SCOR SE (SCR) Earnings Call Transcript

Good afternoon, ladies and gentlemen, and welcome to the SCOR Q2 2024 Results Conference Call. Today's conference will be recorded. [Operator Instructions] At this time, I'd like to hand the call over to Mr. Thomas Fossard. Please go ahead, sir.

Good afternoon, everyone, and welcome to SCOR Q2 2024 results conference call. My name is Thomas Fossard, Head of Investor Relations, and I'm joined on the call today by Thierry Leger, Group CEO; Francois Varenne, Group CFO; and Jean-Paul Conoscente, CEO of SCOR P&C; as well by other COMEX member. Can I please ask you to consider the disclaimer on Page 2 of the presentation. And now I would like to hand over to Thierry Leger. Thierry, over to you.

Thanks, Thomas, and hello, everyone. Let me start with my 4 key messages today. First, in P&C, we maintain attractive margins, grow in preferred lines of business, improve diversification and continue with our reserving discipline started last year. I'm very satisfied with our P&C business, and I see a lot of development potential. Second, in Investments, we produce stable and elevated returns with a high-quality fixed income portfolio benefiting from continued high reinvestment rates. Third, in Life & Health, the Q2 results have been very negatively impacted by an ongoing reserve assumption review. I'm very disappointed by our Life & Health results and have decided to respond decisively with a 3-step plan to restore profitability in a sustainable way. Fourth, SCOR has a great franchise, and I'm confident in our ability to overcome the Life & Health issues and fight back to our Forward 2026 path. In terms of numbers, for H1, our 2 key targets are only partially met at half year. With a solvency ratio of 201% remain -- we remain within our target range of 185% to 220% despite a 20 percentage point impact from the ongoing Life & Health reserving assumption review. The economic value has reduced from EUR 9.2 billion to EUR 8.4 billion. This is well below our 9% growth target. At SCOR, we drive value through our 3 key businesses: P&C, Life & Health and Investments. In P&C, I said it already, the combined ratio for the first 6 months is at our target level of 87%. The excellent performance of the first 6 months allowed us to accelerate our reserve buffer building. Moving into the U.S. hurricane season, I remind you that we are very much underweight in our Nat Cat exposures. In Life & Health, the insurance service result stands at minus EUR 257 million for H1 primarily due to the Life & Health reserving assumptions review impacting Q2 with minus EUR 500 million. With this, we now expect our full-year Life & Health ISR to be well below our target range of EUR 500 million to EUR 600 million. In Investments, the H1 2024 regular income yield is strong at 3.5% at the higher end of our guided range for the full-year 2024. Francois will later provide you with more details on all of these areas. As I said, the solvency ratio remains within the optimal range of 185% to 220%. This was achieved despite a minus 20 percentage point hit from the Life & Health reserving assumptions review, and shows the resilience of our balance sheet and our ability to manage the solvency ratio within the target range. The solvency ratio would have been 221% excluding this impact supported by strong operating capital generation, notably from the P&C and investment activities over the first half of the year, and after taking into account the capital consumption for new business and the dividend accrual. There was also a positive impact for market movements. I remain confident in our ability to manage the solvency ratio within the optimal range of 185% to 220% for the rest of the year and beyond. We are also pleased that S&P has confirmed our A+ rating and the stable outlook following the capital adequacy assessment test last week. Despite our difficulties on the Life & Health side, my strategic priorities for the second half of 2024 remain largely the same. It's first of all about building and capitalizing on our 4 key strengths: our excellent client franchise, our strong balance sheet, our diversified business model with P&C, Life & Health and Investments, and it's based on my confidence in our employees and our technical expertise. We continue to allocate capital strategically to the most profitable and diversifying lines of business. The P&C renewals of the last 6 months are the best proof of this, with strong growth at even higher technical margins thanks to improved diversification. However, in Life & Health, my priorities have changed and I'm now fully focused on our 3-step plan to restore profitability in Life & Health. More on this in a minute. In P&C, overall, our year-to-date P&C premium is up by almost 16% at unchanged attractive margins, and we continue to improve our diversification, leading to an additional improvement in our combined ratio. This is a testimony to our strong client franchise and our ability to shift business to better performing and better diversifying lines of business. And the momentum continues to be favorable. With positive June, July renewals, our underwriters continue to expand in our preferred lines and key areas of diversification. In Specialty Lines, we have successfully grown the lines identified as key areas of potential in our Forward 2026 strategy, notably engineering and marine and energy up by 20%, as well as IDI, inherent defect insurance, up by more than 15%. Alternative Solutions has more than doubled in size to become a major growth contributor already and with more to come. With recognized expertise in this segment, our Alternative Solutions underwriters continue to receive a high volume of submissions and we're also able to proactively propose innovative solutions to our clients. We remained very selective on U.S. Casualty, though, with stable premiums on a gross basis. Since the rest of the portfolio grew significantly, the relative size of U.S. Casualty continues to reduce. And we are securing more retrocession of U.S. Casualty, reducing our net exposures additionally. In what is a slightly more competitive environment, SCOR anticipates a continued disciplined market for the upcoming renewals. I told you already that I was disappointed by the Life & Health results and that I intend to act quickly in a very determined way. There are multiple root causes that require a very differentiated approach. A lot of our Life & Health business is in a good shape and we enjoy a top-tier franchise in this segment. We will have to act boldly and surgically at the same time. The Board and the management of SCOR are committed to addressing issues early, communicating transparently, and adding fast -- and acting fast and with determination. We have shown this in P&C and we will do the same in Life & Health. There are no sacred cows, and I will not rest until our Life & Health business is back on track. Therefore, I have decided to take over the leadership of Life & Health and to launch with immediate effect an ambitious 3-step plan to restore the profitability in Life & Health. All steps have been launched simultaneously with no time to lose. Step 1 is about adjusting the reserve levels to the latest experience and trends. As said already, we act proactively and transparently. This is a deliberate choice of the management and Board. The 2024 reserve assumptions review is, of course, still ongoing. Final results will be communicated once the reviews are completed and have gone through proper governance. Step 2 is about maximizing the value extraction from our in-force book. 90% of the annual P&L of our Life & Health business comes directly from the in-force. It is also where the majority of our Life & Health capital is allocated to. We will create a more centralized steering of our Life & Health in-force business with enhanced KPIs. There are multiple tools available to deliver higher and more stable profits from the in-force book. Step 3 is about increasing the diversification and profitability of our Life & Health new business. We will more proactively steer our business to higher margin and better diversifying products. We will continue to innovate with our clients but have a stronger emphasis on product design. And finally, we will look at the product mix between mortality, morbidity and between traditional structured and longevity business. I will work closely with our Life & Health leadership to implement the necessary actions swiftly. The impact of these actions will start to be seen early 2025 at the latest. I have full confidence in our Life & Health franchise and in our ability to produce higher quality and more stable results going forward. I conclude, before handing over to Francois, P&C and Investments are performing very well, but I'm disappointed by the Life & Health results. We have a 3-step plan in place to restore profitability in Life & Health. We have started to take actions and we'll move fast and in a determined way. We will update you in December on the Life & Health strategy and the Forward 2026 targets and assumptions. Francois, please.

Thank you very much, Thierry, and good afternoon, everyone. Let me cover first the topic of our Life & Health assumption review before moving specifically to the presentation of our Q2 results. To start with, let me give you some background on our Life & Health assumption review process. Each year, our actuaries review the entire Life & Health's portfolio. This includes regular assumption review, experience studies and model refinements. In addition, we conduct a few deep dives. Over a 3-year time frame, deep dives cover 100% of the book. The last significant number of deep dive was performed in 2022 ahead of the transition to IFRS 17. In 2023, the review was performed consistently, but consequently included fewer deep dives. Also, the experience variance over the full year 2023 were positive and did not signal a need for additional specific review. Our 2024 assumption review program was set in Q1 with deep dives focusing this year on the U.S., our biggest mortality portfolio, Canada and South Korea. We decided as well to review extensively after 1 year under IFRS 17 the biggest block of business classified under onerous contracted transition, namely Israel. Given the initial indication of this annual review, I asked for an acceleration of the estimate of the overall impact at year-end 2024. We saw the materiality of the impact and communicated our best estimate view with no delay. This best estimate view includes the maximum deviations expected by the end of the year. In H2, we will provide you with more detailed insight on this work once finalized. You can see on this slide, the main geographies and segments which are the focus of the 2024 deep dives. Before going into the details, let me remind you that the goal of this reserve adjustment is to strengthen the robustness of the cash flow projections. The economic impact can be booked either in ISR or in CSM under the IFRS 17 framework. Reflecting our business mix, our largest portfolio review is in the U.S. Our focus was on the long-term future projected cash flows. And as you would expect, we looked at a range of assumptions, from lapses, premium, net amount at risk to long-term claims assumptions. We have a strong track record of implementing portfolio action in the U.S., and we will continue to use this lever to enhance value from the in-force book. In Canada, we have adjusted long-term future projected cash flows related to lapses and claim assumptions. In parallel, we have significantly revised upward product pricing. Then if I move to South Korea, we see some negative experience emerging from the mobility portfolio, and this will be reflected in future projected cash flows. We have already significantly reduced the volume of this portfolio in recent years. Finally, in Israel, the portfolio has been in runoff since 2019, but we still see some negative claim experience in the legacy Long Term Care block. This is an onerous block of business since the transition to IFRS 17. We are confident that we now have a more conservative position vis-a-vis the evolution of this book in the future. One of the first action we have taken, Thierry and I, as the new leadership team in 2023, was to reorganize the reserving function, which is now reporting to me under one single line of command. We wanted to ensure that we have a clear accountability and full financial clarity on our reserve. As CFO, my responsibility is to determine the level of the reserve within the best estimate. These reserves are independently reviewed by the Group Chief Actuary. The 2024 Life & Health assumption review was therefore launched under this new process in Q1. Our intention, as I mentioned it in the past, was also to add resilience to our Life & Health reserves, as we did in P&C since July last year, and to establish a strong base going forward. As a result of the overall assumption review booked in Q2, we have added EUR 300 million of prudence into our Life & Health reserves. Please bear in mind that this is not a one-for-one translation into resilience, and we will assess the amount of resilience in our Life & Health reserves at the end of the year after the finalization of the annual review, like we do for P&C. This may also translate into a higher confidence level for the group at the end of 2024. Let's now move on to the next slide. This slide summarizes the impact of the Life & Health's assumption review detailed in the presentation. Let me add 2 final remark on this. First, our expectation for the size of the remaining Life & Health's adjustment in H2. We confirm that our best estimate for this additional impact is in the range of plus or minus EUR 100 million in ISR and plus or minus EUR 400 million in CSA. Second remark, regarding liquidity, the action we have taken have no impact on the group liquidity position at year-end 2024. We aim to continue to improve the level of operating cash flow over the strategic plan, and we will give you more guidance on this once this review is finalized. Moving on to the presentation of our Q2 results. As usual, I will focus on figures excluding the mark-to-market impact of the option on SCOR own shares. Let me share a comprehensive overview of these future results. As Thierry mentioned, while the result of Q2 are significantly impacted by the Life & Health's assumption review, we are particularly pleased with the strong performance of our P&C and Investment activities. In P&C, the very strong underlying performance allow us to be -- to continue to build buffers in our reserves. We recorded double-digit growth in premium during our year-to-date [ P&C ] renewals, benefiting from still very good pricing condition. Jean-Paul will provide more color on this later in the presentation. We continue to generate very strong investment results as demonstrated by a higher regular income yield of 3.6%, supported by a 4.8% reinvestment rate. In Life & Health, the insurance service results stands at minus EUR 329 million, impacted by the assumption review, which is partially offset by positive effect from portfolio actions in the U.S. Overall, we recorded an adjusted net income of minus EUR 283 million, translating into an adjusted return on equity of minus 21.9% over the second quarter. Our economic value is down by 7.3% at constant economics to EUR 8.4 billion, primarily driven by the Life & Health's assumption review booked this quarter. Let's now focus on P&C. P&C delivered a very strong result again this quarter. The new business, CSM, reached EUR 240 million, supported by successful 2024 renewals. This is broadly EUR 30 million lower than for the same period last year as it reflects the late finalization of some retrocession covered this quarter, which were recognized in the first quarter in 2023. In addition, we see the effect of the reduction in our SBS portfolio as we dynamically manage our portfolio growth to reflect the reinsurance cycle. The P&C insurance revenue is up 8.4% at constant FX versus Q2 last year. Half of this growth is the result of successful renewals since the start of the year. This other half reflect a positive one-off true-up. Let's now move on to the underlying performance of our P&C book, which has been very satisfying. Our P&C combined ratio stands at 86.9%, in line with the Forward 2026 assumption of below 87%. The Nat Cat ratio is at 9.9%, in line with our budget during an active Nat Cat period marked by several midsize events. This ratio includes the conservative approach we have adopted on a few events like the recent flooding in the Middle East, Germany and Brazil. Our attritional loss ratio of 77.6% remain very positive as it includes the impact of the New Caledonia civil unrest and additional prudence built into our P&C reserves. On the discount effect, remember that we revised our discount effect expectation to a range between minus 7.5%, minus 8.5% for 2024. It is in line at minus 8%. Overall, it is a very strong quarter for P&C, allowing for the buildup of additional prudence. Let me focus now on Life & Health. The Life & Health business generated a strong level of new business CSM of EUR 145 million, supporting by growth in protection business across all regions. This quarter also saw the positive impact from a large deal in APAC. We continue to have a healthy pipeline of potential deals for the upcoming quarters. Life & Health record an insurance service result of minus EUR 329 million in Q2, primarily due to the impact of the assumption review. The CSM amortization stands at EUR 59 million. This is lower than expected due to a lower level of CSM stock and some catch-up from Q1 related to methodology refinements. We are currently assessing the implication of the Life & Health's assumption review on the CSM amortization rate. We will provide you with an update on this later in the year. On a year-to-date basis, if you take Q1 and Q2 together, the annualized amortization rate is 6.8%. Let's now have a look at the significant one-off during the quarter. There is a positive impact of EUR 143 million, driven by portfolio action in the U.S. We had a favorable arbitration outcome for a large U.S. contract. The cumulative negative effect of minus EUR 509 million is driven by the assumption review, which includes 3 points: first, additional prudence for EUR 200 million; second, EUR 278 million for the loss component, which relates to changes in assumptions for contracts that are already onerous. This is booked for the Israeli portfolio, allowing for recent experience and adjusting for future lapses, inflation and cash flow payment assumption. And finally, we added 31 million IBNR reserves in Korea based on the latest claim experience. Some comments on the other underlying elements of this quarter. The risk adjustment release of EUR 29 million is in line with our expectation. The experience variance of minus EUR 26 million and the impact of onerous contract for minus EUR 29 million reflect adverse claim experience and negative movements in loss components across several geographies. Moving to Investment now. We benefit from a continued very strong performance on the investment side with regular income yield reaching 3.6% this quarter, supported by a reinvestment rate of 4.8%. Recently, we have taken a tactical approach to selectively reinvest at higher duration and benefit from the attractive level of interest rates. As a result, the average duration of our fixed income portfolios slightly increased during the quarter to 3.4 years compared to the previous quarter. With EUR 9.7 billion of cash flows expected in the next 2 years and the still elevated level of reinvestment rate, we are really confident on the continued strong performance from investment. The group economic value stands at EUR 8.4 billion, down 7.3% due to the Life & Health CSM adjustment estimated at EUR 1 billion. Excluding the impact of the assumption review, the economic value would have increased by EUR 0.3 billion at constant FX, reflecting positive value generation over H1. Our solvency ratio before the impact of the Life & Health assumption review is very strong at 221%. It reflects, as mentioned by Thierry, the strong operating capital generation from P&C and Investment and a positive impact from market variances. Taking into account the impact of the assumption review, which account for 20 points, our solvency ratio stands at the end of the quarter at 201%. It remains well within our optimal range of 185% to 220%, and we are really confident in our ability to maintain it within the range. With the solvency ratio in the optimal range, SCOR's capital management framework remains unchanged, including the dividend policy. Our capital position remains strong as evidenced by the recent affirmation of our A+ rating by S&P following the announcement on the 15th of July. We take additional comfort from the fact that ratings are forward-looking and now have a stable outlook. Our economic value per share stands at EUR 47 compared with EUR 54 at the end of Q1. As announced on the 15th of July, the group economic value growth target of 9% per annum at constant economics is unlikely to be met in full year 2024. Our economic financial leverage increases compared to the end of 2023 to 22.7%. I will now hand over to Jean-Paul to comment on the P&C renewals.

Thank you, Francois, and good afternoon, everyone. I'd like to share with you more insights on the year-to-date P&C renewals together with a closer look into the June and July renewals. As you can see from the first slide, where we give you a retrospective of the year, and this completes the overview that Thierry provided you in the introduction. We have achieved strong growth across all renewals towards a portfolio mix that leads to a better expected profitability, where we estimate 1.4 points better than last year. Beyond price, on Cat XL renewals, discussions focused on terms and conditions and in particular on attachment points. Competition increased on the higher layers, but market discipline remained very strong on the lower layers. And as a result, the overall price adequacy of Cat XL business remains very high. Moving to the next slide. We offer an in-depth look at the June-July renewals for SCOR, showing a substantial 24% growth overall in all regions, and echoing the positive trends seen at the early renewals. Alternative Solutions more than doubled in size, while specialty lines achieved 25% growth. We have reduced premium volume on U.S. Casualty as we continue to see market improvements as insufficient to cover the increased expected claims cost. We continue to expect double-digit claims inflation between 10% and 15% for U.S. Casualty, depending on the segment. We therefore maintain a flat capital allocation to U.S. Casualty throughout the year, allowing us to support selected key clients, while remaining cautious and underweight overall. The issue of climate risk remains a major concern in our industry and caution is widespread, leading to increased demand for catastrophe protection. With the June and July renewals, on a like-to-like basis, we are beginning to see a moderate reduction in rates driven by adequate market capital and increased capacity from incumbents. However, price adequacy remains overall very strong. For our part, we have grown our CAT portfolio selectively while keeping exposure growth in CAT flattish year-on-year. In conclusion, I'm confident that absent major changes such as a large CAT event in the second half of 2024, the market will remain broadly where it is today for the foreseeable future with small price changes and attractive price adequacy. In this environment, we'll continue to expand our portfolio, leveraging our strong client relationships to successfully deliver on the ambitions of our Forward 2026 plan. And with this, I hand back to Thierry.

Thank you, Jean-Paul. A quick summary before moving to Q&A. So 2 out of our 3 engines are going really well. Life & Health has issues, but we have a 3-step plan in place, and I have high confidence in our franchise and our people to overcome this and engage back on our Forward 2026 plan. With that, I hand over back to you, Thomas, for Q&A.

Thank you very much, Thierry. On Page 30, you will find the forthcoming scheduled events. With that, we can now move to the Q&A session. Can I remind you to please limit yourself to 2 questions each? Thank you. And operator, we can move forward. Thank you.

[Operator Instructions] We do have our first question from Tryfonas Spyrou with Berenberg.

Thank you for the presentation, really helpful comments. Just on the Life & Health we -- as you said, maybe if you can please share some additional thoughts on how the previous reserving assumptions were not, sort of, appropriate maybe across these geography and line of business? And again, what were the exact circumstances that led to this large elation in the first place? For instance, on the life -- on the Long Term Care contract, for example, one would expect more aggressive initial mortality assumptions will perhaps lead to negative claims experience people end up living longer. But I guess such mortality assumptions could have an opposite, more favorable impact on the mortality business. So the 2 appear not to be consistent given both books took a hit. So any color on that? And then second question on same topic, Life & Health, maybe if you can help us quantify what would be the potential Solvency II impact that could come from the additional actions. You're looking to take around EUR 0.5 billion pretax, on my numbers, it looks to be around 6 to 7 points on solvency. Is that a fair range to think about?

So on your first comment, do we have an issue in the past? No. Reserves at Q4 2023 were at the similar rate. I explained the governance and the reserving process we've got on the life book. For such a long dated portfolio, when you have cash flow for a period of 60 or 80 years, you review all assumptions every year, but you don't do deep dives every year on the entire portfolio. So I would say, every 3 years, we have covered 100% of the portfolio. As I mentioned, we did an extensive review in 2022. And if you look at the impact in 2022 under Solvency II and IFRS 17, there was already an impact. It was lighter given this agenda of 2022, it was lighter in 2023. Again, Thierry and I, when we took the lead during the summer last year, the process was launched, and we have no early signal of deterioration of the performance of the portfolio. So the road map for 2024 was determined early 2024, totally disconnected from the negative expense variance we observed in Q1. What you see and we give details in the presentation is that we review many assumptions. We selected by far the biggest market, U.S., Canada, it's a big market as well for us, Korea, it's a big market in APAC, and I wanted to check also our assumption on the runoff book in Israel, which is classified under onerous, and that's the bulk of our onerous contract at the transition. So what we identify everywhere it's not linked to a change or revision of mortality trend or assumption. It's more technical assumption that we check in each market, depending on the nature of the portfolio, it could be mortality assumption that we check in the U.S. and in Canada. But again, it's not trend or future mortality improvement that we have checked. It's more technical items, such as lapses, net amount at risk and so on. Morbidity, that's most of the portfolio in Korea is morbidity and in Israel, we can come back on it, but that's really a long-dated Long Term Care portfolio, so that's also exposure to mobility. On your second question, the potential impact by year-end, so we gave you today, we reiterate our best estimate view, so which is what we booked in Q2 and the confidence internal of what we booked both into the ISR and the CSM. If you take into account the impact of what we book in Q2 and you see the 20 points impact, you can, I guess, compute the maximum impact on the solvency ratio. So that's why really the management, Thierry and I, we're highly confident in the fact that we will maintain the solvency ratio in the optimal range. I just remind you, to you and to everybody, that the optimal range is starting at 185% and not above.

Just to clarify, you mentioned that the range you gave, so the market impact that could come, it's already included in Solvency as of today.

No, they are not. What -- it's the best estimate. So the best estimate we are at the midpoint. So what is booked in Q2 is the midpoint, so in CSM and ISR, and this is what is in the solvency ratio as well.

Okay. Got it. Thank you.

If not, it means this is not the best estimate.

Can we have the next question please.

Our next question comes from Kamran Hossain with JPMorgan.

A couple of questions for me. The first one is just on the Life & Health but I guess, both are on Life & Health. What are the drivers for whether the second half ends up being kind of as bad as minus EUR 0.4 billion or not? Is this further deep dives? And when should we expect this before the IR Day in December? Just in kind of any details will be useful there? Second question is on CSM amortization. Clearly, CSMs come down a lot. You want to get cash flows being more robust. How should we think about the amortization from this point onwards? Should it be slower or faster than the kind of 8% that you've historically talked about?

So what we booked again is the best estimate. So we give you the range and the confidence interval for the potential additional hit on the CSM or ISR. We don't add a new deep dives. So that's -- we progress well in the analysis. It's the best estimate. So we have to finalize all the analysis, to expect, as mentioned by Thierry, in the introduction, we have to expect the entire governance on the reserving process at SCOR. So it's the best estimate of the best estimate what we book in Q2. We will give you the definitive position the 12th of December during the IR Day on the ultimate and final results of this Life & Health review for 2024. On your second question, that's true. You have a stock effect. So we have less CSM and a change. So the only thing I can say is that the amortization of the CSM over the first 6 months is at 6.8%. And we will see when we will update the forward 2026 targets and assumptions, the 12th of December, we will see if we change the guidance for the next few years.

Our next question comes from Will Hardcastle with UBS.

The first one is just thinking about the added conservatism that you've put in. I guess, is there a structural uplift to this reserve buffer essentially and you want to run the division with? Or is this extra prudence, you'd expect it to flow through the P&L over some form of time? If that's the latter, over what time period, I guess, would be helpful. Just coming back to thinking about the amortization rate. It seems like your answer to the last question is sort of pushing us more to the H1 type amortization level. I guess how do we need to think about it in terms of the difference between your typical amortization rate on the protection business versus longevity? Is there a material difference? Or is it very specific to the geographies?

So on the first one on the buffer and the prudence, if you remember the call exactly end of July 2023, with Thierry, we initiated this prudence and resilient strategy on the P&C side. So what we call today the buffer strategy. We mentioned that we have an objective to build at least EUR 300 million of buffer in the P&C reserves by the end of 2026, so the end of the strategic plan. Those buffer, the intention is to use them when we will have high CAT activity on the portfolio or when we will be in the low part of the P&C cycle. That's something we discuss, and we were transparent with you over the last few quarters. We were thinking also to a similar concept, so adding buffer or prudence into our Life results -- Life reserves, that's something we do. So instead of building them progressively like we do for P&C, and we are well on track on the P&C side. We have initiated the strategy with the amount we've got in mind, so EUR 300 million for Life as well. Please note that we changed this quarter the way we book the prudence, both for P&C and Life. This has been done in full agreement with our auditors. So now the guidance, so the buffer in P&C and the additional prudence in the Life & Health portfolio is booked under IFRS 17 as an add-on to the risk adjustment. So it's no longer allocated to the reserves under IFRS 17, but it is booked as an add-on of the risk adjustment. So that's why if you look at the evolution of the risk adjustment on the P&C side and the Life side, you may see higher amount compared to previous quarter. This is due to this effect. On the amortization rate of the CSM, I think it's a little bit too early. What we did, and we are at this level of the review, it's just a best estimate view of the impact of the deep dive. Now we are moving to the allocation at portfolio level and country level. So we will really understand the impact on the cash flow themselves by the end of the year, and that's where we can answer to your question on the real future amortization rate of the CSM.

Our next question comes from Vinit Malhotra with Mediobanca.

Some of my questions have been addressed. I'm just curious about a few things. Firstly, Thierry, you're going to take management responsibility on yourself for the Life business. And I'm just curious whether -- do you think there's any -- is it temporary or there's any transition? Or do you see that it could be a bit of a distraction from the core group? Or just curious on your thoughts on that process. Then just staying on the Life topic, just to maybe follow up 2 or 3 very quick points, please. One is the 400 or the 0.4 potential positive that I think Kamran also mentioned on the CSM in 2H. Is there some -- is this -- what could happen that -- or what's the likelihood of that positive? Is it 50% chance, because you said it's midpoint? So is it -- and the reason I ask is because also there was a comment in the 1Q call where you had indicated that the review was ongoing and there could be positive outcomes as well. So I understand that, that didn't happen because the deep dives were worse. But just curious about this potential 2H positive for CSM.

Maybe I will start by the second question and will hand over to Thierry for your first question. So again, where we are, the progression rate, if you wish, on the review of the reserve is just above 50%. So we don't add new deep dives. It's just now ongoing analysis and finalization of the analysis. So what we booked is really the best estimate. So it's not the best estimate at the end of the year, it's the best estimate as of today. So with all the information we've got, this has been reviewed by my reserving team, and this has been reviewed by the group Chief Actuary independently. So I would say if this is the best estimate, there is a 50-50 percent chance that we should be at the best estimate. Above or below? We just give you our confidence and tell that. On the first question, I'll give the floor to Thierry.

So we were very clear. So my intention is now, as you said, and as I said, to really focus on Life & Health. When such an issue comes up, you can imagine that a lot of my attention goes there anyway. Of course, it's still different than to manage such unit besides being the CEO, that's for sure. So you can imagine that I have no intention to stay in that double role forever. But I think the most important thing for me is to start first, drive the changes very fast. So the first phase will be for the more obvious changes that we can implement very quickly. And then over time, they will become more, I would say, more a little bit finer, there will be more into details. And at some point, when I will have the confidence that we are back on track, confidence in the future of that business. Certainly, it will be a good time for somebody else to take over. Just that you have a feel, right? So, I don't intend to say only a few weeks. I also don't intend to stay years. So it must be a few months.

Our next question comes from James Shuck from Citi.

My first question is on the level of capital in the Life & Health research, sorry, the required capital. So the SFCRs kind of show -- I think there's new disclosure this year that shows you've got EUR 8 billion of undiversified Life & Health free capital. That's reduced by 60% by diversification. So it looks like nearly all of your diversification benefit applies to this block of business. My understanding, although you don't disclose it, is that it's quite mortality heavy. If you're able to give any insight into how much of that FCR undiversified is mortality, that would be helpful. But really, my question on this topic is how comfortable you are with that level of diversification? It obviously screens much higher than others even at the business unit level. Secondly, I'm hearing your comments about Q1, Q2, you didn't see these trends until early part of '24. You did a Life & Health retrocession with Covea, 30% block. Covea started booking losses on that block potentially in '22, but certainly in 2023. So it looks like they kind of spotted that earlier. I'm just seeing a bit of a disconnect between what they're booking and what you're booking, and I'm keen to understand that. And equally, if you're able to provide any update on the arbitration case that would be helpful.

I will ask to Fabian Uffer to answer to the first one on the capital and the solvency ratio.