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 half year 2024 results presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Fabio Cleva, Head of Investor and Rating Agencies Relations. Please go ahead, sir,

Hello, everyone, and welcome to Generali first half 2024 results call. Here with us today, we have our Group CEO, Philippe Donnet; the Group General Manager, Marco Sesana; the CEO of Insurance, Giulio Terzariol; and the Group CFO, Cristiano Borean. Before opening the Q&A session, let me hand over to Donnet for some opening remarks.

Thank you, Fabio, and good morning. Thanks to all of you for joining this call. Today, we present Generali half year financial results for 2024, which includes positive contributions from Liberty Seguros as well as Conning and its affiliates. As you know, these acquisitions were fully in line with the priorities of our Lifetime Partner 24: Driving Growth strategic plan to further strengthen our insurance leadership in Europe and keep building a truly global asset management platform. Before we open the call for questions, I want to highlight 5 key messages. First, these results highlight once more Generali's continued growth in operating result, up 1.6% from half year 2023 to over EUR 3.7 billion. This growth was driven by the Life business, up 7.8% to over EUR 1.9 billion. By Asset Management, up 5.5% to EUR 255 million; by Wealth Management, which rose to EUR 311 million, up by 33.8%. Our group's total assets under management stood at EUR 821 billion with 25.2% increase from full year 2023 that mainly reflects the inclusion of Conning and its affiliates. This brought third-party client assets managed by our asset management companies to EUR 252 billion, up from EUR 105 billion at year-end 2023. The adjusted net result stood at EUR 2 billion, the 13.1% decrease compared to the first half of 2023, primarily due to capital gains and other one-offs that were recorded over that period, including, for example, that of real estate disposal in London. Excluding this effect, the adjusted net result would have been stable. The Solvency 2 position remains solid, even after deducting around 9 percentage points from the acquisition of Liberty Seguros and 2 percentage points from the share buybacks we announced this morning. The second key message is that we returned to sizable positive net collection in the Life business. When we presented our full year results for 2023, I stated that this would be one of our key priorities for 2024. We achieved over EUR 5.1 billion of positive net inflows in the first half of this year, driven entirely by Protection and Unit-Linked, our preferred capital-light lines of business. We also recorded a very significant reduction in saving outflows. We are confident this trend will continue in the same half of the year, [ Italy ] expected to return to positive net collection. We made the technical decision to [ reduce ] margins temporarily to pursue significant volume growth and this result demonstrates our ability to successfully steer our Life business also thanks to our proprietary distribution network. Higher net inflows in Life also mean higher inflows to our new Asset Management platform, something that will be even more the case in the future case following the acquisition of Conning and its affiliates. My third message is about Property & Casualty. Our tariff strengthening measures have driven higher P&C premiums, which grew by 10.5% to EUR 17.4 billion or by 5.7%, excluding the contribution of Argentina. This is happening at a time when frequency is stable and we are seeing improving claims inflation across all markets. These trends and the strong focus of our management team, technical excellence, makes the confident to reaffirm our undiscounted combined ratio guidance of below 96% even after the consolidation of Liberty Seguros. I would also like to emphasize that the underlying technical results, excluding the impact of discounting prior year and network catastrophes, improves by over 50% in the first half of 2024 compared to the same period of last year. This tangible improvement underscores the effectiveness of technical discipline. Fourth, with only a few months left before the conclusion of our Lifetime Partner 24: Driving Growth strategic plan period, we are now very close with [indiscernible]. I would like to highlight how the continued diversification of our profit sources throughout the current cycle is also proving the soundness of our long-term vision for Generali as a global life and P&C insurer and asset manager. Besides this, we are very proud of the strong progress we have made on our Lifetime Partner journey. And in the first half of 2024, we further reinforced our peer group leadership position on a relationship [indiscernible] basis. Furthermore, we continue to deliver on our environmental and social responsibility priorities with a particular focus on tackling the causes of climate change and fostering the resilience of our communities. To position the group for continued sustainable growth, we are in a new strategic plan for the next few years that we will present on January 30, 2025, and we look forward to welcoming you all in Venice for the very important occasion. As the fifth and final message, let me emphasize again that today we announced that our EUR 500 million share buyback will begin shortly following the implementation of the long-term incentive plan back. As I said at our last Investor Day in January, we will continue to look for the most efficient balance between shareholder remuneration and M&A on a yearly basis, possibly even with annual buyback. I thank you once more for your attention and for your interest in our group. Over to you, Marco, for your remarks.

Thank you, Philippe, and good afternoon, everyone. So as Philippe highlighted, we are very pleased by the return to significant positive net collection. This proves the attractiveness of our products, the power of franchise and the effectiveness of our distribution strategy. These net flows also showed the positive impact of the commercial action we put in place last year to proactively manage the increase in lapses experienced at that time. We expect further improvement in net flows, especially in Italy and we plan to gradually reduce the commercial incentive we put in place as soon as we observe a consistent return to positive net collection in Italy. Unit-Linked Protection, capital-light savings continue to be the preferred lines of business with Protection generating around 40% of new business value. Assuming stable market condition after the recent decline in interest rates, we target new business margin between 4.5% and 5% on a quarterly basis for the remainder of the year. Margins are important, but what also matters is the actual value generated. And as you can see, the new business value continues to grow. While the third quarter is usually seasonally slower, the fourth quarter tends to be seasonally stronger. So on this basis, we expect a positive evolution in the second half in terms of volume, margin and new business value. The strong increase in volume was achieved without compromising on underwriting disciplines. So just to give you a frame of reference, the weight of capital-light products as a share of new business has remained at 89%, in line with the first semester of '23. The new business guarantee has decreased to 0.25% from 0.5% last year. And in the euro area, it has declined from minus 0.17% to minus 0.27%. The weight of business without guarantees has declined from 72.5% to 70.2%, but this is merely reflect one single large pension fund in Italy with 0 guarantee at maturity. So really extremely capital-efficient. Our action also on the in-force business continued to drive a continuous improvement in the quality of Life book. Since the beginning of the year, the share of capital Life products on the overall Life reserve has increased by 1.4 percentage points to almost 71%. As a primary retail and SME insurer, customer is of paramount importance at Generali. So as we continue to march forward on our journey to be the Lifetime Partner of all of our customers, we are pleased with the further progress that we recorded in the first half '24 as far as our key customer targets. As Philippe mentioned, we confirm once more the leadership position in our peer group, thanks to the focus on our key 3 customer promises, personalized value proposition, effortless and caring experiences and physical and digital advice. At first half '24, 52% of our customers rely on our products to cover at least 2 of their insurance needs. This percentage keeps on growing quarter after quarter above our ambition for year-end '24 that was at 50%. And anyway, this will continue to be a key priority for us going forward. Now moving to P&C. The top line growth is continuing, thanks to proactive pricing and to selective business growth. Gross written premium increased versus last year is equal to 5.7%, if netted by the impact of Argentina. Underscoring our focus on profitable growth, we continue to implement several portfolio pruning and claims management actions to make the P&C portfolio stronger and its forward-looking profitability higher. This explains why, for example, in Italy and France, we have recorded somewhat lower pace of growth in motor. Average annual premium for our main market is growing at 6.6%, in particular for motor. This increase is equal to 6.9%, reflecting into an annual earned premium of 6.2% overcoming the increase of risk premium at 3.9%. This is translating into rising margin as time goes by and by, in fact, looking at profitability, when we discard the impact from discounting and natural catastrophes and we focus on pure attritional guarantee technical profitability, we are still already solid growth. I'm optimistic for an acceleration of this trend and also supported by the stable frequency and declining impact of inflation on claim cost we observe. As Philippe said, we confirm our below 96% undiscounted combined ratio guidance even after the consolidation of Liberty Seguros, but also taking into consideration the new Milan tables and the natural catastrophe events that happened in the first semester of 2024. The third quarter is historically when we have the largest losses from weather events. So for your event, during July, we already recorded more than EUR 100 million of nat cat claims. However, we remain on track to stay within our nat cat budget for the year. In SME and GCNC segment, we have further heightened the focus of underwriting discipline and the main losses trend looks promising, although characterized by an embedded volatility. On this front, we expect very limited impact from the [ cross-trial ] event in the third quarter. So moving now to investment. Our investment yields remain very good versus the in-force book at 3.8% in Life and 3.6% in P&C, including the contribution of private debt. The figure is lower than last year because market yields are lower, especially on European credit and China, where in our Life companies and investment volumes were higher. Our investment policy remain prudent, especially on listed equity and most cyclical sector. So we are not particularly concerned on the impact from the recent volatility in financial markets, which actually presents some opportunities. The decrease in interest rate reduced the unrealized losses on bonds and create more flexibility for portfolio turnover. In credit, we confirmed appetite for European investment grade due to good fundamentals and attractive yields. We keep a disciplined approach with low exposure to more cyclical sector and highly leveraged companies. We experienced negligible rating downgrades in the portfolio. So in conclusion, our first half results confirmed the group ability to deliver solid, sustainable growth and execute on our strategic plan. So thank you very much. And operator, we are now ready to take question.

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

And congratulations, especially on the very strong net flows. My first question was on Liberty, please. I mean, you seem to have reported a combined ratio of well below 100%. I mean, you do make it clear that it benefited from no nat cats or manmade losses, but that still seems a much stronger performance than you'd expected. So I'm just wondering if you could comment on that and whether that underlying performance is sustainable? The second question was you mentioned the Milan tables in your introductory comments. Just wondering if you could talk a little bit more about those. And in particular, the extent to which they were already in your numbers and pricing or what adjustments you may have to make or either have made as a result of them or will have to make sort of pricing or reserves? I mean, I'm guessing, I think it was sort of expected that there would be an increase. So I'm just interested to know how much of it was a surprise and yes, what the impact is? And then the third one, I apologize in advance for this one. But IFRS 17, it changed the way you report most of your private equity, but I think it didn't change it for asset management. In that segment, I think you're right that you still include the dividends that Lion River receives. Before the accounting change, we were getting sort of high-double-digit, I think, per year and we were told that the run rate of the result was higher and that dividend should catch up. So I'm just wondering if you can give us an update on what dividends you're currently receiving in Lion River and whether there is still catch-up potential there?

Thank you very much, Peter. Cristiano, the question on Liberty and on private equity dividend plus asset management is for you, while the second question on the Milan tables is for Giulio.

So starting from Liberty. First point, yes, Liberty experienced an overall 94.8% combined ratio during the first half of the year and discounted 96.8%. For sure, you are observing a positive prior year development, which I would like to highlight is also linked to a phenomena related to the so-called purchase price allocation where you need to allocate the liability value, including the cost of capital, which is increasing them and then this is really full time over the duration of the liabilities. So there is this extra effect, which is, I would say, valuation-driven more than fundamentally technical-driven, which would stay up to the duration of the liabilities into this and you should try to embed it in your, let's say, next 2 to 3 years' projections. There is no nat cat registered by Liberty in the first half. I go directly to the third question, which is related to private equity. In the first half of 2024, private equity contribution to asset management through the dividend was EUR 35 million. I would like to highlight that there is another element of contribution, which is not only the private equity result of the investment, which is helped by our companies, but there is also the so-called performance element, which is affecting Assicurazioni Generali and last year, this kind of performance-driven dividend was impacting EUR 52 million of accounting investment result in the P&C, which was not repeated this year.

Part of your question was whether this is a surprise. Not really. So clearly, we do not anticipate necessarily the Milan table, but we were clearly anticipating that there will be increases. And also, as you know, where you have the inflation environment, you know that you might get and see some pressure points. So from that point of view, we couldn't specifically predict this one, but we were ready anyway for some increase in inflation driven by the intervention of regulators or this update to table of Milan. So overall, we had clearly put cushion on our reserves. On top of that, as you see, we are taking strong rating actions. So from that point of view, we are very well-prepared. And what we did anyway on a prudent basis in the 6 months of this year, we put about 1 percentage point of combined ratio in Italy for the Milan table. But I can tell you that that's been more out of prudence and not because we had a need to strengthen the reserve we have already enough path to offset the inflation impact.

Cristiano, is it possible to quantify the accounting impact on Liberty?

Yes. You mean...

I think we might have lost you.

This is Marco. I think we lost the room.

Whom did we lost? Cristiano, we lost Cristiano?

I think we lost the connection with Cristiano. Yes.

Fabio, are you still online? Fabio? [indiscernible], Marco. [indiscernible].

See, Philippe, I think we are in the call and with the analysts and Fabio is going to be reconnected with...

The next question is from David Barma with Bank of America.

I have 3 on the Life business, please. The first one is on the investment result, which was very strong in the second quarter and you flagged some items in your slide deck that sound like that may not be a sustainable level. What would be an underlying view of your Life investment result, please? Secondly, on the new business margin, I expected that to recover a bit more in the second quarter. Is the 4.8% of Q2 now a clean number? Or are there other scope and mix effects like we had in Q1 to have in mind? And then lastly, on lapses, can you talk a little bit about the lapse environment? Because I've been quite surprised to see lapses in Italy remain fairly high, at least in the market as a whole, was still double-digit on an annualized basis and actually increasing again this year, which I guess explains your operating variances, which are continuing in the CSM. But can you give us a bit more color on the lapse environment, please?

Yes. So I would start from -- yes. So I can start talking about the lapse environment. So I would say what we see at the moment is a lapse environment in Italy that is still going on. I think you've seen the number also on the industry. So we are better than the industry, but the lapses are still there. We have started to see a decline. I think most of the situation will be also depending on from the financial conditions that we will see in the next month. So in France, the situation is actually much better. In France, the situation has improved. As you remember, we have always discussed these 2 portfolios as the ones that were more keen to have lapses. So the 2 -- these were the 2. And so I would say France is improving. I think, actually has improved France. And Italy, I think, is still high, but on a better trajectory.

Can I ask what kind of lapse rates you have in Italy?

So I would say, 1.5% nonannualized in the second Q. So that is the lapse rate. On the new business margin, I would say, so in the second quarter, we had around 4.8%. As highlighted in my speech, we are targeting between 4.5% and 5% on a quarterly basis for the remainder of the year. So we really are focusing on a trade-off between getting volume and the new business margin. As you remember, we decided to put some action in place, especially in Italy, to make sure we had good inflows and we actually are very happy with the inflow that we are having at this moment. So we are really targeting an improvement of the new business value that we create in the market. And therefore, we are on that level. So I think you mentioned in your question, the accounting for France. And I think it's still -- it will stay there until the end of the year.

Thank you very much, Marco. Cristiano, do you want to follow up on the question that Peter Eliot asked before we were cut off and then add color regarding the sustainability of the investment results in Life in the second quarter?

I hope --

We've lost you again.

The next question is from William Hawkins with KBW.

I'm not sure it is -- I'll wait for our friends to be reconnected.

Some of us are still here. Marco and myself, we are here. So please go ahead. We will try to answer you, William.

Okay. It's William with KBW. I've got 2 questions, please. Philippe, maybe the first one is slightly strategic question for you. The first half results still had a negative in Life from the loss component on onerous contracts. And I think if I'm right, that's mostly from China. And so I'm thinking the onerous contracts structurally is still 0, but I wanted to check that as an accounting point. But then more strategically, can you just remind me kind of what's going on with China? Because I know it had -- I know it depressed the margin in the first half, but was still a positive new business value, but I think you're saying it's an onerous contract. And I'm not really sure sort of strategically what the value proposition is of the Chinese business that you're writing, please? So if you could help me understand the Chinese angle, that would be kind. And then secondly, sorry, this may be one for Cristiano, when he comes back on the line. But when I'm looking at the mix of the combined ratio by country, there's a really low figure for the undiscounted combined ratio at the group center. It's historically been not 1 million miles from your overall figure. Last year, it was 88%. But in the first half of this year, it was only 70%. So there's something weird going on there and I don't know if I extrapolated or if there's some adjustment for the future? Those are my 2 questions.

Thank you, William, on China I will start, and then I will let who had some comments as he went to China together with Giulio and Cristiano. Our Chinese business is definitely becoming quite significant in terms of volume. And as you know, it's part of the positive Life net inflow and I think this is quite positive. Definitely, we need to work to improve the quality of this business. We are fully aware of it and we're already starting -- we already started working hard on it and we had a very positive outcome from the interaction that we had recently with the Chinese management team and the Chinese regulators. Maybe, Marco, you can add some flavor on this.

Yes, I would say, so the -- clearly, the interest rate environment in China had an impact. But I would say, we remain pretty confident on the future on this because what we are seeing from the regulator actually is pretty good movement. And so we think the environment in the next month could improve. Coming to your second question on the undiscounted in corporate center, I think the main benefit is coming from the man-made that we account in Global Corporate and Commercial. And this is highlighted also in the slide and it's accounted in the corporate center.

The next question is from Iain Pearce with BNP Paribas Exane.

The first one was just on premium growth, mainly focusing on motor here. I think the slides talk a little bit about some pruning in Italy and France. In Q1, there was some talk around some pruning in Germany. Just trying to understand on when you expect this pruning process to go on? And if you're expecting sort of an uptick in risk exposure overall or expecting premiums to grow more in line with rate in the motor and the non-motor segment? And my second one was just on Conning and if there's been any disruption to flows or some outflows as a result of the acquisition? And sort of what you think about the run rate of flows for Conning going forward and what you're doing to drive flows there? And then just a final one on one of the slides in the presentation like lower intergroup dividends from France. I don't remember there being any one-offs in France last year on remittance. I'm just wondering what that relates to?

Marco?

Okay. So yes, so I will start with the topic of premium growth and pruning. So as we always said, we -- basically, we adjust our rate based on the risk premium, right? So -- and also we try to exit some specific risk on to reshape the risk portfolio so that we can have a better and I would say, a more effective portfolio coming to the bottom line. So in particular, in Italy and in France, we have done some portfolio pruning. I think some of the portfolio pruning is an ongoing effort that we always do is part of the technical excellence journey that we have. So we always look at the portfolio. We always try to improve the risk mix. So at the moment, we have done more in, I would say, in Italy and France, but it's really something that we would do every time we see the need. If you see the motor, the rate increase that we have done in -- that we had in -- when we add in motor, I think overall, in the different countries, we are pretty happy about the development that we had. The rate increase we see are starting to come into the earned premium. And so I would say, this is a very positive news. In terms of non-motor, clearly, the situation is slightly different with the profitability is very good. We are improving that, but we started with rate increase much earlier, so it's normal that we see a lower rate -- lower average increase in rates in this segment. Maybe Philippe, you want to comment on Conning?

Yes. On Conning, it's not -- obviously for any asset management company, it's difficult to predict the flows. We are expecting anyway positive [indiscernible] because we believe that the decline in interest rate should boost the positive inflow on fixed income asset classes. And as you know, Conning is very much specialized in fixed income. Talking about the lower dividends coming from Generali investment holding, don't forget that in 2022, we had a record result and Generali investment holding paid a high dividend in 2023. And the lower result in 2023 translate into a lower dividend from Generali investment holding. Definitely, as the Asset Management will improve the dividend from GIH, will get back on track and it will start growing again. Basically, this is the answer on the dividend of Generali investment holding.

The next question is from Michael Huttner with Berenberg.

I had 3 questions. The first one is on the deals versus buybacks. The second one, I don't know if you can give us a feel maybe for where -- how big your cash pile is. Maybe if you [indiscernible] you can measure depth. Sorry, that's a bit of a joke way of asking it. And the third one is, I guess, semi-technical, but it kind of relates to the answer that Giulio was beginning to make, this Milan quote and stuff. I remember from the past, you had a kind of almost like an inflation buffer. And I'm just wondering whether that's same which you've used or which you've kind of allocated or whatever to this Milan quote stuff?

I didn't get the question, I didn't hear the question on the buyback, what is the question exactly?

It's on deals, the balance between deals and buybacks?

The balance between...

M&A and buybacks?

Okay. Okay, sure. Sorry. No, I think that we always try to strike the best possible balance between M&A and remunerations for shareholders. And we started doing this on a yearly basis and we will continue doing this on a yearly basis with a very strict discipline on M&A. We've been so far very selective on and we will continue very selective on M&A. Without a strong and solid industrial logic, without a strong strategic and cultural fit and without strong and solid financials, we definitely consider the capital management and the shareholder remuneration as a priority.

Hello, everybody. Do you hear me? We are back. We have an emergency line of connection from our offices. Cristiano on the line.

The second question was...

Cash. What's the cash position now?

I can take it. I am Cristiano. Do you hear me? I'm back. Sorry, I apologize for this very strange inconvenience. I owe an answer to Peter before. He asked me the impact of this purchase price accounting on Liberty and the number in the first half of the year was between EUR 11 billion and EUR 12 billion in the first half and should be projected for the next 3 years duration of the liabilities. I go back to your question on the whole core position at first half. We have, including some short-term treasury portfolio, something in the order of EUR 5.9 billion, which has to be used to refinance EUR 1.75 billion of September '24 senior that we already refinanced, the EUR 500 million buyback, EUR 1 billion of liquidity buffer and what is basically left is mainly the cash of our branches and some more volatile operating cash for something in the order of slightly more than EUR 2 billion, which is the usual treasury operating cash, which should not be considered available apart from simple operations, as we always said.

And then on the -- there's an inflation buffer which we had before. And my guess is this is a bit which you recycled for the Milan quote. And then the last thing, if I may ask, because I think [indiscernible] gave us a figure is the guarantee fund cost.

Yes. So for with regard also the Milan table, I think that we have already embedded a first part of it on top of the already prudent, as Giulio was telling already you very prudent prior year reserving. You have seen that this quarter, in Generali first half, we have been overall with very low prior year, which I would like to underline the high quality of the results which we have developed. Clearly the inflation buffer we have in our assumption of the best estimate being prudent allowed for the absorption for it, especially in the part of prior year. Notwithstanding that, we put something in the mid-double-digit million euro in the first half already to be prudent out of that, which we will be seeing at the end of the year according to the very healthy evolution of the profitability what we are observing as well in Italy because of the increase of rates and the pruning. As well for the contribution of the guarantee fund in the first half of the year, we observed for Italy Life, EUR 25 million. Then I owe another answer to David on the investment result Life about the sustainability of this delta. As I think you heard, there is part of it, which is related to our evaluation, equity method account participation we have in our German business, which is the participation to our distribution partner company where we are a minority shareholder. And I would say this is less of a recurring term which you should project half of the investment result improvement as a recurring one.

The next question is from James Shuck with Citi.

So my first question is on Global Corporate and Commercial. And it's actually going to link in a little bit with Will's question earlier on. And Cristiano, you weren't on the call regarding that question, but there's a question about the undiscounted combined ratio in corporate H1, which seemed to be around 70%. And Marco helpfully answered that that was due to a low level of manmade in Global Corporate and Commercial. But perhaps you can just flesh that out a little bit for me. Kind of my kind of question though was really on that was just a request, if you could give us the actual premium base and the combined ratio for Global Corporate and Commercial in H1 and perhaps identifying the manmade, because I think that division has actually been the cause of some of the problems on manmade. So I'm just keen to get some insight into that? Second question, it looks like Switzerland had a combined ratio of 108% at 1H. I presume there's an adverse prior year happening there. But if you could just elaborate on that for me? And then my third question, I'm not sure if we have Giulio on the call or not, but I'm sure Philippe can take it. But Giulio's old shop had quite a big focus on something called a target operating model, which was a very kind of innovative approach to the tied agency set up and has been very successful in Italy. I'm really keen to get his views or Philippe's interpretation of how that target operating model works for a company like [ Alliance ] and what you might take and what features you might learn from that when you're looking to modernize and continue to modernize your own tied agency networks?

Yes, it's Cristiano. Okay. So you didn't hear the voice of Fabio because it was close to me asking whether you were talking about Switzerland, just to confirm. Yes, I heard it. So I'll start with the Global Corporate and Commercial part. First of all, we have approached Global Commercial business with Reinsurance in the Assicurazioni Generali parent company. Okay? The vast majority of it and for the first half of '24, we are talking about of something EUR 1.5 billion of gross insurance revenues were concentrated there. We had a low experience of manmade place for almost EUR 100 million improvement, which is driving this piece of the business. In the holding, there is also the Group Reinsurance business overall, which we are managing as a centralized Reinsurance, which experienced a better result because all the events so far were experienced only at the business unit level as an impact because they were not triggering, let's say, the threshold for the centralized Reinsurance, which is experiencing this positive result. So the 2 effects are the one explaining the movement of that specific topic. The second topic regarding -- last year, there was a positive prior year development because of the close of some larger claims, which were affecting in a positive way the combined ratio. The underlying current year one is above 100%. And this is something we, together with Giulio and Marco, we have already discussed and there is a kind of improvement plan underway with the local management to get them back to the desired level of profitability.

Yes. So I'm back now. So I can take the question about the target operating model, which I believe was specific to the agency model in Italy. So let's start saying that our agency network here in Italy is a big asset. So if you ask me about the great things I found coming to Generali, I will say the quality of the agency network that we have in Italy, you can see that also when we think about the flows in Life, you can see that on the Life side, on the agency network, we have basically positive flows as we speak from that point of view, that's an asset. As we think about these assets, clearly, the point is always, as you make it even stronger and more productive. So the focus is going to be clearly on productivity moving forward. And also what is very important, it's something that we will have to analyze and discuss that are right now also piece of the value chain, which are under the responsibility of the agents. So -- and somehow, we can definitely try to get some of these services on our side we need more efficient also for the agency network. So this is not something that where we have a concrete plan right now, but we are going to look how to make our agency force in Italy more productive, more effective by avoiding that they need to make administrative task that can be done in a different way. But fundamentally, we are starting from a position of strength with the big assets and we will work on making these assets even more productive.

The next question is from Steven Haywood with HSBC.

Three questions, please. One is on the lapses. Obviously, thank you to Marco for explaining the trend. My question is mainly on whether you took any assumption changes in the first half or whether you need to take any assumption changes going forward? Second question is on Solvency 2 ratio mark-to-market since the end of the first half. Can you give us a kind of indication? I know you mentioned that you're not worried about volatility as it provides opportunities in your results, but if you could give us an indication on the solvency move, that would be quite helpful. And then finally, if you can answer this on your sort of yearly cash generation expectations. Can you give us an indication of what you think your yearly cash remittances generation is? And then net of the dividend, holding expenses, debt costs, what does this give you on a yearly basis to potentially deploy?

Thank you very much, Steven. All the 3 questions are for Cristiano.

Hello, Steven. So the first point related to lapses. I think that the major trend in lapses observed was more concentrated in Italy. The operating variances lapses related are slightly above EUR 400 million out of the EUR 540 million that you have seen in the first half of the year. I would say change in assumption is just slightly above -- between EUR 100 million to EUR 150 million. All the rest is really experienced part related a little bit on some portfolio [indiscernible] because of some slightly higher value product lapses within the mix as well as a higher amount of lapses compared to what projected so far in Italy. Going forward, to look what we are planning to do, clearly, it is very much dependent on the market environment. And so far, we are observing a little bit of trending down, especially in France, and -- of this behavior, which is giving some more reassurance trend. We will make the final evaluation for Italy in the end of the year according also to the combination of the commercial actions, which are underway also to manage the phenomenon. To go to the second element, update on Solvency. We recent -- this morning, we -- the media call, we gave the latest number as of August 6th closing business day, market day and we had something more than -- of 209% of Solvency ratio as of August 6. And the sensitivity you were asking, we have observed in the half year, especially in the interest rate reduction of the sensitivity to have slightly less than 2 percentage points for 50 basis points of interest rate after and slightly less than 3 percentage point of solvency for interest rate down of 50 bps part. Regarding to the third question of yearly cash generation expectation, we are running at usually something more than EUR 900 million to EUR 1 billion of excess cash out of the dividend payment, which is very important to keep in mind that our first priority when we have recurring remittance and in general, recurring net holding cash flow increase, it is allocated firstly to the growth of the dividend for remuneration of the shareholders. And the last impact is for the capital allocation according to the principle that Philippe was telling you before, much more focused on a yearly basis of an M&A versus a buyback benefit as we already declared end of January this year.

Next question, please.

The next question is from Elena Perini with Intesa Sanpaolo.

I've got actually 2 questions on the Asset Management. It is clear that this business is a strategic one for you, on the contrary of some other competitors of yours. I would like you to remind, please, the main reasons why you consider it as a strategic business for your group? And this is the first one. The second one is on the sustainability of the second quarter result, operating result, for the Asset and Wealth Management, which was around EUR 300 million. Can we consider it as a recurring run rate going forward? And in this respect, another detail concerning the Slide #40 because I saw an increase in the cost/income ratio for the Asset Management in the first half '24 compared to last year. If you can give some explanations on this trend?

Thanks to you, Elena. Philippe, the first question is for you, while Cristiano, you will take the second question on the cost/income of Asset Management.

Thanks, Elena. As of today, Generali is already a top 10 asset manager in Europe. When you look at assets under management, we, as you know, have a long-term strategy to become a leading insurance asset manager. By the way, most of the top 20 largest life insurance companies in the world, including the U.S. [indiscernible] business [Technical Difficulty]. So we want to building this pillar. We want to continue building a global asset management firm. We want to enhance our customer-centric nature and I'm convinced that, thanks to the Conning division [Technical Difficulty] to do increasing the third-party business. You have seen that we went from EUR 100 billion [Technical difficulty] all over the world. [Technical Difficulty]

So we don't hear very well, Philippe. I'll start with the second question on the sustainability of the Asset and Wealth Management. EUR 330 million of the period is referring to the -- EUR 311 million contribution from Wealth Management was embedding something in the order of EUR 94 million of performance fees, which you should not project at the same rate for the second half of the year, also due to the actual market volatility and the strong first part. For what regards the overall, let's say, second half projection, this number should be materially reduced in the Wealth Management sector of Banca Generali. For what regards the cost/income ratio, the driver of the increase are, for sure, when you take as a merge between our Generali investment component and Conning Group is running at something slightly less than 81% of cost-to-income ratio, which is clearly on the full average of the merged group increased naturally. So this is a kind of striking of the level due to their nature of third-party business. Having said that, there are some small increase in the operating expenses also in the perimeter of the Generali investment, which are affecting the cost-to-income, and are related to the anticipation in accounting of the benefit -- variable benefit to the employees, which is, in a certain sense, we see as double charging it to align also to the process we are using in the group. And at the same time, there are some small project of also an integration and project to transform the company, which are underway, which explains part of this increase. I was told [indiscernible].

Sorry, Philippe. Yes. Please, Philippe.

The next question is from Gian Luca Ferrari with Mediobanca.

I have 2 left. One is on Germany. It seems that your combined ratio is in a better shape compared to some of your peers. So I was wondering, what is the managerial decision here if to follow the tariff increases that many others are doing, or to try to cash in these competitive advantage capturing market share vis-a-vis the others? The second and final one is on some headlines I saw on the press conference where Marco was mentioning something on retail nat cat protection. I was wondering if this is embedding some kind of operation public-private, so including also -- involving also the government to extend retail cat coverage similarly to what has happened on SMEs?

I can get the first one, which is on the combined ratio. I would say the answer is also depending on the different countries. So in the case of Spain, clearly, we need to have additional rate increases in motor. So that's definitely a market where we're going to push for rate increases. There are other markets, let's take France, where we have a good level of profitability. And we see that in motor right now, we are not necessarily winning customers. So that's an area where we want to look also, it's clearly commercial actions. Also, we want to look at more the guarantees that we give. So in that area, we will presumably press more -- less on pure rate increases and also look at clearly what is happening to the risk in-force. But -- so I would say, in general, you cannot give a specific [indiscernible], you really need to look portfolio by portfolio. Overall, I will say that, in motor, we are getting close to a level of profitability, which is at our expectation, but there is still some work to do. And then that's very important. We need always to monitor inflation because the last thing we can do is to get complacent. So from that point of view, we are going to monitor the situation. We're going to monitor the improvement or the loss ratio motor and also look at what the risk in-force is doing and we're going to clearly take the right action case by case.

I -- also some other follow-up, which I was told were not heard well because of the line issue. The first one is the question regarding the contribution or negative impact in the operating result of the fund of guarantee, the Italian guarantee fund for Life. In the first half '24, in Italy, we accounted for EUR 25 million of this effect. And it is part of the category called other operating income and expenses. This is consistent to the run rate EUR 50 million we were already guiding before when the decision came into application. The other element, I think you discussed and I was not connected in the moment. The question was raised was the effect of the loss component in China and the new business margin related eventually to that. First of all, there is an increased loss component in China on a half-year over half-year basis. We are talking about something in the order of EUR 38 million extra compared with the previous year, which was already experiencing some loss component in products which are not related to new business margin, but all products which are, with profit, sold years ago when the rates were much higher and now the guaranteed rate is above the actual market rate, which triggered the loss component part. As you heard, the Chinese interest rate dropped the minimum of 10-year [ GOVI ] 2.1 recently. And the good news is that we understand there is a very swift and strong movement from the regulator asking companies to decrease materially the guaranteed rate, which is giving more stability to the system, also if there is a prolonged interest rate down as we, for example, experience in Europe. So these are good positive news. We should see positive trends in the second half, as well, of the year.

[indiscernible], Luca?

No. Maybe there is a follow-up on the nat cat protection that I think I can give. So maybe you are referring to the statement that I did in the slide, right?

Yes, correct.

Exactly. So now let me clarify. So what I mean is that going forward, we consider that this is a huge protection gap that we have across all the geographies where we operate. So overall, we are developing an approach. We consider the approach that we are having like somehow in Italy, but also in other geographies on public-private partnership an healthy approach. So it can take very different shape and form. But overall, I think the -- as an insurer, we will develop an approach in the next plan to the climate change. And I think this is going to be an important part of the development that the customer will want to see in terms of risk protection.

If you don't mind, I would like to add a final comment on the question on the Asset Management because, unfortunately, I had a problem of connection. I just wanted to add that there are strong synergies between Life insurance and Asset Management. These businesses are helping each other. It's good for the Asset Management to have the safety of stable long-term ability of the Life [Technical Difficulty], and it's good for the Life insurance and the benefit of professional Asset Management in-house, obviously and you can be very professional and provide strong capabilities if you are also in the third-party Asset Management business, not being only captive, doesn't work the same way. So the strategy is good. What's really important is the execution of the strategy [Technical Difficulty] very confident that under the new leadership of Woody Bradford and his team, we would be able to execute very well this strategy. Thank you.

Next question, please.

The next question is from Michael Huttner with Berenberg.

It was just a very quick follow-up. I think I saw on the screen, Cristiano, you said profits would be below EUR 900 million in Q3 and above EUR 900 million in Q4. And I was thinking, I know it's like a decline, right, EUR 1.1 billion in Q1, EUR 900 million in Q2, below EUR 900 million in Q3 and then maybe a slight bounce. Can you explain a little bit your thinking here?

Yes, Michael. First of all, when we compare the first half '24 versus the first half '23, we need to acknowledge that at first half '24, we -- '23, we were at EUR 2.33 billion of adjusted net results and we closed year-end 2023 at EUR 3.575 billion of adjusted net results. So the second half '23 was extremely smaller because 2023 was a very peculiar year where we had, in a certain sense, all the positive effects of the capital gain, the -- some one-off on the release of the pension fund in France because of the change of regulation and other effects, positive concentrated in the first half and the negative effect, including capital losses realized in the last quarter, plus our restructuring charge in Italy in the last quarter, which were creating an estimated pattern. So what we are observing in the first quarter 2024, which was EUR 1.1 billion quarter and this quarter, which is EUR 900 million and something quarter adjusted net, is more coherent run rate of the company on a more stable part. Clearly, the third quarter 2024, statistically, is expected to be lower than the other quarters because it is the quarter where we have the highest historical concentration of natural catastrophe. Marco was correctly already informing all of you what we experienced so far after the end of July, EUR 104 million of natural catastrophe. So clearly, it is in line with the budget, but you should expect a higher concentration in the third quarter if we are statistically coherent with the past because it is related to our exposure. So what I'm saying is that compared to the year-end expected projection I'm seeing, basically, we are there, if not mildly, slightly in tens of million lower compared to what is projected. It was to give a better understanding on the trajectory because 2023 was more erratic in it. I hope that give clarification.

Next question, please.

The next question is from James Shuck with Citi.

I just wanted to follow up on the remittances at 1H because, Cristiano, you gave the cash figure of EUR 5.9 billion. So I think I have to try and fill in the pieces. But perhaps you could help me of what the actual remittances were at 1H and which remittances from OEs are still expected in the rest of the year? Then on the P&C combined ratio, I appreciate the noise in this quarter, whether it's Liberty or whether it's weather or whatever. But the Q1 to Q2 sequential on an underlying basis kind of excluding discounting nat cats and PYD, et cetera, looked like it kind of deteriorated a little bit about 30 bps in Q2 versus Q1. I think about half of that might be due to Liberty. So it's still going to get a little bit worse. And I was expecting to see an earn-through from the rates you put on the books in this quarter. I appreciate weather has probably had an impact. So I'm keen to get an understanding of what you think a true reflection is of that development sequentially Q1 to Q2, please? Finally, just quickly, I'm looking forward to the Capital Markets Day and Venice is a lovely venue. I'm just interested -- I don't want front-run too much of what you might say. But one of the targets that you don't have and it's quite conspicuous relative to peers and I think it's quite an important one given that you always focus on Solvency and cash generation and capital discipline. You don't have an ROE target. I'm keen to get your views on whether we might see that be introduced at the Capital Markets Day?

So remittance in the first half, as I told you, the full year view is the EUR 4.4 billion of remittance, which are confirmed. At the first half, we have basically collected the vast majority of it. I think we are left out with something in the order of slightly more than EUR 300 million, which is just [indiscernible] agreement with our companies to get some extra remittance. So it is almost already there apart from this EUR 300 million. In the first to second quarter noise on the attritional undiscounted loss ratio in current year, I think we need to make first an important really fundamental remark from the way the business is followed and made. The best comparison should always be done with the same period of the previous year and to have the right comparison, because there are seasonality impact as well when you look at this indicator. A very simple example and an explanation to this 0.3 you were mentioning, the 30 bps, is mainly related to the fact that during the second quarter versus the first quarter where we basically do not have natural catastrophes and let's call natural events are very low, natural events in the second quarter were higher and some of them are not necessarily natural catastrophes are below the threshold, but are impacting the attritional part. Cleaning up for that and as also taking into account that don't forget that as I was saying before, Liberty has a higher loss ratio current year and discounted even more motor business and having it for 3 months in the third quarter -- in the second half versus 2 months of the first quarter, okay, in the second quarter versus the first. So there is a 1/3 50% more exposure. So 3 months while we have 2 is slightly polluting it. What I can tell you is that the trajectory and what we see as the final earned premium, the budget, the confirmation that we are even embedding Liberty within the 96%, lower than 96% undiscounted combined ratio guidance is giving you the confidence of this result. By the way, the quality of this result, again, especially because of very prudent prior year development, notwithstanding a higher amount of nat cat, is what I wanted to highlight you because these are results on a really recurring and growing amount basis, but you should start projecting going forward. On the -- yes. Last question, I hand over to Marco.

Yes. So James, I'm going to be very quick because as you correctly said, we're going to present the strategic plan in Venice in January and so we are developing it. So I think it's very early to define any KPI or anything that is -- that will be defined over the next weeks. But clearly, we know that this is a topic, so we are thinking about this. We need to reflect on the fact that we have a specific business model. We have a specific type of capital and so an ROE target will also have to adjust for this kind of specificities that we believe we have. And so we are thinking about it and we will define the type of target that we will give ourselves, but it's a point that we understand and we are thinking about this.

Next question, please.

The next question is from Peter Eliot with Kepler Cheuvreux.

I just had a quick -- 2 follow-ups, please. One was because you just mentioned that, Cristiano, on the nat cats below the cutoff falling into Q2 and because others have mentioned. I was just wondering if you could remind us of what your cutoff is for claims before they fall into the nat cat bucket? And the second one was on your expense ratio, I mean ex-Liberty, it's down 0.4 percentage points, which was -- seemed like quite a strong number. I was just wondering if you could talk about the drivers and sustainability of that?

Yes, Peter. So the threshold is EUR 5 billion for the reporting. The explanation related to the driver of the expense ratio are related also to the fact that we have net of Liberty. We have some more weight of the administration acquisition expenses because of the premium increase on a relative basis related to this. And don't also forget again, when you talk about the driver of premium, there are seasonalities in premiums. So clearly, also second quarter versus first quarter movement of this indicator, net of the Liberty part has to be taken again with the attention of the seasonality in mind.

Next question, please.

The next question is from Michael Huttner with Berenberg.

Sorry. Last one. On Liberty Mutual, so you had the target excluding Liberty of below 96%. Now you include Liberty. [indiscernible], what's the improvement? I seem to remember 20 bps is in figure. And then acoustically, I didn't catch what you said about a Liberty undiscounted combined ratio. I think it's something 90 -- something 0.8, but I don't know what the big figures are.

Yes, Peter. So yes, the confirmation of the undiscounted core guidance including Liberty is an improvement because we were expecting 20 bps deterioration because of the Liberty part. Clearly, we have also the fact, as I was mentioning before with the PPA unwinding for the prior year. But in general, what we are finding in Liberty is in line, if not slightly better, with what was projected. So we can embed this effect to confirm less than 96% even because of absorbing this potential 02. And in general, the number of the half year combined ratio total of Liberty is 94.8% discounted. The undiscounted one is 96.8%. So operator, since our time was -- line was briefly cut off, we are more than happy to take now any follow-up from, I think, David Barma, William Hawkins and Iain Pearce. And I again apologize for the technical issues.

[Operator Instructions] Gentlemen, there are no more questions registered at this time.

So operator, thank you very much. Thanks, everyone, for dialing in the call. We do apologize for the technical inconvenience. The IR team remains at your disposal for any follow-up questions and we wish you a pleasant weekend. Bye-bye.

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