Ladies and gentlemen, welcome to the AXA Group Half Year 2020 Result Analyst Conference Call. To introduce the speaker and begin the call, I will now hand over to Andrew Wallace-Barnett, AXA's Head of Investor Relations. Sir, please go ahead.
Good morning, everyone, and welcome to AXA's 2020 half year results. A warm and virtual welcome to all of you on the phone and on the webcast. Here on the call this morning from AXA, we are joined by our CEO, Thomas Buberl, our CFO, Etienne Bouas-Laurent. Our CEO for France, Jacques de Peretti, our CEO for AXA in Europe, Antimo Perretta, our CEO at AXA XL, Scott Gunter, and our Group Chief Risk and Investments Officer, Alban de Mailly Nesle. Welcome to all of you as well. All of those present here from AXA will be very happy to answer any questions you may have on the results. As per usual, the Q&A session will be at the end of the presentation, and we'll take questions from those on the phone or those joining by webcast. Please just follow the instructions you've been given.
We will be giving priority to those who are joining by phone. It's now my pleasure to hand over to Thomas.
Thank you, Andrew. Good morning, good afternoon to all of you. Welcome to the Half Year Results 2020. I will start with the key highlights on page A5, if you've got the presentation in front of you. What are those key highlights? Number one, our business profile that we have significantly shifted over the last couple of years towards more technical risk is well-positioned for the current market dynamics. You have seen it. The company is very resilient. We are benefiting from a hardening pricing cycle in P&C commercial lines, and certainly also one of the strategic segments, the health business, is growing nicely, and it reaffirms our strategic positioning and our strategic priorities.
When you look at the revenues at -2%, very resilient due to the fact that we had a very strong growth in the first quarter, and that obviously the second quarter was impacted by COVID-19. The earnings are at EUR 1.9 billion for the half year, which is a very good result given the fact that we have been impacted in all industries with COVID-19. If you look at it relative to last year, it's -48%. If you take COVID out, it is +1%, and it is very much in line with the guidance of EUR 1.5 billion of net claims from COVID-19 that we have given on the third of June.
COVID-19, as you well know, is in the insurance industry, an event, a crisis that impacts mainly the commercial line business, and therefore, we have seen the major effects in the commercial lines business and a very good resilience across all other lines of the group. At this point in time, in a crisis that is challenging for all of us, the balance sheet has proven to be very resilient. This is also due to the fact that we have shifted our business profile. 180% solvency ratio is the solvency ratio at half year, and we are expecting upsides from disposals, roughly 6%, and also from the integration of AXA XL into the internal model of AXA Group in the second half of 2020. This is between 5% and 10%. At the same time, the cash remittance from entities remains strong.
You've seen that we have upstreamed dividend for most entities, and we have at the same time reduced the debt gearing to the debt gearing range of 25%-28% that we have aimed to be in by the end of 2020. You have certainly also seen that our regulator, the ACPR, has issued a second communication around dividends on July 28th. Their first communication in the month of May was around postponing dividends from being paid in April to October. This most recent communication was about not paying dividend for the whole year, for rest of the year 2020.
Therefore, to be in alignment with this very different position of the ACPR, the board of directors has decided not to distribute the exceptional reserve to shareholders that we have built, and this is also very much in line with the communication of the third of June, where we have said 50% of the dividend is being paid. The second half is being subject to the regulatory, financial, and economic environment. Here we've clearly got a change in the regulatory environment in that the ACPR or regulator has expressed themselves much earlier than we thought on the question around dividend for the rest of the year. If you go to the slide A6 you see the growth of the - 2% in revenue split up by the different lines of business. P&C is slightly down.
This is due to the fact that we had a confinement and that activity was certainly very limited for many of our customers. Health business has been performing very well. As I said earlier, one of the strategic pillars of AXA, and we feel very comfortable and also confirmed in pursuing our strategic efforts to strengthen and grow our health business. Life and savings has been the business that has been going back the most, -8%. If you look into the mix of this -8%, you see that the majority of the reduction is in the general account business, and that the unit link business and the protection business has performed well despite the fact that we were in a crisis. If you go to A7, which is around the underlying earnings, you can see a couple things.
Number 1, the underlying earnings of EUR 1.9 billion for the half year of 2020 is very much in line with what we have already communicated on the third of June, which was the EUR 1.5 billion COVID claims. If you take out COVID-19 and AXA Equitable, which we don't have anymore, you come to a reduction of 48% relative to last year. When you take away the COVID claims, we can clearly see that there is a progression of +1% underlying earnings, which demonstrate again, the resilience of AXA Group in a very adverse financial environment. You go one slide further to slide A8, you see the repetition by geography.
First is clearly the fact that most of our geographies and most of our businesses are very resilient because when you look at last year versus 2020, including COVID, you see that most geographies, France, Europe, Asia, and International are exactly at the same level as they were last year. The negative COVID effects and the positive COVID effects, mainly from a lower frequency in motor and higher growth in health, have really compensated each other and shown high resilience. We have also reacted very swiftly to the crisis with a very disciplined management of general expenses and keeping the investment margin stable.
I said earlier, COVID-19 is essentially hitting the commercial business, and therefore you see that the main impact for AXA is at AXA XL, because AXA XL is predominantly a commercial business and has no opportunity to diversify it away with businesses that are benefiting from the COVID-19 crisis. When you look at AXA XL as a zoom, because we have certainly changed the CEO this year, you can see that the underlying trend is very positive. Very positive why? Because ex-COVID, we would have been at + 9% of revenue growth. This is certainly due to the fact that Scott Gunter and his team is very focused on a very disciplined underwriting. Secondly, the underlying earnings ex-COVID would have been EUR 0.5 billion.
If you then were to exclude the EUR 100 million that we had to pay for civil unrest, you would be at EUR 0.6 billion, which is very much in line with the EUR 1.2 billion that we have aimed for before COVID has arisen for the whole year. What is very reassuring about AXA XL is that the pricing actions and the pricing trends are continuing. In the insurance sector, you still got, despite the crisis, +14% price increase. If you dig a little deeper, for example, into the U.S. business, the price increases are around 23%. When you even go further into the lines of business that have, for example, experienced social inflation, you see that the price increases in excess casualty, for example, are at +80% for this year. On the reinsurance side, you finally also see more decent price increases at 7.5%.
Scott and his team have been very fast in putting in a new organization that is simpler, that is more accountable, and that is really focused on underwriting discipline. When you look at the dynamic between top line development and claims inflation, you clearly see that top line is growing more than claims inflation is growing, which is the ultimate test of a healthy insurance business. At the same time, we have continued with the underwriting actions that we have already announced at the beginning of the year, reducing our property cat exposure. The revenue has dropped by 11%. This is a reaction of a reduced exposure, despite the fact that we could achieve 10% price increase. When you look at the line sizing in casualty, we have really gone through the portfolio and reduced the maximum risk limits from 50 million per risk to 25 million per risk.
I am very pleased with the transformation at XL. We are still in the hardening cycle and AXA XL should, after COVID, really show the fruit of this transformation. When you go to slide 8.10, you will see the effects on the balance sheet. The balance sheet is remaining very strong and resilient. The Solvency II ratio is at 180% with the expected upside that I mentioned earlier. One upside coming from the further disposals, around six points. The other one coming from the integration of AXA XL into the internal model between 5% and 10%. Both of these should be happening in the second half of 2020. Cash remittance remains very strong. As I said, we have upstreamed most of the dividends from the local entities. Cash remittance is at EUR 4.9 billion. The company is very solid.
There should be no reason to believe that a dividend would not be able to be paid, certainly the second half. As I told you, we do need to respect the recommendation of our regulator. That has been very clear and very strong not to pay any more dividends going forward for the year 2020. These 180% solvency at first half 2020 also include the accrued dividend based on the 50% pro rata of the full year 2019 initial proposal of EUR 1.43. If I summarize and look forward, AXA Group is well positioned for the future given the current market dynamics. We continue to see a hardening pricing cycle in P&C commercial line, as I said earlier, + 14% in the first half of 2020 despite the crisis. We see a continuing growth in the profitable health business.
We have benefited from +9% on the revenue side and +7% growth on the earnings side. The business profile is now well adapted to the low interest rate environment. We shifted dramatically from financial risk to technical risks. Today, 74% of our revenue is in the target segment, P&C, health and protection. We've also leveraged the crisis to accelerate on the digital interactions with our customers, making sure that our employees could work and perform customer service very smoothly and very fast during the lockdown. We have clearly stated and continued that we want to keep up the leadership around climate transition despite the time of crisis. We recently published a climate report in which you have seen that AXA is exemplary with having an investment portfolio that only has 2.8 degrees of Celsius warming potential relative to a market average that has 3.6.
This is for us a clear sign that we want to and should continue this journey on being the leader in the climate transition. Thank you very much. We are now moving on to the part of Etienne Bouas-Laurent with the financial performance.
Good morning to everyone. Thank you, Thomas. The objective, of course, of my presentation is to go through the P&L and the balance sheet of AXA's H20. As you all see and know, COVID-19 is impacting materially our earnings and much less our balance sheet, which remains extremely solid. Starting with the underlying earnings, they amount to EUR 1.9 billion. This part was already commented by Thomas. I would like to highlight one thing related to the EUR 1.5 billion. It's the fact that it's completely consistent with the June 3rd disclosure, which was made two months ago. This number has been confirmed during our closing. It doesn't mean that there might not be adverse deviation in the second half, but this is our best estimate taking into account all the elements we have at the moment.
If we look at the performance per line of business, property and casualty is, of course, the most impacted line of business by the COVID. It is down 72%, but up 3% excluding COVID. Life and savings is down 9%, hit by a lower technical margin, which itself is resulting from the COVID crisis. It is an indirect impact. Health is up 7%, reflecting a continued strong new business and business momentum. Health is not the only line of business going up. There is also asset management, up 5%, benefiting from higher assets under management. The holding segment is as well up, thanks to a very strong cost discipline across the board. Let's move now to our largest line of business, which is P&C. As you can see, our revenues are resilient with hardening prices offsetting lower volumes.
On the commercial lines, after a normal Q1 2020, the COVID crisis impacted Q2. The acceleration in prices highlighted by Thomas' introduction was partly offset by lower volumes. These lower volumes are generated by two things. The first one is that part of our insurance premium are indexed on the business activity of our customers. It's a mechanical effect, notably on business line like marine or aviation, it's mechanical. The second one is on SME clients. We took some support measures, in terms of insurance premium, to support our most vulnerable customers, notably on the French market. On the personal lines, you see that after a stable Q1, Q2 was down 4%, mostly because during the period of lockdowns, there was hardly any new business, and notably on the motor side. A pretty expected result. Moving to the profitability. The combined ratio was up 6.6% to 101.7%.
More than this increase is due to COVID-19 impacts. Excluding COVID, the combined ratio is down by 0.1%. It results from higher net CATs, 3.4%, slightly above the normalized level and certainly above last year, which was a benign first half. More than offset by, first, better prior year reserve developments, up to - 0.5%, and second, by a very strong cost discipline. You will see that on all the lines of business, you will see that there is a positive evolution of our expense ratios across the board. I'm speaking here about general expenses, excluding the commissions, DAC, URR effects. The underlying earnings excluding COVID are up 3%. This results from this slight improvement of combined ratio, - 0.1% excluding COVID.
On the other side, on the resilience of our investment income, notably in the first half, with an investment yield only slightly down by 10 basis points to 2.7%, even if the investment yield might be a little bit lower in the second part of the year, partly for seasonality effect. Let's make a zoom on the COVID impacts, EUR 1.5 billion. They are, as was said by Thomas, mostly impacting the commercial lines, while the personal lines benefited from a drop in claim frequency during the confinement period. I'm speaking here mostly about the motor business. Business interruption is the most impacted line of business. It was expected. There are still some uncertainties related to the second part of the year, as you all know, on the legislative and litigation sides.
We have booked some incurred but not reported claims to try to estimate what the impact could be, and this is within this EUR 0.8 billion, which are net of reinsurance. The claims here are impacting not only AXA XL, but also France, U.K., Germany, and Switzerland. Event cancellation, EUR 0.5 remains bang in line with the first estimate, which was given with our Q1 release in May, beginning of May. The other lines refer to liability, D&O, travel, and credit, where most of the notifications will occur at a later stage, we think. It's still an estimate. Lastly, the solidarity measures of EUR 0.2 are related to the support of our most vulnerable SME customers in France, as I said earlier. Regarding the geographies excluding COVID, you see that the earnings is up 3%, so it's good performance across the board. The explanation are the following.
The net CATs, you remember, were slight negative. They impacted XL with the Australian events in January and the U.K. with the storms as well in Q1. A positive prior year reserve development impacting France and Europe, relatively stable investment margin with some positives at XL and some negatives in Europe. Relating to AXA XL, you remember that we had a budget of EUR 1.2 billion for this year, excluding COVID per construction. You might have expected EUR 0.6 billion in 1H. Here, we show only EUR 0.5 billion, the main difference comes from the U.S. riots which occurred and which were absolutely not expected. The rest being pretty in line with our forecast. Let's move to life and savings. Gross revenues are down 8%, as highlighted in the introduction of Thomas, there is some good news in that.
Our capital light products are up, I refer to protection and unit linked, while the capital heavy products are down, I mean, the general account. This trend is true not only on the top-line side but also on the net inflows side. You see that the unit linked particularly is a good surprise because in the previous crisis, we tended to have massive surrenders on unit linked. Here, the clients, I think, were more mature and our distributors as well, and there were some positive arbitrage, notably in France from GA, from general account to unit linked. The general account savings were particularly down, notably in France and Italy. Let's move to the profitability. The profitability, as you can see, is down 9% due to a lower technical margin, partly offset by a strong cost discipline.
This lower technical margin, I told you in the introduction, is the indirect consequence of the COVID crisis. Why? First, because with the lower interest rates, we had to adapt and update the discount rate on the annuities, in France notably from 2.5% to 1.5%. There were also lower surrender benefits because we granted grace periods for the customers not respecting their payments. Lastly, in France, we extended disability covers for employees, which was direct, and this during the confinement period. The investment margin was particularly resilient in one H, notably due to very much lower crediting rates in France. The investment margin might be a little bit more under pressure in the second half of the year.
The lower general expenses reflect, as said, the cost savings initiative, which we have taken from the very beginning of the crisis with the objective, which was shared with all the managers and employees of the company, to offset the lower revenues with lower expenses. I think this plan works pretty well. Let's pursue now on a positive note with health business, which continues its strong performance across all geographies and in both individual and group lines, as reflected in the gross revenues evolution. The combined ratio was slightly up, which might seem counterintuitive because the current year loss ratio is benefiting from the lower frequency, which might revert in the second part of the year, but which was very good in the first half, and benefited as well from a strong cost discipline across the group.
The offsetting element was the less favorable prior year reserve development in some countries, notably in Europe and France. All of this with a pretty stable financial income resulted in underlying earnings up 7%, which is a great news. Asset management is as well going up, so not only health, benefiting from higher assets under management. You see that the gross revenues benefited from these higher assets, which are due to two aspects. On the one side, positive net inflows in 1H in both alternatives and core assets. Second, due to a market appreciation effect versus 1H 2019, notably on the fixed income part. Because the fees are lower on the fixed income side, you see that the gross revenues are increasing at a lower pace than the average assets under management. The cost income ratio, once again, solid cost discipline allowing a slight improvement.
As a result, underlying earnings up 5%, which is a very good performance in the context. The net income decreased by 39%, mostly reflecting the high financial market volatility. Net realized capital gains, as you can see, 98, reflect two realities. On the one side, the normal capital gains we realize each year, of around EUR 0.4 a year, which is unchanged. Here, higher impairments offsetting this good performance on notably on real estate and equities. The second adjustment is the economic hedges. You know that we have reinforced our hedges on equities just before the start of the crisis. It's reflected in this solid number with a plus EUR 4.4 billion gain. The change in fair value is this accounting noise reflecting the market to market of IFRS P&L assets.
Here, it's mostly hedge funds and private equity. These values can still continue to fluctuate until the end of the year.
For me, it's something which does not reflect a P&L reality, but more shareholders' equity reality. In an ideal world, we would love this to be booked in the OCI part. Exceptional and discontinued operations is 50% due to solidarity funds, which are not tax deductible, mostly contributed in France, but not only. In some other countries we had to do that as well, and 50% to various asset depreciation. The integration and restructuring costs are related to the pursuit of the integration of XL by AXA and some restructuring provisions like the most notable one being in Germany with the disposal of our banking portfolio, and the goodwill and related intangibles are pretty stable from half-year to half-year. It's time now to move to our balance sheet, which remains, as we said, very resilient. Shareholders' equity is remaining very stable.
While the adjusted return on equity is subject to the COVID earnings impacts, so pretty mechanical, not much to say. The change in net unrealized capital gains reflect some gains on the govies and the corporates mechanically as a result of the macroeconomic conditions. Equity is slightly down, but partly offset by hedges, which some part of them not being in the P&L. The net income for the period and the dividend are pretty balancing each other, and there is a strengthening of the euro generating a negative impact on the Forex and other up to 0.9. I propose to move to the solvency part, which is certainly more awaited and expected than the comments on the shareholders' equity.
Solvency II ratio 180%, pretty stable versus 1Q20, which was already disclosed at 182% with, as was said in the beginning, upsides still expected in Q4, and I would say significant upsides expected in Q4. If we go line by line, the operating return is one point only in the second quarter, reflecting the impact of COVID in the discrete quarter. The dividend accrual for 1H20 was explained by Thomas in the beginning. We are accruing 50% at half year of the announced dividend of last year, which was €1.43. It's not a decision, it's purely the continuity of the methodology we are using each year when accruing for the dividend to be paid in the following year. Market impact excluding Forex, minus one point. To be frank, based on the sensitivities, one might have expected a slight plus and not a slight negative.
It's due to the fact that the changes in market conditions in 1H have moved quite a lot, and the sensitivities needed to be updated, which is disclosed here on the right-hand side. The main factor is that with lower interest rates level, the impact of the volatility adjuster on the corporate spreads is getting to zero and therefore, the evolution of the market impact is benign in the quarter but might have been slightly more positive based on the former sensitivities. The debt repayment of EUR 1.3 billion performed in April was expected as well, -4 points. As discussed already and presented by Thomas, following the very strong statements of the ACPR and the very clear discussions we had with them, the non-distribution of the second part, second tranche of the dividend contributes +6 points to this number of 180%.
Regarding the Q4 indicative outlook, I would like to highlight that the two main transactions running, which are the sale of AXA Bank Belgium and the sale of AXA Central and Eastern Europe operations is running well, in line with expectations. We are very confident that the disposal will take place at the end of the year. ALE, the transaction had been announced in 2018, and there was a joint and mutual agreement between Cinven and us to terminate the sales agreement. Certain conditions were not met by the agreed terms. Given the complexity of the transaction, including the regulatory complexity of the transaction, we have preferred to stop it. We are working actively on alternative solutions to optimize the liquidity of this company, which we should not forget, has positive cash flows, which are expected. It's a profitable operation.
We wanted to improve a little bit, the solvency and the liquidity. The solvency, we would have had a gain of one point, which we will not get further to the decision. However, on the liquidity, this was a EUR 1 billion transaction. We are working on alternative solutions, notably with reinsurance schemes, external or internal, to reduce the required capital requirements in order to bring some upstream, some further cash to the holdings. This objective is still valid up to the end of the year, and we keep you updated on this. Let's move to the assets. What we can say is that our portfolio management during the crisis was very active. What we did was being very proactive on the most vulnerable sectors, notably oil and gas, travel, leisure, transportation. These sectors represent EUR 11 billion out of a total of EUR 169 billion total corporate bonds.
70% are rated A or above. What we did was to sell around EUR 1 billion of this portfolio, at a value of circa 90% of par, to protect the ratings of our portfolio and to try to avoid the defaults. The second, in the middle of the chart, you see that this result has been achieved. You see that very little has moved. To be completely transparent, there were some downgrades from BBB to below investment grades, which represent less than 0.3% of the total corporate bonds portfolio, which we think is a great achievement. Lastly, on the asset side, in the context of reducing interest rates or lower interest rates, we have tried to pick up or to invest in some attractive assets with sometimes lower liquidity, but a very decent profitability.
This was the case notably in real estate, where we invested in some programs, EUR 2.3 billion in France and the U.K. In CLO tranches, so AA, AAA CLO tranches, with a margin of around 200 basis points, which we thought were very attractive. This is how we can get an extra margin on top of the core fixed income of 1.3%. We are confident that we can keep a reinvestment rate of around 1.5% until the end of the year. It was slightly above 1.5% in 1H. It might be slightly below 1.5% in the second part of the year, but as a whole, we are still targeting 1.5%. The reserves in P&C remain strong across the group. Reserving ratio is up, reflecting notably additional COVID reserving. It's one indication, but it's not the most powerful and indicative one.
We think that the most useful information is the IFRS reserves in excess of undiscounted Solvency II best estimate liabilities, which remains high. For the sake of transparency, we have reduced the level of excess at AXA XL, mostly on the non-U.S. D&O liability lines. These lines had been identified when we set up the PGAAP originally, therefore there is no P&L impact in the numbers we disclose. We continue to consider our level of reserves as prudent at the group level, which we think is very clear for everyone. I would like to finish the balance sheet presentation with the cash at holding and the group debt gearing. As you can see, the liquidity on the 30th of June amounted to EUR 7.2 billion.
It's EUR 5.5 billion after the payment of the dividend in July, which we think is a more relevant number to be compared with the EUR 3 billion of last year. This increase is mostly related to the high remittance from the entities. When I say high, it's business as usual, but it's high in the context of the crisis, EUR 4.9 billion, and reflects as well the reimbursement, the EUR 1.3 billion reimbursement of the sub-debt in the 1H. The debt gearing reduced further in 1H, reflecting, of course, the reimbursement of the debt. It contributed to an improvement of 1.4 in the ratio. Regarding the end of the year, we continue to think that we might slightly improve this ratio, which we will keep in any case below the 28% upper range. We had set a target more of 26% on the 20th of February.
Given the context of the crisis, we will be below 28%. I think this is for the balance sheet. I would like just to give, before handing back over to Thomas, trying to summarize a little bit what we just said on the P&L and balance sheet side, which that we experience resilient revenues supported by hardening prices in P&C, capital light products in life and savings, higher volumes in health and asset management. Our half year at EUR 1.9 billion remain high, but negatively impacted by the COVID-19 claims, consistent with our third of June disclosures. Most of these negative impacts are related to P&C commercial lines, excluding COVID claims and the deconsolidation of Equitable, earnings are up 1%. Lastly, our balance sheet remains resilient. We expect higher Solvency II ratio at the end of the year. We expect our gearing ratio to remain below the 28% mark.
Since March, we have been very active in managing our investments portfolio, our cash position and our cost. You can expect us to remain disciplined on this front. I'm now handing back over to Thomas for the Q&A session.
Thank you, Etienne. Before we come to the Q&A session, one last logistical detail on page 830. As you've seen, we have planned an Investor Day for December 1st. Originally, we wanted to launch the new plan 2021 to 2023 on that day. Given the fact that COVID-19 has certainly had an impact on the 2020 numbers and we are only in the middle of the year, we have decided to maintain the Investor Day on December 1st, focusing on key topics that we have, and then having another Investor Day after the full year results 2020, sometime after end of February 2021, in which we launch and present the new plan 2021 to 2024, most likely. Just as a logistical detail, because I'm sure that question of the new plan will arise.
After that, let's move to the Q&A, and as Andrew said, we will give preference to the questions now in the past was in the room, on the phone there. Who wants to start? It's always good if you introduce yourself with name and institution so we know who to speak to.
Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. The first question comes from Michael Huttner from Berenberg. Sir, please go ahead.
Thank you very much for your presentation. I had three questions. The first one on the rate rises. You kind of said this was about the claims inflation. I just wanted to know if you could give an indication of where we are. I normally think in terms of payback, but I think I'm being a bit optimistic saying it's payback. I think it's more future profits rather than payback. Maybe you might say there is a payback a bit. On the operating or organic capital generation, I noticed that the half year net of dividend, it was zero in the solvency roll forward. I just wondered if you can kind of say where we are now for the second half. I know that the COVID impacts should not come through in the second half. I still don't know what the base number should be.
Finally, you spoke about the kind of trying to make up for the non-sale of AXA Life Europe. You said reinsurance might free cash or capital. I'm just wanting to check if that would be the figure you have in mind is still the EUR 1 billion, which was the original sale amount. Thank you.
Thank you, Michael. I repeat, because the line was sometimes a bit difficult. I heard three questions. The number one was, can you qualify a little bit more what the rate rises at AXA XL mean and how they behave relative to claims inflation? Scott Gunter is on the line with us. He will take that question. Your second question was, if I understood correctly, around the question of the solvency roll forward and what do we expect for the second half of the year. Etienne Bouas-Laurent will take that question. The third one is around AXA Life Europe, the non-sale, as you called it. Do we achieve similar effects to the EUR 1 billion, with the indicated reinsurance structure? This is also a question that Etienne will answer. Scott, why don't you start with XL?
Sure, Thomas. Thank you. Thank you, Michael, for the question. In terms of the rates we're achieving, we believe we are getting rates that are running ahead of loss trends, for most of our products that we look at. We are in, obviously, after many years of a soft market coming through the late teens, early mid-teens of the 2020, sort of 2014 through 2019, coming through that soft market period where rates were not keeping up with social inflation, claims inflation. Obviously, the industry has a deficit to still build through on the rates. We are continuing to push that pricing. Right now, today, when we look at the pricing relative to claims inflation, we believe that we are getting rates in excess of loss inflation. We still have a way to go.
We expect that to continue, at least through the back half of this year and into next year. Thank you, Thomas.
Thank you, Scott. We'll move to Etienne on the second one on the solvency going forward.
Michael, as you can imagine, I cannot give you guidance on the operating return for the second half. I think you have all the elements. You rightly say that COVID should not reiterate in second half. Giving the operating return would be giving a guidance on our earnings, which is difficult for us to give, first, because we never give guidance, and second, because we are in a very volatile environment, and we must remain very vigilant and cautious. You have noted the positive impacts related to the sale of the two businesses, which is running well, which brings six points. You have as well the internal model of AXA XL from 5 to 10. You have at least 10 points to be expected up for the second part of the year. Regarding the AXA XL-
Can I just ask, I'm sorry. Could you just remind me maybe what was the original guidance on operating capital generation given in the past?
15 to 20 was the official number given in a year.
Yes. Lovely. Thank you. Sorry about that. Thank you.
Before dividend, Michael, of course.
Yes. That's right. Yes.
Yeah.
Yeah.
AXA Life Europe, the transaction price was EUR 1 billion. The liquidity we expect to generate with internal or external reinsurance structures will be below this number, obviously, per construction. It will be in hundreds of million, but it will not be 1 billion. I cannot give you more than this. It gives you a hint.
Thank you, Etienne.
Thank you very much.
Thanks, Michael, for your question. Let's move to the next question.
The next question comes from Jon Hocking from Morgan Stanley. Sir, please go ahead.
Thank you. Morning, everyone. I've got three questions, please. On AXA XL, firstly, could you give some indication about the appetite to grow the business from here and some color in terms of how you participated through the mid-year renewals and what your intentions are at the January 1 renewals in terms of growing exposure or whether you're really focused on improving the quality of existing book? That's the first question. Second question, again, on AXA XL. Can you comment a little bit on the solo balance sheet, please? I think at the full year, you talked about the reserves at AXA XL as being adequate. Also, the group reserves are in good shape, and there's another reserve hit at AXA XL. In terms of the solo balance sheet of AXA XL, to what extent do you have the flexibility to grow exposure in AXA XL, if that's the choice?
Finally on the Solvency II capital, to sort of come back slightly to Michael's question. If you look at the first quarter, the 19 points of negative market movements, is there anything that structurally happened with the balance sheet in terms of hedging, et cetera, that suggests that wouldn't come back if markets were to normalize? Because obviously the credit sensitivity has changed somewhat versus the first quarter. Thank you.
Thank you, Jon, for your three questions. I suggest that the first question is being answered by Scott, which was around what is your appetite to grow the business? How do you participate in the mid-year renewal? Are you focused more on improving your quality of the portfolio rather than taking market share? Second question should be answered by Etienne Bouas-Laurent, which is around the question of what is the solo balance sheet given the reserve movements? Third question around the Solvency II capital. Alban de Mailly Nesle, Chief Risk Officer, who is with us should answer that question around of the negative market movement of the 19 points and the question around hedging. Scott, why don't you start?
Sure, Thomas. Jon, thank you for the question. We definitely have an appetite to grow the business. We think we are actually going to do both of your points at the same time. One, we are diligent on working on improving the quality of the existing portfolio, whether that's through underwriting action, careful analysis of the business, pricing, and where we can get the rate we think we need, we definitely want to grow it. There are parts of the business that we feel are performing pretty well that we think can grow. As part of our planning process, we break our portfolio into sort of two groups. One is, hey, this one needs more remedial action. Let's fix it through limit reductions, pricing. The other part is this business is performing that we believe at an adequate profit margin, and that's the business that we grow.
We like to believe we can actually do both at the same time. Always the challenge for every insurance carrier is to figure out where are you getting paid adequately, and then you apply the resources to that business. We would like to believe that, Jon, we're able to do both of those.
Thank you, Scott. Let's move to the second one, Etienne, on the solo balance sheet. I think that the question of the solo balance sheet is related to the first question, which is the flexibility to grow. I think it's not a question of balance sheet. We are in line with our guidelines in terms of solvency ratio with XL. It's more an underwriting decision coupled with the risk appetite we have, which is the driver, and not a balance sheet constraint.
Just to follow up, Etienne, what was the driver of the EUR 0.3 billion reserve adjustments in XL, if I read the slide correctly?
Right. Okay. This is the identification of a higher reserving need on the non-U.S. D&O business lines. This, we knew when we made the PGAAP that this line was certainly a little bit under-reserved, and it's just the confirmation. When we get the more precise information over time, we allocate part of this original initial prudence to real reserving. That's it.
This is Australia, Germany, U.K., the usual issues, I presume.
What we call non-U.S. is mostly subscribed through London, and it covers various geographies around the world. I would say mostly Europe.
Okay. Thank you.
Alban on the third question.
Hello. I understood the question as if and when markets normalize, do we get our solvency points back? The first thing to say is, as you saw with what Etienne mentioned on page A25, there are interactions between sensitivities, notably between interest rate level and spread sensitivity. The short answer is yes, we would get them back to the extent the markets normalize together between interest rates and spreads. If we get one and not the other, then you have the sensitivities that you have on this slide, where corporate spreads, for instance, if increased by 50 basis points at zero point, because that's the current interest rate level that have some impact on it, and same if corporate spreads reduce.
The one sensitivity which is not that much impacted by the others is the equity market one, which is not very dependent on spread and interest rate levels.
Thank you.
Thank you, Alban. Thanks, Jon, for your question. We go to the next one.
The next question comes from Andrew Sinclair from Bank of America. Sir, please go ahead.
Thanks. Good morning, everyone. Three from me as well, if that's okay. Firstly, just on the Q4 dividend, which is not now being paid, should we just assume that cash is absorbed within AXA, or do you still view that as the shared cash that at some point can come back to the shareholders? Second point was just on the EUR 1.5 billion of COVID claims, just wondered if you could tell us a little bit more about how that breaks down into what's already reported, what's incurred but not yet reported, and what's put aside for future claims that you expect to be incurred as a result of COVID. Thirdly, was just on reinsurance. Can you give us what's been color on discussions you've had with your reinsurers to give comfort on the net figure? I didn't see your usual slide on XL's reinsurance programs.
Just really wondered if there's any protection from the aggregate cover amid COVID, even to protect you, say, into H2. Thanks.
Thank you, Andy, for the questions. The number 1 was on the Q4 and the dividends. Is the cash absorbed? Can it come back? Etienne, if you could answer that question. Second 1 was on the COVID claims, EUR 1.5 billion, what is incurred, what is not incurred yet. I'll talk about this. The third is around the discussion with the reinsurers and the XL reinsurance program. Alban, if you could take that question. I'll go straight to the second one and pass it on to Etienne. The EUR 1.5 billion COVID claims is exactly the same number that we had already published on the third of June. When you look where do these COVID claims come from, it comes mainly from business interruptions, from event cancellations, from D&O liability and travel, and some solidarity measures offset by positive news on motor frequency.
Many of these items have been observed. If you look, for example, at the event cancellations, you know exactly which events have been organized, which have been insured, which have been canceled or deferred. These numbers are relatively clear. We see that many of the claims are incurred. Not all of them are reported, but on this one you have a very clear indication. On the business interruption, it's the same, and you've also seen some of these being in the media where people have claimed on the claims. Because that is also a component of cash management for these entrepreneurs, they have an interest to claim relatively quickly. On this one, we know more or less what's happening. Going forward, this has to be seen how it evolves because some of the claims are still subject to litigations when it comes to the business interruptions.
Others have still the question around how, for example, does the motor frequency evolve? We've seen during the confinement that it has been reduced, but now people would prefer to take their own car. If you look at all of this, the 1.5 is our best estimate as of today. It has stayed stable, and we hope that it will stay stable. Your question around IBNR versus already happened. 65% at XL, for example, on the business interruption is incurred but not reported. We know also from the past what to do there. The same is obviously true at the D&O and liability, where you have claims that still follow. There is also roughly 65% incurred but not reported. I would suggest we go to the first question, which was on the dividend. Etienne?
I think Thomas was very clear in his introduction. He referred to the discussions and the communication of the ACPR. They were extremely clear, and therefore we have decided not to pay and not to accrue for it in our Solvency II ratio. The objective here was clarity. First point. The second point is that any kind of decision related to the dividend belongs to the board, which will take place in February 2021. It's up to them to decide. It's extremely difficult, and to give any kind of guidance on this, we have to be patient and wait for it. I just remind you once again that we have accrued for 50% of the EUR 1.43 at half year, which means that we should accrue for The final accrual will be dependent upon the decision of the board.
You notice that by doing that with this methodology, we are accruing for something which is above the classical payout ratio of 50% to 60%. I will stop here.
Thank you, Etienne. Let's pass on to Alban on the question around reinsurance.
Our reinsurance program, as you know, includes several components. I'll mention three, and I'll start with the two easiest ones. We have a per risk component on all lines of business, property, event cancellation, and so on. That's reasonably mechanical. The second one is one that you mentioned, which is the aggregate, that covers insurance and reinsurance, but on a named peril only. Pandemic was not part of those named perils, and therefore the aggregate would not come into play. There is the third component, which is the insurance per event that covers our property and property cat portfolio on the insurance side. That's where, in particular, you would have the business interruption claims that would be launched with the reinsurers. The discussion has started with the reinsurers on that one.
It's a very open discussion, but it's obviously complex and it's going to be a long discussion given the size of the event, given the fact that it's on many geographies that act differently, and that's obviously still an ongoing issue.
Thank you, Alban, and thanks, Andy, for your question. Let's move on to the next one.
The next question comes from James Shuck from Citi. Sir, please go ahead.
Thank you. Good morning, good afternoon, everybody. I have three questions, please. On the central liquidity, EUR 5.5 billion at the half year, I think, Alban, you'd intimated that you'd be downstreaming EUR 2 billion of cash to the local OEs. That doesn't seem to have come through actually in that liquidity number at this stage. Perhaps you could just update us where we are with that and whether you still intend to do that in the second half of the year. Also, it seems like you've issued EUR 1.1 billion of commercial paper, in the period. Can you just outline why you did that? Secondly, on remittances, just could you update on the outlook for remittances into Q1? Obviously, you've had EUR 4.9 billion thus far. I presume there was no dividend paid out of XL Bermuda.
When we look out to Q1, are you expecting to take a dividend out of XL Bermuda? I think the local solvency level is around 150%, and obviously you're looking to grow quite strongly there, so it may be that you don't do that next year. Any help about the outlook for remittances would be helpful. Then finally, just around the debt gearing. You are at the top end of your target range. Your range includes goodwill when you calculate it, so your debt gearing actually looks a lot higher ex-goodwill. Can you just comment directly about how happy you are with that target level? It's obviously a 2020 target. Do you intend to take it down further? How should we think about a potential goodwill impairment from AXA XL, please? Thank you.
Thank you, James, for your questions. Number one is on central liquidity, outlook for the second half via the commercial paper. Etienne, I suggest you talk to that question. Secondly, on the remittance, what is the outlook going into Q1 of next year, in particular with regard to XL. Etienne will also give a view on it. The third one on the debt gearing, I will answer to that. Are we in a good range, yes or no? Etienne, if you could start with the first two.
Yes, of course. James, we say that there would be some cash buffer rebuilt this year. We are not changing this statement. It will happen in the second part of the year. I remind you as well that we might expect some further cash remittance, but we don't give any guidance on this. Of course, some proceeds from the disposals up to €1.6 billion. Regarding the commercial papers, our intention was the following. We regularly test the market in these turbulent times to see what's the liquidity. There is no specific target on the commercial paper. The maturity ranges between three months and 12 months. It's for us, just a way to test the market. There is no specific message around that. It can be up and down. It was zero at the beginning of the year.
It has gone up a little bit in the first half. There is no intention to go further up in the second part. Maybe we'll reduce part of it because it will come to maturity. I would not give too much attention to this. We are pretty comfortable with the liquidity. We don't change fundamentally what we said at the end of February on this front. Regarding your question on XL, sorry James, I'm not sure I got it precisely.
The question was I'm sorry, go ahead James. Go ahead. Rephrase your question.
No, it was conceptually about the outlook for remittances into Q1. Obviously, a lot of local solvency levels would have fallen since last year. You didn't take a dividend out of Italy, you didn't take one out of France Life. I don't think you took one out of XL last year. I'm just looking forward to Q1. XL's Bermuda capitalization, I think, was 158% at the end of 2019, and you've got strong growth coming expected in there. What should we expect for remittances from some of these areas, XL Bermuda included, into Q1? For me, the liquidity looks tight, particularly in the context of a dividend that costs EUR 3.5 billion, when it gets more difficult to upstream cash from some of the local units in this environment.
It's difficult for me to give a guidance. What I can tell you is that XL, from a solvency point of view, is all right on the 30th of June, and I said that a little bit earlier in this Q&A session. Second, given the earnings they are generating this year, there will be no dividend upstream from XL next year. It's pretty mechanical. This is what I can tell you today.
Good. James, let's move to your third question, which was around the debt gearing. Your first point was, is the range we are in the range we feel comfortable in? Yes, we are. That's what we've always been in and what we've also clearly announced. Being between 25-28 is a good range. Going back to the definition of the debt gearing, on the contrary, we have a rather conservative definition of the debt gearing, because as opposed to other larger insurance group, we do not include the OCI into the denominator of this number. Therefore, it is much more conservative with regards to others. When you look at this range, however, we certainly realize that market conditions are again very attractive to raising sub-debt.
I would not exclude that we remain opportunistic and, for example, substitute old debt, which obviously had a cost that was much higher than it is today, with newer sub-debt that has much better conditions. You were then also referring to goodwill and in particular, I guess, to the goodwill of XL. We've seen that COVID is clearly an exceptional event, that there is no change to our long-term view of XL, because as we pointed out earlier, the underlying performance of the XL business ex-COVID is very much in line with our expectation. I remind you, the underlying earnings ex-COVID are + 1% relative to last year at EUR 0.5 billion. As Scott pointed out earlier, the pricing outlook for commercial lines remains, despite the crisis, very favorable. Let's move to the next question.
Thank you.
The next question comes from Farooq Hanif from Credit Suisse. Sir, please go ahead.
Hi everybody. Thank you very much. Can you tell us about what proportion of the technical margin decline might reverse? In terms of what is kind of specifically COVID and environment related. Also update us on the investment margin guidance for that business. Secondly, going back to the question earlier about reserve surplus, could you give us some numbers about the reserve surplus at AXA XL over best estimate? Specifically, P GAAP and any other reserve surplus that you see there. Lastly, just on the mix in XL. Obviously, you have a quota share that you put in place in property cat, which has reduced the net mix of that business. Excluding that, if you look at the two portfolios, Scott, that you referred to, is liability now in the adequate profitability camp?
What are you growing when you look at liability versus specialty versus property? Thank you.
Thank you, Farooq, for your questions. I repeat again, the number one was the question around the technical margin and investment margin decline. What is COVID related? What can we pick up again? Etienne will answer that question. A second one around the reserve level at XL relative to the PGAAP. I would also like Etienne to answer that question. On the third one, around the adequate pricing of liability. Scott, if you could answer that question. Etienne, on the first one.
Hi, Farooq. I hope I got your question, because I don't know if it was specifically referring to XL or the group. What I can tell you is that for the second half of the year, as I hinted, I think the investment margin should be slightly lower. There is some seasonality effect, but there were also some exceptional distribution from PE funds, notably at XL. Of course, the evolution of the financial markets has a larger impact on six months than on three months. This has to be taken into account. Regarding the technical margin, everything being equal, because we cannot give guidance given the uncertainties. Will there be further confinement periods? We don't know. Therefore, we are not in a measure to give any precise guidance. Mechanically, one might expect a higher technical margin in the second half versus the first half.
You have, of course, as headwinds, the investment margin and as well, the non-recurring Equitable Holdings earnings. I hope it clarifies your question.
Sorry, investment margin. Sorry to interrupt. I meant more the long-term outlook. Should we assume, if we take out the exception distributions from PE funds, et cetera, should we expect a slight decline in the next few years in that margin given the current conditions, is kind of what I was asking?
Look, the investment margin long term, will go down on a regular basis. It's pretty mechanical. However, when you see the way we are managing our duration gap, you see that we are matched, and therefore the decline is very progressive. We gave already some sensitivities on these topics in the previous IR days. This doesn't change fundamentally when you look at our numbers, but of course, the lower the level of interest rates, the higher the acceleration of the decrease on the investment margin. You raised as well a question related to the reserve level surplus at AXA XL. It has consequently come down by EUR 0.3 billion from EUR 0.8 billion, which means that there is EUR 0.5 billion left.
Scott, on the third question of Farooq's.
Sure, Thomas. Thank you. Question was around where are we looking to grow? We have to balance that all. When we look at this, we balance it all with the impact, obviously of COVID on exposures. Some of our business are more impact. Their revenues and their businesses are more impact than others. We balance that all out when we look at our business. If we look at the sort of the four buckets you mentioned, from a reinsurance standpoint, obviously, with the way the direction of the cat pricing is going, we think there's an opportunity, particularly the trend on the cat business, to continue to grow that business as well as casualty on the reinsurance side. In the U.S., the professional lines business, property and casualty are all looked at in the current pricing environment.
We believe there's an opportunity to pick and choose your spots and grow in that business. In Europe, we're looking at both property and casualty as opportunities. Specialty business, there's challenges in the marine portfolio. We probably won't grow that one quite as much, but we look at our art specialties business and our crisis management business as both growth opportunities for us going forward. We take a careful look at each of these portfolios every year, go through and figure out which ones have the opportunity to grow. The overall may not necessarily grow due to the impact on exposure, but we may grow in- force count in the lines, as we look at them. Thank you.
Thank you, Scott. Just to add on it, obviously Scott didn't mention it, but because he didn't mention the risk appetite in natural catastrophe, we remain at the same level as we were. We do not want to increase it. Thank you, Farooq. Let's go to the next question.
The next question comes from William Hawkins from KBW. Sir, please go ahead.
Hello. Thank you very much. On slide A25, it would be helpful if you could give us the absolute numbers for the change in eligible own funds and SCR for the operating return and market impact. If you don't have those numbers immediately to mind, could you just tell us in the operating return line, what's the impact of the change in SCR? Has the SCR been going up or down? Is it a big element or a tiny element? That's question one. Question two, could you give us a comment on your confidence about your CAT budget, and how that leaves you exposed for the second half of the year?
I think you acknowledged that CATs were heavier in the first half, both at group level and at the XL level, and clearly the first half is meant to be the lighter part of the year, and we saw last year that the second half can contain more of the problems. What's the risk that you blow through your CAT budget for the group or for AXA XL in the second half? Related to that, are you still happy that AXA XL can do EUR 600 million in the second half of this or is there downside risk? Lastly please, on slide A17, in your business interruption estimate of EUR 800 million, the EUR 450 million sitting in AXA XL, could you break that down for us between what's American and what's non-American, roughly? Thank you.
Thank you very much for your question. On the first one, with the absolute numbers of SCR up or down, Etienne will answer that question. The second one around the CAT budget. We need to look at it, obviously, on a broader level, group level. Alban, if you could answer that question. Then, the last one around the BI. What is U.S., what is not U.S.? Scott, if you could answer that. Etienne?
Hello, William. The Solvency Capital Requirement is stable at €29.9 billion. The variation comes from the EOF, and there is an appendix B49 for you to get more details. Thanks.
Thank you, Etienne.
Sorry, I just wanted to clarify, sorry, because the market movements have been massive in that. Can you just tell us in an operating way, is your SCR going up or down?
Maybe, Alban, since you have the second question, and you could maybe also answer that question around the SCR.
On the SCR, the number between full year and half year, full year 2019, sorry, and half year 2020 is stable. The SCR has slightly decreased by 0.2%.
Okay.
Sorry, I want to labor the point. I understood that. I'm just asking what the operating element was specifically.
William, I would suggest let's get back to you individually. We are looking for the number, the operating SCR exactly. We'll get back to you. Okay?
Okay, thank you.
If you could get to the second question around the confidence of the CAT budget, what's the experience first half? What do we think on a group level?
The CAT budget is on an annual basis, obviously. We shouldn't look at it, 30th of June or even the sixth of August. We had some net CAT, notably in Australia and notably with XL at the beginning of the year. The question is, what will be the hurricane season in the coming weeks in the U.S.? For the time being, there's been two small hurricanes making landfall with little impact for the time being. We're still confident about the overall budget for the year.
Thank you, Alban. Let's move to Scott around BI. What's U.S., what's non-U.S., EUR 0.8 billion.
Yep. Thank you, Thomas. Yes. When we take a look at that BI number for AXA XL, it breaks down. It's a provision, as Thomas mentioned, 65% of it is IBNR, or incurred but not reported claims. If we break it down further, we probably split 40/60 between reinsurance and insurance. Inside the insurance piece of it, most of the claims are coming out of the U.K. Lloyd's business. We do have, obviously, a little bit coming out of the United States. Most of our vast majority of our policies require physical damage to trigger the BI. On some of our policies, we have provided a sub-limit for some sort of contamination or communicable disease type exposure. That's what we end up picking up. I would say that most of those policies are written out of U.K. Lloyd's.
We got some in Europe, a little bit in the United States. My estimate would be less than 10% would be in the U.S. of our limited support. Thank you.
Thank you, Scott, and thanks, William, for your question. Let's move to the next one.
The next question comes from Nick Holmes from Societe Generale. Sir, please go ahead.
Hi there. Thank you very much. Just a couple of quick follow-ups, I guess. Coming back on business interaction, I just wondered, do you have an idea of how much you might need to add to the EUR 1.5 billion if the U.K. test case goes against the insurance industry? Secondly, on dividends and ACPR, I just wondered if your conversations with the ACPR extends to dividends next year in 2021, and whether you're getting any sort of message from them about any concerns that they have for next year. Thank you.
Thank you, Nick, for your two questions. The first one is around the business interruption and the EUR 1.5 billion, if the U.K. test case goes against the industry. Alban, I would like you to answer that question. On the second one, the ACPR, the discussion around the dividend, I will take this one. Alban?
On the U.K. side, we are monitoring closely what is being done by the FCA. It's a long process, because it's going to be something that will drag on for number of weeks and months. At this stage, what we see is a potential limited impact from a requalification of our contracts.
Okay. That's very clear. Thank you.
Nick, on the second question around the ACPR. As I mentioned, the ACPR this year has issued two statements. The first one was around delaying the dividend payment from April to October. The second one, the most recent one, was about not paying this year. As you've seen, our reaction to the first statement was that, we find a so-called Swiss compromise, we pay 50% and wait for the second one for the second half of the year. Clearly, our financials do indicate that a dividend payment is possible. However, with a clear statement by the ACPR of not paying any more dividends in 2020, we clearly aligned ourselves with their desire. In the same vein, they also realized that paying a dividend is something very important for the attractiveness of France as a marketplace.
When I asked the question around 2021, their answer was that clearly, they want to get back to a normality, provided that the economic and financial situation allows it. Since we did not have any alleviations in our capital models, such as solvency, there is also no need to tighten anything in that respect. I would expect a return to normality if the economic and financial conditions allow it.
That's great. That's good to hear. Thank you very much.
Thank you, Nick. Let's go to the next question.
The next question comes from Kamran Hossain from RBC. Sir, please go ahead.
Hi, everyone. I've got a couple of questions. The first one is just about benefits from COVID. Clearly, there's a lot of noise about commercial lines and claims costs there, and we all know they're a kind of natural motor offset. Can you talk about other areas in the business where you're seeing benefits, and to what extent are we seeing them in the numbers? The one I've got in mind is health insurance and whether people are actually using it or not. The second question is just about the, I guess, thinking about the second half on revenues, a very slight decline in the first half, a tale of two quarters. Do you think we're back up to growth in H2 on revenues, or would you be a little bit more cautious than that? Thank you.
Thank you, Kamran, for your two questions. One was around the benefit from COVID. We spoke a lot about motor and health. I suggest since we have Jacques de Peretti with us, who runs AXA France, one of the largest entities of the group, he should talk a little bit about what he sees. When it comes to growth in the second half, I'll give a quick comment afterwards. Jacques.
Thank you, Thomas. There are two parts where you can expect some benefits from COVID crisis. One definitely is health, as we have observed a lower consumption of usual healthcare during the lockdown period. For France, for example, it's up to EUR 60 million. We also observed a lower claims frequencies on motor, mainly, but also non-motor, in retail and in commercial. For France, it has an impact, for example, by EUR 150 million before tax. We don't know exactly if we will continue on the same trend on this field, because we observe that the frequency in motor, for example, is progressively moving to a normal. Concerning health, we can consider also that our clients will try to go back to a normal life and visiting their doctors as often as they used to do.
Thank you, Jacques. If we look on the growth prospects on the second half, I think the month of July probably gives a good indication. What we see is that health is remaining strong, and I do believe that this will continue since we have a much higher awareness around health, and certainly also in more developing and emerging markets, where health is still at a lower level. Etienne earlier mentioned China. We will see strong growth. On the P&C side, we have also turned again into positive territory, and certainly, when we listen to what Scott is saying around the price increases, we will also expect a return back into a positive territory. However, we also see that some lines of business are very much linked in their revenue to economic activity.
If you take, for example, aviation or marine, this is very much a premium growth is linked to how many shipments have been done, how many flights have been performed. Since we know that certainly on the flight side, we'll probably have less flights, this needs to be taken in consideration. On the life business, I do probably expect the biggest, let's say, heavy weight when it comes to the revenue. Life remains down in July with similar structures that we've seen beforehand, general account is suffering, whereas protection and unit linked progresses well. This is very much related also to the uncertainty of people not knowing what is going to happen and rather taking a wait and see approach when it comes to investing larger sums. This is roughly the picture going forward when it comes to growth. Let's move to the next question.
Thanks, Kamran.
Thanks, Kamran. Next question.
The next question comes from Thomas Fos sard from HSBC. Sir, please go ahead.
Yes, good afternoon. Two question. One would be on the health in France. Just wanted to better understand what were your expectations regarding the issue with the portability of the health insurance product in France, especially in context of rising unemployment rate in the coming years. Potentially if you could provide a kind of sensitivity of, I don't know, any negative impact on the combined ratio basis or loss ratio basis from a one points increase in the unemployment rate. That would be the first one. Second question is on the Lebanon situation. What could be the exposure of the group? I guess that you may have some exposure directly from primary activities you've got in Lebanon, also through your marine book, AXA. I know it's a bit early, anything you could mention regarding the potential large claims? Thank you.
Thank you very much, Thomas, for your two questions. The health one in France, we give to Jacques de Peretti. Maybe I'll quickly answer on the Lebanon one. On the Lebanon one, we obviously have two main focus areas. One is our own employees, since we've got an operation there. Fortunately, nobody has been injured or we haven't experienced any deaths, which is a very good news. On the exposure, as you can imagine, this event happened a couple of days ago. It's far too early to say anything. We are working together with a team of Scott and Alban now through the exposures. When we have a better situation, we will be able to give a better update. Jacques, on health in France.
Thank you very much for the question. You are completely right. We will have to face the rise of the load linked with the portability. It means that we will have to pay for a while for people that will go unemployed. That will take place progressively when the unemployment rate will progressively increase as it is forecast. The main part of this new load will take place in 2021, and we plan to take that into account in our renewal policy in order to face this extra load we will have to register.
Thank you, Jacques. Thanks, Thomas, for your question. Let's move on to the next question.
The next question comes from Patrick Moisy from JP Morgan. Sir, please go ahead.
Yeah, hi. Good afternoon. This is Ashik Musaddi from JP Morgan. Thank you for the opportunity. I just have couple of questions. I just want to understand a bit more about how to think about AXA earnings for coming years. If I look at your guidance about EUR 1.2 billion, how do we think about three moving parts here? First of all, what you are suggesting is pricing is moving ahead of claims inflation, so I think that's a positive. At the same time, it feels like falling interest rates, especially in U.S., we have seen a sharp decline in interest rates. Should have an impact on your investment income in the XL business and investment income in XL is material. At the same time, there is an adverse currency move we have seen over the past three months. That could be another big impact on the XL earnings.
How should we think about that EUR 1.2 billion guidance? Would this pricing be able to offset these two negatives? Is it more, is it less? Any thoughts on that would be really helpful. The second question would be around this disposal process and the couple of businesses that you are looking to dispose, as well as XL internal model integration. Can you give us some additional insight into that? Because, getting about 13 points of extra capital would be helpful, especially in the current volatile environment. What is the degree of confidence that you have that these two things will be done? The last one would be, I'm not sure if you can get some clarity on this, but any thoughts on your reinsurance agreements, the assumptions that you're using in COVID-19 related claims, the growth that is netted out.
What could be the potential ranges of positive or negatives, if things don't go as per plan? Thank you.
Thank you, Ashik, for your three questions. I suggest the first one.
Ashik.
Sorry?
It's Ashik.
Sorry. I'm sorry.
No, that's fine.
It's very difficult to understand sometimes. I'm sorry.
No.
First question was on the XL earnings for the coming three years. Scott, if you could talk around what you expect and how do we also compensate the interest rate decline through higher price increases. Etienne, if you could take the second one around the disposals, and the third one on reinsurance. Alban, if you could talk about it, but I'm afraid that you will not be able to give a very elaborated answer since we are in the middle of these discussions and don't give any details. Scott.
Okay. Thank you, Thomas. In terms of pricing and the interest rate, this issue has actually been in place even before COVID. COVID has just exacerbated the issue. When we look at our pricing needs, what we need to achieve, we include the impact of declining interest rates in our calculation to determine, yes, how much more rate do we need to offset the declining interest rate investment income place. We work hard to balance that both out. We would anticipate that as we work through our pricing, we'll include any anticipated interest rate or investment income into our required need on the underwriting side. I wouldn't necessarily be changing anything based on the investment income if we can recover it more on the pricing side. Thomas?
Yes. Thank you, Scott. Etienne, on the disposals and the six points.
Yes. Thank you, Ashik. I already say that our degree of confidence was high, that both transactions would take place in Q4. As a proof for this, because of course I don't have so many proof points, there was a positive response from the European Union on the competition for the transaction in Eastern and Central Europe. On the Belgium side, there were also question raised from the European Union, or the Central Bank, which are being solved. It was related not to the competition, of course, but more to the financing of the acquirer. Which this question has been settled some two months ago. This is why we plan with that for Q4 with a high degree of confidence.
Thank you.
XL integration?
Sorry, Ashik.
XL integration. Any thoughts on that? Where are we on that process?
The XL model integration is going well. As we said earlier, this is event for the second half of the year. There are two stages. One is the discussion with your local regulator, and then the second one is the discussion and decision in the so-called supervisory college, where the international regulators come together. We are at the second stage, and as I said earlier, we are expecting between five and 10 points upside. Alban, if you can give a very quick update on the reinsurance agreement to Ashik's question, without obviously going into detail when it comes to potential ranges.
Yeah. I'm sorry, because I think I cannot say more than what I said at the previous question, because I would like to keep the details for the discussions with our reinsurers, as you can imagine. I would just qualify it by saying that we believe that we are in a strong position for a significant amount of recoveries, and that's what we put in our account for the half year. I take that opportunity just to answer the question on the operating part of the SCR change. Between a full year and a half year, that's an increase of EUR 200 million. It's negligible compared to the rest.
Great PM . Many thanks for this.
Thank you, Alban. William, you've got your answer as well around the SCR, which is good. Next question.
The next question comes from Michael Huttner from Berenberg. Sir, please go ahead.
Oh, thank you. Thank you so much for this opportunity. One is, we kept some guidance for your five-year plan and withdrawn some. I wanted to ask why you withdrew the guidance on the EPS, given that you have fairly clear numbers on the impact of COVID. Couldn't you have just said, well, our targets are ex-COVID? That's one question, or maybe just explain your thinking around that. I suppose the fear I'm expressing is that you may be rebasing 2020 for the next three-year plan indirectly in that way, probably not even thinking about it clearly, because these are really volatile times. The second one is on the technical margin in life. I was confused. Is what you're saying that the mortality is an extra cost, and maybe you could give a figure on that? Thank you.
Both questions for Etienne. Thank you, Michael. Number one was around why not a guidance for the rest of the year if you've got clear numbers, in terms of EPS. Second one was on the technical margin life, to understand a bit more around the mortality risk. Etienne.
I will start with the second one, which is more straightforward. No, we didn't say that mortality was at stake. We referred to three elements which were disconnected from the mortality. One was the interest rates, and therefore the annuities. You have to reinforce your reserve when your interest rates decrease. It's pretty mechanical. The other ones were not related to mortality. I don't know if I understood well your question on this, Michael, but there is no deterioration in mortality at group level, mortality assumptions or mortality experience. When we speak about extended disability, it's easier to explain that in French. For us, it's indemnités journalières, it's daily indemnities. During the confinement, what happened is that some people didn't go to the doctors. Normally, when you have reason to not to go to work, you have to go to the doctor.
There is a process. We cover that. During the confinement, we said, "No need to go to the doctor if you don't feel well, we reimburse anyway." This has pretty high costs. This is a very temporary measure related to the daily health, short-term health issues, absolutely not to mortality. Maybe the misunderstandings come from this point. Related to the earnings per share, it's a tricky question because, if you start giving EPS target, including or excluding some elements, it's getting very tricky. Raising also the question of what is COVID related, what is not COVID related, could be something a bit tricky. This is one point. The second one is that giving a six months guidance is not something we do. We never did that. We never do that on a 12 months basis.
On a six months basis is even more tricky. As you just rightly said, given the very high uncertainties in H2 where you see that nobody on the market is giving any kind of guidance, I think that it would not be a good idea to say, "At AXA, we know what's going to happen," contrary to the rest of the world. Let's remain modest with that, and let's remain very vigilant.
Thanks for-
May I just ask a very quick follow-up question, if I may? It's just on the PGAAP, I don't know, the reserving buffer, the EUR 6 billion odd. You have a EUR 0.1 billion positive coming from France and Europe. Is that the full extent of the kind of prudence in reserves from the frequency which you may have not booked in the first half? That seems to be what your peers have done, but the number seems low. I'm sure there's more, but I'm just wondering if you can maybe talk a little bit about that.
Michael, it's the contrary. It's actually to consider that to book that under prudence, it's very old files, which are being considered as excess level of prudence. The short-term experience is not reflected in that.
The short term, can I see it anywhere?
Look, you see in the details of the accounts, the improvement in frequency in the various countries and lines of business. The biggest one being on motor, as we disclosed in one of our slides with EUR 4.4 billion positive contribution. Which we consider as exceptional and related to the COVID.
Excellent. Okay. Thank you so much. Thank you. Thanks a lot for being so patient. Thanks for meeting.
Thank you, Michael. I'm afraid we need to soon come to the end. Ria, is there a question on the webcast? Maybe we should have a final question from the webcast.
Just one question on the webcast from Emmanuel Besson, from Dorval Asset Management. Would you consider paying quarter or semester dividends in the future, starting by 2021?
Thank you, Emmanuel, for your question. Etienne, that is certainly a question that you can answer.
I will not give the answer. I can just say that this is a question we are getting from time to time, and even more during crisis time, from some investors. The experience of this year shows that it was difficult to come to a payment of a dividend this year. The 50% was I think the fact that we paid early enough this dividend was a right decision, given what is happening on the regulatory side. If we look back at this year, sort of half year dividend would have been a good idea. We cannot say with certainty that we'll do that. We have to think about this, but this is a question which we have already in mind and on which we'll reflect further with the management and the board.
It's absolutely not a promise to move on that side, just an information that we are thinking about that, but without any commitment.
Very good. Thank you very much for all these very rich questions and for the good discussions. Thank you for attending that session, and we wish you now a great rest of the day and in particular, a good summer. Hope to see you all soon in person. Thank you.