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

Good afternoon. I'm the conference operator for COROSCO. Welcome, and thank you for being with us for the Generali Group's First Quarter 2025 Results Presentation. Please note that everyone attending is in listen-only mode. Following the presentation, attendees will have a chance to ask questions. If anyone requires help at any point during this conference call, they can reach an operator by pressing star and zero on their telephone. I'd now like to hand the conference over to Mr. Fabio Cleva, Head of Investor and Rating Agency Relations. Sir, please go ahead.

Hi everybody, and thanks for being on our call about the first quarter of 2025 results. Joining us today are Group General Manager Marco Sesana, Giulio Terzariol, who is CEO of Insurance, and Group CFO Cristiano Borean. Before we open things up for Q&A, I'll pass it to Marco and Cristiano for a few opening remarks.

Good morning, everyone. First, I want to note that these results represent the opening step of Generali's next chapter under the Lifetime Partner 27: Driving Excellence Plan, which we presented in Venice in January. Shortly after the Investor Day, the new strategy was rolled out across the entire organization and made operational by setting up strategic programs. Our implementation work concentrates on giving customers a seamless experience across channels, along with support for our advisors. We are already redesigning the Group Standard at the first five critical touchpoints, and by September it will be folded into the implementation plan for every business unit. Other programs are meant to lock in our goal of profitably sizing the P&C pocket of growth, including SME and climate, and to establish a leadership position in protection, health, and accident, building on transformation enablers like shared service. When it comes to AI and data, we are expanding the development of our 16 flagship AI applications, aiming for adoption above 60% in the 10 largest business units as early as the end of 2025. Take our Geospatial Intelligence Platform as one example: it is now active in four business units and will be live in 10 within the next nine months, strengthening our risk monitoring and pricing in property underwriting.

As you're aware, this is an ambition plan in which P&C plays a key part. Turning to our first-quarter result, it demonstrates that we've made a good start, sustaining solid P&C momentum carried over from the prior plan, owing to the actions we took and our concentration on the profit pool we outlined at the Investor Day. Our P&C top line is expanding robustly at 8.6%. Pricing accounts for the overwhelming share of that, though volumes are also improving in non-motor. Over the plan's horizon, we anticipate this growth mix will shift, with more multi-holding customers and our strategic emphasis on health and accident generating greater volume growth as time goes on. The first quarter's top line dynamics mirror the fact that following two years of heavy pruning, our portfolio is now very clean, which leaves us well placed to ease pruning while keeping underwriting discipline strict. Pricing remains favorable and above risk premium across the majority of our geographies. Average annual premium is rising at a healthy pace of roughly 6%, and in motor it is now increasing at roughly 8%. At the January renewals in Germany, we put through double-digit tariff increases.

In Italy, pricing stayed quite strong, and over the past six to nine months it has improved meaningfully in Spain. Now let's turn to margins. Our business steering and our target, as you're aware, center on the undiscounted combined ratio. That said, I'm also quite pleased that the reported combined ratio we delivered came in under 90%. With more volume flowing through and the portfolio repriced sharply, in a setting where frequency is contained and claims inflation has returned to normal, I feel very confident about how things will develop going forward. The technical metrics we track at the business unit level have improved across the board, which gives me ample reason to anticipate that this favorable underlying trend will continue. By the end of 2027, we have set a target for ourselves of roughly 94.5% on an undiscounted combined ratio basis, and that figure factors in the volume growth we intend to deliver. Of course, the first quarter combined ratio also gained from favorable NATCAT seasonality, with claims of about EUR 50 million in the first quarter, which had a 0.6 percentage point effect on the combined ratio, whereas our NATCAT budget for 2025 stands at a 2.8 percentage point. So far in the second quarter, we have not seen any major events.

I want to share that based on our preliminary estimate, the group expects to record roughly EUR 25 million in claims stemming from the power outage in Spain during the second quarter, and the exposure to liability contracts for our clients in Spain is very much contained. Now, turning to life, let me remind you of the planned target we set together of between EUR 25 billion and EUR 30 billion of cumulative life net flows under our Lifetime Partner Plan 27. The EUR 3 billion recorded in the first quarter is a very strong start. These flows come from our preferred line of business, so we had EUR 1.4 billion of net inflow in Protection and Health and EUR 1.2 billion in Hybrid and Unit-Linked. This reflects how attractive our product offering is, the great job done by our agent and advisor, and the strong focus on customer experience. The numbers also show the gradual and ongoing improvement of lapses in Italy. Surrenders in Italy have not yet gone back to the normal level, but they are on a good trajectory. Just to give you a sense, in the first quarter, surrenders were down 20% year-on-year in Italy. As Cristiano explained on the previous call, our CSM now reflects more conservative lapse hypotheses, so we feel comfortable with the whole development.

Within this setting, disciplined underwriting remains our core principle. Allow me to provide a few quality data points. During the first quarter, more than 81% of our new production carries no guarantees. That figure is roughly 10 percentage points above the level seen in the first quarter of last year. On the guaranteed new business, the average guarantee sits almost 10 basis points below last year's level. New production derived from capital-like products accounts for more than 89%, versus 85% in the first quarter of 2024. Compared with last year, the new business margin rose by 26 basis points as well. Keep in mind that the lower interest rate environment relative to the first quarter of 2024 reduced the new business margin by 25 basis points. What this tells us is that the underlying margin of new business, once the market factor is excluded, has strengthened by more than 50 basis points year-on-year. Furthermore, as you are aware, we apply rates from January, but do keep in mind that measuring our margin using the interest rate at the close of the first quarter would give a figure roughly 15 basis points higher. Another point worth noting is that the French protection business affects the first quarter new business margin, and absent it, the new business margin would stand at approximately 5.4%.

Looking ahead to the upcoming quarter, our target is a new business margin of 5.25% to 5.75%, assuming the present interest rate conditions and leaving out the effect of large collective contracts, which could distort the picture from one quarter to another. Now, allow me to finish with a last remark about investment and asset allocation. Significant financial market volatility has been witnessed during the first four months of 2025. Even so, equity and credit markets have regained the majority of their early April moves. Owing to our discipline and liability-driven asset allocation, we are well placed to handle this environment, as our resilient capital position also shows, given the adverse market changes that occurred in April. This can further be seen in the fact that, apart from the volatile effects of Argentina, current income has been rising in both life and P&C, reflecting an improvement in underlying profitability. Thank you for your attention, and I will now hand over to Cristiano.

Thanks, Marco, and good morning, everyone. I'd like to give you a bit more detail on how we performed financially in the first quarter, building on the business trends you just heard about. To begin with life, the CSM rose during the quarter, with normalized growth of 1.3%, helped as well by the favorable seasonality of new business at the start of the year. Much of the CSM work can already be found in the press release. For completeness, let me add that we posted positive economic variances of EUR 57 million alongside negative operating variances of EUR 77 million, meaning overall variances came in broadly flat for the quarter. Higher interest rates and rising share prices in Europe lifted the economic variances, though this was partly offset because non-European equities delivered negative returns. Under half of our equity exposure in the general account sits in listed equities, and roughly half of the non-listed equity portfolio is denominated in U.S. dollars, which weakened against the euro over the quarter. That explains why our economic variances have been only moderate. Turning to operating variances, let me point out that these stem entirely from a specific one-off impact tied to a regulation change concerning the stamp duty on unit-linked reserves in Italy, which also affected the Solvency II ratio.

This was a one-time item, and it won't have any further effect going forward. What that also means is that we essentially saw no negative operating variances from lapses, versus roughly EUR 200 million in the first quarter of 2024. At 2.5%, the CSM release ratio came in slightly higher than in 2024, which reflects — as I said at the Investor Day — our conservative approach on the EFA. Given how the release ratio works across the year, and it can also be affected by shifts in the underlying portfolio from both enforced movements and new production, my expectation is that our full-year 2025 CSM release ratio will land at the mid-high end of the 8 to 10% guidance range. Regarding the life operating investment result, the press release sets out the main drivers behind the year-on-year movement, and I'd be glad to go into more detail during the Q&A. That said, let me reaffirm our guidance for a full-year 2025 life operating investment result of approximately EUR 900 million. Turning to P&C, what stands out most to me is the strong mix of top-line growth and margin expansion that underpins the figures we reported, with the P&C operating insurance service result up EUR 180 million quarter-on-quarter year-on-year.

We posted a growth rate above 25%, and naturally we're quite happy with that, and it came about even with reduced discounting and cautious initial loss picks. Absent those two factors, the attritional loss ratio would have shown an even bigger improvement. The trajectory we're observing suggests a non-discounted combined ratio that could be under 95% in 2025, subject, naturally, to potential swings caused by natural catastrophes. As we mentioned before, we altered the threshold for classifying an event as NATCAT from EUR 5 million-EUR 10 million. Obviously, this will produce somewhat more quarter-to-quarter volatility in the attritional loss ratio. For instance, during the first quarter, we had roughly EUR 20 million of cumulative claims that, under the earlier threshold, would have been categorized as NATCAT, and those have made the attritional loss ratio worse by nearly 25 basis points. So looking ahead, it will matter to concentrate on underlying business trends and to separate the signals from the noise in quarterly movements, particularly regarding the non-motor portfolio, where this somewhat greater volatility is inherently more prevalent.

Regarding the prior year, a few of you might wonder why we recorded prior year development exceeding 2 percentage points during a quarter with benign NATCAT. There are 2 quite straightforward reasons. To begin with, during the first quarter, the smaller revenue base magnifies how volatile prior year development becomes. Next, we benefited from releasing certain specific loss provisions tied to large claims that were settled. I want to restate that throughout the cycle we anticipate 2% percentage point prior year development, which mirrors the prudence we apply consistently to initial loss picks. That said, it should not catch you off guard when certain quarters see this number move away from 2%, particularly given a smaller revenue base such as we have in the first quarter. Lastly, within P&C, as we laid out in the press release, P&C investment income rises once Argentina is excluded. The first quarter absorbs the heaviest impact of the Argentina effect, since the inflation improvement there sped up during the second quarter of 2024. As a result, the gap between the first quarter of 2024 and the first quarter of 2025 reaches its widest. That implies the rest of the year will look stronger on this measure. This is exactly why I feel confident about delivering the EUR 950 million guidance for the 2025 P&C investment result.

On the point of holding another one, what matters going forward, I think, is remembering that this segment will book certain project costs tied to the strategic initiatives we laid out for the new plan, and those will mainly land in 2025, at an amount between EUR 25 million and EUR 15 million higher than in 2024. Turning to solvency: our capital generation is solid and has shown it can hold up. The 210% Solvency II ratio speaks to that strong capital generation, our diversified business model, and disciplined asset allocation — all vital strengths when conditions are volatile. The same market factors I cited for the CSM also apply on the solvency side. I want to stress that capital generation in the first quarter was strong. We posted 4 percentage points, though that figure includes roughly EUR 300 million from the buyback tied to the long-term incentive plan. Strip out the long-term incentive plan effect and our normalized capital generation would have come in at about EUR 1.4 billion, or near 6 percentage points — a very healthy start to the year, mirroring the positive underlying momentum throughout the business. And as I did last year, let me add that as of today we have received more than 95% of the remittance we planned for 2025.

As we consistently do, we arrange for nearly all of the remittance to the parent company to be collected prior to paying the dividend to the market. In summary, we kicked off the Lifetime Partner 27: Driving Excellence Plan with a robust quarter, revenue growth, margin expansion, positive business dynamics that will keep unfolding throughout the group, and a resilient capital position. We run the business for the long term, concentrating on value creation for our investors, which is also mirrored in an adjusted earning per share rising 9.4% year-on-year, and with an unwavering focus on maintaining a strong nexus between the accounting result, the cash generation, and the solid capital position. Thank you for your attention. Operator, we are now ready for Q&A.

Thank you. Speaking is the Global Conference Operator. Our question-and-answer portion starts now. If you'd like to pose a question, you can press star and one on your touch-tone phone. Should you want to drop out of the queue, just press star and two. When you ask your question, please lift the receiver. At this point, anybody with a question can press star and one. Andrew Baker from Goldman Sachs has the first question. Please go ahead.

Thank you, and I appreciate the chance to ask these questions. Starting with the property and casualty combined ratio: I'm grateful for the extra information you provided on nat cat volatility as well as the attritional piece. Could you give us some indication of what man-made losses looked like during the quarter within the attritional figure, how that stacked up against the prior year, and beyond that, what your thinking is around man-made losses — or what assumption you're building in going forward that flows through the attritional? Second, I'll take a shot at this and we'll see where it lands. Is there anything whatsoever you can share regarding the Mediobanca offer for Banca Generali — perhaps your own perspective, or if not that, then how we ought to think about whatever next steps might come in that process down the road? Thank you.

Thanks a lot, Andrew. Right now, there’s nothing more we can say regarding the Banca Generali offer, and on your first question, I’ll pass things over to Cristiano.

Yes. Morning, Andrew. What we saw in terms of the magnitude of impact during the first quarter was a man-made effect of EUR 35 million, versus EUR 54 million in first quarter 2024. As you're aware, man-made is by its nature the real nitty-gritty work of insurance, it should sit within the attritional, and it should be handled with a little bit of a pinch of salt, because clearly these things can shift from one quarter to the next. What I can confirm is the strict underwriting discipline that has been put in place, along with improved pricing capability, which is also managing it. What I can tell you is that going forward, the assumption clearly could be volatile, but we're talking about something on the order of 0.7%, a bit less than 1 percentage point of impact, with clearly a pinch of salt. As you know, there is always a balance, and the fact that our initial loss picks are prudent lets us manage this kind of volatility as well.

Thanks a lot. That’s very helpful.

Let's take the next question.

Our next question comes from Michael Huttner at Berenberg. Go ahead, please.

Thanks a lot. I think the numbers are solid, but honestly, your presentation was outstanding. Listening to it felt almost like hearing some of the top analysts on the street. I mean, my colleagues, truly amazing. I am having trouble coming up with questions. I have got two. On pricing, could you give us a bit more color? You said it is ahead of claims costs, which is lovely, but maybe a little more color, perhaps by geography. Clearly, obviously, Germany, you are making a ton of money, but maybe you could speak a bit about some of the other main markets and that huge improvement in Spain, whether that can continue. You also highlighted the prudence in the loss picks. I just wanted to get a feel. My guess is that you fully offset the higher prior year development, but I do not know. Any feel on that would be great. Thank you.

Thanks a lot, Michael. Giulio, the first question is yours, and Cristiano, the second one is for you.

Hi, Michael. Thanks for asking. So, when we're looking at motor overall, what we're seeing in the motor line of business is that average earned premium is rising roughly 8%, while the risk premium is increasing 3%. Between those two items we have a gap of roughly 5 percentage points, and that's a really healthy gap. That also explains the improvement we're seeing in our motor results. We expect further improvement as we move deeper into 2025. Turning to geography, I'd say that broadly speaking, we have good momentum across all geographies. In Italy, average earned premium sits well above the risk premium — substantially so. Figure on a spread of more than 5 percentage points. Same story in Germany, where in fact our rate increases are in double digits. There's somewhat more inflation in Germany than we're seeing in other geographies, but fundamentally, we also have a very good gap between average premium and risk premium in Germany. France likewise shows a positive spread. Put simply, I'd tell you that across the board, we're seeing positive development.

Turning to Spain, we’re seeing double-digit rate increases there, and we’ve essentially passed through to the risk premium, which is roughly 5 percentage points in Spain as well. In Spain, what we’ve observed is an improvement in the motor combined ratio. That improvement has been somewhat obscured by some large losses, but we didn’t see, for instance, those large losses occur in April or during the first weeks of May. From that standpoint, we expect further improvement in Spain. I’d like to remind you that if you look at the combined ratio for Spain, we’re essentially at a 94% combined ratio. Overall, when motor and non-motor are combined, the Spanish business is still performing at a good combined ratio level, but we believe we can do even better. Broadly, I’d say this is a very strong picture. We’re very pleased with the results, and we also know there remains some improvement we can achieve during the course of 2025.

That’s great. Thanks a lot.

Good morning, Michael. On that second point, let me begin with the closing sentences. Your guess was quite well-informed, and I'll walk through it, spending a few more topics on it. Keep in mind that beyond the 50 basis points, there are 25 basis points of extra loss ratio impact stemming from the changed definition of the threshold. Those two should be added together. Beyond that, I'd remind you that in the prior year development, perhaps these are some, let's say, fine-grained points that could help any of you understand things better. There's an asymmetric pattern, as in the discounting, across the year in the prior year release of the risk adjustment, which is larger in the first quarter and declines in the second quarter, which is offset and reflected in the loss ratio part, which again carries a larger negative risk adjustment impact, whereas in the prior year it is positive. When you look at these quarters, particularly if you don't compare a homogeneous quarter, first quarter against this quarter, or you compare other quarters, this is an effect arising from two different quarters that are not the same.

If those sit next to each other, that's a negative impact of 0.7 percentage points when measured against the fourth quarter of, say, 2024, and it's higher this year, right? That demonstrates how much it matters to actually compare the quarter on the correct side—you have these effects plus the prudence I brought up. So that's the reason our remarks came across as especially positive about what we observed underneath, and about the prudence on the balance sheet as well.

Great. Thanks so much.

Thanks, Michael. Let’s take the next question.

Coming up next, we have a question from Farooq Hanif of JPMorgan. Go right ahead.

Thanks a lot. So you brought up non-motor and moving into accident and health, which Marco mentioned at the start. Could you elaborate a little on which products in non-motor you're really concentrating on? And can you once more provide a combined ratio comparison between non-motor and motor, so we get a sense of the mix effects there? Second, the discounting effect, to me at least, seemed somewhat bigger in one quarter, and I realize the effect is typically greater early on and smaller toward the end. Has your view changed at all regarding the discounting effect's magnitude for the full year? Then I suppose my final point is a question: we're seeing plenty of very favorable pricing underpinning the top line. Since in retail markets these pricing cycles have a tendency to be rather shallow, what do you expect regarding when the industry will reach rate adequacy, and when do you think this level of pricing will normalize as far as the growth rate and pricing go? Thank you.

Thanks a lot, Farooq. On that first question, I’ll put it to both Marco and Giulio — either of you should feel free to respond. Cristiano, the question about discounting is directed at you, and the third one goes to Giulio.

Hi, Farooq. Thanks for all of those questions. What I'd say is that I think the bulk of our attention goes to our traditional business. We're aware that in every market we're essentially a retail and SME group, with the main emphasis on non-motor in Europe. So you should view our focus as being on growing product density across our customer base in these traditional kinds of products. We're talking about protection for the family, protection for the house, protection for the small businesses — that sort of thing. Now, beyond that, you'll recall that in Venice we talked about a few pockets of growth where we want to really concentrate. We talked about our emphasis on health. We talked about our emphasis on safeguarding climate development over the medium term. We talked about the emphasis on making sure SMEs fully grasp the risk they carry on cyber. Overall, I think we're capturing these kinds of niches that are growing. Health may not be a niche, since it's already very big, but it's still developing. You should view our main business as developing on our core capabilities and core products. Just to give you a sense of it, our non-motor is still developing at a much better combined ratio, and I always keep in mind attritional and discounted with our NATCAT.