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Executives

Oliver Schmidt – Head of Investor Relations

Michael Diekmann – CEO

Dieter Wemmer – CFO

Analysts

Paul De'Ath – RBC

Jon Hocking – Morgan Stanley

Farooq Hanif – Citigroup

Andrew Ritchie – Autonomous

Michael Huttner – JPMorgan

Thomas Seidl – Bernstein

William Hawkins – KBW

Nick Holmes – Societe Generale

Atanasio Pantarrotas – Kepler

Andy Broadfield – Barclays

Vinit Malhotra – Goldman Sachs

Michael Huttner – JPMorgan

Michael Haid – MainFirst Bank

Allianz SE (OTCQX:AZSEY) Q2 2014 Earnings Conference Call August 8, 2014 8:00 AM ET

Operator

Ladies and gentlemen to the Allianz conference call on the financial results for the second quarter 2014. For your information, this conference is being recorded. At this time I would like to turn the call over to your host today Mr. Oliver Schmidt, Head of Investor Relations. Please go ahead sir.

Oliver Schmidt

Thank you, Ronda. Yeah good afternoon from my side as well and welcome to our conference call about the results of the second quarter 2014. For the sake of time, I hand directly over to Dieter without ado.

Dieter Wemmer

Thanks so much, Oliver and good afternoon or good morning to everybody on the call. Before I dive into the financial of the quarter, let me start with our business highlights page and short view and the engine room of the company which drives the results. I think we are making good progress on product innovation, on the property casualty side as well as life and health. I think in P&C it’s about really driving much more modular products for the retail segment as well as digitalizing the access to the products.

Life and health, I think when you see the high growth numbers in the segment, it’s coming from the fact that we have broadened the answer to the challenge in the life market, I think the traditional answer that in these times you can only do unit linked and diverse products to create capital light product was extended by our hybrid products and in particular in Germany and US they are driving a lot of successful growth.

Asset management, Allianz Global Investors had great inflows – highest inflows in their short history since they are working under this brand. Investments, we continue to pop up our real assets investment, by attractive investments because active investment process is in these times of low yield really the game. Transaction, that is just an update, the UnipolSai acquisition, it’s closing 1725 agencies out of 1729 actually signed the contract with us, so it’s moving on as planned. And on one hand, to improve our scale in Belgium and Netherlands, we merged already the management responsibilities there, some 18 months ago and now we have actually also added the first cross-border of P&C entities which is not only enhancing the management but also helping the capital requirement under Solvency II.

And in branding I think we are expanding our branded football and rugby stadiums by adding a stadium in Vienna that is now in a build phase and the name Allianz will be then on the new stadiums from 2016 onwards.

So all these activities and that was just a short selection of the second quarter. What did it do to our numbers. We are really enjoying double digit revenue and profit growth in the second quarter, revenues up 10% mainly driven by life and I will show you in more detail later. Operating profit even 17% up. Next to P&C, actually life was a substantial outperformer of the quarter. Asset management weaker than last year but as expected for the year. And also the corporate segment supported with outperformance that we ended up the quarter with 2.8 billion, almost 300 million above our pro rata outlook of 2.5 billion.

The great progress in operating profit translates then also into a 10% net income improvement. Here the growth is smaller than in operating profit because we substantially had less realized gains than a year ago.

So how did the balance sheet developed, actually pretty much almost hitting also the double digit growth in equity where the payout of 2.4 billion dividend during May, actually got us from – actually having also here more than 10% cost. But the development of shareholders’ equity and our top line and risk taking was very much parallel, you can see the Solvency figures in both measurements almost didn’t move, and on our economic Solvency, we are still including the sovereign credit risks, so unchanged measurement as compared to Q1. When we would exclude the sovereign risk – credit risks as some of our peers are doing, we would have shown a 220% ratio instead of the 205.

The dividend accrual continues to be at 40% payout ratio and we are not changing the accrual until we have our announcement as promised in December and then we will see how it’s changing and whether it’s changing, we are not giving any firm guidance here and I think after the capital markets day, nobody actually should also expect that we would say today anything different.

P&C segment. I think I am explaining here the overall numbers, I will then dive into the individual country numbers a little bit later on – on the new page we have introduced in the presentation. Overall 0.9% net growth on the top line, FX still a negative impact, without FX we would have seen 2.6% growth of which volume effect is 3% and pricing is minus 0.4%. The pricing was very positively in Germany, it continues also to be positive in France. The US also see still a pricing of about 3% and Central and Eastern – now starting with a negative that is Central and Eastern Europe. AGCS has still seen weakening, in particular in marine and aviation. However with its tragic events around the Malaysian Airlines and then also the other two airline crash we have seen in recent weeks, that could be triggering points that we will see going forward positive rate developments in aviation.

The biggest negative number is Italy. It’s minus 7% in the second quarter compared to a year ago. But it’s not yet creating actually a lot of pressure on the profit line because when we now turn to the next page -- maybe I am completing it here the Italian story, our accident year loss ratio actually in Italy is still better than a year ago because severity as well as frequency are down on a Q2 over Q2 comparison. So therefore the price decrease is nothing to complain about. It’s minus 2.2% negative growth in Italy good or bad. While we expect that the market at half year was at minus 4.5%, so we are still growing market share in Italy.

When we now go to the overall profitability and I have to admit that the combined ratio story is a little bit more complicated than in previous quarters because we have to sort out some effect. So let’s take the simple reading, combined ratio of 1.5, 1.4% improvement, but when you look at the cat losses down from 5.3% to 1.6%, that would mean an improvement of 3.7%. When you now subtract the run-off ratio which is 2.3% lighter than a year ago, you end up in two decimal points with improvement of the combined ratio.

And in insurance, there is always a however, so therefore I have to continue with the however. We have a 1.1% worsening of our large losses, so the little bit higher large losses are actually masking that our underlying attritional loss ratio improved by the 110 basis points which I think is pretty much what our indication was during previous quarters that we still have a very good run rate improvement overall.

So it’s a run off ratio of 3.4%, disappointing, I will give you a little bit more insight into this in a moment. But let me first look at the operating results by OE and country. So the biggest positive swing is Germany, of course with – which had a lot of cat losses a year ago and the improvement which we had the opportunity to present with you in our 2013 capital markets day, I think we have all outperformed any of the set targets.

France, it’s a little bit down in operating profit but actually combined ratio in the second quarter was influenced by the storm Ela, which hit half Germany, half France roughly. Italy is mainly less run-off result or actually all, less run-off results than previous year and AGCS has a really good combined ratio despite that we had actually to bear also additional large losses in the second quarter.

And I will then come to the next page where we are showing a slightly different view and angle of the overall portfolio. We have split out portfolio into three groups. The one who performed in the first six months because I think combined ratio looking at single quarters only is not really making a solid statement, longer periods offer better insights.

So below 95% is the first group, between 95% and 100% is the second, and then also there is still not an empty box, above 100% but I will come to this one. Let’s start with the best group, that is 63% of our portfolio with an average combined ratio of 88, big contributors are Germany, Italy, AGCS and of course also the credit insurance but there was not more room in the column, so I could only take the best 3. And Germany had really in the first half year a 91% combined ratio and actually they did not benefit too much from the low cat events, the second quarter was pretty much consuming the normal cat losses but what is really great here is the growth. We had 6% internal growth and over the half year 3.3%, clearly outperformed expectation and our target for the year was 26 expense ratio and we are with 25.6, clearly ahead of the France.

Italy, I mentioned already that despite lower rate, accident year loss ratio including motor is still improving, and AGCS, I think, has another very good quarter of – half year of good loss ratios.

So the second group, 30% of the portfolio with an average of 97, UK you have just seen at the capital markets day half year almost 10% growth actually in the second quarter, we had 15.5% for both standalone. France, almost made it to the below 95% combined ratio group but also the other half of the cat loss in the second quarter. Top 10s are moving there but I am confident that we have good opportunities to move to the below 95 class, and AWP as we also presented at the capital markets day, that is of course the OE with strongest focus on growth and also delivering it.

The class which I would like to have completely emptied now, we have still three companies in the above 100 categories. And as I have said before, let me start with the one off results. We are showing for the whole segment 3.4% positive run off add the three companies who are listed here actually consuming 1% out of it, that means without reserve increases in Russia, US and Brazil, we would have shown a 4.4% run off results for the year – for the quarter, sorry. And these two effects, the more large losses and the negative run off of these tree countries are certainly effects down on an excellent combined ratio, so you can also say potential upside for the future.

So what is wrong with the three places? Well, Fireman's Fund is a true disappointment because the target of making a little underwriting perfect this year completely out of reach. We have 3 effects, there was really the bad start and in the quarter of Brazil related losses, continued into the second quarter, we were hit by two large settlements of individual lodge claims really from the past, some 10 to 5 years old, and certainly we have revised our accident year loss ratio assumptions for the commercial business and well there actually is – the negative result run off were the two large claims I mentioned already.

Russia, it’s the change in the right to litigate a motor claim that was some almost two years ago the law change in Russia and in particular the areas far outside Moscow and St. Petersburg is making heavy use of this option to sue the insurance company after a little car accident, and this has made the market I think for almost other players very unattractive and in particular I feel that foreign insurers in Russia are getting the more difficult part in this game, and that’s why you see a withdrawal of foreign retail insurers in Russia to some extent and we will also reduce our branch network substantially and we have already started to reduce the branch network, and we will focus on the large cities only.

Brazil continues what I explained already in Q1, IT platform issues have not been fully resolved, and has been aided by lack of pricing in the health segment where the inflation has out-grown our pricing assumptions so that we have now to deal with these two issues, yet the IT platform are fully aligned with what Brazilian broker wants to see in processes and secondly, yet the repricing of the group health portfolio – but we have worked out a very detailed action plan already and I think we are very positive that we can solve this problem ourselves without any help.

P&C, operating investment result is holding up very well. I think also the reinvestment rate is even slightly higher than last year than are effects from one had, the US but also some emerging markets and also a stronger shift to corporate bonds, and we have started again some months ago to buy Spanish government bonds which we had spent for quite some time.

Now the life segment. Strong growth as indicated, Germany very successful, with our new hybrid product but also with some standard single premium product and group benefit schemes leading to 20% or 21% growth in revenues and 40% in new business premium and Germany, our leading life company has been also presenting the average of the segment which shows that everybody else continues to grow strongly. In Germany we are certainly grabbing market share. Please remember that on a business in force basis, our market share is probably 17, now maybe 18% of the market where in new business I would not be surprised that we would go close to 30% in market share this year.

Italy, continued success of – on one hand, the unit linked although the growth after the strong sales volume last year could not be repeated but we kept the high volume unchanged and then we had non-unit linked business growth mainly through only credit to our partner in Italy. The biggest sales success is our fixed index annuity business. We have actually – when you look at the internal growth figure that means in US dollar terms we doubled our revenues in the US and our new business volume grew 86%. So both are very strong numbers and that is one fixed indexed annuity product which is exclusively using one Barclay’s index which is a dynamic combination between S&P 500 and Barclays Aggregate, and that sells very well and it’s also a product which is not only good for the customer but also giving us the 3.8% profit margin which I will show you in a minute.

Besides the big balance sheet, we should also not forget that actually Asia Pacific and Switzerland are also on a good growth in new business, also our Germany health business is back on track in growth and also Central and Eastern Europe.

Before we go to the new business margin and volume, let’s first talk about the operating profit. €984 million quarterly operating profit, almost €1 billion, actually it has never been reached before, so how did we do this in this difficult market? The big jump is in the investment margin, it’s a plus of 313 million. And to be very fair, I think in this result is about €120 million of positive. And what I would actually do is when you compare second quarter ’14 to second quarter ’13, so it’s a good 300 million improvement. I have – I am memorizing these numbers very simple, the whole difference I kept into three pieces, the first was a negative one-off from last year, mainly losses – foreign currency losses on foreign currency investments. The second is really underlying profit improvement and the last, is the positive one-off of the quarter. So what are the positive one offs of the quarter, to around 120 million, half in half between Germany and US. Germany benefitted strongly from its interest rate derivatives which are of course – we are really increasing substantially with the bond going down in the second quarter substantially, then the other point is we had some additional harvesting in Germany but not on equities we sold some old real estate buildings and as part of our normal renewal of our real estate portfolio and in the US there is mainly positive hedge results which are the driver for the one-offs.

You can also in this information that actually our risk margin went down by 78 million, that is two halves of it, one is the change in the Germany law which we discussed also at the capital markets day which did cost us including the catch up for the first quarter some 40 million, that means for the whole year you have roughly to calculate that our technical margin compared to previous year is €90 million lower. This has been compensated by more investment margin as we are changing the policyholder shareholder split on the investment margin in Germany and that is also sustainable change. So in total our Germany customers are getting the same amount as before only the third of profit is shifting slightly between mortality and investment margin.

So now our value of new business. The value of new business is €380 million, that’s a substantial increase over previous year, so driven of course by 40% higher volume but also by nice improvement in the new business margin which shows that our new product generation and it’s not only unit linked and risk business, are really addressing customer needs and are creating really saleable product. We had in the quarter which I did not mention before around 4.2, €4.3 billion of new inflows, which shows that it’s substantial investments from the customers go to our balance sheet and also the substantial volume of new business of course, it’s cost something – I should have mentioned it so the operating profit of the new business of the quarter was a negative of a bit more than €60 million. That means probably without the substantial increase in the new business volume we would have ended up as a billion instead of 984 million.

So the investment margin, I think I have almost already explained that the combination of the negative and positive one-offs and base improvement that our new business margin moved up from 17 base points to 25. So we have given so far as a guidance that’s a normal level at 75 for the year. I probably would increase it now closer in the direction of 80 basis points. What is also important to note is actually is the growth in our aggregate policy results. That is on one hand accrued interest rates which is going up but on the other hand, also substantial net inflows, so that actually is the basis on which we earn our investment margin is around 5% higher than in the previous year and 5% more base times as slightly higher investment margin results and also into a positive shift of our overall outlook for the life segment.

Now let’s come to the asset management category. I think it’s pretty much delivering what we believe in the beginning of the year and what we said with our outlook for 2014. We see a good performance based on the AUM development, sure it’s driven by positive market developments. Outflows at PIMCO continue 20 billion in the second quarter, certainly still too much, however less than in the first quarter and Allianz Global Investors actually showing really good positive net inflows. Overall our assets under management compared to the beginning of the year are up €40 billion on the third party volume and substantially more on including our group assets. And actually our group assets are benefitting here really from the good performance of our asset managers and we are very happy with the return, because that is certainly also a driver that we can speak more positively about the investment margin in our life segment.

The revenues in asset management are based on the outflows of the last four quarters and also development we have already discussed. They are 9.4% down in euro terms, still the weaker dollar consumed more because on a dollar basis, reduction would only be 5.8%. So looking at the euro dollar exchange rate actually is a pressure from the dollar should go a little bit away and I would expect a more positive contribution from the exchange rate going forward, that would also take away the negative which is so pronounced as a double movement of the underlying and dollar so that we have then only to deal with the underlying and with the underlying I think we are dealing well. PIMCO’s performance has recovered measured as out-performance on the funds. The 12 months performance is at 83%, the three year performance 89%, so that means it’s a short and long term measures show really strong numbers and also the recovery here should help us to turn around the outflow or inflow picture going forward.

When we look at operating profit, as I said before, operating profit is at target. We are quite happy with the 90 million operating profit of Allianz Global Investors, in particular as it includes the €23 million one off on non-income taxes. That means without the negative one-off we would have clearly beaten the 100 million mark for a quarter and that is a very strong performance for an asset manager of this size. So PIMCO continues to deliver 600 million and actually when you look at the operating profit, the 600 million is higher than what we have seen in the first quarter delivered by PIMCO. So overall I think operating profit is as expected but it’s not repeating the double digit cost what we all got and nicely used to.

Now finishing the presentation with a short look at the corporate segment. There are actually four changes which influenced the 60 million additional profit or less losses to be more precise. We have less admin costs, actually 24 million at the holding and treasury segment, we make 23 million more investment income based on the cash we collected from all the countries. I presented you the cash flows and the excess capital repatriation program a few weeks ago at the capital markets day, a negative was that actually our centralized IT unit has charged out 17 million less to all the countries but I think that is just the delay between months.

The banking segment, slightly improved, that is more of the absence of expenses due to the closure of Allianz Bank, so we have closed this negative operating profit contribution and I think all the banks are delivering now a small positive profit and this is I think now back to normal.

So how are we then now translating the 17% plus in operating profit to the net income number? Our non-operating items in total are minus 39 million, so close to the zero line. The realized gains are about half of what they were a year ago, so that means without this year has less volatile positive one-offs than a year ago. The 243 million this year is actually I think it’s a good 30 million from equity realization, 33 million and the rest is fixed income area, that is mainly in the P&C segment playing the yield curve, where the 33 million in equity is probably slightly below what you would expect long term from the equity portfolio, we keep in our property casualty segment, are the numbers, pretty much normal, very low write-downs, and income tax is still at our expected range around 32%, 33%, so nothing very special and with this one, let me just summarize.

I think you see a great growth in revenues, operating profit really beating our own outlook, and shareholders’ net income hence also substantially up, and that all was achieved with a strong capital and balance sheet growth with solvency ratios at expected and reliable high level.

Our outlook overall, the 10 billion plus minus 500 million, we still think is adequate to keep it unchanged. However we believe that we can reach the upper end of the range which should not surprise you and this one I would stop here and hand over to Oliver.

Oliver Schmidt

Now we are happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) We will take the first question from Paul De'Ath of RBC.

Paul De'Ath – RBC

A couple of questions please. Firstly, on the P&C business, you have obviously gone into quite a lot of detail on the areas where you've strengthened reserves. I just wanted to check on that. How large are the reserve strengthening in each of those three areas? And second part of that question I guess is on Russia. You said that you're kind of scaling back the operations there. What's your view on that sort of, I guess longer term? Would you ever think of just pulling out entirely, like some of your peers have? And that's the first question.

Second question is on the life side. And just a quick question on the duration of your liabilities. The duration seems to have gone up a reasonable amount in the quarter and sort of over Q1. And I'm just wondering if there was any reasoning behind that and/or if there's any more detail you can give on that, that would be great.

Dieter Wemmer

I think the life duration that is a I think straight question and answer, the duration of course is dependent on the input rate level, that means an input rates are where they are, and we have mainly -- our long duration comes from Europe, so therefore it has to be lengthened with a lower swap curve. On P&C, well, I think when you look at the combined ratios of the three entities, and I said that in total 1%, that means €100 million is spread over the three entities. I think you can almost do the math yourself, and I think that is – we are usually not giving run-off results on this detail level, it was only more for confirming that the positive run-off of all the large and successful OEs as running at a very good level and that we had last year the total absence of negative run-offs but this year we are showing it and I believe we should be fully transparent when we have soft spots in our portfolio, then we should talk about the soft spots.

Russia, I think a complete pullout is not in our strategic direction. I think that it’s really the issue here is that in the country side, the interaction between courts, lawyers and the customers are for us to in-transparent, therefore we prefer to stick to the areas where we better understand what is going to happen. And also of course Russia is under the caveat that we have now also evaluate whether the European and US sanctions will to some extent limit the corporate business, that is as we speak probably unpredictable but long term I think the situation is improving again and then also Russia is an important market for us for the large customers and our international customer which are all doing business in Russia.

Operator

We will take next question from Jon Hocking of Morgan Stanley.

Jon Hocking – Morgan Stanley

I've got three questions please. I wonder if you could give a little bit of color on PIMCO? You seem to be very confident that the performance is improving. I wonder if you could give some color in terms of how you're seeing inflows with retail versus institutional? And what the commentary you're receiving from institutional intermediaries is whether they're worried about performance and governance of PIMCO. That's the first question. The second question, you mentioned large losses and you've specifically talked about Fireman's Fund, but I wonder are there any other trends in large losses, either by country or line of business? Second question. And then thirdly, on Solvency II you mentioned again in your economic capital numbers that you've included sovereign asset charges. What are your discussions with Barclays [ph] do you think this is going to be something which is going to be a sort of fundamental part of Solvency II? Or do you think there's a chance you'll be able to reverse from your final Solvency II calculations?

Dieter Wemmer

PIMCO, actually the biggest outflow number comes from retail and that is very visible when you look at our mix. We had a year ago 35% of the business – the money was retail money and now we are down to 33%. So that two percentage point shift shows that retail is still most of the outflows, of course there is also some institutional outflows but I think institutional is less driven by PIMCO, it’s much more when institutional investors decide that they do something completely different with their money. And there are two reasons corporation could use the money for operating expansion, and do a total shift in asset classes as some buy the bonds, Japanese real estate certainly we cannot offer this from our two asset managers, so therefore that is sometimes that investors change completely their investment strategy but overall I think that the discussions with institutional investors are still quite positive and actually Allianz is the largest institutional investor in PIMCO, with close to €300 billion and I can tell you our investment margin in the life business would not look stable and good than they would do a better off.

We are not – we are also – PIMCO is running a fiduciary obligation towards their customers and we do the same and our life managers who do not stay with PIMCO funds, when it would be under pressure in the performance and we have to play it here very much arms lengths and I can tell you we are quite happy with the development.

Jon Hocking – Morgan Stanley

So you're comfortable that it's not just the institutional clients are reacting more slowly to the historic performance issues in the last few quarters?

Dieter Wemmer

Well, that I cannot exclude it because I am not speaking to institutional investors, -- but I think in the end it is about the true performance of an asset manager and the institutional investors are usually much more rationale when doing their investment decision. I think retail customer is not the only one influencing the decision, there is also always an advisor in between and usually switching funds from one firm to another is for the advisor, usually a good job.

I forgot the large losses – sorry, Jon, the large losses is – that is pretty easy, I don’t think that is any trend, we had at 2 big losses, one was – well actually both are related to the oil industry, one in Far East Russia and one in another place. So that are the two big individual losses and I would take this as the non-business as usual. And on Solvency II, your question on the sovereign bonds, I assume that there is more a trend in the EU that sovereign risk would be included. I think the whole overall judgement goes more in trend to include it and not to exclude it.

Operator

Thank you. We will take the next question from Farooq Hanif with Citigroup.

Farooq Hanif – Citigroup

The first one, just on what you mean by the sovereign charge, is this the same as the 10 basis point deduction from swap or is it a specific charge for spread risk in government bonds? Just want to understand exactly how it's working. That's question one. Secondly, in light of your still strong economic capital position, can you talk about some of the asset allocation shifts you would be making to counteract below your environment? And related to that, can we therefore expect the actually realized gains in harvesting as part of your operational result in life could be something that we continue to see for a while in your numbers?

Dieter Wemmer

I think a stable harvesting is certainly what we want to achieve, and I can maybe give it in more detail on the P&C segment because there is a calculation that’s easier, actually you don’t need to split it with the policy holder. We have roughly €6 billion at the moment in equities in P&C and of course I am not talking about it whether we would increase it or decrease it because that would potentially influence the market. So the €6 billion should allow us to create 80 to 200 million a year on realized gains only in this segment, and when you will see that we had included this quarter only 33 million, so that is certainly below long term average line. So that part I would say continue and I think on the bond portfolios, as long as the steepness of the interest rate curve is not changing, I see also a continuing of our realized gains under that portfolio. Our other investments that will take more long term, because what we are expending currently in the real estate we are not planning to turn these buildings around in the short term that are more long term developments, and the infrastructure investments and our investments in wind parks that is mainly held to maturity of illiquid assets, that is just supporting our base investment income, which I think is also holding up nicely.

Farooq Hanif – Citigroup

Can I just interject very quickly on that? I mean are you assuming that this is going to use up economic capital? Or is it economic capital neutral, everything you're doing?

Dieter Wemmer

We have allocated more economic capital over the last quarter. On the other hand, also our overall risk management has actually also freed up economic capital, for example, when you are lengthening your asset duration and you reduce your gap then you free up economic capital and this freed up capital we have then reinvested in more risk taking, so therefore lengthening of the portfolio is on one hand consuming those capital, on the other hand, freeing up so therefore it’s probably allowing us to create more spread without using up capital. And your sovereign [ph] risk charge, no I think on sovereign bonds, what we have included in our calculation is going through distance, that means spread before the migration was all included like a corporate bonds.

Operator

We will now move to Andrew Ritchie, Autonomous.

Andrew Ritchie – Autonomous

Just one question following up on the last question. I'm slightly confused on the new -- on the reinvestment strategy in P&C. It sounds like you're encouraging us to think that you are going to continue with high levels of realized gains on bonds. Surely that will accelerate the running yield decline. I'm not sure how that generates economic value. So what exactly are you doing on the reinvestment side in P&C and why – -when you said you're playing the yield curve, are you seeking to buy longer duration, sell short? Or just I'm confused. Clarify that would be helpful. Secondly, in your introductory remarks you used the phrase not yet in reference to Italian P&C profitability, as it had not yet deteriorated. Are you expecting that this year? Do you have any view on whether frequency and severity starts to normalize a bit or whether we'll start to see more of an impact of lower rates coming through, lower pricing coming through? And then final question, in the US you talked about you had changed accident year loss picks as well as prior year reserve issues. I mean that often is an indicator that you might start to look at reserves in general again. So is there going to be a more sort of reserve review of Fireman's Fund in the second half?

Dieter Wemmer

So starting with P&C, I hope it was not too confusing but actually when you have a bond which still has a 3% coupon, and that was a 10-year bond and this is now approaching the last two three years. The total return you will make in the last two years of a bond is well – 0.3, 0.4% or something like this – but still you are not earning anything anymore in the last two years, therefore it would be completely wrong to wait the last two years of a maturing bond, you better turn it around and reinvest it in a long term bond, that is pretty much because you are economically keeping the money for 46 basis points in the last two years. So why would you do this because you can – that is when you go again 7, 8 years you are still getting more than 40, 50 basis points. Sure that is a mark – total value and market value consideration, it is not the consideration only of running yield but I think you should also see that in total we can also – statutory effort to create realized gains, because our running yield in P&C stayed pretty much up.

Andrew Ritchie – Autonomous

Are you reinvesting longer duration though than you have –

Dieter Wemmer

Yeah well I think you have a bond which matures in 2016 and you sell it now, because the last two years you are earning – you have a decline in market wealth, as a coupon, so net, net out of the two, it’s 40 basis points and instead of catching in the 40 basis points, the last two years you are now reinvested still at 2.5, or 3% and that is – additional value you are creating by this activity.

Are you doing something differently with your own portfolio?

Andrew Ritchie – Autonomous

I mean you're reinvesting at lower rates, so.

Dieter Wemmer

Yes, but the total value you get out of both is still – if you export side of the equation, you get more than keeping it.

Andrew Ritchie – Autonomous

Okay, I'll revert offline on this one.

Dieter Wemmer

Yeah, I think you need investment advice. So --

Andrew Ritchie – Autonomous

I guess that was interesting. What are you reinvesting in in the P&C? Obviously you're not investing in German bonds at this point, or at least that's –

Dieter Wemmer

No, German bonds are actually at the moment blacklisted not because we are not trusted – currently but with the 1% return for 10 years, we are absolutely not happy with the 1%. We have – we are certainly more reinvesting into corporate than before. We are also – we have opened up again a little bit our investment into Spanish government bonds, so which also helps our average, and that is I think the main change on the P&C side, and we have over the last two years increased slowly but also supported by market its equity allocation. So Italy, not yet – and maybe I need English training – instead was only referring to the fact when people are seeing – renewal rates are 7% down, that actually our accident year loss ratio is still improving and I am not linking the severity and frequency improvement to the Italian economy, I think it’s still our continued selection in the agent channel.

Andrew Ritchie – Autonomous

So it's a structural, not a cyclical.

Dieter Wemmer

Yeah but I think we have to be very careful, certainly the Unipol portfolio will not come in at the same average combined ratio at our current Italian portfolio and that is – if you look at the pricing of the transaction, then Unipol would have done a very bad deal when they would sell a 80% combined ratio business at such a price. So therefore the business mix, certainly a higher combined ratio in Italy at year end but we wrote this close completely, what is old portfolio, what is new portfolio and what are the mix effects.

In the US, certainly US reserve have to be reviewed very carefully every year, but when we would have today any indication for increased reserve needs, then we would have look at. If it is different in a few month, then we will let you know.

Andrew Ritchie – Autonomous

So you've increased, to be clear, the current accident year loss picks. Is that right? You said I think –

Dieter Wemmer

Yeah, we increased I think – the underwriting improvements which were planned, were not achieved in this way and therefore we took a more conservative stance.

Operator

We will take the next question from Michael Huttner of JPMorgan.

Michael Huttner – JPMorgan

Two questions please. On the Russian, and Brazil and the US, you said 100 million roughly is the reserve amount. And I worked it out, I made a good math here. So I'm joking. That's a total underwriting loss to those three countries was around 200 million. I think the right figure's about 185 million. So it implies there's also 95 million in terms of it's still above 100% combined ratio for those three countries. Can you talk to us a little bit more? Because reserve additions plus actual claims, I know you mentioned to Andy Ritchie that yes, the US is loss [indiscernible] It seems weird. Normally it's either one or the other. Here we see both and I'm just wondering a little bit what is happening and what we could expect from next quarter here. And on the other thing, you mentioned on the dividend, December I thought the decision would depend on the Solvency II and that could be November. But I heard you say and I may be wrong, December and I just wondered if you could just comment on that.

Dieter Wemmer

You are giving me all a hard time today. So I thought that was such great result – starting with the P&C, yeah the total run rate of the 3 is above 100 also on an accident year combined ratio, and in the US we had the Basel related impact and then what I said, the exchange in loss picks for the accident year. So both are resulting in a combined ratio above 100. If you look at the half year or the second quarter combined ratio for Russia, it is 160 if I am not mistaken. 165, precisely, so that is also absolutely not making money and in Russia retail third party liability premiums for motor defined by the government, so you cannot change your pricing, if you could change your pricing, the Russian market would be easy, I should have mentioned this that this is a fixed efforts [ph]. So therefore in the end, the only thing what you can do is close the shop and don’t write any business until supply chain and losses are in balance.

So I think that it’s the more important point in terms of the dividend, we said always yes, somewhere at year end we will tell you what will be the new number for the year, I think we have all understood your expectations, you have all seen that we have a range of options and I think we come together at year end the Solvency II numbers are probably at some point stabilizing, that is besides Solvency II, we are also systemic important company, there are also some capital requirements coming from this calculation, so we have to take a decision here at some point and see how we can work through it.

Operator

We will now move to Thomas Seidl with Bernstein.

Thomas Seidl – Bernstein

A number of questions here. On the P&C side, the rate changes have come down again this quarter. I think we are now at a level where this is below expected inflation. Is it fair to assume that the P&C segment hence has reached a certain peak in terms of performance here. Secondly, on the life side you mentioned this enormous growth. I wonder as a CFO, don't you get nervous when you see such enormous growth rate in a mature market? And what makes you comfortable that Allianz is not suffering what is called the winners currency [ph]? And thirdly, on Yapi Kredi, there is a quite substantial drop in volume on the non-life side. I wonder would you buy Yapi Kredi at the same money that you bought it for and hence should we expect some goodwill impairment? I think it's 220 million on Yapi Kredi.

Dieter Wemmer

I am happy to cite this Dieter Wemmer, I think we are far away from a goodwill impairment. Certainly the Turkish P&C market was obviously very sensitive to underwriting profit and remember that over the long run Allianz and Yapi Kredi were always the winner in this underwriting game, and when the market is in some areas too soft then we have just to be careful with writing new business and I think the profitability is more important. But what has really made up for it is a substantially higher investment income, which is I think we calculated the transaction with a 6% yield in Turkey, is I think in the double digit area for even short term money.

On the life side, yes, certainly in the German market, it’s a flight to quality. I think in Germany all our products are priced very sensible, I think we are only promising what we can really deliver over the long run. I can tell you that regulators and as part of the systemic process, there are all over us with long term scenarios and calculations, so that means our knowledge of scenarios and long term risk is substantially higher than it was in the past. So we are also learning this process but learning is very positive in the sense that we are maybe even more confident on our life business and in [brokerage fall]. And look at our reinvestment deal which is a very stable year over year, so hence the risk we are taking, I think we are still comfortable from a risk management point of view. The other big cost driver is actually US. There we are selling in principle one product, that is one fixed indexed annuity actual product. I think we have done all our testing, we have looked at it, nobody got very nervous over this product, so as long as we can sell it at this large volumes and actually the scale effect is very positive, I did not mention this that US improvement in the new business margin is driven on one hand, by the pricing and the market impact on the other hand, but by also the volume impact. We are clearly now – instead of having an expense overrun we have an expense under-run which of course helps the new business margin.

The P&C rate changes, yes, they have peak on average on the portfolio, where Italy is probably the biggest contributor at the moment. I think that, that will also come down at some point in Italy and I think that when I look at the aviation market that would be for me the area where probably the first positive rate changes will take place this year. Aviation – it’s interesting line of business, we are I think overall probably the largest or at least one of the market leaders, the rates went down since peak after World Trade Center event. So we have seen a slight decline in aviation rates for more than 10 years by now and I think 2014 is certainly a triggering event with this – not only with the tragic events around Malaysian Airlines or we see other crisis we have seen in the last months that aviation rates are obviously going up. So it’s a mixture, I think we can drive our profitability and I think the biggest improvement area is for me actually the three highlighted countries where you are rightfully asking a lot of questions around but actually what was more – the idea is that we are actively managing our overall portfolio and we are not shying away from the soft spots and share with you what we are going to do.

Operator

We will now move to William Hawkins with KBW.

William Hawkins – KBW

I am not having a go at you, but coming back to Fireman's Fund, can you just clarify a bit more what you mean in the slide by accelerated improvement plans? I mean you've given us some information, but my feeling at the end of the first quarter was that you were very clear that there was a cost overrun problem in the US. And that was what was being addressed. You haven't even mentioned costs this time when you've been talking about the US and so it seems like much deeper problems have emerged. So I mean in that context, can you just tell us what you mean by accelerated improvement plan? And then secondly, again the aviation losses in the third quarter. Is there any figure or sort of range that you could give us for what those might mean for Allianz?

Dieter Wemmer

I am happy to start with aviation losses for the quarter, the tragic situation in the Eastern Ukraine where the plane was probably shot down, we are only covering how, when it was a normal accident, when it wasn’t an act of war, we are not a member of the consortium who are leading the war, then we would only participate in the liability case, and you can put a range about it but it’s an average large loss, nothing very spectacular, so say in euros either now maybe between 20 million and 30 million, and actually the other aviation losses we have very, very tiny participation in it, that would not even make it to a mid-size loss.

So Fireman's Fund, well accelerated improvement and management action means to me to look at all levers and do whatever you can do. Therefore expenses are not excluded.

William Hawkins – KBW

But just to be clear again, I mean you've answered this question -- you've had this question a couple of times, but this is now no longer an issue of just expenses. We are back in underwriting and reserving problems as well.

Dieter Wemmer

Maybe I have not explained this well, the reserve increases were linked to two large losses. So it’s not that – actually we look at it, no – have those two large losses and the lawyers did not look at the actuarial papers before and therefore we are now paying more than we had indicated for that.

William Hawkins – KBW

Okay, so I think you've, again in comment to another question, you're not shifting to a view where there may be a systemic problem with the reserves in Fireman's Fund.

Dieter Wemmer

No, I think we had a review in the second quarter of asbestoses and via mentor. So that has been reviewed and also revised. That is P&L neutral, because we are keeping a high asbestoses reserve at the center, and that isn’t expected development in the US, and that part is therefore neutral for Fireman’s Fund.

Operator

We will now move to Nick Holmes of Societe Generale.

Nick Holmes – Societe Generale

Two questions. First is with US life, wondered can you tell you more about the risks with the fixed index in US new products, in particular how worried are you that you're putting on a lot of interest rate risk? Because I think that is the principal with a product. And indeed, I mean you're selling the product because basically you expect rates to rise. And the second question is looking at P&C and the expense ratio. There has been a bit of improvement in Q2 and I just wondered if you could remind us how much further improvement you think is possible?

Dieter Wemmer

The last question was improvement on –

Nick Holmes – Societe Generale

Sorry, the P&C expense ratio. There was a bit of improvement in Q2. I just wondered if you could give us a bit more background about scope for improvement in P&C expenses – as a general question.

Dieter Wemmer

Well, I think the 30 basis points we probably carry through the rest of the year, that were not one-offs, I did not mention that our net earned premium actually grew 3% in the second quarter versus 1% on the gross top line, and that is the reinsurance program which we explained where we are changing our reinsurance purchases, so that we have slightly better growth on the earned premium versus the overall premium, is absolutely correct. Fixed indexed annuity product, are not taking input rate. Fixed indexed annuity products are not – deferred annuity component is absolutely cash flow mix, then there is this equity option, is the option linked to the underlying fund, that we are dynamically hedging and actually there are – when you look at the whole space of fixed indexed annuity players in the US, that are five, six companies, that is, we had last year the private equity guys who entered over two carriers markets and also the layers which are competing with us for long time. I think we are the market leader, we had 16% market share over the last five years on average I would say, we are probably with the second quarter number substantially higher in market share that is my guess, and there are two options in the market, some players are buying each tranche of new business, fixed hedge in the markets and not touching the hedge at all over time.

We are a bit more sophisticated in our hedging program that we run a dynamic hedge and actually also it’s using a little bit the – actually the offsetting correlation between our VA book and the fixed indexed annuity book, which allows us to be a little bit more efficient on the hedging, so therefore we are not taking any input rate to risk this business. When the input rates are higher, the pricing of the product on the day of sale is easier, when you have zero input rate and it is hard to split the zero percent between customer and shareholder, so that makes the pricing of course difficult and additionally when hedging would become more expensive due to higher volatility or other market factors, we have actually been able – expense charge in a product that means on a month’s basis we could adjust our expense charge going forward to catch up with potential other costs in the hedging program. So I think that is the straightforward product and as I explained our fixed indexed annuity products – the equity option we have to hedge is a mix of S&P 500 and Barclays Aggregate, there is also almost no base list in hedging these two indices because they are the most common indices you can think of. So therefore I am pretty comfortable with the current product generation.

Nick Holmes – Societe Generale

Perhaps I can slightly rephrase the question, which is with that fixed index annuity book, what would your view of the impact of rising or falling rates, interest rates in America be? I mean would it be if rates do rise, would you see that as positive, presumably your margins could expand whereas if rates were to fall, would you think that you are completely hedged forever on this book?

Dieter Wemmer

Hedge in the sense of the business in force, yes, as we talk about future new sales volumes that has of course a sensitivity towards input rate market, although I think that this current index which goes between S&P 500 and Barclays Aggregate I think that has a lot of elasticity even if you accelerate would continue to fall, if interest rates going up, I think then the pricing of the new business volume is anyway easier and attractiveness for the customers comes very well.

And worst case, our new business margin goes slightly backwards from the 3.8% and that is still then a very positive book, which generates profitability which enhances our overall segment profitability. The underlying year over year I think the new business volume over the last 12 months has probably created some 60 million – 50 million plus in operating profit and what you have to consider on a fixed index annuity policy, the customer base – and we are investing the cash in the mix asset portfolio and the hedging is only done for paying out this embedded equity option which gives a little upside for the customer but it is not changing the risk profile for us as a shareholder.

Nick Holmes – Societe Generale

Understood. And sorry, just one final question, which is given the volumes you're writing, do you have a sort of limit on the volume that you see going forward? Because I mean if you continue to grow at this pace, you'll turn into a US life company.

Dieter Wemmer

Look we also get volumes from the US and still seen as an Asian life company, so I am pretty happy to inherit the PE of pools.

Nick Holmes – Societe Generale

No, that's a very good answer, but is there a sort of limit that you've got? Or are you happy to just carry on growing at this sort of level?

Dieter Wemmer

I think we carry on growing with this product, we have still a limit on our VA volume and we are not listing out limit on the VA volume.

Operator

Moving on to Atanasio Pantarrotas of Kepler.

Atanasio Pantarrotas – Kepler

Three quick questions I hope. First one on the reinvestment in the P&C, you mentioned that there was a 2.5 in the first half. However I guess now is considerably lower, given that the narrowing spread also, for example, Spanish bond [ph] yield four years' maturities below 1%. Second question, so if you can provide what could be now the reinvestment yield in P&C. Second question again on the sovereign charge in Solvency II. According to you is there any chance that only the cross border investment would be penalized in terms of capital? Or you considered that every bond investment also – so also if a company invests in its domestic government bond market, would be penalized? Final question on your acquisition on Unipol portfolio. I know that it's a work in progress, what is your target in terms of combined ratio, at least your target range of combined ratio for the portfolio acquired?

Dieter Wemmer

Yeah, I think we will not disclose target combined ratio for the Unipol acquisition. I think that – certainly we have a business plan but actually we are not disclosing business plan to this detail level, sorry. But you have to understand this. The reinvestment yields today compared to the Q2 numbers I think you probably have to expect that it’s 10, 20 basis points lower, the sovereign risk topic that is a widely discussed topic among European insurance groups as well as the regulator among each other, and there are various scenarios floating around that is a question, so that we excluded completely should there be a mix solution, where only cross border sovereign bonds are being treated like corporate bonds, the whole market buy it, would allow to consider, it’s still – or as the full treatment as corporate bonds. All allegations are in the room, and the only statement I have made is there is a higher likelihood that there will be some form of risk charge for the corporate bonds, therefor the sovereign bonds, whether it will go to the 100% or the corporate bonds or some middle ground, that could be – but I think that it’s at the moment changing in – that’s almost not [indiscernible].

Atanasio Pantarrotas – Kepler

And your model is built according to make capital charge also on the domestic bonds or only on the cross border investments?

Dieter Wemmer

In our own calculation, yes, for distance. You should know our risk manager.

Operator

The next question comes from Andy Broadfield of Barclays.

Andy Broadfield – Barclays

A couple of questions please. I will come very briefly back to that Solvency II question. You mentioned I think when you first listed [ph] into the model beginning of the year, a comment which referred the fact that financial services should all be treated the same and that the introduction of this into the banks would be quite a considerable charge for them and that that would create some considerable level of disorder. And that therefore that was something that the regulators knew to think about. I was wondering what your updated view is on that because it seems to me that you've taken a slightly more -- a slightly harder view assuming that there would be a charge. That's question number one.

Number two, if for Friday afternoon you allow me to dream for a moment, this German P&C business has been a long-term work in progress and it's really starting to deliver or really not starting to deliver, really is delivering. How much further do you think this can go because I get the sense that the momentum's really started building only a year or two into that momentum in fact in terms of delivery. Yet it's already delivered great results and great growth. So what do you aspirationally think you can do in Germany?

Dieter Wemmer

I think our – let me start with this Germany and delivery of the P&C results, these products are outperforming the targets and it’s clearly a great success of the management team which is at the moment also very happy, with what we have achieved and they should be really very proud about it. Clearly I would the optimistic uplift of that – we go to the upper end of the range in our outlook, I think it’s certainly based also on the fact that we trust very much into the Germany delivery. So now to list the numbers for 2016 and giving new public targets, I think that the half year results might not be exactly the right place to do this, and therefore we should do this when it’s appropriate time.

And on this level playing field topic, I think that it’s really close to my heart and I have really to look at the sovereign risk charge here in two ways, on one hand, I have to put into our model what we are in the end at being forced to include, our regulator tells us without the sovereign risk charge your model has no chance for approval, then it would be hard to fight it, on the other hand, I will not stop saying that level playing field among the insurance industry and also between insurers and bankers is a must. And if regulators are currently falling short of it or potentially are falling short of it, then we will certainly continue to highlight it at every opportunity.

Andy Broadfield – Barclays

I feel a bit disappointed with your German answer. I might ask it again. Just maybe you might change your answer. Which is --

Dieter Wemmer

I employ the 91 combined ratio of the first half and take it as book and granted.

Operator

We will now move to Vinit Malhotra with Goldman Sachs.

Vinit Malhotra – Goldman Sachs

Just one very quick follow-up. We talk so much about the US EIA product, just also notice that there are 50 basis points compression in margin between 1Q and 2Q. Is it just because of the slight fall in US treasury yields in the quarter or is there some caution being built because of this explosive growth in the product? That's the first question. Second question. With PIMCO we've seen already some coming out in the total return fund outflows in July. But equally the emerging market bonds and the high yield bonds are not doing too well. Could you just comment on is July -- is it really getting a little better if we just held on that. And lastly, just a very quick one. Is there any -- are you already noticing or taking or discussing about the rule changes in India? Because if the FDI rules and the market value rules are there, then it could be a reasonably sizeable decision to make. So I just wanted to follow up.

Dieter Wemmer

In India, I think we have – when the rules are really changing, then we have all options to take up also our higher fair. In the business – but I think that is also negotiation with our joint venture partner, and I think we would confirm actually also here to negotiate first with our joint venture partner, and then when the negotiation is completed, then we would announce it. But certainly we would be very positive when the rules are changing. So let’s cross fingers that this is really happening.

July changes in the financial market, I don’t see too many impact on our results. I wouldn’t see any special write-down at the moment so therefore I couldn’t see what you are seeing at the moment. The new business margin in the US actually includes two effects, you are right it is 30 basis points lower than in Q1. What we are doing in the US also in the calculation of the new business margin, we are updating the input rate curve every two weeks. So therefore our Q2 number is – at the end of Q2 already up to date with the latest input rates so therefore you get more or less impact of the average input rate of the quarter, and that was -- in the second quarter a substantially lower than in the first quarter, and I think the impact of the input rate change is probably more than the 30 basis points because the high sales volumes was a positive so therefore the input rate impact is probably 50 basis points as you have mentioned, and then 30 is then the baseline impact where 20 is being reversed by the volume.

Vinit Malhotra – Goldman Sachs

I just mentioned it because the FIA margin was 4.3, became 3.8. So just verifying. But that's fine. Thank you very much for clarification.

Operator

We will now move to Michael Huttner of JPMorgan.

Michael Huttner – JPMorgan

On the pricing, so I just checked, so the pricing going forward, that lovely table in the appendix, is down -- sorry, it's up and it is up 1.1% I think and it was up 1.4% at the half year -- at the first quarter. From your comments, I'm taking reaction now equal to the run rate and of claims inflection. Is that about right? And then just to follow up on the three countries, which are undergoing a turnaround. Could we already see a material change in the second quarter, in the third quarter? In other words, this 100 million reserving or 200 million total underwriting loss, could it maybe half in the current quarter?

Dieter Wemmer

I think that of the 3 countries, certainly Brazil I think we will see an improvement months over months. Russia, I think we have probably taken the major part of the full year loss, maybe not yet all of it that depends on how the day to day development is but certainly more than 50%, therefore the second half of the year is certainly different, and Fireman’s Fund, of course it depends pretty much on how the inflows in the third quarter, therefore I cannot say that the second quarter result is different from the first half year results.

And the pricing, look, I think inflation is growing up at the moment, not a topic. When EFP [ph] is even recommending that all Germany employers should double the salaries of the employees, to get more inflation into the country, you will see where inflation has been in Europe. I think I personally think that is – for us to move of our central bank and they are already coming with such proposal.

Operator

We will take the next question from Michael Haid of MainFirst Bank.

Michael Haid – MainFirst Bank

Two questions. First on German life insurance. Could you provide some more color on the breakdown of the new business margin of the traditional life product and of the new product Perspektive and Index Select? Second question on the prices like in P&C insurance. I would like to reconcile two slides, the slide 9 negative pricing impact of minus 0.4% and slide 62 where you show a positive price impact of 1.1%. How is the data explained?

Dieter Wemmer

I think 62 as the fixed price effect on renewal and not on the total – I think that is price effect probably not especially calculated to the last decimal point, so I am seeing some rounding differences between. The traditional business and Perspektive, the new business margin on Perspektive might be a little bit lower but not a lot. I think the new business margin is not completely measuring the lower capital requirement the product needs because new business margin calculation on underlying with Solvency II thinking completely. And therefore the new business margin gives you only a half of the story and in particular in times investment portfolio are shifting clearly to credit risks. I think the new business margin is a little bit falling short as the measurement in this respect and I think we need under the Solvency II more comprehensive measurements in the long run [indiscernible]

Michael Haid – MainFirst Bank

And if you had the choice of selling still a traditional life product, and I know that Allianz's name is very cost efficient, excluded that leg [ph] and sell one Perspektive product, you would still go for the traditional product?

Dieter Wemmer

No, I think – as a company we encourage for both sides for the customer and us the non-traditional product, because the capital consumed by the non-traditional product is substantially lower which allows us to take more investment risk. So therefore it is a great place for both sides – again we are paying the customers for the Perspektive 30 basis points lower return. So we are paying at the moment 4.5% total return to a Perspektive customer, to a traditional customer 4.2% and 30 basis points are justified because we are taking more investment risks. And to sell product in this low yield environment with 60 years guarantee that is bad for the company and bad for the customer. For it is a win-win situation and I think the people who are still sceptical about the win-win situation should spend more time with our product designers.

Operator

(Operator Instructions)

Oliver Schmidt

Well, it’s Friday afternoon. The weekend is close.

Dieter Wemmer

Yeah, and some have already taken suitcases and off to the airport as I heard the shuffling in the background. So I wish you really a great summer vacation for the one of you who were not yet off, August is usually a vacation time and Bavaria is here close to Italy, we all take August off as the school kids in Bavaria as well. And I wish you a great summer, and hope to speak you soon after the summer. And I know that I have to deliver in the second half of the year, that is another good quarter in November, and then a good story on the capital management. Thank you.

Oliver Schmidt

Thanks a lot. We say good bye to everybody. Wish you a nice weekend and talk to you soon. Bye.

Operator

That will conclude today’s conference call. Thank you for your participation ladies and gentlemen. You may now disconnect.

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