Good morning, welcome to AXA's first quarter analyst and investor call. In today's call, our Group Chief Financial Officer, Alban de Mailly Nesle, will cover two topics. In addition to commenting on the activity indicators for the first three months of 2023, Alban will also review the highlights of 2022 financial information restated under IFRS 17 and IFRS 9 that we also published this morning. In order to enable you to better assess the group's earnings trajectory under the new accounting standards, we're also providing on an exceptional basis an underlying earnings target for 2023. This outlook is unaudited and subject to several key assumptions. Please review the disclaimer slide of the presentation for important qualifying information. After the presentation, our Group Chief Accounting and Reporting Officer, Grégoire de Montchalin, will join Alban to take your questions. With that, let me hand over to Alban.
Many thanks, Anu, good morning to all of you. Thank you for joining the call today. As you see, it's slightly different from our usual quarterly calls because as Anu said, we will cover two topics today, and therefore, we have prepared a small presentation and we spend a bit more time so that you have enough time for your questions at the end of the call. Let's start with Q1 2023. What are the key highlights of our results? First thing to say that we performed well in this first quarter, and the headline growth is 1%, but in fact, it masks very strong growth in our technical lines, and in particular, P&C. We're off for a very good start in 2023.
That was partly offset by the right sizing of non-prioritized businesses and some weaker revenues in Unit-Linked and Asset Management. That reflects a more challenging environment. When we look at our Life and health business in particular, our priority is the quality of our business and the focus we have on capital-light products, and that's what we've seen in this quarter, and that's thanks to the very strong efforts of our distribution networks, in particular, the proprietary ones. A word on balance sheet. We'll come back to that later.
You see that our solvency ratio stands at 217%, two points higher than at the end of 2022, That's supported notably by a very strong normalized capital generation of seven points this quarter. There again, I will come back to that later. We have as shown in the slide, all confidence on our asset mix, which is a high quality and which is what you want in these volatile and uncertain times. As Anu said, we are giving exceptionally guidance for the underlying earnings of this year. We believe they will be above EUR 7.5 billion under IFRS 17 and 9, which is obviously our new framework. I'll come back to that in the second part of this presentation.
Moving to the next slide, and looking at our growth momentum. Again, I think the important message is that we are growing where we want to grow. We're growing in P&C at 6%. First, Commercial Lines. Commercial Lines, we grow at 7%. On the insurance side, we see that XL had good growth of 4% with clear signs of pricing re-acceleration across the portfolio, except for North America Professional Lines. When you look at our renewal prices at XL Insurance, excluding North America Professional Lines, we are up 8%. That's better than the end of last year.
On personal lines, there again, we have good growth at 4% with a specific focus on motor, with +6%. That's obviously due to the pricing efforts that we make to offset the inflation on claims cost. Non-motor is up 2%. Both reflect, there again, an improving environment. On health. Health, you know that we canceled or not renewed two large contracts that we had written at AXA Health and for which the experience was not in line with our expectations. If you exclude those two contracts, we have good organic growth at +7% in both individual and group health and in all our geographies.
Finally, protection, which is also one of the technical lines that we want to grow, is up 2%, notably thanks to Japan and Switzerland. That's on the technical lines, and you see that we are growing on all fronts in line with our strategy. Coming to savings. You know that our focus for savings is Unit-Linked and capital like GA, and in particular, GA at maturity. Our revenues on Unit-Linked were suddenly a bit lower than expected in the first quarter, mainly due to, again, the volatile environment.
What we want to highlight here is the fact that we want to walk on those two legs, Unit-Linked on one hand, and products with guarantee at maturity, such as Euro Croissance, that we have in France. When you look at the French business in particular, you see that the net of those two is a positive, +5%, because in times where it's more difficult to sell Unit-Linked, customers are happy to have products that give guarantees at maturity while allowing them to invest in slightly more risky assets than traditional general account. Last point I want to highlight is the businesses that we don't prioritize. XL Re, you know that we are reducing our property cat exposure. In volumes, that's -35% exposure.
That's offset partially by price increases that were strong in Q1 in property cat reinsurance, but we also had good growth in the other lines at XL Re, notably casualty, mostly coming from prices. The other one, as I said, is traditional general account savings, capital heavy. To the same extent, we do in-force transactions like the German one that you are very familiar with. We are not unhappy to see that our net flows in traditional GA savings is negative. All this leads to a very good, high quality mix for Q1, focus on our technical lines and obviously very consistent with our strategy, and we want to carry on growing on that basis.
If we move to the next slide on pricing, which obviously is an important topic these days. What do we see? As I said, for XL, both insurance and reinsurance, we see a good pricing dynamic. The price increases on renewal at XL, as I said, 6%, but 8% excluding North America Professional Lines. We do see a re-acceleration in most lines. Property is up 9%, casualty is up 9%. Property in the U.S. is up 18%, so that's very good numbers. We showed the good dynamic that we have at XL Insurance and the same on reinsurance, but that was expected and we discussed that already in February. In commercial lines, excluding AXA XL.
You saw in the previous slide that we had a 7% growth overall in France and Europe, and that mostly comes from pricing at + 5%. Keep in mind that in Q1, the weight of Switzerland is higher than for the whole year because notably on commercial lines, contracts are renewed at one-one. You know that in Switzerland, there is very low inflation, if any, and therefore hardly any price increases. That somewhat underestimates the overall price increases that we see. Same on personal lines. You see 5% here. In fact, excluding Switzerland, we are at 7% overall. Again, and I'm sure you will have questions on this, again, that is sufficient or more than sufficient to offset claims inflation.
You see that, be it commercial lines or personal lines and in whatever geo-geographies, we manage to have price increases over and above inflation, which is obviously supportive for our technical margins. Let's move to the next slide. This is our presentation of new business with PVP and NBV. Obviously, with the changes in interest rates, there is a strong impact coming from interest rates in the minus 17% that you have, for instance, on PVEP. The same on NBV with minus 11%. What matters for us here is that the NBV margin, which once again shows the quality of our business, is up by 4.4 points, at 5.6%.
The fact that we decrease our PVP or NBV because of interest rates, it's not an issue because what it means, notably when it comes to new business CSMs that the unwind of that NB CSM will be done at a higher rate and therefore it's positive. You will also have in mind, obviously, that when it comes to our strategic lines, which are protection and health, the impact of higher interest rates is obviously higher than for traditional general account. That's why there again, the the the the the impact on our PVP can look significant at -17%, but nothing to be concerned with. If we move now to our Solvency II ratio. As I said at the beginning, it's +2 points compared to the end of last year.
That's on the basis of several positive items. The first one is the operating return. The operating return is 7 points, and that's, so that's better than what we had in the past. We believe that's a recurring change, which leads us to change our guidance. We believe that this year in particular, our normalized capital generation should be between 25 and 30 points. This is due to the fact that in P&C earnings, part of our earnings in the past was made of the release of excess reserves. Those excess reserves were already in our solvency to capital base, and therefore the release did not generate more solvency. Now, under IFRS 17, our P&C earnings are made of current year profitability, obviously, but also PYDs coming from our best estimate liabilities.
Therefore, they directly go entirely to solvency creation. That's the first point. The second point is the fact that we have higher interest rates also means that we have a higher discount, and therefore, a better combined ratio and profitability, which there again enhances our solvency capital generation. The last item that explains that 7 points capital generation is purely mechanical. Last year, notably thanks to higher interest rates, our SCR went down, and therefore there is a pure denominator impact in our capital generation. The message is good capital generation overall and better alignment between solvency to earnings and IFRS 17 earnings, so to speak. On the other impacts that you see on this screen, accrued dividend, - EUR 4.
That's simply last year's dividend divided by 4, as we usually do. No impact from market overall. Obviously, there were some pluses and minuses. Minuses in the interest rates, but pluses in equity and volatility. Net is 0. Management actions. I want to spend one minute on this, it's very positive, 5 points. We took advantage of higher interest rates in this first quarter to further reduce our duration gap. By further reducing it, we reduce our SCR, and therefore improve our solvency, but we also reduce a bit the sensitivity of our solvency to interest rates. That's positive also for the future. Last, - 6 points from regulatory and model changes.
You had in mind what we had discussed in February and last year, the -9 points that we're losing from Eibar transition and the change to European reference portfolio. That was partly offset by some other model changes. That's how we come to -6 and the 217% that we have here. Overall, when I look at Q1, we see high quality revenue mix. We see a very good pricing momentum, notably in P&C and good business profile overall in the current uncertain macroeconomic context, and a strong balance sheet in addition to that. That's why we are confident in our ability this year to produce attractive results, and that's, I'm gonna give details on in a second as we move to IFRS 17.
If you allow me one second to have a bit of water. Let's move to IFRS 17. One of the main messages that we want to give here, as I said, I think, in February, is what matters for us is full year 22 under IFRS 4. Don't look too long at full year 22 under IFRS 17 because there are a number of elements that distort this number. That's why we wanted to give you, again, exceptionally, that guidance for 2023, so that we would all have in mind the same profit expectations for this year. What do we say on these lines? We simply reiterate the messages that Grégoire, Henri and I gave you last November, which are the following.
One, the fact that our earnings power under IFRS 17 is not different from the one that we had under IFRS 4. That's why we have that guidance of EUR 7.5 billion, which is net of a FX headwind of - EUR 0.1 billion, coming obviously from the weakness of the US dollar. EUR 7.6, if you adjust for that, and therefore 5% growth over the IFRS 4 numbers. That's an important message. As we saw with the numbers we just discussed on solvency, our accounting change does not have any bearing on our solvency. You saw that we are 217% in Q1. Nor will that accounting change have any consequence on the cash remitted by our entities.
That's why overall, with that guidance, we are happy to reaffirm once more the fact that we will meet our key financial targets of this plan, and we will exceed the UEPS target of 7% that we had given ourselves, and the cash remittance target of EUR 14 billion that we had also set ourselves. No news on this, but we are reaffirming that. Now let's move to the next slide with a bit more detail on that guidance. Again, I will give even further details as we move to P&C Life and Health in the coming slides. The underlying earnings this year should be above EUR 7.5 billion. Again, net of the EUR 0.1 billion FX headwind, which is mostly P&C.
The 4.7 billion target for P&C is with obviously normalized Nat Cat. You know that our Nat Cat load is 4.4% of combined ratio. That guidance is based on this assumption. Overall, it comes with improved technical results compared to 2022, and we'll go into more details, but lower financial results, and notably because of higher unwind on the P&C side. Life and Health, and I insist that it's Life and Health, and not Life & Savings, because there could be some confusion. Here we tend to report Life and Health together. It's EUR 3.3 billion. It should be EUR 3.3 billion this year, slightly above what we had under IFRS 4 in 2022.
Asset management and others, slight deterioration by - EUR 100 million coming from higher interest rates, expenses at HoldCo level, and also the fact that we will have lower revenues in asset management simply, as you saw, because we had slightly lower average assets under management in Q1. That's what I wanted to say on this slide. Now let's look at more details on 2022. On the left-hand side of this slide, you have our combined ratio, the actual combined ratio, in IFRS 4 and in IFRS 17. You will recognize the 94.6% combined ratio under IFRS 4. Under IFRS 17 in 2022, you have a one-off impact, which is the following.
You see that we had PYDs of -2.9% under IFRS 4. These PYDs were made of the release of excess reserves. You know, because we discussed that in the past, that it was on purpose because those excess reserves disappear with IFRS 17. We wanted to create those PYDs out of those excess reserves. You have them under IFRS 4. You don't have them under IFRS 17 precisely because you don't have excess reserves, I mean official excess reserves under IFRS 17. When you just remove the EUR 2.1 billion of excess reserve release that we had, you move from -2.9% - +1.7%. That's very specific to 2022. That's not something that will happen again in the future.
I insist on this because, again, we don't have those excess reserves any longer in IFRS 17, and there will not be that distortion anymore. That's why we wanted to provide you with what would be a normalized combined ratio in 22. There we normalize for two things. We normalize for Nat Cat, which, as I say, should be around 4 points of combined ratio, and we normalize for PYDs. On this, our new guidance for PYDs is that we've said in the past that it would be in line with long-term experience. Now we are a bit more precise, and we're saying they should be between 0.5 points of combined ratio and 2 points of combined ratio.
For illustrative purposes, and illustrative purposes only, here we put 1.25% of combined ratio, which is simply the midpoint of that range. You see that, with that normalization of Nat Cat, the loss ratio that you know, the discount that you now have under IFRS 17 and the PYDs, the comparable combined ratio under IFRS 17 for 22 would have been 93.7%. I draw your attention to the fact that we have only normalized Nat Cat and PYDs. We didn't normalize anything. For instance, the Ukraine loss is still in that number. That's for the technical part. On the investment income part, sorry, the financial result. The financial result is made of two components.
One, the investment income, which is very much in line under IFRS 17 with what it was under IFRS 4. There is a second component, which is the unwind of discount. That unwind costs us, in 2022, EUR 500 million of earnings pre-tax. Our financial result under IFRS 17 in 2022 is lower by EUR 400 million than what it was under IFRS 4. The global picture, which is true in 2022 and which will be true in the future, is that you have obviously a better combined ratio under IFRS 17, but you will have a lower financial result because of the mechanics that we have just seen. If we move to the next slide.
That's where we go into the reasons where we believe that our P&C earnings in 2023 should be at least equal to EUR 4.7 billion. We first believe we'll see an improvement in our technical result. You saw the numbers for Q1 in terms of pricing and this is supportive for our technical results and our loss ratio. Second point, Nat Cat load of around 4 points, so less than what we had under IFRS 4 in 2022. This is an assumption, but you may have seen in our press release that to date, our cat experience is in line with expectations.
Third assumption underlying that number is, as I said, the fact that PYD release should be within the range of 0.5-2 points. Fourth, hopefully, I mean, we had a loss coming from the Ukraine war last year, hopefully we will not have a similar loss in 2023. Finally, the discounting of current year claims reserves at a higher rate in 2023 than in 2022. That will support our technical result. Conversely, as far as the financial result is concerned, the unwind of the reserve discount will be higher in 2023 than it was in 2022. Simply because we accumulate reserves and discounted reserves at a higher rate year after year. The unwind is by construction higher.
There's a second effect which has nothing to do with accounting, which is simply that last year we had an elevated level of funds distribution, notably private equity, and in 2023, that amount will be lower. All in all, I said EUR 4.7 billion. Moving to life on the next slide. This is the 2022 earnings. As you know, our life and health earnings are mostly driven by CSM release. You see that out of EUR 2.9 billion of earnings that we had in 2022, EUR 2.5 come from the CSM release. In addition to that, we have slightly negative long-term technical results. What will you find there? It's the fact that it's mostly the experience, and it's also the non-attributable expenses.
In 22, we had a positive experience variance, which reflected our prudent approach to reserving. We think that it will be, that's why it came as an offset to the non-attributable expenses at -0.1. Short-term technical results in life, that's mostly our protection business in France, which is accounted for under PAA and not VFA. That's why it comes here as short-term technical result. You add to that the non-VFA financial result, which is there again, the investment income that we have minus the unwind of the discount on non-participating business. There in 22, like in P&C, we have benefited from a high level of fund distribution and therefore our investment income in 22 was higher than what we can expect in 23.
Overall, we have EUR 2.9 billion of underlying earnings in 2022 as opposed to EUR 2.6 billion in IFRS 4. As you know, the mechanics are different, so we can compare the numbers, but we cannot really compare the various components. What you should have in mind is that there is no accounting distortion on the life side as opposed to what we saw on the P&C side. Our life earnings were probably at a high level, given some positive one-offs that we had on the actuarial side and the fund distribution that we also enjoyed in 2022. Moving to the next slide on the stock of CSM. Here, I think the important part is what is in the box and what we call recurring items.
The way to think about CSM and CSM release and new business CSM is the following. New business CSM is built on a risk mutual basis. It will come and increase the stock of CSM. In addition to that, year after year, you will also have the unwind of the stock of CSM at the risk-free rate, plus the fact that you have investment income in excess of that risk-free rate. That comes from risk premium on the equity side, that comes from spread on bonds, and so on and so forth. That's a natural component of the CSM increase. You have the CSM release. You see that when you take those three elements, we are neutral, the first two offsetting the third one, which as you know, is released on a real-world basis.
That's why the new business CSM and the CSM release are not directly comparable. You need to add, in addition to that, the unwind and the excess investment income. If I move to the other components, we had some economic variance, which was down by, which was -EUR 0.6 billion in 2022. This is the same economic variance that we saw last year in our solvency, so nothing new on this. There again, it's quite comforting to see that solvency and accounting are more aligned than before. You know that we last year benefited from higher interest rates, but we also had higher volatility, lower equity, and so net-net, it was a negative. There again, very much in line with our solvency.
We had a positive operating variance of EUR 1.3 billion, and that's mainly coming from one-off model changes. That's the dynamic of our stock of CSM in 2022. In total, it increased from EUR 24.6 billion to EUR 25.5 billion. We move to the next slide on health. That's very much the same mechanic as the one we had for life, so I will be shorter. Our health profits come mainly from CSM release. The only thing I want to comment here in addition to that is the fact that the long-term technical experience, which you see here as a negative, that's the COVID claims that we had in Japan last year that we told you about. That's something that should not repeat in 2023.
The short-term technical results, that's EUR 0.2 billion. That comes from our health businesses that are short tail, such as, for instance, the U.K. Last year it was impacted from those two famous international contracts that we had in France and that we did not renew, and that had a negative impact on our health earnings in 2022. Overall, underlying earnings on the health side, very much in line with what we had under IFRS 4. On the slide, if I do the same exercise of going through the CSM stock on the health side, the same box. We have the new business CSM, we have the underlying return on in-force, we have the CSM release. You see that on a net basis, that's very balanced.
The new business CSM and the underlying return offsets the CSM release. Economic variance. Here it's more negative than on the life side, and that's completely normal. Health is first and foremost a technical margin business as opposed to a financial margin one. As you discount at a higher rate those technical margins in the future, that will have more significant consequence for a health business than for a savings business. That's why you have a - EUR 1 billion here. There again, it's not bad news as such. It's like the comment I made earlier on our PVP and new business this year, as it just means that the unwind will be done at a higher rate in the future.
You know that be it for life or health, the message we gave you in November is that the amount of CSM release should be very stable, even if we have some ups and downs in the stock of CSM. Moving now to the 2023 target that we have for Life and Health. It's a slight increase, EUR 3.3 billion compared to EUR 3.2 billion under IFRS 4. Again, we have a lot of visibility on those two businesses, thanks to the CSM mechanism. We have a good view on the CSM release.
In addition to that, we will not have the health claims that we had last year in Japan and France, but we also had some positive model changes in Japan on the life side last year that will not repeat themselves in 2023. On the financial results, exactly like in P&C, we will have an unwind of our reserve discount, which will be done at a higher rate, and we will not have the same level of funds distribution. Same mechanism, same impacts as in the on the P&C side. Good level of technical results driven by CSM for life & health, but lower financial results for the reasons I explained. Quick word on net income. I will not comment on the impacts directly related to the lower underlying earnings.
You know that we took the options as far as equities are concerned, not to have the volatility of equity in our P&L, and it will be booked through shareholders' equity. It doesn't mean that capital gains on equities disappear. They simply go directly to retained earnings without going to P&L. When I comment our realized gains on equities and our shareholders' equity in a few seconds, you will recognize that amount. No equity capital gains in an IFRS 17 P&L. What will you see in the future? You will see capital gains coming mostly from real estate. We could have occasionally capital gains and losses coming from fixed income, but you know that it's not our practice to realize fixed income gains and losses simply because of ALM constraints.
That's the main impacts. The last one on the other is simply because it comes from assets that were no longer eligible for mark-to-market in the CI and that go to P&L. A word on shareholders' equity. You have side by side the movement in shareholders' equity under IFRS 17 and under IFRS 4. The main difference, and by far, is naturally the change in OCI. That was - EUR 27 billion under IFRS 4 because of higher interest rates mainly. You see that it is only - EUR 5.4 billion under IFRS 17, simply because most of the changes that we had on the asset side because of interest rates was offset by the same impacts of interest rates on the liability side under IFRS 17.
You see that our OCI, and therefore more globally our shareholders' equity, is much more stable under IFRS 17 than it was under IFRS 4. The other two differences are one, the realized gains on equities, what I've mentioned a second ago that you see here, now directly in retained earnings. The other one is the change in pension benefits. It's simply because part of the positive impact that we had under IFRS 4 was already taken into account in our opening balance sheet at 1/1/2022, and therefore did not go to the change in shareholders' fund in IFRS 17. That's the overall impact. You see that in total, our shareholders' equity at the end of 2022 was very similar to what it was under IFRS 4.
As a conclusion before we go to your questions. You see that be it on the P&C side or on the life side, we are very confident in our 2023 underlying earnings target. That is thanks to, well, first the quality of our business, the fact that it's extremely resilient in this environment, the fact that we have good pricing dynamic in the first quarter. Finally, on life and health, the fact that we have good visibility on the CSM. Shareholders' equity, as I said, broadly stable versus IFRS 4. I reiterate the fact that I think you all know this, that those accounting changes have absolutely no bearing on our cash remittance and our Solvency II ratio.
That's why we reiterate again the fact that we will either meet or exceed our Driving Progress 2023 key financial targets. As we explained before, we will exceed the two that concern the UEPS CAGR and the cumulative cash remittance. I stop here.
Operator, we're ready to take questions.
The first question is from Andrew Sinclair from Bank of America. Please, Andrew, switch on your microphone and go ahead.
Thank you, and morning, everyone. Thanks for the new disclosure. The new financial disclosure supplement is really good. Three from me, please. First, just wanted to understand a little bit more about Nat Cat budgets for the year. I know it's four percentage points at group level, but, what's the budget for XL for the year for Nat Cats? At both XL and group level, how much seasonality should I think about when you're saying you're in line with expectations for Q1? That's my first question. Second, was just looking at the discounting impact on the combined ratio in 2022.
When I was going through the pack quickly this morning, looks like you're getting about double the discounting benefit in France compared to broader Europe, at 3.6 percentage points compared to 1.9. What's the driver of that? Similarly, why did XL get less discounting benefits, say, than France? I might have thought XL might be a bit longer tail and maybe get more US-focused higher yields than elsewhere. Just keen to understand that. Third was just on capital, the reduced duration gap. You mentioned some lower sensitivities. Just wondering if you can put any numbers around that, how they would look today. Thanks.
Thank you, Andrew, for your questions. Generally, the way to think about our cat load is to say that P&C in France, in Europe and XL Insurance, that's roughly the same cat load, around 3.6%, 3.67%. The difference is made with XL Re, which by definition has a higher cat load given the nature of the business, and that's how you get to the 4% overall. On the discounting impact. When you compare France and Europe, bear in mind that in Europe you have Switzerland, and Switzerland obviously has lower interest rates and therefore the discount and the unwind is made at a lower level. On XL. Just give me one second. Yes.
On XL, sorry for that. You should have in mind that XL is a business which is more heavily reinsured than the rest of our P&C business. Therefore, the unwind applies to lower reserves, and therefore, as such, is lower than what you would see typically in France and Europe. On your last point, on the reduced duration gap. The sad thing is that we have not put it officially in our Q1 numbers, so I can't disclose it. I don't want to risk selective disclosure here. It is a reduction. It's not massive, but it goes in the right direction.
The first question again about cat budgets. Just to confirm, what is the cat budget in percentage points for XL for the full year? Is that 'cause I assume that's more than 4 percentage points that we had at group level. Just seasonality, I mean, should we be thinking we're around about that 3.6 points for most of the units and four points overall for Q1, or is it a bit less because of that seasonality?
I don't have the number for XL in total because that's not the way I think about it. I think about it as insurance versus reinsurance. That's why I gave you the 3.6%-3.7% for XL Insurance, from which you can deduct by having the sum and the fact that it's 4% for the whole group, what it is for XL Re. In terms of seasonality, obviously, you have probably given our portfolio a higher level of cat losses in Q3 because of hurricanes in the U.S. You saw that in Q1 we had a significant earthquake in Turkey, and despite that, there's obviously no seasonality for earthquakes, despite that, we had a good quarter.
Awesome. Thank you very much.
Next question is from Peter Eliot from Kepler Cheuvreux. Please, Peter, switch on your microphone and go ahead.
Thank you very much. First one from me, just to follow up actually on that duration gap. I mean, given you said the sensitivities hadn't come down massively, Alban, I just suggest there's more you can do there. I'm just wondering if you could comment on that. Sorry if I missed it, but are you able to tell us what the duration gap is at this stage? Second one on capital management. I'm just wondering if you can share your latest thoughts on capital management. I'm thinking there, you know, the lower SCR gives you opportunities, especially going forward, or whether you've updated your thoughts on the appropriate debt gearing at all.
Maybe on that one, any thoughts, any discussions you've had with the ratings agencies as to how they will think about their definition might be helpful. Finally, likewise from me as well, thank you very much for the concise and clear financial supplement. I think I'm right that you've given us analysis by line of business and by geography, but not the sort of the granular detail of P&C lines of business. You know, for example, I don't think, you know, we have French commercial. As I say, it's great to have a concise and a reduced printout, but I guess the downside is that it makes it difficult to build a bottom-up model that simultaneously forecast both line of business and geography.
I guess the question is there, you know, can we assume maybe that going forward, your focus might be a bit more on line of business, so we maybe don't have to worry so much about forecasting geography? Yeah, just any thoughts or help you give there would be helpful. Thank you very much.
Okay. Thank you very much for your questions, Peter. On the duration gap, it was 0.5 at the end of last year. It's 0.3 now. What you should have in mind is the way we think about duration gap is the economic one between our assets and liabilities. What we don't hedge, what we don't take into account in that duration gap is the management of the risk margin or the fact that some of our SCR, some parts of our SCR are sensitive to interest rates. Because we want to have an economic hedging of our interest rate risk, we don't take the risk margin.
Even with such a low duration gap like 0.3, you still have a sensitivity coming from the variation of the risk margin in our solvency or that of our SCR. I hope that explains the difference, which also means, by the way, that at some point, we could move to a duration gap where assets would be longer than liabilities, which is not the case today, which to some extent would cover also the sensitivities that I just mentioned from risk margin. Today, our assets are slightly shorter than our liabilities. On capital management, and I'll start with debt gearing. On that one, you saw the range that we gave. That's until the end of the year.
In early next year, we will give you our next plan. I don't think the debt gearing should change as a target, but we will give you more on this next year. I think we're comfortable with the level of gearing that we have today. On the lower SCR, I'm not sure exactly what your question was.
No. It was just whether that gives you more flexibility and maybe whether the scope for it to reduce it further in the future. I guess it was an open question, but just if there was anything you could add that may well not be.
I mean, not really. I think the lower SCR is a combination of the fact that, as I said, we had lower interest rates and the fact that our growth in our technical lines does not necessitate more capital. Also because we reduce our SCR by reducing our exposure to a capital leverage in our account. That's the dynamic at stake. On rating agencies, it's a discussion which is taking place because they are adapting their models to the new accounting framework, and this is not yet finalized.
Finally, on the detail, effectively, we wanted to give you clarity on a quite a few numbers, but we will not go into the details of, say, commercial lines in France or personal line in Germany. We will not do that.
Thanks very much.
Next question is from Will Hardcastle from UBS. Please, Will, switch on your microphone and go ahead.
Yeah, thank you for the questions. The first one is just whether you can update on lapse experience in the quarter, any geographies or distribution channels, any comments that would be helpful. Second one, look, there's a fair bit of distortion on that P&C pricing from the mix. You mentioned pricing is generally ahead of inflation when we're talking about personal motor. Is there any geographies where this isn't the case or where it's not being passed through by the market? Any update you can say on inflationary trends and whether they're sort of remaining stubbornly high or easing in any geographies quicker than others. Thanks.
Thank you. The lapse experience, the general answer is no change to our lapse experience, but for two small pockets. One that's in France, some corporate business that we have. It's not corporate pension, to be clear. It is the fact that in the past, we used to have some corporates, generally family holding companies, that would simply invest their cash into insurance policies. They are pretty sensitive to the interest rate that we can offer. As they can find better rates elsewhere, there were higher lapses there. It's a small business, and the remaining reserves on this are EUR 3 billion. You see that it's not an issue.
The other place where you had higher lapse rates, that was in Italy, in some of the business coming from BMPS, for somewhat identical reasons. In other words, the customers of BMPS, like of other banks, are offered Italian government bonds that have yield higher than what we can offer. There again, you saw some increase, but nothing alarming. At the end of the day, it's a rather small business for us. In general, we don't see, as I said, an increase, and that's mainly for two reasons. One is the focus that we've had over the years is on long-term business for our customers.
They are saving for their pension generally. Therefore their insurance policy is not like a bank deposit, and they will not move every time there is a up and down on their, on the interest rate. Very often, they also have a Unit-Linked policy with that. The second aspect is that most of our business is done through proprietary distribution. When I look at France, for instance, 80% of it comes from proprietary distribution. There we are able to give advice to our customers, and they see the value of that advice. They see the value of having an insurance policy, not to be with tax benefits and so on. That's why we haven't seen changes in our business.
In P&C pricing, the first part of the answer, which is simple, is that everywhere we have seen price increases that were sufficient to offset or more than offset inflation. The only exception to that is North America Professional Lines, where there is a significant competition and prices are down. That being said, the line is still very profitable even with that kind of price pressure.
Let me now take you through something I also gave you in the other times we talked about inflation, which is a comparison between the claims inflation that we have in motor and the pricing measures that we have taken. What you see in Q1 2023 is claims inflation growth of any elements, any actions we take to offset it, which is around 7%. It's 7% in France, it's probably 6% in Germany, it's 8% in the UK. In Switzerland, it's less than 2%. If I take the example of France, so you have the claim inflation of 7%.
As I told you the other times, we take some measures like procurement orientation and so on, which allow us to reduce the cost of that inflation by 2 points. We're left with 5. Frequency in France is relatively neutral. It is a headwind in Germany, it's a tailwind in Belgium, overall in Europe, it's neutral. Coming back to France, you have those 5 points of claims inflation. You have - 1 point coming from business mix, and then our price increases that represent 4 points. All in all, we maintain our margin in France. I gave you France. The same is true for Germany, for Switzerland, for Belgium. Obviously, the country which is remarkable is the UK for many reasons.
On that one, because price increases are very high, we're talking about north of 25% year on year, which means that today, I believe our, the business that we run today is profitable on the writing basis, which was not, the case, last year.
Thanks, Alban. Very helpful. I'll say as a compliment that we're remarkable.
Okay, next question is from Farooq Hanif from JPMorgan. Please, Farooq, switch on your microphone and go ahead.
Hi, everybody. Thanks very much. Firstly, going back to operational capital generation. You've talked about how there are various impacts that have raised you to 25-30 points, one of which is the SCR, but the others are obviously kind of own funds related. Can I just confirm that what you're saying is that your operational capital generation in nominal terms in euro amounts is actually also increasing? Could you just talk about that? Second point is, yeah, again, going back to the comment you just made to Will on pricing versus inflation. I mean, you gave the impact of France as broadly neutral. Do you think your combined ratio overall at the group level is going to expand, you know, in 2023 and 2024 due to pricing versus inflation?
Do you see a positive margin impact in 2023? Then 2 very quick questions. Really sorry. The discount rate effect in P&C, how sensitive is that in 2023? We've seen yields come down. How should we think about that? Lastly, the CSM release is 9%, so it's the lower end of your range. You know, should we also think that there's upside there going forward? How does that work? Thank you.
Thank you, Farooq. Operational capital generation. Yes, in nominal terms, there is an increase. I think, if we say that we are at 25 points over the year, that's which is the low end of our range, that's 5 to 6 points above the previous range. I would say 1 to 2 points comes from the fact that the SCR is lower, and the rest comes from the simple fact that we generate more capital in absolute terms. On the combined ratio, as I said when I talked about the guidance, I think the pricing environment is supportive. Overall, I believe that yes, there is room for improvement in our combined ratio. Obviously, I'm talking undiscounted combined ratio.
Everything else being equal and leaving aside obviously cat volatility and so on. Yes, I think it is supportive. Third, on the discount rate impact. I'll give you 2 things. The first thing is the fact that we use rates on a quarterly basis and 1 quarter in advance, i.e., at the end of December of any given year, you will know the rate at which we will discount Q1. You have those rates in our documents that we gave you for Q1 and Q2. That already gives you half of the year for as far as discount is concerned. I will give you my own rule of thumb on how I approximate discount. Fundamentally, the discount applies to the net claims of the year.
If you start with 100 of premiums, you have 55 of net claims at AXA in P&C. The discount applies to the part which is non-paid. The part which is non-paid is another 55% of those 55. That's the basis to which you should apply the discount. Then the duration of those claims is around 4 years. With that, I think between the rates, the duration, and the basis, you have everything that you need to approximate the discounted impact on any given year. To be clear, that's my rule of thumb. It's not the precise calculations, but that's reasonable enough. On CSM release, as we said, what is stable and growing obviously is the amount of the CSM release, and that's because it's done on a real world basis.
If you have a higher stock of CSM, then probably the release ratio would be lower, and if you have a lower stock, then the release ratio would be higher. What matters, obviously, is the new business contribution year after year. That's what will drive, in the end, the amount of CSM that you will be able to release. I hope I was clear on all those technical issues.
Very clear. Thank you very much.
Next question is from William Hawkins from KBW. Please, William, switch on your microphone and go ahead.
William, we don't hear you.
William? Maybe we move on. Apparently, William is having problems-
Yeah, maybe go on.
To get connected. William, can you please switch on your microphone and go ahead?
Sorry, can you hear me?
Yes, we can. Hello, William.
Hi, everyone. apologies, my connection closed. Can you just, the 217% solvency ratio, what were the numerator and the denominator for that, please? Also within the roll forward, what's the numerator and denom behind the 0 percentage point from financial markets? I'm, you know, I know the net is 0. I'm a bit confused what's happening top and bottom. I think you already gave some.
William, we can't hear you.
I hope you can hear me, and I will answer the first question that we have heard on solvency. The 217, the denominator is EUR 27.4 billion, which is slightly above what it was in fully 2022, EUR 27.2 billion, and the numerator is EUR 59.6 billion. I understand your other question was on the market impact, which was 0 overall. It's -2 from interest rates, -2 from spreads net of VA, +2 from equity markets, +1 from implied volatility, +1 from Forex. 0 overall. I hope you could hear me.
All right. Next question is from Henry Heathfield from Morningstar. Please, Henry, switch on your microphone and go ahead.
Morning, all. Yeah, thank you for taking my question. Just going back actually to slightly on Farooq's question. On the discount rate and the unwind, seems to have quite a big impact on your earnings in P&C. I was wondering if there is like a long-term rate that you might be using in kind of strategic planning, whether that has any bearing or impact or whether the change is just put through to adjust profitability somehow, and no impact on long-term planning. You mentioned as well that there's a higher discounting impact on technical business, this was regard to the health business versus discounting impact on the savings business. I was wondering if you just might be able to illuminate me a little bit on that.
Finally, on capital generation, just on the nominal amount, would it be fair to assume a number around EUR six and a half billion annualized, give or take EUR a couple of hundred million? Thank you very much.
On the first one, the discount and the unwind, the way we think about it, the unwind will increase as we will pile up, so to speak, generations of different discount rates year after year. Given the trend in interest rates, that will increase. That being said, it should be offset by the increase in investment income because we will also invest at higher investment income. There is a specific effect in 2023 that I mentioned quite a few times on the private equity funds distribution, but that has nothing to do with the fact that our investment in fixed income are also done at a higher rate year after year. On the discount impact, this is obviously a very sensitive assumption in our business.
There will be some volatility. Now, there are other aspects of the P&L, I'm thinking of PYDs for which there can also be some volatility up or down. I don't think that overall we should have too much volatility in our earnings. Very clearly our aim is to provide our shareholders with regularly growing earnings and cash generation. That's the philosophy of our strat planning. On the technical margin. On the technical margins versus savings. On technical, the combined ratio that I have on health is independent from interest rates. For a given level of combined ratio that would be projected, the earnings will be discounted at a higher rate and therefore will be worth less.
When interest rates are higher for savings business, you know that the discount rate in a risk mutual environment is the same as the investment rate. Therefore, what you have is a better yield, a better theoretical yield on your assets with higher investment rates, which in particular means that the value of your options and guarantees goes down. Therefore, in many instances, for a savings business, the higher interest rates will have a positive impact. It's more positive for savings than it is for protection and health. I hope it's reasonably clear. Your third question, sorry, I'm not sure I got it.
Please, can you unmute yourself?
Sorry, just on the third question, I was wondering whether, just on the capital generation, whether around, a EUR 6.5 billion normalized annualized figure, give or take EUR 200 million, would be a decent ballpark number to be thinking about?
I think the best way to think about it is the 25-30 points of capital generation applied to our SCR. That's the way to get to the right level.
Perfect. Thank you.
Okay. Next question is from Michael Huttner from Berenberg. Please, Michael, switch on your microphone and go ahead.
Fantastic. Thank you so much, and thanks for this lovely presentation. On the, you talking about pricing in France. I did not... I'm looking at your press release. The figure I see in personal lines is not 4, it's 1.9. I'm guessing I'm reading something wrong. Maybe you can explain the mix of your business in France and how that, how you see that? The second is on the operating capital generation. We've spoken a lot about that. You're kind of saying it's now beginning to converge with earnings, which is I think what Henry was saying. You were saying maybe we're getting close to EUR 7 billion, going on in EUR seven and a half billion. Within that, I had a question.
The feeling I have, and this was from the previous conference call today, is that in a period of rising interest rates, you do have, because the discounting comes before the unwind and the discount, or if interest rates are higher than last year, however, that you do have earnings which are slightly above the normal run rate. Is that roughly fair? Would that explain the difference between the underlying earnings and the operating capital generation? I had one silly question then one even sillier question. The silly question is deals. I'm not sure if you can speak about that, but 217% sounds you've got plenty to look at stuff, and I just wondered if you can give an update of what's happening there.
The final question, here's really a piss to Anu for having made AXA a really simple company to understand now. Thank you very much. Does it mean that machines can do it? I was speaking to somebody, and they said that the LSC has a program of building models automatically, and I was thinking, "Oh, that means I'm, I don't have a job anymore." How do you see that? Thanks.
Okay. Thank you, Michael. On the first one, no, I understand your question on the reconciliation of numbers. The 4% I mentioned is the number you mentioned on the price increase divided by the loss ratio. In other words, what it is, it's as if you dedicate the full amount of price increases in France to claims. Why do we do that? Simply because the expenses are addressed separately, and we put a lot of pressure on expenses so that they do not increase with inflation. That approach is specific to France, not for the other countries. That's the reason why we say it's 4% price increase in France because that's the part that goes to claims. On the convergence with earnings.
There is a slight impact coming from the higher discount, and that's what I highlighted as well, so I agree with you. The main impact in our greater capital generation comes from the fact that underlying earnings, that to be on the P&C side, are extremely close now to solvency capital generation. They were not in the past because of that distortion coming from excess reserve release. On the 217%, I guess you were alluding to some potential capital management initiatives. On this, as we said in February, the board looks at capital management, in particular at share buybacks once a year. Don't expect another share buyback this year except the one to offset the dilution coming from our German in-force transaction.
On the fourth one, I'm not completely sure what you meant.
It's a really silly question, but we now have a really very simple framework. If I were a generalist, I would be sending lots of chocolate to Anu, I mean, tons of chocolate. I know Anu doesn't eat chocolate, but never mind. because it, you really can build a model very, very simply now, but it does mean that you don't need analysts anymore. I just wondered how. This is a really silly question, but, you know, can we just press a button? Can you press?
That's your modesty speaking. I'm pretty sure that a generalist, though we try to make it simpler and clearer, will need your help to understand IFRS 17, the link with Solvency II and so on. You still have good days of work with your clients.
All right. Next question is from Andrew Crean from Autonomous Research. Andrew, please switch on your microphone and go ahead.
Good morning, everyone. Thank you. Given my age, I'm not as worried as Michael is about being supplanted by a machine, never mind. A few quick numerical questions, a slightly more fundamental question. Numerical questions, what was the rate decrease in North America Professional Lines? Secondly, in euros, millions or billions, what was the impact of elevated fund distributions both in the P&C and life businesses last year? Get that right for this year. Thirdly, I just want to see, I mean, obviously people's Solvency II coverage ratios are gonna go up. You obviously beat in the first quarter, now you're looking at higher levels of operating capital generation.
Does that flow through to higher levels of cash remittances to group levels so that we can then have a look at the amount of buyback which is annually possible? Finally, I'll reiterate what Michael said, I think it's fabulous you've got this thing, the financial supplement down to 23 pages. The one bit that I would like to see or couple bits I'd like to see is, one, a reconciliation between underlying earnings and operating capital generation by business. I understand what you said just a minute ago, that you're very much reliant on the P&C business, but it would be good to have that. Secondly, whether or not you're going to continue with net flows analysis.
Okay. Thank you, Andrew. We don't communicate on the rates decrease in North America Professional. It's... How should I qualify it? It's important, but not to the point that line is not profitable any longer or that overall our pricing would not be above loss trend. It was really very profitable in the past, so I don't see that as an issue. On fund distribution, I think what you should have in mind is a couple of EUR hundred million difference between 2022 and 2023. On cash remittance, obviously the fact that on the P&C side, our earnings are made of best estimate PYD gives us comfort on the fact that the remittance can grow.
You know that we said it would grow. We have full confidence in this year to be at the upper end of the range we had given you, which was EUR 5 billion-EUR 6 billion, cash remittance for 2023. We believe that it can grow further in the following years because we grow earnings, because of what we've just said, and because, as you know, we are working on the couple of entities that were not yet at the right level of remittance. Anu, do you want to take the one on the reconciliation?
Andrew, we will take on board your suggestion to reconcile UE and OCG, but you will see that, you know, when you map our Solvency II capital generation and match it with UE, it should be very similar. We will provide that. On the net flow, we do provide Life & Savings net flows. Were you thinking more account value roll forward?
I was just flicking through the supplements and couldn't see the old reconciliation we used to have between start year and end year life reserves.
Yeah, no.
Nothing, sir.
Yes. I think but that's actually a function of IFRS 17, and we are in VFA, and BBA contracts are sort of, you know, which cover both GA as well as UL. We report it through CSM. We are showing the CSM roll forward, and we show PB FCF, but we're not showing the reserve roll forward. We are giving you net flows on a quarterly basis, and the activity indicators.
Great. Thanks very much.
Qualitative comment on the reconciliation between earnings and capital generation. I mean, obviously, you would know that, Andrew, but just for the benefit of everyone. On the P&C side, it will be very close, as we said. On the life side, the difference is the following. What creates solvency is new business and unwind of discount and additional investment income in excess of risk-free rate. Whereas what creates earnings is the release of the CSM. It so happens, as you saw in our numbers, that they are reasonably similar, if not equal, so there is not a big difference, but there is a difference in the way solvency is created versus earnings.
Last question is from Dominic O'Mahony from BNP Exane. Please, Dominic, switch on your microphone and go ahead.
Hello, folks. Thanks for questions. Just two left, if that's all right. On the cap gen uplift from this, I guess the end of the releases from the potential margin, could you give us a sense of which geographies this effect is most pronounced? I'm trying to work out whether this is something that's going on mainly in the Solvency II jurisdictions or, for instance, in the Bermuda jurisdictions, and by implication, whether it actually has a tangible impact at the local level, or whether this is really about the way the group reporting works. The second question is just on the duration gap.
Just wondering why you're closing it now, and, I guess the context is that when I talk to folks about managing, lapse risk, one of the things that I've been told is that you want to sort of structurally remain a bit short, in order to sort of manage that risk. It sounds like lapse risk isn't a problem, at the moment, but, why closing the duration gap now, given where we are on the rate, on the rate curves? Thank you.
Thank you, Dominic. On your first question, so if I understood it well, the difference between 2022 and 2023 come from the release of excess reserves or not. We had no such excess reserves, or almost, in AXA XL. Effectively, it will be more the European entities for which there will be a difference in terms of capital generation coming from the better alignment between earnings and solvency. XL, that will be very similar. On the duration gap, for us, there are two different things.
The first one is the duration gap as such, which is an ALM issue. We thought that the level of rates that we reached in the first quarter were such that it would be interesting to take benefit of that and lengthen the duration of our assets. Overall, I believe that the neutral position that an insurance company should have is to have slightly longer assets than liabilities, because that's the one thing you would benefit from in case of market crash, because you would gain money on the interest rate side while you would lose on equities and other assets. That's my belief. Today we're not there yet, but we wanted to close further the duration gap. There is another aspect, which is liquidity and how you manage potential surrenders and lapses.
On this, we have a very strict liquidity framework. First, the first source of liquidity is obviously the incoming premiums, the coupons, the maturities from your bonds, and that's already a very significant source of liquidity. Then we take measures regularly to make sure that even in stress scenarios, we would have the ability to cater for additional surrenders or lapses without triggering capital losses.
Thank you. Cheers, all.
Okay, we have one more question from Benoit Vallet from Oddo. Please, Benoit, can you switch on your microphone and go ahead?
Yes, good afternoon, Alban. Thank you very much for this very clear presentation. One short question on my side on France, and more specifically on your combined ratio. When I look at your page 8 of your financial supplement, you're reporting a 104% combined ratio in 2022 under IFRS 17, so there's a huge gap versus the 89% reported under IFRS 4. When you take your reserve releases, it was at 6.5 percentage point last year. I just wanted to understand why do you reported a such huge gap? Did you change your best estimate last year in France, for example?
Maybe linked to this, I know that you don't provide any guidance in terms of combined ratio going forward, but do you see any reason why combined ratio in France should be higher than the combined ratio in Europe? Thank you.
Thank you for your question, Mila. What you see for France is what I described in one of the slides on IFRS 17 when I showed that overall in 2022 we released excess reserves, and those excess reserves do not exist under IFRS 17. That's why at group level we had a higher combined ratio, and that's why you see it as well in France. When I combine that with a previous question on the fact that those excess reserves were not at XL, but mostly in Europe, it's normal that France and some other European entities may be more impacted. Again, it is a one-off in 2022.
We wanted to release PYDs from excess reserves in 2022 because precisely they disappear under IFRS 17, and we will have PYDs in the future coming from best estimate liabilities. In the range of 0.5%-2% for the whole group. On your second question on France versus Europe. France is one of our largest markets with very good profitability, and there's no reason, far from it, why its combined ratio should be higher than others. Obviously we want a good combined ratio, and we have it in France. Operator, do we have any more questions?
No more questions on our side.
Okay. I thank everyone for joining the call this morning. If you have any follow-ups, then don't hesitate to reach out to the investor relations team. Have a good day.
Thank you very much. Have a good day.