Operator: Ladies and gentlemen, welcome to the Allianz Conference Call on the Financial Results of the First Quarter 2021. For your information, this conference call is being streamed live on allianz.com and YouTube. And recording will be then available shortly after the call. At this time, I would like to turn the conference over to your host today, Mr. Oliver Schmidt, Head of Investor Relations.

Please go ahead, sir.

Oliver Schmidt: Thank you, Mellissa. Yeah. Good afternoon from my side as well and welcome to our conference call. There is nothing specific to be added from my side today.

So I hand over directly to Giulio.

Giulio Terzariol: Hi. Good morning and good afternoon to everybody. And I am going to go as quick as possible through the presentation. Then I am happy to take your questions.

As usual, if we go to page three of the presentation, you can see that we had a very good start into 2021. When we look at the revenue, the revenue are flat. This is mostly explained by Property-Casualty and Life Health. In Asset Management, we see a nice development. On the operating profit, we have an operating profit of €3.3 billion, which is clearly above the prior period, but that was fairly easy.

The point is the €3.3 billion is also above the run rate of our outlook of €12 billion for the full year and also what is a good part of the story, all segments have contributed to these results. When we look at the combined ratio and P&C, we are at our target level of 93% when we allocated loan business margin in line. We are basically also at our target level of about 3% and then the cost income ratio in Property, in Asset Management is below 60%, and you’ll see also that we had very nice inflows and we’re going to see in a second. This is not just a PIMCO and also AGI. The net income is at €2.6 billion, clearly the net income is benefiting from the strong operating performance, but also there were basically no impairment in the course of the first quarter.

So, overall, a good start into the year, which is also clearly encouraging as we think about the remainder of 2021, and with that, I will go to page five. The Solvency ratio is improved by 3 percentage points. If you adjust for the core or the RT1 in reality the improvement on a pro forma basis is more like 7 percentage point and the sensitivity as you might see on the right-hand side are basically the sensitivity downwards. So basically very close to what we had at the beginning of the year. So a strong capitalization sensitivities, which are broadly unchanged.

When we go to page seven, you can see the driver, the development of the Solvency II ratio and I will say what is definitely a positive is the development of the organic generation is plus 9%. This number is before dividend before taxes. If you adjust for dividend and taxes, you’ll have -- we have an improvement of 4 percentage points. The market has been also favorable especially the interest rates went up. So this leads to an improvement pretax of 8 percentage point and then under capital management, the management action we ever especially the impact coming from the accrual or the dividend and also we had the impact coming from having called the RT1.

So, again, 210% is a good level of Solvency ratio. And I will say also the fact that’s a one driver of the improvement was a strong organic capital generation is definitely a positive. And now, we go to page nine, that’s about our Property-Casualty segment, that’s about the growth rates. Overall, the growth rate adjusted for consolidation and FX was minus 1.6%. If we also remove for a second or they have partners from the equation, in reality the growth rate is minus 0.5%.

So, very, very close to a flat growth rate. Clearly, this is not a growth rate that we would like to see, but here we are definitely the impact coming from also the COVID situation. And on top of that, we are taking also measure to -- in our Commercial Lines business in order to increase the profitability and we are very confident that as we go out of the COVID situation, we are going to see, again, our normal growth rates in Property-Casualty. The rate momentum is overall stable that is just an exception, which is Italy, where there’s also the country where we have a very strong situation from a profitability point of view. So we have definitely a good starting point there.

And then just one comment on AGCS, the rate increases are still very, very strong. So when we say stable, we mean that we see a stable rate increases. They might be slightly below what we saw last year, but we are still speaking of double-digit rate increases in the industrial business. So, if we now move to page 11, the operating profit is clearly much better compared to the one on last year. So, overall, we have an improvement of €500 million.

The driver of the improvement is the combined ratio. And I would say, that the accident year loss ratio has improved by about 6 percentage points. They’re off 2.5 percentage point improvement is coming from COVID, 2 percentage point plus is coming from the better development of the natural catastrophe and a good 1 percentage point of improvement is coming from underlying performance and the main driver of this improvement is indeed the development at AGCS. When we look at the expense ratio, it’s also improved. So that’s again a quarter where we are showing an improvement compared to the expense ratio in the prior period.

And then the run-off results, it’s lower compared to the last year. Here, I can tell you that we are just taking a conservative stance. I think our results as you see are good. They are at the level of the target we keep ourselves and we can also, say, take a conservative stand on our reserves or the quality of the 93% combined ratio is in my opinion very, very good. Moving now to page 13, we had the exhibit by OEs and you can see a lot of I was subsidiaries, good combined, very good combined ratio.

So Germany with 91% or the United Kingdom is even below 90. The same applied to Eastern Europe, Italy, Spain. In Australia, we have a combined ration which is higher than our expectation and that’s because of the natural catastrophe in Australia, in especially, I think, in the month of January. Otherwise, you can see that you see an AGCS has a combined ratio 98%. This is in line with the expectation that we set at the beginning of the year and here I can also tell you there is a COVID impact negative of about 3 percentage points.

So reality, if you adjust for that, one could say that the underlying performance is already better than the 98% that you see on this page. And then Euler Hermes, with a combined ratio below 80%, it’s clear -- it’s a clear indication that at the moment, there is no pressure on claims and we have been also fairly conservative in the choice or the loss pick. And with that, let’s move to page 15. The investment result for P&C is up 3%. And here what we see is that we got indeed a lot of support coming from the equity.

We got dividends, in other words, not a drop in dividend, like, we might have seen a little bit in the prior year and also we got some additional profit from our equity participation. And the other side and this was expected. We see that the current yield is going down. But this was already considered, if you want, and now we’re thinking about the outlook. In reality, I would say that what we see right now is that we are running a little bit better compared to what we had anticipated in our outlook of €5.6 billion for the operating profit of Property-Casualty.

So this might be an area where we’re going to have a little bit of an uplift compared to what we told you a few months ago. Now, we can move to page 17, on the Life side. Overall, you see that the production is up about 8%. So, overall, I remember that we’re always concerned about what could happen to production, as we do all the product changes and I will say that the production is already pretty nicely. We see also very nice development in Italy.

We see a nice development in Asia. And the USA, if you adjust for the FX, we see a growth rate of 8%. On the same -- at the same time, the new business margin is going up by -- to be very specific by 10-basis-point, although it looks like 2020 and the improvement is coming from Protection & Health and that’s because of actions we have taken especially in France to improve the profitability of that business. But in my opinion, what is very telling is the fact that in the capital efficient products, although the environment is very different compared to what we had last year the drop in new business margins is only 20-basis-point and the actions we are taking, they are going clearly to have an effect in the course of the year. Indeed, also as you know, we are calculating this new business margin based on the beginning of the period the interest rate with exception for the U.S., but for the rest of the business we do that.

So as of now, even doing that, you’re already above the 3% level. So, overall, good level of production, also new business margin, which are going up and holding in very, very nicely. And with that, to page 19, we speak about the in-force portfolio performance. Overall, a nice increase compared to the prior year period. There was also easy, if you want, because in 2020 we had a lot of negative impact due to the volatility.

But we are also to recognize the €1.2 billion is above the €1.1 billion of run rates operating profit and also what is nice to see all segments, if you want, all lines of business are contributing to this improvement. Clearly the development in the USA has played a major role in getting to this kind of result increase, but I tell you we see also a nice development in Asia and also Italy, the unit-linked business is also doing pretty nicely. So with that, page 21, we showed the new business margin and operating profit by entity. Overall, I would say, the new business margin is holding pretty nicely. And I will say in the USA you can see that we had a substantial increase compared to last year.

In Asia-Pacific, we see new business margin 6%. And also I was highlighting in Central and Eastern Europe although the margins are a little bit down, they still are at a good level of 4%. So the only area where we need to put some additional work is France, but also there you see at least that we were able to improve compared to last year. On the operating profit, again, you see a nice recovery compared to last year and I think now we are -- we have a sort of competition between Germany Life and USA. For the quarter, we have the exact same number of operating profit.

So we’re going to see who is going to do better in Q2, and clearly, since I was in the USA, I am always a little bit fan of Allianz Life. And with that, let’s move to page 23. On the investment margin, we have an investment margin of more than €1 billion. And when you look at the investment margin in relation to the policy reserve, it’s about 21 basis points, which is higher compared to our expectation annualized that of 70 basis points to 75 basis points. I would say, the following clearly in this quarter, we didn’t see any impairment.

Basically, there were really no impairments, so this has supported also the net harvesting and this leads also to this level of investment margin as we’ve seen throughout the year. Clearly, we don’t expect to have this 20-basis-point occur unless the situation remains like that, I think most likely we’re going to end up anyway at least in the upper end of the range of the 70 basis points to 75 basis points that we provided you at the end of this year. So, overall, a good result. I would like also to highlight any way that our Life profits are not just a function of the investment margin. And indeed we get to about 66% of our revenue, two-thirds of our revenue from loadings and technical margin.

So that’s also something, which is important to keep in mind. And with that, at page 25, on their Asset Management segment, I can say results are really good. We have achieved a level of €2.4 trillion of assets under management. That’s the highest record -- highest level for Allianz. And also what you see both AGI and PIMCO contributing to this development and where you look at the asset classes you can see growth in all asset classes.

When you look at the regions, you can see growth in all regions. I like also to highlight that in Asia-Pacific, we have more than €200 billion of assets under management. So, it’s not just Europe and America where clearly we are very large, but we have also sizable now presence in Asia-Pacific. So if you go to page 27, on the development of the third-party assets under management, you can see that the flows in the quarter had been strong with about €40 billion of flows that off to €1 billion coming from AGI, that’s the highest level for AGI, and if you remember, we saw also a nice trajectory at the end of 2020. In the case of PIMCO, we are being used to see this €20 billion plus now for a few quarters.

And when you look down at the composition of these flows by asset classes and regions, you can see that overall there was a pickup in flows across the Board. Then as usual we had the impact coming from market development from FX and when you combine the two, you see that at least for the quarter, the impact coming from these economic drivers was positive. So we are starting with the asset base of about €1.8 billion of the assets under management. So that’s a good starting point as we think about also the second quarter and the remainder of the year. Page 29, the revenue up about 9%.

Now we see a very nice growth in the revenue at AGI, if you adjust for the FX effects, it’s about 15%. PIMCO is a little bit lower 6%. But at PIMCO we had also a special effect, which is having an impact also on the fee margin. We launch a closing fund in the first quarter and when you launch this kind of closing funds, you have underwriting fees and you cannot defer the underwriting fees. So if we adjust for that effect, the fee margin will be a couple of basis point higher.

And also I think the impact of that underwriting fees on our revenue compared to the prior period was about 5 percentage points. So once you start adjusting the numbers of PIMCO for these effects, you’ll get to a different picture and clearly that’s a good thing, the launch of this closing fund, because you’re going to get revenue and profit moving forward. Page 31, the operating profit of the Asset Management segment is up double digit, 10%. If you adjust for the FX effect, it’s up 16%. PIMCO is flat, but as a consequence of the FX impact and in the case of AGI, we have a very nice development and the operating profit with about €200 million of results, and clearly here, you see the impact of a growing revenue on a double-digit level and the expenses are down about 7%.

You remember, we did a restructuring last year. So now we see the benefits on this restructuring and the cost to income ratio is 61%, it’s the lowest cost to income ratio we have seen at AGI. Corporate, page 33, is improved compared to last year. Here we have always some volatility. We had some FX effects changes or they were slightly negative last year, they are slightly positive this year.

We have an improvement in the operating profit of our Allianz technology and also there is some seasonality in the expense line item. And you might also remember that last year, we had here the impact of the solidarity charge for COVID in France. Overall, I will say, we are a little bit better than our expectation, but there is also some just seasonality in the numbers. And at page 35, net income is significantly up compared to last year €2.6 billion. Clearly, we are benefiting from the strong operating performance.

And then as you see, the impairment are basically very close to zero. So there were no impairment during the course of Q1. And the tax rate is 23%, is a little bit higher than last year but somehow lower than our normal tax rate, that’s because of a one-off positive impact. But all in all, I would say, strong operating performance, combined with a benign capital markets have contributed to these very strong results in our net income. So, in conclusion, page 37, as I will say a very strong quarter.

It’s not just about the €3.3 million of operating profit or the €2.6 billion net income. It’s also about the underlying 93% combined ratio, 93% combined ratio in Property-Casualty with quality a decrease of the expense ratio in Asset Management, in Life you see that our new business margin as we speak is already a 3% and we are getting premium and you can also see the operating profit is very, very, very stable. And in Asset Management we have a record level of Asset Management floors. We have also, I would say, a very strong cost to income ratio. At AGI, we are starting with an asset base, which is a very good starting point as we think about the remainder of the year.

So there is a lot of strength in the underlying or the business and that’s across the segments. On top of that, the Solvency ratio 210% is very far away from 180%. So we feel pretty good about the start of the year. Those about how we are positioned to go into the remainder of the year. And with that, I would like to take your questions.

Operator: Okay. [Operator Instructions] We’ll go ahead and take our first question from Peter Eliot with Kepler Cheuvreux. Peter, please go ahead.

Peter Eliot: Thanks very much. Good afternoon, all.

Good afternoon, all, and great results. I had three questions please. Firstly, on that cost to income ratio of AGI that you just mentioned, Giulio. Could you say how sustainable that is? Obviously, a very good figure, I am just wondering if, I mean, probably, too good to hope for that that can continue, but I’d be grateful for your comments? And secondly, on PIMCO, it looks to me like you’ve been making a higher margin on internal assets for the last couple of quarters, just backing out the third-party funds. I mean, is that right? Is there anything that sort of happened on the pricing structure, or yeah, are you able to comment there? And thirdly on Euler Hermes, I mean, I guess, given that half the business presumably is still at sort of 100% combined ratio, the other half is really very, very low indeed.

And I am just wondering about your thoughts for the outlook there. I mean, should we expect the same pattern in Q2? What about as the economy sort of open up? And yeah, I mean, I guess, when you think about the sort of state scheme now, I mean, with hindsight, obviously, that was a bad deal for you because you’ve given away a lot of profit. I am just wondering, what the sort of outlook or discussions are on that. Anything you can add would be very helpful? Thank you very much.

Giulio Terzariol: Okay.

Yeah. Thank you, Peter. So, starting from AGI cost income ratio, I would now assume they were going to be a 61% cost income ratio as a new normal, but definitely, if you remember the idea was we want to be 67% cost income ratio and I think this target is very easily achievable as we go through the remainder of the year. And so as we think about the future, we need to consider also how much we want to invest in the business. So, I think we are starting from a very good point.

And so now, I would say that, we are definitely in control of our cost income ratio, so that’s a good place to be. And so I would expect that, clearly, we’re going to set us a goal which is better than this 67% cost income ratio and the conversation is going to be more about how much we want to invest in the business. But I’ve seen the progress at AGI has been really phenomenal and I will say that, if structure is place or initiative that we did last year clearly paying off. You can see this in this number. But there is -- that’s important also and this number 61%, there is no one-off, nothing.

So it is a pure number. So from that point of view, one could also argue, okay, that’s a starting point. But again, I think, we always need to consider about how much we want also to invest in the business. But I think a very good situation to have. On the question about PIMCO and the internal assets, no, we didn’t change anything.

So from that point of view, I don’t know so how you derive your numbers, but there is nothing really going on from a -- from the point of the profitability that PIMCO is getting out of the management of the Allianz funds. The only case it might be is ARE, Allianz Real Estate, because as you know, last year we put Allianz Real Estate into PIMCO. So you might see an increase clearly of fees due to that and also some increase in profit. But fundamentally, there is no change otherwise in the charges that PIMCO is taking on the managing -- on the management of the fixed income portfolio. Then Euler Hermes, on your question about the expectations for the cost combined ratio.

And I will say that, in reality the combined ratio, the underlying combined ratio is even better compared to the one that we’ll show in these slides, because we are now seeing necessarily claims activity at this point in time. I believe we are going to be in this situation definitely also as we go into the remainder of 2021. And I would expect even to see stability in 2022 and then maybe by 2023, 2024, we might see a little bit of a different dynamic regarding Solvency. The point in regard with Euler Hermes is, we are not like a bank, right? We are not extending credit for 20 years. So we can always adjust our exposure basically on a daily basis.

So definitely the situation looks very, very good, very strong. With hindsight I would be a billionaire. So from their point of view, I will say, at that time, the decision, my opinion was the right decision. We definitely gave some profit away. But think about how people were feeling one year ago, right? So and there is no regret or no complaints here.

And we are -- actually if you ask me, we are happy anyway that we are having this kind of conversation now instead of being happy then maybe we are seeing some losses to the state. I think we are in a better situation this way.

Peter Eliot: Yeah. Absolutely. Couldn’t agree more.

Many thanks.

Giulio Terzariol: Welcome.

Operator: [Operator Instructions] We’ll go ahead and take our next question from Michael Huttner with Berenberg. Please go ahead.

Michael Huttner: Hi.

Fantastic. Thank you so much. Yeah. I think it does not feature to your slide these amazing numbers. The -- I think there are three-point questions.

One, which is what the previous -- you’re kind of competitor, which just reported kind of said, the -- I think I’ve made that -- they didn’t say quite like that, but I think they said, they kind of implied, they’ve never seen it so good. So, in other words, taxes free for them was paid for the environment charges [ph]. And is that the thing you will have a sort of business is a hoax. And here my specific question can be sound very vague is why didn’t you-- if you offer confidence, why didn’t you change guidance to €11 billion to €13 billion, so there you are threaten. And then the second question also on guidance.

So, you have raised it in operating profits from a range of €7 million to €8 million to now, I think, €10 million or maybe over €10 million. I just wondered what the moving parts to this? And then my final question would be a really simple one. Your competitors are looking at backup deals. Is that something you were thinking about as well in Life? Thank you.

Giulio Terzariol: Yeah.

I think I got two out of the three questions. Maybe, first, I’ll answer the two and then ask you, maybe I’ll tell you what…

Michael Huttner: That’s probably I need to.

Giulio Terzariol: Yeah. Right. We’ll go and then we-- okay.

So on the first one about changing the guidance is almost philosophical that we’re not going to change the guidance in Q1 after three months. But clearly when you look at the underlying performance we are doing fine. And to a certain degree clearly, we expressed also these underlying performance to stay. So I wouldn’t say, they are €3.3 billion thanks for [ph], but I could also tell you that, yeah, most likely the €3 billion per quarter we were going to be able to exceed that. But in the first quarter, we are not going to change guidance is a -- I will say through a matter of principle almost philosophical.

In the second quarter, we see where we are and that’s the time where clearly we might consider to change guidance. So there is no -- there is nothing to read behind the fact that we are keeping this €12 billion plus minus €1 billion. It’s just a philosophical position if you ask me. On their bad book, because I didn’t get necessarily the second question, yes, we also look at that.

Michael Huttner: The bulk of it.

Giulio Terzariol: Yeah. The bad book is okay. The bad book -- yeah. You also -- I just tell you, there was very -- a very small transaction, but basically we closed the bad book translation in Benelux. We are looking at other bad books in Europe.

We might consider also bad books in the United States, where it’s a little bit even easier to get things done pretty quickly. So we are definitely also looking into this kind of a tool in order to make sure that the capital allocation can be the optimal capital allocation from a return to the shareholders. So we are definitely working on this dimension too. It can take time. As I said, it’s -- you need this -- a lot of education, sometimes you need to educate the regulator -- regulators, because they are not used to it and there are sometimes policyholder consideration that you need to be aware of.

There can be tax considerations that you need to be aware of. That’s the reason why it can take time. We concluded a transaction about our Spanish bad book that was about €1 billion. Last year, it took basically over two years to get from basically where we hedge. The clear plan of what we wanted to do to get the final approval.

So two years from once we are ready to move to get in the final approval. But I believe that you are going to see some activities in the next quarters from our side.

Michael Huttner: May I ask -- this is on buybacks?

Giulio Terzariol: Sorry?

Oliver Schmidt: Buybacks.

Michael Huttner: On the buybacks…

Giulio Terzariol: Okay. Yeah.

I got you. Buybacks, the moment is still we are -- here at least in Germany we are a little bit behind with our Corona situation. So we still have some lockdowns. I believe that after the summer break, the situation is going to be back to normal also here, and at that time, I believe, that’s also from a regulatory point of view, the sentiment is going to be different. And as we clearly go into the second part of the year, we are going to potentially consider a buyback.

I would say, on the buyback, I would say, there’s more a general statement is our -- definitely our intention overtime to -- and that’s what we did in the past, to have a very disciplined approach when we do a buyback and also we can take the opportunity to do M&A. So we have best philosophy that we’re going to use and I would say, where we want to run the company moving forward. Now, clearly, you cannot do this on a quarterly basis, on a yearly basis, half-and-half, right? So there can be a situation where you might see more M&A coming through and then you might owe buyback and the other way around. But on a rolling basis, I can tell you that the philosophy that we are going to have is to have this healthy combination between M&A activity and buybacks.

Michael Huttner: Giulio, thank you so much.

Giulio Terzariol: You are welcome.

Operator: All right. We’ll go ahead and take our next question from James Shuck with Citi. Please go ahead, James.

James Shuck: Thank you.

Good afternoon. Good morning, everybody. So two questions for me. So from a premium growth in P&C, Giulio, so down 1.6% in Q1. I mean, the annual reports recently you published.

It was published in March and you had 2021 targets in those numbers and those targets would go up with this. You’re talking about COVID and the impact of COVID, so you’re expecting P&C premiums to rebound pretty strongly, 5% to 6% is the number that you’ve targeted for 2021. So what’s happened in the space of two months or three months that in between buybacks and now? That’s my first question. Secondly, on P&C operating profit, you’ve got the guidance for €5.6 billion plus or minus 10% in 2021. The three-year plan is actually calling for a number actually going at a 5% CAGR.

So we’re looking at more like over €6.3 billion from that three-year plan. I appreciate interest rates sort of are lower so it doesn’t seem to be a real pressure and I think the volume growth is low as well. But could you just help me understand the delta about the €6.3 billion, even if we are coming in at the top end as you said earlier? Thank you.

Giulio Terzariol: Sorry, we cannot understand you properly. The line is really broken.

So we got the first question, but the second one I couldn’t get you. The line is very…

James Shuck: Okay.

Giulio Terzariol: Yeah.

James Shuck: [Inaudible]

Giulio Terzariol: Try again.

James Shuck: I’ll just try it quickly.

Sure. The 2021 profit target you have for P&C is €5.6 billion plus or minus 10%. But in the three-year plan that was given in 2018, that called for 5% CAGR, getting to at least €6.3 billion in 2021. I appreciate the €5.6 billion you’re now saying can be top end of that, so maybe be closer to €6 billion. But I am just keen to understand what the difference is between the three-year plan and where you are guiding to at the moment.

I presume it’s through the volume growth and some of the investment pressure. But if you could just help me understand some of those [inaudible]? Thank you.

Giulio Terzariol: Yeah. Perfect. So, clearly, on the first question was about the premium and premium growth, okay.

I know in the annual report, there was this statement about growth in P&C, this came a little bit from our economic research. We’ve been always very clear in our conversation, that our expectation, especially for the beginning of 2021 was to have a flat revenue growth that what we saw. So, I think, that statement was a little bit more forward looking. But our expectation have always been that in reality in 2021 the growth is going to be mute and that’s also the way we have been talking our -- in our meetings with regards to the Property-Casualty operating profit, yes. The point is clearly the investment income is different compared to what we might have assumed at that time.

If you look at the combined ratio, it’s 93%, it’s the same. So from that point of view, the 93% has not changed. Then there is, clearly, the fact that rates went down compared to what we have in 2018. Also consider that, as I said before, we might have been conservative in the estimates of our investment income for 2021. So we might see an uplift compared to the 5.6% that we gave you.

And then also the revenue growth in general is a little bit lower and I think also that just because of Partners and Euler Hermes, we are basically losing €200 million, €250 million of operating profit. So if you start just adjusting for that, which is probably -- which is going to come back once we get to the normal revenue basis. If you also adjust for the investment income then you see that’s in reality the numbers are the one we set and think about the fact that the combined ratio of 93% is what we are planning to hit and we feel very comfortable about that. The expense ratio is better compared to what we said at that time. So it’s driven partially by Euler Hermes and Partners, and partially is also clearly there is a little bit less investment income compared to the assumption of 2018.

James Shuck: Thank you, Giulio. The second part is the premium growth and I just -- the annual report, which was published only a couple of months ago is 5% or 6% revenue growth in P&C premium. And now you’re looking at minus 1.6% on a gross written basis. So just -- my question is more about what’s happened to that expected growth because …

Giulio Terzariol: Oh! Okay.

James Shuck: … part of the…

Giulio Terzariol: So nothing happen -- and nothing happen to that.

I think the 5% to 6% of a premium indicated there was a sort of thinking on normalized basis as we go. I think it was about -- what a total market can do. But that’s not the number that we have really considered in our thinking. That’s also not a number that we’ve been using the conversation that we had. We always have highlighted that we expect premium P&C to be flat.

So I would not take that as the number that we have been discussing in our conversation.

James Shuck: Okay. Thank you very much.

Operator: All right.

Giulio Terzariol: You’re welcome.

Operator: Well go ahead and take our next question from Vinit Malhotra with Mediobanca. Vinit, please go ahead.

Vinit Malhotra: Yes. Good afternoon. Thank you very much.

Just if I can ask one on AGCS, I mean -- so, obviously, very good numbers this quarter already. I mean, I was I think surprised because I was thinking 98% will be somewhere towards the later part of the year, but we already caught 98%. Is there some hope that AGCS can even do more and because the pricing 22% is stated for that, will obviously come in will be earned through the years and I just wanted to understand how you think about rather [inaudible]? And then if I can ask about PIMCO. So, obviously, very strong net flows, but the perception in the market, how should we or how do you propose to just change and challenge that perception that, hey, when the U.S. Treasury yield goes up, there will be a deluge of outflows at PIMCO.

I mean that’s where, you said, some more data you can provide to the market to say, hey, this is the kind of revenue per strategy or obviously there is evidence of the inflows coming in, but I was just wondering if you just comment on that. And lastly, if I may ask that there have been some -- if I could just ask for an update on the M&A strategy please, given there’s being an asset in the U.S. where there is lot of SNAP fund [ph] in your sales as well. If you just comment what kind of, I mean, is it a change or should we just continue to believe that the old bolt-on approach for what against was more comfortable? Thank you.

Giulio Terzariol: Okay.

Thank you, Vinit. On AGCS, I will say that, yes, we should over time see an improvement. As I was also saying before the 98% includes a 3 percentage point of COVID impact. And also if you look at the national catastrophe, they were not excessively high for AGCS, but there were also no loss. I would say, there was no benefit, let’s put it this way, financial catastrophe in the sense that we had a low from that.

So, I would say, the 98% is a number that if you look at the underlying is even better. We see rate increases. So, from that point of view, yes, the expectations that we’re going to see over time better performance at AGCS. Indeed, I was also discussing the situation with them the other day and we are at a point where we also believe that on a selective basis, clearly, with a lot of discipline, we can also start thinking about growth again. We wanted to be very sure that the underlying performance is strong.

We did the analytics, clearly, at the beginning of the year as we had all the information collected by year-end and we got a good response that we are on a good track. So from that point of view, I will say that, the 98% is not the end of the story, but that should be the beginning of a different chapter for AGCS. And the market is also helping, let’s be serious. There is a lot of good stuff that we did and the market definitely also supporting this direction. On PIMCO and the net flows, on the yield and Treasury rates going up.

I would always that, yes, clearly, if you have rates going up, first, you might see investors going on the sideline because, clearly, they are not going to invest in a fixed income if there is expectation that rates are going up. I would also differentiate that a lot of the investors that are just investing in fixed income no matter what, but you might have the, call it, the smart money might clearly wait. But then you get the flows six months later because then their money eventually is going to flow. So, I would always separate what can be the volatility that you might see in a quarter, two quarters. So, three quarters compared to what you have to expect on a long-term.

And I would even say that higher rates would not be a negative for PIMCO. I would say, they will be on a present value basis rather a positive. So from that point of view, I would say that, something can be manageable. Also, I will say, think about how diversified we are. So, at the end of the day, when you look at the diversification that we have also by strategy, I think there is a lot of resilience and I am also sure that PIMCO will be capable to come up with some strategy also to manage maybe the situation in the short-term.

So, yes, there will be definitely an impact if rates go up, it might be more significant or less significant, but I will not be concerned about the fact that the franchise of PIMCO is going to be very strong and we have to look to benefit out of that. So, I am not concerned about rates going up. I might have, maybe, to explain to you this quarter, flows were negative. And then two quarter later, I am going to explain to you why the net flows were so great and I think it’s going to be fine. On the question whether we can give you revenue or margin by strategy? The answer is, no.

We cannot do that. But you can imagine, right? If it’s a commodity, if it’s income, it’s going to be lower fees. If it’s some alternative vessel, it’s going to be higher fees. I think that if you do some normal market research, you’re going to find out that what could be the revenue strength by asset classes. I can tell you that due to the quality of our franchise, usually, we can get fees, which are, at least, at the market level, let’s put it this way back and I’ll give you numbers, internal numbers by revenue, but there is no major secret.

And then on M&A strategy, no, there is no change compared to what we have done so far. And also if you look basically at the latest transaction, they are no different. They might be a little bit larger in size, because, clearly, the Aviva Poland transaction was larger. But from a philosophy point of view, it’s clearly trying to strengthen our franchise in countries where we tend to have a presence where we can create some synergies. So, there is no change to the M&A strategy.

And as I was saying before, there is also no change to this idea that we want to combine buyback and M&A. As I was saying before, we can now do this on a quarterly or yearly basis. But on a rolling basis, definitely you’re going to see this balance coming through.

Vinit Malhotra: And just if I can follow-up please. On COVID there seems to be has a very low impact in 1Q.

If -- I mean, do you have an outlook update for 2021 and if it is going to affect your 2021 targets?

Giulio Terzariol: So, on COVID, I can tell you, the impact in Q1 was indeed neutral. So we had some -- we still had some business interruption losses. Also as I was saying before, there was an impact of about 3 percentage point at AGCS. But on the other side, we have the frequency in motor, which is lower. So, as I look to the remainder of the year, I will say that, I will not expect an impact from -- a negative impact from COVID.

We might see in some legislation still some development on business interruption. On the other side, we also know that the frequency in motor is going eventually to normalize, but as of now still lower than normal. So I will say the COVID situation is now going to have an impact on our numbers. I would also expect that as travel is coming back and we’re going to see a lift in revenue and profitability at Allianz Partners, and also we are going out of this stay scheme in July here in Germany. So we should also see some more profit coming from credit insurance.

So, overall, I will say that this quarter should be neutral and the reality I think we may see steady opportunity to even add to the quality of our balance sheet as we are doing right now.

Vinit Malhotra: Yeah. Thank you.

Giulio Terzariol: You’re welcome.

Operator: All right.

We’ll go ahead and take our next question from Farooq Hanif with Credit Suisse. Please go ahead.

Farooq Hanif: Hi, everybody. Good afternoon. On reserve releases, when do you think the conservatism and visibility on some of the IBNR clears up and then you move back to the more normal range? Is question one.

Question two, you painted obviously a very bullish picture for AGCS on the reverse side. Do you think there’s potential risk of liability claims inflation coming back as the economy opens? And then lastly, on illiquids, are you still close to the sort of 21% level or do you think now particularly as we go into new IFRS, do you think now it’s obviously it even further increase exposure to illiquids? Thank you.

Giulio Terzariol: Okay. So the first question, on the run-off, I will say that, we might change the approach as we go into 2022 and beyond. But for this year, I think, we are going more or less to follow this approach.

So, next year, 2022, 2023 and 2024, you are raising, by the way a question of inflation, we are not concerned on. This is speaking about a big spike in inflation or we might see some inflation happening here and there. Generally, inflation is not necessarily the claims inflation. But is something anyway that’s -- at least we need to consider. So having a strong reserve base is might be anyway also a solution in the case or also in the case, indeed inflation is spiking up and is impacting the claims inflation.

So, for the time being, we are doing analysis, definitely. But we are not seeing, I tell you right now that there is an increase in claims inflation or at least let me say we don’t see this across the Board. You might see in some specific country, but we don’t see a trend now generalized about an increase in claims inflation. And now, on the illiquids investment and IFRS 17, i.e., I don’t think necessarily the IFRS 17 is going to have an impact on the amount of illiquid that’s a -- we are holding because at least on the debt side. Okay, we need to consider what the classification might be.

So, if we end up being a classification some illiquid that we need to use fair value, we might reconsider the exposure to those illiquid. But I would assume that there are plenty of opportunities to find illiquid, which are going to be treated from an accounting point of view the same way that we are counting now. So, I think that in general in the portfolio, you might see some movement, but it’s not going to change our approach and our appetite for illiquid assets.

Farooq Hanif: Okay. That’s great.

Thank you very much.

Giulio Terzariol: You’re welcome.

Operator: All right. We will go ahead and take our next question from Ashik Musaddi with JPMorgan. Please go ahead.

Ashik Musaddi: Yeah. Thank you and good afternoon, Giulio. Just one question I have with respect to again going back to Farooq’s question on run-off. I mean run-off in this quarter was quite low. I think 1.1 something versus a 2%, 2.5% normal run rate, and at the same time, obviously, cat was a bit lower as well.

But even if I normalized both of them to your historical level, it looks like you could be hitting 98% or 92.5% of combined ratio that sort of I am kind of getting a bit more cleaner number, which is better than your 93% ratio. Now typically I don’t want to go into decimal places, but because 0.5% or 1% is still relevant combined ratio. I just want to get a bit more color, is this the right way of thinking about debt, because you also mentioned that travel is coming back, states scheme will give you higher profits, which will offset any motor. So, there is no negative drag from there. So any thoughts on that would be helpful.

Giulio Terzariol: So, I would say that, okay, the only thing I can tell you they’re quoted to 93% combined ratio is good. So, clearly, then if say this statement, one can also derive the conclusion that 93% can be lowered than that. I will really not go into this kind of consideration on a quarterly basis. The only thing I can tell you the quality is good and also as we are thinking about the future, we might think about definitely bringing this combined ratio 93% as indication below that level. And it may be that we already positioned where to do that.

But I will not really over analyze a quarter. So the only message I can give to you is that we have our 93% combined ratio, we feel good about the quality of that 93% combined ratio.

Ashik Musaddi: Okay. That’s very clear. Thank you.

Giulio Terzariol: Welcome.

Operator: We’ll go ahead and take our next question from Michael Haid with Commerzbank. Please go ahead, Michael.

Michael Haid: Thank you very much. Good afternoon to everyone.

Two questions. First on Life Insurance, the new business margin you mentioned in France is still insufficient. And you said that you need to do additional work there. Can you elaborate a little bit on what you want to do in France? Second question on Allianz Direct, the trust premium development in the first quarter was fairly low in my view. It looks a bit disappointing.

I would have expected in times of corona that Allianz Direct would grow more, instead you sunk. Is that -- is Allianz Direct below your expectations, internal growth there was minus 11%. What is going wrong at Allianz Direct?

Giulio Terzariol: Okay. Well, thank you for your question, Michael. So starting from France, the point in France, the new business margin, we are taking action and indeed the new product that we launch as a new business margin.

But you need to do some economic calculation. We’re not going to go into the details, but let’s say, the new business margin the product is more about 1.5% to 2%. So over time, you’re going to see that flowing through, but we need to clearly build up that business more over time. We need to get to a better performance in our protection business. And then potentially we need to try and see how we can push more unit-linked business.

So, I wouldn’t say that we’re not taking action. So we have been taking action. You see there is already at least an improvement compared to the Q1 of last year. We think that by the end of the year, you’re going to see an improvement compared to the full year 2020. But that’s an area where we need to push a little bit harder on the mix and we need to see whether the new hybrid product that we are -- we have been launched is going to be enough to position the company the way we like or whether we need to have even a stronger change in the mission, think more about unit-linked solution the same way we did in Italy where the reposition has been extremely strong.

And I want to also highlight the 1.5% of new business margin in Italy in reality is very good because you are talking of where unit-linked with very high efficiency, also short-term unit-linked. So, sometimes it’s also important to understand that the new business margin not -- is a KPI that one has to really look into to appreciate the quality of the KPI. So in France, we are taking action. We are not there where we want to be. But if we need to take stronger action on mix, we’re going to do that.

So, I think we’re going to add this cost and cost of 2021. On Direct, the reason why premiums are down compared to the prior period is that we basically decided to go out of the aggregator. There was a decision in Germany and the reason was that the profitability was very poor. So we basically cancelled that business. Also in Italy, we are still in the aggregator, but we decided to follow a sort of hard line on profitability.

So, from that point of view, yes, you see premium going down, but that’s almost adjusting the baseline. So, we are basically creating no IP platform, we are creating no business model and also we have a different view on what we think it’s good and profitable. And what we think is now really good and profitable and this is explained. The same goes about that, that if you had this aggregator business, which was now very profitable and this was part of the gigantic Allianz physique, the impact was relatively minor. When you put this on a smaller scale, then you see things that you don’t like.

And so, I will say that from a disciplined point of view, that’s a positive, because, clearly, what was maybe just a very minor issue in a bigger portfolio, these becomes a little bit of a more visible issue in a smaller portfolio, and we didn’t like it and we made changes. Other point to say on Direct, I will not measure the success of Direct in a quarter. Strategic decision, this relevance that get -- they had to be measure over a time horizon of years. So from that point of view, I, think we have now created the platform. We have created the -- or pruned the portfolio in a way that we think it makes sense.

And then we see what happens in the next two years or three years and then we are going to judge the success of this initiative.

Michael Haid: Thank you very much. Excellent.

Giulio Terzariol: Welcome.

Operator: All right.

We’ll go ahead and take our next question from Dominic O’Mahony with Exane BNP Paribas. Please go ahead, Dominic. Dominic O’Mahony: Oh! Hello. Three questions from me, if that’s all right. Firstly, I see you’ve extended the duration of your assets to beyond the length of your liabilities in Life in addition to P&C now.

I am just curious just on the rationale for that, just to control the right sensitivity and Solvency position or is it something else? Second question, just on AGI, very strong flows. Could you just remind us of the changes there, are you familiar with the cost and sort of efficiency changes, but can you just remind us maybe on the product side if there’s anything driving the very strong flows there? And then, thirdly, in April EIOPA announced a review of value for money in unit-linked and hybrid savings products, can you just comment on any expectations, any potential risks you see from that review? Thank you.

Giulio Terzariol: Yeah. So, I couldn’t get the first question by the way, I say, duration extended, why? Oh, okay, on the asset duration, sometimes this happens. We need to make -- we extend the asset duration because we might be short and so, we go longer then rates go up and then you end up being on the other side of the spectrum.

So it’s always a little bit of a adjustment that we do as we see that the -- what is happening on the market. But we always a little bit behind. So that’s the reason why sometimes we are undershooting on the duration, sometimes we are overshooting. Fundamentally the idea is that we want to be duration neutral. So we’re now going to run with a duration guide one way or the other for -- on the Life side for an extended period.

But again always keep in mind that rates are moving and we are always kind of following a little bit the rates movement. On AGI and the flows, when you look at the flows are coming basically from, I would say, from Asia-Pacific, we see more flows than we saw in the past. So, there’s definitely something new and we have a very strong equity story. We all saw, especially in Asia, but we also saw nice flows coming in Europe. So from a distribution point of view, we are pretty strong in these two areas.

From a production point of view, we are producing -- where we are producing the asset, this is coming also from the United States. So we have, I think, a good combination of a strong manufacturing platform and then we are capable to place this solution in Europe. And right now there is a lot of growth also coming from Asia-Pacific. I think also the ESG topic is something that we are stressing that can be helpful. And also I will say, before we were trying to push a lot of different strategies and maybe when you push too many strategies then you lose focus and then maybe you are more confusing for the claims where you are putting more focus in pushing just a few strategies.

You might not have the same level of diversification if you want. But if you are doing a good job you might get a better effect in this. So I think these are the changes that the new management team has done and they are playing pretty nicely. I would also not underestimate the new CEO was the Head of Distribution. So, I -- so if you put me in charge of AGI, you might see a different outcome.

So everybody has to do his job and I think there might be also a reason why we see a different distribution effectiveness in AGI. The last question there, hybrid and we always look internally as to what is the value for money for our policyholder. We do this in Life. We do this also in Property-Casualty. By the way, one of the reasons why our growth in France in Property-Casualty was low these quarters because we decided to dismiss some business because of -- we were not happy with the amount of commission versus the loss ratio.

So these are consideration that we always do and so from that point of view, we should be positioned in a way that’s when the regulator is going to come out with any kind of specific guidance, we should be able to either to be already there or to adjust to it very quickly, but customer has been since years for us on the P&C side and even more I would say on the Life side is always being one of the indication that we -- the things that we look at. We have a framework here to Allianz where we are rating our products in a different category like AAA, AA, A or this way, all this kind of S&P rating. And one of the criteria in order to be a AAA product is that there is customer value. Otherwise, if we don’t take customer value, I think that’s almost an entry point to our conversation about the product. Dominic O’Mahony: Very helpful.

Thank you.

Giulio Terzariol: Welcome.

Operator: All right. We’ll go ahead and take our next question again from Michael Huttner with Berenberg. Please go ahead.

Michael Huttner: Thank you a lot. I am very lucky. Thank you. And can you say three things? One, a word about flows as you see them at PIMCO and AGI? Second is everything sounds so positive, I just wondered if you could give us a few risks as well, otherwise, I don’t know, your perfect consensus numbers might go very high? And then the last point, can you give us -- you’ve given us a few hints already for the next two-year plan and lower the combined ratio is one of them. Can you give us a couple more hints please?

Giulio Terzariol: Okay.

So on the flows on Asset Management and you can also then look at page 27, you can see where their flows are coming from. So I can give you a little bit of an idea, because you’re asking also maybe PIMCO versus AGI. When you look at their flows at page 27 from -- in fixed income, clearly, they are mostly coming from PIMCO. When you’re going to look at the equity side, they are coming from AGI. And I will say when you look at multi-assets and alternative, there’s a fair split between the two.

So basically, you see the strength of PIMCO play in fixed income, you see the strength of AGI play in equities and then on the other two asset classes, both are contributing. When you look at Asia-Pacific, as I was saying before, clearly, there is also a nice contribution from PIMCO. But I will say the contribution from AGI is pretty strong in overall proportional. And then when you look at Europe, you can imagine that the AGI is a little bit stronger than in America. PIMCO is definitely taking the lion’s share.

So, overall, I would say, you see strength across the board in both entities. Clearly, one is playing greater [ph] more than other. But it is very well-diversified especially when you put the two entities together, you get a very nice diversified flows revenue and I think that’s very important. The other day or to a couple of months ago, I was looking, I don’t know why, but I was looking how S&P is doing their rating of asset manager companies. There was a very interesting read-in, that’s a lot about the diversification of revenue, the diversification by geography.

The diversification also, you might have distribution channel. And so, this is something that we are keeping our -- in our mind, how we can create as much as diversification as possible. And I think this picture tells you that definitely we are getting flaws from different areas of our portfolio. On the profit consensus, I know, I do my job, you do your job, you have probably a consensus…

Michael Huttner: Okay.

Giulio Terzariol: …and then I will look at that and we make our comments.

And on the expectation for the future, I would say, we’re talking in the Capital Market Day, that’s where we can really talk about that. I can just tell you that based on where we are now, we think we are going to have a good set of numbers this year and then this is going to be a good starting point for the future. And we have…

Michael Huttner: Okay. Also thank you.

Giulio Terzariol: Yeah.

Sorry?

Michael Huttner: Yeah. No. You said. You said. Sorry.

Giulio Terzariol: No. I was saying we are looking…

Michael Huttner: I was just asking word about flows first…

Giulio Terzariol: …risks.

Michael Huttner: Oh! Yeah. Well, I’d love that. And can you say a word about flows in April and May?

Giulio Terzariol: Yeah.

The flows -- I can tell you, the numbers of April, they were €8 billion flow has been up, between PIMCO and AGI.

Michael Huttner: Okay. Thank you very, very much. Thank you.

Giulio Terzariol: Welcome.

Operator: [Operator Instructions] We’ll take our next question from William Hawkins with KBB. William, please go ahead.

William Hawkins: Hi. It’s still KBW as far as I know. Giulio, can you just tell me -- I just have one question.

Why is the ratio of acquisition expenses to PVNBP so low in your Life division this quarter? Your disclosure says it’s 6.8%. It’s normally about 8%. And it’s quite eye-catching that whilst your revenue has been strong, your acquisition expenses have gone down and that’s happened all four of the parts of the Life and Health, so it doesn’t seem to be a business mix issue?

Giulio Terzariol: No. I think it’s a business mix issue at the end of the day and because we did have a big change in the compensation structure if you know. I can also give an example.

That’s always easier for me to talk about Allianz Life. There you see, for example, a reduction of the -- of this ratio and that’s driven by the fact that we are selling more IVA versus fixed index annuity. And in IVA the present value of commission -- over the present value of the commission over the present value of new business premium is going to be lower. It’s also a short-term duration product, by the way. So it’s mostly mixed related.

And the case of Allianz, it is reputation, so sometimes even within a company, you might see a reduction, but then you need to dig deeper into the company. And then you’re going to see that a change in business mix within the companies can make a difference and think about the fact that we are changing business mix significantly. So, just to come back to the point of Allianz Life, right now, we are basically 50/50 between fixed index annuity and IVA that was not. So, the IVA production is matching the fixed index annuity production. That was not the case last year.

And there are other similar cases in other OE. So that’s also a sign of the change in business mix that we are doing.

William Hawkins: Okay. Thanks. It’s just strange because it seems to affect all major divisions, this is a very big change, no...

Giulio Terzariol: No.

William Hawkins: Yeah.

Giulio Terzariol: Welcome.

Operator: And now it appears there are no further questions at this time. Mr.

Schmidt, I’d like to turn the conference back to you for any additional or closing remarks.

Oliver Schmidt: All right. Thanks, Mellissa. Yeah. If there’s no further questions let me thank you for joining our conference call and I wish all of you a pleasant remaining day.

Good-bye from our side.

Giulio Terzariol: Thank you, guys. Have a good rest of the day. Bye.

Operator: This concludes today’s call.

Thank you for your participation. You may now disconnect.