AXA SA (CS.PA) Earnings Call Transcript & Summary

Good morning, and welcome to AXA's First Half 2025 Results Call. Presenting today are Group CEO, Thomas Buberl; Group Deputy CEO, Frederic de Courtois; and Group CFO, Alban de Mailly Nesle. Also in the room are Guillaume Borie, CEO of AXA France; Patrick Cohen, CEO of AXA Europe; and Scott Gunter, CEO of AXA XL. With that, I turn it over to you, Thomas.

Thank you, Arnaud. Good morning to all of you, and thank you very much for joining our first half 2025 earnings call. As you can see from the results that we have published this morning, our business is in excellent shape. We have developed a strong organic growth of plus 7% top line and underlying earnings per share is up 8% at the top of our target range during this plan. We are generating a very attractive return on equity while maintaining a strong capital position with a Solvency II ratio of 220%. Our results reflect the strength of our model, which is simple, balanced and now with the completion of the sale of AXA IM, completely focused on insurance. We are very much on track to achieve our planned targets, and this is important to say because we are in the middle of our current 3-year plan. If we go to the next slide, these results reflect the quality of our franchise and show that we have executed in a disciplined manner, very much in line with our plan. Our businesses all of them are delivering solid organic growth. We are well balanced between pricing measures and volume growth, and we are also well balanced between the line of business. If you look at the growth of 6% in P&C, 9% in Life and 6% growth in Health. This is not only strong top line growth, but the top line growth is also converting into higher earnings growth through a continued focus on technical excellence. We have delivered further margin improvements, particularly in P&C and Health and have also shown higher net flows in Life & Savings, which is reflecting the strong momentum of stronger sales and better persistency. Importantly, we have achieved these good results while continuing to invest in our business. In particular, we are investing in technology solutions and capabilities to expand our mid-market business in Europe and the Americas. We are modernizing our core tech platforms and building strong data foundation to deploy and now scale, artificial intelligence and also in particular, general artificial intelligence across the group. We are also investing in expanding our distribution networks and tools to sustain our growth momentum. So in short, we are executing on all of our priorities, our operating businesses across all geographies, across all lines deliver strong results, very much in line with our plan, and we have built a business that is now a reliable profit generator. If we move to the next slide, obviously, the environment is becoming more complex with geopolitical tensions, tariffs, macroeconomic uncertainty from trade wars and in particular, also social fragmentation. We entered this environment in a position of strength. Our business is well balanced between P&C, Life & Health, and we are not overly exposed to any single geography which is a great position to have given this growing geopolitical fragmentation. All of this gives us confidence to not only deliver our planned targets, but to also sustain future earnings growth. We see several important levers for earnings growth beyond this plan. You've seen in the numbers that we are rejuvenating our Life business. This is already delivering results with strong sales momentum and accelerating positive net flows. This will clearly drive earnings growth over time. Secondly, in Health, we are investing in care delivery, care coordination and prevention to become more than just a pure play of our Health competitors. This should drive more margin improvement, building on what we expect in this plan by reducing fraud, waste and abuse in claims and improving patient outcomes to drive higher customer retention. This specialization will further improve our competitive positioning in order to capture growth opportunities in health and employee benefits. We are also strengthening our distribution to expand our addressable market and capture market share. What does it mean exactly? We are adding to our proprietary agent distribution and invest in their digital capabilities in order to better serve our core mass affluent customer base. We have also, at the same time, forged more strategic partnerships, such as the one with Correos in Spain, which represents the Spanish postal system, and it expands our reach to rural customers and those with modest incomes. But we have also struck an exclusive partnership with Lloyds Bank in the U.K. for Personal Motor, covering roughly 20 million customers. As you can see from the acquisition of Prima, we are also strengthening our direct distribution. This channel is not in competition, but complementary to our traditional sales channel which is targeting digitally savvy and price-sensitive customers. Frederic in a moment, will talk more about this. While we are already operating with a very high NPS across all markets, we see the opportunity to further increase our customer retention and to improve cross-selling through investments in customer service, in digitization and AI to improve customer experience through a more tailored way of offerings and by reducing, obviously, the cost to improve customer value. More broadly, we see a great and significant opportunity to increase productivity, claims and operational efficiency in order to enhance our pricing and underwriting from scaling AI. We started a test and learn approach within AXA and identified a selected number of cases that we have deployed across the entire group. Leveraging this experience now, we are pivoting to transform 4 areas: One is customer contact centers; second is claims; third is underwriting; and fourth is software engineering. The benefits from these initiatives are still to come. So if I have to summarize, our model is well placed to deliver sustained earnings momentum in a challenging and changing world. Secondly, we see catalysts for future growth beyond this plan. And thirdly, we are very confident that our strategy will drive value creation for our shareholders, including through disciplined capital deployment. If I come to the next page, which is my conclusion. Our focus on execution has delivered strong results, with an underlying earnings per share growth at the top end of our range. The businesses are delivering and all of them in line with our plan. We are well positioned to sustain this earnings momentum with clear catalysts for future growth beyond this current plan. We are committed to continuing a very disciplined capital deployment, and we are confident that our strategy will deliver long-term shareholder value. Thank you, and I'll now hand over to Frederic.

Thank you, Thomas. Good morning to all. We are -- as you've seen, we are pleased to announce the acquisition of Prima, a quality company, the leading direct player in Italy with strong growth, superior technical excellence, an internally developed and smart tech platform and a team with strong entrepreneurial spirit. According to us, this acquisition has 2 main dimensions. The first one is to bring scale in Italy, one of our core and strategic markets. And the second one is that it reinforces our existing direct franchise. If I look at Prima. Prima has grown significantly since its launch in 2015, generating EUR 1.2 billion of premium in 2024. With a modern, scalable technology platform, Prima sells not only via price comparison websites, representing about 40% of the business, but also directly through its own website, about 30% of its business and through multi-tied agents, about 30% of the business. It has captured 20% share of new business and an overall market share of 10% in motor. This market share gain has continued in first half '25 with premiums up 47%. With Prima, AXA will almost double the size of its motor book in Italy, and it positions the group at the level of the top 3 players in the Italian market on the motor business. It has delivered this growth while generating an underwriting profit with an excellent combined ratio of 90% in '24. Prima has sophisticated pricing capabilities leveraging external data sources and behavioral models to capture the right customers and consistently achieve a claim frequency that is lower than market levels. It also has a competitive expense ratio supported by modern technology and lean processes, including end-to-end digitalization. This is important to understand that Prima is the first real disruption that we are seeing in personal lines in Continental Europe. Prima has a winning model, delivering growth and profitability. And all of this is validated by our extensive due diligence on the loss ratio and an extensive due diligence on the reserves booked by Prima reinsurers. Management and founder absolutely wanted to stay on board further reinforcing the confidence in the business. In one word, Prima is an attractive business that brings us scale in Italy and additional know-how on the direct business. Moving to the next page on our direct franchise. This is something we've not discussed in the past, and I think it's good that we discussed it a bit now. So Prima will strengthen our direct franchise. And you know -- you don't know that AXA is already a major direct player. The group currently writes EUR 3.5 billion of premium across 8 geographies with top positions in 4 markets and profitability in line with overall personal line margins where we have scale. Except in the U.K., direct penetration remains relatively low in our core P&C markets. Nevertheless, we expect this channel to show high growth in the future. It targets a growing customer base of young, digitally savvy and/or price-sensitive customers and will contribute to addressing protection gap by offering more affordable solutions to customers with modest incomes in motor, but also beyond motor. The direct channel supplements our traditional distribution to widen our customer reach. Prima will further enhance our direct franchise by bringing a modern digital omnichannel platform that offers seamless user experience for customers and agents. A very tech-focused organization with nearly 40% of the workforce comprising of software engineers and data scientists, and an entrepreneurial and experienced team that can support the development of our overall direct business in Italy and beyond Italy. As a conclusion, I would say that Prima is an attractive acquisition for us and totally in line with our M&A policy. It brings scale in Italy and capabilities to enhance our direct franchise. We paid EUR 0.5 billion as a consideration for 51% of the company. We have put and call options in a few years for the remaining 49% and the price of this put and call is tied to earnings. And including the capital required to recapture the business currently underwritten by third-party insurers and reinsurers, the total consideration corresponds to a price earning ratio of 11x. So we are investing to strengthen our direct franchise, and we are well positioned overall at AXA and even more now to capture market share in direct and accelerate growth. Thank you, and I leave the word to Alban.

Thank you, Frederic. Good morning to all. So I will not comment on every slide of this section, so that we have more time for the Q&A. I'll start on Page 14 with the P&C earnings. So P&C earnings grew by 7%, driven both by an excellent underwriting result from higher volumes and an improved all-year combined ratio and an increase in investment income from higher net cash flows and reinvestment yields, which more than offset the impact from unwind. Our P&C business has delivered an attractive combined ratio at 90%, in line with our plan, reflecting first, an improvement in the attritional loss ratio, minus 0.2 point; a better expense ratio, minus 0.1 point, mainly coming from non-commission expense ratio, and that reflects our efficiency measures. Nat cat stood below 4.5 points budget and reliance on PYD was also low at minus 1.1 point. All our lines of business are performing well. And so to give you more color, in P&C personnel, we are expanding our customer base in a really conducive pricing environment with revenues up 7%. That has allowed us to improve the attritional loss ratio by 110 bps versus 1H '24. And we expect margins to further increase as pricing is earned through and inflation moderate. Commercial Lines, excluding AXA XL Insurance, you know that they consist mainly of SME and mid-market businesses in France and Europe, and therefore, are less cyclical, and for that part of the business, pricing conditions remained at good levels. Revenues were up 4% and attritional loss ratio has improved by 30 bps in 1H '25. We had excellent profitability there at 89.8% combined ratio and with margin improvement to continue. At AXA XL Insurance, we remain focused on retention and disciplined growth with revenues up 6% in 1H. Margins there again remain at attractive levels at 90% combined ratio with no PYDs. Earnings were stable, with return well above cost of capital. So we see market softening in some lines of business, but very importantly, we believe we can maintain the level of profitability in dollar terms for this plan, including through better investment income and by managing expenses while continuing to invest in our growth initiatives. Lastly, at AXA XL reinsurance gross revenues grew 11% with growth supported by alternative capital. So this distorts a bit the reported combined ratio on a net earned premium basis, the margin improved by 90 bps. So overall, strong numbers with good top line growth, improving margins and good prospects. So if I move now to Page 18 for Life & Health. Earnings there were up 5% versus 1H '24 with contribution from higher technical and financial results and CSM release. Short-term Life & Health business continued to perform well in the first half, with revenues up 8% and margin improvement of 40 bps, in line with the plan. We are in a good position to grow from here, and we expect margins to further expand, thanks to the combination of our actions on pricing, underwriting and claims management. In long-term Life & Health, technical results were up 4%, including CSM release growth of 2%, and we are continuing to build good momentum. Revenues in protection in GA savings and in Unit-Linked were up 9% each. And we saw increased momentum in Life net flows with positive net flows in Life & Savings of EUR 2.1 billion. And this drove a normalized CSM growth of 3%. And lastly, financial results were also higher, largely driven by better reinvestment yields. We are confident that we can grow from here with short-term technical results expected to drive near-term earnings growth, while the positive momentum in long-term Life & Health business will fuel CSM growth and lead to higher CSM release over time. Moving to the next slide on Page 19. At group level, we have delivered 6% underlying earnings growth. Strong performance, as we -- as I've just described, from our P&C and Life & Health operating businesses. Asset Management, you know that it's the last semester that we consolidate AXA IM. AXA Asset Management earnings were down 14% due to a higher cost income ratio and holding costs was stable versus 2024. So overall, thanks to this, we have an 8% growth in UEPS at the higher end of the target range of 6% to 8% that we have for this plan. So this includes, obviously, the 6% underlying earnings growth, plus the benefit 3% from share buybacks and lower interest expense on undated debt and an unfavorable ForEx impact of minus 1%. Net income was down 2% at EUR 3.9 billion as the increase in underlying earnings were offset by unfavorable FX. So just a word on this because it's roughly an impact of EUR 300 million. And it's due to nonlocally denominated assets in local balance sheets. We have roughly EUR 3 billion of assets that are non-denominated in the same currency as their balance sheet, EUR 3 billion out of EUR 450 million. That was mainly an impact coming from the dollar, which roughly went down by 10%, EUR 3 billion times 10%, that is EUR 300 million that you see here in net income. A word also on the FX impact on underlying earnings, still on the dollar. If you look at the average FX and you know that for P&L, we take average FX, between 1H '24 and 1H '25, there was a little difference. But if the dollar stays around its current level of, let's say, 1.16, 1.17, it's a bit higher these days. But let's say 1.16, 1.17. It would mean that on average, for the year, the U.S. dollar FX rate will be down 5% compared to full year '24. 5%, that's an impact on our UEPS of 1.5 percentage points. So highly manageable. So that's what we should have in mind. One, the impact is ahead of us. But second, the impact is really minimal and manageable. Moving on to Page 21 on Solvency. So our Solvency ratio stands at 220% at the end of the first half, 15 points from normalized capital generation, reflecting strong earnings and limited capital needs to further growth. You know that our group guidance for the year is 25 to 30 points. And as we saw the other years, there is a bit of seasonality similar to earnings. We have minus 12 points from dividend and annual share buyback to come in '26 but provisioned already in the first half, plus 8 points from the issuance of EUR 1 billion of RT1 and EUR 1 billion of Tier 2 sub debt that we did in May. And you know that we will continue to manage actively our stock of debt. Those plus 8 points were offset to some extent by the share buyback that we did in June in relation to the AXA share plan that we will launch in September and certain stock-based compensation that, as you know, we are offset through buybacks. There was also in those numbers the impact of the Nobis acquisition in Italy. Overall, market FX were neutral, reflecting small impact from the widening of spreads, not to be in Japan, offset by lower interest rates. But importantly, you see also that FX had no impact simply because the numerator and the denominated in local currencies move in sync. So when the numerator comes down, the denominator comes also down. That's why we don't have an impact on the FX on our solvency. We have limited changes in our sensitivities. But you will notice that some of them have come down, especially European sovereign spreads and listed equity. So overall, we have a strong balance sheet with a very capital-efficient model, a high-quality asset mix, with most of our assets in liquid fixed income invested at the high end of the rating spectrum. And the group is in good shape, both in terms of earnings and in terms of balance sheet. And we are, therefore, confident that we can navigate the changing environment that Thomas described from a position of strength. A few more thoughts on what's to come in the second half that you should have in mind. So obviously, we will carry on with our consistent execution in P&C and Health, where we will see further margin improvement, as I said, and that's in line with our plan, and we will keep on investing in tech, data and AI, and we will see also continued positive momentum in savings net flows that will drive over time, CSM, and we expect holdco costs to remain stable. At this stage, we are keeping our 4.5 points of normalized nat cat load for the year. You should bear in mind that there is always some seasonality investment income and discount benefit, which are slightly more skewed towards 1H. And you know that we started the EUR 3.8 billion share buyback associated with the sale of Axiom to BNP Paribas. But we will not have the full benefit in 2025 in terms of anti-dilution, given the time it will take to complete the buyback. So overall, we expect UEPS growth in 2025, taking into account what I've just said, to be in line with the planned target. And so I'm now leaving the floor to Thomas for his conclusion.

Thank you, Alban. As you have seen from Frederic and Alban, we are executing well on our priorities. We are focusing on really making sure that the business is delivering in line with our plan. And that's why we believe we are well positioned to sustain this earnings momentum despite the fact that there are some negative FX development coming from a weaker dollar. But the fact that our franchise is diversified that we have -- we are in many geographies across many lines of business, gives us the confidence to deliver on our plan and certainly to continue to drive a strategy of a disciplined capital deployment. Thank you very much, and we are now going to your questions.

The first question is from David Barma from Bank of America.

Firstly, I wanted to kick off with Prima, please. What kind of run rate earnings contribution are you expecting from the business once the full underwriting is recaptured? And if you can also comment on the synergy potential from the deal, which I don't think is included in the multiple you've disclosed? And then secondly, on commercial line pricing at XL, could you please unpack a bit the plus 1.1%. If you could talk about the trends in the main business lines? And then lastly, on Life & Health and the short-term results. I guess I would have expected the combined ratio improvement to be a bit more front-end loaded than it seems to be. So could you please talk a little bit about the speed of improvement in the short-term combined ratio and whether you expect most of the target to be achieved this year?

Thank you, David, for your 3 questions. I suggest that Patrick will talk about Prima, run rate earnings contribution and synergy potential, and it's true that we have not included a lot because we also want to leave the Prima business completely separate. Secondly, on the commercial line pricing, Scott, if you could talk about the outlook and the trends. And then, Alban, if you could talk about Life & Health because we see within the numbers, a currently different trend between Health and the Life part, i.e., protection. So Patrick, Prima.

Thank you, David, for the question. So as it has been highlighted by Frederic, I just want to go back to what makes the strong strength of Prima, I want to give you some numbers. First policies sold in 2015. In 2024, they had 4 million customers. So it's one of the, I would say, the greatest disruption we have seen from a digital model in Europe. When we look at what we consider being the earnings fully captured with the underwriting piece, we are at EUR 87 million. And we have a CAGR growth in that business that has been around 40%. So it's pretty impressive. Our calculations give us an undiscounted core of around 90%. And this stems, as Frederic said, from, I think, 3 or 4 sources of competitive advantage: First, superior pricing capabilities. They've really managed to anti-select, if you will, the market with a very technical pricing, far less utilization than what you see in other players. The second one is the lean organization structure within non-commission expenses, which is best-in-class in the market and the expense ratio as well. And a very strong cross-sell of ancillaries, far greater, almost double that what you would see in the market with ancillaries such as assistance, personal accident or legal protection. The synergies, we are also very excited about what we can do because fundamentally, you don't have an overlap with our business today. In Italy, we have a very strong P&C business through our agents. We have through the acquisition of Nobis, a specialized play in the automotive part of the business. And now we have with Prima a possibility to be the market leader in direct with 40% market share. So no overlap and great synergies. We are thinking in 3 directions, in particular. When we sum up all of that, we'll have more than 7 million customers. Imagine what we can do from a claims procurement standpoint, imagine what we could do by cross-selling on our customer base and very importantly as well, complementing the product range of each of those channels with the offer of Prima and the offer -- our classic offer within Prima. So a lot of, I'd say, stand-alone potential, fabulous momentum, a very profitable business that stems from competitive edge and some good synergies that we see ahead.

Thank you, Patrick. And just to add a few more numbers when it comes to the run rate. So 2024 was a result of EUR 87 million. The top line growth is 40%. And if you look at the Q1 this year compared to Q1 last year -- sorry, H1 this year versus H1 last year, the result has doubled. So it's -- as Patrick said, a very disruptive model with a very interesting and good dynamic. Scott, on the commercial land pricing?

Sure, Thomas. Thank you. David, just to give you a sense of the color for our business. For casualty, at the half year, rates continue to meet or exceed trend. We're still around the plus 8% for the overall casualty portfolio at the half year. So we consider that to be slightly better than trend and we're doing well there on pricing. Property has gone slightly negative, mainly because of the mix, it's a little heavier in the U.S. in the second half -- in the second quarter, slightly negative, although that's coming off of 5, 6, 7 years of double-digit rate increases. So that particular business is performing very, very well. So it's not overly surprising. There's been a slight pricing moderation on the property portfolio. And then for financial lines business or professional business, it's still negative, but we're starting to see signs that, that's starting to ameliorate, so our sort of thinking going forward is that while it continues to remain negative, it will start to get better as we work through the back half of the year. So all up, we're pretty comfortable in the portfolio and where the pricing is at today.

And so David, I think you had also a question on the retail improvement, and I will comment on Life & Health. So retail improvement, that's across the board in Europe. What you see is very strong price increases, around 5% and -- except in the U.K. And so you do see the benefit of that across the board. But even in the U.K., we see an improvement of our loss ratio in retail. So that's, as I said, really across the Board that we benefit from those higher margins. On your question of Life & Health. So you're right. It could have been better. So the way it goes is the following. On the Health side, there was a strong focus as we described on improving the margins and pure short-term health. The loss ratio went down by 80 bps between 1H '24 and 1H '25. But in Life & Health, we also have the protection -- the short-term protection book, which is mainly French. And on this, we saw a deterioration of 70 bps that comes from more sick leaves in France that we have to indemnify. So we need to reprice that book and that will be done for next year. But in the meantime, we have that slight deterioration. When you mix the two, and obviously, the health book is much larger than the protection book, you have that improvement of 40 bps overall.

Thank you to all of you. So we go to the next question.

Okay. Next question is from Will Hardcastle from UBS.

The first question is thinking that you're both a buyer and a seller of reinsurance. And I guess, could you discuss whether you view a softening market in reinsurance is a positive or negative from a group basis? And do you buy retro, perhaps for the reinsurance that can help dampen some impacts? The second question is regarding the P&C reinvestment yield. It's 4.3% at the half year. It's still well in excess of the average book yield, but what does the 4.3% dilute down to when you consider other assets outside of fixed income? I'm trying to essentially understand that there's still a spread to move up from here? And the third one is just looking at the low levels of PYD coming out of both Personal Lines and XL, can you discuss if there's anything specific to call out or it's just more good results elsewhere anything specifically on U.S. social inflation.

So thank you, Will, for your 3 questions. I guess they are all for Alban. Maybe a quick comment on the low PYD. You should see that as extremely positive. I mean, they are really low. And I would like to point out that XL, the PYD is 0, so it really shows the very good quality of our results. But Alban will go into more detail.

So as you said, we are both a buyer and seller of reinsurance. To put things in perspective, you see that on an annual basis, XL Re's earnings are around EUR 500 million. But we see more than EUR 2.5 billion of margins through ceded reinsurance. So those 2 are not directly comparable, but that gives a view on the importance of both. So I would say, overall, we will benefit more than we would lose with softer rates. On the reinvestment yield. So the -- yes, we are investing at a higher rate than the current book yield, and we believe we can continue doing so. And so we are confident in our ability to keep on investing our investment return in P&C and what we call non-VFA business, i.e., investment income that you directly see in your P&L. There's always a bit of volatility around this coming from PE fund distribution. But the trend is clearly positive on investment income, thanks to our higher investment yield. And finally, on PYDs, at the end of the day, you saw that we had a good semester on cat, a good semester on discount. We saw absolutely no need to have higher PYDs.

Thank you, Alban. Thanks, Will, for your question. We go to the next one.

Next question is from William Hawkins from KBW.

At the full year, you showed a slide to demonstrate how you are compounding value for shareholders that pointed to growing book value to EUR 24.5 at the end of last year. That figure was EUR 22 at the end of June. So it's back to 2022 levels. I know that's largely FX, but FX is still real. So I'm wondering how -- when you're thinking about value creation, how does building book value fix into the wider framework of the metrics that you highlighted in the presentation? Second question, please, more numbers based, the EUR 4.8 billion of normalized cap gen in the solvency walk, how much of that was non-life and how much was Life, please? And can you also just give me a bit of an outlook for required capital. The EUR 400 million seemed a bit on the high side of the EUR 600 million for all of last year. So should I just annualize it? Or is there some seasonality? And then lastly, a very short question. Frederic, in passing, you mentioned that you're already top 3 and 4 direct markets. Can you just tell me what these 4 markets are, please?

Good. So I suggest Frederic, does the first question around the compounding shareholder value. Alban, you take the second and third one around required capital and the split Life, Non-Life of the EUR 4.8 billion. And on the Markets direct, it is France, Belgium and Ireland and Spain as well. So that's the fourth one exactly. So Frederic, on the first question.

Yes. So on the net asset value, what I can tell you is the following. First, as you've noticed, the negative impact we have is the currency impact. And we are a heavily diversified group. So it doesn't worry us at all. I would say, it happens. And I think the -- one of the beauties of AXA is to have this diversification. Second comment is that, yes, we have at AXA now a higher focus on the growth of the net asset value. We believe that over the long term, this is an important KPI for us, and we will continue to focus on growing the net asset value in the future, despite the short-term currency movements, if I may say.

So on the operating return, the EUR 4.8 million, you have EUR 3.1 billion coming from P&C. You have minus EUR 0.6 million coming from Holdings, which is our Holdings earnings. You obviously have EUR 0.2 million positive coming from Asset Management and the rest comes from Life & Health. And the increase in required capital, it's true that it's slightly higher than half of last year. I would say it can depend on the mix of business, but we have a good organic growth, and that's a reflection of that.

Thank you, Alban and Frederic. We go to next question.

Next question is from Hadley Cohen from Morgan Stanley.

First question, is around Solvency, please. Can you give us an update of how you're thinking about the, I guess, the pro forma solvency ratio? So we have a 6-point hit from the Prima acquisition. But can you also give us an update on how you're thinking around the effect of the loss of the grandfathered debt from the beginning of next year? And then maybe remind us on how much of that is offset by the solvency review benefit from the beginning of 2027, I guess, particularly in the context of the commissions report a couple of weeks ago. That's my first question. Second question is more of a clarification point, please. Thanks, Alban, for the sensitivity of the impact of the dollar on earnings. Does that include currencies that are sort of pegged to the dollar, so I'm thinking like Hong Kong dollar and what have you. But on top of that, I guess I'm also cognizant that the euro has been strong against most currencies in the first half of the year. So if currencies stay where they are now for the second half of the year, what's the overall sort of FX impact that we should think about?

Thank you, Hadley, for both questions. Alban, I guess, these are both for you, bearing in mind that on the solvency revision, it's obviously too early to give any indication or concrete indication of what it means because we are talking about 2027.

So on Prima, as we said, it's going to be 4 points at closing. I just want to highlight the fact that this includes not only the impact of the acquisition of the 51% stake, but also the impact of the put and call options that we have over time. So it's the best -- because that's the way accounting works. And so that's the best estimate of the cost that we will have when we exercise those options. That's the first point. On the grandfathered debt, you know -- you may not know, but the amount of grandfathered debt is EUR 4.3 billion. So you can do the math on the impact. Obviously, we have issued EUR 2 billion of sub debt in May in anticipation of that. And we will keep on managing that grandfathered debt an issuance to mitigate the impact on our solvency. Last on the Solvency II review. As Thomas said, it's way too early to give a definitive number. So I would repeat what we said in previous periods, which is that overall for every player in the market, it should be a positive impact between plus 10% and plus 20%. That's what we can say at this stage. On the FX, so what I said on the dollar it does include our operations in Hong Kong that are obviously denominated in the Hong Kong dollar with the PEG. And we have no other operation with the PEG to a dollar. And I cannot give you immediately what the impact would be for the yen, but you have the sensitivities of that in our URD. And Anu very kindly gave that to me a second ago. So I can comment on that. On the yen, a 10% variation is 1% of our underlying earnings group share. Thank you, Anu.

Thank you. But I want to remind you again, these FX movements are happening, but this will not lead to any change in our ambition and target delivery. We will make sure that we will compensate this through operational measures.

Next question is from James Shuck from Citi.

I just wanted to ask first off around the Commercial Lines P&C development. I'm looking at the attritional loss ratio, which kind of ticked up 30 basis points at 1H. I think the planned period was for Commercial Lines attritional loss ratio to remain broadly stable. You're talking about XL being pretty flat and SME getting a bit better. Is that kind of still how you see it? Obviously, XL seems to be deteriorating, and we're seeing rate that slowed in 2Q running about 2.6% at 1H. So claims inflation is probably more than that. So it looks like to me as if the commercialized attritional might be getting worse over the planned period than perhaps you anticipated, but just some comments there would be helpful. Secondly, on Prima, I mean, if you're able to give me a split of the expense ratio, please, into the -- I suppose, it's commission and non-commission expenses, that would be very helpful. Just keen to understand the size of their expense ratio advantage. I'd imagine the acquisition costs are still quite high. But if they are low, then what's keeping that low? And then finally, Thomas, I mean, how do you see something like Prima which is a great disruptor you've seen in the sector currently as you just highlighted. What does that say about your existing direct business? Because you're bringing all of these things in-house and you've got massive scale advantage, but then you have this new upstart that comes along and shows you how to do it. So you mentioned you could keep the platforms separate. But is there something that doesn't work in this direct business as part of a large conglomerate?

Very good. Thank you, James. Just a few comments, and then I'll hand over to Alban for the combined ratio question and then on Prima to Frederic. On the combined ratio improvement in general, remember, we always said that we look at P&C commercial and personal lines together when it comes to the improvement. So -- and look, we are not at the end of the plan yet. Our aim is clearly to achieve the improvements that we have put forward. And secondly, when it comes to Prima, Prima is today mainly in Italy. It has started in Spain and the U.K. But when you look at what we said earlier, the question that William was asking, it is not by coincidence that in 4 markets, we are in the top positions of our direct business where Prima is not so these businesses in France, in Belgium, in Ireland, in Spain, work extremely well. Alban?

Thank you, Thomas. James, so if you remember what we said at the moment of the plan, we said that we would improve our combined ratio in P&C by 200 bps. And part of that was a loss ratio, part of that was expense ratio. So -- and clearly, when we designed our plan a few -- a couple of years ago, we had in mind that the large commercial lines market would probably plateau or slightly deteriorate. So that's what we see in some lines of business today, but we will see also improvement and good momentum in some of the lines. I'm thinking, for instance, of casualty in the U.S. So when you look at XL, so the XL loss ratio attritional has deteriorated by 80 bps, but 20 bps in that is purely a mix effect because as casualty prices increased more than the rest, casualty takes also a bit more weight in the overall loss ratio. But what we are saying very clearly is that XL again, over the planned period should maintain its underlying earnings in dollar terms because that potential deterioration in the loss ratio can be offset by better investment income, better expenses and growth. And on the other commercial lines that some of our competitors put in retail, notably the SME, we saw an improvement of 30 bps in the loss ratio, and we see potential for further improvement.

On the expense ratio, before answering your question on the expense ratio, I'd like to enlarge the answer saying that first, our physical distribution channels are doing extremely well. And this is important to have this in mind and especially our agents. And why are they doing extremely well when we hear about the bank branches in difficulties and so on? First, because our agents are entrepreneur, which changes a lot and they do not close at 3:00 in the afternoon, and they work on weekends. And this is -- they provide the right service and the right advice to our customers. So this is about the overall picture about our agents. Having said that, we believe that we may be at an inflection point and that direct in the coming years will grow more than other distribution channels for many reasons, especially for -- because of new generation, and we see that also in the banking business, as you know. So what does a direct player offer? A direct player offers lower prices and direct player offers convenience. I mean, this is -- you can buy a motor policy during the night without moving from your home and so on. I mean these are the 2 key critical points and the 2 added values that the direct business brings. More specifically on the price. So on -- for price-sensitive clients, it is clear that for specific business lines, especially motor, but true also for the home business. With direct, you can offer lower prices, and you can offer lower prices for 2 reasons. The first one is direct players have lower expense ratios. If I look at the expense ratio of Prima, it's about 16%. If I look at the expense ratio of our other direct operations were always below 20%. If you look at the expense ratio of intermediate retail businesses, I would say it's overall 30%. If you are a market leader, it can be at 28%. But let's say that direct players have a 10-point competitive advantage compared to intermediated players. Then direct players are also more segmented and they are focused on -- they're extremely segmented with the high pricing sophistication, which generalist players cannot be. In other words, of course, we are segmented, but usually, the clients that come to our agents have many different products with us and so on. So you cannot be very segmented. So again, 16% for Prima, highly competitive and probably can still improve. So this is a real disruption.

Thank you, Frederic and Alban. Let's move to the next question.

Next question is from Michael Huttner from Berenberg.

Yes. Fantastic. A big praise, I follow a lot of companies, actually you delivered 8% half year on half year and saying whatever happens, is given some of the companies I cover are beginning to realize now how that is, so that takes me to my first question, which is -- and I hope that you will answer Thomas, since you've been very quite today. The first question is, clearly, could have said that we'll do 10% EPS growth or 9% or whatever the figure might be because there was a lot of buffers you're building. Can you talk about -- my guess is what you're implicitly thinking is that you're saying, well, I'll invest for growth. I delivered the earnings but I'll invest for growth. I think in the introductory remarks, you stressed the long-term nature of the growth outlook rather than delivering more now. I just wondered whether you can articulate -- if that's right, if you can articulate this a little bit better and also give us some figures on how much you're investing or what the -- yes, what the investment amount is. We can have a figure for the payback, if you like? The second question is really a silly one and is maybe more for Alban. Alban, you kind of brushed away, say, yes, FX 1.2% or 1% or 2%, I can do it. Where is the fact? Can you -- I mean I'd love to be able to offset. It sounds like EUR 140 million or may be EUR 200 million. I don't think I'll ever be able to do that, but it may be some idea of that. And then the last question is the pure number one, I apologize for that. 11x, can you unpack what is the ratio of. I still don't know how much you're paying for Prima. I mean I know the EUR 500 million, but the rest is -- I don't know, I've heard EUR 1.1 billion. And then linked to Prima, you only related to the Italian premiums. It looks as if you're throwing away the remaining EUR 200 million. That's it.

Thank you, Michael, for your question. So we do, as you said, Alban will tackle the second one, and we give the third one to Patrick because we are, as you've seen, only buying 51%, which represents the EUR 500 million. The total value is 1.1%, but Patrick will explain a bit more in detail. So on your first question. For me, it's important that we have -- if you look at the transition of AXA, we have shifted the portfolio to more earnings predictability to more cash-related earnings, and you can see with our earnings power that this has worked very well. We are in the phase now of focusing mainly on organic growth development. And you've also seen, given the fact that all geographies, all lines of business are contributing, we are very well executing on our priorities and have found back to a good growth momentum because if you go back to 2016, we were not at 7% growth of our revenues. We were probably in slight minus territory. And I think this should make us all very proud that we have created this momentum. Secondly, we are not looking at 3-year plans, and then we don't know what is happening afterwards. For us, the 3-year plan is just an intermediate target that we want to achieve. And as you heard from my comments, we are already looking beyond how does the story continue. And in order to fuel a continuous growth story, you also need to invest. And therefore, we try and balance these investments for growth and the delivery well. So where do we invest for growth today? And what is already in these numbers? You have a big initiative that is happening in the U.S., where we want to accelerate with XL. We have a big initiative in Asia, in Hong Kong around wealth management. You have a lot of initiatives in Europe around mid-market and other areas. So our numbers do include the investments already for tomorrow. And I think that is also what a responsible company should do to sustain earnings. We do believe that we have the capacity to deliver our plan in the range of 6% to 8%. And yes, we have enough margin to swallow negative effects because if you remember last year, we had many adverse effects from the discounting, from the OECD tax. And we also managed to coverage because when you look at also our reserve base, when you look at how prudent we are, we have the necessary comfort to deliver our plan and swallow those negative FX impacts. So Alban, second question around how to offset the EUR 1.2 billion. You can go into detail. And maybe you also do the Prima one because I have probably given half the answer already, and then you can go into a bit more detail.

Thank you, Thomas. The -- so on the FX, obviously, it has an impact. What we are saying is that we feel strongly about our earnings in the first half and that we are confident that we would be able to offset the impact of FX in the second half with the magnitude that we have described during this call with better earnings. That's what we are saying. There is no magic behind that. On Prima, so when we say it's 11x, that's the sum of 3 things. It's the price that we are paying today for 51%, so EUR 0.5 billion. That's the fact that when we recapture the premiums because as you know, Prima is an MGA, we will have to inject roughly EUR 0.2 billion in the carrier that will do that. And last, that's the best estimate of what we will pay in 4 or 5 years when we exercise the call options discounted to today. And so when I do the sum of all this and compare that to 2 days earnings of Prima, it's 11x. I think what really matters is what we said earlier on Prima's earnings growth capacity, which is extremely impressive. So the 11x is, from my point of view, more than reasonable.

I think Alban has been extremely clear, but I want to reinforce his point. I'll say it in the following way. Our half year result -- for our half year results, we've done a cautious closing. And this cautious closing makes us confident that we can compensate for future FX negative impacts and that we can continue to invest in our future growth, having in mind the next plan.

Thank you, Michael for your question. Let's move to the next one.

Next question is from Farooq Hanif from JPMorgan.

Just going back to, firstly, the point on casualty in AXA XL. Can you tell us how much of your premium is in casualty in AXA now? And obviously, it wouldn't have grown because of pricing, but are you sort of chasing share there in any form? Secondly, on the point about your reserving strength. I mean I'm looking at Slide 32 in your appendix and now you can't really use claims reserve ratios. They are a very blunt tool and they don't really always mean anything. But I note that your incurred claims to net earned premium is down at a low point compared to -- I mean back at full year '18 levels. And I was wondering whether we need to read anything into that? And my last question is on the financial result, the investment margin. So obviously, going back to Will's question, it feels like investment income can improve. But obviously, your financial results is a spread. Having said that, like in the first half, it looked like it was -- that was -- that spread was also stronger. So I was wondering if you think that kind of net between investment income and discount rate unwind going forward will continue to be also growing?

Thank you, Farooq, for your questions. I suggest Scott will take the first one on casualty. And then Alban will talk about the reserving piece, obviously, making sure that we're treating 2019 and prior differently to post 2019. And then, Alban, if you could also talk about investment income at the end. Scott?

Thank you, Thomas. Farooq, on the casualty portfolio for AXA XL Insurance, it's approximately 30% of our business. So -- and it's been pretty steady around that number over the last 4 or 5 years. We're not "chasing" anything here. What we do is we look at each risk and we adequately determine if the pricing is adequate. And if the particular product line, the pricing is adequate, we might write a little bit more of that. But in today's, the mix number has stayed pretty steady over the last 4 or 5 years in terms of casualty relative to the rest of the insurance portfolio.

On the reserving, so exactly as you said, Farooq, looking at the Page 32 is a very growth indication. And especially when you have top line growth of 7% in P&C -- 6%, sorry, in P&C, that brings your ratio down mechanically because your reserves do not grow at the same pace, and that's normal. I would just say that on the casualty at XL, we have obviously very sophisticated ways to look at it. But a very simple way is to say how much IBNR for how much case reserve. And we have significantly increased that ratio over the last 3 years. And last, on investment income, the -- you're right, I was commenting on investment income, not the spread between investment income and unwind. I think it can, nevertheless, increase, but at a lower pace than investment income itself.

And even if your question was focused on casualty U.S., I'd like to make a comment on casualty outside of the U.S. because we never discuss it. Casualty in Europe and emerging market is an extremely good business. And we have a specific initiative at AXA to grow this business because, again, this is a business which is well priced, good underwriting. And this is very often in many geographies, our most profitable business, so be it in Europe, but also in emerging markets. So we should have this view that there is casualty U.S., and we're happy with our business -- casualty business in the U.S., but -- and we're also happy with the level we underwrite in the U.S., but we also have a business in Europe and emerging markets and casualty, which is extremely good.

Thank you, Farooq. Let's go to the next question.

Next question is from Dominic O'Mahony from BNP Paribas Exane.

I've got one main question and then a couple of details left. Just on the discounting in P&C, flat versus H1 last year. I was really positively surprised by that. And I was expecting quite a deterioration given what's happened to yields. I wonder if you could just unpack how you managed to keep it flat. And the extent to which that's a secular function of business mix, which means it will persist? Or are there some one-off factors in there, which means that we should look through a particular print? More detailed question. We've talked quite a lot about currency effects on the financials. I'm really just wondering whether you observed any change in the actual business sales. So for instance, is there any sign that appetite for U.S. dollar-denominated policies in Asian markets that customers are wary of those products in light of the currency volatility? And then finally, Alban, I think you said, correct me if I'm wrong, that U.K. retail margins improved in the period versus first half '24. Clearly, the pricing dynamic is weaker in the U.K., as you mentioned, versus Continental Europe. What's driving that improvement in the performance?

Thank you, Dominic, for your questions. So on the discounting P&C, I suggest, Alban, will talk about this. When it comes to the currency, I think we need to differentiate 2 types of business. One is obviously the commercial business. Scott should talk about that. And the other one is more the life insurance business in Asian markets, in particular in Japan, because that's where you had the phenomenon of U.S. dollar-denominated life insurance. On this one, we see that demand has actually weakened for it for a couple of reasons. Number one, the interest rate situation in Japan has changed, even though it hasn't dramatically changed. And secondly, some tax advantages on what's called COLI products in Japan has changed which has driven more demand towards yen-denominated policies. And the same is true if you have, for example, Mexico, where you have some health policies in U.S. dollar because the delta between health costs in Mexico and the U.S. has certainly gone apart. These products are less offered and therefore less salt. And I think then on the third piece around U.K. retail. Patrick will talk about it. When Alban was referring to U.K. retail, he was referring to Health earlier. But what is important is that maybe Patrick gives a little more detail around health, motor and household because the trends are relatively different. So Alban, on the first one, discounting factor.

Thank you, Thomas. Dominic, on the discounting, so we don't manage the discount effect because it's simply mechanical and not manageable. So what happened? It's a mix of 2 things, one that everyone has in mind it's a function of the discount rate, which is the market rate. But then there is something else, which is also the amount of unpaid claims for the business written in this first half. So it's a question of business mix. If you say write more casualty, more financial lines, for which typically the amount of claims paid in the current year is low, you will have more unpaid claims and therefore, more discount benefit. I hope that clarifies.

Thank you, Alban. on the second question, Scott, on the currency effects, does the -- do you see anything in commercial when it comes to programs and so on that people switch currencies?

Sure. Thank you, Thomas. Dominic, we're not seeing any changes relative to the denomination in our policies. And I just want to be clear, when we underwrite, we have a very clear rule that your limits that you buy have to match the premium that you pay in the currency in a sense or if you're buying U.S. limits, for example, a property policy, the premium is also paid in U.S. dollars. So we always match the currency of the exposure that we're insuring relative to the premium payment. And generally speaking, the clients aren't really focused on that piece of FX. It's just making sure you're ensured to value in whatever country that you're operating in. So again, we're not seeing -- and it's not typical, when we see currency movements, we really don't usually see movements of the currency within our policies.

Thank you, Scott. And then Patrick, on U.K. Retail, if you could then differentiate as wealth, health, motor and non-motor?

Absolutely. Thanks, Dominic, for the question. So I will start with U.K. health and give you a little bit the dynamics and the reason, behind a very, very positive development. And we have a massive increase of our earnings on the U.K. health, above 170% versus half year last year. And if you remember, in '23, we told you, no stone would be unturned to bring this book back to its profitability. It's a great business, got 20% market share. And that's exactly what we did. No stones were unturned. We've put in very strong price increases. We've sophisticated our pricing. We've enhanced our ability to price more frequently and very, very, very importantly, we've totally reshuffled our claims activities, which means we have a steering to our preferred networks that move from 45% and of 23% to now 80%. We invested heavily in fraud, waste and abuse. And very importantly, we acquired a small company that helps us developing medical pathways, i.e. medical protocols that we put in place to make sure that on one hand, you have the best medical outcome for the customers, but there is also a cost efficiency process that enables to remove the waste. And you know that in Health, 30% globally, I'm not talking here about AXA, but 30% of all spending is wasted. You add to this some expense reduction efforts that we're doing through AI and gen AI in particular, in our call centers and you add up to this result with a very significant improvement in the combined ratio of around 5 points. Very importantly, I said it's a great business. We believe, there is still more to be earned in the second half of '25 and get the full impact of the price increase we had in '24, but also the impact of the pricing increase that we've put in '25 from 8% to 15% pending the lines. We see a top line rebound, I'm very pleased with that. We have a top line growth of 6%, and we feel this is a good momentum that will continue, and we will continue to be totally obsessed with claims and get very strong benefit from that perspective. So that's for the Health bit. On the U.K. Retail, you're right. You talked about, I believe, in your question, the market softening. So it's true the market softens around 5% in the first half of the year. We are very clear on what we need to do in the U.K., which is to prioritize profitability and customer retention. And that's what we're doing. So I'm super pleased to see on one end, that if you look back to 2023, combined ratio improved more than 17 points. And if you look half year versus half year, it's an improvement of 4 points. And this is almost all driven by attritional, which means greater quality, obviously, of the portfolio. So that's on one hand, the profitability. On the other hand, we're regaining net new customers. So we're growing our customer base. This is stemming from impact the new deal we have with Lloyds Banking Group, which is a leading banking group in the U.K. with 28 million customers. So we feel there's a lot of potential to be captured. And we're very interested also by that partnership because its data reach enables us to sophisticate our pricing and to select well the risks. Back from the turnaround things that I had explained in previous sessions. Again, here, it has been a totally reshuffling of our pricing capabilities from the pricing sophistication to the pricing tools, i.e., our ability to have full deployment of our models in rating engines and sophistication between linear and nonlinear models. I wouldn't get in that detail. And again, claims huge effort from fraud detection to procurement to also reinternalization of our intervision team. So if you look at our rate of capture from that perspective, it has moved from 16% to 25%. So we've really moved the needle on what makes the technical excellence, and we'll keep being very, very disciplined in prioritizing profitability, customer retention and fueling the top line through that very interesting deal we have with Lloyds.

Thank you, Patrick. We take one last question. I think Andrew Crean is next in line. If there are any further questions beyond Andrew's questions, our team is obviously ready to answer all of them. but the time is advanced. So Andrew, a last question.

Thomas, a couple of questions. Firstly, you talked in your opening remarks about improving the ambition and the combined ratio that you want out of Health beyond this plan. Could you enumerate a little bit as to how big an improvement you're targeting? Secondly, in terms of XL Insurance, you quoted the rates in both casualty and property. But I wanted to understand what the rate movement was in the U.S. because half XL Insurance business is outside the States. So could you talk a little bit about rate in the States in casualty and property and whether you see that as -- are you building margin, holding margin or losing margin?

Thank you, Andrew, for your 2 questions. I suggest Scott will answer the second question. On the first question, what I said is, and this goes very much also back to the question we had around Michael's first question. When we think about the Health business, we are looking at it in the long term, not only given this plan, what we have seen in many markets, notably in Spain, Mexico, Egypt and others that if you do partner or operate in Health with medical facilities, so clinics that -- not hospitals, but clinics that handle 70%, 80% of the base load, you can have a very strong influence on the one hand, around your claims cost because you make sure that you help the customer from very early on to find the right doctor in the medical jungles that do exist today. And secondly, you can also reduce fraud, waste and abuse to this. And we have decided to continue this investment plan and to continue investing in those clinic facilities in order to make sure that in all of our markets, where this applies and where we have a positive impact on Health, and it's mainly in markets where you have a high, what we call, out-of-pocket pay, so where there is no sufficient state system and the customer has to pay a certain amount him or herself. And so when we talk about how big is the improvement, I guess I will have to defer you until the end of next year when we launch our next plan, but clearly, Health is an important business for us and a strategic business, and you will see in the next plan an ambition around growth and profit improvement around this based on the strategy of more assets in vertical integration. Scott, on your question around the insurance -- sorry, the rates in the U.S. on casualty and property and how is rate and margin movement.

Sure. Thank you, Thomas. Andrew, to give you a little more color on the difference, and you understand that a lot of our business written outside the United States can have obviously U.S. exposures to it, and we would price that business, obviously, consideration of the U.S. exposures that they have. But to give you a perspective, for example, excess casualty for us from a pricing standpoint is up around 15% for -- in the U.S. And that compares, for example, with our essentially non-U.S.-generated casualty business of around 6 and change. So that gives you a little perspective of those differences. In terms of property, it's a little closer. The all-up portfolio, we talked about being slightly negative of a couple of points. The U.S., for the first half year, is around minus 5%. So it's a little bit more than what we're seeing in the non-U.S. business, but that business was heavily skewed to the first quarter. So the market has moved a little bit since then. So it's not surprising that the U.S. book, which is more of a second quarter book than the first quarter would be a little bit lower on the rate number.

Thank you, Scott. Thank you for your participation and all your questions. As I said, if there are questions remaining, our team is there to answer all of the remaining questions. In the meantime, I wish you a great summer, and hope to see you soon. Thank you very much.