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 First Quarter 2021 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, everyone, to Generali Q1 2021 Results Conference Call. Here with me, we have our Group CFO, Cristiano Borean. And we are ready to take your questions. Thank you very much.

[Operator Instructions] The first question is from Peter Eliot with Kepler Cheuvreux.

I had 3 questions, please. The first one was just on the sort of competitive pressures in non-Life. I guess your 2 main competitors in Italy are both talking about sort of quite negative pricing pressure there in non-Life. You seem to be a little bit more bullish, reading between the lines and looking at your outlook. I mean I appreciate you can't comment on competitors, but I'm wondering if you could just give a bit more detail on what you're seeing and what drives the sort of statements you made in the outlook. And then the second question, the non-Life investment results, I'm just wondering if you can give us a bit more hints as to the moving parts there. Because if I look at your underwriting result, that improved by EUR 90 million on the prior year comparative, but the operating result only improved by EUR 60 million. So I guess there's been a sort of EUR 30 million drop in investment and other against what I would have thought was a relatively easy comp. But any insights you can offer there would be great. And then finally, Asset Management, the cost/income ratio showed a pretty strong improvement. Is that a sort of sustainable figure? Or are there any one-offs in there?

Thank you, Peter. Over to you, Cristiano.

So thank you, Peter, and hello to everybody. So point number one, competitive pressure in the P&C outlook, especially focused on our Italian peers. What I would like to highlight is that the figures you've seen on collection in the first quarter are pretty strong, and they are a combination of both motor and P&C part of our growth. What is important to know anyhow that in the motor segment, there is a pressure on the total prices, and this stems out in a kind of above -- something in the order slightly above a 4% drop in the average premium for the Motor TPL component, which, yes, having seen the figures of our competitors, is slightly lower. And it is related to the retention and the strategy applied last year. On overall, the other component of the second question, of the other component in the P&C part and what are the different moving parts in the result of the investment results versus the other result of the contribution, I would tell you that the effect on the technical increase of the result, driven by the combined ratio, is bringing up EUR 73 million out of the growth. And then there is a basically flattish plus EUR 5 million in the investment result. And then we have another -- a component, which is EUR 16 million less than the previous year contribution, which is other component out of the calculation of the technical result, which are mainly driven by some small positive one-off in VAT in the Central Eastern Europe of 2020, which has not been replied, and some further charges on VAT in the Italian country in this year, plus a small effect of the so-called leasing amortization, IFRS 16, on our Portuguese acquisition, which accounts for the EUR 16 million drop on a comparable basis on the other voice component. The third question you asked, Asset Management cost/income ratio, is it sustainable? Please take into account that in the first quarter 2021, we do have an effect which was not there last year of the so-called performance commissions. And the fact that this year, we have EUR 13 million of performance commission, and we were basically 0, close to EUR 2 million last year. So clearly, there are different effects. And first, in the cost/income ratio in Asset and Wealth Management, there are both the strong denominator. And the fact that in the numerator, the COVID has meant lower travel and marketing expenses than the run rate which would have implied and phasing in of the other IT expenses. So clearly, all in all, is it sustainable? You should take into account all these moving parts. And going forward, you need to take into account that embedding as well the performance commission, which last year were in the order of EUR 100 million, clearly, that number has been dropped in the year-end 2020 figure. And we do not expect to have the same level of performance commission as of today, but we could experience last year. At least in the budget, we will see clearly, this is very dependent of the volatility and the evolution of the market and our strategies.

The next question is from Andrew Sinclair with Bank of America.

Another really good update there. Well done. Three for me, if that's okay. Firstly was just on Swiss reserves strengthening. I just wondered if you could give us a little bit more color of how much was there of that in Q1 this year? And have your expectations for the total amount in 2021 changed versus your prior guidance? Secondly, I just wondered if you can give us a bit more granularity on the moving parts in the Solvency II ratio. And third was really just trying to get to the bottom of underlying progress in the combined ratio, underlying evolution there. Q1 2020, clearly, we have also had some COVID frequency benefits. I think prior year development has remained pretty low. Just really wonder how you see the underlying progress. Sorry, a pretty badly worded question there, but just some color on the underlying progress in the combined ratio.

Yes. Andrew, with regard to the first question on Swiss reserves strengthening, yes, for sure, I will give you some color. In the first quarter 2021, we put something in the order of CHF 75 million of allocation. And we proceed probably linearly throughout the year, maintaining our cautious statement and confirming the November Investor Day amount for 2021. In the first quarter of 2020, there was a slightly higher amount of reserving. It was slightly more than the double of this figure, so -- because of, as you remember, the first quarter was a very volatile quarter, so we put aside a little bit more. Related to the second question, on the granularity on the moving part on the solvency ratio. It is important for you to be aware that we got 4 percentage points, almost a drop coming from the regulatory changes, which is nothing that -- the alternate for a rate reduction, plus the change in the portfolio, almost 6 percentage point of capital generation, which I would like to highlight, it is EUR 1.1 billion, accounting for almost 6 percentage point. And the economic variances were bringing up the solvency from year-end level by about 11 percentage points. And basically, the rest is capital movement, which is the pro rata accrual of the expected dividend, which is 2 percentage points. Third question, related to the combined ratio underlying evolution. It is important to highlight that we said in the first quarter 2021, our -- COVID stripped out. So without COVID, the combined ratio would have been 89.7%. So in the evolution and waiting to see in the next 3 quarters of the year, especially in the second half of the year, a higher increase of frequency because in the second quarter, still, we are observing extended, less intense, but still lockdown in countries and especially in Germany or France. We are thinking of moving in a normal way in the corridor between 90% and 92% of combined ratio and landing in the lower end of that corridor. And please take into account that in the first quarter, we had some few natural catastrophe lower than average, which also brought a little bit down the combined ratio by 0.7, if I remember properly, percentage points -- 0.9.

Sorry. Just to go back to the Swiss reserves strengthening. Sorry, so guidance for the full year is unchanged. Is that right?

Yes. For the full year, it is unchanged. I confirm we stay in the ballpark of the CHF 300 million, as announced during the Investor Day in November, notwithstanding the better improvement condition. We still see at this stage volatility and uncertainty, and we keep our normalized linear strengthening as announced.

The next question is from Andrew Ritchie with Autonomous.

I wonder if you could just give us a bit more color behind which specific regions or territories were driving the growth in new business -- Life new business. And I guess I'm just trying to understand, you would still regard the new business production, I presume, as a little bit hindered by lockdowns and -- that we've seen in Q1. So would you expect that new business volume to pick up over the year as those lockdown effects unwind? The second question, just going back to non-Life premium growth, you say in the outlook that you expect the growth rates to be higher than they were pre-pandemic. But just I'm still puzzled, what's driving that? Because it's not pricing particularly for your portfolio. So what is driving the expectation that growth rates post-pandemic are going to be higher than pre-pandemic? I guess they're not there yet, but I'm assuming that's something you expect to gain as lockdown effects unwind.

Thank you, Andrew. So first of all, the drivers of growth for the Life new business. I do confirm that during the month also of April, we still see a good improvement of the evolution, especially also in the unit-linked component, which shows a point which is mainly related to the fact that people are basically putting a little bit more at work the cash that they hoarded in the bank accounts. And this could drive a little bit of more interesting investment as soon as the situation can get there. Compared to our outlook, we are still very cautious in the uncertainty related to the speed of recovery. But clearly, the countries showed double-digit growth in the premium on the preferred segment of unit-linked and protection in -- from the unit business premium dimension. And so going forward, Andrew, you should expect a little bit more focus in the unit-linked as soon as the situation stays and unfold in a more predictable and growth-driven way. Our focus will be, for sure, to steer the production, as have you seen, the more as possible in the super capital light and the unit-linked product. For what regard the P&C part, the premium growth is higher than the pandemic, let's say, potential in the future. And as well now, we look and look at the figures, and we have seen also in 2020, but our agents apparently do not appear too much impacted by the lockdown in their sales capacity. And this is confirmed quarter-by-quarter, partially also because of the special relationship that they built with our clients and also because of the investment in the way to open a seamless interaction with them in the so-called digital approach. What is important is the driver are, in some cases, pricing on specific lines. I think about, in France, pricing in the motor business. Then there is some agreement of fleet that we had in Italy for -- with Fiat Chrysler automobile, which is driving up the volumes. And we see in the non-motor a good growth also in the accident segment. And in general, people are a little bit more conscious after the pandemic. And the protection, as long as we see economic recovery, could be brought up if we will be able, as a European, especially, Union, to manage the growth appropriately to support the small, medium enterprises. Don't forget that our mobility business is growing in the mobility space because of our capability of the Internet of Things platform, which we are developing not only for us, but also from other peers, as you know, from our agreement with Cattolica, which is offering a possibility to give to the client extra assets. So this is basically what we see as the driver. And don't forget, but we have also fleet agreement even in the Central Eastern Europe, which are very profitable. And we think that going forward, the mobility business is a big driver for growth in the premium because of the new habits and the new way the people will bring their experience in moving out. As well, don't -- we don't have to forget, even though for Generali, it's a small portion because it accounts only for 10% of the total premium, that the growth in the Global Corporate & Commercial repricing, and that is really repricing-driven, is important. Just to let you know, our segment Global Corporate & Commercial grew by 8.5% as a premium growth in the quarter-over-quarter.

The next question is from Farooq Hanif with Crédit Suisse.

So first question is, a number of your peers, I think, are quite clear about doing bolt-on acquisitions and choosing between that and buybacks. And I see your capital position as being just so strong and so stable. I was just wondering, in the next phase, would it be possible? I mean would you consider sort of widening your remit of bolt-on M&A going forward, perhaps in P&C, in emerging markets? Just interested in your thoughts because you seem to be focusing a fair amount on the boutique asset management strategy, but obviously, there's a wider potential here for you given your platform. And the second question is on acquisition expenses. I mean you talked about in your -- in both your non-Life and your Life comments about higher acquisition expenses. And is this related to product mix? Or is this kind of a lockdown-related investment effect?

Farooq, so bolt-on acquisition or buyback. So regarding our active strategies, as I already told you many times, I just want to recall that we have EUR 2.3 billion for capital redeployment in our hands. What is the logic and how we should see now and also going forward the, let's say, alternatives? Number one, we do want to look for M&A, but not in a forced way. M&A, for us, it just has to be seen as a way to create value for our shareholders. And in general, M&A has to be seen as a value to diversify the sources of our cash flow as a group. So diversifying both geographically, but especially also in the business lines, be it growth of P&C protection, which I recall you have protection as even a lower capital consumption from investment side than P&C, and as well in the Asset Management space to further diversify. So this is the way we look at things. Compared to a buyback, which is, in a certain sense, reinvesting in yourselves, which means having the same pie, but with less people at the party is a difference compared to having a different topping on the cake, which we would like to put because think -- this, we think, as an M&A strategy, is done properly according to our discipline and to our parameters of strategic fit and cultural fit do make value in reducing the risk on the sources of cash flow. And this is how we look. We do not exclude any option in case we don't find future solution, any solution. But please look at the way we look at M&A in this context. For what regards the P&C acquisition cost, I would like to recall you, the increase is 0.7 percentage point. And it is mainly related to 2 reasons: higher commissions in -- especially the P&C motor segment in Italy where we did agreement from B2B2C, as I was mentioning before, and where we have also a fostering in our sale of motor in the so-called non-TPL component. So the other coverage like kasko, which are very profitable, so it's an investment to extract further profitability. And the second part is also related to the portion of higher commission paid also in the non-motor retail business to make this growth.

Okay, great. And seemingly similar in Life as well?

Yes. In Life, you mean about acquisition cost then?

Yes, please. Yes.

Yes. Acquisition costs in Life are going up for the same reason. We had a strong growth of protection and unit linked. So we are fostering protection, especially in Asia. Don't forget, but we are growing in Asia and there, in China especially, where we do not apply the fair acquisition cost accounting. So the moment you pay for a protection, it is embedded in a longer-term premium, you immediately expand it. So you see this effect, but then you create further longer-term value. And as well, don't forget that we are also having some more pushes in order to grow the unit-linked business at a double-digit pace as we are doing.

The next question is from Michael Huttner with Berenberg.

Three quick questions. The first one is on the Life back-book deals. I just wondered if you could say what's in the outlook, where you can talk a little bit about how big this could be or the time -- potential timing. The second is on the fabulous growth in capital generation, so EUR 1.5 billion. If I annualize that, I get to EUR 6 billion. And I think last year, you had EUR 4 billion, so that's a 50% increase. And I just wondered if multiplying by 4 is the right way to look at it. Or maybe there's some unusually good trends in Q1 I should kind of try and normalize. And the third one, maybe going back to Farooq's question on deals versus buybacks. The sense I had from your answer is that deals essentially are a little bit more attractive because they diversify your business mix and your cash flow, whereas buybacks, as you said, just increase the size of the cake for each remaining holder. But if you could maybe give -- provide more of a feel. It's just that we're so close now to the end of your 3-year period, and there's still over half of the capital you'd originally allocated to deals. It seems a little bit more likely than before.

Yes, Michael. So question number one, Life back books, where do we stand? So as we highlighted already last time, we are working on an extensive analysis, which has been completed. And now we are in the phase of preparing all a set of stream of actions, which are also important to frame not only this year, but the future group strategy, continuously looking at opportunities. What I can tell you is that you should not expect any more deals of the size of Generali Leben, which really changed the profile of the risk of our German subsidiaries, but you can see more smaller pieces, but added together could anyhow get the effect of having a positive benefit in the capital track. It is important to highlight that clearly, this has to be managed appropriately, including the fact that in the figures so far disclosed also on the cash and the free cash after the so-called net holding cash flow, free cash after dividend payment for the future, we did not embed any deal because, clearly, this and such kind of deal has to be made at a fair price. So it is very important to find also the combination between demand and then offer. Second question, sorry to contradict you, it is not EUR 1.5 billion. It is EUR 1.1 billion, the capital generation in the quarter. So clearly, if you annualize it, you go slightly above of our last year figure. But you should not annualize it and multiplying perfectly by 4 because, clearly, in the first quarter 2021, you have frequency benefit, which were not there in the first quarter 2020. Clearly, there has been the shift, the second quarter 2020, so more frequency benefit. So going forward, you should get, for sure, above EUR 3.5 billion, maybe you get -- you can get close to the 2020 level of EUR 4 billion. But for sure, it is not EUR 1.5 billion times 4 and -- because it is EUR 1.1 billion, and it is slightly nonlinear. M&A versus buyback. These are more attractive to us, not necessarily because of making deals, but for the reason we were looking at, as I told you, diversifying the sources of the cash flow. So as I can make the pictorial example, we look for the topping and also not to let people invited as a preference because if we diversify those sources, we can go on in building more resilient cash flow generation and cash flow sources all across the board for the group, which has then, in a certain sense, to be reflected in a better value and in a better cost of equity, which should be reflected in this diversification. So this is why we do seek for this. I do understand that, in your view, clearly, looking at the watch, time is running out, but we are not at the end of the road. 2021 is still there. And we are always very disciplined in looking for M&A opportunities. So I can confirm you that we will not change our disciplined approach. And we will continue to seek these opportunities because we do think that there are opportunities that could be brought on in the market in this situation.

The next question is from James Shuck with Citi.

First question, around the remittances. So Cristiano, I think you were guiding towards EUR 3 billion to EUR 3.1 billion in 2021. And if I look at the SFCRs, the foreseeable dividends for the European operations sort of imply quite a lot lower than that number. I appreciate there are other moving pieces, such as holdcos and internal loans and capital distributions. But can you just help me bridge from the EUR 1.8 billion of insurance Europe foreseeable dividends plus kind of maybe about EUR 300 million from asset management and other towards that EUR 3 billion to EUR 3.1 billion? Is that still on track? And what are the moving pieces outside of those foreseeable dividends? Second question is around the Asset Management business. So I think you answered the question earlier on about cost/income ratio being perhaps a little bit flatter in Q1. You do have an operating margin target above 45%. And it's been consistently above that in 2018, 2019, 2020. So just wanted to know, is that 45% still a valid number? Or should we expect it to trend up more towards 55%, which it has been in recent years? And then the final question, just a little bit more conceptual around digitalization and some of the benefits that you're experiencing. Clearly, your networks are doing well, continuing to sell many of the Life products and P&C products. And you seem to be taking market share on the motor side. Presumably, you're becoming more efficient, and the investments you made are helping with that. Do you envisage some reorganization of the agency distribution network as a result of this digitalization and the trends that we're seeing through COVID?

James, so thank you very much. First question, about remittances. I've seen -- heard your comments, and I first would like to confirm 2 figures. Number one, it will be between EUR 3 billion and EUR 3.1 billion, the total remittance of the year, for sure. And the second thing, which I think would be very useful for you, I do want to confirm you that as of next week, because there is something coming, we will have 90% of the total remittance of the EUR 3 billion to EUR 3.1 billion already in the head office. So we -- and then the rest, the 10% which is missing will be evenly split between the third and the fourth quarter. So the difference between the SFCR, unfortunately, we do not publish all of the SFCR of the companies in the group. As you know, we have regions where there are many operations which are contributing to the final remittance. And just to take the example of the Central Eastern where we published basically only 1 or 2 of them. Then you know that we have a holding where money flowing from the holding, and in some cases, the arbitrage choice between a capital repatriation or a loan repayment is a choice which is done also looking not only on the dimension of the dividend, but the dimension of the balance sheet in the net result. And this has been pursued throughout this year. And then we have some effect of loan repayment which were not captured well in the SFCR that I've seen, for example, but you really need to go in the nitty-gritty. It is in the French one, I can confirm. We did the repayment of the subordinated debt, which is there, and you have EUR 200 million which are written in the SFCR. If you find them, we can show you and highlight you where. So basically, the delta you see is evenly split between a combination of money in the holding, which are not accounted there in the perimeter, and another part which is made by loan repayment movement, as I was mentioning you. Second question, Asset Management business. Operating margin above 45% -- at 45% is still a valid point. I think that you have to keep in mind that this operating margin has been made when we were not thinking of having in the budgets the effect of the performance fees, which is clearly moving a little bit this in a different way. So clearly, it is important to have in mind that, that was a kind of potentially shifting point. On top of this, you need to be aware in how, but having completely the so-called low-hanging fruit, the part which was simpler to be done with the internal optimization of the revenue stream from the capacity in the end of the group, so the non-external revenues. And now for the external revenues, we are investing in distribution on the asset management part where we are investing and we are creating a team. I would like to recall you, just to complete the first question on the remittance, I would like to clarify that we publish on our site, there are the links. But the one you were referring, you were looking only in Central Eastern Europe of our Ceska, but there are others which are clearly contributing to that. And that, you can access browsing through. On the third question, on digitalization. Digitalization, we invested. We invested at year-end of 2020 of the EUR 1 billion, more than EUR 800 million. So we are -- in advancing, we will invest more than EUR 1 billion by the end of this year. And this is a fundamental opportunity. Here, yes, COVID comes as a foster, an opportunity to change not only the way we work within the employees of Generali, but the way our agents work. We had a lot of support in order to allow them to interact in what we call this phygital approach where the client was wondering and wanting a human person to talk to, to decide on specific coverage, but allowing them to decide what is the channel. And the client, thanks to COVID, is more and more keen to interact also in a digital way. More than reorganizing the agent channel distribution, we already equipped them for this new phygital world. And we are strongly pushing even in regions which are growth regions and extremely digitally native like Asia. We think we have projects for fostering the agent distribution exactly because we do believe that this is a very positive supporting element in fostering our growth of insurance products.

The next question is from William Hawkins with KBW.

Back on your P&C combined ratio, please, could you talk a little bit more about whether or not you're seeing any inflationary trends affecting the cost of claims? We seem to be hearing a lot of things. Some companies are very concerned about the rising costs of parts and labor. Other companies are saying they're not seeing anything at all. So I wondered if you could kind of give us your state of play in terms of inflation risk. And then related to that, the 89.7% normalized for the first quarter, my understanding is that because there's so many moving parts, that's effectively just telling us what your budget was for the first quarter. If my understanding is correct, I mean how are you thinking about the risk that you go above that by the full year? Because if the 89.7% is your budget, hopefully, you'll still be on track. On the other hand, maybe you're still thinking your budget means that at some point, the number is going to be a lot worse to average down to that. And then on the solvency and financial flexibility, the 234%. First one, I know it's small, but the 11 percentage point benefit from markets, could you give a hint of how much of that came from eligible own funds versus reduction in SCR? And then more importantly, how are you thinking about your limiting factor for capital management right now? Because it's lovely to see the Solvency II ratio go from the 220s to the 230s. But maybe that's completely irrelevant for how you think about your business because all of this is just market noise. So I'm wondering when you're actually thinking about how you're managing capital, what's kind of the limiting factor or the binding constraint right now?

Yes. William, so question number one, inflationary trends and cost of claims. What is important is when we highlight about our increasing cost of claims, especially in the motor business, I do confirm that we are experiencing something in the order of 4% increase, which is a joint effect of a spare parts producer, let's say, moving the value chain and taking into account the fact that there is the COVID stress, and so they are, let's say, picking out of the pocket of the insurers and increasing the spare part cost, plus a macro trend of the increase in the spare parts coming from more equipped and more technological cars. Here, we have 2 effects. On the frequency, we do still see a decrease in frequency in the first quarter, which is positive in the -- more than 4% in the -- of this inflation growth, as you can understand, since we had a positive benefit. And as well there, there are 2 forms of benefit. The number one is stemming, again, the opposite of the macro trend. When you have a highly technological car, you have less frequency of accident, but more costly when it happens. And as well, on top of the macro trend, there is the movement really of the lowering of frequency coming from lower COVID, which is more than counterbalancing the short-term increase in the spare parts due to the COVID situation. So all in all, this is a positive effect as long as it stays. What is the risk on inflation and how we do manage it? One of the best lever to manage the risk of inflation due to the shorter end of our liabilities, which on average are in the order of 4 years because if you take the short- and the longer-tail business, it is to improve the speed of payment in the claims, which is the best way to hedge yourself against an inflationary trend. And paradoxically, it is also good when rate goes too far down in the investment side, like it was in the previous year. So in the previous year already, we started programs in many countries, but especially in Italy, to improve the speed of payment, which put us in a way to be less exposed to an inflationary cost because reserves, let's say, claims stays less at the time in our reserve weighting, so we have less risk of this being growing. Then second question, related to the COVID effect and the budget for the combined ratio. Clearly, don't forget, but the 89.7% has 0.8, 0.9 percentage point of lower natural catastrophe. So when you speak about what is our budget for combined ratio, you should take into account that our first quarter did not experience the same level of the average run rate of nat cat as we project. So going on, I confirm what I was saying in the previous answer to the call, which is we do look at a range of movement in a normalized post-COVID world, between 90%, 9-0, and 92%, 9-2 percent. And we do think that we will land in the lower end of the spectrum, all else equal as per the information we have today. Solvency II capital generation, yes, it is a factor of movement. And if you want, I can give you the pieces as of calculation. So our numerator, the own funds, it is EUR 44.4 billion of own funds at year-end 2020, the public figure. And we had an increase of own funds by EUR 500 million because of interest rates and a decrease of EUR 300 million in SCR. Don't forget that our SCR at year-end 2020 was EUR 19.85 billion. So you have to add EUR 500 million of own funds and deduct EUR 300 million of SCR to get 6 percentage point of benefit on economic solvency ratio from interest rate movement. Corporate spread is basically stable because we have a small reduction in the own funds of less than EUR 50 million and a negligible change in the SCR. So it's basically flattish, close to 0. Government spread, here, it is the improvement. You get EUR 600 million own funds increase and slightly more than 100 -- in between EUR 100 million to EUR 150 million solvency capital reduction for a net [ EUR 4.5 million ] almost reduction. Then equities did create EUR 1 billion of own funds in the first quarter movement and did as well increase by almost EUR 400 million the solvency capital requirement. These are the major drivers of the movement, William.

The next question is from Andrea Lisi with Equita.

Several questions from my side. The first one is on the trend in new business margin. If you can provide more color on that and, in particular, how do you expect it to evolve during the year given the current environment? And in particular, how much can you further lever on your -- on the product optimization to preserve it? The second question, maybe you already told it but maybe I missed it, is on the combined ratio, if you can tell us which is the contribution of the release of reserves from prior years. And just wondering on investments, if you can provide us an update on investment yield in both Life and P&C and if you have changed a bit your durations. And then several questions on the Asset Management side. The first one is, if you can provide us some -- an update on your external growth strategy here. Which are the features of maybe of the potential companies you would look at? Then if -- do you expect in next quarters or years to improve margins on the asset under management. We see that 17, 18 bps, if do you plan to increase it? And another question is on which percentage of assets under management can be further internalized and if you can tell us and remind us your target of asset under management to third parties over total asset under management in a medium-term time frame?

Okay. Andrea, let's start to -- with the set of answers. First one, on new business margin, a little bit more color, what can we do more? First of all, I would like to give you one figure which helped in understanding how we can continue to create value. You know that new business value is calculated with the beginning of period hypothesis. So we used the year-end 2020 financial condition to project the value created in the first quarter. If we would have used the March 31 financial market condition, the 4.44% of new business margin would have been read as 4.92%. So there are 48 bps more value coming out from only the financial conditions, so -- which is exogenous, let's say. But let me tell you, since we had an increase of our marginality, I do want to recall you that if I compare to the previous quarter 2020, we had a worsening of 66 basis points in the capacity to have a new business margin in the first quarter compared to the first quarter 2020 because of different market conditions, which implies that we were able to overcome, thanks to product mix, something which is in the order of between geographies and product mix, to almost overcome 1 percentage point of improvement of margin. Is it ever ending? The answer is no. Clearly, we need to maintain and we have levers, thanks to the mix and the reshaping of the guarantees, which I do recall you now, all of the EUR 100 sold of premiums in Italy on savings, EUR 64 are sold without any guarantees, not to the debt guarantee, which is really much less capital intense than before and explains, even in a lower interest rate environment compared to the first quarter 2020, that we are able to maintain our, if not slightly improve, our margin on the saving business. So this is the way we are doing and keeping on and changing the mix and increasing the value because of the higher weight of unit linked and protection going forward. Second question, combined ratio contribution of the reserve release is 3.7 percentage points, broadly in line with last year, which was 3.8. So we are stable, and we keep reserving prudently also in the current year due to the uncertainty of the situation. Third question, update on the reinvestment in Life and P&C. Life reinvestment yield in the first quarter was 1.57% and in P&C was 1.22%. Asset Management update on external growth strategy. We do look Asset Management as a multiplier of diversification of sources out of the spread-based business, which is the classical traditional Life and as a booster to enhance our offer of Life products to our clients with a complete set of investment strategies. So I recall and confirm you that we do not look for scale, but we look for skills, which is the key element that allow us to improve the pallette of offer and get into high-fees business. So we do not search for low-fees business. We do search for private liquid asset, quantitative strategies, everything which has a high-fee business, so -- compared to the low cost only driven synergies of ETFs like investment. Related to the percentage of asset management that can be further internalized is we continue to increase. And we are working at a percentage which clearly needs to foster external distribution effort. And this is why it is connected to the answer I gave below. We are thinking to invest more in the cost of distribution because of the fact that we needed to expand our offer and as well attribute this also to increase the unit-linked offer given also to others and other distributors, which can blend the offer, especially in the ESG space as we are pushing towards. I think I ended.

And just an update on margins. Do you think that maybe also with your action...

Sorry, sorry. Sure. Because it was a long step, I forgot one. I'm sorry, Andrea. So the improvement of margin. So we have room to further internalize the funds, which are currently managed externally because for the reason I was telling you. As long as we will increase our asset management capabilities, we can recapture partially money which are paid out, especially the expansion of the multi-boutique platform for both the unit linked and the general account offering could get benefit because this multi-boutique strategy, as I was telling you before, is enjoying a higher ratio of fees versus the asset under management. And we needed to strike a kind of right balance between the -- to invest and to grow in an efficient way because the goal in this kind of business is the profitable growth part.

The next question is from Gian Luca Ferrari with Mediobanca.

And the first question is on the nonoperating result, the EUR 275 million. You gave out the nonoperating investment income. You were just mentioning qualitatively lower cost of debt. I was wondering if you can give us the number, the exact number of the nonoperating holding expenses and hopefully also Q1 '20. Second question is on the tax rate, 31.4%. If you can share with us a guidance for full year '21. The third is on hedging strategy. So we saw in Q1 bullish markets, pretty low vol. If you took that chance to revisit your hedging strategy or if nothing has happened with that respect.

Gian Luca, so nonoperating result, what is important is, as you correctly highlighted, the reduction of the non-investment operating results. For what regards to the other net nonoperating expenses, they amount to EUR 122 million. And the previous year, they were at EUR 156 million. What I recall you that last year, there was also the accounting for the COVID fund. And in this year, we had some further negative effect from the hyperinflationary accounting in Argentina, some other charges and some cost for restructuring IT, more than restructuring cost for some IT in the first quarter. Second question, related to the guideline on the tax rate. We do confirm our guideline of a tax rate in between 30% to 33%, which was the corridor guideline already said and, clearly, was absolutely destroyed in the first quarter of 2020 because of the nondeductibility of the vast majority of the potential impairment, which, as you know, they came back because the only accounting closing is at half year, being the first quarter, just a non-IAS 34 closing. So there is the possibility for the reversal. Third question, related to our equity hedging strategy in Q1 with such strong market. What we did is we did selectively increase the hedging in some portfolio. One thing which we are doing is also, not on broadband side, more in some countries which are most sensitive in their so-called time value of option of guarantees in the own funds components, so in the driving force like, for example, in France. And as well, we increased our hedging ratio of an element which is very important in our capital management approach, which is the so-called annual management commission hedging of the unit linked, especially the equity fund, where we increased the proportion of the hedged management commission profiting from this high level of market, which is, again, a stabilizer of certainty in the P&L, a stabilizer of the own funds volatility of the unit-linked value force and as well a big reductor of solvency capital requirement of those business, which is, yes, self-funding. But if you reduce the capital allocated to that, you can free up capital which is allocated in the other saving business, which is part of our capital management active strategy.

The next question is from Steven Haywood with HSBC.

Two questions from me. The first one is on internal models. Under Solvency II, do you have any more plans to adopt any more past internal models this year or in the future? And what could be the potential benefits of these? And then secondly, am I right in hearing previously that you were discussing on the P&C that there is around, especially the motor business, 4% claims inflation and that the market -- Italian motor market is seeing 4% pricing reductions? So you're getting an 8 percentage point delta on the future going forward. Is this correct? And is there any mitigating factors to think about here?

Yes. Steven, so question number one, do we see further benefits to adopt partial internal model? Basically, with the year-end 2020 adoption of the operational risk model, we do see a completion of our journey for internal model application in the countries where we are applying it so far. And this is basically, I recall you, gave us something in between 10 to 11 percentage points of solvency uplift in the year-end figure. We don't see further element of improvement from internal model extension having completed the journey. On the second question, 4% claim inflation in motor and premium reduction in Italy. I was mentioning, Italy has a benefit of longer low frequency, which overcame that effect. What I was mentioning you is the effect on the so-called Motor TPL. As maybe you noticed, we are highly pushing to increase the Motor non-TPL coverage like kasko and the like, MTO, which are basically a very profitable business. So you need to look at the motor in the full combined ratio view, not only on the Motor TPL, but all of the other, and this is the strategy. Notwithstanding this, we have a mitigation of frequency also because of the adoption of the mobility system that we are using. And we have a big effort which has been done on the claims process improvement, which is, for your info, accounted in the loss ratio component as well as in the risk selection and the definition of the tariffs adoption with the clients. These are the mitigating factors, but we are going and we are continuously pursuing.

The next question is a follow-up from Michael Huttner with Berenberg.

Just 2. One is maybe the figure on private equity, the gains, I think, or the extra profits included in Q1 2020. And then on the answer you just gave, which I thought is really interesting, but maybe I'm a bit slow and I couldn't quite follow all the moving parts. Are you saying that although there is kind of pricing or margin pressure in MTPL, this is more than offset by the actions in the -- or your diversification effort in the other parts of motors like kasko and other things?

Hello, Michael...

Excuse me, Michael. Sorry, Cristiano. Your first question didn't come through properly. I didn't understand if you mentioned equity gains or private equity. Sorry.

Private equity, private equity.

Yes, I got it. Michael, private equity, let me tell you in a very simple way that the delta on the holding another element is explained by the Banca Generali performance fees. So our private equity is in line with the budget. It is clearly performing well. And I think in the half year figure, we will have even better view of how the opportunities are pursuing. But I confirm you that as of first quarter, it is performing in line, which was expected to be growing. I recall you that there were EUR 20 million -- EUR 21 million more of consolidation adjustments stemming from more dividends paid by private equity. On the second question, related to the margin pressure in Motor TPL, I was referring to Italy. And clearly, it is not all possible to close the gap growing in the kasko or the like. But it is a mitigating factor, and it is one of the lever we are using to exactly extract value out of the Motor TPL environment, which in Italy is, for sure, deflationary on the premium, stemming from the very low frequency experienced in the past and stemming from some competitive pressure made by peers which got aggressively in the pricing part, which we did not follow, as you see, because we have only 4% average premium decrease compared to other published figures of peers. So clearly, this helps us in managing the portfolio to higher renewal, higher selection and as well increasing also the volumes because of our B2B2C agreement, even though we pay a little bit more on commission because when there are agreements, clearly, there are more hands touching the same thing. We are bringing volumes which are covering the fixed costs, so having a net-net benefit effect. So these are the counter -- let's say, all the moving parts and the counter forces we are applying in this deflationary environment.

Ms. Raffo, there are no more questions registered at this time.

So thank you. I think we can conclude our Q1 2021 conference call. As always, if you have any follow-up questions, please do not hesitate to contact the IR team. And we will be again looking forward to your question for our Q2 conference call in early August. Thank you very much. Have a good day.

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