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

Good afternoon. This is the conference operator at Chorus Call. Welcome, and thank you for being with us on the Generali Group First Quarter 2023 Financial Results Conference Call. <<operator_script>> At this point, I would like to hand the conference over to Mr. Fabio Cleva, Head of Investor and Rating Agency Relations. Sir, please go ahead.

Morning, everyone, and thanks for joining our first quarter call. Joining us today are Marco Sesana, our Group General Manager, and Cristiano Borean, our Group CFO. Before we begin the Q&A session, I'll turn things over to Marco and Cristiano for some opening remarks. Marco, over to you.

Thank you, Fabio, and hello everyone. To begin, I want to say that the first-quarter financial results we posted confirm the group's capacity to produce solid growth and to carry out our strategic plan, even amid difficult circumstances marked by geopolitical pressure and volatile financial markets. So our strategy, we believe, is stronger than it has ever been. Our vision of becoming a lifetime partner to customers showed good progress during the first quarter. As we reach — I should say, we reached 69 million clients, growing our client base by nearly 1 million. It is clearly very important that we expand our client base by that much, and it matters that customers have entrusted Generali with their saving and protection. That is proof we are always there when a customer needs us. On that note, as most of you have seen in the news, this is a hard period for some Italian communities because of the flooding in Emilia-Romagna. So let me say we feel very close to that community. We have set out several initiatives, and we are on the ground to support people. I want to thank all our Italian colleagues, our agents, and everyone present on the ground who is working to support our clients.

Turning back to our customer — we strengthened our standing, achieving the top spot among peers for relationship Net Promoter Score at 19, an increase of 4 percentage points versus a year ago. That plainly shows the work, commitment and attention we put into constantly raising the standard of our advisory offering. To illustrate, 70% of policies, or of customers who have obtained insurance policies, now come via digital channels. Moving on to the individual businesses, beginning with Life: on volumes, during the first quarter we continued to see the industry pattern witnessed in the second half of 2022. Distribution — our proprietary channels, such as agents and employees — stays the primary lever for shifting the business mix toward our preferred line. The product mix seen in the first quarter confirmed how effective our distribution strategy is. Specifically, I would highlight protection, which came in at EUR 1.3 billion, driven by Italy and the international region, and unit linked, which hit EUR 1.4 billion, showing resilience relative to the broader insurance market. As a reminder, protection is the chief source of value, since NBV depends on protection for over 42%.

At Generali, we're seeing lapses go up — a moderate rise — and it was concentrated in a very specific customer segment within bancassurance channels. So that moderate increase showed up, particularly in Italy, mainly tied to Generali Life. Those products are distributed chiefly by Banca Generali along with other banking partners to affluent and high net worth individuals, who are especially sensitive to how interest rates move. On the positive side, a significant share of this outlook has been recaptured by our bank into other managed products. What's more, I'd say our preliminary figures for April and May indicate an improving trend in Italy, reflecting the positive effect of our new product offering and retention initiatives. In France, we've also seen an uptick in the lapse rate, primarily tied to large contracts distributed to a banking partner, which carry a high profit sharing growth. This increase for that product — which typically has limited profitability from Generali's perspective — is mainly driven by affluent and high net worth individuals moving their portfolio toward other asset classes. Broadly, from a product standpoint, our business units are adapting to changing customer appetite. And we preserve market competitiveness. In particular, we're updating existing products and launching new ones that are more attractive in the current market context.

I'll walk you through a few illustrations. Take Italy, for instance: within the hybrid offering, we're adjusting how much of our premium goes toward saving as opposed to unit link. We're rolling out a temporary variable fee so that customers get better yields over the short term. And we will pilot a new product generation featuring 2 underlying segregated funds, which gives our customers a more competitive yield. I'd also like to restate that, with interest rates having risen, our overall strategy stays the same. We keep a strong emphasis on underwriting discipline for new business in Protection & Health, and on capital-light products, reinforced by protection riders. Bundled solutions will remain the focus of our strategy, meeting several customer needs through one product, consistent with our lifetime partner ambition. We're convinced that the protection business especially holds significant growth potential, helped also by customers' greater awareness of protection needs after COVID-19. As I mentioned, this line of business accounts for nearly 50% of our new business value and carries more insulation from lapse risk, given its lower sensitivity to how interest rates move. That distinctive value proposition is a considerable differentiator for life insurance products when set against other investment products.

Beyond staying disciplined when it comes to new business, we keep pursuing and adjusting our approach so that our in-force portfolio is optimized. As I believe you've noticed, the recent announcement regarding the Pensionskasse disposal aligns with that -- in Germany, it aligns with that. And it substantially lowers the risk exposure we carry from annualization in the German Life operations. Let's turn now to P&C. Growth in the P&C business, especially in Italy, Germany and France, should keep going at the same pace we witnessed in 2022. Gross written premium in the first quarter of '22 rose 10% versus a year earlier. That expansion comes mainly from non-motor, which is increasing in both price and volume. For full year 2022, you'll recall we reported a 3.3% rise in the average premium within our retail and SME book. By the close of the first quarter, that figure had climbed to 6.3% in motor and in non-motor accident, health and disability. Non-motor premium especially kept expanding markedly, helped by the tariff strengthening put in place last year plus the impact of the indexation mechanism. Travel insurance, thanks to Europe assistance, maintained its robust upward trend, with additional support from the U.S.

We have a partnership with the big online players. In motor, the average premium in our main market keeps rising. Strengthening tariffs in line with market inflation and pruning the portfolio stay a key focus, and the group will keep coordinating implementation and the technical measures needed to pursue profitable growth in our strategy. That said, it is important to note that price increases usually need 12 to 18 months to unfold and deliver the full benefit on P&C profitability. So they will progressively show up in our numbers as policies come up for renewal during the year. Our technical levers, such as risk selection and claims manager, are being intensified. Now we move to investment. A few notes on the different asset classes. So our listed equities -- on listed equities, we maintain a prudent approach. In credit, we confirm our selective approach with low exposure to more cyclical sectors and highly leveraged companies. We saw a very limited number of rating downgrades in the portfolio. Our funded exposure to private real assets is lower than peers, which allows us to deploy better multiples in attractive vintages. We have taken a prudent approach to exposure to private debt, as in this asset class we confirm the existing commitment while we have reduced the new allocation given the change in market conditions.

Turning to our private equity holdings, we are seeing distributions slow down; however, after carefully reviewing the valuations, we determined that the marks our general partnership supplies are prudent. Now, before wrapping up, a few remarks about real estate, where our exposure stands at roughly EUR 35 billion. More than 80% of our direct portfolio is made up of high-quality assets situated in major cities, in core locations. Meanwhile, under 5% of that portfolio sits in markets facing greater pressure, such as the U.K., the U.S., and Scandinavia. Those factors, combined with a disciplined approach to selecting tenants, account for the low vacancy levels we have, which sit near 10%. That figure includes vacancy tied to building refurbishments aimed at improving energy efficiency, in line with our ESG strategy. We feel comfortable with our real estate exposure, helped as well by the negligible leverage we carry with LTV — a loan-to-value of 7%. So to conclude, the first quarter '23 result confirms our capacity to produce solid growth and to execute our strategic plan. As we head into the second quarter, we are confident about the right direction in which we are steering the group. Now, Cristiano, over to you.

Thanks, Marco, and good morning, all. Earlier today we reported our first set of quarterly results prepared under the new accounting standards. I'd like to offer a few comments on our financial performance that build on Marco's view of the underlying business trends. The figures reflect a very strong opening to the year, with an operating result above EUR 1.8 billion, up 22% compared with a year earlier. We are glad to reaffirm this as well in the present context, but we remain fully on track to hit the financial targets set out in our strategic plan. As we noted at our December 2022 Investor Update, IFRS 17/9 give a clearer picture of the economic trends behind our numbers and render the Life operating result steadier and more predictable. Back in December, we explained how the new adjusted net result would be computed once IFRS 17/9 took effect. That KPI, on which our EPS growth target is reported, normalizes the reported net result by taking into account the effect of the following 4 elements. First, volatility arising from marking to market assets at fair value through profit or loss held in not-participating business and the shareholders' fund. Second, the use of hyperinflation accounting. Third, amortization of intangibles tied to M&A transactions. Four, gains and losses stemming from acquisitions and disposals.

The adjusted net result measure gives you a bottom-line KPI that better captures how the underlying business is performing. During Q1 2023, adjusted net results rose substantially, moving from EUR 821 million to EUR 1.23 billion. That shows the advantage of the group's diversified profit sources, which support our operating results and are now growing more and more visible. Let me now walk briefly through the financial performance of our key business segments. Our top line keeps expanding in the areas we focus on, chiefly non-motor P&C. Non-motor gross written premium grew 11.4% in 2022, and that carried into this quarter with growth of 12.1%. This matters because faster non-motor GWP growth lets our P&C portfolio gradually rebalance toward a segment with healthy underwriting margins and a combined ratio of roughly 90%. Naturally, those premiums are now being reinvested at yields above what our strategic plan assumed, owing to higher interest rates. So growth in non-motor lifts underwriting results and also strengthens the investment result before finance expenses. Our motor P&C top line likewise shows clear improvement, as the tariff strengthening actions Marco described have begun to come through.

Those figures point to an improving trend in personal lines. Beyond the solid top-line growth, P&C posted a substantial rise in operating results, moving from EUR 485 million to EUR 847 million. I'll offer a few comments about the combined ratio, comparing this quarter with the first quarter of 2022. As we noted in the Investor Day Update last December, we guided to an optical overall increase of around 2 percentage points in the reported combined ratio, with no effect on the P&C operating result, mainly due to the change in the calculation formula. Under IFRS 17, the combined ratio for the first quarter of 2023 came in at 90.7%, 5.6 percentage points below the prior year and helped by 4 main drivers. Driver one is the larger benefit from discounting after interest rates rose during 2022. Driver two is the inflation-driven strengthening of provisions on our P&C reserves, which, as you may remember from recent calls, we put in place during 2022. The third impact is the rebalancing of the P&C book toward the non-motor line, which is more profitable and carries a lower combined ratio. And finally, natural catastrophes were negligible in the first quarter of 2023.

In the first quarter of 2022, losses from natural catastrophes came in broadly around the long-term historical average, with an impact of 140 basis points on the reported combined ratio. Because of the discounting element under IFRS 17, the operating result is more sensitive to interest rates. That makes it important to include the undiscounted view of the insurance service results and of the combined ratio as relevant KPIs. For the first quarter of 2023, the undiscounted combined ratio stood at 93.8%, versus 97.4% in the same period a year earlier. As we discussed before, when we disclose at the reporting date, we will include both the discounted and the undiscounted operating insurance service results and combined ratios. At the close of the first quarter, the undiscounted operating insurance service result was EUR 446 million, whereas in the first quarter of 2022 it was EUR 163 million. The discounted operating insurance service result came to EUR 669 million this quarter, compared with EUR 233 million in the same period of last year. Given how relevant discounting is, let me give you an indication of the direction of travel for the year. Setting interest rate moves aside, you should expect the discount benefit to decline gradually quarter-on-quarter, though in a nonlinear way, which also means that the discount impact on the combined ratio will lessen during the year.

I'd be glad to go into more detail on this when we get to Q&A. As a point of reference, though: in the first quarter of 2023 we saw a benefit of EUR 223 million, and assuming interest rates stay stable, you could expect a discounting benefit of between EUR 650 million and EUR 700 million across 2023. What matters most here is that the EUR 223 million discount benefit from the first quarter of 2023 should not simply be multiplied by 4. Last, on P&C, operating investment results fell from EUR 252 million in the first quarter of 2022 to EUR 178 million in the first quarter of 2023, driven by higher finance expenses reflecting how the rise in interest rates through 2022 affected the unwinding component. Turning to Life. In this segment, the trends that began in the second half of 2022 are carrying on. Still, it's important to stress, as Marco did, that net inflow in protection and in unit-linked remains positive. The profitable business mix that our strong, mostly proprietary distribution network makes possible is essential for sustaining a new business margin that stays top of class by any standard. On new business volumes, we are down 15.6% in terms of present value of new business premiums.

Keep in mind that the year-over-year movement was magnified by a larger discounting impact after interest rates went up in 2022. In fact, new business production, when measured as annual premium equivalent, fell by a gentler minus 3.6% versus the same period a year earlier. The margin rose 32 basis points to 5.72%, which is an excellent level. That gain mirrors a clear strengthening in underlying new business profitability, driven by the quality of the product mix and higher interest rates. As Marco mentioned, beyond new business, we remain focused on optimizing the in-force book; the recently announced Pensionskasse disposal forms part of that strategy and will support ongoing improvement in the liabilities profile, with an expected positive contribution of 1 percentage point to the group solvency ratio. The Life operating result of EUR 924 million is nearly 10% above the IFRS 4 Life operating result in the first quarter of 2022. As we said on our full year 2022 earnings call, the Life operating results under IFRS 17 will be stable in terms of growth. That means in line with 2022, though bear in mind that in 2022 the Life operating result rose 25% year-on-year, helped as well by nonrecurring items that become recurring under the new accounting standards, and also reflecting the upward movement in interest rates.

Life's operating results came in at EUR 924 million, which is 1% higher than the first quarter of 2022 on a comparative basis. The biggest factor behind the larger increase was the lower stock of Life CSM at the start of the period, which followed the negative economic variances seen during 2022, mainly from weaker equity markets and elevated volatilities. The Life operating result was powered by the EUR 743 million CSM release, and that figure is below the EUR 824 million of new business CSM. That's a meaningful outcome considering it came about while new business production was slowing, and it demonstrates that our product mix is properly calibrated to support at least the CSM growth path. The expected return of the CSM — meaning the sum of the unwinding of the discount plus the contribution from the expected realization of real-world extra return over the risk-free rate — also added materially to the stock of CSM before the release. I want to emphasize that expanding the CSM by 4% in the quarter when new business volumes were lower is a remarkable performance, even though positive economic variances supported it. And once again, it's important to point out that the new accounting standards give a clear and more informative view of how new business value links to the Life operating results, and they are also more closely aligned with the Solvency II framework.

In the first quarter of 2023, the Asset & Wealth Management segment posted an operating result of EUR 233 million, which is 10% lower than a year earlier. Wealth Management had a strong showing, with Banca Generali delivering 27.4% growth in its operating result, helped by the tailwind from higher short-term interest rates. There are primarily 2 reasons for the smaller contribution from Asset Management. At the start of January this year, the asset under management base stood at EUR 505 billion, or EUR 70 billion below where it was at the beginning of January 2022, and that mechanically translates into lower recurring fees. On top of that, performance fees of EUR 38 million were recorded in last year's first quarter, which at the time we clearly flagged as nonrecurring, whereas there were none in this year's first quarter. As you may recall, the situation last year was exactly the reverse. The reduced contribution from Banca Generali was offset by a very strong first quarter contribution from Asset Management. This demonstrates that our profit sources are balanced and diversified even within the same segment. A benefit of the new accounting standard compared with IFRS 4 is the straightforward representation of private equity, with fewer consolidation adjustments. Let me turn to shareholders' equity, because I was really looking forward to these results being published so I could show you in practice what I think that in December.

IFRS 17 has enhanced how shareholder equity appears in the accounts, and it will also cut the volatility we saw under IFRS 4 by a substantial margin. Under IFRS 4, we ended 2022 with shareholders' equity a little above EUR 16 billion. Under the new accounting standards, which were designed to represent shareholder equity better, shareholders' equity stood at EUR 27 billion on January 1. I'd like to finish with a remark about our solvency position, which remains extremely solid at 227%. The rise from the 221% solvency at year-end '22 comes mainly from the strong contribution of normalized capital generation, and I expect that contribution to stay strong over the course of 2023. And now I believe it's time to begin the Q&A session. Operator, over to you.

This is the conference operator at Chorus Call. The question-and-answer session is starting now. <<operator_script>> Peter Eliot from Kepler Cheuvreux has the first question.

Thanks for the results and for the helpful disclosure today. I have 3 questions, if I may — one for each main division. First, on Life: for the Q1 operating profit, you gave us the CSM release, which is very helpful. I'm just wondering whether you can give us any hints on the other elements. In particular, it would be useful to know what one-off items there were, especially maybe on the loss component and experience variances, and then later, especially regarding surrenders. The Non-Life question was about the expense ratio. That has gone up a lot. Could you just expand on what's happening there? And then on Asset Management, I'm just wondering if you could expand on the extra costs due to the launch of initiatives and optimizing the operations. I'm just wondering if you could elaborate a little on when we might see any positive impacts from that.

Much appreciated, Peter. Cristiano, I believe those 3 questions are yours to field.

Thank you, Peter, and good morning, everyone. So, as with the CSM release — of course, you've all seen it — the figure was EUR 743 million, and a few factors gave it a positive push as well: our loss component running through the P&L came in lower in the first quarter of 2023 than in the first quarter of 2022. Essentially, we recorded a EUR 10 million loss component against a negative loss component of EUR 66 million — obviously, first quarter '23 versus first quarter 2022 — so that works out to a EUR 56 million improvement. Regarding the — this also stems partly from some reversals in savings and protection business, in particular. And then I'd also like to flag — since you raised the effect not just on operating results, but you were also asking about lapses — I want to point out that the movement Marco walked you through, the exit versus what had been projected, had a very low impact overall on the CSM value, which then flows into the P&L on a pro rata basis; just so you know, that negative impact is under EUR 100 million. So that's the reduction in total CSM of more than EUR 32 billion from all the lapses coming in above the projected level.

So as you can see, that confirms the low value. Now let me move to the other component of the P&C expense ratio. We saw a rise in the P&C expense ratio, and it was mainly driven by 0.7% in acquisition expenses coming from 2 main drivers. Driver number one is the growing weight of non-motor. As you've seen, we were growing very fast, and that carries a higher acquisition expense cost, and also in the motor business there is a shift aimed at accelerating the improvement of profitability on motor, other damages, which come with a higher level of acquisition expenses. On the other hand, there is also the fact that we are integrating, and this is affecting not only acquisition expenses but also administrative expenses, with another 0.7 percentage point deviation. The newly consolidated business in Malaysia, India, where we reach the 74% shareholding, and also La Medicale. So this is also part of the higher drift in their cost. Since we are still not finalizing in India, it is less. But in Malaysia, there will also be some integration work to be done, as well as in La Medicale, to bring it back to the average group profitability.

The third item is Asset Management. In that operation, we're putting more money into certain regulatory requirements and initiatives that sit with the operations teams, operations and IT; we're stepping up that investment so as to strengthen how we track and steer ESG performance in real assets in particular. There was also some spending on the operating machinery to upgrade the system, which is becoming more and more demanding given the environment and the group's ambition. I want to flag in advance that this cost sped up somewhat during the first quarter, yet we anticipate that the pace of this cost increase will slow in the last quarter of the year.

Andrew Ritchie from Autonomous has the next question.

Could you bring us up to date or remind us what retention the group carries for natural catastrophes and how its reinsurance is structured, given the flooding in 2Q? Second, could you give a little more detail again on — I didn't quite follow what has been done with the Life products in response to — I believe you mentioned some crediting rate adjustments or relaunches of more traditional savings products aimed at winning back some of those outflows. A recap there would help. And I'm curious: when you say the flows were recaptured, do you mean recaptured within Generali, or have your partners recaptured them in their own savings products? Then the last question — I think you laid out that the current year discount benefit would decline. What happens to the insurance finance expense? My assumption is that it rises as the year progresses. But perhaps discuss the net of the 2, which is more interesting than the separate components alone.

Thanks, Andrew. Marco, the first 2 questions are for you, and Cristiano, the third one is yours.

Yes. Andrew, yes. So let me begin with your first question. Regarding what we're observing, for instance, right now in Italy, in Emilia-Romagna. Our reinsurance protection, then, is running above EUR 200 million, specifically for flood losses, for example, in Italy, up to a ceiling of EUR 2.4 billion. So that's the type, then. We also have a cat aggregate in place. I'd remind you it carries a EUR 800 million retention. So those are the protections. Clearly, what we're seeing these days in Emilia-Romagna falls far below that figure. And so that's the outline of the retention and protection we have in place. Now the second question, the Life product, on what we mean when we recapture the masses and what kinds of initiatives we're putting in place. So there are 2 types of -- well, several initiatives exist that we can mainly focus on for that. So first is how we put initiatives in place in terms of recapturing masses or making sure we manage a client who wants to exit the contract. So we have initiatives to retain the customer.

Whether it's, say, putting forward an offer on an extra product, or putting forward an offer on protection when presenting new segregated funds. So that's everything we do when it comes to insurance products. Also, as I mentioned at the start, we also had a new product that we're launching, and those lean more toward segregated fund. They carry a variable fee that we can apply over the short term to make sure we deliver a certain type of return for the customer. And in June we're also launching, especially in Italy, a product with 2 segregated fund — one is smaller, and it moves quickly with the yields and can be more attractive. And the other one is more stable, and we'll balance toward these 2 segregated funds and the unit-linked product to make sure this gives an attractive return for the customer. When we say we recapture initiative, basically, when the churn of the — or the lapse happen at a distributor like Banca Generali, Banca Generali is able to recapture some of the masses in other banking products. So this will show up in return for the group, not on the insurance side, but more on the banking side.

I hope that makes things clear regarding retention, new product, and what we mean when we talk about recapturing masses. So, Cristiano?

Okay, great — thank you. Andrew, that question is exactly right, and it also gives me a chance to walk you through why the discounting will come down as well, and you should broadly expect 3x what we saw in the first quarter, because I think it helps to lay out both the discount benefit and the complete picture on insurance finance expenses. I'll take 1 minute more, but I believe it's well worth it so you can forecast better too. So the current year discounting — the reporting period is essentially computed as the discounting of the future expected and discounted claims, which sit in the claim reserves of the reporting period, using the current investment rate. And those represent an average of the market curves over the reporting period. What does that mean? Let me give an example. At year-end, the discount curve is an average of the market curve at the start of the year, at the close of the first quarter, at the close of the second quarter, at the close of the third quarter and at the close of the fourth quarter. So this discount curve, as you know, is then locked in.

Then that becomes the foundation for unwinding the claims sales, which will hit the P&L beginning the year after. So let me walk you through it a bit more clearly: once you have this discount curve available — and you'd take it from the market, not because it's the sharp curve — it gets multiplied by the current-year loss ratio to produce an estimate of total claims, which broadly runs around 65%, 60% to 65%, or 66% depending on the quarter, but roughly in that region. Then you have a certain amount, so insurance service revenues need to be multiplied by that current-year loss ratio. And then you get a certain percentage amount, which is the portion going into the reserve that hasn't already been paid. That percentage amount also has to be multiplied by the discount rate and then by the duration of the claims. This percentage amount at year-end should be 50%, and the duration of the claims we need to take into account is roughly 2.5 years. So in the end, if you have 100 premium with a 3% flat curve during the year — just to keep it simple — we have 100x the loss ratio I mentioned earlier, times 50% to get a year-end figure, times 3% of the discount, times the 2.5-year duration.

What I'm doing here is explaining the route away from discounting. Obviously, there's no exact mathematical formula for this, since we're combining businesses whose underlying rates differ quite a lot. Keep in mind that we also have operations in Argentina, but this should still be of help. The last piece is far more straightforward. Insurance finance expenses essentially reflect the unwinding of prior years' discounting across the various generations. And it's largely linear. So you simply multiply by 4 the impact of the finance expenses we're seeing. Now, as I mentioned earlier, whereas in the first quarter of '23 you multiply the discounting by 3, you multiply by 4 the effect of the insurance finance expenses, which as I understand it comes to roughly EUR 90 million. Thank you.

Our following question comes from Farooq Hanif at JPMorgan.

I'm still absorbing all of that, so sorry if I'm a little slow here. Let me just move on to Life. You mentioned that protection is mostly sold as riders within your business. Could you give us a sense of your penetration rate and which regions you offer protection as a stand-alone product? And what's your strategy to grow that? Because to me it feels like, obviously, this is a huge lever for CSM growth. Second, based on current margins, what's your outlook for the growth rate in CSM? If we had to normalize it, where would you land? Would it be something like 2% to 3%, or 3% to 4%? Where do you think you can get that kind of normalized growth rate to? And then the last thing is, when we look at the underlying loss ratio in P&C, so if we strip out net cat, strip out reserve releases, and strip out discounting, it seems to have clearly improved by roughly 200 basis points. So is that mostly just mix shifting to non-motor, or are we beginning to see tariff increases having some effect?

Thanks, Farooq. Marco, the first question is headed your way. The second one is lined up for Cristiano.

Yes. So to start, I'd like to point out that when you look at what's showing up as a significant component of new business value at 42% in protection terms, it isn't just riders. In fact, a substantial portion of protection is also sold on a stand-alone basis. In the first quarter, obviously, to the same degree that new production is under pressure, riders are under pressure too. But what continues — I'd say what continues to demonstrate increasingly strong momentum is stand-alone protection. Regarding your question about how many products carry a protection rider, I believe we remain around the 60% range. And that's a substantial increase compared with a few years back. So we're at that level. It's a very solid level. So Cristiano, over to you. You probably mentioned the strategy to grow, protection as well. So as we've said, we're concentrating on bundling even more around that average of 60%, and also the stand-alone business, which is centered on health needs and meeting what clients require post-COVID-19 in terms of protection and health — that's something we intend to pursue and deliver over time.

Cristiano?

Thank you, Marco. So Farooq, regarding the current margin on CSM — let me explain that the CSM growth we anticipate on a normalized basis, meaning we exclude economic and operating variances, which obviously depend heavily, just in your case. During the first quarter, we recorded EUR 1.2 billion of positive economic variances, driven by improved conditions particularly in equity and, in some cases, credit markets, and those have to be removed. We anticipate normalized CSM growth of 4%, factoring in new business growth expanding more rapidly than the release plus the unwinding. On your third question, I believe it's quite important at this point to make clear that, certainly, you noticed that discounting improved by 200 basis points quarter on quarter, as I see it. So a number of items need to be stripped out. That's precisely why we keep telling everyone — and not just everyone externally, but internally too — that all our KPIs and targets assigned to the business units are set on the undiscounting effect, since we don't want to blend the two. And that's why, net of natural catastrophe, on the underlying current year combined ratio we are broadly stable, so as to capture the complete shift in the mix, which is non-motor versus motor.