Oliver Schmidt: Good afternoon everybody and welcome to the Allianz Conference Call on the Financial Results of 2021. 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. If you want to ask a question after the presentations, here is how you raise your virtual hand. If you join us by a web call, please click on the talk request button at the upper right hand side of your screen. If you join us via telephone, please press star five.

All right, that was all from my side for now. And with that, I turn the call over to our CEO, Oliver Bäte.

Oliver Bäte: Yes, good afternoon. Good morning wherever you are, maybe good evening in Asia. Thanks for joining today.

We have quite some movement yesterday on a few items that by the way we are very happy about. We're going to spend some time on it. For those of you that have not been able to listen to our press call early in the morning, I wanted to make sure that we understand we have readout and are publishing the statement with regard to structured alpha and we can't really comment on that as we said there except for a few facts. So be aware that if and when you have questions, we need to really stick to what we've said. I think that's the first comment I'd like to make.

The other one that was more procedural is to actually go quickly only through the presentation that I have because I think you're all very eager to talk and listen to Giulio to ask what was the attrition loss ratio in Brazil and all of these really interesting things. So I will be very quick in terms of where we are. Three messages we have. Allianz delivery is stronger and stronger and stronger. Yes, we may have people that believe there is an overshadow, some people that want to take advantage of the situation.

The underlying message we have, the cash and capital generation of power of the group is continuously growing and I'm going to show you that in a second. The second thing is we are accelerating the speed of our transformation particular in terms of making our balance sheet lighter, more capital efficient and less volatile. The vast majority of that pertains obviously to the life insurance segment, but unnoticed by many people. We've also become one of the strongest asset managers in the world and that is no coincidence, it's also no luck. It is really systematic work as we believe we have a unique value proposition at the intersection between what used to be called life insurance and asset management.

And that's something I would like to highlight. And that then I'm going to talk about confidence, confidence in the future. As you will see in our numbers, even if there is occasionally something we need to wrestle with, we move on because we are able to absorb shocks in a way that very few others can. And we will obviously want to make sure there is going to be less and less volatility going forward as we deal with various items out there. So these are the three chapters.

Let me just turn your attention to Page 3 now. So revenues up 6% in an environment where very few people were growing almost €150 billion in revenues, our operating profit up 25% from the last COVID year, remember 2021 was still COVID and we are very proud of that. Shareholders net income slightly down because of the €2.8 billion net income hit that we had to take in order to address the vast majority of litigation exposure and structured alpha. This is really important. So we are very happy that we can finally book and take care of the investors in the structured alpha fund and make them whole.

We are increasing our dividend per share by 13%. That's exactly in line with the guidance that we gave in 2018. Last year, we all benefited from the ratchet despite the fact that the year was very tough. And our solvency ratio for 2021 is 209 even after structured alpha. And that is also super important.

Now, in terms of return on equity, it is after the structured alpha booking at 10.6 that is by the way higher than most insurers have. It's important to notice before the structured alpha it would have been at 14.9, so an extremely high number and that is obviously to be normalized. And Giulio will talk a little bit about the way we have to think about net income and ROE going forward, particularly also when – if and when accounting changes, because net income is always volatile. We have announced €1 billion of share buyback. You will ask very soon, I can guess do we – can we do more in this year and we obviously have to be always very cautious, but I'll always answer the same way.

We have every incentive to not sit on excess capital, but distribute it back to shareholders if and when we see the opportunity, because everybody in Allianz has an incentive to produce significant returns on invested capital and do that very well and grow. So we are always trying to get the balance right between returning capital and growing the earnings over the last few years. I think we've struck the right balance. So if and when we have excess capital accumulating, we will not have it sit idle. That's the comment I would like to make at this point in time.

Now, when you look at what we've been able to deliver as the CEO, I'd like to point out great financial KPIs are an outcome of a healthy organization and healthy organization starts with two very simple observations. If you have the happiest customers in your industry, you will also do well. And if you have highly motivated people, you're also going to do well. Ideally if you have both, you're going to really win. So we have been focusing on driving our net promoter score.

That's the willingness of our customers to recommend our services and products to their friends and family up. And now we have 84% of our businesses that's the life insurance businesses, the P&C insurance businesses, the health insurance businesses, 84% are above market average in terms of NPS and actually almost 60% are loyalty leaders, i.e., have the highest customer satisfaction. So as of next year, we are really lifting the ambition and are going to focus on loyalty leadership as the aspiration and target for all our businesses. The same time despite COVID we have been able to bring employee motivation up, by the way, we measure that on many ways. Here is the most important one that measures leadership quality in the eyes of our people, we call that IMIX, but you can also look at engagement numbers or what something we call work well.

All these indicators have improved more strongly than we were hoping for in particularly in light of COVID, there was no small achievements. And in particular, relative to competition, we can measure that 2021, a number of companies saw employee engagement actually go down and we have been able to remain super strong. So the management team is very proud of this achievement, very strong operating performance and very strong health indicators. And that can be measured in many different ways that you can see on Page A 5, whether that's on customer and I would like to point out the importance particularly in the digital age of having a strong brand. We have been now the number one brand for Interbrand for a number of years and we are very happy with that and we keep on investing, but also now on Brand Finance, we are the undisputed number one.

So the brand is super important and the value that it comes with and we are investing heavily in order to make sure that translates into higher customer acquisition, lower acquisition cost and much better flow than others can achieve. The second one I'd like to mention is not just about having highly motivated staff, but also driving diversity and inclusion. Now unthinkable just six years ago, 30% of our operating profits are managed by female CEOs. Just last year we promoted three senior women to run our most important life businesses, Allianz Life of America, Allianz Leben in Stuttgart and our Asian business, all highly competent women. And so we are making a lot of progress there as we are on many other items that reflect diversity and inclusion.

Last but certainly not least we remain fully committed to the topic of climate change. You know that particularly Günther Thallinger and his team are spending a lot of time to make our investment side to fully compliant with net zero. And we are doing it in a way that doesn't claim something for in 30 years, but we are really having targets that are short-term credible and we are moving and we are continuously moving in this one. And there are many other items that we are driving into the core of our business over the next few years, think about the claims networks that really can be greened and other items. And therefore we have established last year a dedicated function at the center of the group to drive that including a committee that is dedicated to the ESG issue at the supervisory board, so again lots of investments across stakeholders to deliver better outcomes.

Now, better outcomes, what are we talking about? Some of you will say, well, that is not something I can put in a spreadsheet, it's true, but it's very important. For us it's very important to think about what role do we play in society for our clients and we have spent years now on developing our purpose with thousands of employees and we secure your future is super important. I'm going to mention that when we get to asset management in a while. Now, you can only be successful if you have the trust of the various stakeholders. So, the real aspiration is to be the trusted partner for protecting and growing your most valuable assets and that may not be just your house, your car, or your investment, but it also is your health and your mental wellbeing.

So that is what really we are focusing on. And that is – we are trying to take care of the things that are most important for our clients. In order to achieve that we need to make three and deliver on them. Number one, I mentioned that before to strike a careful balance across stakeholders, in difference to many companies, we've hardwired us in all of our incentives. It's not just a slogan.

We need to deliver benchmark results at scale. This is at scale. We're going to talk about more in the next few years, because as we are driving forward, we need to take our size and not make it a problem of complexity, but make it an advantage that we can get, because we have the scale that very few others have. And last but not least, we need to show strong resilience in a fundamentally transforming world. We may have, war-like activities around the corner, tensions between the superpowers and the world that we are in mortality will be abound and people need to be sure that we secure your future means Allianz is there, even if the going gets tough.

And we're going to talk about that in more detail, it means that tail risks need to be managed very, very carefully. And Structured Alpha, again, for us has been a reminder of the necessity to look into every corner of what we do and to make sure that something like that cannot ever happen again. Now, if we think about value creation over the next few years, it's pretty simple, conceptually. It's around driving growth. And I'm always amazed when I look at the spreadsheet of the analysts, and it only focuses on two years, not, the long term and then growth forecast are like 2%, how can that ever be? When you look at the last 10 years we have been growing very well.

So that is important. We are going to drive that based on our strength even more strongly than in the past. By the way, you see that in the 2021 numbers already, whether that is revenues, whether that is net flows, whether that is value of new business, all these numbers are growing double digit and have been, and we are going to grow that even farther. The second thing is margin expansion. There is still a lot of upside in terms of productivity that we have.

And we've shown that across the business, that we are highly resilient, despite commoditization, think about asset management, the move to passive, our margins are not declining the way they have been forecasted. And we keep on growing with record flows. And the last, but certainly not least is capital efficiency. And we've worked a lot and Project Lucy, which we announced on December on the third and have closed on December 30 on a U.S. life, that's basically moving ROE of this business up from 11% to 19%.

And that's a cautious assessment based on this one movement, is showing the power of leveraging private markets to drive capital efficiency. So, the move from warehousing risk and warehousing tier risks in large balance sheets to being, having more efficient balance sheet is very much at the core of our strategy. And while others talk, we deliver. Just a think about the €3.6 billion in capital that we were able to lift out of eAZy life! and it's not the end of the story. We have five levers, which we delineated in the Capital Markets Day.

Many of you participated and gave us feedback. So, I'm not going to dwell on that for a long time and repeat that because that would bore you. So let me just reiterate the point around life and asset management, because it is still not well understood that the vast majority of our profit now and the growth is coming from life and asset management. And that's a good thing. We are having very strong flows, much improved productivity, very high customer satisfaction, by the way, AGI has done a phenomenal job last year.

Think about the fact that they had structured Alpha and they highly motivated staff, motivated staff productivity is approaching the levels of PIMCO now. At the same time and they had more than €40 billion in net flows. Everything at the same time with strength in investment performance. Given the very difficult legal environment that is no small achievement. Now, what I think and also our reporting doesn't highlight properly is that the fact we have many competitive advantages because we can combine the knowhow we have in our asset managers, in aim with the power we have in the life insurance company.

So as the world didn't know what to do in terms of life products, we could leverage into new products very quickly that combine the best of life insurance and asset management, And by the way, also on the health side, in order to both create more value for consumers, because we can offer higher risk adjusted returns. And that also means we have higher margins as we bring in alternative assets and other more stable and higher margin products. So, we have a true win-win. So, if you think about a €100,000 invested through this into alliances, we have two times benefits for the clients because they get a better product in the life side, a better asset management product inside of it. And we make the margin twice because we make it on the life product and as long as we perform, of course, also in asset management.

No other competitor can do it the way we can do that. And I think that is totally underappreciated in terms of earnings power and earnings resilience. And also, the way we can be flexible. Now, we talked about the transformation of the U.S. life business.

I don't think it's fully understood yet. I would just like to mention that Allianz Life of America is one of the best businesses we have. And somebody here in Europe suggested we sort of think about a run of the opposite is true. We are trying to use this transaction, not just to drive profitability, but massively increase growth because this new access to other sources of capital allows us to be more competitive in many areas. I think we have a call coming in between.

Unidentified

Company Representative: Sorry for that.

Oliver Bäte: Maybe it's our U.S. colleagues. So, they are very happy. So, what is really, really important? And by the way, Allianz Life of America was in absolute terms, the biggest capital consumer in the group.

And now we have been able to lift €3.6 billion out 9% of solvency. So that also means that we are able to withstand special requirements like on Structured Alpha. Unabated, our solvency ratio was 209% after Structured Alpha is super strong. And by the way, volatility of solvency to numbers are also going to continue to go down. And that's another thing I'd like to mention.

2022 is an extremely important year for us, because for the first time, our strongly growing new business value is so large that we do not consume net new capital for our new business. We've been working on that for a number of years, Giulio, and myself and others, in order to make sure we make our new business capital light. But because of what happened in the past it was declining interest rates artificially drawn it was delayed by about two years. As of this year, we are going to have net capital generation, even out of our new business, at least no new capital strain out of the new Life business. And this is a watershed moment for us.

So, in, in addition to the work we're doing on the in force, our life business will move much more quickly in creating a lot more value than in the past. Now, one thing I wanted to mention is this one, we didn't have that in the Capital Markets Day, but give the current environment I wanted to talk about that for a few minutes before I go back to numbers. The most important thing that we are thinking about every day and now is how to think about tail-risk. A lot of the models, including the one that we employ think about diversification, as I said this morning with Mr. Talib that's the thing that is never there when you need it.

And the point I'm trying to make is this is not about mathematical models and capital requirement. This is about the frontline of the business constantly thinking about what are exposures to our business. In the past it used to be purely financial risk, like what is our interest rate exposure, what is our equity exposure, what is our that NatCat exposure? I think that makes it, and a lot of people are talking about it now. We have worked extensively also learning from COVID on understanding we need to simplify and particularly manage tail risks. So reputation risk is super important as is cyber as our sales practices.

So we are focusing along the value chain from sales and underwriting through the in-force and operations IT, turning every stone and trying to find out whether we are having risks that we were not aware of. And how do we contain them and eliminate them. Now, there will always be risk in financial institutions. We have to, however, make sure we get the risks out that are not consumer it with our risk appetite and the ones that we deem consumer. We need to make sure we get paid for properly, or we get out of them.

So there has been a lot of improvements. Let's think about AGC&S, everybody talks about the combined ratio. That's one very important aspect, but the volatility of the earnings is another very important measure. And the team around Joe, Claire-Marie and everybody has worked diligent to massively reduce the volatility of the expected profit, not just improve the profitability. And we are trying to do this for each and every business.

Now, confidence, here's a really interesting chart that's a 14 that shows you the operating profit development over the last few years. And now you see how we are really driving the operating earnings up 13.4 this year. Now people ask why is the outlook still €1 billion. Again, we live in a very volatile world, and it's just a much higher level when we establish the €500 million range that was – I was the CFO 2012. We were at a much lower level of profitability than we are today.

So there's just a order of magnitude effect that's inside there. And we want to grow EPS by 5% to 7% over the next few years, getting to north of €14.5 billion op by the year 2024, at least so that's what we're going to do. And because we are so confident, we have revised as you know, our dividend policy, we want to grow the dividends per share at least 5% every year or have a 50% payout. I should have started with that. So we are keeping the record plus bringing it up because we know that is what really drives valuation is the growth of the dividends.

And we are very optimistic about that. And as I said before, we have zero interest to sit on excess capital, if and when we can't invest in the organic growth of our business profitably, we can’t do highly profitable investments inorganically, we are going to go out and give the money back, by the way, let me reiterate. We have no appetite for super large M&A, we maintain a string of pearls acquisition strategy in order to make sure we strengthen our market positions across markets think about what we've been able to do in the United Kingdom, in Poland, or take me, let me give you the last one, which is Greece, looks like a small thing, but with this acquisition, which is just a little bit over €200 million, we are becoming the number one property casualty insurer in Greece. So getting to scale that we really need, and the number of – number one or number two position that Allianz has in our industry is constantly growing. And that's what we are trying to do.

So I do thank you for your trust and your support. And then now Giulio, in the usual quality will give you all the details.

Giulio Terzariol: Thank you, Oliver and good afternoon or good morning to everybody. And as Oliver said before, 2021 underlying performance has been very, very strong. You can see this reflected in several KPIs.

Revenue were up 6%. This is driven by all segment, when you look at your operating profit €13.4 billion of operating profit, which is significantly higher than the level of 2020. Clearly in 2020, we had impact coming from COVID. But even if you adjust the numbers for that, we have a double-digit increase in operating profit in 2021 versus 2020, all segments have at least achieved the outlook that we gave ourself for 2021. And when you look at the property casualty side, you see a combined ratio of 93.8%, which is higher than the target of 93%.

But as you see, also the NetCat load was definitely more significant than the normal expectation. On the other side, the capital – the investment income has been exceeding our expectation. That's the reason why we were able to over-achieve the outlook of €5.6 billion with an operating profit of €5.7 billion for property casualty. The Life segment has also developed very nicely with an operating profit of €5 billion. And then you can also see a very strong development of the value of new business and of the new business margin.

Then in asset management, also very strong results with an operating profit of €3.5 billion strong reduction of the cost to income ratio and also very positive flow. So from an underlying performance, really good delivery and then when you look at the shareholder net income here, you see €6.6 billion of net income. Clearly that's the consequence of the after-tax charge of €2.8 billion that we took because of the Structured Alpha matter. This is still capable to achieve a double-digit ROE despite this significant impact. When we move to the Page 5, you can see that also the quarter was pretty strong on an underlying basis or €3.5 billion of operating profit.

And those segments had a very strong delivery. I'm sure you’re going to ask me about the 93.5 combined ratio property casualty, because considering the lower NetCat load, one might have expected a better combined ratio. I can tell you right way that we been conservative on booking that combined ratio so because we want to be well prepared for potentially increased inflation as we go into 2021. So we are very – we feel very good about the quality of that combined ratio. And then for the other segments, again, a very strong quarter confirming the tendency that we saw during the cost of 2021, clearly you see a net loss for the quarter that's just a consequence of the after-tax charge that we took, so overall strong underlying performance for 2021 with a strong finish from an underlying point of view.

And you can see the strength also overall reflected at Page 7 for the solvency ratio, which is a 209% so increased compared to the level of 2007, 2020, this despite having taken a charge on nine percentage points because of Structured Alpha, if you consider also for the buyback that we announced yesterday, the pro forma capitalism is 2% or 6% so strong level of solvency ratio. And when you look at the development of the solvency ratio, the driver for the solvency ratio, you can see that in 2021, we had a strong organic capital generation of about 30% pretax and if you do after-tax and after dividend, you get to a double-digit increase in capital generation. What is very important when you look at the ACR contribution, this is all coming from property casualty. So there is basically no contribution to the ACR coming from the life business, which means on the ACR, there is zero impact from the life business, and then you can see what is the contribution on the own funds coming from the life business, which is about €5 billion pretax and pre-dividend. So fundamentally the life business is becoming accretive to our solvency ratio development.

The market conditions have been also positive. And then under capital management, management action, you see an impact of 14 percentage point. I wouldn't call it a negative impact because that's the dividend and also the buyback that we did in 2021. And then there are other elements that are flowing to that. Number one is 11 percentage point of improvement because of the back book transaction that we did, and clearly the transaction, the United States at the majority impact but we did also other transaction in Europe.

So in total, 11 percentage point of improvement to the solvency ratio because of back book management. And then of this 11 percentage points, we have redeployed 9 percentage point in acquisition, which is clearly future growth. So as you see, strong capital management, also deployment of capital. And then in tax other, you see the impact of taxes, as always. And then clearly, that’s also where you see the 9 percentage point of impact coming from Structured Alpha.

So overall, strong solvency ratio. When you look at our sensitivity, they are pretty stable, indeed, slightly reduced compared to the sensitivity that we had a year ago or last quarter. Now coming to the next page, 11. We want to show to you also some KPIs for the ESG delivery. These are also the KPIs for the activities where we gave ourself targets.

And as you see, we are well on track to achieve our targets. We need also to say that 2021 has been positively affected by the COVID situation. So somehow, we need to normalize those numbers. But fundamentally, you can see that there is a strong movement in the right direction. We are confident that we’re going to achieve our targets for 2024, 2025 and 2023, respectively.

So all in all, strong underlying delivery. Solvency capital position, very strong. And also, as you see, we are very committed to delivery also on the ESG topics. Now at Page 13, on the internal growth for the P&C segment. You see that we achieved a good growth rate of 4% for the year.

And I don’t know if you remember. But in the first quarter, our growth in P&C was negative. So you can see there was a good momentum in the course of 2021. And when you look at the performance by companies, you see that the majority of the companies is growing. There are a couple of exception.

Usually, these exceptions are driven either by competition in motor or by our activities in pruning, especially on the commercial mid-corp business. What is also to highlight is the performance of Allianz Partners. You can see definitely that there is a stabilization of the revenue. And clearly, 2020 was very much affected by COVID. I wouldn’t say that we’re back to normal because the travel business is not back to normal, but there was at least a recovery compared what we saw in 2020.

Price environment is stable overall. So this means that the pricing – the prices that we are getting at the moment are keeping pace with inflation. I’m sure I’m going to get questions from you on this topic. So I’ll leave that for the Q&A later. Now coming to the operating profit.

As you see, €1.4 billion of improvement in operating profit. €1.1 billion of improvement is due to the fact that we didn’t have the repeat of the negative impacts from COVID of 2020. But there is still an underlying improvement, if you want, of €300 million. When you look at the combined ratio, here, I can tell you that, on the one side, we benefited from the fact that COVID didn’t repeat. On the other side, the nat cat have been clearly negative compared to last year.

The runoff results, you can see normalization to what would be more an expected level. And then we had about 30 basis point of underlying improvement. Another way to look at the combined ratio is to normalize 93.8% for the extra nat cat load. So if you do that, you get back to the 93% of combined ratio that’s we have given ourselves as a target for 2021. And that’s also the starting point for our trajectory to combined ratio 92% in 2024.

So overall, I would say, a good delivery on the underwriting results. And when we just look at the delivery by OEs. It’s Page 17. You can see good combined ratio in Germany, also considering the amount of nat cats. Also good performance, according to our expectation, United Kingdom, France, Italy.

Australia has also had a good year. And then you can see also a very strong performance in Eastern Europe. In Latin America, we had some opportunity for improvement as we go into 2022 and 2023. And then I will say what is - the statement is the perform of AGC&S with 37.5% combined ratio. Our target was 98% for 2021.

And I can also tell you that the underlying performance of AGC&S is strong at the 97.5%. That’s you see on this space. So there is really some quality in these numbers. And then you’ll hear me, as you see also with a very good combined ratio. So you can see that a lot of our entities are performing at a good level.

And then on the investment results at Page 19, you see that the investment result is up. So it’s not down as we were seeing in the press. And the reason for that is especially the recovery of performance in - on the equity side. Clearly, last year, the amount of dividend out of private equity. And also, private equity was lower compared to the normalization distribution that we saw in 2021.

So fundamentally, a good delivery on the operating investment results. As I was saying before, this has offset, if you want, the higher nat cat load, at least relative to our expectations. This explains why we ended up with a €5.7 billion of operating profit, which is better compared to the outlook of €5.6 billion. Now coming to the Life segment. I can tell you, I’m very pleased about the performance of the Life segment, Page 21.

I remember that at the end of 2020, we had a lot of conversation about change in the mix. And one of the questions we were getting is, can you change the mix and still keep production going? And as you see, we are being capable to achieve a very healthy level of production. When you look at the numbers here, you see a growth rate of 30%. Obviously, here, there are some one-offs to be considered. But even if you adjust for the one-offs, the growth rate of our production was above – was double-digits.

So from that point of view, a strong commercial delivery. And this by changing the mix and achieving a new business margin of over 3%. So I can tell you the delivery has been very strong and very consistent across all our entities. Now looking at Page 23, the operating profit. You can see a nice increase of the operating profit compared to 2020 of about €650 million.

And you can see that all profit sources have contributed to this increase. You can the improvement coming from the loading fees from the investment margin, for the technical margin. And then as always, when you look at the expenses you need to net them together with an impact change in that. So I would say the primary drivers have been driving the performance of the Life segment. And then when you look at the operating profit by line, you see also that all lines have contributed to the strong delivery in operating profit.

Page 25, on the value of new business, you can see a strong increase of value of new business of 45% with a value of new business 2, 2.5. That’s a very good number. And I don’t know if you remember, but three years ago, we say we want to grow value of new business by 5%. And despite very challenging market conditions compared to the market condition that one could foreseen in 2018, despite this more challenging condition, we have been able to achieve 5% compounded average growth rate of our value in business. The new business margin is also very strong.

It’s over 3% and pretty stable across all entities with indeed tendency to an improvement. And then on the operating profit, I like, clearly to highlight the performance in the United States with an increase in operating profit of 50%. Here, we have to say 2020 was a little bit weaker, because of the impact, the volatility in the first quarter 2020 and 2021 has been very, very strong, because the volatility in the United States or the VIX has been very benign. So you have a sort to swing from a software performance – performance, which is also indeed significantly higher than our expectation. And then another area where we have very good results is Italy with an operating profit of € 450 million.

Italy is the first country – one of the first country that embrace the journey to capitalize product and selling Unilink that you can see that now this journey is delivering over €400 million of operating profit, so strong delivery also from our Italian team. And now at Page 27 on the investment margin, you can see that the current yield is going up by about 10 basis point and that’s because of the normalization of income coming from, especially from equity, but what is more important, you see, once again, that we are to taking down the minimum guarantee in this case by about 10 basis point, you can be assure that this journey is going to continue. So from that point of view, you can see definitely that there is a reduction of the guarantee level. So from that point of view, we are very confident that we are going to be able to keep the spread between current yield and minimum guarantee as we move into the next year. So overall, strong performance in the life business, strong operating profit, strong new business value generation changing mix.

We also did a couple of back-book transaction, I would say, even a benchmark transaction, like the one we did in the United States. So I would say, great year for our life segment for our franchise in this area. Now coming to – as a management overall, €2.6 trillion of assets under management, including the proprietary assets and when you narrow down on the third-party assets, €2 billion – €2 trillion of third-party assets with the growth of 15%. And when you look at the growth across the asset classes and regions, you can see that all regions and all asset classes are showing growth. So that’s for me a sign of quality and also of sort of diversification that we have.

We see a similar trend by the way, Page 31, when we look at the right hand side, you can see that how is the composition of the €110 billion of inflows that we got and you can also see here that we are not just growing fixed income, but it was positive flows in all other asset classes. And also from a geographical point of view, you can see a nice play across the different region. Also, we are kind of used to think making €60 billion re-inflows, I think the big news is clearly AGI making over €40 billion re-inflows. And as Oliver was saying before, these despite challenges and also despite the fact that these guys just in 2020 did a major restructuring. And usually, when you’re – when you have a major restructuring, you might not necessarily expect a significant growth.

AGI has been capable to do both do a restructure and then also realize significant growth. When you look at what this means from a revenue point of view, you can see a nice development of the revenue with the growth of 14%. And the growth is especially pronounced at AGI. You can also see stable fee margin in total. So that’s also important.

We don’t see necessarily a trajectory of a weakening of the fee margin. We saw a lot of stability indeed over the last quarters. All this leads at Page 35 to an increase in operating profit of over 20%. Also, when we adjust for the so-called volatile items, which are the performance fees, we still see about 20% increase in operating profits, so very strong performance. And then clearly, what is really nice is also the development or the cost income ratio of AGI with an improvement of 8 percentage points.

So strong delivery in asset management, strong delivery from PIMCO and I will say very strong delivery from AGI. Corporate, I’m going to skip it is basically flat compared to the level of last year. And now we go to Page 39 on the non-operating items. Here, you see the realized gains have been more pronounced than in the past. This has to do also with the Lucid transaction about one-third of the realized gains coming from Lucid.

And then also you can see level of impairment was in 2021, very low. And then in other, you see basically the pretest charge of Structured Alpha, there you see also some deck of sets to the realized gains on the Lucid translation. And then when you put all together, you get to an net income of €6.6 billion for the year, which leads to a double-digit ROE anyway. So I like to reiterate this message that’s still double-digit ROE, despite a significant one-off impact. And now we come to the outlook at Page 41, overall €13.4 billion for an outlook for 2022, as you might have recognized by now we have a tendency also to set the outlook at the level or the preceding period.

So we keep faithful to this kind of tradition, the underlying assumption here on P&C for the €6 billion of operating profit. We are assuming 93% of combined ratio, and we have a tendency to be fairly conservative on the investment income. On the life side, we have normalized for the extraordinary performance due to the low VIX of Allianz Life. So we did normalization there. And for Asset Management, if you – we also this normalization, if you want for the performance fee level, which was a little bit more elevating 2021 compared to what is an average over time.

But again, with the €13.4 billion outlook for 2022, we feel pretty confident about this level. We are going to have clearly conversation about where we stands in the course of the year. And with that, I would like to open up to your questions. A -

Oliver Schmidt: Thank you, Giulio. And as I said, we are now happy to take your questions.

[Operator Instructions] All right. And that said, we will now take our first question from Peter Eliot. [ph] Go ahead, Peter.

Unidentified Analyst: Thank you very much. Hopefully you can hear me.

So I had three questions please. The first one was on the share buyback. And just wondering if you can share any timing you have in mind in that side. Do you have an end date in mind, for example, for that €1 billion? The second question was at the Capital Markets Day you targeted 4% growth to get to sort of €14.5 billion operating profit. Obviously from the starting point, it’s a bit higher than you indicated at the time we only need sort of 2.5% growth.

I mean, we probably need to back out performance speeds. But would it be safe to say that the starting point is a bit higher than you’re expecting and therefore, the target more achievable. And then finally, third question, just wondering on your non-life businesses, which maybe you’re getting the most management attention at the moment. I mean, I guess Turkey was a high combined ratio and you are pointing to difficult markets. Is that perhaps the main focus at the moment or maybe just some insight on where you think there’s still room for improvement? Thank you.

Giulio Terzariol: Hi, Peter. I can take your questions. On the share buyback, the expectation is that we are going to complete the share buyback by the summertime. So that’s the timeline for the €1 billion buyback. On the Capital Market Day and the baseline, but first of all, because you’re coming within that the target is more achievable.

We think the target is achievable. So our message in the Capital Market Day was that’s a plan, that’s not an ambition. Now, if we want to talk about the baseline in the Capital Market Day, we also said, look, €13 billion was the basis how we did the presentation. We also said we expect to be a little bit higher than €13 billion. So from that point of view, I will say nothing’s really changed clearly compared to what we know December 3 and what we know now.

So the point is, again, the confidence that we have about achieving our targets in 2024 is strong. It didn’t change because of six weeks. And then on Turkey, first of all, let me say that Turkey. Yes, the combined ratio is high, but the investment income is also very high. So if you look at the numbers of Turkey, in reality, in local currency, Turkey had a growth in operating profit, and we are speaking anyway of an ROE, which is north of 20%.

And now we can have a philosophical conversation about what the cost of capital in Turkey should be. But I can just tell you that the company is operationally doing very, very well. And now clearly we will like to go through a time of uncertainty because of the situation there, but Turkey is not a company that we see as struggling. We see Turkey as a strong company delivering also a good performance for the environment. So that’s not an area of concern.

In general, if you ask me what are the area of focus, clearly we are focused on bringing the combined ratio down from the 93%, normalized to 92%. And as we discussed also in the past one area of focus is clearly the improvement in mid corp. And then we want also to make sure clearly that we are preserving the profitability in retail, and also that we might see more growth, even more growth in retail. On the life side, the messages we want to continue what we are doing because we think the strategy is paying off very nicely. As you see in our numbers and for as a management I will say, also you see the delivery in 2021 has been very consistent quarter-over-quarter.

So we are very positive on the franchise. And then as always, if rates go up and down, this can create some short-term volatility, but the franchise is very, very strong and I would say never been stronger in AGI as it is now.

Unidentified Analyst: Great. Thank you very much, Giulio.

Giulio Terzariol: Welcome.

Oliver Schmidt: Thanks, Peter. And we will take the next question from Will Hardcastle at UBS. Go ahead, Will.

Will Hardcastle: Afternoon, everyone. Thanks for the question.

Let me tell you the question. So, first of all, I mean, you called it, there’s going to be a question on inflation, so I’ll ask it. But just thinking about how it’s impacting the P&C business, and you mentioned you’d held something back on the accident year booking. What about on reserves? Anything happens there and which lines should we be concerned or just being on a watchlist? Or are we just talking about a general provision at this stage? And the second one is regarding the provision today for Structured Alpha. I guess you mentioned the vast majority of invested are being made hold.

Can you just explain to me what isn’t included in this provision at this stage? And the potential where incremental costs can arise? Hopefully that’s able to be answered obviously without any numbers, but just what could still arise. Thanks.

Giulio Terzariol: So I can pick up this question. So on Structured Alpha we cannot give you more information. We can just tell you that the provision includes more than the settlement we achieved with the major investors, but we cannot give you more, more information.

One day when this store is going to be behind us, we will be able to give you all the information you wish. But I think you can appreciate that we made a – we are keeping true to what we said. We say, we want to put some numbers around this topic by the end of the year. And that’s what we are doing. We try to get to a resolution in a fast way, but in a considerate way.

So that’s what I think you can see that we are doing exactly what we say that we are going to do to do, but that’s all for Structured Alpha for the time being. On the inflation side, I tell you, when we look at inflation in property casualty first, I can tell you that as of now, we don’t see inflation, which is running faster than what we have in our pricing. And trust me, we are having a lot of conversation with our OE, so we have been, indeed located inflation already starting next year. So it’s not been something that we put on watch at the end of 2021, beginning of 2022. We start watching inflation already, basically I will say during the summer of last year, we put this on our agenda.

When we look at the trend anywhere I can tell you that we see some more inflation on spare parts, but for the time being nothing really gigantic, but there is definitely some inflation spare parts. But just to give you also an idea, when you have a material damage about 40% of the damage is going to be spare parts, the rest is still labor or could be also painting or these kind of things. So from that point of view, don’t think that if you have an inflation, which is running high single digit on the spare parts, you can assume this is going to be a high single digit inflation of the total claim. And then a lot of our claims are badly injured. We don’t see pressure on badly injury, and then there’s always the inserts going to be different country by country.

So we see some clearly pick up of inflation also in property to a certain degree, but for the time being I would say that’s all within our expectation. We are clearly monitoring the situation very carefully. And if we – the message that we send to our OEs is if you see increasing severity, because that’s the way we talk, you have many things flow into the severity. If you see an increase in severity, instead of wondering whether there’s noise, you just assume that inflation and react as fast as possible. The reaction by the way is not necessarily just on pricing, because we always think that the way to offset something bad is pricing.

There are other levers that we can pull in order to mitigate inflation. So we spend a lot of time on steering. You might also remember that we put a lot of effort on claims already in the course of 2021. Indeed, that’s one of the top priority of Oliver, how we even improve further in effectiveness and efficiency in claims. So our reaction and the plan that we have is not just, let’s put rate increases.

But also, how we work on the claims side to minimize the impact of inflation.

Will Hardcastle: Okay. Just as a quick follow-up. I mean it sounds like the action being taken is awareness on the front end on price and actions taken on claims management as opposed to the more further behind and thinking about the reserves. Is that fair?

Oliver Schmidt: Okay.

Sorry. Okay. So on your reserve, I can tell you that also that’s part of the component, absolutely. Then it’s going to be different country by country, but in some countries where you can see also the competitive environment is very tough, one thing that we did was also to make sure that we have a healthy level of reserve, because we know that we’re going to see some increase in claims, and so we will need to use some additional reserves strength to offset that. So definitely, we look also at increasing, putting a buffer specifically for inflation.

So that’s what we did. And I can tell you, it’s not a small buffer. So it’s an appropriate buffer that you want to put in a situation like this.

Will Hardcastle: Okay, thanks.

Oliver Schmidt: Welcome.

Oliver Bäte: Maybe I can just make an additional comment. Otherwise, I get bought. I think one of the reporting things that we don’t do is, when you look at premium growth or price increase, that is just half of the story, particularly in commercial lines. What we would normally have to report in the future at some point is exposure adjusted price increases. So a lot of the things we’ve done in commercial lines over the last two years, not just on AGC&S on mid-corp is to completely change the exposures.

So whether that’s terms and conditions exposures to highly exposed sectors in the property side, particularly, we have been mandating cancellations of the high exposure risk. Even for risks that haven’t seen the claims in the last five years, if the technical price to actual price is not consumer rate, we are reducing and have been reducing exposure. So the – if you were to equalize, the growth numbers are understating really the pricing strength that we have been gathering in commercial lines. And I hope we can see that coming through in the results over the next few months and years.

Oliver Schmidt: Thanks, Oliver.

Okay. We will now take our next question from Michael Huttner from Berenberg. Michael, go ahead please.

Michael Huttner: Thank you so much. And well done for the hard work.

I have two questions. And in a funny way, they’re not – on the back page, and I think B-47, you show your cash flow, and you did show the total figures, but now we see the details, and Non-Life seems to deliver less and less cash flow every year. It seems to be at a record low level of €2.6 billion for 2021. And I just wondered if you could explain a little bit what’s happening here and maybe what the outlook could be? And my second question, and I think you alluded through it was what has been the nature flows in offshore or whatever in January in our Asset Management businesses. And then the last one, on non-life reserves.

So, I was looking at the SFCR and the excess reserves, which included, relative to best estimates, have been coming down. And I just wondered if the actions you’ve taken to add to reserves to reflect inflation, et cetera, would that actually lead to a higher number here? Or does it stay hidden? Thank you.

Giulio Terzariol: Yes. I can take this question. Starting from the last one.

We don’t have in this SCR report any indication best estimate versus non best estimates. So there is – I’m not so sure what numbers are you looking at, but that’s not an information that we provide. I can tell you anyway that, definitely, the margin didn’t go down in 2021 compared to what we had in the preceding period. But I think you’re now looking at a – you are not interpreting that number, whatever you’re looking at, in the right way, but I’m sure that Oliver can help you with that. On the flows for PIMCO, AGI in January, we had €3 billion flows in – combined and more or less half-half between AGI and PIMCO.

Now, I want also to say if rates go up, we might see clearly some negative flows at the beginning might happen. This is still a positive anyway for AGI, and especially for PIMCO, because every time we ask many the CEO of PIMCO, like to have rates going up or down. It’s going to go for rates up even knowing that in the short term, this is not necessarily positive. But when you look at the midterm, you don’t need to look long term, just looking at the midterm, that would be definitely a positive. So if you think in present of revenue and profit, definitely, higher rates are not a negative for asset management.

If you focus on a quarter, that’s a different story. But I think the right way to look at that is a little bit of a present value instead of a quarter. And then on the cash flow, okay, what you have to consider is, in 2021, clearly, there was the impact of COVID on the P&C side. So we got a little bit less dividend, for example, form Allianz Germany last year because – in 2021, because of the 2020 impacts. But also then consider that, especially where we have composite insurance companies, which is can be the case also in Italy, in France also, that’s the way we look at the business, we can get dividend excess capital from one entity or the other depending on the situation.

So fundamentally, I will not look at the segment. You should at least combine property, casualty and life together. And that would be maybe a best way to look at that. Fundamentally, over time, in property casualty, we would expect the remittances to be about 80% of the net income that should be – depending on the growth rate, but there should be definitely a baseline, if not higher, for the profit that you – for the dividend that we’ll get out of the property casualty side.

Michael Huttner: Thank you so much.

Oliver Schmidt: By the way, there are three questions, not just two, but anyway. Michael will be taking – no problem. I’m just talking. We will take the next question from Ashik Mussadi from Morgan Stanley. Please go ahead, Ashik.

Ashik Mussadi: Thank you and good afternoon everyone. Just a couple of questions I had. First of all, I mean, can you give some color as to how this €1 billion buyback has been achieved? How did you get to this €1 billion number? I mean, historically, half yearly was kind of €750 million. Full year was like €1.5 billion. So how do we get to this €1 billion number? And just linked to that, I mean, would you say that the Structured Alpha fund or – and/or discussion with the regulator is playing a part in this – coming at this €1 billion number? That’s the first one, would be very helpful.

Secondly, there was a strong premium progression in the P&C business in fourth quarter, which is what we saw like in third quarter as well. But would you say just a base effect? Or would you say that there is some movement from your side to start getting a bit more on the top line as well? So that would be the second question.

Giulio Terzariol: So maybe starting from the buyback. We thought that’s – we have basically €4.4 billion of dividend. When you add another €1 billion of buyback, we are at €5.4 billion of deployment.

And we want to see what happens during the year. So we didn’t necessarily overthink with a – it should be €1 billion, €1.5 billion. We just said that’s – to start with this amount, and then to see how situation is going to evolve, and then we will take further decision as we go into the second part of the year, but don't think that there is a lot of over-thinking about whether there should be a little bit higher or not. On the point about the growth that we see coming, clearly we have some strong growth in the fourth quarter. You can also see in reality, if you look at the analytics that some of the growth has been driven by GCNAs partners was very strong and also [indiscernible], but even if you adjust for the globalized, you see about 7% growth rate.

Now there is a thing that you need to consider. This is also growth rate compared to the fourth quarter, 2020. And if you look at the trajectory in 2020, clearly you have a situation where we got into COVID in Q2, and then it was going down, Q3, Q4 was still a lot of lockdowns. And then Q1 2021 was still pretty down. And then you still see recovery.

So think about the sort of concavity. So that's the reason why you're going to see a growth rate, which is a little bit more pronounced at normal. This year’s, if you ask me the expectation for 2022 is a growth rate of I would say 4%, let's say 3%. That will be low, to be honest, but you never know what the environment might be. We might go all the way to 5% depending on how the economy is going to evolve.

So I would say range between 3% and 5%. My peak is about 4% growth for 2022.

Ashik Mussadi: Great. Thank you.

Giulio Terzariol: Welcome.

Oliver Schmidt: All right. Thanks Ashik [ph]. And we will take the next question from Andrew Ritchie, Autonomous. Andrew, please go ahead.

Andrew Ritchie: Hi there.

First question just on the cost-to-income ratio on the asset management business Giulio, could you just tell us, is there any investment to occur or also aware of some inflation in staff costs? Most of the listed asset managers have been guiding to higher cost-to-income ratios in 2022 to reflect that. But could you just give us some sense of that, but also could remind us of the flex on the cost base of asset management in the event that assets are lower given market movements, I think in the past, you've said it's like a 60-40 fixed variable. But could you just remind us on that? And I'm just trying to sense what the flex is, should the asset – should the environment be trickier there? Second question, the movement interest rates, has in the past caused volatility, particularly in the German life investment spread as interest rates rise. I think you have some interest rates swaps that then get negatively marked. Could you remind us what the volatility could be as interest rates rise to the investment margin? And then the final question is just a broader question for Oliver, really.

I think you said you'd learned lessons from Structured Alpha in particular, you had precipitated a sort of thorough review of products, sales practices all that kind of those kind of a issues. Is that really completed? Have you really done that in depth across the group and what's been a relatively short time or is it still work in-progress? Thanks.

Giulio Terzariol: Andrew, the issue is a formal answer no. We've done a lot of things, but until the U.S. authorities have issued their statement of facts as they're called it, I think, you know that we are not allowed to comment anything also on internal investigation and the outcomes, but rest-assured we've been working relentlessly.

By the way, I would also like to remind everybody, we actually did completely change the top management team of AGI at the end of 2019. And we started before the financial flash crash to work on massively simplifying. So it's a bit unfortunate for the team at AGI. And I like to express that, what happened. So we did say right before that, we want to reduce number of products and strategies by more than 40%.

And we have done a lot of that heavy lifting already. You see that in the cost-to-income ratio, by the way, so complexity has been reduced, productivity has been increased and this is ongoing, and we do that across our universe now and consistently. And it start with a question of what products do we really want to offer relative to the risk return profile that we feel comfortable with. So the first question is, do we need to be in certain products really even if they're attractive. And the second one question is, how do we then look beyond models, risk model solvency too, where true risks lie, regardless of capital charges and how do we deal them with them? And again, not by adding safeguarding functions on all kinds of protocols, but really aligning incentives, selecting the right people and things like that.

But again, details we can discuss – if and when we have addressed that with the U.S. authorities and I back for your understanding really that we discuss it in depth once we have done that, hopefully so. But the first major milestone we have done, I'd like to reiterate because it's been not well understood that we did not just intend, but we have settled today early in the morning with the vast majority of the exposure in terms of investors. And we've taken beyond that, some caution also on, beyond the investors on some of the litigation fees, but that's as much as I can say today.

Oliver Bäte: On the other questions on the questions regarding inflation for asset managers, I can tell you that in the U.S., we see some wage inflation.

So that's definitely the case. We see this also to PIMCO to a certain degree. Then you know, PIMCO is basically a philosophy that the cost-to-income ratio should be below 60%, so from that point of view, I don't have concern that we're going to be able to stay below that level of cost-to-income ratio, but clearly you might not see the 57.4% that you saw in 2020, 2021. So there is some inflation that's more pronounced in the United States, as opposed to other geography. On your questions regarding the marginal cost-to-income ratio.

It's a reverse, we have 60% think is more like 40%. So at the end of the day, if we lose €100 of revenue, we will say the profit margin should go down by about 60%. So that's the way to think about how we look at any impact to lower revenue, what does this means after cost for our profits. And then you had a question on the swaps that we have, this is mainly in the Allianz Leben. And by the way, we are using hedge accounting into this extent, we can use hedge accounting, but there is clearly some part of this position that we cannot put through hedge accounting.

I will tell you that the situation is in reality manageable because yeah, if rates go up, we're going to see a loss on the path, which is not under hedge accounting, but we have enough other levels that we can pull in order to get the desired operating profit. We have a lot of buffer and we have policy all participation too, that can be utilized in order to stabilize the profit. So reality, the only issue is if you have a spike of interest rates variance of a quarter, let's say of the year, because in that case, really we cannot activate some of the levers that we have at our disposal, but as long as we have time to react to an increase in interest rates, we have things that we can put in place in order to stabilize the profit at the targeted level.

Andrew Ritchie: Okay. Thanks very much.

Oliver Bäte: Welcome.

Oliver Schmidt: All right. Thanks, Andrew. And we will take the next question from William Hawkins, [KBW]. Go ahead.

Well, please.

William Hawkins: Hello, gentlemen. Thank you very much. My first question feels slightly redundant, because you’ve just published your business plan. But Oliver since you showed that Slide 12 to focus on diversification versus tail risk.

I wonder whether you ever kind of reflect that maybe reducing the footprint of Allianz could be a constructive way of reducing the tail risk. It’s eye-catching that every so often it’s a tiny business that causes a disproportionate amount of problems for Allianz. Now you may just look at that and say, well, that’s part of the cost of being a successful diversified business. Or it may just be that, if everyone is spread so thin, there’s always going to be something which is creating a bit of a headache. So as soon as you showed that slide, I wonder if you could just talk about the temptation to reduce the footprints overall.

Then secondly, please Giulio, I think it’s now at least three years when you’ve been telling us your investment margin is going to be about 75 basis points and it ends up paying about 85 basis points, which is lovely, but I’m kind of wondering, why is it going to be 75 this year? Can you just kind of help me understand why 75 is the magic number? And also, does there come a point when, if you’ve effectively taken 30 basis points that you didn’t intend to take over the past three years? And the investment margin is ultimately a zero sum game. Are you just accelerating profits? That means at some point that figure may decline slightly more quickly. And then thirdly, please on that Slide B9, when you’re showing the solvency walk what do we think the ACR business evolution is going to be this year? Is it – presumably it’s going to be small in either direction, but is your ACR going to be consuming capital or releasing capital in 2022, please? Thank you.

Oliver Bäte: Well, very good question. And something that we spent in terms of the portfolio spend a lot of time on.

Actually I tend to disagree because AGI is a super big business. It made more than 900 million in profit. 40% up by the way, had the largest flows ever third largest in the equity. So unfortunately the issue is in there from a significant business, not from a small one. The question is actually more around what we had before, the question also from Andrew, what are the right products and elements to be in? And are we comfortable with them under severe stress scenarios, right? Something might work very, very well under sort of assume normal situation, but when a tail market event hits are we then still comfortable.

And the vast majority of our businesses are rock solid, even under severe stress. Let’s take Turkey that we just had discussed earlier. Many competitors find it completely impossible to operate in this environment. We are the market leader and we are returning more than 20% ROE by the way in euros. And that is really important.

So what we need to do is wherever we operate, we need to be a market leader. So the answer is we need to get out of businesses where we clearly are not the market leader, and we cannot deliver best in class performance. And that’s what we do. That’s why in 2016, we went out of Korea because after trying a long, long time, since 2001 we convinced ourselves we couldn’t do that. And that’s why we are getting out.

And again, AGI pruned or is pruning 40% of its portfolio in order to make sure that we are not just cost wise, but also exposure wise, getting to the things that we should be focusing on. I have to tell you, I find these focus strategies a bit ridiculous because in reality, people sell a lot of their businesses that they don’t know how to run, book an accounting gain and then call that focus. And there is a very nice saying that nobody ever shrink to greatness. We really believe that we can build scale and do that, but we don’t do that by buying large companies. We do again, as I said string of pearls, and we need to make sure if we can get to leadership position a certain period of time, we are going to exit, and you will see that as we think about it, or we need to transform, let’s talk about AZ Life, everybody and their friend and mothers had to spend billions to get into the U.S.

life market in the 1990s. And then the middle of 2000s, they now had to go home with their tail between the legs. We have built one of the most successful life companies in the United States. And people still said, we don’t like the exposure. And I actually understand that given the size of the balance sheet and the capital consumption.

So we’ve now worked two years on how do we leverage private market capital in the way that gives us much better returns and much better growth. And that’s what we are doing. So we are transforming really the most capital consumptive part of our business and turning them into fee-based businesses. Will there be volatility? Absolutely. The issue is more working, not on the small things that create the problem, but making sure that the large ones AGC&S by the way, is also large are run with the same intensity and diligence as everybody else, which means we need to move away from cross subsidies.

I think the issue in the culture is more. We are doing so well that people can become complacent. And that’s the one thing we need to fight. We need to be having the fighting spirit. We need to make sure that some people don’t bet on the strengths of the company.

And that is really the job for the next few years. Make sure that all cylinders fire, not just eight or nine out of the 10.

Giulio Terzariol: Yes. And on your question, maybe starting with the first one, which is on the investment margin, but first of all, I’m doing like the one that says the stock market is going to go down, they still keep always saying that – hoping that one day is going to be right. So that’s a little bit my philosophy on this one.

But seriously, I would say we might be slightly conservative maybe in our guidance, but fundamentally, there are few issue why the investment margin has been high in the last years compared to what we would expect this year or last year in 2021, definitely the volatility has been very low. So there is push in investment margin because of low volatility coming from the United States. In the case 2020, what we put also in the investment margin in the case of Allianz Life is any positive unlocking in VA or also in FAA because they can affect basically the line item that goes into the investment margin. So from that point of view, positive unlocking, and we had positive unlocking, especially in 2020 in Allianz Life, they have a positive impact technically speak on this investment margin. So from that point of view, I tell you, 86 basis point or 87 basis point is definitely not the investment margin that we expect on a normalized level.

I would definitely say that the expectation is should be below 80. And now we can discuss with 75 is maybe slightly on the conservative side, but I’m pretty confident that normalized expectation is below 80. Now, one thing that you need to keep in mind, if you do your math, you cannot assume that a reduction in the investment margin is one to one, a reduction of the operating profit, because there is a deck of set. So that’s very important. Every time you do your calculation, don’t say, okay, if Giulio tells me there is 10 basis point less of investment margin you start doing your math and you say this is one to one equal to profit.

You can assume that there is about 30% of the ecocide on every reduction that you do on the investment margin. And that’s how you can somehow get to a proxy of the operating profit impact of normalizing down this number. On your solvency tool, business evolution question. I can tell you that from the Life side, we expect basically no contribution from – on the ACR because right now we see that the release of ACR coming from the in-force running out is not – is in line with the – what could be the increase in ACR coming from the new business from that point of view. The expectation is basically that we're going to see this also in the future, if not even a more pronounced this kind of tendency to have even a release, if you want, a slight release of ACR.

And then the increase in ACR is going to come from property casualty. And I can tell you that if you – we apply as a rule of thumb, you can apply something about 30% to the NPE growth and that's how you can somehow get to a proxy of the increase in ACR. So – and that's what you see also basically our numbers in 2021 is all driven by NPE growth. And if you assume something between 25% to 30% of ratio to NPE, you get a good process of what the ACR might be doing. Is helpful?

William Hawkins: Thank you gentlemen.

Thanks.

Oliver Bäte: All right.

Giulio Terzariol: And will let us on the facetious note, aim has been exceeding our expectations with the shift to alternative assets, that has really bolstered our returns. The old assets are substantially more profitable, by the way not just on the life side in terms of returns but also on asset management. However, they also tend to be more lumpy in return.

So the one thing and will know that it's going to come from IFRS 17 two is these things are bit more lumpy and that's why we are very cautious in terms of forecasting average numbers. So numbers will be risk adjusted higher, but they may be a little bit more volatile. Therefore we'd rather be a bit more conservative as we tend to be.

William Hawkins: Thank you.

Oliver Schmidt: Alright.

We will take our next question from Vinit Malhotra [Mediobanca SpA]. Vinit, please go ahead.

Vinit Malhotra: Yes, thanks for the opportunity. Just so very quick three ones. One is only target so Giulio you mentioned about history.

When I look at history, I mean, except maybe the COVID year 2020, the actual have has been very close to the top end of the guidance. And now we see €14.4 billion as the 2022 outlook upper limit. And that's so close to the 2024 target. I mean, can you just talk about scenarios where this could actually happen this year. And then obviously then we have to think of higher target for 2024? So that's just the first question.

Second question is on the PNC in Spain, Midco is being mentioned. Now from just hearing many of the companies it seems Midco has been the – sort of attractive business. Could you just talk about what happened there or and you mentioned conservatism, is that more conservatism or is there some issues you'd like to flag on that side? And lastly, capital efficient products in life, I think 415 [ph] million is probably the highest quarterly operating profit. And in the past, maybe two years ago, I've asked you that you were seeing a change in the profit numbers of capital efficient products. Is that the accounting – is it an accounting effect or is it what we just heard from Oliver about how the asset management is coming in and helping create more value? Thanks.

Giulio Terzariol: Okay. So the first question was on the outlook and how we go to the €14.4 billion. I will not be focused too much on the €14.4 billion because I would say to get to that level; we should really have the opposite of the perfect storm like very low level, very strong capital market. So a good level of performance fees that's how we can get there. I will say that as you said before, we have a tendency to end up in the upper half of our outlook and yes, we will see what happens in 2022.

But I think this could be more reasonable expectation as opposed we go all the way up to €14.4 billion, but clearly if we see very benign market condition, we see very low net cash that could push us clearly to a very high level, but that would also be not necessarily what I would call a baseline. So that's on your comment about the €14.4 billion, what could bring us there. On Spain; Midco the issue there has been also large losses. So clearly when we look at large losses, we are always very cautious because it's too easy to say large losses are just volatility, and they're going to normalize the way. That's the reason why we – we will clearly take a close look at the perform of that book, and anyway we also put in rate increases there.

So – but fundamentally the issue has been an accumulation of large losses, but we don't take this necessarily as an explanation to say everything is fine. And in 2022, there will be no issue also, the motor performance is good because there is clearly also still a low frequency in Spain. But we are also kind of prudent in the sense of, we might see clearly an increasing in frequency potentially in severity as we go into 2022. So there was also some element of prude on that aspect. So it's a little bit of prude with respect to motor, and then also large losses that have affected Midco business.

The last question was in the capital efficient products. What we are seeing there is the combination of Allianz Life delivering very strong performance in fixing this annuity and also in the so-called RILA, which is the registered index life annuity, which is what has replaced basically the [indiscernible] business. And also what we see is clearly the, and we said that in the past that there is a trajectory coming from Allianz's Luyben. In the past you didn't see much of profitability in that line of business coming from Allianz's Luyben because due to the accounting, the way we do the accounting, there was a sort of strain also under IFRS – the current IFRS. And now this train is going away because the book has achieved clearly a different size.

So you can really, if you want the growth in profit is over proportional compared to the growth of the [indiscernible] and the measure of the business because of this account. So you see maturity if you want, think of that Allianz's Luyben, capital efficient product was almost like a startup. And now after three, four years, clearly you see performance kicking in and also we are pushing these capital efficient products also in other markets. But the main driver of these performance in Allianz's Life because of the strong delivery there in Allianz's Luyben and because of the strong delivery with this sort of embedded growth because of this accounting drag going down.

Vinit Malhotra: Alright.

Thanks very much, Giulio.

Giulio Terzariol: Welcome.

Oliver Schmidt: Thank you, Vinit. So the official time for our call is over, but we deliver a couple of analysts in the queue. So we'll add a couple of minutes and try to get everybody into the call.

And we will take the next question from Kamran Hossain from JPMorgan. Go ahead, Kamran.

Kamran Hossain: Hi. Good afternoon. Thanks for taking my questions.

Three questions; and the first one is just you clearly have good success in the U.S. on back book deals. Can you maybe talk about the potential elsewhere in the group outside of the U.S. but there is potential for deals and whether actually there's enough capital out there to kind of support those deals? The second question is just on net cap budget, just could you give some kind of guidance around how that's changed or, and to what extent that's forward looking, rather than based on history? And the third question I guess you are one of the first companies to report that it has a big UK multi-business. Any thoughts on how the UK pricing practices review has impacted the market yet? Thanks.

Oliver Bäte: Yes. Maybe I'll start with the last one. So on the UK; I think the situation is very fluid. Let's put this way. What we understand from our – so I don't have a definitive answer.

Let's put this way, but what I can tell you is the following that we started January with the pricing, which was new business pricing, which was more conservative compared to what the market was put in there and we saw that the competition was more aggressive. So to a certain degree, we had to make some adjustment to pricing. Now, we also believe that there could be some movement in the other direction from the competition, but fundamentally it's a little bit too early to say. The only point that I can make is that we started with a more conservative position than what our competitors in general heads and now we need to see how the situation is going to evolve and stabilize. So I think we can speak about this issue when we had a Q1 call.

I'm sure at the point, I can give you some good indication of what has happened, because right now, the situation is still developing. On the Nat Cats, I'll just tell you the way we are thinking about Nat Cat. And maybe let me tell you that when we look at Nat Cats, internally, we look at Nat Cat and weather-related losses. So overall, in the past, for the same Nat Cat and weather-related losses, we had a budget of about 3% of premium. And we move this budget up already in the last two years to about 3.2% of premium – percentage point of premium.

And now we – for 2022, the way I look at that is 3.5 percentage points. So I would say that compared to the situation of three, four years ago, we are 50 basis point higher in the Cat allowance, including weather-related, than we were at that time. And now to give you also an idea, anyway, we have an aggregate in place. So I will say that if we see more Nat Cats that are included in this 3.5 budget, I would say, when we start getting to 4.5 percentage point of load, that's the point where the aggregate should come into place. So think about that combined budget of Nat Cat and weather-related of 3.5%, which is 50 basis point higher compared to what we had a couple of years ago.

And then I will say, at 4.5%, we should be kept in terms of Nat Cats load because the aggregate will come into place. That was clear? Okay, perfect. And then on the back books, I think there is appetite out there. Yes, there are – you saw that there are a lot of transactions happening also in the U.S. Sixth Street announced a transaction just after in the losing transaction, and they still have appetite to do things, i.e., just – yes, there is appetite there.

So it's not a problem to find buyers. And from our standpoint, clearly, we are continuously looking at what our options are. And if we believe that doing – that both transactions is the right way to go, we are going to do so.

Oliver Bäte: Yes. I would like to make a point that Giulio actually made this morning.

I'm just seeing a little bit energy today. So I wanted to make the point. It's not just about selling books and what – how the bankers see it. It's actually the last resort. If you don't know what to do, you need to sell a business.

There are many other levers. Giulio made it -- the two examples today that I would like to repeat. First, in Italy, on the pension business, we have been renegotiating some pretty capital-intensive contracts in a way that has provided massive capital relief. And we are continuing to do so. Actually, the industry is picking this up now so there may be more larger contracts also for us that are changing.

The other one is France, where we are working very hard, not just on the new products that have three times the margins that we had just two years ago, but also transforming the in-force because they come with higher investment upside for our consumers. And our sales force is actually super excited to provide an alternative to sort of the lower-margin products that came with the old tax benefits. And again, the regulators, they are very happy because we're providing more upside at much less capital consumption. So there is many levers that we are pulling at the same site. And people only look at sort of, are you selling reserves? That is just one part of it.

The second thing is many of these things take quite a while to prepare in order to get them really as a win-win. So for example, in Switzerland, we've worked for two years and – before we did the first ever direct insurance into Bermuda. And also, Lucy didn't come out – our project in the U.S. didn't come overnight. We actually observed the market.

And we saw a massively growing interest into a transaction, particularly in the quality of books that we have relative to other people that really have problems. And therefore, you've seen this enormously beneficial economics for our partners and for us because the quality is so strong. So we really have to get the timing right in order to extract the maximum value for our shareholders. This is different for other people that have real problems and really need to get out of businesses, which we have been addressing quite a few years ago. So this is now really about optimizing risk and return.

And it's not about solving a problem per se because we don't think we have a problem really left other than the smaller items. And that is super important. We're literally thinking about the transformation. Now the next step is not just thinking about in-force, but also leveraging, because I love your question. How can we do this for new business? So what we're working on is to work with private capital to say, there are highly competitive segments of the market in the U.S.

and elsewhere. Can we not set up structures that – where we do the product design, where we do the distribution, we capture a very nice share of the value creation? And then put the business on to balance sheet that have much better cost of capital than we do have. So that's the next level of transformation that we're working on. And where that's coming? Some of that is coming in 2022. So we are super excited to drive value creation massively.

So I made the joke and says, as Giulio said, with the P&C business, with a new business strain of 30% of net earned premium, if we could do the same thing in P&C to really not have an SCR strain anymore from new business, then we found really a cool trick, kidding aside. So in Life, we've made huge progress after working out for many years. And now it's really about driving growth at ever rising ROEs. And I would like to point out the key thing is not the ROEs. It is to reduce the tail exposure.

So making sure that we systematically reduce the exposure to tail shocks. And you're going to see that in the reducing volatility of our Solvency II ratio and strongly growing Solvency II ratios because the new business now is going to be accretive to Solvency II. And which is a total change, and it's coming this year, right? And I think the investors community has not really understood yet and picked it up.

Kamran Hossain: That's fantastic. Thanks for very comprehensive answer.

Oliver Schmidt: All right. We have one caller in the queue, then I guess we have to come to an end. We will take our last question from Thomas Fossard from HSBC. Thomas, the line is yours.

Thomas Fossard: Yes.

Good afternoon everyone. Just one last question for me, related to your credit insurance business to your – back very strong operating profitability in 2021. Giulio, could you tell us while you're dealing with the profit sharing or repayment of the public scheme and how much you've been able to front load, if you wish the year, the profit sharing that you need – that you hold to the – to the different state and – or how much we should expect still to come in 2022? Thank you.

Giulio Terzariol: That's – we start the agreement basically in June 2021. So in 2022, there is no profit sharing.

Now what is happening to the extent, that’s the reserve was set conservatively. When we have a runoff, we are sharing the runoff, positive runoff with the states. But the majority of that happened already in 2020, 2021. So I would say, as of 2022, since we are out of this profit sharing and since the excess prudency in the reserve, let's say, has been also released, there is not much left from that point of view.

Thomas Fossard: Okay.

So 2022...

Giulio Terzariol: Business as usual, yes. Absolutely.

Thomas Fossard: Okay. Thank you.

Giulio Terzariol: Okay. Welcome.

Oliver Schmidt: All right. Thanks very much to everybody who joined the call. In case there are any questions left, please call myself or my team.

We will be very happy to help. For now, we say goodbye. We wish you a very pleasant remaining day and a nice weekend. Goodbye.

Oliver Bäte: Thank you.

Giulio Terzariol: Thank you so much.