Assicurazioni Generali S.p.A. (G) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Generali Group Full Year 2020 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Giulia Raffo, Head of Investor and Rating Agency Relations. Please go ahead, madam.

Thank you, and welcome to everybody on the call. Before we open the Q&A session, I would like to hand over to our Group Chief Executive, Philippe Donnet, for some opening comments. Thank you very much.

Thank you, Giulia. Good morning, ladies and gentlemen, and welcome to the presentation of Generali's 2020 financial results. The COVID-19 pandemic has proven to be the worst crisis since the Second World War. In the face of this context, our group achieved outstanding financial results that demonstrate Generali's strong resilience, both in terms of technical excellence and capital position. Thanks to our strategic positioning and agility, we were able and continue to be able to navigate the crisis from a position of strength. We also had the digital and technological platforms in place to ensure business continuity and to support our customers even in the most critical times, reinforcing our role as a lifetime partner. Before we open up the Q&A session, I would like to start with 4 key messages that best characterize our 2020 performance. First, for the second year in a row, we posted a record operating result reaching EUR 5.2 billion, with strong contributions from P&C and Asset management. This accomplishment clearly proves the solidity of our business model and our diversification. Second, even in a persistently low interest-rate environment, we maintained our strong capital position with a solvency ratio of 224%, stable year-on-year, confirming our excellent position as best-in-class within our peer group. We achieved this result also thanks to our record capital generation of EUR 4 billion. Third, as a result of these achievements, we will propose to our shareholders a dividend per share of EUR 1.47, split into 2 tranches. The first tranche of EUR 1.01 for 2020 to be paid this May, up by more than 5% compared to last year. The second tranche of $0.46 related to the second part of the 2019 dividend, which we had to retain, will be payable in October in absence of supervisory recommendations preventing it. Finally, at our Investor Day, last November, we confirmed our full commitment to the targets of our 3-year strategic plan Generali 2021. We remain very confident about our execution. And today's results demonstrate that we are well on track to deliver on these targets. Thank you, again, for your attention. And now Cristiano and I are happy to open the floor for your questions.

[Operator Instructions] The first question is from Andrew Sinclair with Bank of America.

3 for me, if that's okay, 2 on P&C and one on holdco cash. So firstly, just you clearly had a very strong year on P&C despite lower reserve releases. Just really wondered on that. Have you actually increased the buffers in your reserves on P&C? Secondly, on P&C pricing. I just really wondered if you could give us an update on thoughts on your key markets, in particular, how much of frequency benefits for 2021 do you think will be competed away on pricing? And third question, really strong cash remittance in 2020. Just really wondered, any guidance on 2021? And also, could you update us on holding company cash balances? Just now it feels like that must be a pretty strong number right now.

Thank you very much. I'll ask Cristiano to answer your question on the PYD and the holdco cash. And then, Philippe will answer your question about the outlook in P&C.

Hello, Andrew. So regarding the prudence and the evolution of our P&C, as you can notice, first of all, I would like to draw your attention on the best-estimate view, which is reflected in the capital generation part, which year-on-year basically on the P&C contribution almost doubled. Relating to our prior year development, we already stated also in the half year and 9 months result that this level is not the recurring level you will see going forward. So there will be more a normal level towards the previous one you've seen. I would like also to drain your attention in the fact that our best-estimate liabilities has been always very well prudently assigned. And as more as time goes by, we have each year some positive change coming from best-estimate assumption, which means that we were prudently underwriting, and this is progressively reflecting out of that. Having said that, there are other nontechnical items where their prudence was there on the IFRS results, not reflected in the best-estimate liabilities, but which are in the IFRS balance sheet.

On the P&C business, there are a few different impacts. Obviously, the lockdown in 2020 had a positive impact, a positive one-off impact on the claims frequency on the motor insurance business. And I would say that in 2021, because of the partial lockdowns in some countries or cities because of the curfews in some countries or cities, the claims frequency, the motor insurance claim frequency will remain quite low. But it will still be a one-off impact. On the contrary, there has been some inflation on the motor and spare parts prices. So this -- technically, this is the reason to increase the prices on the motor insurance business. But it depends on the local competition. In some countries, the competition is stronger than in other countries. So once again, the price-making ability, the price-making power depends on 2 things: the quality of your distribution, the more you control your distribution the higher is your price-making power. And I've always saying this. And then, it also depends on your market share and on your market position. And in Generali, we have been always consistent with this. We have a strong proprietary distribution, and this increases our price-making power. And we aim to have even a stronger market position and market shares in most of the countries, especially in Europe, which will further increase our price-making power. Having said that, talking about retail insurance, the market is overall quite competitive. It's different on the large corporate and commercial business where the market is hardening significantly because of the reinsurance market hardening. And definitely, as a player in this market, we will get some benefit on this for Generali corporate and commercial.

Cristiano?

Yes. Holdco cash. Year-end 2020, we had EUR 4.76 billion as holdco cash positioning. I recall you that within this amount of money there is the retained $0.46 of dividend not paid in year-end '20, and that has been reported this year. And so if you take into account the evolution and the guidance for 2021 of remittances, which should stay in the EUR 3 billion, EUR 3.1 billion-plus level, you get to a level of final year cash, which is stable to slightly higher to the level of 2020 because you have to remember that we will spend the EUR 724 million of catch-up of the $0.46 that we were referring before.

Strong numbers.

The next question is from Peter Eliot with Kepler Cheuvreux.

I had a couple of similar questions to Andrew actually. I mean on the cash, I mean your 2018 Investor Day you targeted EUR 3 billion to EUR 4 billion for capital redeployment. I mean the very strong numbers that you're reporting now, I mean I'm guessing that you're going to have made a lot more than that's available. And obviously, sort of we're in the last year of the plan. So I was just wondering, could you remind us how that's been used so far? And any sort of update on any plans for the remainder? Secondly, on the non-Life prudency, very clear answer on the PYDs, et cetera. I'm just wondering, would you say that you've also been quite prudent in striking your current year loss picks given the current environment? And maybe a third question. You mentioned in your transcript the joint venture with Accenture. I was wondering if you could just talk maybe a little bit about the benefits that, that might bring, and also the associated costs.

I will start answering the first one and Cristiano will add more information. We're basically, we've been investing, we've been redeploying so far EUR 1.8 billion in some, I would say, small and medium acquisitions. And by the way, most of the companies that we acquired have been integrated. The last one was AXA in Greece. And as soon as the closing is done, we will start the integration. But for example, despite the COVID crisis, which has been quite severe, in Portugal we were able to complete the integration of Tranquilidade in almost 9 months. So all these acquisitions were fully in line with the strategy. And the integration has been successful. So we will be able to get all the expected synergies from these acquisitions. So we have basically another EUR 2.3 billion to redeploy according to the Generali 2021 plan. Definitely, we are looking at opportunities with the same discipline because without our discipline, maybe we would have done more acquisition, but we have been very disciplined and we will continue being very disciplined. Actually, we always benchmark -- you have to understand that in our mind acquisitions, M&A is not an objective. Acquisition and M&A are the mean to create value for shareholders. So we always benchmark acquisition. And acquisition against not making the acquisition, in terms of value creation for shareholders. So I don't know what we will do before the end of the year. It depends on the quality of opportunities and the consistency with both our strategy and our financial discipline.

Cristiano?

Yes, to integrate the first point, having taken into account all the money deployed, before paying for the agreed AXA Greece operation we will have 2.3 -- EUR 2.5 billion before this payment. Second question related to had we been prudent in the P&C IFRS accounting. The answer is, compared to the previous year, yes. We had something in the order of 0.5 percentage points more prudency in the current year IFRS accounting. And I recall again what I told before to Andrew, there are anyhow other technical -- nontechnical items post where we were also prudentially accounting not to reflect in the full operating result the complete benefit as it is reflected in the operating capital generation. For what regards the third point, the joint venture, we were setting up and we set up this to have a mutual benefit between exchange of knowledge on one side because also of the progressive aging in the IT department and the need to refresh to the best and coming standards of innovation, and we use this form in order to have a mutual exchange between benefit of knowledge on one side and benefit for us of efficiency and more, let's say, efficacy in the deployment of our infrastructure especially. So this should reflect in a progressive reduction of some running cost for our infrastructure after the starting setup going forward.

The next question is from Farooq Hanif with Credit Suisse.

Congratulations on your result today. So just going back on holdco Cash capital management. I noticed that you had particularly large upstream from Italy and CEE, Austria, Russia this year. So can you talk about further opportunity through exceptional capital management? For example, did your extension of internal model for operational risk, for example, create opportunities to upstream in 2021 and 2022? Secondly, on the changes in management structure, can you just talk a little bit about what you think wasn't working well, particularly on the ALM side that you think is now going to improve under the new management? And same question for the Deputy CE role. And then the last question is, I've noticed the gap between your new business reinvestment yield and guarantees has closed a little bit in Life. So I was just kind of wondering what your outlook is for the investment margin, how that will translate into IFRS going forward, and what your concern is about that.

Thank you. I'll ask Philippe to answer the question on the management structure. And then, Cristiano will answer the rest. Thank you.

Thank you, Farooq. Well, first of all, our previous organization was working well. It's not because it was not working well that we decided to change it. It was working well. And I would say that the proof is the quality of our 2020 results. But it doesn't mean that something in -- when something is working well, you should not change it because you can always improve something which is working well. And first of all, we are in the middle of a crisis because actually the COVID-19 crisis is not finished yet. So this organization is more a crisis management organization because it's simpler, it accelerates the decision-making process. And this is what we need in this kind of crisis time. Then, the asset/liabilities management was working well. But we want to make it even stronger. Why is that? As you understand, the COVID-19 financial consequences with the strong public debt in most of the countries put additional pressure on the interest rates. And this is important to us as one of the major life insurance groups. So it's important to be even more proactive. For example, on the in-force management, it's important to be more proactive on the asset/liabilities management. And it's important to manage basically liabilities together with assets. And this is the reason why we've been innovating. We've been innovative, creating a new position of Group Chief Insurance and Investment Officer. Doing this, we will manage together -- we will manage insurance together with investment, which means that we will manage liabilities together with assets. Another reason of making this reorganization, it was to put more focus on the asset management business because we want to further grow our asset management business. So it was important for us to have a business unit for asset and wealth management reporting with the CEO reporting directly to me, like any other important business units. And the third reason was to accelerate the digital transformation, thanks to the creation of this new position of Chief Transformation Officer, putting together strategy, operations, IT and digital. This is -- these are the reasons for the change in the organization.

Thank you. Cristiano?

Yes. Thank you, Farooq, for the questions. Thank you for the compliment. Let's start with the holdco cash. It is correctly spotted that Italy and Central and Eastern Europe, Austria, this case, did really contribute with especially extraordinary capital management action. There were other entities which also supported. But the 2 largest contributor for the EUR 1.2 billion capital management action of 2020 were coming from Italy and Austria. Going forward, are there further opportunities to upstream some more capital from capital management actions? The answer is yes. But the answer is not at the same level and not at the same pace. So you should expect, going forward, something which is lower as a contribution coming from the fact that we will complete the vast majority between '21 and '22, of the extra remittance part, apart from the ordinary net result component. So clearly, you should expect something compared to the EUR 1.2 billion this year in the next 2 to 3 years being in the order of slightly less than half of it, EUR 0.5 billion. The third question is on the new business reinvestment yield in Life. The outlook for the investment margin. We need to understand the effect of what you have seen in the drop. First, there has been 8 basis point impact coming from dividends and rents less of 2020, which were, as we think, a very specific one-off on the total book and amortized cost return. Second, the outlook will be impacted by the normal dilution of the rates, but at a lower pace compared to the 2019 to 2020 delta you observed. This is because mainly 2020 we did a derisking activity and as well an asset/liability management effect, which I will comment later. I need also to recall you one point, when you see the average guarantee of the book and also of the new business underwritten, in that average there is no calculation contribution base coming from the product, saving product we are selling in Italy, which are representing 34% already of the full sale of savings in the group, which has no guarantee only death benefit. And so they are not part of this average. So in reality, the implied, let's say, guarantee is lower, but you can't count on it because it is not a guarantee. Just a clarification on this point. And going forward, their investment yield in Life, we could expect to have an amortized return in 2021, which is in the order of 18 to 19 basis points lower. And don't forget that now we have reached a very important point of ALM restructuring of derisking, which allows us, thanks to the very high level of solvency and also thanks to the operating -- operational risk improvement in the SCR, solvency capital requirement model to have a very high level of solvency also in the operating entities, allowing us to manage eventually the opportunity of risking or rerisking in a much more, let's say, disciplined way, having reached a very solid base to start growing and add extra profit to sustain the investment margin. But the basic story is, first, we have to do our baseline. The baseline has been set. And now we can profit from this new environment, also this higher-yield environment compared to what we had in the plan.

The next question is from Andrew Ritchie with Autonomous.

Just coming back. Cristiano, you mentioned the outlook for current income. What -- is there a headwind in 2021 still from lower current income? I'm thinking particularly from real estate and to some degree equities. I'm not sure of those. It seems optimistic to assume that normalizes in '21. Maybe just clarify what the headwinds are still from sort of COVID-related impacts in 2021 related to current income. Second question. Your restructuring charges have settled at a lower level. I mean, you did EUR 130 million roughly in 2020. I mean it's down sustainably over 2 years from the historic run rate used to be $200 million, $300 million. Is that a new level for restructuring charges, although I'm struck that there are various new initiatives being launched? So will the restructuring charges go up again in '21? And the final question, in asset management, the metric that went backwards in 2020 was the percent of revenue from external clients, which fell from 33% to 30%, and you have a target of more than 35%, which implies a pretty substantial increase in 2021 from external clients. What -- I think the reason it fell was because you had outflows, but what is the -- how do I have confidence you can -- the external revenue, is there a strong pipeline? Or how are you going to hit that target, that particular target in '21?

Cristiano, they're all yours.

Okay, Andrew. So I agree with you but we did not see the full end of the recovery for equities and real estate. What I was mentioning is that the impact of 8 basis points in 2020 should be lower in 2021. And don't forget that we had also started from the end of 2020 and progressively also a redeployment in the so-called real asset component, which is catching up a little bit, which helps to support also the run rate of the fixed income part, increasing progressively the so-called real asset component by -- in the last 3 years by almost 2.5 percentage points on the asset allocation. So this is the reason why. So we are not fully capturing in, but we are recovering a big piece. And if you just like, and you are a derivative big, if you look at the dividend swap market, you have seen that there is a big catch-up in the last quarter also on all the financials, which is a positive. Second question on restructuring charges. Yes, they are down from the historic run rate. I recalled you what I told you during the -- I told to the market during the Investor Day in November, there will be something in the order of EUR 30 million less restructuring charges in 2021 compared to what you have seen in 2020. Third point, asset management. Yes, the metric on external percentage -- external revenue -- revenues coming from external client went down in 2020. There was an effect of one-off in 2019, which was accounting for EUR 23 million of a specific one-off coming from a closing of a client selling asset, which gave us that one-off. That's why you're seeing relative terms. And that's why we are convinced that in 2021 the mix will stick to the existing target.

The next question is from James Shuck with Citi.

First question, on the own funds generation in 2020. So just looking at the Life contribution. The new business value was up, but the Life-owned funds generation was down. I think it fell from EUR 3 billion to EUR 2.7 billion. So if you just expand a little bit on some of the moving pieces behind that. And linked to this, the P&C-owned funds generation, I think you mentioned that it doubled in the year, which it has, but last year was very low. If I look at the owned funds generation in P&C and compare it with the operating profit for 2020, net of tax, the numbers are actually pretty close. And yet you seem to be guiding down towards a reversion in the P&C-owned funds generation back towards the 2019 level. So if you could just elaborate a little bit on that, that would be helpful. Then on the SCR release, you get really good disclosure picking apart the movements in SCR, particularly on the Life side's 2 new business and the release from the back book. I'm just noticing a release from the back book is trending downwards. So it's gone from 1.6 to 1.4 now down to 1.3. Could you just elaborate on the glide path for that SCR release? That would be helpful. And then my final question, I couldn't see a date for the new 3-year plan. Obviously, it runs out at the end of 2021. And I presume you're going to have a Capital Markets Day at the end of this year. Philippe, don't want to be ages, that's all, but I'm just keen to know whether you -- are you going -- still going to be the person to see the new 3-year plan through? When does it get signed off by the Board? And is there any pressure to be more aggressive on the M&A side of things?

James, sorry, we couldn't hear well your last question, sorry. Can you repeat it, please?

Yes. Certainly. It's just about the new 3-year plan. I presume you're going to have a Capital Markets Day at the end of the year. I can't see a date for it. But Philippe, I'm wondering if you are the person to see this through. Will your mandate extend to the next 3-year plan? And when it comes to discussions with the Board, are there any kind of pushback in initiatives maybe to be more aggressive on the M&A side, in particular?

James, so I hope I understand well the first question related to the contribution of new business value, but you say, yes, the new business value is up, but the contribution is down. I think the effect is also related to the fact that you have the real word versus a risk-neutral as well effect, which has to be taken into account which was releasing for us a positive effect of 3.9%, 4%. And referring to this point, don't forget that there is also the fact that you were mentioning the SCR. So I'm answering your third question, you were mentioning also the SCR release from back book is trending down. Why? Because clearly there is a higher impact from the ultra-low rates we experienced in 2020. So there is a kind of balancing effect. And notwithstanding this, you have seen that there is anyhow a positive release of SCR because we have still EUR 100 million SCR less coming basically from all the Life part. So this is related to the new business value contribution. And in the SCR on the owned-funds generation in P&C compared to the operating result, to be sure if I understand, your question is that you were asking the differences among the 2 and where you are looking at the deltas, just to be sure to answer correct to your question.

Well, just very simply, you seem to imply that the owned-funds generation in P&C was at exceptional level this year. And yet, it seems to be pretty much in line with the post-tax operating result. I'm puzzled why it would suddenly come down and revert to what it was last year.

Yes. Don't forget that you see one thing in the P&C component, the difference between real-world view and IFRS and the best estimate. Don't forget that if you just mix up all the element of the [ soup ], I agree with you that the EUR 4 billion was an exceptional year. And if you just more look in a run rate, it is more coherent with the EUR 3.5 billion we were mentioning in 2018 when we presented the strategic plan.

Yes. On your last question, James. First of all, all of us are still very much focused on delivering the targets of our current strategic plan, Generali 2021. As you know, this plan was very ambitious before the COVID-19 crisis. It's even more ambitious in the middle of this crisis. And we are very committed to deliver the target despite the challenges. So it requires a lot of attention. Having said that, we started -- we already started working on the preparation of the next strategic cycle, but it's obviously too early to comment it. We will present it either end of this year or early next year as soon as we will ready. I don't expect any change on M&A. We -- once again, M&A is not an objective. It cannot be a strategic objective. It's a mean to achieve objectives, and our approach will remain the same, disciplined and opportunistic, which means that we can be aggressive when we think it's appropriate to be aggressive. So I do not expect any disruption on this. I think that our ambition to become a lifetime partner to customers will still be a good ambition because we are not there yet, and we still have some efforts to do to become really the lifetime partner of our customers. But this is what will create a lot of value for our shareholders. Talking about the renewal of the Board of Directors. The whole Board of Directors will be renewed at the general assembly, the shareholders' meeting next year. And when it will be the time, our Board of Directors will start working on the process for the renewal for the whole Board.

Do you face any mandatory retirement age, Philippe?

James, sorry, we didn't hear.

Just a last question, sorry for taking up too much time. I was just wondering if you face any mandatory retirement age as CEO, Philippe?

Not at all. There is no limit, no mandatory limit at all.

Okay. Let's hope you're there for the next one.

The next question is from William Hawkins with KBW.

First of all, Philippe, with your management changes you're continuing to underscore the importance of technology and innovation in your group. What do you think that means in terms of what we're going to see as analysts over time? Generali, financially speaking, is very secure and performing well as a mid-single-digit EPS and DPS growth kind of business. And do you think your ambitions in technology basically just contribute to that? Or can you envisage there's ever going to be a time when you say that as a result of the technology opportunities, you can either see a step change upwards in some of those numbers or maybe the need to actually pull back on some of those numbers because there could be a massive investment opportunity? So I'm just trying to get a feel, when we cut to the chase on this technology stuff, is it all wrapped in the bigger picture? Or could it actually become a bigger driver? And then secondly, please, you guys have been very clear about the debt leverage and the deleveraging that you've been doing. And I think you've indicated clearly that there's more to go in your plan for this year. I mean, I'm just wondering, to what extent are you allowing for the fact that that's kind of tying your hands for any M&A opportunities? Because your leverage in theory now is low enough where you could releverage if you saw an opportunity. And the fact that you're guiding to the market clearly that your leverage is going down. Are you looking at that as a binding constraint for M&A? Or is it conceptually possible that you say, well, we know we were taking leverage down organically, but now we think our leverage should go up because we've seen a good opportunity. And then thirdly, if I may, sort of getting into cheeky territory with the M&A conversation. But I wondered if you could just -- you've already talked a bit about this, but it's really notable that you continue to talk about asset management as an inorganic growth opportunity over time. And yet in reality, you haven't really done very much. And I just kind of wonder how you're sort of thinking about that longer term? And then also with regards to CEE, you just upstreamed a huge amount of capital from one part of that region. Can you envisage scenarios in which you may actually be downstreaming capital for inorganic opportunities in Central and Eastern Europe?

Let's start, Philippe.

Thank you, William. Yes, the technology is -- it's a bit like M&A, technology is a mean, it's not an objective. So we are investing in technology, in digital transformation, in technological innovation because it helps creating value for all stakeholders, not only shareholders but also, obviously, customers and distributors. This is what we are doing. So we want to have more digital interaction with our customers. We want to have a more digital interaction with our agents, and we want our agents to have a more digital interaction with their customers. So this is good for both customers and distributors. And we also want to leverage technology to reduce our cost to improve the quality to offer administration processes. This is what we said when we presented our Generali 2021 plan a few years ago. We said that we would invest EUR 1 billion over the 3 years of the plan in technology. With this objective, this is what we've been doing. I would say that the COVID-19 crisis has been accelerated this digital transformation because in 2 weeks we were able to send 90% of our employees at home, working from home and ensuring the business continue to the full business continuity. Same things for our agents, we -- who accelerated the adoption of the digital tools in order to continue the interaction with our customers in all countries. So this has been very, very efficient in terms of acceleration. So I think this is good for -- when we talk about cost reduction, don't forget that we also decided to increase the target of the -- the cost reduction target of the plan. At the beginning it was EUR 200 million. And when we updated the market last year, we said that the target was upgraded up to EUR 300 million. And I would say that this is the first result of the acceleration of the digital transformation. But on top of this, and I think this is really important, the lifetime partner ambition creates value not only for our customers because it's good for our customers to have a long-term relationship with us, but it creates value for the shareholder because more and more the value of the company will come from the value of the quality of the relationship, the long-term relationship with customers. And this is also based on technology. It's not based only on technology. It's also based on the quality of the personal and physical interaction with our salespeople, with our agents. So we confirm the validity of what we always said, the winning solution is the combination of technology together with people in the insurance distribution. This is creating a lot of value for all stakeholders.

William, it's Cristiano. So for -- regarding deleveraging, just one small correction to what you said. We never said that we will go into reduce further the leverage. We said that we achieved our targets. Clearly, we stay flexible and opportunistic in any case on how to deploy cash. I remember you that for M&A, we -- as I said, after deducting for the AXA closing transaction, we will get slightly lower above EUR 2.3 billion. So it is in this logic, but you have to look at the equilibrium of the capital structure. I think that our leverage ratio today has been at a level which was the one we wanted to reach, not only at an absolute level but also on a relative level, which is good in order to think how we want to look at things. We are always opportunistic. We look and we assess each single opportunity according to the value creation and to the opportunities of M&A that creates, just to clarify, but we are not going to further reduce by constraint. We never said it. You have optionality.

Philippe?

Yes. On the asset management, our growth strategy is mostly based on our multi-boutique platform. And we've been very successful in growing our multi-boutique platform, acquiring competencies, skills, expertise that we didn't have in-house. And when you look at the numbers in 2020 for the growth of the earnings from the asset management, we can say that this strategy has been successful. We've been also proactive in making small and medium acquisition in the asset management. For example, the Lumyna boutique, Sycomore in France, which is a leader of the ESG investment. And also Union Investment in Poland. We've been also proactive in making acquisitions, insurance acquisitions in CEE as well with Adriatic Slovenica and Concordia company in Poland. And we will remain very opportunistic. The CEE is very strategic to us. We are already the leader in this part of the world. But if we can find good opportunities to further strengthen the leadership position there, we will definitely do it. Remaining very disciplined.

The next question is from Nick Holmes with Societe Generale.

2 quick questions, please. With the dividend, I wondered how confident are you that the regulator will approve your second dividend? And do you think we'll have more of a level playing field for dividends across the EU this year? And then second question is, with your Life back book, are there more disposals like Generali Leben that you're looking at?

Over to you, Philippe.

Thank you, Nick. Well, the recommendation from our regulator, who is the Italian regulator, IVASS, is basically based on the recommendation coming from the ESRB. And district ESRB recommendation is ending on September 30, which means that as of today if there is no renewal of this ESRB regulation, we will pay our second tranche, our EUR 0.46, second tranche of dividend. I'm very confident that this is going to happen, that is going to happen this way. This has been discussed with our regulator, with whom we have a positive and constructive dialogue. This is the most likely scenario. So this is, I would say, the only condition for the payment of the second tranche. So I obviously cannot give you any certainty. I can only tell you that I'm very confident it's going to happen this way. On the Life back book. First of all, when I look at the current situation, I'm even more happy that we did the Generali Leben operation a few years ago. We said in November, during the Investor Day, that we would become even more proactive on the in-force management. And if we decided to put together in our new organization insurance and investments, it's also to push the in-force management because our Group Chief Insurance and Investment Officer is fully empowered now on the in-force management, and he has all the levers in his hands.

The next question is from Michael Huttner with Berenberg.

And the fruits have gathered these outstanding results. I could have only a wished for the $0.46 now, anyway. And I have lots of questions, but they're really little ones, apologies. A, could you give us a little bit more an update on Cattolica where we've seen lots and lots of press releases? And the second, I think, Cristiano, you pointed out that the [ LEN Funds ] report, non-Life was standing good, and I checked, yes, exactly as you said, it's doubled to EUR 1.856 billion. You said, no, it couldn't recur. But my question here really is does that mean that the combined ratio, you reported the 89%, could have been 86%. That seems to be the difference the extra EUR 800 million is equivalent to 3% combined ratio, give or take, I think, question. And on COVID, could you give us a precise breakdown, I think you split Life and non-Life. But I wondered within these, if you could give us a precise breakdown of the impact, frequency, volume effects, whatever, it would really help. And also, if you can maybe say what you think will come on COVID for 2021. And then on my back book deals, I just wonder if you could say which countries, and reading between the lines, so completely wrong probably, but I'm kind of thinking it's most likely initially to come from France. I'm sorry, I had last question, if I may, on asset management. Why did you have net outflows?

Michael, sorry, just to be clear, you managed to sneak 5 questions after all.

[Indiscernible].

All right. Just to make sure we understood correctly. Your fourth question is, are you trying to get a sense of geographical priority for in-force management and you hinted to France?

That's right. Yes.

And then your last question is the reason for the outflows in asset management, right?

Yes, Giulia.

You're welcome. Now we will start with your first one on Cattolica. And I'll ask Philippe to answer that.

Yes, if you don't mind, Giulia, I will answer on Cattolica and on the in-force management. On Cattolica, I would say that things are proceeding smoothly. We -- thanks to the capital increase, we became the first shareholder of Cattolica with 24.4%. But this goes together with a strategic agreement with Cattolica regarding asset management, reinsurance, Internet of Things and health insurance. We are very happy with the way it proceeds because we are implementing the strategic agreement. It has been implemented already completely for the reinsurance and the asset management. So we are very happy with the implementation of our agreements. So we are very happy with our investment in Cattolica. On the in-force management, we have a very granular approach. So it's not a matter of geography, it's a matter of policyholders' funds. So we are looking at every single policyholder fund. And we are looking at the guarantees. We are looking at the assets. And we will take the decision based on this. So no looking at the geographies.

Cristiano, floor is yours.

Yes, Michael. So regarding the P&C, yes, I appreciate that you all look at the owned-funds report, which is very insightful, in my opinion, and I see from the question, which is getting there. I would like just to highlight, if you just look at the unwinding of the price in the previous year compared to what we are putting in, in the IFRS account, you understand that our prudency was slightly above the level of the unwinding you have seen. So clearly, yes, you didn't see the full result in the IFRS account of the best estimate, let's call, current year because we were prudent in allocating normal reserving and also because we did, as I already said also to Andrew and others, the fact that there are other costs in the nontechnical item which we put prudency in the balance sheet. So the point is, the answer is not -- yes, not far from what you are saying, even lower. The COVID effect, COVID effect in 2021. What we learned this year, first of all, we are very under control on the business interruption. In fact, we have done a full due diligence of all our clauses in the insurance policies, and we don't see a risk increase around this point. So there is basically everything under control. What we are observing as a COVID effect, there could be some potential trend, but lower than the 2020 in the frequency. So clearly there could be a start of the year with lower frequency, especially in the motor part, but not at the level observed during 2020. I should say slightly less than half of it. And on the, let's say, rent and dividend, as I was mentioning also before to Andrew Ritchie, clearly the point of fully restoring the dividend capacity and the rent capacity is not fully phased in, but we are more than half recovering that part. Going to the question on the asset management outflows, I think that we need to split the effect between something more than EUR 3 billion split between Lumyna, which is our very good performing boutique, which got a very big mandate from, an hedge fund in London, based in London. And also our China operation, which increased externally. And this is counterbalanced from exit from our general investment account, mainly for institutional clients, which were managing a book of government bonds at very low margins. So margin-wise is very limited and as well from some exit of 0 impact on revenues on assets under management from our previously sold entities of Generali Leben in Belgium, where basically the owner decided to split it out, but with no impact because of the way the contract is written. Hope I gave you insight.

The next question is from Ashik Musaddi with JPMorgan.

Just a few questions I have. I will not ask 5, but maybe 2, 3. First of all, I mean, going back to Michael's question about combined ratio and the prudency. I mean if I understand correctly, you reported 89.1%, of which, say, 50 basis point was a one-off COVID related positive. So your clean was 89.5%. And if I just heard correctly what Cristiano said, I mean, it is a very conservative number. So what sort of combined ratio are we talking about going forward? I mean, are we talking about like low 90s for a prolonged period now? Or are we still talking about like below 90s or just above 90s? Any thoughts on that would be great because I think the general expectation is still slightly above 90s combined ratio is what is the general perception. But it looks like you are doing far better than 90%, I think. So that's the first one. The second question is, if I think about the cash you have, I mean, you have $4.6 billion cash at the moment. And the math you gave at the beginning of this call, it looks like by the end of this year you would be around $4.5 billion cash as well, which is definitely a level which is too high, in my view. So you could easily have $2 billion, $2.5 billion of extra cash. Now you want to do M&A, I agree, but for how long would you be holding this cash in hope for doing M&A? I mean are we talking about this year, next year? Any time frame would be very helpful. I mean, why would you not buy your own shares at 9x earnings rather than going and buying something at, say, 12, 13x earnings? So that would be my second question. And third question, just a very short one, is, can you comment a bit on this speculation about M&A in Poland, that you would be interested in thinking about stuff in Poland? I mean, do you have any potential synergy benefits in that market which could -- how we can think about that would be helpful.

Thanks a lot, Ashik. I'm going to ask Cristiano to start, and then Philippe will close.

Hi, Ashik, in the answer to Michael, I hope, I don't want to make a confusion. So I need to be very, very clear about this point. If you look at our COVID report, the combined ratio of the group Generali without COVID impact would have been 90.9%, 90.9%. This is the IFRS accounting view, combined ratio. And it is a good accounting view of the future trends you can expect in the years to come, which we always said the corridor was in the 90% to 90-plus level. Another thing is, when you look at the best estimate part, where you put prudence into it, and I was referring to that answer when answering to Michael. Okay. So this year, clearly there has been prudence put aside at a higher level. And the 0.5% more was referring to the higher level of prudency compared to the usual regular one you put every year, okay? Second point on cash on the year-end level, and then I hand over to Philippe. On cash, you should expect to have a level not different from the year-end without taking into account any effect of M&A. And don't forget that the level of 2020 has been artificially increased by the lack of the second tranche payment, which I recall you, it will be EUR 724 million. So basically, to make it simple, would have been more closer to EUR 4 billion. Don't forget, but we always said that we want to hold a buffer of cash, which is fine to be always in the order of the EUR 750 billion to EUR 1 billion also in these uncertain times because it is important to be prudent around the potential evolution as we always did, and we have the opportunity to manage it. So if you just do the math and take all these pieces together, you see that there is not on top of the EUR 2.3 billion of excess cash, an amount which is excessive. Then I handover to Philippe.

So just on this one. So if my understanding is correct, what you're saying is EUR 2.3 billion is what you want to hold. And then, on top, you want a cash buffer of $750 billion to $1 billion. So that takes me to EUR 3 million, EUR 3.2 billion. And if we take the proper dividend of 2019, then you would be at EUR 4 billion. So is that the right one math or, I mean what I'm trying to understand is I think EUR 3 billion cash -- I mean, EUR 4 billion cash holding is still pretty high. You don't need to hold more than EUR 2 billion, I would say. What is the reason why you would need to hold EUR 3 billion, even EUR 3 billion?

Yes. We don't -- it's impossible to forecast what acquisition will be made or will not be made by the end of the year. Our objective is definitely not to keep too much cash for a long period of time. If we don't make any acquisition according to our Generali 2021 plan, we will take the appropriate decision in order to create value for shareholders. I will not comment on remarks on a specific situation. I can only say that definitely Central and Eastern Europe is a priority for us. We are very strong and very successful in this part of the world. And we would consider any appropriate operation to further strengthen our leadership position there, remaining very disciplined once again.

The next question is from Colm Kelly with UBS.

Yes. Just quite quickly. On the Solvency II target of 180 to 240. I mean it is quite wide relative to peers, which has proven to be a very sensible approach in the context of the year we've had in 2020. But given how strong the solvency position has emerged from that very tough test last year and that we're still working through, and also given the amount of improvements you've made and derisking actions you made to the balance sheet to lower risk and lower volatility, is that solvency target range still seen as appropriate for the group? Or do you see potential for that target range to be tightened going forward? And then just lastly, on the Life normalized capital generation, it also applies to the operating profit. Clearly, it's fallen from the 2019 level of EUR 3.1 billion, which is for understandable reasons. But is it your aim or expectation that Life normalized capital generation can return to that 2019 level this year? Or do you think it might take a bit longer given lower investment returns?

Well, I will start answering to the question, and Cristiano will add comments. But I think that in the middle of a crisis like this one, I think it's very good to have such a strong solvency ratio. Don't forget that solvency ratio is a ratio which is quite volatile as well. So we are very happy to have such a strong capital position. And if I look back in the history of Generali, it was not the case in the previous crisis in 2008, and we've been paying for this. And I am very happy that we navigate this crisis in a very different condition.

Yes. And to integrate what Philippe said, I would like to stress that 2020 was a very interesting proof point of the importance of such an operating target corridor because we experienced to be not very far from the top and not very far from the bottom throughout the year. This is exactly built around the Generali structure of the balance sheet and the liabilities. And this is the corridor which is allowing us to operate appropriately according to our strategic target. And it is very important to keep this in mind because the structure of our portfolio is made in a way that we are -- and we need to keep this corridor also thanks to the capital we can create and the transfer from capital into cash in the period. And exactly going to this point, the normalized capital generation from '20 -- '19 to 2020 has been falling because of the lower rearward assumption compared to year-end '19 and '18. And so there was a lower expected extra return because the 10-year yield from BTP, for example, dropped housing basically from one year to the other. And also, there was a lower release of the risk margin. If we look going forward, will we be able to get to a more 2019 level? I think it is very important to keep in mind that the transformation of the product we are doing and the larger increase of the share of product with no guarantees, our debt benefit only guarantees are helping us to create further new business value and the fact that we are increasingly very well the share of unit-linked. And we are also seeing this increase in the beginning of 2021 of unit-linked and protection share is bringing us towards a sustained new business value capacity of creation back to more normal level.

Thank you. We need to close the call now. As always, the Investor Relation team is available to take any further question or follow-up you may have. Thank you all for the attention. Have a good day. Bye. Bye-bye.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.