Allianz SE

Thank you, Christian. Yeah, good afternoon from my side as well and welcome to our conference call.

Normally, our quarterly calls are conducted by the CFO and Investor Relations. But today, we have a treat for you.

Our CEO, Oliver Bäte, has joined us as well. He won’t be able to stay for the entire call; that is why we start directly with him.

Thank you, Oliver. Hello, everybody.

Thank you for joining today on a day that is ugly in the market, good news is Allianz is keeping it up, at least for those that are invested in our stock. And I would congratulate those investors having had the right nose in this environment.

Why I’m talking to you is, number one, I missed you for the Inside Series in Munich. I was in London at that time, trying to understand what Brexit means.

I’m still not much smarter, but will find out very soon. But what we are much smarter on is that on Renewal Agenda 2.0 that we have launched in last November, Allianz is fully on track.

And I would like to have you look through the quarterly numbers and think about what we had said in the strategy session and how we are keeping to deliver on those and keep an eye on the delivery against the strategy. What we told you is that the environment is going to get very ugly, that the trade dispute is not going to go away that that will result in rates going further down and now we have the bond even at 30 years being negative and we are less than half of where we were a year ago.

And because we knew that, we have started to tighten the ship early and make sure that we prepared for the storms that are ensuing. Now, let me talk about that in a little bit and then I hand over to Giulio.

The first one is that we have made sure we transform our Life business as we’ve done the last 3 years and keep on changing the business mix on the new business side and maintain discipline on capital deployment on the [enforce] [ph]. Giulio is going to talk about how we, given a declining investment income, are strengthening the earnings power of Allianz, nevertheless because we are growing market share, not just in Germany and the United States but also in Asia at very, very good levels of profitability, despite the massive decline in interest rates.

And we’re going to continue to pursue grow other earnings sources than just investment income and making sure capital is being redeployed where it does meet our objective. As we stand today, we have very strong return on invested capital.

As many of our competitors are fleeing the Life business, we are growing and we are improving profitability. That is not to be seen in many other places.

The second one is the Asset Management business. After the turnaround of PIMCO numbers in the past, we are back to full strengths.

Many of you had questions about the fourth quarter of last year in some of the flows. I think PIMCO is demonstrating extremely strongly that we will strive in very difficult markets, different than other companies can do and you see that in our earnings.

So the businesses that are most exposed to capital markets are showing enormous strengths. That then leads us to property casualty, where we have had very good result, despite the ensuing headwinds in commercial lines.

And I want to be very clear that global markets and commercial lines are not yet where they are, they are signs of rate hardening, but we need to look through the short-term aspects, and says, there is work ahead of us for all of us in the industry to make the profitability rise. Allianz is doing exceptionally well on retail, both in margin and growth.

And we have some further work to do on commercial lines, which means there is significant performance uptick that we can gain for our shareholders in driving the commercial lines business forward. But that will take time and hard work, and we’re on it.

In the meantime, Allianz is focusing on controlling the levers that do not depend on financial markets to go well; very importantly, trying to grow organically our business and being extremely disciplined on the productivity. So we have had yet another quarter we’re delivering on productivity gains and we are not letting it go.

And we will deliver on that in an environment where that is one of the key levers next to underwriting discipline and risk controls on the investment side to make sure that we stand when others will get weaker. Now, a last comment I’ll make sure, in terms of transformation delivery, we are not just delivering extremely strong result in this really difficult environment, we’re continuously working on transforming the business.

And that then allows us to also grow inorganically. I would like to reiterate the points that we are not planning any large acquisitions anytime.

We are sticking to bolt-on. They will price the acquisitions.

In difference to many other people, we don’t need to see and feel the need to buy something large to camouflage problems that we may have strategically. And that will remain a discipline for the time to come.

Now, we will guard your capital very carefully, so as we have said in the past, if we cannot reinvest the capital into our businesses for profitable growth, be it organic or inorganic, we will not sit on it. Now, given that the times are getting tougher, we’ll make a very careful trade-off between capital usage and how we invest it.

I think it’s time invest it in the core business and not in overpriced assets. And these are the message for today.

Thank you for your trust. And with that I had over to Giulio.

Thank you, Oliver. And so I like now to go – and good morning and good afternoon to everybody.

I like now to go into the results for the second quarter. But before we go into the result for the second quarter, I’m going to give you a view on the very good results, as Oliver was saying for the six months.

So if you move to Page 3 of the presentation, you can see that we have been able to grow our revenue by 6%. And the growth in revenue was driven both by Property-Casualty and Life/Health.

So again, in Property-Casualty, we had a growth rate which is in excess of the 3% we were used to see a few years ago. The operating profit is also following a nice increase with 6% plus or €367 million of additional operating profit.

All segments have contributed to the increase in operating profit. And then we will look at the net income, it’s up 7%.

And if you do the calculation of the earnings per share, we are up double-digits compared to the 6 months of 2018, so very strong story. When you look at the KPIs, the operational KPIs, you can see that our combined ratio is stable in 94%, and which is also very important, our productivity gains are coming through.

And we were able to improve our expense ratio in the first 6 months of 2019 versus the 6 months of 2018. So that’s an additional improvement.

Then on the new business margin, you can see that we’re being able to keep the new business margin stable. And this combined with an increasing production has led to an increase in value in business of 17%.

And then, finally, on the Asset Management side, you can see that the net inflows are very strong over the 6 months. We had about €40 billion of net inflows, this is mainly driven by PIMCO, but I think the number is very, very strong.

So all in all, it doesn’t matter whether you look at the revenue, whether you look at the operating profit or at the net income or at the operational KPIs, I think that is a very strong picture. As we go to Page 5, you can see a similar kind of good picture also for the second quarter standalone.

On the revenue side, again, we had a positive growth of 4%, also driven by Property-Casualty and Life/Health. When you look at the operating profit, you can see an increase of the level of 2018.

Here the increase is mostly driven by the Life business. I’m going to come back on this one, but when you look at the other segments on aggregate, we also see a lot of stability.

And just to keep in mind the level of €3 billion over 2018 was already a very good level, so again, very good quarter. And then on the shareholders’ net income, you can see that we have an increase in shareholders’ net income of 13%.

This is a consequence of the increase in operating profit, also as you’re going to see later, the non-operating results was a little bit better compared to last year, Aad finally, the tax rate is being lower compared to the tax rate in 2018. So all in all, with €3.2 billion of operating profit and it’s €2.1 billion, I think we have a very strong picture also for the second quarter standalone.

At Page 7, we are showing the shareholder equity and the Solvency II capitalization. I’m going to focus on the Solvency II capitalization, because that’s the most relevant metric.

As you see, our Solvency II declined from 218% to 213% in the second quarter. The main driver for the decline is the change in interest rates, also we will say that the credit spread movement, there is some basis risks on credit spread movement has also caused a little bit of a reduction in our solvency ratio.

What is important, however, the organic capital generation is at 3%, which is a very good number, because this is eventually the number, which is going to stay and support the capital generation moving forward. One comment on the sensitivity, as you see the sensitivity in the downward direction have been pretty stable compared to the sensitivities that we had in Q1.

The only sensitivity, which is now stronger, is the sensitivity up to interest rate, where we have now plus 6 percentage points. The point is as we go down the curve, but the interest rate of complexity, if you want these changes.

So this is – to a certain degree also kind of normal, but we need just to be prepared the sensitivity can change over the time as we’re moving up and down the curve. At Page 9, I know, you always very interested in the topic of the Solvency II generation can be a little bit more specific.

As you see on the pre-tax and pre-dividend basis, the organic generation was plus 7%, if you take out the dividend and the taxes we are back at 3%, which is pretty much in line with our expectation. On the market, you can see on a pre-tax basis minus 8 percentage point of movement, after-tax is minus 7 percentage point.

And here, again, I want to stress the following. First of all, we have a movement of the interest rate for the quarter, which was between 30 and 40 basis points, so there was a strong movement of the interest rate.

The second point, when we show the equity sensitivity, we’re showing the equity sensitivity assuming that the non-public equity are going to move to the same level as the public equity. This is not necessarily the case.

So eventually, our sensitivity they can – actually, we can see different results depending on the movement of the non-public equity. And then also something to consider is our portfolio has higher quality if you want, from a bond point of view.

We are more focused into, let’s say, bonds compared to [BTP compared to the mix of the EOPA] [ph] portfolio. So for example, we saw a widening of the volatility, narrowing the volatility adjusted, but when you look at what happened to the spreads, you can see that in the case of the bonds, there was a widening of the spreads.

In the case of the [BTP] [ph] on the long duration, there was a narrowing, when you look at the short duration of BTP, there was indeed also sort of widening. So there is some business risk there that can also cause a little bit of solvency.

The final point is we have repurchased one subordinated loan in Q3, and the impact of the repurchase of the subordinated loan was about 1%. So all in all, a 5% decline, but I will say, under the market condition totally explainable and we are very comfortable with the level of Solvency II that we have now.

And this is by no mean any sort of restriction to our capital flexibility. Moving to Page 11.

We come here to the segments, and we start as usual with growth rates for our P&C entity. As I said before, good growth rate of 4.3%.

When we look – by the way, the growth rate for the six months, 50% of the growth is coming from price and 50% is coming from volume. If you then look in isolation to the second quarter, you can see there is even an acceleration of the improvement coming from price, and that’s especially because of the development in the industrial lines.

When you look at the change on renewal, we are pretty stable positive, especially in the case of AGCS, we see a strengthening of rates. We saw this is a certain degree already in Q1, but definitely we see more momentum in Q2.

And we expect this momentum to continue also in the second part of the year. When you look then in the single entity, I would say, we had a very good dynamic of growth in Germany, in Italy, and generally you see plus signs.

The only exception is Spain. But in Spain, we are very focused on the profitability, especially in the new business, we’re kind of cautious.

But in general, again, I’ll say a good picture on the growth side. And this is not the first quarter that we have a good numbers on the top-line.

Coming now to Page 13. We saw here the operating profit, which has decreased by 5% compared to the prior period.

This is driven by the investment income, when you look at the combined ratio. The combined ratio is more or less stable compared to the prior level.

What we see here is a higher load from natural catastrophe of about 60 basis point, also we see there is a lower runoff of 90 basis points, but offsetting this to development, we see more benign impact from the weather-related losses; also we see some improvement in the pure attritional loss ratio. And then more important, we see further improvement in the expense ratio.

So all in all, I will say, a good picture for the second quarter with an improvement of the attritional basis – the attritional loss ratio and also for the improvement in the expense ratio. In this case, I’d like also to spend a second on Page 14, because I believe that when we see the numbers, sometimes it’s better to view to look at the numbers on a six months basis, it can be more trailing.

And when we look at the development of the combined ratio for the six months, you can see an improvement of 50 basis points. Here, we see that the net cash has been positive compared to the development of last year.

On the other side, runoff is 50 basis points lower, so the two things are offset each other. On the attritional loss ratio, we are pretty much flat and then we see an improvement also for the six months on the expense ratio.

So again, a sign that also in the six months picture, we’re making progress on our priority to bring the cost ratio down. With that, let’s move to Page 15.

Here, we saw the operating profit, the combined ratio for the selected entities, I will say, we had good results – very good results indeed in Allianz Germany, this might look counterintuitive, because you see 95.6%. But here, to consider that we had a 7.7% load from natural catastrophe.

Indeed, I will say that almost only real natural catastrophe that happened in the second quarter more or less happened here in Germany. So if you adjust the numbers for the extra load on natural catastrophe, I will say, the performance in Germany is very good.

In the case of France and Australia, you see a movement compared to the prior period. This is more a result of normalization compared to the either high level of last year or extremely low level of last year.

And then as you go into down the list, you can see in Spain, we have a significant deterioration in the combined ratio. It’s important here to note is the accident year combined ratio is stable, and it’s stable at a good level of 93.

What we see here there’s a swing from a positive runoff in 2018 to a negative runoff in 2019. But the underlying accident year performance is pretty stable in 93.

And then, clearly, AGCS, it’s – the combined ratio of 1% is a business that has a few challenges at the moment. But we also see there is a correction coming in the rates.

So there is definitely a strong hardening. So we think that’s moving to 2020, 2021, we should see better results.

And then, I’d like to highlight also the outstanding performance of Euler Hermes, where we see good growth rate, and those we’ll see very good combined ratio at about 80%. And also the way, these guys are managing the business in an environment, which is not necessarily easy, my opinion is best class.

So all in all, I will say, a good picture on our underwriting results. And with that, we move to Page 17.

Where we saw the investment results, you can see a decline by about €50 million on the investment results. I will say the main – there are two factors.

One is there is some kind of volatility that we might see on the net harvesting. And in this case, it’s primarily driven by the fixed effect, and the other effect that you see on the interest and similar income, we got this year less dividend especially on private equity compared to what we had last year.

But this is more normalization, because last year the dividend where a little bit higher. So I will say, all in all, in reality is stable or resilient results.

And I would also point out to the current yields, which is pretty much stable compared to the level of last year. So from a bond point of view, from the income on the bond portfolio, we didn’t see any substantial change in the second quarter.

With that, I’d like to come to Page 19, where we are discussing the Life business. As you know in the Life business, we have at the end of the day three goals.

One is to keep the new business margin of 3%. The other one is, we want to have at least 80% of our production in capital-like products, and ability strategy is important in this kind of environment.

And then also we want to have a growth in VNB, since fundamentally the margin is now going to go so much higher compared to where we are now. At the end of the day, the growth in VNB has to come from growth in production.

And what we’re showing in this slide is that we have been able to meet in the quarter, our objectives. When you look at the growth in production that has been 8.5%, mostly driven by Germany Life and by the USA.

In a few countries like Italy and France, we had a reduction in the production because of the unit-linked business, but fundamentally when you look at the total portfolio, we were able to grow our production almost on a double-digit level. On the preferred product, we have more than 80% of our production preferred products.

And as you see we have been able to grow our margin by 10 basis points, and this despite the environment being kind of challenging already in Q2. At Page 21, we’re showing the operating profit and as you see the operating profit is up about €160 million compared to the level of Q2.

Now here we have a special effect coming from Allianz label, where we change the duration for the amortization of the DAC, we had a duration up to 20 years, and now we are extending the duration to 25 years, to calculate the [AGP] [ph] amortization of the acquisition cost. So by definition when you are extending the duration, you’re going to have more profit into your model.

And this is going to lead to a different DAC depreciation. So this is a special effort that we had in Allianz Life recognized a longer duration of the product.

If you adjust the numbers for the one-off, we’ll go back more or less to the – exactly, I will say to the level of the operating profit of last year. So the operating profit will be €1.75 billion.

If you take our outlook for the year of €4.2 billion divided by four, there will be €1.50 billion. So I will say even adjusting for the one-off, we are well on track to achieve our outlook and the second quarter is being a confirmation of committees.

And with that, we can move to Page 23. Here we are showing as usual the value of new business, new business margin and operating profit for the different entities.

On the value of new business, I’d like to highlight that we achieve a double-digit growth in value of new business mainly because of the increasing production, but I was pointed out before, we were able to increase also the new business margin. The reason why we’ve been increasing new business margin is mostly due to mix indeed as you go back a couple of page.

You’re going to see that we have a higher mix in capital efficient products. And the capital efficient products have a higher new business margin compared to the products in other, at least, in the savings or unit-linked.

On the operating profit side, clearly, you see a nice growth at Life USA, this is mostly driven by the impact of the change in DAC. You’ll see also nice growth in Asia-Pacific, where we don’t have the drag from the legacy book in Taiwan anymore.

And then you might see a couple of minus size, but these are related mostly to lower realized gains in the second quarter compared to the realization in the second quarter 2018. So all in, again a strong operating profit for the second quarter.

And then at Page 25. The gross investment margin is stable, but policyholder participation of the profit sharing is up.

So this leads to an investment margin, which is 3 basis points lower compared to the level of last year, but it’s flat compared to the level that we had in Q1. So what is important here is that the gross investment margin, which is a difference between the current yield and the technical guarantee, this margin is stable.

So as the current yields are coming down, also the guarantee are coming down. And then clearly, we can credit more or less to the policyholder, and this can lead to a high or lower investment margin.

I want to point out that we have changed for 2019 the guidance from 80 to 85 basis points of investment margin to 75 to 80 basis points, just to recognize that in this moment we have higher crediting to the policyholder especially in Allianz Life. But this is not the change to the guidance of our operating profit.

So we stick clearly to our outlook for 2019 and also clearly we stick to our outlook for the future. And the reason is that we have also other profit sources, which are clearly getting more and more important.

And those I will say, we see also a little bit of a higher growth in the amount of business. So this is also creating additional profit.

So changing the guidance on the margin doesn’t mean that we are changing the guidance on our expectation for the profitability of the business. And with that, I’d like to go into Asset Management, where we have also a very good story.

As you see on Page 27, we have about €1.6 trillion of assets under management. I’m referring here only to the third-party assets.

You can see also nice dynamic on the flows, especially PIMCO you can see €23 billion of flows in the second quarter. We had also substantial inflows in the first quarter, so I will say the flows dynamic at PIMCO is very good.

In the case of AGI, we see some outflows, but I will say they are kind of moderate. And when you put PIMCO and AGI together, the flow situation in Asset Management is very healthy.

Also we have benefited from the change in the market rate of the assets, because interest rates have gone down. So, as we always think about the impact of interest rates and we think about the negative impact that lower interest rates might have in, for example on the Life side.

On the other side, we need to recognize that they can also create additional value in Asset Management, because we have a higher asset value. So all in all, I will say, good flows, favorable market condition from an Asset Management point of view leading to record third party assets under management, which is also something which can help as we go into the second part of 2019.

Page 29, the revenue, broadly flat compared to the level of last year. Indeed, if you exclude the performance fees, a little bit higher compared to the last year.

Once you include the performance fees, which went down a little bit. Then they are – the revenue is slightly negative, but overall, I will say a good result on the revenue side too.

And when we look at the margin, you can see that margin at PIMCO is 0.7 basis points lower. This is driven by the acquisition of Gurtin.

And also there was a slight change in business mix between retail and institutional. But fundamentally, we are speaking of small movement.

Then in the case of AGI, you see even an improvement compared to the level of the second quarter 2018. So I will say, fundamentally, also from a margin point of view, we see a lot of stability.

We don’t see any significant change compared to the prior period. At Page 31, the operating profit is flat if you adjust for the FX effect.

Here we need to consider, however that is flat, despite lower performance fees. So the performance fees are financially to be volatile.

The point is with an operating profit of about €700 million for the quarter I think the line of business has performed very, very nicely. And in general, you can also see that cost-income ratio is going down.

This is mostly driven by AGI, but also the cost-income ratio PIMCO is very good with 57.5%. So I will say good flows, stable margin and also a nice operating profit of about €700 million.

With that, Page 33, our Corporate segment is also improving. And here you see an improvement of the operating profit of about €50 million.

Half of the improvement is driven by better results at our IT company, providing internal services for our operation. The name is Allianz Technology, so we have better results there.

And also, we have better results on the investment income, because we differently found the situation in Property-Casualty. We got here more dividends compared to last year, so all in all, a good development also in the Corporate segment.

Page 35, just a few comments on the non-operating items. As you see, they are better compared to last year by about €90 million.

If you look at the numbers, the realized gains net of impairment are below last year, but on the other side last year, we had a negative impact due to the transaction in Taiwan. And also, the restructuring expenses are a little bit lower this quarter compared to what we had in the second quarter 2018.

So all in all, I will say a little bit of an improvement, especially driven by the fact that we didn’t have the impact like in last year from the Taiwanese transaction. On the tax rate, we see an improvement of 3 percentage points.

And here, we have a couple of effects. First, we have an increase in the deferred taxes.

And the second point is also we have a release of a reserve or tax uncertainty. So when you adjust the effective tax rate for these two impacts, then we will be at 25, which is at the low-end of our range.

But all in all, good operating profit, better non-operating items, a lower tax rate leading as I was saying before to a 13% increase in our net income. And we directly come to the last slide.

Again, strong results for the quarter and I will say strong results for the six months. In Property-Casualty, we are making progress on improving the expense ratio.

In Life/Health, we saw a again, double-digit in VNB. In Asset Management, we are seeing positive net flows for the first quarter, for the second quarter, and also in reality for the July month has been positive.

And so, all in all, we have a strong position at the half of the year, so at this point in time we are clearly confirming our outlook for the remainder of the year. And with that, I would like to welcome your questions.

Thank you very much. I’ll try and limit myself to three questions.

The first one was on the expense ratio. I mean, the obvious question is whether that’s fully sustainable.

It’s obviously a very, very strong number. But, I guess, I mean, even that’s strong on absolute basis.

I mean, on a relative basis it’s perhaps even stronger, given that a lot of your peers are sort of seeing expenses creep up largely through the acquisition expenses. I know you can’t comment on those.

But as well as the absolute ratio, I’m just wondering whether you can say whether you’re sort of immune from those industry trends. Secondly, on the life investment margin, to take all your comments, Giulio, and I discussed it with IR this morning as well.

But I guess there’s a bit of a change in message between Q1 and Q 2. And I’m just wondering is there anything in particular that’s happened that sort of caused a slightly higher policyholder participation and caused you to change that guidance.

And I’m hoping you can add maybe some comments about where we should expect it to go beyond 2019. And then, final one is on Allianz Technology.

I guess, we had very good results last quarter. And I came away from the Inside Allianz series thinking that that was maybe a little bit of a one-off, but you’ve delivered again and the investor results is also looking quite sustainable.

So I’m sure you’re expecting the question. But is it time to revisit the outlook for the Corporate segment going forward or are these genuine sort of one off results?

Thanks a lot.

Okay. Thank you for your questions, Peter.

Maybe I start from technology. It’s not a one off, so we expect technology to run better this year compared to what we saw in the past.

So I will say the performance we’re seeing at technology is also more or less in line with our expectation. In the sense of change in the outlook for the Corporate segment, I will say I don’t do that, but if you – you are free to do that if you want, but I – for the time being, I will keep the outlook at the same level.

This shouldn’t be a huge surprise if you’re going to be better than our outlook of €900 million at the end of the year. For the time being, I like just to keep the numbers stable.

But definitely, the trend that we see in the Corporate segment is going in the right direction. On the investment margin, yeah, it’s a little bit of a change in what we said before.

But I will say, we had already kind of anticipated that’s a matter that we need to always take a look. I will say what has changed, one could just say that we had 19 basis points in Q1 and we see 19 basis points again in Q2.

So when you see that, you’re sticking to the 19 basis point. And there is a point where you’re going to say this is not going to necessarily revert.

And I tell you even more, it’s not even needed a revision, because we are anyway confident we can get to our operating profit, also with this kind of investment margin. What is happening anyway, especially in the U.S., we see a lower investment margin compared to what we had before.

And this is a combination of two things. First of all, because of the tax reform, we can do lower spreads and still get to the same kind of IRR after tax.

And clearly, how much of this, let’s say, tax reform benefit are we keeping for us. And how much are we giving to the policyholder, this is something that we can somehow adjust also based on market condition.

But there is a little of that point that with a lower margin, we can still get to the same kind of returns that we expect to have on an after-tax basis in the United States. The second point is also as rates are going down, there is always a little bit of a catch-up effect.

You need to change your products, your crediting ratio. You are always catching up a little bit.

So this is also something that can in the short run cost some basis point in investment margin. But all in all, I will say, we are feeling pretty, pretty confident about the level of profitability that we have in our Life segment right now.

The last point was on the expense ratio. I will look at 6 months, because every time you look at a quarter, I will say it’s a little bit too limiting.

When you look at the 6 months, we are at 27.6%. And we say that we want to be below 28%.

So I will say that is very likely that we are going to be below the 28% threshold by the end of the year. And your question about sustainability, absolutely, this is supposed to be sustainable.

In reality, our intention is to bring down this expense ratio over time. So that’s exactly the point.

It’s not the idea to decrease expense ratio one year and then to – and maybe to have a huge decrease in the expense ratio in one year and then maybe to go back up. Our idea is to bring it consistently down over time in a steady fashion.

And you were referring to competitors or industry trend. On the expense side, I will say it’s not so much about industry trends.

It’s now something like frequency or severity of claim losses. This is really a matter of how much emphasis are you putting on productivity.

And I can assure to you that in the last 24 months, we have become obsessed with the idea to reduce the expense ratio. So I will say it’s a matter of attitude.

So we are totally committed to bring this expense ratio down. And it looks like it’s working and I’m pretty confident that in the future we’re going to see a further reduction of the expense ratio compared to the level that we had last year or the 28% minus that we want to add this year.

Right. Well, thank you very much.

Thank you very much. I think you’ve covered mostly the points in your introduction with such detail, so thank you, Giulio.

But, AGCS loan reserve release and why – what does the unchanged outlook kind of imply? AGCS, still I’m seriously worried, because my colleague who sits next to me have his [indiscernible], of course, has your ex-manager now running it.

And they’ve had a big adjustment. So whenever I hear the word adjustment or focus or something in commercial lines, I think, oh, my gosh, I hope this is not going to be the same scale.

And I wondered if you – how you can reassure us here. And maybe you can give something a little bit more specific there’s a [CVA] [ph] thing in the U.S.

The Second point is on the lower reserve, please. Here, I’m guessing, I didn’t do all the math, so I’m sorry.

But Spain costs you €50 million in the quarter, so that’s half of the €100 million, the 80 bps lower reserve runoff for the quarter. I just wondered what other moving parts are there or what can we take away here?

Is this something that’s – because the online combined ratio is fantastic, but you worry about every moving part. And then, in terms of operating profit, if you’ve done €6.1 billion for half year, you leave the guidance.

And here I’m taking the midpoint of €11.5 billion. That kind of implies €5.7 billion for the second half, which kind of – sorry, yeah, anyway, it kind of implies a run rate was about 12% something like that low in the second half.

And here, I’m wondering is there stuff that you’re seeing particularly on the investment income side that we should think about it. Thank you.

Perfect. Okay, let’s start with AGCS.

I’m not so sure, what kind of country maybe you were referring to, that’s – okay, so talking about AGCS, in our case, I will say, first of all, clearly the 101% combined ratio for the quarters, not the level that we like to see, so we can start from there. Also, considering to be perfectly honest that we didn’t have significant natural catastrophe in Q1 of – in the second quarter of 2019.

So the starting point, clearly, is not a starting point we like to see, but the good news in the case of AGCS is that we see hardening of the markets. And also, clearly, we are taking a stronger – we are reviewing what kind of lines of business we want to be, so we are not just thinking about price strengthening, we’re also thinking about potentially underwriting lines of business and making choices about the portfolio.

So from that point of view, I will say, there is what to do, but a good part of the story is that at least now the rate changes are going in our favor, we don’t need to fight against the tides anymore, this can help definitely a lot. I think, you had a question, if I understood you’re right on the child abuse.

We didn’t – based on what happened in New York right now. We didn’t see the necessity to do any change in our reserving, clearly, as the New York position might extend to our states this might lead to a different conclusion.

But I will say that in our case the exposure should be considering the diversification of our business should be always relatively modest. But I can just tell you that based on the information we have now, we didn’t see the reason why we should increase the reserve.

But clearly, this assessment might change in the future. And then, your other question on the Spain situation that runoff.

I can give you the number that if you look at the swing in runoff as – in the combination ratio of Allianz Spain, I was mentioning, this is all driven by the runoff, so if you take the 7 percentage point and you run the math based on the NPE, net premiums earned in the company. You have an impact for the group of about 20 basis points.

So I will say that when you look at the runoff for the six months. And you run the math, you can see that you have about 20 basis points lower runoff of the group level, because of the development in Spain.

I think, this issue is going to go away next year. So we are not necessarily going to revert to positive run off in Spain in 2020.

But I’m pretty confident that in 2020, we’re not going to see a negative runoff in Spain. And then your last question was on the outlook for the operating profit, and why we are not changing our outlook.

I will say, when I look at the outlook, I’ll always look at the 11.5 plus, minus €500 million. And I will say, as long as it’s now completely unreasonable.

They were going to stay within this range, I don’t change the outlook. So when you have a $6.2 billion of operating profits for the first – €6.1 billion of operating profit for the first six months.

I wouldn’t say that is unreasonable to expect that we could be below the €12 billion threshold that’s a little bit philosophy that we are using here. I answer your question AGCS, because I could not really understand…

Yeah. No.

Sorry. AGCS, this is kind of – its indeed to worry, simply because [Sweden] [ph] has had such challenges on its industrial lines, which is called corporate solutions.

And so I was wondering, if you have something like of the AGCS, can you start the underwriting, you have to take reserve adjustments or anything like that, that’s clearly the background?

Okay. I wouldn’t expect that we should have big reserve adjustment.

I could not disclose that we might have some minor reserve adjustments. But I will be – I will never say never, because in life you should never say never.

But I will be surprised if we would have significant reserve adjustments in AGCS.

Thank you so much. Thank you.

Thank you. Good afternoon, everybody.

I’ve got three questions, please. Firstly on France, I wonder whether you’re happy with your P&C combined ratio in France.

You’ve got quite a big gap, see some of your peers, can you talk a little bit about what was happening in the French P&C business? Secondly just going back on AGCS, can you give us some color, please, in terms of what you’re seeing there in terms of great momentum on different lines since the turn of the year or whether it change your appetite for any particular part of the business?

And then just finally on the LV business, did you give us some idea of what the appetite is when you came [indiscernible] and what your philosophy is going to be there in terms of market share versus profitability? Thank you.

Okay. Maybe I start from France.

I would say the 97.9% combined ratio that you see for the second quarter is clearly not the level of combined ratio will like to see. We said in France, we see large losses, so there’s a driver for the performance that we are seeing right now.

This has been, by the way, topic also for a few quarters, so we are taking a look into that. This pressure we see a large loss in our property portfolio, so we are taking look at that.

But fundamentally, I will say, we think, we can definitely put action in place to bring this combined ratio to a better place, because 97.9% is definitely not the level of expectation that we have for France. But the main reason for the numbers you’re seeing is the amount of large losses, and clearly, as usual you need to determine how much of these large losses, is because of volatility and how much might be that we need to refine the underwriting.

There was something that Oliver mentioned before, we know also that we have some work to do on the commercial lines, and that’s definitely one of the topics that Oliver was mentioning. This will be definitely the case also for France.

So I will say, this is something that we need to take. I’d also to make a comment, these are also all opportunities, because as you see we have a very strong combined ratio.

And that’s good sometimes to have also some area where we have some room for improvement, because these allow us also then to improve in totality our combined ratio. On the AGCS side, I will say, we see a rate increases more or less across the board.

I would say there are only session will be in the liability business, we see lesser rate increases, otherwise you see significant rate increases, when we put all the math together, we are at about 6 percentage points of rate increases. And the point is how long we’re going to see this rate increases.

That’s for me the most critical factor. And then also the second question will be are we going to see inflation in the loss trend or not.

My expectation is that rate increases are going to go for a while. So I also believe, this is the beginning of a hardening, not necessarily the end.

Otherwise, the process of the hardening will be too quick. So in general, we see a different momentum right now.

And that’s definitely going from a correction. That’s the way I define what was happening in the industrial business at the beginning of the year.

Now I would say, we’re going to a real hardening from my point of view. And then the last question was on the LV business, I will say, definitely we’re going to look for profitability, especially in a situation where you’re bringing two companies together.

It’s not about chasing market growth or market share. There’s more about consolidating the business in a way that you create a very good franchise.

And in general, I will say, we are not strong believer that you should go for market share, market growth. I strongly believe that if you go for market share, market growth by pricing differently, this is a recipe for disaster.

So market growth, you get there, because you are better customer service, all these kind of things. And in my opinion, this happens, right, there is no [census] [ph], so you work hard to get a better customer service to do all the right things.

And eventually, this is going to translate into a higher market share. But there is more – the results of our work, and this is something that is not even easy to plan if you ask me.

Okay. Thank you.

Very clear.

Hi. Thank you very much.

Giulio, can you hear me?

Yeah.

Yeah, good. Hi.

First of all, can you just summarize, you talked about some of the key points, but the 1 percentage point improvement in your combined ratio that you still need to achieve to get to your business plan, can you just help me understand the balance now of where that’s coming from expenses versus claims? You just said that your expense ratio could have further to improve.

You are already in the first half close to the 27.5% that was part of your target already. So either you’re going to carry on blowing through your targets or that figure is going to be normalizing.

And we get some of further improvement on the loss ratio side. So if you could just summarize for me the walk from 94 to 93 from here that would be helpful.

And then secondly, within the combined ratio – I’m sorry – so let’s come back to Spain. I know you talked about this in the first quarter.

But I’m still a little bit confused about what exactly has gone wrong. You’ve talked about weather from last year deteriorating.

You talked about the motor book. So I understand sort of the facts.

But I don’t really understand the why it’s gone wrong in Spain. And I guess the reason I’d like to just get a bit more color on it is, so far Allianz has been using Spain as a test case for excellence that the rest of the group needs to learn from.

And now, all of a sudden there seems to be some reserving volatility that implicitly could point to some pricing uncertainty, whatever. So I’m just not sure the extent to which I should be worried that the shine is coming off of Spain, if you like.

And then, lastly, just briefly, forgive me if I misheard you. In terms of the investment margin, to Peter’s question you talked about what’s happening in the U.S.

But I thought during your prepared remarks you talked about increasing allocation to German life policy holders in the investment margin. And I wanted you to maybe just give a bit more detail on that, because you know the general trend I’ve heard in the low-yield environment is decreasing what you’re allocating to policyholders So how come your German life policy holders are running up so lucky?

Thank you.

Okay. Maybe I’ll start from the expense ratio and – or from the improvement of the combined ratio, much will come from the expense ratio, much will come from the loss ratio.

So what we said is when you start from 2018, as a reference point, our combined ratio was 94. And somehow in the combined ratio, we had a 4 percentage point of runoff.

We always said the runoff is going to go down to 3%. So at the end of the day, we need to improve the underlying by 2 percentage points.

And the idea is that 1 percentage point should come from the loss ratio, 1 percentage point should come from the expense ratio. I will say, as we go through the quarters and so on, you can see some movement in the expense ratio, loss ratio, but fundamentally I will say this is still the kind of guidance that we had.

So at the end of the day, we would expect that we’re going to have an expense ratio, which approaching the 27%, in reality even better compared to the 27.5% that we discussed in the Capital Market Day. So that’s something that, clearly, we are striving to achieve.

And the rest of the improvement should come from the loss ratio. So I will say, start almost from a 95, because you want to adjust for the 1 percentage point less runoff.

And then assume that 1% is coming from expense ratio and the other half is coming from the loss ratio. Is this clear, answer your question?

Crystal clear as always. Thank you.

Perfect. And then, on Spain, I will say what went wrong.

As I tell you, sometimes it’s overconfidence I will saw. So at the end of Q4, by the way there were weather-related claims in Spain affecting the numbers.

And somehow we didn’t recognize the impact of these weather related claims. Also, we have been a little bit too aggressive in the estimation of the loss ratio for model.

So these two things have led that we have been too confident on our numbers for 2018. And now, clearly, we need to catch up on that.

But as I was saying before, the combined ratio, the accident here is 93. So I will tell you the following.

I believe next year we’re going to see what the numbers of Spain are. And if I’m right and Spain is going to be back to the 93 combined ratio that we see and there will be no negative runoff.

I can tell you, there will be a great story, because at the end of day we are a company that is performing very nicely for many years. Somehow sometimes, you can also get something out right.

And if we had the ability, that I believe we have, to go back to 93, in my opinion the story of Spain is even stronger than before. So I will not throw the baby with the bathwater here and then start assuming that because of what happened in 2018, now all the good things of Spain are not valid.

This is a company running at an expense ratio of below 20%. So this is something clearly that is telling you about the quality of the company.

And now, we just need to fix a little bit, is the issue coming from last year. And then let’s wait for 2020.

And I really hope I’m right, because there will be really a good story to tell in just a few months. And then you have the question on the investment managing, on the policyholder.

I – because I need to look at – on this one – I think I would always distinguish anyway between the IFRS [logic compared to the HAGEBE] [ph]. So I will say the two things are necessarily the same also, because for example the investment income recognition can be differently between a German GAAP and IFRS accounting.

So from that point of view, you shouldn’t draw conclusion from [HAGEBE] [ph] that you transfer into IFRS. When I look at the investment margin of Allianz label in the IFRS view, for the quarter that margin was pretty stable.

That’s great. Thank you.

You’re welcome.

Hi, there. Thanks.

Just two for me, please. Both on P&C.

So AGCS, I mean. I guess, there’s some concern today around performance given, we’ve seen here two companies over the last 5 years just consistently underperformed in this line with – their commentary from management, that there’s going to be a gradual correction.

It never really worked until there was a sort of big, big remedial action taken across that book. So, I guess, why – I assume it’s Michael’s question, why is it different for you guys?

How can you give us some reassurance? I guess, that the pricing environment better at the moment.

And then secondly, a very quick one, where is claims inflation running at the moment across – versus your price increases of 2.4%? Thank you.

Yeah so, as you say, it’s – yeah, I would like to say that we have a combined ratio 101. So that’s how you define success.

But we wouldn’t define it as being successful. So to a certain degree, I will say, we are sharing the pain that you see in the market at a different level.

We have been seeing that in general over in the last year. We have been able to outperform our competition.

But clearly, somehow we are exposed to the same dynamic. And I would tell you even more that sometimes you get comfort, because you are performing the competition, but eventually your combined ratio is above 100%.

So I don’t think that we see anything differently from what our competitors are seeing. We just see that at a lower level, because up to now we have been able to outperform what our competition has done.

Then we have a couple of things. In our case you need to – you can see that that we had the drag out of old FFIC business, where we are now somehow transferring – we’re doing a migration from the old system to the new system.

So this is about 1 percentage point for the combined ratio of the company. It’s about 1 percentage point.

So this is going to go away anyway by 2021, latest 2022. So we should see a little bit of an improvement coming from there.

And then, clearly, there is hardening going on right now. That’s also not to be underestimated, because continuous hardening in a couple of years can lead to very different results.

And then, as I was saying before, we have put a lot of emphasis also on looking the portfolio. What kind of portfolio we want to keep, what kind of portfolio, we think is not structurally profitable for us, and we’re going to take a clear look especially in the United States.

But again, we are somehow exposed to the same dynamic. We are just running at a better level.

And then you had a question, I believe on claims inflation, and I think you are referring to claims inflation in general. I will say that while we see in continental Europe.

I will say, we see this in a few markets, we see that severity model is going up a little bit, and that’s because the cost of spare part is going up. So we see this in Germany, we see this also in Italy.

On the other side, there are other parameters, which are moving in a opposite direction. So we don’t necessarily see an increase in frequency.

So when you look at the totality, I will say, there might be some pressure here and there. But I will say in general, the price increases should be definitely able to compensate for this kind of pressure.

But maybe just a little bit more, an uptake in severity this year compared to what we saw 12 months ago. But again, in general, I will say, the situation is pretty much under control.

Okay. Thank you.

Hi, good afternoon, everybody. Three questions for me, please.

Firstly, Giulio, the liability duration on the Life side, it increased by frankly a whole year actually in the quarter year-on-year. Can you just explain a little bit about what’s happening there to lengthen that?

Second question, interested on your opening remarks from Oliver, when he talking about commercial lines and the need to do more on that side of the business. Are you able to just split the P&C business into how you would see it between kind of retail maybe SME and larger lines of business, and perhaps give some insight into the combined ratios on those bases, please?

And then final question, again, returning to France, but more in the Life side really, operating profit in Life is down 18%, you talked about lower protection on Health results, in particular, it’s just keen to know what moving parts within that place? Thank you.

Yeah. So on the liability duration, yes, if you look it went up, and also now we are longer on the liability compared to the duration we have on the asset side.

Here, I will say, just the fact of rates going down and the complexity of the liability is stronger compared to the complexity of the assets, so we’re catching up. At the end of the day, we don’t want necessarily to be short duration, that’s not a position we’d like to have.

But here, we are constantly catching up, because the interest rates are constantly going down. We need also to consider, it’s not so easy to move the duration one to one, right away.

So – but fundamentally, this is just a consequence of rates going constantly down and our ability to adjust the duration accordingly. There is always a sort of time lag.

On the commercial lines, I’ll tell you something, I was look at commercial line profitability in the different countries. And I will say, when you look at commercialize lines in general, and you look at the retail business, I could tell it’s not evident that the commercial lines are so much worse when you look in totality.

Maybe, I will say, a couple of percentage point was compared to retail, in general, the combined ratio and commercial lines. And here, we are not speaking about AGCS.

I’m speaking of France, Italy, Germany, the point is we did in the commercial line books, you might have really interesting portfolios. And we have portfolio, we’re honestly speaking the combined ratio can be even 110%.

So that’s the issue need to be very – to go very granular. And then, you’re going to see that somehow, we are definitely losing some profitability, because of some businesses which are – portfolio which are severely underperforming.

When you look at the commercial book in general, if you don’t go granular, you’re not going to see all this kind of disparity between retail and commercial lines. And the last question was about the protection.

For the protection side…

Yeah. Sorry.

And, no – yeah, the reduction in the operating profit in the Life side in France, which is driven by a lot of technical results from protection & health?

Yeah. There is – it’s a deterioration of the loss ratio in protection, I just to give an idea, if you have a 2 percentage points deterioration is about €800 million of premium.

In the quarter, this is already making €60 million of operating profit, so there is a little bit of deterioration. I wouldn’t call it a trend, it just some volatility in the quarter.

To be more specific anyway in just to give an idea about the Facebook, we are very happy with the performance in general in individual health. And I will say on the corporate health, that’s a book which is a little bit more challenge.

But the deviation you see here in the quarter, I will say, this is more kind of volatility, quarterly volatility.

Okay. Thank you very much.

You’re welcome.

Hi, everybody. First question on AGCS, we’ve seen others talking not only about pricing, but pricing in different lines, and areas where they want to [indiscernible] want to grow.

So for example, marine and aviation has been an area that [indiscernible] talked about pulling out of. I was wondering, if you could talk about mix, and also excluding [indiscernible] fund the portfolio, when do you see a return to profitability?

Second question is to what extent do you think you can offset some of your pressure with your liquid investment strategy? And third question is confirmation on the optimal rate.

When you make the comment that it doesn’t affect Allianz, doesn’t affect LV? Thank you.

Let’s start for the last one. The order rates, it doesn’t affect Allianz including LV.

We’re also considering for LV. I’m going to speak about LV, but in general, when we put together our books and the effect on the LV size.

We get to a very immaterial amount, by the way the amount is slightly positive, not even negative. I’m clearly considering also for the effects coming from the equity consolidation of LV into our numbers.

So that’s on the order rate. And then, on the AGCS, I just tell you, so as we are saying before, we see fundamentally a hardening across the board, when you are asking when we are going to be profitability, if we define profitability as being below 100 combined ratio, I really hope they were going to be below 100 next year.

So that will be definitely the idea, and personally I’m not giving up on the idea that we try to get to 96 by 2021. So I’m not say, we’re going to be able to get there.

But personally, I’m not giving up on that idea, at least, I’m not giving up on that, right now. The drag from the U.S., I think, it’s pretty significant especially in MidCorp in the U.S., we are running with a combined ratio, which well above 100.

So this is also something that we need to consider to what extent, this is a business where we want to do a stronger pruning, let’s put this way. And the issue we have in the U.S.

is also in expense ratio issue, so we are running at a very expense ratio, also because of the double cost of integration, but also because the scale we have there is limited. So I will say, this is basically an area of focus.

In reality, if you run the numbers of AGCS without our U.S. business you get already now to a combined ratio below 100.

So that’s the situation, and now by adjusting AGCS with the U.S. business, we are below 100.

Other words from a line of business point of view, you were mentioning Marine. In Marine, indeed the line of business has been performing at about 100% combined ratio for the last year.

But now we see a rate increases that should bring these performers more in line with our target. In reality, marine exactly get in the rate increases that we need to get to a profitable place.

And then you had a third question that I’m not sure, I captured. Can you repeat, please?

I think, we’re done, right?

[indiscernible] I thought you had another question, sorry.

Yeah. The liquid [indiscernible], it’s going to be material, can you materially kind of change the decline in yield through [indiscernible].

I will say, three is a point where – I believe, you can always do something on the investment income to try to caution the decline in yield. But as Oliver was saying before, sometimes you need to open other fronts in a sort of war.

So we’re going to work a lot on technical excellence on the positivity, so I think the idea that we are going to fight a low interest rate environment for the extremely low interest rate environment, just by changing our strategic asset allocation and getting more risk that will be a better idea. There is definitely something we can do there, but I believe, we need to work on really even hard on the fundamental of the business.

The good thing is not new. So honestly speaking interest rates have come down for years now.

And now we were thinking maybe they’re going to stop to go down. It looks like they’re going down father, but the recipe is always the same, so working on the combined ratio, working on the right results in P&C.

On the Life side, making sure that our liability matching is there, which has been the case for our in force, making sure that we are constantly adjusting the products to the environment that we are constantly adjusting the crediting rates to what we see in the market. So the recipe is always the same.

So I think, we have been training over the last four, five years. And now, we will continue to deploy our skill set in this area.

Thank you very much.

Yes. Good afternoon, everybody.

Giulio, just one, so even in your Bloomberg interview and New York opening remarks as well. You were talking about – and even just now actually you’re talking about how the low interest rates, you’re off you want to work more on the Life new production, for example, and how to change it.

But when I look at the VNB, for instance, I mean even in Germany is up 24% in 2Q in the group it’s 11% up in 2Q. But and even a longer term it’s up substantially maybe even doubling in the last 8 to 10 years I mean is there more room left to change these product mix.

And I’m conscious that Allianz has supplied [indiscernible] but is there room left? And the second topic related to this is that, is there – I mean, ultimately the VNB will translate into profits in future, but it’s based on series of assumptions.

And do you think that any of the low interest rates are lower or longer interest rate concepts are going to challenge some of your assumptions in new business value? Just basically focusing on that.

Thank you very much.

Yeah. I will say the following, so clearly as you see the new business margins is holding, I would also say that when we look at – when we calculated new business margin.

For European countries, we always calculated new business margin with a quarter lag. So next quarter, we’re going to use the assumption as of and of Q2.

And you’re going to see that there will be – we expect some decline in new business margin. We’re still going to be about three, but they need to think, okay, maybe we’re going to have a bonds.

Right now, we have a bond at minus 50 just consider that there was bonds at minus 53 at the end of Q2. So you need to prepare that the situation again get even worse.

And for me is also, I will say, regardless about the model is going to tell you, there is also common sense kind of view. And when you see that the bond is at the level that we have right now, I think, you always want to take cash and to create some room, before you can get to the guarantees given to the policyholders.

So from my point of view, when we see this kind of trajectory is always very, very prudent to look. First, we need to take a look at the products, and if we see that somehow the economics are different then we need to clearly just the feature.

So I don’t – I didn’t mean today that we have to change the product. I meant today that we need to take a close look and potentially we need to be prepared to change the product, which I believe personally wouldn’t be a problem, because depending on the market you might get a different answer.

But I believe that we can still offer competitive or interesting features and still change a little bit the level of guarantees that we’re giving. So I think there is definitely a room for maneuver.

And I think, it’s prudent really to take a look at the situation considering that the rate environment is substantially different compared to the beginning of the year.

Can I just ask one second one on asset risk, so on the – I appreciate the liquid/illiquid asset answer. But is there – do you think that there is more room for credit risk in Allianz Group to offset some interest rate yield pressure, it’s not your focus right now, but is there room, do you think?

I was that – on the margin it might be always room. But our strategy will really more always look into the liquidity or illiquidity spectrum as opposed to looking to additional kind of credits.

You’re getting the credit premium, I believe that again the answer is now going to be so much on the investment side, again we can do something but I believe the answer is to be on the technical part of the equation.

Sure. Thank you very much.

You’re welcome.

Hi. Just short one, I think, Oliver was – in his opening remarks besides positioning the group medium-term for low rates, reiterating that you could fit your EPS target, near-term target, despite low rates.

I think, how much harder you have to work in near-term? What is the maturity?

How much of your non-Life bond portfolio matures in the next couple of years is skewed to that? I’m just trying to work out the degree of headwind specifically in non-Life from low reinvestment rate.

Second question, mutual – your net inflows were very concentrated into mutual funds, judging from the new disclosure you provided. Is that retail mutual fund?

Presumably, they are – that’s fairly high margin net flow than. Maybe just clarify that.

And finally, it’s very simple and I should probably know the answer to this. When AGCS reports rate increases in its reported accounts, which they publish, they say plus 6.3%, but your slide say plus 4.8%.

What’s the difference? Thanks.

Yeah. Okay, starting from the non-Life, on the non-Life side, we are reinvesting per annum of about €20 billion of assets.

So if you think you have a 10 basis point decline in the investment income, there will be about €20 million. So from their point of view, then clearly, this is going to roll over the period.

But let’s put this way, on the P&C side if you ask me I will say it’s manageable. So it’s definitely a headwind.

But I will say in that way that can be manageable considering that offset €50 million, let’s say, lower investment income you need to have improvement in the expense ratio, let’s put this way, of 10 basis points. So that’s the number – so from the point of view, I will say on the P&C it’s definitely manageable, on the asset management side.

But anyway in the short time can even be an advantage, so from that point of view, even if you get some drag on the P&C side at the beginning that will be compensated by better results potentially on the Asset Management side. And in the Life side, clearly, the different kind of game in the occasion is to lower the credit generation is clearly to manage the book over time.

So I would say, it’s definitely, if you ask me, a headwind. But I will say the headwind that we have been having to a certain degree over the last three, four years.

And from that point of view, I believe we have the skill-set to manage this kind of headwind, the source of the reason why we have this taken to our kind of expectation for the future. And then clearly as we go through this time, we’re going to reevaluate the situation.

But fundamentally, you should have the confidence that we can manage this kind of situation. Then you had a question on the mutual funds.

Yes, they are mostly retail mutual funds. So from that point of view, usually the margin we get on that business are a bit higher compared to the margin that we get in institutional account that you always have to look where there is equity versus fixed income, because in equity you are going to get higher margin compared to fixed income.

So there are a lot of things going into that. But fundamentally, the retail space, we have a different kind of margin.

I tell you also more that the difference in margin between mutual or an institutional kind of mandate can be different in Europe versus the United States. So you see more of a gap sometimes in Europe compared to the gap you might see in the United States.

And then you had a question of the difference between the 4-point – the numbers that we have in the renewal versus another that you saw. The 4.8% is more coming or most from our accounting kind of system, where the other number is more, I will say, the real number that can be used for the real view coming from the underwriting about the price trend.

So that’s the difference between the two.

Okay, great. Thank you.

Okay, before we continue we have time for one last question if there’s any.

Thank you very much. Good afternoon.

Two questions, first on the Life and Health new business margins 3.6%, you mentioned that if you had applied the yield environment at the end of the second quarter then it would still be above 3%. Can you provide a breakdown of what happened – what would happen to the new business margins, but to – of your various types of products on Page 19, so protection and health, unit-linked and so on – especially the guaranteed savings and annuities, 2.3%.

Where would that be in this current interest rate environment? Second question, on the low interest rate environment, I assume, many fixed income securities you have in your portfolio, currently trade at the negative yields.

Probably makes sense to sell them before they mature. So what should we think of realizing capital gains from this – in this year?

Should be expect some more to come. And would that affect your net profit?

Should we think about some compensating items? These are my two questions.

Yeah. So on the first question about new business margin, how to split it in the different buckets.

We didn’t do the assets, so I didn’t look at assets this way. But I can tell you, eventually, the drop is coming both from the guaranteed savings and annuity and from the capital efficient product, because I wouldn’t see the unit-linked moving much, because in reality you’ll get a lower – if you want a lower projected rate to say there, but a discount is also going down.

So I would expect that on the guaranteed savings and annuity, you see there now 2.3%. The number could go below 2%.

And in the case of a capital efficient product, I would expect that we are going anywhere to be above 3%. But that might be the moment more or less consistent with the 3.6%, becoming 3.2%.

So I would expect protection/health to be stable. I would expect even to go up potentially, because you have lower interest rates.

Unit-linked with guarantees is also to be fairly stable. In capital efficient product, I will say we’re going to get below the 3.5% I will expect.

And in the case of the guaranteed savings & annuities, I will expect they were going potentially to be below 2%. So that will be my…

The guaranteed?

Below 2%.

Yeah, below 2%. The guaranteed savings and annuities, is that basically group Life Germany or what is it?

It’s mostly Germany, but we have also – it’s not necessarily group Life. But it’s mostly Germany, then we have also something, France.

And then we have more blocks here and there. But it’s basically, Germany definitely a big chunk.

And then, we have also France.

Okay.

Then the other question about selling bonds, I’m not a Chief Investment Officer, so I will say, I leave this to the Chief Investment Officer. As a CFO, I will say, we are matching our liability.

If you start selling the bonds, yes, you create – realize gains, but then you have a lower income going forward. So from their point of view, I will say that selling bonds at least for an insurance company might not be the best action.

If you are clearly a trader, you have a different – you have a view that interest rates can just go up from here than you might decide to sell bonds. But in our case, I think we need to stay to our asset liability kind of matching.

In reality, this makes the difference, the fact that we have been buying the bonds. And these bonds, they are producing a nice current income to match our liability.

This makes a difference compared to somebody who is going to sell. And then I don’t know what they’re going – what you do, you go short, you go long.

And then, you end up maybe making the wrong bet. And then you have a problem down the road.

So I think we stick to our approach, which is asset liability management and we are not going to speculate on the direction of interest rates.

Can you say how many of your bonds currently trade at negative yields?

I don’t know if – but I would expect that the entire German bonds, okay, you know, we have all the bonds that’s going to be below. And I will say if you give me a second, I can even tell you how much bond we had.

Yeah, we had around – at the end of the year, for example, we had about €30 billion of bonds. That’s on sovereign.

So this is below for sure, because everything’s below. I will say, French bonds, we had about €40 billion.

That’s almost also below. Slowly, slowly, I will say Italy is the only one that stay positive.

Slowly, slowly, it’s going to be [risky] [ph] too. So I will say, yeah, a significant number now that they are trading below the negative yield definitely.

So the company bonds, I think you’re still positive yield. But on the government side, you see easily €70 billion, €80 billion of bonds below the yield, a negative yield.

Okay. Thank you very much.

Okay. All right.

Thank you. Yeah.

This concludes our call for today. Thanks to all of those who have joined us today.

We wish we have a very nice weekend. And for some, perhaps, even a long and peaceful vacation.

Thanks and goodbye.