Ladies and gentlemen, welcome to the Allianz Conference Call on the Financial Results of the First Quarter 2021. For your information, this conference call is being streamed live on allianz.com and YouTube. A recording will be available shortly after the call. At this time, I would like to turn the conference over to your host today, Mr. Oliver Schmidt, Head of Investor Relations.
Please go ahead, sir.
Thank you, Madison. Yes, good afternoon from my side as well and welcome to our conference call. There's nothing specific to be added from my side today. So I hand over directly to Giulio. Hi, good morning and good afternoon to Everybody, and I'm going to go as quick as possible through the presentation, then I'm happy to take your questions as usual.
If we go To Page 3 of the presentation, you can see that we had a very good start into 2021. When we look at the revenue, the revenue are flat. This is mostly explained by property casualty and Life Health. In Asset Management, we see A nice development on the operating profit. We have an operating profit of $3,300,000,000 which is clearly Above the prior period, but that was fairly easy.
But the point is that $3,300,000,000 is also above the run rate of our Outlook of $12,000,000,000 for the full year and also what is a good part of the story, all segments have contributed to these Results, when we look at the combined ratio in P and C, we are at our target level of 93%. When we look at the new business margin In light, we are basically also at our target level of about 3% and then the costincome ratio in property in asset management is below 60 And you see also that we had very nice inflows and we're going to see in a second. This is not just pink, it's also AGI. The net income is at $2,600,000,000 Clearly, the net income is benefiting from the strong operating performance, but also There were basically no impairment in the course of the Q1. So overall, a good start into the year, which is also clearly Encouraging as we think about the remainder of 2021.
And with that, I will go to Page 5. The solvency ratio has improved by 3 percentage points. If you adjust for
the
core of the Tier 1, in reality, the improvement on a pro form a basis is more like 7 percentage point and the sensitivity as you might see on the right hand side are basically The sensitivity downwards are basically very close to what we had at the beginning of the year. So strong capitalization sensitivities, Which are broadly unchanged. When we go to Page 7, you can see the driver, the development of the Solvency II Ratio and I will say what is definitely positive is the development of the organic generation is plus 9%. This number It's before dividend, before taxes. If you adjust for dividend and taxes, we have an improvement of 4 percentage points.
The market has been also favorable, especially the interest rates went up. So this leads to an improvement pretax Of 8 percentage point and then under capital management, management action we have especially the impact coming from The accrual of the dividend and also we had impact coming from having called the RTI. So again, 210% is a good level of solvency ratio. And I will say also the fact that So one driver of the improvement was a strong organic capital generation is definitely positive. And now we go to Page 9.
That's about our Property Casualty segment. That's about the growth rates. Overall, the Growth rate adjusted for consolidation and FX was minus 1.6%. If we also remove For a second, the Rianz Partners from the equation, reality the growth rate is minus 0.5%, so very close to a flat growth rate. Clearly, this is not a growth rate that we would like to see, but here we are definitely the impact coming from also the COVID situation and on top of that, we are taking also measure to in our commercial lines business in order to increase the profitability.
And we are very confident that as we go out of the COVID situation, we're going to see again our normal growth rates in property The rate momentum is overall stable. There is just an exception which is Italy, but that's also the country where we have a very strong The situation from a profitability point of view, so we are definitely a good starting point there. And then just one comment on AGC and S, The rate increases are still very, very strong. So when we say stable, we mean that we see stable rate increases. They might be slightly below What we saw last year, but we are still speaking of double digit rate increases in the industrial business.
So So if we now move to Page 11, the operating profit is clearly much better compared to the one last year. So overall, We have an improvement of €500,000,000 The driver of the improvement is the combined ratio. And I would say that Excellent year. Loss ratios improved by about 6 percentage points. Thereof, 2.5 percentage point of improvement is coming from COVID, 2 percentage point plus is coming from the better development of the natural catastrophe and a good one Percentage point of improvement is coming from underlying performance and the main driver of this improvement is indeed The development at HSC and S.
When we look at the expense ratio, it's also improved. So that's again a quarter where we are showing an improvement compared to the expense ratio in the prior period. And then the runoff results, it's Lower compared to last year. Here, I can tell you that we are just taking conservative Stans, I think our results as you see are good. They are at the level, the target we gave ourselves and we can also Take a conservative stand on our results.
So the quality of the 93% combined ratio is, in my opinion, very good. Moving now to Page 13, we have the exhibit by OIS. And you can see a lot of our subsidiaries Good combined ratio, very good combined ratio. So Germany with 91% or United Kingdom is even below 90%. The same Slide 2, Eastern Europe, Italy, Spain.
In Australia, we have a combined ratio which is higher than our expectation and that's because of The natural catastrophe in Australian in especially I think in the month of January. Otherwise, you can see that AGCNS has a combined ratio of 98%. This is in line with the expectation that we set The beginning of the year and here I can also tell you there is a COVID impact negative of about 3 percentage points. So in reality, If you adjust for that, one could say that the underlying performance is already better than the 98% that you See on this page and then you will have MS with a combined ratio below 80%. It's clear it's a clear indication that At the moment, there is no pressure on claims and we have been also fairly conservative in the choice of the loss peak.
And with that, let's move at Page 15. The investment result is for P and C is up 3%. And here what we see is that we got indeed a lot of support coming from The equity, we got dividends. There was not a drop in dividend like we might have seen A little bit in the prior year and also we got some additional profit from our equity participation on the other side And this was expected we see that the current yield is going down, but this was already considered if you want in our thinking about The outlook in reality, I would say that what we see right now is that we are running a little bit better compared to what we had anticipated in our Outlook of $5,600,000,000 for the operating profit of property casualty. So this might be an area where we're going to have a little bit of an uplift compared to What we told you a few months ago.
Now we can move to Page 17 on the Life side. Overall, you see that The production is up about 8%. So overall, remember, they were Always concerned about what could happen to production as we do all the product changes. And I will say that the production is holding pretty nicely. We see also very nice development in Italy.
We see a nice development in Asia. And the U. S. A, if you adjust for the FX, we see a growth rate of 8%. On the same time, the new business margin is going up by to be very Specific by 10 basis points, although I lose Slide 20, and the improvement is coming from Protection Health and that's because of Actions we have taken, especially in France, to improve the profitability of that business.
But in my opinion, what is very telling It's the fact that in the capital efficient products, although the environment is very different compared to what we had last year, The drop in new business margin is only 20 basis points and the actions we are taking are going clearly to have an effect in the course of the year. Indeed, also as you know, we are calculating this new business margin based on the beginning of the period interest rate with exception for the U. S. But for the Rest of the business, we do that. So as of now, even doing that, we're already above the 3% level.
So overall, Good level of production, also new business margin, which are going up and holding very nicely. And with that, at Page 19, we speak about the in Polio performance, overall nice increase compared to the prior period. That was also easy if you want because in 2020, we had a lot of negative impact due to the volatility, but we are also to recognize that $1,200,000,000 is Above the $1,100,000,000 of run rates, operating profit and also what is nice to see All segments, if you want, all lines of business are contributing to this improvement. Clearly, the development in the USA It's played a major role in getting to this kind of result increase, but I tell you we see also a nice development in Asia and also Italy, the Unilink's business is also doing pretty nicely. So with that, At Page 21, we show the new business margin and operating profit by entity.
Overall, I will say the new business margin is holding pretty nicely. And I will say in the USA, you can see That we had a substantial increase compared to last year. In Asia Pacific, we see a no business margin of 6%. And also I would highlight in Central and Eastern Europe, although the margin is a little bit down, it's still at a good level of 4%. So the only area where we need to put some additional work It's France, but also there you see at least that we were able to improve compared to last year.
On the operating profit, Again, you see a nice recovery compared to last year. And I think now we have a sort of competition between Germany Life and U. For the quarter, we have the exact same number of operating profit. So we're going to see who is going to do better In Q2 and clearly since I was in the USA, I'm always a little bit a fan of Allianz Life. And with that, let's move to Page 23.
On the investment margin, we have an investment margin of more than 1,000,000,000 And when you look at the investment margin in relation to the policy reserve, it's about 21 basis points, which is Higher compared to our expectation of annualized debt of 70 basis points to 75 basis points. I would say the following clearly in this quarter, we didn't see any impairment. Basically, there were really no impairments. So this has supported also The net harvesting and this leads also to this level of investment margin. As we think throughout the year, clearly, we don't expect to have This 20 basis points recurring unless the situation remains like that.
But I think most likely we're going to end up anyway At least at the upper end of the range of the 70 basis points to 75 basis points that we provided you at So the end of this year. So overall, a good result. I would like also to highlight anyway that our live profit are not just A function of the investment margin and indeed we get about 66% of our revenue or 2 third of our revenue From loadings and technical margins, so that's also something which is important to keep in mind. And with that, at Page 25, on the Asset Management segment, I can say results are really good. We have achieved a level of $2,400,000,000,000 of assets under management.
That's The highest level for Allianz and also what you see both AGI and PIMCO contributing to This development and when you look at the asset classes, you can see growth in all asset classes. When you look at the regions, you can see growth in all Regions, I'd like also to highlight that in Asia Pacific, we have more than $200,000,000,000 of assets under management. So it's not just Europe and America were clearly very large, but we have also sizable now presence in Asia Pacific. So if you go to Page 27 On the development of the 3rd party assets under management, you can see that the flows in the quarter have been Strong with about $40,000,000,000 of flows. They're off $12,000,000,000 coming from AGI.
That's the highest level For AGI, and if you remember, we saw also a nice trajectory at the end of 2020. In the case of PIMCO, we have been used To see this $20,000,000,000 plus now for a few quarters. And when you look then at the composition of these flows by asset classes and regions, you can see that Overall, there was a pickup inflows across the board. Then as usual, we had the impact Coming from market development and from FX and when you combine the 2, you see that at least for the quarter, The impact coming from these economic drivers was positive. So we are starting with asset base Of about $1,800,000,000 of assets under management, so that's a good starting point as we think about also The Q2 and the remainder of the year.
At Page 29, the revenue are up about 9% We see a very nice growth in the revenue at AGI. If you adjust for the fixed effects, it's about 15%. PIMCO is a little bit lower 6%, but PIMCO we had also a special effect which is Having impact also on the fee margin, we launched a closing funds in the Q1. When you Launches kind of closing funds, you have underwriting fees and you cannot defer the underwriting fees. If we adjust for that effect, fee margin will be a couple of basis points higher.
And also, I think the impact of that Underwriting fees on our revenue compared to the prior period was about 5 percentage points. So once you start adjusting the numbers of PIMCO for these effects, You get to a different picture and clearly that's a good thing, the launch of this closing fund because we're going to get revenue and profits moving Forward. At Page 31, the operating profit of the Asset Management segment is up double digit, 10% if you adjust for the FX effect is up 16%. PIMCO is flat, But that's a consequence of the FX impact. And in the case of AGI, we have a very nice development of the operating profit with about 200,000,000 of results.
And clearly, here you see the impact of growing revenue on a double digit level and the expenses are down About 7%. You remember, we did the restructuring last year. So now we see the benefit of this restructuring. The costincome ratio is 61%. It's the lowest costincome ratio we have seen at TGI.
Corporate, Page 33, is improved compared to last year. Here we have always some volatility. We have some The FX effects changes, so they were slightly negative last year. They are slightly positive this year. We have an improvement in the operating profit of our Lianz Technology and also there is some seasonality in the expense line item.
You might also remember that last year we had here the impact of the solidarity charge For COVID in France, overall, I would say we are a little bit better than our expectation, but there is also some just seasonality in the numbers. And at Page 35, your net income is significantly up compared to last SEER 2,600,000,000 Clearly, we are benefiting from the strong operating performance. And then as you see, The impairment are basically very close to 0. So there were no impairment during the course of Q1 And the tax rate is 23% is a little bit higher than last year, but somehow lower than our normal tax rate. That's because of a one off positive impact.
But all in all, I would say strong operating performance combined with Benign Capital Markets have contributed to these very strong results in our net income. So in conclusion, Page 37, I would say very strong quarter. It's not just about the $3,300,000,000 operating profit or the $2,600,000,000 net income. It's also about the underlying 93% combined ratio, 93% combined ratio in property casualty with quality, a decrease of the Since ratio and asset management in Life, you see that our new business margin as we speak is already 3% and we are getting premium. And you can also see the operating profit is very, very, very stable.
And in level of asset management flows, we have also, I would say, very strong costincome ratio at AGI, we have started with an asset base, which is a very good starting point as we think about the remainder of the year. So there is a lot of strength The underlying of the business and that's across the segments on top of that the solvency ratio 210% is very far away from 180%. So we feel pretty good about the start of the year and also about how We are positioned to go into the remainder of the year. And with that, I would like to take your questions.
We'll go ahead and take our first question from Peter Eliot with Kepler Cheuvreux. Peter, please go ahead.
Thank you very much. Good afternoon all and great results. I had three questions, please. Firstly, on that cost income ratio of AGI that you just mentioned, Giulio. Could you say how sustainable that is?
I mean, obviously, a very good figure. I'm just wondering if I mean, It's probably too good to hope for that, that can continue, but I'd be grateful for your comments. Secondly, on PIMCO, It looks to me like you've been making a higher margin on internal assets for the last couple of quarters, Just backing out the 3rd party funds, I guess, is that right? Is there anything that sort of happened on the pricing structure or Yes, you're able to comment there. And thirdly, on Euler Hermes, I mean, I guess given that Half the business presumably is still sort of 100% combined ratio.
The other half is really very, very low indeed. And I'm just wondering about your thoughts for the outlook there. I mean, should we expect the same pattern in Q2? What about As the economy is sort of open up, and I mean, I guess, when you think about the State scheme now, I mean, with hindsight, obviously, that was a bad deal for you because you've given away a lot of profit. I'm just wondering what the sort of outlook or discussions are on that?
Anything you can add would be very helpful. Thank you very much.
Okay. Yes, thank you, Peter. So starting from AGI costincome ratio, I wouldn't now assume that we're going to be a 61% cost to income ratio as a new normal. But Definitely, if you remember, the idea was we want to be a $67,000,000 cost in cash flow ratio. And I think this target is very easily achievable.
As we go through the remainder of the year and also as we think about the future, we need to consider also how much we want to invest in the business. I think you're starting from a very good point. And so now I will say that we are definitely in control of our cost income ratio. So that's a good place to be. So I would expect that clearly we're going to set us a goal, which is better than the 67% cost income Rachel, the conversation is going to be more about how much you want to invest in the business.
But I think the Progress at AGI has been really phenomenal. And I will say the statutory spaces or initiative that we did last year Clearly paying off, you can see this in this number. There is that's important also in this number, 61%, there is no One off nothing. So it's a pure number. So from that point of view, one could also argue, okay, that's a starting point.
But again, I think we always need to consider about how much we want also to invest in the business. But Again, very good situation to have. On the question about PIMCO and the internal So, no, we didn't change anything. So from that point of view, I don't know also how you derive your numbers, but there is nothing really Going on from the point of view or the profitability that PIMCO is getting out of the Management of the Allianz funds, the only thing it might be is Are, Allianz Real Estate, Because as you know, last year we put Allianz Real Estate into PINKO. So you might see an increase clearly of fees due to debts And also some increase in profit, but fundamentally there is no change otherwise in the charges that PIMCO This is taking on the managing on the management of the fixed income portfolio.
Then Jule Hermes on your question About the expectation for the combined ratio and I will say that You know that in reality the combined ratio, the underlying combined ratio is even better compared to the one that we are showing in the slides because we are not I'm not seeing necessarily claims activity at this point in time. I believe we're going to be in this situation definitely also as we go into to the remainder of 2021. And I would expect even to see stability in 2022 and then maybe by 2023, 2024, we might see a little bit of a different dynamic regarding solvency. The point in reality with Jura Hermes is we are not like a bank, right? We are not extending credit for 20 years.
So we can always adjust our This exposure basically on a daily basis. So definitely the situation looks very good, very strong. With hindsight, With hindsight, I would be a billionaire. So from that point of view, I would say at that time, the decision, my It was the right decision. We definitely gave some profit away.
But think about how people were feeling 1 year ago, right? So there is no regret or no complaints here. And we are actually, if you ask me, we are happy anyway that we are having this kind of conversation now instead of I'd be happy that maybe we are exceeding some losses to the state. I think we're in a better situation this way.
Yes, absolutely. Couldn't agree more. Many thanks.
We'll go ahead and take our next question from Michael Huttner with Berenberg. Please go ahead.
Hi. Fantastic. Thank you so much. I think, adjusted fees, what you said, these are amazing numbers. I think there are 3 point questions.
1, Which is what the previous kind of competitor, which I've supported, kind of said. I think they've made a they didn't say it quite like that, but I think they said they kind of implied they've never seen it so good. So in other words, the Texas fees That's for them was paid fully by rate rises. Is that the feeling you have for the business as a whole? And here, my specific question, because this sounds Hey, Vague.
Is why didn't you if you are so confident, why didn't you change guidance? And 11,000,000,000 to 13,000,000,000 is so big. It's like And then the second question, all time guidance. So you have raised it in operating profit from a range of 7% to 8% to now, I think 10 or maybe even over 10, maybe I don't know. I just wondered what the moving parts are to this.
And then my final question would be A really simple one. Your competitors are looking at back book deals. Is that something you were thinking about as well in life? Thank you.
Yes. I think I got 2 out of the 3 questions. Maybe at first I answered the 2 and then I asked you maybe I tell you what I understood.
That's what the answer is.
Yes, I go and then we okay. So on the first one about changing the guidance, it's almost philosophical that we're not going to change the guidance in Q1. It's after 3 months. Actually, when you look at the underlying performance, we are doing fine. And to a certain degree, clearly, we expect also This underlying performance to stay, so I wouldn't take the €3,300,000,000 times 4, but I could also tell you that, yes, most likely The $3,000,000,000 per quarter, we are going to be able to exceed that.
But in the Q1, we are now going to change guidance. I will say it's really a meta principle, almost philosophical. In the Q2, we see where we are and that's the time where Clearly, we might consider to change guidance. So there is no, let's say, nothing to read behind The fact that we are keeping this $12,000,000,000 plus minus 1,000,000 is just a philosophical position if you ask me. On the back book, because I didn't get the second question, yes, we're also looking at the book.
The book is
okay. The book, You also just tell you there was very small transaction, but basically we closed the back book transaction in Benelux. We are looking at So other bad books in Europe, we might consider also bad books in the United States Where it's a little bit even easier to get things done pretty quickly. So we are definitely also looking into this kind of Tool in order to make sure that the capital allocation can be the optimal capital allocation from a return To the shareholders, so we are definitely working on this dimension too. It can take time.
I just tell you, it's you need You know a lot of education, sometimes you need to educate regulators because they are not used to it. And there are sometimes policyholder consideration that you need to be aware of that can be tax consideration that you need to be aware of. That's the reason why We concluded a transaction about our Spanish paper book that was about $1,000,000,000 last year. It took us basically over 2 years to get from basically where we had the clear plan of what we wanted to do to get the final approval. So 2 years from once we are ready to move to getting the final approval.
But I believe that you are going to see some activities in the next quarters from our side.
And may I ask this is on buybacks?
Sorry? Bybit. Bybit, at the moment is still where at least in Germany, we are a little bit behind with our Corona situation, so we still have some lockdowns. I believe that after the summer break the situation is going to be back to normal also here. And at that time I believe That's also from a regulatory point of view, the sentiment is going to be different.
And as we clearly go into The 2nd part of the year, we are going to potentially consider buyback. I will say on the buyback, I will say And that's more of a general statement. It's definitely our intention over time to and that's what we did in the past To have a very disciplined approach where we do buyback and also we can take the opportunity to do M and A, so that's the philosophy that we're going to use and that's the way we want to run the company moving forward. Now clearly, you cannot do this on a quarterly basis, on a yearly basis, half and half, right? So there can be situation where you might see more M and A coming through and then you might owe buyback and the other way around.
But on a rolling basis, I can tell The philosophy that we are going to have is to have this healthy combination between M and A activity and buybacks.
Thank you so much.
Welcome.
All right. We'll go ahead and take our next question from James Shuck with Citi. Please go ahead, James.
Thank you. Good afternoon. Good morning, everybody. So two questions from me. On the premium growth in P and C, Giulia, so down 1.6% in Q1.
The annual report and recently we published it in March and you have 2021 Targets in those numbers and those targets were growth. We're talking about COVID and the impact of COVID, but expecting PMT premiums to rebound from a stronger 5% to 6% is the number that we started for 2021. So what's happened in the phase of 2 or 3 months that we're missing by that amount? That's my first question. Secondly, on P and C operating profit, you've got the guidance for 5,600,000,000 Plus or minus 10% in 2021.
The 3 year plan is actually calling for a number to be growing at a 5% CAGR. So we're looking at More like over $6,300,000,000 from that 3 year plan. I appreciate interest rates are lower, so there's Seemed some real pressure and pretty good volume growth is low as well, but you just have to understand the delta versus about 6.3% even if we are coming in at the top end as you said earlier. Thank you.
We cannot understand you properly. The line is very broken. So we got the first question, but the second one, I couldn't get you. The line is very
Is it? Yes. Can I look into that?
Sorry again.
I'll just turn it quickly. Sure. So the 2021 profit target you have for P and C is €5,600,000,000 plus or minus 10%. In the 3 year plan that was given in 2018, that called for 5% CAGR getting to at least CHF 6,300,000,000 in 2021. I appreciate the CHF 5,600,000,000 you're now saying is going to be top end of that, so maybe closer to CHF 6,000,000.
But I'm just keen to understand what the difference is between the 3 year plan and where you're guiding to at the moment. I presume it's to be volume growth and some of the investments you have pressured, but if you could just help me understand some of those moving pieces. Thank you.
Yes, perfect. So, Cami, on The first question was about the premium and premium growth. Okay. I know in the annual report there was a statement about growth in P and C. This came a From our economic results, we've been always very clear in our conversation that our expectation, especially for the beginning Of 2021 was to have a flat revenue growth that what We saw so I think the statement was a little bit more forward looking.
But our expectation have always been that In reality, in 2021, the growth is going to be muted. That's also the way we have been talking in our meetings. With regards to the Property casualty operating profit, yes, the point is clearly the investment income It's different compared to what we might have assumed at that time. If you look at the combined ratio, it's 93% is the same. So from that point of view, the 93% has not changed.
Then there is clearly the fact that rates went down compared to what we had in 20 2018. Also consider that I said before, we might have been conservative in the estimates of our investment income for 2021, so we might see an uplift compared to the 5.6% that we gave you. And then also the revenue growth in general is a little bit lower and think also that just because of partners We are basically losing $200,000,000 $250,000,000 of operating profit. So if you start just adjusting for that, which is probably which is going to come back once we get to the normal revenue basis. If you also Adjust for the investment income, then you'll see that in reality, the numbers are the one we said.
And Think about the fact that the combined ratio of 93% is what we are planning to hit and we feel very comfortable about that. Expense ratio is better compared to what we said at the time. So it's driven partially by Euler Hermes and Partners and Partially is also clearly there is a little bit less investment income compared to the assumption of 2018.
Thanks, Ilya. The second part is clear. The premium growth one, I just the annual report, which was published only a couple of months ago, You're talking about 5% or 6% revenue growth in P&C premium. And now you're kind of looking at minus 1.6% on a gross written basis. So My question is more about what's happened to that expected growth.
Nothing happened to that. I think that 5% to This percent of premium indicated there was sort of think on a normalized basis As we go thinking about what a total market can do, but that's not the number that we have Really consider in our thinking, there's also around the number that we've been using in the conversation that we had. We always have highlighted that We expect premium P and C to be flat. So I will not take that as the number that we have been discussing in our conversation.
Okay. Thank you very much.
All right.
We'll
go ahead and take our next question from Vineeth Malhotra with Mediocre. Vineeth, please go ahead.
Yes, good afternoon. Thank you very much. Just if I can ask one on AGCS. I mean, So obviously, very good numbers in this quarter already. I mean, I was surprised because I was thinking 98 would be somewhere towards Later part of the year, but we already caught 98.
Is there some hope that AGCS can even do more? And Because the pricing, 22%, which is stated somewhere, will obviously come in, will be earned through the year. I just wanted to understand how you think about Ravej's. If I can ask about CIBGORE. So obviously, very strong net flows.
But the perception in the market, how should we or how do you propose to Change and challenge that perception that, hey, when the U. S. Treasury yield goes up, there will be a dilutive out So that PIMCO, I mean that's where is there some more data you can provide to the market to say, hey, this is the kind of Revenue per strategy or obviously, there is evidence of inflows coming in, but I'm just wondering if you could comment on that. And lastly, if I may ask, there has been some if I could just Also an update on the M and A strategy, please. Given there's been an asset in the U.
S. Where this sort of flat bound And yourself as well. Could you just comment what kind of I mean, is there a change or should we just continue to believe that the old Bolt on approach for what Jens was most comfortable in? Thank you.
Okay. Thank you, Vinit. On AGCS, I will say that, yes, we should over time see an improvement. As I was also saying before, the 98% includes 3 percentage point of COVID impact. And also if you look at the natural catastrophe, they were not excessively high for AGCS, but there were also no loss, I would there was no benefit, let's put this way, for natural catastrophe in the sense that we had a load from that.
So I would say the 98% is a number that's if you look at the underlying is even better. We see rate increases. So from that point of view, Yes. The expectation is that we're going to see over time better performance at GC and S. Indeed, I was also discussing the situation with Dan the other day.
And we are at a point where we also believe that on a selective basis, clearly with a lot of discipline, We can also start thinking about growth again. We wanted to be very sure that the underlying performance is strong. We did the analytics Clearly, the beginning of the year as we had all the information collected by year end and we got Good response that we are on a good track. So from that point of view, I will say that the 98 is not the end The story, but that should be the beginning of a different chapter for AGCS and the market is also helping. Let's be serious.
There is a lot of good stuff That we did and the market definitely also supporting this direction. On PIMCO and the net flows On the yield and treasury rates going up, I would always say that, yes, Clearly, if you have rates going up, first, you might see investors going on the sideline because clearly They are not going to invest in fixed income if there is the expectation that rates are going up. I would also differentiate. There are a lot of investors That are just investing in fixed income no matter what, but you might have the call it the smart money, might clearly wait, but then you get the flows 6 months later because then that money eventually is going to flow. So I would always separate what can be the volatility that you might see in a quarter, 2 Quarter, so 3 quarters compared to what you have to expect on a long term.
And I would even say that higher rates would not be a negative for Pink. I will say they will be on a present value basis rather a positive. So from that point of view, I will say that Santi can be manageable. Also, I will say think about how diversified we are. So at the end of the day, when you look at the diversification that we have also by strategy, I think there is a lot of Resilience and I'm also sure that PIMCO will be capable to come up with some strategy also to manage maybe the situation in the short term.
So yes, there will be definitely an impact if rates go up. It might be more significant or less significant, but I will not be concerned about the fact that The franchise of PIMCO is going to be very strong and reality we're going to benefit out of debt. So I'm not concerned about rates going up. I might maybe to explain to you this quarter flows were negative. And then to quarter later, I'm going to explain to you why the Net flows were so great and everything is going to be fine.
On the question whether we can give your margin by strategy, the answer is no. We cannot do that. But you can imagine, right? If it's a commodity fixed income, it's going to be lower fees. If it's some Alternative asset is going to be higher fees.
I think that if you do some normal market research, you're going to find out that what could be The revenue strength by asset classes, I can tell you that due to the quality of our franchise, usually we And get fees which are at least at the market level, let's put this way back and I'll give you numbers Internal numbers by revenue, but there is no major secret. And then on M and A strategy, there is no change Compared to what we have done so far and also if you look basically at the latest transaction, they are not different. They might be a little bit larger in size because clearly the Aviva Poland transaction was larger. But from a philosophy Point of view is clearly trying to strengthen our franchise in countries where We tend to have a presence where we can create some synergies. So there is no change to the M and A strategy.
And as I was Same before, there is also no change to this idea that we want to combine buyback and M and A. As I was saying before, we cannot do this on a quarterly or yearly basis, but on a rolling basis, definitely you're going to see This balance coming through.
And just if I can follow-up please. On COVID, there seems to be, I'd say, very low impact in 1Q. If I mean, do you have an outlook uptake for 2021? And if it is Going to affect your 2021 costs?
So on Corie, I can tell you the impact in Q1 was indeed neutral. So we had We still had some business interruption losses. Also, as I was saying before, there was an impact of about 3 percentage points at So, G and A, but on the other side, we have the frequency motor, which is lower. So, as I look to the remainder of the year, I would say that I would not expect an impact from a negative impact from COVID. We might see In some legislation, still some development on business interruption.
On the other side, we also know that the frequency in motor it's going eventually to normalize, but as of now, it's still lower than normal. So I would say the COVID situation is not going to have any Correct on our numbers. I would also expect that as travel is coming back, that we're going to see a lift Revenue and profitability at Allianz Partners and also we are going out to the stay scheme In July here in Germany, so you we should also see some more profit coming from Credit Insurance. So overall, I will say that this call should be neutral. And in reality, I think we might still take the opportunity to even add to the quality of our balance sheet as we are doing right now.
Thank you.
Welcome.
All right. We'll go ahead and take our next question from for Roop Hanif with Credit Suisse. Please go ahead.
Hi, everybody. Good afternoon. On reserve releases, When do you think the conservatism and visibility on some of the IBNR clears up and then you move back to the more normal range? It's question 1. Question 2, you painted obviously a very bullish picture for AGCS, but on the reverse side there's Yes.
Do you think there's potential risk of liability claims inflation coming back as the economy opens? And then lastly on illiquids, are you still at close to the sort of 21% level? Or do you think now, Particularly as we go into new IFRS, do you think now there's opportunity to even further increase Exposure to illiquids. Thank you.
Okay. So the first question on the runoff, I will say that So we might change approach as we go into 2022 and beyond. But for this year, I think we are going more or less to follow this approach. So next year, 2022, 2023, 2024, you are hedging by the way in a quest of inflation. We are not Concern honestly speaking about the spike in inflation or we might see some inflation happening Here and there, general inflation is not necessarily the claims inflation, but this is something anyway that So at least we need to consider.
So having a stronger reserve basis might be anyway also a solution In the case or on the offset in the case, indeed inflation is backing up and is impacting The claims inflation. So for the time being, we are doing analysis definitely, But we are not seeing, I'll tell you right now that there is an increase in claims inflation or at least let me say we don't see this across the board. You might see in some specific But we don't see a trend now generalized about an increase in claims inflation. And now on the liquid Smit, and IFRS 17, I don't think necessarily that IFRS 17 is going to have an impact on the amount of liquid that We are holding because at least on the debt side. Okay.
We need to consider what the classification might be. So if we end up having a classification of some in liquid that we need to Use fair value, we might reconsider the exposure to those liquid, but I would assume that there are Plenty of opportunities to find the liquid which are going to be treated from an accounting point of view the same way that We are counting now. So I think that in general in the portfolio, you might see some movement, but it's not going to change our approach and our appetite for liquid assets.
Okay. That's great. Thank you very much.
Thank you.
All right. We will go ahead and take our next question from Ashik Musaddi with JPMorgan. Please go ahead.
Yes. Thank you and good afternoon, Gilles. Just one question I have with respect to again going back to Farooq's question on runoff. I mean, runoff in this quarter was quite low. I think 1 point something versus, say, 2%, 2.5% normal run rate.
And at the same time, obviously, cat was a bit lower as well. But even if I normalize both of them to your historical levels, It looks like you could be hitting 90% or 92.5% of combined ratio. That's what I'm kind of getting a bit more cleaner number, which is better than your 93% ratio. Now typically, I don't want to go into decimal places, but because 0.5% or 1% is still relevant Combined ratio, I just want to get a bit more color. Is this the right way of thinking about it?
Because you also mentioned that travel is coming back, The state scheme will give you higher profits, which will offset any motor. So there is no negative drag from there. So any thoughts on that would be helpful.
So I will say that, Ken, the only thing I can tell you the quality of the 93% combined ratio is good. So clearly then if I Say this statement, one can also derive the conclusion that the $93,000,000 can be lower than that. I would really not go into This kind of consideration on a quarterly basis, the only thing I can tell you, the quality is good. And also as we are thinking about the future, We might think about definitely bringing this combined ratio 93 as an indication below that level. And it might be that we are already positioned well-to-do that, but I will not really over analyze A quarter.
So the only message I can give to you is that we have Our 93% combined ratio, we feel good about the quality of the 93% combined ratio.
Okay. That's very clear. Thank you.
Welcome.
We'll go ahead and take our next question from Michael Haid with Commerzbank. Please go ahead, Michael.
Thank you very much. Good afternoon to everyone. Two questions. First on life insurance. The new business margin you mentioned in Brands is still insufficient and you said you need to do additional work there.
Can you elaborate a little bit on what you want to do in France? 2nd question on Allianz Direct. The gross premium development in the Q1 was fairly low in my view. Looks a bit disappointing. I would have expected in times of corona that Allianz Direct would grow more instead you shrunk.
Is that Is Allianz Direct below your expectations? Internal growth there was minus 11%. What is going wrong at Allianz Direct?
Okay. Well, thank you for the question, Michael. So starting from France, The point in France, the new business margin we are taking action and indeed the new product that we launched It's a new business margin. You need to do some economic calculations. We're not going to go into the details, but let's the new business margin in the product is more about 1.5% to 2%.
So over time, you're going to see that flowing. So, but we need to clearly build up that Business more over time, we need to get to a better performance in our protection business. And then potentially, We need to try and see how we can push more pure Unileam business. So I wouldn't say that we are not taking Action. So we have been taking action.
You see there is already at least an improvement compared to the Q1 last year. We think that by the end of the year, you're going to see an improvement compared to the full year 2020, but that's an area where We need to push a little bit harder on the mix and we need to see whether the new hybrid product that we have been launched is going to be enough To position the company the way we like or whether we need to have even a stronger change In the mix and think more about unit linked solution the same way we did in Italy where the reposition has been extremely strong. And I want to also highlight The 1.5% of new business margin in Italy in reality is very good because we are talking over uni linked with very High efficiency is also short term, unit linked. So sometimes it's also important to understand that the new business margin is not It's a KPI that one has to really look into to appreciate the quality of the KPI. So in France, we are taking action.
We are not there where we want to be, but if we need to The acceleration on the mix we are going to do that. So I think we're going to add a response in the course of 2021. On direct, the reason why premiums are down compared to prior period is that We basically decided to go out of the aggregator. There was a decision in Germany and the reason was that the profitability was very, Very poor. So we basically canceled that business.
Also in Italy, we are still in the aggregator, but We decided to follow a sort of hard line on profitability. So from that point of view, yes, you see premium going down, but that's almost adjusting the baseline. So we are basically creating a new IT platform. We are creating a new business model. And also we have a different view on what We think it's good and profitable and what we think is not really good and profitable.
And this explained, I think, also about That if you had this aggregator business, which was not very profitable and this was part of the Gigante Allianz physical, the impact was relatively minor. When you put these on a smaller scale, then you see things that you don't like. And so I will say that from a disciplined point of view, That's a positive because clearly what was maybe just a very minor issue in a bigger portfolio, this becomes a little bit of a more visible issue in a smaller portfolio and we didn't like it and we made changes. Other point to say on direct, I will not measure the success Direct in the quarter, strategic decision is relevant. They had to be measure Over a time horizon of years.
So from that point of view, I think we have now created the platform. We have created or pruned the portfolio in a way that we think it makes sense and then see what happens in the next 2, 3 years and then we're going to judge The success of this initiative.
Thank you very much. Excellent.
Welcome.
All right. We'll go ahead and take our next question from Dominic O'Mahoney with Exane BNP Paribas. Please go ahead, Dominic.
Hello. Three questions for me, if that's all right. Firstly, I see you've extended the duration of your assets To be on the length of your liabilities in life in addition to P and C now, just curious to understand the rationale for that. Is this to control the rate sensitivity in solvency position or is
it something else? Second question,
Just on AGI, very strong flows. Could you just remind us of the changes there? Are you familiar with the cost and sort of efficiency changes? But Could you just remind us maybe on the product side, if there's anything driving the very strong flows there? And then thirdly, In April, EIOPA announced a review of value for money in uni linked and hybrid Savings Products.
Can you just comment on any expectations, any potential risks you see from that review? Thank you.
Yes. So I couldn't get the first question by the way. Asset duration standards, why? Okay. On the asset duration, sometimes this We need to make a we extend a duration because we might be short and so we go longer, then rates go up and then you end up Being on the other side of the spectrum.
So it's always a little bit of adjustment that we do as we see The quarter is happening on the market, but we are always a little bit behind. So that's the reason why sometimes we are undershooting on the duration, sometimes we are overshooting. Fundamentally, The idea is that we want to be duration neutral. So we're not going to run with the duration gap One way or the other for on the life side for an extended period. But again, always keep in mind that rates are moving And we are always kind of following a little bit the rates movement.
On AGI and the flows, You know, when you look at the flows are coming basically from, I would say, from Asia Pacific, we see More flows than we saw in the past, so that's definitely something new and we have a very strong equity story. We Also especially in Asia, but we also saw nice flows coming in Europe. So from a distribution point of view, We are pretty strong in these two areas. From a production point of view, we are producing where we are producing the asset, this is coming Also from the United States. So we have, I think, a good combination of a strong manufacturing And then we are capable to place this solution in Europe where right now there is a lot of growth also coming from Asia, Asia Pacific.
I think also the SG topic is something that we are stressing that can be Helpful and also I will say, before we were trying to push a lot of different strategies. Maybe when you push too many strategies then you lose focus and then maybe you are more confusing for the clients when you are putting more focus and pushing Just a few strategies. You might not have the same level of diversification if you want, but if you are doing a good job, you might get A better fact in this. So I think these are the changes that the new management team has done and they are playing Pretty, pretty nicely. I would also not underestimate the new CEO was the Head of Distribution.
So if you put me in charge of AGI, you might see a different outcome. So everybody has to do its job. And I think that there might be also The reason why we see a different distribution effectiveness in AGI. The last question on the hybrid and We always look internally at what is the value for money for our policyholder. We do this In Life we do this also in Property Casualty.
By the way, one of the reason why our growth in France In property casualty was low this quarter because we decided to dismiss some business because of we were not happy with the amount of commission versus the loss ratio. So these are consideration that we always do. And from that point of view, we should be positioned in a way that when the regulator is going to come out with any kind of Specific guidance we should be able to either to be already there or to adjust to it very, very quickly. But So customer value has been since years for us on the P and C side and even more I would say on the life It's always been one of the indication that we the things that we look at. We have a framework here at Allianz where we are rate We're proud that's in different category like AAA, AA, A, all this way, all these kind of S and P rating.
And one of the criteria in order to be a AAA product is that there is customer value. Otherwise, if you don't take customer value, I think that's almost the entry point to have a conversation about the product.
Very helpful. Thank you.
Welcome.
All right. We'll go ahead and take our next question again from Michael Huttner with Berenberg. Please go ahead.
Thank you very much. I'm very lucky. Thank you. And can you say three things. One, a word about flows As you see them at CIMCO and AGI.
The second is everything sounds so positive. I just wondered if you could give us a few risks as well. Well, profit consensus numbers might go very high. And then the last point, can you give us you've given us few hints already for the next 3 year plans. The lower combined ratio is one of them.
Can you give us a couple more hints, please?
Okay. So on the flows on Asset Management and you can also then look at Page 27, you can see where the flows Coming from, so I can give you a little bit on idea because you're asking also maybe PIMCO versus AGI. When you look at the flows on Page 27 from in fixed income, clearly they are mostly coming from PIMCO. We are going to look at the equity side. They are coming from AGI.
And I will say when you look at multi assets and alternative is a fee as pre between the 2. So basically you see the strength of PIMCO Brain Fixed Income, you see the strength of AGI Brain Equities and then on the other two asset classes Both are contributing. When you look at Asia Pacific, as I was saying before, clearly there is also a nice contribution From PIMCO, but I will say the contribution from AGI is pretty strong and overall proportional. And then when you look at So Europe, you can imagine that the AGI is a little bit stronger. And then In America, PIMCO is definitely taking the lion's share.
So overall, I would say you see strength Across the board in both entities, clearly one is playing some strengths more than other, but it's very well diversified, Especially when you put the 2 entities together, you get to a very nice diversified flows revenue and I think that's very important. The other day Or to a couple of months ago, I was looking I don't know why, but I was looking how S and P is doing their rating of asset manager Companies, there was a very interesting reading. That's a lot about the diversification of revenue, the diversification by geography, The diversification also you might have in your distribution channel. So this is something that we are keeping in our mind how we can create As much as diversification as possible and I think this picture tells you that Definitely, we are getting flows from different areas of our portfolio. On the profit consensus, I do my job, you do your job, you come out with a consensus.
Okay.
And then I will look at that and we make our comments. And on the expectation for the future, I will say, we're talking in the Capital Market Day, That's where we can really talk about that. I can just tell you that Based on where we are now, we think we are going to have a good set of numbers this year and this is going to be a good starting point for the future.
Yes. I'd love that. Can you say a word about flows in April May?
Yes, the flows, I can tell you the numbers of April, there were €8,000,000,000 flows, half and half between PINK and the GI.
Thank you very, very much.
Welcome.
We'll take our next question from William Hawkins with KBB. William, please go ahead.
Hi, it's still KBW as far as I know. Judah, can you just tell me one question? Why is the ratio of acquisition expenses to PVNBP so low in your Life division this quarter? Your disclosure says 6.8%. It's normally about 8%.
And it's quite eye catching that whilst your revenue has been strong, your Acquisition expenses have gone down, and that's happened in all four of the parts of the Life and Health. So it doesn't seem to
be a business mix issue? No, I think it's a business mix issue at the end of the day. And because we didn't really change The compensation starts in a significant way. I can also give you an example that's always easier for me to talk about Allianz Life. There you see, for example, A reduction of this ratio and that's driven by the fact that we are selling more IVA versus fixing this annuity.
And in IVA, the present value of commission over the present value of new business premium is going to be lower. It's also short So duration product by the way. So it's mostly mix related and in the case of If it takes you, so sometimes even within a company, you might see a reduction, but then you need to drill To dig deeper into the company and then you're going to see that a change in business mix within the companies can make And think about the fact that we are changing business mix significantly. So just to come back to the point of Adient Life, Right now, we are basically fifty-fifty between fixing this annuity and IVA. It was not so the IVA production is matching the fixing this annuity production.
That was not the case last year. And there are other similar cases in other OEsos. That's also a sign of the change in business space that we are doing.
Okay. Thanks. It's just strange because it seems to have affected all major divisions and it's a very big
change. Yes. Welcome.
It appears there are no further questions at this time. Mr. Schmidt, I'd like to I'll turn the conference back to you for any additional or closing remarks.
All right. Thanks, Madison. Yes, if there are no further questions, let We thank you for joining our conference call and I wish all of you a pleasant remaining day. Goodbye from our side. Thank you, guys.
Have a good rest of the day. Bye.
This concludes today's call. Thank you for your participation. You may now disconnect.