SCOR SE (SCR) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the SCOR Group Q4 2022 Results Conference Call. Today's call is being recorded. There will be an opportunity to ask questions after the presentation. [Operator Instructions] At this time, I would now like to hand the call over to Mr. Yves Cormier. Please go ahead, sir.

Good afternoon, and welcome to the SCOR Q4 2022 results. My name is Yves Cormier, Head of Investor Relations. And I'm joined on the call today by François de Varenne, Interim CEO of SCOR; as well as the entire Executive Committee. Can I please ask you to consider the disclaimer on Page 2 of the presentation. I would like to hand over to François de Varenne. François, over to you.

Thank you, Yves. Good afternoon, and welcome, everyone. I'm very pleased to present our full year 2022 results. As you know, the Board of Directors has appointed me interim CEO until Thierry Leger takes up his position on May 1. I will, therefore, focus today on the immediate priorities of the group. Then I will leave the floor to Ian to present our full year 2022 results and an IFRS 17 update. Today, I want to share with you 3 key messages. First, Q4 results are strong. SCOR ends 2022 with a net income of EUR 208 million in the fourth quarter, equivalent to an annualized return on equity of 16.8%. Second, despite a difficult year 2022, our solvency is strong and SCOR continues to care for its shareholders and maintain its unchanged attractive dividend policy it has implemented over the past years with a proposed dividend of EUR 1.4 per share. Third, given the favorable tailwinds benefiting the 3 business engines. The group focuses on the execution of its 1-year plan presented to the market in November. Let's come back on the first message. SCOR ended 2022 with a net loss of EUR 301 million, that was significantly reduced by the strength of the fourth quarter results. At Q4, the group generated a net income of EUR 208 million, which benefited from 3 drivers. The first driver is a strong Life and Health reinsurance margin. Our portfolio performed particularly well and delivered a technical margin of 13.3%. The second driver is the low Cat activity in P&C, offset by a higher attritional loss ratio. And the third driver is an improved regular income yield, given the relatively short duration of SCOR's fixed income portfolio, we benefit faster from higher reinvestment rates. Second message, the dividend policy remains unchanged. We continue to favor dividends as a way to remunerate our shareholders and we pursue our attractive dividend policy. Despite the significant accounting loss recorded in 2022, the group capital position remains solid. Its solvency ratio stands at 219% before dividend. And the Board of Directors and the management are confident in SCOR's prospects. In a challenging environment, SCOR continues to deliver once again demonstrating its ability to absorb shocks, once again demonstrating a resilient and robust balance sheet. We, therefore, propose a dividend of EUR 1.4 per share for the fiscal year 2022. After taking the dividend into account, our solvency ratio stands at 213% in the upper part of the optimal solvency range. My third message, we focus on the execution of our 1-year plan presented in November. In this plan, we have 4 priorities. The first priority is to restore profitability. P&C renewals confirmed the continued hardening of the market. As communicated during our call in February, our actions should result in an improvement of 2.4% to 3% of the expected net underwriting ratio for the portfolio that has just been renewed. P&C teams are actively preparing the upcoming April, June and July renewals in a positive market environment, and we will make the most of the current market hardening. We are in the phasing out stage of the pandemic, which will have positive impact for our Life and Health portfolio. Invested assets financial contribution will continue to significantly increase, thanks to the high reinvestment rates and the relatively short duration of the fixed income portfolio. Besides, SCOR continues building a nimble and lean organization. It will lead to EUR 125 million efficiency gains by the end of 2025 and more than 30 initiatives are currently being implemented. Transformation and simplification initiatives are expected to generate EUR 20 million efficiency gains in 2023, which corresponds to EUR 34 million on an annual basis. Our second priority is to improve the risk return profile of the portfolio. A significant rebalancing of the P&C portfolio has been implemented at the 1/1 renewals. Life and Health closed a sizable longevity reinsurance transaction in November. Our third priority is to maintain a strong balance sheet in line with our capital shield strategy. We have renewed our contingent capital facility, which provides additional capital of up to EUR 300 million in case of extreme events. The 2023 retrocession program was renewed successfully to protect SCOR's capital. Despite the off retro market, this translates into slightly better capital at risk and earning at risk metrics. Our fourth priority is to transition to IFRS 17 in Q1 2023. Ian is going to present you our forthcoming key milestones for a transition to the new standard. Now I will leave the floor to Ian, who will take you through our Q4 results.

Thank you very much, François, and good afternoon, everyone. Let's look at the key metrics for the last quarter of 2022. In Q4, the group generates a strong net income of EUR 208 million, equivalent to an annualized ROE of 16.8%. Each of the 3 business lines, P&C, Life and Health and investments are contributing to this positive result, with the group now benefiting from favorable tailwinds in all its segments. The gross written premiums for the group amounted to EUR 4.9 billion over the last quarter, increasing by 1.2% at constant exchange rates. On the P&C side, the premiums increased by 7.4% quarter-to-date, and by 13.5% year-to-date at constant exchange, driven by significant growth in specialty insurance and Treaty Global Lines. The net combined ratio stands at 96% in Q4, thanks to a lower Nat Cat activity, offset by higher man-made claims. On the life side, the strong performance of the underlying portfolio and a lower impact of the pandemic are driving a high life technical margin of 13.3% in Q4 2022. The premium growth over the quarter reflects the active management of our portfolio, leading to a 4.7% reduction at constant exchange rates over the quarter and a 2.7% decrease over the year. Finally, our return on invested assets is strong at 2.9% over the quarter, sustained by a regular income yield, which continues to increase to 3.1% quarter-to-date as we fully benefit from the rise in interest rates. The group has been severely impacted by weather events and the COVID-19 pandemic in the first 9 months of 2022. It has also undertaken significant actions to strengthen its balance sheet and reduce the volatility of its results over the same period. It remains, however, very well capitalized with a solvency ratio at 213% at the end of 2022 in the upper part of the optimal range. Let's move on to the book value of the group, which remains strong at EUR 28.48 per share. The group's financial debt ratio increased to 32.4% due to the decline in shareholders' equity compared to 31st of December 2021, driven by the EUR 955 million impact of revaluation reserve movement over the year. We expect this revaluation reserve movement in respect of the fixed income portfolio to return back through equity over time and not to flow through the P&L. This is worth EUR 5.6 per share in book value and 3.8 percentage points of leverage ratio. Moving to the next slide. The Q4 solvency ratio, as stated, is very strong at 213% in the upper part of the optimal range. This reflects the review of assumptions, including the P&C reserves increase in Q3 and a review of the Life and Health assumptions, which has been performed to ensure consistency between IFRS and Solvency II. It also includes the payment of an accrued dividend of EUR 1.4 per share, as noted by François. In the fourth quarter, both business lines, P&C and Life and Health generated positive operating cash flows totaling EUR 446 million. P&C generated positive cash flows driven by a strong level of premiums related to growth, more than offsetting claim payments and Life and Health cash flows turned positive, supported by significantly lower COVID claims payments and a higher technical profitability. This leads to strong overall liquidity for the group at EUR 2.8 billion. On to the detail of the P&C performance. In the fourth quarter, the net combined ratio stands at 96.0%. The natural catastrophe cost was limited and equivalent to 2.5% of net earned premiums mainly due to the Elliott storm in the United States and below the budget cap ratio of 8%. Attritional losses are higher in Q4 2022 than in Q4 2021. This quarter, they've been impacted by higher man-made activity than the historical average as a result of volatility in claims experience in aviation reinsurance, energy and space. The Life and Health business continues to report a very strong performance with a technical margin reaching 13.3% in Q4 and 14.5% for the full year 2022. In Q4, the Life technical margin benefited from the continued strong underlying performance of the book, a reduced impact from the COVID-19 pandemic and active management of the in-force portfolio. Moving on to the return on invested assets, which is high at 2.9% in Q4, the regular income yield continues to increase to 3.1%, thanks to the favorable interest rate environment. This is sustained by a high reinvestment rate of 4.9% as at the end of 2022 and a relatively short duration of our fixed income portfolio at 3.2 years. The asset portfolio remains highly liquid with EUR 9.2 billion in financial cash flows expected over the next 24 months, which will allow SCOR to benefit from these higher investment -- reinvestment rates. We continue our buy and maintain strategy on the fixed income portfolio. On the graph on the right-hand side, we expect that over the next 3 years, we will recapture EUR 900 million of unrealized losses on our fixed income portfolio, as I noted earlier, benefiting book value and leverage. Finally, a word on IFRS 17. The group is well prepared for the transition to the new standard. Today, we are publishing our IFRS 17 economic value as of the first of January 2022, central KPI for SCOR as it better reflects the valuation of our portfolio, especially on the Life and Health side. Our economic value as of the first of January '22, is at a point estimate of EUR 10.8 billion in the range of EUR 10.5 billion to EUR 11.1 billion, confirming the indication that we provided in the last quarters. In respect of the IFRS 17 disclosure timeline, SCOR will organize a dedicated call on the new standard of reporting on April 12, 2023. On that day, we will publish our assumptions and targets for 2023 under IFRS 17 and an update of the economic value and its main components as of first of January 2023. On the 12th of May, SCOR will disclose its Q1 '23 IFRS 17 results with the Q1 2022 comparatives. During the Q2 call, on the 27th of July, we will publish the 2022 full year figures along with the H1 2023 report under IFRS 17 and we set up the date of our Investor Day, which will be on the seventh of September 2023. Thank you. With that, I hand back to François.

Thank you, Ian. Before we move to the Q&A, let me summarize the key messages of our presentation today. The year 2022 has been a difficult one for SCOR, but the first quarter results are positive. The group is expected to benefit from favorable tailwinds in 2023. The phasing out of the pandemic should come down. The high interest rate environment should persist and the significant hardening of the market observed during the January P&C renewals should continue throughout the year. During this transition phase, I want to tell you that the group is not put on hold. We accelerate. This means that going forward, the teams are fully mobilized on 3 key priorities. The first one is our focus on the execution of the 1-year plan to restore the group profitability and maximize the benefit from supportive market tailwinds. The second one is to ensure transition to the new IFRS standard in Q1 2023. And the third one is the new strategic plan. The executive community and I are fully mobilized to support the new CEO in the preparation and execution of a new ambitious strategic plan. The outline of this plan will be presented by Thierry Leger at the general assembly on May 25. The reinsurance industry has reached a tipping point for our 3 business lines. I strongly believe in SCOR. In this supportive environment, we are well positioned to embark on a new chapter in SCOR history. Thank you, everyone. Let's now move on to the Q&A. Over to you, Yves.

Thank you very much, François. On Page 22, you will find the forthcoming scheduled events. With that, we can now move on to the Q&A session. [Operator Instructions]

[Operator Instructions] We'll go first to Andrew Ritchie at Autonomous.

I wonder if you could just elaborate again what you think the group's dividend policy is. I guess I asked this because you emphasized, François, at the beginning the strength of the capital, strength of liquidity, strength of the outlook. And in that context, I'm not sure why you cut the dividend? Or it just seems a little bit pointless, given that it's hardly saving any money, maybe EUR 70 million. So are you seeking to reset the dividend from this point? Or is this in some way a temporary cut or is it fair to say the dividend policy needs a thorough revisit particularly in the context of maybe more stability even in difficult years, given the strength of the balance sheet. So I just see a lot more clarity on exactly the rationale around the dividend. Second question, could you just give us a bit more flavor on the man-made losses in Q4, did that include any updates for Russia, Ukraine aviation or more generally, I mean, should we reverse out some of that man-made? Or is this sort of a higher -- is this indicating a sort of higher starting point normalized combined going into 2023?

Thank you, Andrew. I will answer on the first question on the dividend. My answer is very clear. This is not a reset. Our policy -- our dividend policy is unchanged compared to the past year. This is a strong message of confidence in the future and on the comfort with the capital position, which is very strong at the end of 2022. Having said this, we cannot pretend nothing happened in 2022. So the strong EUR 1.4 dividend is calibrated on the back of the strong solvency 2022 -- solvency ratio at the end of 2022, but also the weak financial performance. So nothing else, nothing more, no reset. Jean-Paul, for the second question.

Yes. Thank you, François. With regards to the manmade losses, Q4 was another bad quarter for energy losses. As you know, SCOR is a large player in that market segment. It had been very profitable in 2021, but '22 has been a terrific year. And the aviation loss really relates to the Ethiopian Air Boeing loss. So there has been no additional reserves set aside for Ukraine, no COVID. So it's really related to those large losses, which we view as a one-off, and those account for roughly 4.5 points. The rest of the attritional underperformance is coming from just some additional deterioration on some of the longer tail lines.

Our next question comes from James Shuck with Citi.

I'd also like to return to the dividend, please. I'm going to try again, but I kind of still struggle to see why the dividend was cut. You have a solvency position that is at the top end of your target range. You've increased conservatism in there. And now you're rebasing the dividend to about a 30% payout. So I still struggle to see why you needed to cut the dividend. And I think as Andrew mentioned, only saves you EUR 70 million or so. Is there an issue with central liquidity with regard to the S&P capital. Just further insight into that outlook would be helpful, please. And then secondly, the longevity transaction of EUR 1.7 billion. Could you just say what that did to your solvency and whether there's any liquidity benefit and earnings impact in Q4, please?

Thanks, James. And maybe I'll pick up on the first question on the dividend. Look, you're right, the group has got a very strong capital base. The solvency is in the upper end of the of the optimal range. And we're confident on the prospects of the group. And despite that being a loss-making year, we're paying a dividend which should be seen as a very positive sign. But it does reflect the fact that it was a loss-making year. We have to take account of that. Now that said, we retain the capital to be able to write all the business that we want to be able to write. And we continue to execute upon our plan, upon our strategy, and we have the capital to do that. We're confident that the performance in 2023 is going to benefit from the strong tailwinds that François mentioned. So we've got the flexibility in terms of the capital and our cash position. Solvency is in the upper part of the range. Our liquidity is strong, as I mentioned earlier, at EUR 2.8 billion. And on the rating side, we always seek to maintain a AA level of security, and we're working on returning to the AA- badge from the rating agencies. So the dividend approach, it captures all of these aspects. And we think in that light, it's an appropriate and strong dividend.

Frieder, for the second question.

Yes. I presume the question relates to the longevity transaction, which we have announced on the 30th of November. This is a deal which is very similar in structure to what we have been writing in previous years. So this is a pure longevities work under which we assume biometric risk only. So it's not an asset transfer structure. Therefore, it doesn't lead to an immediate inflow of the large amount of assets, but instead to a continuous stream of expected positive cash flows over time. These structures usually are very value accretive. Longevity is a line of business which is diversifying very well with our large in-force mortality business. So this is contributing very well to our strong VNB in Q4 and in 2022, in general. The Life business has booked more than EUR 400 million of VNB and that is part of the new business value, which we have disclosed today. The immediate earnings impact under IFRS 4 is much more modest under IFRS 4 and these expected profits are spread out across many years over the lifetime of the treaties.

Our next question comes from Freya Kong with Bank of America.

My first one is, could you help me understand the extra 10 or so points of assumption changes you've taken in Q4 on the solvency ratio? And overall, how do I conceptually reconcile the fact that you've had reserve releases on your life book this year, but you've also strengthened assumptions for life in your solvency ratio. I just don't quite understand this. And my second question is active in-force management contributed positively to your Life technical margin. Could you help me split this out its contribution for Q4 and the whole year? And what is the pipeline of scope for further in-force management over the coming years?

Thank you. So on the solvency, Fabian.

Yes. So the assumption review and model changes that we did really late on the first one that you identified correctly on P&C reserve increases, roughly 10%. And then the rest is we went through all our modeling system on the Life side as preparation for IFRS 17. We increased and sometimes our capabilities to model certain cash flows. We strengthen our assumption. We built in more resilience, and that's the contribution from the Life side. Big part of this was already done in Q3, and there's a bit of a true-up in Q4.

And just a comment on the reserve release in Q3, that's only visible under IFRS 4 and doesn't have any impact on the solvency to best estimate liabilities to the second part of that question, François.

Frieder, on the active in-force management.

We constantly work with our clients to improve the performance of our in-force portfolio, including particularly those pockets of business where performance is below expectations. We don't report the financials of this separately at this point. But just to give you a bit of flavor what this means, this can relate to restructuring in-force treaties in agreement with clients. It can mean us increasing premium rates to a level where the profitability reaches our targets again. And in some cases, this can lead to clients choosing to recapture the business because they don't want to accept -- cannot accept the terms which we are offering. And we are reasonably neutral in those cases to clients recapturing or accepting higher premium rates. As it happens in Q4, we've seen a few recaptures, which means that underperforming business is removed from our books. It leads to improved performance of the remaining business going forward. And it's also the main driver of the decline in the gross premium, which we have disclosed today.

Okay. Can I follow up? Or is that allowed? Just on the recaptures and how often you reprice the business on the Life, is this an ongoing business as usual efforts? So is there a pipeline that we can expect to come in the future years?

Absolutely. This is a core part of our activity. We have a very large in-force book. We've been managing our in-force business very actively over many years, and this will continue to be an important feature of how we manage and improve profitability of our business going forward.

Our next question comes from Vikram Gandhi with Societe Generale.

It's Vik from SocGen. A couple of quick ones from my side. The first one is really on the regulatory/model changes. I see quite a high impact in the fourth quarter stand-alone when I compare this to the disclosure at the 9-month stage. I think it amounts to almost 8 percentage points of benefit so that the ex-model changes in fourth quarter, the solvency ratio would have been 205%. I wondered if you could explain what drove this and what are the key moving parts there? And secondly, I'm sorry to go back to the dividend, but I just wanted to understand why EUR 1.4 was the right number. I mean, how did the group arrive at that number, okay, broadly in line with consensus, but anything beyond that would be very helpful.

On the first question, Fabian?

Yes. On the model changes, there's 2 components. The first one is really relating to assumption reviews and others. So this changed in some sense the way we deal with the asymmetries that we have in our cash flows in the internal model, and that increased the SCR -- decreased the SCR. The rest is more, the very normal model changes that we do every quarter. This year, specifically, we improved the operational risk in an area. So that's the usual pluses and minuses we have there.

And on the dividend, Vik. I can only repeat what I said before in that we have a strong capital base, but we need to take account of the fact that in 2022, it was a loss-making year. We take into account all of the factors of the position, but I don't think I've got anything more to add than I said before.

And just to add one point on this, to be clear, as was the proposal of the management and the Board that unanimously proposes this level of EUR 1.4.

Our next question comes from Kamran Hossain with JPMorgan.

Two questions. First one is just on, I guess, S&P capital. I think it's very clear that you said you want to get back to AA-. Can you maybe outline how you're going to get there? Because I think it's a combination of a few things from my side, I guess it's the operating performance improving that, but also capital where I think it's probably fair to say you slipped below the AAA that you needed to have the AA. Just wondering kind of how you get there and how long do you think that might take. The second question is something I asked at the time of renewals. I don't think I quite got the full answer. And I don't know if we've kind of talked about this about normalizing for manmade. But is the right starting point for 2022 as a combined ratio on a normalized basis, something like 97%, the 2.5 to 3 points from that basis. Just trying to understand how we square the EUR 101.5 million in Q4 on a normalized basis versus the consensus that looks like it's at kind of 95% and a bit for 2023?

On the first question, Ian.

Yes, thanks. Yes, the -- I think the first thing is, Kamran, that we always seek to provide a AA level of security to our clients. The rating given to us by the agencies, that is down. But that is what we plan to do. And we do seek to get the rating back. Now we are, as we said earlier, we're very focused upon executing our plan, and that's what will drive the return to the AA rating. We're focused upon the operating performance. We know that we have the strong tailwinds on the P&C side, on the investment side and within Life and Health. And we have a clear plan to revert back to that rating. It does take time, but it's within our plan.

With regards to your second question, Kamran, the guidance we provide is EUR 95 million. It remains so. We haven't reached our targets in 2022. As you saw during the renewals on January 1, we took significant actions to improve the profitability of our portfolio. And therefore, we have much higher confidence of being able to reach the target of EUR 95 million.

Can I just follow up and just ask, I mean do you think you ended the year kind of close to 95% if you did normalize out for everything? I know you do a normalization, but as you said, there's a bit more manmade. There's some other attritional bits and pieces going on. But do you think that's the right exit rate to look at?

We're close to that. Yes. We're between 95% and 96% right now.

Our next question comes from Will Hardcastle with UBS.

Just a very quick follow-up to that very final comment, actually. The 95% to 96%, you said as an exit rate now. Just to be clear, is that before the 2 to 3 points taken off or after the 2 to 3. Obviously, not all of the 2 to 3, sorry. The proportion of 2 to 3 that comes off in the year. The main question I wanted to ask was just on Solvency II and the interest rate sensitivity. It looks like down 50 bps is now an 8-point sensitivity, materially larger than the 14% from last year. I guess is this simply higher interest rate starting point helps reduce that sensitivity or is it more specific portfolio management action taken? And if the latter, is there any plan to do any more of this. I am putting that in the context of where Solvency II ratio is today?

Fabian?

Yes. On the sensitivity, you correctly said that they went down. There are two effects. The level effect of where we are with the interest rates contributes roughly half of it. And the other effect is really our assumption on the liability side, how we model the cash flow contributed the other half. So overall, I think we are happy with where the sensitivity stands and we have an unchanged ALM position on the -- yes, that's all that we can say.

Going back to your question on the net combined ratio. As I said, we're working towards the 95%. The answer I provided relates to the 2022 years. And the improvement we achieved at the January 1 renewals gives us more comfort of reaching that 95% target.

Our next question is Teik Goh with RBC.

Two questions on Life and Health, please. The first one is just going back to your comment about building into the resilience ahead of IFRS 17. Is this related to the late reporting of mortality claims? Or are they two separate themselves together or any more details there, please? And the second one, again, given the strength in the life cycle margin for Q4, would you say that 8.2% to 8.4% is still the right way to think about going forward?

On the first part of the question, the building in of resilience, Derald, it's taking account of the past claims. We take consideration of the future claims profile and we've built in resilience as a result of that as we prepare for IFRS 17.

Can you say which lines of business is it related to? Is it presumably, it's in the mortality part? Is it U.S. mortality? Or is it U.K. longevity? Any more details you can share, please?

This is principally on the mortality book.

Frieder, on the second question.

Yes. Obviously, our -- the technical margin last year has been stronger than what we have expected when we provided guidance for 2022 at the end of 2021. There have been one-off impact, in particular the release of the [ PADs ] in Q3. But even if you strip this out, performance of the business has been better, much stronger than what we had expected at the time. So we see the business being on a really good trajectory. It's a bit too early to provide KPIs for this year. As Ian said, we'll do this in early April when we disclose our expected KPIs for 2023 on an IFRS 17 basis. So we'll speak about this and discuss it at that time.

Our next question is Ashik Musaddi with Morgan Stanley.

Just a couple of questions on solvency. I mean if I look at the Slide #14, I mean, there are a couple of line items, assumption review and others and assumption changes and experience variance. I mean this totals to be about EUR 2.6 billion, EUR 2.7 billion, which is 60 points of solvency ratio. I mean, how do we get a bit of confidence that this is not going to happen again because it's not a small number, it's a big number, 60 points. So that's the first question, what confidence you have? The second one is, if I look at the new business contribution and expected in-force contribution, the amount of solvency you are added on these 2 bases, which I would believe it's kind of recurring in nature is 40 points roughly. I mean that sounds quite high compared to what all the other insurance companies print in these lines. So would you say that these assumption review and assumption changes are mainly coming because of high level of these numbers like new business contribution or expected in-force or it has nothing to do with each other. So yes, I guess I'm just trying to understand how to think about solvency ratio because, I mean, it is an important part of your dividend policy. So yes, that's just a couple of questions interlinked.

Sure. Happy to talk them through. Maybe we start with the new business contribution and the expected in-force contribution. I mean, new business really reflects what we have written as business in 2022. [indiscernible] on the longevity deal, but we also have written in expectation positive business on the P&C side that contribute to this. The number is slightly higher than in the past years, but it's a very similar number that you have seen. The expected in-force contribution for us is meaningful because we have higher risk margin, and there is quite a mechanical runoff of the risk margin into this expected in-force contribution. Then when we look at the assumption reviews. I think we need to really see that in the context of our preparation of IFRS 17 and the resilience that we built into the balance sheet going in this. So these are nonrecurring items that we did in 2022 to prepare IFRS 17. A bit more specific, if you look at the EUR 1.8 billion, I mean, the bulk of this was already booked in Q3. EUR 1.3 billion relates to the P&C experience. This is very similar to what we have seen in IFRS 4, just the excess claims. There's a bit of a valuation difference between Solvency II and IFRS 4 on P&C, but not very different. EUR 500 million relates to life and they're coming from 3 different elements, broadly in the same order of magnitude. One thing is building additional to the assumption that we split out resilience. And this is the main driver of the Q4 results. The second one is some non-COVID claims, excess mortality. We see a correlation between when we have COVID claims and on our non-COVID claims. So this is very related to what we have reported in Q1. And the third element is a difference in valuation of our in-force management between Solvency II and IFRS 4 that Frieder also talked about.

Fabian, those [indiscernible].

Yes.

Just going to assumption review again. I mean, what is Solvency II has to do with IFRS 17 because I thought it's 2 different regimes. So are you changing some -- I mean, for example, one of the insurance companies mentioned that they are moving some reserves from, say, management buffer to best estimate. Are you doing something like that and because of which you have taken this assumption review or I'm just trying to understand what is the link between IFRS and Solvency II here?

The valuation basis between Solvency II and IFRS 17 will be for us, very, very similar. Our underlying biometric assumption, our liability projections will be the same. So that needs to be seen in this context.

But that's what I'm trying to understand. So what is to do with here? Are you saying because you are aligning Solvency II to IFRS 17? Maybe we take it offline, but anyways thanks a lot.

Next question is Vinit Malhotra with Mediobanca.

Just I wanted to just come back on the in-force actions into Life, which you said to, I think, [indiscernible] earlier that this should continue. I'm just curious, there have been so many quarters since the pandemic began that you beaten these -- your technical margin targets. Are you just -- are you reviewing those? I mean also IFRS 17, [indiscernible] and force us to rethink how they're done. But just generally, is there any benefit you think you're getting from a topic that came up earlier as well of accelerated COVID mortality. So I'm just quite curious to hear your thoughts on this high technical margin level, which keeps coming back, keeps beating your target. And I'm just curious to hear your thoughts because it can't just be one quarter and an good quarter. It's several good quarters over a period of time now. I am just curious on that. And second thing is back to the manmade losses, is there -- I mean, do you see that -- I mean, you said they were one-off. But also that given that there are changes to your retro programs presumably. How do you think of the risk that some volatility from man-made remains in the P&L? Or are you working to reducing that or [indiscernible]. So any thoughts on that.

So, Frieder, on the first question. I will jump on the second one.

Thanks, Vinit. There is no real direct link between in-force management and COVID experience we have booked. Our in-force management program is something which has started well below the -- before the pandemic. Sometimes this -- it can take quite some time in order to get to a resolution on underperforming businesses. So this is not something which just happens in the same moment. So we've certainly seen an acceleration of the positive impact of in-force management actions, which we have taken over time and which are now accumulating. I hope that answers your question. The line wasn't very good on our side, but...

Yes, I was just wondering if these have some sustainable life ahead of them in the sense maybe now consensus is taking to your guidance of just about 8% technical margin, but you would routinely beat that number. So I'm just looking forward if any sustainable -- somewhat sustainable trends that you're seeing or expecting from the Life technical.

Sorry, Vinit. The line is really not quite good on our side. If you could repeat your question, maybe speak up a bit?

Okay. Let me try again. Sorry, I'm just curious if the Life technical result would see more benefits in the future from some of these actions. So in other words, are we being not enough bullish on Life. Consensus is sticking to the guidance of just over 8% kind of range. So I'm just curious on how optimistic can we be?

Thank you. Yes. I mean, as I said before, this is definitely an ongoing part of our activity, something which we have built up and accelerated, and that is bearing more and more fruits. We've got a large in-force portfolio. So managing our in-force book and improving performance of all lines of business is becoming an increasingly important part of our activity given the size of our business. So that is definitely an ongoing activity, and it will remain an important feature of what we'll do in the future. And if anything, it will become more important.

[indiscernible]

Vinit, regarding the claims activity that we've seen on the manmade side in 2022 and notably in energy, as Jean-Paul was saying. We view it as largely exceptional. Energy is the line of business where we had very good results in 2020, 2021, very low loss ratios. In 2022, we've seen very specific factors come into play with a frequency of loss that probably has something to do with the maintenance operations during the pandemic that were not as well oiled as before. We've seen human errors that are probably down to some of the training programs during the pandemic, not being postponed. And the severity of the claims, which has been largely business interruption claims has been affected by the very specific tensions in the global supply chains that we've seen in 2022. So we see it as largely exceptional. That being said, we are taking action on the underwriting front, adjusting some of the line sizes that we have, increasing deductibles, reducing indemnity periods for business interruption and also it's a line of business we are following these claims on the market in 2022. We're seeing significant rate increases.

Our next question comes from Thomas Fossard at HSBC.

First question would be on the dividend again and the funding of the dividend. Can you shed some light on cash flow remittances because how is this adding to the [indiscernible] in order to pay the dividend. The cash flow has been significantly impacted in P&C and Life this year. So I would have expected it to be -- to create a drag on how much you could upstream to the [indiscernible]. So can you help us to understand how things are working on that front? The second question will be, for example, about upcoming renewals. I think that at 1/1 report, you indicated that you were expected the level of pruning that you did at the start of the year to be less significant in April and midyear renewals. How does that translate at the present time in terms of GWP expectations for 2023. I know we're going to change KPI as well on this side. But any hint on if we should still be looking for flat or something which will be slightly down. And maybe François, with your former hat, is there any need to change the guidance in terms of investment income yield to point at 3.2% given the current prevailing regular yield environment?

First question, Ian.

Yes, sure. So on the first question, the group liquidity is strong. SCOR SE liquidity is strong at the holding and there's positive cash generation from the operating activities that you've seen with a strong cash upstream from the entities to the holding. So there's the appropriate level of fungibility in the structure of the group. So no specific issues there.

On the second question, Jean-Paul?

With regards to the renewals, yes, we started to take already strong actions at April 1 and then June, July 2022. So we don't expect the same amount of, I'd say, dramatic changes to take place in April, June, July. In terms of volume, we will really be dependent on how successful we are in pushing our terms. So again, volume is not the primary objective. It's really profitability. And I'd say projections are roughly flat plus down or up, depending on how successful we are.

And on your third question, Thomas, I reassure you, it's not my former hat. I'm still in charge of the investment portfolio. We have a regular income yield in Q4 of 3.1%, of which we have 20 basis points of one-off effect for 10 basis points that's linked to certain assets previously not part of the invested assets group that has been included in the context of the IFRS 17 preparation. And for 10 basis points, we have accounting effect on specific loan instruments. So if you normalize from the 20 basis points, the regular income is at 2.9%. So that's why I maintained the expectation for 2023. Again, regular income yield between 2.8% and 3.2%. I don't change it at this time.

Our next question comes from Benoit Valleaux with ODDO BHF.

Just a follow-up, sorry, regarding your guidance on regular investment yield. You said normalized Q4 was a 2.9% and you're targeting a midpoint at 3.0% despite [indiscernible] responded at 4.9%. So I don't know if you can help us to reconciliate, I would say the very moderate increase expected this year? And also, could we expect a slight increase in return on funds withheld this year? And second question, maybe just on tax rate, which has been quite high in Q4, if you can comment on what could be for your kind of normalized tax rate for this year?

Benoit, so on your first question. So again, the definition of the reinvestment rate, so at 4.9%, that's the market yield of the fixed income portfolio at the end of December. So if we already deploy EUR 1 of cash with the same asset allocation, it will earn or bring to SCOR 4.9%. So again, given the redemption we've got on the fixed income portfolio and an assumption of -- based on the forward rate, again, I maintain the guidance or the expectation for 2023, as mentioned before. Maybe on the fund withheld, Ian and on the tax.

Yes. On the funds withheld, you might expect a small increase. This isn't going to be material. I wouldn't particularly consider that. On the tax rate, look, Q4 was a strong quarter. We've been executing upon our plan and that brings flexibility. We've taken a prudent stance not to recognize new tax assets on losses occurring within certain French legal entities. And that helps prepare for the future. The tax losses carry forward. These are not lost. They're evergreen. They can be reactivated if appropriate. So this is one of the actions that is helping to build resilience into our balance sheet.

Okay. And what could be a normalized tax rate for this year in your view?

The underlying tax rate was in line with the geographic rate mix and in line with our previously disclosed targets. In Q4 stand-alone, the underlying rate was around 19%.

We will return to Vikram Gandhi with Societe Generale.

Two real quick ones. Firstly, can you remind us on the liability duration and the duration gap the group is running? And second was on -- just going back on the recapture for Life Treaties, I'm assuming that should be beneficial for solvency, but it would be great if you can confirm that's indeed the case.

On the first question, on the ALM, we have no ALM gap under Solvency II accounts, which are framework for ALM. So the duration that you see on the fixed income portfolio is the duration corresponding to a strict application of our ALM policy.

On your second question, it really depends. There are very different constellations, which are possible depending on which assumptions and which cash flows we are projecting for those situations where clients would capture business. So there's not a one-size-fits-all answer. It really depends on the situation.

And ladies and gentlemen, that does conclude today's question-and-answer session. At this time, I would like to hand the call back to 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 questions you may have. So please don't hesitate to reach out. As a reminder, SCOR will hold an IFRS 17 session on the 12th of April and its Q1 results presentation on 12th of May for the first time under the new IFRS 17 standard. The Annual General Meeting will be held on the 25th of May and the Investor Day will be held on the 7th of September. I wish you good afternoon.

Good afternoon, everybody.

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