AXA SA (CS) Earnings Call Transcript & Summary

Good morning and welcome to AXA's first half 2023 results presentation. Walking through our results today are our Group CEO, Thomas Buberl; Group Deputy CEO, Frederic de Courtois; and Group CFO, Alban de Mailly Nesle. After the presentation, we will take questions here from the room and then from the webcast. Just one minor announcement before we start. As we progress through the implementation of IFRS 17 and 9, we have made some minor changes to our restated first half and full year '22 numbers. While the changes are immaterial for the sake of completeness and accuracy, we published an updated version of the financial supplement that we shared with you. So with that, I'll turn it over to Thomas.

Thank you, Anu. Good morning to all of you. Very happy to be with you and present the first half 2023 results. Let's start with the overview. These results show a continued strong delivery. We have shifted from financial risk to technical risk and over many quarters now, we have shown that this model works, that this model is producing good underlying earnings, EUR 4.1 billion at the half year, which is plus 5%, and I stay in the logic of IFRS 4 because that's the best comparison to our previous numbers and plus 8% when it comes to underlying earnings per share. All of this with a strong return on equity, 16.6%, and what's very important in times that are not always stable, all of this on a very solid balance sheet, the Solvency II ratio 235% plus 20 points relative to the full year of 2022. So we will stay on course of exactly the strategy we've chosen. Focused operating model, focused on technical risk and staying as obsessed on cash that we use too, making sure that for the second half of this year, we'll continue that journey, and we are confident to exceed the EUR 7.5 billion underlying earnings in 2023 that we have given as a onetime guidance because of the change to IFRS 17 and IFRS 9, the second half of the year should hopefully progress in the same way. When you look at our business model today, we are well positioned because it's a simple business model and a well-balanced business model. 50% of our business is now commercial. We are the global leader and the largest insurer for commercial companies, be it for their physical assets but also for their human assets. And when you look into the physical assets of those global companies, you see that the dynamic has been quite good on the one hand, rising prices, but also rising volumes. And when you look, and we will come to it later, into the numbers of XL, you see that the revenue increase is half price increase, half new business. Secondly, on the employee benefits, we certainly see a significant increase in demand due to the fact that post COVID, health is taking a very different and much more important stance in a company's orientation. The other 50% is retail business, mainly focused on strong European positions and Japan and Hong Kong, where we are, on the one hand, strong in retail P&C but also strong in retail, health and life and asset management, making sure that we are focusing primarily on tight agents because it is obviously much easier to control it, to steer new business, but also to steer retention. And this is very important, obviously, in times that are not always stable. We are with this model where we want to be. So when we are thinking about the next plan, it will certainly be based on this model and based on how can we expand our footprint in this model. And the announcement that we have added to the good results this morning around the acquisition of Laya Healthcare in Ireland, fits very well into this model because it's on the one hand, strengthening our current footprint in Europe but on the other hand as well, strengthening our employee benefits footprint because Laya is also very active in Employee Benefits. If we look into detail in this acquisition, Laya is the #2 healthcare company, insurance company in Ireland, 28% market share, best practice when it comes to managing digital interactions with their customers, but also when it comes to managing care beyond just paying claims. If you look at their strategies around clinics, this is very leading and it is a capital-light business, which fits very well into our strategy. We obviously made sure that we looked at this acquisition, which will, by the way, add roughly 10% to our existing footprint in health, that this acquisition does comply with the standards of capital discipline that we have put forward, and going forward, this will certainly also stay the case. There were some discussions this morning around AXA's ambition or non-ambition in the U.K. and potential M&A targets. I would like to clarify this straight away. The U.K. for us is a core market, but we are envisioning very much to grow organically in the U.K. So if there is a question around concrete M&A targets, I would tell you, this is not the case. When we look at Laya, why is Laya important for us, we are already #1 in P&C in Ireland. We will add now a strong #2 in health to this position, which obviously will offer us a lot of cross-selling potential as well. But secondly, Laya is also important for AXA Group. Not only does it add to our health revenues, but it also gives us access to capability that we don't yet have sufficiently today. Both when it comes to the digital interaction with customers, but also when it comes to health services. So this is very good news for us. And I would like to pass at this point on to Frederic De Courtois who will give us more details about the numbers.

Good morning to you all. I'm very pleased with our results. We now have a simple and quality business based, as mentioned by Thomas, on 2 pillars, so 50% commercial and 50% retail. If you look at the context, we've had pluses and minuses in the environment. And we've been managing these pluses and minuses. The first important topic is that the price momentum remains good on commercial lines and on retail, and we have the ability to pass these higher prices. This is an important point. The second element of context is, of course, higher interest rates and inflation. Higher interest rates means that we are now reinvesting at higher rates, and we will progressively see it. And inflation, we've -- I've just mentioned it, and we have the ability to compensate for inflation with prices. On Cat. We -- you remember that we have a 4% budget on Cat annually. So we've been a bit below this during the first half. We had a 3% Cat experience over the first half, close to 3%, 4% in the U.S., around 2% in Europe, so an average of 3%. And on the large loss experience, the large loss experience has been equal to last year. And if you think about this last year, we had a strong claim with Ukraine and we didn't have this this year. So it means that the large loss experience has been pretty heavy in the first half, and it includes the French riots. If I look at the right part of the slide, you see even if the reading is always a bit more complex with IFRS 4 and 17, but the performance of all our engines is good and you see that we have four engines of about the same size. And I'm especially pleased with the performance of AXA XL, both for insurance and reinsurance, which is a big news. So we had good results on both fronts. I'd like to add that you know that AXA has always been very cautious on reserves. And I'd like to make clear that for this half year, we've been a bit more cautious than usual. Last comment on this page. All of this according to us shows that we are able to manage volatility, we're able to manage volatility through prudent reserves. We are able to manage volatility through increased prices. And all of this makes us confident that we are going to be able to deliver sustainable and attractive results, whatever the context. Looking at the next page, you've seen in our figures that we had strong results on growth and on the technical results. If I look at the growth, and if I focus on the around 90% of the business we like, we had a 6% growth of the business, which is good, with especially a 7% growth of our P&C business, including a 9% growth of our commercial line business. So we are pleased with this. If I look at our technical margins and I show here our claims, our current year claims ratio, so excluding Cat, excluding discount, you see that we've continued to improve our technical ratios by 0.5%, especially on the commercial lines. And we believe that these levels are sustainable. And we also believe that, to a large extent, we will be able to manage volatility caused by the discount factor, and this makes us confident. If I look at the right part of the slide, you see that the CSM is extremely stable, extremely -- progressing regularly and this is all linked to the profitable new business, and this makes part of our P&L extremely predictable. Last comment, which is not mentioned on the slide, on costs. You know that cost discipline is important for us. It's interesting to note that our costs, excluding commission have increased by 1% over the past year, which is compared to inflation, I think a good result, and we continue to be focused on this. Last comment from me on capital. So you've read that our capital position is very strong, you see that our solvency ratio has improved by 20 points. What is important is that this improvement is mostly linked to organic factors and not so much to capital markets related factors. If I look at the Own funds, the improved Own funds is linked to our good capital generation, linked to the good results in the first half. And the lower capital requirement is linked to 2 factors, one which you already know, which is that we have a capital-light business which regularly improves our capital requirement and we had an exceptional, if I may say, contribution from what we've done on the duration gap. So we've decided to almost close our duration gap. So our duration gap now is only minus 0.19. We believe who knows, of course, that we've done it with a good timing. And it had a significant impact on our solvency ratio, and it has also a significant impact on our sensitivity to interest rates. At the end, I see three positive points on this slide. The first one, which you know, which is that our growth don't consume capital. The second one is that we've reduced our market risk capital requirement by EUR 500 million, so about 3% of the total and we've, as I said, significantly reduced our sensitivity to interest rates. All of this, of course, is only capital, if I may say, and not cash. But it improves our confidence on remittances. And I can only tell you that we are fully on track on remittances and cash. Thank you and I leave the floor to Alban.

Thank you, Frederic. Good morning all. So let's go one level deeper in the details and let's add the pleasures of IFRS 17 to that. So let's start with the P&C revenues. So you see that we had very good growth in the first half with 7%. That's driven first by our commercial line business, both XL and the other AXA entities, and what's very interesting is that it's both volumes and price increases. And on volumes, we see significant demand, even though prices are increasing. But that's a very positive development. On the price increases, you see that it's 4% overall. It's 4% also for XL but if you exclude the financial lines and more specifically, the North America professional lines, we are up 7% on average, which is still above loss trend. And you will see in a couple of slides that we had told you about the margin expansion that we would have in commercial lines, and we did have that margin expansion. On reinsurance, you know that we drastically reduced our exposure to Nat Cat this year again, but that was almost offset by the price increases we had of property and property Cat in reinsurance. And finally, Personal Insurance. So prices are up 6% and we focus on price, not on volume. We think that those prices are sufficient to offset claims cost inflation but there is no place yet to increase volumes in our markets. And so we focus on profitability. That being said, we do see an acceleration in price increases Q2 over Q1 in personal lines. So the combined ratio that we have, and that's purely IFRS 17, as you will have understood. The first point I want to focus on is the light blue bar, the 68.2% attritional loss ratio that Frederic also mentioned. That is key to us because that's the result of our management. And you see that it improves compared to full year compared to 1H last year. It's, as we will see in next slide, due to the SKU, we have two commercial lines, which, as you saw, represents 2/3 of our P&C business. When the other components as Frederic said, we had a benign environment in Cat, I don't come back to that, a significant impact -- positive impact of discount with an average discount rate being at 3% for the half year. And so all in all, we didn't see very significant reasons to release significant PYDs. So we are at minus 0.6%, which is at the very bottom of our range that goes from 0.5 to 2 points of combined ratio. And to the same extent, we have been also conservative in our loss picks in commercial lines over this semester. Now if we go a level deeper, commercial lines versus personal lines and XL Re. So commercial lines, you see the 0.6 point improvement. Again, that's the margin expansion I mentioned. Bear in mind that, of course, we had Ukraine last year, we had large losses this semester, including the French riots that are in this attritional part in Commercial Lines. And on personal lines, so the loss ratio, excluding Nat Cat, excluding discount, it's slightly up 90 bps. And that's due to the fact that, although, as I said, our price increases were sufficient to compensate for inflation in 2 countries, namely Germany and Ireland, frequency was higher than anticipated. So that needs further pricing actions, and we will take them. But that explains why, despite the pricing actions that we took our attritional loss ratio is slightly up. Now when you -- when we move from ratios to numbers, so you see the very, very strong increase compared to 1H '22 of our underwriting result. So you will remember that in 1H '22, there was also the fact that the release of excess results was not recognized. But leaving that aside, it shows the significant improvement coming from growth first, and coming from the improvement in our technical profitability. Investment income is slightly up. We had told you that there was an elevated level of fund distribution last year that we didn't have in the first half. But we see in some entities and notably in the U.K., which has a short duration, benefits of higher rates. But we also see the impact of the unwind the insurance financial expenses for EUR 99 million. In total, for the first half, those financial expenses are at EUR 300 million. Overall compared to IFRS 4, P&C results are up by 13%. Moving to Life and Health. So life revenues are roughly stable, minus 1%. We have good performance on the protection side with plus 4%, that comes from Japan, that comes from Hong Kong and Switzerland. On unit-linked, we're down 16%, mainly France and most of it Italy. In France, you need to see that in conjunction with the capital-light growth. When you look at France which is our main Life carrier. When you look at capital-light, which is Eurocroissance and unit-linked, we are up 10% over the first half, and there is acceleration in Q2 versus Q1. But overall, so we are down 16% on unit-linked, plus 11% on capital-light. We are down 11% on traditional general account, and we see that as good news. And you see also the impact of that in our net flows, traditional general account, net flows are negative by EUR 4.4 billion. You will see later that it has a positive impact on our solvency so we consider this as an inforce transaction but without paying the price. So that's a positive for us. And you know that we want to be as capital-light as possible. And to the maximum extent possible to reduce our asset leverage as well. On the Health side, so you will remember the 2 large contracts that we had in France and that we canceled at the end of last year. That weighs on our revenue growth, minus 6%. If you exclude those 2 contracts, we are at plus 7%. So good growth on the Health side. On the PVEP side, a bit like IFRS 17, the picture is a bit complex because of interest rates. And the decrease that you see in PVEP is entirely attributable to interest rates, same for the NBV. And so the NBV margin, which is what matters to us is up slightly or stable from last year to this year. And you see that the new business, CSM, pretax is up 2%. Moving to the stock of CSM. So I have quite a few things to say here. The first thing is to look as we do -- as we did in May at the box and to make sure that on a recurring basis, we do create CSM, with, on one hand, new business CSM and the underlying return on inforce. On the other hand, the CSM release. So we have a net creation of EUR 500 million which is an annualized 3% increase. Then we have economic variance, EUR 1.4 billion. You will see that as well in Solvency II. That's the equity market was good, lower interest rate volatility, good spreads and down with -- but partially with lower interest rates. Operating variance, the minus EUR 0.4 billion, that's the impact of mainly the impact of the negative flows but you will see the benefit in terms of capital when we go to solvency. And finally, minus EUR 1 billion, that's the yen that was weak this semester and that obviously weighs on our total CSM number. Moving to underlying earnings. So obviously, now under IFRS 17, it's driven mostly by the CSM release. And the CSM release is up 3%. So very similar to the growth in the CSM stock itself. The technical and financial results are down. Financial results, again, we had told you about this earlier in the year because, again, we had good fund distribution last year and less this year. But on the technical side, it's new. It comes from the fact that, well something you being -- well living in the U.K., you might have seen. It's simply the very significant increase in frequency on the Health side because of capacity issues with the NHS and the NHS simply saying to patients that have private health insurance to go directly to specialists without going through the triage of their own GPs, and so that has an impact. What it means is necessary price increases, also better claims management. We probably need to do our own triage on this as well. And it will not be solved now. You will see some impact also in H2 coming from this because it's -- we see that as a change in the U.K. market. But -- so overall, compared to IFRS 4, Life & Health earnings are down by 4%. Asset Management, so assets under management are roughly flat. You see a decrease in -- well, you see negative net flows that comes from us at AXA. And that's the reflection of what I said earlier on the negative flows in general account. That's the direct link with that. Obviously, you can imagine that the assets going out of the main funds are not the ones on which AXA has the largest margin. And that was partially compensated by third-party funds, both in the core platform and the Alts platform, roughly 50-50, which is also a good signal because you see that despite questions that you may have on the real estate market, we still see investors coming in for investment in real estate. Fees were stable at 18.1 bps, and underlying earnings are down by 7% because we didn't reduce costs as a proportion of the revenues decreased simply because we are investing in the new platform, Prime that we told you about. So when I summarize all this underlying earnings are up 5%, as was said at the beginning, which translates into an 8% underlying earnings per share growth, thanks to share buybacks. Net income is down 7%, but you will remember that capital gains on equity do not flow through P&L now, but directly to net assets. We had some last year, we don't have any by definition, or by construction this semester. And capital gains on real estate, that's what does go through the P&L. We didn't have much in the first half, that's more lumpy, and we will have some in the second half. So finally moving to solvency. So a lot already was said by Frederic, normalized capital generation, 16 points. We had told you that the new range would be 15 -- 25 to 30 per year. The 16 points is slightly above half the upper end of that range. Bear in mind that like P&C, there is seasonality in our business. There is seasonality because of Cat, Q3 generally worse than Q1 and Q2, seasonality because on investment income because dividends are paid in the first half. And there is a slight seasonality also on the discount effect. So that explains why we have a bit more than half in the first half. Economic variance, it's exactly what I mentioned for the CSM, you have it here. Operating variance, so that's what I mentioned earlier on the negative cash flow. You see the loss of EOF, but you also see that the solvency capital requirements reduces by EUR 0.2 billion. So net-net, it's an improvement by 1 point of our solvency ratio. And then last, it's the reduction in duration gap that we did. You will probably remember that we did some in Q1 and that we told you that a neutral position would be slightly longer assets than liabilities. We're not there yet, duration gap is at 19 bps -- 0.19 bps, 0.19 a year. But the benefit of that is the significant reduction in our financial capital required and the significant reduction in the sensitivity. We are roughly at half where we used to be when it comes to interest rates with 5 points up and 7 points down and that's, again, one more proof that we are focusing on our technical risks and we are reducing our financial risks. And with that, Thomas, you have the floor for the conclusion.

Thank you, Alban. Summarizing what we heard this morning and relating it back to our driving progress 2023 plan. We have shown, again, another half year of strong execution, which will make us even more confident to deliver the driving progress 2023 targets. If I go into detail, the underlying earnings per share, we want to achieve a range between 3% and 7% with the 8% that we have just shown and the previous period between 2020 and '22 of 10%. I hope we can say that we are most likely set to exceed this target range. And this increase in underlying earnings per share is very much driven by the operational changes we made. You might have probably seen that on the P&C side, which represents today 66% of our underlying earnings, we have achieved 7% top line growth, which really shows that the new platform of AXA and the engine around technical risk is really moving. And if you then look at the current year combined ratio, excluding Nat Cat, excluding the discount factor, you see that it has also been reduced by 0.5 points, which, again, shows the increase in the operational performance. When we look at the return on equity, at 16.6%, we will also be well positioned to deliver the range of 13% to 15% by the end of this year. When you look at Solvency II, we are clearly above the 190% with at 235%. And when you go back to what Alban said around being -- having been able to not only increase the solvency significantly, but also reducing the interest rate sensitivity of our balance sheet by half over the last 2 years. This is really the reflection of our strategy of moving away from financial risk into technical risk and having a balance sheet that is much more stable and much more solid, certainly in times what we are seeing at the moment. And then lastly, on cash remittance, we want to have a cumulative cash remittance of EUR 14 billion. Given the progress we have made, and we only report on cash remittance at the full year. So the next time we'll hear about it in February 2024 for the '23 numbers. But we can also say that this EUR 14 billion, we are probably very well positioned to exceed this target. And going back to what I said earlier, cash is an absolute focus for us. We are cash obsessed and we want to remain a clear success because, again, if you go back to where we were in 2016, we made roughly EUR 100 billion revenue. Today, we are making a little bit more on a yearly basis. But in this time, we've increased underlying earnings by roughly 30% and increased cash contribution of these earnings by 60% to show you where we are coming from. Thank you very much for your attention and we are now going to your questions. Let's start with Peter at the back.

Peter Eliot from Kepler Cheuvreux. If I could start with 3, please. First of all, on this morning's acquisition, just wondering if you can talk a little bit about why it makes sense for you to go to capture the full underwriting, whereas that hasn't been the case traditionally. And maybe just touch on the assumptions that you've made to get to the 11x P/E, would be helpful. Second thing on health. You've talked a lot about the U.K., is there anything else in the sort of European Health segment? Or is that basically the full story there? And then thirdly, on the old accounting, you gave us guidance on what to expect on realized capital gains on an ongoing basis. I'm just wondering if you can give us any more help on how we should think about the sort of normal walk from underlying earnings to net income going forward?

Thank you, Peter. I suggest I will cover question 1 or the half of question 1 and question 2 and Alban, if you could talk about the 11x P/E multiple and the question around realized capital gains. So why is Laya important for us? As I said, we are confronted with a market in Ireland with very few players and Laya being the #2 player with 28% market share with a very good customer interaction, very high customer retention in a market that still has growth potential. So this is really an ideal case for us that fits perfectly into our geographic strategy, meaning how can we increase through bolt-ons and consolidate our market position. We are today, number one on the P&C and Ireland. We want to grow there because it's a great market. And secondly, because Laya has also a significant amount of Employee Benefits business as one of the segments that we want to push because we don't only look at Laya as how can it help us in Ireland, but also how can it help us beyond Ireland in the group to get further around this question around health services as a core component of our offering. When it comes to the European health markets, we don't see the same phenomenon that we see with the NHS in the U.K. But look, every difficulty also has its opportunity. If you look at the NHS challenges and what it means for the average British customer it means that he or she needs to think how can they have a better and faster access to healthcare because most likely, the NHS issues will not be resolved within the next 6 months. This is probably a more structural problem around demographics of the healthcare workers in the NHS system. And also the question how do you get more staff into the system. And so this topic leads us to believe, and we've seen initial customer reactions to it, that the inflow into private healthcare in the U.K. will certainly increase over time. And so what we are going to do beyond what Alban said on the pricing side, on the claims steering side, but also on the question, how can we change and evolve our offering both in more modular products, but also in mirroring the general practitioner approach that the NHS has traditionally taken, we will certainly go into that direction and will also reap the benefits on the growth side. The same is true in Europe. You don't have the issues being apparent now in the social security system. But if you look into the French budget, you also see that the costs are -- is significantly increasing for that healthcare system. And at some point, the topic will be very similar to say, look, how can the private sector take over more of the potential that traditionally has been solved in the public sector. And this was also one of the reasons why we said from very early on, we need to position ourselves as the leading health insurance in Europe to benefit from that. Alban, on the 2 questions, 11x multiple, and realized capital gains.

So thank you, Peter. On the P/E, so it's a P that obviously compares the price we pay to the total earnings, so not only the MGA part, but also the insurance part. So why 11x? I think, first, it's a very established business with a very strong brand digital platform, extremely high customer satisfaction and recurring profitability. And it is capital-light. To give you an idea, the amounts of capital to premium is around 5%. That's low, so that's as such, between the stability of the profitability, the capital-lightedness, plus the fact that it is a market, the health market that is developing and growing regularly, that deserves such a P/E. When I talk about the P/E , obviously, we have incorporated some cost synergies by the fact that we are repatriating at a lower cost the underwriting margin. There's no revenue synergy in this. And we think that between our very strong motor franchise and this very strong health franchise, there can be revenue synergies. On the capital gains, to give you a large range, and that's for this year, we'll come back to you next year with the plan, having between EUR 200 million and EUR 300 million of realized capital gains coming from real estate and therefore in P&L is relatively safe.

Farooq?

Two questions, please. So the first question is very general. So you have a CSM recurring growth rate of 3% very good revenue growth, which it seems half is pricing delivered in P&C. So when we look forward, clearly, your kind of underlying cross-cycle growth rate here is potentially sub-5%. I'm just thinking how do you get back to the same level of earnings growth rate in your mind that you delivered historically. So what are the levers that we should expect organically and inorganically? I know it's a wide question, but it would just be good since we're going to update our numbers and just thinking about that. So second question is the moving and the restructuring of the group with Greater China, for example, in European and health markets and the change of the management structure, what does this mean for those businesses in Asia, for example, that you've moved to international? I mean that traditionally, we've seen as a kind of maintain or withdraw capital from type of business units. What's your messaging around that? I'm thinking India, Indonesia, these kind of businesses.

Thank you, Farooq. Frederic, if you can answer the first question and I'll go on the second one and do it straight away. So the restructuring does not at all have in mind to think about decoupling these businesses or not looking at them in a very active way. On the contrary. What we have realized is that we have businesses of different nature in Asia and also of different demands. After having focused our footprint, we see today that we have a Japan business which is thriving very well, which is growing very well, but which probably follows more the rules of our European businesses. And then you have Greater China with Hong Kong, China Life with ICBC, Tian Ping and the asset management that again is growing more together. So -- and it's also big enough to be on its own feet. And therefore, we said, look, the 2 big markets need to be managed actively in a separate way. Clearly, with a growth ambition, in particular, in Japan. And then you have Southeast Asia, Philippines, Indonesia and Thailand. In these markets, we are in joint venture structures with banks. I've just been visiting those countries two weeks ago, where we clearly laid out our growth plan country by country in order to benefit from these countries new uprise. Because when you think about how is the world dividing or redividing in terms of allocation of global supply chains, you see that Mexico is one of the beneficiaries, we are #2 in Mexico. You see that a lot has happened in Africa around energy, we are very strong in Africa, and you see it happening in Southeast Asia, in the three countries I've just mentioned. So for us, it is very much a more focused approach to manage and develop these countries. Frederic, on the first question?

So on the first one, and then maybe I'll complement the second one on international. So at the end, the first one, your first question is important is where will the growth come from? So obviously, you will see it in our next plan, but I can give you a few hints. We believe that there is some more to do on the technical excellence. And this is why we've created this Chief Underwriting Officer role, and we are having to very much leverage data and technology. And here, each bit is important, and we want to make sure that we continue to improve our technical margins, now that we are a very technical company. Then we believe that there is so much to do on productivity. And when I say that we've increased our cost by 1% in an inflationary context, that's important. And here again, you will see in our next plan that we invest a lot in technology and automation and AI, and I'm convinced that there is some more to gain here. Then on revenues. So first year right at the end, the Life result will grow at 3% to 4%. The good news is that this is extremely predictable. The bad news is that this is a bit low. I'm convinced that we have good potential on P&C and health. All studies show that the P&C business around the world and the needs on the P&C side are growing a lot. So I believe that we can have higher growth on the P&C side than on the life business. And based on the figures that we have on the health business, and this is why we are very keen on the health business. There is strong demand on the health business, the individual business already. So at the end, the earnings growth will come from a mix of all of this. If I look at -- I come back to your question on the reorganization. So we've created this international business unit dedicated to emerging markets. As Thomas mentioned, so we believe that Greater China, mostly with Hong Kong and Japan are mature markets, so they can report directly to the group. Emerging market need a specific support and we've selected about 12 emerging markets, and we are top 3, top 5 in each of these emerging markets. These emerging markets over the past years have delivered 15% growth of earnings and premium. That's a call on the growth of these markets, that's an option. We believe that if well managed, if focused enough, we will have higher growth of earnings and premium in these markets. This is 5% today, then you can dream if you look at the population figures and so on that it will be much higher in the future. But that's a small option we have to accelerate growth.

Michael?

I had 3 questions. One is on PFAS. The other one is related, which is on reserves. And the last one is a bit of a niggly question, I'm afraid, on Laya. So on PFAS, the forever chemicals, I did kind of try and prepare the ground a little bit. And I think I got an answer, but I'd like a more -- a better answer. How much have you set aside? Or how do you see this issue? To just recap 3M, I think, announced a EUR 3 billion settlement, bits of the DuPont Empire, Nelson announcing settlements and our chemicals analyst was thinking, well, maybe in total, it will cost the industry, EUR 120 billion, but nobody knows how much the insurers will pay. On the reserving, you said you added more, which is great. But [indiscernible] it only goes from 198% to 199%. And I just wonder if you can give a little bit more color on the reserving strength. I'm sorry you've got lots of data you could share. And on the Laya numbers, it's a bit niggly, but EUR 650 million only buys you the shell, if you like, so there's no premiums in there. If you add in the premiums, how much extra capital do you have to put to work in that? Sorry.

Thank you, Michael. I suggest Alban, you answer those three questions?

So on the capital for Laya. As I said, it's roughly 5% of the net premiums. So that tells you directly, there's roughly EUR 800 million premiums, so that's EUR 40 million, EUR 50 million capital on top. On PFAS, that's something which is obviously something that we're monitoring very, very closely. It will take very long, and so I don't have a number for you, and I'm very sorry for that, on how much it will represent for the industry and for us in particular I just want to highlight, and I know it's not a very satisfactory answer, but it's -- we know it will take long. I just want to highlight, again, the adverse development cover that we have for 2019 and before on XL. And on reserves. The beauty of IFRS 17 is that there is no specific excess reserve but as you saw, we've been prudent in our reserve release at 0.6 points, and we've been also prudent in our [ loss peak ] for the commercial lines. But there's not more than I can tell you. I'm sorry, I'm probably a bit disappointing here.

James?

It's James Shuck from Citi. On the P&C attritional underlying loss ratio ex discounting, ex Nat Cat. You showed a 50 basis point improvement year-on-year. Obviously, there's the French riots in there, you mentioned some large losses. In the first instance, I'm keen to get an understanding of what the underlying, underlying is actually doing. I know we can x out everything, but I want to get a feel for what the actual margin is trending. And then you mentioned that sustainability of that loss ratio which I find a little bit surprising because you're also talking about rate increases in excess of loss inflation in commercial. You're talking about rate increases accelerating in personal. So why shouldn't we expect that number actually to get better going forward, subject to the caveats that Fred just mentioned. Next question is on the acquisition. I suppose you talked about expanding footprint. In the first instance, I just want to be clear that it's only bolt-on M&A that you're looking at. Obviously, you've made a big bet in the past, and there might be a tendency given the solvency position to move up in terms of that materiality and then on the actual price paid, so it's a P of 11x. Alban, you'd be very clear that the hurdle for acquisition should be measured against share buybacks. And your shares are trading on around 8x so there seems to be a divergence from that. So if you could just clarify whether that's a change in your approach, please?

So I suggest that Alban, you take the first and the third question and Frederic to work on the sustainability of the loss ratio is sustainable or getting better. Maybe one comment in advance around the question of expansion of footprint. Yes, as we said earlier, we have gone through a very tough transformation with big bets. We are where we are now in a good spirit. The platform is delivering well, we have the intention of further developing the platform, but organically and with bolt-on. We don't need another revolution or a big deal. Alban, on question one and the second half of question 3, and then Frederic on the second one.

So on the attritional traditional, that's how I understand your question, that would be the same improvement because large loss, including Ukraine last year and large loss, including French riots are the same amount between 2023. Is that the answer you were looking for? Then on the pricing versus share buyback, yes, you're right. That's above the 8x. Now when you have a company, which is -- with all the features I mentioned earlier in terms of quality franchise and so on, it deserves a slightly higher PE. And as I said, you don't have the revenue synergy in this. So net of the revenue synergies I'm not sure we'd be at 8%. I agree with that, but we're probably lower than 11%. And I think we need to have that kind of flexibility, small one for bolt-on acquisitions in markets where we want to strengthen our presence and for businesses that we like.

To complement what Alban said, it doesn't absolutely change our policy and our criteria. So bolt-on, share buyback comparison with share buyback is important for us. Then we will miss a very good opportunity because we are not at 8 tomorrow morning, but at 9, No. So if we believe that we have a lot of synergies, if we believe that we have the management, if we believe as in Ireland, that there is growth potential, as Alban said, we have a bit of flexibility around the 8 On the sustainability, I said it's sustainable because we have -- and not only us, but everybody has a lot of questions on the fact that combined ratios are very good, is it sustainable? So my answer is it is sustainable. Does it mean that it cannot improve. If I look at -- first, I've just said that we are going to be for the next plan, even more focused than before on technical excellence, which means that we have in mind that there is potential here to further increase the technical excellence. Then if I look at the various segments, so we've -- if I look at the first half, we very much improved the technical result at AXA XL Re and it will continue. We've slightly improved in the first half, the technical margins at AXA XL insurance. We are confident that it can continue. And we've seen slightly decreasing margins on retail. As Alban mentioned, we've been able to compensate for inflation, the increase of frequency in Germany and Ireland has been higher than expected. All of this makes us confident that it's at least sustainable. I had at least to make it clear that we have the ambition to be -- to continue to improve on this.

Dominic?