ageas SA/NV (AGS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Ageas conference call for the first 6 months of 2020. I am pleased to present Mr. Bart De Smet, Chief Executive Officer. [Operator Instructions] Please also note that this conference is being recorded. I would like to hand the call over to Mr. Bart De Smet, CEO. Mr. De Smet, please go ahead.

Good morning, ladies and gentlemen. Thank you all for dialing into this conference call and for being with us for the presentation of the results of Ageas of the first half year of 2020. As usual, I'm joined in the room by Christophe Boizard, our CFO; Manu Van Grimbergen, our Chief Risk Officer; Filip Coremans, Chief Development Officer; and Antonio Cano, our Chief Operating Officer. Before diving into the results, I would like to draw your attention to another press release issued this morning on the dividend and share buyback. As you probably remember, earlier this year, Ageas decided to adjust the distribution of a dividend payment of EUR 2.65 per share for the year 2019, taking into account the initial guidance issued by the National Bank of Belgium on April 7 of this year in the context of the COVID-19 situation. A first dividend of EUR 0.27 per share was paid in June, while Ageas communicated its intention to organize a second General Shareholders' Meeting in the course of October 2020 with the aim to propose for approval the payment of an intermediary dividend of EUR 2.38 per share. Last week, on Thursday, the National Bank of Belgium issued an updated guidance, recommended insurers to delay dividend payments until at least the 1st of January 2021. After careful consideration and taking into account Ageas' strong and resilient solvency and cash position, the Board has decided to keep its initial commitment. The National Bank of Belgium has been informed that the payment of an intermediary dividend of EUR 2.38 per share for the year 2019 will be submitted for approval to a General Shareholders' Meeting on the 22nd of October. We will, however, take into account this updated recommendation issued by the National Bank of Belgium on the timing of the launching of a new share buyback program. The second press release this morning informed the market about our Chairman's decision to step down at the Shareholders' Meeting of the 22nd of October. Under the chairmanship of Jozef De Mey, Ageas evolved towards a self-confident and profitable insurance group, leaving all the Fortis legacies behind, while further development -- developing its presence in Europe and Asia. We sincerely want to thank Mr. De Mey for his effort and vision that have helped shape the Ageas we know today. Since his current mandate expires on the 19th of May 2021, the process of appointing a successor was already well underway to ensure smooth continuity of company's management. We will communicate further on the proposed candidate at the appropriate time. I would also like to draw your attention to the press release announcing the acquisition of an additional 23% stake in our Life joint venture in India, IDBI Federal Life Insurance Company. By buying this additional stake from our partner, IDBI Bank, we will become the largest shareholder in the joint venture with 49%. This is a great opportunity for us to play a more active role in developing further this company alongside our long-lasting partners, IDBI and Federal Bank, in one of the largest -- world's largest market, very fast-growing and with a low insurance penetration rate. Returning to the half year results, our activities have proven resilient in these difficult times, and we have achieved a solid group net result of EUR 791 million or EUR 459 million if you exclude the EUR 332 million capital gains related to the 2 transactions on the FRESH securities. The adverse financial markets weighted on our profitability, mostly in Life, as this resulted in equity impairments in the first quarter and lower recurring investment income in the second quarter. This affected our group guaranteed operating margin, which stood at 75 basis points over the first 6 months of the year. However, it is worth noting that the fair value of our investment portfolio, which dropped in the first quarter, strongly recovered in the second quarter, recording only a limited decline of 2% over the first 6 months of the year. The annual revaluation of the fair value of the Real Estate portfolio actually had a slight positive outcome as the marginal decrease in Car Parks and Retail was more than compensated for by other Real Estate assets segments. In contrast to Life, our Non-Life results stood at a high EUR 181 million for the first 6 months. Thanks to our product portfolio, mainly oriented towards individual customers, we had very limited exposure to commercial claims brought by the COVID pandemic. Additionally, the low mobility during the lockdown temporarily reduced the claims frequency, especially in Motor. This compensated for the adverse weather in the first quarter and resulted in an excellent group combined ratio of 91.7%. On the sales side, inflows in Life decreased with 11% due to the lockdown measures with a timing difference between regions. In China, where the lockdown measures were first taken, the inflows recovered in the second quarter, resulting in a small increase over the 6 months year-on-year. In Europe, the decrease in inflows took place in the second quarter, in line with the lockdown, with a gradual improvement as from June. Inflows in Non-Life increased with 2% over the first half, thanks to a very strong first quarter; and the second quarter, 4% below last year. As you may remember, given the uncertainty prevailing at the time of our Q1 results, we could not confirm our annual guidance of the group net result between EUR 850 million and EUR 950 million. Today, we have to be -- remain prudent as we witness the sign of a potential second wave of the pandemic. However, excluding the one-off positive impact from the FRESH operations, given our results year-to-date and the resilience demonstrated by our operations, we expect to be able to achieve a result close to our initial guidance. This, of course, assumes that there would not be no further material negative impact from the pandemic and financial markets in the coming months. Our group benefits from a robust capital position with the Solvency II Ageas ratio at 192%, comfortably above our target of 175%. We can also rely on a solid cash position, which stood above EUR 1 billion when excluding the amount ring-fenced for the Fortis settlement. Ladies and gentlemen, with this, let's say, satisfying news, I would now hand over to Christophe for details on the results.

Thank you, Bart, and good morning, ladies and gentlemen. As you can see Slide 5, our half year results amounted to a high EUR 791 million versus EUR 606 million last year. This result includes EUR 332 million of net capital gain related to the tender on the FRESH securities, of which EUR 310 million realized in Q1 and an additional EUR 22 million realized in Q2. As mentioned before, these gains, which constitute a noncash element, will not be available for dividend distribution. This result also includes a positive impact of the RPN(i) for EUR 16 million. Our net result was supported by a much lower amount of capital gains as the rebound of the equity markets in the second quarter could not fully compensate the impairment recorded in the first quarter. After a restatement of the usual exceptional items like capital gains, weather events, et cetera, our underlying operational performance before restatement linked to the COVID-19 crisis has improved compared to the same period last year. The overall impact of the COVID crisis was roughly estimated as follows: a positive impact of some EUR 90 million on Non-Life net result compensate for the EUR 94 million lower contribution of net capital gains in Life. Furthermore, our recurring investment income was lower than last year. As usual, I will give you now some more comments per segment. Slide 6, in Belgium, after a first quarter impacted by equity impairments, the situation improved in the second quarter with a market recovery. However, our Life result continued to suffer from lower recurring financial income due to lower dividend received and a decreased contribution of Real Estate, in particular of the parking business, Interparking. As a result, although our guaranteed operating margin recovered in the second quarter, reaching 91 bps in Q2, it remains on the 6 months at 46 bps, largely below our target despite a solid underwriting performance. Since Real Estate has been a matter of concern for the investors and financial analysts, I would like to make a quick focus on that topic. The recurring Real Estate income, mainly coming from the car parks, is expected to remain low as long as the lockdown measures will not be fully withdrawn. Compared to 2019, Interparking experienced a lower occupancy rate with a drop of 70% in April and 55% in May. In June, we saw a pickup of the occupancy rates with the decrease was -- and the decrease was limited to 28%. Depending on the evolution of the situation, we expect the occupancy rates to continue this gradual recovery in H2 to reach almost normal levels by the end of the year. The only exceptions are the airport car parks. The valuation exercise of the Real Estate assets conducted at the end of the second quarter showed a small positive movement in the fair values as a whole. The slight decrease in car parks was more than compensated by a higher fair value of the 2 -- of the other categories. In case of a gradual recovery scenario starting after the summer and reaching the pre-COVID-19 activity levels over a couple of months, the impact on the valuation will remain limited. Now let's come back on the insurance result of Belgium. In Non-Life, the low claim frequency during the lockdown, mostly in Motor, compensated for the adverse weather in Q1, and this resulted in a low combined ratio of 91.2% over 6 months. As for the sales, Life inflows decreased significantly in the second quarter due to the lockdown measures in combination with the lowering of a guaranteed rate in April, whereas Non-Life inflows, on the contrary, proved to be resilient. In the U.K., Slide 8, the net results benefited from low claims frequency in the second quarter. This resulted in a high net result of EUR 25 million over the quarter despite a continuous sector-wide claims inflation and a volatile pricing environment due to the pandemic. It is worth noting that the impact of claims related to business interruption, rent insurance and even cancellation has remained limited. The decline in inflows remained limited as higher volume in household and commercial lines partially compensated for the decrease in Motor. In Continental Europe, Slide 9, our result was strong in both Life and Non-Life. In Life, our guaranteed operating margin, which benefited from a solid underwriting margin, was further supported by a reserve release in Portugal in the first quarter, already mentioned, for Q1. Excluding the release of this reserve strengthening, the guaranteed operating margin would have amounted year-to-date to 107 bps, far above our target, and this despite lower capital gains and financial income. In Non-Life, the excellent combined ratio of 82.9% reflected low claims frequency in Motor and Health in the second quarter, benign weather and continuously improved operating performances. The result in Turkey more than doubled over this semester compared to the first 6 months of 2019, hence, also contributing to the high Non-Life results of the segment. On the Commercial front, the Life inflows decreased as the transition in the product mix in Portugal to our new products better suited to the current low interest rate environment has been slowed down by the lockdown measures. Non-Life inflows proved resilient and continued to outperform the market in Portugal. In Asia, Slide 10, we recorded in the second quarter a solid net result, supported by capital gains as the market recovered sharply. Excluding the negative impact of the evolution of the discount rate and the EUR 50 million of retroactive tax benefits recorded in Q2 last year, our Life underwriting result increased. This reflects the solid operational performance of our business in China. Here also, the strong Non-Life result was supported by the favorable claim experience during lockdown. As for the commercial performance, Life inflows rebounded sharply in the second quarter, driven by China and compensating for the weak first quarter. Non-Life inflows, also impacted by the lockdown in the second quarter, increased by 15% over the 6-months period. The Reinsurance segment, on Slide 11, recorded a positive net result of EUR 44 million this quarter, thanks to the lower claims frequency in the ceding operational entities. This more than compensated for the negative impact of the storms in Belgium and in the U.K. in the first quarter. Moving now to the capital position. Despite the turbulent financial markets, you can see, Slide 12, that the group solvency ratio stood at a high 192%, comfortably exceeding our target level. Unsurprisingly, the 2 main drivers for the solvency over the first 6 months were the 11 percentage point impact coming from the tender of the FRESH and another 16 percentage points coming from the market movements, mainly the downward shift of the risk figures and the declining equity markets. Our operational free capital generation, Slide 13, amounted to EUR 437 million, including EUR 116 million dividend from our noncontrolled participations. The low claim frequency in the second quarter has fully compensated for the lower Own Fund generation in the first quarter because of the February storms. We are then on track to end the year with an operational free capital generation in line with our annual guidance of EUR 500 million to EUR 540 million for the Solvency II scope. This is the end of my presentation. And I will conclude by saying that in the context of the COVID-19 crisis, this good result shouldn't come as a surprise since the business profile of the group, mainly based on selling personal lines covers, leads to insignificant exposures to business interruption, travel insurance and even cancellation, which are suffering most from the present situation.

[Operator Instructions] We have a first question from Fulin Liang from Morgan Stanley.

I have 2 questions, please. The first one is, you basically reversed what you said -- pretty much reversed what you said in Q1 in terms of the annual guidance. And you're basically saying that the -- you have sticked to the original guidance, which I understand is EUR 850 million to EUR 950 million, excluding the FRESH impact. Can I ask about the -- what you -- obviously, you mentioned that the COVID -- the caveat is that the financial market remains stable. And apart from that, can I clarify that indeed, when you made this guidance, you actually already take into account that there might be further pressure in China in terms of the discount rate and then there will be kind of still -- the positive benefit from the lockdown will be kind of trending down in the second half. So I just want to make sure that these are all considered. So that's my first question. And then secondly is just want to confirm that your -- obviously, you -- because of the buybacks, you cannot say -- announce a new buyback program. But I just want to confirm your intention to resume your buyback once the NBB is okay with that. Sorry, I have one more question. Third question was also on the capital return on the dividend. So assuming you are achieving the high end of your target, which is EUR 950 million, and if you're only paying 50% of that kind of earnings as the payout ratio, you would -- you could end it up with a dividend actually lower than what was announced last year, I mean, the full amount, the EUR 2.65. Would that be your intention that if that's the case, you could increase your payouts, at least maintain a stable or even higher EPS number?

Okay. A lot of elements in your questions. Thank you for that. First of all, when we give -- when we were prudent or even could not confirm our guidance at the end of Q1, I think the justification was mainly that we were fully in the start, in any case in Europe, of the COVID-19 crisis and that also the first quarter results gave a reason for us to be relatively prudent, on one side, the results we made in the second quarter and, as indicated by Christophe in his end comment, the confirmation that our -- the model that we have with geographical diversification, where we also see that the impact of COVID is very different from market to market, but more precisely, even the fact that we are diversified between Life and Non-Life, gives us much more confidence on the statement that we believe that we will be close to our profit guidance. When we say close to, we -- you don't have to interpret it immediately it will be close to EUR 950 million. So when we say close to the range, it could be slightly below, top, slightly above it. So it's around that. And again, knowing our prudence, that's the view we have today. One caveat is, if indeed we have an additional impact of impairments like we had in the first quarter, that's something that could make us change that outlook. But all in all, we are overconfident that, that is achievable. With respect to the verticals, that could be an element. So our view on yield is that if we assume that the government bond yield in China would stay at the level of what we had in June -- and for your information, it was at that moment 2.86, and it is now close to 3, so it increased. But if we assume that the government yield would remain for the rest of the year at the level of end of June, we then expect that there will be a further impact, and that's, of course, included in our confidence on the guidance. There will be an impact in the second half of the year that will be a bit higher than the impact we have had in the 6 first months. And in the 6 first months, I think we disclosed or we mentioned to you the impact in Q1, that was EUR 28 million. In Q2, the impact is EUR 30 million. So overall, we had an impact of some EUR 58 million -- EUR 57 million, EUR 58 million this year. And bond yields staying at the level of end of June, you could imagine that we expect a slightly higher amount for the next 6 months. So that's in our -- based in our confidence about the guidance. Your second question was about dividend and share buyback. I assume that that's an element that will come back. So first of all, with respect to the dividend, we organized this shareholders' meeting on the 22nd of October. This has been beforehand largely communicated also in all transparency with our supervisor. And the intention is, if the shareholders approve that intermediary dividend, to pay it out on the 30th of October, so still this year. On the other hand, we also want to underline that we somewhere understand that supervisors are, in this period, extremely prudent with respect to cash-out of financial institutions, but nevertheless pointed to a big difference between the situation of banks and the situation of most in the insurance sector, also looking to the huge number of insurance companies that like we, nevertheless, paid out a dividend. Our main reasons are clear, also out of the information Christophe gave, a strong dividend, a good cash position, confidence about the underlying business going forward, so that's something that we wanted to communicate to the market. On the other hand, we also, in order to show indeed this, I would say, appreciation of the concerns of the supervisor, where we, in April, decided to continue running buyback, we said, okay, we have a commitment of share buyback in our strategy of minimum EUR 150 million a year. If there is no sizable acquisition, those plans do not change. The only thing we say is we will delay that decision. You have to know, and I think it's also been mentioned in my speech, that the April request from the National Bank not to do all these things, buy back dividends, rebase of premium, profit sharing to customers until the end of September, that recommendation has been delayed until the end of the year. So I cannot precisely say when we will announce this, but it will be set later in the year, but maybe with an execution early 2021.

Next question from Albert Ploegh from ING.

I've got 3 questions from my end as well. First, to come back on the Asian results, ex capital gains and ex the discount curve impact, I still struggle a little bit on the Q-on-Q underlying improvement. I understand that Non-Life obviously was favorably impacted by the lockdowns and the claim experience. But it seems that also on the Life side underlying, the performance improved. So a bit more color would be welcomed. And then also coming back on the guidance, and I understand -- heard what you said on the first question on this. But can you maybe give some color on what your expectations are in terms of capital gains realization for the second half? And especially on Real Estate, if there's anything already in the budget or executed already in the beginning of the third quarter? And then my final question is the organic capital generation. I see you also upheld your EUR 500 million to EUR 540 million guidance there, excluding the dividends from the NCPs. Clearly, Q2 was very strong and well above, let's say, the normalized EUR 130 million, even if I strip out the dividends. Yes, what elements are in Q2 which might not be sustainable, because it seems a very strong level in the second quarter? So some detail there would be helpful as well.

Okay. A quick high-level calculation, Albert, on your first question. So if you look last year, the profit in Asia was EUR 331 million. You could say with the addition -- let's say, the exceptional element in that were the EUR 50 million tax relief from the past. If you look to the delta in this, it is -- this year, we have the EUR 57 million or EUR 58 million negative, where last year, it was a positive of, sorry to check it, a positive of EUR 18 million. So the delta is EUR 75 million. And then you have also EUR 18 million less net capital gains. So it means there was EUR 143 million in that result of 3 -- [ 2031 ] that you could deduct and then you come to a result of EUR 188 million compared with this year, EUR 216 million. So that's why we say underlying improvement. And of course, the biggest bulk is in Life.

And maybe, Bart, it is useful to remember that beginning of last year, we had this very strong recovery of the equity market in Asia. So the level of capital gain were extremely high. So it's the reason when we restate, we can safely say that there is an operational improvement.

The second question. So in the first half, there were almost no capital gains on real estate. In the meantime, in this third quarter, some operations have been realized with a net impact, positive impact for Ageas of EUR 30 million. And so we expect -- we see -- we have still some files in the pipeline to really raise additional capital gains. So there are no signs that we will not be able to achieve or to reach our budget in -- our expected amount in Real Estate capital gains. So that's something that is also, of course, helping us in the comfort with the guidance we gave. Maybe the third question, pass it to you, Christophe, operational?

Yes. So on the operational free capital generation, without any doubt, Q2 benefited from the COVID-19 thing through the improvement in Non-Life, which goes rather directly into increase in the Own Fund part. So you don't have a lot of difference in the SCR. The jump in the Q2 operational component of the free capital generation mainly comes from Own Fund, and out of this, from the very low combined ratio we had in Non-Life, I mentioned the EUR 90 million. And you will say, if I deduct EUR 90 million, fall below the guidance. But please keep in mind that Q1 was very, very weak because of the weather. So all in all, it's -- if we restate by these 2 elements, we are above the guidance on the 6-months basis. And it's the reason why we are confident to stay within the range for the whole year.

Next question from Ashik Musaddi from JPMorgan.

I have a couple of questions, if you can help me. Now I think for this year, you have been pretty clear about earnings momentum. But I want to go back to your Investor Day slide where you showed that your EPS expectation -- EPS growth expectation is about 5% to 7% on the base of 2018. So if I use that EUR 4.1 of 2018, I mean 2021 EPS suggests that it could be about EUR 4.75 to about EUR 5. So how do you think about that? Has that changed because of this COVID-19? Obviously, I mean, we need to assume that market normalizes next year. So would you still stick with that EPS growth guidance? So that would be my first question. Second question would be, any thoughts on how the claims frequency is trending in second -- in third quarter so far? I mean is it still going to be -- is it still looking good? Or is it getting normalized? So that would be the second one. And last one, I mean, M&A. Again, I know this might not be the right time to do M&A because regulators are a bit worried about capital. But actually, if you think from economics perspective, I mean, valuations would be depressed if you want to buy anything. So what are you thinking about M&A? What are the areas that you're looking at, at the moment? Is there anything in the pipeline?

Okay. Thank you, Ashik. Before I go into the answering of your questions together with dear colleagues, I remind that I have not given a complete answer on a question we received previously on the dividend for the future related to the guidance. But the question was here. But if you are somewhere in that range, EUR 850 million, EUR 950 million, and you take a 50% dividend payout, it might be a dividend below the one of this year. Let's say, it's very clear that our dividend promise is one of minimum 50% of the group profit, so we don't stick necessary to the 50%. And there, also, I think in the current context, that is maybe a bit premature to already do bold statements about that. In the past, we said -- we have that promise. And next to that, of course, the Board always tries to avoid a decrease in the dividend. But let's see where we will be next year. Then on your questions, the earnings per share CAGR, 5% to 7% was indeed a CAGR. So it's not a yearly target. And exactly this, when we announced the strategy, was made to absorb somewhere the volatility in results. And okay, our current plan runs until the end of 2021. We, at this moment, did not have a specific view on whether we would not be able to reach that starting from the EUR 4 per share where we were when we announced the strategy. Then the [indiscernible] what we did. What we -- our assumption when we came to this confirmation or more confidence about being close to the guidance has been based, of course, on also what we expect in the different operating companies as evolution in the Non-Life results and then mainly frequency severity. And maybe you, Antonio, can dwell a bit more on that.

Yes. So Ashik, so I'll try to be brief. The drop in frequency is most notable, obviously, in Motor attritional. So there you see in all regions, and it is slightly creeping up, but still well below the -- what we normally expect. Large claims, so bodily injury-related claims, there, we don't really see a tendency. They are still happening, and I think it's early days. But -- so bear in mind that it's about attrition of where we see a drop in frequency. Obviously, that's a big chunk of your claims ratio. And then there might be also something on -- in health care, mainly in our Portuguese business. But that's a more anecdotal evidence that people kind of delay any treatment. So there, you also see a slightly lower frequency in medical in Portugal. But I mean, if you would ask me this question like a month ago, I would say, well, we expect to normalize it in Q3. With all the additional lockdowns, et cetera, I would expect that will -- that frequency will continue to be depressed.

And then the last question on M&A. First of all, okay, there could be opportunities. I indicate what we yesterday published with respect to the Indian joint venture where we believe that the outcome -- and I can really send all congratulations to Filip who is there, instrumental in that deal, and with all M&A and other people involved for the nice outcome they have been able to negotiate in the interest of all parties, I would say. But if you -- when you refer to the attitude of the regulators or the supervisors, we see that when they ask to be prudent with capital and cash deployment, they are less concerned around M&A because that's not cash that definitely goes out. It creates, let's say, new business coming in, in the portfolio. And so we continue to apply our, I would say, our strategic orientations that we've given at multiple times. And as you know, we will not be entering in deals where we don't see a strategic, let's say, added value or where pricing is beyond what we feel reasonable.

[Operator Instructions] Next question from Farquhar Murray from Autonomous Research.

Two questions, if I may. Firstly, on the decision to pay out an interim dividend, that clearly entails the situation of kind of respectful disagreement between Ageas and the NBB, which, frankly, I don't blame either of you for. But could you just give us some insight into the nature of the current dialogue? And do you see any -- foresee any net possible consequences from that disagreement? And then secondly, Jozef De Mey has been kind of instrumental in the buildup of the group as it stands. So I just wondered if you could outline what criteria and priorities are going to be with regards to choosing his successor. And is that most likely to be an external candidate? And perhaps, more broadly, are we likely to see any nuances on strategy as we move into a new area?

Okay. On your first question, Farquhar, I personally do not like that the -- this decision for us to pay a dividend is seen as a disagreement with the National Bank. So I -- it can appear to be like that, but we have been in talks with them already since the month of October. I think where we have built our case, that's rather strong. It's based on one -- the promise we made to our shareholders, and we are a company that always tries to deliver on our promises. Secondly, the fact that we have a strong solvency and we have done stress tests in the past, but also in the recent past, that are heavier than what we see today with the COVID situation and that showed the strength of our solvency ratio under different scenarios, we have, of course, a cash pool that is giving some comfort in case situation would be worse than what we assume. We have, of course, also used an argument that's maybe a bit more an emotional one saying that 22% of our shareholders are retail shareholders that counts to a certain extent on dividends to, let's say, to add it to their, on average, lower legal pension. And so not paying them a dividend is also impacting their personal finance. We have had other arguments like the fact that we have been doing a lot toward society, being funding research for finding vaccines in the U.K. and in Belgium, also helping a lot with material in the elderly homes and it can go on. And the last point that we made to them is that on one side, the fact that they -- and it starts at EIOPA and the ESRB that they throw, I would say, all financial institutions in the same basket where, for instance, the banks have been somewhere helped with capital relief and are also much more, let's say, under pressure with, let's say, nonpaid loans and where insurers are at very different profiles. Like Christophe said, we are not in bigly -- strongly exposed to event cancellation, to business interruption. The ESRB used an element of level-playing field when they say it would not be fair that some insurers pay dividends and other not because that gives then a sign to the market that there are strong and weak ones. And also there, we motivated that, that is exactly what will put in days the credibility of Solvency II and where insurers also could be kicked out in the future from capital markets and debt issuance. Are we still -- okay. And so the credibility of Solvency II is a bit under pressure. So -- and the last element is that if we gave the National Bank an overview of some 30 big insurers that when 69% of the announced dividends have been paid and if we would not be able to continue our plans, we would create a lot of uncertainty about the strengths we've gotten where we are convinced of. So this motivation has been extensively discussed, exchanged with the National Bank. And like in April, we did not see specific frustration from their side. The collaboration with the National Bank is very good. And you can imagine that we, as one of the biggest companies, even the biggest in Belgium under their supervision, that we have done everything not to be in a disagreement mode or a fighting mode. So that is -- you could say that in order to, nevertheless, show some respect for their view that we have taken this decision that I commented on a delay of the payment of the buyback. It's not something that they impose. It's something that we ourself proposed in order to have a balanced agreement with them. The second question, on the Chairman. So first of all, we -- it's a very personal decision. And I can assure you that we all have an immense respect and, I would say, myself, personally, have been working with Jozef De Mey for 22 years in different roles, and he has really been instructive and exemplary for the development of the group. Of course, a group or a company is never made by only one man. I think one of his strengths is maybe, and I'm not talking about myself, but all the colleagues, is that he's been able to always select the right people on the right place to get this organization where it is today. We were, of course, anticipating at the end of the mandate of Jozef, which was planned for next year in May, already for many, many time, so it started in 2019, the preparation, and we will continue that process. In that process, of course, he himself has, together with Corporate Governance and Nomination Committee, determined the criteria that they believe are important for the new Chairman. Whether it will be an external person or internal person, at this moment, I think it's -- this is not element for communication. The only thing we can say is that it will not take too long because the communication has to be done before the 22nd of October. But be aware also that this kind of changes always have to be combined with the fit and proper approval from the National Bank. So that also takes some time. So it will be an internal decision that will be taken by the Board rather quickly. But we then still a certain period of 1 month, 1.5 months before the National Bank will give its approval. But be assured that this will be -- that this is a very professional process and whether [ archive ] will be communicated as soon as possible.

Just a follow-up on that. If you -- if there is a kind of approval process with the NBB, do I take it, therefore, it must be an external candidate?

No. Even if it's an internal one, every change of role has to be -- to pass again the fit and proper test, and so is with another Board member, if somebody from management. The only thing is, if it would be an external person, you could expect that the timing, the delay for the fit and proper might be longer. That's why I'm a bit prudent in saying, 1 month, 1.5 months.

Yes. That's totally fair. Just for the record, by the way, I actually totally agree with your arguments, and I actually have quite a lot of respect for the NBB. It's not their fault with the situation we're in.

Next question from David Barma from Exane BNP Paribas.

I just have a few remaining. The first one is on solvency and on the regulatory ratio. I mean this is something we've talked about in the past, but given the volatility in H1, just wanted to come back on this. Would you be able to split the key elements driving the drop in Belgium in Q2? And remind us how we should be thinking about the PIM and the operating entities? My second question is on Belgium Life. Would you be able to split the impact in Q2 on the investment results coming from lower dividends and low rental income or, otherwise, what that contribution was? And a small third question on the U.K. You mentioned in the slide deck some provisioning being done related to potential COVID impact on non-Motor lines. Would you be able to give some color on that?

Okay. Manu, you take the first question?

Yes, I'll take the first one. Okay. So yes, I'll take the first one. On solvency and the Pillar 1, okay, and your question was more specific on Belgium and dividends. So what I first want to recall is that from a dividend point of view and a capital management point of view, our framework is based on Pillar 2. And there, we stick to that one. Of course, we need to keep an eye on Pillar 1. That is something that we have always clearly communicated. But the levels where we are today in Belgium and in other countries, operating companies from a Pillar 1 perspective, absolutely not at a level where we have concern from a capital distribution. So that's a general comment that I wanted to make, no more specific on Belgium. And the Pillar 1 evolution, yes, that is, at least for us, absolutely not a surprise. If you look at the evolution of the solvency in Belgium between -- in the first 6 months, at the end of 2019, it was at a level of 185%, so before the COVID crisis. Then at the end of Q1, Belgium was at a level of 204%. And then we were, if you remember, really in the middle of the crisis, and it was simply due to the dysfunctioning of the volatility adjuster because corporate spread increased quite heavily by the end of Q1 and, as a consequence, also the volatility adjuster. And then finally, by the end of Q2, you have seen the actions of the central banks that have led to a decrease in spread on government bonds, but also and even more on corporate, which means that we have quite a material decrease in the volatility adjuster here in Q2. And then Belgium moved in Q2 from 204% to 170%. And that is exactly the reason why, by the introduction of Solvency II in 2016, that we did not want to manage the group based on such a volatility and that we introduced our Pillar 2 framework where all the main important decisions are taken like ALM, pricing, but certainly also capital management decisions.

Thank you, Manu. Maybe Antonio, second question?

Yes. So the second question, I think it was your -- the drop in investment income at AG and what the sources are. So there is a drop of dividend income. Q2 typically is the big dividend season, so not everybody expected dividend, that we see like around EUR 8 million net impact. There is -- probably the biggest one would be a drop of the revenues for Interparking. There also, our net impact, we estimated about EUR 12 million to EUR 15 million. And then there is a drop in the, say, the regular rental income of AG real estate. And there, it would also be a number around EUR 10 million to EUR 12 million. Then you had another question on the provisioning for the U.K. given COVID. I will not really give you precise numbers. So we have provisioned more related to our rent guards or rental protection products, where we actually don't really see any claims coming in yet. But we expect in the second part of the year and maybe also even in '21, some more claims. And there, we've taken a provision. What I will say, it's not a double-digit number, and I'll keep it like that. So it's relatively minor.

Next question from Jason Kalamboussis from KBC Securities.

I just wanted to ask you some quick questions, the first one being on the U.K. What would be the underlying number excluding COVID? So trying to see if we have had any underlying improvement or we are close to basically 0 results on the U.K.? And what can you give us as encouragement for the second half outlook? The second thing is, in general, you seem to be having very good -- COVID has helped you in Q2. Clearly, it will partially help you in Q3. There's a second wave again that could be supported. So normally, this should give you some confidence that on the guidance that you've given, excluding realized capital gains, which I think you normalize at whatever, 120, 130, you should be able to meet the lower end of your guidance. So I'm not asking you to probably say that you cannot comment on it, but to say that at the end of the day, there is also something that is good headwinds that could help you achieve your results for year-end. And the third quick question is around M&A. We have not heard about the Ethias file for a while. It's a company where back 2 years ago, you were saying that it would have a good fit with Ageas, possibly to do some deal. Could you just update us on the situation there? And that is relatively important because that can determine, if you do more sizable M&A, having seen that you missed Caser and in Portugal, frankly, Unidas. I just wanted to put that in perspective with this potential file.

So on the U.K., just maybe coming back to the numbers, and I'll give you the numbers of Q2 only for the U.K. So you see, we have reported the Q2 result of EUR 25 million. Bear in mind, in the reinsurance account, there's also a very sizable amount that is originated by the quota share and the LPG contracts wherever the U.K. That is net also about EUR 16 million. So the result Q2 for the U.K. net, including the internal reinsurance impact, would be EUR 41 million. Now a big chunk of that is obviously COVID-related. I don't dare to give you an exact number because, yes, in Motor, attrition in Motor is a positive. We've had some claims related to go with claims in travel, in event cancellation. We have had this additional provision that we set up. So overall, it's a positive, but it does not either way completely the result of the quarter. Underlying, we do see an improvement. And part of your question was also what our views are looking forward. Leaving COVID aside and the possible -- positives on COVID frequency, we did increase our rates in Q4 last year in Q1. Obviously, that's a much more challenging task in Q2. But as we increase those rates, the earned premium of the rates increases is starting to flow through our P&L, and it will flow through the second part of the year. So we are kind of a bit more positive on the development in the U.K. We also see that in our large claim spot where you remember, 2019, we had serious increases there, we actually see an increasing positive runoff in those previous years' claims. So overall, we are positive on the trend for the U.K.

Okay. With respect to your second question. So when we talk about the -- confident that we will close -- we'll be close to the guidance, EUR 850 million, EUR 950 million, in that, let's say, the exercise behind does not assume a second wave. So it means if there would be a second wave comparable to the first one, it would have a positive impact in any case in Non-Life to be seen what will be impacting Life. But what we practice today -- and of course, it's different from country to country, but when you look at, for instance, the Belgian market, okay, there is, again, an increase in number of cases. But we compare to March, April, we see much more cars on the road, people going to work prefer car above public transport. So we have also more non-experienced people on the road. So the assumption we have is that the second half of the year will show frequency that is more than normal one. So that's with respect to the second wave. So again, it's not in our assumption the same impact, for instance, as in Q2. Then the last question with respect to Ethias. So first of all, Ethias is a company that was, some years ago, under pressure from solvency and mainly due to kind of a toxic live book that has been completely decreased and the remaining part has been sold. So they have very decent strong performances. And as you know, the 3 shareholders are the 3 regions, so the governments. And first of all, we have complete different composition of governments there, where there is one in the Walloon region and the Flemish region. And on a federal level, we are still far from a final new government. And even if that would come in the coming weeks or months, we don't expect that Ethias or the divestment of a number of the government-owned entities will be high on the agenda for the reason that there is a big chance that the socialist parties will be part of that new government. And as you can imagine, they are more for government-owned than private companies. So we don't focus too much in our M&A activities on potential evolution in the Ethias file.

We will go to the next question from Steven Haywood from HSBC.

Just can you give me a bit of insight into Solvency II ratio of 153% for the Continental European business has come down year-to-date from 170%? Is there similar impacts that are hitting here compared to the Belgium Solvency II ratio? And are there any more further reserving actions that need to be done in Portugal? And then secondly, on your delayed share buyback, I assume that the 1st of January 2021 is the earliest date at which you may announce this. And then thinking ahead next year, can Ageas do a share buyback in the period of 6 months? Can it take place over a period of 6 months rather than a period of 12 months? Or will you shift your sort of annual announcement of share buybacks to the full year from the second quarter?

Manu?

Okay. Thank you for the question. I'll take the Continental Europe question on Solvency. So indeed, so we are, in end of June, our Pillar 2 solvency is at 153%. And looking at the Pillar 1 solvency, there, we are at a level of 233%. But as you know, in that ratio, there are also transitional measures that are included for our Portuguese entity and also for our French entity. So the decrease that we have seen in our Pillar 2 ratio for Continental Europe is mainly driven by the decrease in interest rate. So that's the same reason that also for Belgium, but Belgium to a lesser -- to a much lesser extent. And in Continental Europe, the impact of interest rate has been higher than for Belgium. You know that in Continental Europe, we have mainly 2 countries, Portugal and France. And France is certainly, yes, well exposed to interest rate movement because there, we still have a small, certainly at Ageas level, we still have a small annuity business that is much more interest rate sensitive than the rest of the group. So -- and I think you had also a question whether we expect any reserving in -- additional reserving in Portugal. The answer is very simple: we do not expect any additional reserving in Portugal.

And for instance, for the reserve, I mentioned in my speech, that we just released reserves. So this should be a sign that there is no need in this region.

Okay. Then a question on the share buyback. So we refer to repayment, a delay of the launch to early next year does not mean that it could -- should not be able to announce it earlier. The question whether we would be able to do it over a period of 6 months, I think practically, that is possible. If the question is also, will you then announce a second one in the midst of the year? That, I would say, let's not jump too far away in time. It will, like we did in the past, it will depend on, of course, solvency level. But there, as Manu said, we are confident. But also on, of course, M&A activities on maybe, nevertheless, a bit the environmental situation and so on. And if you go back in history, the one and first share buyback we did, I think, in 2011, was one over a period of 6 months. So it's definitely not excluded.

Next question from Farooq Hanif from Crédit Suisse.

Just going back on the question of the regulatory PIM. So in Belgium, I believe the dividend has not been upstreamed yet in that ratio, or has it? Because obviously, it could go down a lot more when you do that. So is the regulator basically happy with your Pillar 2 in a sense and kind of understands the difference, therefore, is looking through this? So do you feel very confident on your outlook for remittances from Belgium? And secondly, just also a clarification on the earlier question from Albert on Asia. So you correctly gave the underlying improvement in the Asian profit over the 6 months. But the improvement is even better than the growth in technical liabilities. So the margin seems to be getting better. Could you give some comment on this? And is this kind of a sustainable trend?

The first question. So when we contacted the National Bank on our intentions with dividend, we, of course, also indicate to them that AG Insurance, our Belgian subsidiary, will, in principle, follow the same route. And for your information, when -- and beginning of the year, it was already a decision taken by the Board of AG Insurance to organize a shareholders' meeting to pay the dividend equal to 100% of the profit of last year. So this -- but when we, in April, decided to pay only a small part of dividend, of course, the Belgian subsidiary followed. So that's -- and again, the reasoning towards National Bank is not different from whether it's Ageas or AG Insurance. So there, we expect, of course, that timing-wise also, it is in line with our intentions to pay on the 30th of October. The profitability in Asia, I, of course [indiscernible] not in assets under management where we have a more than double-digit increase, and that's the main driver of the growth there.

If I may, back on the first question, just to also clarify, if AG pay a dividend upstream, a dividend to the group, that has no impact on the solvency ratio of AG because it is already subtracted from the solvency ratio in Belgium. So no impact.

So good to mention that, Manu, because we sometimes should highlight even more. So as well as the level of Ageas as AG Insurance and so on, we -- the dividend to be paid is already deducted for solvency. And also, with the first 6 months in the solvency ratio that had been published, we already also take into account the expected dividend over the results of these 6 months. So the -- maybe on coming back with some figures on the Asian question. So the funds under management, they increased with 10% -- more than 10% in Asia. Another element that's very important is that we have a very strong persistency rate, meaning that customers who pay the second year and the 13th monthly premium and the 25th monthly premium, which is a KPI that's strongly followed in the Asian markets, they are above 95%, as well in the bank insurance and the agency business in China. So this is why we have such an important impact from renewal premiums. And of course, the following strength of the growth of funds under management, which is on a yearly base even above 20%, if you look to our figures.

Next question from William Hawkins from KBW.

I just got one question, please. Could you talk about whether you're expecting any headwind to emerge against the Motor frequency benefits with regards to rebates? As far as I'm aware, but I'd like to know, actually sort of done the thing in the U.K. or in Belgium, so you've taken all of the benefits of the lower frequency without kind of handing any back. I'm not sure where you are with regards to mechanical rebates. You have to wait until the end of the year and then something automatically happens or where you are in sort of commercial terms. So I'm just kind of -- is this completely relevant and we can forget about it and we just think about the frequency? Or is that going to come up and say, yes, we've got the frequency, but there's more of an offset to rebates?

William, I'll pick that one. So rebates in the sense that we give premium back to the customer, that is not something we are doing. It is not also something that's kind of contemplated in the contract. Now I'm very well aware of what Admiral did, for example, in the U.K. It's not something we are considering. Having said that, what you do see, particularly in the U.K., is that the premium for new car policies is going down. And so the ABI statistics saw a 4%, 5% drop in average premium. So that is kind of, you could say, the impact of -- go with that impact the entire market. We don't have any plans to have rebates in the sense that giving premium back to customers. Yes, we have a positive from COVID in Motor, but there are also negatives, particularly on asset portfolio, as you've seen, and the other products that might be impacted. So no, there is no contractual rebate type of thing. The only thing that you could see is in some contracts, there's a kind of a profit-sharing commission with distributors. That might be an impact.

And also, again, I'm sorry, I don't know the Belgian market so well. Some regions have an automatic rebate if mileage ends up being lower at the end of the year. Are there any kind of automatic rebate...

That depends on -- that would depend on the type of product you're selling. So if you sell products that are like a pay-per-mile type of products, then you would have that. We don't have that in Belgium, not in our portfolio.

We don't have any more questions for the moment. [Operator Instructions] We don't have any more questions. Back to you for the conclusion.

Okay. Thank you. Ladies and gentlemen, thanks for your questions. To end this call, let me summarize the main conclusions. One, our results remained solid as the COVID-19 pandemic had a contrasting impact, positive on our Non-Life operations and negative on our investment results, mainly impacting our Life operating margin. Two, given our results year-to-date and the resilience demonstrated by our operations, we expect to be able to achieve a result and operational free capital generation close to our initial guidance. And this, of course, assumes that there would be no further material negative impact from the pandemic and financial markets in the coming months. Three, despite the context of the pandemic, our solvency position remains strong and so did our liquidity position. And four and last, that provided the confidence -- we provide the confidence to the Board, these figures here, to confirm the proposal to pay an intermediary dividend of EUR 2.38 per share. And the shareholders' meeting of the 22nd of October will be a meeting exclusively to approve this proposal and then to go to a payout on the 30th of October. With this, I would like to bring this call to an end. Please do not hesitate to contact our Investor Relations team if you would have outstanding questions. Many thanks for your time. I wish you a very nice day, and I hope for some of you some nice holidays. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you all for attending. You may now disconnect your lines.