Earnings Call: Q2 2021

Jul 28, 2021

Good afternoon, ladies and gentlemen, and welcome to the SCOR H1 twenty twenty one Results Call. Today's call is being recorded. There will be an opportunity to ask questions after the presentation. At this time, I would like to hand the call over to Mr. Olivier Amongeau. Please go ahead, sir. Good afternoon, and welcome to SCOR H1 twenty twenty one Results Call. My name is Olivier Amongeau, Senior Manager in the Investor Relations team, and I'm joined on the call today by Laurent Rousseau, CEO of SCOR and the entire executive committee. Can I please ask you to consider the disclaimer on Page two of the presentation and the statement in respect of COVID-nineteen? I would like now to hand over to Laurent Rousseau. Laurent, over to you. Thank you, Olivier, and welcome, everyone. Today is my first quarterly results as CEO of SCOR, and I'm pleased to present strong headline numbers, demonstrating our ability to create value as well as our resilience. There are quite a few moving parts, as quite a few of you noted today, so I'm going to shed light on three important drivers that we see. The first one is on the underlying performance of the business. The business engines remain solid despite sustained cat activity. First of all, both of our businesses engines generate good growth. This growth is profitable. If you look in P and C, our attritional loss ratio is significantly better than our constant lead guidance. And on the Life side, we reiterate our Life technical margin guidance for the year. And on the asset side, we revised our return on invested asset guidance in the upper part of our initial range. And we have already started reinvesting our liquidities from the Covert transaction, and we'll continue to do so proactively till the end of the year. Now the second driver is if you look at the COVID impact. And of course, the pandemic is having quite an impact on both our Life and P and C businesses. On the P and C side, we received further data from clients that led us to increase the provision for COVID related business and mostly business interruptions. On the Life business, it continues to be impacted by COVID claims, although this is in line with what we've already communicated to you. Since March 2020, SCOR has reserved for around €1,000,000,000 of COVID related claims. This is meaningful and demonstrates our ability to absorb shocks, and we have been managing those exposures proactively. The third driver is the conclusion of the settlement agreement with Covea. This settlement took place at the very end of the quarter on June 30. It marks a very important milestone for the group. It crystallizes the value of SCOR Life reinsurance portfolio, which is a very important point. As it demonstrates the often underappreciated value of our Life business. It also enables SCOR to focus on its core business and rebuild the working relationship with a leading insurer. Finally, it provides SCOR additional degrees of freedom to manage its capital and pursue its growth. Overall, I would say these results show our strength in a volatile environment and are on track with the strategic plan consummate. I will turn over to Iain. Once he walks you through the key financials of the quarter, I will then provide a perspective on what you can expect over the coming few months from me and from us, and we will conclude with a Q and A session. Thank you. Iain, over to you. Thanks, Laurent, and good afternoon, everybody. As Laurent said, it's a busy quarter. There are quite a few moving parts. And I would like to highlight upfront that the underlying performance of the business is very strong. Let's move to the settled agreement, reached with Covea. And to reinforce Laurent's comment, the key thing to note about this transaction is that it demonstrates the value in the Life business and our ability to unlock that value. I think it's helpful if I walk through the mechanics of the transaction. The agreement provides for reinsurance of 30% of all of the in force business carried by the SCOR Life Irish entities. The impact on our financials is very positive. Firstly, it is beneficial for the solvency ratio. We receive a cash commission for the best estimate of the future cash flows. And the we receive a cash commission for the best estimate of the future cash flows. The benefit comes from the associated risk margin with the business that is released. This is positive for eligible loan funds and combined with the reduced solvency capital requirement on the business ceded leads to a solvency impact of approximately plus 27 percentage points. On the IFRS accounting side, against the commission received, we have movements in DAC and VOVA under support of a strong net reserving position on the portfolio. The resulting impact on the P and L is a positive EUR $311,000,000 of income net of tax. This includes EUR 20,000,000 pretax in respect of the indemnity settlement paid by and €30,000,000 pretax in recognition of the value as at June 30 of the call option granted to SCOR by Covert on the shares it holds. Other impacts of the transaction are, of course, that the cash position is strengthened. The cash commission was received on July 1. SCOR now benefits from strong flexibility to fuel profitable growth. So those are the key features of the Covera transaction. Let's look at the other key metrics of the quarter on the next slide. In H1 twenty twenty one, SCOR continued to successfully develop its franchise. Gross written premium stand at EUR 8,400,000,000.0. This is up 9.1% of constant exchange rates compared to H1 twenty twenty, driven by P and C up 14.3%, benefiting from the excellent renewals during the year and steady life growth, up 5.2% with continued franchise expansion in Asia. Following the execution of the life reinsurance treaties with Covera and the robust performance of the underlying business, SCOR delivers a net income of EUR $380,000,000 in H1 twenty twenty one, translating into an ROE of 12.2%. Let's have a look at the business performance starting with P and C first. We've published a combined ratio of 97.2% in H1. The underlying development of the attritional ratio is strong, but Q2 was impacted by a charge of €109,000,000 before tax for expected COVID-nineteen claims as more information has been received from cedents regarding business interruption. The P and C business was also heavily impacted by cat events related to the Q1 Texas winter storm and Q2 European storms. On a normalized basis for cat and COVID-nineteen, the P and C combined ratio stands at 91.2% better than the quantum leap assumption. In this context, we confirm our guidance for 2021 with a normalized combined ratio trending towards 95% and below. On the Life side, we had two significant impacts in the quarter. The continuous development of COVID-nineteen in line with expectations as well as the benefit from the retrocession treaties concluded with Covera. First, the impact from COVID-nineteen on the mortality block is reducing and is tracking in line with our epidemiological model. Excluding the Covera transaction, the Life technical margin stands at 3.1% for the first half, and we should return to quantum leap assumptions in Q4 twenty twenty one with an underlying full year technical margin of 5%. If we now account for the one off gains on the treaties ceded to Covaer, the net technical result would increase by $346,000,000 and translates into a Life Technical margin of 13.1% for the half year. On the investment side, the return on invested assets stands at 2.5% in H1, driven by realized gains on the fixed income portfolio in Q1, offset by the continuous low yield environment. The normalization of the asset allocation should be visible by the end of the year. The return on invested assets expectation for full year 2021 is revised to the upper part of the previously communicated range and stands between 22.3%. Finally, in this context, the solvency of the group is very strong at the end of H1 estimated at 245%. This is above the group's optimal solvency range of 185% to 220%. The increase in solvency was mainly driven by 27 percentage points positive impact as of 01/01/2021 from the retrocession with Covia. The sensitivity of solvency ratio to interest rates is reduced due to the retrocession agreement. Finally, the positive impact from the operating capital generation and market movements is partially offset by model changes and COVID-nineteen impacts. Briefly on a few other key financials, the shareholders' equity of the group remains strong at €6,300,000,000 after taking into account the dividend payment. This is an increase on the year end position and results in a book value of almost €34 per share. And finally, I would like to highlight the strong cash flow of the group with net cash flow from operations exceeding €500,000,000 With that, I will hand back to Laurent. Thank you. Thank you, Iain. Before getting into the Q and A, I would like to, first of all, lay out what you, investors and analysts, can expect from me as CEO and second, share with you how we have planned for the coming few months to prepare the ground for the next strategic plan and the future growth of the business. So first of all, what can you expect from me as CEO? The first thing is engagement. You are one of the key stakeholders of the group, and you're important to me. So you can count on the fact that I will spend time with you, our investors, listen to what you have to say and hear your candid feedback. Personally, I started my career twenty years ago in the market, and I intend to stay closely in touch with you. Secondly, you can expect me to be transparent and candid. I will share my views on where the group stands as well as the opportunities and the challenges that we face. Now what to expect from us in the coming few months? First of all, we have decided to extend Quantum Leap Plan for one more year. The key reason is that I want to use the time to properly review the performance of our business, our operational discipline, our invested asset mix and the efficiency of our capital deployment. So what can you expect at our upcoming September Investor Day? We'll make it shorter than usual and nonetheless provide important updates on the current business environment. The Life and Health as well as P and P reinsurance markets are going through volatile times, yet we see clear and attractive opportunities to grow our franchise, in particular in P and C. On the asset side, there is also scope for normalization of our investment strategy. We will lay out the broad directions of our future strategic plan, where do we see opportunities to improve our returns, our capital deployment strategy and our strategic priorities as a management team. The results of today show clearly that we have some options to redeploy our capital and cash. I can tell you we will find the right balance between seizing growth opportunities in P and C, re risking our assets and keep some flexibility in an environment marked by high natural catastrophes and COVID. Finally, at the Investor Day, I will also communicate the timing and the disciplined process through which we will produce our next strategic plan. I already know that this plan will include more of your input and objectives than it has been the case in the past. To achieve this, I will ask you for your time after the Investor Day to meet and discuss your individual inputs and objectives. I really want to be able to fully understand them and include them in our planning. With that, I will hand over back to Olivier for the Q and A session. Thank you. Thank you very much, Laurent. H4 you will find the forthcoming scheduled event. With that, we can move to the Q and A session. And can I remind you to please limit yourself to two questions each? Thank you. Thank you, If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using the speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. And we do have our first question from Vikram Gandhi from Societe Generale. Hello. Hi. It's Vic from SoftGen. Hope all of you are doing fine. I've got two questions. Firstly, I wondered if you can share what is the right way of thinking about the attrition in the life and health operating result due to the agreement with Covia. I mean, looking at slide 34, probably annualizing the €621,000,000 of premiums and applying a 7.3% margin is one way. And then this should reduce over time as the portfolio runs off, but would be great to get your thoughts. And secondly, can you please share, what kind of COVID nineteen impact are you assuming in the Solvency II ratio going forward? And related to that, what's the level of IBNR claims for the COVID reserves on the P and C side? Thank you. So yes, hi. Vikram. I mean, firstly, on the impact on the technical margin on the Life business unit. Certainly, the Life side, we do see ceded premiums. What we will do, is certainly, we confirm that for 2021, the technical margin guidance excluding the one off impacts of the retrocession agreement, the technical margin is confirmed at 5% for the full year. And then when it comes to Investor Day, we'll be confirming the impacts on the technical margin for 2022. But to be clear, as Laurent has laid out, I mean, what we have done here is we've crystallized value that we would have done earlier than we would have done. That's at the heart of this transaction. So we've done that. We maintain conservative margins within the portfolio. And we will come back at Investor Day to describe how we're going to use the additional capital benefits that we get from this to enhance the earning power of the business. So that's the I think we've lost Iain. But maybe we can move to the second question on the COVID expectations and solvency ratio. Hildad, do want take that? Yes, I can take that. So as far as incurred claims are concerned, the solvency treatment is completely in line with IFRS. And we have obviously, particularly reflected the strengthening of our P and C reserves for COVID related claims. There's for Solvency II, there is also an allowance for future claims, and that's particularly relevant for the Life business where, as we demonstrated in previous quarters, we are holding additional reserves for expected claims in the coming quarters. This hasn't changed a lot since the last quarter. There are slight movements. We are updating the models on a regular basis and also taking into account actual claims emergence for the past quarters. But the outlook is largely consistent with what we've presented in Q4 and Q1. Jean Paul, do want to take the question on IBNR share in P and C? Yes. So hello, everyone. On the p and c side, you have in the presentation deck on page nine the a chart of the the ultimate reserves to have for for COVID and the amount of paid claims. As you can see, at the end of q two, we paid only 58,000,000 of of claims for COVID. Jean Paul, if I can just come back on that, that's the paid claims to ultimate, but that will not necessarily be reflective of the IBNR position. Right? Yeah. The the rest are are case reserves in IBNR. You know, the majority of our claims after this quarter are property BI, and so most of it would be case reserves. Okay. Thank you. Hi. It's Ian here. Just reconnecting. I don't know whether, I was still connected during my, my answer to the to the first question. Yeah. You you were, Ian. We will we will discuss to Daniel. You, Vikram. We'll take the next question, please. Our next question comes from Kamran Hossain with RBC Capital Markets. Hi. Afternoon, everyone. Two questions. The first one is, I guess, on, the redeployment of capital. It sounds like, you know, ahead of the IR day and ahead of the kind of plan more further, you're planning to deploy more of the capital into P and C versus Life. Could you maybe talk about the relative returns that you see between those two businesses at the moment? I guess it's a little bit difficult to to really, back it out without the segmental balance sheet. And the second question is, I guess, on COVID losses coming back to that, whilst as, you know, the BI piece has obviously got a little bit worse in the quarter, Can you talk about, the status of the credit and surety claims at the moment and whether these have crystallized at all? Thank you. Yeah. Thanks, Cameron. And firstly, on on the the capital deployment. Like, firstly, we we're in a strong position on the capital side as a result of the transaction. That's, that's clear. We we really do benefit here, and, this brings us more degrees of freedom in in how we we view the the position, how we we deploy that that capital. And as we've said and as you point out, once we get to IR day, we can talk about that a little bit more. And we'll talk about how we allocate the capital, where we see the opportunities in the market, how we view the capital return policy. And there are certainly key areas to to highlight on, namely the P and C market where we see good growth opportunities, and on the asset allocation, which may remains extremely prudent at the moment. That could be normalized. Now we we will talk about the relative returns in in answer to the question. We will always seek to, deploy the the capital where we see the best value for the shareholders. It's a little early now at this point to to talk to those relative returns and exactly how we're gonna deploy this. We just concluded the transaction on the last day of the quarter, but it's on our radar. We're working on this, and we'll we'll speak more about it. Thanks, Ian. This is Jean Paul. On the on the COVID P and C losses specific to credit and surety, so, you know, our view is based on information received from our cedents, the the results are coming in the estimates are coming in much better than we had anticipated. This is mainly due to the government actions taken to to shore up the trade credit environment and the different economies worldwide, as well as the underwriting actions taken by the credit and surety and and underwriters in pretty much every country. Not only price increases, but shrinking of limits, repositioning of the portfolio, and and focusing on less risky sectors relative to the economic environment. So what we see actually is is the results for for the some of the large trade credit insurers are actually better than the results pre COVID. So we remain very bullish on the on on the credit trade on the credit and surety market overall and believe that the portfolio, even if the environment deteriorates in 02/2023, is in a very good position to withstand that deterioration if it happens. Thanks, Hela. Thank you, Cameron. Can we take the next question, Maybe one thing that we can say on the returns on the T and T side, what we're seeing at the moment is about a couple of points of improvement in the underwriting ratio. If you look back in time over the cycles, for sure, in terms of return on allocated capital, we've been quite steadily improving, getting to fairly good levels over the cycle. Thanks very much. And then next question, please. Our next question comes from Andrew Ritchie of Autonomous Autonomous. Oh, hi there. I'm sorry to go back to this topic. This is addressed particularly for for Laurel. I I I think investors need more reassurance that the deal you conducted with KEVEYA is, in the end, ROE accretive and over a fairly short time frame. Because from the information we have today, we will be taking down earnings expectations for the life business by 20% or something like that for the session. There's no clarity on where where any capital is gonna be deployed. You haven't referred to the fact that, I would hope the hurdle rate for deployment is at least the ROI on your own shares, which looks very attractive. And also, know, the fact that you possibly need to address your cost of equity, inflated by the fact you're one of the few financials to have not caught up on the unpaid dividend from 2019. So I I I just want a clear message that you are seeking to enhance earnings power net rapidly and that the transaction with KEVEYA, will be ROE, additive in the end in a short time frame. I'm not sure we've really got that message clearly yet so far. Sorry to be so blunt. Secondly, can I just have some clarity as to what belief you have in that normalized combined ratio? It's very low. It's very impressive. But, obviously, the cat loading looked quite high for a benign quarter. So maybe just give us a sense as to your your sense. Is there any other normalization we should do for the underlying combined ratio? And what your latest thoughts are on the right cap budget? Thank you, Andrew. So let me take your first I don't know if it's a question or a comment, but I'll answer. And I'll let Jean Paul talk about the normalized combined ratio. On the ROE accretive, so the answer is yes, your message is loud and clear. It is indeed what I meant when I talked of capital deployment earlier on. And it is as well what I was alluding to on my on the P and C returns comments that we're seeing today rates of returns, including on capital, on equity that are very strong. So clearly, the earnings are going to be gone in this in the Covert transaction will be replaced, and we strongly believe that they would be accretive to the ROE. You think they can be Go ahead, Andrew. Sorry. I mean, are we talking replacement over many years? Or what's the kind of trajectory we should think about? So this is what we'll be taking you through on the IR day, Andrew. On the on the normalized net combined ratio, I think your question is has two questions in it. One relates to the cat ratio. The other one relates to the normalized combined ratio. If we if we look at the normalized net combined ratio, the cat ratio of 7% is comparable to what we used last year. And if you add the commissions and the attritional loss ratio, excluding COVID, you you see a five point improvement overall compared to last year. The that improvement, comes from two parts. One is roughly one to one and a half points of improvement because of a lower man made losses in in h one two thousand twenty one compared to 02/2020. That could be partially related to lower economic activity because of COVID. The second part is is simply pricing improvement, and, you know, we need to to validate whether this continues for the rest of the year, but there's there's no normalization needed there. On your question on on the cat ratio, it's something that we're looking at very closely, and that we'll come back to you at the IR day. But the, you know, the the fact that we've, only, you know, reached our account ratio budget, in one year over the last five years is something that, of course, we we we, you know, noted and and are studying, and we'll come back to you with more information at the hour day on this. K. Thanks. Andrew, we'll take the next question. Our next question comes from Will Hardcastle of UBS. Hey. Afternoon, everyone. I'll try one more way on capital allocation. I know we're gonna get more color at Capital Markets Day. I guess, from the strong q and a session, it it feels like we're talking here about the opportunity of PNC, the return on capital is improving, and that's where we'll get most of the replacement on earnings. I guess to the point that we were currently operating above the top end of the target range before the settlement. So what was constraining you before to grow P and C more, at these return on capital levels? Or am I missing something here? And then perhaps just on the COVID claims in PNC, is there any chance we can get some more color on these? When were the specific court cases, for example, when were the notifications coming in? I guess, what's the new information that we're learning? Is there specific numbers you've just been informed about? And then is it just these two cases that you reserved for, or is there an extrapolation within your increase? Sorry. There's a lot of very minor questions within that code. Just just some more color would be great. Thanks, Will. It's Ian here. Firstly, capital deployment, with the solvency now at extremely strong position, you questioned what was constraining prior, the the growth prior to the Covert transaction. I mean, we we operate under a variety of constraints. We lead the, group by the the the group internal model under the solvency metric, but we have other constraints including rating capital constraints. We we do maintain an excess over triple a to have our double a minus credit rating with S and P, for example. But these are that's a constraint under which we operate. Now the transaction that we have concluded at the end of the quarter is very positive from a a rating capital context, so that's that's good. And that gives us more degrees of freedom and flexibility when it comes to to the growth opportunities that we have. This is Jean Paul. I'll the second question on the P and C business interruption claims. So, again, this relates to affirmative coverage for business interruption. The main drivers, as we noted in the presentation, have been an an increase of the gross losses estimated by our clients, primarily coming out of The UK and France. There's been, you know, the France doesn't have any centralized data we I can refer you to, but The UK does. The FCA has published information showing both the the number of claims, accepted, and paid by by insurers as well as the amount paid. And what we see is the number of claims as well as the amount paid by insurers in The UK between the March and the July has more or less doubled in that time frame. And so this has led our clients to review and and revise upwards their their own estimates, and then we apply those growth estimates with our own assumptions to the reinsurance treaties. And so this is the driver between our behind our our increase of of COVID reserves. Okay. So so just to follow-up, that that's very specific to those, specific cedents, and it's not something that we should consider the risk of extrapolation beyond those. Is that that fair? Well, yeah. That's fair. I think the the markets we see where the the biggest amount of litigations and I'd say the most negative development against insurers have been The UK and France. And so other countries, I think the development is going in line with expectation. Okay. Thanks. Thank you, Will. We'll take the next question, please. Our next question comes from Vinit Mahmoudra of Mediobanca. Yes. Good afternoon, sir. Thank you. Some of my questions have been addressed. Maybe if I could just ask again about the solvency. So from Peter's comment, I could understand that the future claims has not changed a lot since the last quarter as I noted from Peter's comment. But I'm still struggling to see, were there any major model changes, high single digit that you would like to flag in some way? Or because versus the one q two thirty two and then the COVID settlement. I mean, I I'm I'm still struggling to see why we got only to $2.45 with all that put in there. So that's my first question on Solvency II. Second question is more about the COVID which you have kindly addressed just now. But just on the p and c side, I mean, is the 58,000,000 rather a low number as to what you would have expected? And does it suggest to you that there is actually some more buffers built in? Or should we interpret that the fact that you've had to strengthen reserves in February means that last year, the, you know, the strength on the reserve wasn't very conservative? So just any comment additionally on the paid claim ratio being so low and the terms of reserving confidence level for COVID would be very helpful. Thank you. Okay. Hi, Vinit. On your question on the solvency movements in Q2 and what brought us to the estimated level of two forty five, There are a couple of one offs which lead to the fact that the closing estimate is below just a simple sum of the Q1 estimate and the CAVA impact. First one is model changes, as we indicated in the pack. We had a couple of model changes, as we always do. We constantly improve the model, and this leads to sometimes positive, sometimes negative solvency impact. As it happened in Q2, the aggregate impact of the model changes was negative and a little more significant than in what we would have seen in previous periods. Still, say, a single digit number in terms of solvency ratio impact, but towards the higher end of what you would have seen in the past. There was not a massive single model change, which caused this, but it's really more a combination of different changes, which have more coincidentally led to this impact this quarter. Secondly, the CAVIA deal has been assessed as of the January 1, which is the effective date of the the treaty, and that that then leads to the solvency ratio impact estimate of plus 27 percentage points, which we mentioned. The retrocession does seed a significant portion of our most interest rate sensitive business to Kovea, and that includes interest rate sensitive risk capital, which we hold for this business and also risk margin. So as a consequence of that session, our interest rate sensitivity or the interest rate sensitivity of our solvency ratio has reduced due to the deal. And that means that the impact of the interest rate increases, which we've seen in Q1, is then correspondingly lower. So the impact of interest rate movements over the first six months is less somewhat less than what you would get if you'd use the sensitivities which we originally published in February and then apply the interest rate movements which we've experienced in the first six months. And then finally, there is some impact of the COVID losses. We've, of course, taken, as I said, the P and C losses. Been small movements on the life side, which have also reduced solvency a little bit. And these three factors explain the, you know, the the the big unusual movements, and everything else is is really pretty much in line with what you would have seen in in earlier periods. Sure. Thanks. This is Jean Paul. I'll I'll try to address your your second question on on P and C COVID claims. I think the the 58,000,000 paid, at the end of q two really reflects the the complexity of the claims settlement around COVID. You know, the I think when there's a a clear presentation from our our clients and, you know, no no questions asked about how the these claims are aggregated. We we pay them very quickly. But as you see, it's it's a very small number. The the large number of claims remaining are first complex for the cedents to to get an assessment of their own exposures. And secondly, there's there's more complexity about how those those claims are ceded to the to the reinsurance treaties. And so we we see these, you know, this this ratio probably lasting until the end of the year and probably into 02/2022. So the majority of our of our ultimate claims estimates are based on our own estimates, based on information we received from our students, basically. It's a combination. Sure. Thank you. Thanks. We'll take the next question. Next question comes from Ashik Musaddi of JPMorgan. Yeah. Thank you, and good afternoon, everyone. Just a couple of questions I have. Now first of all, going back to the topic around the normalized combined ratio. I mean, clearly, what you are saying at the moment is 91.2%, and actually, it is even better based on one comment if I understood it correctly. And that compares with 95% what you've been guiding for Quantum Leap. So, I mean, there is a material difference between the two. And clearly, one of your comments suggested that we need to see what the pricing is going to do. But if I look at some of your statement, pricing was still strong in in July. You're expecting pricing to be in the hard market next year as well. So what is the reason you're not improving this Quantum Leap 95% to say 93, 92%, something like that? Some color on that would be good. And secondly, just going back to the COVID thing, I mean, how should we think about annual impact on earnings at the moment? Shall we just do, like, 300,000,000 is the profit you have booked? So say 30,000,000 lower earnings until you redeploy the capital, or would you say that that math is not right? So because, I mean, there will be some lead time on the capital deployment. I agree that you will get more color at the Investor Day, but still there will be some delay. So what should be the earnings impact going forward in the short term? Thank you. K. Thanks. Is Jean Paul. I'll start with the question on the net combined ratio. What we looking at different actions we've taken over the past eighteen months, we took significant underwriting actions in 2020 to reposition the portfolio to be more profitable. And in 2021, we really accelerated the growth because of what we saw as improving market conditions. As Laurent mentioned, in our own pricing, we see year on year pricing improvement between 02/2020, 02/2021, more or less resulting in at least two points of improvement of the loss ratio. We expected this to be earned over time. What we're seeing in the first two quarters of of, 2021 is is both the benefits of the underlying actions taken in 02/2020, as well as some of the earning of the better, business in 02/2021. So again, for the time being, we haven't revised our guidance. We'll come back to you on this at the IR day, both for the rest of the year 2021 and in 2022. Then just on the the second question, the I I come back to what I said earlier, actually, in that the the way to look at this is is not, not about, earnings dilution. You know, the, you know, what we've been able to do is crystallize value now, get cash now for cash flows that we would have had in the future. And that's the key element here. That's at the heart of this transaction. Now we do get the the capital benefit. The the way I would look at this is not to start then to to model model downwards. We're confident that we can deploy the capital, and so this is not gonna be dilutive. We can deploy this to to enhance, enhance the earnings of the of the group, and, we we will come back with with our plans there. And so, yeah, that's that's how we're looking at this is we've we've received this benefit of crystallizing, and and we should deploy that. Okay. That's very clear. Thank you. Thank you, Ashik. We'll take the next question, please. Our next question comes from Thomas Fossar from HSBC. A couple of questions on my side. The first one would be on the P and C. If I'm looking at Slide 32 of the pack, when I'm looking at net earned premium, I can still see net earned premium falling by 4%, 5% compared to last year, while we are now eighteen or twenty four months into much better market. So I mean, can you comment on why this is still the case? And actually, when we should expect net term premium to turn to a more positive or stronger number at some point? The second question will be related again to the Corvea deal and maybe to the origin of the fluctuation of this deal. I mean, thirty percent? Why twenty percent of the mortality book of The U. S. Mortality book? Were there any more appetite from COVID and you refrain? Or just to better understand how the transaction has been sized up between between both both parties and what have been the the driver to to decide, you know, which was the right the right the right amount. And and and maybe connected to this, I mean, to be fair with you, I'm still struggling to understand why we've got a kind of loss of 14 points of solvency if we are starting from the end of Q1 and adding the 27 points from the Corvaya agreement. So let me put the question differently. If you would have potentially strengthened your balance sheet without showing too much of the number of the impact of the COVID operation. Would have been this been possible by model changes. And at the end of the day, you're not you're not showing too much, but, ultimately, the the balance sheet significantly significantly improved. And and this is also where you're getting more confidence regarding your freedom for the future? Thank you. So Thomas, I'll start on the question on the net earned premium for P and C. So the the difference, you see between the the numbers we showed for the gross written premium and the net earned premium really relates to, the earning of premium. So if we look at 2020 earned premium, the earned premium at the 2020 was driven by the very strong growth in 2019 and in some effect, but very little of the repositioning of the portfolio and the underwriting actions taken during the renewals in 02/2020. So the I'd say the normal earning patterns we saw in 2020 were were stronger than than, let's say, usual. In 02/2021, what we have is a flattish renewal of the portfolio into the in underwriting year 2,020, plus the the effect of COVID where there was some premium takedowns on some lines of business like political risk, construction, which, you know, is earned through now in 02/2021, and we haven't fully benefited of the of the underwriting increases we've we've achieved in underwriting year 02/2021. So that explains the the drop in in net earned premium. We expect this to continue in 2000 in q three because the same effect will will continue, and we won't really start earning significant amount of premium in q three from on the running year 02/2021. But I think from q four and then into the the 2022, you should really start seeing in the earned premium the the effect of the premium increase that we've achieved on a on a written basis in on a running year 2021. Okay. On on your second question, Thomas, Frieder speaking. The the model changes which we've made in q two have nothing to do with the Quevia transaction, if that was part of your question. So they they were done completely independently part of our regular maintenance of the model. And now it's there's complete coincidence that they happened in Q2. As I said, they are more significant than what you would have seen in previous periods. And this explains a significant part of the difference between the simple sum of the Q1 ratio and the KEVIA impact. And then the other somewhat minor but not insignificant movements are caused by the fact that the impact of interest rate movements and the increase in interest rates post COVID is smaller. So we've reduced interest rate sensitivity of the solvency ratio by the session, and that has led to a correspondingly lower impact on the solvency ratio of the interest rate movements in Q1, plus there were the there was the COVID deterioration mostly from P and C. And these are the main one offs, which you know, explain the difference between the the simple sum and the and the the ratio which we are publishing. Is is that answering your question? Or Yeah. Yeah. No. I no. No. Fully fully understood. Thanks for that. If you can if you can say a word all around the calibration of the deal on on, you know, on the appetite and and why why why why 30 and not and 20 or not 40 or what what was the what was the appetite? What was the constraint? What was the anything on the calibration of the collection? I I take this. This is Paulo. Hi, everybody. First of all, there was a strong willingness between the two parties to resume meaningful commercial relationships, and that was identified as one area that was beneficial to both parties. You know, negotiations per se are confidential, and so going too much into the details, I don't think is is appropriate in this in this venue. But from our side perspective, we felt that, that level of session would bring a strong rebalancing to the to our Life portfolio as we seed about 20% of our U. S. Mortality business. That gives us a much more balanced portfolio between The U. S. And the remaining global franchise. Just to note a few comments made before, I just want to underline this. This crystallizes billion euros of economic value of the franchise effectively. So I find surprising some of the comments on the dilution reinforcing what Ian said. Because effectively, this crystallizes future cash flows into today. We know risk margin effectively. So we thought the deal on our side was again very beneficial economically, and also very strong rebalancing. And we we're gonna show more data on the rebalancing as we get to the Investor Day in September. I don't know if that answers your question, Thomas. Thank you. Thank you, Thomas. We will take the next question, please. Our next question comes from James Shuck of Citi. Oh, hi there. Good morning. Good afternoon. More questions on the capital side of things, I'm afraid. But thank you for the commitment to greater transparency, Laurent. It it would be helpful to, get an update on where you stand in terms of rating agency capital, over that triple a level, pro form a for the CoVEA deal, please? Because when I look at your solvency two ratio and kind of rolling it forward, and and thinking about how you manage that, it it seems to me that you're gonna have to periodically securitize the life in force book from time to time so that you can increase, the rating agency surplus. So if you just clarify your thinking around that. And, again, when when I think about the exposure growth that we've seen in the first half of this year, really, all of it is is rate driven rather than exposure, and yet you are alluding to the fact that you think you can grow quite strongly in p and c re. So, keen also to understand, where that growth is gonna come from, whether you are actually specifically referring to exposure growth, and whether that growth is gonna be more than the retained earnings after the ordinary dividend, because the I would have thought that it would be self funding, and therefore, the stock of capital, you know, again, just thinking about how you manage that down with the levers you've got. And I appreciate that the the capital market stage is coming up fairly soon in September, but it's a it's an important point to dwell on, I think. The the second kind of question or area, I think, is is a much shorter one. And and and, Laurent, you you you alluded to flexibility when you talked about the, the optimal cap capital position. Could you just update us with your thoughts around potential M and A? And I don't think I heard the answer to, Angie's question earlier on, but how do you think about, the ROI when it comes to M and A versus, say, share buybacks? Thank you. Hi, James. Just firstly then on the S and P impact. I mean, maintain, as I said, an excess of the AAA. We we don't disclose our our margins, over over triple a. Certainly, the the transaction, as I said earlier, was very positive on a on a direct s and p and capital model basis. We just need to remember that the transaction took place on the last day of the quarter. So how we how we now think about, you know, balancing the the capital that we've received under the various measures and what impact, it has as we deploy this on IFRS earnings, on on our solvency, on the S and P capital, on the the cash profile of the group, as as we deploy that. That just takes a little bit of time. It was a it's a complex transaction. It's very beneficial across these metrics. We just need to to to think through how that's going to to be applied, to ensure that it is accretive and that we are managing, to to the targets of the group yet within the constraints that we that we have. I think I think we as as I said, we we'll come back at at IR day with with more color around the approach set. Hamburg, do want to take our next quarter growth in Q3? Sure. So I I think your your comments must relate to the June, July renewals, where indeed the growth is is more or less in line with the price increases we've seen. No. And the the June, July renewals are are dominated by by The US. In The US, the the question is not so much the price increases, but but more the the claim inflation. In our view, is that both across property and casualty, the price increases are barely keeping up with the with loss trend on both segments. Therefore, there's a lot of underwriting actions behind those numbers that took place in June, July, where the end result is more or less a growth in line with price increases. If we look across the year, you know, we we're we're growing our reinsurance book almost 11% and and, you know, 11% plus throughout the year, and we definitely did not achieve 11% rate increases. So there is exposure growth there as well. On the specialty insurance, you know, we've had significant growth this quarter in in the finances. You know, specialty insurance grows on a gross written premium basis, so almost 30%. And, again, the the average rate increases we see across different lines of business is about 15%. So I I think there is both price movement as well as exposure movement in that growth. And as we look at 02/2022 and review the market conditions that we expect there, I think you'll see similar projections that we anticipate in 2022. On your question, James, actually, I think there's two questions. One is on the M and A environment and the other one is how do we decide to allocate capital and how do we identify opportunities, inorganic ones versus organic ones. So first of on M and A, Luca, our approach here is very much the same in the sense that we do not plan on M and A in our plans, and we take an opportunistic approach as and when. If look back in history, I mean, the market is hard at the moment, in particular on the P and C side. So we do see a number of very attractive opportunities. We have the capital to grow. So the addition of a franchise in such a market would actually would be potentially more disruptive to our ability to really focus on underwriting the business. So we don't change our approach to M and A. The second point, on the flexibility, how do we compare the various rates of returns? Mean, clearly, will keep all options in mind when we look at the flexibility of deploying our capital, whether it is to invest it. I think we've already alluded to the asset risk. I think this is something as well that Francois and his teams are looking at quite closely. There is a pretty interesting number of organic opportunities, I would say. And in the way we look at capital return, this is something that we will be exploring at the IRDN going forward. Okay. Thank you very much. Thank you, James. We'll take the next question, please. And our next question comes from Will Hardcastle of UBS. Hi there. Thanks for taking the follow-up question. Just thinking any early thoughts on European flood loss really? Any comments whether it be industry loss expectations or comments on that? Anything we should maybe extrapolate from the Q2 European storm loss for Q3 flood loss? Any high level comments here would be helpful. And secondly, I think on the solvency ratio, we know the ratio. I'm just checking if I is there any way where you publish the numerator, denominator in that ratio? I guess there's a lot of moving parts on the model change, etcetera. Any guidance to what we can have as the denominator at this point? Thanks. So I'll start with the European flood question. So, yeah, as you noted, the the q two events that that that we booked are the European connected storms that took place in the in The Czech Republic and the the adjacent countries. The market lost estimates for those events, they happened at the June, so the estimates are very rough, are between 3 to €5,000,000,000. The the European floods that took place in in July, will be part of the q three results. And there, we we saw recently, an estimate from the the German insurance association of of a range of 4 you know, to 6,000,000,000 just for Germany, to which probably have to add Belgium and and and other places. So I I'd say, you know, the what you can see in q two is probably indicative of what you we can expect for q three, and probably the events that we we have in q three are are worse than than the ones in q two. On the second question, we'll publish this in all detail at the IR Day, so you will see the breakdown and also the full movement analysis in the usual level of detail, including the breakdown of the operating capital generation. So you should all get this in early September. Okay. Thanks. We've we've got to try. Cheers. Thank you, William. Ladies and gentlemen ladies and gentlemen, this concludes today's question and answer session. At this time, I would like to hand the call back to speakers for any additional or closing remarks. Thank you. Thank you very much for attending this conference call. The Investor Relations team remains available to pick up on any further question you have, so please don't hesitate to give us a call. I wish you a good afternoon. Thank you. This concludes today's call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.