Oliver Schmidt: Good afternoon, everybody and welcome to the Allianz Conference Call on the Financial Results of the First Quarter 2022. Before we start the call, let me remind you that this conference call is being streamed live on allianz.com and YouTube and that a recording will be made available shortly after the call. [Operator Instructions] All right. That was all from my side for now. And with that, I turn the call over to our CFO, Giulio Terzariol.

Giulio Terzariol: Thank you, Oliver. Good afternoon to everybody and please as usual to briefly present to you the results for the first quarter 2022 and after that I'm going to take your questions. If we move to Page 3, the underlying performance in the quarter was a solid, underlying performance with good growth in revenue, especially what is nice to see it is that the growth in revenue is driven by the Property-Casualty segment with an internal growth of 6.6%. When we look at the operating profit, the operating profit is slightly reduced compared to the level of last year. This is driven by the Property-Casualty segments, where we had also a higher amount of natural catastrophes compared to what we had last year.

This has been partially compensated by higher run but in total, we had a lower operating profit for the quarter. On the life side, we see a stable operating profit which is definitely a good results also considering the market condition and with EUR1.2 billion this is the, basically the outflow divided by four. The outlook for the year and then divided by four. And then in Asset Management also a good operating profit with a growth rate of double-digits compared to last year. Yes, the flows are negative, and this is driven by clearly the outflows it's PIMCO but considering the market environment and considering also the size of PIMCO considering especially the change in interest rate during the quarter.

We think that's a good performance from a flow point of view and also it should be highlighted at AGI had positive flows also in Q1. When we look at the net income clearly, here we had charge of EUR1.6 billion because of Structured Alpha, if you adjust the numbers for this Structured Alpha charge, we are back to a level of net income EUR2.2 billion which is basically in line with what we would generally expect. Now if we move to Page 5 on the Solvency ratio. The solvency ratio has reduced by 10 percentage points hence to explain the development over the quarter. We will go straight to Page 7.

So we’re starting from 209% at the year end of the year 2021. If you take the buyback into consideration, the starting point was 206%, then we had a percentage point of reduction in solvency ratio because of the change in UFR. The contribution from operating earnings if you take the number after tax and after dividend that's about 2 percentage point plus. And then when you look at the market impacts we have minus 5 percentage point of impact due to market movement, that is pre-tax number if you put this number after-tax that's a minus 2% thus negative -- even if interest rates are going up because on the other side, the interest volatility has increased, the equity market have been down. Then we have also an impact due to inflation to the Russia write-down and also to the downgrade of Turkey.

So there were a lot of other elements that have more than offset for the increase in interest rates in the quarter. And then I will say when you look at capital management action here, we had impact of the dividend buyback and also took some measurement action in the sense of increasing our inflation linked bonds and this has a negative impact on solvency, it’s not too big impact we are speaking of about 50 basis point, but that’s a small negative impact, and also we have reduced our CDx hedge for credits spread widening and there was another 50 basis point. In order, you see then the basically the impact due to Structured Alpha and then also, there is as always some noise coming from the front-end module from exposure updates, also from the impact of the tax release. So I would say the major clearly item driving our Solvency II development was impact of Structured Alpha and also the market impact is now been positive but has been slightly negative because of the aforementioned reason. Overall we end up, it's about 200% solvency ratio, which is clearly still a robust level of Solvency ratio very much ahead of our -- let's say target or threshold of 180%.

Now coming to Page 9, on the segments starting from P&C. As I was saying before good growth rate of 6.6% and as you see basically a lot of companies have contributed to the positive growth rates, there are a few exceptions usually this is because of the need to do some cleaning in the curve for example the case for France. When you look at AGC&S you see negative number, but that’s two even by the fronting business. So if you were a more fronting business, in reality the growth rate it's AGC&S was basically 10%. And that's also more in line with the change or renewal that you see on the right-hand side.

Speak of change on renewal. As you can see overall the momentum is, you can see positive change in renewal also broadly better momentum compared to what we had in the course of 2021 and this is clearly also needed in order to respond to potential increase in inflation that we might see down the road. When we move to Page 11 on the development of the operating profit, clearly, down compared to the level that we had last year by about EUR140 million. This is driven by the combined ratio. You can clearly see the impacts of the net cash which was 3.5 percentage points higher compared to last year.

You can also see that the runoff is significantly better compared to what we had last year. Last year, you need to keep in mind, we have been very conservative in the first quarter. And regarding runoff, we see now which is a little bit higher compared to what you would usually expect. This is a reflection of releasing reserves, which were associated to COVID. I'm sure you're going to ask me later.

I'm going to give you more details on these elements. And then when you look below, you can see the combined ratio by customer segments. In retail, you see a big swings from 90% last year to 96% this year. This is driven mostly by NatCat and also to a certain degree also by the deterioration of the situation in Brazil. On the other side, when you look at the commercial line, you can see a big improvement in combine ratio.

This is partly a reflection of the run off releases, mostly driven by this COVID releases and also we have some underlying improvements in our commercial line. Now when we go to Page 13, on the operating profit by entity. I would say that generally you see when you look at the combined ratio, you see a good combined ratio in Germany. I would say, in France, Switzerland, Eastern Europe, also Italy, with a good performance in United Kingdom and Australia, you definitely see the impacts due to the natural catastrophe. And then I will say, Latin America, the combined ratio of 112% is driven by the situation in Brazil, which is not necessarily idiosyncratic.

That's a situation that is affecting the whole markets. I guess we can speak later about what is happening in Brazil and what's we are doing there. What is definitely a positive is the development at AGC&S with a combined ratio 95% and also Allianz Trade had a very good results in the first quarter of 2022 and this is part due to the release of runoff that I was mentioning before but then we need to consider also that we booked in amount shy of EUR100 million for potential IBNR related to the Russian situation. And with that, moving to Page 15 on the investment results. Overall, you can see there is a different trend compared to what we have observed in the last years.

Now, you can see the investment income is going up and when we look for example the economic reinvestment yield you can see an increase of 1 percentage point compared to what we had last year. So from this point of view, we expect to have on these KPIs some tailwinds and we also expect to have a positive deviation compared to the assumption that we made for our planning for 2022. So overall, when you put together the numbers for P&C, we had an operating profit of EUR1.4 billion, which is not very far away from the outflow divided by four, there will be EUR1.5 billion number for the quarter, considering also the amount of NatCat and those who refer that in general, we have been, I would say is like on a conservative side I think this is -- well, a good starting point for the conversation we're going to have in the rest of the year. Now, going to Page 17. On the life side, we see that's the new business margin is going up compared to what we had last year.

This is a surprise considering the rate environment. We can see also the actions that we put in place in the course of 2021 in order to get to new business margin, which are reflect of our target. So right now, we're benefiting clearly from product features, which are indeed desired for an environment with even lower interest rates. So overall, so the mix is at the level that we like. So from that point of view, the new business management continue to be very, very successful and the environment is making work even more productive.

Now going to Page 19 on the operating profit stable and the EUR1.2 billion is also equal basically to the outlook, divided by four considering the volatility of the capital markets in the first quarter, I will say that's a very good results and as you see basically all segments have been either increasing in operating profit or at least keeping the level last year. We did exceptional the guaranteed savings in the annuity this the segment or the sub-segment where we have also the variable annuity business in the U.S. and this is clearly planning the deviation to last year. We know that last year, the markets were very stable and you see the market has been stable by definition, the VA business going to produce better or worse results subject to the volatility of the equity market. With that moving to Page 21.

On the value of new business, it's up significantly compared to last year, that's driven by the new business margin because volume was more or less the level last year. And then when you look at the operating profit, I will say that you can see there clearly, the swing in the profitability of Allianz Life USA, because of the VA business otherwise you can see a lot of consistency. And in the case of CEE, you can see the impact of the acquisition of Aviva which is contributing almost 50% of the profit of over EUR100 million for the region. Moving now to Page 23, on the investment margin. The investment margin has reduced by couple of basis points compared to the level of the first quarter 2021.

This has also to do with the transaction that we did in the USA, because clearly, we reduced asset base that we have in the United States and because of the way the profit source generation works for Allianz Life, Allianz Life is usually contributing higher investment margin compared to the other entity. So if you want this is almost a mix issue, adjusted for the mix, the investment margin will be pretty stable at the level of last year. What is more important as you see the guarantees are constantly going down. You can see now a reduction of 4 basis points compared to the level of last year and you need to consider that's on the yield you are going to see more resilience clearly, with a new environment. So from that point of view, clearly if you have more potential volatility of the equity markets fundamentally, the difference between the -- in fact the current yields hence the minimal guarantee should just improve over time and even improve more compared to the trend that we might have seen in the page.

So overall good results and stable results in the Life business. And now moving to Page 25, we came to the Asset Management segment. Here you can see that the assets under management have reduced by 5%. And we can go straight to Page 27, where we're explaining the reduction of the third-party assets under management by more or less the same amounts. And clearly, the major driver for the reduction assets under management has been the movement or the markets due to equity market and also due to the rates going up.

This has been partially offset by the U.S. dollar appreciation. And then when you look at the flows, we had negative flows at PIMCO, which again is not surprising this kind of environment. And on the other side GI had good flows, which were mostly driven by the multi-assets developments. One thing, when you look at the right hand side of the slides, you can see there is a majority of the outflows.

So basically the outflows were coming from the separate accounts. These are also usually the kind of assets where the fee margin tend to be lower. So from a revenue point of view, I would say, the reduction in run rate revenue is less when you look from this -- the mention as opposed when you look at that just from an amount on that net outflows. When we go to Page 29, on the revenue growth. Overall, clearly, you can see a nice revenue growth compared to the first quarter 2021, that's also because of the base effect.

Clearly, there has a base that we had in Q1 2022 is a significantly higher compared to the asset base that we had in the first quarter last year. And also then you can see that overall the fee margin has been improving compared to the last year level that’s driven by PIMCO partially because of mix and also partially because of a one-off last year, which was bringing down the fee margin. But overall a nice increase in revenue compared to last year. And clearly, when you have these kind of effects at Page 31, you can see that the operating profit is increasing double-digit. If you take the total growth in operating profit without adjusting for the fix, now if you then adjust for a fix you have a growth rate of -- in the mid-single digit.

So still a good growth rate and especially, the increase in performance has been evident at PIMCO, but also AGI with an increase in -- within operating profit of over EUR200 million had a another very, very good quarter. So overall good results for this segments in Q1, which are not far from the outflow divided by four. We need to consider that its performance fees are generally come at the end of the year. So from that point of view, usually have in this level of performance in Q1 would lead us clearly to achieve easily the outlook, in this situation, we need to see what is going to happen with the market volatility but the first quarter has been definitely a good quarter for asset management. Now going to Page 33 on the Corporates.

You can see a negative deviation compared to last year. But the numbers are in line with the expectation, the number last year was just simply too low. Usually, we are near to about the potential of about EUR700 million to EUR800 million of operating loss for the quarter -- for the year. So the number that we see in this quarter is in line with this kind of expectation that we have for the segment. And now coming to Page 35, and then clearly, the below the line items dominate, if you won by the charges of about EUR1.9 billion because of Structured Alpha.

When you look at the other position, you can see that's the net position realized gains and impairment has been positive about EUR150 million. We had some impairment clearly coming from Russia, but they were offset by realized gains, especially some realized gains coming from our Allianz X investments. And then when you put all together, you get to a net income of about EUR600 million again adjusted for the Structured Alpha after tax charge of 1.6, the net income would have been EUR2.2 billion considering the market environment and also the entire situation. I would say that's a good level of net income, which is basically in line with our expectations. Now on Page 37.

As a summary, good underlying performance. Clearly, it’s coming from the Structured Alpha situation and then on the capital deployment. We have concluded as of end of April, the first part of the EUR1 billion of buyback and clearly, we are now continuing with the second part of the EUR0.5 billion buyback. So from that point of view, we are continuing clearly in our capital deployment philosophy. And with that, I would like to open up to your questions.

A -

Oliver Schmidt: All right. Thank you, Giulio. We will now be happy to take your questions and we will take the first question from Peter Eliot, Kepler Cheuvreux. Peter, I think your line should be open now. Go ahead.

Peter, can you hear us?

Peter Eliot: Yeah. Can you hear me now?

Oliver Schmidt: Perfect. Yeah. Now we can hear you. Wonderful go ahead, please.

Peter Eliot: Thank you very much. And so the first one, I'll just not to get your views on the -- this would be the outlook for yield. I mean, you mentioned Giulio in your presentation, but I think in non-life obviously, 5 basis points up from last year. I'm wondering how much of that is driven by the inflation-linked bonds you refer to? And yeah, what your outlook is there? And then in Life, you guided to an investment margin of 75 basis points at the full year results. I'm just wondering if you could give us an update on that given the new environment? And then secondly, I mean, since you invited the question on Allianz Trade.

I’m wondering if you could give us any more sort of detail on the reserve release and how you think you're remaining reserving position there? And then finally, on Solvency, I mean, you're still 20 points above your targets in a very healthy level. But I'm just wondering, given the dislocation that we had in financial markets in Q1, I'm just wondering whether you thought about sort of taking out any additional protection or de-risking as any point or whether that was part of your mind you know given the level you are at? Thank you very much.

Giulio Terzariol: Sorry, I'm not sure, I understood your first question. I think I understood it if I didn't you can always ask me again. But, so my understanding was you're asking about investment income P&C and how much of that investment in P&C was driven by the inflation in bonds.

I would say, the impacts because of inflation in bonds was maybe about EUR20 million. So it was not super substantial but the area where we have had increased our location to inflation in bonds is in the Corporate segment. And in general, I would say, the increase in our investment income is coming partially from there, but just because the rate environment is different, you need to consider that in a quarter, we can reinvest about EUR7 billion, in the first quarter is even a little bit higher because you have more premium coming through. I think that we have a sort of EUR7 billion of reinvestments in a quarter when you have a swing the way you are seeing right now clearly these can provide some uplift right away. So I would say, if some impact due to the inflation-linked bonds.

But I would say the majority of impacts is just coming from the fact that we had this amount of reinvestments. So I hope that was your question. And if not then…

Peter Eliot: Yeah, it was. Giulio, thank you very much. And I also ask to sort of part B to that question, whether you had any updates on the Life investments margin guidance?

Giulio Terzariol: Yeah, sure.

And there was the other one, okay. This is a second question Investment margin, hence I think William is going to also ask me about this, that's the famous 70 basis points, 75 basis point. If you look at the 19 basis point is basically indicating that we had the kind of run rates, also for the remainder of the year. It's going to depend a little bit on the volatility, as the volatility is going to reduce, I will say, we have some room to go even a little bit higher, but on the other side if the volatility is going to stay elevated, then I would say we might breach the 75 and go lower. As you know, we have always the volatility coming from the United States on the VA.

And also potentially price continue to go up. Eventually, there is -- on the Allianz slab and business, we have some derivatives that we use for Solvency II steering. And these derivatives however in IFRS they cannot be completely match through cash flow accounting. So there is a point, where clearly that derivative might create some accounting noise. So it will depend a little bit on what happens to equity market volatility, depends little bit to what is going to happen to rate movements.

But if you ask me, if you take out the noise, basically that's the number of 75 basis points over time can just become better. I have unfortunately bad news for you, I don't think that’s this will be a number that we are going to have and thus the North of IFRS-17. So as we are looking at the disclosure under IFRS 17, we don't think we're going to be able to reproduce this kind of number. We are going to find other ways, clearly to give you a sense about that topic but we might not be able to give you this kind of KPI moving forward. But the bottom line is, these investment margin clearly based on the product action that we have been taken.

And also, based on the rate environment that we see right now, you show this pages to have stability and even in an increase of over time. So there is basically the trajectory that we would expect to see on this KPI. But again, we might not -- we might have to think about the different way to give you a sense about the estimation in the future. Then on the Trade, I tell you, there were two items, first of all, we had release about, I would say the runoff that we had, it's Allianz Trade was about EUR100 million. And so this is all part of the conservatives that we had during the COVID crisis, because as you might remember, we booked a loss combined ratio during COVID that was, I think around the 100%, and the reality the claims trajectory has been the opposite.

So from their point of view, there are definitely some margin there. And I believe that when you look at the competition they also going to show some positive releases. On the other side, we have basically bought also an IBNR for Russia. So far we didn't see a lot of claims, so minimum amount of claims coming from Russia. So I would say that two F/X are broadly offsetting inside and we also can also tell you that it's on the accident year, in general, we are now seeing a lot of claim activity.

So from their point of view, we are feeling very good about the steady combined ratio is also about the strength of the balance sheet for Euler Hermes. And then you had a final question regarding the Solvency II and also how we are thinking about the -- what could be the level right now. And also how we are thinking about the Solvency II moving forward. I would say that the level, right now, it depends if you take this morning was definitely more or less in line with 199 that we have here as market goes down and up you can change as I said a few time also in the past you can change as we speak. But I would say that's a, right now it is going to be more or less at a level of the first quarter 2,000 (ph) -- or the first quarter at the end of March.

Now clearly, we see there is volatility. So from their point of view we need to be prepared that there could be more pressure on Solvency II, moving in the next weeks and months. And from the way we think about that clearly, we also thinking about potentially re-scheme, but what we have been learning also from the past situation volatility is sometimes when you overreact you end up paying just a lot of hedging cost without and then eventually seems reverting. So our philosophy is going to be not so much to react to volatility is just really about seeing what kind of structural decision we want to do on the asset allocation considering that the different rate environments can leads to different decision about the asset allocation. So our reaction now and we are looking to that is, will not be driven by how we feel the equity market is going to perform next months but whether we can think differently about our asset allocation because right now we see that clearly there is more modules in the bonds and this can change our asset allocation to a certain degree for especially for the Life business.

So that's definitely something that we have on the agenda, and we are going to add this our conversation indeed in the next weeks.

Peter Eliot: That's great. Very clear. Thank you.

Giulio Terzariol: Thank you.

Welcome.

Oliver Schmidt: Okay. Thank you, Peter. And we will take the next question from Will Hardcastle, UBS. Will, your line should be open now.

Will Hardcastle: Thank you and good afternoon, everyone. The first one just thinking about retail motor specifically. I guess, we've seen a lot of retail motor price declines across much of Europe, leased levels lagging of inflation even if there are perhaps. Can you help us to bridge to gap as to why that shouldn't drive some margin deterioration? I guess is there been a structural frequency benefit from driver behavior perhaps? The second one is just thinking about operational inflation, thinking about there was a bit of a disappointment on the expense ratio. Can any of that be attributable to inflation in any way or is that more mixed? And perhaps, are you still confident of achieving the same trajectory versus prior guidance on expenses? Thanks.

Giulio Terzariol: Yes. So, no, thank you for the question. So when I look at motor retail, the only currency where we see pressure on the rates, it's in the UK, which is also because of their dual pricing. Otherwise when I go through our strategic, I can tell you that I see a good rate changes in France. I see also good rate changes in Germany, Australia also good rate changes, Spain also good rate changes.

So and then I would say Italy, well, in the past they changes had a tendency to be negative at least now they are turning positive. So I would say, your point is valid for the UK, but we don't see the same trend in other country. Then clearly, if you ask me, what we need to watch, as we look forward is, what kind of inflation we are going to get, for the time being, we are not seeing a significant increase in severity. I'm referring here to motor, but also to other lines of business, but clearly, we need to pay attention to what future severity might be to this points, we have been kind of preparing, but I can tell you that’s for the time being. The rate increases we are getting are in general and then there is always exceptions here and there, but the rate increases we're getting are aligned with the amount of severity of frequency that we are seeing.

To your question, regarding the expense ratio. First of all, the increase that you see, the slight increase in expense ratio that you see in Q1 is driven by mix and especially driven by Allianz Partners. As you see Allianz Partners, there is significant increase in business compared to last year that’s because of the clearly COVID recovery and the expense ratio of Allianz Partners is higher compared to expense ratio the rest of the group and especially the expense ratio in travel for Allianz Partners compared to the expense ratio they have in other line of business. So that thing is driven by Partners. If you remove Partners, you should see a slight decrease in this expense ratio compared to last year.

To your question -- so there is no impact in inflation on the expense ratio, yet. This is something that might potentially become an issue more as we go into 2023 and is going to depend a little bit also on the wage inflation that might come through. And wage inflation might be different country by country, might be different also based on the agreement that's in different country you might achieve with the labor union. So my take is, we are going definitely to see some inflation increase in our expense basis. And to this point clearly, part of this is base inflation, increase is going to be offset also by rate increases because we need to consider that clearly there will be a rate increase.

And then, clearly, we are going to stay to work on our expense management actions. So there is bottom line or change in our guidance with respect to the targets that we had given ourselves for the expense ratio reduction over the next two, three years.

Will Hardcastle: That's great. Thank you.

Giulio Terzariol: Welcome.

Oliver Schmidt: Thank you, Will. And we will take the next question from Will Hawkins, KBW. Will, please go ahead. The line should be open for you now.

William Hawkins: Hi, Giulio.

Can you hear me?

Giulio Terzariol: Yes. Very well.

William Hawkins: Good. Sorry, I'm going to disappoint you not ask about Life. Can you -- thank you for what you just said about inflation in general.

I'm kind of assuming you guys maybe underweight social inflation risk in the U.S., but I just wonder if you could talk about how you're thinking about that? And also how topical in your mind the issue of litigation finance in that equation. As for all insurers, on the one hand, you may say you want nothing to do with it, because it accelerates inflation and you want to avoid that. On the other hand, you could argue that it's a useful hedge and given that you're in already investing in inflation-linked bonds, it's kind of complementary to that in some way. So how are you thinking about social inflation and litigation finance in that context? And then secondly, please all of a sudden, a lot of really useful stuff at the beginning of the year about, how you think about tail risk and diversification and the rest of it? Could you kind of just give us a bit of an update of where you're thinking is with regards to refining the focus of the business in Allianz? You don't really need to worry about diversification because you will spreads so far, but that means there are so many moving parts. What kind of top of your mind at the moment in terms of refining the focus at Allianz? Thank you.

Giulio Terzariol: Yeah. So maybe on the litigation finance, that's something that we are not really talking about within Allianz. So there will be clearly mostly topic for AGC&S. So I will say, I take your comment, and we're going to double check whether this can be used as a hedging, but this is not something that is on my radar. We will not be able even to speak in a competent way about the topic, but I'm going to clearly address this issue with AGC&S and see what this can mean for us.

In social inflation, there is something clearly that we are considering, right. So we need to be ready that's the inflation increase, that we see and we see also in the United States has to be carefully considered and from their point of view, clearly we keep cautious staying seen reality on liability financial lines in the United States. And it's very important, it's a -- you put, the light capacity not getting too much exposure to date and also make sure that the rate increase is going to be there. Otherwise, our experience as you remember with financial Allianz liability in the United States it's not been a great experience. And there has been also a recent SPA's.

So there is definitely an area of focus because we know when inflation is coming, this is going also to push definitely social inflation. But for the time being, we don't see now any particularly problem when we look at our book. But clearly, this is something that we're going to monitor and our appetites remain cautious. Your question regarding the tail risk for -- and what we are doing there. I will say that there are two elements.

One element we are continuously put a lot of effort around what could be accumulation risk, also in the P&C side what could be on the cyber risk. So these are all kinds of elements that where we continue to refine our scenario, but part of the conversation about the tail risk, it was really about how we can avoid in the future to have the kind of plus one that we had with the Structured Alpha issue. So that's part in reality maybe the most important part of that conversation about tail risk. So it's not so much about on this, just speaking how much Solvency II sensitivity we might have, how our cat program is organized within these things. We are clearly always refining is really about how we can avoid in the future that we might have this kind of Black Swan event.

And to this extent, yes, we are having a lot of conversation about the company always still the top Risk Assessment. You go through a lot of thinking about what your properties might be, what the mitigation are? And we are putting a lot of effort in thinking how we make this work that we are already doing which is of high importance for the Group, how we make these this process even tighter moving forward. That's the major area of focus also for me personally.

William Hawkins: Fascinating. Thank you, Giulio.

Giulio Terzariol: Welcome.

Oliver Schmidt: Thanks, Will. All right. We will take our next question from Michael Huttner, Berenberg. Michael, please go ahead.

Your line should be open now.

Michael Huttner: Yes. Thank you so much. [indiscernible] On Structured Alpha coverage related issues and Giulio mentioned 9% is just enough? Those are my three questions. So in Structured Alpha, is it final, what are the consequences you spoke about in that still -- yesterday in the press release.

The -- and what's -- given a big hole in balance sheet so, maybe you can give a bit more background to what happened and how far and how close we are to final settlements in one that might be? COVID reserve when you said [indiscernible] you said some is coming through in Trade. And I just wondered when we might see some COVID reserve releases from the underline. So it's time on the correctly not being about EUR800 million left or something in AGC&S, and the 199% just enough to do buybacks in the current buyback. And then of course, sorry and the last typical question, what are the flows today in PIMCO and AGI? Thank you.

Giulio Terzariol: Yeah.

So Michael, I understood there was a question about Structured Alpha, than there was a, I guess a question around COVID releases, and there was a question? [Multiple Speakers] Then flows for PIMCO and AGI, and buyback.

Michael Huttner: [Multiple Speakers] EUR119 enough, you know, could. And I'm really disappointed that it's still the same today as Q1 and I’m kind of thinking, anyway.

Giulio Terzariol: Yeah. So the answer on the – I’ll start from the last one, the answer on the buyback, yes, absolutely with the Solvency ratio 199.

There is no problem to the buyback. I want to give you a perspective, another buyback of EUR1 billion to say is a couple of percentage point of Solvency II, 2 percentage point of Solvency II honestly speaking this as more and more insurance volatility or the interest rate and so on. So we need to put everything under the right perspective. And again for us, you know, driving also the capital management philosophy and buybacks, which are part clearly what we do is not just a consequence of things happening to us is also a target. So from their point of view we need to work harder to get to do some buybacks.

We're going to do it and it's a very important, it's not just we are sitting here and things happen to us and there we say, oh, we cannot do a buyback. We are clearly working although to make sure that we can deploy capital according to a certain level of expectation. So, again, it's 200% solvency ratio. There is no hesitation about doing or not doing buybacks. On the first one PIMCO, I tell you in the months of April, they were about EUR6 billion negative, so it’s still clearly a negative number.

In the case of AGI, they were slightly positive. So we see a little bit of a continuation in the negative outflows at PIMCO. I had to tell you totally relax about the outflows at PIMCO. Clearly, it is not going to be helpful as we think about the next quarter or maybe as we think about 2022, but if you think about the environment clearly eventually for PIMCO is going to be a very good environment to operate. And I really strongly believe that the outflow so today are going to be the inflows of tomorrow because people are going to be on the sideline now.

You might not come to the area to invest in a bond fund rights, right now, if you have an expectation the rates are going up in the next few weeks, but eventually when people are going to say there is a level, then you're going to see a lot of loss. So fundamentally, we always said that yes, this can be a little bit painful in the short term, but there is definitely not painful or the opposite as you look a little bit, our cost to cycle is put it this way. So from that point of view, we don't see really this flows at PIMCO as a concern, and if you ask me, I also really believe they are moderate compared to the kind of outflows, you might see in a situation whether it's going up and that is this expectation that rates go up. And for AGI, still a positive months, so now it’s becoming clearly a sort of track record for AGI to have positive flows. On the COVID situation, I will say there is still room, clearly for us to release some reserves is going to be also if I show clearly some proceedings that happen in different legislation, but if you ask me, clearly there is more possibility to see some releases.

And also just maybe to say that increase in the positive run that we saw this quarter reality is coming from a true-up of our rate on COVID. So we are expecting to get some more recoveries from the insurance company compared to the conservative assumption that we had put during the COVID time. So that's also explains part of this positive run-off. And then on the Structured Alpha, I feel you need to be patient to have more information about Structured Alpha. I can just tell you that the provision is taking care of the financial exposure related to compensation payment to invest and also any payments and any resolution for governmental proceedings.

On the final resolution and the implication for Allianz Global Investor, we need to wait clearly for the final resolution. That is more that I can tell you at this point in time. The only thing I can add is that we are seeking for a timely resolution of this issue and I believe that the way we are confronted the situation, starting August 2021 that we have been -- we really try to be as fast as possible to put this behind us, but you've seen it we have some patience before we can put definitely closure to this topic.

Michael Huttner: Let me say patience -- I'm not patient at all. So I was thinking, can you give kind of benchmark? Is it months, years, or decades?

Giulio Terzariol: Benchmark of what?

Michael Huttner: [Multiple Speakers]

Giulio Terzariol: No, I think is going to be -- we are not speaking of months.

Let's put it this way. We speaking of less than months, if you ask me.

Michael Huttner: Okay. Thank you so much. Thank you and good luck.

Giulio Terzariol: Thank you.

Oliver Schmidt: All right, Michael. Thank you for your questions and thank you for your patience. We will take the next question from Andrew Ritchie, Autonomous. Andrew, please go ahead.

Andrew Ritchie: Hello? Hi, there. A couple of questions. First of all, an easy one. Could you just remind us on the details of your aggregate CAT cover, cash recover? I think that's one of the reasons why you're still very comfortable with the full year outlook. Just remind us when that kicks in a more of the per event deductible is stood at? Second question, I appreciate the Solvency is very strong and you could fund another buyback, given the Solvency.

If I just think about cash though the sort of remitted cash per annum that you've sort of indicated or you've been delivering is in the region of EUR6 billion, EUR7 billion. If I add up your outflows, the dividend and the buyback, you already doing the regulatory that defines as far as thrash payments. I mean I'm getting to EUR7 billion. Should I care? Does that matter? What should I know think about even looking, adding up your inflows and outflows? I mean, I'm just trying to understand did you think about in terms of short-term liquidity flexibility to -- for example, do a another buyback. My only other question was on the Asset Management business.

I appreciate 60% of the cost base is variable, roughly. But on the 40% isn't variable. There is inflation. I mean salaries are going up at least that's what other asset managers has said in their earnings results. So, is there more and more of a challenge now on the cost-income and controlling that in the Asset Management business and so you were very relaxed from the beginning of the year, is that slightly less relaxed on that now? Thanks.

Giulio Terzariol: Thank you. I never relax, might be the impression, but only opposite or relaxed. Starting from the first question NatCat. Our aggregate is starting EUR1.2 billion and then we have EUR500 million capacity. Now there is a deductible of EUR13 million for every NatCat.

So over the first EUR30 million is anywhere on us, and then what is on top of the EUR30 million goes into the aggregates and EUR1.2 billion we starts getting these recovery of EUR500 million. So the way, I look at that broadly, we have a NatCats and weather related budget of above 3.5%. I would say, when we get to the 4.5% broadly at that point the aggregate should come into play. So I would say there is a 1 percentage point more or less of possible negative deviation than we might have compared to plan and then we have the aggregate that will give a protection for EUR500 million. That's the way I try to simplify the story.

One thing that's to keep in mind is, we see high investment income in Property-Casualty compared to our assumptions. So we -- in the EUR6 billion of outlook, we had an assumption of, EUR6 billion of operating profit outlook for Property and Casualty. Our assumption was that we are going add EUR2.4 billion of investment income. We are going to be most likely at 2.8, maybe even higher, if rates continue to stay at this level. So this is going to be definitely an offset that within the Property-Casualty area, we're going to see in the case, we go all the way up to the 4.5% NatCat and whether related compared to our budget.

So there is a little bit offset there. Then we need to see what inflation is going to do. But when you put together the different pieces, there is also these big offsets that we are going to have coming from the investment income. Then had a question about cash. I would say, okay, issue not a constrain, and just to give an idea to keep in mind that's because of the Lucid transaction, we got already now slightly more than $4 billion in dividend.

So this is also something we want to consider in general, we as a healthy cash flow generation from our companies. There is always excess capital that we try to tap into. But just consider that's the Lucid transaction in the United States has generated a significant amount of liquidity for the Group. So cash is actually not constrained. And then coming to the topic of inflation, you refer indeed to inflation Asset Management, yes, in PIMCO, for example, we had to run higher, saw increases compared to what we had in the past.

But as you see, when you look at the cost income ratio, for example of PIMCO and the cost to income ratio for the quarter has been actually pretty, pretty good. So yes, we might have some inflation pressure. But as you see, we have also clearly other two levers that we can trigger in order to try to keep the cost to income ratio stable, but it's more work to do, obviously, and when you have some headwinds that you need to work little bit hard on other levels in order to get to the desired outcome.

Andrew Ritchie: Okay. Thank you.

Giulio Terzariol: Welcome.

Oliver Schmidt: Thanks, Andrew. We will take our next question from Thomas Fossard, HSBC. Thomas, please go ahead. The line should be open now.

Thomas Fossard: Yeah. Good afternoon, everyone. Just one question left on my side, which will be ready to your strategy in the UK, P&C. Giulio, can you can you dig a bit more what you're currently doing in the UK since actually prices are looks to be a relatively flat you're growing 5% but seeing the combined ratio shooting up by 9 points. So I'm not sure definitely what was driving this negative evolution of the underwriting profitability? And what was potentially your stance regarding the upcoming quarters for the UK? Thank you

Giulio Terzariol: No.

Thank you. Yeah. So the growth that you see is not driving the combined ratio higher. Here there are different elements. The growth is coming actually from commercialized lines and that reality coming from rate increases in commercialized, then you're going to tell me, but Giulio said zero change on renewal for Allianz UK.

The reality is, you have positive rate increases in commercialize and you have negative change on renewal because of dual pricing in retail. So in reality, growth is coming from commercialized and is coming from rate increases. Then clearly there is some pressure on the rise, because of the dual pricing and our strategy and then, you had NatCat impact, today as you need always to consider the NatCat. The NatCat is been more elevated also compared to last year but also compare to what our expectation will be. So what is our strategy? In P&C, commercial lines this strategy and also in SME the strategy is clearly to continue to look for rate increases in order to make sure that we get to the profitability level that we like to see, and it is not just about rate increases.

So we are upgrading our expertise in commercialize. But there is part of the equation just get into a different profitability level in commercial lines and it's not about volume, it’s about margin profitability and ability is in this environment is possible to get rate increases and have also a good level of retention. On the personal line side is about finding the price points because clearly, when you have these kind of changes in regulation, you need to -- you clearly are looking for what you think is that right pricing. But then you need to also see what the competition is doing. And so I think especially in the first quarter there was definitely some movement up and down and try to find at the right price point in the sense what you think is the right technical price, but then you need also to look at what the competition doing and try to position yourself in a way the commercially still viable.

I believe we're going to see clearly more stability as we go into the second and third quarter, because the entire market is going to have more experience about -- where they do a pricing is change is doing. One thing to keep in mind, a related inflation dynamic is a little bit more pronounced in the United Kingdom. So this might add a little bit to the complexity to find the good price point in retail. That was clear.

Thomas Fossard: Perfect.

Thank you, Giulio.

Giulio Terzariol: Welcome.

Oliver Schmidt: Thank you, Thomas. We will take the next question from Vinit Malhotra from Mediobanca. Vinit, please go ahead.

The line should be open now.

Vinit Malhotra: Yes. Thank you very much for the question. So I have two questions on Life and one on Solvency sensitivity. So on the Life what has --- we're noticing is the technical result was probably the highest I've seen in any quarters being reported not the EUR420 million odd.

If there any element you like to fly here or is it more about, yes, this is what was meant to happen, because we settled preferred products and I'm asking also because in the CMD one of the positive surprises also at Life was being given them more push. I just want to understand the thinking that and also fixed numbers. Second topic, Life was, we've doubt in the prior reporting about convergence in the full year results of convergent of Life Asset Management. And then obviously, interest rates have had pretty strong move and how is that thinking that is it still an idea to try to do something as a converged or is it more, because you will see those two offsetting each other higher rate, better for Life and short-term not good for Asset Management. [Technical Difficulty] This is my comment a bit cheeky but the interest rate sensitivity, so your objective for a few quarters or maybe a year or two that’s been the interest rate sensitivity and congratulations you're doing that.

It's about two points of Solvency, I can see. But is it worth reviewing the strategy, given what the market is doing and how could for interest rates? Thank you.

Giulio Terzariol: Yeah, may be, sorry for the technical margin reality the increase in technical margin in the quarter is mostly driven by the transaction in United States because basically there is the amortization, the insurance commission goes through the technical margin that's where we have pointed the amortization or the insurance commission. So they've seen in the reality of the major driver. This is clearly the improving or increasing loading fees, and increasing in technical margin is part of our strategy as we move forward, but for the quarter, I tell you the big increase is driven by the technical effect of where we are showing the amortization of the insurance commission related to the Lucid transaction.

Then on your question about the convergence between Asset Management and Life in fact that rates are going up is not changing that thinking as strategy where we really believe that by combining our footprint in the Life business and also what we have built in the Asset Management, we can tap a lot of the value chain. So it's really about this idea of tapping the value, the value chain between what's our manufacturer from the product point of view, can do and what we can do on the Asset side. And as you may know, so we are producing a lot of revenue in our asset management business coming from the Fed they are managing our proprietary assets. So we did a calculation that if you add those revenue after cost to the ROE or the Life business we will get a lift in ROE on the Life business of 1 percentage point. And that point is we want clearly to continue to play this kind of strategy and make even if stronger because there is definitely some value that we can create by having control over a large piece of the value, the value chain, and in a lot of countries we also wanted distribution.

So basically, we have -- the entire value chain from the customer to the asset management. And the last question was about the sensitivity. It's very tempting to certain degree to say price were up let’s start change our duration gap and maybe open up more of a gap all these kinds of things, but that can be very tricky. So from that point of view, I don't think that we are going to yield to the temptation to go into an interest rate bets. So we are going to keep our philosophy that we tried to be duration match.

And we are not going to run a risk there we might be on the wrong side of the equation. There is no sense in that we do that. The thing that's we will consider is clearly in a different rate environment, can we think differently about the strategic asset allocation, but we are now going to have a different think about duration in positioning.

Vinit Malhotra: Okay. Thank you, Giulio.

Giulio Terzariol: Welcome.

Oliver Schmidt: Okay. Thanks, Vinit. We will now take the next, and actually the last question from Vikram Gandhi, Societe Generale. Vikram, please go ahead.

The line should be open now.

Vikram Gandhi: Hello, hi. I hope you can hear me, all right. Just a quick one, I wonder what's the level of consistency in terms of the inflation impact between what we see in the Solvency II and what we see in the IFRS numbers? The reason I ask this is, there is a comment saying that there was negative inflation impact on Solvency II for the quarter. But what I'm trying to get to is, if that the level of inflation embedded in the reserves and the IFRS as well or it's a different math with some of the results under IFRS which are not in Solvency II? So, any color there would be helpful.

Thank you.

Giulio Terzariol: No, it's different math, and basically, there is not necessarily an automatic inflation impacts in IFRS in the case of Solvency II, in some Life businesses, you need to adjust automatically the expenses assumption based on the inflation and the economic scenario for inflation, this leaves basically to more reduction the deal on fund. But this is peculiarity or Solvency II calculation in for some businesses. You don't have the same treatment under IFRS 4. So it's Solvency purposes.

Vikram Gandhi: Okay. Thank you.

Oliver Schmidt: Thanks, Vikram. All right. We do not have any further questions.

So this concludes today's call. Thanks to everybody for joining. We say goodbye to everybody and wish you a very pleasant remaining afternoon.

Giulio Terzariol: Okay. Thank you for your time and have a good rest of the day.

Thank you, guys.