AXA SA (CS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the AXA 9 months 2021 Conference Call. To begin the call, I will now hand over to Andrew Wallace-Barnett, AXA Head of Investor Relations. Sir, please go ahead.

Thank you, and good morning, everyone, and welcome to AXA's Conference Call on our 9 Months Activity Indicators. I'm pleased to welcome here with us this morning, Frédéric de Courtois, AXA Group Deputy CEO; and Alban de Mailly Nesle, AXA's Group CFO. They will take you briefly through the highlights of both of last night's press releases, and then they will be both happy to take your questions. So to start things off, Frédéric, I hand over to you.

Thank you, Andrew. Good morning to all, and thank you for joining us for this call. I am very happy to be with you today. And I would like now to briefly comment on the releases from yesterday evening, starting with the 9-month activity indicators. As you've seen, AXA delivered again a very strong performance. Total revenues increased by 7% year-on-year. The growth dynamic we have seen since the start of the year is continuing across all business lines and geographies. In particular, Commercial lines revenues increased by 7% in a continued favorable pricing environment. Our Life business remains very strong, up plus 12% with a high-quality mix. Health grew by 4%, and Asset Management performed extremely well, up 17%. Our balance sheet continues to be very strong with a Solvency II ratio at 214%. Alban will go through the results in more detail in a moment. As you saw, we also announced yesterday the launch of a EUR 1.7 billion share buyback program, which is expected to start around November 8. It reflects the strength of AXA's balance sheet, notably very strong capital and liquidity positions and demonstrates the group financial discipline. It is also a reflection of the confidence we have in our business profile, strategy and prospects. On top of this, in line with our commitment during our 2020 Investor Day, we intend to launch a further share buyback program for up to EUR 0.5 billion next year to offset earnings dilution from the disposals announced after December 1, 2020. The disposals include Greece, Malaysia and Singapore. The Solvency II impact of these 2 share buyback programs should be a reduction of roughly 6 points and 2 points, respectively. Overall, I am very pleased with the performance of the group as we are delivering on our strategy. The group is growing with a very high-quality mix -- business mix, and we remain very focused on achieving strong technical performance. Also, and very importantly, we can expect -- you can expect us to remain disciplined in terms of capital management, including further life in-force optimization. The environment is conducive for these transactions, and this is a strong focus for us, as you know. Thank you very much. And I now hand over to Alban.

Thank you, Frédéric, and good morning to all. So I will now run you through the key figures of the release, which, as you have seen, are very strong across the board. So starting with P&C. Revenues increased by 5% with a strong performance in Commercial lines, up 7%. And Personal line revenues were stable. In Commercial lines, we saw a strong performance in both AXA XL and in France. And if we look at AXA XL, the price effect on gross written premiums was plus 11%, reflecting strong price increases on renewals, plus 15% in Insurance and plus 9% in the Reinsurance. Those levels are broadly in line with the first half of this year. This was partly offset by exposure reduction as a result of our continued portfolio reunderwriting. And overall, AXA XL revenues grew by plus 6%. France is also performing well, up 12%, also from higher volumes and favorable price effects. In Personal lines, revenues were stable. We are seeing good growth in non-Motor across all our geographies. And in Motor, pricing is fairly stable overall, which is a good achievement given the current context. As you've seen, the third quarter has been another active nat cat quarter for the industry as a whole. We have indicated a preliminary estimate for Hurricane Ida of around EUR 0.4 billion at AXA XL before tax and net of reinsurance. This corresponds to roughly 1.5% market share for AXA XL, at the bottom end of the typical 1.5% to 2% range and reflects the impact of measures taken to reduce cat exposure over the past years. Regarding the European floods that we had in July. There has been some upward revision in insured loss estimates across the industry. At AXA, no change on the primary side as the higher growth losses are covered by our reinsurance protections. But we've seen some increase at AXA XL Re. But overall, our estimated impact remains unchanged at EUR 0.4 billion before tax and net of reinsurance. Now moving to the other lines of business. In Health, revenues are up 4% with a good performance in group business, up 5%, notably in France from higher volumes as well as continued growth dynamics in Mexico. And in individual Health, revenues are also growing, up 3%, notably in Europe. Now moving to Life & Savings. So there again, the performance in life was very strong and with a high-quality business mix. On the revenue side, Life & Savings is up 12%, driven notably by France and Asia. And if you look at net inflows, the business mix remained very favorable with strong inflows in Protection at EUR 2.9 billion, Unit-Linked and G/A capital light combined at EUR 3.3 billion and outflows in traditional G/A Savings of minus EUR 4.1 billion. France continues to deliver very strong results, driven by Individual Savings business. We recorded strong sales in Unit-Linked, notably in individual retirement and Eurocroissance capital light products. Group business sales were also up in the third quarter, notably from a large G/A capital light contract. In Asia, Japan and Hong Kong also continued to perform well with a strong focus on high-quality mix, notably in Protection and G/A capital light. Finally, in Asset Management, AXA IM again recorded a revenue growth of plus 17%, driven by higher management fees linked to favorable market conditions, strong inflows and an improved business mix. In the first 9 months, we recorded EUR 13 billion of net inflows at AXA IM, notably from third-party clients in both core and alternatives. Now moving to Solvency II. Our Solvency II ratio stands at 214% at the end of September. This is a very strong level, and it represents an increase of 2 points since half year. This improvement versus half year reflects a positive operating return net of accrued dividend, slightly more favorable market conditions and a plus 2-point benefit from our reinsurance transaction in Hong Kong. And this was partly offset by an increased exposure in Private Equity. So to conclude, the full message I want to leave you with: One, we are delivering strong and disciplined business growth; second, the pricing environment in P&C Commercial lines and notably at AXA XL remains attractive; third, our large business mix is of very high quality, and we are focused on accelerating our in-force management actions; and fourth, our balance sheet is very strong, and you can expect us to remain disciplined in terms of capital management. So we are now happy to take your questions.

[Operator Instructions] The first question from Peter Eliot from Kepler Cheuvreux.

I had 3 questions, please. Firstly, thank you very much for the good news and especially on the share buyback. I was very interested in your comment, Frédéric, also on the sort of possible further actions in respect of life in-force actions. I'm probably being very greedy here, but I'm just wondering whether at some point, we might -- you might look at sort of formalizing a capital management policy on back book deals in the same way that you have on disposals. That may be one for a later date, but I'd be interested in your thoughts. Secondly, on the affordability, you mentioned the strong solvency and cash flexibility. I mean, I guess on the cash side, you were expecting to end the year above the top of your target range but probably not EUR 1.7 billion above. So I'm just wondering if you could sort of update us on your thoughts now about sort of how comfortable you are being at various points in the range? Or was there other moving parts that we don't know about? And then finally, Alban, you were quoted yesterday, I think, of saying that the EUR 1.2 billion for XL is still achievable this year. I was just wondering if you could clarify what assumptions you -- what that assumes in terms of sort of claims from now to the end of the year? Or maybe to put it another way, what would need to happen for you not to be able to achieve the EUR 1.2 billion?

Thank you, Peter. I'll take the first one, and I'll leave the 2 following ones to Alban. So on your question on life in-force and capital management policy, first, our capital management principles have not changed. And just to remember you -- to remind you what the principles are, you remember that we have committed to compensate for the dilution of the EPS in case of disposal. And this does not include the in-force actions. And we've also committed to benchmark and challenge any potential acquisition against a share buyback, and this remains valid. Saying this, we are committed to a very high discipline in the way capital is deployed. And I think that today's announcement is a proof of this. More specifically on in-force actions, I confirm what we had said during the half year accounts. The environment is good for this kind of project, and we plan to be more ambitious on this front. But of course, it takes time. You know that this kind of operation usually takes 18 months to complete. So we will see. But again, we are committed to be more ambitious on this front.

Peter, so on your second question on cash, as you pointed out, at half year, we were above the upper end of our range. Since then, we've had good remittance, and we expect further good remittance by the end of the year, plus, as you are fully aware, the proceeds of some disposals. Obviously, the share buyback will reduce that cash amount at the end of the year, and we will fully update you in February with the full year results. But good cash position overall. And on the EUR 1.2 billion, so yes, we said that yesterday at the press conference. The major assumption is that the fourth quarter does not include a major cat or several large cats at AXA XL. That's the major assumptions to achieve the EUR 1.2 billion overall for AXA XL. I just want to give you an update for the group of where we stand versus our cat aggregate protection. We are EUR 50 million away from the attachment point of cat aggregate protection, and you will remember that there is a EUR 50 million deductible. So it would take EUR 100 million cat to start biting into the cat agg. And I will also remind you that it's a EUR 650 million capacity placed at 68.5%.

The next question comes from Andrew Sinclair from Bank of America.

As Peter said, great to see the capital return today. And I think you'll be rightly rewarded in the share price. Three for me. Aggregate reinsurance cover -- sorry, apologies. Sorry, disposals was where I meant to start. Sorry, disposals, just wonder if you can give us an update on where we are on the disposal processes for Malaysia, Singapore related to the buyback and also for AXA Bank Belgium. Secondly was just on reinsurance protection. Sorry, you said for the European storms, you got some reinsurance protection there. But can you give us an idea of Hurricane Ida as well, how much protection could you see specifically on that? And how much protection remains for the European storms as well? And just on the -- thirdly, just on the exposure reductions in XL. It does feel like every time we -- you report that you've reduced the property cat exposure further in XL. Just wonder if you could give us a bit of color on how much lower that exposure is today than when XL was acquired. And how much further you feel you can go on that exposure reduction?

Thank you, Andrew. I'll take also the first one on disposals and let Alban on the 2 following ones. So on what we have in the pipeline, on AXA Bank Belgium, we are confident to close around year-end. I mean, all signals we have are positive on that. We've completed the dossier to the regulators. So now we are very confident that we will close around year-end. On Singapore, the closing process should go fast. I would say, forecast also something around year-end. On Malaysia, it's always slower. So our best estimate is Q2 next year, again, with a bit of uncertainty. But again, at this stage, on these 3 closings, there is no worrying signal. And again, the good news is that in AXA Bank Belgium, all signals are positive now.

So on your questions on the reinsurance protections on European floods and Ida, the way it works, on the insurance side, so that would cover AXA Germany, AXA Belgium and AXA XL insurance exposures in Europe, we are protected from EUR 350 million on and for a capacity of EUR 1.2 billion, which means that we are now clearly above the EUR 350 million loss on the primary side for those floods and, therefore, are covered for any deviation. On the reinsurance side, we don't benefit from the same. And therefore, that's why we slightly increased our assessment of our loss on the reinsurance because then we don't have the same excess of loss cover. On Ida, it's mainly AXA XL Re which is affected by Ida. And with the same sort of protections, we have some quota shares with XL Re, but we don't benefit from an excess of loss protection. Overall, if there is a new event, as I said in one of the first questions, the -- I mean, the whole group, including XL Re, would be protected by the cat agg provided that loss from a new cat reaches EUR 100 million. On property cat at XL, we have reduced by 40% our XL Re exposure since we bought XL on cat. Now we are looking at the end of the year to determine by -- I mean, what we want to do with our exposure for next year, and that will highly depend on the price increases that we'll see. We believe that cat are not adequately priced on the reinsurance market. And if we don't see a significant increase in prices, we can reduce further our exposure at XL Re.

The next question comes from Michael Huttner from Berenberg.

Congratulations on such lovely news and everything, lovely news. And I had lots of little questions. So on the buyback, I think you said many times, disciplined capital management, et cetera. But is this a one-off, this huge lump of EUR 1.7 billion? Or was there kind of thinking that you could do more? On the life deals, can you give any kind of clue or hint what reasons or what size we might be looking at? And then on the -- on COVID, you -- or I think AXA XL released EUR 600 million at the half year reserves. And I think you don't look at reserves at the 9-month stage, but you must have some kind of thinking. Is there -- given how COVID claims in P&C are kind of running off, is there room for more releases at some stage? And my last question, I'm really greedy here, is in the 214%, what is the number for the operating capital generation?

Thank you, Michael. I'll take the first one, and I'll leave Alban on the 3 following ones. On the first one, I cannot say more than what I said. We will stay very disciplined. And again, the -- today's announcement or yesterday's announcement is a proof that we are disciplined. And I can assure you that we will stay very disciplined.

On your life -- on your question on life transactions, what we have in mind, as you remember, we have EUR 280 billion of G/A account -- general account reserves. We have in mind to cede EUR 30 billion to EUR 50 billion of reserves through reinsurance or through sales of books. That's the target we've set ourselves. On XL, so we will review the COVID reserves at the end of the year. That's part of the equation for the EUR 1.2 billion, but it's a bit too early for me to say what will be the outcome on this. And the 214% solvency, there was 1 point of operating return this quarter, so slightly less than the usual 2 points. And that's because of the cat in Q3.

The next question comes from William Hawkins from KBW.

A very simple, boring question, first of all. Can you tell us the own funds and SCR behind the 214%, please? Secondly, has the adverse development cover for XL attached by the end of September? I mean, I think you're booking that quarterly for Enstar. So I'm intrigued to know whether that's attached. And if it hasn't attached, what's the probability of it attaching by the end of this year? And then lastly, could you just give us any kind of headlines you want to in terms of what's going on with claims inflation? Are there any hot spots that are emerging that you think we should know about? And also, again, I'm -- so it's a slightly wooly question. But how do you want to continue to think about this? Because you open up the newspapers, and they're just full of inflation everywhere. You talk to every insurance company, and it's like they're living in a different universe. And I appreciate you're on top of all of these risks and you're thinking about them. But to me, there's a real disconnect that I'm trying to get my head around. So are there any hot spots in claims inflation? And how should we be thinking about the disconnect between worries in the papers, no worries in the industry?

So on the 214%, the denominator of the SCR is EUR 28.8 billion. And so the numerator is this times 2.14. On the ADC, so we do thorough reserves reviews twice a year, and it will take place in Q4. So at this stage, there is no change to the ADC. And therefore, it hasn't bitten into the ADC at Q3. On inflation, so a few things. One, claims inflation is something that we've had almost forever. What I mean by this is when you look, for instance, at motor insurance and spare parts, notably because there is a lot more of electronic parts in cars and in the way the cars are built, there's been spare parts inflation in motor insurance. And we've managed through that by better procurement, by negotiations and so on. And we embed in our pricing and in our reserving these assumptions of inflation. So I agree with you. There is a surge in general inflation now, but it doesn't mean that, that surge in general inflation triggers additional inflation in our businesses in -- for instance, in spare parts. It might, but it's not absolutely obvious that it will. But we are vigilant about this, as you can imagine. So we will take that into account in our pricing and our reserving. But for the time being, our thesis is that it is a temporary surge linked to the economic recovery and the bottlenecks that come with it. And we will review that periodically. And notably, I think a good moment to look at that, it's probably at the end of Q1 or Q2 next year when normally, that temporary inflation should have faded. But as I said, it's part of our normal pricing and reserving process.

The next question comes from Dominic O'Mahony from Exane BNP Paribas.

Three for me, if that's all right. Just firstly, on Asset Management. I think the implication of the statements you made is that the alts business is growing well. I wonder if you could give us any more color on that? What sort of asset classes you're growing? And really, what this means for fees? And indeed, whether if this is third-party internal or a mix? And indeed, whether that means that the revenue margins -- sorry, the investment margins you get on the life side actually might be benefiting from that? The second question, Asia high potentials, growth is sort of -- is actually a little bit behind where the rest of the group seems to be. I'm aware that there's a negative in health in China from a nonrepeat of a digital partnership. I'm just curious to hear your views on where the Asia ex Japan growth comes from going forward and what your sort of direction of travel is. A third question on France. Life growth is very strong. I'm just trying to work out whether this is to some extent a rebound from the pandemic effects. Or whether actually, the sort of the newer products, the retirement products, the Eurocroissance products, whether actually there is structural growth there, which means that actually, we should be expecting significant growth sort of ahead of historic trends going forward?

So thank you, Dominic. On Asset Management, so alts is effectively growing. But core is also growing if you adjust for the issue that we have created ourselves. What I mean by this is with the Hong Kong transaction, there are EUR 5 billion of general account assets and, therefore, EUR 5 billion of assets with AXA IM that have -- that we have lost. So we need to adjust for that to see the performance of AXA IM as such. But at alts, it's growing on the 2 main pillars that are structured finance and real assets. For the 9 months '21, structured finance grew AUM by EUR 2.8 billion; in real assets, by EUR 5.7 billion. And that's both coming from AXA and third parties. On high potentials in Asia, I think we have China on one hand, and we have Southeast Asia on the other hand. On China, there have been 2 changes in regulations in the last month that have affected the insurance market in China. The first one that we already discussed is on the -- on motor, and there's been deregulation. And that deregulation has led to a significant increase in combined ratio. We believe that we are probably in a better shape than many of our peers there. But nevertheless, we need to focus on profitability. And therefore, it leaves us to reduce our exposure in motor in China to focus on the profitable segments. The other change in regulation came on the digital platform selling health business, where the way it is sold is -- has been made more stringent by the regulators. So that also has an impact on China health. We are focusing obviously on other distribution channels, notably our branch network that has in the past focused on motor and that we are moving also to health in order to have sound growth in health in China. On the Southeast Asia businesses, there is growth, but I will just remind you that the -- those companies are accounted for under the equity method. And therefore, the revenues are not highly visible. But there is good growth in Southeast Asia, nevertheless. And notably, the APE, which, as you know, takes into account our quota share of those companies, the APE are up 11% on our high potentials. Then on your last question in France, I would say there are -- I mean, there is good growth, as you saw, both in P&C Commercial lines and in Life. On P&C Commercial lines, we benefited from a very good commercial dynamic, also from the fact that there is an economic recovery. And you know that part of our revenues are based on our own customers' revenues. And there is -- the third aspect is the fact that, on average, prices increase were 3% in France. So it's a rebound. We shouldn't expect such a growth in the coming quarters, but the level itself is sustainable. On the Life side, I think it's a bit of both. We have a rebound simply because there was a lot of savings accumulated by our customers last year under the COVID period. And now those savings find their way to our Life policies, notably Unit-Linked and Eurocroissance and retirement products. In that sense, there is a catch-up. But we believe that we have a very good distribution network in France to sell those products and that there is a very good environment, notably a very good tax environment, to incentivize our customers to take that kind of product. So we believe that there will be further growth in that business going forward.

I would need to add that in France, the growth in savings is a very high-quality growth because we have a share of 55% of Unit-Linked and Eurocroissance, which is still very much above the market, I think around 14 points above the market. So there is growth, but there is also quality of the growth.

The next question comes from Andrew Crean from Autonomous Research.

I had 3 questions, if I might. Firstly, could you give us any thoughts about the renewal of your aggregate cover for next year as to whether you'll be able to get 100% cover rather than 68.5%? Secondly, you're talking about the life in-force optimization. If you do deals there, you could either do them by a reinsurance contract or you could do it by a disposal. Both of them achieve capital now but the loss of future earnings. If you do it by a disposal, you say that you'll return the capital to shareholders. But if you do it by a reinsurance contract, you won't. What is the logical consistency in that thinking? And then thirdly, in terms of your capital management, you've obviously dealt with the issue of disposals. You dealt with the issue of testing acquisitions against the benefit from a buyback. But the elephant in the room remains the fact that you're going to be generating 18 to 22 points of operating capital generation, less 12 points of dividends, gives you anywhere around 8 points of organic capital generation every year, which is about EUR 2.3 billion. And you don't seem to want to tell us what you will do with that excess. Why is that? And what should we conclude?

So on the aggregate cover, and thank you, Andrew, for your questions, we are, as we speak, in the process of designing our program for next year. Fundamentally, where we want to go is in -- as far as our risk appetite is concerned, is risk appetite that would be flat or reduced. We don't want to increase it in terms of nat cat. Given what I said earlier on the reinsurance market and the fact that we will all not reduce our exposure on XL Re depending on the prices we get, we will see whether -- I mean, we will see how we want to structure our reinsurance program between the various tools that we have, quota shares, sidecars, excess of loss and aggregates. The -- at this stage, I really cannot say whether we will buy an aggregate and how much. What we see, what we hear from the market is that the retro market is hardening, and that will be probably more expensive. So we need to manage our risk appetite, probably down but not sure yet at this stage, but we also need to manage our earnings. And so we'll see what the best mix between all these 4 tools that we use. So sorry not to be able to give you a better answer, but that's where we -- exactly where we are today.

Andrew, on your 2 next questions, the first on life in-force, so you are right that when we are doing this kind of operation, in fact, we have 3 options: So reinsurance, sale of a portfolio or sale of a company. And as I said, we are going to accelerate on this. And generally speaking, we prefer to do disposals, company disposals or portfolio disposals for all the reasons you can imagine. Saying this, our commitment to do share buyback and to compensate for the dilution does not include the life in-force actions, I mean, be it reinsurance or disposals. On your last question on the elephant in the room, as you call it, first, on this, I would say this is not a big news. But the company has always 3 options to invest its capital. We can either do internal growth, we can do M&A or we can do share buyback. We want to grow through internal growth. We have many options to grow through internal growth, and we are keen to have growth on our preferred business lines. On M&A, we do not exclude to do M&A. As we've already said, we are going to do M&A in a very disciplined way. This will be a bolt-on M&A. This will be acquisitions in businesses we like and in geographies where we already are. Saying that, opportunities currently are scarce. The prices are high. So we will see. And then we have share buyback. The only thing that I can tell you is that we will stay very disciplined, and we will always give priority to the value creation and to our shareholders.

The next question comes from James Shuck from Citi.

My first question is around the -- again, on the life in-force transactions, and thanks for the EUR 30 billion to EUR 50 billion target or number that you gave us. I'm just interested to know how you think about the free cash flow conversion because I think by 2023, you're talking about EUR 5 billion to EUR 6 billion of remittances. The cash conversion of IFRS earnings is quite low. So when you think about ceding those potential reserves, then is that a stock issue, something that just helps the Solvency II at the group level? Or is there an ongoing benefit that's possible in order to help improve that cash conversion, which I think is dragged down mostly by Asia life? And if you're able to tell me the capital that's allocated to that EUR 30 billion to EUR 50 billion of G/A reserves, that would be very helpful, please. Secondly, on XL. So the EUR 1.2 billion for this year, which looks like will be more or less met, obviously, next year, we should start to see some more exposure growth. And you'll start to see the benefit from rates running through. Could you just comment on what you see the outlook for earnings at XL going into 2022, please? I'm also keen to get a view around the ROE of that division. And any thoughts around the global minimum tax rate and what a normalized tax rate should be for XL, please? And then final question, just around the dividend. So obviously, where we see today, the buyback, I mean, essentially, that is a catch-up from the second tranche of the 2019 dividend that wasn't paid. When we come to thinking about the 2021 dividend, should we be thinking that you're looking at some kind of catch-up still because the 2020 dividend was flat versus 2019? I know the payout ratio went up because the earnings came down. But nevertheless, it was flat. So when it comes to 2021, are we looking at some kind of catch-up? And you did move up the payout ratio a couple of years, in fact, 3 years ago now. But you haven't actually made a move on moving up that underlying payout ratio towards the midpoint, let's say.

So on the in-force transactions, I think you're right. You said it rightly. The purpose of these transactions is to transform capital which is in our in-force books, and therefore, not liquid, into cash at the holding company level. So it's not about group solvency. It might help with the group solvency, obviously. But the idea is to align better the group solvency and the cash that we have at the holding company. So that's the purpose of this. On the capital that backs those books, it really depends on the books. So at this stage, we are looking at different countries, different books. And so it's a bit difficult to give you an overall number. On XL, so we will not give a guidance for XL for '22. What I'll just say is that XL, like any other company in the group, needs to take its share of the growth in earnings that we want to have within the group. The ROE, as we see it in the way we allocate capital to the entities, is when XL is at EUR 1.2 billion, between 14% and 15% of the capital allocated. On the global tax rate, what I suggest is that we come back to you with the full year earnings because we'll probably know a bit more then on the way it works, because we have a view on the 15% that will apply in a number of jurisdictions that today are below. Ireland has moved up, Bermuda, Hong Kong and so on. But there is still a number of question marks on the basis to which the 15% will apply and how it will be calculated. So it's too early for me yet to say how much it could cost us.

And on the dividend, the only thing that I can tell you is that we stick to our dividend policy, and we want to achieve a progressive and regular growth of our dividend in line with the earnings growth.

The next question comes from Oliver Steel from Deutsche Bank.

It seems quite an appropriate time to be asking my questions because the first question I had was in relation to the 3% to 7% per annum earnings per share growth guidance that you talked about a couple of years ago. Does this -- is there anything here -- I mean, obviously, the share buyback that you're talking about should add circa 3% to earnings per share. So I'm wondering if there's anything here that then stops you pushing up towards the 7% level on a per annum basis. And then the second question I've got is on the cumulative dividend target that you set. I think between '21 and '23, you were targeting EUR 11 billion of dividends. Does this EUR 1.7 billion come towards that target? Or should we consider it as separate?

So on the 3% to 7% EPS target that we've given ourselves, so obviously, the share buyback will help. And we are, therefore, confident in our ability to be within that range. And you've seen for -- until H1 this year where we are. So as I said, we are confident in our ability to achieve that range. On the dividend target, we've not given an EUR 11 billion target for dividend. The target we gave ourselves was more on the remittance from the entities, which was EUR 14 billion during the plan period. The -- so there is no change because there is no target as such, and we plan to apply our dividend policy as stated, irrespective of the share buyback.

I hesitate to challenge you on that. But I'm fairly sure when you set the cash roll-forward targets for 2021 to 2023, the dividends that were cited has been EUR 11 billion.

No. You're right. But it was -- and sorry if there was a confusion. That was indicative. And as opposed to the EUR 14 billion remittance that we have stated from the entities, that is a target for us. So -- but irrespective of that, again, the dividend should be considered with our dividend policy and irrespective of the share buyback.

Okay. So we should -- effectively, we should go with the payout ratio as being the sort of the main guidance.

Yes. Absolutely.

The next question comes from Thomas Fossard from HSBC.

Two questions left on my side. The first one would be regarding the group risk appetite. It's likely that the reinsurance protection is going to -- are going to be more expensive into next year. You've got strong solvency ratio. Actually, you're highlighting that you are willing to take slightly more risk on the asset side. I was wondering, what's your view regarding taking more liability risk or, I mean, volatility risk in your balance sheet at the present time? More a philosophical question to understand how you will approach potentially higher prices for reinsurance cover into 2022. The second question will be related to health in France. Maybe this is a highly political question, but there are some, I mean, projects to somewhat nationalize French health insurance in the context of the French presidential elections. What the risk of this -- of such a plan taking place? I mean, have you got a feel or any comment on that side of things?

So thank you, Thomas, for your questions. On the group risk appetite, we are not great friends of volatility. What we want to do is to grow our business, first, with the condition that it's profitable; and second, that it doesn't bring too much volatility. And that's exactly what we've been doing at AXA XL, where we have, as you know, reduced the line sizes on a number of lines of business, and we have increased prices to reach the cost of capital or better in all our lines of business. And we will not move away from that philosophy. As far as cat is concerned, we are both long and short cat risk. So on the XL Re side, we don't want to increase our exposure, that's for sure, but we will adjust our exposure depending on the price increases that we see or don't see this year. And on the protections that we buy, again, we will not increase our risk appetite to cat. We will, depending on the prices that we see, either buy more protections or not. And if we cannot buy more protections, we will reduce our primary exposure, notably on the reinsurance side. So that's the equation that we have to resolve these days with, clearly, prices that are up on the reinsurance and retro market. But to what extent, that's still the question.

On your health question in France, my first comment is that these are normal preelection discussions. Based on all surveys that have been done, what we can see is that both clients and doctors like very much the current system. They like it because that's a high-quality system, and they like it also because this is not a 2-speed system as it may exist in other countries. So saying this, we do not say it cannot be improved, and we are very open to discuss about potential improvement. But we are convinced that globally, the systems works well. And again, not only insurance company are seeing it, but client and doctors.

The next question comes from Louise Miles from Morgan Stanley.

Just a couple of questions from me, please. So on AXA XL Re, there's been a fair bit of news flow on this division lately. How -- can you just remind us how important this business is for you strategically? And I think at the first half earnings, you mentioned that there's a possibility for you to further reduce your equity hedging. Did you actually end up doing anything on this in the third quarter? And are you still thinking of doing more here for the rest of the year and into 2022? And then finally, you mentioned also at the first half that you're expecting pricing at XL to be -- to occur at a slower pace going forward. I mean, if I look at the release, it doesn't really look like that was the case in the third quarter. Can you just give us a very quick overview of where you -- when you expect pricing to slow down at XL?

So XL Re is an important business for us. It allows us to diversify our exposure, notably on nat cat because it gives us access to some periods that complement our portfolio usefully and, therefore, give us better diversification. And it allows us also to have access to some P&C markets that -- in which we are not and for some of which we have exited in the last month and years. So it is an important business. On the equity hedging, we have not reduced our equity hedging. But as you may have noticed, we have decided to invest, so to speak, 2 points of solvency in private equity investments. So overall, that increases our equity exposures, but we prefer doing that through a private equity investment rather than through a reduction in equity hedges. In 2022, we'll see. It will depend on market movements. And sorry, on pricing at XL, so we see very strong price increases in some lines. Just to mention a few, for instance, cyber is up 71%. The international types of lines are up 42%. So there are some lines that needed that kind of price increases, and we are pushing for those increases to restore profitability. And going forward, we believe that '22 should still see overall price increases but not to the tune of what we've seen over the last 18 months. That should slow down but, nevertheless, remain positive.

The next question comes from Michael Huttner from Berenberg.

I'll keep it really brief. On motor, I asked a colleague who's had an accident, and the issue is in the cost of the spare parts. It's really difficult to get a hold of. So the period of hired cars, incredibly expensive, is not a few days. It's more like a few weeks. I just wonder if that's in your numbers already and your thinking. And the second is you made this lovely new commitment on ESG on the 28th of October, which is wonderful. I just wonder, is there a cost to this? Or how do you think -- how do we think of it in terms of money?

So Michael, sorry, the line was bad on the first question. Can you just repeat it? I got...

Yes. Sorry about that. I was just saying, is the cost of merchant's claims insurance going up because it's not the cost of the spare parts but the delay in getting them? And while there's a delay, then the policyholder gets a hired car, and that's the expensive bit.

So from what we see, there are 2 sources of inflation in car claims. One is the spare parts as such. And second, it's the cost of labor that might also increase given what we see in some areas about labor shortage. That's not certain, but you start seeing that. The spare part component is more important. So it's really those 2. On ESG, so as you saw, we tightened our rules in terms of investments and in terms of underwriting. But on the underwriting side, we have said that -- I mean, our philosophy is not to stop doing business. It's to help and encourage the oil and gas companies to embrace the transition. So we're giving ourselves 2022 to talk to those companies and 2023 also to give them a chance to move away from the nonconventional oil production or to exploration and greenfield in a number of places, as you saw in the press release. And then we'll see. What I can tell you is that energy overall, so it's mostly done at XL, and it represents probably 2% of our overall P&C premiums. So we will see in '22, '23 -- rather, '23, the nature of the business we will do with that -- those oil and gas companies.

The next question comes from Dominic O'Mahony from an BNP Paribas.

Frédéric, when you were talking about the uses of excess capital, you mentioned organic growth, M&A and buyback. What you didn't add to that list was debt reduction, either external debt or internal debt. I wonder whether that might be part of your toolbox or whether actually, you're saying that's very unlikely. So the background of this question is if you do major life in-force actions, that can be quite a significant change in the capital. And that might, in turn, impact your leverage ratios. I'm just wondering whether that's -- whether I'm barking up the wrong tree or whether that's something you're thinking about?

No. Thank you. On fees, you are correct that this is part of the toolbox, especially from a cash point of view. Saying this, we have a very clear policy on leverage, and we stick to this during our plan. So there is no news on this.

The next question comes from James Shuck from Citi.

Just quickly on AXA XL, I think you mentioned 14% to 15% return on allocated capital based off the EUR 1.2 billion. That looks like there's only EUR 8 billion of allocated capital in XL. That looks a very low number given there's EUR 20 billion of revenues at XL. So just any comments about the level of capitalization and capital -- how you actually allocate capital for that business would be helpful. And then secondly, just on the -- I mean, the tax rate at XL has moved around quite a lot, the EUR 1.2 billion guidance for this year. I mean, what's a normal tax rate for XL, please, obviously, subject to the GMC, which might change that? Just anything that's helpful on that. And then finally, just returning to the point about the cash remittances. So I understand the life in-force transactions, which are looking to redistribute some of that liquidity back to holdco. It's the ongoing cash remittances that look low on -- the EUR 5 billion to EUR 6 billion in relation to your IFRS earnings, which seems to stem from Asia. So just any thoughts about how you can improve that cash conversion on IFRS earnings on an ongoing basis, please?

So on the ROE at XL, the way we allocate capital is a function of the SCR used by each company in each line of business. The fact that -- you know that P&C risk diversifies extremely well simply because you don't have the same losses, the same issues on reserves premiums at XL in a given geography and in France or wherever else. So the amount of capital that XL uses seen from a group standpoint is not that high, and you have the detail of the breakdown in the appendices that we gave. And that's the beauty of the P&C business or the Health business as opposed to savings, where on the savings part, you have a lot of financial risks. And those financial risks do not diversify well. Rather, they accumulate because when you have a global crisis, it will affect all asset classes at the same time everywhere. So that's very important to keep in mind when we think about our businesses and the way we allocate capital. On the tax rate at XL, I would say it's around 15%.

On your last question on cash conversion and the EUR 14 billion, so first, the EUR 14 billion already included some management actions. Saying this, we have more appetite on in-force. So we will see what happens. Again, there is -- on in-force, there is always an execution risk, then there is a time lag and so on. But clearly, we have more appetite in in-force. What can we do to further improve this cash conversion? Our cash conversion is very high, especially from the European countries. On countries with a lower cash conversion, so we have historically XL, but here, this is directly linked to the XL results. And as we've said, we are confident that XL is strongly improving and will continue to improve. So I would say, solving the result issue, we solve also the remittance topic. Then we have the 2 spots of Hong Kong and Japan. We are working hard on this. I mean, the transaction in Hong Kong was part of the solution. Japan, the remittance in Japan is improving strongly and regularly. So we are very focused on these 3 areas, so XL, Japan and Hong Kong. And we are confident that we can continue to improve the remittance from them. And we have the relevant actions in the pipeline on this.

There are no more questions, speakers.

Then thank you very much all for attending this call, and I'd like to see a number of you in London next week.