AXA SA
PAR:CS
Earnings Call Analysis
Q3-2023 Analysis
AXA SA
AXA's nine-month results of 2023 tell a story of calculated growth and strategic alignment. The company saw its total revenues increase by 2% to EUR 79 billion, following robust performance in key technical lines: Property & Casualty (P&C) and Health Insurance showed growth of 7%, and Protection rose by 3%. This is substantial, given the restructuring efforts to refocus on core areas by deprioritizing segments like reinsurance property cat and traditional general account savings, which AXA anticipates completing by the year's end. Their balance sheet fortifies trust among investors with a strong Solvency II ratio of 230%, underpinned by healthy organic capital generation.
The company isn't just growing organically; it's also redefining its geographical focus. The acquisition of Laya Healthcare in Ireland strengthens AXA's market share to 28% in that region, while the divestment from the life insurance joint venture in India with Bharti exacts the strategic intent to exit noncore markets. Such moves illustrate AXA's adaptive business acumen, intent on concentrating efforts where they hold a market lead.
Drilling down into segments, P&C revenues attained a 7% growth, with Commercial and Personal Lines both contributing positively. Commercial lines, excluding AXA XL Re, boasted a remarkable 9% growth due to price increases and volume, while Personal Lines climbed by 5%. AXA's pricing adjustments in the Motor segment particularly stand out, designed to offset higher claim severities; however, an unexpected uptick in claim frequencies prompted further price revisions in Europe. AXA's agile response underscores their notable risk management.
The Life segment saw differing trends, with protection increasing by 3%, fueled by higher sales in Japan and Hong Kong. Meanwhile, the traditional general account premiums decreased by 13%, aligning with AXA's strategic move to minimize exposure in this area. Health premiums faced a 7% decrease, largely due to the nonrenewal of two significant group contracts. Yet, excluding these, the underlying growth was 7%, demonstrating underlying vigor across geographies, cushioned by favorable price effects.
In Asset Management, average assets under management reduced by 5% due to unfavorable market conditions; however, this was balanced out by flat net flows. Looking ahead, AXA's asset management sector remains poised for positive net inflows, backed by strong platforms in fixed income and real assets.
AXA's financial prudence is evident as it refrained from its habitual EUR 1 billion net debt issuance this year, signaling strong liquidity at the holding company level and a comfortable solvency position. Moreover, the company's dedication to debt reduction aligns with a broader commitment towards diminishing interest costs.
Stripping away certain nonrecurring factors, such as the two sizable Health contracts and certain adjustments within general account savings, AXA's revenue growth stands at an adjusted rate of 5%. The company anticipates this growth rate to be sustainable into future planning periods, signaling a confident outlook about its operational direction and performance.
AXA continued its trend from the first half of the year by not requiring additional capital and saw a net growth of 7% in this area. This efficiency highlights the company's effective capital management and the capacity for sustainable growth.
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Good day, and thank you for standing by. Welcome to the AXA 9 months 2023 Activity Indicators call. [Operator Instructions]. Please note that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Anu Venkataraman. Please go ahead.
Good morning, and welcome to AXA's 9 months 2023 Activity Indicators Call. This morning, our Group CFO of Alban de Mailly Nesle, we'll go through briefly the highlights of last night's press release, after which we'll be ready to take your questions. Alban?
Thank you, Anu. Good morning to all of you, and thank you for joining the call today. So I'll start with the key highlights of our 9 months '23 results. AXA continued to deliver high-quality revenue growth, very much in line -- very much in line with our strategy and consistent with the trends that you see in the first half. We continue to see strong momentum across our technical lines, in particular, in P&C, plus 7%; and protection, plus 3%. And growth in Health remains also strong, up 7% if you adjust for the nonrenewal of 2 large international group contracts. This has been partly offset by actions taken to rightsize businesses that has been deprioritized and that you know well, that's reinsurance property cat and traditional general account, and this should be completed by year-end. Overall, our total revenues increased by 2% to EUR 79 billion. Our balance sheet remains very strong with the Solvency II ratio of 230%, driven by strong organic capital generation, and we are very pleased with this level. We also remain confident in delivering our in-force management target of EUR 30 billion to EUR 50 billion by year-end. And apart from those results, we've also recently announced 2 transactions. The first one is the closing of the acquisition of Laya, the leading health insurer in Ireland with 28% market share. And second is the agreement to dispose of our live joint venture with Bharti in India. So these are in line with our strategy, which is to focus our footprint on our core markets where we have leading positions, while we exit -- sorry, noncore markets. So going back to 9 months '23, let me now go through the key numbers of the press release, starting with P&C. P&C revenues were up 7% overall, with growth in both Commercial and Personal Lines. In commercial lines insurance, which excludes AXA XL Re, we saw a very good growth of 9%. This was driven by both price increases and volume. And at AXA XL Insurance, prices were up 4% on renewable or 7% excluding North America Professional lines where conditions remained challenging. This was mainly driven by favorable price effects in short tail lines with notably North America property, up 19%. Overall, price increases remained above loss trends, in 9 months '23. And we remain very disciplined on pricing, and we have tools to manage the cycle. In France and Europe, we continue to see favorable price effects at 5% and 4%, respectively. On volume, customer demand remained strong, notably at AXA XL Insurance in Property and Specialty lines and in Europe. Moving to Personal Lines. Revenues were up 5% with growth both in personal motor and personal non-motor, up 7% and 3%, respectively. In Motor, price increases accelerated further in the third quarter in Europe, except in Switzerland. Overall, we believe the price increases in retail are sufficient to offset claims severities. But you know we are also vigilant on the frequency side, which is higher than expected in Germany and Ireland, which we had flagged at half year. And in those countries, we are taking further pricing actions. And finally, in reinsurance, as you know, we've reduced our nat cat exposure again this year by circa 35% and in line with our strategy, and that was offset by price increases in Casualty, Property and Specialty so that overall revenues in reinsurance were down by only 3%. One last point on P&C regarding nat cat. In the first half, we had a relatively benign nat cat experience with 3 points impact on our combined ratio. That's below our 4 points load. In the third quarter, we experienced several storms across Europe and the U.S. And despite this, at the end of September, we were still on track to be within our 4 points nat cat budget for the year. We currently estimate losses for -- from Hurricane Otis that made landfall in Mexico in October to be around EUR 0.2 billion before tax and net of reinsurance. And obviously, we need to see how the rest of the year plays out. Let me now move to Life & Health. In Life, we see once again a positive trend in protection, up 3% and from higher sales in protection with unit-linked in Japan and sales to Mainland Chinese visitors in Hong Kong. Unit-linked premiums were down 13% reflecting volatile market conditions, albeit with some recovery observed in the third quarter. And this was largely offset by good performance of capital-light general account, up 12%, which was driven by the continued success of our general account at maturity product EuroCroissance in France. In France deal, which is our main Life carrier given this capital-light proposition of EuroCroissance and our Unit-Linked performance. Overall, we are up 10% on the savings side. Once again, our strategy around this complementary offer has proved its relevance, especially in these conditions. And lastly, traditional generic on premiums were down 13% and in line with our strategy to reduce our exposure in this business. So overall, Life revenues over the first 9 months were stable. On Health, premiums were down 7% and that's largely from the renewal of 2 large international group contracts in France that you know well. Excluding those contracts, we had organic growth of plus 7%, and that's across all geographies and this reflected notably favorable price effects, again, across most geographies. So next, on the net flows. So we see continued outflows in traditional general savings -- general account savings which is in line with our group strategy, and that's partly offset by strong flows in Protection & Health. Moving to new business. So Life & Health, PVEP and NBV were down 8% and 4%, respectively. This was largely attributable to the increase in interest rates, which will reverse positively with a higher unwind over time. NBV margin, which is what matters to us, was up 0.2 point. New business CSM was up by 2%, reflecting a better portfolio mix, notably with a higher contribution from EuroCroissance. Overall, our business mix in Life and Health remains of high quality, and we will continue to grow from there.
And finally, in Asset Management. So average assets under management decreased by 5%, but that reflects unfavorable market conditions because net flows were flat. We have, as you saw, strong inflows from third-party funds, both in our core and our OGS platforms. And specifically in real estate, where we've had good momentum. And this was offset by net outflows from AXA insurance companies, which is obviously linked to the negative flows in general account that I had mentioned earlier. Revenues in Asset Management were down 2%, driven by lower recurring fees from the reduction in average assets under management.
Moving on to Solvency II. So our Solvency II ratio was 230% at the end of September, and that's down 5 points from the first half. And this was mainly due to a combination of different factors. First one is minus 4 points from the early redemption of subordinated debt, which we had decided not -- which we have decided not to refinance in line of our strong cash and capital position, minus 3 points from unfavorable market effects, driven by lower equity markets and higher implied volatility and plus 7 points of normalized capital generation, minus obviously, 4 points of accrued foreseeable dividends. So at the end of the first 9 months, our normalized capital generation was plus 23 points. And as you see, we are well on track to achieve the 25 to 30-point guidance we gave this year. Overall, we're happy with our strong Solvency II ratio. It reflects our more capital-efficient business model, and that allows us to grow without the need for more capital. So one word on our full year '23 outlook. We are on track to deliver our earnings outlook of above EUR 7.5 billion underlying earnings in '23. A few things to also keep in mind for the second half. As you know, we always report more than 50% of our earnings in the first half because we have higher investment income in the first half, and there is also a small seasonality in discount. And we expect several headwinds in the second half which should already been known to you. So that's the higher health claims frequency in the U.K. We have still elevated lapses in Italy. And as you saw, we have higher Q3 nat cat losses. So as a conclusion, I think fundamentally, the group is in good shape. We are disciplined in our execution of our strategy, and that will continue to deliver strong results. We have a balance sheet which remains strong with a high level of Solvency II ratio at 230%. And therefore, we are well placed for our next plan, which, as you may have seen, will be announced on March 11 next year. I'm now happy to take your questions.
[Operator Instructions]. We will now take the first question coming from the line of Andrew Sinclair from Bank of America.
Three for me as usual, please. First was just on the nat cat budget. Could you remind me how you allocate that by quarter? Is it just straight a quarter in the budget for each quarter. I'm just trying to think about what's left for Q4? And how much of that is used by Otis and we've got a few storms so far. It feels to me like we could have burned through about half of Q4 budget already. So just any color on what's left to budget for Q4? Second point, sticking on nat cat. Just really wondered if you can give us an update on XL's nat cat performance year-to-date. I know you've said that for the group, in line with budget after the first 9 months. Is that also the case for XL or any color there? And then third and finally was just on North America Professional lines. Like we know there's been weaker pricing there. Just could you remind us how much of your book is in those lines today within XL? And do you think pricing today is adequate on a written basis.
Thank you, Andrew, for your questions. So on nat cat budget, as you know, it's 4 points overall. And we think 4 points of combined ratio, obviously. And we think about it across the year. So what we meant when we wrote the press release is that we were at 3 points at the half year. And given the number of small but intense natural events that we had in Q3, we are in line with the 4 points for the full year. Now it's true that with Hurricane Otis, which as you saw, is around EUR 200 million, I would say, that's a bit less than a quarter's budget, it's around 40% of the quarter's budget. On XL, specifically, I mean, we think about our nat cat budget at group level. The Q3 was more -- was rather balanced between Europe and the U.S., XL Re was not particularly affected. And Otis is really AXA Mexico, and that does not effect XL very much, if at all. And on the Professional Lines, I think we -- so we see the same sort of trend. It has not changed in Q3 compared to the first half. And we don't disclose the amount of business coming from North America Professional. But there is no change in trend. And very importantly, it is still a very profitable line. But given the fact that it was extremely profitable for the whole market. And given that there is less business notably because you've seen fewer IPOs, for instance, there is more competition on for a smaller cake, and that's what puts pressure on the business, but it's still very profitable.
We will now take the next question from the line of Farooq Hanif from JPMorgan.
When you talk about the headwinds in 3Q, I mean what would you say is different from 1H because the list of items you gave is very similar. I guess nat cat is one thing you could talk about. But what actually do you think we should take into account that could have got worse than what you showed in 1H? That's question one. Question 2, around the disposal target, you've been very confident around the EUR 30 billion to EUR 50 billion. I believe you've done something like EUR 24 billion announced transactions to date. So could you tell us a little bit more about where you think you'll end up within that range? And what kind of things may be on the table to consider? And I guess my last question is coming back on pricing trends. So do you think, generally speaking, if you take North America Professional lines out of the equation, do you think pricing conditions are stable accelerating or decelerating in commercial lines generally?
Thank you, Farooq. So on the headwinds, no, there's nothing new on the Health in the U.K. or the level of lapses in Italy. That's very much in line with what we said in the first half. It has not worsened. We wanted to highlight them because that's what we said in the first half.
Nat cat, as you saw, clearly, the level of nat cat in Q3 was higher than in the first half. That's the only real difference. On the in-force transactions, so you probably have to wait until, say, mid-December for the announcement. But we are confident that we'll be well within the range with what we will announce we are close to signing on a couple of transactions and we are quite confident. And on North America, on the pricing in commercial lines, when you look at commercial lines for SMEs and mid-markets, so more our European business, it's very stable. And when you look at XL, I would say overall, it's stable. You have some pluses and minuses. You probably have a bit more price in short tail lines, such as property and aerospace, and you have slightly lower prices in casualty. But overall, it's -- I'm not sure it's statistically relevant. But so overall, it's holding up well.
We will now take the next question from the line of Andrew Crean from Autonomous.
A couple of questions from me. Firstly, I noticed you have not done a debt issuance, so you're not doing your usual EUR 1 billion net debt issuance this year, which will take you to the bottom of your debt leverage range. Is that -- should we expect that to continue next year? Or should we -- will you revert back to raising debt largely in line with your shareholder equity?
And then secondly, on the overall revenue growth of 2%, you've called out, as you always do general account savings, those 2 contracts in Health and the XL Re, what is the underlying growth if you strip those 3 elements out? And do you think that is a sustainable level of growth as you go into your next plan?
Thank you, Andrew. On net debt issuance, so the reasoning behind the fact that we would not refinance it is that our solvency ratio is at a high level and that we have enough cash at holdco. So those are the 2 reasons, and I can't see why that would change going forward. So we will say more, obviously, in March with the plan, but I think the rationale will still hold. And on the revenue growth, when you strip out the -- what you mentioned, so the large health contracts, general account and nat cat reinsurance, our growth is at 5%, and that's where we would like it to be going forward.
We will now take the next question from the line of Peter Eliot from Kepler Cheuvreux.
Firstly, just a quick follow-up on the lapse comment. I guess if you're seeing the same level as earlier in the year. I mean I guess we might have hoped that it might have improved a little bit given the sort of the pressures from Eurovita et cetera, towards the start of the year. So I'm just wondering sort of how it compares to what you're expecting and whether you're seeing -- what sort of momentum you're seeing at the moment? And should we expect that to lead to any sort of review of assumptions behind the CSM. The second one, Asset Management. Revenues in Q3 stand-alone look very strong. Is that all recurring? Or is there any sort of one-off elements in the -- and then maybe thirdly, I just wonder if you can give us any insights into what you're thinking about your own reinsurance cover in this environment.
Thank you, Peter. So on lapses, so I will leave aside France because you know that it's small portfolio specific. And on the rest, we see no change compared to last year. In Italy, I think it's not so much Eurovita. Obviously, Eurovita has some impact on the whole market but it's more the competition of BTPs designed for individuals and sold notably through bank branches. It's more that competition that creates that elevated level of lapses and also a reduced level of premiums because people would go more to BTP than to Life insurance. And therefore, I don't see, at this stage, a foreseeable change in that level of lapses given the environment. Will that have an impact on our assumptions and therefore, on our CSM in Italy? Yes, probably because it means that the business will have a shorter duration because we will have -- we have more lapses. Asset Management in Q3, so the -- we -- I think we have with AXA IM Core and AXA IM Alts a very good platform on a number of businesses notably fixed income in core and real estate infrastructure that notably in Alts. And I think what's quite remarkable is that, obviously, the real estate market is not doing that great currently. But nevertheless, you see strong net new money on that front because we are recognized as probably the strongest or one of the strongest platforms in Europe. So we expect good net inflows going forward from third parties. And last on our own reinsurance cover, you know that the way we think about it is outcome driven. In other words, what is our risk appetite and what is the cat load that we would like to see. So you shouldn't expect a significant change in '24 compared to '23 in terms of cat load. We are looking at the way to design our reinsurance program. But what we see is that on a risk-adjusted basis, prices should not move significantly. We are between 0% and 5%, most probably.
Great. On the Asset Management, I mean, it was actually revenues as well as flows, but I noticed, but thank you for those comments.
Yes. I mean on revenues, it's obviously -- you know that on the core part, we are more a fixed income business than an equity business. So the fact that interest rates and yields have come down over the last few weeks is obviously a positive for our business.
We will now take the next question from the line of Michael Huttner from Berenberg.
And I'm always delighted to see delivering despite all these upsets and headwinds and everything. I have 3 questions. First one is the net outflows from the life companies and asset management were, I think, EUR 13 billion. The figure we see for a general account is EUR 6.8 billion, and I think there's just under EUR 1 billion from Unit-Linked. So there seems to be a big gap. And I just wondered what is that? The second is -- and I sort of asked this in half year, but the benefits of discounting less the unwind, full insurers not particularly factor, but it's true for you as well is it's a very, very big benefit this year. I can't remember the figure, but I think at half year, it was about EUR 0.5 billion. So it's probably unfair to annualize it, but it's probably not going to be [ passed ] over to EUR 1 billion for the year. And if you say, well, over EUR 7.5 billion it's a big chunk of the earnings. How are you -- how should one think about managing the drag as this difference between discounting and unwind kind of slows down going forward?
And then I was hoping you could give a little bit more on cash because clearly, if you're not refinancing and you've actually spent a little bit of money on layer and stuff. You must be even more cash rich than before. And I just wondered, maybe you could explain where it's coming from or any kind of qualitative would be very helpful. I had a last question on the last -- sorry, MPS, if somebody breaks on contract to a EUR 1 billion, which would, I guess, would be quite nice, what's the likelihood that MPS is sold to a party where you would effectively say well, now there's a break clause?
Sorry, Michael, can you say the last question again, I'm not sure understood?
Monte dei Paschi di Siena -- that you have a contract, you are exclusive distributor for Monte dei Paschi di Siena in Italy, understand that if there's a change of control and the break clause is invoked, you have effectively put up some which is less a EUR 1 billion or over a EUR 1 billion. And I just wondered how you see the probability of things developing in Italy in that direction.
So thank you for your questions. On the first one, which is the reduction of the outflows from AXA IM and that's the EUR 13 million, you wanted to reconcile that, sorry, with our own outflows. So obviously, there is the Life one. There is also the fact that on the P&C side, on a net basis, reserves that's also a bit decreased. And there is always the impact also that the dividend we pay because the dividend we paid made of the dividends paid by the entities, and therefore, it's also a bit of assets that is withdrawn from AXA IM. On the discount and unwind, you know that it's not exactly the way we look at it. We look at unwind versus investment income because those 2 should evolve in parallel. I think going forward, you will see more investment income. You will see also more unwind. The net was still probably a net negative going forward, but something that we'll be able to manage overall. And there, again, we'll give you more in March with the plan. But don't forget the investment income part because that's a very useful component these days with higher interest rates. On cash well, I think we will have to wait until February before I can give you more. But effectively, and that's what I also said to Andrew, we have the right amount of cash at holdco and by the level of solvency and therefore, no need to increase our debt. And On MPS, well, look, we are looking at what's happening. We -- our preference, obviously, is to keep the good distribution agreement that we have with the MPS but it's not entirely in our hands. And as you well said, we have, I think, a contract which protects us well. But again, our preference would be not to use that close.
We will now take the next question from the line of William Hawkins from KBW.
First one, please, what was the contribution of required capital changes to the plus 7% and minus 3 percentage points capital generation and market movements in the solvency roll forward you gave? Secondly, you've repeated the cap budget of around 4 points. Could I just press you that's a reasonably wide range optically. It could be 3.5, it could be 4.4. And there are a few companies that are now starting to squeeze that. So they're talking about 4.49 or something like that. So I apologize that it's an exercise in pedantry, but how do you think about where your cat load is going to be at the end of the year around 4. My guessing is that it's definitely above 4 rather than below 4. But if you could comment on that, that would be helpful.
And then lastly, please. We've seen this acceleration in rate increases in a number of European personal lines in the third quarter, which is good. Does that automatically imply improved combined ratios from the moment it's happening? Or is there actually a risk that your loss picks could still be trending upwards, and it's the rate increases that are sort of responding to inflation that we're having to adjust for. So if you get my point on that, it's nice to see the acceleration of rate increases in personal lines, but is there a risk that, that's indicating higher loss picks before it gets better at some point in the future?
William?
Sorry, can you hear me?
Yes. I don't know if we were disconnected or you, but we -- I didn't hear the end of your third question. You were speaking of the accelerated rate increases in personal lines and then the line was cut.
I do apologize if it was my side. So yes, accelerating rate increases in personal lines in the third quarter. Does that imply immediately improving combined ratios? Or is there the risk that your combined ratio is actually deteriorate because there's a process of adjusting loss picks first and then you get the benefit of these rates increases in the future. Just wanted to think about how we get the timing of that accelerating rate increase?
Okay. So on the question first question of the capital requirement, very much like the first half, there was no additional capital requirement. So the 7% is growth equals net, if you see what I mean. On the nat cat, well, at this stage, it's a bit difficult to say because the quarter and the year are not over. And that's a bit the question at the very beginning. We had the Hurricane Otis. We have the storm in Europe, both in France, the U.K. and now in Italy. We'll need to see how it plays out. I'm really not able to say whether it would be 4% plus or 4% minus. We shall see what -- how the end of the year develops. And on the rate increases in personal lines, I think what we see is what we told you at the end of the first semester, which is that overall, in terms of severity, we were not surprised in any country. In terms of frequency, we were surprised in 2 countries, Germany and Ireland, for which we are taking additional measures and those measures will also be taken in the first half, notably in Germany because you know that they book a significant part of it renews at 1/1. So I'd say there is no reason, apart from Germany and Ireland. There is no reason why the loss will come first and the rate increases second. I think here, the price increases are a positive.
And can I just follow up? Sorry, thank you for the answer on the capital generation. But could I also just ask you the market movement of 3 points, how much of that was coming from changes in required capital, please?
No. So that's really the -- mainly almost exclusively the numerator effect the U.S.
We will now take the next question from the line of Will Hardcastle from UBS.
I just have one left. Is there any progress on the 3 areas where you've highlighted previously about potential cash unlock in the future? I think there were Japan, Hong Kong and XL? Or is this more meant to be a -- perhaps just a timing aspect of this. Is this more a year-end aspect? Or is this some time in the future, perhaps 18 months down the line?
So I think the -- it depends on the country, but the impact only material is once a year with the dividend paid by the entity. So that's done, that's over for '23. And so you will see the progress in '24 with the dividends we received from them. And part of it, as you know, if I take Hong Kong -- is the improvement is linked to the change in the local regulatory framework. So you will see that progress when that comes. But when I look at XL, the question was more on the liquidity constraints in the sense of regulatory liquidity constraints, and we've made progress on this, and that should show in the dividend that we received in '24.
We will now take the next question from the line of Dominic O'Mahony from BNP Paribas.
Thank you for taking the questions. 3 if that's okay. Just on the Italian lapse topic. Do you like that as I head into earnings. I would have guessed that elevated lapses would be a negative to CSM and so the earnings impact in the period wouldn't be so powerful. Can you just explain to why there is an earnings impact? Is it the contractor [ turning ] owners? And in particular, is this if as you describe, alban, that the trend hasn't changed -- if the trend of center remains roughly stable, should we expect a similar effect in 2024?
And the second question, capital generation, 7 points of operating innovation is great. And it's the middle of your -- it's roughly the middle of your range annualized. If I remember correctly at half year, Alban, you said that don't expect quite a strong capital generation in the second half than compared with the first half, but you're still there in the middle of your range. Should I infer that Q4 has a sort of structural headwinds to the capital generation? Or would you expect another 7 points roughly? And then last question, not really to do with the results, but there's a lot of regulatory attention being paid to private assets at the moment within life insurance portfolios globally. This is clearly a part of your portfolio. And private assets are really an obviously important part of your third-party asset management portfolio. So I just thought I'd ask a few reflections on the regulatory attention being paid to this asset class how you feel about your allocations here and indeed whether there might be any adverse impacts on asset management flows, if there is more international pressure on this asset class?
Thank you, Dominic, for your questions. So on the Italian lapses, no, you're right. I mean, the impact is mostly or exclusively on the CSM. But you know how it works. You have so-called group of contracts in our Life carriers. Those group of contracts in Italy reflects generally the funds that we have. And it might be then one can turn onerous, but it will -- if that's the case, it will have a nonsignificant impact. The real impact is on the CSM as you pointed out. On capital generation, I think if I remember well, we were at 16 points in the first half, and therefore, above the 25 to 30 points range annualized that we mentioned. So what we just wanted to say was that there is seasonality in our earnings. And therefore, there is also seasonality in our capital generation. You shouldn't expect Q4, everything else being equal to be weaker than Q3 to put it that way. And on private assets, we honestly -- we haven't had much regulatory pressure on this so much regulatory attention. I think regulators across the world are probably a bit more attentive to liquidity, notably on the life side. So private assets are part of that equation. But there is no strong pressure, no particular concern from regulators that we have seen. And you saw that we had good net inflows at AXA IM Alts, notably on real estate. So that shows that investors are still willing to put more money in illiquid assets. Obviously, you have the denominator effect for a number of them which reduces their appetite for illiquid assets. But if you have a good platform, you still can benefit from this.
Can I -- sorry, just to clarify on the lapse and the CSM effect. Does that mean that the elevated Italian lapse topic isn't relevant to the underlying earnings? Or is there an impact I'd sort of implied that this is being presented as a potential headwind to the earnings.
It's -- I mean if there is an impact on earnings, it will be small. Let's put it that way.
[Operator Instructions] We will now take the next question from the line of Michael Huttner from Berenberg.
I just had 2 follow-up questions. One is, I think you probably answered it, but I just want to double check what is the leverage now given you've reduced that by EUR 1.2 billion. And the other question is on Health in the U.K. It's almost like a personal question. I've got a relative saying it's greater thing buying a private insurance contract, basically because people buy it because they want to claim. It's not just in case I will claim. How close are you to managing this given that potentially you have a change in behavior here?
So on leverage, Michael, you know that our denominator is around EUR 90 billion. So you have directly the impact with a EUR 1 billion nonrenewal of that debt. And on health in the U.K. So we believe it's a fundamental change in the market. And you know that our stance is that over time, it will be positive because it means fundamentally that the NHS will not be able to cover or to give coverage as much as in the past, and therefore, people will go more for private insurance, which also means that we need to design the right products so that they are affordable to a larger portion of the population. But coming back to that change and impact on us short term, part of it will be dealt with pricing, and there's more to come. Very clearly, only a small part of our price increases have taken place in Q3. But part of it is also very much about the claims management and what we call pathways. In other words, how we manage the patients move from GP to specialists to analysis and so on in order both to deliver the best service for our customer and to reduce the cost for us.
Yes, [indiscernible] sorry.
And so as we said, it will take us another 12 to 18 months to get back to the right level of profitability in that business.
We will now take the next question from the line of Henry Heathfield from Morningstar.
Good morning. Can you hear me?
Yes.
Congratulations on the results. Just one question for me. On the pricing effects within P&C Personal Lines, and apologies if this has already been covered. It's plus 26%, 26.1% in U.K. and Ireland. And I was just wondering if you could perhaps reiterate or outline what line that relates to and whether that is just covering kind of increased severity and frequency or whether there's some other kind of catching up dynamic that's going on in there?
So Henry, it's -- the vast majority of it is motor. And you know that the profitability in the U.K. motor market, not Ireland, but U.K. motor market was not satisfactory to say the least. And hence, the significant price increases that we had. It's mainly severity because it's cost inflation. And now we are -- as we said at half year, we are writing business at a combined ratio below 100%.
Sorry, could I take that as partially that you feel that AXA was slightly below the market? Or has that been in an incorrect read.
I mean I think when you look at our performance before inflation kicked in -- say, U.K. motor, and again, not Ireland, but U.K. motor, we were in the pack and clearly not leading in terms of profitability.
And is there a shift in distribution in the U.K. or not at all, arrangements?
No, not specifically. The only thing is you may know that we have launched a third direct platform under the brand of Moja to gain scale and to diversify our offer and that's doing pretty well.
Thank you. We have no further questions. I will now hand back to Anu Venkataraman from closing statements.
Thank you for your interest. If you have any follow-up questions, please don't hesitate to reach out to Investor Relations. Have a good day.
That concludes our conference for today. Thank you for participating. You may now disconnect.