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

Good afternoon. I'm the conference operator for Chorus Call. Welcome, and thanks for being with us on the Generali Group Full Year 2024 Results Presentation. <<operator_script>> Right now, I'll hand the conference over to Mr. Fabio Cleva, Head of Investor and Rating Agencies Relations. Sir, please go ahead.

Hi everyone, and thanks for being on our call covering full year 2024 results. Joining us on the line today are Group CEO Philippe Donnet; General Manager Marco Sesana; Giulio Terzariol, CEO of Insurance; and Group CFO Cristiano Borean. Ahead of taking your questions, I'll pass things to Philippe for a few opening comments.

Thank you, Fabio. Good morning, and thanks for joining us on this call covering our full year 2024 results — Cristiano, Giulio, Marco and I are all here with you. Ahead of taking your questions, I'd like to offer a handful of key remarks. With these figures, our Lifetime Partner 24: Driving Growth plan comes to its close, and we're proud that we over-delivered on every financial target. That makes it the third strategic plan in a row that we've brought to a successful conclusion, and the 2024 numbers give further proof that our group is in the strongest position it has ever held. The operating result came in at EUR 7.3 billion, while the adjusted net result reached EUR 3.8 billion for the full year — both new record highs — and every business segment contributed very positively to getting us there. Back when we presented the full year 2023 results, I emphasized that getting net collection back into positive territory would rank among our priorities. In Life, net flows at year-end 2024 stood close to EUR 10 billion. That great achievement, which has no parallel in the industry, was made possible by our powerful distribution force. So let me thank our agents and advisers for their excellent work. These net inflows were entirely driven by protection and unit-linked lines.

Maintaining our emphasis on underwriting discipline and managing in-force business has pushed up further the proportion of Life reserves tied to capital-light products, which hit 71% at year-end. Within Property & Casualty, gross written premiums rose 7.7%, and that came from positive results in both motor and non-motor lines, with growth in every major market where we operate. Our tariff strengthening actions likewise kept delivering results all year long. You can see this too in our undiscounted combined ratio, which improved to below 96%, matching our guidance, and that holds even after accounting for the EUR 1.2 billion impact of natural catastrophes. The underlying trend demonstrates how the team can deliver successfully. Our undiscounted loss ratio, once you exclude nat cat from prior years, comes in with a 1.4 percentage point improvement. That stands far ahead of anyone else in the industry, and it would be near 2 points on the same perimeter as 2023, leaving out Liberty Seguros. As Giulio mentioned during our Investor Day, we remain strongly committed to ongoing gains in technical excellence. And this performance demonstrates that we are entering the new plan with very positive momentum on this front as well. Going forward, we firmly believe the key trends we outlined then will generate meaningful profitable growth opportunities for Generali.

With customer demand continuing to rise, protection, Health & Accident premiums kept accelerating and now make up roughly 22% of the group's total gross written premiums. This segment delivers strong profitability, and it sits at the heart of our strategy to grow the count of multi-holding customers. Three key strengths will make sure we get there. First, the top relationship Net Promoter Score versus our main peers; second, a modular product range that answers customer needs; and third, a very effective distribution platform, strengthened by greater use of data and artificial intelligence. Proprietary distribution is a vital cornerstone of what we offer. Through agents we distribute more than half of the policies, almost double the industry average. In a falling interest rate environment, our agents let us reshape our Life book when lapses rise, which allowed us to outperform the market. As Marco pointed out in his Venice presentation, our agents are essential to capturing growth in our preferred lines of business. Turning to Asset & Wealth Management. Total assets under management for the group hit EUR 863 billion, up 32%, helped by positive net inflows and the consolidation of Conning Holdings Limited.

This segment's operating result rose nearly 23%, reaching EUR 1.2 billion. Woody spoke at the Investor Day about why it matters to have an integrated offering that combines a large life insurance book with our strengthened asset management platform. Making full use of that relationship is essential for us. When this management team assumed leadership of the group, subsidiaries were remitting roughly EUR 2.4 billion. By 2024, those remittances had climbed to EUR 4.5 billion, which helped deliver the highest net holding cash flow we have ever reported, at EUR 3.8 billion. An unwavering emphasis on cash and capital optimization has ranked among Cristiano's priorities during his 6 years as group CFO. It will remain a vital element of how we focus on growing shareholder remuneration. Given this healthy cash flow generation, a solid capital position with a 220% Solvency II ratio and the business's underlying growth, we will propose a dividend per share of EUR 1.43 at the next Annual General Meeting, up almost 12% year-on-year, along with a EUR 500 million share buyback to be launched this year, subject to regulatory approval. Lastly, I want to note the further meaningful progress we achieved as a responsible investor, insurer, employer and corporate citizen.

Next comes Lifetime Partner 27: Driving Excellence, and sustainability stands as 1 of its 3 core pillars. To wrap up, the 2024 financial results we delivered stem from hard work throughout the last 3 strategic cycles, and our attention has already shifted to executing our new plan. Once again we have pledged ourselves to highly ambitious targets. And we possess everything required to succeed and to keep generating sustainable value for all stakeholders while pursuing excellence in all that we do. Prior to opening the Q&A, allow me to remind everyone that the Annual General Meeting takes place on April 24 in Trieste. I hope to see you there, and many thanks for your attention. Operator, we are now ready to take questions regarding our 2024 results.

<<operator_script>> Our first question comes from David Barma at Bank of America.

Starting with the first one, on the really strong P&C results in Q4. You improved the undiscounted current year loss ratio by roughly 1.6% in Q4 versus the 9 months, which served as the new cycle's starting point, right? And in fact, we're even nearer to that 2.5% once you factor in that manmade losses came in higher during Q4. So that beats your target for the coming 3 years. I know it's just 1 quarter, but given how well pricing is trending — at least through 2025 — I'd expect underlying profitability to keep improving. So could you speak a bit about that, and about how Q4 came in relative to the improvement you expect across the next 3 years? That's my first question. Second, still on P&C and specifically the Motor line, would you say most of the pruning now sits behind us, particularly in Italy, and that in 2025 we can begin to see somewhat more volume growth? And finally, on cash, at the CMD I believe you indicated roughly EUR 400 million of remittances would come from management actions in 2025, yet I'd have imagined Liberty Seguros, the excess capital, and the steps taken with Allianz and Genertel would already deliver more than that.

Could you go over again the management actions that are expected to come through in 2025, please?

Thanks a lot, David. Giulio, the first 2 questions are yours. The third 1 goes to Cristiano.

Thank you, David, for those questions. Regarding the fourth quarter's development, I will never read too much into slides, aside from the fact that this gives you clearly the idea or the confidence that we have as we go also into 2025. What I'm saying shouldn't read too much into the slides on the quarter because at the end of the year, you always have validation of all the assumptions that you have. And so in that sense you get a little bit of a catch-up effect from an accounting point of view in the quarter. But clearly, when you see a strong ending, this means that we have a lot of quality in our numbers. And if you look at where we are standing right now in motor, the undiscounted combined ratio is 98%. So that's a very strong basis. And as we think about also 2025, we still expect to see rate increases on top of the inflation. So from that point of view, there is room to do even better. To your specific question about pruning, I would say we have a limited situation, we really need to pruning and a situation like that might be Genertel in Italy.

In certain geographies—motor and pruning—we still need to secure some extra pricing. Spain and Portugal come to mind. That said, at a fundamental level, performance is already strong right now, and we anticipate further gains from a very good level in 2025 and beyond. On non-motor too, we're running a solid combined ratio, particularly when we adjust for the net-cat impact and normalize for it. Obviously, with non-motor, we always have to be somewhat cautious, because assuming the nat cat budget will be lower is just an assumption. Still, I believe we're well positioned even if net-cat turns out more elevated than our assumption.

Hey David. Turning to what we expect for 2025, the key thing to remember is what I said at the Investor Day: 2024 was a special year, with EUR 400 million from Italy and EUR 200 million from Austria. For 2025, you should expect more of a capital management action on the order of, I'd say, EUR 400 million to EUR 450 million, covering all the actions, which will again involve Italy, as we were pointing out.

Moving on, our next question comes from Andrew Baker at Goldman Sachs.

Starting with the CSM operating variances — could you provide a bit more detail on the model refinements you made in France, Germany, and Asia? And in connection with that, how should we think about the 2025 operating variance that will come through on the lap side as a result of your methodology change? Any guidance on that would be helpful. Second, your Life new business margin in the fourth quarter came in sequentially above Q3, which is better than you guided at the time. So I'm just curious what drove that sequential movement compared with what you had anticipated? And also, are you able to share the new business value for 2024, what it would have been under the new definition you'll be using going forward?

Thanks a lot, Andrew. Cristiano will take the first question and the third one, and Marco will handle the second question, which is about the new business margin in Q4.

Yes, absolutely, Andrew. So in addition to the lapses impact — which makes up the EUR 1.1 billion of the total EUR 1.4 billion — there's the EUR 0.3 billion effect from the last quarter, and those items aren't tied to lapses; on the refinement side they're mostly model changes in France tied to how the movement between unit-linked payment and multi-hybrid product is treated, along with some change in an expense review assumption on Germany. And a more negative development of the morbidity assumption in China. Those are the main 3 drivers, and all of them — the 3 of them — added up to around EUR 0.3 billion.

Marco, what about the margins on new business?

Yes. So I think the overall development we're seeing in the new business margin lines up with what we set out as guidance at the start of the year. So we said we were seeing an improvement of the new business margin across different quarters. So we're coming to the level where we expect it to be, in particular. You know that we have always said that we would have done trade-off versus on volume versus margins and scaling back gradually over the next months, the commercial incentive that we had to improve our collection and that's what we did. So we're at the level where we expect it to be. And again, going maybe I think it's useful also to look forward. So what do we expect for the next few months, we do expect this level of new business margin going forward. Clearly, we will need to be also tactical and gradually understanding the macro situation on the interest rate to understand when to cut back more on the commercial action and having a good creation of value because I just want to remind that everything is done to create more value overall.

New business margin and new business volumes are part of that line. Cristiano?

Yes. Andrew, to finish up on the 2025 guidance — regarding the CSM, as I mentioned earlier, once we’ve implemented all of these changes to the lapse assumptions, we anticipate operating variances developing in a much more stable way next year, with their effect falling materially to something very minor, just to be clear. On your third question, about what new business value and new business margin would be under the new definition, which we also covered at the Investor Day: you should view new business value as EUR 3 billion, so essentially EUR 0.7 billion more, under the new definition, and new business margin would rise by 80 bps to 5.4%, pointing to an improvement of 15 to 20 basis points as a margin as we move into 2025.

Michael Huttner from Berenberg has the next question.

Well, congratulations — 3 cycles in a row really is impressive. I have 3 fairly easy questions. The first one follows up a little on an earlier question about the cash outlook. I saw that in 2024 you had a fairly large amount from — or a fairly large increase from others. So I was just wondering what that is and how much additional we might get? And also, I believe there was a question that there was a Liberty, with EUR 300 million remaining there, and whether that is part of the management actions you mentioned. Then the second one is also about cash, Switzerland. I recall you saying mama takes back, and I was wondering whether that has already begun in 2025? And the third question relates to something I think you said, Philippe, in an interview — that you're buying, that you will be buying more Italian government bonds. And I was just wondering whether you could perhaps explain your thinking on that.

Thanks a lot, Michael. The first question, plus the second one about cash, are both for Cristiano. And naturally, the BTP question goes to Philippe.

Michael, so when you look at that rise in other remittances for 2024, you should also factor in some one-off effects — for example, contributions from M&A initiatives, like certain dividends we got from Malaysia, if I use 2024 as the example on the other line. Also don't forget that in 2023 we had some high dividends coming from asset management, because of the preparation for the Conning deal. Moving to Liberty: is that included in the CFO's management action? Yes. They are in there. We're already beginning to get cash back in the first quarter of 2025 from Liberty as a first piece, and the second piece comes through the year. On Switzerland, does the remittance already start in 2025? The answer is no — we're completing a final step, given the very healthy position of the Life company. Be aware that we're slightly above 250% on the Swiss Solvency Test ratio at year-end 2024. So everything is lined up in preparation, but we agreed to have 2025 as a year of stabilization and understanding of the full sensitivities with all the numbers, to get started from 2026. As you mentioned, what mama gives, mama will start to ask for.

Hi, Michael. As you’re aware, the BTP portfolio ties back to our insurance liabilities in Italy, and that will remain true. At December 31, 2024, group exposure to government bonds stood at EUR 35.6 billion, versus EUR 38.5 billion at the close of 2023, and it is almost entirely there to support our Italian life business. That figure also takes in EUR 5.6 billion held by Banca Generali. Being an Italian group with a sizable and profitable life insurance operation in Italy, BTPs are naturally a key element of how we allocate investments. And given what has happened in the markets and the positive — the very positive net inflows for 2024, we are examining raising our BTP purchases, clearly in line with our investment policy and with our risk tolerance.

Farooq Hanif from JPMorgan has the next question.

Can you discuss the increase in the Life investment margin? Were there any one-offs in 2024 that we should strip out? Also, you had very strong investment income in P&C as well. So please comment, I suppose, on how sustainable that is given the current macro environment. My second question is on margins. When you adjust for your new approach, you're already fairly close to your 6% new business margin target in Life. So I was wondering what the path to reaching it looks like? I mean, is it a fairly easy step from here, for example, in 2025 or 2026, to get there more quickly? And in that context, I noticed there's a large increase in the margin in CEE — you commented on it in your slides — but if you could give us more detail on what's happening there, that would be really helpful.

Thanks so much, Farooq. Cristiano will take the first question, and the second one goes to Giulio.

Hi Farooq. I believe what you're calling the margin is actually the Life investment result. So the impact — let me just verify it against the 2023 figure for the last quarter — has been a slight decline compared with 2023, as you saw, since rates came in lower. There's also an effect tied to the fact that in China we are adopting IFRS 17 at the local level, which means one single rate must be applied, and that rate carries somewhat higher interest rates, which then get unwound in the EFI, producing a more negative impact down the road, with a clearly offsetting element from the value on the other side. Another effect has been a shift of excess capital from Life shareholder equity over to P&C shareholder equity in Argentina, and that shift weighs EUR 30 million. So taking everything together, let me say that the investment result for 2024 ought to be read alongside our guidance for 2025 of roughly EUR 900 million, including the effect I mentioned to you — a higher EFI stemming from this changing curve, in China as well. That's what I'd note on that.

Regarding P&C, I believe we ought to view the move I referenced from Life to P&C as something that will keep repeating where the additional P&C return out of Argentina is concerned. That said, I noted earlier, already back at the Investor Day, that this volatility arising from the Argentina side should not be factored in. To put it briefly, last year was fairly strong in terms of that contribution. So I think the run rate we project for 2025, at roughly EUR 950 million, is a solid conservative estimate for you to plug in, along with this environment of lower interest rates also affecting the cash return.

We can move to the Life side. Perhaps first I'll address what you asked regarding that jump in Eastern Europe's new business margin. But before anything else, bear in mind that roughly 3/4 of our premium in Eastern Europe is protection. So that's a highly profitable line of business. And as rates decline, the new business margin on protection rises. We also had some change in operating assumptions, which was a positive. On top of that, we're seeing less inflation on the expense side, and that too has helped deliver a better new business margin. So we're quite happy with the level, we're happy with the improvement, and that also matters a great deal. We believe we can sustain this level going forward. And clearly, we're going to push especially on the potential element in Eastern Europe. Now, on your question, taking a broader scope, I'd say that moving from the 5.4% that Cristiano mentioned earlier to the 6% that we put into our strategic plan is not super easy. So we need to work on that. You need to bear in mind that our new business margin already sits at a high level. So generally, we're starting from a high level point of view.

You can see clearly that this is among the strongest margins in the business. So from that angle, some work is needed on our side to move from 5.4% up to 6%. Mix will be one factor, since across the plan horizon we expect more protection business relative to, say, savings, and that by itself ought to lift the new business margin. So basically we have a plan for reaching it. But if you ask me whether it's a given, I'd say no, it isn't, so we clearly need to work on that over the next 3 years. That's a good part of the story. Our distribution is strong. So from that standpoint, we can truly control our destiny, though some work remains on this one.

Moving on to Iain Pearce from Exane BNP Paribas, who has our next question.

Two questions, and they both relate to the motor business. First, on the 98% full year combined ratio — that's a bit better than what I understood you to have mentioned at the Investor Day. I'm just trying to figure out whether anything there is sort of one-off, or whether there's some favorable experience, favorable PYD in it? Or do you see the 98% as a genuine underlying level and a solid starting point for the 2027 plan? And then the second one concerns the motor businesses in France and Italy. So it looks like they're growing below the level of rate increase or average premium increase that you would have been achieving in 2024; you flagged some challenges around Genertel in Italy. I wonder if you could first just elaborate on why that's so challenging in the direct segment. And do you expect those businesses to return to above premium increased growth in 2024 — 2025, sorry, in France and Italy. It would be great if you could elaborate on that.

Both of those are directed at Giulio.

All right, then, beginning with motor — yes, I'd describe that 98% as a solid proxy for where we start. In that respect, nothing unusual or one-off accounts for the 98%. From that standpoint, you can treat it as a reference point, and in the coming year, given the rate increases we've put through, which sit above inflation, we'd expect that 98% to come in even lower. So we're feeling quite good about what we've accomplished on the motor side. There are perhaps just 2 areas of uncertainty: Spain and Portugal. Not because we aren't acting, but because inflation in Spain and Portugal has proven more persistent than in other geographies. One encouraging development on motor is that inflation is easing somewhat, and above all, we're seeing lower frequency more or less across the board. With that in mind, we might also anticipate frequency staying lower as we move into the next year. So fundamentally, this is a strong business at present, performing well and with room for further improvement. Turning to France and Italy: in Italy, the situation has been driven in particular by Genertel, yet beyond Genertel as well, we aren't really growing the number of policies in motor.

You see this more on the non-motor side, but if you look at Italy, Genertel is clearly reducing its number of risks, and on the non-Genertel side there's a slight decline—but that clearly reflects the work we're doing to reach the strong motor combined ratio you're seeing. In France, there was more pruning in motor, particularly early in the year. We're now taking some corrective steps as well, since performance is very good. So my expectation is that as we move into 2025, you'll see stronger growth—less of a pruning impact in motor, if you will, than what you saw during 2024.

Our next question comes from William Hawkins at KBW.