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

Thanks, Franco, and good morning, everyone. We appreciate all of you being on this call. On today's agenda, we're presenting Generali's Half-year Financial Results for 2024, and those figures incorporate the positive contributions from Liberty Seguros, along with Conning and its affiliates. As you're aware, those acquisitions aligned completely with the priorities of our Lifetime Partner 24: Driving Growth strategic plan — aimed at reinforcing our insurance leadership across Europe and continuing to build a genuinely global asset management platform. Before we take your questions, I'd like to underline five key messages. First, these results demonstrate yet again Generali's continued growth in operating result, which rose 1.6% versus half year 2023 to more than EUR 3.7 billion. That growth came from the life business, which was up 7.8% to over EUR 1.9 billion; from asset management, up 5.5% to EUR 255 million; and from wealth management, which climbed to EUR 311 million, an increase of 33.8%. Our group's total assets under management came in at EUR 821 billion, a 25.2% increase from full year 2023. That mainly reflects the inclusion of Conning and its affiliates. This lifted third-party client assets managed by our asset management companies to EUR 252 billion, up from EUR 105 billion at year-end 2023.

Adjusted net results came in at EUR 2 billion, which is 13.1% lower than the first half of 2023, mainly because of capital gains and other one-offs booked during that period — including, for instance, a real estate disposal in London. Strip out that effect and the adjusted net result would have been flat. Our solvency position, Solvency II, is still solid, even after subtracting roughly 9 percentage points related to the acquisition of Liberty Seguros and 2 percentage points tied to the share buybacks we announced this morning. The second key message: we are back to sizable positive net collection in the life business. When we presented our full year results for 2023, I said this would rank among our key priorities for 2024. We delivered more than 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 saw a very significant reduction in saving outflows. We are confident this trend will continue in the second half of the year, with Italy expected to return positive net collection. We made the technical decision to temporarily reduce margins to pursue significant volume growth, and this result demonstrates our ability to successfully steer our life business also thanks to our proprietary distribution network.

Increased net inflows in Life translate into bigger inflows for our new asset management platform as well—and that will be even more true in coming quarters once we complete the acquisition of Conning and its affiliates. My third point concerns property casualty. The measures we have taken to strengthen the business have pushed P&C premiums higher: they rose 10.5% to EUR 17.4 billion, or 5.7% when you strip out Argentina's contribution. This comes as frequency remains stable, and claims inflation is improving in every market we operate in. Those trends, together with the sharp focus of our management team and our technical excellence, give us the confidence to reaffirm guidance for an undiscounted combined ratio below 96%, even after Liberty Seguros is consolidated. I'd also stress that the underlying technical result—leaving aside the effect of discounting prior year and natural catastrophes—is up by more than 50% in the first half of 2024 versus the same period a year earlier. That tangible gain shows how effective our technical discipline is. Fourth, with just a few months to go before our Lifetime Partner 24 strategic plan period for driving growth concludes, we are now very near the end of that full period. I want to point out how the ongoing diversification of where our profit comes from across the current cycle also demonstrates that our long-term vision for Generali—as a global life and P&C insurer and asset manager—is sound.

On top of that, we feel a great deal of pride in how much ground we've covered along our lifetime partner journey, and during the opening six months of 2024 we strengthened even further the leadership position we hold versus our peer group when measured by relationship Net Promoter Score. We also kept delivering against our environmental and social responsibility priorities, concentrating in particular on addressing what drives climate change and on building up how resilient our communities are. So that the group is positioned for sustained growth going forward, we are at work on a new strategic plan covering the coming three years, which we will unveil on January 30th, 2025, and we very much look forward to greeting all of you in Venice for that highly significant event. As my fifth and last point, allow me to stress once more that we announced today that our EUR 500 million share buyback is set to start soon, once the long-term incentive plan buyback has been implemented. Just as I stated during our previous Investor Day in January, we will keep seeking the most efficient balance, reviewed yearly, between remunerating shareholders and pursuing M&A, potentially including a buyback each year. Thank you again for your attention and for the interest you take in our group. Marco, the floor is yours for your remarks.

Thanks.

Thanks, Philippe, and good afternoon, everyone. As Philippe pointed out, we're really happy to see a return to meaningful positive net collection. That demonstrates how appealing our products are, the strength of the franchise, and how well our distribution strategy is working. These net flows also reflect the favorable effect of the commercial measures we introduced last year to actively address the rise in lapses we saw at that time. We anticipate additional improvement in net flows, particularly in Italy, and we intend to steadily scale back the commercial incentive we introduced once we see a consistent return to positive net collection in Italy. Unit-linked, protection, and capital-light savings remain the favored lines of business, with protection accounting for roughly 40% of new business value. Assuming market conditions stay stable following the recent drop in interest rates, we're aiming for a new business margin of between 4.5% and 5% on a quarterly basis for the rest of the year. Margins matter, but the actual value created matters too, and as you can see, new business value keeps growing. The third quarter is typically seasonally weaker, while the fourth quarter is usually seasonally stronger. So with that in mind, we anticipate a positive trend in the second half when it comes to volume, margin, and new business value.

That significant volume growth came without any sacrifice to underwriting discipline. To give you some context, capital-light products accounted for 89% of new business, unchanged from the first semester of 2023. The new business guarantee has fallen to 0.25% from 0.5% a year ago, and within the euro area it has dropped from -0.17% to -0.27%. Business without guarantees went from 72.5% down to 70.2%, yet that reflects simply a single sizable pension fund in Italy carrying zero guarantee at maturity. So it is really very capital efficient. Our work on the inforce book likewise kept driving steady gains in the quality of the life portfolio. Since the start of the year, capital-light products' share of total life reserves has risen 1.4 percentage points, reaching nearly 71%. As a primary retail and SME insurer, the customer matters above all at Generali. As we keep advancing toward becoming the lifetime partner of every one of our customers, we are pleased with the additional progress achieved in the first half of 2024 on our key customer targets.

As Philippe said, we once again affirm our leading position within the peer group, which reflects the emphasis on our three core customer commitments: a personalized value proposition, effortless and caring experiences, and both physical and digital advice. In the first half of 2024, 52% of our customers depend on our products to cover at least two of their insurance needs. That share continues to rise each quarter, surpassing our year-end 2024 ambition of 50%. In any case, this remains a key priority for us moving forward. Turning now to P&C, top-line growth continues, supported by proactive repricing and selective business growth. Gross written premium is up 5.7% versus last year when adjusted for the Argentina impact. Highlighting our emphasis on profitable growth, we keep applying rigorous portfolio pruning and claims management actions to strengthen the P&C portfolio and raise its forward-looking profitability. That is why, for instance, in Italy and France we have seen a somewhat slower pace of growth in motor. The average annual premium across our main 10 markets is rising at 6.6%. For motor specifically, that increase equals 6.9%, translating into annual earned premium growth of 6.2%, which exceeds the rise in risk premium of 3.9%.

As time passes, this is translating into margin improvement. In fact, when we set aside the effects of discounting and natural catastrophes and concentrate on pure attritional current-year technical profitability, we're already witnessing solid growth. I'm optimistic that this trend will accelerate, and that view is also supported by the stable frequency and the declining impact of inflation on claim costs that we observe. As Philippe mentioned, we confirm our guidance of a below 96% undiscounted combined ratio, even following the consolidation of Liberty Seguros, while also factoring in the new Milan Tables and the natural catastrophe events that occurred in the first semester of 2024. Historically, the third quarter is when we incur the largest weather-related losses. So for your event, during July we had already booked more than EUR 100 million in nat cat claims. Even so, we remain on track to stay within our Nat Cat budget for the year. In the SME and GC&C segment, we have further sharpened our focus on underwriting discipline, and the main man-made losses trend looks promising, though it carries embedded volatility. On this front, we expect a very limited impact from the CrowdStrike event in the third quarter.

Turning now to investment. Relative to the in-force book, our investment yields are still quite strong — 3.8% in Life and 3.6% in P&C, with private debt's contribution included. That number comes in below last year, since market yields have fallen, particularly on European credit and China, where investment volume at our Life companies was higher. Our investment policy stays prudent, above all on listed equity and the more cyclical sector. As a result, we aren't especially worried about the effect of the recent volatility in financial markets, which in fact opens up some opportunities. Lower interest rates shrink the unrealized losses on bonds and give us more flexibility for portfolio turnover. On credit, we confirm our appetite for European investment grade, given good fundamentals and attractive yields. We maintain a disciplined approach, with low exposure to the more cyclical sector and to highly leveraged companies. Rating downgrades in the portfolio have been negligible. To conclude, our first half result confirmed the group's ability to deliver solid, sustainable growth and to execute on our strategic plan. So thank you very much, and operator, we are now ready to take questions.

The conference operator here. We're now starting the Q&A portion. If you'd like to pose a question, you can press star and one on your touchtone phone. Should you want to drop out of the queue, just press star and two. We ask that you kindly use the handset while asking your questions. Anybody with a question may press star and one at this point. Our first question comes from Peter Eliot at Kepler Cheuvreux. Please go ahead.

Thank you so much, and well done — particularly on those very strong net flows. My first question is about Liberty, if I may. You appear to have reported a combined ratio that was well below 100%. You do make it clear that it benefited from no nat cats or man-made losses, but that still looks, you know, like a much stronger performance than you'd expected. So I'm just wondering, you know, if you could comment on that and, you know, whether that underlying performance is sustainable. The second question: 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 to sort of pricing or reserves. I mean, I'm guessing, or I think it was sort of expected that there would be an increase, so I'm just, you know, interested to know, you know, how much of it was a surprise and yeah, 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.

On that part, I believe your point is correct that dividends received by Lion River are still counted in. Prior to the accounting change, we were receiving, I think, high double digit each year, and we were informed the result's run rate was greater and that dividends ought to catch up. So I'm simply asking whether you could update us on the dividends you are receiving at present in Lion River, and whether catch-up potential remains there. Thank you very much.

Thanks a lot, Peter. Cristiano, the question about Liberty along with the private equity dividend process and wealth management is yours, and the second one, on the Milan tables, goes to Giulio.

So, beginning with Liberty — first off, yes, Liberty posted a combined ratio of 94.10% overall across the first half of the year, and 96.8 on a discounted basis. You're clearly seeing favorable prior year development, and I want to flag that this is also tied to a phenomenon involving what's called purchase price allocation, where you have to allocate the liability value, including the cost of capital, which raises those values, and then that really plays out full time across the duration of the liability. So you get this additional effect that is, I'd say, more valuation driven than driven by fundamental technical factors, and it will persist through the duration of the liabilities in this, and you should try to embed it in your projections, let's say for the next 2 to 3 years. Liberty registered no incident during the first half. I'll move straight to the third question, which concerns private equity. During the first half of 2024, private equity's contribution to asset management via the dividend came to EUR 35 million. I'd like to point out that there's another component of contribution as well — not just the private equity result on the investment held by our companies, but also what's known as the performance element, which affects Assicurazioni Generali.

Also, a year ago, that type of performance-linked dividend affected P&C accounting investment results to the tune of EUR 52 million, and that did not recur in the current year.

Thanks, Peter.

Thank-

On your question that was inaudible—part of what you asked was whether this came as a surprise. Not really. Obviously, we can't necessarily anticipate the Milan tables, but we clearly expected increases to come. And as you know, in an inflationary environment, pressure points can pop up here and there. From that standpoint, we couldn't specifically predict this particular one, but we were nonetheless prepared for some inflation increase driven by regulator intervention or by this update to the Milan tables. So overall, we had put a fairly decent cushion into our reserves. Beyond that, as you can see, we're taking strong rating action. From that standpoint, we are very well prepared. What we did, anyway, on a prudent basis, during the six months of this year, was put about one percentage point of combined ratio in Italy for the Milan table—but I can tell you that this was more out of prudence and not because we needed to strengthen the reserve. We already have a sufficient buffer to offset inflation, the inflation impact.

That's great. Thank you very much, both of you. Cristiano, could you put a number on what the accounting effect will be for Liberty?

Yeah. You're referring to...

It seems like we might have lost you.

Marco here — I believe we’ve lost the room.

Who did we lose? Cristiano? Did we lose Cristiano?

It seems the connection with Cristiano dropped. Yeah.

Giulio, are you still with us? Giulio?

Yeah, Philippe, I believe we're on the call, and with the analyst, and Fabio will be reconnected with...

David Barma from Bank of America has the next question. Go right ahead.

So I’m not sure whether the connection has been restored?

Yes, we

Yeah, yeah, go right ahead.

We’re here. Yeah.

All right, thanks for the opportunity to ask. I've got three questions about the life business. First, regarding the investment result, it came in really strong during Q2, and in your slide deck you highlighted certain items that seem unlikely to persist at that level. What would you consider an underlying view of the life investment result? Second, on the new business margin, I had anticipated somewhat more of a rebound in Q2. Is that 4.8% for Q2 now a clean figure, or should we keep in mind additional scope and mix effects similar to those we saw in Q1? And finally, on lapses, could you speak a bit about the lapse environment? I was rather surprised that lapses in Italy have stayed fairly elevated, at least across the market generally. It was still double-digit on an annualized basis, and in fact rising once more this year, which I suppose accounts for your operating variances that keep showing up in the CSM, but could you give us a little more color on the lapses environment? Thank you.

Sure, I can begin with the lapse situation. What we're seeing right now is a lapse environment in Italy that's still ongoing. You've probably seen the industry figure as well — we're doing better than the industry, but lapses remain. We've begun to see a decline. Much of how things develop will also depend on the financial conditions over the next month. In France, the situation is actually much better. In France, things have improved. As you recall, we've always talked about these two portfolios — the ones more prone to lapses, so those were the two. So I'd say France is improving. France has in fact improved, I think, and Italy, I think, is still high, but on a... on a better trajectory. On the-

Could you tell me what sort of lapse rate you're applying in Italy?

I'd put the lapse rate at 1.5% for the second quarter on a non-annualized basis. On new business margin, in Q2 we came in at roughly 4.8%. As I said in my remarks, our target is 4.5% to 5% on a quarterly basis for the rest of the year. So the real focus for us is balancing volume against new business margin. As you'll recall, we put certain actions in place, particularly in Italy, to ensure solid inflows, and we're quite pleased with the inflows we're seeing right now. So our aim is genuinely to improve the new business value we generate in the market, and that's where we stand on that measure. I believe you raised the accounting treatment for France in your question, and my view is that it will remain as is through the end of the year.

Thanks a lot, Marco. Cristiano, if you'd like to pick up on what Peter Eliot asked earlier before the line dropped, and then give us more detail on how durable the investment results in life were during the second quarter.

Thanks. Hi, Peter. I'm hoping,

We dropped your line once more.

William Hawkins from KBW has the next question. Go ahead, please.

Hello, I’m not certain that’s the case. I’ll hold until our friends are connected again.

A few of us are still on the line. Marco and I are both here. So go right ahead. We'll do our best to answer you, William.

Okay, thanks. Yes, this is William from KBW. Two questions, if I may. The first is perhaps a bit more strategic in nature. The first-half result still showed a negative in life stemming from the loss component on onerous contracts. And if I'm not mistaken, that comes mostly from China, so my thinking is that onerous contracts are still structurally zero, but I wanted to verify that as an accounting matter. Then, more strategically, could you remind me what exactly is happening with China? Because I know it weighed on the margin in the first half, yet new business value was still positive. But I believe you're saying it's an onerous contract, and I'm not really clear, strategically speaking, what the value proposition is of the Chinese business you're writing, please. So it would be kind if you could help me understand the China angle. And then second, sorry, this may be one for Cristiano when he's back on the line, but when I look at the mix of the combined ratio by country, there's a really low figure for the undiscounted combined ratio at the group center. Historically, it hasn't been a million miles from your overall figure.

A year ago that figure stood at 88%, yet during the opening six months of this year it came in at just 70%. Something odd is clearly happening there, and I'm unsure whether I should extrapolate from it or whether some future adjustment applies. That covers both of my questions. Thanks.

Thanks, William. On China, I'll begin, and then I'll let you add a few remarks, since he traveled to China alongside Giulio and Cristiano. Well, in terms of volume, our business in China is certainly growing quite substantial. And as you're aware, it forms part of the positive life net inflow. I think that's quite encouraging. Without question, we have to work on raising the quality of that business. We're completely conscious of that, and we've already begun, we've already started putting serious effort into it, and we had ... a very favorable result from the engagement we had lately with the Chinese management team and the Chinese regulators. Perhaps, Marco, you could add some color on this?

Yeah, I'd say the interest rate environment in China clearly had an impact. That said, I'd say we're still fairly confident about the future on this, since what we're seeing from the regulators is pretty good movement, so we think the environment could improve in the next month. On your second question about the undiscounted in corporate center, I think the main benefit is coming from the man-made we account in Global Corporate & Commercial. And this is also highlighted in the slide, and it's accounted in the corporate center.

Our following question comes from Iain Pearce at BNP Paribas Exane. You have the floor.

Hello. Hello, Marco. Hello, Philippe. I appreciate you taking my questions. My first question concerns premium growth, with the main focus being on motor. I believe the slides discuss some pruning in Italy and France to a degree. During Q1, there was some discussion regarding pruning in Germany. I am simply trying to get a sense of how long you anticipate this pruning process will continue, and whether you expect somewhat of an uptick in risk exposure generally, or whether you expect premiums to grow more in line with RAY in the motor and non-motor segment. My second question concerns Conning, and whether there has been any disruption to flows or some negative outflows stemming from the acquisition, and what you think regarding the run rate of flows for Conning going forward, and what you are doing to drive flows there. And then a final question on one of the slides in the presentation, which flagged lower intragroup dividends from France. I do not recall there being any one-offs in France last year on remittance, so I am just wondering what that relates to? Thank you.

All right, so let me begin with premium growth and pruning. As we've consistently stated, we essentially set our rates according to the risk premium, correct? And beyond that, we attempt to get out of certain specific risks and to reshape the risk portfolio—you know—so that we can end up with a better, and I'd call it a more effective, portfolio when it comes to the bottom line. More specifically, in Italy and in France, we've carried out some portfolio pruning. I'd say a portion of that pruning is a continuing effort we always undertake. It forms part of the technical excellence journey we're on, so we constantly review the portfolio and constantly seek to enhance the risk mix. So right now, we've done more, I'd say, in Italy and France, but you know, it's genuinely something we'd do whenever we perceive the need. If you look at the motor rate increase we've implemented, that we had in motor, I think overall, across the various countries, we're quite pleased with the development we've seen. The rate increases we observe are beginning to feed into the earned premium, and so I'd say this is very positive news—positive news.

On the non-motor side, the picture is obviously a bit different, since profitability there is quite strong. We're making that better, though we began raising rates much sooner, so it makes sense that we're seeing a smaller rate, a lower average, of rate increases, in that segment. Philippe, perhaps you'd like to say something about Conning?

Yes, regarding Conning, it's not clearly the case for any asset management company — flows are hard to predict. We do expect positive flows in any case, since we think that the drop in risk, the drop in interest rates, should support positive inflows into fixed income asset classes. And as you know, Conning is heavily specialized in fixed income. Speaking of the lower dividends coming from Generali Investments Holdings, don't forget that 2022 gave us a record result, and Generali Investment Holdings paid a high dividend in 2023. And the lower result in 2023 translated into a lower dividend coming from Generali Investment Holdings. Definitely, we, as the asset management, will improve that the dividend from GIH will get back on track, and it will start growing again. Basically, that is the answer on the dividend of Generali Investment Holdings.

I appreciate that.

Michael Huttner of Berenberg has the next question. Go right ahead.

Great, thanks so much. So I have three questions. First, deals versus buybacks. Second, I don't know whether you could give us a sense of where things stand — perhaps how large your cash pile is. Maybe if you swim in it each morning, you could gauge how deep it is. Sorry, that's a somewhat joking way of putting the question. And the third is, I suppose, semi-technical, but it sort of ties into the answer Giulio was starting to give. You know, this Milan court and all that. From the past, I recall you had something like an almost inflation buffer, and I'm just wondering if that's what you've used, or what you've sort of allocated or whatever, to this Milan tables stuff. Thank you.

Michael, I didn't catch that. On the buyback, I couldn't hear what was asked. What exactly is the question?

That's about deals — how we're balancing deals versus buybacks. Can you hear me? I'm not sure.

How does that balance work?

Mergers and acquisitions, along with share repurchases.

Oh, okay. Okay, sure. So, sorry. No, I think we always aim to strike the best possible balance between M&A and remuneration 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 the M&A. We, we've been so far very selective on, and we will continue being 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 shareholder remuneration as a priority.

Hi everyone. Can you hear me okay? We're back. We've got an emergency connection line coming from our offices. Cristiano is on the line.

Thanks.

What was the second question?

What about cash — where does the cash position stand at this point?

Regarding the—

Yeah.

Regarding cash.

Yeah.

Yeah.

Yes, I can hear you — this is Cristiano speaking. Am I coming through? I’m here again. My apologies for that really odd disruption. Hi, Michael. I—

Hello there, Cristiano.

I still need to address what Peter asked earlier. His question was about how purchase price accounting would affect Liberty, and for the first half of the year that figure came in somewhere between EUR 11 billion and EUR 12 billion, and it ought to be projected across the next three years, the duration of the liabilities. Coming back to your question about the overall cash position at the first half: we hold, including some short-term treasury portfolio, roughly EUR 5.9 billion, which has to go toward refinancing EUR 1.75 billion of September 2024 senior, though we have already refinanced the EUR 500 million buyback, EUR 1 billion of liquidity buffer. What remains is essentially our branches' cash plus some more volatile operating cash, amounting to a bit more than EUR 2 billion, which is the customary treasury operating cash and, as we have always said, should not be viewed as available beyond simple operations.

All right. Then regarding the inflation buffer, which we had in place previously — my guess is that's the piece you recycled into the Milan tables. And finally, if I may ask one last thing, since I believe Toby provided us with a figure, what about the guarantee fund cost?