Ladies and gentlemen, welcome to the Allianz Conference Call on the financial results of the second quarter 2020. For your information, this conference is being streamed live on allianz.com and YouTube. A recording will be made available shortly after the call. At this time, I would like to turn the call over to your host today, Mr. Oliver Schmidt, Head of Investor Relations. Please go ahead, sir.
Thank you, Tracy. Yeah, good afternoon, and welcome to our conference call. There's nothing specific to be added from my side today. I hand over directly to Giulio Terzariol .
Hi, good morning, or good afternoon to everybody. Hope you are all safe and doing well. I'm going to go straight into the numbers, then I'm going to be happy to take your questions. If you go to page three, as usual, in the second quarter, we start with showing the picture for the first six months of the year. As you can see, overall, we had a resilient performance. When you look at the revenue, they are slightly down. This is due to a slowdown in the life business, which is clearly understandable considering the lockdown measures we went through. The operating profit is EUR 4.9 billion. If you adjust for the COVID impact, the operating profit would be EUR 6.1 billion, which is at the level of last year.
When you look at the COVID impact in property casualty, it is about EUR 800 million, which is evenly split between Q1 and Q2. When you look at the COVID impact for Life Health, it is EUR 400 million. The majority of it is coming from Q1. The net income is basically following the trajectory of the operating profit. When we look at the operational KPIs, the combined ratio is 96.7%. If you do adjustment for the COVID impact, which was three percentage point for the six months, you get below 94%. There are other adjustments that are positive and negative that we can do, but still, after doing all the possible adjustments, the combined ratio is still below 94% for the six months. The new business margin is 2.9%, which considering the environment, is a very good new business margin.
Interest rates have dropped significantly compared to the level that we had one year ago. When we look at the fund management, when we look at the outflows, we have overall EUR 20 billion of outflows for the six months. As you might remember, in the first quarter, the outflows were EUR 47 billion, which means we had positive outflows again in the second quarter. This is a sign of the quality of the business. Overall, I would say clearly impact due to COVID, also the impact that we are seeing due to COVID is according to also the expectation that we set a few months ago, the underlying result is also coming strong in line with our expectation. If we move to page five on the KPIs for the second quarter, the revenue are down about 8%.
This is mostly driven, as I was saying before, by the slowdown on the life side, where the growth rate has been -13%, but that's not a surprise considering, as I was saying before, the major restriction due to the lockdown. The operating profit is EUR 600 million lower than last year. Here you can see the impact of EUR 500 million due to the COVID. If you adjust for that, and also if you take into consideration that last year we had a positive DAC offset impact due to in the life business in the U.S., you can see that the operating profit is basically stable at the level last year and also above the EUR 3 billion mark. The net income, as I was saying before, is basically following the trajectory of the operating profits. Overall, EUR 2.6 billion of operating profit for the second quarter.
In the first quarter, the operating profit was EUR 2.3 billion. You can see that as markets became more stable, we see already a uplift in the operating performance. Clearly, we still had to digest the COVID impact on our underwriting results in the second quarter. At page seven, we are showing the capital situation of the group. Clearly, we are focusing here on the Solvency II capitalization. The capital level at the end of June is 187%, which is three percentage point lower compared to what we had in March. It's a light movement downwards. The solvency ratio remains at a good and comfortable level. When we look at the sensitivities, they are pretty much unchanged compared to the sensitivities that we had in Q1.
Then, I just want to draw your attention, you can see a comment at page eight, that as we already discussed in the press, that we applied for transitional for Allianz Lebensversicherungen and also for APKV . This would lead to a solvency ratio for the group, including transitional up to 117%. As also said before, we're going to continue to be focused on managing clearly the solvency ratio for the group without the inclusion of the transitional measure for Allianz Lebens and the APKV . We go to page nine, this will give a little bit of color on the drivers of our solvency ratio in Q2. You can see that the organic capital generation has been healthy on a pre-tax basis, a dividend basis with plus 5%. You can see that the pre-tax market impact was -10%.
The reason for that is basically credit spreads narrowing on the corporate bond side, which is a negative for us. Also another element that we can discuss later in the call is that our portfolio is more quality compared to the reference portfolio. What we saw in the second quarter was a narrowing of the spreads, especially on the lower quality corporate bonds or on the financials. We are underweight in financials, clearly being an insurance company, we don't want to double down. This leads also to a sort of basis risk, which can impact our solvency ratio. Again, the ratio is pretty stable compared to what we had at the end of Q1, so no major development there. Now, if we go to page 11, as usual we are showing the growth in property casualty for the selected entities.
First of all, when you look at the growth in the first quarter for the segment, you can see that the growth is slightly negative. That's also a consequence of the lockdown measures. There are a couple of maybe highlights here on the numbers that might be a little bit interesting. I will focus right now just on the AGCS side, because it's plus 25%. This has to do with the fronting business. If we remove the fronting business from the numbers, the growth rate at AGCS will be 5%. As you can see, this growth rate is driven by rate changes. That's a good growth rate because it's not driven by chasing volume, but it's driven by hardening of the market, also us taking action, the pricing side.
Overall, when you look at the group, you can see that there is an acceleration of rate changes on renewal. In Q1, the rate changes were 3.9%. As you look at the second quarter, they are 4.5%. I would also say that the acceleration is mostly driven by AGCS. Now, if we go to page 13, we can see that the operating profit for the segment has decreased by about EUR 240 million. EUR 140 million of decrease is due to the underwriting results and EUR 100 million is due to the investment results. When we look at the underwriting results and the combined ratio, clearly we have the impact due to COVID. For the second quarter, the impact due to COVID was 3.1%.
Then, on the other side, we've been, if you want, a little bit lucky on the net CAT side, because the net CAT load was only 90 basis points. Usually, we would expect the net CAT load to be more like 2.1% for the second quarter. Then, you can also see a very good expense ratio, 25.7%. Here we had a few one-offs that have to be adjusted. Adjusted for the one-off, the expense ratio will be still very good at 27%. You can see that the run-off is only 80 basis point, and here we have been deliberately on the conservative side because clearly there is always some uncertainty about what might happen in the future.
The point is, when you start adjusting the numbers for the COVID or for the lower net CAT, or you normalize the run-off and we adjust expense ratio for the one-off, when we do all these adjustments, we end up for the second quarter with a combined ratio which is definitely below the 94% level. That's again a sign that the underlying performance is healthy. When we move to page 15, here clearly we see that the COVID impact had diverging effects on our entities. Maybe just a couple of comments. One is on the AGCS where you see a combined ratio of 117%, thereof 18 percentage point is due to COVID. If you adjust the AGCS numbers for COVID, you get to a 99 combined ratio. That would be in line with our expectation.
There, you can see clearly that Euler Hermes , the combined ratio is over 100 or 101, which is according to the expectation that we have in this environment. Otherwise, you can see a lot also very open combined ratio, which is a reflection of the underlying performance, which is good plus in some cases, we might have benefited also from lower frequency. In the United Kingdom, there you see EUR 200 million of operating profit, which is a consequence of a one-off of about EUR 100 million. That's also the one-off which is impacting the expense ratio for the segment. Now, moving to page 17, the investment income is about EUR 100 million lower compared to what we had last year. Here there are technically two drivers on the, I would say almost say three, but let's say two.
One is the lower interest rate level, but this has to do also with lower interest rate level, for example, in Turkey. This is also something that we need to consider, which means also it's not necessarily one-to-one in operating profit impact because on the other side also, in reality, there is lower inflation, lower interest income, but also a lower combined ratio. Actually, it's also due to conversion from emerging market currency into the euro when we do clearly the consolidation. These are some effects driving down the operating investment income. In second quarter, we had also clearly lower dividend, which is a reflection of two factors. On the one side, we reduced our equity exposure, and then there is also that companies are paying less dividends.
These are the driver for the development of our operating investment results, which is actually not so far from our expectation. We have always taken a conservative view of what might happen to the investment results. From that point of view, the drop that you see in the numbers is not necessarily a significant drop compared to the outlook that we had for the investment income for 2020. Now moving to page 19 on the life side. As I was saying before, clearly production is down. That's a consequence of the lockdown measures. Production was significantly down in April and May. When you look at June, you can clearly see a recovery. From that point of view, this is just a temporary issue that eventually is going to go away once the COVID situation is going to one day resolve.
What is good is the development of the level, if you want, of the new business margin, which is 3.1%. That's a very good level considering where the interest rates are right now. This is also clearly the results of all the actions that we are undertaking to sustain our new business margin in a low interest rate environment. We are very happy with the work that we are putting on try to keep this KPI at the best possible level under these circumstances. Now, if we move to page 21 on the operating profit for the life segment. Overall, we have about EUR 1 billion of operating profit, which is a good equity result. It's clearly down compared to what we had last year.
You should remember that last year we had a positive one-off from the DAC in the United States, and also last year we were still consolidating Banco Popular. From that point of view, I would say that EUR 1 billion is very close to the level last year. It's a little bit lower compared to our plan divided by four, and that's about EUR 100 million, which we quantify that's also being COVID related. This is a consequence, at the end of the day, of the volatility that we still see, especially in the U.S., that has been a little bit more elevated compared to a normal expectation. This has, as you know, an impact on our DAC numbers in the U.S. Overall, with EUR 1 billion of operating profit, it was a good quarter. If you remember, in Q1, the operating profit was about EUR 800 million.
You can see how we are getting a pickup in operating profit very quickly when the situation is just stabilizing a little bit more. At page 23, I would say the very good news, if you want, the picture is that when you look at the new business margin, basically all companies are showing new business margin above 10%. That's a reflection of the efforts that we are putting across the board to make sure that the new business margin profitability is resilient. When you look at the operating profit, the only real striking thing is the development maybe in the U.S., but again, it's a reflection of the one-off last year and plus the elevated volatility this year. Otherwise, generally, you see a lot of stability in the numbers of [inaudible] and Spain
As I was saying before, it is a reflection of the deconsolidation Banco, mainly a reflection of the deconsolidation Banco Popular. Moving to page 25, on the investment margin. You can see that the investment margin expressed in absolute terms, also in relative terms, is stable. Clearly, when you look at the current yields, you see that the current yields went down significantly in the quarter compared to a year ago. Then , on the other side, the harvesting has been higher on the current yields. The main factor for the drop is that we receive less dividend in Q2, because clearly dividends are kind of drying up due to the COVID situation. If you adjust for the dividend, and you go back to a normal level of dividend, the current year will be more like 96 to 97 basis points.
We have a little bit of a drag because of the dividend. Overall, when you look at the investment margin is relatively stable and also broadly in line with our expectations. On the life side, I would say new business margin are holding. The operating performance has been good at EUR 1 billion. You can see in normal market condition, we can operate successfully on the life side. Moving now to asset management at page 27. Overall, our assets under management have increased by 5%. As you can see, there was an increase both at PIMCO and AGI. I will go straight to page 29, because here we are focusing especially on the group assets under management. Overall, they went up EUR 100 billion in the quarter. This is mostly driven by the market development.
Clearly, the markets have recovered, so that was helpful. Exchange rate had been negative for us because of the U.S. dollar depreciation, but then the real positive news is that we see positive flows both at AGI and also at PIMCO. Again, beside the month of March, which was very tough from a flows point of view, we had positive flows in January, February, and also in the second quarter. We also see positive flows at PIMCO right now. At the end of the day, there was really a situation in a couple of weeks. The strength of the franchise is again, very strong, and the numbers in second quarter are showing that. Page 31 on the revenue side, for asset management, we see a decline of about 3% on a internal basis.
This is a consequence of the one side of lower performance fees. Also, we have, for the quarter, a lower fee margin. It's about almost 2 basis points of fee margin. Clearly here, as usual, we need to be cautious when we look at numbers on a quarterly basis. When we take the six month view, the revenue are up 3% on an adjusted basis. The fee margin are down only 0.5 basis points. I would say that the six month view gives a better picture of the performance that we have on the asset management. On page 33, operating profit is good. It's EUR 640 million. There is a decline compared to the prior period. This is due to the lower performance fees. To a certain degree, also to a higher expense ratio. I would differentiate between PIMCO and AGI.
In the case of PIMCO, that's just some volatility here on a quarterly basis. If you look at the 58.6 cost income ratio for PIMCO, isn't what we would generally expect. In the case of AGI, there is also some volatility, but I would also submit that 82.3 is definitely not the number that we are looking for. That's also the reason why, as you already know, we are taking cost measures at AGI. Overall, results are good. When you look at the six month view for asset management, the operating profit is up 5% compared to what we had last year. A very good first half of the year for our asset management operation regarding the operating profit. Page 35, Corporate. You can see a lower investment income and operating profit compared to last year. This is driven basically by the investment income.
Also, here we see the effect of lower dividend. Here we expect this to be temporary. Eventually, dividends are going to flow back into the system. For the second quarter, clearly we saw a little bit of a drag coming basically from lower dividend income and also a little bit from lower interest income. Then at page 37, as usual, we are showing the non-operating items. Overall, I would say there is really nothing eye-catching here. The only thing might be the tax rate, which is a little bit higher, or significantly higher compared to last year. Again, here is some volatility between quarters. You might have on the tax side, some [volatility] show up, also [inaudible] show up, but they go in one direction one quarter, and they go in the other direction the other quarter.
The other year, they can make a little bit of a wider gap. When you look at the six months view, the tax rate is 24.8%, which is just one percentage point higher compared to what we had last year. Indeed, a very normal level of tax rate. Coming to page 39. Overall, I would say we have a robust performance. Clearly, there's a different situation. We have an impact coming from COVID. Impact coming from COVID is also according to what we have anticipated. What we do, clearly in this environment, we are focusing even more on the things that we can control. When we run our analytics and we are looking at the core underlying combined ratio, we see that the underlying combined ratio is developing in the right direction.
When we look at the expense ratio adjusted for the positive one-off, we still have an expense ratio which is just slightly north of 27%. A couple of years ago, two, three years ago, we were closer to 29%. Also, as you see, we are doing put a lot of effort on the new business margin to make sure that we are adjusting the products and also the mix to the reality of a very low interest rates environment. From that point of view, I would say that our performance is again, robust, in what we can define as a challenging environment, but despite a challenging environment, we are providing solid numbers. With this, I would like to open up to your questions.
Thank you. If you would like to ask any questions, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment . Again, that is star one to question. We will take our first question from Peter Eliot with Kepler Cheuvreux.
Thank you very much. I guess the first and main question, Giulio Terzariol, I was wondering if you could just sort of tell us where you see the remaining sort of uncertainties from here. I think I'm right that your sort of EUR 0.8 billion-EUR 1.2 billion sort of estimate of the claims impact still stands, but I'm just wondering if you can sort of update us on the moving parts and in particular, I guess you were sort of sounding a little bit cautious on sort of the motor experience in the aftermath. I'm wondering if that's sort of still the case. Related to that, if you decided not to give an outlook at this point, the resolution fund.
I sort of understood from interviews with a few weeks ago that you might be considering that, and I'm just wondering where the major uncertainties are that would cause you not to do that at this stage. Then if I can, a small one on asset management. I appreciate you said, looking at the six months view is probably the better one, but if we do just look Q2, it looked like volume mix was a little bit responsible for the lower margins. I'm just wondering if that's sustainable or whether we can expect that to recover quickly. Thanks very much.
No, thank you, Peter Eliot. Maybe let's start from the uncertainty. The uncertainty is not related to what we are seeing, but what might happen in the future. If you think about that, we are still in a situation where Melbourne is going on a lockdown. We see there are outbreaks here and there happening in Europe. The situation in the U.S. is kind of unstable. The uncertainty that we are referring to is more about what might happen in the future. When we look at what happened, in reality, things are coming along the way we basically expected. From that point of view, we had so far EUR 800 million of impact in our numbers in P&C. We know that we are going still to see a negative get-to-plane in Euler Hermes and possibly maybe also in travel.
When we run the numbers based on what we have seen so far and what we know so far, we would say that the impact due to COVID on our underwriting results should be by the end of the year, EUR 1 billion plus. We are still there. On the motor side, we saw basically the numbers that we were expecting to see. There is clearly some uncertainty potentially on what might happen in the U.K. or in Australia about business interaction. From that point of view, I would say that we think we took overall a reasonable conservative stance. It doesn't mean that we might not see some deviation, but that should be manageable. The uncertainty we are referring to has nothing to do with what we saw.
It's more really about the fact that we are in August, and when we go through the corridors here at the halls in Allianz, we see people with masks. We just need to understand that we are not out of COVID. There is speculation whether we are going to have a COVID-2 or not. From that point of view, we felt that given the uncertainty about what might happen, maybe it's not really absolutely necessary to come up now with a new outlook because they're uncertain about the future. That's it. I will not say anything more than this. On the asset management side, yes, as you pointed out, there is a little bit of a mix effect. The point is that the share mutual fund came down a little bit compared to the institutional side.
This has not so much to do with the inflows. This has to do also with the market movement that we saw on the different asset classes. I would say this clearly this can move over time, but my expectation for the fee margin is that it is broadly going to stay at this level as we move forward. These are just movement that you can see time by time. It's not necessarily a pressure because there will be impact, if you see really pressure coming on the fee margin because of competitive reasons, that would be a different story.
Okay.
I think it's more than we saw in the past.
That makes perfect sense. Thanks a lot.
Thank you, Peter Eliot.
If you find your question has been answered, you may remove yourself from the queue by pressing star two. We will take our next question from Andrew Ritchie with Autonomous Research.
Oh, hi there. Some quick questions, I think. First of all, just a simple one. Why get transitional approval? I appreciate your next door neighbor in Munich has always had that in their pocket, as it were. What are the circumstances you would think it relevant to start sort of shifting to that measure? Because I think you stressed that for now, capital management excludes it still. Why feel the need to do it? Second question, it's really a broader one. Giulio Terzariol, obviously, you've managed the U.S. life business for some time. The level of interest rates in the U.S. has been a dramatic change year -to -date. Just to clarify, what kind of products actually work at this level of interest rates? Also, does the interest rate affect on the U.S. life business solvency position?
I presume that's very delayed, given the RBC system doesn't really mark to market. Do you think that the low interest rate pressures are already captured, I guess, in the group sort of Solvency II, for the U.S. life business in particular? The final very quick question. I assume your guidance on P&C COVID claims, so EUR 1 billion-EUR 1.2 billion for the year, does not assume an adverse outcome from the various court cases that Allianz is involved with on BI.
Okay. Maybe start with transitional. On transitional, in reality, the bigger point for our decision has been, you know, based on the long-term review of EIOPA, there was also a consideration that transitional might not be allowed in the future, so if you do not ask for transition in the future. That was the point where we said, "Okay, we don't want to be in a situation that one day we might not be able to apply for transition because it's always good to have this kind of option." That was the trigger point. In reality, we thought about that already at the end of last year, and that's where we also basically decided to go down this route. That's a reaction to, if you want to, that potential measure that might come with the long-term guarantee review.
On the U.S.A. side, maybe starting from the RBC, yes. The RBC will not necessarily capture consequences from a lower interest rate, but in the U.S.A., you still need to do a cash flow testing kind of things. From that point of view, if you see a problem, that will be reflected there. Clearly the RBC measure, as you said, is a little bit less market-oriented, so you're not going to catch a few things right away, like Solvency II might do. On the other side, you still need to do some stress test, cash flow testing. From that point of view, if there is any issue, that will be captured by doing that testing. On the U.S.A. business, you are right. I've been in U.S.A. for a long time, and I have to say that I never saw something like what we are seeing now.
The beauty is that a couple of years ago, we have introduced the IVA product, which is basically the fixed index annuity product from an economic point of view, but that's in the IVA chassis, which basically allow that you can expose the customer also to downside. Once you can create structure that can also expose the customer to a downside, then you can create structure that's from a hedging point of view, more economic, cheaper. It allow you somehow to, even if you have lower interest rate, to clearly create functionality that you can hedge with a lower budget. It clearly depend on how you cut the risky work profile for the policyholder, then that's the way you create a value proposition. That's number one. As you see, the IVA production is already going up.
The second point is I tell you that there is also a lobbying effort in the U.S. in order to lower some of the minimum guarantees on the fixed index annuity side. That's also something that it's discussed now, and there is a lobby effort. Lowering the guarantee also on the fixed index annuity side from the level where they are now from a regulatory point of view, that might also be helpful. Sure, the point is also, and this is not just valid for the United States, this applies also to other countries. At the end of the day, we will have to think about introducing riders, also having a little bit more of a loadings into the product. We need clearly to think about the value proposition in a different way.
When I talk to my U.S. colleagues, they are confident that despite the low level of interest rates, they can come up with solutions which are good from a customer point of view. There is a value proposition for the customer, and also that we can have a good new business margin. On the new business margin, I want to tell you something anyway. I'm not going to lose my sleep if eventually we are not going to have a 3% new business margin, but we need to settle to something which is lower than that. That will still be, in my opinion, a good level of performance. From that point of view, yes, I would also say that 3% is important.
New business margin is a good number, but it's also a little bit of an arbitrary number, if you want, and also operating a little bit at the level less than that that would be absolutely acceptable if we had to go there. Clearly, we're going to try to keep the 3% level, but it is not absolutely necessary. That was the final question on the core cases. At the end of the day, we are not assuming the worst case. The point is, you have to think about our reserving like, first of all, let me say that most of the reserve we have now is IBNR. We put together, we look at the best case and worst case. In all the situation, then we are not necessarily picking the worst case for all situation because usually you have some diversification.
From that point of view, I would say we don't have a worst case in our reserving. Overall, I would say we tend to go conservative. Clearly in a situation like COVID, you cannot exclude that potentially we might see some number which is higher than what we have reserved for, but I think as usual, we have been taking a conservative stance.
Great. Thank you. Thanks.
Thank you.
Okay. Our next question from Jon Hocking with Morgan Stanley.
Good afternoon, everybody. I've got three questions, please. To come back on Andrew Ritchie's question about the transitionals. Just to clarify, are you going to be reporting the solvency ratio going forward, both including and excluding the transitionals? That's the first question. Second question, looking at the sort of resumption of lockdowns in various parts of Europe, et cetera, can you talk through a little bit about the risk here from a sort of one event to event situational P&C and how that might play out in reinsurance? Finally, on the buyback, the second half of the buyback is still, I think, officially suspended. Is there any realistic chance of the buyback coming back, or should we view that as being canceled? Thank you.
Starting from transitional, we are going to basically disclose the number, so put the focus on the number without transitional. We are going to see our presentation, and moving forward, you're still going to see the same presentation the way you are seeing right now. Then, on the buyback, I would say it's still deducted from our Solvency II calculation. We are going to take the decision as we go into the second, after the summer break. If you look at the sentiment out there, also from a regulatory point of view, I would say the sentiment is not conducive, let's put it that way, to a buyback. There are even sometimes conversations about dividend payment.
From that point of view, I would say it's more likely than not that we will not go ahead with the buybacks considering the situation, but we have not taken the final decision yet. Then, you had a question on the lockdown, but I couldn't understand the first one.
I was just thinking to do whether -- if we go back into some lockdowns in some countries, is that going to count as two events for reinsurance? How do you think that through?
Oh, absolutely. I will tell you, I'm not a reinsurance expert, but I would say that if we have a second wave, that would be definitely, in my opinion, consider another event. In reality, the conversation with the reinsurance company are going to be about how you interpret also the first kind of wave. How you aggregate losses from aggregated losses. The second wave, that would be, I would say most likely interpreted or classified as a new event. I would say the most likely interpretation.
Okay. Thank you.
You're welcome.
We will take our next question from Michael Huttner with Berenberg.
Thank you very much and to add , on the solvency, if you don't have the buyback, is it right that should be around 190%? This is my first question. Then, on the claims, you kind of implied that most of the claims at the moment are estimates, that you actually haven't seen any reported. The question I have here is, why is your ratio so much higher than I know you can't comment on peers, but Coface reported, I think, 88%. You're reporting 101%. It seems a huge gap, and I just wondered is it extra conservatism that you're building in? Then, the final point is also just on the U.K.
If I adjust the U.K. for the one-off in the pension for the 16 points, I have a ratio of 89%, which is fantastic, and I'm just wondering whether it's sustainable or there are any kind of extra positives that's one-off in character there. Thank you.
Okay. No, thank you. On the solvency ratio, if we strip out the buyback from the numbers, the solvency ratio will be about two percentage point higher. On your questions about the claims, if I understood the question properly, you are saying that our numbers seems higher compared to the competitors. It might be that we are more conservative, and I'll speak about that. I think it depends also on the business profile, right? Because this makes a big difference. You should consider that, for example, in our case, if you add up Q1 and Q2, I would say that above average material losses are coming from AGCS business. Clearly, if you may be a competitor not having the same kind of exposure to the industrial business, you might see less losses.
On the other side, you might see competitors with even, I saw even bigger numbers in some cases. On the COVID numbers, because I am also looking what is happening, I would say you can see significant numbers larger than ours. You can see also numbers smaller than ours. I tell you, the answer is always look just at the business profile. This is going to help you a little bit to also understand why a company might have higher numbers and other company might have lower numbers. On the U.K., yes, you're right. If you adjust for the one-off, the combined ratio will be about 90. I would like to tell you this is the new target, but that's not the case. I would say there is also a little bit of improvement due to lower frequency in mostly the U.K.
When you adjust the numbers, I would say that you are very close to the 95% combined ratio. That will be also the expectation for the year for the U.K.
Okay. Thank you very much. Thank you.
You're welcome.
We'll take our next question from Nick Holmes with Societe Generale.
Oh, hi there. Thanks very much. Two questions, please. First, can you explain more about how the cross effects work? In particular, how much are they linked to the policyholder capital? I'm thinking the RfB in Germany. Is that the bit that's difficult to model? Secondly, coming back to the transitional benefits, again, sort of similar question. Is there a link here to the cross effects , and is that why you're drawing our attention to it? I mean, if you did implement transitional, would that reduce the cross effects ? Thank you.
Okay, maybe let's start from the transitional. I'm drawing your attention to transitional just because we applied for that, and that's in theory also our official solvency ratio, but there is no other reason for that. Coming to the cross effects . Okay. The first question was, what is driving the cross effects clearly is it makes a difference when you just have an interest rate and when all the things are going down at the same time. It's how to simply say intuitive that you're going to get a little bit more of an impact. It's like if you have an option and you are moving the same time, the interest rate, the volatility, and so on, the addition is always going to be day by day.
Putting together all the elements is going to give you a little bit more of an impact, positive or negative, depending on the trajectory. You touch a good point, anyway, with the policyholder participation. I would say that overall, yeah, the sensitivity, if you want, to the solvency ratio, not only the cross effects , but also the sensitivity of the solvency ratio is a function of, if you want, also the level of buffer that you might have. Now the RfB has not changed, this is not a driver for a different level of volatility. Potentially, yes, if you have a lower level of RfB, which is not the case, you would also have more sensitivity. The same applies to if you have unrealized gains or not. The higher the unrealized gains you have in the local accounting, the more resilient it's going to be the solvency ratio.
In our case, we have substantial unrealized gains. If you have less unrealized gains, you're going to see more volatility. One thing which is critical anyway to understand the volatility of the solvency ratio, don't forget that's a risk-neutral calculation. Which means you are basically doing a projection assuming right now interest rates which are basically close to zero. Every time, clearly, you do a risk neutral calculation, which is a little bit, if you want, far away from what a real-world calculation would be, even if interest rates are low, still a risk neutral calculation is a different animal. Every time you do a projection with basically no interest rates, clearly in that situation, you're going to have some pressure on the solvency ratio, especially when you do a stress test.
You are calculating your own funds, assuming that there is basically no return on your assets. That's the first thing that you do. Then, when you do the SCR calculation , you're going to say, "Now I'm even testing that things are going to get even much worse." It is the level of interest rates which is predominantly driving, if you want, the volatility of the solvency ratio. We can debate if a risk neutral calculation is the right approach to do a solvency calculation, but that's where we are, right? From that point of view, it's our job to manage also the solvency ratio the best way we can. Has it been helpful?
Yeah. No, that is very helpful. Can I just give you a follow-up very quickly? Is it possible to say sort of what proportion of the cross effects are linked to the RfB and the policyholder capital? Secondly, sorry, just to ask, if transitionals were actually implemented, would that remove most of the cross effects ? It's just weird that you have such big cross effects versus peers that have much less, and they obviously have less RfB, hence my question.
I would say that you cannot decompose the cross effects in what is RfB or not. I would say the level of RfB that you have is going to determine what is the volatility of the solvency ratio, and also at the end of day is going to determine what is the volatility coming from RfB, from the cross effect . You cannot say the cross effect three percentage points is due to RfB and two percentage points is due to non-RfB. The more RfB you have, the less sensitive you are going to basically be when you do the SCR calculation . This lower sensitivity is going to apply to everything, to your interest rate sensitivity, to your equity sensitivity, and eventually it's going to be also diminishing, if you want, the cross effect sensitivity. That's one.
On the other one, what Transitional is doing is not changing in reality the SCR calculation, which is where you see the impact coming from the cross effect . It is just giving you more own funds . From that point of view, Transitional is not going to change that, because it's just that you can recognize more own fund compared to what you do in the calculation without Transitional.
That's very useful. Sorry, just one very quick final question. Are you going to give us more explicit guidance on the cross effects?
Yeah, we put a comment because we said that we're going to do this. If you go to page, let me see. It's page 10, right?
Eight.
Eight. Page eight. At page eight, you're going to see a comment about the cross effect, seven percentage points.
Yep. Yes.
That's it. Yeah.
Yes, are you going to align that to market movements, or leave it to us to infer?
No, we are going to give you an update every quarter. The cross effect there means that when you do a 50 basis point drop in the interest rate, that is 50% movement in the equity. Then, also you have a 50 basis point widen in your credit spread, where you take all this combined. Compared to the sensitivity you see at page seven, you need to add seven percentage point. You can go to page seven, you add up all the sensitivity, and then you add up seven, and then you get the number. We're going to provide you this, because the gamma can change over time, obviously.
We're going to provide you on a quarterly basis with the numbers so that this can help you a little bit to, especially if there are significant dislocation in the markets, this might help you to do your estimates.
That's very clear. Thank you very much.
You're welcome.
Our next question comes from Farooq Hanif with Credit Suisse.
Hi, everybody. Thanks very much. Hope you can hear me. Going back to the subject of reinsurance. My understanding is in the EUR 0.8 billion to roughly EUR 1 billion guidance you've given on COVID, you haven't made any material assumption about recoveries. At what point could you start having to go to reinsurers when you have reported claims? What kind of estimate could you give us on the level of recoveries that you could make under a CAT policy for COVID? That's question one. Question two, on the life investment margin, you historically had a sort of 80 to 85 basis points guidance. Things have changed. I think you said you would be closer to 80 or less. Could you give an update, given current conditions, assuming that they remain similar interest rates going forward, and what that might do to life investment margin range?
Last point is, again, on the transitionals. I know you've applied for these basically because of the EIOPA. Does it change the quality of the conversation with BaFin, though? Does it make that little bit different? Thank you.
Starting from reinsurance, as you say, we didn't take any material number yet in our financials. Obviously we have a little bit of a recovery, but it's not overly material. We are already talking, by the way, to the reinsurance companies, this is going to be a long process. Eventually, we could clearly think of recoveries, which cost in a few hundred million EUR. Again, I would say I'm pretty confident that reinsurance companies are going to have a different idea. We'll have a business conversation between business partners, and then we will see what the outcome is going to be. On the point of the investment margin, I think the last guidance was more 75 basis points. We also know that the number progressively is going to go head down. On the other side, you have also a higher equity base.
The investment margin in absolute terms might stay relatively stable, but the margin expressed in relative terms is going to go down. As we discussed also in the past, that's also where we expect that other profit sources are going to , you know, provide some support, like loading fees. You didn't see this this quarter clearly because of the COVID, but if you look a little bit at the trend over the last few years, you can see the loadings and fees are going up. The situation is going to be the following. Other profit sources are going to go up. On the investment margin, in relative terms, we are going to see clearly an investment margin which will go down also to 70 basis points. The amount of reserves should still increase, and this might keep the investment margin more or less stable in absolute level.
That's more or less the picture that you should expect moving forward. You had a question about the quality of our conversation with BaFin. Clearly with our conversation with BaFin is not going to change because of transitional. That's a measure that is a precautionary measure because of the fact that eventually there could not be a possibility to apply for a transition. As you know, by the way, in the German market, it's very standard to have a transition. I would expect that the quality of our conversation with BaFin, which is very good by the way, is going to be the same with or without transition. I don't expect major implication, both positive or negative. It's a pure precautionary measure. If you ask me clearly, eventually it's like positive, clearly. It's always good to have that in your pocket.
Fundamentally, it's not going to change the way we are managing the companies that are applying for transitions. The management of those companies is going to remain the same. I would say yes, it might be a slight positive, but fundamentally, I would say it's business as usual.
Okay. That's really clear. Thank you very much.
Your next question comes from Vinit Malhotra with Mediobanca.
Hi, good afternoon. My two questions. First one would be just needing a bit more clarity on the P&C investment income, please. The reinvestment yield is being sort of stable year on year. With the collapse in the dividend, you did mention obviously dividend, but could you help us understand that as well, whether there was anything that all of it was dividends or I'm just trying to understand a bit on how to think of it in the future. Also, in the similar context, I was thinking that the alternative assets will be helping offset from all this. If could you comment on whether that did help or could help? That's the first part. The second is on asset management fee rate. We've talked about product change. Could you just explain that a bit more?
Because when I see the slide 29, actually, mutual funds were a sizable part of this inflow in the third quarter. Maybe if you could just comment on which kind of products are these, which have the lower fee rate, and whether that's the projections we should think of? Thank you very much.
The point has to do with, in reality, the institutional side of the house, the performance has been, if you want, stronger, not in the sense of the relative performance to benchmark, but just there might be longer duration, there was a little bit of a better, more increase in assets under management in those strategy compared to the mutual funds. It's not a change in product mix that we have initiated or different charges that we are charging on the different asset classes. It's just a mechanical effect of how the market value of the different asset classes have been reacting over time. You need also to consider that we are comparing now Q2 basically to the situation of Q2 one year ago. Maybe just to be clear, mutual funds have higher fees compared to institutional funds.
That's the, once you have a change in mix because of market movement or whatever, you're going to have automatically a lower fee margin, but that's nothing to do with us changing strategies, let's put it this way, or with us changing fees. It's just a mechanical effect of the change in market value of the mutual fund versus the market value of the institutional funds. With respect to your question about alternative assets, yeah, the alternative assets might help, but they help in the sense that otherwise, the overall level will be lower. Still, when you have less dividend on public equity or you have a drop in the interest rate, clearly, you're going to see the investment result is going to go down.
Definitely, alternative assets are helping our investment performance, but eventually, they cannot clearly remove the direction that you might have when dividends are not paid. With regard to the expectation, moving forward, I would say that if you take the second quarter numbers of EUR 640 million, I would say that's what you should basically expect moving forward. Maybe I would put a caveat. On the one side, usually, the harvesting, you see a slightly positive, you should say the number, if you normalize over time, is more slightly negative, you might even discount the EUR 640 a little bit. On the other side, I would say, maybe we're going to see a little bit more dividend one day. For the time being, we are taking, on the P&C side, a conservative asset position.
Also from that point of view, we are not holding a lot of equity anymore. For, I would say, at least the next 12, 18 months, I would start from a number which is slightly below the 640, and annualize the number to have an idea what the investment income might be moving forward. I can translate for you and can do the math for you right away. I would say that an investment income annualized of EUR 2.5 billion, that might be an indication what you might see moving forward. We cannot predict the future either, right? We will see what happens, but I think with EUR 2.5, you shouldn't be awfully off. Yeah.
Okay. Thank you.
Yeah. Hello. You're doing okay. Do you have another question? No. Okay.
We will take our next question from Ashik Musaddi with JP Morgan.
Yeah. Hi. Thank you, and good afternoon, Giulio Terzariol. Just one question I have is on solvency capital. Your solvency ratio is about 187 at the moment, and you mentioned that because of some M&A, I guess, it will be 3 percentage point lower. If you look at this quarter so far, interest rates have come down further and spreads have tightened further, which could be, again, negative for your solvency ratio. If we ignore the transitional concept, you are kind of reaching the low level of the solvency that you have always targeted. How comfortable you are with that? How you are thinking about that solvency ratio? Should we be expecting that you will take some management action to get an uptick on this solvency ratio? Just one last question on this, again, related to solvency.
Is solvency ratio any trigger for you to do that remaining buyback, or is it just you're waiting for stability around macro? Do you need to be at around 200% then only you will review that buyback of EUR 750 million that is remaining? Thank you.
Yes. Maybe starting from the buyback. The announced buyback, deciding whether we are going to execute on that or not, is more a consequence of the regulatory sentiments. Because once we announce a buyback, clearly our inclination will be to treat it similarly to the way you might treat a dividend. A buyback is clearly different. From that point of view, the buyback decision is going to be driven mostly by the regulatory environment. This is going to be the critical point. As I was saying before, right now, it doesn't look like the regulatory environment is conducive to a buyback. On the solvency ratio, 187. First of all, I would say the 180, as you said, is the low level of our target. In reality, is our target, so we don't have necessarily a high or low level.
Clearly, we like to not drop significantly, let's put it, way below the 180. From that point of view, clearly, we are going to take management actions, and we have been taking management actions already. We took management action also in Q1. We are disposing July of some equity on the P&C side. We are going to look also at maybe putting some additional hedge on the credit spreads. Clearly, there are other things that we can do in order to try to escape some additional solvency ratios with the back books that we are looking to that might be helpful. We have always the organic capital generation. From that point of view, we feel comfortable about the level that we are. We have actions that we could put in place in order to sustain the solvency ratio.
We need also anyway to know that if there is a significant market dislocation, the solvency ratio can drop. At that point in time, we need to understand the source of the nature of the solvency ratio. After it drops, usually there is a recovery, it comes back up. From that point of view, we shouldn't be overly scared by some volatility in the ratio. This clearly, we are putting action in place in order to make the solvency ratio as resilient as we can.
Yeah. That's very clear. Thank you for this.
Okay.
We will take our next question from James Shuck with Citi.
Hi. Good afternoon, Giulio Terzariol, and everyone. Two questions from me. I'd just like to get a feel for the volume outlook in P&C. I think normally you guide towards around 3%-4% of GDP growth in a normal year. Your book of business is probably a bit more biased towards SMEs than others. Obviously, SMEs has been a lot of pressure, so just keen to understand how you see that evolving. Not so much this year, which has been a difficult year to predict, but maybe next year. That's my first question. Secondly, I know it's a number you haven't normally given or like to give, but we'd be keen to understand what your central liquidity level is, please. If you could comment on remittances year -to -date and the outlook for remittances next year, given local levels of solvency, that'd be very helpful.
My understanding is that local regulators are looking a little bit more closely at local liquidity over and above the Solvency II ratios. If you could just confirm whether that was indeed the case, that'd be helpful. Thank you.
Yeah. Maybe starting from the liquidity. Clearly, I don't have to give you the number, but clearly what we have been focusing here has been to secure as much as liquidity as possible in the group. From that point of view, we have been also, I would say successful. We have received the majority of the dividend from our subsidiary, and this has been really one of the main focus. When you get into a situation like the COVID one, yes, it's clearly you're very focused on the combination of all these kinds of things, events considered more attention on liquidity. From that point of view, I would say the situation that we have right now is comfortable [inaudible]. When you look at what regulators might be doing locally, this depends on legislation by legislation.
Again, as I said before, we've been very proactive in repatriating dividend, and we need to see clearly what the position of the local regulators is going to be next year. That's the reason why we have worked under the assumption that we need to get as much cash in Munich as possible soon, because you never know what might happen last year. From that point of view, in Italy, you say when you are like an ant. The ants have stored a lot of things to prepare for maybe tougher times. From that point of view, we feel comfortable about the liquidity position we have a group, as we think clearly about 2021 and also 2022. On the other question, that was about the SME. Moving forward, yeah, we are going to see some pressure on revenue.
There is no, on the P&C side, there is no doubts because premium is in some lines of business a function of the turnover. From that point of view, we know that revenue in some lines of business can come under pressure, and that's the reason why then we need to work very diligently also on other drivers. One is productivity. It's always a driver that we are activating. We can activate even more. There is always the technical excellence. There are things that we can do clearly to offset some headwinds that we are going to see for sure. As of now, as we are thinking about 2021, and as we look at our underlying performance and we try to extrapolate what might happen, we are still committed to get to our 93 combined ratio next year, and this despite potentially lower revenue.
For the time being, we are still working towards that goal.
Just a quick question. Why the reluctance not to give the liquidity number, Giulio Terzariol? It could be a strong differentiating factor for you. You've got a good group structure. You've got massive management businesses, very fee-based orientated. I just seem to understand why you wouldn't give that number when it may show you in good light.
That's something that traditionally, we've never been giving out. From that point of view, that tradition has been serving us well over many years, and I'm not going to be the one breaking that tradition.
Okay. Thank you very much.
You're welcome.
We'll take our next question from William Hawkins with KBW.
Hi. Thank you very much. Giulio Terzariol , could you elaborate a little bit what you've been saying about the regulatory environment? You seem to be [unusually] you say a couple of times that it's not conducive to a buyback, and you said earlier that even conversations about dividend payments are happening. It seems to me, we have the EIOPA panic in April, actually BaFin stood by companies such as you. Since then, we've seen at least one Dutch company restart its buyback, and we've seen a number of British restart their dividend payments as well. I'm just a little bit confused. You seem to be implying that the regulatory environment is still a point of stress. The facts that I'm seeing from the wider market seem to be pointing to less stress and less regulatory pressure than there was, say, three months ago.
I wonder if you could just help me reconcile that, it seems to me, inconsistency. Second, it seems like you have had that EUR 500 million frequency benefit in the first half of this year. Could you kind of give us any kind of guide about how conservative you have been with regards to frequency? Have you just done it efficiently and so you say that is the number, or have you held back a lot because you did not know what the second half is going to look like? I am assuming you are being conservative, but I am just trying to work out how conservative you are being.
Starting from the regulatory side. We saw, as you said, the Dutch regulator going one way, but you saw in the same time, Italy, as you affirmed, just a couple of days ago, looked at companies had to be very prudent with dividends. The recommendation was not to pay a dividend. That is a recommendation, the same as in France. When we speak about BaFin, BaFin has a different view, but the point is more that if from EIOPA and from other regulators, there is, let's put it this way, a strong recommendation, encouragement not to pay dividend. That's what they say, which is also understandable to a certain degree from that standpoint. This has some implication, clearly, for buybacks, because buybacks are considered to be even a little bit more of an issue. That's what I'm saying.
You see the majority of the regulators are clearly indicating that they are not really supporting dividend. There are a few exceptions. There are exceptions, and this has implication for somehow for the buyback, because as I said, a buyback has seen, if you're wrong, it doesn't matter, different from a dividend payment. That's what we were saying.
I'm sorry to come back on that, but it seems like the two major markets, the Netherlands and the U.K., you've actually seen the resumption of dividends. Are you?
You tell me France, they are not a major market. If you tell me France is not a major market, I'm not so sure. Maybe Italy might have a different view. EIOPA is clearly very relevant still in the conversation. I would say that it is fair to say the majority of the regulators in Europe definitely are encouraging a certain direction. We had also the ESRB coming out with that. Everybody's always looking at what is happening on the banking side. I would say that when you look at the environment, it's definitely clearly more indicating that there is not necessarily an encouragement that's put this way to pay dividend. When you have a discussion on dividend, that's what I'm saying.
Aside Germany, because in Germany is a little bit of a different story, if there's anyway a sort of influence on the decision-making on the buyback. I definitely tell you, look also the European position are changing. [inaudible] outside when you see also some indication was we're going to think about dividends maybe after the summer break, now they are indicating no dividends until January 1st. Honestly speaking, January 1st doesn't mean January 1st, because nobody's going to pay a dividend on January 1st, right? Everybody's going to say, "Let's see the numbers of the year." Now the environment is definitely a little bit, it did not change, in my opinion. With exception, as you said, of the Dutch regulator, I would say the position is still the same.
I would even say in some cases, the confirmation about the recommendation from regulator not to pay a dividend in a few legislations, also the extension of the period to January, it tells you that overall, I would say it's the same situation, not likely worse compared to April. On your question about the frequency. Yeah, the frequency that we have observed is a little bit higher deduction compared to what we have been reflecting our numbers. From that point of view, we have been a little bit on the conservative side, but we need to say there is also overall uncertainty about what might happen to severity as we go into the second part of the year. That could be also the thinking what might happen also for next year. You want to keep some powder dry. That might be also regulators coming back.
From that point of view, yes, we've been on the conservative side, but I believe that being on the conservative side in this kind of environment is also the right approach. We will see what will happen in the second part of 2020 and also as we go into 2021.
Fantastic. Thank you, Giulio Terzariol .
Thank you.
We'll take our next question from Michael Haid with Commerzbank.
Thank you very much. Good afternoon. Two questions, one on life and health and one on motor. The operating profit in life and health has been very resilient, while the new business generation is down. I understand that the IFRS operating profit comes almost exclusively from the in-force and not from the new business. Under IFRS accounting, not all costs are fully spread evenly over the lifetime of the policies. The new business generates some upfront burden, more so of course in local GAAP, but also under IFRS. The lower new business may have led to a positive impact on your IFRS operating profit in the second quarter. Is that so, and can you quantify the impact of that? Second question on motor. As you just mentioned, you have seen a reduced frequency in motor, but also in other lines of business.
These benefits will likely lead to some premium rebates and adjustments for 2020, but also lead to people moving to cheaper product levels. In an environment where no driving activity takes place, this may lead to premiums which are not risk adequate any longer. How do you look at this problem, and what are your expectations for 2021?
That simply carry on from the second question. Yeah, definitely, we can see that premium might come under pressure on the motor side. That's also because you have bonus-malus system, you might have mileage dependence premium. Here that's where we also have to consider to what extent we want to potentially, and this is a conversation which is different country per country, to have some rate increases in order to consider for what might be higher severity next year. That's a consideration that we have. Also, that's a little bit one of the reason why we tend to be also in a way conservative in recognizing the full benefit of the frequency right now, because we know that the future might be a little bit more challenging. It's a little bit of being conservative a little bit on the financial side, that can help.
On the other side, also, we're going to take a clear look at the expectation for severity as we move in 2021. We are clearly analyzing what is the impact on price might be just because of the bonus-malus and mileages. We run the math, and if we need to go for some rate increases, then we're going to see how we can put that in a smart way into the system. That's clearly something which we are considering, and I would say country by country, we might have a different answer. On the life side, I just tell you, first of all, for the biggest book that we have, which is Germany, in reality, it doesn't really makes a difference from that point of view, whether we do more or less production.
Even tell you that in the case of Allianz Germany, on the IFRS basis, less production means a little bit less profit, but it's not really that material when you look at the totality of the book. In other countries, it might be that you have a little bit less of an impact. Usually, I would say that we have lower production, the other acquisition costs stay stable. I wouldn't necessarily say that lower production is helping the profitability because in reality, what you do, you defer more the variable cost. What they are, the fixed cost, in reality, they don't get deferred. You should rather get an IFRS accounting, a slight negative impact due to lower production, not a positive impact. We are speaking of, if you ask me, it's not significant, so they impact one way or the other.
Perfect. Thank you very much.
We'll take the next question from Michael Huttner with Berenberg.
Thank you very much. I had done two questions, additional questions. Thank you very much for this, Giulio Terzariol . You mentioned many times that your combined ratio, once you adjust it for everything, is below 94%. My question is, how much below? Maybe you should think about the answer on a six-month basis. It doesn't have to be so complicated, maybe. The other way of looking at it, what I'm trying to do is to find out the answer to how conservative you've been. If I look at the Solvency capital generation, the 5% ratio, when Generali, and I know you don't look at it here, but when they reported, they said, "Yes, look at this number.
It was so strong because we were more prudent on reserves, and reserves are in our best estimate under Solvency II. I'm not sure I could see the same impact in your Solvency II. In other words, what I'm trying to say is the only impact I'm seeing, I'd like some indication that you have less reserve releases.
I cannot speak about Generali. From that point of view, I can't speak to them. Just the difference between us and Generali might be that we have the same reserve basis between Solvency II and IFRS, where it might be that Generali doesn't have the same reserve basis. That might be the difference. We don't differentiate between IFRS and Solvency II best estimate reserves. I cannot speak to Generali, so you need to confirm with them how they do the Solvency II versus the IFRS basis. On the cost combined ratio, I would say the number is, let's put it this way, it's not 93.9. Otherwise, I wouldn't tell you that the number is below 94, obviously. Also, on the other side, it's not 93.1, otherwise, I would tell you the number 93.
From that point of view, I would say it's below 94 by more than a few basis points. From that point of view also, we see definitely that there is [inaudible] to the 93. Clearly, we need to see how this COVID is going to play out over time. From what we see, the underlying performance is okay.
Just on the reinsurance, there was a question where you said that you might get some recoveries, a couple of hundred million euros or maybe more. Just to confirm, you haven't booked any of this. If you do get a recovery, this would be additive to the IFRS numbers.
We have booked some amounts. It's not that we didn't book anything. It's not a material amount. If we have zero recovery, we would have a little bit of a shortfall. If we go for a few hundred millions euros of recovery, we would have definitely an uplift compared to the number that we book for the time being. It's not that we didn't book. We booked zero. We booked an amount, but it's not really significant. The way we book it, in reality, what we do is we look at the gross impact that we might have across the different legislation.
As I was saying before, we look at what could be the different worst case, and we look at what the recovery might be, and then we apply some sort of diversification to all these numbers, and then we derive a sort of net reserve that we are booking. As we did this kind of consideration, we also consider some amount that we think we're going to have some recovery.
May I just ask a follow-up question? I'm going to say, I think you asked a similar question on solvency. You basically said you're actually quite comfortable. I imagine that you're comfortable because what you know today versus what's in the flight pack. What is the solvency today?
The solvency today? Our solvency?
Yeah.
Our solvency.
After-
No, our solvency today, but I don't check every single day. I was just looking at the end of the month. I would say, it's went down a little bit. Equity market as of July were up slightly. Credit spreads where there was a little bit of a narrowing on the government bonds, a little bit also on the corporate bonds. If you ask me, it wouldn't be so much different from the level that we are now. I would say you can take the level that we are now and the different effects have been more or less washing out. That was one week ago.
You mentioned some management action in July.
Yeah. We had some management action on the P&C side, but this might do one percent of solvency ratio. That's what the management action that we did in July might be doing.
Excellent. Thank you so much. Thank you for being so helpful. Thank you.
All right. We have a couple of minutes left, I would say we take one last question, if there's any.
Once again, that is star one followed by the number one for questions. We have no further questions at this time. I would like to turn the conference back to your host for any additional or closing remarks.
Thanks, Tracy . All right. Yeah, we say thanks everybody for joining the call. We say goodbye. Wish you all a very nice remaining afternoon. Thank you.
Bye, guys. Stay safe.
That concludes today's presentation. Thank you for your participation. You may now disconnect.