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

Good morning or good afternoon — I'm the Chorus Call Conference Operator. Welcome, and thanks for joining us for the Generali Group Full Year 2023 Results Presentation Conference Call. Just as a reminder, everyone is in listen-only mode for now. Following the presentation, there will be a chance to ask questions. If anyone requires help at any point during the call, they can reach an operator by pressing star and zero on their phone. I'd now like to hand the conference over to Mr. Fabio Cleva, Head of Investor and Rating Agency Relations. Sir, please go ahead.

Thanks, Operator. Good day, everyone, and welcome to the Assicurazioni Generali Full Year 2023 Results Presentation. Joining us today are our Group CEO, Philippe Donnet, our Group General Manager, Marco Sesana, and our Group CFO, Cristiano Borean. Before we begin the Q&A session, I'll turn things over to our Group CEO for a few opening remarks. Philippe, over to you.

Thank you, Fabio, and I appreciate everyone being on this call. The 2023 Full Year Financial Results we're reporting once again demonstrate Generali's solid standing and the steady headway we're making in delivering the strategic plan we're currently executing. Despite a demanding environment, the group kept generating profitable growth and building sustainable value for every stakeholder. On top of that, this outstanding performance has yet to capture the favorable effect of the Liberty Seguros and Conning Holdings and its affiliates acquisitions. As we reinforce our insurance leadership across Europe and keep constructing a global asset management platform, those acquisitions will give us an additional lift. Ahead of opening the line for questions, I'd like to emphasize four main points. To begin, we achieved record results, with every business segment contributing positively. Operating results came in at a record EUR 6.9 billion, a rise of 7.9% versus Full Year 2022. Adjusted net results climbed as well, reaching a record EUR 3.6 billion, marking a very robust 14.1% increase. From 2016 onward, the group's operating results have grown far faster than the top line. That plainly shows how focused we are on profitable growth, and it also shows Generali's successful shift from being mainly a life insurer into a diversified insurance and asset management group.

The second point I want to make concerns Property & Casualty, which has been the main engine behind our top line growth, with positive performance posted in both motor and non-motor lines. P&C also served as the primary driver pushing our operating result to record levels. The tariff-strengthening actions we have put in place are producing an acceleration in the growth of our annual average premium. In addition, the undiscounted Attritional Combined Ratio is delivering tangible improvement across various time periods. My third key message concerns customers. We keep working hard toward our lifetime partner ambition, and we made further progress in 2023. We secured the number one position within our peer group when it comes to relationship Net Promoter Score. Turning to our multi-holding customer goal, we ended the year with more than 50% of customers trusting Generali to cover at least two of their insurance needs. That surpasses the ambition we had set for year-end 2024. Staying as close as possible to our customers is a key pillar of our strategy and a distinctive trait of Generali as the largest insurer for retail and SME customers in Europe. Thanks to our continued and significant investment in distribution and in our customer-centric value proposition, we have a unique ability to benefit from the positive dynamics we are seeing in personal lines.

You can see the same pattern in our life business, where protection and unit-linked products kept posting positive net inflows—nearly EUR 9 billion by the close of 2023—even with the market environment being difficult. If conditions in the market keep getting better through 2024, we're confident we'll return to positive net inflows in life. Getting us there will depend heavily on our leading proprietary distribution network, the channel that sits closest to customers. Message four concerns how we remain committed to rewarding shareholders. Given these excellent results, along with very healthy cash generation and a solid capital position, we're proposing a higher dividend of EUR 1.28 per share. Since I became Group CEO, we have paid dividends that are attractive, predictable, and steadily rising. The dividend for this year exceeds last year's payout by over 10% and stands 60% above what Generali paid in 2016. This dividend also means we hit our cumulative dividend target for 2022 to 2024 of EUR 5.5 billion. Proof of our focus on shareholder remuneration also comes from the EUR 500 million share buyback we intend to carry out this year, subject to AGM approval. Bearing that in mind, across the time horizon of our current plan, we will return to shareholders a total of EUR 6.5 billion through dividends and share buybacks combined.

That accounts for more than 20% of the market capitalization we had at the outset of the plan. Beyond that, beginning in 2023, we've made the choice to counter any dilution coming from long-term incentive plans by way of share buybacks. As I mentioned during our investor day, moving forward we'll seek the most efficient balance between M&A and shareholder remuneration each year, potentially including annual buybacks. In closing, we remain focused on successfully delivering our Lifetime Partner 24: Driving Growth strategy, and we are fully on track to reach the plan's two remaining key financial objectives. In addition, we keep growing our business, especially regarding the integration of sustainability — the originator of our present plan — into all that we do as a responsible investor, insurer, employer, and corporate citizen. My attention, along with that of the other members of the Group Management Committee, is also shifting more and more toward the upcoming strategic cycle. With Generali in the strongest position it has ever held as a profitable, diversified insurance and asset management player, this is the perfect launching point for the next plan, and it fills me and my team with great energy, passion, and enthusiasm to write the coming chapter of our sustainable growth story.

Thanks again for your time and for the interest you've shown in our group — and now I'm glad to take any questions you have, along with Cristiano and Marco.

This is the Chorus Call Conference Operator. The question-and-answer session starts now. If you'd like to ask something, press star and one on your touch-tone phone. To take yourself out of the queue, press star and two. When you ask your question, please pick up the receiver. Our first question comes from David Barma at Bank of America. Please go ahead.

Good morning, and thanks for taking my questions. My first one concerns P&C, where it's encouraging to see such a solid gain in the underlying loss ratio during 4Q. Could you walk us through what shifted in the last quarter compared with earlier in the year? And bearing that in mind, if we normalize for the larger net cuts you made in 2023 and factor in part of the pricing benefit that ought to flow through in 2024, you should be able to land considerably below your 96% target. So which other headwinds or potentially volatile items ought we to keep in mind for 2024? My second question, perhaps related to that, is this: now that the Liberty Seguros deal has closed, could you provide a little more detail on your assumptions regarding how much Liberty Seguros contributes to your 2024 target? I also have a question on cash, tied to Switzerland. So you've been building reserves for a few years. The interest rate picture has shifted somewhat. And can you update us on your plans for reserving in Switzerland, please, and on whether we might begin to see some dividends emerge from that unit?

Thanks.

Thanks a lot, David. Cristiano, all 3 of those questions are directed at you. And Marc, naturally, if you'd like to chime in at the end regarding the underlying trends in P&C, please feel free to do so.

Hi David, and good morning, everyone. So, to start with, the underlying loss ratio improvement in Q4 compared with what you saw across the first nine months. I believe we already laid out a very detailed evolution in the first part of the document posted on the web. But what's visible is that there's clearly an overall improvement in the fourth quarter relative to the first nine months in what we call the calendar year loss ratio attritional undiscounted, once you take out net CAT, which declines by 1.5 percentage point in Q4 compared with the first nine months, and that's also driven by — this happened despite a slightly bigger increase in man-made, from 1.7 to 1.9 in the fourth quarter, 1.9 versus 1.7 across the first nine months. That's a good driver of the evolution. There was also a decrease in acquisition expenses in Q4 overall versus the first nine months, and that's driving an overall improvement in the current year, specifically the combined ratio attritional undiscounted of 2.4 percentage points — so, with net cat removed, these are the numbers. So we went from 96.6 in the first nine months to 94.2 in the fourth quarter of 2023, so minus 2.4 percentage point.

Turning to the outlook: are we performing better than what I indicated at the end of January? What we're saying is that whenever we establish an ambition and a target, we always aim to set that target and then try to exceed it. Clearly, what we're measuring so far relates to the fact that we're implementing all the necessary technical measures to adapt to any imbalance, which is observed dynamically in every single geography. We're growing non-motor at a quicker pace, and that is enabling us to achieve better profitability as well, because of the two segments, the better one is non-motor, as usual. Clearly, this is giving us confidence in what you mentioned, and we will manage it accordingly. As for the second question about Liberty Seguros, yes, it has closed, but the balance sheet still has to be approved — the local GAAP balance sheet for year-end 2023 must be approved. We are still awaiting final approval of this so we can start digging into the numbers and understanding and aligning those figures with our group figure. Let me just remind you of one important sensitivity: 5 percentage points more in Liberty Seguros' combined ratio versus the group's means a 20 basis point deterioration in the group combined ratio.

That's the kind of sensitivity we need to keep in mind. Regarding the third question—what's going on in Switzerland? Well, something quite significant and favorable is taking place there, because let me explain: first of all, back when we began 2023 with the opening balance for 2023 published, we were already applying the IFRS 17 figure, a standard practice internationally that already captures the portfolio's value and its natural unwinding through the release ratio. Beyond that, since our conversations with the regulator centered on Local GAAP reserving, we reached an agreement at year-end aimed at achieving very prudent reserving. In addition, we are free of any form of specific reserve. What's more, this gives us far greater predictability. It came about through an ALM project implemented in a highly detailed way and still underway in 2024, which lets us have considerably less sensitivity and much better predictability, and going forward, allows for less trap or risk on capital. So far, this marks a very positive improvement achieved. Next question, please.

The following question comes from Michael Huttner at Berenberg. You have the floor.

Great. Thanks a lot. Those are lovely results — really lovely. It was genuinely hard to come up with questions that were challenging. But here we go. Could you give us the balance of discounting and undiscounting for 2024? My calculation — and I'm probably wrong — is that in 2022 it was plus EUR 500 million. So that year, the discounting plus the unwind of the discount came out positive. 2023 was plus EUR 520 million. And my guess for 2024, taking into account both the discounting and the unwinding — the discounting — is that it falls to EUR 250 million. So that's a headwind of EUR 270 million. So just to verify those numbers. The second thing is on pricing. So could you give us a sense of pricing in Q1? I know pricing was really strong in 2023, but that's average pricing. So what interests me is more of a momentum figure, if you have anything. And then the last one is really, really, really cheeky. It's not negative, but it's something one of your peers said last night. If you were to run a very extreme scenario — and I really apologize for kind of troubling the waters. It's not the time to be thinking of such scenarios — but something happening in Taiwan, where would your Solvency, which today is 212%, land?

Appreciate it.

Thanks a lot, Michael. Could we ask you to say the third question again? If I've got it right, it concerned how geopolitics could affect the Solvency Ratio. Is that right?

You've got it exactly right. That is precisely correct.

All right, thanks a lot. So Cristiano, I’ll start with you on the first question. The second one, about pricing in P&C during the first quarter, goes to Marco, and then the third, on solvency, comes back to you, Cristiano.

Yes. Hello, Michael. First, on the balance between discounting and unwinding — you're absolutely right. Let me give you the figure. In 2022, contractual discounting was EUR 463 million, and in 2023 it came to EUR 814 million. That clearly creates a EUR 351 million delta year over year. So this year we had a positive benefit from that. But looking at the unwinding — the so-called insurance finance expense, the component tied to unwinding of the liability — I see a negative delta. On a relative basis, the delta between the extra cost in 2023 and the cost in 2022 is EUR 186 million, because we ended up with something unwinding at negative rates still in 2022 versus unwinding at positive rates in 2023. Looking ahead, this effect would mean that for 2024, all else equal with rates as we are observing them, you should get less than EUR 800 million, maybe closer to EUR 700 million of discounting expected in 2024, while the unwinding number should rise to EUR 565 million of EFI related only to unwinding on the life, which basically represents something on the order of EUR 250 million more compared to this year.

That's why, when you look at the total P&L impact, the gain we're seeing this year shows up in a higher base—one that's tougher to beat next year, let's put it that way. And the reason behind this is precisely what I mentioned earlier in response to David: the ongoing improvement in attritional results within the business we're underwriting.

That's very clear. Thank you, Cristiano.

Hi, Michael, and hello to everybody. Now, regarding pricing during Q4: we continue to observe significant tariff momentum as we enter Q1. As always, let me clarify things and offer a bit more perspective on our approach. As you're aware, we adjust our pricing and, shall we say, our portfolio restructuring according to how the risk premium shifts. That risk premium combines frequency and severity, and it's affected by inflation as well as by the net effect of net cats. So a number of different elements influence the risk premium. On the whole, we've planned a rate injection throughout Europe that remains quite strong, especially in a few geographies—clearly those where we add more natural catastrophe exposure or where the market shows a greater need to pursue price increases, Germany being an example, where we keep pushing considerably. But on the whole, I'd say the setting for price increases throughout Europe and throughout our geographies remains very strong.

Thanks.

Yeah. For the third question, Michael: the extreme scenario on Taiwan and what it implies for solvency. In a certain sense, that is a very difficult question, because we have to infer what it would mean for the market. Let's reason through it together, for example, on what could happen to the equity market. Clearly, you have seen our equity sensitivities. Equity down 25% means six percentage points of solvency loss. That could be a reasonable scenario, also knowing that we have our business, which is evolving in China, and maybe, being closer, could be impacted, with Chinese equity being impacted more than the rest, for example. As for the interest rate sensitivity, clearly a war scenario would create a deflation scenario from the point of view of the potential interest rate movement, because of the so-called flight to quality. In this scenario, you have noticed that our yield curve sensitivity for 50 basis points all down in a parallel way brings basically 3 percentage points of solvency. So even at a higher level, it is much less than before. Last year, it was 25 percentage points for 50 basis points. So this is clearly a scenario where you see, coupled with also the sensitivity, which has been reduced massively in the last years on BTP spread, bringing a company which is less sensitive.

Now we get to the narrative around how cash flow sources have been diversified, the balance, and why we brought you up to date on the target operating range at the end of January. So from what has been accomplished to this point, I'd say this is a considerably more resilient group.

That's very clear. Great. Thank you very much.

Let’s take the next question.

Peter Eliot from Kepler Cheuvreux has the next question — please go ahead.

Thanks a lot. I'm afraid these are mostly dull number-crunching questions, actually. The first one concerns slide 18, the life operating results. I was hoping, Cristiano, that you might walk us through a few of the moving parts in there. Specifically, I'd say the loss component and the other items came in somewhat more negative than I had anticipated. Clearly, the CSM release was strong and so on, but it would be really helpful to hear your comments and guidance on some of those other items. The second area, then, was slide 66, which was very useful on discounting and unwinding. So apologies — it's always the way that when you give us something, we simply ask for more. But if I try to make sense of it a little: looking at the left-hand side, the discounting, if I take the claims reserves and multiply by duration and by the discount rate, then for 2022 I come out with a discount much larger than the 463 you show. For 2023, what I get is much smaller than the 814. I believe that's more — well, it is. It's more than rounding alone could account for. So I'm just curious why multiplying those numbers together doesn't work. And the second point on that was the duration.

The duration is dropping, as your chart shows, or it was lower in 2023. Yet on the right-hand side, you're actually getting less from the most recent years than you showed us previously. I mean, last time, I believe 56% came from the two most recent years. Now we've got 48%. So I'm just wondering if you could guide us on the duration and how it's changing and what we should expect going forward. And then the last one is very cheeky, but a great dividend. So thank you for that. I guess we're in this kind of weird position now where the current dividend guidance or policy has expired. And I guess we need to wait a year to find out what the dividend policy will be going forward. So the question is probably far too early, but just given that we're in a bit of limbo and given that some of your peers have given new policies, I'm just wondering if you've got any thoughts that you want to share. So maybe too early, but now I'm trying. Thank you.

Thanks a lot, Peter. Cristiano, both the first and second questions are yours. Obviously, the second one is pretty technical. So if needed, Peter, we can follow up with you once the call is over. Philippe, the third question goes to you.

Yes, Peter. On that first part—the moving pieces—I think there are some specific items, also one-off in nature, that need to be taken into account: one offer tied to external accepted reinsurance within our group employee business, GEB, plus some loss component coming from accepted reinsurance business from external activity in life, which was essentially reviewed prudently downward based on experience data, and which has been provisioned both under IFRS and locally, and that is producing this effect, which you should treat as one-off, since it has been an adjustment of the trend and nothing more that we do see and believe can be repeated. On your second question, discounting versus unwinding, so with the discounting recalculation, for sure, you need to apply the weights correctly. Those weights refer to the year 2023, while the duration is a minor shift owing to the pattern of the cash flow. Let me give an example. What is shifting the structure of the cash flow from one year to another was also the fact that in 2023, compared with 2022, we had a much higher amount of natural catastrophes, which is, by the way—and I may anticipate a question—one of the reasons why you see a lower discounting compared to the third quarter, much lower when you do it only mathematically, because you have fewer claims than in the third quarter because of the large natural catastrophe.

Basically, these things are reshaping how the cash flow is structured. So, regarding that piece — and it has to do with the accident year compared with the cash flow payments as well as the liability side, all right? I believe that's essentially everything for both parts. Philippe, over to you.

Sure. On dividends — I recall back in 2016, right when I’d just been named Group CEO, shareholders received a EUR 0.80 dividend. Since that year, the dividend has kept rising steadily. This year, as you’ve seen, we sped up that dividend growth, paying EUR 1.28 — 60% above the EUR 0.80 I just mentioned. Over the last three years, we’ve been applying the ratchet. And by the way, we’ve reached a cumulative dividend of EUR 5.50, the top end of the commitment we made when the plan began. On top of that, this year we’re going to bring forward, relative to the plan’s end, a EUR 500 million share buyback. I’d say dividend and capital management have grown more and more shareholder-friendly in recent years, thanks to our strong capital position and to our strong cash and capital generation. We’ve been building that over the past eight years. It is certainly very solid and sustainable. We won’t be disclosing the next plan today. I’m afraid you’ll have to wait until the start of 2025. I’m definitely very confident this shareholder-friendly trend will carry on through the next strategic plan.

Thanks a lot. On that second item, IR has actually been quite proactive in reaching out already, and I’m eager to continue that follow-up with them. Appreciate it.

Thanks, Peter. Let's take the next question.

Our following question comes from William Hawkins at KBW. The line is yours.

Hello there, and thanks so much. I have just a couple of questions, if I may. Philippe, I want to pick up on what you were saying earlier. Your capital management priorities still leave me somewhat puzzled. At your January investor day, the message came across quite plainly that the repositioning of your business mix is complete. And in January, and I believe also on today's call, you're placing a lot of emphasis on dividends and share buybacks. That's great. But, at the risk of sounding a little flippant, there are plenty of stories out there about M&A and Generali, along with quotes suggesting financial strength is adequate for doing deals. I'm simply struggling to reconcile those two things. So if you could help me out, I'd appreciate it. And on one small detail, I wasn't entirely clear. During your prepared remarks, you mentioned annual share buybacks. I'm not quite certain what you meant by that, please. If you could clarify, that would be kind. Then, going to the opposite end of things, sorry to be a nerd, but on slide 46, Cristiano, very briefly, when we look at the non-operating items, and in particular the market-related items that totaled EUR 64, what's your view on what counts as normal for market-related items, please?

I'm simply attempting to gauge whether it's a large positive, a large negative, a small one, something negligible, or whatever the case may be. Thank you so much.

Thanks a lot, William. Philippe, the first two questions are yours. And Cristiano, you’ll handle the third one.