Allianz SE (ALV) Earnings Call Transcript & Summary

Good afternoon, everybody, and welcome to the Allianz conference call on the financial results of 2021. Before we start the call, let me remind you that this conference call is being streamed live on allianz.com and YouTube. And that a recording will be made available shortly after the call. [Operator Instructions] All right. That was all from my side for now. And with that, I turn the call over to our CEO, Oliver Bate.

Yes. Good afternoon and good morning wherever you are, maybe good evening in Asia. Thanks for joining today. We have quite some movement yesterday on a few items that, by the way, we are very happy about. We're going to spend some time on it. For those of you that have not been able to listen to our press call earlier in the morning, I wanted to make sure that we understand we have read out and are publishing a statement with regard to Structured Alpha. And we can't really comment on that as we said there, except for a few facts. So be aware that if and when you have questions, we need to really stick to what we have said. I think that's the first comment I'd like to make. The other one that was more procedural is to actually go quickly only through the presentation that I have because I think you're all very eager to talk and listen to Giulio to ask what was the attritional loss ratio in Brazil and all of these really interesting things. So I will be very quick in terms of where we are. Three messages we have. Allianz delivery is stronger and stronger and stronger. Yes, we may have people that believe there is an overshadow, some people that want to take advantage of the situation. The underlying message we have, the cash and capital generation of -- power of the group is continuously growing, and I'm going to show you that in a second. The second thing is we are accelerating the speed of our transformation, in particular, in terms of making our balance sheet lighter, more capital efficient and less volatile. The vast majority of that pertains obviously to the life insurance segment. But unnoticed by many people, we've also become one of the strongest asset managers in the world. And that is no coincidence, it's also no luck. It is really systematic work as we believe we have a unique value proposition at the intersection between what used to be called Life insurance and Asset Management. And that's something I would like to highlight. And then I'm going to talk about confidence in the future. As you will see in our numbers, even if there is occasionally something we need to wrestle with, we move on because we are able to absorb shocks in a way that very few others can. And we obviously want to make sure there is going to be less and less volatility going forward as we deal with various items out there. So these are the 3 chapters. Let me just turn your attention to Page A 3 now. So revenues up 6% in an environment where very few people were growing, almost EUR 150 billion in revenues. Our operating profit up 25% from the last COVID year. Remember, '21 was still COVID. And we are very proud of that. Shareholders' net income is slightly down because of the EUR 2.8 billion net income hit that we had to take in order to address the vast majority of litigation exposure in Structured Alpha. This is really important. So we are very happy that we can finally book and take care of the investors in the Structured Alpha fund and make them whole. We are increasing our dividend per share by 13%. That's exactly in line with the guidance that we gave in 2018. Last year, you -- we all benefited from the [ record ] despite the fact that the year was very tough. And our solvency ratio is -- for 2021 is 209%, even after Structured Alpha, and that is also super important. Now in terms of return on equity, it is, after the Structured Alpha, booking at 10.6%. That is, by the way, higher than most insurers have. It's important to note that before the Structured Alpha, it would have been at 14.9%, so an extremely high number, and that is obviously to be normalized, and Giulio will talk a little bit about the way we have to think about net income and ROE going forward, particularly also when -- if and when accounting changes because net income is always volatile. We have announced EUR 1 billion of share buyback. You will ask very soon, I can guess, do we -- can we do more in this year? And we obviously have to be always very cautious, but I'll always answer the same way. We have every incentive to not sit on excess capital, but distribute it back to shareholders if when we see the opportunity because everybody in Allianz has an incentive to produce significant returns on invested capital and do that very well and grow. So we are always trying to get the balance right between returning capital and growing the earnings over the last few years, I think we've struck the right balance. So if and when we have excess capital accumulating, we will not have it sit idle. That's the comment I would like to make at this point in time. Now when you look at what we've been able to deliver. As the CEO, I'd like to point out great financial KPIs are an outcome of a healthy organization. And healthy organization starts with 2 very simple observations. If you have the happiest customers in your industry, you will also do well. And if you have highly motivated people, you're also going to do well. Ideally, if you have both, you're going to really win. So we have been focusing on driving our Net Promoter Score. That's the willingness of our customers to recommend our services and products to their friends and family. And now we have 84% of our businesses, that's the life insurance businesses, the P&C insurance businesses, the health insurance businesses, 84% above market average in terms of NPS. And actually, almost 60% are loyalty leaders, i.e., have the highest customer satisfaction. So as of next year, we are really lifting the ambition and are going to focus on loyalty leadership as the aspiration and target for all our businesses. At the same time, despite COVID, we have been able to bring employee motivation up. By the way, we measure that in many ways. Here is the most important one that measures leadership quality in the eyes of our people. We call that IMIX. But you can also look at engagement numbers or what something we call Work Well. All these indicators have improved more strongly than we were hoping for. And particularly in light of COVID, that was no small achievements. And in particular, relative to competition, we can measure that, 2021, a number of companies saw employee engagement actually go down, and we have been able to remain super strong. So the management team is very proud of this achievement, very strong operating performance and very strong health indicators. And that can be measured in many different ways that you can see on Page A 5, whether that's on customer. And I would like to point out the importance, particularly in the digital age, of having a strong brand. We have been now the #1 brand for Interbrand for a number of years, and we are very happy with that, and we keep on investing. But also now on brand finance, we are the undisputed #1. So the brand is super important and the value that it comes with. And we are investing heavily in order to make sure that translates into higher customer acquisition, lower acquisition cost and much better flow than others can achieve. The second one I'd like to mention, it's not just about having highly motivated staff, but also driving diversity and inclusion. Now unthinkable just 6 years ago, 30% of our operating profit are managed by female CEOs. Just last year, we promoted 3 senior women to run our most important life businesses, Allianz Life of America, Allianz Leben in Stuttgart and our Asian business, all highly competent women. And so we're making a lot of progress there as we are on many other items that reflect diversity and inclusion. Last but certainly not least, we remain fully committed to the topic of climate change. You know that -- particularly Günther Thallinger and his team are spending a lot of time to make our investment side fully compliant with net zero. And we're doing it in a way that doesn't claim something for -- in 30 years, but we're really having targets that are short term, credible. And we are moving, and we are continuously moving in this one. And there are many other items that we are driving into the core of our business over the next few years. Think about the claims networks that really can be greened and other items. And therefore, we have established last year a dedicated function at the center of the group to drive that, including a committee that is dedicated to the ESG issue at the Supervisory Board. So again, lots of investments across stakeholders to deliver better outcomes. Now better outcomes, what are we talking about? Some of you will say, well, that is not something I can put in a spreadsheet. It's true, but it's very important. For us, it's very important to think about what role do we play in society for our clients. And we have spent years now on developing our purpose with thousands of employees. And "we secure your future" is super important. I'm going to mention that when we get to Asset Management in a while. Now you can only be successful if you have the trust of the various stakeholders. So the real aspiration is to be the trusted partner for protecting and growing your most valuable assets. And that may not be just your house, your car or your investment. But it also is your health and your mental well-being. So that is what really we are focusing on, and that is we are trying to take care of the things that are most important for our clients. In order to achieve that, we need to make 3 promises and deliver on them. Number one, I mentioned that before, to strike a careful balance across stakeholders. And difference to many companies, we've hardwired this in all of our incentives. It's not just a slogan. We need to deliver benchmark results at scale. This is at scale. We're going to talk about more the next few years. Because as we are driving forward, we need to take our size and not make it a problem of complexity, but make it an advantage that we can get because we have the scale that very few others have. And last but not least, we need to show strong resilience in a fundamentally transforming world. We may have war-like activities around the corner, tensions between the superpowers. And the world that we're in, volatility will be abound, and people need to be sure that we secure your future means Allianz is there even if the going gets tough. And we're going to talk about that in more detail. It means that tail risks need to be managed very, very carefully. And Structured Alpha, again, for us, has been a reminder of the necessity to look into every corner of what we do and to make sure that something like that cannot ever happen again. Now if we think about value creation over the next few years, it's pretty simple conceptually. It's around driving growth. And I'm always amazed when I look at the spreadsheet of the analysts and it only focuses on 2 years, not the long term. And then growth forecast at like 2%, how can that ever be? When you look at the last 10 years, we've been growing very well. So that is important, and we're going to drive that based on our strength even more strongly than in the past. By the way, you see that in the 2021 numbers already, whether that is revenues, whether that is net flows, whether that is value of new business, all these numbers are growing double-digit and have been. And we are going to grow that even further. The second thing is margin expansion. There's still a lot of upside in terms of productivity that we have. And we've shown that across the business that we are highly resilient despite commoditization. Think about Asset Management, the move to passive. Our margins are not declining the way they have been forecasted, and we keep on growing with record flows. And the last, but certainly not least, is capital efficiency. And we have worked a lot. And the [ Project Lucy ], which we announced on this -- in December on the 3rd and have closed on December 30 on U.S. Life, that's basically moving ROE of this business up from 11% to 19%. And that's a cautious assessment based on this one movement. It's showing the power of leveraging private markets to drive capital efficiency. So the move from warehousing risk and warehousing tier risk in large balance sheets to being -- having more efficient balance sheet is very much at the core of our strategy. And while others talk, we deliver. Just think about the EUR 3.6 billion in capital that we were able to lift out of AZ Life. And it's not the end of the story. We have 5 levers which we delineated in the Capital Markets Day. Many of you participated and gave us feedback. So I'm not going to dwell on that for a long time and repeat that because that would bore you. So let me just reiterate the point around Life and Asset Management because it is still not well understood that the vast majority of our profit now and the growth that's coming from Life and Asset Management, and that's a good thing. We're having very strong flows, much improved productivity, very high customer satisfaction. By the way, AGI has done a phenomenal job last year. Think about the fact that they had Structured Alpha and that was -- their highly motivated staff. Productivity is approaching the levels of PIMCO now at the same time. And they had more than EUR 40 billion in net flows, everything at the same time with strengthened investment performance. Given the very difficult legal environment, that is no small achievement. Now what I think, and also our reporting doesn't highlight properly, is that the fact we have many competitive advantages, because we can combine the know-how we have in our asset managers in AIM with the power we have in the life insurance company. So as the world didn't know what to do in terms of life products, we could leverage into new products very quickly that combine the best of life insurance and asset management, and by the way, also on the health side, in order to both create more value for consumers because we can offer much higher risk-adjusted returns. And that also means we have higher margins as we bring in alternative assets and other more stable and higher-margin products. So we have a true win-win. So if you think about EUR 100,000 invested through this [indiscernible] into Allianz, we have 2x benefits for the clients because they get a better product in the Life side, a better Asset Management product inside of it. And we make the margin twice because we make it on the life product. And as long as we perform, of course, also in Asset Management. No other competitor can do it the way we can do that. And I think that is totally underappreciated in terms of earnings power and earnings resilience and also the way we can be flexible. Now we talked about the transformation of the U.S. Life business. I don't think it's fully understood yet. I would just like to mention that Allianz Life of America is one of the best businesses we have. And somebody here in Europe suggested we sort of think about a runoff. The opposite is true. We're trying to use this transaction not just to drive profitability, but massively increase growth because this new access to other sources of capital allows us to be more competitive in many areas. I think we have a call coming in, in between. Sorry for that. Maybe it's our U.S. colleagues. So they're very happy. So what is really, really important? And by the way, Allianz Life of America was, in absolute terms, the big -- biggest capital consumer in the group. And now we have been able to lift EUR 3.6 billion out, 9% of solvency. So that also means that we are able to withstand special requirements like on Structured Alpha. Unabated, our solvency ratio was 209%. After Structured Alpha is super strong. And by the way, volatility of Solvency II numbers are also going to continue to go down. And that's another thing I'd like to mention. 2022 is an extremely important year for us because for the first time, our strongly growing new business value is so large that we do not consume net new capital for our new business. We've been working on that for a number of years, Giulio, myself and others in order to make sure we make our new business capital light. But because of what happened in the past, with declining interest rates artificially drawn, it was delayed by about 2 years. As of this year, we are going to have net capital generation even out of our new business, at least no new capital strain out of the new life business. And this is a watershed moment for us. So in addition to the work we're doing on the in-force, our Life business will move much more quickly in creating a lot more value than in the past. Now one thing I wanted to mention is this one. We didn't have that in the Capital Markets Day. But given the current environment, I wanted to talk about that for a few minutes before I go back to numbers. The most important thing that we are thinking about every day now is how to think about tail risk. A lot of the models, including the one that we employ, think about diversification, as I said this morning with [ Mr. Taleb ], that's the thing that is never there when you need it. And the point I'm trying to make is this is not about mathematical models and capital requirement. This is about the front line of the business, constantly thinking about what our exposures to our business. In the past, it used to be purely financial risk. Like what is our interest rate exposure? What is our equity exposure? What is our nat cat exposure? I think that makes it, and a lot of people are talking about it now. We have worked extensively, also learning from COVID, on understanding we need to simplify and particularly manage tail risk. So reputation risk is super important, as is cyber, as are sales practices. So we are focusing a longer value chain from sales and underwriting through the in-force and operations IT in turning every stone and trying to find out whether we are having risk that we were not aware of, and how do we contain them and eliminate them. Now there will always be risk in financial institutions. We have to however make sure we get the risks out that are not consumerate (sic) [ commensurate ] with our risk appetite. And the ones that we deem consumered (sic) [ commensurate ], we need to make sure we get paid for properly or we get out of them. So there has been a lot of improvements. Let's think about AGC&S. Everybody talks about the combined ratio. That's one very important aspect. But the volatility of the earnings is another very important measure. And the team around [indiscernible] everybody has worked diligently to massively reduce the volatility of the expected profit, not just improve the profitability. And we're trying to do this for each and every business. Now confidence. Here is a really interesting chart that's A 14, that shows you the operating profit development over the last few years. And now you see how we are really driving the operating earnings up EUR 13.4 billion this year. Now people ask, why is the outlook still EUR 1 billion? Again, we live in a very volatile world. And it's just a much higher level when we established the EUR 500 million range. That was -- I was the CFO, 2012. We were a much lower level of profitability than we are today. So this is just an order of magnitude, the fact that's inside there, and we want to grow EPS by 5% to 7% over the next few years, getting to north of EUR 14.5 billion OP by the year 2024, at least. So that's what we're going to do. And because we are so confident, we have revised, as you know, our dividend policy. We want to grow the dividends per share at least 5% every year or have a 50% payout, I should have started with that. So we are keeping the [indiscernible] plus bringing it up because we know that is what really drives valuation, is the growth of the dividends, and we are very optimistic about that. And as I said before, we have 0 interest to sit on excess capital. If and when we can invest in the organic growth of our business profitably, we can do highly profitable investments inorganically, we are going to go out and give the money back. By the way, let me reiterate, we have no appetite for super large M&A. We maintain a string of pearls acquisition strategy in order to make sure we strengthen our market positions across markets. Think about what we've been able to do in the United Kingdom, in Poland, or take me -- let me give you the last one, which is Greece. It looks like a small thing. But we -- with this acquisition, which is just a little bit over EUR 200 million, we are becoming the #1 property-casualty insurer in Greece. So getting to scale that we really need. And the number of -- #1 or #2 position that Allianz has in our industry is constantly growing, and that's what we're trying to do. So I do thank you for your trust and your support. And then now, Giulio, in the usual quality will give you all the details.

Thank you, Oliver, and good afternoon or good morning to everybody. And as Oliver said before, 2021, underlying performance has been very, very strong. You can see this reflected in several KPIs. Revenue were up 6%. This is driven by all segment. When you look at the operating profit, EUR 13.4 billion of operating profit, which is significantly higher than the level of 2020. Clearly, in 2020, we had the impact coming from COVID. But even if you adjust the numbers for that, we have a double-digit increase in operating profit in 2021 versus 2020. All segments have at least achieved the outlook that we gave ourselves for 2021. And when you look at the Property-Casualty side, you see a combined ratio 93.8%, which is higher than the target of 93%. But as you see also, the nat cat load was definitely more significant than the normal expectation. On the other side, the capital, the investment income has been exceeding our expectation. That's the reason why we were able to overachieve the outlook of EUR 5.6 billion, with an operating profit of EUR 5.7 billion for Property-Casualty. The Life segment has also developed very nicely with an operating profit of EUR 5 billion. And then you can also see a very strong development of the value of new business and of the new business margin. And then in Asset Management, also very strong results with an operating profit of EUR 3.5 billion, a strong reduction of the cost-income ratio and also very positive flow. So from an underlying performance, really a good delivery. And then when you look at the shareholder net income, here, you see EUR 6.6 billion of net income. Clearly, that's the consequence of the aftertax charge of EUR 2.8 billion that we took because of the Structured Alpha matter. This is still capable to achieve a double-digit ROE despite these significant impacts. When we move to the Page 5, you can see that also the quarter was pretty strong on an underlying basis. So EUR 3.5 billion of operating profit, and all segments had very strong delivery. I'm sure you're going to ask me about the 93.5% combined ratio in Property-Casualty, because considering the lower nat cat load, one might have expected a better combined ratio. I can tell you right whether we've been conservative on booking that combined ratio so -- because we want to be well prepared for potentially increased inflation as we go into 2021. So we are very -- we feel very good about the quality of that combined ratio. And then for the other segments, again, a very strong quarter, confirming the tendency that we saw during the course of 2021. Clearly, you see a net loss for the quarter. That's just a consequence of the after-tax charge that we took. So overall, a strong underlying performance for 2021, with a strong finish from an underlying point of view. And you can see this strength also overall reflected at Page B 7 for the solvency ratio, which is at 209%, so increase compared to the level of 2007 -- 2020, and this despite having taken a charge of 9 percentage points because of Structured Alpha. If you consider also for the buyback that we announced yesterday, the pro forma capitalization is 206%, so a strong level of solvency ratio. And when you look at the development of the solvency ratio, the driver for the solvency ratio, you can see that in 2021, we had a strong organic capital generation of about 30% pretax. And if you do after-tax and after the dividend, you get to a double-digit increase in capital generation. And what is very important, when you look at the ACR contribution, this is all coming from Property-Casualty. So there is basically no contribution to the ACR coming from the Life business, which means on the ACR, there is 0 impact from the Life business. And then you can see what is the contribution on the own funds coming from the Life business, which is about EUR 5 billion pretax and pre-dividend. So fundamentally, the Life business is becoming accretive to our solvency ratio development. The market conditions have been also positive. And then on the capital management, management action, you see an impact of 14 percentage point. I wouldn't call it a negative impact because that's the dividend and also the buyback that we did in 2021. And then there are other elements that flow into that number. One is 11 percentage point of improvements because of the back book transaction that we did. And clearly, the transaction in the United States had the majority of the impact, but we did also other transaction in Europe. So in total, 11 percentage point of improvement to the solvency ratio because of back book management. And then of this 11 percentage points, we have redeployed 9 percentage point in acquisition, which is clearly future growth. So as you see, strong capital management, also deployment of capital. And then in tax other, you see the impact of taxes, as always. And then clearly, that's also where you see the 9 percentage point of impact coming from Structured Alpha. So overall, strong solvency ratio. When you look at our sensitivity, they are pretty stable, indeed, slightly reduced compared to the sensitivity that we had a year ago or last quarter. Now coming to the next page, B 11. We want to show to you also some KPIs for the ESG delivery. These are also the KPIs for the activities where we gave ourselves targets. And as you see, we are well on track to achieve our targets. We need also to say that 2021 has been positively affected by the COVID situation. So somehow, we need to normalize those numbers. But fundamentally, you can see that there is a strong movement in the right direction. We are confident that we're going to achieve our targets for 2024, '25 and '23, respectively. So all in all, strong underlying delivery. Solvency capital position, very strong. And also, as you see, we are very committed to delivery also on the ESG topics. Now at Page 13, on the internal growth for the P&C segment. You see that we achieved a good growth rate of 4% for the year. And I don't know if you remember, but in the first quarter, our growth in P&C was negative. So you can see there was a good momentum in the course of 2021. And when you look at the performance by companies, you see that the majority of the companies is growing. There are a couple of exception. Usually, these exceptions are driven either by competition in motor or by our activities in pruning, especially on the commercial MidCorp business. What is also to highlight is the performance of Allianz Partners. You can see definitely that there is a stabilization of the revenue. And clearly, 2020 was very much affected by COVID. I wouldn't say that we're back to normal because the travel business is not back to normal, but there was at least a recovery compared what we saw in 2020. Price environment is stable overall. So this means that the pricing -- the prices that we are getting at the moment are keeping pace with inflation. I'm sure I'm going to get questions from you on this topic. So I'll leave that for the Q&A later. Now coming to the operating profit. As you see, EUR 1.4 billion of improvement in operating profit. EUR 1.1 billion of improvement is due to the fact that we didn't have the repeat of the negative impacts from COVID of 2020. But there is still an underlying improvement, if you want, of EUR 300 million. When you look at the combined ratio, here, I can tell you that, on the one side, we benefited from the fact that COVID didn't repeat. On the other side, the nat cat have been clearly negative compared to last year. The runoff results, you can see normalization to what would be more an expected level. And then we had about 30 basis point of underlying improvement. Another way to look at the combined ratio is to normalize 93.8% for the extra nat cat load. So if you do that, you get back to the 93% of combined ratio that we have given ourselves as a target for 2021. And that's also the starting point for our trajectory to combined ratio 92% in 2024. So overall, I would say, a good delivery on the underwriting results. And when we just look at the delivery by OEs, it's at Page 17. You can see good combined ratio in Germany, also considering the amount of nat cats. Also good performance, according to our expectation, United Kingdom, France, Italy. Australia has also had a good year. And then you can see also a very strong performance in Eastern Europe. In Latin America, we had some opportunity for improvement as we go into 2022 and '23. And then I will say what is -- the statement is the pro forma of AGC&S with 97.5% combined ratio. Our target was 98% for 2021. And I can also tell you that the underlying performance of AGC&S is strong at 97.5% that you see on this page. So there is really some quality in these numbers. And then Euler Hermes, as you see, also with a very good combined ratio. So you can see that a lot of our entities are performing at a good level. And then on the investment results, Page 19. You see that the investment result is up. So it's not down as we were seeing in the press. And the reason for that is especially the recovery of performance in -- on the equity side. Clearly, last year, the amount of dividend out of private equity. And also, private equity was lower compared to the normalization distribution that we saw in 2021. So fundamentally, a good delivery on the operating investment results. As I was saying before, this has offset, if you want, the higher nat cat load, at least relative to our expectations. This explains why we ended up with a EUR 5.7 billion of operating profit, which is better compared to the outlook of EUR 5.6 billion. Now coming to the Life segment. I can tell you, I'm very pleased about the performance of the Life segment at Page 21. I remember that at the end of 2020, we had a lot of conversation about change in the mix. And one of the questions we were getting is, can you change the mix and still keep production going? And as you see, we are being capable to achieve a very healthy level of production. When you look at the numbers here, you see a growth rate of 30%. Obviously, here, there are some one-offs to be considered. But even if you adjust for the one-offs, the growth rate of our production was above -- was double-digits. So from that point of view, a strong commercial delivery. And this, by changing the mix and achieving a new business margin of over 3%. So I can tell you the delivery has been very strong and very consistent across all our entities. Now looking at Page 23, the operating profit. You can see a nice increase of the operating profit compared to 2020 of about EUR 650 million. And you can see that all profit sources have contributed to this increase. You can the improvement coming from the loading fees, from the investment margin, from the technical margin. And then as always, when you look at the expenses, you need to net them together with the impact or change in that. So I would say the primary drivers have been driving the performance of the Life segment. And then when you look at the operating profit by line, you see also that all lines have contributed to the strong delivery in operating profit. Page 25. On the value of new business, you can see a strong increase of value of new business of 45%, with a value of new business EUR 2 billion, EUR 2.5 billion. That's a very good number. And I don't know if you remember, but 3 years ago, we said we want to grow value of new business by 5%. And despite very challenging market conditions compared to the market condition that one could foresee in 2018, despite this more challenging condition, we have been able to achieve a 5% compounded average growth rate of our value of new business. New business margin is also very strong at over 3% and pretty stable across all entities, which indeed a tendency to an improvement. And then on the operating profit, I like clearly to highlight the performance in the United States, with an increase in operating profit of 50%. Here, we had to say 2020 was a little bit weaker because of the impact of the volatility in the first quarter of 2020. And 2021 has been very, very strong because the volatility in the United States or the VIX has been very benign. So you have a sort of swing from a softer performance to a performance which is also in the significantly higher than our expectation. And then another area where we had very good results is Italy with an operating profit of EUR 450 million. Italy is the first country -- one of the first country that embraced the journey to capitalized product and selling unit-linked. You can see that now this journey is delivering over EUR 400 million of operating profit. So strong delivery also from our Italian team. And now at Page 27, on the investment margin. You can see that the current yield is going up by about 10 basis point. And that's because of the normalization of income coming from -- especially from equity. But what is more important, you see once again that we are taking down the minimum guarantee, in this case, by about 10 basis point. You can be assured that this journey is going to continue. So from that point of view, you can see definitely that there is a reduction of the guarantee level. So from that point of view, we are very confident that we're going to be able to keep the spread between current yield and minimum guarantee as we move into the next year. So overall, strong performance in the Life business, strong operating profits, strong new business value generation, change in mix. We also did capital back book transaction, I would say, even a benchmark transaction like the one we did in the United States. So I will say, a great, great year for our Life segment, for our franchise in this area. Now coming to Asset Management. Overall, EUR 2.6 trillion of assets under management, including the proprietary assets. And when you narrow down on the third-party assets, EUR 2 billion -- EUR 2 trillion of third-party assets, with a growth of 15%. And when you look at this -- the growth across the asset classes and regions, you can see that all regions and all asset classes are showing growth. So that's, for me, a sign of quality and also of sort of diversification that we have. We see a similar trend, by the way, at Page 31. When we look at the right-hand side, you can see that's how is the composition of the EUR 110 billion of inflows that we got. And you can also see here that we are not just growing fixed income. And it was positive flows in all other asset classes. And also from a geographical point of view, you can see a nice spread across the different region. Also, we are kind of used to PIMCO making EUR 60 billion of inflows. I think the big news is clearly AGI making over EUR 40 billion of inflows. And as Oliver was saying before, this despite challenges and also despite the fact that these guys just in 2020 did a major restructuring. And usually, when you have a major restructuring, you might not necessarily expect a significant growth. AGI has been capable to do both, do a restructure and then also realize significant growth. When you look at what this means from a revenue point of view, you can see a nice development of the revenue with a growth of 14%. And the growth is especially pronounced at AGI. You can also see stable fee margin in total. So that's also important. We don't see necessarily a trajectory of a weakening of the fee margin. We saw a lot of stability indeed over the last quarters. All this leads, at Page 35, to an increase in operating profit of over 20%. Also, when we adjust for the so-called volatile items, which are the performance fees, we still see about 20% increase in operating profit, so very strong performance. And then clearly, what is really nice is also the development of the cost-income ratio of AGI with an improvement of 8 percentage points. So strong delivery in Asset Management, strong delivery from PIMCO. And I will say, a very strong delivery from AGI. Corporate, I'm going to skip it. It's basically flat compared to the level of last year. And now we turn to Page 39 on the nonoperating items. Here, you see that the realized gains have been more pronounced than in the past. This has to do also with the Lucid transaction. About 1/3 of the realized gains are coming from Lucid. And then also, you can see the level of impairment was in 2021 very low. And then in other, you see basically the pretax charge of Structured Alpha. There, you see also some deck offsets to the realized gains on the Lucid transaction. And then when you put all together, you get to a net income of EUR 6.6 billion for the year, which leads to a double-digit ROE anyway. So I'd like to reiterate this message, that's still double-digit ROE despite a significant one-off impacts. And now we come to the outlook at Page 41. Overall, EUR 13.4 billion for an outlook for 2022. As you might have recognized by now, we have a tendency also to set the outlook at the level of the preceding period. So we keep faithful to this kind of tradition. The underlying assumption here on P&C, for the EUR 6 billion of operating profit, we are assuming a 93% combined ratio. And we have a tendency to be fairly conservative on the investment income. On the life side, we have normalized for the extraordinary performance due to the low VIX of Allianz Life, so with this normalization there. And for Asset Management, if you -- also this normalization, if you want, for the performance fee level, which was a little bit more elevated in 2021 compared to what is an average over time. But again, with the EUR 13.4 billion outlook for 2022, we feel pretty confident about this level. We are going to have clearly a conversation about where we stand in the course of the year. And with that, I would like to open up to your questions.

Yes. Thank you, Giulio. And as was just said, we are now happy to take your questions. [Operator Instructions] All right. And that said, we will now take our first question from Peter Eliot.

Hopefully, you can hear me. So I have 3 questions, please. The first one was on the share buyback. And just wondering if you can share any timing you have in mind on that side. Do you have an end date in mind, for example, for that EUR 1 billion? The second question was, at the Capital Markets Day, you targeted 4% growth to get to sort of EUR 14.5 billion operating profit. And obviously, from the starting point, it was a bit higher than you indicated at the time. We only need sort of 2.5% growth. I mean, probably it is back half performance fees. But would it be safe to say that the starting point is a bit higher than you're expecting, and therefore, the target more achievable? And then finally, third question. Just wondering on your non-life businesses, which maybe are getting the most management attention at the moment. I mean, I guess, Turkey was a high combined ratio, and you're pointed to difficult markets. Is that perhaps the main focus at the moment? Or yes, just some insights on where you think there's still room for improvement.

Peter, I can take your questions. On the share buyback, the expectation is that we are going to complete the share buyback by the summertime. So that's the time line for the EUR 1 billion buyback. On the Capital Market Day and the baseline -- but first of all, because your comment where we think that the target is more achievable, we think the target is achievable. So our message in the Capital Market Day was that's a plan. That's not an ambition. Now if we want to talk about the baseline. In the Capital Market Day, we also said, look, EUR 13 billion was the basis. How we did the presentation, we also said we expect to be a little bit higher, EUR 10 billion, EUR 13 billion. So from that point of view, I will say nothing has really changed clearly compared to what we know at December 3 and what we know now. So the point is, again, the confidence that we have about achieving our targets in 2024 is strong. It didn't change because of 6 weeks. And then on Turkey, first of all, let me say that Turkey, yes, the combined ratio is high, but the investment income is also very high. So if you look at the numbers of Turkey -- in local currency, Turkey had a growth in operating profit. And we are speaking anyway of an ROE which is north of 20%. And now we can have a philosophical conversation about what the cost of capital in Turkey should be. But I can just tell you that the company is operationally doing very, very well. And now clearly, we will have to go through a time of uncertainty because of the situation there, but Turkey is not a company that we see as struggling. We see Turkey as a strong company, delivering also a good performance for the environment. So that's not an area of concern. In general, if you ask me what are the area of focus, clearly, we are focused on bringing the combined ratio down from the 93% normalized to 92%. So -- and as we discussed also in the past, one area of focus is clearly the improvement in MidCorp. And then we want also to make sure clearly that we are preserving the profitability in retail and also that we might see more growth, even more growth in retail. On the Life side, the message is we want to continue on what we are doing because we think the strategy is paying off very nicely, as you see in our numbers. And for Asset Management, I will say also, you see the delivery in 2021 has been very consistent quarter-over-quarter. So we are very positive on the franchise. And then as always, if rates go up and down, this can create some short-term volatility, but the franchise is very, very strong. And I would say, never been stronger at PIMCO and AGI as it is now.

Thanks, Peter. And we will take the next question from Will Hardcastle, UBS.

Let me say the question. So first of all, I mean, you called it, there's going to be a question on inflation, so I'll ask it. But just thinking about how it's impacting the P&C business. And you mentioned you held something back on the accident year booking. What about on reserves? Anything happened there? And which line should we be concerned or just being on a watch list? Or are we just talking about a general provision at this stage? And the second one is regarding the provision today for Structured Alpha. I guess you mentioned the vast majority of investors are being made whole. Can you just explain to me what isn't included in this provision at this stage and the potential, where incremental costs can arise? Hopefully, that's able to be answered, obviously, without any numbers, but just what could still arise?

So I can pick up this question. So on Structured Alpha, we cannot give you more information. We can just tell you that the provision includes more than the settlement we achieved with the major investors, but we cannot give you more information. One day when this story is going to be behind us, we will be able to give you all the information you wish. But I think you can appreciate that we made -- we are keeping true to what we said. We say we want to put some numbers around this topic by the end of the year, and that's what we are doing. We try to get to a resolution to this issue in a fast way, but in a considerate way. So that's what -- I think you can see that we are doing exactly what we said that we are going to do. But that's all for structured Alpha the time being. On the inflation side, I tell you, when we look at inflation in our Property-Casualty, first, I can tell you that as of now, we don't see inflation which is running faster than what we have in our pricing. And trust me, we are having a lot of conversations with our OEs. So we have been indeed [ looking at inflation ] already starting next year. So it's not been something that we put on watch. At the end of 2021, beginning of 2022, we start watching inflation already basically, I would say, during the summer of last year, and we put this on our agenda. When we look at the trend anywhere, I can tell you that we see some more inflation on spare parts. But for the time being, nothing really gigantic. But there is definitely some inflation spare parts. But just to give you also an idea, when you have a material damage, about 40% of the damage is going to be spare parts. The rest is still labor or could be also painting, all these kind of things. So from that point of view, don't think that if you have an inflation which is running high single digit on the spare parts, you can assume this is going to be a high single-digit inflation of the total claim. And then a lot of our claims are bodily injury. We don't see pressure on bodily injury. And then as always, the answer is going to be different country by country. So we see some clearly pick up of inflation, also in property, to a certain degree, but for the time being, I would say that's all within our expectation. We are clearly monitoring the situation very carefully. And if we -- the message that we send to our OEs is if you see an increase in severity -- because that's the way we talk. You have many things flowing into the severity. If you see an increase in severity, instead of wondering whether there's noise, you just assume that that's inflation and react as fast as possible. The reaction, by the way, is not necessarily just on pricing because we always think that the way to offset something bad is pricing. There are other levers that we can pull in order to mitigate inflation. So we are spending a lot of time on steering. And you might also remember that we put a lot of effort on claims already in the course of 2021. Indeed, that's one of the top priority of Oliver, how we even improve further in effectiveness and efficiency in claims. So our reaction and the plan that we have is not just let's put rate increases, but also how we work on the claims side to minimize the impact of inflation.

Okay. Just as a quick follow-up. I mean it sounds like the action being taken is awareness on the front end on price and actions taken on claims management as opposed to looking further behind and thinking about the reserves. Is that fair?

Okay. Sorry. Yes. Okay. So on your reserve, I can tell you that also that's part of the component, absolutely. Then it's going to be different country by country, but in some countries where you can see also the competitive environment is very tough, one thing that we did was also to make sure that we have a healthy level of reserve because we know that we're going to see some increase in claims, and so we will need to use some additional reserve strength to offset that. So definitely, we look also at increasing -- putting a buffer specific for inflation. So that's what we did. And I can tell you, it's not a small buffer. So it's an appropriate buffer that you want to put in a situation like this.

Maybe I can just make an additional comment otherwise I get bored. I think one of the reporting things that we don't do is, when you look at premium growth or price increase, that is just half of the story, particularly in commercial lines. What we would normally have to report in the future at some point is exposure adjusted price increases. So a lot of the things we've done in commercial lines over the last 2 years, not just on AGC&S, also on MidCorp is to completely change the exposures. So whether that's terms and conditions, deductibles, exposures to highly exposed sectors in the property side, particularly, we have been mandating cancellations of the high exposure risk. Even for risks that haven't seen the claims in the last 5 years, if the technical price to actual price is not consumer rate, we are reducing and have been reducing exposure. So the -- if you were to equalize, the growth numbers are understating really the pricing strength that we have been gathering in commercial lines. And I hope we can see that coming through in the results over the next few months and years.

Thanks, Oliver. Okay. We will now take our next question from Michael Huttner from Berenberg.

And well done for the hard work. It's [indiscernible] I have 2 questions. And in a funny way, they're not -- on the back page, and I think B 47, you show your cash flow, and you did show the total figures, but now we see the details, and non-life seems to deliver less and less cash flow every year. It seems to be at a record low level of EUR 2.6 billion for 2021. And I just wondered if you could explain a little bit what's happening here and maybe what the outlook could be. My second question, and I think you alluded to it. It was once again the net inflows in -- or outflows or whatever in January in Asset Management businesses. And then the last one, on non-life reserves. So I was looking at the SFCR and the excess reserves, which are included, so relative to best estimates have been coming down. And I just wondered if the actions you've taken to add to reserves to reflect inflation, et cetera, would that actually lead to a higher number here? Or does it stay hidden?

Yes. I can take this question. Starting from the last one. We don't have in this SFCR report any indication best estimate versus non-best estimates. So there is -- I'm not so sure what numbers are you looking at, but that's not an information that we provide. I can tell you anyway that, definitely, the margin didn't go down in 2021 compared to what we had in the preceding period. But I think you're now looking at a -- you are not interpreting that number, whatever you're looking at, in the right way, but I'm sure that Oliver can help you with that. On the flows for PIMCO and AGI, in January, we had EUR 3 billion flows in -- combined and more or less half-half between AGI and PIMCO. Now I want also to say if rates go up, we might see clearly some negative flows at the beginning might happen. This is still a positive anyway for AGI, and especially for PIMCO, because every time we ask Manny, the CEO of PIMCO, you like to have rates going up or down? He's going to go for rates up even though in the short term, this is not necessarily positive. But when you look at the midterm, you don't need to look long term, just looking at the midterm, that would be definitely a positive. So if you think in present value of revenue and profit, definitely higher rates are not a negative for Asset Management. If you focus on a quarter, that's a different story. But I think the right way to look at that is a little bit of a present value instead of a quarter. And then on the cash flow, okay, what you have to consider is, in 2021, clearly, there was the impact of COVID on the P&C side. So we got a little bit less dividend, for example, from Allianz Germany last year because -- in 2021, because of the 2020 impacts. But also then consider that, especially where we have composite insurance companies, which is -- can be the case also in Italy, in France also, that's the way we look at the business, we can get dividend excess capital from one entity or the other depending on the situation. So fundamentally, I will not look at the segment. You should at least combine Property-Casualty and Life together. And that would be maybe a best way to look at that. Fundamentally, over time, in Property-Casualty, we would expect the remittances to be about 80% of the net income that should be -- depending on the growth rate, but that should be definitely a baseline, if not higher, for the profit that you -- for the dividend that we'll get out of the Property-Casualty side.

By the way, those are 3 questions, not just 2, but anyway. [ We will be taking ] -- no problem. I'm just joking. We will take the next question from Ashik Musaddi from Morgan Stanley.

Just a couple of questions I have is, first of all, I mean, can you give some color as to how this EUR 1 billion buyback has been achieved? How did you get to this EUR 1 billion number? I mean, historically, half yearly was kind of EUR 750 million. Full year was like EUR 1.5 billion. So how do we get to this EUR 1 billion number? And just linked to that, I mean, would you say that the Structured Alpha fund or -- and/or discussion with the regulator is playing a part in this -- coming at this EUR 1 billion number? That's the first one, would be very helpful. Secondly, there was a strong premium progression in the P&C business in fourth quarter, which is what we saw like in third quarter as well. But would you say just a base effect or would you say that there is some movement from your side to start getting a bit more on the top line as well? So that would be the second question.

So maybe starting from the buyback. We thought that's -- we have basically EUR 4.4 billion of dividend. When you add another EUR 1 billion of buyback, we are at EUR 5.4 billion of redeployment. And we want to see what happens during the year. So we didn't necessarily overthink with a -- it should be EUR 1 billion, EUR 1.5 billion. We just said that's -- to start with this amount, and then to see how the situation is going to evolve, and then we will take further decision as we go into the second part of the year. But don't think that there is a lot of overthinking about whether it should be a little bit higher or not. On the point about the growth that we see coming, clearly, we had some strong growth in the fourth quarter. You can also see -- in reality, if you will look at the analytics that some of the growth has been driven by AGC&S. Partners was very strong and also Euler Hermes. But even if you adjust for the global lines, you see about 7% growth rate. Now there is a thing that you need to consider. This is also a growth rate compared to the fourth quarter 2020. And if you look at the trajectory in 2020, clearly, you have a situation where we got into COVID in Q2. And then it was going down Q3. Q4 was still a lot of lockdowns. And then Q1 2021 was still pretty down, and then you still -- you see a recovery. So think about the sort of concavity. So that's the reason why you're going to see a growth rate which is a little bit more pronounced than normal. This said, if you ask me, the expectation for 2022 is a growth rate of, I would say, 4%, let's say, 3%, that will be low, be honest, but you never know what the environment might be. And we might go all the way to 5% depending on how the economy is going to evolve. So I would say, a range between 3% and 5%. And my peak is about 4% growth for 2022.

All right. Thanks, Ashik. And we will take the next question from Andrew Ritchie, Autonomous.

First question, just on the cost-income ratio on the Asset Management business. Giulio,could you just tell us, is there any investment to occur? Also, we're aware of some inflation in staff costs. Most of the listed asset managers have been guiding to higher cost-income ratios in 2022 to reflect that. Could you just give us some sense of that? But also, could you remind us of the flex on the cost base of Asset Management in the event that assets are lower given market movements? I think in the past, you've said it's like a 60-40 fixed variable. But could you just remind us on that? I'm just trying to sense what the flex is. Should the asset -- the environment be trickier there? Second question. The move in interest rates, as in the past, caused volatility, particularly in the German life investment spread. As interest rates rise, I think you have some interest rate swaps that get negatively marked. Could you remind us what the volatility could be as interest rates rise to the investment margin? And then the final question is just a broader question for Oliver really. I think you said you've learned lessons from Structured Alpha. And in particular, it had precipitated a sort of thorough review of products, sales practices, all that kind of -- those kind of issues. Is that really completed? Have you really done that in depth across the group in what's been a relatively short time? Or is it still work in progress?

Andrew, the issue is a formal answer now. We've done a lot of things. But until the U.S. authorities have issued their statement of facts, as they called it, I think you know that we are not allowed to comment anything also on internal investigation and the outcomes. But rest assured, we've been working relentlessly. By the way, I would also like to remind everybody, we actually did completely change the top management team of AGI at the end of '19. And we started before the financial flash crash to work on massively simplifying. So it's a bit unfortunate for the team at AGI. And I'd like to express that, that what happened happened. So we did say right before that we want to reduce number of products and strategies by more than 40%. And we have done a lot of that heavy lifting already. You see that in the cost-income ratio, by the way. So complexity has been reduced. Productivity has been increased. And this is ongoing. And we do that across our universe now and consistently. And it started with a question of what products do we really want to offer relative to the risk return profile that we feel comfortable with. So the first question is, do we need to be in certain products really even if they're attractive? And the second one question is, how do we then look beyond models, risk model, Solvency II, where true risks lie regardless of capital charges? And how do we deal them -- with them? And again, not by adding safeguarding functions and all kinds of protocols, but really aligning incentives, selecting the right people and things like that. But again, details, we can -- if and when we have addressed that with the U.S. authorities, and I beg for your understanding really that we discuss it in depth once we have done that, hopefully soon. But the first major milestone we have done, I'd like to reiterate, because it's been not well understood, that we did not just intend, but we have settled today and early in the morning with the vast majority of the exposure in terms of investors. And we have taken beyond that some caution also on -- beyond the investors on some of the litigation fees. But that's as much as I can say today.

On the other questions, on the questions regarding inflation for asset managers. I can tell you that in the U.S., we see some wage inflation. So that's definitely the case. We see this also to PIMCO to a certain degree. You know PIMCO has basically a philosophy that the cost-income ratio should be below 60%. So from that point of view, I don't have a concern that we're going to be able to stay below that level of cost-income ratio. But clearly, you might not see the 57.4% that you saw in 2020, '21. So there is some inflation that's more pronounced in the United States as opposed to other geography. On your questions regarding the margin of cost-income ratio, it's the reverse. So now we have 60%. I think it's more like 40%. So at the end of the day, if we lose 100% of revenue, we will say the profit margin, it should go down by about 60%. So that's the way to think about how we look at an impact of lower revenue, what does this means after cost for our profits. And then you had a question on the swaps that we have, this is mainly in the Allianz Leben. And by the way, we are using hedge accounting to the extent we can use hedge accounting. But there is clearly some part of this position that we cannot put through hedge accounting. I will tell you that the situation is, in reality, manageable. Because, yes, if rates go up, we're going to see a loss on the part which is not under hedge accounting. But we have enough -- the levers that we can pull in order to get to the desired operating profit. We have a lot of buffer. And we have policyholder participation too that can be utilized in order to stabilize the profit. So in reality, the only issue is, if you have a spike of interest rates at very end of a quarter or, let's say, of the year, because in that case, clearly, we cannot activate some of the levers that we have at our disposal. But as long as we have time to react to an increase in interest rates, we have things that we can put in place in order to stabilize the profit at the targeted level.

All right. Thanks, Andrew. And we will take the next question from William Hawkins.

My first question feels slightly redundant because you just published your business plan. But Oliver, since you showed that Slide 12 to focus on diversification versus tail risk, I wonder whether you ever kind of reflect that maybe reducing the footprint of Allianz could be a constructive way of reducing the tail risk. It's eye-catching that every so often, it's a tiny business that causes a disproportionate amount of problems for Allianz. Now you may just look at that and say, well, that's part of the cost of being a successful diversified business, or it may just be that if everyone is spread so thin, there's always going to be something which is creating a bit of a headache. So since that you showed that slide, I wondered if you could just talk about the temptation to reduce the footprints overall. Then secondly, please, Giulio, I think it's now at least 3 years when you've been telling us your investment margin is going to be about 75 basis points and ends up being about 85 basis points, which is lovely. But I'm kind of wondering here, why is it going to be 75 this year? Can you just kind of help me understand why 75 is the magic number? And also, does there come a point when if you've effectively taken 30 basis points that you didn't intend to take over the past 3 years and the investment margin is ultimately a zero-sum game, are you just accelerating profits that means at some point, that figure may decline slightly more quickly? And then thirdly, please. On that Slide B 9, when you're showing the solvency walk, what do we think the SCR business evolution is going to be this year? Is it -- I assume it's going to be small in either direction. But is your SCR going to be consuming capital or releasing capital in 2022, please?

Well, very good question, and something that we spend -- in terms of the portfolio, we spend a lot of time on. Actually, I tend to disagree because AGI is a super big business. It made more than EUR 900 million in profit, 40% up. By the way, had the largest flows ever, third largest in the equity. So unfortunately, the issue is in there, from a significant business, not from a small one. The question is actually more around what we had before. The question also from Andrew, what are the right products and elements to be in? And are we comfortable with them under severe stress scenarios, right? Something may work very, very well under sort of assumed normal situation. But when a tail market event hits, are we then still comfortable? And the vast majority of our businesses are rock solid even under severe stress. Let's take Turkey that we just had discussed earlier. Many competitors find it completely impossible to operate in this environment. We are the market leader. And we are returning more than 20% ROE, by the way, in euros. And that is really important. So what we need to do is, wherever we operate, we need to be a market leader. So the answer is we need to get out of businesses where we clearly are not the market leader and we cannot deliver best-in-class performance. And that's what we do. That's why in '16, we went out of Korea. Because after trying a long, long time since 2001, we convinced ourselves we couldn't do that, and that's why we're getting out. And again, AGI pruned or is pruning 40% of its portfolio in order to make sure that we're not just cost-wise, but also exposure-wise getting to the things that we should be focusing on. I have to tell you, I find these focused strategies a bit ridiculous because, in reality, people sell a lot of their businesses that they don't know how to run, book an accounting gain, and then call that focus. And there is a very nice saying that nobody ever shrank to greatness. We really believe that we can build scale and do that. But we don't do that by buying large companies. We do, again, as I said, string of pearls. And we need to make sure if we can't get to a leadership position in a certain period of time, we are going to exit. And you will see that as we think about it or we need to transform. Let's talk about AZ Life. Everybody and their friend and mothers had to spend billions to get into the U.S. life market in the '90s. And then the middle of 2000s, had to go home with their tail between their legs. We have built one of the most successful life companies in the United States. And people still said we don't like the exposure. And I actually understand that given the size of the balance sheet and the capital consumption. So we've now worked 2 years on how do we leverage private market capital in the way that gives us much better returns and much better growth. And that's what we're doing. So we are transforming really the most capital-consumptive part of our business and turning them into fee-based businesses. Will there be volatility? Absolutely. The issue is more working not on the small things that create the problem, but making sure that the large ones -- AGC&S, by the way, is also large, are run with the same intensity and diligence as everybody else, which means we need to move away from cross-subsidies. I think the issue and the culture is more we're doing so well that people can become complacent. And that's the one thing we need to fight. We need to be having the fighting spirit. We need to make sure that some people don't bet on the strength of the company. And that is really the job for the next few years. Make sure that all cylinders fire, not just 8 or 9 out of the 10.

Yes. And on your question, maybe starting with the first one, which is on the investment margin. First of all, I'm the one like -- the one that says the stock market is going to go down and still keep -- always saying that, hoping that one day it's going to be right. So that's a little bit my philosophy on this one. But seriously, I would say we might be slightly conservative maybe in our guidance. But fundamentally, there are a few issue why the investment margin has been high in the last year as compared to what we would expect. This year -- or last year in 2021, definitely, the volatility has been very low so there is a push in the investment margin because of low volatility coming from the United States. In the case of 2020, where we put also in the investment margin in the case of Allianz Life is any positive unlocking in VA or also in FIA because they can affect basically the line item that goes into the investment margin. So from that point of view, positive unlocking. And we had positive unlocking especially in 2020. In Allianz Life, they have a positive impact, technically speaking on this investment margin. So from that point of view, I tell you, 86 to 87 basis point is definitely not the investment margin that we expect on a normalized level. I would definitely say that the expectation is to be below 80. And now we can discuss whether 75 is maybe slightly on the conservative side. But I'm pretty confident that a normalized expectation is below 80. Now one thing that you need to keep in mind. If you do your math, you cannot assume that a reduction in the investment is one to one, a reduction of the operating profit because there is a [ deck of sets ]. So that's very important. Every time you do your calculation, don't say, okay, if Giulio tells me there is 10 basis point less of investment margin, you start doing your math, and you said this is one to one equal to profit. You can assume that there is about 30% of the [ deck of sets ] on every reduction that you do on the investment margin. And that's how you can somehow get to a proxy of the operating profit impact of normalizing down this number. On your Solvency II business evolution question, I can tell you that from the life side, we expect basically no contribution from -- on the SCR. Because right now, we see that the release of SCR coming from the in-force running out is in line with what could be the increase in SCR coming from the new business. So from that point of view, the expectation is basically that we're going to see this also in the future, if not even more pronounced, this kind of tendency to have even a release, if you want, a slight release of SCR. And then the increase in SCR is going to come from Property-Casualty. And I can tell you that if you -- we apply as a rule of thumb, you can apply something about 30% to the NPE growth and that's how you can somehow get to a proxy of the increase in SCR. So -- and that's what you see also basically in our numbers in 2021 is all driven by NPE growth. And if you assume something between 25% to 30% of ratio to NPE, you get a good proxy of what the SCR might be doing. Is that helpful?

Yes.

Will, just on a facetious note, AIM has been exceeding our expectations with the shift to alternative assets, that has really bolstered our returns. The old assets are substantially more profitable, by the way, not just on the Life side in terms of returns, but also in Asset Management. However, they also tend to be more lumpy in return. So the one thing, and we'll know that it's going to come from IFRS 17 too is these things are a bit more lumpy and that's why we are very cautious in terms of forecasting average numbers. So numbers will be risk-adjusted higher, but they may be a little bit more volatile. And therefore, we'd rather be a bit more conservative as we tend to be.

All right. We will take our next question from Vinit Malhotra.

Just -- so very quick 3 ones. One is on the target. So Giulio, you mentioned about history. When I look at history, I mean, except maybe the COVID year 2020, the actual has always been very close to the top end of the guidance. And now we see EUR 14.4 billion as the 2022 outlook upward limit. And that's so close to the 2024 target. I mean could you just talk about scenarios where this could actually happen this year? And then obviously, then we have to think of higher target for 2024. So that's just the first question. Second question is on the P&Cs in Spain. MidCorp is being mentioned. Now from just hearing many other companies, it seems MidCorp has been the sort of attractive business. Could you just talk about what happened there? Or -- and you mentioned conservatism. Is that more conservatism? Or is there some issues you'd like to flag on that side? And lastly, capital efficient products in Life, I think EUR 415 million is probably the highest quarterly operating profit. And in the past, maybe 2 years ago, I've asked you whether you were seeing a bit -- a change in the profit numbers of capital-efficient products. Is that the accounting effect? Or is it what we just heard from Oliver about how the Asset Management is coming in and helping create more value?

Okay. So the first question was on the outlook and how we got to the EUR 14.4 billion. I will not be focused too much on the EUR 14.4 billion. Because I will say, to get to that level, we should really have the opposite of the perfect storm like very low nat cat level, very strong capital markets or a good level of performance fees. That's how we can get there. . I will say that, as you said before, we have a tendency to end up in the upper half of our outlook. And so yes, we will see what happens in 2022. But I think this could be more reasonable expectations suppose we go all the way up to EUR 14.4 billion. But clearly, if we see very benign market condition, we see very low nat cats, that could push us clearly to a very high level, but that would also be not necessarily what I would call a baseline. So that's on your comment about the EUR 14.4 billion, what could bring us there. On Spain, on MidCorp, the issue there has been also large losses. So clearly, when we look at large losses, we are always very cautious because it's too easy to say large losses are just volatility, and they are going to normalize away. That's the reason why we will clearly take a close look at performance of that book. And anyway, we are also putting rate increases there. So -- but fundamentally, the issue has been an accumulation of large losses, but we don't take this necessarily as an explanation to say everything is fine. And in 2022, there will be no issue. Also, the motor performance is good because there is clearly also still a low frequency in Spain. But we are also kind of prudent in the sense of we might see clearly an increase in frequency potential in severity as we go into 2022. So there was also some element of prudency on that aspect. So it's a little bit of prudency with respect to motor and then also large losses that have affected the MidCorp business. The last question was on the capital-efficient products. What we are seeing right there is the combination of Allianz Life, delivering very strong performance in fixing this annuity and also in the so-called RILA, which is the register in this life annuity, which is you know what has replaced basically the old VA business. And also what we see is clearly the -- and we said that -- also in the past that there is a trajectory coming from Allianz Leben. In the past, you didn't see much of profitability in that line of business coming from Allianz Leben. Because due to the accounting, the way we do the accounting, there was a sort of strain also under IFRS -- the current IFRS. And now this strain is going away because the book has achieved clearly a different size. So you can really -- if you want, the growth in profit is overproportional compared to the growth of the assets and the management of the business because of these accounting issues. So you see maturity, if you want. Think of that Allianz Leben capital-efficient product was almost like a start-up. And now after 3, 4 years, clearly, you see performance kicking in. And also, we are pushing these capital-efficient products also in other markets. But the main driver of this performance are Allianz Life because of the strong delivery there and Allianz Leben because of the strong delivery with this sort of embedded growth because of this accounting drag going down.

Thank you, Vinit. So the official time for our call is over, but we still have a couple of analysts in the queue. So we'll add a couple of minutes and try to get everybody into the call. And we will take the next question from [indiscernible] from JPMorgan.

3 questions. The first one is just, you clearly have good success in the U.S. on back book deals. Can you maybe talk about potential elsewhere in the group outside of the U.S., that there is potential for deals and whether actually there's enough capital out there to kind of support those deals? The second question is just on nat cat budget. Just could you give us some kind of guidance around how that changed or -- and to what extent that's forward-looking rather than based on history? And the third question, I guess you're one of the first companies to report that has a big U.K. Motor business. Any thoughts on how the U.K. pricing practices review have impacted the market yet?

Yes. Maybe I'll start with the last one. So on the U.K., I think the situation is very fluid, let's put it this way. What we understand from our -- so I don't have a definitive answer, let's put this way. But what I can tell you is the following, that we started January with a pricing which was new business pricing, which was more conservative compared to what the market was put in there, and we saw that the competition was more aggressive. So to a certain degree, we had to make some adjustment to pricing. Now we also believe that there could be some movement in the other direction from the competition. But fundamentally, it's a little bit too early to say. The only point that I can make is that we started with a more conservative position than what our competitors in general has and now we need to see how this situation is going to evolve and stabilize. So I think we can speak about this issue when we have a Q1 call. I'm sure at the point, I can give you some good indication of what has happened, because right now, the situation is still developing. On the nat cats, I'll just tell you the way we are thinking about nat cats. And maybe let me tell you that when we look at nat cats, internally, we look at nat cat and weather-related losses. So overall, in the past, for the sum of nat cat and weather-related losses, we had a budget of about 3% of premium. And we moved this budget up already in the last 2 years to about 3.2% of premium -- percentage point of premium. And now we -- for 2022, the way I look at that is 3.5 percentage points. So I would say that compared to the situation of 3, 4 years ago, we are 50 basis point higher in the cat allowance, including weather-related, than we were at that time. And now to give you also an idea, anyway, we have an aggregate in place. So I will say that if we see more nat cats that are included in this 3.5 budget, I would say, when we start getting to 4.5 percentage point of load, that's the point where the aggregate should come into place. So think about that combined budget of nat cat and weather-related of 3.5%, which is 50 basis point higher compared to what we had a couple of years ago. And then I will say, at 4.5%, we should be kept in terms of nat cats load because the aggregate will come into place. That was clear? Okay. Perfect.

Yes, that was very clear.

And then on the back books, I think there is appetite out there. Yes, there are -- you saw that there are a lot of transactions happening also in the U.S. [indiscernible] announced a transaction just after having done the Lucid transaction, and they still have appetite to do things, i.e., just -- yes, there is appetite there. So it's not a problem to find buyers. And from our standpoint, clearly, we are continuously looking at what our options are. And if we believe that doing -- that both transactions is the right way to go, we are going to do so.

Yes. I would like to make a point that Giulio actually made this morning. I'm missing a little bit energy today. So I wanted to make the point. It's not just about selling books as what -- how the bankers see it. It's actually the last resort. If you don't know what to do, you need to sell a business. There are many other levers. Giulio made the 2 examples today that I would like to repeat. First, in Italy, on the pension business, we have been renegotiating some pretty capital-intensive contracts in a way that has provided massive capital relief. And we are continuing to do so. Actually, the industry is picking this up now so there may be more larger contracts also for us that are changing. The other one is France, where we are working very hard, not just on the new products that have 3x the margins that we had just 2 years ago, but also transforming the in-force because they come with higher investment upside for our consumers. And our sales force is actually super excited to provide an alternative to sort of the lower-margin products that came with the old tax benefits. And again, the regulators, they are very happy because we're providing more upside at much less capital consumption. So there is many levers that we are pulling at the [ same side ]. And people only look at sort of, are you selling reserves? That is just one part of it. The second thing is many of these things take quite a while to prepare in order to get them really as a win-win. So for example, in Switzerland, we've worked for 2 years and before we did the first ever direct insurance into Bermuda. And also, Lucy didn't come -- our project in the U.S. didn't come overnight. We actually observed the market. And we saw a massively growing interest into a transaction, particularly in the quality of books that we have relative to other people that really have problems. And therefore, you've seen this enormously beneficial economics for our partners and for us because the quality is so strong. So we really have to get the timing right in order to extract the maximum value for our shareholders. This is different for other people that have real problems and really need to get out of businesses, which we have been addressing quite a few years ago. So this is now really about optimizing risk and return. And it's not about solving a problem per se because we don't think we have a problem really left other than the smaller items. And that is super important. We're literally thinking about the transformation. Now the next step is not just thinking about in-force, but also leveraging, because I love your question. How can we do this for new business? So what we're working on is to work with private capital to say, there are highly competitive segments of the market in the U.S. and elsewhere. Can we not set up structures that -- where we do the product design, where we do the distribution, we capture a very nice share of the value creation and then put the business on to balance sheet that have much better cost of capital than we do have. So that's the next level of transformation that we're working on. And the way that's coming, some of that is coming in '22. So we are super excited to drive value creation massively. So I made the joke and says, as Giulio said, with the P&C business, with a new business strain of 30% of net earned premium, if we could do the same thing in P&C to really not have an SCR strain anymore from new business, then we found really a cool trick. Kidding aside, so in Life, we've made huge progress after working out for many years. And now it's really about driving growth at ever-rising ROEs. And I would like to point out the key thing is not the ROEs. It is to reduce the tail exposure. So making sure that we systematically reduce the exposure to tail shocks. And you're going to see that in the reducing volatility of our Solvency II ratio and strongly growing Solvency II ratios because the new business now is going to be accretive to Solvency II. And which is a total change, and it's coming this year, right? And I think the investors community has not really understood yet and picked it up.

All right. We have one caller in the queue, then I guess we have to come to an end. We will take our last question from Thomas Fossard from HSBC.

Yes. Just one last question for me, related to your credit insurance business [indiscernible] back to very strong operating profitability in 2021. Giulio, could you tell us while you're dealing with the profit sharing or repayment of the public scheme and how much you've been able to front-load, if you wish, the profit sharing that you need -- that you hold to the -- to the different state and -- or how much we should expect still to come in 2022?

That's -- we start the agreement basically in June 2021. So in 2022, there is no profit sharing. Now what is happening to the extent that the reserve was set conservatively. When we have a runoff, we are sharing the runoff, positive runoff with the states. But the majority of that happened already in 2020, '21. So I would say, as of 2022, since we are out of this profit sharing and since the excess prudency in the reserve, let's say, has been also released, there is not much left from that point of view.

Okay. So 2022...

Business as usual, yes. Absolutely.

All right. Thanks very much to everybody who joined the call. In case there are any questions left, please call myself or my team. We will be very happy to help. For now, we say goodbye. We wish you a very pleasant remaining day and a nice weekend. Goodbye.

Thank you.

Thank you so much.