SCOR SE (SCR) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the SCOR IFRS 17 Update Conference Call. Today's call is being recorded. [Operator Instructions] At this time, I would like -- now like to hand the call over to Mr. Yves Cormier. Please go ahead, sir.

Good afternoon, and welcome to the SCOR IFRS 17 Update Conference Call. 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; Ian Kelly, CFO of SCOR; Fabian Uffer, CRO of SCOR; and Redmond Murphy, Deputy CFO of SCOR, in charge of the transition to IFRS 17. 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, everyone. I'm very pleased to welcome you today. This call is focused on SCOR's financial assumptions and targets under IFRS 17 for 2023. I'm convinced it's an important milestone for the industry and more particularly for us as we shift to a new paradigm. After my introduction, I will leave the floor to Ian, who will present our starting points and take you through more details on P&L and economic value consideration. Today, I want to share with you 3 key messages. First, in the wake of Solvency II in 2016, the transition to IFRS 17 this year validates SCOR's strategic choices and reveal the full value of its portfolio, especially in Life and Health. IFRS 17 is a new referential that reflects the value of the group's risk portfolios more accurately. Second, SCOR has clear priorities and is focused on delivering on its commitments. This translates into credible 2023 financial assumptions under IFRS 1. And third, under this framework, SCOR defines its financial and solvency targets and an updated dividend policy for 2023. My first message, the transition to IFRS 17 validates SCOR's strategic choices and reveal the full value of its P&C and Life & Health portfolios. The first step was made on the 1st of January 2016 when the Solvency II prudential regime entered into force. Solvency II recognized the value of the internal model and the diversification effects derived from it. At that time, the group was the first reinsurer to have its full group internal model approved by the supervisors. SCOR's pioneering solvency scale still provides a well-defined framework to actively steer the group's solvency ratio towards its optimal range. And we established our dividend policy based on the solvency scale. Today, we are making a second step as we move to a new accounting framework. We are disclosing our starting point in this new referential, and Ian will explain how we get there through 2022 comparatives. But more importantly, it reflects the value of the group's risk portfolio more accurately. It finally captures the full economic value of our Life & Health business. Let me tell you my strong conviction, IFRS 17 provides a new benchmark for the valuation of the group. SCOR's economic value per share stands at around EUR 48 at the end of 2022. That's why the group targets its economic value growth as its new financial priority. My second message, SCOR has clear strategic priorities set for 2023 and is focused on delivering on its commitments. This translates into credible assumptions for this year. For P&C, the group leverages the continued hardening of the reinsurance market to improve the expected profitability and the risk return of the portfolio. We assume up to 2% growth for the P&C insurance revenue, a combined ratio of 87%, of which 10% relating to the nat cat budget and a new business CSM of EUR 750 million. For Life & Health, given the normalization of the pandemic, the group is in a position to leverage on its leading positions to grow its economic value. We assume here a growth of 2% to 4% of the Life & Health Insurance revenue and insurance service result of EUR 450 million and the new business CSM of EUR 450 million. For investments, the high-quality fixed income portfolio benefits from high reinvestment rates, and this will translate into an expected regular income yield of 2.8% to 3.2%. Finally, for the organization, the group pursues its transformation and simplification. We assume a 7.1% to 7.3% management expense ratio which is now calibrated as a percentage of total insurance revenue. And we are on track to deliver EUR 125 million recurrent efficiency gains on management expenses by end of 2025. The reinsurance industry has reached a tipping point for our 3 businesses. In this supportive environment, SCOR is in a very strong position to benefit from strong and favorable tailwinds. Our return on equity is a return above 1,100 basis points over the risk-free-rate. And if we achieve all the assumptions I've just mentioned, we would be comfortably above that. Third message. SCOR defines today new targets and an updated dividend policy for 2023. Starting with the targets. They are based on the financial assumptions that I've shared with you and reflect the focus on economic value growth. The group has set 2 equally weighted targets, the financial targets and economic value growth rate of 700 basis points above the risk-free rate between '22 and '23 at constant interest and foreign exchange rates. The solvency target, the solvency ratio in the optimal 185% to 220% range. In '23, the solvency ratio is expected to continue to stay in the upper part of the optimal range. The choice of these targets speaks for itself, but I will insist on 2 points. We strongly believe that IFRS 17 is an opportunity for the group to better demonstrate its economic value. And there is a much stronger alignment between these 2 targets, one under Solvency II, the other one under IFRS 17 than we used to have under IFRS 4. Now moving on to the dividend policy for 2023. The updated dividend policy reflects this new paradigm and is consistent with the group's historical approach. We aim to offer a resilient, foreseeable and predictable dividend. Let me remind you what I said during our Q4 call. The dividend paid in 2023 is not a reset. So when we refer to a resilient, foreseeable and predictable dividend, one should look at a longer time period. SCOR aims through this dividend to distribute to its shareholders a significant portion of the economic value created over the cycle. I have presented to you our assumptions, our financial and solvency targets and our dividend policy, all of them go in one direction. We allocate capital based on economic value. We see underwriting and investment based on economic value. The group targets its economic value growth as its financial priority. I will now leave the floor to Ian who will present our starting points and take you through more details on P&L and economic value consideration.

Thank you very much, François, and good afternoon, everybody. We can now move to the P&L and economic value presentation to share with you our assumptions for 2023 and walk you through what becomes our reporting standard under IFRS 17. Under the new accounting framework, we introduced new metrics in the P&L presentation and the elements in blue are the key assumptions, which are really going to help you build up how we would expect the P&L to look. And then the elements in gray, these will provide the additional data points for you to be able to fully build your model. So running through them, the insurance revenue growth is projected to be up 2% for P&C and 4% for Life. Insurance Service result on the P&C side has a combined ratio assumption of 87% and a cat ratio of 10% within that. And the life insurance service result assumption is for EUR 450 million per annum. Regarding investment income, which comes on top of the Insurance Service result, income yield is at 2.8% to 3.2% for the year, and management expense ratio is at 7.1% to 7.3% for the year. Overall then, our return on equity assumption is a return above 1,100 bps over the risk-free rate. And I want to reiterate what François said, if we achieve all of the assumptions that we just noted here, we would be comfortably above that. In addition to the profitability view, economic value growth is now playing a central role in measuring the development of the intrinsic value of the group. You can see on the slide, the 3 areas that will impact the economic value growth; insurance activity, including the new business CSM and the release of the risk adjustment which represents cost of capital to cover the uncertainty on the amount and timing of future cash flows released as insurance services fulfilled. Then the investment income and expenses, and then finally, other areas, including, say, the cost of financing. Economic value growth reflects not only the results for the current year, but also the net value creation related to the year's underwriting activity through the generation of new business CSM with strong contributions from both Life & Health and P&C. SCOR will publish the evolution of its economic value each quarter, showing the split between the shareholders' equity and CSM. For 2023, SCOR targets the economic value growth rate at 700 basis points above the risk-free rate at constant interest and foreign exchange rate assumptions. Let's look more into the detail of each of the business units, starting with the P&C key assumptions for 2023. Insurance revenue growth of between 0% and 2%, gross P&C insurance revenue stood at EUR 7.4 billion in 2022. It is worth noting that insurance revenue is lower than gross written premium due to the netting of reinsurance commissions. A combined ratio of 87%, of which 10% relates to natural catastrophe budget. These are directly equivalent to the 95% and 8% assumptions, respectively, under IFRS 4. There is a new line introduced outside of the combined ratio, the insurance finance income and expense, which represents the unwind of discount of insurance liabilities and has an offsetting impact with the claims discount factored into the P&C combined ratio. The expected CSM generation is at EUR 750 million through new business. And given the shorter-term nature of the P&C contracts, this will amortize quickly into the P&L. The contractual service margin is a fundamental concept introduced by IFRS 17, and it represents the earned profit, which is amortized over time and also applies to P&C business through the -- and applies to the P&C business, although the business is short tail in its nature. Just looking at the combined ratio in more detail, the mechanical impacts driving the reduction are related to, firstly, the change from net earned premium to net insurance revenue, then the discounting of claims and expenses and then a different view on the scope of expenses. Overall, the discounting provides a more economic view of the P&C underwriting experience. On Life & Health, the introduction of CSM is a key change, reflecting the future profits of the portfolio. Overall, compared to IFRS 4, we would expect an uplift in Life & Health earnings driven by the earlier recognition of profits through the release of the CSM, the stock of which we would expect to amortize at around 8% per annum. This leads to an insurance service result assumption of EUR 450 million for 2023. We can expect that the insurance service result is more volatile than the IFRS net technical result. Economic value creation, as stated, is now the relevant metric for describing the development of the portfolio. Moving now to expense management. IFRS 17 enables a better assessment of attributability of expenses within SCOR's cost base with clarity over the split between those costs attributable to the business and those attributable to corporate and other management expenses. The resulting group management expense ratio under IFRS 17 is in the range of 7.1% to 7.3% of insurance revenue. Again, this is a mechanical conversion of the previous cost ratio that we had under IFRS 4. Based on the assumptions we have just seen, the changes introduced by IFRS 17 result in a mechanical uplift on SCOR's ROE of 200 to 300 basis points, and we are comfortable we will deliver above this. This is the result of 2 opposite effects: an increase in net income due to the uplift in Life & Health earnings and a decrease in shareholders' equity compared to IFRS 4 that is related to measurement differences. As economic value becomes a key referential, let's now look at the evolution across 2022. The economic value has been impacted by the business performance which, as expected, under an economic measure is broadly in line with Solvency II and what we described at the year-end. On top of that, there is a higher sensitivity to market variances. This is because the lower risk adjustment compared to risk margin reduces the liability duration under IFRS 17, increasing the interest rate sensitivity. This results in an economic value of EUR 8.7 billion at the start of 2023. This is now our key referential, our key start point from which we expect strong economic value growth as outlined, following all the actions undertaken in 2022 to restore profitability and prepare the balance sheet for the forthcoming year. Splitting this economic value between equity and CSM, we see strong growth during the year with significant new business CSM from both business engines, exceeding the unwind of CSM into the P&L. Equity is impacted by the business performance and includes the elements of the 2022 eligible own funds walk disclosed at the year-end. In addition, the market variances I just mentioned and capital management actions. We believe that the actions take last year -- taken last year provide a sound base for the development of the franchise which, combined with the favorable tailwinds give us confidence in our ability to grow our shareholder equity and overall economic value across Q1 and the remainder of the year. Going forward, we will report under this new IFRS 17 standard framework presented today, which brings benefit in more appropriately reflecting the true economic value of the group with a starting point as of the 31st of December 2022. With that, I will hand back to François for the conclusion.

Thank you, Ian. Before we move to Q&A, let me summarize the key messages of our presentation today. First, the new IFRS 17 standard reflects the economic value of the group's risk portfolio more faithfully, particularly for Life & Health reinsurance. The new referential confirms the relevance of the strategic choices made over the past years. Second, SCOR has clear priorities and is focused on maximizing the benefits from the market tailwinds. This translates into credible 2023 financial assumption that we feel comfortable to achieve in the current environment. Third, the transition to IFRS 17 constitute a quantum leap for the reinsurance industry and more particularly for SCOR. Under this new paradigm, SCOR defines new financial targets for 2023 and an updated dividend policy. SCOR's economic value per share stands at around EUR 48 at the end of 2022, and my strong conviction is that this should be the new benchmark for the valuation of the group. We steer the company and the business based on economic value and we target economic value growth as a financial priority. Looking forward, our next milestones are the same I shared with you a month ago. We are looking forward to presenting the outcome of our April and our Q1 results on the 12th of May. The Executive Committee and I are ready 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 Léger at the General Assembly on the 25th of May. The strategic plan itself will be presented at SCOR's Investor Day on the 7th of September. Let's now move on to the Q&A. Over to you, Yves.

Thank you very much, François. On Page 25, you'll find the forthcoming scheduled events. With that, we can move to the Q&A session. Can I please remind you to limit yourself to 2 questions each?

[Operator Instructions] We do have our first question that will come from Andrew Ritchie from Autonomous.

Thanks for the presentation. It's very helpful disclosure. Can I just ask on the dividend policy? François, you used the term that it was updated. And I think the slide refers to dividend policy in a new paradigm, but I'm struggling to see how it's updated or different from what you said at Q4. Maybe, you're trying to encourage us to look at the economic value creation rather than IFRS net profit as something you're going to consider, albeit, I thought you -- is that what you're trying to suggest? I mean obviously, the economic value creation should be consistently higher mechanically than the IFRS net profit? Is that the new angle that you're trying to convey? I'm just not clear if you could help out on that point. The second question, the CSM new business, I'm thinking particularly for Life & Health, that's -- new business in Life & Health is often very lumpy, particularly with large deals. So is that EUR 450 million of CSM new business? Is that sort of a sustainable run rate, excluding any noise from large transactions or large transactions could come on top of that? How do I think about that?

I will answer to the first question, and then Redmond Murphy will answer to the second one. Let me clarify, I like what you said, new angles on the updated dividend policy. First, as I said during the Q4 call, there is no reset of our dividend level in '23 -- I mean, the dividend paid in '23 for '22. So the EUR 1.4 paid in '23 is not a reset. Two, and that's new. As stated today, we want our dividend to be resilient, foreseeable and predictable. Economic value growth and its drivers are taken into account but with no fixed payout ratio. And four, this updated dividend policy for 2023 is fully consistent with our long track record of paying dividends.

it's Ian here. On the second point, Andrew, in respect of the CSM generation, yes, broadly, we would expect our stock of CSM to be growing, and the figures we've provided are on the basis of a sustainable growth plan that we have with strong contribution from both of the business engines and a strong level of CSM generation in 2023, of course. The -- in terms of the evolution or the variability of it, you're right, on the Life side, this will depend upon the economic environment. Higher rates will lead to lower present value of cash flows, for example, but also leads to -- it also depends upon the particular opportunities that we have. For example, on the longevity side, we've seen historically that there's been some sizable contracts lumpy in nature, if you like. And so that in the future could bring some variability. But certainly, what we're providing today, we feel is a strong sustainable plan.

We'll move next to Tryfonas Spyrou from Berenberg.

Thank you for presentation, really helpful. I have 2 questions, both on Life & Health. The first one relates to the CSM amortization run rate EUR 50 million. Can you perhaps help us understand better how is this compared to the previous IFRS technical result and how much higher is the run rate? And secondly, how would management actions such as recapturing of business would manifest in earnings going forward? Would that be part of that run rate? Or would that be on top? And the second question is on the Life & Health charges you took upon transition to IFRS 17, specifically relating to assumptions with you. Can you maybe share some thoughts on what do these relate to specifically -- any of these relate to your mortality? And what are the key drivers behind this?

So the first question, Redmond?

Yes. I'll start. Just in terms of reviewing the technical performance between IFRS 4 and IFRS 17. I think it's important to kind of consider that the technical results between the 2 bases is not really directly equivalent. On the IFRS 4 basis, we're looking on a gross of expenses approach. And for IFRS 17, it's net of attributable expenses. If we look at 2022, though, and we normalize the technical margin, we come to Life & Health technical results of around EUR 640 million. Then when you make the adjustment for attributable expenses, you get to a level which is just below EUR 400 million. So that compares to the guidance we're providing today of around EUR 450 million. So you can see there that we're reflecting the uplift that Ian and François have talked about from the accelerated amortization of the Life reserves. So hopefully, that answers the question. Ian, I think you're going to pick up on management actions.

Yes, sure. On the management actions, under IFRS 17, these were mostly emerged through the CSM with recognition coming through the P&L via the CSM amortization over the lifetime of the contract. And that's a key difference to IFRS 4, where the impact is recognized upfront in the P&L. And then in respect of your second question, on the review of the assumptions, we talked about this in our year-end results in preparation for IFRS 17. We undertook some in-depth work to ensure that the assumptions were fully up to date and taking into account historic cash flows, future cash flows. And we looked at this to help build additional resilience into the reserves. And we took these actions across both Life and P&C, in fact, during the course of 2022 for the benefits of the future P&L. And I think this really puts us in a strong position as we look forward into 2023. It is something that, as I said during the speech, gives us a strong platform. It reduces the potential for future negative experience variance and is a positive step. And you can see the details. If you go back to the year-end presentation of the eligible own funds walk, you will see the information there in respect of the actions that we undertake.

We'll hear next from James Shuck from Citi.

So two for me. Firstly, in terms of the 700 basis points over risk-free growth that you're targeting in economic value for 2023. Could you just confirm if you've included any economic impacts in that, so movements from macro effects? Or is it just a purely normalized number? And if you're able to just give any insight into the macro sensitivities for the economic value and how that compares to Solvency II, that would be helpful. Because, obviously, it's a key measure of value creation, so being able to mark that to market is quite important for us. Secondly, on the Life & Health reinsurance result. So you're guiding towards a EUR 450 million under IFRS 17. I scribbled down some of the numbers you said in answer to the previous question. I wasn't entirely sure I followed them, but I could always follow up. But I guess my key point is, is the new guidance consistent with the technical margin guidance you've given under quantum leap of 7.2% to 7.4%. Or is that now a kind of lower number?

Ian, on the first question?

On the constant economics, the assumptions reflect the economic situation as at present, but we will report in future growth on constant economics so that you can really see how we focus upon the underwriting actions that we've undertaken to increase economic value.

And Ian, sorry, have those been positive or negative since the year-end because we don't have the sensitivities really it's difficult to mark-to-market on our side?

The -- well, Redmond will talk through the sensitivities, and then you can apply the market conditions to the thinking.

Before maybe Redmond gets into the details of the sensitivity of the economic value to interest rate, I just want to remind you that our balance sheet today is ALM matched under Solvency II, which means we seek to immunize eligible own funds against interest rate variations. Now, Redmond will give you more details on our exposure under IFRS 17.

Yes. Thank you, François. So just to maybe start with on the interest rate side. This is where we see the significant -- the differential between Solvency II and IFRS 17. As Ian has already indicated effectively and François too that we are ALM-matched on the Solvency II side. But under IFRS 17, we have a lower liability duration basically because the risk adjustment is lower than the risk margin, and we have lower expense provisions. So effectively, what we have is we have a duration mismatch, and then we have an impact from that in the economic value. Just to give you an order of sensitivity. In aggregates, we have about a EUR 0.3 billion impact for a 1% increase in interest rates. Then on the FX side, our predominant exposure is between U.S. dollar and euro. Here, the sensitivity is broadly consistent with Solvency II. For a 10% appreciation in the dollar, you'd have about a 0.5% accretion in economic value.

And we had the second question on the Life & Health insurance results.

Yes. So I think just in terms of going back to my previous answer, not repeating it entirely, but I think the point is that we would consider that we've set our assumptions appropriately. We're comfortable that we think we can meet those assumptions over the course of 2023 as a function of the Life & Health results. CSM amortization is a large part of that. The other part comes from the risk adjustment release. And then you have a degree of sensitivity to experience variance as well, which we haven't allowed for in terms of the assumption that we've derived.

Okay. That's very helpful. Are there any COVID assumptions on the Life & Health number of EUR 450 million under IFRS 17?

The tailwinds that we mentioned, James, previously note that there is the expectation that the COVID impacts reduce across the course of 2023 from what we reported in 2022. In 2022, that was in excess of EUR 300 million of COVID claims on the Life side. For 2023, we would expect a material reduction of that, and that's reflected within the results.

We'll hear next from Derald Goh from RBC.

Two questions, please. The first one is on the risk adjustment. How do you expect the size of it to evolve? Is it a nominal amount that you're aiming for? The reason I'm asking is, just a comment on the slide saying that you expect a similar rule for the CSM, which you say is expected to grow. But then it's based on a cost of capital approach and obviously, that fluctuates with the SCR. So I'm just trying to square the 2, please. Second one is on the P&C day 1 loss. What's the drive of that? Is it just conservative reserving upfront? Or are there certain contracts in there? It seems to me that the EUR 60 million per annum is a recurring feature. Or have I understood that -- misunderstood that?

For the first question, Ian?

Sure. Just I'll start off on risk adjustment compared to risk margin and Redmond may add some additional comments before moving on to the second question as well. So the risk adjustment, we'd see that at around 35% lower than the risk margin as a result of the limited recognition of diversification benefit within risk margin and also a higher cost of capital within risk margin. So you're right, we are using a cost of capital method for deriving the risk adjustment. But the overall methodology is consistent with Solvency II. The lower cost of capital charge that we have, it's 5% compared to 6%, and we do recognize diversification benefits within its calculation. I'll hand over to Redmond on the reserve movement.

Yes. Just to speak briefly to the evolution of the risk adjustments on a year-on-year basis, it's probably helpful to distinguish between Life and P&C. You can imagine that from our risk adjustment position at the year-end '22, the substantial portion of the relation to Life business and a much smaller element in relation to P&C. So the risk adjustment release is down each year, but effectively, that's replaced by new risk adjustment, which arises over the course of the year. And so you have a natural rebuilding of the stock. The release pattern over Life is much more extended relative to the release pattern over P&C, which is relatively quick. The other thing in terms of the evolution of the stock that you have in mind is that it's quite sensitive to interest rate movements. So that can just mechanically change the level of the absence of the stock as well. Just to maybe continue then on the second question, apologies, sorry.

Sorry, just to clarify on that. So you're saying the stock of the risk adjustment may not necessarily increase over time, we should comment, and the slide seems to suggest if it were to follow the roll-forward of CSM since it's sensitive to the interest rates similar to how the SCR is?

I think if you exclude the economic effect, it broadly would. But if you look at 2022, the risk adjustment fell from EUR 3 billion to EUR 2.4 billion over the course of the year, which was predominantly driven by interest rates. But the underlying business effect would be that you'd have a replenishment of the risk adjustment over the course of each year. On the P&C side, in terms of the day 1 losses, effectively, this is a reflection of the proportion of our contracts that we consider that we'll write over the course of 2023, that would be onerous. It's fully aligned with the assumptions that we've provided in the presentation and Ian outlined earlier in terms of the combined ratio on the insurance service result. In terms of the calibration, we think that the approach we've taken here is consistent with the standard and it's an appropriate basis for the measurement of such contracts. The other thing to have in mind in relation to onerous contracts is that there will be a stock of onerous contracts in relation to previous business that's been written as well in relation to both Life and P&C. And that's -- on the Life side, that's predominantly in relation to business that would have been written quite historically.

Yes. Yes. So just to clarify, the EUR 60 million in P&C, that's mostly -- it sounds like it's mostly a 2023 effect and then it will fall away from '24 onwards. Is that a fair understanding?

Yes. But to the extent that we might again have a proportion of onerous contracts in 2024. To a certain extent, this business is where you write a small amount of business within an overall profitable relationship, which might be loss-making of itself. So the overall value to the group is positive, but you have some element of -- there's a small element of it, which is loss making. Just to give a sense that EUR 60 million is about 1% of the business written. So it's very marginal, but you might expect something like that to continue into future years as well. This is just a mechanical effect under IFRS 17. The underlying business performance and the approach to the way we manage our P&C business has not changed.

Next is from Thomas Fossard from HSBC.

The first question, I would like to come back on the new dividend policy, if I may. So François, I mean, since you are linking the DPS to the economic value and you're shooting for -- or you're targeting for a roughly 9%, 10% economic growth year-on-year. Should we apply this 9%, 10% growth in DPS as well? And also, if you can maybe reiterate your comment regarding what should be the starting base for 2023 to which we should apply this 9%, 10% year-on-year growth if you are delivering on your guidances? And the second question would be related to your guidance regarding insurance revenues. First will be on the P&C. So you're shooting for 0% to 2% growth this year. I think for '21, you reported minus 12 on the renewals. So maybe you can help us to link the 2 together. And also another question related to insurance revenues for the Life & Health business. So you're shooting for 2% to 4% growth, which seems to be, I would say, probably more ambitious growth targets than you have previously up to now, where in fact, you were I think that more looking for stabilization. So maybe you could make some comments as well on this slide.

On the dividend, I will ask to Ian to answer.

Sure. I think just to reiterate Thomas that we are not resetting the dividend level. And François has been clear in stating that we want the dividend to be foreseeable and predictable and consistent with our previous track record. So the EUR 1.4 is not a reset. On the point around the economic value connection, the policy we're describing, this is for 2023. The first step in our policy remains the solvency ratio. We expect that to be in the upper part of the optimal range. In 2023, you can see as you lay out, we're planning strong economic value growth. And we're going to pay a dividend based upon that strong solvency and our strong economic value growth. So there's no payout ratio in respect of that. There isn't a specific link of DPS growth to economic value growth. But we see strong assumptions here. And we will pay a foreseeable and predictable dividend.

On the insurance revenue question and the growth, let me just -- I have a few words before I give the floor to Redmond. P&C growth should not come as a surprise in 2023, when 2/3 of the reinsurance business has been renewed at '21. We are focused on achieving the profitability objective this year and not on volume growth. So depending on conditions in the upcoming renewals, we will take the opportunities if the pricing is right and we will keep our options open. Maybe a word on the April renewals. Market conditions continue to be very favorable and enable reinsurers to write profitable volumes. We are making the best of this condition, and we look forward to reporting the results to you.

Just then as well on the mechanical effect around insurance revenue. Insurance revenue is calculated on an earned basis. So the growth in insurance revenue also followed this earned pattern as well. So effectively, what we're seeing in 2023 is we're seeing some of the effects from the earning of the premium in 2022 coming through, and that's dampening the impact of the reduction in volume that's arisen in 2023. So that brings you back to the assumptions that we provided in the presentation.

We'll move next to Ashik Musaddi from Morgan Stanley.

Just a couple of questions I have is, first of all, you mentioned about the leverage under IFRS 17, 22%. I mean is this after the discussion with the rating agencies? Or are those still under discussion? So any visibility on leverage? And what does it mean for -- do you need -- do you think that you need any reduction in leverage going forward, given that if it's 22% leverage, then probably you don't need that? Any thoughts on that would be helpful. And secondly, if I look at your ROE guidance of north of 1,100 basis points above risk-free rate, I mean this compares with a very high number, if you use the metrics you have given with respect to combined ratio and release of CSM, et cetera. So why -- what's the reason behind giving a conservative ROE guidance at this point would be helpful to know?

Ashik, please standby. Please go ahead.

Apologies for the technical issue. We are back on the line. Ashik, please go ahead.

Did you -- so you did not hear any questions, yes?

Yes, could you repeat the question?

Yes, yes, sure. So just a couple of questions I have is, first on leverage. So you have given like 22% debt leverage under the under IFRS 17. I mean is it after the discussion with the rating agencies? Or would you say this is again very transitory at the moment and leverage decision needs to be made at a later date. What I'm trying to get is, basically, if your leverage is just 22%, then do you feel any need to delever your balance sheet in the near future? So that's the first question. And second thing is about ROE. I mean the guidance you have given 1,100 basis point ROE above risk-free, seems very conservative when it compared to the net profit number we are getting when we use the metrics you have given with respect to combined ratio and insurance results, et cetera. So what's the reasoning behind this low ROE guidance? What's the relevance of it? Because if I understand correctly, I mean, you're targeting earnings growth in the future. There are some one-offs in these numbers, which should not happen in the future. So probably forward-looking earnings will be better than worse. So what's the reason for this conservative ROE guidance?

So on the leverage ratio, firstly then, the reason that we're including CSM into the leverage ratio is that it's an indicator of future profitability and therefore, a good proxy for nonrealized economic capital. And in respect of this as a measure, and you asked about the rating agencies, Fitch, for example, they've already announced that they expect to look at a financial leverage ratio that does include the CSM and the risk adjustment in the denominator. In terms of the question around the comfort, I mean, the rating agencies are absolutely comfortable with our capital position and capital structure. The recent downgrades were not in relation to capital in any way. They were related to earnings. And we've talked through the actions that we have undertaken last year in terms of the portfolio actions and strengthening of the balance sheet to restore the profitability to the group. We've got a strong rating with a stable outlook. And so we expect no issues with the rating agencies whatsoever. In terms of delevering the balance sheet, there's no immediate need or issue to call any of the debts. The first call date that we have is October 2025.

On your question on the return on equity of 1,100 basis points. What I would like to say is that, we are providing today '23 assumptions that are credible in the current environment. So that's assumption on the business, assumption on the investment return and assumption on expenses. So as mentioned by Ian during the introduction, you should view return on equity assumption, and that's an assumption and no longer a target as the mechanical uplift under IFRS 17. So if we achieve all our assumptions on the business, investment portfolio and expenses, this assumption of 1,100 basis points could be comfortably below what we will deliver in the future.

Maybe just to add to what François has said on that assumption. This is taking place in a context where, firstly, we're introducing a new framework. And secondly, assumptions, to be clear, have not been achieved in recent years. But what we want you to get out of this call is our confidence in our ability to make all of these assumptions.

Yes. That's clear. But where I was a bit struggling is why give 2 different messages that, okay, yes, we have one set of assumptions which give you a higher number, but then we have another set of assumption which gives you a lower number? So why do we have those 2 diversions? So that's the only thing I was thinking. I mean I completely get your point that things have been uncertain in recent past and probably in the future as well given the macroeconomic backdrop, but which way would you incline more towards like ROE assumptions or all the rest assumptions, to put it like that, sorry?

I think just to reiterate, the application of the mechanical uplift is what is driving the ROE assumption. The individual assumptions that we have across each of the business units, the expenses and the investment side, that is what's going to drive the result. And that is what is giving us comfort around being comfortably above the ROE assumption.

We do have a follow-up from Andrew Ritchie from Autonomous.

Apologies, I should probably be able to work this out. But could you just give us some sensitivity around the combined ratio and the discount rate? I'm assuming the combined ratio you've given is using risk-free rates as of the beginning of 2023. Maybe just clarify that. And also a follow-up on the discount rate to the extent the risk free rate changes, to the effect on the current year will come through the combined ratio, but the effect on the stock of reserves, is that OCI? Or will that be in the P&L?

Redmond?

Yes. Just to start, Andrew, in terms of the evolution or the assumption on the combined ratio, you'll see in the presentation, we've indicated that there's a 4% discounting impact that's built in. In relation to your follow-up questions, then just to think about the way this evolves, the discounting on claims is done at locked-in rates. It's then as you add new business and you add new claims in that new business, that's discounted at the current rates, which then apply. So you start to get an uptick from an earnings perspective from the increase in rates [indiscernible] through in future P&L periods as your discounting effect increases.

Sorry. And the 4% is a reflection of level of risk free rates beginning of the year?

It's a reflection of the impact of the interest rate environment that we've assumed prevailing for 2023.

Okay. Sorry. To the extent -- I appreciate it's locked in, but there's still an effect isn't the -- no, sorry, locked in on the existing stock of reserves, so these interest rate moves -- these interest rate movements will only gradually come through effectively through the earnings?

Yes, effectively, they will. It's worth to highlight as well that the discounting effect is somewhat offset with an impact as well as the locked-in rate and the IFIE changes. But that changes with a lagged effect relative to the discounting. So you have a kind of positive effect upfront on the discounting impact changing then offset a little bit over time as the IFIE catches up.

As they begin to match, you mean, yes. Okay.

Yes, basically.

We'll move to Ivan Bokhmat from Barclays.

I've got 2 follow-ups. And if I may, 1 question, which is a short one. On the follow-ups -- sorry, on the dividend, you're talking about foreseeable and predictable dividend, but you're not actually able to tell us the starting point. I must probably press for this a little bit more. Is the EUR 1.8 from before the right starting point so that there is a resilience in the path forward from that? And the second, actually, a follow-up to the immediate question on the combined ratio sensitivities. So could you just help me understand the 4% discounting. So let's say, there's a 1 percentage move in the risk-free rate. What impact would that have on the combined ratio, just to put it simply. It may be included in your future releases, I'm sure, but if you could just help us understand, it will help. And then maybe the third question, if I may. Those assumptions you gave us, do they assume that the first quarter performance is kind of rather stable? Is there anything in what you have seen from the year so far that would have implied a different run rate?

On the first follow-up question on the dividend, Ian?

Yes. I think I would just reiterate, Ivan, that the EUR 1.4 billion that was paid in relation to 2022 or declared in relation to 2022 is not a reset. And that as François said in the introduction, you should look at a longer period of history for the dividend and that will give you an indication of our start point for foreseeable and predictable as we go forward.

Just in relation to the second question, we're not providing a specific sensitivity at the moment in relation to the movement of interest rates on the combined ratio. It depends a little bit on the business mix. The business that was written at specific points in time, the interest rate impacts that would arise. And then to the extent that you have an impact on discounting, you have this offsetting impact on IFIE as well. So we're not providing a specific sensitivity on that at this point.

The second question?

Then, yes, in respect to Q1, it's a little premature to speak about the performance of Q1. We'll be declaring our results in May on an IFRS 17 basis. But we've talked about the favorable tailwinds for the group. We've talked about our confidence in our ability to deliver upon the assumptions that we've laid out. And this applies for the full year of 2023.

And as I mentioned in the introduction, we are looking forward to presenting those results.

Sorry, just maybe to my absolute clarity, for the dividend, the starting point is -- I'm not quite sure. I understand how to treat this. Should I look at an average of the dividend? Should I look at the year before this or the year before that? It just comes with a contradiction with the foreseeable and predictable, if I may. But I'm not going to press any further.

We'll take a follow-up from James Shuck from Citi.

Just returning to the planned growth in the economic value over the course of 2023, so the 700 basis points over risk free. I think you've outlined the economic assumption changes that have to be taken into account within that. Have you included any operating or experience variances also included within that over the course of the year, please? And then secondly, just are you able to tell us what percentile the risk adjustment is calibrated to annual PMC reserves more broadly, please?

Redmond?

So just in relation to the economic value movement over the course of the year. When we look at our net income, which is a step in the economic value walk, you could experience their level of experience variance from actual being varying to expected. We haven't allowed for that because on average, we would expect that, that would equalize itself out in a positive and negative direction. We have also, as Ian explained, we built a significant amount of resilience into our assumptions, which should, I think, give us a material degree of protection against negative experience variance. And then when you look at broader question of assumption changes over the course of 2023, I think we don't anticipate that this is something that would be in particular focus because, as I said, we've done a lot of preparatory work before we came into IFRS 17 and to ensure that we had a resilient balance sheet and that appropriately captured the exposures and the risks that we're facing.

Just on the calibration of the risk adjustment, the confidence level associated with the risk adjustment is the 70th to 75th percentile over -- measured over the ultimate life of the business.

That's very helpful. Our P&C reserves more broadly, are you able to tell me that?

I'm not sure we can comment directly on that, James.

All right. Thank you very much.

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

Thank you very much for attending the conference call. The Investor Relations team remains available to pick up on any questions you may have, so please don't hesitate to give us a call. As a reminder, SCOR will hold its Q1 results conference call on May 12 for the first time under the new IFRS 17 standard. The Annual General Meeting will then be held on May 25. I wish you a very good afternoon.

This does conclude today's call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.