Allianz SE (ALV) Earnings Call Transcript & Summary

Good afternoon, and Welcome to the Allianz Conference Call on the financial results of the third quarter 2023. As always, let me do the housekeeping first and 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] Today's call will be conducted by our CFO, Giulio Terzariol; and our CFO-elect, Claire-Marie Coste-Lepoutre. That's all from my side for now. And with that, I turn the call over to Giulio.

Thank you, Oliver. And good afternoon and good morning to everybody. Welcome to the call for the third quarter results of Allianz Group. As always, I will start with and then Claire-Marie will lead you through the rest of the presentation. So if we move to Page 3, you can see that for the 9 months, we have a very strong set of results. When you look at the revenue, the revenue are up 7%, and that's driven by the Property Casualty segment and also by the Life segment. In Asset Management, we see a little bit of negative trend compared to last year. But as you're going to see in a second, in the third quarter, we had positive growth also in Asset Management. The operating profit is at EUR 11 billion, which is 4% ahead of the last year results and also about 3% to 4% ahead of our outlook on a pro rata basis. You can see that in property casualty with a EUR 5.3 billion of operating profit, we are in line with our expectation. The combined ratio is slightly more elevated than our target to 93% and to the other side, also, we are benefiting from higher investment income. So totality, the operating performance is strong and at the level that we were expecting. In the Life and Health segments, we have an operating profit of EUR 3.8 billion, which is significantly ahead of last year that's also due to the first-time implementation in 2022. But more important, the numbers on the Life side about a couple of percentage points ahead of our expectations. Also in this segment, we are running in a way which is positive compared to what we were expected at the beginning of the year. The new business margin is stable increase. It's a very good level for 5.9%. So also from a new business point of view, we see a good development. In Asset Management, we have an operating profit of EUR 2.2 billion, which is in line with our expectation. And again, we had a quarter with positive inflows. So in total, we stand at about 30 billion [indiscernible] for the first 9 months. income or better core income is 25% ahead of last year. Here, we need to run a few normalization. You remember, we had the impact of [indiscernible] last year. We had also the gain from the Voya disposal so we run capital normalization, we get basically back to a growth in core income, which is pretty much consistent with the growth in operating profit. So all in all, a strong set of results, I will say, across the different segments. And as you might recall, last year, we had a record profit so we think that with EUR 11 billion of operating profit after 9 months, we are well positioned to have a gain in 2023, a strong year and strong delivery. And with that, I will turn it over to Claire-Marie for the quarterly view.

Thank you very much, Giulio. Good afternoon, good morning, everyone. I'm very happy to be here today. And I will now present to you our third quarter results. So moving on to Page 5. There, you can see that at 3Q, we delivered EUR 3.5 billion operating profit, which is a good result in the light of EUR 1.3 billion nat cat load, which is impacting our P&C segment. To put this load into perspective. This is the largest one we have experienced along as Allianz Group over the last 10 years across all quarters. So you have to go back to January 2011 to find a similar cat experience. We also have, in particular, in this quarter, a negative FX effect, which is impacting our operating profit. So our operating profit FX-adjusted, will be 10% better compared to last year. Our shareholder core net income is at EUR 2.1 billion, is basically following the operating profit, and the comparison to last year is impacted by the EUR 0.5 billion of positive gains that is coming from the Voya transaction into the quarter. In terms of growth, we experienced a very good top line growth in 3Q that is stemming from all our segments and this is also a pattern that is accelerated compared to previous quarter. If you look in particular at P&C, you can see there our very strong internal growth that is above 11%. Obviously, for P&C in the combined ratio, you can see the very high effect of the nat cat load. What I think is very interesting is a very healthy underlying development of our attritional loss ratio, which is as well improving quarter-on-quarter. And that's also a very good sign. I think in the sense of the actions we have taken to offset the inflationary environment. Life is as well delivering a very nice growth into the quarter with 8% internal growth at a very good new business margin above 6%, which is as well ahead of our new business margin target of 5%, together with a nice operating profit of EUR 1.3 billion into the quarter. Asset Management is also delivering an operating profit of almost EUR 800 million, double-digit net third-party inflows during the quarter and strong performance fees that are also contributing to the operating profit. So overall at 3Q, we see a very healthy and strong business that is impacted by the cat event. We are very confident we are on the right track for year-end and as well that we have the right base for -- as we are going to move into next year. If we move to Page 7, and we have a look at our solvency ratio. Our solvency ratio is at 212% at the end of the quarter, which is up 3 percentage points versus last quarter. And as well, I think it's worth noticing that our sensitivities have slightly reduced versus June to the downward scenario. So overall, I think it's an extremely solid capitalization, this despite our share buyback and the growth we are seeing into the business. And this solid capitalization is as well recognized by the rating agencies. You have certainly noted that Moody's did upgrade us to from Aa2 to Aa3, which is also a very good result, I would say, and confirming our situation. If we move to next page, Page 9, we basically presenting the development work of our solvency ratio. What I think is particularly interesting on this page is a very good organic capital generation of 7 percentage point pre-tax and dividend. Life is fully self-financing into the quarter and P&C is requiring capital for growth. So that's a very good development. So overall, I would say on solvency, we have no surprises whatsoever in the quarter, and we have an extremely solid base. Let's move now into the P&C segment, and let's look at Page 11. I think this Page 11 is actually a very good page. And that's a page, which is very much in the continuation of the second quarter, if you look at it. There, we see growth that remains excellent, and this almost across all our operating entities. So that's very solid. And what we see as well is a very strong rate change momentum that is continuing quarter-to-quarter. That is really to the credit of our operating entities, which have been injecting price actions to offset inflation, and we see that clearly materializing into that page. Let's move now to Page 13, and let's have a look at the development of our operating profit. So operating profit in P&C is at EUR 1.4 billion, which is obviously strongly impacted by the EUR 1.3 billion of cat load I was mentioning before. You can see that on the insurance service results, which is down by close to EUR 600 million, that also offset partially by the investment results, which is quite supportive of the development. If you have a look at the right-hand side of this page, starting from the bottom. On the insurance revenue, we are 17.5%. So as I was mentioning, really nice growth that's well above last year and that's also above last quarter by EUR 0.6 billion. Our combined ratio clearly is up compared to last year, clearly impacted by a nat cat. If you look at our attritional loss ratio in the underlying, it's 2.4 percentage points better compared to last year and is also better compared to the last 2 quarters. So again, we see that we are acting on the inflationary trend and that this is showing up into the attritional development, too. Year-to-date, our retail combined ratio is at 95.6%, which is a solid performance given the nat cat environment. And commercial, I think, continuous, it's very strong trajectory with a combined ratio at 89.7% year-to-date, which is showing not only I think the overall environment that is supportive to the commercial business, but as well the actions we have taken in that area. Just maybe before we move on to next page. A brief word on the expense ratio, which is showing higher compared to last year. Actually, the comparison to last year is distorted due to some seasonality effect and also some transitionary effect associated to IFRS 17. What I think is important to have in mind is that this 25.1 is in line with previous quarter and is also broadly in line with our expectations in terms of expense ratio. If we move to Page 15, and we have a bit closer look at operating entities, in terms of operating profit. What you can see on this page is that clearly, nat cat is impacting certain entities quite strongly, in particular Germany, Italy, France and Switzerland. I want to point out still that if you look at the year-to-date performance of those operating entities. So as an example, you take Germany, we are at 94.2% combined ratio year-to-date. If you normalize as well for the cat event, you are below 90%. So clearly solid, a very solid delivery Italy is at 92.1%. Also year-to-date, same thing if you normalize also you come in the order of magnitude you expect in terms of performance for those operating entities. What I think is also positive on this page. If you look at it, is that some of our OEs with high inflationary pressure are stabilizing and improving. This is the case for U.K., for Spain or for Brazil. And the commercial business is very strong with AGCS at 90.7% combined ratio, also impacted by some cat effect, by the way. And trade is at an excellent 75.2% combined ratio. Let's move now to Page 17, and let's have a look at our operating investment result in the P&C segment. So we are very much in line with the second quarter on that page. We have an excellent performance with EUR 800 million operating profit in the quarter. What I think is particularly interesting is our reinvestment yield. You can see it's close to 5% at the end of the third quarter. It was at 1.3% in 2021. That's not on the page, but it's clearly improving very strongly and contributing positively to the performance of the segment. And also, as you can compute to the delta to our -- between our reinvestment yield and the [indiscernible] yield is 1.3%, and that as well is a good sign for the future on the profitability of the P&C segment. The interest accretion is fully in line with our expectations for the quarter. So overall in P&C, we have a very good commercial business. In retail growth, we see accelerated rate momentum. We see as well supporting investment income. So all of this makes us positive in our ability to manage the inflationary environment as we move into the fourth quarter and into next year. Let's move to Life now, and let's have a look to Page 19. Overall, I think for Life, see good developments in this quarter. We have a double-digit new business growth in local currency. We have an attractive business margin that is above 6%. And we have our CSM developments and our operating profit, which are very much in line with our expectations. So now if we have a look in more details at Page 19, what we see is a very good growth. We have our PVNBP, which is by 6.9% and also supported very nicely by many operating entities. So you see we see nice growth from the U.S., from our Italian business as well, which has a successfully launched some new products. You also see like the very good development into the business of [indiscernible]. And also in the current environment, announced Germany typically has a stable development as well. What you need to have in mind is that you also have this discounting effect which is coming into PVNBP because as we have higher rates, obviously, we discount more. If you were to address for this discounting effect into PVNBP on a year-on-year basis. Actually, the growth in our life business will be at 8.6%, so much higher up. What I also think is very positive in terms of growth trajectory is that this is building up quarter-to-quarter. So we see this is coming through as we are also adjusting to the environment. We have a very good new business margin that is above 6%. And you can see that this is also nicely spread across the various entities depending on the underlying of the business. So overall, this is leading us to a value of new business that is close to EUR 900 million and this is also clearly up compared to last year. And if you -- again, fix address this development, that will be 6.1% or 6% higher compared to last year. This value of new business of EUR 900 million, I just want to flag slightly lower compared to what you would see on for typically Q1 or Q4 because the production in the third quarter always tend to be slightly lower compared to the other -- through Q1 or Q4 in the development of our business. Let's move now to Page 21. And let's have a look at our CSM. So there is a bit of noise on that page that is linked to some accounting effects. So you have to bear with me for a minute. I'm going to try to explain that as nicely as to all of you. Normally, what we would expect to see is that the growth and the net CSM will need to move in tandem. This is not the case for this quarter, and this is due to some accounting effect. Fundamentally, what I think is very important for you to remember is that this is not impacting our forward-looking value creation as the net CSM, which is a better indication for the value creation is showing because our net CSM is actually slightly up by EUR 0.8 billion. What -- now let's have a closer look to these CSM development, and let's maybe start with the CSM release. So you can see our CSM release is at EUR 1.2 billion. Actually, FX-adjusted is EUR 1.3 billion compared to last year. And, sorry, it's EUR 1.3 billion. So if you -- and this EUR 1.2 billion is actually very close the EUR 5 billion you will expect on a yearly basis. So that's very much in line with expectation. The second effect is that our normalized CSM growth is slightly below 1%. That's slightly below, but this is normal and that's linked to the lower production you would expect to see in Q3 compared to the other quarter. So what matters is to have a look at the normalized CSM growth on a year-to-date basis, which is very much in line our expectation for the entire year to be between 4% and 5%. Our CSM sensitivities on this page. As shown on this page, are unchanged compared to last quarter. That's also a good sign in terms of development of the CSM overall. Let's move to Page 23 and let's have a closer look at our operating profit. So our operating profit for the Life business is good at EUR 1.3 billion, and that's in line with the CSM release. I invite you not to look at the third quarter 2022 on this page because it's slightly distorted by the introduction of IFRS 17, so it's not that relevant. But what I think we see when we move from the CSM release to the operating profit is that all the elements are broadly in line with expectation. Maybe with the operating investment results that is slightly ahead of our yearly expectations, which are at EUR 71 million will be the only point I'd like to flag on this page. Let's move to Page 25, and let's have a look in more details at our operating entities. So in general, I think this page is showing the profitability across [indiscernible] are on the Life side is at a good level, without any exceptions. And that's also very good sign in terms of strength of our [ Life ] franchise. So overall on Life, we see good business are very good business margin. We see a normalized CSM growth that is between 4% and 5% and we have a year-to-date operating profit, which is at EUR 3.8 billion, which is up versus last year, and which is fully in line with our expectations for the year. Let's move into Asset Management, and let's have a look at Page 27. Overall, our asset management business is very resilient in the current environment and delivering in line with expectation. Our total assets under management are stable at EUR 2.2 trillion. And if you have a further look at our third-party asset under management, they are up 2 percentage points versus last year. And this, despite the rising yield environment, we continue to see. Moving into next page, so Page 29. You can see more details on development of our third-party asset under management. We have seen in the quarter, close to EUR 11 billion net inflows. And this is supported by both AGI and PIMCO. And it's mainly then going into fixed income and alternatives and also maybe to worth noting out is that on the PIMCO side, we have seen since the beginning of the year, EUR 30 billion net inflows for -- and we have seen positive net inflows for our third quarter in a row. In terms of third-party asset management development as well. We can observe that the negative market effect has been almost offset by the FX effect at this point in time. Moving to Page 31, in terms of revenues, you can see that our internal growth is 4.5% as on a year-on-year basis, we have a negative FX effect, which is explaining the nominal revenue to decline. But clearly, on this page, we see strong performance fees, which are stemming from PIMCO, in particular, and see resilient margins, both above last quarter at AGI and PIMCO. And if you look in a bit more detail, typically at PIMCO, you have our margin level is actually -- may appear slightly reduced compared to last year but you have many technical effects coming into that number. And typically, in that case, that's fully explained by the number of fee days as an example, that is used for computation here. On AGI side, the developments are also fully in line with our expectations because you need to adjust for the Voya transaction and for explaining basically the development on that page. Let's move now to Page 33. And let's have a look at our operating profit. We achieved a good level of operating profit that is close to EUR 800 million at 3Q. That's in line with last year, and that's above last quarter and you can see nicely on this page that the revenues are contributing positively and that we have this negative FX effect that is coming into the development of our operating profit. What I think is really interesting to see is the development also of the operating profit of PIMCO. If you FX-adjust this one, we have a positive development of our operating profit year-on-year by close to above 9%, which is an extremely strong result. And we have as well, for both PIMCO and AGI, improved cost income ratio that are definitely moving the right direction, in particular for AGI as we want to drive our cost-income ratio further down towards below 67% and -- over the midterm towards 65%. So also overall, the cost income ratio or productivity that is positive at both PIMCO and AGI and that is at 60.5% for the segment better compared to our early expectations, which are at 62%. So to sum it up, the asset management side, we are a very stable and resilient in the current yield environment, we are well positioned to benefit for growth when rates will stabilize. And with an operating profit at 9M, that is at EUR 2.2 billion we are where we expect Asset Management to be. I'm going to skip Page 35 because there is clearly nothing to mention on the corporate segment. I'm going to move directly to Page 37. And to comment on our shareholder core net income, that is at EUR 2.1 billion, and that's a good level, given the cat effect we have seen into the quarter. This is -- I don't think there is much to comment on 2023. This is mainly following the operating profit development. And just on the comparison to last year. As I was mentioning, you can the effect of the Voya transaction that is showing up on the line item realized gains where you can see the positive effect of the realized gains that came through from the selling as U.S. AGI business to Voya. At 9M, our shareholder core net income is at EUR 6.8 billion, which is clearly solid and clearly also in line with our yearly expectation overall. Now let me move to Page 39, and let me recap as we have a look at our year-to-date status. I think year-to-date, we have very -- we have a strong status across all dimensions. We see good level of growth with EUR 1.2 billion of revenues. That is mainly stemming from P&C. We have EUR 11 billion of operating profit, which is above last year. And I want to remind you that last year was a record profit for the Allianz Group. Our shareholder core net income is close to EUR 7 billion. We have a very strong capital base at 2.12 solvency ratio. And we have a very healthy capital generation while we are delivering on our buyback. So all of these, when we step back and we this strong status, makes us positive on our ability to deliver towards year-end and clearly position us really well as we are going soon to move into 2024. So with that, I hand over to you, Oliver.

Yes. Thanks, Giulio. Thanks, Claire-Marie. We are now happy to take your questions. And the first question will come from Andrew Ritchie, Autonomous. Andrew, please go ahead, your line should be open now.

I just wonder if you could talk generally about catastrophe loss loading and expectation. I appreciate there's an unusual cat load this year, not suggesting that should be extrapolated. But clearly, there might be some trend in severe competitive stores, especially in Europe and your reinsurance [indiscernible] is higher than it used to. So should we think that the cat load ongoing is higher? Would that be offset in your view by better attritional? So that's just the first question. I think, by the way, in relation to that, on the media call, this morning, you mentioned something about Q4 catastrophe load as well. So if you could just clarify that. My only other question was German P&C, why is it so good? I'm talking ex-weather. There's been a lot of color that German Motor has got progressively worse for the market over the year. German Motor is a large part of your portfolio. How come is your profitability ex-cats held up so well? Is this just some of the inflation reserves being fed back through on the calendar year result? Or is it genuinely good on an accident-year basis?

Thank you very much for your question. On the cat loss loading, I think it's a very good question and a very timely question as we are currently in our planning process. I think if you look at our year-to-date cat load, we had 3.1% -- sorry, if you look at our cat load year-to-date, we are at 3.1%, which is I mean, close to our 2.5%, but indeed higher. If you look as well at the recent years, we see that cat load is more around 3%, I will say as opposed to 2.5%. So as we are planning now and revisiting and also running our models likely, we are going to consider increasing this cat load into our planning assumption and moving that up. I don't think it's going to be a massive move up. I don't think it's needed as well, but certainly a couple of bps we are going to consider to do so. Maybe to your second question around the P&C performance. I think we have 2 effects there. First of all, we benefit from very continuous -- very strong developments into our commercial business and ex-nat cat because also commercial has been impacted by some cat effects. The underlying combined ratio is definitely very strong here. But as well, when you look at our retail business across the board, we have been acting very strongly in terms of pricing actions, in terms of re-underwriting actions also into some of our books. And this is showing up. That being said, fighting inflation is a constant journey, I would say, because as you certainly know, the claims inflation is lagging the headline inflation. So it's still continuing to show up. So we need to make sure that we stay on the topic and also, we continue the full toolbox of actions against inflation that we have implemented that is not only integrating pricing actions, but also claims management actions, productivity actions and so on and so forth, so that we can manage the situation.

Sorry, can I just follow up? I was also after the clarity on the comments you made on the media call around 4Q weather. And then just the other clarity was you might add a couple of bps you said to the cat load. Do you think that's an overall addition to the combined? Or do you think you would be able to offset that in the attritional?

Yes. I think if you -- today, I mean, as an example, if you take Q3 and normal Q3 and you had 3 percentage points of cat load, you are around 93% combined ratio. If you do that on a year-to-date basis, we are more on 93.5%. Clearly, I think for next year, a 93% combined ratio, good -- would be a good level for our business. And over time, I think striving to answer 92% for our business will also be, for me, a healthy level, we should be striving 2 months. So I would not take it in addition at this point in time. Maybe then on your question really to Q4. I think clearly, we have seen cat activity that has happened in France in particular, and also in Germany over the last 10 days. We still see cat activities clearly in Q4. So at this point in time, I would not expect that this is going to impact our cat load well above. But I would expect our cat load for the quarter to be in the normalized level, we expect around 2.5%, yes.

We will take the next question from Peter Eliot, Kepler Cheuvreux.

Hopefully, you can hear me. And first of all, very sorry to see you move on, Giulio, but it seems like you've left business in very good hands. Three questions, if I may. The first one, I think, congratulations on the good results. But I guess one of the very few areas of where there was a bit of weakness was the Non-Life expense ratio. I mean you mentioned that Claire-Marie. And I appreciate you can't really look on the year-on-year comparison. But I guess, if we look sort of quarterly, maybe we're not quite seeing the same sort of improvement the way we used to. And just wondering if you could comment a little bit on the likely trajectory from here. Secondly, I guess we've seen a couple of regulatory developments recently within Department of Labor's fiduciary proposal, keeps sort of coming and going. But they seem to be trying to do something and we're going to get a life guarantee fund introduced in Italy from next year. Just wondering if you might get a comment on the impacts you see from those and anything else that I've missed, but that's sort of on your radar at the moment? And maybe as a third question, would you be able to give us an update on your persistency experience and how you think about your sort of CSM assumptions in light of that?

Thank you very much, Peter. Let me maybe start with our situation in the Life business. So what we see is that our lapses level are actually being normalized in the third quarter. So you may remember that we have in particular, beginning of the year, some strong lapses associated to our Luxembourg business on the French side, which is a very specific business. But typically, across the board, we now see our lapse level which are in line -- which are very much in line with what we have seen previously. So this has stabilized quite nicely. And we do not expect to adjust our CSM assumptions associated with that one at this point in time. On the Non-Life ratio, there is indeed really some accounting effects, which are coming through into that one. And the clearly some seasonality effect into the quarter. Year-on-year in the underlying, I think the right way to look at our expense ratio is always to distinguish between what we call the run and what we will the change because what is very important is that we drive the run towards higher productivity level. So we make sure that run part in our expense ratio is improving steadily, and that we see in our numbers currently, so meaning our productivity actions are showing up into that number. And then there is a change budget, meaning like how much do we invest into the future of the organization to support the transformation. And this number needs to be looked at separately. So we can come back to you with more details on the expense ratio, but the underlying is very much in the direction that we expect strategically. On the situation related to regulatory developments. You know that for us at Allianz actually fiduciary we take our fiduciary duty extremely seriously. So that has been a constant focus across all our life operations. So we are aware of the development of those regulations. We monitor them and we also act accordingly in the various markets as required. But we are not particularly worried at this point in time in connection to those developments.

We will take the next question from Andrew Sinclair from Bank of America.

And congratulations, both Giulio and Claire-Marie on your new roles. Three questions for me as usual, please. First is on reinsurance. You're one of the relatively few that still has a catastrophe aggregate cover in place. Just really wondered how far are you from that kicking in, and just any thoughts that you have in terms of your reinsurance program for 2024. Do you expect that to look similar to 23%? Or anything that you're looking to change? So that's my first question. The second was just on the investment results in P&C. Good results. I just really wondered if you can give us an update on some of the guidance that you've given us on the key lines there. And third was just on pricing change. Again, generally, it looks pretty good, but Allianz Partners seem to be a bit slower in Q3. I think it was 6.8%, rate changes for the 9 months, but it was 11.6% for the first half of the year, which suggests virtually nothing, maybe even slightly negative pricing momentum in Q3. Just wondered if you can give us any color there.

Yes. Andrew, so on the pricing change may for Allianz partner, indeed, that's actually the only operating [indiscernible] that has a pricing momentum that is reducing compared to previous quarter. That's actually mainly linked to business mix effects we have. In particular, our U.S. travel business that has been performing very well where we had also to adjust our pricing environment to manage the growth there. So that's the main reason for the development on partner side. But there is otherwise on the rest of the business really a very good development, I would say. On the reinsurance side. So indeed, we have this reinsurance aggregate cover that is in place to protect us against exceptional yearly cat load. If you look at our year-to-date cat loads and we 3.1%, which is not that far away from 2.5%, so which means we are not in an exceptional cat load, if you look at it year-to-date. So our aggregate cover is not to be triggered at this point in time. You will need to have, if we get similar events as the type of event we have experienced until 3Q, you will to get something like EUR 3.1 billion of total cat load for the year, which is far away from what we have experienced. And obviously, it's not something that we wish to experience at which to expand this year. Our reinsurance program, actually, we are quite happy reinsurance program structure we have. As you know, we have had to adjust it last year to also optimize from a risk return profile. But as well as reinsurance change risk appetite, and we had to move up our attachment points to our -- in particular, on 3 points to certain cat events. But clearly, we are happy with our insurance program. Broadly, we want to keep it the way it is. We are always looking at ways at options to simplify a bit our insurance program. So that's clearly something we are going to aim at further in 2024. And I'm quite confident that we are going to enter the conversations with the reinsurance in a very good way so that we can close the renewals in a good way overall. So I think for more details on reinsurance, actually, you can also join us at our Allianz Inside series that is going to take place on 24th of November, where Holger Tewes-Kampelmann will share more details on IAS in general. On our investment results. So more details in the underlying. So we have -- from interest and similar income, we have generated EUR 1 billion operating profit where you need to deduct basically the interest accretion, which is at minus EUR 140 million for the quarter. The guidance for the interest acquisition for the entire year is around -- so what we expect for -- estimate for the entire year is around EUR 700 million, so that's unchanged and the valuation results and other is actually at minus EUR 122 million. That's normally what we expect in the quarter is around EUR 200 million, but that's better, mainly linked to some FX effect. So you should expect to see some volatility into these valuation results and other due to typically to that -- to some -- to those FX effects in particular. Maybe just on interest accretion. And this is naturally going to diminish quarter-to-quarter. As you know, the interest accretion, the way we -- so is linked to our reserves to associated to the previous year, you have a locked in interest rate. So during the year, it will not impacted by the development associated to the interest rate. And as we reserve naturally part of the reserve runoff and you get also the payout pattern. You should expect that we start from a higher interest accretion in the first quarter, and this is going down steadily towards Q4, no.

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

Giulio and Claire-Marie, first of all on Slide 23. You just talked about the Non-Life investment income, but can you help me with the Life investment income, please? You've highlighted the very strong figure in the third quarter. And you've highlighted that it's above of your expectations of EUR 700 million, but I'm not sure if the implication of that is that your future expectations are now going to be higher? And if so, why? Or whether there's something one-off going and we're going back to EUR 700 million. So can you help me have an understanding of what the Life and& Health investment income should be hereafter, please? And then secondly, keeping it simple. Can you give us an update on where we are on asset management flows in the fourth quarter, please, for PIMCO and AGI?

Yes. So on the Life investment income, indeed, a bit higher compared to our yearly expectation. I think what you should expect from that number going forward is that it's going to be a bit volatile because it's coming out with some complex accounting effects related to our BBA and BFA business. So this quarter is higher. I think it's maybe Oliver can confirm, but I think it's mainly related to some positive effect that came from our U.S. and French business, which are contributing positively. But I would not take that as a forward-looking expectation that you should normalize going forward. So I think the indication we have given of EUR 700 million is the one you should have in mind. Then on our asset management flows. We have seen approximately -- in the month of October, we have seen approximately EUR 6 billion of outflows in the quarter that are mainly coming -- stemming out from PIMCO. I think given the volatile environment we have experienced in the last few weeks, in particular associated with the geopolitical and stability, the uncertainties around the rate developments are actually like the postponing eventually of the stabilization of the yield environment, that's quite logical that we have seen that effect in October. And as mentioned, I think we expect the yield environment is going to stabilize. And as such, that PIMCO will be extremely well positioned to benefit from that environment and we should expect to see growth there.

We will take the next question from Ashik Mussadi from Morgan Stanley.

And congratulations, Claire-Marie and Giulio, for your new roles. Just a couple of questions I have is, first of all, on German Life and Health. I mean if I look at German Life and Health,, both volumes and new business value and also the CSM development in the quarter, I mean, it looks a bit negative. So any color on that would be very helpful to get because I thought rates went up, so that should be good rather than negative. So that's one thing. And secondly, like you did a buyback of $1.5 billion at the beginning of the year, I think, in first quarter. So should we be expecting that for this year for 2023, the buyback is done? Or this will -- this could still be in consideration at the full year results? So any color on that would be helpful. Or if you can give some color in case the -- if cash capital has been utilized elsewhere?

On the German Life finance results. What I think, if look at year-to-date, the [ GWP ] of our label entity are basically stable compared to last year. What we have seen in this quarter is -- I mean, what we see in general is that we have very good -- we have good developments in our recurring premium coming, in particular, from younger customers, which is demonstrating really the strength of the offering of Leben where we see less positive developments currently compared to previous year, is associated to the single premium business in particular, coming from our banking channel, and that's quite logical in the rate environment that this is the case. So I'm not -- I mean, I think this is positive because that stable. And clearly, we are also going to continue our focus to provide good and differentiating offering to our clients, more from a single premium perspective. We have, as an example, the private finance police that is working well also in this environment. And we'll continue to be a focus on the Leben side, typically. New business margin is actually strong. So that's the translation of the volumes effect into the performance of Leben. So we are confident in our label franchise very clearly, and we expect stable operating profit to be continued to be delivered by Leben. And then on share buyback so clearly, we have put through EUR 2.5 billion of share buyback in this year, and I'm not going to comment on what we are likely or not likely to do towards year-end.

All right. Thank you for this. Then we will take our next question from Vinit Malhotra from Mediobanca.

If I can go to Slide 15, please. And just I'm very curious about 2 numbers there, which stand out 1 or 3, but [ June ] for sure, Italy has only 5% of nat cat, which is maybe EUR 40 million, EUR 50 million. I mean comparable large insurance in Italy are running in hundreds of millions, EUR 300 million, EUR 400 million, just we heard from the call on the weather events. I'm wondering if there's any big reinsurance recovery there or any comment there that you would like to flag? Also in a similar way, Germany, 19%, probably one of the highest weather event, if there's anything to add there? And lastly, on the slide, Switzerland, I mean combined ratio of 90% with a 15% cat loss must have a lot of reserve releases or other factors, if you could comment on these 3 numbers for the combined ratio should that be really good? And second topic, Claire, if I could ask is on the live CSM. But I know that -- I mean, even the next CSM is flat versus we're talking about higher growth of the normalized. What's the risk that we all look at normalized CSM within 3%, 4%, 5% growth rates. But actually, the real world CSM, if I can use that seems to be much more sensitive to market, much more flattish or downward trending? And how do you see the risk that we should rather be looking at lower number of CSM? Or how should we look at the real world versus normalized CSM in your view?

Okay. I think the line was not very good. So I'm a bit unsure, but I think your first question was related to Italy and the high level of nat cat we are seeing in Italy and why this is actually lower compared to the German nat cat effect. So in Italy, we have seen indeed a very high level of nat cat that has impacted the performance. The reinsurance program of Italy was attaching a bit -- was attaching lower compared to the reinsurance program of Germany. And that's explaining why you have a lower cat load effect into the Italian performance compared to the German performance. On Switzerland, we have a high cat load. But also actually, we have high cat load, but we have a low weather-related cat load, which is also coming as an offset to this high cat load, and we also have some runoff effects that are coming through. And again, I think like for both Italy and Germany, if you adjust for nat cat, the underlying performance is actually very, very strong, which in the inflationary environment we see, is also a demonstration that the teams are acting very strongly and that we are maneuvering well in this environment.

Vinit, this is Oliver. I'm not sure if I fully understood your question about the CSM but perhaps from my side, what you could do is when you go back to our Inside Allianz serious slides that we published in June this year. There's one slide in there where we give more details about this year's CSM world and how the real world assumptions basically feed into the CSM by expected in-force return. This may answer your question. If not, I propose you just come back to us and then we can go more into detail, if that's fine with you.

Thanks, Vin. All right. Then we will take the next question from Iain Pearce from Exane.

Just 2 quick ones on Life. Firstly was in the Italian business, it seems to be really strong new business premium growth. Just wondering what's driving that. And if part of that is sort of recapturing customers that are churning leading to an elevated number? And the second one is just on the new business margin in the U.S. being down year-on-year, anything to flag there?

Sure. So on the Italian business, I think addressing interest rate environment, our Italian team has injected new product innovation. So they have launched 3 new products for us, for the various channels, which are either pure unit-linked or a combination of capital-efficient products together with unit-linked, and that is working very well and is being really welcomed by our market -- by the market and push -- I mean, I would say, like appreciated by the agents as well. So that's really product innovation, I would say, on the Italian side. New business margin in the U.S., I think you should not read so much into the year-on-year comparison, in particular, for AZ Life -- no, sorry, as we -- the new business margin for the U.S. business is aiming at delivering the internal rate of return that is needed for our own profitability. So you should expect to see some movement there. But overall, AZ Life is returning the expected level of profit to us adjusted to the environment.

Thanks, Iain. We will take the next question from Michael Huttner from Berenberg.

I had one question and two in general. Another question is, can you talk about the net inflows in Life? I think you did broadly mentioned it, but I probably missed it, I'm sorry. And then 2 more. One is announced normally ratings guidance, particularly when the numbers are ahead, and it didn't this time. Maybe you can comment on that. And then the third one is really for Giulio, I don't know how to say it. If you think about what is effectively a handover today, did -- and normally, I associate a handover and saying, well, I better make sure everything is super conservative. Is there any way that you can show us where that extra conservative might be a phase 1?

So you're asking me, Michael, to show you the extra conservative. That's the question?

Yes, that's right. Yes.

Maybe I'll tell you, I thought January 1. So you -- we'll leave it at that, okay? Yes, thank you.

So maybe let me comment on the outlook. So I think overall, we are positive that we will end up above the mid point when it comes to our outlook. But considering the elevated amount of nat cat, we see also currently continuing into Q4. We have decided to be cautious because we do not want to set the expectation that we will be significantly ahead of the midpoint while we might just be moderately ahead of it. So that's the main reason why we have kept our outlook stable, unchanged. On the net inflows in Life, actually, year-to-date, our net flows were strongly positive for the U.S., for Asia, for LatAm, slightly negative for Spain and negative by EUR 600 million for Germany as well negative for Italy and France. So overall, our net flows will be negative at 9M. I think you should also take into account that traditionally, 9M will be also a moment in time where this is coming across as more negative because we have less production in 3Q to offset some of the outflows we are seeing. So overall, as I was mentioning, I think we see a good momentum in our Life business and we are really demonstrating that we have a solid franchise that we are operating across the various regions.

And what is the total net [indiscernible] figure?

Do we want it for the quarter or for the year-to-date Michael? EUR 2 billion. By the way, for those who have not spotted it yet, and probably you are part of that group, Michael, we published this number in our supplement.

That's what I'm looking at. Sorry.

It's relatively new. So you're excused. All right. I have one last analyst on the line, Cameron, that's you. Sorry, last but definitely not least, the line is open. And so please go ahead.

Oliver, sorry, all my questions have been answered. So I guess, no follow-up to me.

Perfect. Even better. But I see Michael. Again, Michael, do you have another follow-up question? If yes, please go ahead, your line is open.

Can you talk in -- I know you covered Germany in broad terms. Can you talk a little bit more in detail about pricing and claims inflation on all these kind of moving parts in the motor part, in particular in Germany? Just to give you a bit of how I see it as I perceive pricing might just struggle to reach 10% of the renewals, which are coming up or which are ongoing, where claims inflation is probably just below. And my feeling is in Motor stand-alone, you'd probably only return to where you'd like to be in 2025.

Yes. So I will say, clearly, for Germany, we would expect to be where we want to be in 2025. And in terms of combined ratio performance. We have observed in Germany also, a bit higher inflation effects compared to what we had anticipated initially. But we have taken reductions and we have acted structurally over the portfolio and that you can see with our year-to-date rate momentum, which is above 6% for Germany overall. Now to your specific point around pricing for Germany. I think we -- our operating entity, our German operating entity is very well advanced in terms of technical excellence. We have pricing models, which are very precise and capable of also estimating what we would need to have in -- given also, as an example, in one business, given the localization of the business and so on and so forth. Then obviously, there is a difference between the in-force book and the new business. And we are slowly converging in-force to the -- we are slowly converging and merging the pricing level across the portfolio. So I think we are maneuvering the inflationary environment in a very good way at our German entity. And I would expect that to show up into our performance definitely towards 2025.

And is there a hope that we might get a double-digit rate rise [indiscernible] in renewals just now? Or is to be fair?

Michael, I can -- this is Oliver. I can give you a real life example. Mike, we went up by 7%, and they never drive. I mean I parked by car all day long. So you can trust that everybody, all the customers that we have that do drive their car from time to time, got a double-digit right increase already now. All right. Thanks, everybody, for your contributions. That's the end of our analyst call. So we say goodbye, and thank you to everybody. But before I leave, let me just remind you that we have the upcoming Inside Allianz Series in London in 2 weeks' time. And this event will be joined by both by Claire-Marie and by Giulio. So if you want to say goodbye to Giulio and hello to Claire-Marie, that's the perfect opportunity, and I hope we all see you there in two weeks time in London. Thank you, and goodbye from my side.

Thank you. Good-bye.

Bye guys. See you in London. Bye.

Bye-bye.