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

Good afternoon, and welcome to the IFRS 17 and 9 events organized by Ageas. I suppose that many of you have already followed similar events organized by our peers. So let's not go into the basics of the framework anymore. Today, we will focus on the choices that Ageas has made under the new frameworks, on the why of those choices, on the impact on some of our well-known KPIs and on our disclosures going forward. You will be guided through these topics by our CFO, Christophe Boizard; by our CIO, Wim Vermeir; By Wim Guilliams, currently CFO of AG Insurance, our Belgian operating company, and future CFO of the group; and our CEO, Hans De Cuyper. After the presentations, as usual, there will be time to answer your questions. You can already put them in the chat for the people following virtually, while we are giving the presentations. Please could you for practical reasons, at your e-mail address. So in case there would not be enough time to include them during the live Q&A, the IR team will be able to get back to you in the coming days. After those technical issues, I will now give the floor to Christophe Boizard.

Thank you, Veerle, and good afternoon. Good afternoon to the audience. We -- I cannot see a lot of people. So it is, as I said, at start, it's a little bit like having a meeting among friends. So welcome to our friends, the one who are present. And of course, good afternoon to the one who listen to us. I have the impression, it is like a YouTube thing. We open kind of channel, and I have this impression that it is like a YouTube performance being like this on the stage. So let's start with the serious things. So first, as you know, but we are in front of a new accounting framework. At start, let's be honest, we were a little bit scared. And we said, look, we are losing all references and it will be tough to change of accounting framework. But at the end, we realized and it has come progressively with the figures of the opening balance sheet and even with the H1 figures. But at the end, the underlying economics are the same and why, is it the case because at the root of all this, we have cash flows, either discounted on IFRS 17, not discounted on IFRS 4, the basic is given by the cash flow. So no surprise that you have a lot of things which looks the same at the end. We prepared the transition and with Solvency II and free capital generation, the free capital generation framework that we have been promoting for many, many years now, give through the first KPI, operational capital generation and the second one taken into account the capital requirement, the free capital generation. We have something which gives some idea of performance, stable. And this will be a good reference for you to make the transition between the old world and the new world because everything will look the same. So that's a good anchor of framework. Second thing, no change in the dividend strategy and on economic leverage. You have seen that for our plan Impact24, we had already progressively switch to something more linked to cash. We have introduced the FCG framework, all things which are kept constant. And on the dividend, of course, nothing will change. On the economic leverage, I am thinking, obviously, on the measurement of the leverage of the balance sheet. The appreciation that will be made by the rating agencies and with all the contacts that we have recently had with the rating agency, they are fully aware that the underlying economics are exactly the same. So they said -- they told us that they are contemplating the idea of shifting the ranges, but we shouldn't expect big issues coming from the change in the leverage. Volatility is mostly introduced by IFRS 9 and not by IFRS 17, and you will see that when we define this new KPI operational results, operating results, most of the restatement vis-a-vis the IFRS 17 result relate to IFRS 9, and not IFRS 17. The economic view on shareholder equity, you will see that we can rather easily explain the bridge between the shareholder equity, IFRS 4 and the shareholder equity IFRS 17 with specific comments on what we call the soft equity, the unrealized capital gain, which appeared in the OCI and which will be compensated in IFRS 17 by the remeasurement on the liability side, but we will enter into more detail later on in the presentation. Let's have a quick look on the situation of the group. We are in a kind of a very specific situation, with this mix of consolidated entities, mostly the European one and the NCPs, the noncontrol participation, the joint venture, mostly in Asia, and as say the name, NCP, we don't control. And on the one hand, we are faced with the fact that in some countries in Asia, the starting date of IFRS 17 is not January 1, 2023, it is postponed, mostly by 2 years in 2025. But on top of this, since we don't have the control on this, we cannot impose on these joint ventures, operating entities to do the full exercise according to our own schedule. We have work stream in place, but we cannot impose whereas for other peers having full control everywhere. They can say, look, disregarding the official start of IFRS 17, we ask you to do the work so that everybody be ready by January 1, 2023. So we have this dual approach. On some entities like China, Thailand, Malaysia and Türkiye, we start like in Europe, January 1, 2023, no problem. We will get all the data. On the others, and here, you will have India, Thailand, the Vietnam, Philippine, the starting date, as I said, is postponed to mostly 2025. In that case, the fallback scenario is to take IFRS 4 figures, knowing and you will see that later on that the differences are not so huge. And even besides the technical differences, we -- what enters into play is the materiality threshold, and we are in contact with the auditors. We are doing some impact assessment and the feedback we have received is that it is something we can do. So to take into account IFRS 4 figure for these entities, which are, let's say, smaller in comparison to others. Today, when we will develop all the technical aspects, we will mostly focus on consolidated entities, and we will give some info on the others, but still subject to change because there is a little difference -- there is a small difference in the state of the different work stream between the consolidated entities and the joint ventures, not starting in January. Well, as I said in my introductory words, the shareholders' remuneration framework is not changing. So you know that among the objective of Impact24, we have given relevant status on the holding free cash flow, the IFCF, which is meant to arrive in the range EUR 1.7 billion to EUR 2.1 billion. This is completely unchanged, and we will go through the whole Impact24 exercise without any impact coming from IFRS 17. As I said, we have OCG, OFCG in support, no change. And it is something new that will be developed further in the presentation. We have this net operating result concept, which is -- which will be the main KPI, giving the best view on the performance under this IFRS 17 framework. The restatements are rather straightforward to arrive at the net operating result. We start from the result, the IFRS 17 result, and we restate mainly by 2 things related to IFRS 9. The first thing is we reinstate the capital gain realized on equity which are seen as and considered as recognized fair value to OCI. And then we also restate the fair value to P&L. And these 2 things being restated, we arrive at the net operating result, which will be the base of our future communication regarding IFRS 17. Let's have a quick look on the opening balance sheet where we have a rather stable figures. Now here, we have the full group. So we have a consolidated entities plus the joint ventures under IFRS 4 for the sake of completeness. Shareholder equity, excluding unrealized capital gain and losses, EUR 8.1 billion, and we have this unrealized capital gain and losses of EUR 3.8 billion, mostly coming from the fair value adjustment on the asset side with interest rates being low. You remember that the opening balance sheet is as of beginning of year 2022, so the rates were still very low. We had significant unrealized capital gain on, for instance, the bond portfolio on the asset side and the fully and recognized on the liability side through the unrealized capital gain and losses. In the opening balance sheet, IFRS 17, this unrealized capital gain, they don't disappear. But you can see that from EUR 3.8 billion, the OCI will go down to EUR 0.5 billion, so a big decrease. And the big decrease comes from the fact that we have to remeasure the liabilities, and with the techniques taken to do the opening balance sheet. We have to take into account the past. And in that case, even the decrease of interest rate means that you have increased liabilities and a loss on the OCI, and this is, this remeasurement of the liabilities, which decreased this OCI, and we are left with EUR 0.5 billion. So that's, I think, one of the main simple message. What we have here is kind of resynchronization between asset and liability. You remember that it was, I think, in 2004 or 2005, starting from a world where everything was at historical cost. The first step was to do market value adjustment on the asset side, and this increase in OCI with decreasing rates. Now we could say that we complete the process of having a full kind of market value of the balance sheet with this remeasurement of the liabilities and the introduction of the discounted cash flows and the discount on reserve. And so we have now synchronized the 2 sides of the balance sheet. And in the future, if you have decreasing interest rate, you will have increased value on the asset side and a plus on the OCI compensated with decrease in interest rate, more liabilities offsetting part of this. So we have a kind of matching. And if you have not a lot of duration gap between assets and liability. You should have kind of nice compensation between the 2, hence, UG/L and more stable shareholder equity. Then a quick look on what balance sheet looks like. So on the left-hand side, you have what we used to see before. So investment, all the technical liabilities, life and nonlife with shareholder equity. Now you have IFRS 17/9. So on the investment side, IFRS 9. On the liability side, you have here the split between the insurance contract with the discounted future cash flow, the risk adjustment, which is now more precisely measured. The CSM and then on top of the investment contract, so what is not insurance related and at the end, the shareholder equity. At this stage, it is a nice introduction to the 2 next speakers. So on the investment side, Wim Vermeir, our Chief Investment Officer, either for the group and for AG, will explain the main differences. And then Wim Guilliams will take over for the pure IFRS 17 side, the liability side. So as Veerle said, so Wim will be -- is the future CFO of Ageas. I think you have read the press release issued a while ago. So Wim is a big -- is one of the best experts for sure at the group level on IFRS 17, IFRS 9, I would even say beyond the scope of the group because Wim is leading some work stream at the CFO for home level. So even at the industry level, Wim is really recognized as one of the best expert. And on the top of this, in your previous life, as mentioned, you had a lot of experience being even CEO. And so your CFO and at one stage in Eastern Europe, you were CEO, which is not so common for a CFO. So congratulations, Wim for this nice career, but you have a lot in front of you. Now I leave the stage to Wim, the first one, the first Wim and then after Wim, you have Wim. Thank you.

Thanks, Christophe. I would like to start with the disclaimer. I'm not an expert on accounting. I'm a little bit surprised. I gave a presentation on accounting, but this is about investments. So there, it's within my comfort zone. And I would give -- I would like to give the practitioner view from the investment side of what is the impact of the, I would say, the switch to IFRS 9. So let's start with the view on the investment portfolio. So in the old IFRS view on the left, you see we had 70% in fair value through OCI and 30% in amortized cost and a whole to maturity. In the new IFRS view, we have 88% fair value through OCI, 8% amortized cost and 5% fair value through P&L. So let's discuss line by line, I would say. So this is an increase in fair value through OCI. Main contributor is the fact that whole to maturity doesn't exist anymore. And so the bonds that we held historically in whole to maturity are switching to fair value through OCI. Amortized cost, 8% actually nothing changes there or let's say, the amortized cost, we still have is the part on real estate. And this is no change because this IFRS change has no or very limited implications for our real estate investments. So the 8% you see in amortized cost is like before the contribution from our real estate investments. And then we have indeed the new kid on the block. That's the fair value through P&L, which is for the total portfolio, 5%. You know there that there are 2, I would say, contributors to this fair value to P&L. It's the fixed -- the part of the fixed income portfolio where there are options in and where you cannot have a perfect view on the cash flow. That part is very limited for us. So 99.9% of our fixed income portfolio is SPPI. So that's not a contributor there. The contributor, as you see on the second bullet point there is coming from the funds. Most of our investments are directly, but I will say, the more complicated asset classes like private loans, infra equity, private equity, sometimes ETFs on quoted equities, well, there's no choice. They are fair value through P&L. And that's explaining, I would say, 3% of the 5%. So we have no choice there. And on top of it, we have 2%, there's the last bullet point, where we have decided ourselves because you have the option to have a fair value through P&L treatment. That has actually nothing to do with, I would say, the kind of assets. It has to do with the fact that these assets are linked to a specific fund where also the liabilities are fair value to P&L. So it's not creating. So this 2% is not creating any volatility on I would say, the total level because the volatility, which is coming from the asset side is completely compensated by the volatility coming from the liability side. That's the, I would say, global view on the portfolio, actually pretty limited. Anyhow, as Christophe already said, there is -- nevertheless, in this IFRS 9 framework more volatility. And I would say the 2 contributors are expected credit losses and then fair value through P&L volume that has increased. Expected credit loss. You know the concept is like the best estimate of the losses you will have on your fixed income portfolio. It is volatile because it depends on the credit quality of your portfolio and this credit quality can evolve, as you all know. And on top of it, this best estimate is also taking into account the, I would say, economic environment where you're in. So that will also evolve. So there will be some volatility. But given I was said, and that's not the first time I'm saying this, but given the fact that the overall credit quality of our portfolio is very positive. It's very good. We have 97% of the fixed income portfolio, which is investment grade. The total amount of this is limited. We are talking about a maximum amount of EUR 100 million, which will fluctuate a little bit over time, but with limited fluctuations. The second source of volatility is the fact that, indeed, we have some of our assets that are, I would say, mandatory, that's the famous 3%, not the 5% because there the 2% is compensated by liability movements. But 3% will create some volatility on the P&L. But indeed, it's limited, it's 3% of the total. And I would say the assets we have there are mainly fixed income, infra equity, private equity. So it's like a kind of mark to model. So don't overestimate the volatility of this part of the portfolio, either. And then one, I would say, [indiscernible] mark, I think it's very important. You could say, okay, in the new IFRS framework, there are no realization of cap gains on the equity portfolio. We will still continue to realize cap gains on equity portfolio, not for the IFRS framework. But for, I will say, the local accounting framework, they still continue to be very important, I would say, both for our clients and both for the shareholder of the opcos. For the clients because there, it's, I would say, a very important factor to determine the profit sharing for the shareholder because, okay, it creates the dividend capacity for the local opcos. So their realization on -- of cap gains on equities. Even if it doesn't exist, I would say, in fair value to OCI in the IFRS framework will still be something we will monitor, I would say, in our operational business. This for the volatility on the P&L. On the total balance sheet, that's basically the impact. So if we look at the value of our portfolio, in the old framework, our investment portfolio, we are EUR 71.8 billion. If you look at the value of this portfolio in the new IFRS framework, we're going at EUR 73.8 billion, so a plus of EUR 2 billion. Where is it coming from? I will say the main and the only contributor is the reclassification from hold-to-maturity bonds towards fair value through OCI. I mentioned in the beginning, these are some government bonds, Belgian government bonds, mainly a little bit of Portuguese government bonds that we decided was during 2012, I think to keep in a hold to maturity and they now go to fair value through OCI. And that's giving a plus of more or less EUR 2 billion. The 4 other, let's say, contributors are smaller and are more or less compensating each other. The first one is coming from impairments as you know, impairments do not exist anymore in this framework. So the impairments we had historically on the equity portfolio, we have to reverse. And that's giving a plus of more or less EUR 120 million, EUR 130 million. So a small but positive impact. The second part there is coming from the classification to fair value to P&L, once again, 95%, 99% is coming from investment funds. There again, we have a positive fair value impact of more or less EUR 150 million, not a big amount, but nevertheless positive. The third element is the expected credit loss, more or less EUR 100 million, as I explained. And then the fourth one is a little bit a special one. That is coming from the policy loans. So it's a type of loans, people keep base stake based on their, for instance, reserves they have in the group insurance. In the old IFRS framework, this has been considered as an investment as an asset. The way it's now being treated is in a new IFRS framework is becoming a negative on the liabilities. So it's going out of my "investment portfolio" and is going into a negative of the liabilities. And that's having a negative of around EUR 400 million. And so as I said, the only important impact we see is coming from the reclassification of the hold to maturity bonds towards OCI. And there's a EUR 2 billion move you see and all the other movements are small and compensating each other. And that brings me to the conclusion. So we prefer the OCI option for the biggest part of our portfolio, also the equities. We have some new elements on our P&L. Expected credit loss is one part, but do not overestimate the impact. It's more -- it's a little bit volatile, but to a limited, I would say, amount. There will be some more volatility, but once again, no big changes. And indeed, overall, on P&L and on balance sheet not a big change. The question I received yesterday from a journalist is IFRS changing your life? Well, based on this figures you see that it doesn't change the view we have structurally on the investment portfolio. In, I would say the type of instruments we use are the vehicles we use to invest. It can maybe be that we, from time to time, opt for a more IFRS friendly, I would say, version. But basically, fundamentally, it will not change our investment strategy, which is based on what we see on the markets and our ALM view. So this will be not a big change. But that's also because the changes on the asset side, I think, are not that importance on the liability side, and I look to the other Wim, there are more important changes. So I'll leave the floor to Wim Guilliams.

Thank you, Wim. Good afternoon. As Wim mentioned, I will first talk about the impact on the liabilities. And then as we've already seen the impact on the investments, if you combine the impact on the investments with the impact on the liabilities combined, that gives you the impact on the shareholders' equity because, of course, that's the counter item of all the movements we are talking about today. We're talking about transition impact. You will see a lot beginning of year 2022 because the transition happens at the beginning of the year so that we can prepare a comparative year of results over the year 2022. Yes. For this also on IFRS 9, we will also do a comparative period over 2022 to show a good idea of how the results will look like under IFRS 17 and 9 combined. But before entering into the impact on the liabilities, I would like to take a moment to explain the measurement models that we take. So what is the impact of our contracts, what that has impact on our measurement models and maybe highlight the most important accounting policy choices that we have taken. On the measurement models, as you know, there's 3 measurement models that have been defined in IFRS 17. The one called building block approach or general model, which is basically the default model, the starting base of the IFRS 17. You have the variable fee approach, which you have to mandatory apply when you have a clear link with an underlying. If you share substantial returns with the policyholder and if you have what they call a determinable fee. So that is an indication of what is the fee that you're applying in your products in the way you set the bonus, the way you allocate the profit sharing. And then the third one is, of course, a simplified model, which is called the premium allocation approach. In this overview, you see on the left-hand side, the measurement models that we're applying for our Life book on the right-hand side for the Non-Life book. We try to give a bit of an indication. We've used the technical provision as a kind of waiting to give you a feeling of the importance of the different measurement models that will be applicable and here in the beginning of the year 2022. Always for the consolidated entities at the Ageas share is what we present here. You see immediately the importance of the BBA approach, 71% is in BBA. And then I need to clarify a bit. We have with profit business. We have a lot of profit business, but we have with profit business in Belgium, which is fully discretionary. What does that mean? Fully discretionary means that we don't have a commitment on the underlying, and we don't have a commitment on the terminal fee. That means it doesn't comply with the requirements of VFA, and we have to account it under BBA. So the fact that we have more freedom degrees in setting the profit sharing means that we have to account for it in the BBA. We will explain later in the presentation that, that doesn't have much impact on the results as such. It will be more impacting the way you have to look at results and how you have to combine some items of the income statement to, for example, compare with the VFA product. The other element that I need to highlight is, of course, the important as you see of IFRS 9, which is primarily the Unit-Linked business. And we have a Unit-Linked portfolio in which we don't have a significant insurance risk. So there is no insurance risk linked to the Unit-Linked. At that moment, you need to account for that as what they call an investment contract under IFRS 9 and we account for that at fair value to P&L. I even have to go a step further that our Unit-Linked business of the consolidated entities I'm talking about here is in different measurement models. The majority is under IFRS 9, but we also have Unit-Linked businesses under the premium allocation approach. Why under the premium allocation approach because we can reprice at any year, the fee that's applicable on the Unit-Linked and also reprice the risk coverage that are applicable. So we don't have a commitment. It's a long-duration contract, but we don't have a commitment on the fees and the risk prices. So we can account for that SPA, which means that we have a profit signature very comparable to what we do today and very comparable to what if you account for it under an IFRS 9, contract? So that's important to say. We have a more limited VFA book, which is more linked to the business we have in France. And then you have the different pie of the split of the weight of the different management model. On the right-hand side, you can see the measurement models for the Non-Life. We are waited here based on the inflow to give you a feeling of the importance of the different models. And you see there the majority 94% is measured under PAA. We have 6% measured on the BBA, and that's for those products in which we have a coverage period of new year, all which for the products for which we find that if we model them as BBA, measure them as BBA, we have a more stability in earnings, because certain market volatility means in the BBA, you can read that as underline gains and losses. The name we are using for the OCI and such have a better matching with the inflation hedge, market hedging we're doing on the asset side going forward and that's especially the individual health and the workers' compensation business in Belgium, which will be measured under BBA. That brings me to the most important key accounting choices. We're using the graph of the beginning where you have the balance sheet to guide you a bit on the most important messages, and we go on the right-hand side where you have first or investment contract liabilities. I would like to highlight them again. These are the products, life contracts for which you don't have significant insurance risk or you have no discretionary participating features. At that moment, IFRS 17 is not applicable. We're measuring them under IFRS 9 and under IFRS 9 at the liability side, you have to measure them under amortized cost of fair value to P&L. For us, this category is mainly the unit linked at fair value to P&L. And then you have the IFRS 17 building block, you have the discounted cash flows, you add a risk adjustment for uncertainty and you have the CSM, which is that earned profit, which is on the balance sheet. With IFRS 17 at day 1, we do not recognize a profit. But day 1, which means that you have a kind of discounted value on the balance sheet, which you then releasing over time as service is provided. So you have a discounted value created by the sales of a contract. You put it on the balance sheet. And then based on the coverage unit, you're releasing that over time as a contribution in the P&L going forward. That's what they call the contractual service margin. Of course, the moment you do a transition and you have a contractual service margin, which is the unearned profit of all the contracts sold in the past, you need to know a transition moment what's that amount on your balance sheet. And the movement of that amount is a bit dependent on what happened in the past. And for that, they need to define transitional approaches. And they have defined in the text 3 transitional approaches. The one is the most obvious one. You do a fully retrospective approach as if you have always applied for IFRS 17. We will be doing that in Life from the year 2018 onwards and for the Non-Life business from 2016 onwards. But you cannot mention already the complexity to do that. You don't have always the data, you that may start using high insights and so on. And for this, you can have more simplified transition approaches. Being a modified perspective, we will apply mostly for Non-Life or a fair value transition approach. What does it mean fair value? It means you calculate the fair value, you compare with the new discounted value that you have according to IFRS 17 and you can derive a CSM. Now to derive that fair value, we use discounted cash flow and models based on cost of capital, and we provide additional comfort by having metrics analysis to make sure that, that calculated value is in the range. And based on that, we can derive to CSM. The fact that, that CSM gives the kind of a historical margin in line with what we've seen in the past gives us comfort that, that's an okay transition openings balance sheet to use, yes. So that's the comfort we have created. You can, of course, you ask the question, why do you use fair value transition and not modified respective approach? Yes. The reason is simply in the early days of IFRS 17, it was very clear that it would be an approach much easier to use retrospectively aligned with the fair value to OCI preference. Of course, later on, that was also clarified for the modified retrospective approach. But that's why we early on opted for that fair value approach. The second component that you see is the risk adjustment. This is kind of an allowance for the uncertainty. So you model cash flows going forward, you discount them and you add a kind of an allowance for uncertainty risk adjustment. What is sure is that you need to disclose the confidence interval. Yes, there's one disclosure that's mandatory is the confidence interval. So we kept things simple. And we said we're going to use that confidence level method at 75th percentile, both for Life, Non-Life and we will use that to drive the risk adjustment. Brings me to the first building blocks, but the last one in the graph is the discounted cash flows. The cash flow models, which are based on Stochastic models, which are fully aligned from a calculation perspective with our Solvency II models. But you should know that they can be different than what they call contract boundaries. One easy example in Belgium, you don't give a guarantee of future premiums. From a risk perspective, these premiums are not modeled. So they're not included in Solvency II. From an IFRS 17 perspective, you need to include all cash flows until you can reprice the full contract. So you need to model them. So how do you model them? You model them stochastically then risk-neutral arbitrage freeway. So they're rightly priced in the market, but you need to take them into account. So that can give slight differences in the cash flows between Solvency II and IFRS 17. Here, again, I mentioned our preference for the OCI option, what Wim also mentioned on the investment side. Why do we want to take the OCI option because we feel that it gives a better view to take out a temporary market volatility as that moves to the shareholders' equity in what is not OCI, but what we call unrealized gains and losses. So, you have that movement that separated and you get a view on a profit and loss, which gives a more view on how is that evolving over time? It's a bit the same what we do in the free capital generation framework, where we also calculate an operational free capital generation to be able to take out the temporary market volatility to show you the underlying trend in the numbers. And then the discount rate, we kept it easy. We aligned with the Solvency II Ageas Pillar 2 methodology, and we use the same discount rate going forward. So that a bit as an introduction on the measurement model and the key accounting choices. And that brings me now to the impact on the opening balance sheet. Let's first look at the life liabilities. We start using the name Life liabilities because we want to refer with Life liabilities both to insurance and investment contract liability together. So we refused a neutral terminology when we refer to both combined, again, because for us, in unit linked, the investment contract liability can have an important impact. What we show in the graph on the left-hand side is the technical provision plus the unrealized gains and losses as they were at the beginning of the year 2022 under IFRS 4, unrealized gains and losses in debt world were the shadow accounting results. You had the EUR 2.2 billion was the shadow accounting results that you've seen before. Everything is here at Ageas' share. So it could be that you need to look at Ageas' shares views of the past. So these are the technical provisions that shadow accounting that you know before, and we move now to the IFRS 17 world. And we have a current value. Current value means that these liabilities are calculated with all current parameters, yes. Current parameters can refer to cost parameters, can you refer to mortality, morbidity parameters, but also refer to current market parameters. And those you need to include to calculate your life liabilities. And this was one of the big goals that Ageas be had in mind when they introduced IFRS 17 and that if you look to the face of the balance sheet, you can see the fair value of the liabilities on the balance sheet. It's called current value, yes, because it's not the same as a fair value in a transaction and you use some company specific parameters, but everything which is market parameters are the market parameters that they are available in the market. What you see on that Life liability side is, again, that we make the split between the unrealized gains and losses and the others. And that's quite similar to what you see on a bond on the asset side. When you purchase a certain bond and rates go lower, your purchase yield stays the same, but you create at that moment, unrealized capital gain and loss that we can show separately. The same happened on the liability side. You sold contracts when the rates were higher, rates go down, you get an unrealized gain and losses that you can show separately. You have the different building blocks that we mentioned. You had a calculated best estimate on a discounted basis. You have the risk adjustment that you had. You have that CSM, unearned profit, and you calculate that at current rate. On the balance sheet, you always want to use the market situation at the moment of reporting. That's what called current rates. But underlying, because we take the fair value to OCI option, we also have the historical rate/curves that we can use to drive what was the situation at the moment of initial sales. And that difference gives these unrealized gains and losses. What's now interesting to see, if you make abstraction of these unrealized gains and losses, both in the IFRS 4 and the IFRS 17 side, IFRS 4, shadow accounting, IFRS 17, the new unrealized gains and losses that we defined. You make abstractions of that. You see that these life liabilities, excluding UG/L, are quite similar, which means that the transition impact will be mostly an impact on unrealized gains and losses. But remember, we're evolving to a world in which we will have better matched unrealized gains of assets and liabilities. And I will come back to that later on. But this is the Life movements, which are the most important to see. A more important movement in the unrealized gains and losses and a limited movement on the other elements. Let's now have the same view on the Non-life liabilities. On the Non-Life liabilities, what happens is that from now onwards, in IFRS 17, all claims liabilities called liability for incurred claims have to be discounted. Now it's not that we don't discount today. We have today claims liabilities, long-term claims liability that we're discounting. But we have also a big partner that we're not discounting the shorter-term claims, we're not discounting. But if you look at claims in health and workers' comp, these we are already discounting today. Again, when we move to IFRS 17, we will have a current value kind of a value taking into account the current market instances, which you could call fair value, but the current value is the terminology of IFRS 17, which takes them into account and create also on the Non-Life liabilities and unrealized gains and losses. At the moment, we have a claim being recognized, we lock in the curve at the moment of the claim recognition. That stays fixed. If afterwards rate starts moving in the financial market, you get an unrealized gains and losses. If rates decrease, you get a positive realized gains and losses, which you see here on the right-hand side of the graph. Risk adjustment I already mentioned, this is an allowance for uncertainty and replace in a sense, the reserve surplus that we've known under IFRS 4. And I should mention that we will have a negligible CSM because the majority of our products at our PAA. Let's then look on the left-hand side to show you a bit what is the transition impact. Yes, left-hand side, you see IFRS 4 data. And if you look at the underlying components of the claims liability, you see that we were already discounting before. You see that we had a reserve surplus before. As we move to IFRS 17, the biggest impact is that creation of the unrealized gains and losses. Now this can give an apparent very stable movement according to transition. What happened in reality is that under IFRS 4, we only discount our long-term claims, mostly at return on assets or real rates, and we do discount the short-term claims. Today, in IFRS 17, we will discount all claims in a similar, consistent way. So that means we will have a consistent discounting across all business segments across all product groups. Reserve surplus in detail. In the past, reserve surplus under IFRS 4, we had some product groups with high reserve surpluses. We have product groups with lower reserve surpluses. Now going to IFRS 17, we will get a consistent framework in which we will have the same risk adjustment confidence interval across all product groups. And at transition moment, the impact is limited. That is the measure. If there is an impact, it's on the unrealized gains and losses. So now we've went to the transition impact of investments. We went through the transition impact of the liabilities, Life, Non-Life. Now we can bring everything together because all these transition impacts, they have as a counterbalancing item to shareholders' equity. And you've seen on the investment side, the movement of the UG/L that these are the biggest movement. If we bring them together on the left-hand side, you see that we arrive at this EUR 3.3 billion decrease that we have in the shareholders' equity and this is due to the unrealized gains and losses. So this is the graph you saw also in the beginning from Christophe, and you see now where the different movements are coming from. If we take the other elements into consideration, which is the other block, you see that, that's a more limited impact, yes? So we have a movement in the shareholders' equity. But if we look at the shareholders' equity, excluding unrealized gains and losses, and we exclude that to be able to clearly illustrate the impact of the different components, you see it has a limited transition impact. If you look even to the block other it's good to highlight that most of that other is impacted by the fact that we've taken the decision to immediately expense the acquisition costs linked to PAA products. You can ask why have you taken that decision. The reason is, if you work with multiple entities, NCPs, it's, of course, easier to not account for a DAC than to account for a DAC, which is not calculated. So it's a pragmatic solution. What you also have is you have a rule that says, if you do acquisition costs, you need to also account for pre-contractual acquisition costs. So it's not only for the running contract, but it's also for the future, the renewal rates, which means you get a whole system of impairment testing and judgment which we found complicated to put in place. And the third reason on a yearly base from a P&L point of view, it doesn't have so much impact because it's only on the movement of your premiums that it's played, so it's rather limited. It can have a bigger impact on the half year basis, but on a yearly basis, it's quite neutral going forward. So this is the whole transition impact in the beginning of the year and how it has impacted the numbers of the consolidated entities. Now one of the items which is important to stress is what we see happening in 2022 is a nice year to illustrate that is that we will have a situation in which we will have a more stable development of our shareholders' equity. And this has to do with that more consistent discounting of assets and liabilities. And we illustrate that on the right-hand side with what happened over the first half year. It's always important to stress that if we show here IFRS 17, we only do the impact for the consolidated entities. So we do only the changes for the consolidated entities. We have still NCPs, which are continue to be accounted in here under IFRS 4 IAS 39, yes? But if you look at what happened over the first half year and you take the top graph on the right, you see that there's a big movement in the unrealized gains and losses under IFRS 4 beginning of year and end of year. What happens? You have the unrealized gains and losses on the assets which are moving fully in sync with the interest rate movements. And on the liabilities, we have a shadow accounting, which can be negative. So per definition, the moment your shadow accounting becomes negative, you get an estimated treatment of the unrealized gains and losses in your shareholders' equity, yes? And that explains that drop that you see in that shareholders' equity. If you take it one step further in Q3, we even got unrealized gains and loss, which became negative. So you see the imbalance in the system in IFRS 4 IAS 39. If you take the view of IFRS 17, you see that the movements are far more little. You see that the unrealized gains and losses is much more stable, especially if you know that more than half of that movement is coming from the NCPs, which have stayed at IFRS 4 IAS 39. So you see that as a more stable, more balanced development of these unrealized gains and losses in the new framework IFRS 7 -- 17, IFRS 9 than what we have today in IFRS 4 IAS 39. This is what I wanted to share about the transition impact. So you saw investments, liabilities came together in shareholders' equity. You see a more stable development over shareholders' equity in the new framework than in the past. And I would like to use this moment to maybe add a new concept that we think is important to look at what we call the comprehensive equity. Comprehensive equity on the right-hand side is the total of your shareholders' equity, which has the components that you know either share capital or the reserves that UG/L on assets and liabilities, the shareholders' equity as it's reported. And we think you should add the CSM after tax what we call a comprehensive equity. Because we think that, that will provide a more economic view on the equity position of the company. Now to be fully comprehensive. We also want to highlight that you need to also add what we call non-recognized unrealized gains and losses on amortized cost investments and the mainly real estate. So remember, we do an asset side, which is all shown at fair value, except for that real estate part, which we are booking at amortized costs. So our investment properties are amortized cost. That means that there are unrealized gains and losses, which are not expressed as part of the shareholders' equity. So we add them also to come to the defensive equity. That's an amount after tax a share of Ageas' of almost EUR 1 billion, yes? In the past, we also disclosed EUR 2 billion, EUR 2 billion is before tax and at 100%. So if you bring that to the Ageas' share and after tax, you come to that EUR 1 billion, yes? We deduct also the goodwill and intangible to be fully complete. Of course, not the intangible linked to [indiscernible] concession because there's tradable values linked to that. So this is how we come to comprehensive equity. We find that this will provide a more economic view on equity. And if you ask us from a financial leverage perspective, IFRS, what will you look at, we would also prefer to look at that in relation to the comprehensive equity. But we're fully aware that this needs to still develop because rating agency also are waiting for some numbers to look at it and to have an opinion. Of course, it's not that an accounting change will change the creditworthiness of a company, but it can be that to what is being looked at, what's the reference that could change going forward. Comprehensive equity has another advantage. It will allow us to better reconcile with the solvency available capital. You know that as Ageas, we introduced the group-wide view on the solvency available capital and how that moves from one period to another, yes ? It's a capital generation framework, which will make the distinction between the operational capital generation, operational free capital generation, the penny on what you look at and the market move, yes, that's a movement analysis that we provide at every reporting moment. The right-hand side is the available capital as it was disclosed in the beginning of the year, EUR 17.7 billion plus EUR 0.5 billion. If we say the same group-wide view, what we will do in the future is provide the reconciliation at the beginning of the period and the end of the period with that available capital. If we build it up, we start on the left-hand side with the shareholders' equity. We have to add these non-recognized unrealized gains and losses, as I mentioned, because we're booking at amortized cost real estate there is an unrealized value that you can add up, especially in the consolidated entities in the Belgium portfolio, but also in TPL portfolio, you will have that phenomenon. Next, we're going to add up the CSM after tax, for the consolidated entities and for the noncontrol participation. And then we deduct the goodwill intangible and we come to that comprehensive equity. And actually, we can reconcile between comprehensive equity and our available capital. And you see immediately that one of the big reconciling items is, of course, the sub debt, which is part of the available capital, which is not part of the comprehensive equity. Other reconciling items are, for example, the difference between the risk margins on the Solvency II and the risk adjustment. You know that we, as a sector, feel that the risk margin is set rather conservatively. So we said the risk adjustment, which is more in line with what we think would be a more acceptable one, which means that, of course, you have a negative difference between comprehensive equity and available capital. And you have other valuation differences. I mentioned already that Unit-Linked is as an investment contract. That means that we don't have a value assigned to that in comprehensive equity, while in available capital, we will have a value, yes? Under IFRS 17, we are not looking at full costing where we're looking at full costing under available capital. So these non-attributable costs, as they call it, they could also give a difference between the 2 frameworks. You have PAA short-term life contracts, which can have a value under available capital, which we don't have necessary value under comprehensive equity, which don't have a value on the comprehensive equity. And you can have other differences, eligibility differences between the 2 frameworks. But you can then start reconciling. But with this, we gave already a bit of a directional view on how we think that this reconciliation will look like. And so to highlight that the biggest reconciling item is the subdebt. So we did the transition. We explained a bit what is the impact of the transition for the consolidated entities. We introduced the concept of comprehensive equity. And now we would like to talk a bit about how will we look from a management P&L view in the future to our results? And what will we share with you so that you are even better able to understand the different resort dynamics of Ageas. So what is the performance measurement system that we will put in place going forward. And Christophe highlighted already this central slide, which combined the whole performance metric system that we are using, which is not fundamentally changing. We introduced a net operating result, as Christophe mentioned that replaces the net result, but our whole capital generation framework remains unchanged. We have Solvency II as a guardrail to come to the free cash flow that is being generated. Let's now zoom a bit on that IFRS like that net operating result and what do we actually mean with that and how we will look at that going forward. And you will see if we put that in place, that also the key operating drivers don't fundamentally range going forward. Going from that result to net operating result. On the left-hand side, we have the net result on top. And you know today, we're already adjusting for RPN(i) movement, which are noncash movements, we're already adjusting for them when we are explaining the results. Wim has highlighted that it's primarily IFRS 9 that's giving volatility, yes? And he has already highlighted the elements that are creating the volatility in the P&L. What we will do to go from the net result to the net operating result is adjust for these noncash items, we have fair value to P&L instruments, which are mandatory fair value to P&L, which means that they are not accounting-wise being neutralized. Those movements, annualized gains and loss movements we're going to neutralize in the net operating result. The second item we will adjust is for what we call the realized gains and losses on fair value to OCI equities. Why? These gains and losses will be recognized as part of the shareholders' equity. At the moment we lock them in, they move from OCI, unrealized gains and losses to return earnings in your shareholders' equity, yes? So they're final. They become a kind of a cash element because you've received the cash on the account because you have sold the equity. We use these realized capital gains and losses, as [ Wim ] mentioned, in Belgium, for example, to give profit share. So not taking time in account, we give you an imbalanced view. We also use them to create distributable reserves. So not taking them into account, it means that we miss a kind of source for creating the distributable results. So our net operating result is a kind of a distributable result creation base, in which we take out the temporary market volatility elements. That's a bit the same we do with operational free capital generation, where we say we take out the temporary market volatility, and we allow you to have a base to see how you see that evolving over time. That's the net operating result. Of course, going forward, expectation-wise, it's not that we think that through the cycle, these fair value movements will be so substantial, but you could have a year that they have an impact on the results. So it's very good to already exclude them to see how they evolve going forward. That's the basic idea behind it. Realized capital gains and losses on fair value to equities are different. If we don't account and include them, we will miss something, which is creating distributable results and which we find useful to add. When we talk about net operating result, also something we have to mention, we are going to make it a full costing view. In the new way, the income statement is being built under IFRS 17 and 9, you will have what they call non-attributable costs. And these non-attributable costs, you will find under other expenses, and they can be sometimes sizable. They're not sizable because they're all insurance-related non-attributable costs, but they can be also investment-related non-attributable cost. Imagine when you invest in shopping centers, when you invest in senior houses, when you invest in car parks, you fully consolidated these activities and you get some operational costs in these other expenses. What we will do is allocate them to Life and Non-Life. We allocate them to the insurance component of the result or we allocate them to the investment component of the results, where the offsetting return on assets are in there, yes? So we will allocate so that you have a full costing view in the net operating result. Also, like we already started introducing some time ago, we do that at Ageas share, so that you can see how it evolves. We will not have minorities, we will allocate the minority. It makes life so much easier without the specific accounting items that we take. One of the big advantages of stepping in IFRS 17, 9 world for Ageas is that we know that over time, the NCPs will move to IFRS 17, 9, yes? So we will have consistency and transparency in how we can look at results. That means also that over time, we can present them in the same way from a management P&L perspective and in the same way that we look at operating metrics. So that's one of the big advantages. We will speak the same language, yes? Today, if you go to different countries and you look at P&Ls of different life insurance in different countries, first, you need a translation table to know what is exactly mentioned in the row. That will ease because we will have that consistency and transparency in how results are presented. So net operating results will consist of the Life net operating result, the Non-Life operating result and the general account and net operating result, as you do know today. So let's first have a look at that Life net operating result. That Life net operating result, at first, is -- consists of the operating insurance service results, which in the past, you would see as a more net underwriting result. We reuse the terminology of IFRS 17, so it's an insurance service result. But we add operating to indicate that this is including the non-attributable costs. If you take out a non-attributable costs, you come at the insurance service result as it would be reported. But again, we will do everything at Ageas share. We will assign the minority, so that's easier to read. If you look at the components of that operating insurance services result, one of the more important one is, of course, the release of the CSM. At initial recognition, you sell a contract, you have the discounted value, which is on the balance sheet, and then you release that CSM over time. That's your first P&L component, release CSM over time, you see it on top. But you have also products which are accounted for under the simplified model, premium allocation. For those who will have a result because they don't have a CSM, you have the result as in the past, you have a risk premium you ask and you have claims that you pay. The result on the short-term Life PA contract. But it's good to stress that short-term Life doesn't mean short-duration contracts. These can be long-duration contracts, but repriceable. So if you have the flexibility to reprice, it becomes short-term Life contracts. Non-attributable costs I already explained. And then we have the other income and expenses, where we have the release of the risk adjustment, is one of the important components, and then experience variance between past and current services, the difference between expected and incurred will be part of that. We, of course, provide the split, which is also available in the income statement. And you have also the reinsurance result, which will be one amount item, which you have the income minus the expenses linked to reinsurance contract. Of course, not taking into account the financial expenses linked to reinsurance, which were part of the investment result. That's the operating insurance service result. Then we go to the investment result, which will, for Ageas, for the consolidated entities, be an important amount. You remember that in the beginning, I said that our with-profit contracts will be measured at BBA, yes? If they are measured at BBA, that means that your CSM is a kind of a risk-neutral margin you lock in at the start. And that means that going forward, you will have a difference between the result that you make on the assets compared to the unwind of the discount on the liabilities. And you could consider this a kind of real-world margin that we referred to already today, that you will see appearing in the investment result. You don't see that for a VFA contract. You don't see that for a VFA contract because the principle of IFRS 17 requires that for a VFA contract, all these movements, all these difference first pass through the CSM and then are recycled by the release of CSM. So that real-world margin, you will find more in the release of CSM. Therefore, BBA contract, you will find that in the investment result. Then we have the result on surplus assets. This is a renaming of the world. This is what we previously called the non-allocated income and expenses. But as this is mostly result on surplus assets, we will start calling it like that. Minus tax, gives you the Life net operating result. I already mentioned that the release of CSM will be an important component, but I also have to stress in that on my next slide, that it will not be the only one. But as it's an important component, it's good to share more information on the dynamics. On the left-hand side, you see the movement analysis of the CSM. That's over the past periods, yes? How do we move from the CSM of the beginning of the period to the CSM of the end of the period? On the right-hand side, you see what we will disclose as a forward-looking. On the existing business, you can show how that release of CSM will evolve over time. That's a forward-looking evolution that we will provide. That's 2 new disclosure that give you insight in the dynamics of the CSM, which is good because it's an important component of that Life net operating result, but it's good to stress that it's not the only one, yes? And for this, we show an illustrative example for the consolidated [ Life ] entities, which is, of course, in an expected market situations, we will no longer have impairments, thanks to IFRS 9. But it gives you an idea of the contribution of the different elements we're expecting and that you see that, that release of CSM will only be half of the Life net operating result, which means that you can have different dynamics in businesses, yes? If certain businesses start doing more short-term Life business, which can be long duration, but replaceable Life business, it could be that the result of short-term Life business starts increasing more and the release of CSM will be a bit less. So it's important to look at the different components of that Life net operating result, going forward. And here you see an illustrative example for the consolidated Life entities, what we think that contribution will be. When we look at the total Life net operating result, it's also good to mention that if we compare to IFRS 4 net result of today, we think that these results will be quite similar, yes? And I will try to explain why we think that. And we have also done some half-year results to be able to see proof that that's the case. What you have is what Christophe mentioned, accounting is nothing else than future cash flows of a contract sold that you recognize over time. You take all the cash flows and you recognize them and you earn them over a certain period. What we do today in the accounting rules of the consolidated entities is that we earn that profit over time that the investment component or the risk offers are evolving. It's basically on the profit by sources that are being created. If the assets are at a [ minimal ] increase, that profit contribution will be an increasing one on the assets under management. What we do now in IFRS 17 is quite similar. You discount all these profits at the beginning, and they knew what they call release them as service, is provided in line with the coverage unit, that the terminology of IFRS 17, which means that you have to release, amortize them over time, and you can have weighted coverage units, which are quite similar to a combination of investment and cover period, yes? And as such, you get a development of these results, which will be quite similar, going forward. That allows us to state that if we look at our operating metrics, going forward, you know today, we look at operating margin, which is net underwriting result plus investment results, divided by the average Life technical liabilities. We will move to Life margin. Not to use the word operating because otherwise, we thought it could become too confusing to have too many operatings. But it's basically the operating insurance result, plus the investment result, divided by the average liability excluding [ unrealized ] gain or loss. And I already mentioned, the numerator and the denominator will be quite similar to what we do today, which allows us to conclude that the estimated impacts for Life guaranteed will be quite limited and for Life unit-linked [ norm ]. Here again, going forward, we will also be able -- as the NCPs will move to IFRS 17, 9, we'll have similar disclosure also include them in this metric calculation, going forward. That's the performance management for Life. If we now go to Non-Life, we will also use a management P&L, which feels quite traditional, which brings back the revenue sources that you know. So also here, we will have the operating insurance service result. Again, the name operating is referring to the fact that we include the non-attributable cost. We start from the insurance revenues, which is quite similar to gross earned premiums. It's only if you have very specific reinsurance business that you can have investment component and that can give some differences, but let's assume gross earned premiums, yes? You deduct the gross claims, which is your incurred claims, which you can split between current year, prior year as today. And you have a gross expenses, which are full expenses because we include also the non-attributable cost. You have reinsurance result, which is a one-amount item, and you get to the operating insurance service result. Again, also here, this is products measured under [ PA ] or product measured under BBA. So you will have an investment result, like I mentioned, in the Life business. You can have a real-world margin on top that will appear here as an investment result, as a result of surplus assets after tax gives you the Non-Life net operating result. If we look at what we expect if we compare IFRS 4 with IFRS 17 net operating result, of course, what you get is we start discounting all claims. We discount all claims based on the claims reported in the year and based on the interest rate environment at that moment, yes, where under IFRS 4, we were more discounting, based on the result on assets, which was more stable over time. What you now do is you take the interest rate environment of a certain moment and you discount all current year claims. The higher that interest rate environment, the more positive differences you will have compared to the IFRS 4 net result. But of course, knowing that the moment you start discounting at higher curves, higher rates, you will have a higher unwind of that discounting rate as part of the investment result in the future. That means that you have to accrue that interest to the future, and that's the other block at the end, you will get a higher investment result delta. So we expect a positive impact, partially offset by a lower investment result. All the other differences we say, we expect limited impact. Why? If you have a risk adjustment and the reserve surplus as today, what do you do with the reserve surplus, you release reserves on previous claims and you create new reserve surpluses on current-year claims. With risk adjustment, you will do the same. And you've all seen that the amounts are quite similar. So from a normal perspective, the normal expectation is we'll have a limited impact. Deferred acquisition cost is the fully expensing of all the acquisition costs. Also here, as I mentioned, on a full-year basis, we expect a limited impact. And then a loss component, even under IFRS 4, we had already liability adequacy test or premiums deficiency test that were applicable. So even under IFRS 4, you could have a loss component. We didn't have them in the past. But so the principal stays quite similar to what you have in PA, going forward in IFRS 17. Metric, operating metric-wise, we will continue using the combined ratio, but we will move from net-net to net gross. What does that mean? Net-net, means you take the net claims plus the net expenses, divided by the net earned premiums. Net gross means you take the gross claims, gross expenses plus reinsurance result as a one-amount item, divided by the insurance revenues, where these insurance revenues are comparable to gross earned premiums. From the mathematics of this formula, what will happen is you will have a deterioration in your combined ratio by simply moving from net-net to net growth. So that mathematically you can prove that there will be a deterioration. You can expect, depending on the height of the interest rate environment compared to the past, if interest rates are higher, that you will get an improvement of the combined ratio. And we give a range of what we are expecting at the moment that, that could have an impact. So we will move to a net gross combined ratio, going forward. Why? It's more intuitive to link it to the insurance revenues, which you will find also in the balance sheet, and it's also easier if you have BBA and PA contract to combine it as such in this way of presenting with insurance results as a one-line item. To the future, we will continue disclosing the same product groups, accident and health, motor, household and other. And also here, the fact that the NCPs will move to IFRS 17 and 9, over time, allows also to integrate them in the same way of calculating operating metrics, going forward. So this is the IFRS-based performance measurement system that we want to put in place, the IFRS like. Of course, the whole capital generation framework stays unchanged, going forward. Good to stress that what we've discussed up to now is all about the consolidated entities, yes? The NCP entities are still doing their transition exercises. They're also looking at their comparable results. So they have not decided yet that the balance sheet -- the opening balance sheet is final. But allow me to share a bit insights that we tend to have on the measurement model and the accounting policy changes we think we are seeing that the partners are taking. On the left-hand side on the measurement model, knowing our Asian business, will not be a surprise. Most of it is participating business, the participating business in China and Malaysia. And that will be accounted for at VFA. The nonparticipating business in China and Thailand, the other big blocks in the business mix, will be accounted for as BBA. If you look at the accounting policy choices, yes, the partners that have non-par business, they also have a preference for the fair value to OCI option. Fair value to OCI option means that the temporary market volatility will be recognized in the unrealized gains and losses and not through the P&L. What we also see is that you will have different risk adjustment methodologies being used to be more in line with the local view, the local practices or some of the solvency calculations that are being done. That's, as such, not an issue. We will not adjust for that because in Life business, this is kind of a balancing item between CSM and the risk adjustment. So this we'll take, going forward. Maybe some input on -- feedback on Taiping Life, given the materiality. Towards the future, the future impact of the [ Ver ] curve that you know today will go through OCI if the partner selects for the fair value to OCI option, which, as its non-par, is most-likely chosen option to be, yes? Which means from the dynamics perspective, from a principle perspective that you'll see a similar thing as what we do today in the underlying result disclosure. And that we also adjust for that impact, going forward. We don't have a view yet on the full impact what that means because you don't only have what happens in the future, you also have the transition impact and how will the starting position be. And that will be based on all the transition choices that can be taken because that's basically your locked-in curve which will be the base for insurance finance expenses, going forward. The second item is the concept of CSM, is quite comparable, quite similar to the residual margin deferred profit liability that exists today on the Chinese accounting standards, yes? You could even say that China is a bit pre-IFRS 17. They never recognized upfront, front-loaded, backloaded the profits. So they had already a DPL on the balance sheet that [indiscernible] over time. So it, from a principle perspective, is quite similar. What we see also happening is that everybody, what we also did for the consolidated entity, tries to optimally align with the assumption-setting process, calculation process, insolvency also Taiping Life is doing that and tries to reuse the assumptions from [ CRO ] Phase 2. I already mentioned the last one, that the adjustment for the investment property, that's one we will continue doing because that's a group-wide accounting choice. So we are obliged to book at amortized cost, but that's only applicable for the non-par investment property and those in the surplus assets. In par, it is not playing. And maybe last to mention, we said at a time, they will be moving to IFRS 17, 9 over time. This is also more from the statutory reporting perspective and how that will evolve and how they will look at performance management over time. But we see that over some years, everybody intends to move to IFRS 17, 9. So this is what I wanted to share with you. So I propose now that we go to Q&A, if that's okay. We will be seated, that's -- yes?

So welcome back after a very short break. Looking towards the people present in the room, is there somebody here who has a question? Yes. Shall we start with Core, yes? He was the first one to raise his hand.

Core [indiscernible]. A couple of questions. First of all, on the combined ratio. Do I understand it correct, based on the slide, that the combined ratio will be 1% better in the future and therefore, also the targets under the new system will be improved by 1% because it was 2.5% improvement, the 1.5% deterioration? So that's my first question on the Non-Life combined target in the new system. Second question is on the CSM for the Life unit, because Non-Life and the Unit-Linked part of Life are not included on the EUR 2.4 billion. Can you give the annual runoff rate for the next couple of years? What the size of that thing is? Take a look. And then the last question is on the CSM of the nonparticipating piece on the illustrative example, it's a very large amount. Is that the same thing that we see in the reconciliation? I think it's EUR 4.5 billion or something. Or is it a different figure to look at? Those were my questions.

Maybe technical part of combined ratio, I give to [ Wim ]. I'll come back on the target.

Yes. We deliberately have shown ranges on the combined ratio, as you've seen, of course, moving from net-net to net gross that has the mathematical impact. The other one is a range based on the interest rate environment that could appear towards the future. So we have not yet pinpointed us an amount, but this is a bit the range, which is an acceptable range now of interest rate movements going forward.

Combined ratio, the technicality, there was 1% to 1.5% deterioration potentially, so not improvement, but deterioration. We can -- we've not come yet with the KPIs that we have set in the Impact24. We will come back out, we'll do that in the closing with the session in June because then we will have already potentially some better use of what we can expect also from NCPs and the whole calibration. By then, we will decide whether we'll have to make an adjustment in the KPIs or not. So that we will share with you in June.

So take on the CSM.

Yes, go ahead.

The CSM EUR 2.4 billion for the consolidated entities, most -- the guaranteed book, as you rightfully say, for Unit-Linked PA, we don't have a CSM. The release will be linked to a bit the duration profile that we have. We have opted for what they call discounted coverage units because you have a coverage unit and how you do that, but which brings it between 10% and 11% a year, to give you an idea, for the consolidated entities.

And the third question was on the CSM for the nonconsolidated entities that was quite big.

Yes, which is the same magnitude type of amount you see already today in the deferred profit liability. So it's inspired by that, and that allows them to the reconciliation what is in solvency. Now it's a beginning-of-year view. So you should be aware that the beginning of the year for that Seguros 1. After which, you have Seguros 2, where you remember from the H1 reporting that there were some model-up changes linked to that. So you will have -- not everything will be in the eligibility criteria of availability capital, going forward. But the left-hand side is inspired on the existing accounting rules. And like I mentioned, they have a similar principle than what is under IFRS 17. We don't have the final numbers, but we see that the basic ID could be similar.

Yes. Steven.

It's Steven Haywood from HSBC. Thanks for the presentation. And so many questions, I don't know where to start. But...

if you don't mind, make them one by one.

Yes, one by one is perfect for me. That would be great. On the combined ratio, moving to a gross from a net, does it make combined ratio more volatile, going forward?

You have peers having different opinions about that. I think it depends a bit on what the reinsurance result will be and how that will evolve going forward. And that can create a bit of volatility between brackets because going from net to gross, you know probably already the mechanism. And if you have a 90% claims plus expense ratio, you would have a combined -- quota share reinsurance cover, which is also 90%. What happens in net-net, it's 90%. In net gross, what you do is you take the result of the reinsurance, which is 1, you added in a numerator, divided by the 100, so you come to 91%. That's basically what happens. So the volatility can come from the result of the reinsurer. As to the result of the reinsurer in between these brackets give some volatility, and that's a bit of the range we had in mind that you can create based on that.

And if your question is will growth be the combined ratio before reinsurance, no, that's not what it is. It is the gross, but we do take the effect of reinsurance premium claims into the equation. So it is not that we will report before the [ issuance ], if that's your question. It's after the [ issuance ], but it's composed in a different way. Yes.

Yes, that clears it up for me.

If I may add something because since I am the old dust, the [Foreign Language] all debate. And I remember, even 30 years ago, the debate was open with IFRS 4 between the two definitions on the combined ratio, and you have plus and minus for each of them. This is more suited to regular reinsurance when you have excess of loss, you have excess of loss, you take the result. If you have a lot of quota share, that is not as good. But then the answer is, and you know that we have quota share, but internal quota share, which are canceled at consolidated level. So the fact that we have this big presence of quota share internally is not a problem to take this formula, which, again, is more suited to excess of [ loss approach ] traditional reinsurance. But then we, referring to your working group at the CFO forum, it seems to be a kind of market consensus to switch to this formula. So it should be seen like this.

Brilliant. Next one, just a clarification. You -- on the investment result versus the CSM -- sorry, which one is applicable for the FA and which ones for the other one?

Could you repeat that? I didn't understand the question.

So in VFA, what happens is that everything -- every movement goes through the balance sheet item. So if you...

So that's the CSM one?

That's the release of CSM and you get a zero investment result, which they call mirroring in the past, so you put it at zero. BBA, you don't have that. All the movements don't go to the CSM because if you have market movements, they have to pass through the P&L item, which is part of the investment result. So there, you're going to get the result and you're going to get a real-world margin, which is between the result on assets done and the unwinding of the discount that will appear there. Whereas that difference, that result, which indirectly also exists in VFA, first moves through that balance sheet item and is then released. So that will be all in the insurance service result.

Good. I'm glad you understood my question. On Slide 27, you can sort of eyeball that the investment result is about 2/3 the size of the CSM release. I don't know if that is what you want us to think about. And then if you add on the surplus asset result on to the investment result as well, you roughly get to a similar size to the CSM release. Is that your thinking, going forward? .

We wanted to give you an illustrative example, which is as much -- as good as -- as much -- as good as possible based on what we know today because we wanted to stress that half of that, what you would call before non-attributable costs, before tax [ debt ] result, half is only coming from the lease of the CSM due to this fact that we have a higher share of BBA. So it will be important, going forward. If you look at the results, knowing that [ re-lease ] CSM is an important one, but it's only one element of the result development.

Okay. I think just two more before you get for that with me. The short-term Life contracts that you mentioned can be repriced, how often can they be repriced?

It depends from country to country, but the fact that they're in there means that we have considered that they can be at least repriced annually.

Annually?

Annually. Yes.

Okay. Finally, comprehensive equity. It's a good concept. Could you sort of say it's similar to unrestricted Tier 1 under Solvency II? Are there any major different parts?

But I think in the unrestricted Tier 1, you still -- you have different [ NOF ] components that play in there. So these ones, you need to know what are the difference that we have. Like I mentioned already, not everything is modeled. Not everything is included there. So that you need to look at it. Unrestricted Tier 1, you can also have eligibility differences. So you can have to need to look at the eligible part of the available capital. But we will have to be able to reconcile that. But the basic principle behind it is similar. So you may think about it in a similar way because you're also discounting future margins in Solvency II, and you're doing that also in the CSM, your future results unearned or on discount. And so you can see that the basic idea is the same. That's why we think it's important to focus a lot on that reconciliation, so that you'll also have a comfort and be able to understand the different dynamics that will play, going forward. That's, of course, for Solvency II, yes? We have a lot of risk-based capital frameworks also in the NCPs, but not everywhere. So in the NCPs, sometimes you can have a non-risk-based capital framework, which can be more like a Solvency I kind of framework. There, we'll then will need to make additional adjustments for that.

There were some questions that came in through the chat that we'll come to those then. From Farooq Hanif at JPMorgan. What is the driver for adding realized gains on equities back to the net operating results? And which segment will this impact the most? Is it Asia, Belgium, Europe?

The reason why we add that back is to get a good view on what we call the distributable result. So you have today that these realized capital gains on fair value to OCI equities are only moving in the shareholders' equity. So they're moving from unrealized gains to returnings when they're realized. But -- and especially in Belgium, we use that also to give profit sharing and to pay the dividends. So if we don't include that in what we call the net operating result, you will get an imbalance if you look at the results, which, of course, again, if you look through the cycle, you can expect to have the same amount of realized capital gains on an annual basis through the cycle. But in a certain year, there can be differences. And if then, is the financing more profit sharing, you could get a volatile result. And what we want to show with the net operating result is that sustainable growth in the distributable result that we can create over time. So that we can give a view on that sustainable growth rate, excluding what we call that temporary market volatility, so they can see how that evolves, going forward.

So the important part here is if you're looking for a quantification of the dividend capacity from an OpCo, look at net operating results and don't look at the net result under IFRS 17 because there are a lot of noncash or non-distributable components potentially in there. And that's actually what we do. The ones that are not in, we are adding in. The ones that were the noncash that -- we take them out. And so that is the better reference for dividend capacity from the OpCos to group.

And then further on that operating result definition, a question from Nasib Ahmed at UBS. Can you explain what you mean by operating result includes non-attributable costs? How is it different to the standard approach or to peers? I thought non-attributable expenses would always be excluded.

According to the IFRS 17 standards, which is different from Solvency II, it's not a full-costing approach. So you have to make a distinction between what they call directly attributable costs, and these are the costs to fulfill the portfolio, the contract, and they are at portfolio level. And you have what we call the non-attributable costs, which are more the general overhead costs. There is a limited number of principles that have been defined on them, what is over at and what is portfolio cost, which means you can have differences between peers on how these have been allocated as a cost. Now by moving to a full-costing view, you look through that. And you look through that by also assigning these insurance non-attributable cost to the insurance service operating results. So you look to it, and you do a kind of a full costing. Why do I stress it also that in other expenses, as I mentioned, you can have all other operational costs, which are linked to investment activities. There are also other expenses. And those we will allocate to the investment result, so that they are financed in a way from the return on assets you're generating on these investments. And that's, for example, if you have car parks, there's people operating the car parks that's costs. These costs are not directly attributable costs to service the insurance portfolio. There are other expenses. But in our full view, we allocate them as a full view.

We can make the parallel with the account made under the European directive, the so-called Belgian gap, French gap and all this, where you have the technical account Life and Non-Life with part of the cost and then the nontechnical part where you have cost. And if you want to have the full view, you have to add the two components. So that's a little bit the same thing.

Yes. Anthony?

It's Anthony from Goldman Sachs. Just two quick questions. Firstly, is on the deferred on the acquisition cost. I think -- sorry if I missed this, I don't quite understand why the impact of -- on [ that ] is almost negligible. I think it's on Slide 30. And then the second one is just on the impairment. I think under IFRS 9, seems it's more forward-looking. Is there a difference on that like practice between IFRS 9 and now?

[ Wim ]?

I will first start about the deferred acquisition cost. What happens is that you have to imagine, we pay an acquisition costs to, for example, a broker to sell a policy at the start of the policy. If you have a deferred acquisition cost, that means you activate that on your balance sheet and you recognize that over time. But the cash is gone. We paid the broker, and you have an item on your balance sheet which is a kind of a deferred acquisition cost and which you have to amortize over the period that, that contract exists. Of course, if you do a transition from one accounting framework to the other, and we say, at that transition moment that deferred acquisition costs no longer exist, the outstanding amount on the balance sheet negatively influences your shareholders' equity at transition. So you remove that asset, which means your shareholders' equity will decrease. That's what happened at shareholders' equity. And while I mentioned that the biggest part of that other, which was small, was linked to that immediately expensing of deferred acquisition cost. That's a transition, a moment-in-time view from moving from one to the other. The other is more in a going concern, in a going concern. And if you look at results of a year, what you have, of course, is you have an outstanding deferred acquisition costs for which the cost you need to still recognize in your P&L. But at the same time, you're paying new commissions for the running year. And what happens a bit, you see that, that balance sheet movement is not moving a lot, which is saying the same thing, my P&L stays rather neutral. It's kind of something that exists on the asset side. And at the end of the year, it exists again, and there's a small movement in that. So the small movement is relating to the P&L on a full-year basis, where the transition impact that can have an impact is a one-off impact of moving it to shareholders' equity. So it's a bit in the recurring of the results, if you compare IFRS 4 and IFRS 17, we're comparing 2 results over the period. And there, the difference will be limited. That's what we try to say because it's a bit the movement on the increase of your premiums on which you have played an additional commission that could have an impact in that movement going forward.

In a simple way, in a very simple way on the commission, the spirit of IFRS 17 is based on cash flow. You pay at once at start, so it seems very well aligned with the spirit of IFRS 17 not to amortize. You take the cash flow and that's it, and it is one cash flow among others. So expanding and taking the full hit of the commission is more in line with this cash flow approach because you pay, and the cash is gone at start.

And the question on impairment, so for equity, the question is not yet -- is not there anymore because there, the fair value of the movements go immediately through OCI. But I think your question is about the fixed income. You're right. Actually, there's still something which is impairment as before for fixed income, and the rules are more or less the same as they used to be before. It's only that we have a more granular approach, and it's called Level 3 of expected credit cost. Level 1 is what I explained is expected credit loss, is business as usual. So you look at expected losses 12 months, going forward. Then you have an intermediate level, which is Level 2, and that's a new one. So it's not that you have a default or you are an impairment, but as a credit deterioration. So there, you -- for instance, if you lose 3 notches in credit quality, you're not going to take your expected losses on 1 year, but you take it for the complete lifetime of the bond you have. And then the third level, and that's exactly the same -- well, it's exactly the same, I think, as what we now have in the old IFRS. That's where you say, okay, we really have a bond which is nonperforming, let's call it like that. And we see that the cash flows are not coming in as expected or we have a very high probability that they will not come in. And there, you take your fair value approach of what you still expect to recover. And that Level 3 of expected credit loss is perfectly in line with what we now call an impaired bond. Is that true, yes? Checking for validation.

Some further questions that came in through the chat. One on the internal reinsurance accounting from Farooq. Could you talk about how the internal reinsurance accounting will work? And will you still have a large proportion of Non-Life earnings passing through reinsurance?

Most of the internal reinsurance is based on quota share Non-Life, but the bulk of what is transferred. We have seen that on Non-Life, you don't have a lot of changes. So I expect that it will be mostly the PAA approach with not a lot of changes. So I don't expect big differences on this on the reinsurance. We may have a small portion, VFA Workmen Comp. But then again, most of the reinsurance, internal reinsurance is Non-Life, hence PAA. So no real change, to me.

Okay. A bit more technical also. Can you talk about how you will calculate your liability discount rate? And therefore, what type of investment spreads will pass through net financial results?

Technical question. That's always dangerous to give a technical answer. I think the starting point is, first, you have to see, like I mentioned, we will use the same discount curve set up as we use in Pillar 2 Ageas, yes? So Solvency II, Ageas, Pillar 2. So that's the one we will use, which is a kind of the [ Europa ] curve, plus a spread for the non-fundamental spread compensation, which is based on the owned asset portfolio and that we can make a distinction between the default risk and the other one. So that's the starting point at the moment you sell a contract. So you have a curve, you can do the discounting, you can calculate the CSM new business. That's the basis that we have. And the fact that we have that in Solvency II is a good base from which we could also start under IFRS 17, and that allowed us also to bring it. It's embedded in the stochastic model. We can derive it from that, and we have it. That's the curve. Now, then the whole fair value to OCI way of accounting starts, yes? Fair value to OCI means you have to lock in something, which is kind of like you lock in the purchase yield on a bond and then after which you get the movement of the [ these curves ] going forward. So the live liability the month after, the year after, you have organic current curve, which is the same as I explained, and you can revalue all the cash flow discounted as the mechanisms. But underlying, you have a kind of a locked-in mechanism to calculate that unwind of discount, where the easiest is, if all cash flows are fixed, no variable part, it's the locked-in rate at the moment that you've initially recognized the contract. You lock in that curve, by the way, and that is the unwind of the discounting you can do, yes? To make it even one step further, we use a rate to be in line with the purchase accounting rate you use on the bond side. So if you don't have variability in the cash flows, it stops there, which you have, for example, in Non-Life and what you do. The moment you have variable cash flows with profit cash flows, your cash flows can also start moving at every moment. So you need to recalculate the curve that brings you from the accounting value without [ UGL ] to that end value cash flows. But that's the underlying. But the starting point is a current curve, which is aligned with Solvency II Ageas, and that's in the need in the whole calculations.

It's Alessia from Barclays. One question from my side. Combined ratio, so you gave an improvement of 0 to 2.5 percentage point for change in interest rate movement. What's the range that you -- that lead today improvement? You just talked generally of -- that is driven by your expectation in interest movement? What is the exact range that translate to this?

It's the interest rate environment of today with a spread of plus/minus 1%.

Steven Haywood from HSBC. Just two questions this time. The NCPs and IFRS 17 and 9 being adopted in 2023 for all of them, is we still -- I believe it was Thailand that wasn't adopting it until 2024. Could you clarify any changes there? And then, could you go back to a dividend payout ratio target in the future on your net operating result?

Maybe on the NCPs, there is a table, I think of your deck, where by country, you see the expected dates as we know today. They all vary between 2023 and 2025, more or less. But you have basically 2 groups. You have the one starting January 1, 2023. And here, we have China, Malaysia and that's it. And then you have more 2025. So India, the Thailand, Vietnam, Philippines. And as I said in the introduction, so we are lucky because the big piece, China start in synchronization with us, so no problem. And for the one starting after, we have -- we are in front of smaller entities, hence, this materiality study that we are doing with the auditors and the assumption which is now accepted, but IFRS 4 figures will be okay. So we will include IFRS 4 figures for the small group of entities starting into [ 2-year ] time. On the [ gap ], you want to add something?

Thailand Life will be under IFRS 17, 9. They don't do it locally, but we will report under IFRS 17, 9. And that's why the biggest part of the NCP business is IFRS 17.

On Impact24 KPIs or the KPIs in general that we announced with the strategic cycle, indeed, we have made a change on payout ratio of profit towards what we have now at the free cash flow model. Remember, a year ago, 1.5 years ago, we set up a few attention points why we make that move and indeed being IFRS 17, proving the transition was one of them. But there were also others, where we said, okay, we have this very high payout ratios of the entities in Europe. We have this low 30% to 35% payout ratios in Asia, but of a pie, which is expected to grow a lot faster. And combining the two in the payout ratio in the long run on profit gives us some tension. And so that's why we have said let's move to a free cash flow model on the dividends that we model that will be upstreamed to the group. That's why we have made the change as well. So to be -- to answer your question, I do not think we will move back to a payout ratio on profit because now in our model, with Europe and Asia, it is not the best metric.

Okay. Then one final question on the NCPs as well or specifically on China. If they apply the VFA, where will the VIR come through? You say through fair value through OCI. So does that mean it will no longer impact earnings as it does today? And then a hopeful question for this model, will it be locked in so that we do not have to make adjustments on a quarterly basis?

It's maybe good first to mention that we talked today about VIR, we talk about the nonpar business. The nonpar business will be under BBA, under fair value to OCI, which means you have nonpar, no variable cash flows, you have locked-in curves of the past, which then will be maintained. But on an annual cohort basis. So that means you have a locked-in philosophy. You will have to do what I've mentioned, a current curve market parameters, but that will go to the annualized gains and losses as part of the OCI.

Okay. So thanks a lot for the questions. Hans, could you maybe do a short wrap-up of the evening.

Yes. Thank you, [ Veerle ]. Let me just take a few takeaways. And the ones -- certainly, we got already a few questions that was on the KPIs. Remember that 1.5 years ago, when we launched Impact24, we said we want to come with a system that this IFRS 17 prove as much as possible. And I think we can confirm that today. So we have a solvency framework, which is very stable, no change. We have a capital management framework that we do not expect to change, based on free cash flow and dividend. Free cash flow is based, and that's maybe a chase for you to remember, not on what we would call net result, but on what we would call in the future net operating results, but we can -- we have confirmed that already for the consolidated. And this is very close to what we had as a net result of IFRS 4. So if you look at numbers, we do not expect we'll change, minor changes on Life margin and Non-Life combined ratio. We will conclude the calibration of all this under Impact24 by June next year when we come back to you on session 2. But again, do not expect any important changes. I think you can fully rely on what we have committed to under Impact24 because generating cash capital, paying dividends, investing in future growth, solvency, credit [ ratings ], all these elements on our balance sheet, we do not expect a change. Just for your information, all metrics that we disclose in the future will be at the Ageas share. We already made that swift for premiums also a year ago when we went from 100% to Ageas share. Actually for the future, that also makes life easy. Everything will be at Ageas share. We will keep on reporting inflows, although inflows, although inflows are not record -- premiums are not recognized as inflows or revenues anymore under IFRS 17. That will be a separate disclosure that we keep on presenting to you, and it is an important KPI. Good news, I think, gradually over time, and timing will become clearer in the future. NCPs will also flow into all our reportings. And then I'm mainly talking about the margins, the Life margins as well as the combined ratio. And we also like to announce today one change on frequency. We believe that with the introduction of IFRS 17, we can bring comfortably the frequency of reporting from 4 times a year to twice a year. So we will disclose our performance to you twice a year, June and December results. The financial year will stay the full -- the normal year cycle. We will come back in June 23 and with the intention to give you, I would say, almost a full financial results announcements under IFRS 17 that you have, I would say, lift through that before we go to the first official one, which will be on the end of June numbers, somewhere in August next year. So we will do something like a dry run. What we will do there is we will show you the format. You know our small booklets with all the tables. We will show you how that will look like under IFRS 17, and we will do that with the full '22 results because then we will have the full '22 IFRS results. So there, I think you can then still [ waste ] all your questions on format that all the definitions, all the graphs are well understood before we go into the full reporting of the first half year '23. We will have fully finding opening balance sheet, and we hope also that we come down to you with a group-wide, meaning controlled participations, noncontrolled participations, as explained, not all of them on IFRS 17 yet. But we can -- we are able to give you the full view, which is also, again, the reference for the results announcement in August. And that, I hope, will fully prepare you for that transition into IFRS 17 at a very smooth transition when for the first time, we will present to you first half '23 only under IFRS 17 and not under IFRS 4 anymore. With this, I want to close the session, but not without thanking a few people for an amazing amount of work that has been done, and I want to thank the staff and [ Wim ] both on investments as well as on liabilities. It -- believe me, the first things I heard about IFRS 17 and even the first presentation, I saw 6 weeks ago, I was still scared about the complexity of all this. I must say, we came a very long way in something that can be easily understood and explained to everybody. And that's, at the end of the day, what accounting and management reporting is meant to do, explaining our performance as clear as possible. That has been an amazing amount of work. And so I really want to thank everybody here for what they have been doing. Of course, also the IR team, guiding our experts to something that is understandable for everybody. Also PWC because what we have shown to you has, of course, been closely monitored also by PWC, is, in a way, audited. And I can tell you that we get full support by our auditor both on quality, what we show and what we have today as well as on readiness of Ageas as a group to make that smooth transition to IFRS 17 next year, which also have given us the Board and the Audit Committee a lot of confidence. And then I want to thank the people on the screen, digitally thanking for joining us for this session and staying with us for the Q&A and specifically also, of course, the analysts present in the room.