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Good afternoon, ladies and gentlemen, and welcome to the SCOR Group First Half 2020 Results Conference Call. Today's call is being recorded. [Operator Instructions]At this time, I would now like to hand over to Mr. Ian Kelly, Head of Investor Relations. Please go ahead, sir.
Good afternoon, everybody, and welcome to the SCOR Group 2020 First Half Results Call. I trust everybody is keeping well. I'm joined on the call today by Denis Kessler, Chairman and CEO of the SCOR Group; and all of the Executive committee members. Can I please ask you to consider the disclaimer on Page 2 of the presentation, which indicates that the financial results for the first half 2020 included in the presentation have been subject to the completion of a limited review by SCOR's independent auditors. I would also like -- ask you to note the statement in respect of COVID-19, which indicates that the potential impacts of the COVID-19 crisis cannot be accurately assessed at this stage, given the uncertainty related to the magnitude and duration of the pandemic and the possible effects of future governmental actions and/or legal developments. With this, I would like to give the floor to Denis Kessler, Chairman and CEO of the SCOR Group. Over to you, Denis.
Thank you very much, Ian, and welcome, everybody. If we move to Slide 4, I think SCOR is demonstrating its capacity to absorb the impact of the COVID-19 crisis, both operationally and financially. As we entered the pandemic a few months ago, and as we told you in the first quarter of the year, SCOR has been quite proactive in taking immediate actions to help stop the spread of the pandemic. We have been one of the first reinsurance groups around the world to say that we have entered a pandemic phase and to warn everyone about its consequence. We had adopted early and strict prevention measures to actively protect the health of our employees, and we have been quite active in regularly sharing knowledge and expertise on the pandemic. I think we are the first reinsurance company to decide a full confinement around the world before any kind of public decision in this respect. So it's for me, certainly a proof of capacity to understand what's going on. So thanks to the extraordinary resilience of operational capability. We have been able to continuously serve the clients during the crisis. And as we have progressed through the active phase of the pandemic, as you can see on the slide, we have applied modeling expertise to conduct a thorough assessment of exposures to the health, the economic and financial impact of COVID-19 pandemic. In the industry, I think I was one of the first, if not the first, to say it was an historical shock, historical shock that we live a long and very strong impact on the insurance and reinsurance industry, but also to all the industries, that will certainly last longer than expected time. So on the Life side, we have developed a proprietary what we call ACIR model, which is a compartmental and a pandemic model to support the COVID-19 scenario assessment. And this model is extremely useful to estimate exposures. It's proprietary, it has been home made. It's really operating and it help us a lot in understanding the consequence of the COVID-19 crisis on the life exposures around the world, especially in the U.S. On the P&C side, we have developed a model that considers the effect of government and central bank measures and link them to the impact on GDP to estimate the group credit and so the exposures. But what's true in what we have seen around the last 2 or 3 months, government decisions are absolutely key to understand the spread of the pandemic. When you can find, how you enforce the decisions you have decided to enforce, when you lift the decisions when you reinforce the decisions again, it's a key parameter to understand how the disease is going to spread. And how severe it's going to be, and this is true country by country. And that's what we have been able today to better assess than a few months ago. So there are 3 key points I would like to make about our SCOR as a Tier 1 reinsurer comes through this pandemic. The first key point to note is that reinsurance is not impacted in the same way as most of the businesses. I mean economy by training, look at all the other industries, try to understand how the pandemic is going to impact the industries. And as you have seen, and certainly, you will see in the future, many industries have experienced a sharp decline in sales and cash inflows due to the lockdown and confinement measures that contracted supply and demand on a global scale. The news flow is extreme clear coming from the industry, not insurance and reinsurance industry but from commercial and general industries-wide platform is a fact that the pandemic is contracting the sales, the activity trading issues all along the value-added chain. So this is the scale -- this industry is the case for us. The top line is stable. It's even slightly up compared to last year, a 1% increase of the worldwide premium, [indiscernible] the entire group made constant exchange rates and we continue to collect premiums from our clients. And by the way, as they pay premiums and we're able to book them. As you know, the premium income for some lines of business, such as marine, engineering and airlines, easing base on economic activity number of passengers and so on so on. But overall, the extraordinary resilience of the group is demonstrated by both the P&C and Life business units, continuing to expand in the current crisis, the sales go on. Second key point to emphasize is that the P&C market is clearly hardening around the world. In the reinsurance business, it is a well-recognized part as today's claims are, in most cases, tomorrow's premiums. As a Tier 1 reinsurer with AA minus credit rating, which has been recently confirmed by Moody's, Standard & Poor's and Fitch. SCOR is in a very strong position to benefit from this improving market environment. The third key point as a testimony to SCOR shock absorbing capacity is that the group's shareholder equity, which accounts for the total estimated cost of the COVID-19 pandemic booked in Q2, a slightly increase since December 31, 2019, end of last year. The net book value of the group stands above EUR 34 per share. On the asset side, the unrealized gains on SCOR's investment portfolio have grown up since beginning of the year, mostly in the fixed income buckets where we are impacted as a reinsurer is on the liability side. That is why we are here for -- and so let's take a look at that and move to Slide 5. Let's look at each business unit separately. SCOR Global P&C exposure comes mainly from credit, surety and political risk on the one side and from property business interruption on the other. The actual COVID-19 related claims received are limited, standing at a total of EUR 74 million. The group has estimated the ultimate cost of this pandemic at EUR 248 million for P&C, net of utilization and win statement premium and before tax. It is this estimated amount, which is mostly composed of IBNR, allowing for the future receipts of claims not yet notified. That has been fully booked in the Q2 accounts. This represents an 8.2 percentage points impact of the year-to-date combined ratio. If we move now on the Life side, the actual COVID-19 related claims received as at June 30, 2020, are limited, standing at a total of EUR 63 million. SCOR has estimated its exposure to the pandemic at June 30, 2020. The group estimates the impact of the COVID-19 pandemic on its Protection group at EUR 194 million, net of retrocession and before tax. It is this estimated amount, I'll repeat EUR 194 million, which allows for an estimate of debt incurred but not reported, that has been fully booked in the group's Q2 accounts. What this means is that based on data currently available on information received from cedants to date and the results of the models used, the total estimated cost of the COVID-19 pandemic booked in Q2 2020, reaches EUR 456 million, net of utilization, net of reinstatement premiums and before tax. As such, COVID-19, pandemic is a fully manageable earnings event for the group. I said that already a few weeks ago, it's an earnings event. It's not a capital event. Let's now move to Slide 6 and look at the capital position. Solvency position of the group on June 30, 2020, is strong at 205%, well within the optimal solvency range of 185% to 220%, as defined in the last Quantum Leap strategic plan. The majority of the fall in this ratio compared to year-end 2019 has, in fact, nothing at all to do to the performance of a business of reinsurance. It is mainly down to macroeconomic impacts. Principally, the reduction of interest rates, and in particular, the U.S. dollar interest rates. These markets movements account for approximately 2/3 of the change in the solvency ratio. The 2/3 of change that we imputed to macro financial and microeconomic development. Only 1/3 that you can attribute to SCOR specific development. The full estimated COVID-19 impact, including claims expected to be incurred in the future accounts for 13 points of solvency. This is more than offset by the strong operating performance of the group and some other minor effects across H1 2020. Capital management, as shown on the slide, accounts for 6 percentage points of movement. It reflects the intended call in Q4 of the CHF 125 million debt, and it also accounts for the normal 6-month accrual of dividend for the 2020 fiscal year. Let's move to Slide 7. In the face of the COVID-19 pandemic, SCOR once again demonstrates both its capacity to absorb major shocks and the resilience of its business model. SCOR has strong potential for sustained long-term value creation in an attractive industry. Pressure benefits from long-term growth drivers due on the first-line to the expanding risk universe as a consequence, permanent growth of the industry is raw material. And on the other side, to the progressive bridging of the protection gap in both emerging markets and more industrial as countries. Furthermore, we do expect that as a direct reserve in the pandemic, there will be an increase in risk aversion lato sensu, driving higher demand for risk covers globally on both the Life side and the P&C side. In the P&C market, we see COVID-19, acting as an additional catalyst in already hardening market. The firming up of the market has accelerated since the April renewals across many segments with broad improvements in terms of conditions and significant price increases, including open claim program. Further, awareness of the upward trend of claims cost has increased in the market. These conditions are perfect for SCOR to benefit from its Tier 1 status. The group can see market opportunities, to leveraging its global franchise, market-wide expertise and Tier 1 rating and through gaining operation leverage for its scalable global underwriting platform. With this positive outlook, I would like to underline and to stress. I will now hand over to Mark to take you through the H1 financials. Mark, the floor is yours.
Thank you, Denis, and good afternoon, everyone. So let's go to Slide 9. During the first half of 2020, SCOR successfully absorbed the impact of COVID-19, combining this with resilient growth and strong solvency. SCOR wrote EUR 8.2 billion of gross written premium during the first half, representing a 1% increase over H1 2019 at constant exchange rates or 2.3% at current exchange rates. The ability of the reinsurance sector and SCOR to maintain its top line is a real source of strength for the group, demonstrating the resilience of the business model in the current environment. After absorbing the COVID-19 impacts, the group remains profitable and net income stands at $26 million, which translates into a return of just under 1%. The solvency position of the group is strong and stands at 205% at the end of the half year in the upper part of the optimal range of our solvency scale of 185% to 220%. The reduction compared to the 31st of December 2019 is largely driven by market movements, as Denis explained. And the 5 points reduction since the Q1 results release can be largely explained by accounting for the planned call of the CHF 125 million debt in the fourth quarter later this year. And this also includes the normal 6-month accrual for the dividend for fiscal year 2020. Let's look at the business unit indicators in more detail. SCOR Global P&C grew strongly at 0.9% at constant exchange rates or 2.1% at current exchange rates. The combined ratio stands at 102.3% for the first half, incorporating the impact of COVID-19 at 8.2 percentage points. The business unit benefits from slightly reduced nat cat activity with a cat ratio of 5.1% for the first half of the year and an underlying combined ratio at 96%, in line with the Quantum Leap assumption. SCOR Global Life continues to successfully expand its franchise and delivered a positive set of results for the first half of 2020. SCOR global Life gross written premiums also proved resilient to the current circumstances and were up 1% at constant exchange rates and up 2.5% at current exchange rates. The Life technical margin is at 5.4%, reflecting a cost of 4.6% COVID impact and benefits from portfolio management actions and a strong reserving position. SCOR Global Investments pursues a prudent asset management strategy and enjoyed a strong return on invested assets of 2.6% in the first half of 2020, benefiting from real estate capital gains. So let's move on to Slide 10. The balance sheet is another source of strength for the group, with shareholders' equity standing strong at EUR 6.4 billion in the first half of 2020, even slightly up compared with the 31st of December 2019, and this is a testament to the ability of the group to absorb the COVID-19 pandemic. This results in a strong book value of EUR 34.19 per share. Financial leverage is in a solid place and stands at 25.9%, allowing for the debt callable in the fourth quarter of 2020, the adjusted financial leverage stands at 24.9%. On Page 11, we can see that SCOR generated strong operating cash flows in the first half, standing at EUR 343 million in Q1 2020 with good contributions from both business units. Overall, the total liquidity of the group is very strong and stood at EUR 2.8 billion at the end of the first half. With this, I will hand over to Jean-Paul, who will provide further detail on SCOR Global P&C.
Thank you, Mark. If I take you to Slide 12. As stated previously, this quarter's results have been heavily impacted by the cost of COVID-19. We have conducted an in-depth review of our exposures to the COVID-19 outbreak and the following government-mandated orders to flan the curve of the spread of the virus. Our assessment represents an ultimate view of our exposures, given the information currently available, both in terms of premiums and claims. It should be noted that this is still an ongoing event and that to date, little information has been received from our clients. As of the end of Q2, we have processed EUR 74 million of claims, gross of retrocession, mostly from affirmative non damaged business interruption reinsurance claims. Our COVID-19 ultimate claims impact in Q2 is estimated at EUR 248 million pretax net of retrocession and premium reinstatements. This represents an impact of 8.2 points on the year-to-date net combined ratio. The main drivers of the claims are Credit and Surety and property lines of business with limited exposure coming from other lines of business. We have also booked the anticipated ultimate drop in premium income from economically sensitive lines of business, including aviation, credit and surety and engineering. The anticipated premium reduction is roughly EUR 100 million or roughly 3% of our premium volume for the first half of the year. Our half year results. If I move to Slide 13. Our half year results were also impacted by a number of small cat events, including several tornadoes in the U.S. and hailstorms in New South Wales and Calgary. We also saw an increased frequency of small to medium-sized man-made events. Other market events such as U.S. riots were immaterial to our results. As mentioned by Mark, in a net combined ratio of 102.3% for the first half of the year. Normalized of the impact of COVID-19 and of cat, our net combined ratio stands at 96%, in line with the Quantum Leap assumptions. Our premium volume is increasing year-on-year by roughly 1% at constant rate of exchange, including the impact of COVID-19, showing the resilience of our portfolio. We move to Slide 14. For the P&C markets, we see COVID-19 as an accelerator of the market hardening observed in 2019 and '20. This was confirmed in the treaty renewals since April and illustrated once again in the June and July renewals. Whilst the market hardening is the most pronounced on property and property cat renewals globally, it is also expanding to all lines of business in most geographies. It is reflected not only in price increases, but also in changes in terms and conditions. SCOR Global P&C is ideally positioned as a global Tier 1 multi-line reinsurer to take advantage of this market turn, as illustrated by our 8.2 points of price increases achieved in our June and July renewals. We achieved double-digit premium growth across segments and geographies where profitability improvements were the most strongest. We also continue to review the rest of our portfolio, adjusting our participations as a function of our view of loss costs versus price increases achieved. Our overall renewed premium, we knew that the June and July first renewals increased year-over-year by 1.3% despite a significant producted premium decrease year-on-year from line business directly affected by COVID-19. If we move to Slide 15. We have also continued to seize opportunities in specialty insurance in a disciplined way. Specialty insurance remains a strong growth and profit generator for Global P&C, as illustrated in the first half of the year 2020 results. And we grew our portfolio year-on-year by 20% in the first half on the back of a total rate change of 22% across the different lines of business. In summary, with the impact of COVID-19 being manageable for SCOR, we are very bullish on the P&C prospects for the remainder of 2020 and 2021. We believe the hard market will be durable as it is based on a combination of factors that are unlikely to dissipate anytime soon and through its global scalable platforms and strong client and broker relationships, SCOR Global P&C is ideally positioned to benefit from this durable market turn. I will now pass the floor to Paolo.
Thank you, Jean-Paul. COVID-19 is a tragic event with a dramatic loss of life and livelihood. Although we're discussing today the financial impact, we cannot lose sight of the dramatic impact it has had and continues to have on individuals and families across the world. I would like to stress how the situation is still evolving, and all estimates we're presenting heavily rely on expert judgment and are subject to a high degree of uncertainty. We view the pandemic as having 3 phases, an entry phase in the pandemic world where the virus takes a foothold in our environment and establish sustained transmission. Intensity of the impact of the virus is most severe during this phase due to lack of knowledge and delayed mitigating actions. This is followed by an active phase where we're cohabiting with the virus. The active phase is a balancing act between keeping economic activity open and avoiding moving back into an exponential growth of the epidemic. All of this while seeking incremental improvements from control measures and medical treatments. Our view is that we have now entered the active phase. And at this point, we estimate we will remain in the active phase for the next 12 months or longer. Our current assumption is that once a safe and effective vaccine is made available for wide inoculation. And large part of the population will reach immunity who will gradually exit into the post pandemic world, and this will represent the exit phase. We consider the entry phase to have covered the period going from March to June 2020. In terms of the financial impact on the score on the portfolio of SCOR Global Life, we expect that the entry phase will have the highest relative cost. And therefore, we assume a lower burn rate from COVID-19 related claims going forward. In Q2 2020, we have booked COVID-19 related claims of EUR 194 million, net of retrocession and pretax. Due to typical claim reporting patterns, limited COVID-19 claims were reported during Q2, and most of this amount represent estimates of incurred claims. This impact includes EUR 182 million of claims incurred in the U.S. with the balance coming from other markets. The COVID-19 claims cost impacted negatively the year-to-date technical margin by 4.6 percentage points. Our overall technical profitability benefited from active portfolio management and strong reserving position, leading to a year-to-date net technical margin for the first 6 months of 5.4%. This result demonstrates the resilience of the SCOR Global Life business. Moving on to Page 17 of the presentation. A few words on the US COVID-19 related claims. The estimated impact of COVID-19 related debt on our U.S. book reflects strong differences between the general U.S. population and our reinsured portfolio. In particularly, this is driven by the upfront medical underwriting, higher socioeconomic classes, which we believe is particularly relevant during this pandemic environment and a lower portion of older lives in our portfolio. The provision recorded in Q2, heavily realized on expert judgment. Just to remind all on the call, the reporting of each month of death takes an average of 6 calendar months to fully complete. So by the end of Q4 2020, we will have a clearer view on the claims incurred during the entry phase. Moving on to Page 18 of the presentation. We would like to share our thoughts on how we look at the time ahead of us. Overall, while significant uncertainty remains, and the situation is evolving, particularly in the U.S. We believe that the impact of the active phase on our Life portfolio will be manageable. We're currently projecting that our technical margin will land at between 5.2% to 5.4% for the full year 2020, which means that the business will still generate over EUR 400 million of pretax technical profitability for the year. As mentioned at the beginning of my speech, significant uncertainty remains, and we are following the situation very closely with a large focus on epidemiological research. Before I close my section, a few words on the business, we have continued to support our clients globally throughout this challenging time. While activity has been impacted by the pandemics and the lockdowns, we expect our premiums to remain stable at 2019 level for the full year 2020. I will leave more details on our views on the evolving COVID-19 pandemic for today to the Q&A, and we will update you on our evolving thinking in September at Investor Day. I will now hand it over to Francois for details on our investment performance.
Thank you, Paolo. Moving on to the investment portfolio. The asset allocation reflects the current environment and our cautious positioning. Liquidity stands temporarily at 13% of invested assets, up from 6% at the end of '19 and 11% at the end of the previous quarter. The share of corporate bonds is stable compared to last quarter at 41%, our lowest level since 2017, and the fixed income portfolio remains a very high-quality with a stable average rating of A plus, a duration of 3.1 years and highly liquid with financial cash flows over the next 24 months, reaching EUR 8.7 billion, expecting to emerge from the investment portfolio. Our return on invested assets stand at 2.6% since the beginning of the year. It benefits from real estate capital gains of EUR 48 million coming from the disposal of a building at very good conditions in the first quarter of 2020, just before the COVID-19 outbreak. Additional capital gains, we are generating out of the fixed income portfolio and loans portfolio for a total of EUR 14 million. This relates to risk mitigation actions that we have voluntarily undertaken since the beginning of the year. Our theoretical reinvestment yield, excluding future capital gains stand at 1.5% at the end of June and reflects the lower interest rate environment, notably in the U.S., as well as the normalization of credit market. Moving on to Page 20. I first would like to highlight that SCOR invested assets portfolio has demonstrated its resilience and shock absorbing capacity, thanks to a moderate risk appetite for investment risk, derisking action undertaken since 2019 and also the integration of sustainability into our investment process. As indicated last quarter, our portfolio has a limited exposure to sectors directly affected by the current crisis and a very limited exposure to equities. It is well positioned to face a further deterioration of economic and financial condition. In particular, the emergence of credit crisis should be manageable, both in terms of potential future impairments and in terms of credit transition risk. Faced with the pandemic outbreak, we have decided in March 2020 to voluntarily freeze our reinvestment activity and to build up liquidity in order to safeguard the value of our assets. In a less volatile environment, we have decided to resume our investment activity in June. We are coming back to credit markets, but this will be done very progressively and cautiously while strictly sticking to our risk management framework. With this, I will hand it over to Ian Kelly for the conclusion of the presentation.
Thank you very much, Francois. On Page 21, you will find the forthcoming scheduled events, starting with our Investor Day to be held on September 9. This will be a virtual event, and we will send further details upon this soon. With that, we can now move to the Q&A session. [Operator Instructions]
[Operator Instructions]Our first question is coming from Kamran Hossain from RBC.
The first one is just around the capital position and dividends from the way I understand that you accrue a couple of quarters of dividend in there. Obviously, last year's wasn't paid, but you have the potential to do it. What's the thinking around catch up? And then, I guess, in your solvency position, have you assumed any catch-up or kind of from last year? So that's the first question. I appreciate you might not be able to answer that fully. And the second question is just thinking about 1/1. I kind of just on the same side as you, I think it should be positive. But Europe has been relatively soft or difficult to kind of see rate improvements in the last few years. Why does that change? Is this a kind of BI impact in Europe? Or just any thoughts around that on why kind of the wider global reinsurance market should move at 1/1?
Maybe, Mark, you can pick up on capital and dividend view, first of all?
Yes, sure. Kamran. So what I would reference you to is Slide 6 of the investor pack that might help the discussion. So we've tried to be very clear on this slide with capital management, not to mention the COVID impact, operating performance and macroeconomic impacts on solvency.So with respect to dividends, you've seen the ACPR come out and essentially forbid dividends in 2019. So what we've done is we've added back the 2019 fiscal year dividend, and that represents approximately 7 percentage points of solvency. You'll recall, I think in the last meeting, I referenced the fact that you can only declare a dividend for 2019 through September 30 of the following year, so September 30, 2020, and thereafter it can be done, but it would have to be done as a special dividend or something else. So for 2019, we don't see a dividend -- sorry, for 2020, we don't see a dividend being declared and paid this year given what's transpired from a regulatory framework. We have taken the normal step of accruing our quarterly dividend -- regular dividend in the solvency slide. For fiscal year 2020. And I think what will happen is we will review the capital position of the group in February, like we normally do and apply our capital management policy, which is unchanged to determine what the level of dividend will be in 2021. And I would remind you that that's a Board decision that will take place. I will also point out that we do have a strong S&P capital position. I think the solvency position, even at 205% is in a good spot for us. So I think there are positives as well that we bring from a capital perspective.
Thank you Mark. Jean-Paul, if you could pick up on the 1/1 renewals and in particular, the European context?
Thank you, Ian. I think the comment on Europe has been fair when we looked at the 1/1 renewal 2020. In Europe, the rate increases we saw were more moderate, but they were still positive, probably more in the 2% to 3% in Europe. If we take the July renewal, which is, of course, a much smaller renewal for Europe than July 1, we see significant differences. Overall, the European renewal in July saw price increases of more than 6%. And if we focus on non-proportional treaty, which represents the bulk of the treaty business we have in Europe, we saw a reinsurance rate movements of plus almost 11%. And so we think that the -- it's not just the expected claims coming from non-damage BI in Europe that's driving this. It's also just the overall environment. And we believe that the June, July renewals is a good illustration of where we can expect that to January 1, 2021. So the rest of the market that we saw yes -- we saw a very strong movement in the U.S. and July 1 is mainly in Asia, a renewal in Australia, where we saw also strong price movements.
Thanks Kamran. The next question, please.
Our next question is coming from Andrew Ritchie from Autonomous.
Thanks a lot for the additional detail you've talked about on Life today. But I wonder is -- Paolo and maybe, Mark, could you just talk a bit more around Slide 18? I'm trying to understand, I think what you're trying to illustrate is that you've taken an IFRS hit, you've disclosed and talked about that. But maybe you talk about the Solvency II impact, which -- where you've assumed a further hit than what's in IFRS, I think, it looks like you're assuming an additional 175,000 deaths. What's the kind of reasoning behind it? Or how have you come up with that? Why is there a difference? Is this because in Solvency II, you can sort of reflect future expected profit or lack of profits? Just maybe a bit of color around that would be very useful. I think it's a very important slide. The second question, year-to-date rate -- renewal rate increase on the P&C side, I think, is 4%. Maybe could you just help us translate what that would mean in terms of margin? I take it will take time to be earned. I understand that. But just on the discrete accident year, is all that rate going to be margin? Or what should be the kind of loss cost offset?
Okay. So on the first part on the Solvency II impact, Paolo?
Yes. Andrew, yes, in our IFRS accounts, incurred at our key accounting events. So in each reporting period, we estimate the amount of deaths incurred in that specific reporting period and our estimate usually relies on reported claims, past experience and expert judgment. And as you well know, Andrew, our IFRS accounts, following the current accounting rules under IFRS 4, do not reflect the full value of future cash flows coming from our Life portfolio. And these cash flows in our accounting processes create a strong level of prudence in our liability adequacy testing for our reserves. Under Solvency II, the full estimated value of our future cash flow is considered in our solvency ratio. And therefore, when accounting for COVID-19 claims in that we need to include a forward-looking provision. So the way we came up with that provision, we have a relatively comprehensive scenario planning right now, the roll forward for 12 months. That scenario based planning is based on level of infection rates and level of fatality rate for the virus. And then we apply a probability weighted on these scenarios. When we look at that, we come up with 175,000 deaths for the next 12 months. As a good rule, about 2/3 that we expect to happen in 2020 and 1/3 of those in 2021. We expect the inflection in terms of death toll at this point, according to our scenario planning and our research to reduce as we approach midyear 2021. We will present more details about this at Investor Day, where we can update you on the Q3, and we'll give you an update on the 12-month roll forward as well.
Sorry, so I think in practical terms, that means that the Solvency II position of the life business is kind of -- I guess it's depressed or at least -- what would happen is you'll generate capital in Life business to the extent that capital is depressed by COVID claims. Those COVID claims have already been up to the point you've reflected already been reflected. Should we --
Solvency II, we have gone to ultimate effectively.
Got it. Okay. That's very clear.
Ultimate of claims not incurred yet. So it is subject to a very high level of uncertainty.
Yes, I got it.
Okay, thanks. And then Jean-Paul on the year-to-date rates experienced in the renewals?
Yes. So the year-to-date, as you stated, we saw roughly 3 points of price improvement at January 1 or roughly 5 at April and now a little bit more than 8 in June, July with an average of 4 for the first half. We think this is -- translates into improvement in margin between 1 to 1.5 points. And this should be -- start to be reflected in our accounts as we earn premium over the next few quarters.
Thanks very much, Andrew. We'll go to the next question.
Our next question is coming from Vikram Gandhi from Societe Generale.
I hope you can hear me all right. Vik from SocGen. I've got 2 questions. Firstly, can you please confirm if the 13 percentage point COVID-19 impact and Solvency II ratio includes exactly the same figure as in IFRS for P&C claims. That's the EUR 248 million number. The reason I'm asking this is, I can't reconcile the 13 percentage point with the $392 million on the Life side that's included in the Solvency II. So presumably there's some degree of variance on the P&C side? That's question one. Secondly, can you offer a comment on what benefits, if any, you are assuming from the group's longevity exposure against the mortality claims?
Thanks, Vic. So Frieder, if you can pick up on the Solvency II impact.
So, the 13 percentage point estimate includes all the claims estimates for Life and P&C up to the ultimates, which we have discussed earlier. It also includes a few secondary effects, some SCR movements, slight increases and some tax effects. So -- and that's why you probably can't reconcile them fully, but we will come back to this at the Investor Day when we are hopefully able to update the estimates and then maybe we can help with that reconciliation.
Thanks Frieder. And Paolo, if you can pick up on the longevity offset?
Yes. Vikram, we expect the longevity to give us a good edge economically, particularly against our U.K. mortality book. On IFRS, given the way the longevity business earns, you're not -- we're not seeing much of a benefit on IFRS 4, but we're seeing a good benefit from an economic perspective.
So is that impact already reflected in the Solvency II ratio, economic effect?
That economic effect currently is not reflected in the Solvency II ratio, but we would expect that to be offset by claims coming from our U.K. mortality portfolio, which are also not reflected in the Solvency II numbers. So they offset each other. So you wouldn't see a big upside coming from that.
Thanks very much Vik. The next question, please.
Our next question is coming from Vinit Malhotra from Mediobanca.
So my 2 questions. The first one would just be on the P&C growth, which I appreciate. You're quite pleased with. But I would just -- I mean, if you look at the U.S., for example, when I see the 1% growth in the U.S., just a bit curious as to what lines you're holding back in? And I know from speaking to the IR team today that there was a quota share or some quota shares that you didn't participate. But then if there's any more commentary around where you're holding back casualty or whatever you'd like to comment, that will useful. And second thing is just on the asset derisking. So the 1.5% reinvestment yield on Slide 19, is that assuming that some of the derisking has -- is already in place or would you say that there were other measures you would take to kind of increase that? And also, one comment I would -- when I see the 2Q versus 1Q piechart, the liquidity, only 2% move. But listening to you on the call in 1Q, it felt like there's a quite a bit of a change on how much cash is being held. So I'm just curious on where you are on derisking and how to look at that deal going forward.
So Jean-Paul, first of all, on the P&C U.S growth.
Yes. Thank you, Ian. So you're right that June, July, we -- our overall U.S. book has shown a slight decrease. It's driven by 2 factors. First, it's the area. At this renewal, we have some significant renewals in credit and surety as well as in auto. We have one, especially one treaty on auto that is around mobility business. And both of those lines of business were heavily impacted in terms of the projections or cedents are projecting for 2020 year-on-year is a significant drop. So that element on its own represents roughly 4 points of overall premium year-on-year for all global P&C. The second portion is the continued re-underwriting of our portfolio, especially on casualty, we remain very attentive to the increase of loss costs from social inflation and other factors, including the potential impact of COVID-19. And so even if price increases are sizable, sometimes they don't offset, in our view, the increase of loss cost. And so that's the case, then we take actions on managing our shares on those treaties. So what you see on the U.S. book is a combination of both. But what we also outlined is you see a strong growth on the property side. We believe the price increases are positive and above the loss cost. And there on the cap, for example, we grew our book by double digits on U.S. cat.
Thank you Vinit. Let's take the next question, please.
Yes, maybe -- sorry. The question you...
Apologize, Francois, go ahead.
Yes. On the first one on the reinvestment rate. Again, I insist on the definition of -- that we use for many years now on the definition of the reinvestment rate that the theoretical reinvestment rate at which we should deploy EUR 1 of $1 in the portfolio with the same allocation -- asset allocation at the end of the quarter. So in practice, that's the market yield of the portfolio. So if we redeploy today or at the end of June, $1 or EUR 1 in the portfolio, again, with the same asset allocation, which means in practice with the same amount of liquidity, this euro will generate on an average 1.5%. So that's not linked to the historical reinvestment rate during the quarter, and we have been consistent with this definition over the last few years. So your second question is where we are reinvesting and what is the amount of liquidity accumulated over the last few quarters. So again, we have deliberately decided to put a reinvestment activity on hold since the beginning of March, and we have kept all financial cash flows emerging from the investment portfolio in cash in practice between early March and mid-June. So further to this decision that was explained to protect and to safeguard the value of our investment portfolio during the peak of the volatility on the market. Our liquidity exposure stands at 13% at the end of Q1 compared with 11% at the end of -- 13%, sorry, at the end of Q2 compared to 11% at the end of Q1. Since again, we have accumulated cash between March and June. And this amount was 6% at the end of December last year. So as I mentioned it, we have decided to resume our reinvestment strategy in June. This will be done very cautiously and progressively during the second half of 2020. Of course, market condition allowing. So -- and our reinvestment activity in Q2 was almost immaterial. So where are we reinvesting today with less volatile financial market and after the freeze of the reinvestment activity between March and June, we have decided to launch our reinvestment program, market condition allowing that will aim at cautiously and progressively increase our corporate bond exposure. The current level is 41%. We target by the end of Q3 or Q4, again, depending on market condition to come back to a level of 45%. So this program focuses mostly on increasing the recurring financial contribution of the invested asset portfolio, and we will avoid the riskier sectors, namely energy, automotive, hotel and leisure, and we are targeting mostly primary issuances to capture if possible, additional premium on the market.
Thank you very much. We can go to the next question now.
The next question is coming from Paris Hadjiantonis from Exane Paribas.
I'm looking at Slide 16. So I guess it's a question for Paolo. When I look at the technical margin for the first half, and I normalize for the COVID impact, that is at a very, very high level of about 10%. I assume there's probably some release of prudence. But if you can give us some more clarity, Paolo, of why the underlying looks pretty good in the first half of the year? The second question relates to your contingent capital facility of EUR 300 million that you have with JPMorgan. One of the figures of that is do the estimate net claims amount for Life reinsurance. So I was wondering if you can give us some more color of where versus the trigger point right now. I think you have to see 2 consecutive 6-month periods of elevated claims, but any kind of clarity on that front will be certainly useful? And also, if you can remind us how exactly it works, whether it's in different tranches, et cetera.
So Paolo, first of all, on the technical margin.
Yes. Very good. Yes, on the technical margin, I'd like to remember that we have a large book of business. And we've been, over the years, been very active in managing our in force. And this is giving us, over time, some margin of flexibility in managing shocks. And this has been very helpful in this situation and will offer us some further flexibility going forward. In addition, as you said, we're benefiting from a strong reserving position build throughout the years. And I have to say that all these factors are considered also on the projections that we gave you on the full year 2020. In terms of the contingent capital, we're not far away from triggering the contingent capital. We're going to give a thorough update on all our field capital as we go to Investor Day. So if you wait till Investor Day, we'll give a good update there.
Sorry, Paola didn't get you. You said you are far away or not far away?
Yes, we are far away. Yes, we are far away from triggering it, yes.
Thanks very much, Paris. And I think we can take the next question.
Your next question is coming from Thomas Fossard from HSBC.
Just 2 questions. The first one would be on the Life side. Just to better understand, I think that remembering the initial discussion we had on the Life book at the start of the year. I think that you clearly mentioned that there were huge kind of a huge or significant asymmetry between the profile of the people dying from COVID-19 and you’re in short book. And as long as the mortality was pretty strong in Europe, I would say that this kind of asymmetry was working pretty well. But it seems to be that we see a virus going into the U.S., this asymmetry is may be less perfect or it seems to be that, I mean, to be fair, the amount of losses or mortality losses you're reporting today on the U.S. and maybe also in the next 12 months is potentially somewhat of a price in terms of magnitude of the losses. So I was wondering if you could help us to better understand why this is the case and why we've got such number. And also a small add-on is on your scenario of additional 175 million -- sorry, 175,000 deaths. Why would it be, I would say, kind of linear proration in linear in terms of claims estimates? It's a kind of doubling of the losses. I would have expected it to be, I would say, more impactful for your earnings as long as -- as soon as the number of days on a cumulative basis would increase to a higher level? And the second question will be related to the P&C segment. You're currently trading with a significant discount to book. And there is a view in the market that SCOR has less [indiscernible], less gearing to improving market conditions. And this is where you're trading with a discount. Can you reassure us that at this point in time, you've got the full capacity to take the advantage of improving market conditions with currently your financial mean? And that there is no need or no intention to come to the market to raise money to put additional capital at work.
So first of all, Paolo, for you on the Life side.
Yes, Thomas. No, well, the symmetry is still -- I mean, there is still very strong difference between general population and insured population. The only reason why you're seeing more claims in the U.S. compared to Europe, where we have very little impact is in Europe, our book is very focused on younger ages and very connected to credit as well. And we're not seeing losses coming through there. Face amounts are much smaller. The U.S. is just that we have a much larger book that we have in Europe. If you recall all the investor days, I think you can recognize that we had about -- we had a number about 15 million in terms of the people that we ultimately reinsure in our portfolio. If you take an overall U.S. population of 327 million, that gives you like roughly around 4.5%. So it is the size that makes the claims may be larger as you see them? We still believe there is a very strong difference between the general population and the insured population, driven, as I said, by the upfront medical underwriting by socioeconomic, which play extremely strongly in these pandemics. If you just take the significant amount of death in the U.S. that happened in retirement homes, where most of the people are actually beneficiary of Medicaid. And those people are largely not likely to be in possession of the Life insurance policy. And the third point is our book is much younger than the general population than the general population in the U.S. Just to give you a sense, a general population is about 13 million of people over 80 years old. So that's about 4%, I guess, and in our case, about 1.5% of our book is about -- is over 80 years old. So we still see a very large difference between the 2 books. And Thomas, could you repeat your second question? I don't think I fully understood it. We had 2 questions on the Life. The second question wasn't very clear. Hello?
I think your line is still muted Thomas.
Sorry, I'm back. No, I was -- the second question was on the first 163,000 deaths. You incurred roughly EUR 200 million. And for an additional 175,000, you're going to incur another EUR 200 million. So it seems that there is a kind of a perfect linearity in terms of claims impact as a proportion of the total number of deaths. And potentially, I would have expected at some stage, maybe, I would say, the losses to be more important just because you could have some kind of excess of loss contracts starting to kick in or something like that, it seems to be very linear.
No. Yes, it is linear. Keep in mind that we don't have, in this case, the structures that you might imagine in the P&C book. We cover per life amounts to our clients. There is a difference between us and insured portfolios because we -- our clients retain a certain amount per life. And we have very little first loss business, and we see that almost our entire lives at excess EUR 8 million. So we have an EUR 8 million retention that we apply, but we don't have accumulation on excess of loss structures. It is a per life and it's relatively linear. So roughly, you have about EUR 10 million, EUR 11 million per 10,000 deaths at this point. That average might change significantly as the geography of the epidemic changes, and our portfolio is now evenly distributed through the states. But as a rule of thumb, for the moment, given all the uncertainty we have, that provides you a decent rule of thumb.
Thanks Paolo and then finally, Mark, if you can pick up on the group capacity.
Yes. Thanks, Thomas. So let me just make a few points here and perhaps Jean-Paul can finish the commentary for the question. So to start with capacity. I think it's important to establish the fact that we do have a very scalable platform in P&C. So there's nothing internally that needs to be built, structurally, referrals, underwriters, et cetera, pricing actuaries to increase volume substantially if we wanted to. We have prepared over the years for this type of moment. So I think the structure is there. In terms of the capacity. So like I said before, we do come into 2020 with a strong S&P capital position. We also think the solvency position is relatively strong. I don't see any kind of equity raise in 2020. I'm not sure it makes sense given where we are with the pricing anyways. There could be potentially a limited debt issuance, small, but that could be something that supports additional organic growth, particularly in a P&C hard market. I think you'll see us emphasizing our message going forward of how we take the opportunities provided by the COVID crisis during our IR day in September. So there could be some hybrid issuance limited to facilitate additional capital for a larger expansion. But otherwise, I think we're pretty much set.
And just to complete what Mark said, we have already, at the June, July renewals, taken the opportunity when we thought the business was attractive to increase our shares. And as we look for our plan 2021, we'll have the same approach. So push for larger shares on business that we think is providing value to the company and where we think, again, the price increase is -- outpaces the lost cost increases.
Thank you very much Thomas. That was the final question. So we'll close the Q&A there. I'd just like to say thank you very much to everybody for attending this conference call. And as usual, the IR team is on hand to pick up on any further questions you may have. So please don't hesitate to give us a call should you require any further information. So with that, keep well, and I would like to wish you all a good day.
This does conclude today's call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.