ageas SA/NV

Good morning, ladies and gentlemen. Thank you all for dialing into this conference call and for being with us for the presentation of the 9-month results of Ageas.

As usual, I'm joined in the room by my colleagues of the Executive Committee, Christophe Boizard, CFO; Emmanuel Van Grimbergen, CRO; Antonio Cano, Managing Director, Europe; and Filip Coremans, Managing Director of Asia. As you know, our activity faced significant headwinds this quarter with the devastating summer floods in Europe and the continued negative impact of the adverse interest rate evolution in China, not to mention the resurgence of the COVID pandemic in many Asian countries.

Faced with this difficult environment, Ageas has once again demonstrated the resilience of its diversified business model by achieving an excellent commercial and operating performance. Our net results amounted to €161 million in the third quarter, including a €67 million negative impact related to the RPN(i) revaluation, and we enjoyed a strong underlying performance across all entities.

In the consolidated entities, the Life operating margin reflected the excellent operating performance. The Guaranteed operating margin over 9 months was even slightly above target range, reaching 96 basis points, thanks to a solid investment result supported by the realization of net capital gains.

It's also worth noting that the real estate revenues in Belgium are gradually recovering from COVID-19 impacts. The group Unit-Linked operating margin stood at 34 basis points at the end of September and reached the target range both in Belgium and in Continental Europe.

In Non-Life, the combined ratio over 9 months stood at a solid 95%, in line with our target, despite the severe floods suffered in Europe, which had a negative impact of around €70 million on our group net result, split between Belgium, U.K. and Reinsurance.

This solid operating performance is all the more remarkable considering that the claims frequency in Motor has now returned to pre-COVID levels as restrictions on mobility have been lifted across Europe. Our nonconsolidated entities in Asia also contributed significantly to the net results this quarter.

Indeed, despite the continued unfavorable impact of the discount rate evolution in China, our Asian operations recorded a strong performance driven by a positive underlying trend, further supported by the contribution of net capital gains. On the commercial front, as mentioned, the trend was extremely positive as Ageas recorded a double-digit growth amounting to 11% over 9 months, driven by a solid performance across regions.

Life inflows were driven by new business in Asia and Unit-Linked sales in Belgium and Continental Europe, while Non-Life inflows benefited from a strong performance in Belgium and Portugal and the inclusion of Taiping Re in Asia. Moving now to our cash position.

Our cash position amounts to €1.3 billion, which gives us great financial flexibility. Since the beginning of the year, we have received €697 million dividends from our operating companies, which is a record amount for us.

These dividends more than cover the holding costs and the €485 million dividend paid to Ageas shareholders in June. In conclusion and before handing over to Christophe, I would like to add that thanks to our strong third quarter results, we are confident in our ability to achieve our profit guidance of €850 million to €50 million for the full year.

As usual, this guidance is excluding the RPN(i) impact. We are also fully on track to reach all the targets of our strategic plan, Connect21, which comes to a close this year, and are ready to kick off Impact24, our new strategic plan for 2024.

And now ladies and gentlemen, I will give the floor to Christophe for some more details on the results.

Thank you, Hans, and good morning, ladies and gentlemen. As you can see on slide fuve 9-months group result amounted to €568 million.

If you exclude the €123 million negative impact from RPN(i), you will come to a net result of €691 million. As mentioned by Hans, we recorded a strong performance year-to-date despite some severe headwinds, and I will now give more details by segment.

In Belgium, Slide 6, the combined ratio at 97.5% year-to-date reflects the impact of the devastating floods of July. As you may remember, given the exceptional severity of this event, the total gross claim cost for the Belgian market largely exceeded the cap of the intervention of the insurance sector foreseen in the legislation.

Ageas, along with the sector, made an additional effort above its legal obligation to make sure that the victims of the flood be fully and timely compensated. The adverse weather had an overall impact of 8 percentage points on the combined ratio of Belgium over 9 months.

Excluding this exceptional weather impact, the combined ratio recorded a strong underlying performance in all business lines. In Life, we recorded a solid performance with a Guaranteed operating margin amounting to 93 bps over 9 months, in the high end of the target range.

This was due to a solid investment result, especially from real estate where we realized in Q3 some capital gains. Furthermore, the Unit-Linked operation margin reached 35 bps, at the top of the target range.

Inflows recorded a robust growth in both Life and Non-Life. Life inflows grew strongly in Unit-Linked as much as 46% over 9 months, supported by commercial campaigns in the broker and bank channels.

Non-Life inflows achieved an excellent 9% growth with increases in all business lines. In the U.K., Slide 7, claim costs in Motor have broadly returned to pre-COVID levels with lower frequency no longer compensating for the continued increase in claims inflation.

Despite the impact of the July floods and the prudent reserving in Motor, the 9-months combined ratio amounted to a solid 95.7%. The net result, €49 million after internal reinsurance was further supported by a change in tax regulation.

On the commercial front, inflows have proven resilient in the COVID context. The pressure on price and volume absorbed in the motor market in the context of the pandemic was compensated by continued growth in household.

Therefore, overall, inflows remained stable scope-on-scope when excluding the contribution from Tesco Underwriting in 2020. In Continental Europe, on Slide 8, we enjoyed a satisfactory performance in both Life and Non-Life.

In Life, the Guaranteed operating margin amounted to a strong 115 bps, thanks to, as usual, a solid underwriting performance. The improvement in the Unit-Linked margin, which now reaches the target range, result from the change in product mix and the increased volumes of inflows.

Additionally, the new Turkish joint venture, AgeSA, has performed very well and contributed €7 million to the Life result since its consolidation in May 2021. If you compare the Life result to the one recorded last year, you have to keep in mind that the 2020 result was inflated by €20 million reserve release coming from Portugal.

In Non-Life, the combined ratio over 9 months stood at a remarkable 86.1% with claim frequency back to pre-COVID levels since the second quarter. The contribution from AKSigorta in Turkey was impacted by adverse claims experience and, of course, by inflation.

The strong inflows growth was driven by higher sales in both Life and Non-Life. Life inflows were significantly up with a marked shift towards Unit-Linked products, which more than doubled over 9 months and accounted for 57% of the Life inflows.

Non-Life inflows increased by 15% at constant exchange rate, driven by a strong performance in Accident & Health. In Asia, Slide 9, the group continued to record solid performance.

In Life, the underlying trend has been positive. And the continued unfavorable evolution of the discount rate in China, impact of €136 million versus €85 million last year on a year-to-date basis, has been partly mitigated by realization of capital gains.

In Non-Life, the result was firmly up, thanks to a solid performance in Malaysia and Thailand, further supported by Taiping Re contribution. The commercial performance in Life and Non-Life has been resilient with scope-on-scope growth at constant FX despite the continuous challenges of the pandemic in several Asian countries.

It is worth mentioning that the growth in China was driven by strong new business, focusing on high-value regular premium products. The Reinsurance results, on Slide 10 now, amounted to a solid €14 million this quarter despite the impact of adverse weather in both Belgium and the U.K.

Please note that the additional effort made by AG in Belgium to compensate the victims of the flood was not shared with our internal reinsurance. As in the context of transfer pricing policy, it followed market behavior, the reinsurance market behavior.

Moving now to our solvency and free capital generation. Our group Solvency II ratio, Slide 12, stood at 187% at the end of Q3.

The decrease over the quarter was mostly driven by a market impact resulting from the RPN(i) revaluation and also inflation. Additionally, we have pursued the revision of the strategic asset allocation in our core markets by investing more in equities and, to a lower extent, more in real estate assets.

As you know, this evolution of asset allocation weighed on our solvency in the short term as it increases the SCR. But in the longer term, higher returns on investment are expected and creating additional own funds.

Lastly, the exceptional floods of this summer, so in a period where cat events are not frequent, obviously impacted our own funds. The expected dividend remains, however, strong as it is based on the IFRS results, which included important realized capital gains.

The operational free capital generation, on Slide 13, amounted to €455 million year-to-date. It benefited from a strong €177 million dividend contribution from noncontrolled participation.

The operational free capital generation generated by entities of the Solvency II scope has been also impacted by the ongoing evolution of the strategic asset allocation in Belgium and also in Continental Europe. This had a drag of around €100 million on our operational FCG.

So if you exclude the impact of our asset management actions, the operational free capital generation of the consolidated entities would amount to around €380 million, which is in line with our quarterly run rate of roughly €130 million. And now I have reached the end of the presentation.

Thank you.

Okay, two questions. I think my first question would be related to the capital gains you have in Asia.

When I spoke to the IR team earlier today, I understand that capital gain is the fact that the local companies actually write down their real estate holdings in China. But because you don't report the unrealized capital loss, so you actually reverse what they have done on the local accounting basis.

I'm actually -- I think I'm fine with that accounting, but just curious that will there be in the future, at some stage, if economically, the local entities continuing writing down the real estate investments and then it will trigger some impairments from your side on the accounting as well? And how far away we are from that impairment trigger?

I guess the kind of general theme is that, so are you really concerned about the real estate investment in China? So that's my first question.

And the second one is, while you confirm the guidance, the group earnings guidance, but then if we -- if I look at the guidance before, that group guidance, €850 million to €950 million goes together with the Asia results guidance of €350 million to €400 million. But now Asia is already like more than €300 million, but you actually stick to your group guidance.

Does that mean that -- are you going to change the Asia guidance? Or you actually think the fact that you stick to the group guidance because you don't have confidence of Asia results in 4Q?

Thank you. This is mostly related to Asia, so I will turn to Filip.

Thank you so much, Fulin. Thank you, Hans, for handing the question to me.

Now first and foremost, on capital gains Asia and the real estate situation in China, I think we have to make a distinction there between the capital gains and other accounting adjustments that we make. So what you're referring to is our valuation room, which defers indeed from what China Taiping does on real estate.

The fact is that we keep real estate also in China at historical amortized cost. That means we never take revaluations and we never took revaluations on real estate to the profit and loss account, which in the local accounts does happen.

So that means that over the years, of course, there is a quite significant buffer in between valuation of real estate as it appears in China Taiping's books and ours, which we have not recognized. That obviously is achieved through volatility in real estate valuations.

That is a fact. But to be clear, the real estate sector, like Evergrande and other names that have been circulated, there is no exposure of Taiping Group and none of our other entities in Asia region on these names.

The main real estate exposure at Taiping Life is actually quite limited and mostly is related to their own buildings. So that is a quite different situation, mainly own use.

So we do not expect, and certainly not in the short term, any impact from the real estate turmoil directly on our -- certainly not at our end, but even not at the end of China Taiping. Of course, indirect impacts in future of macro is a different story that everybody will have to deal with.

Talking about the outlook. Yes, indeed, on Asia, we had a good result as -- and I would say, a bit in line with what we expected, which we announced at half year.

We had €303 million year-to-date, but of that incorporates €136 million VIR. And indeed, the capital gain realization of €94 million net our share, which is not fully compensating the Re.

So we do not change our outlook for the end of year for 2 reasons. First and foremost, the fourth quarter in Asia is every year seasonably low.

It's definitely a quarter, and you can recheck the previous 2 years to give you a feel, that does not add so much. And the reason being that in China, from the month of November onwards, they start to prepare for the traditional opening year campaign in the next year, which reduces new business sales, but also adds already commercial costs, and that always puts pressure on the fourth quarter result.

Secondly, there is still some VIR impact to come. At the half year, we indicated a range between €170 million, €180 million for the full year and in further notice because rates change every day, but that is unchanged, and this is still what we expect.

So that means there is still an additional VIR impact, which is quite significant, around €40 million, €45 million to come in the last quarter. And whether we will, again, compensate that partially or entirely by capital gains, remain to be seen.

So in terms of guidance, I would say we stick to what we said at half year. We are in the range €350 million, €400 million, certainly with our underlying results if I take out VIR and the capital gain, which was at €345 million year-to-date.

But we guide towards the lower end of that range, and we stay there for the time being.

Okay. Could I sort of -- and just confirm that my understanding is correct.

Are you saying that in China, your -- the market value of the real estate assets is actually still kind of above the historical amortization cost? So...

Absolutely. Let's not -- certainly, in our case, but even for our partner, they are -- the type of real estate, the Evergrande story is really about retail exposure to apartment building, et cetera, et cetera.

That is not what we invest in. We have some office space, but the majority of our real estate exposure in China is our own buildings.

And we have them at historical cost, historical cost even amortized.

I'm going to ask the same question as Fulin. Okay, you haven't laid your targets for China, but why didn't you raise them for the group?

Every other men were beat. And it's almost like saying, yes, they beat, but Q4 is going to be rubbish.

It's not a great message. I'm not exaggerating.

I'm trying to make it more punchy. But any comments on that would be very helpful.

And then the other is a more analytical question. Belgium Non-Life volume is up 9% in, I think, 9 months, you said.

I think that's right. How much of that is pricing?

And how do you see the relationship with inflation?

Okay. On overall guidance, well, I think you have already gotten the response on Asia where traditionally, the fourth quarter is always, I think, a little bit less bottom line because the commercial campaigns are starting.

And the real impact, I think Filip was clear on this. Also to be clear, we're talking about a range, €850 million to €950 million.

Remember that in the half year, we said it would rather be to the bottom end of the range. That's what we have said in half year.

Now we say it is within range. So I don't think that here, we don't want to be too aggressive on the outlook.

We are confident to be within range, which would also mean that we would deliver on all our KPIs that we have set for Connect21. For Belgium, I'll give the word to Antonio.

Thank you, Hans. Michael, I'll give you a short answer and a simple one.

So it's 50-50, 50% volume, 50% prices. Having said that, it's not 50-50 for all product classes, obviously, but it's about 50-50.

And how does that relate to inflation?

Of the -- I think the inflation would be mainly in a household book, which is running at 2% to 3% so far. It might end higher towards the end of the year.

So that will be the part that's linked to inflation in households. But not all rate increases are linked to inflation.

So 2% to 3% is the inflation in household?

Yes. To be complete, expected is that the so-called ABEX Index, which is actually construction price inflation which drives the household indexation, is 5.6%.

And the pricing is about 4.5%?

Sorry?

And the pricing, you said, is about 4.5%, half of the 9%.

Half of the -- yes, for the total book.

So those...

Yes, yes, yes. But inflation impacts directly and mostly the household books.

Well, actually, it's not really a price increase. Also the insured value goes up as the construction price of house increases, in fact, your insured amount goes up.

So yes, we tend to call it correction for inflation. It is true, but bear in mind that also the insured amount goes up.

Okay...

Michael, to be complete with Antonio's comment, this is looking forward. So it's not an explanation for the increase you have seen in Belgium until now.

This is forward-looking impact. I think the increase you have seen now is strong commercial performance, both by broker as well as bank.

The bank has put the development of Non-Life business in bancassurance high on the agenda, and there we also see some effects of it.

My first question is on Life and coming back on commercial momentum in Belgium, but on the Life side this time. Is the bump we're seeing in Q3 just a bounce back post lockdowns?

Or are you seeing structural trends in the Unit-Linked new business? And then in Life as well, a lot of your peers are talking about in-force management and the growing opportunity to optimize capital allocation on traditional books.

Is this something you look at for your European Life books? And then if I may, quickly on solvency, you mentioned the impact of inflation updates in the quarter.

How much was that, please?

I'll take the question on the growth of Unit-Linked where we see this strong momentum. I'm not sure that it's really very much linked to the COVID pickup.

There might be some of it, but it's just -- it's genuine customer preference that is switching to Unit-Linked. You also see, for example, in Belgium, the amount in savings books dropping at retail banks, and it goes to mutual funds and Unit-Linked.

So there's -- it's about the genuine demand shift, and there's no reason for us to believe that, that will stop. And that is also the case in Portugal where we've also seen a very strong growth in our Unit-Linked business.

But we are gaining market share in Belgium.

And indeed, as Christophe was saying, we are gaining market share in Belgium, also in Unit-Linked.

Okay. Now Emmanuel here, I'll take the question on inflation.

So it's -- the impact on a year-to-date basis is close to 3.5% negative on solvency. And on the quarter, Q3 is a negative impact of 2%.

So we -- it's about market inflation. And you have to be aware that we update this every quarter when we are doing our solvency calculation.

So 3.3% year-to-date, 2% over the quarter.

You had also a question on if we're active on back book deals. We're not active.

So we are trying to manage that on a, say, continuous basis. You'll see a shift both in Belgium and in Portugal, a shift of funds under management away from Guaranteed business towards with Unit-Linked, which is gradual but steady.

In your Solvency II, obviously, there was quite a multiple impact from inflation in the quarter. Can you give us more detail here?

What is your current inflation assumption? What does it change from in the quarter?

And can you give us a sensitivity related to inflation changes? Or should we just take today's impact as sort of the sensitivity we should use going forward?

And also, on your asset allocation in your core entities, can you tell us what's changed on the underlying sort of asset management strategy that you've adopted? How are you re-risking?

How much further have you got to go on this? And what are the investments you are moving into?

And also on this, can you explain why this sort of re-risking process has been put into the operational bucket of your operating capital generation and not into the market bucket for your capital generation process? And then finally from me, on the interest rate impact in China in the third quarter, obviously, you said that it's going to be about €40 million to €45 million in the fourth quarter.

Can you give us any expectation for interest rate impact in the next year, for the whole full year 2022, please?

So I'll take the first one on your question on inflation. So as I've just mentioned, we update, on a quarterly basis, the market inflation.

And to give you a sense of the evolution in 2021 of the market inflation, I will give you 2 points: the 1-year inflation and the 10-year inflation. So the 1-year inflation, year-to-date, we have an increase of 1.65%.

And on 10 years, we have an increase of 72 basis points on market inflation. And over the quarter, the 1-year inflation, it was at plus 1%.

So you can see there that it was quite heavy over the quarter. And the 10-year inflation was 32 basis points.

And that is something that we, again, and I think it's important to highlight, that is something that we update and reflect on a quarterly basis in our Solvency II calculation. Now of course, the question is moving forward, but that's, of course, that's a difficult question.

But everything being equal and inflation remaining stable, okay, the impact of inflation over solvency is, okay, is 0 then because we have already captured the impact of inflation in our solvency.

Yes, sorry, can...

With that, I can -- we can add that you have to look in combination also with the evolution of the swap rate. The swap rate did not move.

If we would have long-lasting inflation, we would assume that the swap rate in the model would also move, and that will mitigate the impact on solvency. But with our current sensitivities going forward, I think we see that obviously would remain well comfortably within -- above our target range regarding inflation.

But we already took some of the effect -- well, most of the effects in this quarter. I think on assets and free capital generation, Christophe?

So the re-risking is a long-lasting theme. It is not the first time we mentioned this because it's a progressive trend towards "riskier" assets, but this is carefully monitored.

We are still well within our risk appetite. And since we are well above the target -- our solvency target of 175%, we consider that we have room for maneuver, and we intend to use this cushion to optimize the asset returns.

Having said that, what is the underlying trends? We are investing more in equity.

And if I refer to AG, which owns the biggest equity portfolio, we invested €140 million last quarter, for instance. But then having said that, I have to mention other asset classes like loans or -- where it enters into the same category on the re-risking.

So we are heavily investing in loan infrastructure. You remember this very popular theme of Dutch mortgages, we now investigate other countries.

We invest in France in social housing, so a lot of things like this. But this quarter, the equity move stands out with the €140 million I have just mentioned.

Interestingly, so far, we have only mentioned Belgium, but we have the same trend in Portugal now, and the reason is very simple. In the past, when the country was in a difficult situation, the rates on government bonds were high enough.

But now in Portugal, they are in the same kind of low interest rate environment. So with the same problem, they come up with the same solution.

So more and more the asset allocation of Portugal converts to the one of AG, meaning that they have started to invest in equity. We have set up a real estate department there, and we invest, leveraging our -- the group knowledge issued coming from AG real estate in Belgium.

And so this is something new, I think, for you, the fact that Portugal participates to this move. Then on your last question, you asked why it's operational and not the market in the free capital generation framework.

If we come back to the definitions of market impact, it was more to address volatile things. And what we, in the framework, what we have is in operational, we account for equity and real estate with a standardized global return, 5% for real estate, 7% for equity, and all the differences are go to market.

So for instance, this quarter where we have very strong equity performance, we still limit the contribution to own fund, the view in operational to the normal 7% contribution, and all the rest go to market. So in summary, we have a standardized approach in the operating impact.

All the over or underperformance is recognized in the market, and it's the reason why you have this mechanical effect when we shift the asset allocation to a more asset-light equity. And real estate, we mechanically create additional own fund on the operational components in the future.

I hope this is clear enough.

Yes. That's very helpful.

And just finally, the Chinese interest rates for next year?

Yes. On the expectation on impact of valuation interest rates for the next year, I'm going to give you part of the answer and part not, but it comes with a lot of caveats, but I give you some guiding information.

So at this moment, first and foremost, let's talk about the valuation interest rate itself. At the end of last year, it was 3.29%.

That come down over the year, at this moment, to 3.12%, and I'm only talking here about the 10-year rate. And by the end of the year, if everything stays as it is, and that is the big question there, it will trend towards 3.09%.

If rates don't move, then by the end of next year, and this is mechanical, you could calculate it, it will further go down to close or slightly below 3%, 2.97%. Now what the effect exactly will be on the results last year -- next year depends on many factors, first and foremost, indeed on the evolution of the curve, but also on the development of the assets under management in the different product categories because you are aware, this is only related to the nonparticipating books.

And so I'm not at this moment going to give guiding figures, but this gives you a feel of the negative impact that can be expected next year because you know what it is this year. You can see what the AUM development is, but we will come with more adequate guidance at the moment of our results announcements, full year.

Two questions. So first, on capital generation.

I mean capital generation was on the quarter, I mean, weaker compared to 3Q '20 in Belgium, in U.K., if you just -- if you can add more color. I believe in Belgium, the lower result in P&C might have contributed to that.

So can you give me a little bit of more details on the different country contribution? And the second, on Taiping Re, if you can give a little bit more color on the performance on the quarter and also on the -- maybe an update on the future strategy for Taiping Re in terms of expansion of its operation?

So I can start with the operational free capital generation in Belgium. So it is -- so we have discussed the group consequences of the asset shift.

It is especially true for Belgium, most of the effect is concentrated on Belgium. So in Belgium, I indicated the shift, the €140 million equity investment, but this is one element among others.

We have this continued investment in loans, social housing, Dutch mortgages, all this weighs on the free capital generation of Belgium through the increase of SCR, which is, as you know, multiplied by 1.75 because free capital is the difference between own fund and the target capital. So any movement on the SCR is multiplied by 1.75.

So you have the quantification effect. Then we have to admit that the storm has an impact.

We put in exceptional the €48 million of, I would say, the real gesture, what is completely outside of a legal contractual commitment, but there is still a noticeable impact of the floods in a period, Q3, where very often, the natural events are 0, but should be the low -- the quarter with the lowest risk in natural event and the difference. I think these are the 2 main things: asset and exceptional natural event not expected in a summer period.

And on the floods, I would like to add that remember that this is an extra contribution made by AG, above the legislation, which means this was not in the reinsurance cover. Of course, going forward, as every year, AG will do an update on its reinsurance program going forward.

So we should not extrapolate that CatNat event automatically into the future because we will update our reinsurance program, assuming that in the new negotiations that are going on with the government on new legislation, that the contribution by the sector, I think, will increase in the future, which is not a bad thing as such because it is also an opportunity for premium evolution and building adequate coffer and reinsurance. So this was a one-off intervention by AG and by the sector.

Yes. Maybe a few words on Taiping Re.

So the contribution to the results is obviously positive for Taiping Re. Having said that, maybe slightly below what we were expecting.

But given the fact that they've been hit by various weather-related events in Asia and in Europe, just remember, Taiping Re is not just focused on the Asian content, although that's the biggest market. They were also, to some extent, exposed to, say, the German flood.

So the combined ratio was around 100%. But overall, the contribution was positive.

Looking forward, as we said when we introduced this joint venture, the idea is to help Taiping Re grow outside their main market, which is Mainland China and Hong Kong, so in the other Asian regions, but also to help them further develop mainly the European business. And so far, we are very pleased with the cooperation, albeit that it has to be at a distance given the COVID restrictions in Hong Kong.

But overall, I must say, very pleased about the cooperation. Operator Our next question from Benoit Petrarque from Kepler Cheuvreux.

I've got three questions. Yes, the first one is on Taiping Life.

I was wondering if you could update us on the duration mismatch of Taiping Life, so just average duration of assets versus average duration of liabilities. I'm asking because you have a, well, more sensitive -- more sensitivity to lower interest rates on embedded value and NBV as well in Taiping Life.

So I was wondering if you could update us on the duration mismatch. The second one is on the PIM ratio, which was down 13% Q-on-Q.

And I was just wondering here what was the moving parts. And also on the inflation sensitivity, if you could just provide us a sensitivity to kind of 1 percentage point increase of inflation, how much impact that will have on the Solvency II ratio?

And the third one is on the combined ratio in Belgium, it's very strong, 87%, excluding the impact of the weather. It's well below your target.

And I was wondering what you expect in the coming quarters if you think this level is sustainable going forward.

Yes. I understand your question on Taiping Life sensitivity duration mismatch to interest rates, but this is not something that we can disclose.

This is something that is up to CTIH to disclose that full. But whether we are definitely more sensitive than peers, I'm not convinced.

There is one thing you have to keep in mind here, there is, of course, some duration mismatch in China, but the interest rate assumptions are still quite conservative in Taiping Life. They don't -- you know this concept of the volatility adjuster, which is loaded on top of the VIR, They have one of the lowest in the market.

They have only 25 basis points, which they use on top of VIR, which is certainly in comparison to peers, one of the lower in the markets. So that may give some guidance.

But the duration mismatch and EV sensitivities is something that I leave to CTIH to disclose.

If I may, I'd like to add one comment on this and to give you a relief, some kind of relief on the concern on duration, I'm making the parallel with well-known institutions. They have a kind of nonconventional approach to ALM that, as you know, nonconventional policies sometimes are very efficient.

The nonconventional policy is not following. They are faced with very long duration on liability, and they tend to increase the weight of risk asset and like equity where it is well known, but equity allocation is much higher than what you can see in Europe.

Why? Because the economic fairly tells you that on the very long term, equity is the best investment you can make.

So it is unconventional in the sense that they match the long-duration liability with equities in some sense, which is completely unconventional. But please take that into consideration and don't only take the, I would say, European glasses to look at the ALM mismatch -- the duration mismatch.

Okay. I'll take then your second question on the PIM.

And you are right, so over the quarter, the PIM decreased from EUR 196 million to €183 million, which is a decrease of 13 -- yes, 13%. While the Pillar 2, our own view is going from €196 million to €187 million, so a lower decrease of 9%.

And if you look at region by region and you compare Pillar 1 and Pillar 2 region by region, you can see that the evolution between Pillar 1 and Pillar 2 is very similar for all the regions, except for Belgium. So there in Belgium, in Pillar 2, we have a decrease of 10%, while in Pillar 1, we have a decrease of 15%, 1-5 percent.

And that is -- the main explanation is that in Pillar 1, the cap on LACDT has been reached. So -- and that makes that in Pillar 1, you have an additional impact on solvency that we do not have on the Pillar 2.

And of course, by that, I'm sure that you know, so we manage and receive our capital management of asset allocation over risk appetite is based on Pillar 2 and not Pillar 1. And we are, as already mentioned a few times, we are well within our risk appetite and well above our target capital that we manage on the Pillar 2 basis.

So on the sensitivity for inflation, so you have in the pack, we show sensitivities for Pillar 1 and Pillar 2. And indeed, inflation is not included there.

It is something that we are considering to include moving forward. But 2 remarks that I want to make.

The first one is, again, we have updated our inflation really every quarter. The market inflation is every quarter updated and reflected in our solvency.

And if you really look at the evolution in 2021, we absolutely do not have a parallel shift. So giving you a sensitivity with a plus 1% or whatever parallel shift, okay, I have some experience with this type of sensitivities.

It's -- the reality is completely different. And that is absolutely what we see for inflation.

And the short-term inflation increased quite materially in '21. The long-term inflation increased much less across '21.

Maybe some words on the combined ratio for Belgium, which is indeed setting aside the weather, the floods, very strong in the third quarter. Bear in mind that combined ratio, if you look at it on a quarterly basis, there's always inherent volatility in it.

The group target for the combined ratio, as you know, going forward, is 95%. And if you look at the historical trend at AG, they've always been below that.

So there is no reason to believe that going forward, that should be any different. So we feel comfortable that the combined ratio for Belgium going forward will be in the range as it was in the past as saying the 92%, 94% region.

That's, I would say, even rather conservative to expect that.

I've got two remaining. First of all, on the re-risking efforts, I appreciate what you said and also that your assumptions are quite clear behind that.

But you have been doing that consistently. But so far, your FCG run rate is still at €125 million to €135 million for the European entities.

I was just wondering, when can we expect something to change there? Are you doing this re-risking also to offset headwinds?

Or should we, at some point, expect that run rate to move higher? That's the first question.

And second question, you touched upon it in the previous questions. But when interest rates in China started to go down, I think at the very first moment, you started to flag the potential to raise this volatility adjuster locally.

Now we've gone through quite a cycle of earnings headwinds and still quite a bit to come next year based on the guidance you gave earlier. I'm just wondering, should we fully exclude the potential of this volatility adjuster to be raised?

Or is this still something that could actually come through maybe for year-end?

So you are right, the move and the re-risking is clearly to offset other more adverse effects. And when I said we have this shift to address the low interest rate issue, for instance, this has a direct impact on the value of new business, what we call RIDP in the Solvency II framework.

So RIDP tends to decrease, and we compensate with more financial contribution. Besides this, we have other elements like the cost of financing.

At the holding level, we have raised some debt. There is -- even if it was made at very attractive conditions, we have to pay for it.

So indeed, you are right, we are trying to compensate. But it's the reason why we don't -- so far, we have decided not to change the guidance because we think that we can maintain it despite the headwinds I have just indicated.

And perhaps one complement. So -- and it has been already mentioned a few times, so the re-risking, so you have immediately the negative impact multiplied by 1.75.

So -- and the additional return, the extra return that you receive moving forward, yes, you don't have a leverage on this. So the cost of the re-risking that you have immediately in your operational free capital is multiplied by 1.75.

Let's not forget, because we talk about re-risking, the long-term equity asset class is ideal for a business like AG because they have long-term pension business. And so what AG is doing, they are optimizing their asset mix to maximally benefit from this long-term equity class wherein the final capital charge is only half, roughly, of normal equity capital charge.

Of course, with the FCG model and the operating FCG, our fund generation come out of there only comes later. So you really have to look at this FCG evolution over the cycle because while you raise it on the equity side and you increase the SCR, the positive effect on own funds only comes later.

So be careful with re-risking. It is an optimization because of this asset class, long-term equity that has created and that is ideal for the business profile that AG is having.

No, I understand that. And maybe I think Steven asked the question earlier in the call, but this SCR, times 1.75% effect, why do you put this in the operational bucket?

Because it just -- it creates a little bit of noise basically that you're just explaining as well. So isn't it a potential to put that in other buckets rather than the operational one?

There are certain choices that we have made in the allocation. We see different applications there.

I think it's most important to be conscious how we have made those choices and what the effect is. I'm not sure it's not opportunity to really start changing now these choices.

I think we are quite consistent in what we have said, 1.75 is our target range. So that's how we steer the risk taking of the company.

I think we have to go back one second to the original assumptions, the FCG. At start, the ideal was to isolate the market impact, what was out of the reach of the management, and operational impact was more the direct consequences of management decisions.

We think that the re-risking fully belong to the category. That's a conscious choice that we make.

Having said that and to promote our framework, I think that with the FCG and the breakdown on the fund SCR, we have a very detailed analysis of all the different factors. And this is managed.

Even the re-risking, we have full control. We could accelerate, we could reduce the speed.

So that's something we have under full control. Re-risking, to be put in perspective with the solvency ratio, which is still well above our target of 175%.

So again, I repeat what I said a while ago, we want to use the margin for maneuver that we still have.

Your additional follow-up question on the volatility adjuster, which is actually called the illiquidity premium in China, it is extremely unlikely that debt. And I mean it's almost impossible that, that would change by year-end.

Let's not forget that, that actually is an add-on on the VIR, which has to be approved by the CBRC. And in order to get approved for that, you have to demonstrate that there is a reason, a good reason why you would like to change that Taiping Group.

It always take the sense that this is not something that is some -- that they would like to do. Also, there is no good reason because if you look at the underlying performance, even the result of it, it's not like this is a company that needs an adjustment on that rate from a regulatory perspective.

So it's extremely unlikely that they would review that. But let's not forget what the VIR does and [ISA], it is a valuation interest rate that only affects the liability side of the par -- with the non-par book.

That means the liabilities are valued higher when rates decrease, but the assets are HTM here in L2 maturity. So in fact, it buffers immediately a rate -- a future decline even in asset yields.

At the moment that the VIR is -- that you revalue your liabilities, in fact, the underlying margin on the book of business is slightly going up. So if you asked before -- someone asked a question on asset liability mismatch, in fact, with VIR, you are already anticipating potential ALM gaps in the future when you have a turnover in the asset book.

So you actually anticipate that already implicitly, yes? So it's a quite mechanical correction that is in case of declining interest rates quite conservative.

But I don't think that the volatility are just -- or better, the liquidity premium is up for revision is extremely unlikely.

Just two here. So you talked about long-term equity being a good asset class for Ageas.

Just related to this, what are your expectations on the impact from the proposals from the European Commission on the Solvency II review on the PIM model and if any impact on the Ageas model as well? And then second, what -- can you give us your thoughts on the outlook for flows and new business in China given some pressures in the industry and the solvency changes, C-ROSS II review, if that would have any impact on remittances from Taiping?

So indeed, so the long-term equity is something that we apply in our Pillar 1 and our Pillar 2. So there is no distinction between both.

It's the same capital charge for Pillar 1 and Pillar 2 and that we are applying as we go. So I think your other question was the potential impact of the Solvency II review.

But of course, we are following this very closely. We have the different lobbying group and also directly with the regulator and the industry.

So you know the process, yes? So EIOPA issued its review in December.

The European Commission, I think it was a few months ago, issued a recommendation on the EIOPA proposal. And no, it has to go -- it has to follow the political way and the Parliament -- the European Parliament and the European Council.

So it's still quite a long way to go before that we will have the final proposal that is adopted. So we do not expect it to be implemented before 2024 and even 2025.

I think it's a sort of most likely scenario. Potential impact.

What we have so far is the proposal in the directive Level 1. Okay, it gives some indication.

But for really being able to quantify impact, we need to have the Level 2 details, and that's not yet on the table. So very difficult to assess.

There are a couple of elements that will have a positive impact, a couple of elements that will have more a negative impact. But therefore, we really need to have the Level 2 description of Solvency II.

Yes. On the expectation of impact of C-ROSS II and the remittance potential of China Taiping or Taiping Life at least, yes, first and foremost, we are also eagerly awaiting the final guidelines coming out on C-ROSS II, which we do expect by year-end.

But I already hear people talking about first quarter last -- next year rather than this year. But we, of course, we have participated in dry runs, but these dry runs are really subject to confidentiality by the CBRC.

So nobody is supposed to release any on that. But you've seen in the press and some of you will follow this closely, that impact expect of 10% have been mentioned.

Whether that will ultimately be true or not, we will see. But that -- I also mentioned that in anticipation of that, but also to fund the future, the further growth in China, Taiping Group is looking at the potential of a sub-debt issuance, which is something that we are definitely looking for together with the partner to a potential amount of, let's say, 14 bps solvency support.

And that will certainly mediate what we expect to be the impact. Now in terms of expectations on remittance, you know that this is partially guided by the Ministry of Finance in China for state-owned enterprise.

That being said, we -- in the dialogues, the guidance between 30% to 35% remittance like we have seen is what is our expectation. Obviously, on cost result, let's not forget that on the local accounting results.

The -- it's really a question on ESG. So in the U.K., we had this huge conference in Glasgow, and we're all thinking about -- well, we're thinking, and I'm wondering whether my house will be below water soon.

And I'm trying to make it a fun question, but the reality is we've seen AXA, we've seen Allianz put forward new, improved kind of ESG kind of guidance, particularly on the E side, the environmental. What have you done?

I think, Michael, I think it will be in the Impact24 communication, that is the strategic focus for the coming 2 years. I think we have been extremely clear on where we want to contribute regarding ESG.

Of course, we are not in the Non-Life market in the big corporate industrial. So I think there is not a lot we can do.

We are mainly on the retail side and the commercial side up to medium-sized enterprises, but we have taken a commitment that we will include in all our products incentives for our customers to make their own contribution regarding the E, specifically the E, it's in ESG in general, but also on the E, like in housing, like in motor insurance. And we have also taken very strong commitments on our own business to be CO2 neutral in all our operations by the end of this cycle in 2024.

Of course, as a group who has a relatively high rate of life insurance, we can even do more on the S, of social. There, we have made even stronger commitments and think about what we do already, for instance, in our pension business, in our health care business where we have, I think, important positive impacts on the social side.

So I think we are very committed. We got also last week an update on -- from VigeoEiris on our ESG rating, which again has gone up.

If you would take the whole population that is run VigeoEiris, and out of my mind, it is like 4,400 companies, so not only financing sector, we are now just within the top 10% of that group, on place 439 or something. So I think we are making significant progress on our ESG ratings year after year, and it is becoming one of the key focuses also for the coming 2 years.

We have added this time to the investor deck on Slide 71, an overview of the key ratings and their evolution for Ageas over the last 4 years. You can see where at least the effort is also being duly recognized by most of the rating agencies, as you can see there.

Ladies and gentlemen, thank you for your questions. And to end this call, let me summarize the main conclusions.

First of all, Ageas delivered a very strong performance. The commercial performance has been excellent, both in terms of volume and type of products, with a strong focus in Life on the Unit-Linked products in Europe and high-value regular premium products in Asia.

Thanks to this solid third quarter result, we are confident in our ability to deliver full year results in line with our guidance of €850 million to €950 million despite the devastating floods in Belgium and the adverse evolution of the discount rate in China. And this, I can only repeat, illustrates the strength and the resilience of our diversified model.

Market conditions indeed did have some impact on the group solvency, but all this has been managed comfortably within our risk appetite and above our target range of 175%. And last but not least, we are fully on track to reach all the targets of our strategic plan, Connect21, and we are fully ready to kick off our new strategic plan, Impact24.

With this, I would like to bring this call to an end. Do not hesitate to contact our IR team should you have outstanding questions.

Thank you for your time, and I would like to wish you a very nice day.