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Operator: Good afternoon, ladies and gentlemen, and welcome to SCOR Q3 2025 Results Conference Call. Today's call is being recorded. [Operator Instructions] At this time, I would like to hand the call over to Mr. Thomas Fossard. Please go ahead, sir.
Thomas Fossard: Good afternoon, and welcome to the SCOR Q3 2025 Results Conference Call. I'm joined today by Thierry Leger, Group CEO; and Francois de Varenne, Deputy CEO and Group CFO; as well by other Comex members. 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.
Thierry Leger: Thank you, Thomas, and welcome, everyone, also from my side. I'm satisfied with where SCOR stands today. We had another strong quarter, especially in P&C, where our strategy of diversifying growth pays off. The investment side continues to contribute in a stable and positive way to our results. And last but not least, on the Life & Health side, we deliver 1 quarter more in line with the updated forward 2026 plan. Also, we are ready for the renewals to come and very focused on the delivery of our plan. Our teams are close to our clients, leveraging our Tier 1 franchise. We offer tailored solutions that create value for our clients and shareholders. In the P&C context that has become gradually more competitive since 2024, a I would like to take a few minutes to reflect on the broader insurance landscape and the opportunities for SCOR as we approach the 2026 renewals. Looking back, 2025 has been a good year for the P&C industry so far. And overall, 2026 is expected to remain a good vintage year by historical standards. Nevertheless, as profits are up and the supply of capacity now exceeds demand, even if demand continues to grow, it results in increased pressure on prices and underwriting discipline is being tested. I have seen this before. This is the time when wrong strategic decisions can have a detrimental impact on the company's results. Usually, it is driven by the desire to grow in a particular line, some lines of business at the wrong time. Let me state this here very clearly such situations can be avoided. And at SCOR, we are determined to keep underwriting discipline high throughout the cycle. Our business is one of diversification and volatility absorption. We are here for the long term and support our clients when they need us. We have to demonstrate strength and resilience when times are difficult. For SCOR, this means that we will stay focused on fundamentals and deploy capital where risk-adjusted returns are adequate. We are maintaining our underwriting discipline, focusing on diversifying risk exposures and leveraging our analytical capabilities to support our teams to make the right decisions. In addition, our Tier 1 franchise provides us with the opportunity to choose where we allocate our capital in a determined way. I'm pleased to see that our teams are unaffected and fully focused on our clients and the business. They have no growth targets, but I have expressly asked them to leave no stone unturned to find profitable opportunities for SCOR and to discuss tailored solutions with our clients proactively. The aim is to balance long-term client relationships with bottom line, the latter being the priority ultimately. For our investors, this means a continued focus on capital efficiency, risk-adjusted returns and long-term value creation through the cycles. We will keep expanding in diversifying lines, such as inherent defect insurance, engineering, credit maturity, structured solutions, international casualty, facultative business and longevity. We have a very selective approach to marine, aviation, cyber and U.S. casualty monitoring the dynamics closely. In Nat Cat, where the cycle is most prevalent, we will monitor relative and absolute price levels, structures and conditions to determine where we deploy our capital. We will further consider our market share and exposure to climate change when we allocate our capacities. We continue to be underweight in Nat Cat. As long as rate adequacy is sufficient, this gives us room to grow by respecting the risk limits we set for ourselves for Forward '26. To conclude, climate change, geopolitical tension, cyber threats and AI create a more volatile and more uncertain environment, increasing risk awareness and demand for risk transfer. The need for a robust reinsurance industry is palpable, and growth opportunities are structural. Within this context, at SCOR, we remain confident in our strategy and optimistic about the opportunities ahead, even in a more competitive market. Francois, over to you.
François de Varenne: Thank you, Thierry. Hello, everyone. I will now walk you through our third quarter results. Starting with a few key messages. Thierry and I, we continue to be very satisfied with these results. The performance of our 3 business activities is strong, delivering EUR 211 million of net income, 21.5% return on equity and an economic value growth of 12.7% at constant economics. On a 9-month basis, the net income stands at EUR 631 million, translating into return on equity of 19.5%. As mentioned by Thierry, P&C performance is excellent. The combined ratio for Q3 is at 80.9%, well ahead of our forward 2026 assumption of below 87%. These results reflect the very low Cat claims during the quarter and a slightly higher attritional loss ratio. In this context, we have continued implementing our opportunistic buffer building strategy, albeit with an addition in Q3 of lower magnitude than in Q1 and Q2. The amount of prudence built over the first 9 months of 2025 is equal to the entire presence of 2024. In Life and Health, with an insurance service result of EUR 98 million in Q3 and the year-to-date expand variance in line with our expectations, we are on track to reach our full year forward 2026 assumption of around EUR 400 million. Investment had another good quarter. We achieved a 3.5% regular income yield, thanks to our high-quality fixed income portfolio that continues to benefit from elevated reinvestment rates. Our economic value increases by 12.7%, a translation of the good business performance, both in P&C and Life and Health. It is now very likely that our full year EV growth will stand above our Forward 2026 guidance of 9%. Our group solvency ratio stands at 210%, stable to Q2, in the upper part of our optimal range. Q3 is a relatively low net operating capital generation quarter, given the absence of major P&C treaty renewals. Overall, thanks to the quality of our results over the first 9 months, we remain confident about achieving our full-year objective. Now I will go on with more details regarding our Q3 results. Let's look at P&C first. In Q3, the P&C new business CSM is mostly stable year-on-year, excluding the FX effect. This is a strong achievement in an increasingly competitive environment. On a 9-month basis, our P&C new business CSM, grows by 4%, benefiting from our strategic growth in preferred line as well as our dynamic retrocession buying, which offsets the inward business margin erosion. The P&C insurance revenue is down minus 1.6% for the quarter and up plus 3.1% at constant FX. In Q3, this is supported by growth in both reinsurance and as well at SCOR Business Solutions. In high insurance, the growth was driven by alternative solutions and our diversifying specialty lines. In SCOR Business Solutions, the trend has improved compared to the previous quarter as the timing effect on the renewal of some contracts has now caught up. In addition, here as well, the growth was supported by alternative solutions and by our syndicate activities, partially offset by property. On a year-to-date basis and adjusted for the large impact of the termination of one large contract and adjusted as well for FX, the P&C insurance revenue growth stands at plus 1%. Moving to the underlying performance of the P&C book. Our P&C combined ratio stands at 80.9% in Q3, benefiting from low Nat Cat losses in the quarter. Nat Cat ratio stands at 2.7% in Q3 and 6.4% year-to-date, which means well below the annual budget of 10%. Let's now focus a little bit on the attritional loss ratio, which is slightly more elevated this quarter than the previous quarter of the year. In Q3, specifically, we incurred an accumulation of small and midsized man-made claims. After investigating and checking the nature of those claims, I can tell you today that we do not expect at this stage of the annual P&C reserve review, any overall attritional deterioration of the P&C book by the end of the year. This outlook is supported by the fact that we tend to take the bad news upfront, especially this quarter, not financed by IBNR, and we released the good news later. On a year-to-date basis, the attritional loss and commission ratio stands at a robust 77.1%, which includes the presence build throughout the year. We are very satisfied with the shape of our P&C portfolio, delivering excellent performance quarter after quarter. Now let's have a look at Life Finance. The Life Finance business generated a new business CSM of EUR 82 million in Q3 this is mainly driven by the protection business and by financial solutions. This is lower than in the previous quarter of the year, but related to quarterly normal volatility. On a 9-month basis, with a new business CSM of EUR 284 million, we are well on track towards achieving the EUR 0.4 billion new business CSM annual assumption. On the insurance service results, Life Finance delivered EUR 98 million this quarter with the CSM amortization of 7.5% in the quarter. Adjusted for small one-off from Q2 and FX effect, the year-to-date CSM amortization stands at 7%, not far from our Forward 2026 guidance of 6.5%. Overall, we delivered over the first 9 months an ISR of EUR 334 million, in line with our annual guidance of EUR 400 million. On experience variance, this is fully in line with our expectations year-to-date. In Q3, the impact of onerous contract were a little bit higher, partially driven by an increase in the risk adjustment and other reserve movements. This remain contained in relation to the size of our portfolio. Moving to investments. We continue to benefit from a strong performance with a return on invested assets of 3.3% this quarter, generating an income of EUR 190 million. This comes from a regular income mill of 3.5% as well as from a real estate impairment this quarter and slightly higher ECL expected credit losses in the quarter. This creates no specific concern. The quality of our credit invested portfolio is very high. The economic value stands at EUR 40 per share, flat compared to the start of the year. Year-to-date market variance had a negative impact as expected on our reported economic value. At constant FX, our EV growth stands at 12.7%, supported by both the positive evolution of our IFRS 17 shareholder equity and the growth of CSM. With this, I will hand over to Thomas to start the Q&A session.
Thomas Fossard: Thank you very much, Francois. On Page 17, you will find the forthcoming scheduled events. With this, we can now move to the Q&A session. Can you remind -- can I remind you to limit yourself to two questions each? With this, operator, can we move to the first question?
Operator: The first question comes from Hadley Cohen, Morgan Stanley.
Hadley Cohen: I appreciate you're very satisfied with the results, and I can -- I think I can understand why but I'm not sure that the share price necessarily agrees today. In that context, can you help us unpack what's going on in the solvency ratio, please? So you've got EUR 200 million a bit higher than that earnings, less EUR 80 million for dividend accrual. And you say that there's seasonally lower, no new business value and market neutral. But even so, I'm still not sure why the solvency ratio is lower. And in that vein, I sort of wonder, how much of that is impacted by the fact that you are building buffers in the reserves? I know you haven't quantified the buffer build year-to-date, but is it possible to give us a sense of how much higher solvency might have been if you hadn't done that? And then linked to this, given the buffers are now twice as big as you initially intended, how are you thinking about further buffers from here, given people clearly want to see growth in the solvency ratio? I mean there's a few questions in there. So maybe I'll just leave it at that for the moment.
François de Varenne: Thank you Hadley for your two questions. I agree with you, given the share price reaction, that's probably the two hot topics of the day. Let me come back a little bit on what we said in Forward 2026. You remember when we published Forward 2026 in September 2023, we mentioned that it was a plan where our expectation was a capital generation in terms of solvency ratio of 1, 2 points per year. So that's the guidance, and we reiterate the guidance. Now let's look a little bit at the seasonality of the evolution of the solvency ratio during the year. The 1/1 renewal on the P&C side are booked in VNB the in Q4 and in Q1. The April renewal are booked in Q2 -- in Q1, the June, July renewal are booked in Q3, so -- in Q2. So we don't have in Q3 renewal on the P&C side. So it's a low quarter. It's a seasonality effect. It's a low quarter on the P&C, VNB in the solvency ratio. Let's look at what is happening on the capital deployment side. On the capital deployment side, we deploy each quarter the same amount, Q1, Q2, Q3, Q4. So there is no seasonality in the deployment of the capital in the solvency ratio quarter-after-quarter. And we adjust at the end of the year with the full year on the full capital deployment over the year. So that's basically the dynamic of the solvency ratio for a given year. Now let's look at what is happening in Q3 and over the first 9 months. We started 2025 with the solvency ratio 31st of December 2024 at 210. We were at 212 at Q1. So you could expect, given what I said, that the solvency ratio should have increased in Q2. And in Q2, we were at 210, if you remember the call end of July, and if you look as well at the work of the economic value in Q2, we mentioned during the call that Q2 was affected by a significant weakening of the dollar against the euro, which is our consolidation currency. And on top of it, which was historical, it was also a strengthening of the euro versus all the currency we model in the internal model. So I mentioned it. It's a couple of points of impact in Q2 due to market variance. That's the point we are missing today, but they were already there. So the solvency ratio slightly decreased in Q2, where the expectation is still an increase in Q2. The fact that versus Q2 -- Q2 versus Q3, we don't create a lot of capital is expected. So now what is happening in Q3, let's look in detail. On the P&C side, so we have a low VNB due to a very low amount of renewal. We have, of course, the good Cat ratio, but we have the higher attritional ratio this quarter linked to those mid -- small and mid and midsize events I mentioned during my speech, We still accrue the dividend of last year on a quarterly basis. So that's 2 points. The good news is that the market variance impact in Q3 is under control. We made a lot of progress on ALM during the summer, especially by additional hedge on the dollar. We have the early refinancing of the debt, which brings 3 points of solvency. And we have a one-off impact of minus 1 point, which is linked to restructuring of internal retrocession between one subsidiary and the motor company. So you have the work. But again, look at the first 9 months, the guidance of Forward 2026, what is missing today is not linked to Q3 is the market impact of Q2 that we disclosed end of July. You had a second question, I think, on the buffer...
Hadley Cohen: The extent to which the -- I mean, is the -- and thank you for the first response. But I'm just wondering, does the quantum of the buffer build impact the OCG, i.e., if you hadn't built the buffers to the extent that you have done this year, would OCG have been higher? And I guess, more fundamentally, why is OCG on a normalized basis as low as it is 1 to 2 points?
François de Varenne: Let me reexplain what we said in the past. So we have prudence in the bill, so under IFRS and under Solvency II. So that's the prudence in the -- on top of this prudence on top of this prudence, we decided with Thierry since July 2023 to add P&C buffers. That's on top of the prudence we have already in the bill. So we added those buffer between July and today. You know that we mentioned that at the end of 2024, we were significantly above the target of EUR 300 million. We mentioned today, and that's in the quote in the press release that the amount accumulated in Q1, Q2 and Q3 is of the same magnitude of what we did for the entire year 2024. We always mention that those buffers are in the risk adjustment. They are in the risk adjustment. So we confirm that they are in the risk adjustment and those buffer have no impact on the capital generation.
Thomas Fossard: Operator, can we take the next question, please?
Operator: Next question is from Michael Huttner, Berenberg.
Michael Huttner: I had two. So the first one is on the attritional. Can you give us a little bit more color because the variance -- I know you say lots of little ones, but the variance is huge, right? So you go from 76% Q3 last year to 79% Q3 this year. And presumably, there's less buffer building, whatever. So the -- maybe if you adjust for that, it's probably a 5-point change or something. So it seems a lot. So any insight as what happened and where it is because then we can kind of think where it might not happen, whatever, anyway, it would be very helpful. And then the other one is a more general question. The word Tier 1 was mentioned, I don't know, 6 or 7 times. So clearly, it is very important. It's core to the story. I don't quite understand what it means. My guess is it means that you think you're underrepresented in your clients' wallet in terms of market share and things. But I don't know how you can increase that in a period when prices are falling. It doesn't -- it seems quite hard. But I'd be really interested in how quickly you could close the gap and how big you see it.
Jean-Paul Conoscente: Okay. Thank you for your question. I'll start -- this is Jean-Paul. I'll start with the attritional loss question. So this quarter, in Q1, Q2 this year, we've had really exceptional attritional losses with very limited man-made losses and very good attritional losses. which allowed for a very strong buffer building. In Q3, we saw the loss activity reverting back to what I would call a normal activity. As Francois said, it was an accumulation of small to medium-sized losses across both property and casualty. And what we've decided is to basically take these losses to the P&L, absorb as little as possible in the IBNR and then revert to the Q4 reserve review to review a level of adequacy on the overall reserving. As Francois has already mentioned, the preliminary results from the Q4 review show that there is no strengthening needed on our overall attritional losses. So we're very comfortable with our reserving level where it stands today.
Michael Huttner: And is there anything unusual about them? Is it like, I don't know, political risk or something just to give us a little bit of color? Or is it just normal?
Jean-Paul Conoscente: No, I'd say it's normal. What was not normal was the loss activity in Q1, Q2. Here, again, it's a mixture of different lines of business, not really political risk. As I said, it's more property and casualty. And I'd say it's back to what I would call a normal level of loss activity. It's just the -- what you would expect in terms of the fluctuations quarter-to-quarter.
François de Varenne: Just adding a point, Michael, if you normalize the combined ratio over the first 9 months, you normalize for the Cat effect and for the discount effect. You will find a combined ratio of 87.4%. So it's exactly in line with the guidance of Forward 2026. Remember, we said in Q1, we accelerated the buffer strategy. We said the same thing in Q2. Here, it's a lower amount, but still -- we still have buffer in Q3. Again, the magnitude is the same over the first 9 months. So inside this 87%, you have a couple of points of prudence. So -- and excellent underlying performance. And again, take my statement also on what I see again as overseeing the reserve of the group. there is no concern on the reserve at the end of the year as of today.
Thierry Leger: And Michael, on your T1 question, it's true that I'm mentioning it quite a lot. And so it does help in both in a hard and soft market. So it's independent. And I'll try to explain it in the easiest and quickest way. But if you just generally have clients that view you as a Tier 1 means they have a genuine and general desire to see us with a higher share on their programs than we have today. That's a good position, a good starting position for us. That means that it should give us a tick better position when it is about choosing where we play on which programs we play and where we increase the shares and on which ones we might not wish to increase the share. So it should give us a tick better opportunity for growth and a tick better opportunity on the combined ratio side. That's what you are saying. And it's like a joker card that we have, and we intend to play. And I'm sure this is going to last for multiple years.
Operator: Next question is from Andrew Baker, Goldman Sachs.
Andrew Baker: The first on the tax rate. So clearly, it was good -- very good in the quarter, and you highlight in the release the ongoing improved profitability of the reinsurance activities under the French tax perimeter. Can you just remind me how we should be thinking about that for Q4 and then, I guess, more medium term, '26 and '27? And then secondly, on the Life and Health onerous contracts, I appreciate, again, this is driven by the increase in the risk adjustment. But what led to this? Is this prudence? Or is there something going on in a specific line? So just how should we think about that risk adjustment increase?
François de Varenne: Thank you, Andrew. So on the first one, on the tax rate. So we start to see in Q3 an improvement in the effective tax rate of the group. I've been quite vocal on the topic. We initiated a strategy in 2023 we need to repatriate more taxable profit to France to be in a situation to reactivate losses carryforward we've got off balance sheet and to use also the DTA we have activated on the balance sheet. So you saw it in the past already last year. So we are well on track in all the restructuring of the group to repatriate more profit. It's mostly through restructuring of internal retrocession to bring more through quota share assets and profit in Paris. We are going to move probably at the beginning of the year, redomiciliate one entity from Ireland to France. So the effect you see today is just a combination of -- we have now a larger base of profit located in France -- and then you have a second effect, just the excellent performance of the 3 business activities, which bring more profit. So you have those 2 effects. So if you look at the tax rate over the first 9 months, we are close to 27%. Is it a good indication of the future? What I can tell you is that compared to the 30%, it will improve. Given -- I'm a French, given discussion at the French parliament currently on the budget for France in 2026, I prefer to wait a little bit to see what type of budget we will have in France. Let's see maybe during the call of Q4, if I change the guidance. I confirm it will improve. We are on track. Again, it's not yet linked to the consumption or the reactivation of the DTA. It's just the fact that we are more profit in France and they are just at the level which is exceptional. On your second question on onerous contract on Life & Health. Let me tell you a little bit the way we see the performance of this portfolio, and that's what I said in the introduction, the way we -- and the way we guided the market during the IR Day of last September. So we have a year-to-date insurance service result of EUR 334 million. We gave a guidance last December of EUR 400 million per annum, so which means we are in line and we are even slightly above the quarterly guidance accumulated over the first 9 months. I always mention, if you remember what I said during the IR Day and in the call after this year, I always mentioned that the EUR 400 million guidance includes a cautious buffer for contained volatility. And this volatility, which is normal given the size of our in-force could come from the experience variance or could come from loss component, again, given the size and the geographies of the in-force portfolio. That's what we see. So if you look at the experience variance since the beginning of the year, so Q1, Q2, Q3, it's close to 0. So it's close to 0. If you look at the loss component, we have a little bit of noise each quarter, which is on our side within the budget we had in mind when we gave the guidance of EUR 400 million. The guidance of EUR 400 million in our mind, and I was transparent on this fact, include a cautious buffer for volatility on experience variance and/or loss component. So again, it's normal, I would say. Keep in mind as well that there is -- we commented this a few quarters ago, there is an asymmetry in the treatment on the expense variance on the CSM and the expense variance on contracts which are already on. On onerous, as soon as the contract is onerous, any movement, positive or negative flow into the P&L. More specifically, what is now happening on loss component this quarter is just a slight adjustment on group of contracts, which are already onerous and it's slight adjustment on the risk adjustment and also on one client, it's an adjustment on reserve movement. So again, on our side, with Thierry, we are really, really satisfied with the overall performance of Life. coming from, again, the CSM amortization, the risk adjustment release and the expense variance and all the volatility on loss component. Last word, the stock of loss component of onerous contract, which we disclosed last year is unchanged as of today.
Operator: Next question is from Kamran Hossain, JPMorgan.
Kamran Hossain: Two questions from me, both on the P&C side. The first one is just it was at the beginning of the call, a very kind of strong message from Thierry on discipline opportunities and how to avoid kind of pitfalls going forward. Just interested with, I guess, the cycle moving slightly south from where it is now into next year. does the 4% to 6% revenue target become less important now for SCOR? So just trying to work out with that market coming down a little bit more discipline, is 4% to 6% still a priority or not really? And then the second question is, historically, you've been really big users of retrocession. And more recently, you've used a lot more other kind of capital relief measures, particularly last year. In terms of the market for those, where do you think those will head into '26? Will they come down at the same rate as reinsurance? Will they come down more? What do you think the dynamics will be in that market?
Jean-Paul Conoscente: Thank you, Kamran. So I'll take these questions. On the outlook and the revenue target, definitely, the revenue target is no longer, I'd say, a target for us. It will really depend on market terms and conditions. As Thierry mentioned, we expect a competitive market. especially in the Cat XL area. You have to remember, Cat XL represents only 10% to 12% of our overall premium income. And the market itself is coming from a very high price adequacy level. So the -- I'd say, the decline of that market doesn't affect the overall pricing level of SCOR as much as it does some other peers. We see competition across all the lines of business, but to a much smaller extent. And a large proportion of our portfolio, over 70% is on a proportional basis, where it's more the driver of the insurance prices that drives the price evolutions. On your second question regarding retro, we do expect that the retro market to also be competitive. The question as to whether it would be more or less competitive than the reinsurance is a little bit early to tell. We do see on the retro side, even though there's a smaller number of players, we do see all those players having appetite to grow more in terms of limit deployed as well as in terms of different lines of business they want to write. So we do expect to have opportunities to optimize our retro program again this year.
Operator: Next question is from Shanti Kang Bank of America.
Shanti Kang: I just had two. One is on P&C. So I was just looking at the discount rate for 3Q, that's increased to 8.4%, but we had lower cats in the quarter. So I'm a bit confused why that's increased. It's also higher year-on-year. And last year, we had a hurricane in Q3. So maybe it's on the man-made losses, I'm not sure, but just information on that would be helpful. And then on Life & Health, on that new business CSM target, what's the execution risk to that EUR 400 million? Can you tell us a bit more about the pipeline and your new business CSM numbers just to get us a bit more comfortable about meeting the guidance given the softness today?
François de Varenne: Thank you Shanti. I will take the first question, and Philipp Ruede will take the second one. So on the P&C discount, so we have a discount rate at 8.2% in Q3 compared to the guidance of 6% to 7%. If you remember, it was 6.3% in Q2. Here, it's just the impact of those small midsized man-made losses that we see in the quarter, which affect mechanically the discount. So it's just a mechanical effect of the man-made losses of Q3.
Philipp Rüede: Yes. So on your second question, I would say this type of fluctuation is normal. The longevity and financial solution deals are lumpy by nature. And so we remain confident that with our guidance as previously given, which was EUR 400 million, but actually for next year, and if I refer to previous communication, we expected a more significant drop in protection as we redress the portfolio and the delivery of the protection this year is actually ahead of our expectations. In terms of Financial Solutions, the pipeline is growing, but I would say it's fair to say that the execution takes longer, and you could say maybe it is a bit delayed. Whereas on the longevity side, our pipeline is robust, both in the short and the medium term. and that pipeline is global in nature, so not restricted to the United Kingdom. So hopefully, that answers your question.
Shanti Kang: And just -- sorry, just on that, you implemented some profitability thresholds, I think, in December in 2024. How is that emerging in the Life and Health side? Are you seeing any pushback? Could that have really attributed to some of the softness that we've seen today or?
Philipp Rüede: No, no. I mean it's rather the opposite, right? We expected to lose a lot more business with these rates increase, and we were able to retain more of the business at these increased rates. And that's why I said in terms of protection that we are ahead of our expectations.
Operator: Next question is from Chris Hartwell, Autonomous Research.
Chris Hartwell: Just a couple of quick questions from me. Firstly, just on the subject of the buffer. I mean you're now -- you must be getting towards sort of 3/4 of the P&C reservice result, which obviously a lot higher than what you were originally anticipating. And I guess sort of I suppose part A of the question is, how much more scope do you think there is to move this higher? And secondly, I think given the sort of initial comments around the market environment as things stand currently, I mean do you think that the industry profitability is enough to support further buffer build? And then second question, I just wanted to actually come back to the previous one on discounting. I agree I'm also a little bit confused by this. And I would have thought that this would be more to do with longer tail or longer duration claims rather than the sort of small and midsized sort of mandates that you were talking about, unless I'm sort of mixing those 2 up. So just wondering if you could sort of help to clear that up for me as well, please.
François de Varenne: Chris, so on your first question, so on what we can do in the future, we were clear since 1st of January 2025 with Thierry, we build opportunistically buffer. Jean-Paul mentioned that the level of the attritional loss and commission ratio was exceptionally good in Q1 and Q2. So we mentioned that we accelerated the buffer strategy -- we still have room of maneuver in Q3 to put a smaller amount of buffer. Is it the end? No. Should you see this systematically each quarter? No. And you can expect over the next few quarters and year with the softening of the P&C market, of course, probably we will reduce the pace of implementation or we will find less and less opportunities to build buffer. But that's not for tomorrow. That's not for tomorrow. We have probably still a few quarters in front of us with still excellent margin on the P&C side. On the second question on the discount rate. So again, I mentioned it's small and midsized man-made losses. You're right. If there is an impact on the discount, it means that long-dated claims, so it's related to casualty.
Chris Hartwell: Okay. And just on that casualty point, can you give a little bit more color as to if there's any particular lines of business within casualty that those claims have materialized?
Jean-Paul Conoscente: Chris, this is Jean-Paul. So it's a little bit, I'd say, random. It's GL on the treaty side, on the SBS side. It's some financial lines again on the treaty and SBS side. There's no particular trend. But it's -- as Francois said, it's more underwriting years that date back 3, 4 years and therefore, have an impact on the discount rate.
François de Varenne: And again, you mentioned it. I mean, we could have the choice to absorb those man-made losses in Q3 through IBNR. We did not. So we don't do it. So the bad news is in the attrition, and we wait for the outcome of the P&C reserve review in Q4. You can imagine that we are well advanced in this review. So my statement on the fact that we should not expect impact on the P&C reserve at the end of the year include, of course, the review of the casualty book. So I confirm what Jean-Paul is saying. There is no trend identified as of today.
Operator: Next question is from Iain Pearce, BNP Paribas Exane.
Iain Pearce: It's just coming back to the capital generation point. So I understand that you're saying that the capital generation that you've achieved has sort of been in line with the guidance that you gave at the start of the year. But I guess in Q3, we've had positive experience, particularly in the P&C business. So if we just look at cat relative to expectations, you take out the buffer, which shouldn't impact the Solvency II numbers, you would think that, that would positively contribute to the solvency. So the solvency in Q3 should be developing better than what you guided to at the start of the year. Now I guess the only thing that could offset that is the man-made claims that you're referring to, but I wouldn't guess they're at the same quantum of the level of cat benefit you've had. So I'm just understanding why that positive experience hasn't come through in the capital generation. I don't really understand that. So if you could try and elaborate on that, that would be really useful.
François de Varenne: Thank you, Iain. Capital generation in Q3. So if we look at the P&C contribution, we have, as I mentioned it, the good news of the Cat, but that's compensated by the higher attritional ratio. It's almost not one for one, but I would say it's almost an impact, which has the same size. So which means the good news is offset by the attritional losses this quarter, and it's almost a one-for-one impact. You don't have the impact of the buffer, of course, in the solvency ratio.
Iain Pearce: Well, I guess if the man-made is offsetting the nat cat by 1: 1, and that's implying EUR 100 million of man-made increase versus expectation in the quarter. I mean that's a pretty high number.
François de Varenne: Yes, if you want more precision when I say -- I said that the capital generation on the P&C side was low. So it could be still a little bit positive. So -- but again, the order of magnitude of the man-made losses this quarter offset in a good portion, the good news on the Cat side.
Operator: Next question is from Darius Satkasukas, KBW.
Darius Satkauskas: Two, please. So you suggested that the pace of the buffer building in P&C will slow down as the market softens. Is the intention here to limit the soft market pressure to your combined ratio and you see this buffer as a tool to achieve this? And that's why you're making such a comment. So we shouldn't essentially expect the sort of the opportunistic thing to continue and the benefit to come through the reserve releases, you will actually manage down how much you're adding if market softens. So that's the first question. And the second question, just on the Life & Health. I'm slightly confused why have you been making allowance for volatility in your ISR target? If you have been conservative in your assumptions in the recent review, wouldn't we expect to see positive experience more often than not? So these negatives in both P&L and CSM and the allowance rates are a bit surprising.
François de Varenne: Thank you, Darius. So the first question, if I catch your point is basically when we are going to use those buffer. So the way we see it is really to manage in the future the volatility. So it's not to manage specifically a cycle. Maybe we will be really at the bottom of the soft cycle, but it's really to manage the volatility of the book. So that's all.
Thierry Leger: Maybe there was another part of your question, Darius, is the buffer building, will the pace come down, right, given the market environment. So we very much feel in 2024 in terms of IFRS reporting, we were very much in a very attractive environment. We think we will remain in a very attractive environment next year. So we do not foresee necessarily -- again, it's opportunistic, so we can never give -- make a prediction. But we continue to believe that also next year, we should be able to build significant buffers if the results come in as expected.
François de Varenne: And your second question on Life & Health and the way we set the ISR target. So that's true. I mean we did this significant assumption review in 2024. Then again, that's what I said, given the size of the in-force, given the geographies of the portfolio everywhere in the globe, given the underlying nature of all the existing treaties, we will have some volatility. So this volatility, I agree with you, this volatility could be negative or could be negative and could be on the experience variance side or it could be through a loss component onerous contract. We want to be cautious. We want to be cautious. And I agree with you, on an average, over a long period of time, this volatility should be around 0, again, with plus and minuses quarter after quarter, but it should be around 0. to be on the safe side, and we mentioned it to be on the safe side, the EUR 400 million guidance include a buffer to take into account any residual volatility that could be negative or positive, but we prefer to give a guidance and to underpromise and over deliver on the guidance.
Darius Satkauskas: So if I understood Thierry correctly, the -- what you've done in terms of reserve buildup, that's for the volatility. But in terms of how much you will do going forward, you can very much manage the combined ratio in a soft market.
François de Varenne: Yes.
Operator: Next question is from Ivan Bokhmat, Barclays.
Ivan Bokhmat: I've got 2 questions left. We've been talking about the Q4 reserve review for the P&C business. I was just wondering if you can update us on how periodically would you review the Life book? Is there a review coming in Q4? Maybe any early findings there? And the second question is related to the investment results. I think in Q3, you have flagged some higher real estate amortization during the quarter. Could you give a little bit more color on that of which portfolios or geographies that might relate to? Do you anticipate any additional charges such as this later?
François de Varenne: So on the first question on the Q4 reserve review, -- so we did -- we took an external opinion in 2023 -- in 2024 with the same actuarial firm. So we list our [ Watson ]. I remind you that our Watson confirmed last year that we have increased the level of credence compared to 2023. We have been sharing this, and we -- I like to listen to the feedback of our investors on the topic. I'm not sure that bringing such a review each year will be useful. So we are listening with Thierry to recommendation or question or suggestion from investors or from you as analysts. So let's see the periodicity, but probably every 2, 3 years should be the good cycle. On your second question on the investment portfolio, so that's true that we have mentioned it, an impairment on the real estate asset. So it's a property asset that we own in France. We decided to significantly to invest and to do some CapEx to restructure this building. But first, when you invest, you have first to impair the building, then we are going to deploy the CapEx. And one day, we're going to lease it and sell it with a gain. So we are in the cycle of real estate and the DNA of the team is really what we call value-add -- so we like to restructure assets, and that's one we have and we impair it. So it's EUR 12 million. So it's not a trend. It's not something that just because we invest to value this asset, and we have to impair it a little bit before we start the renovation and the restructuring works.
Ivan Bokhmat: And maybe just to follow up on this and broaden the question a little bit.
François de Varenne: So which means if you look at -- because in the line real estate amortization and impairment, you have the impairment, it's almost EUR 12 million this quarter. And I would say normal amortization, that's the amortization compared to the book -- the historical value. So the amortized costs flow into the P&L and roughly, it's a budget of EUR 5 million, EUR 6 million per quarter.
Ivan Bokhmat: Okay. And maybe if I could follow up on this question. And more broadly, if you can talk about the private assets that you hold, is there anything that make you concerned in the current environment?
François de Varenne: No. I mean I've got -- I mean, you know that we have a positioning of the investment portfolio, which is highly defensive. The fixed income portfolio has a very high quality. The average rating is A-. Our exposure to private debt, private assets is fairly limited. We disclose it every quarter. If I take the collapse of first brands and Tricolor a few weeks ago, it was an indirect exposure on the investment side of EUR 0.2 million. So it's nothing, and it's a single low-digit number on the credit and surety side. So we don't change anything. We don't change -- I mean, we don't have any concerns, so we don't change anything on the asset allocation. And just remind you, since I mentioned all the discussion we have at the French parliament on the budget for 2026, I remind to everyone that we have 0 exposure at all to French.
Operator: Next question is from Will Hardcastle, UBS.
William Hardcastle: Just two. The first one is clarification really. I'm trying to understand the manmade. There's been a couple of confusing messages. You said clearly, it was above budget, I think, in Q3. Where is it year-to-date? I'm trying to understand just how much better than a budgeted type level H1 was? And the second question is just on P&C revenue. I think I just heard you say that, that 4% to 6% revenue CAGR and P&C target no longer stands. Is that right? Have you officially walked away from that?
François de Varenne: Thanks, Will. I will take the first question and Jean-Paul, the second one. So I mentioned it, normalized for Cat and discount, the normalized combined ratio would stand at 87.4%. I mentioned that inside, you have a significant amount of buffer. It's a couple of points. And do not forget that the combined ratio published or normalized include a significant amount of buffer. So it's included in the attritional ratio over the first 9 months of 79.2%.
Jean-Paul Conoscente: Hopefully, that reassures you that, again, the level of man-made we've seen year-to-date has been very low. Q1, Q2 was very low. Q3 is normal. So when you average it across the 9 months, it's low. In terms of P&C revenue, what I meant is we don't change the guidance. But for us, the 4% to 6% is more an outcome than an objective. We're not asking the teams to position the portfolio in such a way that we can absolutely meet this target. If the terms and conditions, we find them satisfactory and there's different price adequacy, we're ready to deploy capital and grow the book. If price deteriorate to a level that we think they're no longer price adequate, we're going to position the portfolio more defensively regardless of the guidance we've given on revenue growth.
Thomas Fossard: And with this, we're going to take the last question of the call. Thank you.
Operator: The last question is from Vinit Malhotra, Mediobanca.
Vinit Malhotra: So almost all my questions have been answered. It's just -- and thanks for the clarification on the revenue growth. But just on the fact that you did grow U.S. Cat in July. And I'm just wondering whether what you know now, are you still happy with that decision to have grown? And the reason I'm asking is, obviously, you talked about Cat XL being an area where there's most concern, which is only 10% of the book. but still your more cautious message on pricing, was it was still considering this cat action you took? And also one more question, if I can follow up on. I think somewhere in the call, you talked about U.S. casualty with core business Solutions having some larger claims. Is that the same thing that you're talking about this attritional manmade being normalized or was something else, sorry?
Jean-Paul Conoscente: Thank you, Vinit. So on the U.S. Cat, we definitely don't regret our decision to increase our risk appetite in U.S. Cat. you're right that we expect the prices to come down at 1/1 and the market to be competitive. You have to remember the price adequacy of U.S. cat currently is very high. You can see despite the wildfires at the beginning of the year, the tornado activity throughout the year, the -- let's say, the profitability of that portfolio remains extremely good. And our position is very much underweight in that market compared, for example, to Europe or to Asia. So we think there's opportunities for us to grow. In the renewal discussions, right now, the discussions seem to focus primarily on price. terms and conditions are remaining stable. Attachment points are remaining stable. So again, it's just a question of price. And given the level of price adequacy where we stand, I think we still view that market as attractive and producing very good returns. On your question on U.S. casualty and SBS, again, I'd say it's normal activity. We don't see any concerns there. It's more prior underwriting years where losses have developed to a level that we took them to the P&L. our book today on SBS is very small. We continue to take a cautious look at the U.S. casualty market overall, both on the treaty side and on the SBS side. We're following the market. The price increases on the insurance side is keeping up with loss trend, for example, in GL. The question is, is the price adequacy adequate. In our view, you have -- you probably need further years of similar price increases and no acceleration of the loss trend for it to be a price adequacy that meets our return on equity targets. So we're remaining very cautious today.
Vinit Malhotra: And the claims was not in treaty or P&C, but only in SPS?
Jean-Paul Conoscente: No, no, the claims were -- there was a few claims on the treaty side, a few claims on the SPS side.
Operator: Gentlemen, we have no more questions registered at this time.
Thomas Fossard: Okay. So thank you all for attending this conference call today. Our team remain available if you've got any follow-up questions. So give us a call. And with this, I wish you a good weekend. The Q4 2025 results call will be reported beginning of March on the 4 with a call as usual at 2:00 p.m. So wishing you a good weekend all.
Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your devices.