Good morning, welcome to AXA's first half 2023 results presentation. Walking through our results today are our Group CEO, Thomas Buberl, Group Deputy CEO, Frédéric de Courtois, and Group CFO, Alban de Mailly Nesle. After the presentation, we will take questions here from the room and then from the webcast. Just one minor announcement before we start. You know, as we progress through the implementation of IFRS 17 and 9, we have made some minor changes to our restated first half and full year 2022 numbers. While the changes are immaterial, for the sake of completeness and accuracy, we've published an updated version of the financial supplement that we shared with you. With that, I'll turn it over to Thomas.
Thank you, Anu. Good morning to all of you. Very happy to be with you and present the first half 2023 results. Let's start with the overview. These results show a continued strong delivery. We have shifted from financial risk to technical risk, and over many quarters now, we have shown that this model works, that this model is producing good underlying earnings, EUR 4.1 billion at the half year, which is +5%, and I stay in the logic of IFRS 4 because that's the best comparison to previous numbers, and +8% when it comes to underlying earnings per share. All of this with a strong return on equity, 16.6%.
What's very important, in times that are not always stable, all of this on a very solid balance sheet. The Solvency II ratio, 235%, +20 points relative to the full year of 2022. We will stay on course of exactly the strategy we've chosen: focused operating model, focused on technical risk, and staying as obsessed on cash that we used to. Making sure that for the second half of this year, we'll continue that journey, and we are confident to exceed the EUR 7.5 billion underlying earnings in 2023 that we have given as a one-time guidance because of the change to IFRS 17 and IFRS 9. The second half of the year should hopefully progress in the same way.
When you look at our business model today, we are well positioned because it's a simple business model and a well-balanced business model. 50% of our business is now commercial. We are the global leader and the largest insurer for commercial companies, be it for their physical assets, but also for their human assets. When you look into the physical assets of those global companies, you see that the dynamic has been quite good. On the one hand, rising prices, but also rising volumes. When you look, and we come to it later, into the numbers of XL, you see that the revenue increase is half price increase, half new business.
Secondly, on employee benefits, we certainly see a significant increase in demand due to the fact that, post-COVID, health is taking a very different and much more important stance in a company's orientation. The other 50% is retail business, mainly focused on strong European positions and Japan and Hong Kong, where we are, on the one hand, strong in retail P&C, but also strong in retail health, and life and asset management, making sure that we are focusing primarily on tied agents, because it is obviously much easier to control it, to steer new business, but also to steer retention. This is very important, obviously, in times that are not always stable. We are, with this model, where we want to be.
When we are thinking about next the next plan, it will certainly be based on this model and based on how can we expand our footprint in this model. The announcement that we have added to the good results this morning around the acquisition of Laya Healthcare in Ireland fits very well into this model because it's on the one hand, strengthening our current footprints in Europe, but on the other hand as well, strengthening our employee benefits footprint, because Laya is also very active in employee benefits. If we look into detail in this acquisition, Laya is the number two healthcare company, insurance company in Ireland, 28% market share.
It comes to managing digital interactions with their customers, but also when it comes to managing care beyond just paying claims. If you look at their strategies around clinics, this is very leading, and it is a capital light business, which fits very well into our strategy. We obviously made sure that we looked at this acquisition, which will, by the way, add roughly 10% to our existing footprint in health, that this acquisition does comply with the standards of capital discipline that we have put forward. Going forward, this will certainly also stay the case. There were some discussions this morning around AXA's ambition or non-ambition in the U.K. and potential M&A targets. I would like to clarify this straight away.
The U.K. for us is a core market. We are envisioning very much to grow organically in the U.K. If there is a question around concrete M&A targets, I would tell you this is not the case. When we look at Laya, why is Laya important for us? We are already number one in P&C in Ireland. We will add now a strong number two in health to this position, which obviously will offer us a lot of cross-selling potential as well. Secondly, Laya is also important for AXA Group.
Not only does it add to our health revenues, but it also gives us access to capability that we don't yet have sufficiently today, both when it comes to the digital interaction with customers, but also when it comes to health services. This is very good news for us, I would like to pass at this point on to Frédéric de Courtois, who will give us more details about the numbers.
Good morning to you all. I'm very pleased with our results. We now have a simple and quality business based, as mentioned by Thomas, on two pillars, so 50% commercial and 50% retail. If you look at the context, we've had pluses and minuses in the environment, and we've been managing these pluses and minus, and minuses. The first important topic is that the price momentum remains good on commercial lines and on retail, and we have the ability to pass these higher prices. This is an important point. The second element of context is, of course, higher interest rates and inflation. Higher interest rates means that we are now reinvesting at higher rates, and we will progressively see it. Inflation, I've just mentioned it, and we have the ability to compensate for inflation with prices. On CAT, we...
You, you remember that we have a 4% budget on CAT annually, so we've been a bit below this during the first half. We had a 3% CAT experience over the first half, close to 3%, 4% in the U.S., around 2% in Europe, so an average of 3%. On the large loss experience, the large loss experience has been equal to last year. If you think about this, last year, we had a strong claim with Ukraine, and we didn't have this, this year. It means that the large loss experience has been pretty heavy in the first half, and it includes the French riots.
If I look at the right part of the slide, we, you see, even if the, the reading is always a bit more complex with IFRS 4 and 17, but the, the performance of all our engines is good. You see that we have four engines of about the same size, and I'm especially pleased with the performance at AXA XL, both for insurance and reinsurance, which is a big news. We had good results on both fronts. I like to add that you know that AXA has always been very cautious on reserves, and I like to make clear that for this half year, we've been a bit more cautious than usual. Last comment on this page, all this, according to us, shows that we are able to manage volatility. We're able to manage volatility through prudent reserves.
We are able to manage volatility through increased prices, and all this make us confident that we are going to be able to deliver sustainable and attractive results, whatever the context. Looking at the, at the next page, you've seen in our figures that we had strong results on growth and on the, on the technical results. If I look at the growth, and if I focus on the around 90% of the business we like, we had a 6% growth of the business, which is good, with especially a 7% growth of our P&C business, including a 9% growth of our commercial line business. We are, we are, we are pleased with this.
If I look at our technical margins, I show here our claims, our current year claims ratio, so excluding CAT, excluding discount, you see that we've continued to improve our technical ratios, so by 0.5, especially on the commercial lines. We believe that these levels are sustainable. We also believe that, to a large extent, we will be able to manage volatility caused by the discount factor. This makes us confident. If I look at the right part of the slides, you see that the CSM is extremely stable, extremely progressing regularly. This is all linked to the profitable new business. This makes part of our P&L extremely predictable. Last comment, which is not mentioned on the slide, on costs.
You know that cost discipline is important for us. It's, it's interesting to note that our costs, excluding commission, have increased by 1% over the past year, which is, compared to inflation, I think, a good result, and we continue to be focused on this. Last comment from me on capital. You've, you've read that our capital position is, is very strong. You see that our solvency ratio has improved by 20 points. What is important is that this improvement is mostly linked to organic factors and not so much to capital markets related factors. If I look at the own fund, the improved own fund is linked to our good capital generation, linked to the good results in the first half. The lower capital requirement is linked to two factors.
One, which you already know, which is that we have a capitalized business, so which regularly improves our capital requirement. We had an exceptional, if I may say, contribution from what we've done on the duration gap. We've decided to almost close our duration gap. Our duration gap now is only minus 0.19. We believe, who knows, of course, that we've done it with good timing, and it had a significant impact on our solvency ratio, and it has also a significant impact on our sensitivity to interest rates. At the end, I see 3 positive points on this slide. The first one, which you know, which is that our growth don't consume capital.
The second one is that we've reduced our market risk capital requirement by EUR 500 million, so about 3% of the total, and we've, as I've said, significantly reduced our sensitivity to interest rates. All of this, of course, is only capital, if I may say, and not cash, but it improves our confidence on remittances, and I can only tell you that we are fully on track on remittances and cash. Thank you. I leave the floor to Alban.
Thank you, Frédéric. Good morning, all. Let's go one level deeper in the details, and let's add the pleasures of IFRS 17 to that. Let's start with the P&C revenues. You, you see that we had very good growth in the first half with 7%. That's driven first by our commercial line business, both XL and the other AXA entities. What's very interesting is that it's both volumes and price increases. On volumes, we see significant demand, even though prices are increasing, increasing. That's a very positive development. On the price increases, you see that it's 4% overall. It's 4% also for XL.
If you exclude the financial lines and more specifically, the North America professional lines, we are up 7% on average, which is still above last trend. You will see in a couple of slides that we, we had told you about the margin expansion that we would have in commercial lines, and we did have that, that margin expansion. On reinsurance, you know that we drastically reduced our exposure to net CAT this year again, but that was almost offset by the price increases we had of property and property CAT in reinsurance. Finally, prices are up 6%, and we focus on price, not on volume.
We think that those prices are sufficient to offset claims cost inflation, There's no no place yet to increase volumes in our markets. We, we focus on profitability. That being said, we do see an acceleration in price increases, Q2 over Q1 in Personal Lines. The combined ratio that we have, so now that's purely IFRS 17, as you will have understood. The first point I want to focus on is the light blue bar, the 68.2% attritional loss ratio that Frédéric also mentioned. That is key to us because that's the result of our management. You see that it, it improves compared to full year, compared to 1H last year.
It's, as we will see in next slide, due to the skew we have to Commercial Lines, which, as you saw, represents two-thirds of our P&C business. The other components, as Frederick said, we had a benign environment in CAT. I don't come back to that. A significant impact, positive impact of discount, with an average discount rate being at 3% for the half year. All in all, we didn't see very significant reasons to release significant PYDs. We are at -0.6%, which is at the very bottom of our range, that goes from 0.5-2 points of combined ratio. To the same extent, we've been also conservative in our loss picks in Commercial Lines over this semester.
If we go a level deeper, Commercial Lines versus Personal Lines and XL Re. Commercial Lines, you see the 0.6 point improvement. Again, that's the margin expansion I mentioned. Bear in mind that, of course, we had Ukraine last year. We had large losses this semester, including the French riots that are in this attritional part in Commercial Lines. On Personal Lines, the loss ratio, excluding net CAT, net CAT, excluding discount, is slightly up 90 basis points. That's due to the fact that although, as I said, our price increases were sufficient to compensate for inflation, in two countries, namely, Germany and Ireland, frequency was higher than anticipated. That's that needs further pricing actions, and we will take them.
That explains why, despite the pricing action that we, we took, our attritional loss ratio is slightly up. When we move from ratios to numbers, you see the very, very strong increase compared to 1H 2022 of underwriting result. You will remember that in 1H 2022, there was also the fact that the release of excess reserves was not recognized. Leaving that aside, it shows the significant improvement coming from growth first, and coming from the improvement in our technical profitability. Investment income is, is slightly up. We had told you that there was an elevated level of fund distribution last year, that we didn't have in the first half. We see in some entities, and notably in the U.K., which has a, a short duration, benefits of higher rates.
We also see the impact of the unwind, the insurance financial expenses for EUR 99 million. In total, for the first half, those financial expenses are at EUR 300 million. Overall, compared to IFRS 4, P&C results are up by 13%. Moving to Life and Health. Life revenues are roughly stable, minus 1%. We have good performance on the protection side with flood four, that comes from Japan, that comes from Hong Kong and Switzerland. On unit linked, we're down 16%, mainly France and most of it, Italy. In France, you need to see that in conjunction with the capital light growth.
When you look at France, which is our main life carrier, when you look at capital light, which is Europe Crossings and unit linked, we are up 10% over the first half. There is acceleration in Q2 versus Q1. Overall, we are down 16% on unit linked, +11% on capital light. We are down 11% on traditional general account. We see that as good news. You see also the impact of that in our net flows. Traditional general account, net flows are negative by EUR 4.4 billion. You will see later that it has a positive impact on our solvency. We consider this as an in-force transaction, without paying the price.
That's a positive for us, and you know that we want to be as capital light as possible and to the maximum extent possible, to reduce our asset leverage as well. On the Health side, you will remember the two large contracts that we had in France and that we canceled at the end of last year. That weighs on our revenue growth, minus 6%. If you exclude those two contracts, we are at plus 7%. Good growth on the health side. On the PVEP side, a bit like IFRS 17, the picture is a bit complex because of interest rates, and the decrease that you see in PVEP is entirely attributable to interest rates. Same for the NBV.
The NBV margin, which is what matters to us, is up slightly, more stable from last year to this year. You see that the new business CSM, pre-tax, is up 2%. Moving to the stock of CSM. There are quite a few things to say here. The first thing is to look, as we do, as we did in May, at the box, and to make sure that on a recurring basis, we do create CSM, with, on one hand, new business CSM and the underlying return on in-force, on the other hand, the CSM release. We have a net creation of EUR 500 million, which is an annualized 3% increase. We have economic variance, EUR 1.4 billion. You will see that as well in Solvency II.
That's the equity market was good, lower interest rate volatility, good spreads, and down with, partially, with lower interest rates. Operating variance, minus 0.4, that's the impact of, mainly the impact of the negative flows. You will see the benefit in terms of capital when we go to solvency. Minus EUR 1 billion, that's the yen that was weak this semester, and that obviously weighs on our total CSM number. Moving to underlying earnings. Now under IFRS 17, it's driven mostly by the CSM release, and the CSM release is up 3%, very similar to the growth in the CSM stock itself. The technical and financial results are down.
Financial results, again, we had told you about this earlier in the year, because, again, we had good fund distribution last year and less this year. On the technical side, it's new. It comes from the fact that, well, something you, well, living in the U.K., you might have seen, it's simply the very significant increase in frequency on the Health side because of capacity issues with the NHS, and the NHS simply saying to patients that have private health insurance to go directly to specialists without going through the triage of their own GPs. So that has an impact. What it means is necessary price increases, also better claims management. We probably need to do our own triage on this as well, and it will not be solved now.
You will see some impact also in H2 coming from this, because we see that as a change in the U.K. market. Overall, compared to IFRS 4, life and health earnings are down by 4%. Asset management. Assets under management are roughly flat. You see a decrease in... Well, you see negative net flows that comes from us at AXA, that's the reflection of what I said earlier on the negative flows in general account. That's the direct link with that. Obviously, you can imagine that the assets going out of the main funds are not the ones on which AXA has the largest margin.
That was partially compensated by third-party funds, both in the core platform and the ALGS platform, roughly 50/50, which is also a good signal, because you see that despite questions that you may have on the real estate market, we still see investors coming in for investment in real estate. Fees were stable at 18.1 basis points, and underlying earnings are down by 7% because we didn't reduce cost as a proportion of the revenues decrease, simply because we are investing in the new platform, Prime, that we told you about. When I summarize all this, underlying earnings are up 5%, as was said at the beginning, which translates into an 8% underlying earnings per share growth, thanks to our share buybacks.
Net income is down 7%, but you will remember that capital gains on equity do not flow through P&L now, but directly to our net assets. We had some last year. We don't have any, by definition or by construction, this semester. And capital gains on real estate, that's what does go through the P&L. We didn't have much in the first half. That's more lumpy, and we will have some in the second half. So finally, moving to solvency. So a lot already was said by Frédéric. Normalized capital generation, 16 points. We had told you that the new range would be 25-30 per year. So 16 points is slightly above half the upper end of that range.
Bear in mind that like P&C, there is seasonality in our business. There is seasonality because of CAT. Q3 is generally worse than Q1 and Q2. Seasonality because on investment income, because dividends are paid in the first half, and there is a slight seasonality also on the discount effect. That explains why we have a bit more than half in the first half. Economic variance, it's exactly what I mentioned for the, for the CSM, you have it here. Operating variance, that's what I mentioned earlier on the negative cash flows. You see the loss of UF, but you also see that our solvency capital requirement reduces by EUR 0.2 billion. Net, net, it's an improvement by one point of our Solvency ratio.
Last, it's the reduction in duration gap that we did, where you will probably remember that we did some in Q1, and that we told you that our neutral position would be to be slightly longer assets than liabilities. We're not there yet. Duration gap is at 19 bit, point 19, not bits, point 19 year. But the benefit of that is the significant reduction in our financial capital required and the significant reduction in the sensitivity. We are roughly at half where we used to be when it comes to interest rates, with 5 points up and 7 points down. That's again, one more proof that we are focusing on our technical risks and that we are reducing our financial risks. With that, Thomas, I give you the floor for the conclusion.
Thank you, Alban. Summarizing what we heard this morning, and relating it back to our Driving Progress 2023 plan, we have shown again another half year of strong execution, which will make us even more confident to deliver the Driving Progress 2023 targets. If I go into detail, the underlying earnings per share, we want to achieve a range between 3% and 7%, with the 8% that we have just shown and the previous period between 2020 and 2022 of 10%. I hope we can say that we are most likely set to exceed this target range. This increase in underlying earnings per share is very much driven by the operational changes we made.
You might have probably seen that on the P&C side, which represents today 66% of our underlying earnings, we have achieved a 7% top-line growth, which really shows that the new platform of AXA and the engine around technical risk is really moving. If you then look at the current year combined ratio, excluding CAT and excluding the discount factor, you see that it has also been reduced by 0.5 points, which again, shows the increase in the operational performance. When we look at the return on equity at 16.6%, we will also be well positioned to deliver the range of 13%-15% by the end of this year.
When you look at Solvency II, we are clearly above the 190%, with 235%. When you go back to what Alban said, around, having been able to not only increase the solvency significantly, but also reducing the interest rate sensitivity of our balance sheet by half over the last 2 years, this is really the reflection of our strategy of moving away from financial risk into technical risk and having a balance sheet that is much more stable and much more solid, certainly in times what we are seeing at the moment.
Then lastly, on cash remittance, we want to have a cumulative cash remittance of EUR 14 billion, given the progress we have made, and we only report on cash remittance at the full year. The next time we'll hear about it in February 2024, for the 2023 numbers. We can also say that these EUR 14 billion, we are probably very well positioned to exceed this target. Going back to what I said earlier, cash is an absolute focus for us. We are cash obsessed, and we want to remain cash obsessed. Again, if you go back to where we were in 2016, we made roughly EUR 100 billion revenue.
Today, we are making a little bit more, on a yearly basis, but in this time, we've increased underlying earnings by roughly 30% and increased cash contribution of these earnings by 60%, to show you where we are coming from. Thank you very much for your attention, and we are now, going to your questions. Let's start with Peter at the back.
Thank you very much. Peter Elliott from Kepler Cheuvreux. If I could start with three, please. First of all, on this morning's acquisition, I just wonder if you can talk a little bit about why it makes sense for you to go to capture the full underwriting, whereas that hasn't been the case traditionally, and maybe just touch on the assumptions that you've made to get to the 11x PE, very helpful. Second thing on Health. You've talked a lot about the U.K. Is there anything else in the sort of European health segment, or is that basically the full story there? Then thirdly, on the old accounting, you gave us guidance on what to expect on realized capital gains on an ongoing basis.
I'm just wondering if you can give us any more help on how we should think about the sort of normal walk from underlying earnings to net income going forward. Thank you very much.
Thank you, Peter. I suggest I will cover question one or the half of question one and question two. Alban, if you could talk about the 11 times PE multiple and the question around realized capital gains. Why is Laya important for us? As I said, we are confronted with a market in Ireland with very few players. Laya being the number two player with 28% market share, with a very good customer interaction, very high customer retention, in a market that still has growth potential. This is really an ideal case for us that fits perfectly into our geographic strategy, meaning: how can we increase through add-ons and consolidate our market position?
We are today number one on the P&C in Ireland. We want to grow there because it's a great market. Secondly, because Laya has also a significant amount of employee benefits business as one of the segments that we want to push, because we don't only look at Laya as how can it help us in Ireland, but also how can it help us beyond Ireland in the group to get further around this question around health services as a core component of our offering. When it comes to the European health markets, we don't see the same phenomenon that we see with the NHS in the U.K. Look, every difficulty also has its opportunity.
If you look at the NHS challenges and what it means for the average British customer, it means that he or she needs to think how can they have a better and faster access to healthcare? Because most likely, the NHS issues will not be resolved within the next six months. This is probably a more structural problem around demographics of the healthcare workers in the NHS system, and also the question: how do you get more staff into the system? So this topic leads us to believe, and we've seen initial customer reactions to it, that the inflow into private healthcare in the U.K. will certainly increase over time.
What we are going to do beyond what Alban said on the pricing side, on the claim steering side, but also on the question: how can we change and evolve our offering, both in more modular products, but also in mirroring the general practitioner approach that the NHS has traditionally taken? We will certainly go into that direction and will also reap the benefits on the growth side. The same is true in Europe. You don't have the issues being apparent now on, in the social security system, but if you look into the French budget, you also see that the costs are significantly increasing for that healthcare system.
At some point, the topic will be very similar to say, "Look, how can the private sector take over more of the potential that traditionally has been solved in the public sector?" This was also one of the reasons why we said from very early on, we need to position ourselves as the leading health insurance in Europe to benefit from that. Alban, on the two questions, 11 times multiple and realized capital gains.
Thank you, Peter. On the PE, it's a PE that obviously compares the price we paid to the total earnings, not only the MGA part, but also the insurance part. Why 11? I think first, it's established business with a very strong brand, digital platform, extremely high customer satisfaction, and recurring profitability. It is capital light. To give you an idea, the amount of capital to premiums is around 5%. That's low. That as such, between the stability of the profitability, and the capital lightness, plus the fact that it is a market, the health market, that is developing and growing regularly, that deserves such a P.
When I talk about the P, obviously, we have incorporated some cost synergies by the fact that we are repatriating at a lower cost the underwriting margin. There's no revenue synergy in this, and we think that between our very strong motor franchise and this very strong health franchise, there can be revenue synergies. On the capital gains, to give you a large range, and that's for this year, we'll come back to you next year with the plan. Having between EUR 200 million and EUR 300 million of realized capital gains coming from real estate and therefore in P&L, is relatively safe. Farooq?
Hi, thank you very much. Two questions, please. The first question is very general. You have a CSM recurring growth rate of 3%, very good revenue growth, which it seems in half, is pricing delivered in P&C. When we look forward, clearly, your kind of underlying cross-cycle growth rate here is potentially sub 5%. I'm just thinking, how do you get back to the same level of earnings growth rate in your mind that you've delivered historically? What are the levers that we should expect organically and inorganically? I know it's a wide question, but it would just be good since we're going to update our numbers and just think, thinking about that.
Second question is, the moving and the restructuring of the group with Greater China, for example, and European and health markets and the change of the management structure, what does this mean for those businesses in Asia, for example, that you've moved to international? I mean, that traditionally we've seen as a kind of maintain or withdraw capital from type of business units. What's your messaging around that? I'm thinking, you know, India, Indonesia, these kind of businesses. Thank you.
Thank you, Farooq. Frédéric, if you can answer the first question, and I'll go on the second one and do it straight away. The restructuring does not at all have in mind to think about decoupling these businesses or not looking at them in a very active way. On the contrary, what we have realized is that we have businesses of different nature in Asia and also of different demand. After having focused our footprint, we see today that we have a Japan business, which is thriving very well, which is growing very well, but which probably follows more the rules of our European businesses. You have Greater China with Hong Kong, China, Life with ICBC, Tianping, and the Asset management.
That again, is growing more together, and is also big enough to be on its own feet. Therefore, we said, look, the two big markets need to be managed actively in a separate way, clearly, with a growth ambition, in particular in Japan. Then you have Southeast Asia, Philippines, Indonesia, and Thailand. In these markets, we are in joint venture structures with banks. I've just been visiting those countries two weeks ago, where we clearly laid out our growth plan country by country, in order to benefit from these countries new uprise. When you think about how is the world dividing or redividing in terms of allocation of global supply chains, you see that Mexico is one of the beneficiaries.
We are number two in Mexico. You see that a lot is happening in Africa around energy. We're very strong in Africa, and you see it happening in Southeast Asia, the, in the three countries I've just mentioned. For us, it is very much a more focused approach to manage and develop these countries. Frédéric, on the first question?
On the first one, and maybe I'll complement your, your, the, the second one on international. At the end, the first one, your first question is important, is where, where, where will the growth come from? Obviously, you will see it in our next plan, but I can give you a few hints. We believe that there is so more to do on the technical excellence, and this is why we've created this Chief Underwriting Officer role, and we are going to very much leverage data and technology. I think here, each bips is important, and we want to make sure that we continue to improve our technical margins now that we are a very technical company.
We believe that there is so more to do on productivity, and when I, when I've said that we've increased our cost by 1% in an inflationary context, that's important. Here again, you will see in our next plan that we invest a lot in technology and automation and AI, and I'm convinced that there is so more to gain here.
On revenues, first, you're right that at the end, the life result will grow at 3%-4%. The good news is that this is extremely predictable. The bad news is that this is a bit low. I'm convinced that we have good potential on P&C and health. All studies show that the P&C business around the world and the needs on the P&C side are growing a lot. I believe that we can have higher growth on the P&C side than on the life business. Based on the figures that we have on the health business, and this is why we are very keen on the health business, there is strong demand on the health business, be it individual business or EB. At the end, the earning growth will come from a mix of all of this.
I come back to your question on, on the, on the reorganization. We've created this international business unit dedicated to emerging markets. As Thomas mentioned, we believe that Greater China, mostly with Hong Kong and Japan, are mature markets, so they, they can report directly to the group. Emerging market need a specific support. We've selected about 12 emerging markets, and we are top three, top five in each of these emerging markets. These emerging markets, over the past years, have delivered, 15% growth of earnings and premium. That's a call on the growth of these markets. That's an option. We believe that if well managed, if focused enough, we will have higher growth of earnings and premium in these markets.
This is 5% today, then you can dream, if you look at the, the population figures and so on, that it will be much higher in the future. That's a small option we have to accelerate growth.
Michael?
Thank you. I had three, three questions. One is on PFAS, the other one is related, which is on reserves. The last one is a bit of a niggly question, I'm afraid, on Laya. On PFAS, the forever chemicals, I, I, I did kind of try and prepare the grounds a little bit, and I think I got an answer, but I'd like a more, a better answer. How, how much have you set aside, or how do you see this issue? To just recap, 3M, I think, announced a $3 billion settlement. Bits of the DuPont empire are also announcing settlements, and our chemicals analyst was thinking, well, maybe in total it'll cost the industry $120 billion, but nobody knows how much the insurers will pay.
On the reserving, you said you're, you're, you added more, which is great, but the slide is only goes from 198% to 199%. I just wonder if you can give a little bit more color on the reserving strength. I'm, I'm sure you, you've got lots of data you could share. On the Laya numbers, it's a bit niggly, but EUR 650 million only buys you the, the shell, if you like, so there's no premiums in there. If you add in the premiums, how much extra capital do you have to put to work? Sorry. Thank you.
Thank you, Michael. I suggest, Alban, you answer those three questions.
On, on the, on the capital for the year, as I said, it's roughly 5% of the net premiums. That tells you directly there's roughly EUR 800 million premiums, that's EUR 40 million-EUR 50 million capital on top. On, on PFAS, I mean, that's something which is obviously something that we're monitoring very, very closely. It will take very long, I don't have a number for you, and I'm very sorry for that, on how much it will represents for the industry and for us in particular. I just want to highlight, and I know it's not a very satisfactory answer, but it, we know it will take long. I just want to highlight again the adverse development cover that we have for 2019 and, and before on the, on AXA XL.
On reserves, the beauty of IFRS 17 is that there is no specific excess reserve. As you saw, we've been prudent in our reserve release at 0.6 points, and we've been also prudent in our loss pick for the commercial lines. There's not more that I can tell you. I'm sorry, I'm probably a bit disappointing here.
James?
Thank you. It's James Shuck from Citi. On the P&C, attritional underlying loss ratio, ex-discounting, ex-nat CAT, you showed 50 basis point improvement year-on-year. Obviously, there's the French riots in there. You mentioned some large losses. In the first instance, I'm keen to get an understanding of what the underlying, underlying is actually doing. I know we can ex out everything, but I wanna get a feel for what, what, what the actual margin is trending. Then you mentioned the sustainability of that loss ratio, which I find a little bit surprising because you're also talking about rate increases in excess of loss inflation in commercial. You're talking about rate increases accelerating in personal.
Why shouldn't we expect that number actually to get better, going forward, subject to the caveats that Fred just mentioned? Next question was on the acquisition. I suppose you talk about expanding footprint. In the first instance, I just want to be clear that it's only bolt-on M&A that you're looking at. Obviously, you've made a big bet in the past, and there might be a tendency, given the solvency position, to, to move up, in terms of that, that, that materiality. Then on the actual price paid, so it's a PE of 11 times. Alban, you'd be very clear that the hurdle for acquisition should be measured against share buybacks. You know, your shares are trading on around at 8 times, so there seems to be a divergence for that, from that.
If you could just clarify whether that's a change in your approach, please. Thank you.
I suggest that Alban, you take the first and the third question, and Frédéric, you work on the sustainability of the loss ratio. Is it sustainable or getting better? Maybe one comment in advance around the question of expansion of footprint. Yes, as we said earlier, we have gone through a very tough transformation with big bets. We are where we are now in a good spirit. The platform is delivering well. We have the intention of further developing the platform, but organically and with bolt-on. We don't need another revolution or big deal. Alban, on question one and the second half of question three, and then Frédéric on the second one.
On the attritional, that's the how I understand your, your question. That would be the same improvement because large loss, including Ukraine last year, and large loss, including French riots, are the same amount between 2022 and 2023. Is that the answer you were? Okay. On the pricing versus share buyback, yes, you're right. That's above the 8 times. When you have a company which is, you know, with all the features I mentioned earlier in terms of quality, franchise and, and so on, it deserves a slightly higher PE. As I said, you don't have the revenue synergy in this. Net of the revenue synergies, I'm not sure we'd be at 8. I agree with that, we're probably lower than 11.
I think we need to have that kind of flexibility, small one, for bolt-on acquisitions in markets where we want to strengthen our presence and for businesses that we like.
Just to complement what Alban said, it doesn't absolutely change our policy and our criteria. Bolt-on, share buyback, comparison with share buyback is important for us. Will we miss a very good opportunity because we are not at 8 tomorrow morning, but at 9? No. If we believe that we have a lot of synergies, if we believe that we have the management, if we believe that, as in Ireland, that there is growth potential, as Alban said, we have a bit of flexibility around, around the 8, the 8. On the sustainability, I said it's sustainable because we have and not only us, but everybody has a lot of question on the fact that combined ratios are very good. Is it sustainable? My answer is, it is sustainable. Doesn't mean that it cannot improve. If I look at...
First, I've just said that we are going to be, for the next plan, even, even more focused than before on technical excellence, which means that we have in mind that there is potential here to further increase the technical excellence. If I look at the various segments. If I look at the first half, we've, we've very much improved the technical result at AXA XL Re. It will continue. We've slightly improved, in the first half, the technical margins at AXA XL Insurance. We are confident that it can continue, we've seen slightly decreasing margins on retail. As Alban mentioned, we've been able to compensate for inflation. The increase of frequency in Germany and Ireland has been higher than expected. All of this makes us confident that it's at least sustainable.
I add at least to make it clear that we have the ambition to be, to continue to improve on this.
Dominic?
Thank you. Dominic O'Mahony, BNP Paribas Exane. Three questions, if that's all right. First, just a clarification. Alban de Mailly Nesle, in reference to the P&C investment income, you noted that last year you had the benefit from the sort of elevated realizations, but actually, you are still basically in line this half. Is this half a sustainable number, or is there anything else that you'd call out in terms of what was in the 1H P&C investment income? Because it was, it was much stronger than I was expecting. Second, on back book, capital release, the Eurovita events have meant that there are some questions in the press about whether that market is going to change, whether there might be a higher hurdle for certain sponsors participating there.
I wonder if you could share your latest thoughts on progress on the, the back book release topic. Third, judging by the, by the flows, it looks, looks like there isn't anything really noteworthy to say on laps, but I just wanted to ask if there's any new news you wanted to share there. Thank you.
I suggest, Alban, you do the first question, Frédéric, the second, and I'll do the third one.
Okay. on, on investment income, the yes, fundamentally, it is a sustainable level. You may have seen, if you had time to go through the appendix, that we are investing at 4.1% in P&C in the first half. That also gives you on average, that also gives you a view on how it should, it should develop.
On back book. First, we confirm that we will reach the $30 billion-$50 billion. We will probably close the German deal only in Q1 next year. We were hoping to close it by year-end. It's progressing well, but tons of questions from the regulators, so best estimate is Q1 next year now. We have a couple of in-force deals that we believe we will announce by year-end. I will not say more. In-force has been the priority over this plan. It doesn't mean that we will it will stop at the end of 2023. We will be opportunistic over the next plan, and there may be some more opportunities over the next plan. Saying that, it is true, to come back to your point, that the story with Cinven and Eurovita doesn't help.
Regulators, especially in Italy, have become more, more, how can I say? picky or
Prudent.
Prudent. We know that the Italian regulator and the German regulator are talking on Cinven, and so created a mood which makes the regulators a bit more cautious. Will it stop the trend? I don't believe so. Again, I confirm all what I've said. We will achieve our targets. We have a few good deals in the pipeline.
On laps, Dominic, no news to be mentioned. I mean, we had a few higher lapses than we normally had, mainly focused on France and Italy, and as I said earlier, mainly focused on intermediated channels. So in our Asian channels, we do not see that phenomena at all, and it's also to a certain degree, understandable. If you look into Italy, if an advisor is confronted with a 3-year BTP at north of 4% and a life insurance for 10 years, 15 years, at lower investment yield, it's clear what to take.
Given that we are very focused on agents, given that we are focused on retirement solutions as opposed to saving or investment solutions, we haven't seen a lot of lapses, and it's certainly not worrying us. Going back to what Alban said, when you look who and what is lapsing, you could also see that this is a relatively affordable in-force measure. Will?
Thank you. Will Hardcastle, UBS. The solvency print was big. I guess we now need to try and work out the cash component to it. I guess, any comment you can make on what subsidiaries that a lot of that was coming in, and are there any constraints about how much that will be converted into cash? Perhaps just on that point, if there's any comment you want to make on leverage in that regard. Secondly, just thinking about those inflationary pressures in personal motor in Germany and Ireland, is what you're saying that inflation accelerated in H1 in those countries, or it's just not reduced as much as you expected?
At what point, I guess, do we expect margin, earned margin to start improving in personal motor, perhaps on those countries and more, more of a general point? I know pricing is now in line with inflation, but it's whether it has been previously as well. Thank you.
I suggest, Alban, you take the first one on solvency and Frederic, the second one around, inflation. I think we have to not mix frequency increase and inflation.
Thank you, Will. On, on, on solvency and cash, it's. Allow me a few details. First, the, the move we made was also, and perhaps first and foremost, a risk management move, in the sense that we wanted to take advantage of the higher rates to reduce the duration gap, which means that. And to reduce the sensitivity to interest rates. That has a positive impact in a number of countries in Europe and, and notably, France life business, because that's one of the places we, we've done that.
When you think about cash, it's not the only way to think about it, you know that we have three entities in particular, which are XL, Hong Kong, and Japan, for which we are working further on increasing the remittance, it has, in fact, little to do with the lengthening of the duration. For instance, we have not lengthened the duration in Japan because we are hoping that one day interest rates will be higher in Japan. You see that it, it really depends country by country. It's a mix of working on specifics locally, doing some in-force transactions that also release capital, and that ALM that, that we changed. That, that's the mix. We, we had EUR 5.5 billion cash remittance last year.
We want to grow that this year, and we, we are in good shape and to further grow that in, in the next years, putting all this together.
I would only add, Alban, to your excellent comment, is that on XL, Japan, and Hong Kong, we are progressing well. Yes. On inflation, first, what we've said on Germany and Ireland is not linked to inflation because we had price, globally price increases in line with inflation. Purely a subject of frequency, which has increased more than what we expected, and to be fair with you, that we struggle to explain at this stage. Nothing, nothing very serious and very focused on these two markets. If I look globally at the, at the motor business, and you, you know that the motor business is about 10% of our business, but this is an important business for us because our agents need motor to cross-sell and so on.
I, I don't want to diminish the importance of the motor business, but globally, the motor business is doing okay in most markets. The big issue we had up to now was the U.K. market, but the U.K. market is doing much better, and for the first time for long, the business we write in Q2 in the U.K. on motor is profitable. Every word is important. Meaning, is profitable technically, so combined below 100%. There is, there is more, there is more to do in the U.K., but the trend is fine. We are making money because this is something we monitor, and we, we have our famous economic combined ratio, looking at everything, including the cost of capital. We are making money in all our markets. Italy and Spain probably remain the most competitive or tensed apart from the U.K.
Again, there is no specific issue on the motor business globally.
Let's Hadley stay at same table.
Thanks very much. Hadley Cohen, Deutsche Bank. First question is around the life flows. And sort of, in relation to a couple of questions and a couple of comments you've already made, but how important is it to get those flows positive again, and, and when do you anticipate that will be the case, given the current macro backdrop and what have you? I appreciate the whole de-emphasis of capital-intensive business versus capital light, but I'm thinking in terms of longer-term cash flows and cash generation for the life business. Second question is just, I guess, more of a point of clarification.
Alban, I think, in the first quarter, when you came up with the 25-30 points of cap gen, I think you sort of suggested it would be more towards the lower end, that for the, for the full year. As you say, there is seasonality. We've already done 16 points, so I'm just trying to understand how much seasonality we can, we can sort of expect for the, for the second half of the year and whether we should still be expecting towards the lower end for this year. Yep. Thank you.
Thank you. Frederic, first question, Alban, second.
Life flows and how important is it at the end? First, even if with the CSM, the results are very stable, if you want to improve this mid to long term, you need to have positive flows. This is important. We've very much focused on the quality of the flows, so that's why we are happy to have positive flows in the business we like and negative flows in the, in the business we, we, we, we don't like. We are not happy to have negative flows globally, based on my, on my first comments. More specifically, on, on general account, where we you need to look at, but as Thomas mentioned, we absolutely have no issue, but in theory, especially in a period of high interest rates, you need to make sure that you have...
You need to that you have the liquidity not to be forced to sell assets with unrealized capital loss. At the end, the issue for an insurance company is not the liquidity. We have tons of liquidity. The issue is that you may be forced to sell assets in unrealized loss position. You need to balance your ALM right, and you need to make so we are absolutely fine with our -EUR 5 billion in general account. We absolutely have no issue. Of course, this is something we monitor to make sure that we have no issue and that we are never in a position to be forced to sell assets in an unrealized loss position.
My last comment on this is that you will see in the next plan that savings is still an important business for us, and that we believe that we have potential, especially in four countries: Belgium, Germany, Switzerland, and Japan. We have more potential, and we have more potential to have positive flows in these four countries. Today, we very much rely on France. These four countries had given Japan was, is more only a health and protection company. Switzerland had almost stopped savings for IT issues. We are not very much focused on savings. Belgium had almost stopped savings.
We believe that now we have the teams, we have the systems, and so on, to be more, more ambitious on the savings business in, in a few countries.
On the capital generation, I, I don't remember saying that we would be at the lower end. 25-30 is the range for this year. It still holds true. I think when we.
We will see more in the next plan.
Yeah, absolutely, that's for this year.
We will see in the next plan.
Yeah.
We have time for one more last question. I would say, Ashik, it's you, because Andy will have an opportunity, later on to ask his question in my one-on-one. Go ahead.
Thank you. Ashik Musaddi from Morgan Stanley. Just a couple of questions. First of all, duration, I mean, you have done a phenomenal job on match-- lowering the duration and helping the Solvency ratio. Can you give us some color if it is, if it is, say, permanent in nature, or have you done it through some short-term derivatives, i.e., if it's a bit more shorter-term benefit, which would unwind over some time, or is it just longer term, it's here to stay? I'm just trying to gauge if this interest rate benefit you have just locked in for, for, for good. That would be... That's a great news, I would say. The second question is around XL Reinsurance. I mean, couple of parts of this question.
First of all, not sure if you have anything to add to the speculation that we heard about, you looking to exit XL Reinsurance. I mean, it fits with the group strategy of reducing volatility, but again, I mean, XL is, XL Reinsurance is delivering amazing numbers, so, and we are in a hard market for reinsurance. What are you, anything to say on that? Just related to that, I mean, you have reduced volumes by about 13% in XL Reinsurance in first half. Is there more to go, or are we now in more or less a steady state on XL Reinsurance if the business stays with, with AXA? Thank you.
Alban, I suggest you take the first question, I'll do the second question.
On, on the lower duration gap, we are happy with that level. As I said, we could, under some conditions, and notably on the yen part, further reduce it or lengthen some assets. You should consider it as a normal state, going forward. That's something that we permanently need to manage to get there, as you have maturities and, and so on. Yeah, that's, something we're happy with.
I think on AXA XL Re, you've more or less given yourself the answer because you're absolutely right. AXA XL Re is performing very well. It has made a profit in the first half of roughly EUR 200 million, a combined ratio of 80%. We are successful with the turnaround strategy. We have over two years now reduced the natural catastrophe exposure by 35% each year. I think even last year was 40%.
The model is working and we are continuing this journey, making sure that we, we are remaining on this lower exposure to natural catastrophes, but also making sure that in some selected areas, we are also growing the franchise again, because as you rightly say, the market is a hard market, and it's an interesting market. Continuing the restructuring and growing selectively in areas where we would like to see more. Excellent. I'm afraid we have to end here. Thank you very much for being here. Thank you to everybody on the webcast for participating, and I wish you a great rest of the day and hope to see you soon. Thank you.