Allianz SE (ALIZF) Management on Q2 2022 Results - Earnings Call Transcript

Aug. 05, 2022 7:11 PM ETAllianz SE (ALIZF), ALIZY
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Allianz SE (OTCPK:ALIZF) Q2 2022 Earnings Conference Call August 5, 2022 8:00 AM ET

Company Participants

Oliver Schmidt - Head, IR

Giulio Terzariol - CFO

Conference Call Participants

Andrew Sinclair - Bank of America

Michael Huttner - Berenberg

Peter Eliot - Kepler Cheuvreux

Andrew Ritchie - Autonomous

William Hawkins - KBW

Vinit Malhotra - Mediobanca

Will Hardcastle - UBS

Dominic O'Mahony - BNP Paribas

Thomas Fossard - HSBC

Fulin Liang - Morgan Stanley

Operator

Oliver Schmidt

Good afternoon, everybody, and welcome to the Allianz Conference Call on the Financial Results of the Second Quarter 2022. Before we start the call, let me do the usual housekeeping and remind you that this conference is being streamed live on allianz.com and YouTube and that a recording will be made available shortly after the call. If you want to ask a question after the presentation and to join us via web call, please click on the talk request at the upper right-hand side of your screen. If you join us via telephone, please press star five.

All right. That was all from my side for now. And with that, I turn the call over to our CFO, Giulio Terzariol

Giulio Terzariol

Thank you, Oliver. Good afternoon to everybody. I'm going to try to go as fast as possible through the presentation so that we have time for your questions. Starting at page three, where we showed the numbers for the six months. We had a good underlying performance. When you look at the revenue, they grew by 4%, and this is mainly driven by Property-Casualty, indeed, the growth in Property-Casualty as we are going to see in a moment was clearly very strong in the second quarter.

When we look at the operating profit, we have an operating profit of EUR 6.7 billion, which is basically 50% of the outlook of EUR 13.4 billion for the year. And I will say that's also considering the market conditions, all segments have been contributing the fair share to this delivery of operating profit of EUR 6.7 billion.

When we look at the operational KPIs, we see that the combined ratio for the six months of 2022 is 94.1%, which is a little bit higher compared to what we had last year. This is coming actually from the development in Q1 because in Q2, as we're going to see in a second, the combined ratio was slightly better compared to last year.

On the life side, you see a very nice development of the new business margin and also the value of new business. And then when we look at asset management, we see outflows of EUR 43 billion, mostly coming from PIMCO, which is totally normal – in a environment where rates have gone up by basically to 100 basis point of view, there is definitely some caution from the investors.

Otherwise, when we look at net income, it's EUR 2.3 billion. Clearly, this is low, but this is also driven mainly by the charge due to Structured Alpha in Q1, so if you adjust for the - net income will be closer to EUR 4 billion. Clearly, in environment like that, there are some more pressure coming from below the line items, but overall, adjusted for Structured Alpha the EUR 4 billion level is something which is getting closer to the kind of number that we are used to see.

So overall good underlying performance for the six months, and this is even more true when we look at what happened in Q2. And here, you see the revenue growth in P&C was double digits. Also, we had an operating profit of EUR 3.5 billion, which is one of the best operating profit we had for the second quarter.

In Property Casualty, we achieved EUR 1.6 billion plus of operating profit. This is ahead of our outlook. I'm going to speak later more in details about the driver. On the life side, EUR 1.1 billion of operating profit on the backdrop of a very difficult market environment. That's a very good number. And then in asset management, with about EUR 800 million of operating profit. This is in line with our expectation.

And then on the net income, you see EUR 1.7 billion of profit, there are some below the line items that have slightly impacted this number. But clearly, it's different level compared to what we saw in Q1.

So all in all, a very strong underlying performance, both from a growth point of view in P&C, from a total delivery of operating profit and also when you look at rational KPIs in - on the life side, also the combined ratio on the P&C side, actually, very good numbers.

Now moving to Page 7, as we talk about the capitalization level, we have a solvency ratio of 200%. Here you that we are basically immunized for changes in the interest rates, that’s basically our philosophy depending on the situation, we might have a little bit of an upside or downside on the rates in this current environment, the situation is that, that we are basically immunized for changes in the interest rates.

The equity sensitivity is a bit more elevated compared to where we have seen in the past. This is not driven by an active positioning, this is more driven by how the model works and also the fact that after the substantial increases we have in the Solvency to model a little bit of a lower buffer.

When you combine all sensitivity, equity market rates down, spread up and also the cost effect in reality the position of the company is pretty stable compared to what we had last quarter, even slightly better, but I would say almost the same level of total sensitivity.

Moving to Page 9 on the development of the Solvency ratio, I will say that, as always, we see a positive organic generation, which on a pretax basis and pre dividend basis is about 7 percentage points. And this has offset for the market impact of minus 6 percentage points pre tax and this market impact was predominantly driven by clearly the change in the – or the drop in the equity market. But as always, we can rely on this steady organic generation and the market sometimes to go down, but sometimes that will go up to so fundamentally. I will say that's a robust picture for the development of our Solvency ratio in Q2.

And now we can come to the section by segment, starting from P&C, where on the growth side, we had a very nice development. It's a double-digit growth. And as you see, this double-digit growth is also widespread across several business that's also refresh on the efforts that we are making clearly to make sure that we can flex into price in the inflation that we are seeing or we might see also moving forward, where you also see the change in renewal, you can see that the trend is upward, and I expect this trend to continue as we go into the second part of 2022.

Now coming to Page 13 on the development of the operating in Property Casualty. You can see this is up 20%, and this is driven both by the underwriting results and also by the investment income. In the case of the underwriting results, you see an improvement of 30 basis points to the combined ratio. And on top, you need to consider that we had also clearly growth in our business.

This is what is driving basically the improvement on the underwriting results where we saw in the quarter compared to what I would say is more a normalized expectation is higher net cats.

On the other side, the runoff is also a little bit higher when we normalize the numbers and also we take into account that we put some conservatives because of inflation. I would say that we are definitely in line with our 93 combined ratio, but I'm sure we're going to have - I'm going to get questions later on this KPI.

So overall, 93.6% to combined ratio for Q2 and this is broadly in line with our expectation. And as we look into the second part of the year, we would expect that if the net cat are normalizing, we're going to be also able to show a combined ratio closer to 93.

As we go into Page 15 on the operating profit. You can see that a lot of entities are providing actually a very strong operating profit combined ratio. I would say Germany, Australia, Italy, Switzerland, AGC&S [indiscernible] a very good combined ratio. There are a couple of exceptions, one is France. That's driven by the net cat development. And then in Latin America, we are still handling the situation in Brazil. We see some first signs of stabization, but it's still too early to say whether this is really the beginning of stabization and of a reversal trend for this group, is to be a challenge as we move forward. But overall, I would say a lot of good numbers with a lot of our subsidiaries delivering strong results.

And then at Page 17, on the investment income in Property Casualty, you can see EUR 100 million higher investment income and this is driven mostly by the impact coming from inflation-linked bonds. We expect to be able to some improvement coming from higher yields, this is going to clearly materialize in a more pronounced way as we go into the next quarter. So in Q2, the main impact was coming from inflation-linked bonds.

But overall a good performance or the investment results, that's also much ahead of our expectation in our outlook of EUR 6 billion. We were reflecting basically EUR 2.4 billion of investment income, so this means EUR 600 million per quarter. And as you see in Q2, we had EUR 150 million high investment income that what we assume in our outlook.

So all in all, good results on the P&C side with a solid combined ratio and a very good growth, and increase in investment income. This has all led to an operating profit, which is about EUR 150 million better than our outlook for the quarter.

Now we come to the life side. That’s also a very good story when you look at the new business margin, it's over 4%. This is clearly a reflection also of higher interest rates, but that’s also a reflection of the actions that we've put in place in the course of 2021. And if you look at the mix, you can see how the mix has further changed towards capitalized products.

When you look at the production level, that's about EUR 3 billion lower compared to what we had in 2021. But if you remember in 2021, we had a couple of one-offs, especially a big one in Italy. And also, as you know, we are doing a transfer of business from legacy product to new products in France and those transfers were more pronounced last year compared to this year. So if you adjust for that, the production level has been actually relatively flat compared to the level of last year. So a good picture on new business margin and also business mix development.

And now going to page 21, on the operating profit evolution for the Life segment. You can see clearly that the operating profit is lighter compared to what we had last year. And that’s also slightly lower than the outlook for the quarter, EUR 1.2 billion. But when you think about the level of volatility in the market, that's a strong sign of resilience of our life operations. So I would say, considering the market conditions that’s a very good level of operating profit.

And now on Page 23. You can see, as always, the picture by company. The first comment is anyway on the value of the business, which is up 6% and we should always keep in mind that this value of new business is also flowing into our solvency calculation, at least for the companies, let's say for Allianz Life USA, which is pretty differently, but this is adding to our solvency. So that's definitely a good evolution.

When you see the new business margin in general very strong and also improving. And then on the operating profit by entity, as you know, there is - in this kind of market environment, Allianz Life USA is going to be weaker, especially because of the volatility or the volatility coming from the VA side. And then in this case, considering the - a significant amount of increase of interest rates and also the challenges on the equity markets, we have also some impact in Allianz leaving, which is actually mostly accounting volatility driven by the derivative position that we have to hedge solvency - Solvency II. But in total, EUR 1.1 billion of operating profit, so a nice delivery for the segment.

And Page 25. That's also something which is positive trend. When you look at the current yield, you can see that it's up about 6 basis points. And when you look at the minimum guarantee, these minimum guarantees actually going down a bit. So overall, on the spread you see that we are making further progress. So this number has been developing not only now, but also in the course of the last year in a resilient way. And now that we see that rates going up a bit, you can even see that there is a widening of the spread. So overall, on the life side, I would say a good delivery in an environment which has not been super easy from a capital market volatility.

And now we come to asset management on Page 27. It's no surprise that in this environment, where basically all asset classes had negative returns at our asset management under management down. The exception is, by the way, in the alternative area where we were able to increase the amount of assets under management. As you know, this is also part of our strategy to focus on this asset class.

Now when we go to Page 29,on the evolution of SFRT, assets under management, you can see clearly that there is an impact coming from floors. I will say this impact of EUR 34 billion, considering the market situation, also considering the size of our book is from my standpoint modest. So I would say this is caused any concern here. The major impact actually is coming from the market development where you see EUR 160 billion of reduction in assets under management. In our case, this has been compensated by the appreciation of the U.S. dollar, so net we lost about EUR 80 billion of assets under management because of market movement and fixed rates. So I think this is not an aspect again, based on what was happening in the second quarter in the capital market.

On the revenue side, you can see that we have benefited on the FX effects. So from that point of view, our revenue flat. And when you look at the fee margin is stable in the case of PIMCO there is a reduction in the case of AJI which is driven partially by mix and partially also by higher distribution fees. But overall, we are holding the fee margin above the level of 39 basis points which is as you know, a good level for an asset manager.

And now at Page 33, the operating profit is 6% down, 7% down compared to the level of last year, offsetting another way, EUR 50 million lower period. I would say almost 0.5% of the drop is driven also by lower performance fees and the rest is coming mostly driven by PIMCO where we can see also some seasonality in the cost income ratio. I would say in Q2 2021, the 55.5% was definitely a low cost income ratio usually be increasing more towards between 58 – to 59 level to 60.5% for the second quarter is also in this case, elevated the other way around.

If you look at the 6 months picture, we have cost income ratio of 59% for PIMCO, as you should consider that - this is basically with our performance fee. So fundamentally it need to normalize a little bit the cost income ratio that you see in this slide for the seasonality that you can have volatility, I would say, that you have in the different quarters.

In the case of AGI, you see is stable or even increasing operating profit. And also, you see a decrease in cost income ratio. So overall, I would say, with the EUR 800 million of operating profit we are tracking our outlook. If you remember, our outlook for asset management is EUR 3.4 billion, that would indicate basically little bit more than EUR 800 million that we see here. But fundamentally, you need to think also that the performance fees are coming later in the year.

Page 35, we have the Corporate segment. And as you see, the corporate segment has in this quarter, a very minor loss less compared to what we usually see or express and this is driven by inflation-linked bonds that we have purchased and also we had some higher investment - investment income. So overall, good for outcome for corporate segment.

And now coming to the last page 37 -- or the second page on the net income, you can see that the impact from non-operating items is about EUR 1 billion compared to last year. Here, we see a couple of effects, First of all, clearly, when you add up realized gains, impairment and income from financial assets liability, last year, we had a positive contribution, this year, we have a negative contribution. Part of this is due also to the booking for hybrid inflation accounting in Turkey, and that's about EUR 100 million.

And I would also say that on the impairment side, half of those impairments are impairments coming from bonds which part e to mutual fund, you need the equity - the same accounting that you use for equity. So reality is now really that we are speaking of a real impairment is more the consequence of rates going up, as opposed to have a credit quality issue. So we need to put this number in a relative context.

And then what we had is some higher restructuring expenses. This is driven by the Voya integration and then finally the tax rate was better because of currency mix. So overall, when you add up all together, we ended up with a net income of EUR 1.7 billion for the quarter.

So summarizing, I would say, good underlying performance and strong in second quarter with EUR 3.5 billion of operating profit. Value conditions have been definitely different compared to what we were expecting. But as you saw, we had already achieved 50% of our outlook for the year. So from that standpoint, we are confident that we can achieve the midpoint of the outlook. We have completed the buyback of EUR 1 billion just a few weeks ago. And you know, clearly, we're going to continue to deploy capital in a way that we can create value for our shareholders.

And with that, I would like to open up to questions you might have.

Question-and-Answer Session

A - Oliver Schmidt

All right. Thanks, Giulio, for your presentation. And yeah, we will now take your questions. And we will take the first question from Andrew Sinclair, Bank of America. Andrew, go ahead, the line should be open now.

Andrew Sinclair

Thank you very much. Afternoon, everyone. And three for me, please. Firstly was just on AGI and after the U.S. assets are gone. Just wondering if you could give us a pro forma cost income ratio as an idea of where do you think that needs to get to over the medium term for AGI.

And secondly was just on the P&C business, just as investment income rises, what sort of pressure are you seeing on underwriting income from pricing, as competitors are perhaps leaning a bit more on investment income. And I guess, particularly in retail markets, just how is that looking across your businesses? And thirdly, was just on reserve releases. I just really wondered if you can give us an idea of your expectations for reserve leases amidst a higher inflation outlook? Thanks.

Giulio Terzariol

Yes, very good. So starting maybe from AGI. I would say the cost-income ratio that we expect to see moving forward is going to be more towards the 67%. So right now, we run 63 as you see indeed the idea was even to be able to go down to 62%. But after the Voya transaction, I would say 67% could be the level we start with.

You need to consider also that the market is not necessarily the most favorable market. So this is the level we will start with. And then clearly, we will try to do our best to get to even better level of efficiency. But there will be the starting point, how we see basically AGI cost income ratio in this kind of environment after the transaction with Voya is completed.

On the property in case we see rates with the affective by increased investment income, I wouldn't say so also because right now, I believe everybody is more focused on clearly what the impact from inflation could be, so from that point of view. And so I would also add yes, rates are going up. But as you see, they're also coming down a bit. So I wouldn't say that there is already this massive change in investment income coming through.

So fundamentally, for the time being, I would say the impact of higher investment in on the combined - on the pricing might be limited. This can change. If we really see over time that there is a higher investment income to a certain degree next year, the company reporting under IFRS 17 you are going to have discounting, including in the numbers, so potentially this might change if there is really a substantial change in the investment income that we - and our competitors are going to get.

But at this time, I would say its play major role or at least is not playing a major role in our thinking. So we are not changing our pricing philosophy because of the increase in rates that we saw.

Now the last point was about reserve releases. As you have seen, the runoff for the quarter was a little bit more elevated than user with 4.3%. Here, we need to consider that we had some also positive runoff especially from the conservative that we hedge in [indiscernible] or Allianz Trade, that's the name now in the COVID situation.

So from that point of view, that’s part of the explanation for the higher runoff. Otherwise, I would say that it's usually over this past moving forward, not to be about 2.5%. But again, we have definitely the situation where our - I would say, we have definitely some tight pockets might lead the runoff to be a little bit higher than the 2.5%. So from that point of view, there could be a normalized expectation, but don't be surprised if in a quarter, it can be higher because of this pocket of conservative we have here and there.

Giulio Terzariol

Just a little on COVID provisions, can you give us an idea of how much is left of the moment?

Giulio Terzariol

I would say, specific to Allianz, the thing will come in more or less an end of this COVID provision. I'm just - and I'm referring really to what is even a specific recovery provision because we have a very healthy margin and still [indiscernible] but specific to discover provision, we might come to an end, but we are not coming to an end of COVID provision that we have set for in other lines of business.

Giulio Terzariol

That’s greet. Appreciate it. Thank you very much.

Oliver Schmidt

Thanks, Andrew. We will take the next question from Michael Huttner from Berenberg. Michael, go ahead, the line should be open now/.

Michael Huttner

Fantastic, I have been unmated. Good morning or good afternoon, sorry, I'm getting late, sorry. So you were saying you would like to talk about the underwriting in the 93%. So maybe you could talk about that. It's not immediately obvious from the numbers or anything you can - would be very, very helpful.

And the other two mini questions to make it really easy is what are the net inflows, you see net outflows you're seeing now at AGI and at PIMCO? And also what is solvency today? And should we expect maybe a change in the way solvency moves if you reduce equities, for example? Thank you.

Giulio Terzariol

Okay. So starting from the combination, maybe the – usually I like to take more than 6 months number, of course, to just say the quarterly number, but the calculation will be the same. If you normalize our – so the outcome will be basically the same. If you take our 6 months, the combined ratio is 94 points.

One, if you do basically a normalization, you're going to first end up or most to the same level. But here, you need to consider also the impact coming from Brazil and Turkey. So we somehow adjust for that because especially Turkey may be slightly different. But in Brazil, eventually, this combined ratio has to normalize to a different level. So that would already bring basically this 94.1 below the 94 level to about 93.6.

And then I tell you for the year, we had about good 1 percentage point of reserves that we set aside for inflation. So in that case, you even go below the 93 and then clearly, we can have a conversation about how much of those reserves are going to be needed or not. But fundamentally, you need to consider that both for the quarter and also for the 6 months, we have about 1 percentage points and for the 6 months, a good 1 percentage point of reserve, which are set aside specifically for potential future inflation that we're going to see. So that's on the combined ratio.

So I'll just tell you for PIMCO the n outflows were about a couple of billion of outflows for July. For AGI, we are also speaking of minor amounts. What you should consider equity market and also rates went in the right direction. So for example, the case of PIMCO we have more than EUR 30 billion of increase in assets under management in the month of July.

So Mike, if you ask me in reality, the outflows that we are seeing are totally moderate in my opinion, especially I think back if somebody had told us rates are going to go up 150, 200 basis points, what is going to happen to the outflows of an asset manager. I would have expected even larger number.

We also see that what is happening to PIMCO is basically something that is happening everywhere. And when we check it -- what is happening to the majority of the competitors in the U.S. and also for these outflows in relationship to the size of PIMCO with EUR 1.4 trillion of assets under measures.

So the reality is more the market development in general, that's where the asset base is fluctuating. The inflows, outflows per se is a little bit of noise at the end of the day. And I would also say when the situation is stabilizing I'm pretty confident that the floors are going to turn into positive. And potentially, we're going to have a catch-up effect because then investors are going to be more willing to invest in fixed income moving forward.

And then the last point was on the Solvency II and how we look at that. I would say two things on the rates, interest rates, our philosophy is to be matched, fundamentally mentally what we try to do. And then clearly, when you run the model, you might get some exposure on where the other but fundamentally, that's the philosophy. So we are going to continue with this philosophy. And yes, rates went up. But as you see, in July, they're going down. So we believe being interest rate neutral is a good position to be in.

On the equity market, the 20% sensitivity downwards. This is not coming actually from active adding to this portion, actually we had reduced to a certain degree, our exposure to public equity, for example. This is more driven by the - how the Solvency II model works when - especially when have a little bit less realized gains at Allianz and what we are going to do is clearly we've tried to reduce this sensitivity a bit towards the level that we usually have, which is about 15 – the 15% level. So this is something that we're going to work on in order to get back what we usually show the sensitivity.

A solvency ratio today, I would say, its - you saw the comments that there is PET coming from a regulatory change, on the other side, we had a business evolution feel that is going to come in and also the equity market has been relatively favorable, so I would say, as of now, we should be basically stable, maybe slightly better.

Michael Huttner

Thank you so much.

Giulio Terzariol

Welcome.

Oliver Schmidt

Thanks, Michael. And we will take the next question from Peter Eliot from Kepler Cheuvreux. Peter, please go ahead. The line should be open now.

Kepler Cheuvreux

Thank you very much. Maybe I can just with a couple of quick follow-ups actually on those previous questions. Giulio, you mentioned 1% set aside for inflation. Would you be able to talk us through the process sort of arriving of that and how you'll repeat that process in future periods. Just wondering what we should sort of expect going forward?

And then on the Allianz Trade interested on what you said about sort of releasing most of the common reserves. We just hear your [indiscernible] recently, the idea is to be better reserve there and post-COVID then you are pre-COVID. So presume there's probably going to be something there, but it's just you've released most of what you intend to do and as you done in the last, that would be great?

And then maybe just wondering if you could give us any thoughts on capital management and I mean, you mentioned you were keen to deploy it. I just wondering what opportunities you're seeing I mean you're obviously not buying back any shares currently, but I'm guessing you've got to be thinking that's a pretty good option at the current share price. So I'm just interested in your thoughts.

And sorry, if I can ask on maybe Germany, in particular, from the sort of trends you're seeing. We've heard comments from others saying it's sort of quite a competitive market at the moment, interest in your thoughts. And in particular, it was quite - I mean, when we came to our inside Allianz Venti [ph] is very pleased with the EUR 9 monthly ticket available. I'm just wondering what impact those or any other schemes are having on probably for Asia [ph] Sorry, I went to that. Thank you very much.

Giulio Terzariol

9 was your rate increase. That's what you look at. Okay. Maybe let’s on trade. No, no, Look, Allianz Trade is a significant amount of buffer. So I was not specifically referring to the COVID buffer, but clear, they are not the only buffer. So from that point of view, the reserve margin - Allianz Trade is – definitely see very, very healthy. And a strategy higher compared to what we had – still higher compared to where we had pre-COVID.

Also because when I speak about COVID, I am referring actually to 2020, you know, COVID. Even 2021 there was definitely a very good development for Allianz Trade, I am not counting as part of COVID, because it's not coming from the 2020 accident year. So that's on trade, so that there is no misunderstanding on that.

On the process for inflation. Basically, okay, when you ran claim triangle today, you might not necessarily reflect inflation that we might see because the centre angles is basically having the experience in the last 5 or 6 years. So that's where they actually they need to push something on top.

This is also then a process as you need to do based on the conversation you're going to have with the claims people, right, because depending on how you - the confidence level that they are going already to reflect this, the inflation the case, a case reserve is going to make the need for an additional reserve, lower or higher.

Moving forward, we are going to definitely see a situation where they need to put additional any reserve on top is going to diminish. So we're going to start having sort of blending, because most likely, the claim three angles are going to reflect the high inflation.

If you have claims people there might not be so forthcoming, they will definitely start changing also the view on case reserved. But right now the process is basically in every company. We don't necessarily just rely on what is coming out of the claims

Triangles, we tend to say let's put something on n top because what we're going potentially what we're going to see down the road is going to be a little bit more compared towards the case angles based on the latest estimate or the case reserve might indicate. So it's a level of conservative, they will put you on top, I believe some of that is going to be needed, by the way. So maybe some of that is not going to be needed. But in an environment like this is definitely better to be on the conservative - on the conservative side.

On the capital, and keep in mind that the operating profit for property casualty was under EUR 150 million higher than the outlook. So you always need to keep these things in mind. So there is a point where, you know, you think also how you protect the future. That's a important element of consideration.

Now, capital management and speak about deployment of capital, I wouldn't say that we see big opportunities out there. But it is clearly always something also minor things that can be can be interesting. So for example, you saw that we did the acquisition in Greece, you saw that we did also a small investment in correlation [ph] we did a couple of investment at the beginning of the year in Asia. So we're - that's the kind of things that might come across this.

I also agree with your statement that, especially the current share price invest in our stock seems to be an excellent idea. So from that point of view, I believe this is going to be also the direction that we're going to take down the road.

Germany. So first of all, let me say because you know, this comment about a 9% rate increase Okay. So I will say, look at the end of the day, so I do understand the question. So I will say that overall, in most countries, we see a normalization of frequency towards the, the pre COVID level, maybe slightly below, but definitely, we didn't see any material impacts, let's say from the EUR 9 ticket on the frequencies, so if you tell me. Yes, frequency might be slightly lower compared to the pre COVID level, but it's pretty much normalized at this point in time.

Kepler Cheuvreux

That's pretty cool. Thank you very much.

Giulio Terzariol

Sorry. Yeah, the question the competitive situation in Germany? Look, you know, I will say that in Germany, when you look at the combined ratio is 91.3. And there is not an unusual combined ratio. So what is compared to your competitors always, always relative/ I will say every market has a level of competition. I wouldn't say that, the German market is a super fierce level of competition. But yeah, that's what I have to say. So it seems to me, relatively a competitive market, but nothing abnormal compared to what we see in other markets.

Kepler Cheuvreux

Okay. Thanks very much.

Giulio Terzariol

Welcome.

Oliver Schmidt

Thanks, Peter. All right, then we will take our next question from Andrew Ritchie from Autonomous. Andrew, please go ahead. The line should be open now.

Andrew Ritchie

Hi, Giulio, I guess I need a bit more detail on the P&C inflation impact, I guess I'm concerned that the one point load will repeat or even grow unless you're able to reprice the fund book, so could you give us some details on what you're doing vis-à-vis t or in respect of pricing at the fund book, to try and match inflation or any other initiatives? I guess this has focused on personal lines, mostly personal motor in continental Europe. Other than that, I could just see, I think your normalization of the combined was probably overly generous if there isn't a lot of action taking place.

And second question on investment income, you said is running higher. I think it's running higher both in life and non life. Some of that is the investment link, inflation linked securities. They lag typically. So I'm assuming there's another gain from those tilts will occur and the rest of the year.

And then as your hope that we don't lose that inflation link income next year, or we do lose it, but we'll get the underlying non-linked portfolio picking up at the same pace, if you understand what I'm asking.

And my final question was just it was suggested when you entered the Voya deal with AGI particularly from your IR team that we were - there was possibly some upside from the joint venture and distribution, ongoing distribution agreements with Voya. Can you give us any color as to materiality of that? Thanks.

Giulio Terzariol

Yeah. So starting from property casualty, yeah, the idea is definitely not that we bought them - any for inflation, we do nothing. And if you look at page 11. So, if you have a growth of 11% in P&C, this is not necessarily coming from volume, there is also a volume component, a lot of this growth is driven by pricing So from their point of view justify that we have an 11% growth rate. This should give you an idea of the effort that we're putting in reality, from an action point of view.

As we go into the second part of the year, rate increase is going to be even more pronounced. But just what you see now, in our presentation today tells you that there was a big push already. Clearly in the second half, you know, in general, we are going to see higher rate increases or renewal, also new business. You saw so the situation in the UK, where, at the beginning of the year, there was also the situation with the dual pricing. But now it's pretty clear that there will be rate increases in the market.

In some products, we have indexation, so fundamentally, we have already taken action. And so we are consistently taking action also in the second part of the year to make sure that we can protect our combined ratio. From my standpoint, we have been doing definitely also already now very, very good job keeping things in check. So that's on what we do on the P&C side.

On the inflation - in bonds, yes, there is a delay of a couple of months. So fundamentally, you're going to see also a higher investment income in Q3, and fundamentally, you're going to see high investment income, as long as inflation stays elevated. At the moment that inflation is going to come down. Clearly at a point an inflation limbaugh's [ph] my perform from an investment income point of view at a lower level compared to a nominal - normal bonds. But I will say inflation linked bonds are a very good instrument in order to protect you, especially when inflation is picking up and you maybe you need also the time to put the action in place, right.

So I will say being as proactive as possible and taking action on the on the rates. And also, combining these with inflation linked bonds is the best way, really to manage the situation.

So if you ask me what is going to happen, you're going to see high investment income also in Q3, I would also say in Q4, and next year, we'll see what the inflation is. It can go two ways, either the inflation is coming down there, then you're not going to see a lot of investment income coming from the bonds. But also, we have priced at a point in time, a book for a much higher inflation level. So then you're going to see the benefit, basically, on the underwriting side. Or if inflation continues to be high, you're going to see - you're going to add sustaining element coming from the inflation linked bonds.

So I think is a very healthy instrument to have - to manage inflation.

On the Voya transaction. The comments we made on that is basically we are entering this - also distribution agreement with Voya. We think that down the road it might bring other opportunity. But that's more of a strategic thinking of what could potentially be possible down the road, as opposed to be now a specific action plan. For the time being we are focused on making sure that the transition to Voya is successful - successful, we have been completed this now to making sure that the cooperation. the distribution agreements that we have in place is working properly and working fine. And then based on what we're going to see. This could open up clearly other opportunities.

Andrew Ritchie

Okay, thank you.

Giulio Terzariol

Welcome.

Oliver Schmidt

Thanks, Andrew. All right, we will take the next question from William Hawkins, KBW. Will, please go ahead.

William Hawkins

Hi, guys. Hi, Giulio. Thank you for taking my questions. Giulio as mostly other big companies this week, it's interesting to see the change in the operating profits in the first six months. What do you think you might be saying to us, that would be different if you were accounting under IFRS 17 and IFRS 9? Are there any particular drivers that could be having a different impact relative to what we're seeing in the profits? Any kind of qualitative or directional comment will be helpful.

And secondly, can you just remind us what's been booked and whether there's anything else that you guys are reviewing with regards to the war in Ukraine, I think we have the EUR 100 million credits charged in the first quarter. And there's kind of no update on that. And, you know, I know your exposure may not be big, but just I'd like to get an update on that, please.

And then lastly, given the volatility in the bond market, are there any specific credit trends of notes that you're seeing in your investment portfolio, I'm thinking about rating migration, or any surveys that you've been doing of risk in the high yield or private investment portfolios. Thank you.

Giulio Terzariol

Thank you, William. So maybe starting from IFRS 9 and 17. What we will see now in IFRS 9 and 17. On the PNC side, we – the CECL [ph] rates are going up, the element of discounting will be higher compared to the unwinding, you know, the, of the discount coming from the past, so there will be a positive. So we did some numbers for Q1 and we saw already this to be positive, which was a little bit more than EUR 100 million of positive impact coming from the discounting effects.

In Q2, they will be even higher because rates went up. So on the P&C side, definitely is a positive. On the life side in reality, you know, it's pretty much of a wash, one complexity that we have on the life side is the following. When we do hedges, let's take also, for example, the Allianz Life. They do hedges based on economy. But they do also hedges - you think about what the volatility or service of IFRS 4 could be.

That kind - the liability movement under IFRS 17 is going to be different from the volatility movement, t liability movement that you have under IFRS 4. For so right now we have hedges in place that are not necessarily geared to IFRS 17. So when we run a calculation of IFRS 17, we have the liability moving in a direction, which is not necessarily synchronized as we will do - with the hedges.

So we pick up a little bit of volatility, if we do a competitive right now, but if you tell me in a environment where we are under IFRS 17, where we also hedging accordingly, the operating profit or the net income shouldn't be much, much different. So from their point of view, I will say more or less the same level of net income.

On the life side, on the P&C side, because of the discounting impacts, high operating profit. One thing that we saw was that, you know, because of the IFRS 9, where you assign position, fair value, the volatility below the line would have been in Q1 higher compared to what we saw, and that’s clearly normal considering the market development, which means when you have a – up one moment you're going to see also some more of the swings up. Does it help, or did I confuse you?

William Hawkins

No, that's perfect. Thank you. And you did just clarify at the end. But any volatility from IFRS 9, do you think you'd be taking below the operating line?

Giulio Terzariol

Yeah, absolutely. We are going to mentor - yeah, absolutely. And we - it's not a massive volatility, by the way. But still, you know, especially if you have a swing from positive to negative, this can make a little bit of a difference. So we are going to add that not only below the line, we also think about having an adjusted net income.

If you remember also, when we did a Capital Market Day presentation, we said that also for the dividend calculation moving forward, we are going to use an adjusted net income because we were thinking about the impact of IFRS 9, especially on the net income. So absolutely. Not only below the line, but it might be below, below the line. So that's definitely just pure market volatility. That doesn't make any sense to consider.

On the Ukraine, Russia situation. Yes, overall, we have about EUR 150 million now of impact in our underwriting results, as you said EUR 100 million, plus was coming from Q1 and then we added a little bit in you will have seen in Q2, but the number has not changed significantly. We also believe we are on the conservative side, about in total, we have right now EURO150 million for the situation in Ukraine.

And then on the - whether we see any particular moment in credits. No, I was say no, we also took a look at the portfolio in the United States where we some commercial mortgages so on and we don't see - we see basically, I will say no movement, so from point of view we - as you know, so when we ran our Solvency II calculation, we basically attaching credit rating to our investments. And we take clearly what is the credit rating coming from credit agencies. in the case they had - the SSI, the credit. We also look at the credit default swap. And then also we do our own evaluation based on all these we determine whether there is a rating downgrade or not. And we didn't see any particular moment except for Turkey. In the first quarter, there was a downgrade on Turkey. But otherwise, when we look at the rest of the portfolio, nothing meaningful has happened.

William Hawkins

Fantastic. Thank you, Giulio.

Giulio Terzariol

Welcome.

Oliver Schmidt

Thanks. Well, all right. We will take the next question from Vinit Malhotra from Mediobanca. Vinit, please go ahead. The line is open.

Vinit Malhotra

Thank you. Thanks for this opportunity. So the – Giulio, just moving on to the asset management. And I appreciate that, you know, one day higher interest rates will be your investors bank. But at the moment, I mean, we are seeing one thing different in Q2 versus Q1, which is that the mutual fund are seeing bigger outflows in your portfolio. I mean, the site you view, I mean, are you still comfortable with the fee margin impact that could have? Because remember, in the past, you have been saying to us, don't just look at the flows, look at the revenues. But with this mix difference, I'm just curious about that. So that’s the first question, please.

Second question was just more clarification. You talked about the inflation linked bonds earlier also in 1Q, but I seem to recollect because a small, very small 20 odd million think it was even in Corporate Center, not really P&C, did you add more in Q2 Or is it just the denatured effect of high inflation in Q2 and the lag effect that we are seeing more and more of this?

Then one question, please on the Solvency II equity sensitivity. In the past, I've noted that there used to be a different number for listed equities only. I've seen that you said that you want to bring it back to 15% or so from [indiscernible] in the minus 30. But what is the listed impact? And why is that different?

And lastly and very much quick clarification. The combined ratio 93, is that your reaffirmation of target for the full year or was it for the second half? Just for to be clear [ph]. Thanks.

Giulio Terzariol

What was the last question sorry, can you repeat the last…

Vinit Malhotra

In 93 combined ratio? That – is that full year or 2H now? The 93 combined ratio target for full year or second half?

Giulio Terzariol

Okay. So starting from the first question, which was related basically to the flows - of flows and fee margin impact. For example, when you look at PIMCO, basically, the fee margin didn't move much. So from their point of view, you know, that, clearly, you know, now you have a quarter where the flows can be lower in a mutual fund where clearly fee margin are a little bit higher. But this is not necessarily now the beginning of a trend. And we speak only of a small fraction, or the other side, as we were seeing before alternative [ph] went up, alternative can have very strong fee margins. So just look at the total number for PIMCO. And you'll see that in reality the movement is pretty moderate.

So I wouldn't be overly concerned about a tectonic change in fee margin just because in a quarter the mutual funds development might have been a little bit poorer compared to what we saw on the institutional - institutional side. But that wouldn't be a concern from my standpoint.

Then there was a question about the inflation linked bonds. I will say that yeah, there was we added a little bit of inflation linked bonds. Also there was a purchase of inflation linked bonds that we did it - this was more at the corporate level than we did in the course of Q1. So, for the full - now for Q2, we had basically this position for the entire quarter where in Q1 adjust for part of the quarter. And also some of our companies have also increased a bit inflation linked bond that was part of the conversation that we had with the companies.

And as part of our strategy clearly to also to mitigate what the impact from inflation could be. So that's not a coincidence. That's really part of a list of actions that we put in place to manage the situation.

Then on the listed equity, I will say the sensitivity is not really changing on the listed equity because in reality on the listed equity, as I was saying before, we realized - we didn't really increase our exposure, I will even say that on the listed equity, when you take the position after hedging, the exposure went down, but then it goes - the sensitivity goes back to the previous level. Because of basically the entire calculation is obviously to where you have less buffer.

But think about that on public equity, a reality by reducing this pause and also by, especially by hedges we have mitigating basically the increase in sensitivity. And then on the private equity, in that case, we don't have a specific hedging on private equity. And this explains why this sensitivity is coming from the non-public equity side. Was it clear?

Vinit Malhotra

Yeah, I'll take it offline. Thank you for that. Very good, thank you.

Giulio Terzariol

Yeah. And then on the combined ratio, I will say, look, at the end of the day, our idea is, you know, to target - to keep targeting this 90, 94, 93 combined ratio. So this is more like a target that we have in front of us. This doesn't necessarily - now we were running for the first six months, we were running at the 94% level. So sure, we might end up in the year a little bit higher than the 90, 93. So I'm not necessarily saying that we are obsessed, we target a 93 combined ratio for 2022.

We want to be anywhere at a level 93 combined ratio, then as you know, in the sense of a normalized level. And then as you know, for the time being we're not change our plan that we want to be a 92 combined ratio by 2024. On that one, clearly, we're going to see how the development of inflation is going to be in the - also in the in the course of 2023, but the targets are not changing. So normalized, 93 combined ratio, and also for the time being we definitely given the target to our subsidiaries that we want to achieve a 92 combined ratio by 2024.

Vinit Malhotra

Okay. Thanks, Giulio. Thank you.

Oliver Schmidt

Thank you, Vinit. Perhaps for the sake of everybody because this is a little bit hidden in our presentation, in case you're interested in the Solvency II sensitivity, this regards to listed equities only as well. On page number seven. In footnote number four, we give those numbers specifically in there, you can look them up and find them. All right. And we will take our next question now from Will Hardcastle [UBS] Will, please go ahead.

Will Hardcastle

Afternoon, thanks for taking the questions. Firstly, it sounds like you've put in around 300 mil or so for inflation load. I guess just to be clear, that's coming through on the current year loss ratio. Is that right? And in which lines are being allocated and geographies? And a little bit lopsided at the moment in terms of what's come through from inflation linked bond moves versus what's gone on to the reserving, and do you feel pretty well matched at this point?

I guess the second one is, can you give us an update, sorry, if I missed this, I got cut off at one point in the call, but any update on the deductible on the catastrophe aggregate has been consumed at this point? Thanks.

Giulio Terzariol

Yeah, absolutely. So starting from the reserve for inflation, I will say is basically across the different entities and also across different lines of business. So it's pretty widespread. So - and to your second question, which I understood there is a sort of correlation between what is happening on inflation linked bonds and the reserve, if I understood the question properly, that was your question. What is the -yeah, there is a little bit in some cases,. like in Benelux where there is also a worker Accident Book. Definitely in that case, there is a correlation I will say between the inflation linked bonds income and I will say the any for reserve or just also they just bring and the case reserve going up. So there is definitely also correlation between the two - the two things.

It might be more pronounced in some countries and less pronounced in others. But again, as you can imagine a local CFO, this is a nice jack of investment income coming from linked bonds, is going definitely to use it to put in the reserve also, because there's the idea of an inflation embossed [ph] We're not speculating with inflation embossed as an instrument to manage, basically claims inflation as a sort of hedging if you want.

And on the aggregate, I tell you that as on now, we have basically utilized half or the aggregate. What we saw, which is interesting, we saw in reality this year, a big natural catastrophe, which was the one in Australia, which, by the way, from a consideration the aggregate it's not necessarily just one, but we can see there was a significant natural catastrophe.

And then we had a bunch of smaller natural catastrophe, since the aggregate is working with a deductible, here from that point of view is still effective, but maybe slightly less effective for the - compared to a situation where you have fewer natural catastrophe, but high with a higher amount. Beside, we will say that if we see a repeat, I want to know what happened in Q1, our net cat loans [ph] will be basically at the 4% level that you sowing, in Q1 there will be in the first half of the year. So there will be basically the maximum amount that you could expect in the case you ever repeat or the situation of the first half or the year, which was a little bit unusual from the way this natural catastrophe came through.

Will Hardcastle

That’s great, thanks.

Giulio Terzariol

Welcome.

Oliver Schmidt

Thanks, Will. All right, then we will take the next question from Dominic O'Mahony from BNP Paribas. Dom, please go ahead. The lines will be open now.

Dominic O'Mahony

Hi, folks, thank you so much for taking questions. I've only got two left. One is, and Giulio, you were talking earlier about the center which, you know, higher bond yields might impact underwriting margins and your view that at the moment, you're not you're not seeing that in the market. You also raised this question about IFRS 17. And the fact that my that is a discounted and whether that might - that might have some impact.

I was really just curious to understand how for you folks internally, when you're saying your business units, I want a 92% combined ratio by 2024. Is that on a - is that using discounted or undiscounted liabilities, and when you set your hurdle rates for capital allocation and choosing which lines to emphasize. Do you look at just the underwriting margin? Or do you take into account the investment trend you're expecting from that?

Second question is on leverage. I think the way that you folks, the leverage ratio that you publish, is - it's just debt over debt plus shareholders equity. Now, purely mechanically, given what's happened with the unrealized gains, shareholders equity is down. That's non economic, we'll understand that. But the leverage ratio, I assume is has gone up correspondingly.

And when you think about the structure of your capital stack, and where you want that ratio to be, you use that leverage ratio that can be summarized - published for us, or ITG [ph] take a sort of a different view, maybe a view based on more on solvency or cash or something else. I just want to understand how you folks think about what the appropriate amount of debt in your capital stack is? Thank you.

Giulio Terzariol

Thank you for your question. On the first question, whether we are looking at combined ratio after discounting or before discounting, now, we are still looking at say a combined ratio before discount. Now, in reality, when pricing actually is going to do pricing, they always think about investment income. So the investment income is a component that pricing actually have in their mind.

Now, I wouldn't say that it's, you know, rates even go from zero to 5%. So we had a moment uptick that coming down as we speak. So at this point in time, regardless of the discounting IFRS or not, pricing actually is now going necessary to change you know, the pricing because of the increasing rates, and especially then, in reality, the main concern over pricing actually now will be to take the inflation element.

But to your question, as we look at our combined ratio today, are we thinking pre or after discounting, we are thinking pre discounting. Now, once IFRS 9 and 17 is going to be implemented, you need to keep in mind that we as a public company and our competitors, that you will know, we are going to be on a discounting calculation, but a lot of local players they, for example, in German, you don't need necessarily to use IFRS, you can use [indiscernible] So also we are now, we are not going to unnecessarily all plays as looking at combined ratio after discount. And that's also something to keep in mind.

But again, price is important. Price is going to reflect the investment thing and that you need to expect. then I will say well might be different in the future to a certain degree is how you're going to also manage results. And clearly, if you have a discounting impact coming through your numbers, you might make little bit of a different decision on the loss ratio that you're going to pick, because that's also clearly always a consideration.

On the leverage. Okay, clearly, rates went up. And so from their point of view, this is causing the leverage to go up. We have always considered that, you know, you want to look at the leverage ratio. So from a normalized point of view, because you know that it's realized gains also eventually are going to go away, they can go away when you have a swing of the rates, or they can go away just over time, you know, as the book is maturing.

And the same applies to annualized losses, so from their point of view, we are clearly not just - we're not just looking at the leverage ratio. Based on the reported equity under IFRS, we are looking at sort of a normalized labor for annualized gains. We're looking also at calculation that we do for the Solvency II. I personally look also at the leverage ratio in relation to the amount of profit that you generate or cash that you generate. So there are a lot of elements that come into this consideration. And the bottom line is, we feel that we have the right amount of leverage. So we don't have any intention to increase our leverage.

On the other side, also, we don't have any program where we say we have too much leverage, and we need to bring it down. So we think that the position is exactly the one we want to have. And that's also the outcome or the fact that there are many elements that come into the determination, the amount of debts we like to have.

Dominic O'Mahony

Really helpful. Thank you.

Giulio Terzariol

Welcome.

Oliver Schmidt

Thank you, Dom. All right, we will take our next question from Thomas Fossard from HSBC. Thomas, please go ahead.

Thomas Fossard

Yes, good afternoon, everyone. Two questions on my side, the first one will be back on inflation. And really, your comments earlier today on, you know, your assessment that the inflation year to date inflation on the European motor claims were around 6%?

I was just wondering how much this was comparing to your initial start of the year expectations? And potentially, you know, what was your outlook for these claims inflation is by the end of the year? Are you still seeing the 6% going up or you believe that we have now reached something which is relatively stable, and you need to match the 6% with higher prices?

And the second question will be really, since you are peaked [ph] vis-à-vis of PIMCO cost income. Clearly we've seen in Q2 and it's one revenues falling slightly faster than expenses. I was wondering if you know you were considering doing things on expenses or cost in order to bring the cost income lower by the end of the year or you okay with a given situation waiting for the flows to come back. Thank you.

Giulio Terzariol

Thank you for your question. So starting from the inflation, yes, 6% is what is on average what we see in the book. I will say this number is maybe a couple of percentage points higher compared to what we were expecting that clearly the situation can be slightly different country by country. And you need to consider that anyway, on the frequency sides, we were slightly more conservative compared to what we see.

So - but just focus on the severity, I will say a couple of percentage points of higher inflation compared to the initial expectation. For the future, we don't necessarily expect inflation to be substantially higher, but we are definitely put the rate increases that they need to match.

The inflation also considering any way for frequency development. And I tell you in certain cases, also, we're putting rate increases if there was more of a larger gap between the inflation assuming the pricing what happened, rate increases they need not only to adjust to the level of inflation, but also catching up a little bit on the gap, this is what is happening in some in some countries.

So, I will say overall, a little bit of higher inflation compared to the expectation. In most cases compensated also by frequency element and rate increases are anyway going to be high in order to make sure that we can match the inflation or rely on lower frequency moving forward. So that's on the price elements.

[indiscernible] ratio PIMCO. First of all, that is some volatility, you know, the cost income ratio, keep in mind that for the six months is 59.1. And this is without any performance fees, because when we say that we basically target a combined ratio of above or below 60, let's say 58, this is percent, this is also considering the annual view where the performance fee are kicking in.

So from their point of view, I will say the position in which we are right now is not drifting away from where we want to be. Also, clearly, if markets stronger or weaker, that number can fluctuate a bit.

A final comment. In reality, if there is a company where I'm not overly concerned about the cost income ratio is PIMCO. Because they - you know, they have also profit sharing mechanism. So anytime the cost income ratio goes up, they are also directly affected by the increase of the cost income ratio and the other way around. So from their point of view, there is a natural incentive at PIMCO to manage the company in the most efficient way, but also clearly having a focus it's investing when there is a need for investing. But that's, that's, in my opinion, a very effective setter because there is a line of interest in this case. And I think that's, that's the reason why, generally when we talk to PIMCO, we are very much aligned on the way to manage the cost income ratio.

Thomas Fossard

Thank you, Giulio.

Giulio Terzariol

Welcome.

Oliver Schmidt

Thanks, Thomas. We will take the next question from Fulin Liang from Morgan Stanley. Fulin, please go ahead. The line will be open now.

Fulin Liang

Hello, good afternoon. Thank you. I got three questions, please. The first one is, you clearly mentioned that the further capital kind of deployment is under agenda and your current buyback has run - kind of like finished last month. And we're just wondering what prevents you from just announcing another buyback today? That’s first question.

And second one is just to clarify one thing you mentioned that the Allianz Trade, the large runoff is mainly due to the COVID provision release from Allianz Trade, which pretty much opposing - approaching the end. Should we expect the ROE [ph] release to normalize from next quarter onwards? That's the second question.

The last one is, just so to cover one thing, the 1%, that's the inflation margin you mentioned in the claim ratio. If I understand correctly, that's as you said, will fluctuate based on your - the gap between inflation and your pricing. And, when would you consider, if I understand that the - if the gap remains as it is, the 1% will eventually release into the combined ratio. Is my understanding correct? And then what would happen, need to happen for to convince you to start releasing that 1%? Thank you.

Giulio Terzariol

Yeah. So starting from capital deployment on what is preventing us from announcing buyback today. The idea is now that we were going to do back to back buyback, you know, that's what I like to say. So from their point of view, we just completed buyback.

We are normally then, clearly, before we announced, you know, buyback, usually will take a few months, could be a few quarters, and then based on, you know, what opportunity we had, and based on development in the market, and we take a decision about what to do.

As I was saying before, in a situation like this, buyback our stock seems to be a very good alternative compared to opportunity. But definitely, you know, we never did really buyback following straight and other buyback, we also want to be considerate, and you need to consider that we have also different stakeholders that, you know, we don't want to overwhelm stakeholders with buyback, and then another buyback and other buyback. So that's one.

Then the point on capital deployment, on Allianz Trade, again, so if you look at the run off in Allianz Trade, there was a substantial, so clearly, you cannot expect to have basically, almost EUR 200 million run per quarter. So but - So from that point of view, that’s definitely something which is not going to happen every quarter in the future. So from - that's definitely not going to be the case.

But again, definitely there is a lot of positive margin, Allianz Trade, that's the main message, having a positive runoff almost EUR 200 million per quarter, on a consistent basis, there will be something very unusual.

And on the pricing. First of all, there is not really a gap between pricing and the lost trend that we see because in the lost trend there is the inflation component, but there is also the frequency components. So that's first of all important that we understand when we put the two things together. We don't see necessarily, and I'm speaking here across the book, we don't see a gap in pricing between the price that we're putting in the market and the lost trend.

Specifically, then to your question about the inflation for reserve. In reality this inflation for reserve is going to be released not based on pricing consideration, but it's going to be released based on how the claims are going to develop, right. So fundamentally, its going to be released over the next I will say, two years and depending on the inflation level that we're going to say there might be just matching claims or might come in the form of a positive run off down the road.

Fulin Liang

Okay. That's very clear. Thank you.

Giulio Terzariol

Welcome.

Oliver Schmidt

Thanks, Fulin. All right, the time for the call is almost up, but we will take therefore one last question. And that question we will take from Michael Huttner from Berenberg. So Michael, please go ahead. Your line is open now.

Michael Huttner

Fantastic, just two numbers. The first one is what is PIMCO performance fees, which we could think about for the second half. And the second, you didn't revise your capital generation number, the one net of dividend 10%. For the year, we had 4% of the half year, where does the extra come from, you know, the jump, not to jump. But is it still fair to assume 10 figure? Thank you.

Giulio Terzariol

Okay, so on the performance fees for PIMCO, that's always very hard to estimate. So - but you shouldn't be completely surprise, if you're going to see a level of consistency, also what we had last year. But again, this is a number that can really change. So don't - so it can also go high, it can go lower. But you might see a level of performance fees, which is not that different from the level of last year, but these I think can be very volatile. So just it is as a sort of comment is not as sort of forecasting because it's very hard to forecast performance fees.

And in the - for the capital generation, I will say, you saw that it in Q1 and Q2 was about 3 percentage point, is a little bit lower compared to the 2.5% percent quarter. But the reason for it is that we are growing more in property casualty, you see the growth that we have here is definitely more pronounced compared to what you usually assume.

So from their point of view, as long as we're going to add this kind of growth in P&C, you're going to see capital generation which is more at the level of 2%. But we are actually pretty pleased with this development because clearly we like to see the growth in P&C with a correlated price strength coming through.

Michael Huttner

Fantastic, super. Thank you.

Giulio Terzariol

Welcome.

Oliver Schmidt

All right. That concludes today's call. Thanks to everybody for joining us. And now we say good bye to you all and wish you a very remaining pleasant afternoon.

Giulio Terzariol

Thank you, guys. Have a good rest of the day and also a nice summer break. Bye.

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