Earnings Call: Q1 2021

Apr 28, 2021

Good afternoon ladies and gentlemen and welcome to the SCORE Group Q1 twenty twenty one Results Conference Call. Today's call is being recorded. There will be an opportunity to ask a question after the presentation. In order to give all participants a chance to ask questions, we kindly ask you to limit the number of your questions to two. At this time, I would now like to hand the call to Mr. Olivier Armongo. Please go ahead, sir. Good afternoon, and welcome to SCOR Q1 twenty twenty one results call. My name is Olivier Amongo, Senior Manager on the Investor Relations team. And joining the call today by Denis Kessler, Chairman and CEO of SCOR and the entire Executive Committee. Can I please ask you to consider our disclaimer on Page two of the presentation, which indicate that the financial results for Q1 twenty twenty one, included in the presentation are unedited? I would also ask you to note the statements in respect of COVID-nineteen. And before starting our Q and A session, I would like to hand over to Jan Kelly, CFO of SCOR. Thank you, Olivier, and welcome everybody to the call today. Let's start on Slide four. In a quarter marked by the continued expected development of COVID-nineteen and an extreme and severe winter storm in The U. S, SCOR clearly demonstrates once again its resilience and shock absorbing capacity. COVID-nineteen continues to develop as we anticipated. It is manageable and tracks closely in line with what we communicated within our full year 2020 results. On the Life side, the COVID-nineteen impact stands at €162,000,000 of which €145,000,000 comes from The U. S. Mortality portfolio, while on the P and C side, the impact is stable compared with the 2020. Our solvency ratio at the end of Q1 is very high and stands at 232% above the optimal range and reflects all currently expected future COVID-nineteen impacts. In addition, the industry had to face the large natural catastrophe event of winter storm Uri in Texas, which had an impact of €98,000,000 for SCOR net of retrocession and before tax. Whilst the combination of such events is extreme, it remains within the group's risk appetite, and it is the duty of the group to anticipate these risks and to absorb them. Moving on to Slide five. In the 2021, SCOR continued to successfully develop its franchise. You can see on the slide that at constant exchange rates, gross written premiums stand at €4,400,000,000 up 5.6 percent compared to Q1 twenty twenty, driven by P and C, up 10.3%, benefiting from the excellent renewals during the year and steady Life growth, up 2.1% with continued franchise expansion in Asia. Moving on to Slide six. In the context of the pandemic and the natural catastrophes, SCOR delivers a net income of €45,000,000 in Q1 twenty twenty one with strong underlying profitability. On the P and C side, the combined ratio stands at 97.1% with 12.6 percentage points from natural catastrophe. On a normalized basis, the combined ratio is extremely strong at 91.4%, better than the quantum leap assumption. On the Life side, in line with what we had anticipated, the technical margin was impacted by COVID-nineteen claims in The U. S, in line with the communicated guidance and stands at 1.6%. Finally, SCOR Global Investments seized opportunities presented by the bond market on the back of the reflation dynamic and delivers a solid return on invested assets of 3%, driven by €77,000,000 of realized gains. Moving on to slide seven. The solvency is very high at the end of Q1 twenty twenty one, standing at 232%. This, as I said, is above the group's optimal solvency range of 185% to 220%. The increase in solvency was mainly driven by the significant impact from market movements on the back of the sharp increase in U. S. Interest rates, but also from the positive contribution from the operating performance of the portfolio. The solvency ratio at the end of Q1 continues to reflect all currently expected future COVID-nineteen impacts. Let's move on to slide eight. SCOR continues the digitization program we laid out in Quantum Leap and continues to deploy new technologies across the organization to improve our operational efficiency and productivity, but also to broaden our product and service offering to create long term value. In the 2021, we have been able to deliver several ambitious digital projects, notably on the P and C side, a new satellite based pasture insurance tool in Brazil, a rating tool dedicated to inherent defect insurance, an enhanced business to business pricing engine in trade credit insurance, and an in house pricing and risk scoring mobile app. On the life side, we launched VITAY, a cutting edge artificial intelligence biometric risk calculator. And finally, on the group side, we moved our internal reinsurance software Omega into the cloud. Let's move on to slide nine. We have many reasons to be confident about the industry's prospects. On the life side, the acceleration of the vaccination rollout confirms that COVID nineteen deaths track in line with our epidemiological modeling. While some uncertainty, of course, remains around the magnitude and the duration of the pandemic, at this stage, we expect to be able to return to the Quantum Leap technical margin assumption range of seven point two percent to seven point four percent by Q4 twenty twenty one, translating into a full year technical margin of around five percent. On the P and C side, we believe that COVID-nineteen is one of the factors helping to create the conditions for stronger reinsurance growth combined with a positive pricing dynamic. We expect these positive trends to drive continued pricing and terms and conditions improvements in future renewals. For 2021, this translates into a P and C normalized combined ratio trending towards 95% and below. Finally, on the investment side, we continue to seize opportunities presented by the bond market on the back of the reflation dynamic, particularly in The U. S. Through realizing gains. The liquidity from this divestment is to be reinvested across the course of the year as the market restabilizes. We confirm our return on invested assets assumption for the year in the range of 1.8% to 2.3%. Briefly, on a few other key financials. On slide 12, the shareholders' equity of the group remains strong at 6,300,000,000 an increase on the year end position and this results in a book value of €33.61 per share. And finally on slide 13, I would like to highlight the strong cash flow of the group with net cash flow from operations exceeding EUR 500,000,000.0 during the quarter, resulting in a strong liquidity position of EUR 3,300,000,000.0. With that, I will hand back to Olivier, and we can go to the Q and A session. Thank you. Thank you very much, Jan. On Page 21, you will find the forthcoming scheduled event. And with that, we can move to the Q and A session. Thank you. Our first question is coming from Vikram Gandhi from Societe Generale. Please go ahead. Your line is Hi. Hello, everybody. It's Vic from SoftGen. Hope all of you are doing fine. I've got a couple of questions. The first one is on the Solvency II ratio. I acknowledge that 232% is quite strong. However, when I use the latest sensitivities and then overlay the fact that the group has higher liquidity and lower corporate credit exposure, it appears a bit too low compared to what I would have expected. Perhaps you can elaborate on some of the underlying movements there. And secondly, on the ordinary investment income where there is a drop of about 20,000,000 quarter over quarter, I appreciate the group is sitting on more liquidity, about €1,300,000,000. But even considering that, the drop seems to be a bit too high. Can you shed some light on what is driving this? Thank you. Frieder, on the first question? Yes. Thank you, and hello, everybody. As Ian said, most significant driver of the increase in SOPS ratio was the increase in yields, particularly US yields. So this accounted for the bulk of the the upwards movement. There was also a positive capital generation, you know, broadly in line with average quarters in the past, so there was nothing unusual. We do allocate capital and deploy it for the growing business. So that, of course, needs to be funded. And we have also accrued for a quarter of regular dividend in line with previous practice, but there were no other significant movements beyond this and only very marginal impact from COVID during the quarter. Thank you, Frieder Francois. So maybe I think there is two question in your questions. So the first one is linked to the liquidity and the exposure to corporate bond, and the second one is the impact on the income yield. So first of all, let me explain the tactical positioning that took place at the beginning of the year. At the end of last year, we identified an increasing probability for U. S. Interest rate to rise on the back of inflationary pressures, which even transitory create a new dynamic for the reflection trade in the interest rate markets. So we took advantage early January of this positive environment, and we managed to sell more than EUR 1,000,000,000 equivalent of U. S. Corporate bonds just before the rise of the ten year U. S. Interest rate. So the timing was good. We do believe that there is a further room of maneuver for steepening of The U. S. Yield curve and still on the theme of the reflation dynamism in the market and in the months to come. So that's why you see liquidity temporarily at 15%, so which means the proceeds of the sale program are still in cash and the exposure to corporate bond significantly reduced to 36%. We intend to reinvest in the next few months this amount of liquidity and to come back to a normal asset allocation as soon as we will consider the interest rate market will stabilize. So the impact on the income yield, as you saw previous quarter, our reinvestment yield has rebounded after having reached a low point in H2 twenty twenty. So that explains the decrease of the income yield and also the fact that we have 15% of liquidity and only 30% of corporate bond today. As soon as we will reinvest and you see the good news is the significant increase during the quarter of the reinvestment yield to 1.6% compared to 1.2% in December. So you should expect in the second part of the year a rebound and an increase of the income yield again. Thank you. Next question please. Our next question is coming from Kamran Hossain from Royal Bank of Canada. Please go ahead. Hi. Good afternoon. Two questions. First one is just on the, I guess, underlying combined ratio. It looks like it's surprisingly strong, I guess, relative to your actual guidance for the year. How much of that 91.4% should we bank? And how much is simply kind of good luck on man made sustained life in the quarter? And the second question is, I guess, you know, all the focus has been on COVID in q one, especially in The US, you know, where it's been a, you know, a horrible quarter for for, I guess, everyone in, you know, The US everywhere. What's ex COVID mortality look like? So if you give any examples or kind of, ideas around that, that'd be exceptionally helpful. Thank you. Jean Pierre and the command, Richard. Yes. Thank you, Olivier. Hi, Cameron. On your question on the normalized net combined ratio, so you saw this quarter is the sum of the net attritional loss ratio and commission is overall five points lower than, q one two thousand twenty. So, of those five points, roughly three come from a low activity, a lower activity of man made losses than in q one two thousand twenty, and the rest is really the improvement of the portfolio. Nothing going forward. We'll we'll still have to wait a few quarters to confirm this, but, we think that, we're starting to see some of the pricing improvements flow through the portfolio. And then we also benefit, as I said, from a very low level of man made losses this quarter. Thank you. Pablo? Yeah. Hi, Cameron. In terms of what we're seeing ex COVID globally, I would say outside The US, the business has been experiencing relatively buoyant performance in Q1. So we're very happy with what we're seeing. In terms of The US portfolio, which is our largest mortality book, we are seeing some increasing claims across the overall US portfolio after we exclude the debt clearly reported as being due to COVID nineteen. The volatility is similar in scale to volatility we have observed in other periods in the past, like the q one twenty twenty experience, for example. So it is too early to conclude whether this is connected to COVID nineteen or just regular volatility. We have seen the usual annual flu impact broadly eliminated as a result of the COVID nineteen containment measures. And we have to say that any long term impact from COVID nineteen will take some time to be determined and to emerge. We want to confirm that our reserves continue to be very strong with a significant margin of prudence, and we have a best in class experience study team based in The US focused on constantly monitoring and further improving our understanding of the driving factors of US mortality. So I believe as we do regularly, I think when we come to the Investor Day later in the year, that that's a good time for us to to give you more information on the overall evolution of mortality that we are observing in 2021. That's great. Thanks, palette. Question, please. Our next question is coming from Andrew Ritchie from Autonomous. Please go ahead. Your line is open. Hi, there. First question, just on top line premium for the non life business. I can see the effect of FX. And I guess, I I the effect of FX does seem a bit stronger than than I would have judged just from observed market movements in FX. I don't know if there's something unusual about the FX mix of your premiums in Q1. And the second sort of related question, when I look at the the effect of deduction of unearned and deduction of of of reinsurance or retro, it is bigger, quite a lot bigger than q one last year. So it implies there's some mix shift or something different also about your q one non life premiums, whether it's, I don't know, longer dated business. There's a different earning pattern in it. Maybe could you just give us some color around that that topic, the top line p and c, and and how we you know, is there something odd about about q one in particular? My my only other question was, I think the the cat load seems quite high. I I can see the Texas effect, and the Texas number looks about what I would have expected relative to the industry loss, but I'm surprised that that you've picked up quite a lot of other cat losses in a relatively benign quarter. Were you surprised by that? Presumably, these levels of losses are such that they're kind of low level frequency type stuff where you're not getting any benefit from retro. Thanks. Thank you, Andrew. Jean Paul, for the two. Yeah. Thank you, Andrew. So on on your first question, the the, let's say, constant, FX growth, As you saw, reinsurance is decreasing roughly, slightly more than six. It's growing at 6.7%. You know, most of the growth is following the one one renewals. So the the current underwriting year is growing at 10% in line with renewals, while the prior year is is pretty flat. So that's where you see a difference in in premium earnings. In in addition, the the growth in specialty insurance is very strong at 22%, and that tends to to earn more, more quickly as well. The the impact of effects really, comes from from two, I'd say, phenomenas. One is the the weakening of the dollar, which has a has an effect, when translated to euros, but also the strengthening of the euros compared to all currencies. And so that affects not only premium in dollars, but premium in all other currencies. So that's why we have a big effect this quarter. On on your second question on on the cat loss ratio, yes, we were affected by by other cat losses in addition to storm Uri. The the European storm, phenomena, you know, affected Spain and Southern France. And that's roughly a a 15,000,000 million euro impact to score, which is in line with our, you know, with our our share of the treaties, in in in France and Spain. And, relative to the other the other cat losses, the the more significant ones is additional deterioration on Sally and and Laura. And this comes from, the fact that, the losses we had booked in q three and q four did not have, complete, information from our students. And the the q one results incorporates additional information received from a number of students, which which shows these these losses deteriorating further. So, you know, we were surprised a little bit by this deterioration on on on prior losses, but feel that, you know, the level we're hearing right now makes us comfortable that we should be stable for the remaining quarters. Sorry. Can I just follow-up? The growth of specialty insurance earns more quickly than than I should I should what I was surprised was the degree to which the the amount the the the transition from net written to to earned seemed lower this year, quite a lot lower than q one last year, which if specialty insurance is growing faster, would would wouldn't be the case. Yeah. But the it's it's it's only 25% of the overall premium. The, the bulk of the premium is reinsurance, and the, the the larger amount of premium earning is from prior underwriting years, which is which is flat more or less. Okay. I I guess the point being then the the earned pace will pick up significantly as the year goes on as we transition as the prior as the prior year runs off as it were, you know, and the current year growing faster than the prior year. That's right. Thank you. Thanks. That's great. Thank you. Thank you, Andrew. Next question, please. The next question is coming from Will Hartcastle from UBS. Please go ahead. Afternoon, guys. Two quick ones from me. Can you just give us a bit of color on how the 1.6 reinvestment return has been achieved? It doesn't look to be much re risking within the quarter if I look at duration or asset classes you touched on. I guess just perhaps an outlook if things stay from here, is that the sort of level you'd be expecting? Or that you mentioned the expectation of U. S. Pickup? And perhaps with re risking, how much year on year income yield compression should we expect for next year looking beyond, I guess? And second one is on premium. You you kind of touched on the rationale and the drivers behind the FX. It doesn't sound like there's anything abnormal then. I guess just so we're clear, if I look at those, should we expect a further headwind for Q2 before it stabilizes for the remainder of the year? Is that logic correct? Thank you, Will. Francois? On the first question, so that's true that our current reinvestment yield stand at 1.6%. Again, I remind you the definition of the reinvestment yield, that's the market yield of the fixed income and loan portfolio the last day of the quarter, and we see an increase of 40 basis points compared to December 31, and that's mainly due to the increase of U. S. Interest rate. So you should expect that increase of the reinvestment yield to continue with the steepening of the yield curve, and we should see a higher reinvestment yield in the quarters to come. And as a consequence, as soon as we rebalance the 15% of liquidity into mostly U. S. Corporate bonds, we will lock a new level of interest rate that will translate into a higher income contribution compared to this quarter. So we confirm the range for the return on invested assets for 2021, so between 1.82.3%. At this stage, it's impossible to give you guidance or an expectation or an objective for 2022. It's too early and it's too difficult to predict such in advance what Central Bankers are going to do and what could be the level of inflation in the next quarter. But my strong conviction is that you should see an increase of the income yield again as soon as we rebalance the portfolio, and that will mostly done on U. S. Corporate bonds. So you should expect by the end of the year to come back to an allocation between 4345% to corporate bond within our portfolio and liquidity between 57%. Jean Paul, on the second question. Yeah. Thank you. On the second question relative to FX, you know, the comparison to q one is comparing q one two thousand twenty with q one two thousand twenty one. I think as we progress throughout the year and compare q two versus q two or the half year of 2021 versus the half year 02/2020, the effect should be more stabilized, everything else being equal. Know, the big change in in currency happened with COVID, so, you know, probably more in q two two thousand twenty. So that that effect should be much much less going forward. In addition, we have a a large amount of premium that was in growth at at 01/01/2021, which would, you know, be earning through in q two and the remaining quarters, and that is also should that should dampen the effect of the of the rate of exchange. So we we expect it to be to be more more stable throughout the year. Thank you, Jean Paul. Next question, please. The next question is coming from Vinit Malhotra from Mediobanca. Please go ahead. Yes. Good afternoon, everybody. Thank you. So my two questions. First is for Paolo on the life technical margin. So Paolo, I've been watching with some interest how the modeling of the projections of mortality in The US have I think for the first time in at least a few attempts made in the last year, this time they've been kind of trending to the charts that we have been seeing. So, you know, below one thousand deaths by March and, I mean, maybe seven fifty now moving to average and then moving towards something six hundred, seven hundred by the June. So what I'm what I'm trying to understand is that because obviously in the past, these models had an error. So and this time now, they are tracking nicely. Would you say that there is some upside potential for the 5% for the 2021 technical margin? So that's my first question on price. Second question is for Francois on the ROI target. Now given this liquidity rebalancing and and also potentially some gains in the year. I mean, if you look at even the top end, you know, the 2.3 and already being achieved 3% in the first quarter, implies that we're looking for a rather low 2% on in the remaining three quarters. How should we I mean, are you are you just being conservative? Or you think there could be some upside to that 2.3, but you don't want to quantify it and to stay in. So just want to hear any thoughts on these two topics. Thank you. Thank you, Jeanette. Paulo, for the first question. Yeah. Hi, Vinita. Yeah. As you as you mentioned for us, the what we're seeing in q one is pretty much what we had projected at the q four disclosures in February. So we stay by the 5%. Projections have not materially changed from what we presented to all of you in in February. I think the only change we're observing is our weighted scenario. We show a narrowing of potential outcomes with probably a shift of casualties from COVID nineteen being brought into q two and and a lesser amount in in q three. That's kind of the change that our models would indicate. Said that, that error you were talking about, Beneath, that has always been the challenge that any modeling has had to capture human behaviors effectively. First of all, human behaviors in terms of respecting certain restrictions while distant whether distancing or masking. And I think the next big challenge is vaccine hesitancy overall that is also human behavior. So that is what we're tracking very closely. We're also tracking very closely the emergence of potential emergence of new variants and the behavior of current variants, particularly in terms of vaccine resistance. So overall, I I think we feel we we reiterate the 5% assumption we have for the overall year. We still think we still think that's that's a that's a good number right now in terms of where we're seeing our results, ending for the year. Thank you. Thank you, Paolo. Francois? So on your question, Vinit, so first of all, on the capital gain, what you should expect for this year. So we took 74,000,000 of capital gain on the fixed income portfolio. I cannot benchmark Q1, but if I benchmark what our peers, at least in Europe, did in 2020, we are in the low band of the contribution of fixed income capital gain to the return on invested assets. We are at 0.7% of contribution compared to our peer, this time between 0.6 to 0.9. So I would say we are quite conservative on this side. You should not expect additional material contribution from the fixed income portfolio to capital gain this year. We are waiting now the steepening of the various yield curve, especially The U. S. One. We have, let's say, kind of target or expectation of an entry point at 1.9%, and we are at 1.6% today on the ten year U. S. Rate. On the real estate side, that's true. That's also a contribution that you see each year. Given the still the lockdown measures in France today, it's a little bit too early at this stage to have a firm view on our ability to dispose real estate assets this year. The current environment is too uncertain. Having said this, we hold several real estate assets, which are mature and that we could sell if the market is there. And again, if the market is there, you could expect one sale before the end of the year. But I don't have yet the full visibility, given the lockdown, to confirm this. I remind you that we have 122,000,000 of unrealized gain on the real estate portfolio that will flow into the P and L in the next few quarters and years. So now to your final question. Am I conservative by maintaining the range 1.820.3%? It's maybe it's a little bit too early. It will really depend on the speed of the steepening of the of The US The US interest rate and the timing of the redeployment of the massive amount of liquidity that that that we have. So I think we will have more visibility in July or during the Investor Day after the summer to confirm or to to to revise upward at the the range. Thank you. Thank you, Yuni. Next question please. The next question is coming from Ashik Musami from JPMorgan, London. Please go ahead. Thank you, and good afternoon. And just a couple of questions if you can help me. Sorry, going back to the ROI topic. I mean, clearly, you are saying that the entry point that you will have on the reinvesting that cash or temporary liquidity into corporate bond is 1.9% versus we are at 1.6 at the moment. So how long will you wait for that entry point of 1.9% to be achieved? I mean, let's say if rates don't move for next three to six months, so how long will you wait for that? And as long as you don't reinvest at a higher yield, I mean, is it fair to say that you will be hitting this year's recurring ROI at more at the lower end of the range, which is 1.8% rather than 2.3%? So some color on that would be helpful. The reason why I'm asking is I agree that interest rate should be trending higher. This is what all the pundits are saying as well, but never say never with interest rates. It just goes down forever. So that's one thing I have noticed for past twenty five years. So that's the first question. The second question is in terms of combined ratio improvement. Thanks a lot for giving some additional color about 5% lower attritional as of now. You mentioned that it is partly because of lower activity and partly because of portfolio improvement. Is it possible for you to give a bit more light on how much is that lower activity and how much is that portfolio improvement? I'm just trying to think a bit more for next three quarters, how it might pan out from a lower activity perspective. Thank you. Francois, the first question? So on the first question, maybe let me give you our economic scenario. What we think today is that with central bankers committed to stay behind the curve and governments to spend more money through budget or fiscal deficit, we think that steepening pressure should continue to affect the different interest rates curve and notably in The U. S. Come back to full economic activity and record low employment rates seems, I think, to be a prerequisite to any action by central banks against the potential spike in inflation. And acceleration of the pace of vaccination, easing of lockdown measures, coupled with tension on supply chains that we see, makes me believe that there is still potential for further inflation dynamism in the months to come. And my conviction is that it should happen by the end of the summer or beginning of the fall. So that's the central scenario we are playing today. So that's why I said, and that's my conviction, you should see a full rebalancing of the portfolio by the end of the year. The opportunity cost, of course, there is a cost to any strategy. So the opportunity cost to maintain EUR 1,000,000,000 of corporate bond U. S. Corporate bond in cash, which means remunerated almost at zero today, is on a full year basis, it's a cost of 20 basis points on the income yield. Again, basis points if we maintain EUR 1,000,000,000 in cash twelve months. Yep. That's very clear. Thank you. Thank you. Francois Jean Paul on the combined ratio. Yeah. On the combined ratio, so, again, comparing q one two thousand twenty one with q one two thousand twenty, there there's a five points improvement. Of those five points, three are coming from a lower man made, lock activity. It's it's, you know, we're not really sure where, why it's such a a benign quarter, this quarter. You know, part of it could be explained by lower industrial activity, because of COVID, and and part of it could be explained just, you know, improvement in in terms of conditions on on the insurance side. So we'll have to wait a few more quarters to confirm whether this is, an anomaly or or a a new trend. On, you know, the the two remaining points is really improvement in profitability that we're seeing in this quarter. You know, if if there was a normal if if there was a normal, level of memory activity this quarter, the normalized would be instead of the, you know, the the 91 something. It is this quarter. It would be more like a 94. Okay. I think that but just to be clear on this one is, basically, it it feels like so far what you're seeing in terms of net pricing feeding into the combined ratio is 2%, which could be a function of your portfolio change or, say, pricing improvement. So that's a fair comment. Yeah? It's not 1% that you were guiding at the beginning of the year. It's 2% at the moment. Yeah. Right. But this quarter, it's 2%. That's right. Yeah. Okay. That's correct. Thank you. Thank you, Ashik. Next question, please. The next question is coming from Thomas Fossa from HSBC. Please go ahead. Yes. Good afternoon, everyone. First question would be for Paolo regarding management actions taken in portfolio management actions taken in Q1. I think that, adjusted for the COVID-nineteen claim in Q1, actually, we can compute a pretty high or higher technical margin at 9.4, implying a delta to your long term assumptions of 44,000,000. So maybe, Paolo, you could explain us where this 44,000,000 are coming from and if at the end of the day, you're expecting portfolio actions to be a bit higher than what you were potentially guiding to, at the end of the year? The second question would be related to P and C. Actually, we are seeing very, very strong results coming from the credit insurers. Looks like expected bankruptcy claims are far to pick up at this point in time. Could you quantify how much COVID-nineteen trade credit losses you've taken at the end of the year? And what the prospect for this COVID-nineteen losses on credit? I mean, should we expect some form of release in the coming quarters? And very last one to squeeze also on the P and C. Can you say the Swiss the Suez Canal blockage for you was a Q1 claim or Q2 claim? Thank you. Thank you, Thomas. I have a follow-up on the right side. Yes. Hi, Thomas. I I think as I just mentioned before, for q one, we saw very good underlying performance in the business. And ex COVID, we have seen the business performing definitely above our quantum leap assumption of seven point two, seven point four. I'd just like to remind you, we're we're constantly working with our clients and our retro partners on treaties that are not performing as expected to optimize structures. And as part of our in force management, we're regularly reviewing globally the portfolio and take actions where appropriate. I would say that in q one, consistent with prior quarters, we have taken steps to increase premium rates in certain underperforming contracts, and these actions are similar to what we have done in the past. As we mentioned in February when we did the the twenty twenty, full year result presentation, the p and l impact and solvency ratio impact of each action, it really depends on contract terms and the mixture of business covered in each contract and the claim experience in the contract and other factors. So it's very difficult for us to forecast exactly how much is happening in one quarter or the other. And in in 2021, we're our strategy of optimizing overall our in force portfolio. So overall, we again, as I said, we feel comfortable with the 5%. We think it gives us, yeah, it gives us good comfort as we go through 2021. I would also like to note that our overall research continued to add a very significant margin of prudence, and that makes us feeling, comfortable as we as we move into the rest of 2021. Thank you. Thank you, Paulo. Jean Paul, on the two P and C questions. Yes. So on the first one, on the credit and surety, you know, what you're saying, Thomas, so we we see the same thing that, I think the the fears of additional losses coming from COVID, to the credit and surety portfolio is not has not been happening. You know, we've we've seen, you know, reassuring results from from from our in q four. And and from what we hear, q one, is a is a similar trend. Actually, I think a lot of the underwriting actions that have been taken have actually improved the portfolio, compared to, to maybe where it was before. So there's been a lot of underwriting actions taken by those companies, and the performance has been has been very good. So, you know, we we have some some some, IV and Rs that were taken for credit and surety and that we're we keep we keep holding at q one, and we'll review those as we receive additional information throughout the year. I I think going forward, it's going to be very difficult for for us, you know, on proportional business to really separate what is COVID and what is not COVID from from those from those border roads. So we would just look at the overall loss ratio, but the overall loss ratio right now seems to to hold steady compared to pre COVID pre COVID conditions. On the Suez Canal, we we did take some charge in q one, a very small charge of 1,500,000.0. That's really related to the whole and and and some some whole loss. You know, what's uncertain is the sort of the the contingent BI, both from the the canal itself and then from from suppliers. As you know, the, you know, the the company managing the the Suez Canal has has filed a significant claim of of the order of a billion billion dollars, but, you know, the justification for the claim remains very unclear. And so I I think those that information will take time to make its way through the marketplace. So right now, q one, we've taken the the, you know, the the effect that we we know for sure on the whole, and and the rest, we're waiting to see, how this develops. Thank you, Jean Paul. Next question, please. Our next question is coming from Michael Ayd from Commerzbank. Please go ahead. Your line is open. Thank you very much. Good afternoon to everyone. Two questions. First, on the Texas Winter Storm and Freeze, the €98,000,000 net loss to net gain you incur from that. Obviously, it's quite a complex loss. First of all, can you give us a cross figure and how much the reinsurance recoverable is? And, naively, one could think it comes from one treaty, but that is definitely not the case. It comes from many treaties and also many lines of business. Can you shed more light on the composition of this loss? How many treaties? How how many lines of business? Second question, the obvious question, capital position is very strong. What do you think about capital repatriation? Do you feel you need a buffer against your optimal solvency range? These are my two questions. Thank you, Michael. Jean Jean Paul on on Texas. Yeah. On on Texas, so, you know, the the market loss estimated, for the storm is about 15,000,000,000 US dollars. The our our estimates are really coming from property treaties primarily, and this is primarily per risk and proportional treaties. There's some CAT Excel contribution, but very little. Most of these losses would be in the retention of the of the larger programs. It's, you know, the cataclysmic small companies that that affected. And we have a a few claims from specialty insurance, but it's very limited. So the the bulk of it is coming from, you know, a relatively large number of, per risk and and proportional property trees. And can you say the the the cross amount of what you expect for yourself? Yeah. The the amount of recoveries is very limited. You know? And let's say, you know, it's it's more or less, gross equal net, because of the composition of the loss and the fact that it also happened, you know, early in the year. Thank you, Jean Paul. Jan, on the capital question. Yes, sure. And hi, Michael. Yes, obviously, we're very happy that the solvency of the group is in a very strong position. But let's be clear that's partly due to the movement in the interest rates in the quarter. On top of that, I would add, we are still in the pandemic. It really is too early to be thinking about capital management actions such as additional capital return at this stage. I would say on top of that that we remain in a positive market environment in particular on the P and C side. So you've seen strong renewals from the group. And given the market opportunities that we have with that hardening market environment, which we think will be sustained, that will carry on into 2022, That represents good value for shareholders in terms of accretive growth. So given all of those factors, it's a bit early to be thinking about capital return with the solvency ratio where it stands. Okay. Thank you very much. Thank you, Michael. Next question please. Our next question is coming from James Schuck from Citi. Please go ahead. Hi. Good afternoon, everybody. So a couple of things. So the reduction in corporate exposure, corporate bond exposure, q four to now, '43 down to 36. Obviously, you're rebating that up by year end. You're saying close to 45%. What what's the drag on solvency that we should expect from that? There's been a benefit in q one from moving the other way, but just keen to know what the what the drag will be as the year goes on. Second question, on the combined ratio in P and C, so 91% is your normalized number, but you're you're normalizing for seven points of nat cats, and, q one is normally a very light year for nat cats. So I'd be normalizing more at three or 4% based on based on history, which you kindly show in the appendix. So that that implies the kind of number of sub 94%, which is the number that you indicated normalized for man made. So maybe we're running about 91. So perhaps you could shed a little bit more light on that absolute number and what's driving that strong absolute number in Q1, please. Thank you. Thank you, James. Frieder, on the first question. Yes. Thanks, Olivier. You should expect a relatively small impact of the reduction in recurring income. This is going to be much smaller than the effect of the interest rate movements themselves, which affect the overall bond portfolio and and the whole balance sheet our SCR. So compared to the dynamics of the interest rate movements on our solvency position, the impact of holding the share of the portfolio momentarily in cash is quite small and can actually be favorable if interest rates continue to increase. It will dampen the loss in market value of existing fixed income portfolio and thus be overall favorable for our solvency position. And if I may add to what Frieder said, and we may benefit also in the internal BONE from a significant diversification benefit on the investment portfolio. So in any case, any re risking of the portfolio, especially on, I would say, investment grade corporate bonds would have, let's say, nonmaterial impacts on the solvency ratio. Thank you. Jean Paul, the second question? Yeah. I I I'm not sure I understand your question, but if I if I go back to the cat activity, so normalized using a a 7% cat ratio, our our net combined ratio would stand at 91.4. As I described, compared to q one two thousand twenty, that's, you know, five points lower with, you know, two Would that help to verify points coming from yes, please. Yeah. Yeah. So it's just like seven points nat cat across the whole year makes sense, but q one is a is normally very light for nat cat. So I wouldn't use seven points to normalize in q one. So if I take your 94%, which is a normalized number of man made and then assume three or four points of nat cat in q one. I'm getting a number more like 91, and my question is why what's the driver of that being so good? You mean the the normalized or or the cat? I I don't understand your question. On the the normalized, what we do is we take 7% cat, you know, 7% cat ratio regardless of the quarter. Whether it's q one, q two, q three, we we take seven percent so that the rest is is really, an indication of the performance of the portfolio ex cap. And here, what we see is it's it's improving compared to last year. Maybe we can take it offline. But the the the question is more that 7% nat cat makes sense across a full year, but q one is not a normal q one is normally a lower number for natural catastrophe. So I I wouldn't be normalizing at seven. I'd be normally normalizing at lower number, which means the underlying conversion is much better. Yeah. I understand your point. Yeah. So we we that's not the way we've been doing it. So we we don't have a normalization for cat that's, relative to the, let's say, the the cat activity throughout the year. We just not we don't apply the same number across the same quarters. But but you're right. The q one has typically been a very, you know, low low cat activity quarter. You know, for The US, we see for the industry overall that q q one this year is, you know, four times higher than than the ten year, average. So it's a reflection of the unusual nature of the of storm Yuri. But, you know, throughout the year, q two is typically also a relatively low activity quarter, so we'll we'll have to see what the rest of the year, you know, has in store for us. But in the meantime, the 7% is a normalization we use across the entire year and every quarter. Yep. Okay. You have to take this offline with you. Yeah. Yeah. Sure. Thank you. Thank you, James. Next question, please. The next question is coming from Paris Agi Antoni from Exane BNP Paribas. Please go ahead. Your line is open. Hi, and good afternoon, everyone. Couple of remaining questions from me. Firstly, on renewals. Now we've seen the results of your April renewals. There is some market commentary about a slowdown in pricing momentum as we go into June, July. And given June, July is a bit more US focused. I mean, if I look at your April renewals, you have been quite disciplined, and you have been stating that in certain cases, prices were not very compelling. So if you can give us some kind of commentary of expectations going into June, July, that would be helpful. Now secondly, again, on the P and C side, and it relates more to the development of the COVID loss. I'm wondering, you know, how IBNR reserves essentially have been developing over the quarter as you have been getting more claims notifications and whether, you know, now you have additional data points that make you confident that the current level of of the of the reserves is adequate. I remember last time we we had you on on the phone saying something along the lines that up to 20,000,000 of losses on the P and C side for 2021 relating to COVID. Is that still the case? Or has anything changed there? Thank you. Thank you, Paris. Jean Paul, for the two questions. Yeah. Thank you. On the first question, so going into the reinsurance renewals, we did see at April 1, especially in The US, a sort of a more difficult market for reinsurers. But it's also a reflection of the fact that it's it's a relatively small renewal, in terms of number of of clients and treaties renewing. And as well, the treaties renewing were were mostly, not loss affected. So on the property side, you know, you saw in our disclosures, you know, 4% rate increases on on The US cat, which is, you know, smaller than we we achieved in in one one and smaller than we anticipate going forward. But I think it's just a reflection of the programs renewing particularly in that date for for the the catechol going into June, July. We expect, you know, to go back to rate increases year over year of, you know, high single digit to low double digit on the cat side. On the casualty side, we we also saw in The US a different, dynamic than expecting where a number of of markets have been, satisfied with the level of rate increases achieved on on the insurance, and therefore happy to keep commissions, reinsurance commissions either stable or actually increasing them in favor of the insurance companies. In those cases, you know, we've reduced or come off those programs. So going into the renewals in June, July, we expect more of that dynamic to take place. It's a question mark of, say, the, you know, the casualty renewals were affected by some of the new markets, either new companies or companies that were not active in casualty, becoming, active in casualty reinsurance again, and those markets affected the the outcomes. The question is, you know, whether they will remain, to live the same level of activity in June, July, or will that, sort of level off? So we remain cautious on The US, more more optimistic on the cap going going into June, July, and on the the rest of the regions renewing, still very, very bullish in terms of market trends and price increases achieved. Relative to your question on and maybe, before we go to COVID, maybe, Laurent, you can give an overview of what we're seeing on the specialty insurance side. Sure. I mean, on Specialty Insurance, so what's mean here is largely the large commercial lines insurance and FAC business, rate increases still remain extremely strong, in particular, on the casualty side, where the momentum remains the same. On the property lines, energy, occupancies and heavy industries, we have been seeing rate on rate increases of two digits for almost three years now. And we are seeing a deceleration, I would say, of the increases. So still positive increases, but clearly, there has been a deceleration. In terms of rate adequacy, we are in very positive territory on property lines. And clearly, the casualty, given social inflation, given interest rates, still have some way to go before getting good rate adequacy. But by and large, we are currently in a hard market for insurance that we haven't been in for several years. So it's the profitability has been pretty strong. On your second question regarding COVID, at the end of q four and and again in q one, we we had booked €284,000,000 for for COVID. At the end of q one, we we have paid €39,000,000 for COVID claims. So, you know, even though we're starting to receive some information from from CDENS, it has been still very slow coming in, especially on the property BI. I think insurance companies are also trying to get ahold of the information, themselves, whether it's one wave, two wave, three waves, or is it, you know, one event or, several events. And so I think these, this information is is still ongoing, and we'll probably take, another, you know, quarter or two to to to get better clarity. Thank you, Jean Paul. Next question, please. The next question is coming from Vikram Gandhi from Societe Generale. Please go ahead. Hi. Thank you for the opportunity. I've got two more left. One is on the ForEx impact on top line, which I'm aware we discussed early in the call, where, Jean Francois, I think you suggested that it was dollar depreciating against the euro and euro also appreciating against most other currencies. Now when I see how the shareholders' equity has developed in q one, there is a decent positive impact from forex translation. Now I know it's it isn't impossible to have this sort of divergence, but I would have thought it's pretty rare. So perhaps you can explain what is driving this difference, the positive impact on balance sheet and the negative on P and L. And and the second question was really trying to understand, the movement in unrealized gains on real estate, and this is on slide 45, I I see there is a small drop in, unrealized gains from $125,000,000 to 111,000,000, whereas there hasn't been any realized gains from real estate over the course of the quarter. So I'm just trying to understand what's the right way to look at these figures. So any explanation there would be helpful. Thank you. Thank you, Vikram. Jan, on the first question. Yes, yes, sure. So the dynamic the FX dynamic that you're seeing there, Vik, is that Q1 sorry, the top line premium, that's an average rate comparison Q1 twenty twenty one against Q1 twenty twenty. And what we see there is Q1 twenty twenty, the dollar euro rate was about 0.9%. In Q1 twenty twenty one, it's about 0.8%. And that's driving the impacts there, average rates across those periods. And to give you some sense on premium, we've got about 44% is U. S. Dollar denominated, 19% euro, 10% GDP and then we're into other currencies. And then on the CTA that you see in the balance sheet, that is a that's a closing rate impact. So that's closing rate Q1 against closing rate Q4 twenty twenty. And there you do see a slight reverse, in fact. So I think Q4 twenty twenty, the dollar euro rate was 0.82%, now 0.85%, broadly. So that gives you the dynamic, the reason you see the top line coming down, but a positive impact in the CTA. Okay. Yes. That's very clear. Yes. Thank you. Francois, do have So on the real estate portfolio, that just a mechanical effect due to the fact that we have invested on some assets. So it increases the book value of some assets. And we have an external valuation of our real estate portfolio by independent experts that is done at the June and at the December. So market value have not been reviewed. It will be done in Q2 as previous years, but we have increased the book value due to investments on some assets. So that's just a technical effect that should disappear soon. Okay. Okay. Fantastic. Thank you. Thank you, Vikram. Next question please. Our final question is coming from Thomas Fossa from HSBC. Please go ahead. Your line is open. Thanks. A very quick modeling question. You reported a 36% tax rate in Q1. Can you shed some light on what we should expect on a normalized basis for not a normalized basis, but on a reported basis for 2021. Should we work with a normalized twenty percent? Or should we factor in the 36% reported in Q1? Thank you. Yes. Hi, it's Ian here, Thomas. Yes. On the tax, this is distorted a little by a couple of effects. Firstly, we were experiencing a geographic rate mix, that had losses in the low tax rate jurisdictions, principally COVID losses. So that was, appearing in Ireland and then coming sorry, appearing in The U. S. And then coming through into Ireland. And then we had the profits coming through more in the higher rate tax jurisdictions, particularly in France. So the losses on the P and C side, they were principally retained in The U. S. Some did come through to France. But the very strong underlying profitability that we've been talking about in the call on the P and C side, that more than offset that. So that's distorted the group ETR in a quarter where the overall net income is low. So we would expect to normalize back to towards the 24% quantum leap numbers by the end of the year as we progress and through the following quarters. Thank you, Jan. Is there a next question? We have no further question over the phone, sir. So that does conclude the question session answer. And at this time, I would like to hand the call back to the 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 may have. So please don't hesitate to give us a call. I wish you a good afternoon. Thank you. This does conclude today's call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.