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Operator: Welcome to today's Ageas conference call. I am pleased to present Mr. Hans de Cuyper , Chief Executive Officer; and Mr. Wim Guilliams, Chief Financial Officer. [Operator Instructions] Please note that conference is being recorded. I would now like to hand over to Mr. Hans de Cuyper and Mr. Wim Guilliams, gentlemen, please go ahead.
Hans Jozef Josephina de Cuyper: Good morning, ladies and gentlemen. Thank you all for dialing into this conference call and for joining the presentation of Ageas's results for the first half year of 2025. The publication of our half year 2025 results marks the first results presentation under our new strategy, Elevate27, and I'm happy to report that we are off to a strong start. In the first half of the year, Ageas delivered solid growth with inflows up by 4% at constant FX, fueled by an outstanding commercial momentum in Life. On top of this, Ageas delivered a notably strong net operating results, mainly driven by an excellent combined ratio of 92.1% and low tax rate in China, driven by an adjustment of the illiquidity spread under local accounting. In Life, we delivered a strong commercial performance with inflows growing by 6%, thanks to significant business growth in all segments. In Belgium, we delivered an excellent growth of more than 10%, driven by a highly successful commercial campaign in the bank channel. In Europe, [indiscernible] continued to grow strongly, while growth in Asia reflected a successful strategic shift from nonparticipating products to participating products in China. Turning to Non-Life, inflows benefited from strong growth across most markets and business lines, driven by both tariff increases and business growth. In Europe, our focus remained firmly on profitability over volume, partially explained by the deliberate choice to reduce exposure in select portfolio segments and continue to withdraw from selected scheme arrangements in the U.K. Reinsurance segment saw a strong commercial momentum after the main renewals and inflows in the third-party business increased with 49% compared to last year. This continued top line growth, combined with an improved underwriting profitability in both Life and Non-Life translated into a net operating result of EUR 734 million, driven by a strong Non-Life performance supported by lower-than-expected weather impact and a solid Life results helped by low tax rate in China. When adjusting the net operating result for the low tax rate in China and the favorable weather impact, the net operating result would stand at EUR 665 million, but still up more than 8% compared to last year and clearly showing the strength of our underlying business. Looking ahead to the net operating results for the full year, I'm pleased to say that we are confident to raise our previously communicated guidance to between EUR 1.3 billion and EUR 1.350 billion, including the contribution of esure. This guidance is as usual, bearing the occurrence of exceptional adverse weather and the unforeseen impact from volatile financial markets. As there remains uncertainty on the full year tax rate in China, this outlook is based on the assumption that the effective tax rate ends the year at the corporate tax rate of 25%. Our strong operational momentum is also clearly reflected in the group's operational capital generation, which reached a high EUR 1.1 billion. Regarding the recurring cash upstream, I'm proud to share that we now expect a significantly higher cash upstream for 2025 of EUR 940 million, and this is well above our earlier expectations of EUR 850 million to EUR 900 million and an increase of 17% compared to 2024. We have already received EUR 725 million during the first half of 2025, with the remainder committed for the second half of the year. In line with our dividend policy, we will distribute a fixed interim dividend of EUR 1.5 per share to be paid early December. Looking at our cash, we closed the first half with a temporarily elevated cash level of EUR 2.3 billion as it already includes the equity and Tier 2 debt raising, while payments for the acquisition of esure will happen only in the second half of the year. The same goes for our 240% solvency position for the Solvency II scope. As shown on Slide 43, the pro forma Solvency II ratio at the end of H1 2025, including the full impact of the acquisition of esure and Saga would stand at a very resilient 205%, well above our neutral solvency level of 175%. Solvency ratio of our non-Solvency II participations stood at 294%, and this is stable versus the end of 2024. The macroeconomic landscape shifts rapidly with economic trends like inflation and interest rates that vary more and more around the world. Such an environment highlights the importance of geographic and business diversification. Our balance between Life and Non-Life businesses around the world is a defining feature of Ageas as a well-diversified group, which keeps performance steady and solvency strong even in volatile times. Before handing over to our CFO, Wim Guilliams, I also want to give you an update on the acquisition of esure. We have already received approval from the Belgian regulator National Bank and no objection from the U.K. Competition and Markets Authority, while talks with the PRA and FCA are also progressing as planned. We continue to expect to be able to close the acquisition of esure already by the end of September, and all preparations are on track to start the integration process as soon as possible. As mentioned at the time we announced the esure acquisition, the full financial contribution of esure will only emerge as from 2028 when the integration is completed and the full synergies will run through our results. However, we already see a reason to upgrade our financial targets as positioned under Elevate27. As shown on Slide 9, we stick to our average EPS growth target of 6% to 8% even after the issuance of some 11 million new shares in the first half of the year, while increasing our holding free cash flow target to over EUR 2.3 billion, thanks to the strong results and positive outlook and increasing our shareholder remuneration targets to more than EUR 2 billion respecting our previous commitment of delivering an annual 6% dividend per share growth during the Elevate27 cycle. With this positive update, I now give the floor to Wim, who will walk you through the segment performance in more detail.
Wim Guilliams: Thank you, Hans, and good morning, ladies and gentlemen, also from my side. As mentioned by Hans, the strong net operating result was supported by a low tax rate in China and an excellent insurance result in Non-Life, strongly up compared to last year. This translated in a high life net operating result of EUR 538 million and a strong combined ratio at 92.1%. Life net operating result was strongly up, plus 15% compared to last year despite a weaker investment result. Adjustment of the illiquidity spread under local accounting in China positively impacted the net operating result through a reduced tax rate. On top of this, in Life, we also delivered an excellent operating insurance service result, up plus 6% compared to last year, illustrating the quality of the business in all segments. In Belgium, the Life net operating result was in line with the strong performance of last year, driven by a solid insurance result and a Life guaranteed margin at 92 basis points. Europe, the life insurance result was up 28% compared to last year, driven by an excellent performance in Turkey, thanks to a continued solid result on short-term life. Asia recorded a strong increase in the Life operating insurance service result, up more than 8%, driven by a strong result in short-term life, up 47% compared to last year and a positive development in expense and claims experience variances. The CSM roll forward showed a positive operating CSM movement of EUR 186 million. This positive evolution corresponding to a 3.9% growth was supported by a significant contribution from new business, which was higher than the CSM release. Looking at the drivers of the Life value new business, the present value of new business premium showed a strong growth, up 6% at constant FX, driven by all segments. Both Life and Europe showed a nice improvement in the Life new business margin compared to last year, with Belgium even up 110 basis points compared to last year, reaching a new business margin of 6.4%. The year-on- year decrease in the group Life new business margin to 8.7% is linked to China's strategic shift in product mix from nonparticipating products to participating products. Participating products carry a somewhat lower margin than nonparticipating products, but are more capital efficient and less interest rate sensitive. So rather than comparing the evolution of the new business margin year-on-year, it is more relevant to compare with the new business margin over the second half of '24 of 8.6%, which already had a higher share of participating products. Moving now to Non-Life with the excellent combined ratio of 92.1%, translating into a 31% increase of the net operating result to EUR 263 million. This was driven by an excellent performance in all segments. Non-Life net operating result of Belgium was up plus 30%, a combination of business growth and an improved combined ratio supported by benign weather. Europe, the combined ratio improved compared to last year, thanks to the U.K. and Portugal. In Asia, the Non-Life net operating result increased across all countries, supported by an improved combined ratio. And the reinsurance combined ratio of the third-party business stood at a strong 83.7%, thanks to favorable claims development and a lower expense ratio. Regarding the balance sheet evolution, our comprehensive equity remained broadly stable compared to full year '24 at EUR 16 billion, thanks to the strong net operating result and the capital increase, which offset the impact of FX volatility. Our current cash position of EUR 2.3 billion is temporarily up on the equity and Tier 2 issuance related to the financing of the issuer acquisition totaling over EUR 1 billion. Shown on Slide 43, the pro forma cash view helps to isolate the impact of esure and Saga. When excluding these transactions, our underlying cash position would stand at a solid EUR 1.1 billion at the end of H1 '25. To conclude, I would like to add a word on solvency and operational capital generation. Mentioned by Hans, the solvency ratio of the Solvency II scope companies stood at a high 240%, temporarily supported by the equity and Tier 2 issuance related to the financing of the esure acquisition. Solvency of the non-solvency II scope companies stood at 294% with a negative impact from market movements compensated by the debt issuance and positive impact on the eligible capital of the adjustment of the illiquidity spread in China. The operational capital generation remained strong at EUR 1.1 billion, slightly lower compared to last year. The operational capital generation of the Solvency II scope companies is in line with the strong performance of last year. In the Non-solvency II scope, the operational capital generation was lower compared to last year due to the lower interest rate environment and strategic shift in product mix in China. The operational free capital generation amounted to EUR 713 million, down compared to last year. This decrease is largely attributable to the exceptionally high operational free capital generation of last year, which was supported by asset management actions within the non-Solvency II scope companies. On the other hand, the contribution from the Solvency II scope companies was strongly up with EUR 109 million compared to last year. I've now reached the end of my presentation, and we are ready to answer any questions you may have.
Operator: [Operator Instructions] Our first question is from Michael Huttner with Berenberg.
Michael Igor Huttner: Fantastic. Thanks for these lovely results and the upgrades and things. And I had two questions, which sound negative. They're not. It's just I was hoping for even more. So on solvency, the pro forma is 205%, I think going back to the slides, you showed 208% as a pro forma when you first discussed esure. I just wondered if you can explain if there's something here I should be thinking about and maybe it's typing pension or something. And then the second, and I know it's not relevant so much for today, but you seem to be holding back a fair bit of cash, so EUR 1.1 billion. My guess is EUR 800 million is kind of what you really need. And of course, you haven't canceled the treasury stock. So there's maybe another kind of EUR 300 million lying there. What is this for? Is this for ATS?
Hans Jozef Josephina de Cuyper: Okay. Michael, great to hear you. I give in a minute the question on Solvency to Christophe , but let me come back first on your second question about the cash position. You see indeed that we assume that after esure, we still have a comfortable cash position above EUR 1 billion, around EUR 1 billion, just above EUR 1 billion. But you also know that when we announced the esure acquisition, that one element in the financing was also to keep sufficient firepower for the future development of the group. So the cash position that we will be after the esure acquisition will be very much in line with what we have historically seen as a comfortable cash position to remain active in our expanding of the group if there is the right opportunity. One of those opportunities that you mentioned is ATS. We have been, I think, very clear that we definitely have an interest to further strengthen our position in the Belgian market in case ATS would come to the market. ATS business is very complementary to us. It is focused on public sector, while our current activity is predominantly in the private sector. But also from a distribution point of view, it is even further diversification for the very strong position that AG is already having today. With that, I'll give the solvency question to Christophe.
Christophe Ghislain F. Vandeweghe: Well, the link with the 208% is that 208% was based on the end of '24. So as you might have seen in the communication we had, we still have the similar impact on esure. So it's minus 10% due to esure. And on Slide 43, you see the impact of esure, but also Saga. So the 208% did not take Saga into account.
Michael Igor Huttner: And Taiping pension, where is that?
Christophe Ghislain F. Vandeweghe: The Taiping pension is not yet taken into account here. It's a pro forma basically at the end of June, only taking into account, let's say, the 2 biggest ones, which is esure and Saga. So if Taiping pension happens before end of the year, that will be around 4% solvency impact.
Operator: And our next question is from Nasib Ahmed with UBS.
Nasib Ahmed: Perfect. Firstly, on the China tax impact, you're saying full year tax rate should be back in line with 25%. Do you expect the illiquidity premium to reverse out in the second half to give a higher effective tax rate in the second half of '25? And then just related to that, I think the expectation is to get back to the historical level by '26 of 15%. Is that still expected to come through in 2026? And then on kind of the 2026 earnings guidance, if you can give some color around where do you expect 2026 net profit to land with a potential decrease in the China tax rate, if that's still happening?
Wim Guilliams: Yes. On the first one, the China tax impact, it's like you mentioned, it's the update of the illiquidity premium on the local accounting. It's very important to stress that. So that's not impacting the IFRS results. And as you know, the local accounting drives the tax rate that is being calculated. So thanks to this, we reverted in the local accounting to a profit situation. And so a low tax rate, very close to 0%. And then on the difference with the IFRS results, you take the 25%, and that explains the result that we have. Liquidity premium is a more stable metric than driven by the market movement as such. It's a comparison with what peers are doing. And historically, Taiping Life was lower than peers, and there has been an interaction with the regulator to adjust liquidity premium. So that's always a discussion that they have with the regulator at this moment. So at this moment, our best estimate assumption is no update in the liquidity premium and then reverting back to the country corporate tax rate of 25%. So that's what we have included in the guidance that we set out there. Situation for '26, that will depend, of course, a lot on the VIR development, the valuation interest rate development, how that will evolve over time. And when we, in the past, disclosed -- when we thought that, that would go down the tax rate and even to, again, 15% historically or lower rate depends on how that evolves and how that impacts the local accounting result. And the driver there will be how the interest rates are evolving. And so we're very pleased to see an uptick in the interest rates because that will help then also how that average, 750-day average will evolve over time. But to give an idea yet on '26, we will have to see the full development over the year.
Nasib Ahmed: Yes. So why is the second half '25 tax rate increasing, right? So effectively, 9% -- 40% in the second half, 9% in the first half gives you an average of 25%.
Wim Guilliams: It's a mechanical explanation because at this moment, the valuation interest rate effect is still running through the local accounts, not in the IFRS, and that creates a negative monthly result. So the local result will go to a negative area and then bring up again the tax rate at an IFRS base because that's 25% on the difference between the local accounting result and the IFRS result. So you should see that, that VIR effect will run through local accounts in the second half of the year.
Operator: And we'll now move on to our next question from Benoit Petrarque with Kepler Cheuvreux.
Benoit Petrarque: Just wanted to go on the Life CSM, which was down quite a lot due to FX in H1. On the specific FX impact, how much do you expect of negative kind of in the release in the second part of the year and also maybe for '26, roughly how much impact that will be on earnings? And then on the holding free cash flow guidance upgrade, where does that come from? Where do you see better remittances? Is that broad-based or coming from specific businesses?
Hans Jozef Josephina de Cuyper: Okay. I'll give the first question again to Wim, I'll come back to you on the guidance.
Wim Guilliams: Benoit. So FX, as you know, FX plays in different ways in the results and the balance sheet items. Everything which is a result of flow concept like OCG, OFCG, you have, of course, the average FX. So you always have to compare FX year-on-year and how that will run through this flow concept. Everything which is a balance sheet concept, which is CSM, you will use the spot rate at that moment to show the value in equivalent euro terms and then the difference shows the FX in the roll forward as you can see that. It's also important to mention that everything which is cash upstream is, of course, translated at the spot curve. So also the cash upstream that you see is with the current FX and that you have to have in mind. In the guidance that we are giving, EUR 1.3 billion to EUR 1.350 billion, we have taken into account the current FX of the moment. So you have to imagine, you take the current FX and how that will influence the averaging -- the average in the second half of the year, and that has an impact of EUR 20 million with, of course, some differences between the countries because, as you know, we have a diversified mix of businesses. But what has been included is the EUR 20 million. For your information, in the first half of the year, we had an impact of EUR 10 million. So you see that, that will, of course, have an impact in the second half of the year, but also already in this year. What will be the impact for next year will depend on the evolution of that FX and then the averaging year-on-year. So there is a bit of an averaging over time of FX, how you have to look at.
Hans Jozef Josephina de Cuyper: Okay. Thank you also, Benoit, for your second question because it might require a small explanation. So indeed, we increased our commitment on the cumulative holding free cash flow over the Elevate27 cycle from EUR 2.2 billion to EUR 2.3 billion. Well, first of all, we do keep our EPS ambition, and we have 11 million more shares outstanding, of course, compared to the moment that we have announced Elevate 27. But there are 2 reasons to upgrade. The first one is the intrinsic quality of our business. We see how the quality, including the diversification and the insurance service results of our business is continuously improving. You have also seen that holding free cash flow this year is well above what we expected at the beginning of the year and also what we expected when we designed Elevate27. So to summarize, again, I want to confirm that esure contribution is not part of this revision. When we have announced esure, we have said there will be a positive impact of 10% on holding free cash flow from '27, '28 onwards. So that is not part of the increase during this cycle. So this is fully thanks to the quality of the business and a very good start this year coming from holding free cash flow.
Operator: And we'll now take our next question from Farooq Hanif with JPMorgan.
Farooq Hanif: I just want to come back on the -- my first question on the cash remittance. So you've alluded to the fact that we used the word sustainable when you talked about the EUR 940 million. So can you talk about kind of what's increased and why and why that's sustainable? So I noticed, for example, Europe is better, a good growth rate. Asia is also -- so China has also, I guess, grown. So can you just talk about sustainability of that number? And then in the context of that, why there's only an increase of EUR 0.1 billion in the guidance, if you think when you're moving from EUR 800 million to EUR 850 million to EUR 900 million and you're now kind of well over EUR 900 million. Surely cumulatively, if that's sustainable, you're being a bit conservative there. So if you can comment on that. And then my second question is what allowance have you made for esure in the numbers? Because If you look at your increased guidance, I guess you're kind of -- you've had an impact because of the better than normalized weather and tax rate impact that helps you. So if I take that kind of beat in the first half and then moves up to EUR 1.35 billion. Can I kind of deduce what you're on for esure in the numbers? That's kind of my comment question 2.
Wim Guilliams: Okay. Several questions. I will try to answer them in the best possible way, in a structured way. So why sustainable? Why do we feel comfortable going forward? It's a bit the same that we explained when we introduced the Elevate27 strategy. You remember that we there gave a message that we're comfortable on the growth rate of the consolidated and the nonconsolidated entity, both of 6% to 8%. So you should see the move to EUR 940 million as an improvement. And then take the same expectation that we had going forward on what we expect that the net operating result contribution will be. So the continued strong performance of Belgium, the continued contribution of Europe, which you already see it at a much higher level, and we still see potential there going forward. And of course, the very strong performance of reinsurance and the confirmation of the cash upstream that you see from Asia. So that's a bit the base that we had, what we had last year, where you see that growth going forward and also the evolution in the holding cost. Why EUR 100 million, you should, of course, take into account that similarly, we have issued more debt. We have issued the Tier 2 debt, and we have issued a senior unsecured pound debt, which we will be having to pay also during that period. So you have the positive performance, the one-off, and you have that financing cost, which come on top, which will have a negative impact going forward. Esure, we confirm all the numbers that we had at the moment that we announced the transaction. So you should remember, we always said the contribution in holding free cash flow will come beyond '27. Why does it come beyond '27? Because you have the contribution in your net operating result of esure as we also explained when we announced the transaction. You remember the amount of GBP 80 million that we said. But similarly, we have integration costs. We want to integrate the activities over the Elevate27 period, and that has a negative impact of GBP 130 million, which is mostly cash, cash outlays that we will have to do. That's taken into account. And then, of course, we have EUR 1 billion debt that we have issued. And on that, we will have to pay. So that's what's happening in '26, '27. What's happening beyond '27, beyond '27, you lose, of course, these integration costs and you get that contribution at that moment, and that will support then the net operating result and will support the holding free cash flow. So that's a bit what's happening in the dynamics in '26, '27, which is especially linked to the integration. And that's also why Hans is saying, the upgrade of the targets, it includes esure, but esure is not contributing because that has a 0 impact over that period.
Operator: And our next question comes from Jason Kalamboussis with ING.
Jason Kalamboussis: Yes. Sorry to come back on the Asian remittances because clearly, this was a relatively big surprise. I remember asking questions some time ago on if we would see numbers above EUR 100 million remittances. Here, we have EUR 99 million, a big increase over the EUR 80 million we had last year. So can you give us a bit related more to the results and to the change and shift you have in the product mix and how we should see that evolving because clearly, that was a big gap up. The second thing is on ATS. If you're looking -- I mean, some of the other companies bidding or that would like to bid if this was to be for sale, have the -- notably banks -- have the Danish compromise capital advantage. Can you give us your thoughts? And do you think like peers that the decision is going to be for early next year? And if I may add to it, what do you think is your current firepower or war chest going into potentially a deal that could come in early 2026?
Hans Jozef Josephina de Cuyper: Okay. Maybe Wim can continue on the Asia remittance. I will maybe come back on the final question.
Wim Guilliams: And true in the excel, you see an amount of EUR 99 million coming from China, but we have also shown in the slides that we're expecting EUR 110 million. So that's EUR 10 million still in the pipeline for the second half of the year, bringing you closer to the amounts that you were expecting in the past of above EUR 100 million. Again, maybe good to stress, this is at current FX. So that gives you already a view on what's happening. What is the change in the product mix? The change in the product mix is a deliberate choice, of course, to improve the quality of the business. Philip has in the past explained that there were many actions done to work on that. And this is the next step in that evolution in which you get more participating products, which are more capital efficient and also have a lower interest rate risk, which is important to stress. But of course, the downside is a bit that if you have a participating product, you share part of the upside also with the clients. So your margin is lower. So that will have, of course, an impact on the net operating result evolution going forward. But again, from a return on capital perspective, it will be a better position. Is this journey finished? No, this is a dynamic market. So they will still look for other improvements. It's kind of continuously improving. And if feasible, also work further on the duration of these products and see how they can position that. So net operating result will have, of course, a lower margin, will then depend on the volumes that can be distributed, but you've seen that the growth of the present value of new business premium at constant FX was plus 6% in total, with an even higher contribution of China. So you get a good volume growth going forward, and that will then support the evolution that we have. That's on the Asia going forward. On the firepower, maybe Hans?
Hans Jozef Josephina de Cuyper: Maybe I'll comment a bit on the product mix Asia, which was your question also related to the potential future upstreaming. Well, on China, we have already spoken a lot. There is a very successful conversion going on from purely nonpar business to par business, which is already more than 80% of the volumes. And for the next period, we will continue developing that par business, but also look at the duration of the liabilities and see how we can also shorten the duration of the liabilities as always to keep control of solvency and performance in a low interest rate environment. As you know, the upstreaming of China is mainly defined by the solvency level. It's less by profit and retained profits, but it's solvency that is driving. And we are fully aligned there with our partner who has declared that they are planning for a stable to growing this upstreaming for the coming years, facing this transition of the low interest rate environment. Also be aware that in China, we have now that automatic adjustment of the guaranteed rates in the new legislation. There a new trigger has happened. So we will go again for new pricing rates. It will be 2% for nonpar coming from 2.5%, 1.75% for par coming from 2% and 1% for Universal Life coming from 1.5% previously. So I must say there is a very careful and disciplined management of the low interest rate environment in China. Last comment for Asia is that we see, of course, a similar trend in Thailand, where also interest rates are falling. And there, I would say, same story. There is a very diligent view on repricing products timely. So -- and there, I think we are also managing the transition. And then your last question is on firepower. Well, we have still a debt capacity of approximately EUR 750 million. We have already spoken about the cash position. So I think we still have adequate firepower as well as a strong balance sheet to participate in attractive M&A opportunities. I cannot comment too much on ATS. To be very honest, I don't know when the file will come. I propose if you want to know that you call the 3 Belgian governments because they will jointly have to decide what will happen to this file. And of course, there is a Danish compromise in the market. We know that Belgian banks are also interested in this opportunity, but I'm confident that we also have strong cards to participate in that process if it ever comes to the market.
Operator: [Operator Instructions] And we'll now take our next question from Nasib Ahmed with UBS.
Nasib Ahmed: Sorry, I just wanted to ask about the U.K. Non-Life business. How have you managed that book in the first half given pricing headwinds in the motor business? And then the second quick one is, what is your expectation in terms of solvency benefit from the solvency reform?
Hans Jozef Josephina de Cuyper: Okay. The solvency question, I will give to Christophe. Let me comment a little bit on U.K. We have already, I think, announced in the full year results in February that we saw the market softening on pricing. That is something that we have seen continuing. The market in motor premiums for the market has dropped approximately by 8% for household, more or less 6%. We have kept the household premium levels more or less flat. In motor, I think we have followed the market partially, not to the full extent. That being said, we see that inflation is persistent in the U.K. market. We see both in motor and in household claims inflation continuing 5%, 6%, 7% in that range. I see that, that is a number that also our main peers in the U.K. market have communicated. But I also see, I must say, slowly a little bit more pricing discipline coming into the market, and that is supporting improved retention of the book. And the pricing discipline, I think, will be driven by 2 phenomena. First of all, market consolidation, consolidated market in that sense is always more disciplined. And of course, we have been part of that story. But also, of course, the new pricing regulation that has come into the U.K. market, I think, will also help to eventually make this market more price discipline. To conclude, looking forward, honestly, I joined my colleagues in the U.K. market, whom I have heard saying that we hope that the premium or the cycle is bottoming out relatively soon. I think it is needed because claims inflation continues to be a tension point. So we expect the price evolution to go on for a little longer, but we hope by the end of the year that, that is bottoming out. If not, then I think we will have to pay attention on the evolution of combined ratios in 2026. Christophe on solvency?
Christophe Ghislain F. Vandeweghe: Yes. Well, on the Solvency II review, I think we mentioned in the past, we expect on our Pillar 2, mainly an impact of the risk margin that is more favorable to us. It's offset by -- or partially offset by some other changes in the Solvency II review. So we expect this to be neutral, slightly positive on our Pillar 2. On the Pillar 1 ratio, it's actually quite different because we expect to have a significant uplift there. I would say it's too early to share definitive numbers, but more in the range of 10% to 15%, which is aligned with the sector due to the updates in the volatility adjuster.
Operator: And our next question, a follow-up from Farooq Hanif with JPMorgan.
Farooq Hanif: Apologies to ask this again, but I want to follow up on Nasib's earlier question on tax in China. I don't think I really understood why there would be a higher tax rate in the second half to get to 25%. But If you could just go through the logic again, that would be helpful.
Wim Guilliams: Okay. So you should imagine you have a local accounting situation, which drives the current tax rate. If you have profits in the local accounting, the tax rate will turn to 0 because you have that deductibility of the government coupons. So that's a bit the situation that you have. So in the local situation, if you have profit, you turn to a tax rate which is 0. What's happening when you have the VIR. The VIR is bringing the result negative because you're only revaluing the liability side, you don't take into account anything of the asset side. That's what we explained in the past. If you have a negative result. You have, of course, a result before tax, which is equal to a net result after tax, which is a bit the same. What is IFRS requiring? IFRS requires that on the difference between that local results, which is negative and the IFRS result, which is positive, you apply a 25% tax rate. So if the local result is positive, your tax rate will be lower than 25% and turning to that 0%. If your local result is negative, you go to a tax rate, which is higher than 25%, the situation we had last year. What we have now in H1 is that we have a positive local accounting result, thanks to that adjustment of the liquidity spread. So the local result becomes positive at a 0% tax rate. On the difference, you apply the 25% tax rate, which translates into a tax rate of 9% in the China situation. But we expect now if there's no other updates, if everything stays the same, you will still have that valuation interest rate adjustment running through the local accounts, not IFRS results, running through the local accounting results and creating a monthly negative result. So that's bringing the local accounting result closer to 0 -- turning to 0. So what's happening then? You have a local accounting result of 0, you have an IFRS result. And on that difference, you apply the country corporate tax rate of 25%. So you go back to 25%. But that means indeed, if you look at it H1 to H2, your effective tax rate in H1 is 9%. Your effective tax rate in H2 will be above the 25%. So it's a mechanical calculation because you have to apply the corporate country tax rate on the difference between local accounting and IFRS results.
Farooq Hanif: Okay. That's a lot clearer. So when we get to a situation -- if we get to a situation where VIR is neutral or actually positive, the tax rate will be below 25%?
Wim Guilliams: Yes. Would be below 25%. And if there would be no impact anymore, you can get even the full benefit of the deductibility of the coupons on the government bonds, which will bring that tax rate to 0%. That's also what we said. In the future, you will have a positive evolution of that tax rate, assuming that the VIR effect levels out. So averaging goes and stabilizes, correct.
Operator: And our next question, a follow-up from Michael Huttner with Berenberg.
Michael Igor Huttner: On the nat cat beat so the low combined ratio, can you say what the figure was relative to budget was in H1? And what are you assuming in your EUR 1.3 billion to EUR 1.35 billion guidance? And then on the holding free cash flow, I'm really sorry, I understood the cash of EUR 940 million. I'm not sure where we are on the holding free cash flow. And I want to understand how to think about the EUR 2.3 billion,-- over EUR 2.3 billion increased guidance, whether it's actually an uplift to what we're seeing at the moment.
Hans Jozef Josephina de Cuyper: Okay. First question, Michael, on cat nat, we have an impact on combined ratio of 1.2% for the first half of the year. And we always develop a budget with approximately 2% to 3% impact on a yearly basis. So that means we are in a more favorable position in the first half. But I think it would be prudent for us to say that we keep for the full budget for the year to be consumed. And there is still autumn and early winter coming, and that is another cat nat and wind season specifically in Europe. Holding free cash flow, Wim?
Wim Guilliams: Yes. Holding free cash flows, indeed, Michael, you have on the one hand, of course, the cash remittances minus the holding cost that gives you the holding free cash flows. Now in holding costs, there's 2 elements. There is the expenses, the cash expenditure that we do, both at corporate center and regional office Asia. But that's, of course, also the investment income we make on the liquid assets that we have at our disposal. And so if we take also additional financing in consideration, these need to be paid out of that net interest margin. So the EUR 940 million is one element. Last year, for the holding cost, we had EUR 150 million. On expenses, you can take a bit that run rate that we said during Elevate27 strategy growth of 4%. Of course, the net interest margin will now be more erratic because what you have on the one hand is short- term rates are coming down. And of course, we will have more financing costs. This will already have a negative impact this year on these holding costs, and that will have a full impact next year. So you will have to do a projection, which is not a plus 4%, but taking into account that financing cost that increases over the year. So if you look at our debt that we've issued, we have issued debt of almost EUR 1 billion at a coupon between 4.5% to 5%. So you can already start calculating what that has as an impact and then the timing of the year. So you should take into account the good performance of the cash upstream. That's what we're projecting in that new target that we put forward, but of course, offset by the additional financing costs, and that gives you the uplift going from EUR 2.2 billion to EUR 2.3 billion, more than EUR 2.3 billion.
Michael Igor Huttner: Okay. It's much clearer. I still -- I'll have to check with you [indiscernible] on the actual numbers. May I ask just one more question, please. It's on the U.K. You talked in the opening remarks about the -- some change in businesses or something which you weren't happy with. I lost that bit. Sorry.
Hans Jozef Josephina de Cuyper: No, I think the -- well, we used the word change was about Asia products. So I'm not sure the link in the U.K. No change in products. Of course, we will widen distribution in U.K. going forward. Maybe you might refer to the 2 elements of the reduction of volume. So one indeed is pricing adjustments, and we spoke about that already. The other one is a little bit of pruning portfolio. So there were certain business segments that we decided not to renew because of profitability reasons. That's maybe what you referred to.
Operator: That's all the time we have for Q&A. I would like to return the conference call back to the speakers.
Hans Jozef Josephina de Cuyper: Ladies and gentlemen, thank you for your questions. And to end this call, let me summarize the main conclusions. Next to our continued top line growth, our operations also delivered an improved underwriting profitability, a clear reflection of the strength of our underlying business. This positive start of the year gives us confidence to raise our full year net operating result guidance to a range between EUR 1.3 billion and EUR 1.350 billion, including esure. In 2025, we expect to receive EUR 940 million cash upstream from our insurance entities, and this is a significant increase of 17% compared to last year. In line with our dividend commitment, an interim dividend of EUR 1.5 per share will be paid early December. And last, but certainly not least, we have upgraded our financial targets as positioned under Elevate27, increasing our holding free cash flow target to more than EUR 2.3 billion and our shareholder remuneration target to more than EUR 2 billion. With these closing remarks, I would like to bring this call to an end. If you should have any outstanding questions, don't hesitate to contact our IR team. 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.