AXA SA

PAR:CS

Earnings Call Transcript 2020-Q1

[Andrew Wallace-Barnett]

Good morning, everybody, and welcome to AXA's conference call on our activity indicators for the first 3 months of 2020. I'm pleased to welcome Etienne Bouas-Laurent, our group CFO, who will be taking you through the highlights of the release, covering both the usual activity elements for the first quarter and also the additional disclosures we made in respect of COVID-19. At the end of his introductory remarks, Etienne will be happy to take your questions. Etienne, I hand over to you.

[Etienne Marc Fernand Bouas-Laurent]

Thank you, Andrew. Hello, and good morning to all. Thank you for joining the call. Starting first with the 1Q activity indicators. As you can see from yesterday's release, AXA performed well in the first quarter of 2020, recording strong revenue growth, plus 4% at the group level and importantly across all our business lines, preferred segments and geographies. Let me go rapidly through some of the details. First, revenues in P&C increased by 3% supported by 5% growth in commercial lines with price increases across the board. Notably, AXA XL grew by 8% with continued strong price increases for the quarter, plus 10% in insurance and plus 6% in reinsurance. We see price increases continuing into April. Health revenues grew by 8%. All our countries contributing to this achievement. Additionally, Life & Savings revenues increased by 4% most notably from Unit-Linked and Protection products. Finally, our Asset Management segment recorded a strong performance, with AXA IM revenues growing by 11% in the first quarter mostly supported by net inflows and positive market impacts. Moving now on to the balance sheet. Our balance sheet continues to be resilient even in the face of these volatile market conditions. Our Solvency II ratio was 182% at the end of March, resilient and performing in line with our published sensitivities. Our debt gearing is now below 28% on a pro forma basis adjusting for the repayment of EUR 1.3 billion sub debt on April 16. You would have also noticed that both S&P and Fitch have reaffirmed their ratings on AXA over the past weeks at AA- with a stable outlook. Let's speak now about COVID-19. The safety of our employees was and remains our first priority, and they have been able to continuously work remotely in order to provide undisturbed services to our clients. As a responsible insurer, we have also taken several exceptional measures to support our clients and the society at large. In France, for example, AXA is the largest private contributor to the state's solidarity fund. In France, we have also given 2 months premium refunds for impacted SMEs and have extended work stoppage insurance coverage for pregnant women and people with chronic disease. We have as well dedicated funds to help the medical staff and to finance research against the virus. As explained before, we grew strongly in the first 3 months of the year. However, we can expect COVID-19 to have a progressive impact on our revenue growth. We have seen a decline of around 5% in March discrete on a like-for-like basis, and initial trends indicate a decrease of around minus 12% in April. We can expect these impacts to be more pronounced in Life & Savings and, to a lesser extent, in P&C and in Health. In terms of claims, we have seen limited amount of notifications in relation to COVID-19 at the end of March. However, we do expect the confinement measures enforced by the different countries will have a material impact on the level of claims for this year, most notably in event cancellation and in business interruption. In event cancellation, a preliminary estimate would be around mid-triple-digit million euros before tax and net of reinsurance. For business interruption, it is too early to make an estimate at this point. In terms of earnings, while it is too early to provide a precise guidance on the different impacts, we believe that the overall effect of COVID-19, taking into account revenues, claims, expenses, financial markets and the cost of exceptional solidarity measures, will have an overall material impact on the group's earnings in 2020. In terms of assets, it is important to note that our asset portfolio remains of high quality, primarily composed of govies rated AA on average and corporate bonds rated A on average. As you can see in the additional disclosure in our press release, within our corporate bond portfolio, around 90% of our assets are rated at or above BBB with a significant share backing participating products. We also have limited exposure to the most vulnerable sectors in the current context. To conclude, the group has performed well in the first quarter, with 4% growth in revenues supported by all business lines and preferred segments. Our balance sheet remains resilient in the context of volatile market conditions. While it is too early to give a precise guidance, we believe the impact of COVID-19 will be material for the group's earnings in 2020 and is no doubt the case for the insurance sector as a whole. Looking forward, we are confident in our strategy and its execution, and the need for enhanced insurance coverage in our preferred segments confirmed our growth potential post crisis. I'm now ready to take your questions.

[Operator]

[Operator Instructions] We have one first question from Mr. Peter Eliot from Kepler Cheuvreux.

[Peter Eliot, Head of Insurance Sector Research]

I had 2 on the business interruption, please, and 1 on Switzerland. On business interruption, Etienne, I was just wondering, could you update us on your view of the proportion of your policies that specifically exclude pandemic risk from the terms and conditions? And also you said it's too early to make an estimate of the claims cost, but I'm just wondering if you can give us a little bit of comfort in terms of the sort of ballpark we're talking about in terms of is this an earnings event -- I mean, just comfort that this is an earnings event that you envisage rather than a potential balance sheet event?And then on Switzerland, 2 years ago, I guess, you essentially gave away some Life business to the local players. Now it seems it's coming the other way. I mean I appreciate that this is some of your autonomous business and doesn't have market risk of the business that has gone away from you. But I'm just still wondering if maybe you could add a few words about why you're a better owner of that business than the local players. So yes, any extra color there would be very helpful.

[Etienne Marc Fernand Bouas-Laurent]

Thank you, Peter. So the vast majority of contracts across the group are not exposed to COVID-19. And why? Because, as you all know, VA coverage typically triggers in the case of physical damage in the insured premises. And second, we apply ISO standards' wordings in most cases as well and notably for our business sold in North America. So there are some cases where we may have exposures. It's by exception. And we have the following cases where there is an explicit pandemic extension, and it is the case in -- sometimes, but really exceptions; second, where the policy wording is subject to interpretation, and this is being reviewed on a case-by-case basis; and third, and this is the most frequent case, when, in some jurisdictions, industry-wide solutions and concessions are made. This is the case, for instance, in Germany for coffees, restaurants, hotels. This is going to be the case, maybe in Switzerland or sometimes in the U.K. further to the positions taken by ombudsman. So industry-wide solutions. So therefore, I can confirm to you that it's an earnings impact and not a balance sheet impact. Regarding Switzerland, what happens is that actually in the Q1, you saw that the -- this business, the semiautonomous business is growing because some of our competitors changing their conditions in their traditional business are losing their customers who are very happy to find alternative solutions like the solutions we are providing in Switzerland. And this is why this business in Q1 delivered very well.

[Operator]

Next question is from Mr. Andrew Sinclair from Bank of America.

[Andrew Sinclair, Vice President]

Three from me as well, if that's okay. Firstly, it was just on travel. I just wondered if you could give us any more context on travel claims, which I'd assume would mostly be front-loaded. So what have you seen so far there? Secondly, on event cancellation, thanks for giving that guidance, which I see is for mostly in the next 6 to 12 months. How much exposure do you have beyond that, for example, if the Olympics was canceled next year? If after its postponement, could that have an impact to other big events scheduled next year, et cetera? And third one for me is you have 3 good-sized disposals that are meant to be completing this year, and AXA Life Europe has still not completed again, possibly missing another guidance for completion date. Just can you give us an idea of -- do you still expect these 3 deals to complete and will there be any adjustments to the price?

[Etienne Marc Fernand Bouas-Laurent]

So I start with the third one, which is relatively simple. The 2 transactions we are referring to are AXA Bank Belgium and the CEE disposals. These processes, first, there's absolutely no discussion about the price. So no worry to have on this point. Second, the process is going on in a completely normal way. It's just then a question of execution of the deal, which might, from time to time, be postponed by 1 month, 2 months, 3 months. So it's purely a question of months and not a question of price or a question of any kind of other possible questions, like competition or whatever. So we are very confident that these transactions will be closed. I cannot guarantee you that the timing will be in Q3 or Q4, or if there is a delay, it might be January more than December. This, we don't know. But at least one of the 2 should close this year. And the second one at this stage is scheduled for Q4. So confidence on these 2 transactions. Regarding travel, this is a business with less than EUR 1 billion GWP more -- I would say, mid-triple-digit, as we say, most of which is realized by our Assistance business, which is a service-like business. So we have an impact, but I would say that it's not the biggest hit we will have. Regarding events cancellation, what we have done is that, based on our -- what we see, the assumptions we have taken is that there would be a loss of 70% of our exposure for -- from March to September. And from September to March '21, we have taken 25%. So this is the way we did it. So it gives you an idea of our total exposure with overall sum. But this is the assumption we have taken.

[Andrew Sinclair, Vice President]

And sorry, just for -- you're saying that the context of travel claims, not the biggest that you'll have. I mean are we talking triple-digit millions? Are we talking double-digit millions? Any context around that?

[Etienne Marc Fernand Bouas-Laurent]

Look, if it was mid-triple-digit, we would have said it. So it's much less.

[Operator]

Next question is from Mr. Jon Hocking from Morgan Stanley.

[Jonathan Michael Hocking, Managing Director]

I've got 3 questions, please. On the property covers that AXA XL writes in the U.S., which might include BI, I just wondered whether those are written on the standardized wording or whether there's sort of separate wording, given some excess and surplus business. Secondly, in XL's reinsurance book, is there any trade credit exposure? And then finally, just looking at the sort of rate environment to the commercial wholesale business, from your comments and others this morning, it does seem that there's quite a good rate hardening story. Is there any appetite to change the group capital allocations? Or are you trying to take advantage of that?

[Etienne Marc Fernand Bouas-Laurent]

So starting with the third one. You are right to say that on the commercial lines, the prices are going up. And this is what we expected when we released our numbers on the 20th of February. This is what we said. And it's very true notably in North America. And I must confess that we are, in terms of price increases, above our expectations right now. And this gives me the opportunity to say that, excluding COVID-19, XL's business is well on track with our expectations. So regarding capital allocation, I mean, there is no -- it's -- there is no problem to grow at the moment. There is not a capital shortage in the businesses, which want to benefit from this price hardening. Let's put it that way. Your first question related to the property, so the BI coverage in the U.S., I think -- so your question was, is all your business ISO, with ISO wording? And to my knowledge, the very vast -- the vast, vast majority of the cases, it is ISO. So the U.S., the only question is, at the moment is will the -- will there be a political move or regulatory move to force anybody to pay more than what is contractually stated? And this threat has been existing for the last 6 weeks, I would say, with ups and downs. But we are pretty confident that it will not go through because it would be anti-constitutional. So at this stage, we are pretty confident for the U.S. business. And your second question was...

[Andrew Wallace-Barnett]

Maybe, Jon, could you repeat your second question?

[Jonathan Michael Hocking, Managing Director]

Yes. So second question is just I wondered whether you -- sorry, Andrew. I just wonder whether you've got any trade credit exposure in the reinsurance book at XL. Because you don't seem to -- you haven't mentioned it in the release. I don't think that's the only place it might appear.

[Etienne Marc Fernand Bouas-Laurent]

So there is some exposure on the reinsurance of trade credit. I will not give you any number in terms of claims because, today, we have no claims. However, it's an assumption. The GWP, to give you an idea, is $300 million.

[Operator]

Next question is from Mr. Farooq Hanif from Crédit Suisse.

[Farooq Hanif, Head of Insurance Research in Europe]

I hope everything is going well. Just a few questions. You've been kind enough to give some GWP numbers. Can you give a BI GWP number or proportion of premiums? In terms of motor claims frequency, some companies have had early data on lower loss ratio. Can you give us an idea of how much kind of frequency has gone down and to what extent your refunds will be applied for the months that frequency has gone down? And then a bit more comment, please, on expense reductions. So I think that you've talked about measures that you could take. Now some of this, of course, will be because of lower acquisition costs. But what other measures can you take to offset some of the earnings impact?

[Etienne Marc Fernand Bouas-Laurent]

So first question relating to the BI numbers, I answered in the first part of this session with what I can say. So it's an earnings impact. It's not a balance sheet impact. And giving GWP numbers will not be, I think, a good indication for what you're looking for. So the second question is motor claims frequency. What we observed across the -- depending upon the countries, our frequency during the confinement periods, down between minus 40% and minus 80%. So potential refunds. It's difficult to tell you. At this stage, we don't refund the premiums for 2 reasons. First, our priority is to support our customers who are really in trouble financially or from a health point of view. So we are dedicating all our efforts on this population -- or this segment of clients. It can be physical person. I referred to the people with chronic disease, the pregnant women, but also it can be SMEs or very small enterprise. Second, the year is not finished. So in the loss ratio for motor, you'll see obviously that we anticipate Q2 to be excellent in terms of loss ratio. However, there is also Q3 and Q4. So let's see how the customers will behave because they might use less public transportation. The oil prices will be relatively low. And all of this should be looked at on a medium-term basis and not very short term. So some mutual companies have started to refund. It's at this stage not a majority, and we are very keen to look at the overall balance of our P&L before refunding retail clients after just 1 or 2 months of pretty good experience. Expense reduction. You're right to say that acquisition costs are reduced. So what we are looking at is actually our expense ratio overall, which means that we have to tackle part of our fixed cost. And obviously, we are reducing a lot of general expenses and reducing as well our investments.

[Farooq Hanif, Head of Insurance Research in Europe]

Do you think -- sorry, if I may come back, do you think that will be -- I mean, obviously, do you think that could be quite significant? So you have the tools to offset a lot of the claims, revenue reduction?

[Etienne Marc Fernand Bouas-Laurent]

No. When I'm speaking about expense ratio, I'm referring expenses related to revenues. You cannot offset with costs the higher claims. I mean it's disproportionate.

[Farooq Hanif, Head of Insurance Research in Europe]

But I mean, what I'm saying is, I guess, to make it clearer, do you think you can maintain expense ratios? Or do you think there will be a spike, but you're trying to limit the spike?

[Etienne Marc Fernand Bouas-Laurent]

So it very much depends on the forecast for the revenue decrease. So far, what I'm just telling you is that the objective we have set to entities is to manage the expense ratio. So in some cases, they will do a bit better, in some of the cases, a bit -- they will not make it. It very much depends on your business mix, various countries, the competition pressure, a lot of things. So in the countries where you have major drop in revenues, it will be more difficult. In some others, it will be moderate. It will be easier. So it's more -- I'm giving here you the idea, how we manage during the crisis. We looked out expense ratio, and we do the best to try to maintain it.

[Operator]

Next question is from Mr. James Shuck from Citi.

[James Austin Shuck, Director & Head of the EMEA Insurance Sector]

Three questions from me, please. Firstly, the life investment margin, I think, Ambition 2020 had a plan for -- between 55 to 65 basis points on the life investment margin, with 65 bps in 2019. Can you just comment on the outlook for that margin rate? Are you still confident you can reach that? Interested to know how much you've really got in terms of policyholder sharing versus the minimum levels, please. Secondly, could you just provide an update in terms of Q1 nat cats and large losses at XL? And how is the underlying performance of that business so far year-to-date? And my final question, just around -- on health side of things, please. Presuming, with people being furloughed and with medical practitioners being reallocated to different places, that's going to lead to a spike in health costs in time. If you just shed a little bit of light over how to think about that division in the current environment, please.

[Etienne Marc Fernand Bouas-Laurent]

So first, the investment margin, you're right, will be a bit lower. Why? Because the dividend yield from equity -- private equity, even real estate will be lower. It will not be -- it will not impact -- we are not touching the guarantee level. So if you look at the really what will make the difference this year, investment margin doesn't come as the main driver. We didn't refer to it in our press release. We referred more to the fees earned on equity positions, either through AXA IM or through our Unit-Linked business.Second, nat cat losses I think are in line with our budget. So it's -- there were some nat cats in Australia and in the south of the United States in Q1. Nothing really special in April. So we are pretty in line with our budget. And lastly, on the health side, today, we don't see an increase in claims, partly because people don't go to the hospital or to the doctors. So it's a little bit like the motor business. In some places, people don't use -- they don't go to the -- don't spend on the health side because they are scared to go to public spaces and because they are confined. So this is what's happening in the short term, and there might be a spike in health costs in -- maybe in Q3. But overall, we don't see -- we don't expect a major deterioration. And the last point is the mortality. We flagged -- when the crisis started, the risk we had on the mortality, which was, to say, for around 1 million deaths in the world, it would have an impact of EUR 100 million net after-tax for us. We are still away from this number. However, at this stage, we have not seen -- we have not observed any deviation in our mortality rate on our clients.

[James Austin Shuck, Director & Head of the EMEA Insurance Sector]

If I could just return quickly to XL, just the underlying performance in Q1 and what your reserve experience has been year-to-date, please.

[Etienne Marc Fernand Bouas-Laurent]

So I told you before that XL, excluding COVID-19 effect, was in line with our expectations. So -- which means that it's true for the nat cat. It's true for the large claims. So it's across the board. I said as well that prices were above our expectations and notably on the excess -- famous excess casualty lines, and it continues in April.

[Operator]

Next question is from Mr. Nick Holmes from Societe Generale.

[Nick Holmes, Equity Analyst]

A couple of questions, please. Firstly, can you update us on discussions about your dividend with the ACPR? And then second question is sort of looking at COVID more widely and coming back on some of the questions you've had. What would you say is your biggest worry? Is it actually top line revenue or is it claims? Which one sort of in your management discussions are you most concerned about?

[Etienne Marc Fernand Bouas-Laurent]

So on the dividend, of course, I'm not going to tell you today what will be the ultimate decision, but I can give you some element of context in case you don't know it. The Board had made a proposal for the annual general assembly to pay EUR 1.43 per share, which means 7% increase in dividend. Afterwards, there was, I would say, an information published by the EIOPA, but most importantly for us by the ACPR, urging French insurance companies not to pay dividends before October, at least. So we decided to postpone the general assembly in order to take the time to understand exactly the position of the ACPR and to have a chance to dialogue -- to have a dialogue with them. So this is what's happening, and you will know more in the upcoming weeks because the decision will be -- the new proposal, if it's new, will be made in May. Regarding the COVID-19, I will not answer precisely this question because you are trying to assess and to put a number on the one aspect or the other. I can say that it's still a bit early. The -- I would say that top line of profitable business, it's very costly. So I would say the top line in Life doesn't worry me too much because -- especially if you look at 2020 because the first year is not where you get the most -- the biggest profitability because it's their construction, a long-term business. In terms of P&C, it can be very costly if there is a severe drop in revenues. And of course, claims, I will not comment. So I will not make this comparison, but I'm sure you have already an idea of what's more costly.

[Nick Holmes, Equity Analyst]

Sorry, just going back very, very quickly. So to reiterate on dividend, is it correct that your clear intention and wish is to pay your 2019 dividend? Do you think you have the financial ability to do so?

[Etienne Marc Fernand Bouas-Laurent]

Sorry if I was not clear. The liquidity, the solvency and the profitability of last years allow us to pay this dividend. And it was based on all of this that we made this proposal to the general assembly. So the only thing which was new for us was the statement of the ACPR, so the French regulator.

[Operator]

Next question is from Mr. William Hawkins from KBW.

[William Hawkins]

On business interruption, I appreciate you don't know an absolute number yet, but could you comment a little bit on what you're thinking about the mix of the claims that you're seeing with regards to the 3 areas that you talked about right at the beginning? So what are you seeing in terms of geographic mix, in terms of U.S. versus non-U.S., and what are you seeing in terms of your carrier exposure in terms of XL versus the rest of the group? I'd be interested to get some of that feel. And then secondly, a couple of months ago, I think I actually used to talk about a 1 in 200-year pandemic hit of EUR 1 billion. We've learned a lot about pandemics relative to what we knew 3 months ago. So I'm just wondering, to what extent do you think your original models were valid? And without going into too much detail, if they're not valid, what are you learning? And then lastly, on the solidarity measures, you gave the good examples in France. Is there any way that you can put just a global number on what you think is the cost of the solidarity measures to you at the moment, please?

[Etienne Marc Fernand Bouas-Laurent]

So as usual, I will start with the third one. It's difficult to know as well because the solidarity measures have started but it's not yet finished. You see that as long as the confinement is there, there are still a lot of discussions and people in need for support. So I can tell you that, group-wide, it's a few hundred million euros. And then let's be careful because we are not always clear between what is sometimes solidarity measures and what is BI, if you see what I mean, because sometimes we are in between. Regarding the pandemic hit and the original model, it's true that we are realizing that a pandemic hit, it's not just a spike in mortality rate. It's much more than this. And therefore, I would say that the original models from this point of view has to be reviewed. And as we just discussed, the mortality -- the cost of the mortality, even if it's million of test, is not what hits us the most. It's the resulting systemic risk and related to, I would say, the drop in GDP, so the -- and the risk related to event cancellation, to business interruption and so on, on the one side and the financial implications on the other side, on the asset side. So it has to be reviewed clearly. And when you discuss with the actuaries here, this is clearly on their agenda. This is something which will be reviewed this year to adopt the model. Related to BI, I will -- so BI, it's not XL or not XL. It's across the board for all commercial lines, right? It's a commercial lines issue. I told you that there were a lot of discussions in Switzerland, in Germany, in the U.K., in the U.S. So it's across the board. It's overall. So I will not give you the split. And in terms of U.S., non-U.S., my guess is that it might be a bit more costly on the non-U.S. part, but it's still early -- too early because if you look -- if you speak with our U.S. colleagues -- not colleagues, but our U.S. peers, they will tell you that they see the risk also in the U.S. So it's -- really I don't want to answer, not because I don't want to give you the numbers, but because it's really too early, and I don't want to make any commitment. It's too early, really. So we will know more quarter-by-quarter. And every time we have information, which we think is reliable and which is sensible, we'll provide it to you. But today, we went beyond the revenue indicators because we knew that there was a need for information. But we are a little bit at the limit of what we can tell today.

[William Hawkins]

That's helpful. So what you're saying is that business interruption losses are global, they're not just U.S.?

[Etienne Marc Fernand Bouas-Laurent]

Yes, exactly.

[Operator]

Next question is from Mr. Andrew Crean from Autonomous.

[Andrew John Crean, Managing Partner, Insurance]

Can I ask 3 questions? Firstly, could you give us a bit more detail on social inflation in the U.S.? I know it was -- you're in a sort of discovery period in the fourth quarter as to just how much it was accelerating. Can you talk a little bit more detail in the first quarter as to whether that's settled down and that you're calmer about that issue? Secondly, you gave at the full year your schedule of debt redemptions, which could be between 6 and 9 points hit solvency. Are you in a position now to say which end of that scale it's going to be? And then thirdly, Solvency II. Firstly, could you give us an update from March as to where the coverage is? And also whether the sensitivities you've given historically still holds or whether you have been hedging heftily in the recent period, and therefore, your downside sensitivities may be slightly less?

[Etienne Marc Fernand Bouas-Laurent]

So regarding the social inflation, I would say that we have not observed any new information, any changes in Q1. So we just saw the prices going up. But the claims, no new information, I would say. Nothing that changes the view we gave you on the 20th of February. Second, the debt reimbursement. Your question was what kind of impact on Solvency II, is that correct?

[Andrew John Crean, Managing Partner, Insurance]

No. I think you said it would hit Solvency II by between 6 and 9 points this year. I was just wondering if your current plans, whether it's more likely to be 6 or 9.

[Etienne Marc Fernand Bouas-Laurent]

Okay. So the debt we have reimbursed, the EUR 1.3 billion, has an impact of minus 4 points. So if you want to say -- to know if it's minus 6 or minus 9, I would bet for minus 6 rather than minus 9. And your question related to the Solvency II number at the end of March, which was 182%, I would say, end of April, the main event is certainly the debt reimbursement. So on a pro forma basis, if you start from 182%, you could reduce by 4 points.

[Andrew John Crean, Managing Partner, Insurance]

What about better markets?

[Etienne Marc Fernand Bouas-Laurent]

Yes. The other elements, I would say, are not material.

[Andrew John Crean, Managing Partner, Insurance]

And with the downside sensitivity, so what...

[Etienne Marc Fernand Bouas-Laurent]

Excuse me?

[Andrew John Crean, Managing Partner, Insurance]

To the downside sensitivity, have you hedged the balance sheet more heftily since year-end?

[Etienne Marc Fernand Bouas-Laurent]

Sorry, no. No change on the hedging, no change in hedging. And maybe because we are speaking on Solvency II, I said in the previous -- answering to the previous question that our actuaries are looking at the traditional model, which is true, but with no impact on the Solvency II model. It's too early stage.

[Operator]

Next question is from Mr. Ashik Musaddi from JPMorgan.

[Ashik Musaddi, Executive Director and Co]

Just a few questions all on capital. First of all, again, sorry, going back to Solvency II, I mean, currently, your Solvency II ratio is about 182%, and you have redeemed some debt. I mean what gives you confidence on this ratio, given that the credit market continues to remain volatile, interest rate has started going down again? And if I remember, your hurdle is 170% to 220%. So I mean you're not really far away from your hurdle rate. So what gives you enough confidence that the solvency capital is okay from a 6 to 12 months view? That's number one. Secondly is can you give us some clarity on how the local subs capital is at the moment? Is there any breach within those local subs, which could impact the cash remittances from subsidiaries based on the current view? And lastly, the new sensitivity you have provided on credit rating downgrade is pretty interesting because it's only 6 points for 20% of your portfolio getting downgraded, which is like a big portfolio getting downgraded by 1 full letter, and it only impacts by 6 percentage points. Can you give some clarity as to how that works? Any thoughts on that would be helpful.

[Etienne Marc Fernand Bouas-Laurent]

So the -- first of all, the solvency ratio is the number you know. And then you have all the sensitivities to figure out what it could be under which circumstances. So here, I am not going to provide you with our estimate of what it will be. So -- and just to be more precise, at the end of April, when we said you can reduce by 4 percentage points, the main reason is that the lower rates were offset by narrower spread since March. So all of this is moving. The other point, which is important in my view, is that the 170%, even if we were to reach it, would have no consequences. So you know that we have different targets. We have 170%, but we have also 140%, and the regulators has 100%. So don't overestimate the fact that would be at 171% or 169% or 165%. I'm not sure it will have an impact in the short term. The second point is we have no breach, I would say, at the local subsidiary, the local entity level. And the -- I can tell you that in the current environment, the fungibility continues to work within the group, and that our liquidity position, as a result, is strong at the holding level. And then your -- the new sensitivities we have provided of minus 6 points, I would say that the -- when you are -- the highly rated part of the portfolio, when it goes 1 letter down doesn't cost us that much. So it's more at the bottom. And at the bottom, our exposure is pretty limited. So this explains why the minus 6 points might see -- might look limited to you at this stage.

[Operator]

Next question is from Mr. Michael Huttner from Berenberg.

[Michael Igor Huttner, Analyst]

I had 3 questions. One -- these are really pen trick questions. You'll love them. On debt gearing, you said below 28% pro forma, and I was wondering what does pro forma mean? What am I supposed to think here? I just wondered if you could give us a kind of a ballpark figure of what an actual figure would be. The second is you had this really interesting comment about solidarity efforts, and there's an overlap with business interruption. I just wondered where you are going to book these solidarity efforts. I don't understand what they could be. The third question is on the -- you gave some positives in the press release, which was on investment income, gains in adjusted earnings and net income of EUR 200 million and EUR 300 million. Can you -- why did you give those figures? Is it because you think they're sustainable through the year? Or is it just to give us a kind of breath of fresh air? I don't quite understand because the turn of a replay so far would be so sunburn kind of figuring, oh my gosh, is there a positive here which we're missing?And then the last one, the -- I struggle a little bit with the press release as a whole because there's a figure for event cancellation, but no figure for business interruption. And that seems to be the really big one, which is kind of the elephant in the room. And so far, I haven't gained much clarity on that. Anyway, sorry, too many questions, and I hope you can help me out.

[Etienne Marc Fernand Bouas-Laurent]

Don't worry, Michael. They are clear questions. So the pro forma on the debt gearing, it's just that -- if you don't -- if you take the balance sheet at the end of '19 and you reduce your debt by EUR 1.3 billion, you come to the number we have indicated. That doesn't mean anything else than that. So it's a very, very basic calculation, just to give you a flair on ID. Second, the solidarity efforts, you wonder how we will book them. Most of them will be booked under underlying earnings. There might be 1 or 2 exceptions. If we are -- like in France, we are just wondering, if the amount which has been paid because it's not deductible and because it was -- there was no choice basically, could be considered as an exceptional item. But it's more the exception. So I would say the majority of this impact should be in the underlying earnings. Third, your question is -- don't make it too complicated. We gave these numbers first because we knew that the question would come. And because we had the numbers. We know this information. So -- because we know it's a tricky calculation, we gave it to you, not to give fresh air because we didn't know when we decided that we would deliver this information, what would be at the end of the day the impact. And so it's just clarity. Don't see anything else than this, and we don't expect you to take that as a good news or as a bad news. It's clarity and information and make the best use out of it, but it's more to help you. Lastly, I understand that you would like to know more about business interruption, but please understand that the nature of the claims is much easier to grasp, to get on this very short-term risk on event cancellation because it was immediate. We had information much earlier than on business interruption. So if you think for the next time, we should not give any number, please let us know. But event cancellation, we know much more. So that's it. It's the nature of the claims which makes it easier.

[Operator]

Next question is from Mr. Thomas Fossard from HSBC.

[Thomas Fossard, Co]

I've got 2 or 3 questions. The first one would be related to the recessionary impact on your top line development. Actually, you're providing some numbers for March and April, and you're highlighting that the Life and Health business was significantly impacted. I was wondering why this is the case because I was expecting your business to be more a regular premium than single premium. So maybe you can help us to understand why the Life and the Health revenues are, I would say, more impacted. Second question related to this is on the P&C side. Could you maybe touch upon the part of your P&C revenues, maybe more in the commercial lines, which you believe is recessionary-exposed or sensitive? And the third and last question will be relative to the Life and Health reserves. Are you seeing, I would say, early sign that the policyholders are changing a bit in terms of behaviors, and you're seeing some, I would say, some temptation to surrender to policies at the present time?

[Etienne Marc Fernand Bouas-Laurent]

So I start with the third question. You have seen that the net inflow are -- don't signal a change in behaviors. And in terms of retention, at the end of March, the numbers were pretty stable. They were up, of course, in the P&C business, but in Savings business, or in Life and Health business, no change in behavior. Second, in terms of top line trends, I would say that the Life business is, by far, the most hit business because you have the single premium in savings, which have a huge impact. So it's particularly true in France, Italy and Spain. And so the drop is in the area of minus 20%. So it's clear. But it's really this effect of accounting, right? It could be counted differently in terms of pure income impact. It's much less than that. P&C is the second business which is hit with a negative trend in April, between minus 5% and minus 10%, depending upon the country. Italy, they're also -- so France and Italy are most hit countries. And Health is very resilient. So I wouldn't put Life with Health in this context. And for the P&C, of course, the GDP drop will have an impact on the top line because some premiums are indexed on the level of activity. So we'll see, but it will have an impact on the commercial lines. So you will have some positives on the hardening of the prices and some negatives linked to, let's call it, GDP.

[Operator]

[Operator Instructions] We have another question from Mr. Michael Huttner.

[Michael Igor Huttner, Analyst]

Sorry about that. The -- I think on -- at the beginning, there was a question on AXA Life Europe, and I just wondered if you could say a little bit more than that. And then I'm going to press a little bit just on the -- sorry, the -- is it down or up from the 27.5%? Or put another way, if you weren't to redeem any more debt, would you actually -- would you hit your 25% to 28% target by the end of the year?

[Etienne Marc Fernand Bouas-Laurent]

So AXA Life Europe, so you're referring to the disposals, and sorry if I misunderstood the question. I was -- I thought that the question was related to the 2 transactions announced this year. AXA Life Europe is a transaction which has been announced in 2018, at the end of 2018, and which is still under discussion, given its complexity. So the buyer and the seller are always motivated to make the transaction, but the discussions with the regulator, notably in Ireland, are complex, long-lasting, and this is the only thing I can tell you on this. On your question -- Michael, your second question related to the debt gearing, can you precise a little bit more what you mean?

[Michael Igor Huttner, Analyst]

I'm worried because you didn't answer it well the first time. I'm thinking, oh gosh, have I missed something. So you said pro forma, 27.5% or 28%, whatever the figure is. But insisting on pro forma, when the world has changed so much, I'm kind of thinking, what is the figure now? And so another way of asking it, instead of saying, well, can you give us a figure now, maybe you don't have it, I don't know, is if you were not to redeem any more debt beyond the EUR 1.3 billion you have done, would you, at the end of the year, still be in your 25% to 28% target range? That was all.

[Etienne Marc Fernand Bouas-Laurent]

Okay, which is another way to ask what will be our earnings this year. So -- and on this one, I will not answer. Because the gearing, it's not only the question of debt, it's also the question of retained earnings. The OCI does not play a role, and therefore, I will not answer this question, Michael.

[Operator]

We have no other questions.

[Andrew Wallace-Barnett]

In that case, we thank everybody for joining the call, and I hope you stay safe and well. And we're happy to answer any of your questions and follow-ups over the next days and weeks, and we wish you a very good day. Bye-bye.

[Etienne Marc Fernand Bouas-Laurent]

Goodbye to all of you. Thank you very much.