ageas SA/NV

Bart De Smet - CEO Christophe Boizard - CFO Filip Coremans - CRO Antonio Cano - COO Hans De Cuyper - CEO, Belgium

Arjan van Veen - UBS Albert Ploegh - ING Groep Vikram Gandhi - Societe Generale Farquhar Murray - Autonomous Research Steven Haywood - HSBC Matthias De Wit - Kempen Robin van den Broek - Mediobanca Farooq Hanif - Credit Suisse Johnny Vo - Goldman Sachs Bart Jooris - Degroof Petercam Ashik Musaddi - JP Morgan

Good morning, ladies and gentlemen. Thank you all for dialing in today’s conference call and for being with us for the presentation of the first quarter 2018 results of Ageas.

As indicated, I’m joined in the room by my colleagues of the Executive Committee: Christophe Boizard, Filip Coremans and Antonio Cano. We also have, around the table, Hans De Cuyper, the CEO of our Belgium insurance company, AG Insurance, and, of course, our Investor Relations team.

Ladies and gentlemen, after delivering an excellent result in 2017, which was a record year for Ageas, I’m pleased to announce that 2018 started very well, too. Our net result increased 35% to €299 million despite adverse weather events in Belgium and the UK, which has an impact of €40 million.

This net result was achieved with a similar level of capital gains at €103 million. A combination of 2 elements led to this result.

Firstly, we experienced a solid operating result across all our segments. Life Guaranteed margin increased strongly to 137 basis point, underpinned by a high investment result in Belgium.

As for our combined ratio, it stands at 98.8% and this includes 6.1% impact from the adverse weather. So we expect to reach our target of being below 97% by the end of the year, if no further exceptional events would occur.

The second element, which drove our net result was the exceptionally high performance recorded in China, thanks to favorable evolution of the interest rate, higher capital gains and lower commercial expenses, following lower sales and a changed product mix. Our inflows decreased slightly by 2% at constant exchange rate.

The good news is that we are renewed with growth in Belgium, where our sales of unit-linked profits increased considerably and we have experienced strong growth income in Europe scope-on-scope. But this could not entirely offset the lower premiums recorded in Asia and in the UK.

In the UK, the lower volumes reflect our deliberate charge to focus on pricing and underwriting discipline, and thus to favor profitability over volumes. While in Asia, the decrease in inflows is mostly attributable to China, where regulatory changes brought us to stop selling most of our senior premium products that used to drive the sales in the first quarter of the previous years.

This regulatory change naturally applied to all the players in the market and China Taiping Life outperformed the market and managed to gain market share and became the number 5 life insurer of China. Also note that the change in profit mix is positive in the longer term as we focus on more profitable regular premium business.

Our total liquid assets amounted to €1.7 billion compared to €1.8 billion at the end of last year, and this slight decrease is related to the ongoing share buyback program. As regarding the cash upstream, by the end of the quarter, we had only received €7 million from Turkey, but as you know our operating entities usually pay the biggest part of dividends to the group in the second quarter of the year and most of it has indeed already been wired on our bank account in the meantime.

As you can see on Slide 5, we expect to receive over the full year around €600 million in cash from the insurance operations. This is substantially more than the approximately €500 million annual upstream we have seen over the last couple of years.

As you know, Ageas Insurance upstreams 100% of its net result and this amount of €437 million on its own is already more than sufficient to cover the €408 million that we will pay out to our shareholders later this month on 30th of May. Expected cash upstreams from Continental Europe and Asia complete this €600 million.

Before handing over to Christophe, we would like to draw your attention to 2 important milestones that our approaching. The first one will be on the 30th of June, which will mark the end of the put option granted to BNP Paribas to sell its 25% stake in AG Insurance.

And the second milestone will be on the 13th of July when the court of Amsterdam will render its decision on the amended Fortis settlement. I can imagine that both topics will come back in the Q&A session.

Ladies and gentlemen, I will now hand over to Christophe for more details on the results.

Thank you, Bart. And good morning, ladies and gentlemen.

I propose to start with Group Solvency II and free capital generation figures before focusing more in details on our results in each segment. So on slide 6, you will find the Solvency II figures.

As mentioned by Bart, the insurance Solvency II ratio is in line with last quarter at 196%. This stability hides a 4 percentage point positive impact coming from the business operation, compensated by the accrual of the expected dividend related to the IFRS result over the quarter.

At group level, Solvency II ratio has come down by 1%, reflecting the impact of the ongoing share buyback program. Going to the sensitivities on slide 7 now.

You may remember that in Q4 last year, we made moderate refinements to the Solvency II calculation by introducing an expected loss model in our core Life entities, Belgium and Portugal, and the company-specific volatility adjusted for the other entities replacing the EIOPA reference portfolio that didn’t clearly work for Ageas as explained during the last Investor Day. As you can see, this model improvement significantly reduced the spread sensitivities of our solvency ratio both sovereign and corporate now move in the same direction when spreads go up.

Regarding free capital generation, I am on slide 8 and 9 for the breakdown on season SCR. The operational free capital generation over the first quarter amounted to €149 million.

This includes only €7 million dividend upstream from the non-European NCPs, from Turkey to be precise. The other isolated block in the chart that you can see, the €30 million, corresponds to the minority interest on our Belgian operating company, knowing that all the roll forward present a 100% view, so at this, the put option was exercised.

This leaves us with an operational free capital generation over the quarter group share of €112 million. You might recall that last year we had an amount of €511 million for the operational free capital generation on our Solvency II scope companies, corresponding to quarterly average of roughly €130 million.

If we take into account the weather events in Belgium and in the UK, impacting the Group fund by €40 million, we come to a normalized operational free capital generation on the quarter of around €152 million, comfortably above the already mentioned €130 million. So we feel comfortable with this number that we are presenting to you today.

After this rather long development on Solvency and free capital generation, I will now give you more detail on our IFRS results. So let’s go back for a short while on Slide 4, showing the insurance headlines.

As Bart mentioned, the net insurance results for the quarter amounted to €299 million, which represents a 35% increase compared to last year. The improvement came mainly from the Life business, which increased to €262 million compared to €168 million last year.

Not only did we deliver better operating results in all our segments, but we also benefited from an exceptionally high result in China. The Non-Life result decreased to €48 million compared to €54 million last year.

€51 million, if we exclude the €3 million contribution from Cargeas, our former Italian operation. So scope-on-scope, the Non-Life result went only down by €3 million despite the €40 million adverse weather impact.

Even when taking into account that last year’s result was affected by Ogden reserving in the UK for an amount of €21 million, the Non-Life result has clearly improved. The combined ratio stood at 98.8%, which is above our target of 97%, but if we restate this combined ratio by the adverse weather we had during Q1, it would be at an excellent level of 92.7%.

As usual, I will now give you a bit more details on each segment, now. In Belgium, Slide 10, the net result stood at €136 million, with an excellent result in Life at €119 million, €13 million higher than last year.

The operating margin on Guaranteed business reached 141 bps, thanks to better underwriting result for €8 million and to higher investment results for €40 million related to real estate transactions and capital gains on equities. Like last year, these capital gains are expected to level out in the operating margin over the course of the year.

It is also worth noting that Life gross inflows renewed with growth, plus 5%, driven by the strong boost in the sale of unit-linked products, which went up by 32%. Also, in Non-Life, there was 6% top line growth, but both growth are not visible on the slide because of Solvency effect that I showed you with that on slide 6.

Bottom-line, as mentioned, the Non-Life business was impacted by adverse weather in January for an amount of €18 million, so €18 million among the €40 million, including the UK. The underlying performance continues to be strong and excluding the weather events, the combined ratio would have been 92.9%, in line with last year.

While this year, there is much less support from prior year releases compared to last year. In the UK, slide 11.

The situation there is gradually improving. Despite negative €22 million impact from bad weather, the net result amounted to €11 million compared to only €1 million last year with a similar amount of exceptional items in both years.

In this very competitive market, we chose to focus on pricing and underwriting discipline, which weighed on inflows. In Continental Europe, slide 12, our net result went up by 7% scope-on-scope.

So excluding Cargeas, which contributed €3 million last year, our operating performance remains strong in our Life business and we delivered an excellent performance in our Non-Life activities with a combined ratio at 90.2%. Finally, in Asia, on slide 13, we recorded an exceptionally high net result at €124 million compared to €52 million last year.

This strong increase is largely due to our Chinese operations where the strong operational result benefited from the favorable evolution of the interest rates, higher capital gains on equities and lower commercial expenses due to lower sales. Regarding Asia, we included in the Excel file on our website, additional and more granular data on our Asian JVs with 1 quarter delay.

Compared to last quarter, you can find more detailed information per country as well as funding information on China. The net loss on General Accounts, slide 14, amounts to €52 million, composed by the noncash evaluation of the FDNI liability and the staff and operating expenses.

This brings the group net result to €248 million compared to €110 million last year. The total liquid assets of the General Accounts stood at €1.7 billion, of which €0.9 billion remains ring-fenced for the settlement.

Ladies and gentlemen, I’d like to end my comments here and leave room for questions.

Thank you. Have a couple of questions on Asia and then just one on capital generation, please.

For Asia, could you please split out the impact of the interest rate movements, the 750-day moving average and the capital gains so we can get a better idea in terms of more normalized earnings for that division? Also, I would assume that the fact that expenses are lower, just lower sales, due given the changes in China and the regulatory intervention.

Would there be reason why not to think there would be a future on a go-forward basis? And then on capital generation, I recall last year, the first quarter was also very strong and then was a bit weaker for the remaining quarters.

Would we expect a similar seasonal trend? Or is there a reason why the pattern would be different this year?

Thank you for your questions, Arjan. On Asia, the first part, the explanation I would say for the increase, the result.

So there are 3 elements. The first one is -- and the precise figure is in our slides, the slide with the split of the realized capital gains, Slide 23, where you see that, compared to last year when we had €2 million capital gains we now have €25 million.

So you say something like €23 million of the result. That increase is coming from higher capital gains on equities.

The second element is linked to the reserves that are calculated with this country that is based on a 750-day average value of the 10-year Chinese government bonds. Well, last year, there was a negative impact when this -- because the discount rate decreased and now, with the slight increase of interest rate, we have a positive impact, but we do not really quantify it.

But okay, it’s part of the let’s say, a lower results in last year in Q1 and higher results this year. And then the third element is that due to the change -- the lower volumes in sales, but also the change in profit mix, where we have -- you can find that on additional slides with the details on the Asian business, where you will see that -- well, last year we had something like €2.4 billion single premium in China, but this year we only had €450 million.

So the expenses on, as well operational as commercial, have sharply decreased in Q1. So those are 3 elements: capital gains on equity for €25 million; delta in reserves that was negative impact last year, positive this year; and then a lower impact of costs through commercial expenses.

Will that go -- and that’s your second question, go on, remain ongoing basis. So what we’ve seen is at the end of Q1, the premium income was down with, let’s say, something like 7% in China compared to a market that was down with 25%.

The total, let’s say, impact of single premium in the roll inflows in China were not more than 6%, so, no it was 6% in the region, 4% in China, and what we see is that already in the month of April, and these figures are public, Taiping Life almost recovered the delta and is now at only 1% in volume compared to April last year and that’s mainly regular premium. So we believe that going forward there will, of course, be effort to further strengthen the commercial franchise by recruiting Asians and things like that.

But the, okay let’s say, the relationship between lower expenses on a regular premium compared to single premium is something that we believe will have an impact by the end of the year.

Understood.

On the free capital generation. So first, we didn’t really disclose Q1 figures for 2017.

You remember, it took place during the Investor Day in Lisbon in June. The focus was more, first on the method and second on 2016 figures, and then we showed, as I would say, a draft on either hedging contribution for Q1.

And indeed, we had the high figures at this moment, but please keep in mind that at this moment since it was the segment only, we showed hedging at 100%, whereas, in our free capital generation as presented today, we isolate the minority interest and we offer at group share. I think, and you were asking about the future run rate, what I would like to remind you is that, in my speech I confirmed the kind of run rate we had already discussed starting from the €511 million.

So the run rate of €130 million for the group, I think I explained why we are well within this range, and why I declare that we feel comfortable if we take the, if we restate by this exceptional weather event, we are well within the guidance, and I think it is what you should keep in mind. So no change in the trend of free capital generation.

Can I just, just a point of clarification, if you don’t mind. You seem to indicate that the ongoing Cargeas was a bit lower, plus the Cargeas sale, and now you’ve gone back to the original guidance last year.

So is that a bit of an upgrade? Or if I have misunderstood your comments last quarter.

Can you repeat the question? The line is not very good.

So you get the 500 last year, but I recall in the 4Q conference call you said that the run rate would drop because of the Cargeas sale. Now you’ve gone back to the number.

So it seems that you have upgraded a little bit from last quarter on the scope?

No, there is no change. And due to the fact that Cargeas left the consolidations group.

Why, because the contribution of Cargeas was small. And we can consider that we confirmed the previous figure even with this slightly reduced scope.

Good morning. Got basically 2 questions.

One is a little bit more on the insurance and profit guidance. There was profile of €750 million to €850 million.

I noticed you’ve got Investor Day in September, so I guess we get some more color there going forward. But I also do recall that in that target range, if I’m not mistaken, there was an assumption of roughly €120 million to €140 million in terms of capital gains.

Last year, Q1 was very strong and you basically matched last year’s number in terms of capital gains this year. So how should we look at that?

Do you think your structure can generate more capital gains? Or is this still, in your opinion, some kind a one-off quarter in that sense?

And the second question I had on the sensitivities under Solvency II, with the expected loss model that was referred to. How does the regulator look to this as well?

Because I do notice the gap widens a bit between the Solvency PIM and the Ageas Solvency II calculation, probably as a result of this expected loss model as well? So could I have some color that -- what becomes, in your opinion, more leading and binding in that respect?

Okay, I’ll on that the first question. I don’t think we see a reason to completely change our guidance of the profit €750 million, €850 million, with maybe one nuance, that I would go to put it more at the upper side of the range than the lower.

Of course, you never know that exceptional, how much could impact that, but let’s go more for the €850 million. The capital gains that are included -- so you could consider -- maybe remind you of 2 elements.

First of all, on equities. We have a -- we expect a certain volume of cap gains in such a way that we try to achieve in a combination of dividend and cap gains, the expected total return that we also use in our strategic asset allocation models.

For real estate, a similar story, we expect a certain return. And as we treat real estate at amortized cost, you have your rental income, your depreciation.

And the consequence is that we realize every year a certain volume of capital gains on real estate again to achieve this, so we expect it -- expected return. And if you look over the last 9 years, you will see that the -- I would say the buffer of unrealized capital gains on real estate has stayed very stable each time, around €1.5 billion, €1.6 billion.

And so, of course, in real estate, you cannot always on the Euro, right -- sell buildings. Sometimes it’s a bigger and the other is a bit lower amount.

But what you could give as a guidance is that the capital gains that we’ve been realizing in this first quarter are, in any case more, than one fourth of the yearly budget. So please do not multiply by 4.

On the other hand, you could consider them being something like 60% to 65% of what we expect for the full year. So the full year would be also, normally, a bit exceeding this €120 million to €140 million range.

Okay. Thank you.

Then regarding your question between -- the difference between Solvency II PIM and our approach, let me remind you that there are 3 main differences between the two. First and foremost, indeed you have the ALM/saver model, which differentiates from the EIOPA utility adjustor, and I’ll come back to that.

And then we have the internal model real estate, which is applicable in Pillar II as well. And thirdly, and let’s not forget in Pillar II, so the way we look at it, there is no transitional measure.

So these are the 3 main differences. Now why do we have Solvency II [indiscernible] it’s because we feel that is the one which is economically the most apt.

We all know, and you know them as well as we do, the let’s say shortcomings of the EIOPA volatility adjusted mechanism. And we really don’t to manage of our company based on Pillar I.

We do manage our company and, hence our dividend upstream, our risk uptaking, our risk appetite and indeed our capital management policy is based on Solvency II Ageas. That is the way we steer our companies, which is most in line with economic reality.

That is where we have introduced ALM to take away the inconveniences and the absurd evolution sometimes with the EIOPA volatility give us. That being said, of course, PIM and, partially internal models, so this one remains a Solvency II, remains a constraint threshold level that we have to satisfy.

But look at the ratios, there is ample buffer there. And the 175 target around which we operate is in under Solvency II Ageas.

That is the world we live in. The other one is the constraint we have to take care of, but we are well above the limit there from a regulatory perspective.

So that is the way to put it in perspective. Indeed, sensitivity to spreads will be higher in the partial internal model.

But it is almost at random, and we know there is always the pull to par effect there, whereas in Solvency II Ageas, I think you will get a fair and a more real view on the performance and the evolution of the company.

To begin with, can you provide some explanation around your comments on unit-linked sales proving favorable for Belgium and unfavorable for Continental Europe? I’m a bit puzzled by this because I thought the margin viewed on, would be under the stock of assets or results, and the flows should have only a tiny incremental impact, but that seems not to be the case going by the press release.

Secondly, can you remind us on how you to treat the sales expenses in Asia? Do you DAC them or fully expense them?

This is with regards that they commence at lower sales costs were one of the factors that helped Asia Life results. And then a small clarification on slide 47.

What are the major components of the others, which is at €169 million negative? That’s all from my side.

And in case you’d like to comment on where you are with a discussion with the put option at BNP, that will be great.

Hans, CEO of Belgium, takes your first question and then I will take over.

Regarding the Belgium unit-linked sales, we have seen a growth of 32% bringing us to €168 million, That is a trend that we are seeing over the few quarters right now. You know that in Belgium we have seen a significant decrease in investment types of products for many years due to the low-yield environment.

For a few quarters now, we see there was a shift. We see that the unit-linked market is picking up, specifically AG Insurance with a mix distribution, of course, with the bank as well as with brokers.

We have noted a significant growth there was 32%. I also would like to mention that you see the benefits of this in the operating margin with unit-linked, because there we see some scaling effects, 2 revenue sources from unit-linked which is a recurring fee, but also the entrance fee, and, of course, higher volumes give us higher entrance fees, while most of the expenses for our unit-linked business are fixed.

So we see clearly in the operating margin unit-linked from economies of scale.

You have an additional question, Vikram?

Yes, does it work the other way around? Exactly the other way around for Continental Europe was my question.

Antonio will respond.

Yes, indeed, for Portugal in particular it is much more -- the fee income is much more related to inflow, which has been lower than last year, contrary to Belgium. So it is -- it’s slightly the other way around.

It’s obviously also a fee based on the funds under management, but relatively lower. So it’s much more front-ended.

Okay.

Referring to the question on sales expenses in China, we take all expenses in results, so no DAC. And then I understood you also had a question on the put option.

So the put option I can be very short. So the expiry date is end of June and we will wait and see what will happen, but we can only repeat what I have said previously, that we give the highest probability to a non-exercise of the put.

The distribution agreement is running, I think, the collaboration -- and Hans just also gave a view on the unit-linked production, but it’s overall the collaboration with BNP is very strong and positive. And so we give the highest probability to a non-exercise of the put, but we will only be sure once the date of 30 June is past.

And then maybe mention that if it is not exercised, it will disappear, so the liability will just be from our balance sheet as of one-off positive impact on Solvency that can be estimated at something like 10%, and it will also decrease the volatility of Solvency going forward. So there is something like EUR 400 million of funds that will be created.

Okay, fantastic. That’s very helpful.

And then the last one on Slide 47, the €169 million orders?

I didn’t get the -- positive?

It’s the €169 million negative on Slide 47. Can you explain what that pertains to?

So the €169 million is a wrong figure. It should be €47 million, a separate category and so the end result should be €1.778 billion, which is €1.8 billion cash that we also referred to in all the other publications we have made.

Okay perfect. Thank you very much.

Good morning gentlemen. Just 2 questions, if I may.

Starting again with the Asian profit. Will the reserve discount rate adjustment change every single quarter?

And does it have any kind of structural impact on the €200 million, €250 million net profit guidance you’ve given for Asia before? And then just turning to the UK.

What drove the 8.7% of prior release in the UK? Was that a particular book?

On the interest rate movement. Indeed, due to the methodology that can, or can be every quarter a change when rates move up like we see now the, let’s say, required reserves will come down and passes through P&L and rates the other way down, it will have an impact like last year in Q1.

And maybe some guidance, if you compare last year Q1 and this year Q1, the difference, the impact, the difference is something like €50 million. So a negative impact a year ago, a positive impact back now.

Maybe also to mention at this point that as we have commented earlier that Taiping Life is one of the insurers that’s most conservative also in the use of the volatility adjustments possibility that China regulator is giving. So that’s also a reason why the sensitivity should be bit more manageable.

But we exclude that similar effect will happen in the coming quarters.

And does it follow through that it changes the €200 million to €250 million guidance?

I think we are now at above €120 million profit for Asia. So when we gave a guidance on the result of Asia, €200 million, €250 million, a bit like I did earlier with €750 million, €850 million overall net result of Ageas.

Also here I would look more to the €250 million as a guidance for the upper part and, like last year, not excluding at all that you can sometimes exceed that amount, knowing that we are still in a growing region and where the underlying, let’s say, elements of profit are increasing year-on-year.

I can obviously understand the €250 million guidance with regards to full year ‘18, given what we obviously just seeing, but would that carry through to 2019?

We don’t gave guidance so far in the future. Let’s stick to the €250 million being more, let’s say, the guidance and there is a possibility to improve or to deposit upwards in the coming period.

Okay, and the UK?

Yes, Antonio?

Yes, I’ll pick that up. So in the UK, the big prior year release is related to the Motor account.

Comparing to last quarter of last year’s first quarter. Near in mind it was when we were still adjusting for the Ogden changes.

So it didn’t close really a lot of files last year. The claims adjustor where actually more busy with the existing claims.

And then this previous year’s positive runoff is partially due to the fact that we have reserved our claims provisions, considering the minus 0.75% Ogden rate and not all claims have closed at that level.

Have you taken the 0.75% somewhere else now? Or is it just what happened in that year?

No. So to make clear, we just consider minus 0.75 is the Ogden rate and that it stays like that for now.

Obviously, we all know that a change will come, but the 0.75% is the Ogden rate we use for reserving.

Good morning. I have couple of questions for clarification if that’s okay.

Your Continental European dividend upstream of €80 million as you expect for 2018. I just want to confirm that this doesn’t include anything related to the Cargeas sale?

And same question on Slide 8 and 9, the capital generation slides, you don’t include any dividend being accrued. Is this correct in these slides that you do include the dividend being accrued in your Solvency II ratio, the 1.95% ratio at the end of the first quarter?

And then on your Belgian Life business, I see that you’ve raised the minimum guaranty to 0.5% for some of your business. Could you explain what is going on here, why they increased it?

Is it for more new business to come in? Or is it because you’re seeing less pressure on the reinvestment rate at the moment?

Thank you very much.

The first question for the upstream dividends for Continental Europe. So they are indeed not including Cargeas.

Last year, as you can probably remember, we had the sale and also the capital gain that was for €77 million in the result of Continental Europe. If you take out the €77 million from the total yield year result of Continental Europe last year that was €193 million.

So in delta, there was €116 million profit. So from that €116 million profit, €80 million has been upstream.

So it’s something like 75%. Whereas in Belgium, we stream up 100%.

And you could say for Asia the upstream of the €85 million, we expect is something like 30%. So you see clearly here that in the regions where we are more in a growth scenario like Asia we, of course, need a part of the profits, to retain them to sustain the growth and the future growth, but we nevertheless, already have payout of 30%.

Overall, the group, if you take the result of last year without the cap gain on Cargeas, the dividend that has been upstreamed by the operating companies for 70% of the net profit. So -- and that’s our sustainable percentages.

Christophe?

On the answer of the free capital generation, so on Slide 8. So in the figure that you can read, there is no accrued dividend.

And I take a precise example to illustrate this. If I take the -- so I’m on Slide 8, the €320billion -- so the €1.320billion is the addition of the expected dividend€542 and the real excess of [indiscernible] use for the Solvency II calculation, which is 778.

So that’s the addition, there is no expected dividend here.

The last question on the Belgium Guaranteed rate. Indeed, on March 1, we have raised the interest rate from 0.25% to 0.5% Guaranteed for a segment of our products.

We are talking here about the invest Guaranteed products distributed by the bank. Main reason for this is that we see still stable new money investment rates.

You might also have noticed that, in general, we still have announced for our clients a total return of 2% investment return including profit sharing. So with the new money rate, with the guarantee of 0.5%, we are still able to satisfy, and the asset liability matching that we always want to keep as well as the target operating margin in the long run that we want to achieve.

So we had room to do this, and, of course, it is supposed to support our sales, although we see that the major pickup today is still in the unit-linked business.

The first one is on the Belgian Life business, technical liability, the Guaranteed part are down slightly year-on-year. Just wondered what you would expect here going forward now that inflows are recovering?

Second question is on capital and more specifically on the approach you’re using for the low absorbing capacity of the technical liability, which is quite unique in Belgium and possibly also in Europe. Is there any regulatory risk around this methodology, considering that EIOPA is trying to harmonize everything across Europe and possibly also at the national level?

There, there is a tendency to harmonize. And then lastly, just on the capital positions.

So pro forma for the non-exercise through put, you’re ahead of 200%, so significantly ahead of the target. So any updates you could provide on how you intend to redeploy your spend, any excess you might benefit from at this point in time?

On your first question, technical liabilities total, excluding the shadow accounting effects from interest rate moment are, actually, slightly up. And this mainly because if you include the European business physical loss, the European business is giving us a margin.

We see a slight decrease in the Retail Life Guaranteed business, but that is, I think, quite normal as we see that inflows are lower due to the reduction of this business over the last few years, while some of those projects, which are 8-year term projects, are now coming to maturity. But what we see is, as of today, we are able to compensate that effect with the unit-linked.

So you should, I think, look at the 2 combined, and then we see stable to slight growth. And then finally, we still see a positive impact also in the Group Life business where the technical liabilities have grown, with 4%.

And that is on the one hand due to the inflows, which evolved positively, but also there we have sometimes tranches of plans and tranches of reserves, which do fall into the technical liabilities, which we did not pass through the inflows and which is also a positive effect. So all in all, I think, they are stable to slightly positive.

Okay. But would we expect like for the pressure on the Guaranteed part of the reserves going forward?

Because that’s where the margin is much higher than on unit-linked?

First, indeed, margins on the Guaranteed part the higher, but you should also always relate it to the capital. The capital on the unit-linked side is small, so from a return on capital I would definitely not say that unit-linked would be less attractive than the Guaranteed business, that is one.

Secondly, but that’s a hard estimate, it seems that the reduction in this Guaranteed business that we have seen for a few years, on the one hand due to tax measures and on the other hand due to the low interest rate, might be starting to bottom out. And we see that the reduction for us minus 2% last -- first quarter is definitely lower than we have seen in previous years.

So I’m rather positive that we have seen more or less the bottom of the impact of the low interest rate environment in the Guaranteed business technical liabilities. On your question on the liability regulation.

In fact, it is rather the profit-sharing regulation, which drives the LACDT the way we had modeled it. The way it’s modeled in Belgium is based on investment prudent basis, based on current profit-sharing regulation.

And the current profit-sharing framework in Belgium indeed is a bit different from what we’ve seen. Some of our neighboring countries, though not in all, it is a purely discretionary environment which means it is driven by market competition and not by regulation, but truly by market competition.

The second thing, it is fully generating solidarity across generations of, let’s say, declines. So that is specific features that is not always the case.

Now that is reflected in the LACDT most in Belgium and I think it is completely appropriate. So if there would be any harmonization in terms of profit-sharing regulation across Europe that would affect any of these features, that is not so obvious, first and foremost, but on the other hand, it would only affect new business.

And the moment it affects new business we can, of course, reflect it in our pricing. So I would not be too worried about harmonization of LACDT modeling, but it’s more profit-sharing regulation and that seems unlikely that maybe Hans can add a bit more color to that.

Another element, I think, where you might refer to that is a potential revision, where EIOPA is thinking about and, should LACDT be kept or not so, here is indeed, I think, Belgium there has a relatively unique situation today with their internal directives that I have given on the recoverability test. It already takes into account the margins that you are having today.

So my feeling today is that even EIOPA would consider limiting it again to 3 years, that Belgium has a relatively good situation in their own directive to continue with their approach, but that, I think, we will only know in 2019.

Okay. And then lastly on excess capital?

I would say in case the put would be exercised that, that moment as we indicated we would be able to respect the option by using cash and issuing debt. In case it is not exercise, it means there would be -- considered being a bit of free cash, something like €800 million is available like in the past for M&A, or if there is no M&A to give part of it back to shareholders.

So it’s not really changing the situation that much compared to what we have in previous years. And if you, then, look again to their upstream dividend and take out the potential dividend payments that will -- or the dividend payment that will happen end of May and then something like €70 million corporate costs, it means that there will also be something like €100 million minimum added to the cash pool of the General Account.

So no change in terms of strategy with respect to the available cash in the General Account.

I actually only have 1 question remaining. Coming back to your free capital generation, the SCR operating impact is €40 million down.

Could you maybe specify why that is? When I hear you talk on the conference call it does seem that there is still growth in the European entities.

So could you specify that number, please?

Yes. So on the SCR, operational impact is a slight drop and which is shown in green but, I mean, it’s a positive.

The main, this come to the drop in equity market, that is something coming from Solvency II, that methodological aspect and is written in violet, the lower symmetric adjustment. I would say technical effect of the Solvency II framework.

So 126% operational impact you include an expected return of 8%, and because equity markets went down you also have a benefit coming through from the SCR, really. Is that correct?

Partially, and we, what is also there and it’s specific because the drop is most noticeably if we look at it in Continental Europe. And there we should not forget that in our books in Portugal we have exposure to Spanish debt.

And there we have a benefit from rating upgrade on the Spanish bonds portfolio. And that the amount, okay, it is multiplied by 1.75 in operation, but we benefit partially from that from the spread tied to [indiscernible].

Presumably, given that there is some growth in the underlying business that SCR drop is probably bigger than that €40 million negative. And can you maybe explain why that impact is not put into market impact?

Because it seems to be more driven by market impact than by operational drivers anyway?

It’s in both. And then the third, because I wasn’t finished yet is also, of course, we should not forget that in the meantime, I think, our sales is also out of there.

But it may have been already out at the end of the year. It was already out at the end of the year.

The yielded group is in equity indeed. It’s a combination of these effects, equity and spread.

But could you maybe give like a, sorry?

Part of it has to do with the exposure in the portfolio, which is probably reduced the symmetric adjustment on equity, which has come down. And other components are reflected in market.

So it’s affecting both market as well as the operational [indiscernible] portfolio.

But what would you see as a normalized run rate for SCR? Presumably, you want it to grow, so that operational impact from SCR should probably be a headwind going forward, right, rather than a tailwind?

We do not assume that SCR goes down every quarter since we are definitely growing our business. So you could expect that in Continental Europe it grows in tandem with the volume.

There, we know that our operational free capital generation and the quality of that book is very good. So the Solvency for the old fund generation in Continental Europe is very high, so no worries about seeing some increase in the SCR coming there.

But in Belgium we expect it to be largely stable, maybe slightly up, or again, in line with growth of business, but it is not expected to be very high. So that it is down, I would say, more volatility than trend.

Yes, okay. But the normalized -- the free capital generation of 150 you mentioned before does not include the normalization you should probably put in from the back of the SCR movement?

On the other end, as we said, it does also not include the weather volatility, which was also there of €30 million, almost €40 million in the UK and Belgium. We should not forget that we are looking at Solvency old fund and SCR movements on a quarterly basis for the valuation of an entity which we run for, hopefully, infinity.

So don’t over extrapolate the volatilities on the quarter to extend it to valuation because that would be too much of --- so you will always have some [Indiscernible] components.

After the readjustment with the weather event, I ended up with a figure which was €152 million above the guidance of €120 million. So even if you cancel this effect of €40 million time 1.75, again, we are still within the range.

Yes. So that’s probably the reason why you stick to that €130 million range for now and we’ll see how it goes longer term.

Yes.

Okay, thank you. That’s very helpful.

Hi, thanks very much. The UK is not yet upstreaming the dividend.

When will that happen? What kind of threshold of capital do you think you need before you start paying something?

Secondly, on Asia, you commented that Taiping would be looking at some point to increase its own payout. Now that the business mix has changed with less strain, do you think that 30% could also go up?

And then lastly, you have had negative inflows for a while in the UK ex obviously the exchange rate impact. Just wondering when you think that’s going to stabilize and when you think the new business mix is going to be essentially the right mix for you?

The dividend payments we use in the group is based on our capital management policy where the upstream is linked to the solvency level and solvency levels we expect our different company by company, also looking a bit to their specific profile. So as for the UK, we expect the UK to pay a dividend in 2019 over the results of this year.

So we also see that the solvency ratio in UK is, in the meantime, further increasing. It was 100% at the beginning of last year.

It’s now close to 150%. So we expect the UK to pay a dividend in 2019 over 2018.

With respect to Taiping, to be clear, what I said is that in Asia, Asia overall, what we receive as a dividend is something like 30% of the profit we have made, and that’s a combination you can see also in the past of dividends received from China, from Malaysia and Thailand; they are also the 3 big contributors to the profit. The Taiping Group is a listed entity, so it’s not appropriate for us to give guidance on what their dividend policy will be going forward.

That’s the only thing we can see is that the company has today a capacity to pay something like one third of the profit as a dividend and to maintain stable solvency ratios, notwithstanding a strong growth. So we don’t expect that payout ratio to decrease, but whether it will increase or not is something that we, at this moment, cannot disclose.

But, again, the volumes are increasing. So the dividend that we receive from Asia should follow that trend.

And the more and more as portfolios mature, the more and more there might be potential to see an increase in the future of the payout ratio. But we have no confirmation about that at this moment.

There was then the question on UK.

About the inflows, that’s right. Just when you think you’ll stabilize?

I think the inflow is going down mainly because of some actions we have taken to improve the profitability of the portfolio. So we exited some MGA schemes.

There is obviously also quite some pricing pressure in the Motor accounts. So ‘18 will still be in a decrease more.

We expect it in ‘19 things to stabilize and then towards the end of ‘19, ‘20, see some growth in the business, again. But again, it’s a very volatile market.

Be aware that, well, you know the aggressiveness on the price comparative websites that some large broker groups tend to be under pressure. It’s not an easy market in terms of inflow, but we expect towards the end of 2019 to come back to growth again.

Just a question in relation to the capital generation ex-AG minorities, so thank you very much for giving that disclosure. But, therefore, if you sort of look at the run rate, your capital generation is around for 450 to 500 per year for the group.

Is that a good level for sustainable dividends? Because when I look at your Solvency II ratio over the last 4 quarters, it hasn’t moved despite the fact that markets have been very positive.

So if you could talk about that, that would be great.

The fact that the solvency ratio doesn’t move comes partly, but as you can see mainly, from the fact that we accrued from the expected dividend. So let’s, and to illustrate my point, let’s imagine that we had the policy to distribute 100%.

So the solvency ratio is exactly stable, why? Because all the result is taken into account through the expected dividend [indiscernible].

But does that mean…

We hold the Q1 result in the expected dividend following our policies. So that’s the reason why it shouldn’t move that much at the end.

But that means you’re not building any solvency. Is that fair?

We should build some solvency because we don’t distribute 100% of the expected profit and that we are at 45%. But please take into account if you are a group level where you have the 1% decrease, but we have a share buyback which is in place.

And the share buyback puts a rein on the free capital at group level, but if you take the insurance scope it is stable.

Maybe to add two points to that. First and foremost, we do not want to raise our solvency ratio.

It is not our target. So if you look at it, it’s high enough and, in fact, we have enough surpluses.

So, our commitment to the market is, okay. If we do not have investments, which will require capital that will be interest bearing, we do optimize our dividend upstream and we take a look at options of share buybacks.

So it’s not our purpose to every quarter increase of our solvency ratio, let that be clear. And secondly, when you refer to the 450, it is the operational free capital generation after deduction of the minority interest that assumes that the put option is not exercised.

But let’s not forget that our solvency ratios are assuming that the put option is exercised. So if the put option is not exercised, we will get another of €400 million of old funds.

And so an increase of the solvency ratio with over 10% at the level of the group. And then the third point is that the 450, it does exclude what is coming from Asia, and whether you take into account the expected dividend upstreams from Asia, which are now budgeted around €80 million, or you go one step further and you look at the free capital generation in Asia, which is quite a bit higher.

I think we have comfort that in future, indeed with this free capital generation’s future cash upstream potential, that we will see come from Asia to reinforce our pools of cash. So I think that is a complete picture.

So take all the components into account, I believe.

Yes, good morning. I have some questions still around the UK, if I may.

Could you give us an idea about the combined ratio in Motor if you would exclude the prior year release that is mostly in Motor, as you mentioned? And what you see as the run rate going forward in Motor for the year?

Then continued on that, your guidance on the UK net profit was underlying €60 million. So if you exclude the weather damages now you’re already at 33.

Does your guidance change?

So your first question was on the Motor combined ratio and including or excluding the exceptional release, to which extent the release is exceptional. That’s the question.

It’s part of the releases that are not exceptional. So the combined ratio from Motor Q1 was 91.7%.

And you could say maybe that 4, 5 points would be like an exceptional type of release. The other question you had on the UK was our target profit for the year, if I’m correct?

Yes.

So we stick to our guidance that we gave that was at a previous Investor Day of €60 million. And yes, indeed we seem to be a bit ahead of it, if you would exclude the weather.

So you’re right, that we stick to that guidance.

Okay. Thank you.

Yes. This is Ashik here.

I’m just using Kunal’s line. Just a couple of questions that I have.

So first of all on your capital, you have done a lot of changes on your GS model, which is the right way to do it because that shows a bit more economic view compared to what PIM shows. However, if specifically for the Portuguese or Belgians, sovereigns that have to widen, then there will be a huge deviation between your PIM and your GS.

Now I remember on one of the questions earlier you mentioned that AGS is what you follow, but PIM is what you need to care about. But at what point would you start taking actions so that if PIM is getting hurt, at what point would it take action?

Because now your AGS model is not going to get hurt a lot, even with wide market moments, but it might still get hurt on an economic basis. So what would be the trigger to start acting on the capital front?

So that’s one, first question. The second question is for cash flows.

If I look at the holding company cash, it’s around €750 million. Now Bart, I remember you mentioned that there is no hurdle on what you can use, what you cannot use.

But wouldn’t it be fair to say you would still want to hold around a year of dividend, say something like that as a buffer cash? Or would you say that this 800 is all up for, to be used for M&A and share buyback?

The reason why I’m asking is because think about your irregular cash flows, I’m not sure if you’re building up a lot. Even if I take an increased €600 million cash, €400 million is going into dividend, €120 million, €130 million is going into the holding company cash, and there is always some investment elsewhere.

So if you don’t to build up cash and if you exhaust all your €800 million cash, is that a reasonable thing to do? Any thoughts on these 2 questions would be great.

First question, Ashik, allow me not to go into the details there, but it is clear and that is the only point I can give you there, that we are going to only look at tangible actions when it is clearly much lower than our 175. Our 175 is what we target for Solvency I and for Solvency II internally, but we will not be stressed if PIM, for instance, reach 175.

It’s still 75% above the target of the regulator. Now when can that happen?

If you look at the sensitivities. it’s only specifically related to spread on our major [indiscernible].

And that is indeed Portugal and Belgium. And then if it is triggered by these events, of course, the recovery rate and the PIM also go up because of the pull to par affect.

So we will take all that into account. We do have, of course, like we should have specific action plans for all these types of scenarios in place.

It’s part of our ORSA exercises that we do every year. But it is not something that we think is to be shared publicly.

But you can understand that it is definitely much lower than the 175.

That’s clear. So you said it’s much lower, the PIM is much lower than 175.

That’s clear.

[indiscernible] cash flows, Ashik. So maybe knowing that we will have a, let’s say, final decision with respect to the put option by the end of June or early July.

We will be sure about what happens. We have an Investor Day in September.

So I think it would be at that moment appropriate to give a bit of an update on what our view is on the cash in General Account. Make sure that, if you look to what we expect this year, and most of it has been upstreams in the meantime as we have €600 million upstreams, which is 100% coming from AG, it’s 70% payout in Continental Europe and 30% in Asia.

Also referring to my previous answer, that we expect next year the UK to pay out a dividend. So it means our expectation is that in the future the upstream cash will always exceed in normal years, the amount we need for the dividend and for the operating cost.

So there will be additional cash generation on top of those 2 elements. And so, whether we want to keep sufficient for 1 year dividend or less than that, let’s -- give me some time and let us come back to that in September.

But at this moment and in this case, we are confident through all these elements that the potential profit we see for the foreseeable future, the capital generation that we see for the future, the upstreamable cash from the operating companies we see no reason to, let’s say, hesitate one second about our capability to: one, keep our dividend policy in place; and two, try to have a dividend that is stable, or when possible, increasing like we’ve been doing in the past 9 years.

That’s very clear. Can I just have one more follow-up?

On your BNP call option, is there any debate at the moment with BNP? Or nothing has started at all?

Well, let’s say, we have regular contacts with BNP, of course, with many in Belgium, from time to time, we have colleagues in Paris. But it’s not that we are in -- there is no real reason to be in negotiation mode.

It’s a binary here or they exercise or they do not exercise. And as I indicated before, it’s fully in their hands and we are prepared for both situations.

Yeah, okay. That’s very clear.

Thank you.

Thank you. Ladies and gentlemen, thanks for your time and your questions.

To end this call, let me summarize very shortly the main conclusions. I think we can say that we have had a very strong start of the year despite adverse weather events.

There is a high net result driven by solid operating performance across all the segments and thanks to an exceptionally high contribution from China. We have a slight decrease in inflows, mostly attributable to the impact of the changed business mix in China and compensated partly by renewed inflow growth in Belgium and strong growth momentum in Continental Europe.

One last thing, another day to keep in mind, next to the expiration of the put option and the 13th July decision of the Court of Amsterdam, is that we will have on the 19th of September our next Investor Day in London, and on that occasion we will update you on our new strategic plan for the coming 3 years following the successful completion of our Ambition 2018 plan. And with this, I would like to bring this call to an end.

Do not hesitate to contact our Investor Relations team, should you outstanding questions. Thanks, again, for your time.

And I wish you a very nice day. Goodbye.