look, will we stay present or not? You've seen in our case that we have focused ourselves a lot on less markets, on the core geographies, and you will see the same happening now with other insurers.
I think that is a trend that has been accelerated in the crisis but is a trend that will probably come even more because insurance remains a scale business, you need to focus yourself on your large positions. It is a business in which the regulatory complexity, which is often, again, very local, has increased. We believe that this movement is a movement that will go forward. The second observation that we see, that it's not always the larger players that consolidate. In the case of the French market and the recent announcement, you also see that large mutual companies are using the opportunity to grow their franchise.
We do not believe that this will have a significant impact on our positions since we are already very focused, and we have very leading positions that allow us to really be confident going forward and also be confident to fulfill the targets of our plan that we have announced last December. I want to thank you because this was the last question. I want to thank you for your active participation, for all your questions, and for having been with us. I am really sorry we haven't been able to see each other in person, but I really hope going forward that physical meetings will come back because it would be nice to see you again instead of talking into a screen. I wish you all the best. Thank you very much again, and hope to see you soon. Have a great day.