SCOR SE (SCR) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the SCOR First 9 Months of 2021 Results Call. Today's call is being recorded. [Operator Instructions] At this time, I'd now like to hand the call over to Mr. Olivier Armengaud. Please go ahead, sir.

Good afternoon, and welcome to SCOR's First 9 Months 2021 Results Call. My name is Olivier Armengaud from Investor Relations, and I'm joined on the call today by Laurent Rousseau, CEO of SCOR and the entire Executive Committee. I please ask you to consider the disclaimer on Page 2 of the presentation. And with this, I would like to hand over to Laurent Rousseau. Laurent, over to you.

Thank you, Olivier, and welcome, everybody. Today, I'm pleased to report resilient results in the context of high network catastrophe activity for the market. The group is in good health and delivered earnings of EUR 339 million for the first 9 months of the year, equating to 7.3% ROE. This is despite a small net income loss in the quarter of EUR 41 million. Our results for the first 9 months were driven by, first of all, heavy network catastrophes, leading to a 14.1% -- 14.8%, sorry, cat ratio year-to-date as well as continued COVID-19 pressure on the life side with total COVID-19 claims booked in the first 9 months of EUR 299 million. This resilience is a good illustration of what I presented at our September Investor Day and the way we focus on disciplined execution. First of all, improving margins. Both businesses delivered strong underlying margins with a nice technical margin of 5.6% in life and the P&C attritional loss ratio improving by 2 points. Second, we reduced volatility. We have absorbed the third quarter volatility well while keeping a very strong solvency ratio at 229%. Finally, we managed growth well. We see opportunities accelerating, particularly in the P&C business, where the hardening market continues its strong momentum. Ian will take you through the details a little further. Beyond the third quarter results specifically, what I would like to say today and looking here at Page 6 of the presentation is that we continue to take proactive actions to improve our operational performance and we deliver on the shareholder value creation commitments reiterated at the Investor Day. First of all, the continued hardening in P&C insurance and reinsurance market enables us to rebalance our business mix towards P&C. The life retrocession in-force transaction was timely and accelerated a lot of good work that the team had already been doing to manage our U.S. mortality in-force book. Second, we are taking proactive actions to reduce the share of natural catastrophe business in our P&C portfolio by growing in non-cat lines such as specialty insurance and global line reinsurance. The 1st of January renewal negotiations are ongoing, and they confirm our anticipation of an improving reinsurance market, while the underlying insurance prices continue to improve. And bear in mind that about 3/4 of our premiums are proportional. We also reduced our exposure to U.S. wind and related perils by exiting stand-alone U.S. wind MGAs and reducing our U.S. proportional treaties. Third, we are on track in our stated ambition to reduce our cash and liquidity exposure from a high 16% at the end of June 2021 with the aim of getting down to 9% by year-end. At Q3, this already shows in our portfolio mix, and it will further accelerate. Liquidity is at 14% of invested assets versus 16% at end of June. And the corporate bonds are at 40% of invested assets versus 36% at Q2. And this 40% will trend towards 45% by year-end. Finally, we continue to proactively manage our balance sheet, and we announced a EUR 200 million share buyback program which we will execute in the market. We have a strong rationale for this attractive capital return. At the end of Q2 2021, our solvency position was extremely strong as demonstrated by solvency ratio of 245%. This was significantly above the upper end of the optimal solvency range of 185%, 220% as we had benefited from a life retrocession transaction which closed on the last day of the second quarter. At the end of 2021, the solvency ratio -- at the end of September 2021, solvency ratio was 229%, pre-buyback. After that, we have assessed the various options to optimally deploy capital. This is to create long-term value for SCOR shareholders and revert to the optimal solvency range. As a consequence, we decided to seize profitable growth opportunities in the continuously hardening P&C market, and we have been further resensitizing our investment portfolio. Taking these capital deployment decisions into account on the one hand, noting that the U.S. hurricane season is coming to an end on the other hand, and finally, acknowledging that the French regulator lifted its recommendation against capital distribution on the 1st of October, we have decided to launch a share buyback program of EUR 200 million. It will be executed in the market by the end of March 2022. We are confident in the future of the group, and we believe the share buyback is an accretive way to deploy our excess capital given we trade at such a discount to book value, while keeping a strong balance sheet in an environment which remains extremely volatile. In 2021, SCOR will continue to favor dividends as a way to remunerate its shareholders and will pursue the attractive dividend policy that it has implemented over the years. I will now hand over to Ian to go through the specifics here. And once he walks you through the key financials of the quarter, I will then give you an update on the strategic plan. We will conclude with the Q&A session. Ian, over to you.

Thanks, Laurent, and good afternoon, everybody. Let's look at the key metrics of the quarter. In the first 9 months of 2021, SCOR continued to successfully develop its franchise and its rebalancing towards P&C. Gross written premiums stand at EUR 13 billion. This is up 10.1% at constant FX compared to the first 9 months of 2020 driven by P&C, up 16.7%, benefiting from excellent renewals and steady life growth, up 5.0% with continued franchise expansion in Asia. Let's focus on profitability. Net income is at EUR 339 million for the first 9 months of the year, translating into an ROE of 7.3%. And looking at the business units and starting with P&C, we've published a combined ratio of 102.7% in the first 9 months, heavily impacted by a cat load of 14.8%, as Laurent noted. The main events in Q3 were the European floods representing EUR 206 million net of retro and Hurricane Ida representing EUR 137 million net. The underlying development of the attritional plus commission ratio has improved 3.5 points, benefiting from both profitability improvement and lower manmade activity. COVID-19 claims remain unchanged for P&C at EUR 109 million since the beginning of the year. On the life side, the technical margin stands at 11.3% since the [ year ], of which 5.7% is related to the day 1 impact of the recent life in-force transaction. COVID-19 claims booked, since the beginning of the year, stand at EUR 299 million, of which EUR 241 million comes from the U.S. The impact from COVID-19 on the mortality block is reducing and is tracking in line with our epidemiological model. Including the impact of the recent life in-force transaction, the technical margin should remain in the range of 5.5% to 6.0% for the full year 2021. On the investment side, return on invested asset stands at 2.3% in the first 9 months of 2021. The redeployment of excess liquidity into corporate bonds as noted will be completed by Q4 2021. Return on invested assets expectation for the full year is confirmed in the range of 2.0% to 2.3%. In this context, solvency remains very strong at the end of Q3 2021 estimated at 225%. This is above the group's optimal solvency range of 185% to 220%. The decrease compared to the half year position reflects the cat activity, the deployment of capital into P&C growth and the share buyback which is tailored to provide a strong capital return without jeopardizing solvency of the group and is consistent with maintaining our strong credit ratings. On the share buyback, I would add that at this stage there is no intention to exercise the call option we have at EUR 28, and we will buy in the market. If we now look briefly at other key financials, group shareholders' equity remained strong at EUR 6.3 billion. This is an increase on the year-end position, resulting in a book value of more than EUR 34 per share. And finally, I would like to highlight the group's strong cash flow with net cash flow from operations exceeding EUR 2 billion. With that, I'll hand back to Laurent. Thank you.

Thank you, Ian. Before we move on to the Q&A, let me now give you an update on the upcoming strategic plan preparation. Despite an eventful quarter, we remain focused on execution of our strategy, and you can have a look here at Page 13 of the presentation. As announced at the September Investor Day, we have started the preparation of the upcoming strategic plan and we are progressing well. So what are we proceeding on? We will build, first of all, on a detailed analysis of the performance of our portfolios to optimize our core business. Second, we ran an analysis of the options available to enhance our financial and capital management. Third, we run a review of our operating model to take full advantage of a nimble and lean organization. And fourth, we go through an exploration of ways to keep growing our franchise and develop the business. We are nurturing our strong and disciplined underwriting ethos, and we'll focus on culture and people. We want to make our people and the culture our #1 differentiator. This, in our industry, is absolutely critical. Business leadership has to be our own way to be global reinsurance leaders with again a strong underwriting ethos. Our success will start and will finish with underwriting capabilities. This is key. Third, financial performance with attractive shareholders' remuneration as demonstrated today. And with that, I hand back to Olivier for the Q&A. Thank you.

Thank you very much, Laurent. Page 15, you will find the forthcoming schedule event. With this, we can now move to the Q&A session. [Operator Instructions] Thank you.

[Operator Instructions] We'll now take our first question from Vikram Gandhi at Societe Generale.

It’s Vikram, Soc Gen. Congratulations on a good set of numbers in the release today. I've got 2 questions. The first one is on the retro in the P&C business. Can you highlight some of the key changes to the program since the impact from Hurricane Ida implies a market share of, what, 0.5% rather than the usual 1% that we've been used to seeing or perhaps it's a reflection of a lower gross loss itself, but any comment there would be helpful? The second one is on management actions. Is there anything you can share about potential management actions that might come over the next few months? For example, is it possible we might see another reinforce deal on the life book or anything on those lines, that would be very helpful?

Thank you, Vikram. Jean-Paul will take the first question on the retro, and I'll take the second one.

So thank you, Vikram. On the first question on retro, we -- as we had indicated previously, in 2020, we did a request for proposal on our retro program with a view to have better balance between protection for severity and protection for earnings. That's what we had in place in 2021. The program has proved effective. I would say on -- and this is shown in the figures we provide. We -- I think the -- 2 points. One, our market share of Ida is below 1%, but it's because the areas that have been affected, we have a smaller market share than 1%. And second, the capacity, we have still available for the rest of the year on retro program is still sufficient for us to be comfortable with the -- where we stand at the end of the Q3. On management actions, I'll just give you a few -- Laurent mentioned them in his opening comments on the cap. We've decided that on a go -- forward-going basis, we reduced our exposure to the first dollar programs where we are exposed to climate-sensitive perils. And as a result, we exited MGAs that are focused on U.S. E&S primary business exposed to U.S. hurricanes and also reduced our planned capacity for proportional U.S. treaties. So those are some of the management actions on cat volatility that we're implementing now for 2022. With that, I'll give it back to Laurent.

So just to pick up on what Jean-Paul said, the MG actions alone that we're talking here at EUR 200 million of PML reduction. I mean it is sizable, absolute level and in scheme of -- in the relative size of the group. Now more generally speaking and turning to the future because this -- what we've announced is done. I would very much focus -- if you look at Page 6, this gives a good sense of the focus or actions, how to enhance earnings. Here, clearly, what we're going to continue working on, Vikram, is the shift in business mix, whether it is life, P&C, so in favor of P&C, within P&C, in favor of specialty insurance, we hear the market in single risk continues to be extremely hard. We've made significant investments, so in people and resources. So I would expect that business as well to keep growing fast. And as well in the non-cat lines in reinsurance, you might have seen in the market we've made a significant hire on global line reinsurance in our Zurich team. So here, we've been as well attracting some meaningful talents. So the earnings enhancement is clearly going to be focused. And alongside that, the reduction of volatility. You mentioned the U.S. mortality in-force book. We have a dedicated team for a number of years now. They're doing a tremendous job, and we are indeed taking a very proactive stance on the way to manage that, the in-force.

Our next question comes from Will Hardcastle, UBS.

On the retro, I guess, a bit of a blend. Actually, I was thinking about retro optimization, cap budget, underlying guidance blend. Since you struck this [ at your Capital ] Markets Day, we've probably seen a bit of high cat activity and extrapolation of better pricing environment, but maybe some retro tightening and collateral lockups. Has the -- it's all a fine balance, and I appreciate that. But has the aggregate include any rise since the Capital Markets Day or the same deteriorated, et cetera, because there's been a lot of moving parts in this end? And then just on the buyback expectation from here, I mean, how should we think about that? We've got the logic of -- had some logic of why it's running until March? Is that just a liquidity perspective or keeping powder dry? And with this in mind, how -- there was the other data point that we had at the Capital Markets Day, it was a 25% debt leverage target over the next 3 years. I guess the buyback is probably pushing closer to 30. Does that metric still stand, and that's still the target over the next few years?

Thank you, Will. Jean-Paul will take your retro question and Ian the one on the share buyback.

Yes. If I understood correctly, your question relates to the state of the market -- the retro market. So we -- the 2021 plan was executed. We're in the process of renewing the retro program for 2022. In that plan, we anticipate a shrinkage of capacity for both proportional and aggregate covers and our program takes that into account. We'll probably look for different products to help us replace that shrinking capacity. But again, the target remains the same as in 2021, protecting against severity and frequency of events. But I think the metrics that we had for 2021 program will be very similar 2022, and we feel very confident as we speak today on the 27th of October that we should be able to reach our plan. Maybe I pass it over to you, Laurent or Ian?

Yes. So just on the share buyback, before getting into the question directly, just a few comments, just to talk about the timing. We think it's a very accretive way to deploy capital and bring value to shareholders. And we had seen the life in-force transaction as at the end of Q2. That unlocked significant value, increased the degrees of freedom for the group in terms of accretive capital management. And we talked to that at IR Day. We talked about the profitable growth opportunities in the P&C market, how we would seize those. We talked about the reorientation of the investment portfolio into value creation assets. And then we talked about the additional capital management actions. So that's why we're doing this now. We also had, at the start of October, the ACPR lifted the recommendation against capital distribution, by the way. So we're starting now. We think the 6 months is a good timing given the ability to execute in the market. As I said before, we will not be using the call options at EUR 28 that we have, we will be buying directly in the market for this buyback. And then coming to your point in respect of leverage, I think here EUR 200 million in terms of the sensitivity, EUR 200 million on equity means a change of 0.6% or so in respect of leverage. I think the -- it's clear, actually, our leverage ratio has come down a little across the course of this year. We would expect to broadly maintain the level of leverage going forward through the balances of capital return, earnings generation and so on. And then a little bit more longer term, we would expect to earn back into the 25% range.

Our next question comes from James Shuck at Citi.

So 2 questions from myself. Firstly, just in terms of the EIOPA review into the Solvency II position, you've highlighted there's a potential positive there and assuming that's coming from the risk margin. You are quite a heavy user of diversification credit, particularly relative to other reinsurers. Just keen to get your thoughts on whether EIOPA is looking at that diversification benefit and in particular, how local authorities actually allow the implementation of that through internal models? And if that is actually taken into account into your comments about a positive impact from that review. Second question, not sure who to direct this one too, as I'm not sure that Denis on the line or not. But I'm just keen to get a view into his potential retirement in -- at the next AGM. My understanding is that he will reach mandatory retirement age before the AGM and, therefore, unless you change the bylaws, he will need to stand down. So therefore, I'm just keen to get a view whether you intend to change the bylaws, please.

Thank you, James. So Fabian Uffer, our CRO, will take the first question. I'll take the second. Denis not on the call, and I will answer your second question. Thank you.

Okay. On the EIOPA review, the particular point on the diversification, you might be aware that the risk margin allows not for the full diversification as the SCR. So the risk margin depends on the legal entity risks and this then aggregated the way some of the legal entity risk margins. So this is not the change in the Solvency II revision that is expected. The change on the risk margin is -- proposed by the EC is on the cost of capital, which would directly translate for our risk margin. And then there's a so-called introduction of a [ lambda ] factor which has a dampening effect on the size of the risk margin. Overall, we have communicated in the past, and it depends a bit on the economic situation, but the expectation is that the proposed changes could improve the solvency ratio by around 19%. But still this needs to go through a political process and will be in place earliest in 2024.

Thank you, Fabian. On your second point, James, so the age limit is reached indeed at the AGM. However, if you look in the precise bylaws wording, it's -- the age limit hits in the year when the person turns 70. So it's not when the person reaches 70 itself, it’s at the AGM following the age. So first point is, so I can confirm that Denis Kessler would reach the statutory limit in March 2022 and then that would have to be reviewed at the upcoming AGM. The Nomination Committee makes recommendations on age limits. If the Board wishes Denis Kessler to remain as Chairman and if Denis Kessler accepts it, then the resolution would be put to the AGM to extend age limit and then shareholders decide. Anyhow, this is a Board matter. They own it, and that's with them.

Our next question comes from Andrew Ritchie at Autonomous.

Thanks for the buyback. That saves that question. A few other quick questions. On Slide 5, Ian, I wonder if you could just clarify how I interpret the 8 points for planned P&C growth? Is that on a sort of forward-looking basis? And to what degree is that -- is that sort of capturing 1/1 or how forward-looking is it? And on that slide as well, the EOF generation looks quite low, but there is something that says and other. What is the -- I'm guessing the and other is negative, but maybe if you could just clarify. Is there any way you can sort of give us a sense as to normal levels of EOF generation or something exceptional in Q3? Second question for Jean-Paul. When I look at your normalized combined ratio, you've normalized using 7 points of cat when I just assumed you've already transitioned to the 8 points of cat. I'm not sure what happens overnight in 2022 that makes the 8 points normalization right then versus 7 points now. I mean does the underlying attritional drop by compensating amount? Or -- so I'm just -- I'm not sure why you've not normalized it now. And related to the normalized, it was a bit higher. I'm always conscious that I shouldn't over interpret a quarter. But was there any sort of elevated manmade particularly in Q3?

Andrew, I'll just hand over to Fabian to pick up on the solvency position changes.

Thanks, Ian. So on the planned P&C growth, that includes the capital we deploy on a 1-year forward-looking view. That's the pure effect of the SCR on the solvency ratio. So it includes, obviously, one last quarter of capital needs for this year and then 3 quarter of next year and, in particular, also includes then the growth that we have announced at the IR day and big part of the 1/1 renewal. So that pretty much what you should expect as capital needs for next year. Obviously, it will then depend on how exactly which lines of business we write, what kind of diversification we get and how exactly the retro program puts in place. So that's our plan and sometimes capital deployment that we need to book in Q3 just because the SCR is fully forward looking. On the own funds generation and other, we don't usually publish a full walk in Q3 or in the Q1 and Q3. So what we have included here is the usual model changes, market movements and the own funds generation. There's nothing particular negative or positive. As you know, the own funds don't linearly come in over the quarter mainly driven by the big chunk of 1/1 renewals, which we will see in the one -- in the Q1 own funds generation. So this is just a bit of a seasonality effect that it's slightly lower than normal.

I'll take the question on the cat ratio and the normalized combined ratio. So we had mentioned going to 8% cat budget in 2022. And we continue to use 7% because that was our base assumption, that remains our base assumption for this year. The -- your question as to what changes as of 1/1, well, actually quite a lot. We have a new retrocession program in place. We implement some underwriting measures, as just described by Laurent and myself, on the U.S. portfolio. We have other actions that we’re taking place, and we'll put in place at 1/1. So there's quite a lot of changes that happen at 1/1 compared to where we are today. And so for continuity, we continue to use our assumptions for 2021 at 7%. That being said, as you said -- as you mentioned, the Q3 normalized, whether it's 7% or 8% is higher than the prior quarters. And that's really driven by one large event, the South African riots, which represent a EUR 48 million net impact this quarter. And that's the -- I'd say, it's almost 2.7 points of loss ratio in the one event. So that's the main driver behind those figures. The rest of the manmade has been really lower than normal and lower than 2020.

[Operator Instructions] Our next question comes from Vinit Malhotra, Mediobanca.

So one on P&C please and one on life. On P&C, Jean-Paul, I remember -- I mean we were quite surprised at the IR day when 2021 was looking quite lower than those expectations that time was and you had guided to 7.5 billion GWP P&C re. Obviously, you retained that today and that is even a bigger surprise because that would imply 4Q '21 to be a minus 15% roughly. Are we -- I mean what has been the change since then for the strong growth in 3Q? And why should we expect -- why should the targets imply such a sharp contraction in 4Q '21? Is there any one-off that you could point out to or anything that would be helpful? Second question just on the life technical margins ex-COVID, I mean, remained very, very high. I can see a 13% odd level for the third quarter. Is that the reason why despite a pickup in 3Q mortality in the U.S., the guidance for the fourth quarter of -- for the full year really has been unchanged? And do you see any risk to that because the U.S. mortality is still quite high, I mean, I think it's more than maybe 1,500 a day roughly, current average. I might be not fully accurate on that, but just that's the rough number. So just curious as to what do you think are the moving parts on the life technical margin from here.

So Vinit, I'll answer the first question on the P&C gross written premium. This quarter, the gross written premium at constant rate of exchange is roughly EUR 1.7 billion. We would expect the same in Q4. What was impacting us in Q1 and Q2 was really the foreign exchange, as you can see on Slide 10 of the presentation. This effect has really dampened out in Q3. We expect it to continue to do so in Q4 if there's no big shock on the rate exchange market. And therefore, at constant rate of exchange, we would expect the GWP to be more like 7.8% in that range, 7.7% to 7.9%. And then when you take out the sort of the impact that we had in Q1 and Q2, you land at the actual rate of exchange to roughly 7.5%. That's where we're guiding our 7.5% still at the current rate of exchange. With that, I'll hand over to Frieder.

Thank you, Jean-Paul. So the portfolio has performed well in Q3. Excluding COVID, we see experience and performance in general in line or slightly above our expectations. And that is really a fact across the whole portfolio. We are also constantly working to improve and optimize the portfolio, the performance of the in-force portfolio. And in line with previous quarters and years, we have taken action to improve performance and increase premium rates on certain underperforming U.S. treaties and that was the case in Q3 as well. And overall, we have and continue to have significant reserve margins, which helped to support the performance of the business and that will also be the case in future quarters. As far as COVID is concerned, you've seen the losses which we have booked in Q3. Our exposure is -- continues to be mainly concentrated in the U.S. There the current wave has plateaued and we expect this to be trending down during the course of Q4. But you're right, we will continue to see fairly significant numbers of population deaths in the U.S. in Q4. And that is broadly in line with what we had indicated in early September. Q3 population deaths came in, I guess, a notch above what we had expected in Q3. Overall, we still think that for the full year 400,000 deaths in the population in the U.S. is a sensible high level estimate. Maybe within a high likelihood that the final number will be a bit higher than below that number. But that is included in our plan and our forecast for Q4 and we continue to guide towards the same margin and overall result as in September and are very confident that we can achieve that despite the continued high claims activity on COVID in the U.S.

We'll now take the next question from Thomas Fossard at HSBC.

Two questions, please. The first one is a follow-up for Frieder. Frieder, I mean, at the start of the year, previous CEO of SCOR Global Life indicated that you had lot of positive management actions in full year 2020 and that we should not expect those to be repeated in 2021. But when I'm looking at my modeling, it looks like on a full year '21 basis, those positive management actions will be actually bigger than they've been in 2020. So I mean -- sorry about that. But can you please come back on what has been the drivers? And maybe for next year, I mean, would you go again with a fairly cautious assessment of what to be expected in 2022? Or I mean any comment will be interested on the experience 2021 and what to expect in 2022? The second question would be for Francois. So actually going to be -- looks like very active in terms of liquidity rebalancing into Q4. Can you tell us what kind of reinvestment rate you're getting at the present time on the corporate bonds because it seems to be that this is where you're going to shift or reinvest this liquidity? And maybe if I can squeeze a very last one, very short one is what do you make of the global minimum tax? I mean do you expect any implication for the group when this is implemented?

So Thomas, thanks for the question. So we do continue to expect to perform management actions on underperforming treaties in the course of 2022. We have, of course, taken some of the most significant rate increase actions somewhat early on in the program. Having said this, the performance of the business, the way the treaties are structured and many other factors have an influence which we continue to assess and evaluate. And our current view is that there is still quite sizable potential for improvement of underperforming treaties next year and probably beyond. So that's something we'll continue to leverage upon. And we also have in-force management opportunities outside of the U.S. and that is an area which we are increasingly exploring as the business is growing, and we are building up our in-force management capabilities. In addition, as we explained in early September, the in-force transaction which we concluded at the end of June has not only led to a significant one-off gain, but it has also led to an increase in margins of prudence in our reserves which given the improved profile of the business will run off during the coming quarters and that helps to support the performance of the business also during 2022.

Thomas, on your question, so that's true that we have significant activity on our side in Q3. You have to take into account that we received on the investment side, the proceeds of the life in-force transaction early July. So which mean our starting point at the beginning of Q3 was not 16% of liquidity but 20%, if I include the EUR 860 million of this transaction. Where we've invested, that's mostly on U.S. corporate bonds, which corresponds to the sale program we executed in Q1. During Q3, we purchased EUR 1.7 billion of corporate bonds with an average rating of BBB plus, an average duration of 5 years, an average book yield of 1.64%. Since the beginning of Q4, we have already invested the equivalent of EUR 400 million always on corporate bonds, average rating A minus and you see improvement of market condition, average book yield 2.03%. So that's reflecting the increase of interest rates. On top of this, if you remember, I mentioned during the IR day that we deployed EUR 200 million of commitment in 2021 and also EUR 200 million in 2022 on value creation assets, mostly private equity, infrastructure and private debt. On this envelope, we have already committed EUR 120 million for 2021. So we will be on target for this year. I remain very confident on the fact that the reinvestment of our excess liquidity will be done by the end of the year. So with liquidity, we’re on 9%. We will come back to, I would say, our normal allocation to corporate bonds between 43%, 45%. And we would close the duration gap that we opened in Q1. And after, we will maintain a disciplined ALM strategy within the fixed income portfolio.

And Thomas, Ian here. I'll just pick up on the tax question briefly. We're currently monitoring the situation, and we'll assess the impact once the situation becomes a bit clearer. But just in terms of sensitivity, a strict application of a 15% minimum tax rate globally to areas that are currently below that threshold, that wouldn't have a material impact upon the group, low to mid-single digit.

We'll now take our next question of Will Hardcastle, UBS.

Just the first one on the potential for reserve release. I guess in the past, we became a little bit accustomed to seeing major cat quarters arrive with some reserve release to dampen the volatility. I guess has there been a change in approach or what was the logic this time? And then the second one is, can you give any sort of loss -- industry loss assumption for the European floods and Hurricane Ida? I know there'll be some distortion, but any indication there would be helpful.

Thank you, Will. I'll take the first question, and I'll let Jean-Paul talk about the second one. I'll make a general statement on your first question, just like you may have seen, we don't do capital gains on bonds. I make the link here on the smoothing the volatility of the earnings that we did not do this time around on the P&C reserve. So your understanding is good. I think it's important for us to have to go through this volatility to take it without necessarily looking to smooth it. We don't need to. We don't have to. I think it's more transparent, and we'll look to do that way as much as possible. I'll hand over to Jean-Paul on second question.

Thank you, Laurent. On the industry losses for Ida, our assumption is a market loss around USD 30 billion to USD 35 billion with, I'd say, a small contribution to that market loss of the flooding on the northeast. The majority assume to be ceded to FEMA. On the European flood loss burn where the assumption is EUR 11 billion market loss.

We'll take the next question from James Shuck at Citi.

Frieder, I think the way you answered the question on diversification was specific to the risk margin. Really my question was just leaving the risk margin to one side, my kind of thoughts were that EIOPA were looking closer at diversification credit overall and used by insurers and whether it's appropriately applied by the local regulators. So just any comments on whether you're actually seeing that or can anticipate any kind of scrutiny of your very large diversification credit that you apply in the Solvency II ratio would be helpful. Second question, I heard the answer you gave on the Q3 underlying combined ratio, which was in response to the underlying number being a bit higher than one might expect. My take on that is a little bit different in that you would normally see quite a high level of seasonality around the nat cats that you'd see in Q3, perhaps almost as much as twice as the usual 7% load. And if that's the correct view, then the underlying combined ratio actually looks a lot better. So if that's the case, then can you just comment around the large loss experience relative to what a normal run rate is? Or just any insight into what's happening on a underlying basis there? And then finally, sorry to return to this, I just -- I wasn't quite sure that I caught the answer, Laurent, but were you saying that the potential change in bylaws was something that could be considered? Or is that something that is set in stone and would not be?

Thank you, James. So let's take your answers in the order. And so the first one was actually answered by Fabian and who I give the floor back to.

Yes. Thanks a lot. Sorry, I didn't get your full question on the SCR. Now it's quite clear. There's no particular thing happening with SCOR and the diversification effect. What we see is obviously EIOPA doing more and more comparative studies among the internal model users and, I mean, that's public information. So there was -- is an ongoing study on diversification, but we have no indication that there is something specific coming for the internal model of SCOR. I mean that's the approved internal model that we have. This has been checked and thoroughly gone through with our regulators where we operate entities in the Solvency II regime as well as the entities that we operate under Swiss Solvency Test. And the diversification effect is not so much, part is obviously our modeling assumption, but it's highly driven by the portfolio mix that we have that then leads to such a diversification.

This is Jean-Paul. I'll answer your second question on the P&C net combined ratio on a normalized basis. So the year-to-date is actually -- if we combine commission and attritional losses, the sum of the 2 is actually 3.5 points below the same amount year-to-date 2020. The driver of the improvement has been primarily Q1, Q2. In Q3, we see the normalized net combined ratio being very close to the normalized net combined ratio of Q3 last year. And as I said, the driver last year was, if you remember, the Beirut blast, which was a significant market loss. That was a manmade loss. This year we have another significant manmade loss, I'd say, of similar size, which is the South African riots. If you take out -- again, if you take out that event as an exceptional event, the net combined ratio this quarter would be 2.7 points lower than the 94.7%. So it would be around the 92%, which is in line with what we've seen in the prior quarters. But the rest of the manmade losses have been very much in line with what we've seen in Q1 and Q2. The main difference this quarter has been the South African riots. I'll hand it back over to you, Laurent.

Yes. So on your question, so the bylaws can be changed, James, but it requires, first of all, that the Board recommends and put through the AGM a recommendation to change the bylaws, and it requires the shareholders to vote to change the bylaws. So it can be done, but there is a very strict process to do so.

We'll now take the next question from Vikram Gandhi at Societe Generale.

I've just got one follow-up question, which is on the investment income. Is there something that you can flag around potential real estate disposal that can come in Q4 or something next year? That's always lumpy. So any guidance there would be helpful.

So that's a good question. So the first point is I would like to mention that there is no one-off in our income this quarter. So take it really as a real one. On real estate, so that's true that I mentioned previously that we are in the process of selling mature asset. It will be done at the end of the year or beginning of next year. I have no certainty, given the real estate market today in Paris, that it could be done before the end of the year or more probably in January. Having said this, we still have a pipeline of mature assets that will mature in the next few years. And you see the amount of annualized gain we've got on the real estate portfolio. As far as fixed income, the contribution of fixed income portfolio into realized gain as mentioned by [ Laurent ] and myself, we want to maintain a disciplined ALM matching strategy, so which means that any realized gain coming from the fixed income portfolio could be nonmaterial and just reflecting a tactical adjustment within the fixed income portfolio. Maybe another indication, I'm still speaking on this, the income yield is at 1.7% today. Our projections, given the current environment, indicates that we should be at the low today.

We'll take our next question from Vinit Malhotra at Mediobanca.

So one is a quick follow-up with Jean-Paul, one is a quick check on the EOF for Fabian. So Fabian, just I’ll start with that. The -- if I go back to your IR day presentation, we saw an EOF in the 1H roughly EUR 400 million -- a little above EUR 400 million and I had asked you whether there was anything exceptional, and you had said that there wasn't. So that would imply that the sort of EUR 800 million, give or take range, on U.S. capital generation is sort of the benchmark on normal level which is very close to 18, 19 points. And then there is a dividend usually come in, say, last year dividend was 8 point, so roughly. So is a 10 point kind of capital generation calculation per annum normal basis, would you agree with that post-dividend, maybe post-tax, if you could comment on that or clarify or correct that, I'd be very grateful. And just second, very, very quick one for Jean-Paul. So I've seen the Slide 10, Jean-Paul, after your comments. Just so I understand, if EUR 1.7 billion of P&C growth -- GWP, sorry, is a good level for fourth quarter, give or take, and then the 6 billion you stated there in that 9 months ex-FX. So what are we looking to do for next year? Are we saying -- are you suggesting that we use 7.7%, 7.8% as a base for a 15% to 18% growth? Or would you still be more comfortable with 7.5% as a base for 15% to 18% growth next year?

Thank you, Vinit. I'll take the first question. Well, the question on the P&C GWP, our basis for 2022 would be the 7.7%. So that's what we're projecting to land at the end of this year. And those are the basis on which we're projecting for next year.

Thank you, Jean-Paul. Maybe answering on the own funds generation, so we usually don't give any forward guidance on this figure. So use the published figures on our half year and yearly walks, and I think this is a good basis.

We'll take the next question from Thomas Fossard at HSBC.

The first one will be on the cost of retro, Jean-Paul. I think that you're renewing pretty early, so you may have a fairly good view on what could be the higher implied cost. So would you be able to give us a kind of impact on -- in terms of combined ratio on what we should think for 2022 in terms of impact of unchanged retro structure, but likely to come with higher cost? Also, on COVID P&C, any comments you would like to make regarding IBNR level and how much you paid out already? And the very last one would be, it has no impact in Q3, but may have some impact from Q4 onwards is, could you remind us the call option mark-to-market, how this is going to be booked? And if you could give any -- I know it's depending of lot of assumptions, but any sense of -- any sensitivity would be helpful.

On your first question, Thomas, we're still in the middle of negotiation. I think one of the key points is that the program will not be unchanged because, as I said previously, the supply of proportional and aggregate covers will be -- we anticipate to be less than last year. So we'll probably have to buy more nonproportional and look at other structures. But our -- the impact in terms of net combined ratio we're anticipating will be the same as last year. So the risk protection will be similar, and this is where we're taking actions on the inwards, the acceptance side, to sort of balance out the anticipated changes in retro supply and keeping the same risk metrics that we had last year. On COVID P&C, we've paid out roughly EUR 75 million by -- as at the end of Q3. And we haven't made any changes to our reserve level because we just didn't get any new information. I think there's still a lot of litigations ongoing, especially in the U.K. and France as well as some in the U.S. I think the cedents involved in those litigations are still -- have not changed their assessments of their exposures. We haven't either. And I think we'll probably gather additional information in Q4. But these are, I think, claims that will probably carry on into 2022, for sure.

Yes. Just on the call option, Thomas, in terms of sensitivity, it's not been material. Just to give you an indication, in Q3, the impact was a very low single digit, EUR 2 million of impact, in fact.

Ladies and gentlemen, this does conclude today's question-and-answer session. At this time, I’d like to hand the call back to the speakers for any additional or closing remarks.

Thank you very much for attending this conference call. The Investor Relations team remains available to pick up on any further questions you may have. So please don't hesitate to give us a call. I wish you a good afternoon. Thank you.

That concludes today's call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.