Good morning, welcome to Allianz Q1 results web audio conference. The conference today is scheduled to last up to 60 minutes. As usual, our CFO, Giulio Terzariol, will guide you through the quarterly results and will then take your questions. I hereby hand over to Giulio, please.
Thank you, Holger, and good morning to everybody. We have today a newborn baby, which is called IFRS 9 and 17, so actually two babies if you want. Now I'm going to guide you first into the numbers of 2022 compared to, based on the new system, compared to the old system. That's a way to get familiar with the new framework. Then we're going to go into the numbers for the first quarter, which are very good, as you are going to see in a moment. If we start at page five from the comparison... Perfect. At page five, from the comparison of the old numbers with the new accounting standards for 2022, and we are focusing first on the operating profit.
You see that the operating profit, according to the new method, is broadly in line with the old method. It's about 2 percentage points lower. This is coming from some effects which are going in the opposite direction. On the Property-Casualty side, we have high operating profit, which is also coming from the discounting of the claims reserve. On the life side, we have some technical effects, which is due to the first implementation of IFRS 9 and IFRS 17. That's not something that we expect to repeat, and we're going to see there is no repeats in the first quarter 2023. Overall, these two effects offset each other, leading to an operating profit, which is more or less in line with the operating profit according to the old system.
I like also to draw your attention to the net income and core net income. As you see, the net income is slightly lower compared to the old basis. That's a consequence, clearly, of the lower operating profit. Also there was some higher level of volatility last year, which is clearly reflected in the net income according to the new basis, because the new basis tend to be more volatile compared to the old basis. That's also the reason why we have introduced the concept of core net income, which is adjusting basically for volatile items. Basically it's adjusting for the assets which are held at fair value in the P&L in the case there is not an offset coming from the policy or the liability.
On top of that, we do also a small adjustment for PGAPs, but the main adjustment that we do from going from net income to Core Net Income is basically removing these volatile items, which can be positive or negative. Moving forward, the Core Net Income is going to be a critical KPI together with the Operating Profit. Also, the calculation of the ROE is going to be based on this Core Net Income, which is a more stable measure compared to the net incomes overall. No major changes in the underlying performance based on the new system compared to the old system. If we go in more detail at page seven, and we look at the Property-Casualty segment.
As I said before, we see an increase in operating profit in the new system compared to the old system. This is coming from the discounting of claims reserve. In the past, in the old system, we were booking basically the claim reserve based on the amount that we expect to pay. Now we need to discount this amount that we expect to pay to bring to the present value. This has a positive impact, clearly, on our numbers. On the other side, over time, we need also clearly to unwind this discounting. You can see there is here some geography in the representation, where you see that the insurance service result is going up, and that's because of the discounting effect.
You see the operating investment results is going down compared to the old system, and that's because of this unwinding mechanism over time. Right now rates are higher compared to the history that we had in the last few years, and that's the reason why this net impact is positive. Over time, if you have stable rates, this net impact should be neutral. When you have increasing rates, you're going to see first an improvement. In the opposite situation, then you have rates decreasing, that could lead to a negative impact coming from this new method to treat our liability on the P&C side. Overall, an increase in operating profit. This is also, by the way, a more economic way to represent the operating profit.
If you ask me which kind of methodology is more appropriate, this is definitely more appropriate from an economic point of view. It can introduce some complexity in the way of analyzing the numbers, especially because we are used to the old system. Economically, that's definitely a fairer reflection of the performance of the accident here that we are getting. That's on the P&C side. Coming now to the life side. The operating profit, according to the new basis for last year, was significantly lower compared to the old basis. Here, however, there is a technical effect that we are normalizing, and this has to do with the hedges at Allianz Life. The hedges of Allianz Life are calibrated also to the accounting system which is in place.
Last year there was a different accounting system on the liability side compared to the one that we are using when we do the restatement. From that point of view, clearly, if Allianz Life had this kind of account in place already last year, they would have hedged differently. Here we try somehow to remove the impact due to this kind of accounting mismatch. If we do so, we get to an operating profit which is closer to the level based on the old method. What is also very important when you look at the normalized net income, that's actually absolutely in line with the old system. This is also because we have some geography issue between what we were showing operating profit before and what is landing now below the line.
The main message here is that on the life side, in reality, the profitability is very much in line. There were just some technical implication related to the implementation of IFRS 9 and 17 for the first time. When you're going to see the results of the first quarter, you're going to see also that there is a lot of stability in the numbers of Allianz Life and also the segment. We come to a very technical slide, which is basically showing the reconciliation between what we call the comprehensive shareholder capital, which is the sum of the shareholder equity and the CSM. The CSM, or contractual service margin, is, if you want, the present value of the IFRS profit.
We try to do this reconciliation between this measure, the Solvency II own fund, which is also a present value, basically, of the difference between assets and liability. What we are doing here, we are removing the usual suspects. Indeed, what is interesting in this slide is the position other. Usually other is not a position that people are looking at. In these slides, you need to look at other. You can see this number is very minor, which means once we take out the usual, the obvious methodological differences, there is not much of a difference in evaluation of assets and liability on aggregate between Solvency II and this comprehensive capital. That's the main message.
There is a lot of consistency between the two measure, which is also something positive because it's always good to create consistency across different kind of calculation that we are using. The comprehensive capital is also the measure that we are using to calculate the leverage. That's not necessarily what rating agency might be doing eventually, but that's the way we look at leverage internally, and that's also a calculation which has been broadly shared in the CFO community. When we do the calculation of our leverage based on the comprehensive shareholder capital, we have a leverage ratio of 24%, which is better compared to the 29% based on the old methodology once excluded the unrealized gains. That's in a nutshell the comparability between last year and this year.
That was just to give you a little bit of an idea, but I believe the best way to learn the new account is just to talk about the current numbers. Now we can flip to the numbers of the first quarter, which are definitely very good numbers. The main message is, here is no matter what kind of accounting we are using, since we have a strong underlying performance, we are going to have very strong results, regardless of the accounting. Said in other words, if we were to apply Japanese accounting, I'm pretty confident that we will be showing strong results also based on that measure. That's the most critical message I want to bring today as we speak about different accounting treatment.
Now, when we look at the numbers, we see that on the revenue side, we have a positive growth of 3.5%. This is driven by Property-Casualty. In the Life and Asset Management area, we see indeed more of a flat or so reduced revenue. That's not surprising considering the environment, and that's also reflecting of the same situation we saw last year. What is definitely very positive is the development in the Property-Casualty side. The operating profit is much higher compared to the level last year. That's also to do with this kind of normalization, by the way, that we need to do for the life business, because the effect that I was referring to for the year was also present in the first quarter.
Maybe another way to look at the strength of the operating profit is to compare this number to our outlook. We are right now 5% ahead of our outlook, and I would also say that, based on how we see the business development, we could expect to see continuous strong performance along this run rate in the course of the rest of 2023. On the P&C side, you see a combined ratio of 92%. New business margin on the life side, better compared to the new business margin last year. The cost-income ratio asset management is higher compared to last year, and that's because of the effect coming from 2022. You see also that flaws are positive.
When you look at the operational KPIs, basically you see an improvement across all operational KPIs with the exception of the cost-income ratio Asset Management. The core net income is at about EUR 2.2 billion. Here we need to consider that we have an impact of about EUR 150 million-EUR 200 million because of a potential disposal of Allianz Lebanon. If you adjust for that impact, core net income will be north of EUR 2.3 billion. If you annualize the number, you get to a core net income for the year of about EUR 9.4 billion, which is also basically the expectation for the core net income. I want to give you this information because it's a new metric. We never discuss about this metric.
The expectation of the core net income is about 9.4 in a year. Clearly there can be some noise like if you get a disposal of Allianz Lebanon. What's important, the Allianz Lebanon disposal, that's not a cash item. It's a pure accounting treatment similar to what we had last year when we had the disposal of Allianz Russia. That's on the oversized. Very strong performance on operating profit also when you adjust the core net income, really strong net income and operational KPIs all going basically in the right direction. Solvency, it's page 19, is very strong at 206%. Also, we see that the sensitivities are basically unchanged compared to the sensitivities that we had at the end of the year.
You saw that Wednesday night we have announced a buyback of EUR 1.5 billion. We continue to clearly deploy capital. If you adjust the 206% for the buyback of EUR 1.5 billion, we are on a pro forma solvency ratio 202%, which is a very robust solvency ratio. If we go to page 21, on the waterfall explaining the development of the solvency ratio from the end of the year to end of the quarter, there are no major things happening. The operating capital generation, the organic capital generation is consistent with our expectation. The markets have been relatively benign, so we have benefited from higher equity market, also from tighter spread and also from a lower level of volatility to the interest rates.
As always, you see basically under capital management, the management action, the deduction of the dividend accrual. Also important, we continue to invest also in the future of our business. There is about a EUR 0.3 billion impact negative, which is due to an acquisition that we did in order to continue to strengthen our platform around claims. It's not just about buyback, but we are at the same time also investing in the future of our business. Strong solvency ratio, and especially the organic generation continue to be strong, and this is also clearly something which is going to continue to support our solvency ratio as we move into the remainder of the year.
As per tradition, we come to our segments. We start from the Property-Casualty segment, where we see a very good internal growth of 11%. That's again a sign that we are responding to inflation. It's also important this 11% growth is coming after a 9.5% growth for 2022. That's cumulative on top of the growth that we already got last year. That's a very strong sign of continual growth in our premium and reaction to the inflation environment that we see. You can also see that rate changes on renewal are accelerating. From that point of view, I think this slide should give you a lot of comfort that we have been taking all the right measure.
We continue to take the right measure, and that's explained also the strong underlying performance that we are seeing at page 25. Overall, our operating profit has increased compared to the level of last year. Here, when you look, this is coming from the so-called insurance service results. Think about the insurance service results as the underwriting results, according to the own way to talk about our numbers. This improvement in the insurance service result is coming from a improved combined ratio. Clearly here you see that the amount of Net CAT has been lower compared to the preceding period. On the other side, also, we have been very cautious in general on releasing the RANO.
We think our numbers are extremely good, extremely strong, and we like also to continue to preserve a strong strength of our balances. Overall, a very good combined ratio with 91.9. We are 1 percentage point better compared to the 93 combined ratio that is at the basis of our outlook for the year 2023. If we move to the next page 27, we see as usual the snapshot by selected OEs. Overall, you see a strong performance across a lot of entities. You see Germany at a combined ratio of 87, France at 91, Switzerland 88, Central and Eastern Europe below 90, Italy 87. You can go all the way down to AGCS 93 or Allianz Trade at 81%.
Very strong set of results. A comment about Brazil, because we had a lot of conversation about Brazil last year. The performance in Brazil is improving substantially. We are very confident that we can post a combined ratio below 100 in the course of 2023. From that point of view, a nice recovery coming out of the operation in Brazil. Very strong set of results, not just in general when you put, you know, you look at the segment, but also when you look at individual companies, you see a lot of entities performing very nicely. Now we come at page 29 to the investment results. As you see, the investment results is lower compared to the prior period. This might look surprising, but in reality is not.
Because of the new accounting system, we have this unwinding coming through the books, which means an increase in investment income because you have higher interest rates, is going to be offset basically by the increase of the unwinding. This picture is pretty much what you're going to see moving forward. You would expect not necessarily to go down, to be stable. In our case, it's going down a bit because of some volatility coming from the other, which is more a consequence that last year the fixed gains had been positive, and this year we don't have the same effect.
Fundamentally, get used to the fact that the operating investment result is going to be rather stable and flat over time, and then you're going to see clearly the improvement coming from rates on the underwriting results where we discount the reserve. All in all, a very strong result for our P&C segment with EUR 1.9 billion. If you remember our outlook for the year, EUR 7 billion. If you analyze EUR 1.9 billion, you get to EUR 7.5 billion. That's definitely something which is promising also as we think about the remainder of 2023. We come to the life segment. In the life segment, clearly now we are speaking of a complete different way to look at the numbers.
We start anywhere from something which is more consistent with the past, which is the value of, which is the present value of the production and also the value of new business. In reality, the main difference between the value of new business in the new logic and the value of new business in the old logic is that now we are looking at a pre-tax number, and before it was an after-tax number. There are other differences, but I would say this is the primary difference. Now when we look at the numbers here, we see that the production has gone down by about 12%. Here we need to recognize there is always this technical effect of discounting the premium. In reality, this has nothing to do with real production.
It's more the way actuaries like to see the present value of production. If we look at this level of growth on an undiscounted basis, we are speaking of minus 6% drop, which is not surprising considering the environment. Right now, clearly the production in a single premium or unit linked is a little bit lower than what one would otherwise expect. On the other side, the New Business Margin continued to go up. When we put the two things together, we get to a Value of New Business which is relatively stable compared to the prior period, and also that's very important, a very healthy level of Value of New Business, which is at the end of the day, the metric that really counts in this slide. We can talk about the CSM.
The CSM again is this present value future profit. What we like to do here is to focus on the normalized CSM growth. What is the normalized CSM growth? It's basically the sum of the CSM generated by the new business, so basically the profit generated by the new business that we are writing. Then there is an expected growth of the CSM. There is a sort of unwinding of the value of the CSM. Then every quarter, we are releasing some of the CSM stock into our profit. We like to look at the sum of the three items, which leads to a normalized CSM growth for the first quarter, 1.1%. If you analyze the number, you get to a number higher than 4%. Why we like to look at this number?
Because from a technical point of view, you can expect the operating profit growth to follow closely the evolution of this normalized CSM growth. There can be clearly some volatility around that, but on a normalized level long term, you're going to see that operating profit should grow more or less in line with the growth of the normalized CSM. I will leave at this in this slide, maybe just a final comment on the non-economic variances. You see there is a big negative, EUR 1 billion. This is in reality coming from a change in the way we are including Allianz Mexico in this number. If you remove this impact, which is more a change in presentation from that number, you get to a very small negative deviation on non-economic variances.
In reality, nothing material happening there if you adjust for the change in presentation. Now we come to the operating profit. Again, that's a very different way to speak about our operating profit compared to the past. The operating profit that we see here, EUR 1.3 billion, is a bit ahead of our expectation. Our expectation was more like EUR 1.25 billion per quarter. Overall, I would also say anyway, there is a lot of consistency with the information that we gave you in December. The same apply to the risk adjustments and to the other item.
That's good because clearly when you implement a new accounting system, which is very different from what we were doing before, it's good to see that we had this kind of good understanding already now about how these numbers might move. The only item that is subject to some higher volatility is the operating investment results. Last year was particularly low because of this impact due to the hedge mismatch of Allianz Life. If you, if you were to adjust the number for this impact and also for the fact that we had to take some Expected Credit Loss on Russia last year, if you remember, the operating investment results will be more like, you know, EUR 100 million for the first quarter 2022.
Overall, numbers which are a little bit ahead of our expectation, but broadly also a lot of consistency from a technical point of view, compared to the expectation, the disclosure that we provided you with in December of last year. Now we come to the exhibit by entities, and here also focusing on the normalized CSM growth. You can see pretty much stability, you know, or consistency of delivery on this KPI from the different entities. Then a final comment also on the operating profit. In general, you can see that all companies are delivering good operating profit. One comment, as you see for the majority of the entities, the operating profit and the CSM release, which is a big component clearly of the operating profit, are very much aligned.
You don't have a major difference between the CSM release and the operating profit. There are just two exceptions, which are Italy and Eastern Europe, where the operating profit is higher than the CSM release by a significant amount. That's because in those two entities, we have also business which is now falling under IFRS 9 and 17. Otherwise, you should expect that the operating profit and the CSM release are going to be pretty aligned. It could be always some volatility on a quarterly basis, but fundamentally, you should expect some sort of close alignment. Overall, on the life side, new accounting system, but consistently a good set of results. I have to say I like the new system, because there's always a point. We have done a lot of work.
We get into, in my opinion, a framework which is more interesting to understand and analyze. I will say, yes, I'm also a technical kind of guy, and I have to say that I really like to look into these numbers. There is a lot that we can learn, and we are going to clearly share all this learning with you by looking at the results from this perspective. That's definitely, in my opinion, a big improvement, and I was very excited in reality in the Q1 to already start looking at the numbers from this angle. Now we come to the asset management side. I will go straight to page 41, where we show basically the development of the assets under management for third party.
You see that we had inflows in Q1, and we always said when the situation is going to become more stable, we are going to see inflows coming back. There was indeed more stability, especially at the beginning of the year, and this has led to some positive flows. In the second part of the quarter, flows will be relatively flat, but that's a clear sign that if the sentiment is changing just a bit, we get to see positive flows, both at AGI, but especially at PIMCO. From that point of view, I think that's a proof point of what we have been telling you along the time. Now going to the revenue side. The revenue side down compared to the last quarter.
That's not surprising considering that the assets under management came down in the course of 2022. On the other side, we see the Fee Margin is going up, that's kind of offsetting the drop in assets under management, but not to a full extent. That's clearly good to see that the Fee Margin, especially at PIMCO, are going up. In the case of AGI, you see a drop of the Fee Margin, but that's related to the Voya transaction. We need also to consider that we don't have the cost associated to, you know, that business anymore. Overall, it's kind of a wash for the performance of AGI. Operating profit is down at page 45 compared to last year, but that's not a surprise.
Indeed, the operating profit is perfectly in line with our expectation. If you remember, we have an outlook for asset management for the year of EUR 3 billion. If you take this number, you analyze the number, the quarterly number, you analyze it, you are going to be at EUR 2.9 billion, which is a little bit short of the EUR 3 billion. We need to remember that we get the performance fees at the end of the year. From that point of view, we are perfectly in line with our expectations. The bottom line here is results are solid, in line with expectation. We saw flows coming back in the first quarter.
I believe that as the situation is further stabilizing, we are going to see again growth also in operating profit eventually coming through. On the corporate side, nothing major to say. There is a slight improvement compared to the last year, which is driven by our banking operation in Italy. We come to the below-the-line item. Compared to last year, we have less realized gains. In the first quarter of 2022, we had the disposal of finance in the Hay that has led to some gain, and also we had some realized gains on bonds. That was before rates went up. On the other side, you see restructuring expenses are lower compared to last year. You see that the results from assets and liability measure fair value was positive last year, was negative this year.
That's exactly the line item that for the most part, we are adjusting when we calculate the core net income. Indeed, if you see below, you see almost a corresponding adjustment, the other way around, and not one to one, but you see there is an inverse correlation between the two items. This leads then to a core net income of about EUR 2.2 billion. Again, adjusted for the potential disposal of Lebanon, we get to over EUR 2.3 billion of core net income. That number annualize, we are speaking on EUR 9.4 billion, which is also the kind of expectation that we should have over time for this kind of KPI. With that, we come to the last slide. Overall, we had an excellent start in 2023.
We saw strong growth in P&C with strong combined ratio. Our life business, we are ahead of consensus on the operating profit. The new business margin is very strong and increasing. On the asset management side, we saw inflows coming back, and we are definitely in line with our expectation for year-end. The core net income is also at a strong level. We have a Solvency II of 206 before the buyback, after the buyback, 202, so a very robust level. We continue to deploy capital, as I said, EUR 1.5 billion buyback. Also we are constantly investing in our business, a very strong set of results, strong fundamentals, strong momentum as we go into the rest of the year.
Clearly for these great numbers, I'd like to thank our employees because they are the real force behind these great results. With that, I would like to open up to your questions.
Thank you, Giulio, for the comprehensive presentation and also for the teaching on IFRS 9 and 17. Before we start with the Q&A, just let me remind you, if you joined via web audio call and you want to ask a question, please press talk request. If you joined via telephone, please press star 5 to raise your hand. We wait a few seconds, and I think we can start with our first question, comes from David Walker from InsuranceERM. David, your line is open now.
Thank you. Can you hear me okay?
Yes.
Great. Great. Could I ask three or four quick questions? Giulio, could you give us some insight about lapse rates for life insurance in Q1? What your experience is on surrender rates? Are you still using the transitional measures of Solvency I? I see BaFin says a lot of insurers are not using them in Germany anymore. What is your ratio without the transitional measures? If I could ask about some normalization after Storm Bernd and the take-up at Allianz of Elementarversicherung. I see that your renewal rates in Germany were about 6%, an increase. I'm assuming you avoided a lot of natural catastrophe damage at home. Thank you.
Yeah. I'm not sure I understood the last question, to be honest. Can you repeat the last one?
Sure. It's really about Elementar Versicherung, Giulio. The take-up of Elementar Versicherung among Allianz customers and the renewal rates in Germany for P&C, it looked like they improved by about 6%. I'm wondering if you could comment on Net CAT exposure in Germany, particularly maybe in Ahrtal.
Okay. Yeah. I can start also from the last one. Fundamentally, I would say there is no change in our Net CAT exposure in Germany. There is no change in reality on the reinsurance program that we have in place. It's all stable. Clearly, since there is more inflation, for the same amount of Net CATs that you get, you're going to have clearly higher impact. On the other side, we have also more premium that we are collecting. As you see, there is an increase in premium. If you were to ask me, when I speak, when I think broadly about our exposure to Net CATs, we have increased our expectation a bit compared to what we had in the previous period.
We are speaking in general, speaking for the group, about 20, 30 basis points higher expectation of Net CAT compared to what we had before. That's also a prudent way clearly to position ourselves for the year. When you look at the numbers in Q1, in reality, Net CAT have been extremely low. There was no Net CAT in Germany, by the way. The only Net CAT that we saw in the first quarter is unfortunately coming from the earthquake in Turkey. Fundamentally, there is no big change in reality in our profile. There is some nuance, no major changes. On your second question, which was about transitional. Okay, we are disclosing numbers without transitional.
We have also transition in place, but every time we talk to you guys, and the way also we tend to manage the company is without the application transitional. When we say our solvency ratio is 206, that's the solvency ratio without transitional. There is a footnote at page 19, and if you look at the footnote, then you can see what our official solvency ratio is, which is 232.
Thank you.
That will be the official solvency ratio. On the lapses, in reality we are not seeing major changes on the lapse side, and we are looking clearly at this on all countries. It's not surprising because as you can imagine, the structure, let's say, of an insurance liability is very different compared to what you might have in the banks. In general, we don't see an increase in lapses. There could be here and there a couple of exceptions, but they are pretty contained. We see, for example, in Italy, in the banking channel, you might see a little bit more lapses, but fundamentally nothing systemic, and especially nothing really major going on, which is not surprising considering the profile of a life liability.
Also considering basically that when customers are buying life products, they have many reasons to stick to this life product, including also benefits. If you lapse a policy in Germany, you're going to lose, in reality, benefit because there is a tax advantage. If you lapse a policy in the US, you're going to have surrender charges. Also, we tend in the US to apply MVA adjustment, which means when rates are higher, then you get a higher surrender charge, and when rates are lower, a lower surrender charge. Overall, we don't see much happening. It's all in a green area.
Thanks. Thanks, Giulio. Could I just ask one more question? The total cost for the IFRS implementation at Allianz, how much does it all cost you?
Okay, we say that, when we look at the entire program, right, it goes over many, many years. It's about EUR 200 million. That's the cost of implementing IFRS 9 and 17. Think about this over many, many years. My head of account, he tells me that we started IFRS 9 and 17, 20 years ago. I'm exaggerating now, but it's been a long process. Yeah.
Thank you.
Okay. Welcome.
Thank you, David. Our next question comes from Alexander Hübner from Reuters. Alexander, your line is open.
Hi. Thank you very much. In fact, it's three questions. One on IFRS again. Other insurers and reinsurers have said that the new accounting system will have a positive impact on their life and health business profit. At you, this obviously isn't the case. Why is that? Can you elaborate on this a bit? The second one is I've been a bit surprised that you try to get rid of your Lebanon business. I hadn't heard about that. Can you elaborate on that a bit more? To whom are you going to sell it? Why will there be a loss? The third question, there has been reports that Allianz is trying to sell its stake in N26 via AllianzX.
Can you confirm these plans and the valuation that is mentioned in the press reports on that? Thank you.
Yeah. No, thank you for your question. Maybe I start from the last one. I, you know, I'm always reading interesting things in the press, not all these things are accurate. That's all I can say on that one. On the Lebanon, it's a very marginal business, clearly for us. We get also a lot of hyperinflation negative impacts, we were not really getting dividend out of this business. From that point of view, it's a marginal operation. We don't see that there is a possibility to develop the business or we are not the best owner, that's the reason why we are in the process of selling it.
I cannot share with you clearly to whom right now, but that's a very, I would say, logical decision from a group point of view to separate us from a marginal business. The accounting loss is basically coming from the recycling of a fixed effects from the balance sheet into the P&L. Basically, the following happens: when you hold a company and the currency is depreciating, you don't put a currency translation loss into the P&L. On an ongoing basis, this is stored basically into the balance sheet, but when you have a disposal, then you need to put all these accumulated currency loss into the P&L. There is no cash impact from an economic point of view. Everything has already happened in the balance sheet, then you just need to do this reclassification.
From a cash point of view, I tell you it's a positive because we are going to get some price clearly for that. We were not necessarily anticipating dividend this year coming from Lebanon. The first question was indeed about the level of profit in the life business. First of all, I would say our profit level is not decreasing. That's very important. The situation that you saw in 2022 is due to the first time implementation. That's very important. There is no change in our profitability level on a sustainable basis because of the new accounting system.
I believe that when the reinsurance companies were referring to higher profit, I don't know whether they were referring to higher profit or to a better to understanding transparency around the number. I cannot speak about clearly the profit pattern of other companies, but I don't know if the reference they are making is more to the improved level of understanding the numbers, and this could also lead to a better valuation of the live business as opposed to see a higher profit. In our case, anyone can tell you the profitability level is pretty much the same, based on the old and new accounting. That's all for?
Okay. Thank you very much.
You're welcome.
Thank you, Alexander. We take our next question from Herbert Fromme from Süddeutsche Zeitung Versicherungsmonitor. Herbert, your line is open.
[Foreign Language]Yeah. Guten Tag. Ich habe die Antwort auf die erste Frage leider nicht hören können. Da gab es ein technisches Problem hier. Sie haben wahrscheinlich über die Bankenkrise auch schon gesprochen. Mich würden zwei Dinge interessieren: Können Problembanken bei Ihnen im Kapitalergebnis eine negative Rolle spielen? Wie sieht denn Ihre Sorry, I speak English now. I didn't follow the answers to the first question because I had a technical problem. My questions would be the banking crisis. Would failing banks have an impact on your investment results? How far are you exposed to the problem area of many banks, and that is commercial property?
The second question on page 25 of your presentation, you show that your combined ratio in for commercial business is much better than for retail. There is some anger among industrial customers that they pay comparatively more than retail customers, and that they have to bear the brunt of price rises. Also talk of more captives, et cetera. Are you risking losing some customers that way? My first question, my third question is, I don't know whether this is a first quarter issue or whether you did away with it last year, your ill-fated IT venture Syncier. How much did that cost? We now heard that it was more than EUR 200 million. Is that a figure that was booked in the first quarter or has already been digested last year?
Finally, CSM, obviously contains many arbitrary views on the future of the market and the business. How much of that is sort of Allianz wishful thinking?
Okay. No, thank you for the questions. Maybe may I start with the first one, which was the regional bank or exposure to U.S. banks, which at the end of the day is about exposure to regional U.S. banks. We don't have basically a meaningful exposure to regional banks, and this relates both to the investment income, but also you need to look potentially at underwriting. We are speaking of very marginal exposure. There is no concern at all regarding that. Clearly, if there is a lot of dislocation in the market, this can create equity market volatility or uncertainty in the capital market environment. If we speak about direct exposure to U.S. banking, this is not an item which is of concern for us. You were asking about exposure to property market in the U.S.
We are clearly a portfolio commercial loans. It's very high quality portfolio. I know everybody likes to say it's very high quality portfolio, I can tell you that the Loan-to-Value is about 55%. You need to have a massive devaluation of the property before we have an issue. Also, it's a portfolio which is very diversified. We are not having big ticket items in, on the loan portfolio. We tend to have a high amount of diversification. We looked into that portfolio a lot, and we are very confident about the quality of the portfolio.
An area where one we might see some potentially pressures is more on the equity side, which is also something which is not necessarily sit in the United States, but specific to debts, real estate debt portfolio, that's a very, very high quality. We have also some CMBS. We are speaking here basically of triple A quality. Again, not a concern at all for us on that side. You had a question about the commercial lines and the ROE, the combined ratio, which is strong. Yes, they're strong. That's anyway, also, you know, the reflection of the fact that in the past it has not always been so strong. From that point of view, we know that in commercialized there is more of a cycle sometimes that in retail line.
From that point of view, I would say when you look across the cycle, it's definitely also more than fair that we are posting this kind of combined ratio right now. When you speak about customer, I can tell you that the customer retention at AGCS is very strong. From that point of view, you know, we provide also a great service to our customers. At the end of the day, you need to look at the entire package. You know, they get the coverage, they get service, they get also advisory to a certain degree. From that point of view, I think there is a strong value proposition that we are offering.
Now that we try to also develop this integrated commercial value proposition, I think we are going to be in a position to serve our commercial clients even better in the future. You had a question about Syncier. The numbers you are quoting are accurate, and they've been already digested in reality in the last years. There was no impact in 2023, and we don't expect any impacts anymore. Everything has been already digested in the past. I know that you like this item. Definitely Syncier has not been working as we expected, but I think it's also fair to try new things. That's something where we are happy also to fail, you know, because that was an initiative to try to create something new.
It didn't work as expected. If you remember last year we had record operating profit, and the year before we had record operating profit too. I think this is exactly the things where I'm happy. No? I think it's totally fine. As a company, we need to try new things. We have the strength to try new things, and so sometimes they are working and sometimes they are not working. Overall, I think we have a very strong delivery in our, in our results. To your last question about is the CSM wishful thinking? No, I would say it's not wishful thinking. That's based on assumption.
The point I was trying to make before with the reconciliation from the comprehensive or the capital to Solvency II is to show that the assumption underlying the CSM are pretty much consistent at the end of the day with the Solvency II calculation. You can imagine that a regulatory framework is always pretty solid, so there is no wishful thinking. You know, one thing you can do in order to monitor whether it's wishful thinking or not is in the future to look at these non-economic variances and assumption change, because this will tell you if you see a bias over time, that would tell you that there is some wishful thinking. That's the transparency also that you can create with a new system, because over time, these tell you.
The number, the non-economic variances and assumption changes is supposed to be positive and negative. It's not supposed to be zero, but it shouldn't have a bias. That's also important for us from a controlling point of view because, you know, we also want to do the right thing. That's exactly what we are going to look at the company level and see whether there is a bias or not. Hope this helps.
Just one thing, to make sure. Did you say that the figure I quoted on Syncier, more than EUR 200 billion, was correct, or did you say not correct?
No, I think it's a, it's a fair reflection of the impact, yes.
Thank you.
Thank you, Herbert. Our next question comes from Michael Flämig from Börsen-Zeitung. Michael, your line is open.
Hello, Mr. Terzariol, Mr. Klotz. I have two questions, please, to the live segment and about asset management. The first one, you said, Mr. Terzariol, the release of the CSM is a very important metric. In the first quarter, the growth of the CSM was 1.1%. Which run rate do you want to have in the long run? The second one about asset management, you said you had positive inflows of $15 billion in the first quarter. Now the Fed said signals an end to the hike. Do you expect an increase of the net inflows in the coming months? Thank you.
Thank you for your question. Regarding the first one on the CSM, you know the number, if you annualize the 1.1 is about north of four. I would say we like to see something about five or north of five. We are basically very close. Right now, the production level is a little bit lower than traditionally what we see. Fundamentally think that when we start getting to about 5% of CSM normalized growth, that's the kind of numbers that we like to see. In a single period can be clearly high or lower, 5% is more or less the indication over time. Regarding the flows, I would say the situation is going still to be a little bit choppy as long as there is this, you know, instability.
There is also the conversation about the Debt Ceiling. This can always create some volatility. I would say once this instability is going to go down, and I expect this to happen, honestly speaking, towards the second part of the year, towards the end of the year, we are definitely going to see flows coming very strongly. Right now, if you buy a bonds portfolio with a five-year duration, considering also the spreads that you get on top of the treasury yield, and I'm referring here to the U.S., you get easily to 5%. That's a very good spread, a good, very good yield. Fundamentally, I think we are positioned right now in a way that the pain that we had last year should not materialize again.
The situation might still be volatile now for a few quarter, I believe by the end of the year we are going to see also really nice strong flows coming back.
Okay, great. Thank you very much.
Welcome.
Thank you, Michael. Our next question comes from Bloomberg, from Stephan Kahl. Stephan, your line is open.
Good day again. Also another question on asset management. Some analysts have been noting this morning that the cost-income ratio is quite high, elevated. Are you taking or planning any measures to bring the cost-income ratio down, or are you counting on increasing assets under management towards the end of the year? Like, what is your take on where the cost-income ratio in asset management is heading to?
Yeah, absolutely. I would say the cost-income ratio is totally fine in reality. We always said that in the case of PIMCO, we like the cost-income ratio to be at 60% or below. Clearly, when you have a situation where revenue are coming down, we are going to be on the high ends. The 59.9 cost-income ratio for PIMCO is definitely a cost-income ratio we are comfortable with considering the current e-environment. We like to keep this cost-income ratio this level, that's what we are clearly aiming to do. As revenue might potentially increase in the future, you're going to see clearly the cost-income ratio drifting back down. I would say we are totally comfortable with the 59.9.
The same applies to AGI, where we have 67% of combined ratio. That's in reality our target for AGI. That's what we discussed also after the Voya transaction, that we like the cost income ratio to be at 67. If the markets are doing better, clearly we can get a little bit of additional improvement of the cost income ratio. I would say right now both companies are providing cost income ratio which are adequate considering the revenue situation. What we are going to do is clearly to be cautious on the cost side. There is a cost containment, but we are not alarmed at all by the level of productivity and especially again, everything is according to expectation.
If you take this number, very much consistent with our outlook for 2020, 2023.
Thank you very much.
Welcome.
Thank you, Stephan. We are only because of time reasons able to take, one other questions. For those questions who we couldn't answer, please reach out to financial communication. Our last question comes from Ian Smith from the Financial Times. Ian, your line is open. Go ahead.
Hi there. Just to follow up on laps. If the 10-year bond yield was to go above 3%, would you start to worry about laps? I know you kind of talked about your experience so far, but what's your feeling on a rising yield environment creating conditions where central bankers have warned that there could be more lapses in liquidity risk?
We did some stress tests about the situation. Even in the case we see an increase in, let's say Treasury go to 5%, then we can speculate about how much lapses we could get. We did a stress test that even if we get twice the amount of lapses, I'm referring here to the U.S. obviously, compared to what we usually see, that there will be a significant amount of lapses. We will be protected from a performance point of view because we have all these surrender charges. Also the customer would lose the income benefit and we have also MVA adjustment. This was a calculation that we did in reality at the end of last year.
I would even assume the situation is now better because in the meantime we have also put more bonds clearly which are at par. If the calculation at the end of last year, that was basically in the, in the autumn of last year, was showing that we can sustain double the normal lapsation without any major issue. Right now we say the situation is even better. Always keep in mind that when you lapse a policy on the life side, there is a lot of penalties at the end of, at the end of the day associated to a lapse in the policy, and this is clearly protecting the profitability of the company.
Which geographies are you worried about?
I'm.
Where you you know, Italy, is that one where you've seen more like the barriers to exit are lower?
Yeah, I'm not worried. Somehow usually where you might see more dynamic behavior is the U.S. That's the reason why we look carefully to the U.S. and there was the analysis was clearly indicating there is no issue. By the way, we don't see lapses really going up in the U.S. There was always an area where we know that also from a distribution point of view, usually there is more dynamic. Otherwise, I tell you in Germany we see a lot of stability. Also in Italy there could be some distribution channel. You see some churn, but nothing really major going on.
Thanks a lot.
Welcome.
Thank you everyone for your attention and participation. That was a lively debate. Unfortunately, we have to close the call. We say goodbye and wish you a successful rest of the day.
Thank you, and have a good day. Thank you.