AGESF - ageas SA/NV (AGESF) Q4 2022 Earnings Call Transcript
ageas SA/NV (AGESF)
Q4 2022 Results Conference Call
February 22, 2023 03:00 AM ET
Company Participants
Hans De Cuyper - Chief Executive Officer
Christophe Boizard - Chief Financial Officer
Emmanuel Van Grimbergen - CRO
Antonio Cano - Managing Director, Europe
Filip Coremans - Managing Director, Asia
Wim Guilliams - Deputy CFO
Conference Call Participants
Michael Huttner - Berenberg
Farooq Hanif - JPMorgan
David Barma - BofA
Nasib Ahmed - UBS
Michele Ballatore - KBW
Steven Haywood - HSBC
Ashik Musaddi - Morgan Stanley
Anthony Yang - Goldman Sachs
Benoit Petrarque - Kepler Cheuvreux
Alessia Magni - Barclays
Presentation
Operator
Welcome to Ageas conference call for the full year 2022 results. I'm pleased to present Mr. Hans De Cuyper, Chief Executive Officer; and Mr. Christophe Boizard, Chief Financial Officer. [Operator Instructions] Please also note that this conference is being recorded.
I would now hand over to Mr. Hans Cuyper and Mr. Christophe Boizard. Thank you.
Hans De Cuyper
Good morning, ladies and gentlemen. Thank you all for dialing into this conference call and for being with us for the presentation of the Ageas full year results. As usual, I'm in the room with my colleagues of the Executive Committee, Christophe Boizard, CFO; Emmanuel Van Grimbergen, CRO; Antonio Cano, Managing Director, Europe; Filip Coremans, Managing Director, Asia. Our new Deputy CFO, Wim Guilliams, who will succeed Christophe as from June 1, is also present in the room. We ended the year with a strong quarter.
Our quarterly net results amounting to €305 million, excluding RPN(i). This result was driven by a solid operational performance in the Life business across Europe and Asia, whereas the Non-Life result was impacted by the severe freeze event suffered in the U.K. in December. The fourth quarter result also benefited from a €147 million capital gain from a successful transaction on our legacy debt instrument, FRESH, which also enabled us to further reduce our reliance on a grandfathered instrument. Over the full year, the group net result amounted to €1.01 billion or €871 million excluding RPN(i).
As we already flagged during our 9-month results, the result was heavily impacted by markets evolution in Asia, more specifically the continued decrease of the discount rate in China and capital losses arising from the adverse equity markets. If you exclude these 2 market elements as well as the positive capital gains from the FRESH transactions and from the M&A in India and the U.K., the group net result would have exceeded the €1 billion mark. And you can find the details of this calculation on the Slide 4 of our presentation. This high number illustrates a sound Life operating performance realized across regions. This translated into operating KPIs for the consolidated entities comfortably within our target range.
Indeed, the guaranteed operating margin amounted to 91 basis points while the Unit-Linked operating margin continued its steady improvement and stood at 36 basis points. In Non-Life, the combined ratio for the consolidated entities stood at 96.5%, including a 4.3% points from adverse weather. The weather impact is above our average run rate of 2 to 3 percentage points. In Asia, our entities also delivered a very strong operating performance as illustrated by the high underlying results of €627 million, excluding the market impacts just mentioned as well as the positive capital gain from the step-up in our Life Indian joint venture. Our Solvency stood at a high 218%, largely above the group target of 175% and up by 21 percentage points over the year.
Given this high solvency position, the Board will propose a final gross cash dividend of €1.5 per share, bringing the total dividend over the full year to €3, up 9% compared to last year. I'm happy to report that we are today fully on track to reach our Impact24 targets, both in terms of operational performance and financial targets. Our holding free cash flow for 2022 should end up close to €700 million, comfortably within our target of a cumulative amount of €1.7 billion to €2.1 billion over the 2 years. Next to our commitments to our shareholders, we are also making significant progress on our ambitious ESG targets for Impact24.
You can find on Slide 65 of the presentation, performance indicators on our key commitments, and we are particularly proud of the steps taken to improve sustainability.
To give you a concrete example, we have already achieved, 2 years ahead of target, our Impact 2024 target of €10 billion invested in transitioning to a more sustainable world. Before handing over to Christophe for more details on the results, I would like to add a word on the devastating earthquake that took place in Türkiye 2 weeks ago. Our thoughts are with our Turkish colleagues, partners and customers.
We are fully committed to support them in any way we can, and we are donating €1 million to the aid program set up by the Sabanci group. In terms of financial impact for the group, it is still early days. But we expect it to remain manageable in the range of €10 million to €15 million. And now, ladies and gentlemen, I give the floor to Christophe.
Christophe Boizard
Thank you, Hans, and good morning, ladies and gentlemen. Before providing more details on the performance by region as well as our cash position and capital generation, I would like to comment briefly on the group commercial performance. Inflow, our share were up in both Life and Non-Life. In Life, sales benefited from a positive trend in Asia with a particularly strong fourth quarter in China, whereas rising interest rates and volatile market weighed on volumes in Europe, especially in bank insurance. In Non-Life, inflows were driven by a solid growth in Belgium and Portugal and a strong sales momentum in all the Asian countries.
As usual, I will now give you more details on our results per segment. In Belgium, on Slide 7, our net result amounted to a record high, €464 million, up 16% compared to last year, thanks to both a solid performance in Life and an excellent result in Non-Life. In Life, the guaranteed operating margin ended the year within our target range standing at 89 bps, supported by real estate capital gains realized in the fourth quarter, while the Unit-Linked operating margin exceeded our target range amounting to 41 bps. In Non-Life, favorable claim experience and higher volumes resulted in an excellent combined ratio of 93.8%. In Europe, Slide 8.
The net result amounted to €116 million with a mixed performance between Life and Non-Life. Indeed, the Life business recorded a strong performance with both operating margins within target range, whereas the Non-Life business, which already suffered over the first 9 months from storms and claims inflation in the U.K. and hyperinflation in Türkiye was further impacted in the fourth quarter by the freeze event in the U.K. The full year combined ratio, which stood at 100%, included 5.3 percentage points from adverse weather. In Asia, Slide 9, the result, which amounted to €245 million, was severely impacted by the market environment, as previously mentioned.
The share decline of the Chinese equity market resulted in €196 million capital losses while the continued decrease of the discount rate curve in China impacted the result by €236 million versus €186 million in 2021. However, the high underlying result of €627 million, significantly up compared to last year, illustrates the excellent operating performance. I would like to point out that it also benefited from nonrecurring elements such as positive exchange rate evolution, favorable claim experience and a strong focus on expense management.
In Non-Life, the result of the fourth quarter included a €29 million goodwill impairment on RSGI, our Indian Non-Life JV, facing challenging personal motor market environment. The Reinsurance results, on Slide 10, amounted to €32 million, reflecting mainly the adverse weather experience in the ceding entities as well as claim inflation in the U.K.
As mentioned by Hans, the General Account results, on Slide 11, benefited from €146 million capital gain from the FRESH transaction. Indeed, we launched, in the fourth quarter, a tender on this legacy instrument. We recorded a success rate of 55% and hence, reduced the outstanding amount of FRESH to €151 million of nominal. Given that this instrument has been hedged in December 2021, where long-term interest rates were very low, the transaction enabled us to unwind the interest rate swap at very favorable conditions. Moving now to the Solvency and capital position.
Our cash position, on Slide 12, went down to €624 million, mainly on exceptional cash out related to specific shareholder and bondholder returns. Indeed, the largest part of the decrease is due to the introduction of the interim dividend paid in October for €270 million and to the share buyback of €96 million. In addition, the reduction of our exposure to the legacy instrument, both FRESH and CASHES, also impacted our cash position by €127 million.
I would like to stress that the record amount of €753 million dividend received from our operating companies in 2022 covered the full year dividend paid to our shareholders in June, the holding cost and the remaining part of the share buyback realized in the first half of 2022. Our group Solvency II ratio, Slide 13, amounted to a strong 218%.
The 7 percentage point decrease in the fourth quarter resulted from the transaction realized on FRESH and CASHES instruments. Over the full year, the group Solvency was up 21 percentage points driven by rising interest rates and strong operating performance across entities. This performance translated into a high operational capital generation of €1.8 billion for the whole group and an operational free capital generation of €1.2 billion. We are on Slide 14. The Solvency II scope companies contribute €721 million to the operational free capital generation.
As already pointed out during previous quarters, this number includes €60 million from the sale of the commercial lines in the U.K. By contrast, the fourth quarter number includes a negative impact from the launch of the external reinsurance activity. Indeed, as you may remember, we recently announced our plan to enter into third-party reinsurance, in line with our Impact24 strategy. We have successfully implemented this plan since the beginning of the year, taking advantage of the significant hardening of the reinsurance market. Resulting SCR increase, as we already included the new business requirement as from Q4, reduced the group capital generation by around €100 million.
On the Non-Solvency II scope companies, so mainly the ones in Asia, the operational free capital generation amounted to €556 million significantly up compared to last year, but in line with the increase of our underlying results, and it also -- and also benefiting from the same nonrecurring element. And finally, the General Account consumed €105 million of operational free capital generation. I have now reached the end of my presentation, and we are ready to answer any questions you may have. Thank you.
Question-and-Answer Session
Operator
[Operator Instructions] The question and answer will now then followed by Michael Huttner from Berenberg.
Michael Huttner
Well done for achieving your targets despite whatever in 9 months. And I had 2 questions on -- 1 was on -- well, both on cash -- sorry, 1 on cash and 1 on China. On cash, so you're guiding to €700 million, down from €753 million in terms of net cash remittance. If I just look at the Asia portion, there's €140 million out of the capital generation or whatever, €556 million, that's just 25%. I was under the impression that the capital -- the cash conversion in Asia is more like 30% or 33%.
Just wondered if you can maybe correct me in some way? And then on China, can you talk a little bit about the sales momentum? I was trying to work it out in local currency and I completely failed. So any indication, Q4 sales momentum and what you're seeing now?
Hans De Cuyper
Okay. Thank you, Michael. Well, on the cash, I will give first dividends to Christophe. Filip, I think, can add on the sales momentum in Asia.
Christophe Boizard
So on -- okay. My mic didn't work. On the cash, the conversion is 30%, but not really a surprise. So this has been like this for a long period of time. And even the 30% should be seen as a rather favorable figure compared to what we can see elsewhere.
And you remember the story, instead of being at the holding level of the group, we are at an operating level via TPL and TPL is the key cash contributor to the Taiping Group. Hence, this payout ratio around 30% to 35%, but this should be seen as a rather high figure in Asian standard.
Michael Huttner
My question was the figure I worked -- I calculated and this is why I'm asking you to correct me, a conversion rate of 25%. So if I compare the €140 million with your operating free capital generation for Asia of €556 million, that's 25%, that's not 30% or 35%.
Hans De Cuyper
Maybe I'll give it to Filip to add some more color there.
Filip Coremans
Yes, Michael, you're right. This will result in a quite higher ratio than we've seen over the last years, except maybe 2 years ago where we also had a higher payout ratio, certainly on the IFRS result. But let's keep in mind that the dividend remittance of the Asian operating entities do not depend on the IFRS result, more on the local results. The dividend expectation that we have, which I'm very happy to confirm that this is going to be level, if not slightly up from what we saw over this year despite the lower line result in IFRS indeed will lead to a higher payout ratio. It will be close to 50% overall, obviously.
But that is because in China, we still have significant retained earnings. The resulting cost has to be around, obviously, by our partner, but you will see that we have less impairments and all that results in a stable dividend commitment out of China, which drives to a higher payout. You're right, correct. Yes. And on the sales momentum, indeed, Q4, as you noticed, was strong.
And I must say, particularly in China, it's a bit in line with what happened last year and that's also supporting the result, which was high in the last quarter. We had quite, let's say, persistent sales effort until the end of the year. So by the end of the year, China overall still grew with 4% top line. And had a good continuation, they managed almost to maintain, I would say, their margins level over the year in the new business, which was very good. So difficult for us as well.
And then in Southeast Asia, you know already, I announced coming out of COVID, we had quite solid growth rates at Thailand at 26% growth in APE, new business. Philippines was up with 17%. Vietnam, 23%. So across the region, we saw a strong traction coming out of COVID, which supports the 10% deadline. But as Christophe mentioned, it is supported by FX.
And also at the Non-Life side, we had a very, very strong growth last year, over 20% actually at constant FX. So I would say all the countries coming out of COVID, you see a pickup, I would say, obviously, in new business sales. The overall growth in GWP, of course, has been hampered a bit by 2, 3 years of COVID impact. But the sales of new business is good and was very strong in Q4.
Michael Huttner
And in Q1?
Filip Coremans
Okay. It's too early to tell, Michael, you will have seen because it has been released on the China market that January figures were slightly down. But let's not forget that Chinese New Year, first and foremost, came very early this year. It was in January, is the earliest I have my record at least. And the second thing is let's also not forget that across Asia, and that's not only in China but also Vietnam and the Chinese communities in Singapore and so on, they really celebrated Chinese New Year.
So there was a lot of travel. We will see better when the first half comes to an end. Actually, after the first quarter, but since we will have our yearly result announcement, you will have to track it a bit on the release of time. But we are confident. And the focus is more on margin this year than on headline figures.
So that's also something I want to share.
Operator
We will take the next question from line of Farooq Hanif from JPMorgan.
Farooq Hanif
I wanted to just quickly talk about the European Non-Life performance. So the reserve releases were extremely high in the fourth quarter. And obviously, there was also quite large weather events. When we kind of take all of these impacts out, can you comment on how the claims inflation is impacting that number and what you see going forward and your confidence around the sort of 95%, albeit with IFRS adjustment -- FY '17 adjustment? So that's question number one.
And the question number 2 is around -- if we take out the VIR impact and other one-offs, I mean your underlying results in Asian Life is extremely strong. Are you quite confident that on a current sort of IFRS 4 basis, that is a sustainable number? Or is there anything going on in that sort of margin delivery that's one-off in nature that could normalize?
Hans De Cuyper
Yes. I'll give Europe to Antonio, who follows on the European countries and Filip will come back on the first question.
Antonio Cano
Yes. Okay. So on Europe, the 2 main markets, Non-Life, obviously, the U.K. and Portugal. You pointed out to a high claims release.
Now we always have a pretty sound release, so maybe Q4 is a bit higher. That stems mainly from the runoff of our personal lines, motor U.K. business. Some of you might remember that we had very high large losses we booked in '19, '20. Now we see that those are actually being closed down in much lower amounts.
So that is the source of the previous year positive results. But I would say there is nothing really special to add. There is no -- we expect that to stay sound also moving forward. You also questioned about the weather events. In Q4, the weather event was obviously the freeze in the U.K.
Our number, and I'm going to use the gross numbers, was about GBP 40 million, 4-0. So that translates into euro roughly at €47 million, which is a number that is, if you compare it with some other U.K. companies that have published the impact, it is relatively lower compared to some, relatively higher compared to others. Bear in mind, the geographical footprint of companies determines a lot. As those based in U.K. might know, it was mainly in the northern part of the U.K. that got hit. So we are pretty much in line with what we've seen with the others. And obviously, that has had a big impact on the results. On top of that, we continued -- we saw in Q3, Q4, also quite some subsidence claims in the U.K.
And also bear in mind, in Portugal, also in Q4, there was quite a heavy rainfall with also a significant impact on the results. So weather was quite harsh in Q4.
Farooq Hanif
And on claims inflation, I mean are you happy that you can offset that?
Antonio Cano
On claims inflation, maybe just, again, focus on the U.K. where that plays the most. We see claims inflation and it's about attritional claims mainly. We don't see any inflation in the large losses or bodily injury. In the attritional claims inflation, we see that coming down gradually.
Our numbers indicate that we are in the -- around the 10% area. And we have been increasing rates throughout the year. Just to give you a number, year-on-year, so an annualized rate increase we have carried through in our motor U.K. business is around 25%. So that is well in line with the inflation.
And what is positive is that we clearly see in Q3, but definitely in Q4, both the API price tracker and confuse.com tracker. Already in Q3, they pointed to a very stiff rate increase. The Q4 has been very high. On an annualized basis, it was about 30%. I mean it's never seen that before.
Whereas at the beginning of the year, you saw prices motor in U.K. actually stabilizing. In Q4, you've seen a steep rise. Might have -- could be explained due to the pricing review and that people at the end of last year were quite aggressive on the rates and that now have to price up, there can be various motives. But -- so we're pretty confident we have carried out our rate increases throughout the year.
We see that we are becoming, again, more competitive on price comparative websites. So in a nutshell, we have pushed through the impact of inflation in our pricing, and we see competitors also doing that now.
Hans De Cuyper
Maybe I can add briefly on Belgium because Antonio focused on the U.K. In Belgium, we have said already in Q3 that 65% of our products there can automatically absorb the impact of inflation. That's what we did. On top of that, in home, there was a further additional increase because of the increase in cost of reinsurance for CatNat. It looks like that all this has been very well digested by the market, not impacting our sales volumes at the moment.
Slight attention point on workmen's compensation, but that can be easily absorbed within the provisioning that Ageas overall has foreseen. So actually, the combined ratio impact in Europe is actually mostly related to weather, and it's not really related to inflation. We have digested the effect of inflation almost fully in the Q3 results. And then you asked about the Impact24 and under IFRS 17. Well, in the road show, the deep dive we gave on IFRS 17 in December, we will have a slightly different definition of combined ratio going forward, you have, of course, the discounting impact that will come into the combined ratio.
But at this moment, we fully stick and are confident on the Impact24 KPIs that we have set. We will come back, as you know, with the full IFRS final story, controlled and noncontrolled participations, in the month of June, well ahead of the first closing of IFRS 17 in August. And I'll give it to Filip on the first question and good results on Asia.
Filip Coremans
Yes. Obviously, we are very pleased with the results we saw in Q4 and overall underlying on Asia. That is obvious. And indeed, it came in quite a bit ahead of what I gave as earlier guidance going around €550 million underlying. But in all fairness, I would like to point out maybe 3, 4 things that positively impacted the quarter 4 results and which may not be fully recurring, but were definitely operational.
So first and foremost, I mentioned it before in the previous calls, FX has given us a helping hand over the year. The average exchange rate euro, now at the end of the year is a bit different, but throughout the year that definitely supported the translation of the Asian results into euro. The second thing is also and that maybe for all the wrong reasons, but we had very good claim results out in China, and that is because of the lockdowns over the last quarter.
Because of that, we are definitely a significant positive bias on claim experiences in Asia, mostly in China. And then thirdly, and that's also important, and it comes from 2 angles.
We had a significantly better experience on the expense overrun in the fourth quarter. And it comes because of what I said, the strong push in sales by the year-end, which obviously increases the cost bearing capacity of the new business, but also because there was quite a bit of restraint on expenses, predominantly related to salary increases and bonus provisions across the region but mostly in China, which helped. So if you ask me to give you a clear guidance on the underlying, I would say, okay, €70 million, €80 million less than the €627 million would certainly be a stable core, which brings us back around to €550 million range looking forward.
Hans De Cuyper
I knew we should add, but I think you are already aware that under IFRS 17, there will be a different treatment of this. We can assume that the real operating profit coming out of Asia will be closer to what we have seen as underlying in the past. So the two will become closer together, which I believe is a very important positive impact we can expect on the results for this year.
Filip Coremans
Yes. From that perspective, so I'm certainly, probably one of the few, but one is definitely looking forward to [IFRS 17/9] because it will create more transparency and comparability.
Operator
We will take the next question from line David Barma from BofA.
David Barma
The first one is on the Real Estate, please. What are you seeing in terms of revaluations on your Real Estate portfolio at AG? And should we expect any impact for your capital gains, usual budget for this year? And then secondly, on Reinsurance, are you able to give us a bit of color on your expectations for growth in the third-party business this year and what the current market dynamics are doing to that?
Hans De Cuyper
Yes. Let me quickly take a little bit on Real Estate and Antonio will zoom in further on Reinsurance. Actually, Real Estate is holding up very well. Real estate prices in our main areas, and that's all related to location, location, location is keeping up nicely. We have a slight drop in occupancy but we are still well above the 90%, which I think is good for our Real Estate portfolio.
And secondly, a big part of the real estate is inter-parking, the parking business, where actually we are fully back to normal. I would say, we are even slightly better than 2019, which is the pre-COVID period. So we have fully restored our parking business, some tension -- only a tension point a little bit on the parking at the railway stations. And we see that the railway is used less than before. But all the others, I think, are fully back to normal, and so they will keep on contributing the yield to the performance of AG.
Antonio Cano
Maybe just to add that Hans said, I don't if you mentioned that the stock of unrealized capital gains in real estate is maintained and, indeed, we don't see -- given the quality of the Real Estate portfolio and the impact. On Reinsurance and specifically on the third-party business, we're starting to write in '23. So the January renewal. We have underwritten mainly risks that obviously do not correlate with Belgium, U.K., so to say, North European storm. So we focus on Central Eastern Europe, Southern Europe, cut covers.
That's the bulk of it. And there's also a participation in a diversified North American exposure. All in all, we're talking about €25 million to €30 million premium. And as you might be aware, the rates and the nature of the Reinsurance market for reinsurers, obviously, is quite positive. So a good start.
We could obviously have written much more, but we like to do this gradually and probably in the April and July renewal season, we will also continue to grow that business. But again, on a very controlled way.
Operator
We will take the next question from line Nasib Ahmed from UBS.
Nasib Ahmed
So first question on -- I'm not sure if you've answered this already. You usually provide a guidance on net result ex RPN(i). I know for full year, excluding markets and one-offs, you're at €1 billion. So can we expect a similar result for 2023 or a little bit higher? And then on the M&A outlook, what do you see in terms of the scope for M&A in the current environment?
And presumably coming into a recession in 2023, do you think M&A is going to be a focus for Ageas?
Hans De Cuyper
Well, first of all, on the guidance, well, you will understand that we are still fully in that transition to IFRS 17, and it's probably the most difficult year ever to give you some kind of a guidance in the beginning of the year. You remember that on IFRS 17, in December, we have said if you change net result into net operating results that for the controlled entities in Europe, there will not be a major difference compared to the accounting treatment under IFRS 4.
But as I just explained already, in Asia, we can expect a quite important impact amongst others, but also the treatment of some of the impairments. Today, I would say that if you look at that adjustment result that we have given you on Page 4 of your slides, taking into account those effects and the other exceptional effects, I believe you have a good guidance today for 2023, I would say, between €1 billion and €1.1 billion. So again, I would say, above €1 billion, but it is indicative.
And we will give you better insights on the guidance for the full year when we publish the half year results because by then, we have fully digested the IFRS 17 impact in all our businesses. Second, on M&A, I would say no change, always open for in-market consolidation in the markets where we are to strengthen our positions. There is continuous activity. Okay, you might not hear it all the time in the media, but we are very diligent on doing M&A and valuations, but there is definitely activity. [indiscernible] home market, you will understand that Europe has been quite silent on M&A in 2022 due to the market circumstances.
It is something we keep on looking at for the future. But you also remember, we have said it is not urgent. It is about balancing the group Europe, Asia for the future. It is on our radar, but it is nothing urgent. I want to add one more element here, is you might see you have the evolution of the cash, partially because of the interim dividend and also for the very attractive FRESH and cash transactions that we have done in the fourth quarter.
You should also be aware that, of course, the FRESH creates new debt capacity. So there is maybe a little bit of shift in our capacity to do M&A, but it is mostly a shift. We took the good opportunity of the interest rate hedge with the FRESH's to bring back that instrument. I remember, it is a grandfathered instrument. So we -- it's good that we get it off the balance sheet in the future.
But it creates new debt capacity. You should take that into account when you look at our M&A firepower.
Operator
We will take the next question from line Michele Ballatore from KBW.
Michele Ballatore
I have 1 question about the Reinsurance, especially the drop in the Solvency ratio for the Reinsurance unit in 4Q. I mean this was, I think you mentioned something. Is this due primarily to growth? And also on the performance of the operating free capital generation from the Reinsurance in 4Q, which was weak. I mean was this related to the performance in Solvency?
What was the driver for the, let's say, the performance in the fourth quarter in your Reinsurance unit?
Antonio Cano
So I'll try to give you an answer, and maybe Manu can fill that up. So the drop you see in the solvency rate of Reinsurance has also to do with the fact that we have allocated that will actually require more SCR for the new third-party business. The new third-party business obviously has only written in January. But as you take a 12-month forward look in Solvency, you have this mechanical increase in SCR. On the -- I could say that the underlying performance of the Reinsurance activity itself in Q4, you are aware that we have the quota share deal with the U.K.
So 40% of the impact of the freeze in the U.K. flows through the Reinsurance account. Add to that also the rain in Portugal and that is the bulk of the explanation why you see a lower result in the Reinsurance account. So it's actually very much linked to the performance of the ceding entities. In the more of the pure protection Reinsurance type of business, beyond the quota shares, actually, performance has been quite good.
Emmanuel Van Grimbergen
And on operational free capital generation, so Emmanuel speaking. So indeed on Slide 53, you can see that the operational free capital generation of Reinsurance is negative €53 million. A couple of elements that are playing here. The first one is the consequence of the quota share and [indiscernible] and inflation and weather from the U.K. But the other one, and that is really the one that Antonio already mentioned also, is the launch of our external Reinsurance.
And when you start up a new business in Non-Life in Reinsurance, on the 31st of December, because Solvency II is a 1-year forward-looking, you have already to set up the Solvency capital requirement at the 31st of December. And that is impacting the operational free capital generation of Reinsurance in of Q4. And you can see this -- everything being equal, moving forward. Of course, you will not have that increase anymore, which means that then the operational free capital generation will be again at a more normal level.
Operator
[Operator Instructions] We will take the next question from line Steven Haywood from HSBC.
Steven Haywood
I appreciate the guidance you've given on an IFRS basis. And following up from the previous question, I wonder if you can give us any guidance for the OFCG in 2023. Obviously, there were a few one-off impacts in 2022. But if you can give us some color going forward, that will be very helpful or give us an underlying sort of level you except on the OFCG. And then secondly, on -- you mentioned that your run rate for adverse weather impacts on your combined ratio is about 2 to 3 percentage points per year, which is helpful.
Do you think this is appropriate now if you think about a potentially new normal of higher levels of secondary perils, particularly from crop climate change going forward? Is there anything to suggest that this 2 to 3 percentage points per year is not appropriate anymore?
Hans De Cuyper
Okay. Christophe will give you some feedback on OFCG.
Christophe Boizard
Yes. So on OFCG, the OFCG is not meant to be very volatile because if you filter, it is operational free capital generation. So in some way, it is a little bit like underlying earnings for profit. So a lot of one-offs are filtered. And what you have in OFCG is what we call the result of management actions.
So on OFCG, it is quite, I would say, stable. The SCR on OFCG could grow with growing activities, growing market, hence this impact coming from Reinsurance. But as Emmanuel already said, this is done and this is good for the year. You know that most of the underwriting in Reinsurance is done as of January 1. So it was recognized end of Q4 -- end of Q2.
We don't expect further need from the Reinsurance. Further need could come for the second phase of development in 2024, but not before. Guidance on OFCG, we have decided not to issue any at this stage. Why? Because we have recently reshuffled the framework by including the Asian component.
And you remember that in the past, we had Europe and Asia with a quarter delay. That's not the case. We consolidate now Europe and Asia at once without any delay. But regarding OFCG, we would like to wait until Q2. And when the guidance on the results will be released, we will add some indication regarding OFCG.
So be patient until the closing of Q2.
Hans De Cuyper
Yes, sorry. I'll come back on the core. Maybe first on OFCG. You know that we use OFCG to show that the FCF that we foresee [ not ] the free cash flow coming to the group is sustainable for the future. And if you compare the 2, you will see there is a comfortable margin above the free cash flow coming to the group.
So we don't give guidance, but our principle that the dividend upstreaming should be sustainable, I think, is proven by the OFCG numbers that we have. On combined ratio weather, 2% to 3% is at normal. It's a very good question. We see 2 elements. First, in pricing.
The cost of Reinsurance has significantly gone up around the world, specifically for CatNat. But as I said, also in Belgium, for instance, we have been able to reflect that in the pricing of home insurance above the inflation. We have applied another 1.5% premium increase for all contracts to cover CatNat. And that's already the second year in a row that we apply that increase. So part of that effect will flow in the premium.
That being said, the Reinsurance cover is not fully renewed as it was. On some of the
protection, it was not possible to get economically attractive positions, and I'm thinking about aggregate cover in Belgium. So we can expect a little bit more volatility coming from the Non-Life home book due to CatNat. But if we would look over a longer time period, I believe the 2% to 3% is still our ambition because most of it we want to be reflected in the pricing of the product. So yes, but a little bit more volatile.
Operator
We will take the next question from line Ashik Musaddi from Morgan Stanley.
Ashik Musaddi
Just a couple of questions from me. First of all, I mean you mentioned that because of this liability management on FRESH securities, there is some debt capacity that has opened up. Is it possible to get a bit of quantification of what that debt capacity looks like if you were to do any M&A? So that would be the first question. I mean I remember in the past, it used to be about €0.5 billion debt capacity that you had.
So where is that number going up? And second question is like Asian Reinsurance earnings were negative. I mean what is driving that? And any specifics behind it would be helpful as well.
Christophe Boizard
On the debt capacity, the situation is as follows: so as regard the sub-debt capacity, we are at around, I would say, €850 million. And we have restored our RT1 capacity, €450 million and the rest, €400 million could be a Tier 2 transaction. So now it is almost evenly spread between RT1 and Tier 2 for a total amount of €850 million. We could issue senior debt up to something like €200 million, and that's it for the debt capacity. Please keep in mind that the leverage has increased, and we can now feel some constraint coming from the leverage limit set by rating agencies.
And it is, as you know, due to the fact that shareholder equity has shrunk because of the rising interest rate and we have lost quite a bit on shareholder equity, hence, an impact on the debt capacity. So conclusion, €850 million sub-debt plus, let's say, €200 million senior debt. This is possible. And when you add the existing cash, keep in mind that we have a credit facility which is in place. Beyond the cash cushion of €620 million, we have €500 million of credit facilities.
Filip Coremans
Filip Coremans. So your question was about Non-Life results or Non-Life earnings?
Ashik Musaddi
Non-Life results in Asia.
Filip Coremans
The Non-Life results in Asia, you see it was washed away by an impairment actually on the Indian book. Because when I look at the results across the region in Southeast Asia, Malaysia, Thailand, I think the combined ratios were back to, I would say, normal territory after COVID. They were 88% for Malaysia and they were around 93% for Thailand. So I would say back to normal. Taiping Re, we had a strong growth actually in New Life.
At the same time, we tapered down the saving book. So if you're looking at the premium on Taiping Re in total, it is coming down a bit, but that's because we exited actually the pure saving lines, which led to the Life side, a strong declining premium, but the focus is there entirely on protection lines now. In the Non-Life side, they grew. The combined ratio of Taiping Re is still not to the standard that we would like it to be. The result of Taiping Re definitely was significantly better this year, but I'll leave that to our partners to disclose.
But at the Non-Life side still impacted quite a bit by CatNat. So -- and then the India story is very simple. The company did not make a loss, and they paid for the first time their dividend. But when we look at the technical results in India, there are 3 challenges in that country. One related to the health insurance, which suffered from COVID claims, but also from an aging population in [ the outlook ].
So there, we're taking commercial action and product development initiatives to bring that back on track. And the second one is the commercial vehicle lines, which has always been a challenge but there, of course, the companies are in control of both pricing and underwriting, and we're taking on both sides, material actions so that should bring that also back to book better results. The real challenge lies in the personal lines in India, but you know very well that the third-party liability is a tariff market, and rates are set not by the regulator but by the Ministry of Finance, which typically trails a lot under inflation. There we saw very high combined ratios over the last year. And there, we cannot control the pricing, only the underwriting.
So we're taking underwriting actions. But all in all, looking at the recent interest rates and our cost of capital, we decided to impair. And the impairment is about €29 million, that is where the deviation comes from.
Ashik Musaddi
That's very clear. I just have 1 small question on Slide #6. This other free cash flow -- holding free cash flow of €157 million. I mean can we get the split of that in what is U.K. and what is this unwind of IRS?
And what is recurring, what is nonrecurring in that?
Hans De Cuyper
Sorry. One -- Slide 6, you mentioned?
Ashik Musaddi
Yes. Slide 6, €157 million other holding free cash flow.
Christophe Boizard
So on the IRS, it accounts for pure cash €85 million plus €17 million of mark-to-market adjustment. So it is around €100 million, with total contribution of IRS out of the €146 million, of which €85 million of free cash.
Ashik Musaddi
And is it fair to say it's nonrecurring, it's just a one-off?
Christophe Boizard
It can be seen as a one-off. You can see what is left of nominal, €151 million. And then we really have no plan to launch another tender offer on the FRESH. And then if you take the second one, the CASHES, when we do liability management on this one, there is no impact on the P&L because basically, we settled the RPN(i), which is seen as a debt against cash. So it consumes cash to settle CASHES.
Operator
We will take the next question from line Anthony Yang from Goldman Sachs.
Anthony Yang
A couple of questions from me. So the #1 is on China or Asia. I think you mentioned in the slide -- on Slide 38, about favorable claims variance in Asia Life. Can I ask what is that, please? Is that one-off?
And also looking into 2023, given the COVID infections in China as part of the China reopening, should we expect some access claims in Taiping Life? And number 2 is give some color on the Solvency ratio of Taiping Life, please? Because I think it was only 109% at 9 month '22. And then finally, coming back to Europe, indeed, U.K., I think your claims inflation assumption was 13% at 9 months '22, which was actually an increase from 10% before. But I think you just mentioned it was 10% again, if I heard that correct.
So can I ask what has improved their, please, because I think the used car prices continue to increase?
Filip Coremans
Maybe first and foremost on the claims experience I mentioned in China, yes, indeed, it is -- we saw less health claims. It's not related to the mortality claims during the lockdown period. That's one of the things that has supported the results last year. You asked about the impact of now COVID infections after. Well, we don't see any material deterioration.
But let's keep one thing in mind that the mortality may have been up over that period, but it's very much in noninsured populations. It's not in the younger active population that COVID, that's been that much noticed, right? So it's more in elderly retired segments of the population that the mortality rate is higher. So we -- till further notice, I have not heard anything that seems to be worrying in terms of the claim consequences of that in China. Then you asked a clarification on the Solvency ratio in China.
So of course, that Solvency figure has not been published yet. So I leave that to the results announced at CTIH Group. But referring back maybe to the previous quarter, the Solvency ratio of Taiping Life was around 206%. And there, you have to keep one thing in mind that this more volatile in [indiscernible] than it was before because of the double cap system that was introduced, meaning that equity volatility immediately impacts, for instance, core capital recognition that the core capital is put as a cap on the recognition of other Tier 2 instruments in what they call the core ratio and on, let's say, return of future profits in the overall. So the ratio at that moment was 206%.
It will have come down a bit by year-end, but not alarmingly so.
Anthony Yang
Sure. Sorry, can I ask a quickly follow-up on that Solvency? I guess if I talk about on the core Solvency, should I expect directionally it should come down as well?
Filip Coremans
But the core, as you will have noticed, is 50% of the comprehensive and that is because of this cap system, the comprehensive is actually capped at 2x score. So they move in sync for the time being. Keep in mind that the core ratio, the target is not -- well, the target is internally to stay close to 100. But the target from a regulatory perspective is the minimum capital requirement of 50% there.
Anthony Yang
Can I ask on the installation -- claims inflation assumption in Europe as well?
Antonio Cano
Yes. You talked -- you asked specifically about U.K. claims inflation in motor and you referred to the lower second-hand car prices or higher second car prices. So it is an interesting proxy to look at, but it's many other factors that we track. So the 10% is a result of all those sectors.
Let me just point to 1, it's a big chunk of the cost is related to car hire. So if you have an accident, then you can drive your car and you have to wait x number of days and you get a replacement vehicle. And it was the cost of those replacement vehicles that was very high. That is a component that we definitely see dropping. And you can -- many reasons to explain that.
But we see, in general, less supply chain issues in nutritional claims. So the second-hand car prices might be a proxy, but it's maybe a too rough one.
Operator
We will take the next question from line Benoit Petrarque from Kepler Cheuvreux.
Benoit Petrarque
It's Benoit Petrarque from Kepler Cheuvreux. A couple of questions on my side. The first one is on the Belgium Life earnings, €95 million ex cap gains, it's like €31 million, which sounds a bit low for a quarterly run rate. I was just wondering if there is kind of any reserve strengthening for profit sharing or any one-offs in that figure? Again, linked to the Belgium Life question, actually, what do you see in terms of new business margin in Belgium Life currently?
Could you maybe update us on the guaranteed rate and also, obviously, the yield on the new money? And I was also wondering, in terms of volume developments for 2023 on Belgium Life, what do you expect in the current interest rate environment? Looking also at the competition from banks on savings products, what will you expect in terms of, yes, volume growth for 2023? And then last question is on the holding cash, €620 million. In the past, you guided us for kind of €500 million as a minimum level.
Now as we get close to €500 million, just wondering if you could update us on what will be a minimum level for the cash -- holding cash?
Operator
Thank you. There's no more questions in the queue.
Antonio Cano
Okay. So I was off. I'm not sure if you listen to me. Okay. Okay. So the Belgian Life earnings. So as I said, the capital gains, particularly on the real estate business, they are very much a part of the model, and we've always seen that all those years. So we're very, very satisfied actually with the margin that we're showing in Life Belgium. Well, part of that sub question that you had was the new business margin. You would look at the new business margin today with the current yields you would see a bigger margin than you've had in the past.
I can't quantify what that be or do you want to express it in APs or whatever. It's not really the way we manage the Belgian business. We manage more like the margin of the book. The new money rate has obviously gone up and I would say that today, it is north of the 3%, even touching something north of 3.5%, that's for the quarter. So it's definitely going up.
Then you also asked about the guaranteed rates. So the guaranteed rates on our main product that we're selling is since the first of February, 1.75. Now compared to a new money yield of, say, north of 3.5%, some people say it might be close to 4%, that's still a very comfortable margin. Would explain the high new business value that you would have. And then you had another question, I think, on volume.
There, I would say that's maybe a bit more challenging because banks, if you distribute through banks, and I take it a bit broader than just Belgium, but just bancassurance in general, also including Portugal, banks make very healthy margins on the traditional savings business.
So you might see less appetite for really selling a lot of savings business. Having said that, that's also a business that we like to sell but not in huge volumes, but it might be a bit more challenging on the savings side.
Hans De Cuyper
Not sure we were clear on new money. So it moved a lot throughout the year. So the year average is 2.6%, the fourth quarter is 3.9%. So actually, we went from 1.8% over the first quarter to 3.9% in the fourth quarter. So that's a [indiscernible].
Christophe Boizard
By the way, it is the first time that the new money yield is above the average investment return on the portfolio, which means that in the future, this long-lasting trend of eroding investment income on the bond portfolio will go into the either direction now with 3.9%, we will increase average investment return from the bond portfolio.
Hans De Cuyper
You have the question on the cash. Is that still €500 million? I think we rather always said around €400 million is healthy for us. But as you said, we also have a credit facility in case we need it. So we are very comfortable with the current cash level that we have available just in case.
Operator
We will take the last question from line Alessia Magni from Barclays.
Alessia Magni
Only 1 question from my side, please. Within the €146 million gain on the liability management, qualified as the one-off event, you were talking at 2Q results last year for share buyback?
Hans De Cuyper
No, this is completely unrelated to share buyback. So indeed, it is onetime event to the extent that we still have approximately €150 million FRESH outstanding. But this block of FRESH is indeed a onetime event. But of course, we will not directly relate this to a share buyback. If we look at the overall position of the company on Solvency, on cash, but as well as on our future growth plans, you have heard a few in reinsurance and still continuous looking at M&A opportunities.
So you should not make a link between the FRESH transaction and share buyback. If no more questions...
Operator
There's no further question at this time.
Hans De Cuyper
Okay. Ladies and gentlemen, thank you for your questions and to end this call, let me summarize the main conclusions. The group delivered a strong operational performance in both Europe and Asia driven by Non-Life in Belgium and the underlying results in Asia. This performance contributed to the increase in the group Solvency ratio to a strong 218% for the consolidated entities, and it resulted in a high operational free capital generation of €1.2 billion for the whole group. Given the solid capital position, the Board will propose to increase the full year dividend per share by 9% to an all-time high of €3 per share.
This was our last call on IFRS 4 results, and it's also a page turning as it was also our last earnings call with Christophe as Ageas CFO after 11 years of collaboration. I would like to take this opportunity to thank him for his contribution in bringing Ageas to where it stands today and in building a solid financial base on which the group can further develop. With this, I will bring this call to an end. Don't hesitate to contact our IR team should you have any outstanding questions. Thank you for your time, and I wish you a very nice day.
Operator
Ladies and gentlemen, this concludes today's conference call. Thank you very much for attending. You may now disconnect your lines.
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ageas SA/NV (AGESF) Q4 2022 Earnings Call Transcript