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

Good afternoon. This is the conference operator at Chorus Call. Welcome, and thanks for joining us for the Generali Group First Half 2025 Results Presentation. <<operator_script>> Right now, I'll hand the conference over to Mr. Fabio Cleva, Head of Investor and Rating Agency Relations. Sir, please go ahead.

Hi, everyone, and thanks for being on our first half 2025 results call. Joining us today are Group CEO Philippe Donnet; Group General Manager Marco Sesana; Giulio Terzariol, CEO of Insurance; and Group CFO Cristiano Borean. Before we open it up for Q&A, I'll turn things over to Philippe for a few opening remarks.

Thank you, Fabio. Good afternoon, everyone, and I appreciate your participation on this call. The outstanding results we delivered in the first half of 2025 reflect a powerful beginning to our new 3-year strategic plan, Lifetime Partner 27: Driving Excellence. What these numbers show is that this strategy is the correct one for continuing to generate additional value for our investors and for every stakeholder, in a consistent and disciplined manner. There are 5 key messages I want to highlight. To begin, Generali has again posted substantial and sustained expansion in operating results, surpassing EUR 4 billion. That 8.7% year-on-year rise is driven by positive contributions from Property & Casualty, Life and Asset Management, which illustrates the strength of our diversified and integrated business model. Adjusted net results came in above EUR 2.2 billion, up 10.4%, and adjusting earnings per share climbed even faster, at 12.5% year-on-year. This outcome highlights how relentlessly we focus on creating value for our shareholders, and it is further bolstered by the EUR 500 million share buyback we announced today, which has now been approved. It proves that we are executing on the clear and transparent capital management framework we shared with you at our Investor Day in January. My second message concerns Property & Casualty.

As you're aware, this is a crucial piece as we pursue excellence across our core capabilities — 1 of the 3 pillars of the plan we have in place right now. The strong growth in the P&C operating result demonstrates the disciplined way we're focused on delivering our strategy. Healthy top line growth, combined with margin expansion, sits at the heart of that strong growth in the P&C operating result, which rose by over 18% year-on-year even with a lower benefit from discounting. The 170 basis point improvement in the current year's attritional undiscounted loss ratio proves we've delivered very successfully on the action plan we designed 2 years ago to reassert technical excellence. So let me thank all our colleagues for their commitment and efforts. Third, the Life business is coming back strongly thanks to our efforts to address lapses, which are now mostly resolved, thanks to the new products we designed and the effectiveness of the commercial efforts made on the distribution side. In fact, lapses have fully normalized in France and improved materially in Italy, as reflected in the positive operating variances in our CSM in the first 6 months of the year. Life net inflows exceeded EUR 6.3 billion, driven by our preferred business lines.

The portion of capital-light products within our new business production has been raised further, now sitting at almost 88% — a very high level — while the share of new business without guarantees climbed to 77%, compared with 67% a year earlier. The new business margin is improving as well, hitting 5.6% in the second quarter. We feel confident this can be sustained through the second half, putting us well on track toward our 6% target in 2027. Delivering strong net inflow volumes while not compromising underwriting discipline is something Generali will keep achieving, thanks to the highly effective efforts of our agents and advisers. Fourth, I want to underline how important our strategic focus on protection, health and accident is — an area offering compelling potential for profitable growth over the long term. It is expanding robustly, with high margins, low capital consumption and rapid cash conversion. At June 30, it represented 20% of group-level gross written premiums overall, posting a 7.1% rise year to year. We will keep updating you on how this strategic business segment, which sits at the center of our plan, performs. Lastly, Asset Management posted an 11.7% rise in operating result.

That captures the contribution from Conning as well as the organic growth of the business. It was a very high-quality result, with almost no performances booked during the period. Third-party net inflows came in positive at EUR 3.6 billion, a good outcome considering how significantly financial markets fluctuated in the first half of the year. To conclude, these results confirm a strong start to executing our ambitious Lifetime Partner 27: Driving Excellence plan, which will deliver even greater value for all our stakeholders. What we have achieved against our 3 strategic priorities — excellence in customer relationships, excellence in our core capabilities and excellence in our operating model — proves we are on the right track. In customer relationships, we further improved our relationship Net Promoter Score, keeping the #1 position in our peer group, while also improving customer retention levels. For our core capabilities, the year-on-year increase in the operating result, both in Property & Casualty and in Life, further confirms the great work we have been doing over the past years. As far as our operating model, we are continuing to invest in artificial intelligence and technology while centralizing distinctive capabilities and shared services at scale.

By the close of this year, our total investment will have reached EUR 500 million. What made these results possible was our sustained emphasis on the plan's 3 key foundations: our people, who represent Generali's most potent strength; AI and data, which are vital to our success today and in the future; and sustainability, as we keep supporting a green and just transition while actively fostering societal resilience. We remain firmly committed and focused on executing Lifetime Partner 27: Driving Excellence, as the slides provided today also make clear, and I have great confidence that we will deliver it as successfully as we did with all our previous plans. Before we open the Q&A session, allow me to offer some brief closing remarks on the topic of M&A. We take pride in the rigorous process we have established for M&A here at Generali, with strict criteria to assess the financial and strategic fit of any potential transaction within the best-in-class governance and legal framework. That process has served us very well so far, which also means we have the right toolkit to analyze Mediobanca's offer for Banca Generali. As far as this is concerned, it is our duty to examine in full detail opportunities, such as the potential future industrial relationship with a leader in Italian Wealth Management, determining whether they would fit with our strategy and could generate value for our stakeholders.

Our management team has been putting in significant effort to give our Board of Directors the strongest support we can as it keeps assessing and debating what benefits the offer might hold, doing so while fully adhering to the group's processes and schedules. That step is needed so that our directors can lock in a definitive view and, in the end, arrive at a decision serving the best interests of all our stakeholders. That captures — this captures where our deliberations on Banca Generali currently stand. Whenever it is relevant, we will keep the market and our key stakeholders updated. Many thanks once more for your attention and for the interest you have shown in our group. And my colleagues and I are now glad to take every question you have. Thank you.

<<operator_script>> Our initial question comes from Michael Huttner at Berenberg.

Thanks — great to see another strong quarter. I’ve got 3 questions, if that’s all right. The first is about the solvency ratio, which I believe was the only figure that came in a touch below consensus. The piece I thought might have diluted it somewhat was the rerisking. Could you tell us how large that was, how much bigger it was than the market may have assumed, and whether more is still to come? Next, on cash remittances — my favorite subject. I wonder whether you can give us a figure. As I recall — and I may be mistaken — the expectation, given that there was so much last year, EUR 4.4 billion in a bit, was that this year might be somewhat lower, mainly because of fewer one-offs; but the higher tax rate in Q2 versus Q2 last year makes me think perhaps we’re in luck. My last question — sorry, I’m being a bit greedy — concerns a comment from one of your peers, who said they had bought the best thing they could ever have bought in Italy. That makes me wonder: if they bought the best, does that mean Generali is second best? I’m asking that in a lighthearted way, but the real question is: if PMO is making so much money, who is losing money?

Okay, there we go — that's it.

Thanks a lot, Michael. Cristiano will take the first two questions, and Marco will handle the third one.

Michael. So to begin with the solvency requirement and, more broadly, the solvency ratio: the moving pieces in the rerisking stem largely from an increase of roughly EUR 0.3 billion in the SCR, coming from the investment risk-adjusted optimization — the SAA that we're doing. Then about EUR 50 million tied to P&C growth, plus a further EUR 100 million that relates more to expansion outside the European Union, where Solvency II rules apply on the basis of different local solvency regimes, which carry a higher intensity under Solvency II than locally — I'm referring especially to Asia. So on the group it's hampering things somewhat more than what's seen locally, because of the nonequivalence of Solvency II. That's roughly the pieces. How much more is to come: in the slide commentary we were signaling something on the order of almost 3 percentage points to be expected, from 2 to 3, in the second half of the year, as this program of re-risking continues, and also a little bit related to the growth I mentioned, which brings you closer to the 3. I think that wraps up the first question. The second question, which mainly concerns your and my favorite topic — cash.

I can confirm to you that, as of today, the remittance — which stands at slightly above 95% — amounts to EUR 4.2 billion, and that is consistent with our objective. I would say that during the second half we may see a somewhat higher kink up, and you were right to pick up on the capabilities from Central Eastern Europe that we will be bringing together in the second half.

Michael, I'd certainly want to address that point regarding our site. We've likewise been putting money into the direct channel. As you're aware, we have rebuilt and finished the technological platform for the Generative business. We're placing substantial expectations on this shift to ensure we serve our client better and achieve organic growth. With attention on the top line, yet also in a sustainable manner on the bottom line too. As you know, recently the direct market, particularly in Italy, has been less profitable than it used to be. So we're really aiming to reverse that and, and make this bottom line a win for the group. In addition, you know that beneath the Red Click umbrella, we're also launching other operations throughout Europe. So we genuinely believe the direct business can be a growth opportunity for the group, and we're placing substantial expectations on organic growth on our side.

We'll take our next question from Andrew Baker at Goldman Sachs.

Starting with the first one — the Q2 attritional loss ratio for the current year looks really solid, particularly versus where consensus stood. And I suppose expenses came in a touch higher. So are there any mix effects we should be thinking about? And then also, how do you expect that attritional loss ratio to play out over the remainder of '25 and into '26? And then again, within P&C, is there any change to your EUR 950 million operating investment result guidance for the full year '25? And I do appreciate the disclosure on the average coupon for the bond redemptions, which remain below the reinvestment yield. But if reinvestment yields hold at where they are right now, when would we expect the coupon on those redeemed bonds to exceed the current reinvestment rate?

Thanks a lot, Andrew. Both the first question and the second one are for Cristiano, and then, naturally, Giulio, if you'd like to add something on how the loss ratio will evolve going forward for Q3.

Yes. Hi, Andrew. Regarding the second quarter, attritional — you were right to notice a gain of a couple of points, 2.5 points compared with the same quarter a year ago. If I look at the attritional and discounted current year loss ratio, that is a 0.8% improvement over the prior quarter. Obviously, you also need to factor in one effect, which speaks as well to the second part of your answer on the expense ratio. A year ago, we integrated Liberty into the group. Because of the specific price allocation, PPA, purchase price allocation processes, since we weren't paying in the expense ratio, the commission, we had to reflect that effect as a negative impact in the loss ratio, which produces a different comparison from that, meaning you get on the order of 2 to 3 — 20 to 30 basis points from this impact when you attempt a like-for-like movement, and that is also showing up in the expense ratio. Beyond that, the stronger growth of the business we are seeing should bring a bit of improvement, but that growth was also skewed particularly in certain lines, and I mean especially the travel lines, which our unit Europe Assistance is developing, which is the one with the largest amount of commissions.

The acquisition cost ratio is the highest we have. As for how things will evolve going forward, if you look at the delta quarter over quarter, you have to begin accounting for the full benefit of the tariff improvements made in earlier quarters kicking in — that benefit wasn't present in the first half of 2024. So during the second half of 2025, you should see a speed of the delta that differs from what we've observed up to now, which is what's driving that. Our overall guidance of an undiscounted combined ratio below 95 is even more confirmed by the view we hold, and that gives management plenty of leeway for the second half. I'd remind you that the second half of the year, particularly the third quarter, is when the group usually experiences its heaviest natural catastrophe loading, on top of this. Don't forget that whenever we have this kind of leeway and advance, we were still keeping — and potentially keeping even more — our prudential, prudent initial loss peaks, but it's approved also, though slightly higher on prior year than what you observed in the half year at 2.3%, which was already reflected in the first quarter from some closed high reserves.

I’d like to pass things over to Giulio, if you’d like to integrate.

Yes, thanks Andrew for that question. To start, we're quite happy with what we're seeing in P&C. That said, we're also clearly staying very focused. Looking at the figures, I can tell you there are plenty of strong numbers, and we're seeing that strength across geographies. When we examine the gap between the rates we're getting in motor and the risk premium, essentially we find a positive spread in every market. There are a few geographies, such as Spain and Portugal, where we may be trailing on the motor side, but there too we're working hard and moving toward a better result. So going forward, I'd expect premiums to moderate somewhat. Even so, we'll keep aiming to deliver premium growth that runs ahead of the risk premium — that's what we intend. Certain markets may be softening, others may prove tougher, depending on how much profitability is already there. But that's one factor. Another factor behind possible performance gains is everything we've discussed regarding making our pricing more sophisticated.

Additionally, back in January we discussed the claims-side initiative that can also help our bottom line, even if there is significant moderation of premium, and then you also mentioned the expense ratio on the Spain side, particularly the admin expense ratio, where we should see improvement going forward. So we’re in a strong position, as you can see in today’s numbers. There’s quality in the numbers. And clearly, we’ll keep working to make sure we reach a very good outcome going forward.

Moving on to your second question, Andrew, we are reaffirming the EUR 950 million guidance. I want to remind you that we saw a significant decrease in the Argentina investment contribution, thanks to the huge drop in inflation there. Since all our investments are tied to inflation, we went from 220 to roughly a 20% inflation rate, with FX that barely moved last year. Let me also remind you that the investment yield relative to the component and current return is typically invested on a stock basis, at 10% of the portfolio. We modestly extended the portfolio's duration. So you should anticipate a figure somewhat above 6 — closer to 6.5 years, I'd say — to await a kind of convergence between the actual investment rate and the reinvestment of the portfolio.

Iain Pearce from Exane has the next question.

Starting with the attritional loss ratio once more. If you take the current-year attritional and discounting loss ratio for H1, and roughly normalize for nat cat, and even simply use the expense ratio, it appears you're running ahead of the strategic plan target. And clearly, you laid out plenty of areas where you expect attritional to keep improving. So I'm just trying to see whether you think there could be other headwinds affecting that attritional going forward — be it mix, or some benefits within that H1 number, around the May side, that ought to keep us from getting quite a bit ahead of the strategic plan, the combined ratio guidance. And then the second one was simply regarding the Italian government debt exposure. That seems to have risen significantly in H1. Is that part of the strategic asset allocation plan changes you've been discussing? And should we expect that figure to keep rising in H2 and across the plan period?

Great, thanks a lot, Iain. Giulio gets the first question, and Marco gets the second one.

No, I appreciate the question, Iain. So looking at the 6 months, there aren't any one-offs. Like I mentioned earlier, there's a solid level of quality in these numbers. From that perspective, the underlying performance is really trending in this direction. I don't see any particular headwinds ahead of us. So, as I said before, certainly pricing will moderate, but we still think we can remain ahead of the risk premium. We have that initiative I mentioned earlier that ought to support our numbers, and we know that on the industrial side and the corporate side, the market may be somewhat softer. But even there, we aren't necessarily the largest player in that space, and we're starting from a very strong level of profitability as well as a very strong quality of the balance sheet. So fundamentally, there's no one-off. There's quality in the results, as I said earlier. And I also don't see any specific headwinds as we go into the future.

On the BTP topic from my perspective, I believe — I believe we covered this matter considering how our liability in Italy is developing, and I think we're in good shape. We feel comfortable with where we stand regarding BTP exposure, provided the liability keeps improving and evolving; we'll then apply that same logic to the BTP as well. So there's no intention to meaningfully raise either the exposure or the SAA allocation to BTP. As you'll recall, back in January, when we addressed the SAA subject as part of the strategic plan, we talked about how we were, in a sense, prudent overall on government bonds, rebalancing somewhat given how the liabilities were developing. That's the approach we take. And I can restate that our discipline on ALM is strict. So every decision we make rests on this metric.

Our next question comes from James Shuck at Citi.

I'd like to ask about the life operating profit first, since there are a few items in the first half that get called volatile. Specifically the onerous contracts, which I believe have come in at roughly negative EUR 200 million over the past couple of years. 1H was considerably better. So I'm keen to hear how you see that figure developing going forward. Related to that is other operating income, which rose quite sharply in 1H to EUR 93 million. I'm aware a EUR 20 million reclassification from nonoperating has taken place, but it's still at a far higher level than last year. So again, I'd just like some visibility on how that looks in the years ahead, so that kind of normal run rate, if you like. Second, coming back to Genertel. Could you tell me what Genertel's premium income is and what the current combined ratio is? I think that partly answers 1 of the earlier questions. I'm just keen to understand what it was about Proama that made it so successful. It was clearly a big disruptive -- disruptor, but you've been active in the direct space for some time, you've had reasonable scale.

What have they done differently than you? You brought up what sounds like a technology overhaul, so I'd like to hear more detail on that. Then lastly, just a minor thing, but the attritional combined ratio is undiscounted at the country level. The commentary on the slides you provided suggests that things are genuinely getting better pretty much everywhere on the motor side, excluding PYD — that is, the current year attritional loss ratio ex discounting. It just struck me that France was 1 where that wasn't the case. And I believe I raised 1 of the questions earlier, and you didn't say more pricing was needed. So I'm just surprised that France Motor is improving on an underlying basis.

Cristiano gets the first question, and then Giulio will take the second and the third.

Yes. So on the loss component in the first half, I think a couple of effects matter as a delta improvement, because last year we had components stemming from accepted reinsurance business, and that is no longer present. So this creates a positive delta versus the adjustment made last year. There is also some positive movement from an improved situation in the quality of the portfolio in the loss ratio in our Asian business. On top of this, looking forward is very difficult for me to give you a guidance, because it really depends on how the market moves, as you can understand. But what is important for you to be aware of is that the positive momentum of the economic variances we have seen so far is giving better value in the specific unit of account, which is also helping to get further out of the money touching on this point of loss component. Looking at the other operating income, you are perfectly right, because like we did for P&C with a slightly negative effect on -- also on the expense ratio on the admin component. We are reallocating cost from nonoperating to operating due to our far stricter guidance on the definition of them.

So that's the accounting bridge for the EUR 78 million decline you're pointing to on this topic — EUR 20 million comes from this effect. Then there's another EUR 10 million tied to a specific strategic project we're running in Switzerland, plus a positive one-off that Switzerland had last year, along with a few effects in Central and Eastern Europe from somewhat lower performance fees on some Czech Pension Fund and some other effect on spread across geographies. That's essentially all of it. I think I'll hand things over to Giulio for the second question.

On Genertel, it was just mentioned that premium volume over the 12 months comes to roughly EUR 0.5 billion. Then, looking at the combined ratio at present, on an undiscounted basis it stands at 105%. That marks a substantial gain versus last year, since we essentially bettered it by 8 to 9 percentage points year on year. We have implemented many price increases. Pruning is under way, so in that respect we are heading in the right direction. We also clearly anticipate dropping under the 100% mark as we move into 2026. As for Proama, I would point to what Marco said earlier — in my view, there is nothing Proama does that we are unable to do. In that respect, we possess plenty of capabilities, in Italy on both counts. We also have direct capabilities in Germany. Cosmos is performing well. We carried out a review of our direct operation in Portugal as well, where that direct operation, quite small, shows genuinely interesting capabilities. So in that regard, we are confident in our clear ability to operate a direct business very effectively.

And let's keep in mind that our biggest asset remains on the agency side — that's clearly where we keep directing the greatest strategic effort. As for France, nothing much is going on there. Not good things. Honestly, the figures in France are very good. Our discounting combined ratio stands at 91.5%. And that number came despite significant nat cat in France. So from that angle, the performance of our business in France, in my view, is really, really good. You know the kind of result you typically see in the French market. So we're doing very well, on both the non-motor side and motor size, so all good.

Farooq Hanif from JPMorgan has the next question.

To start, I want to ask a quick follow-up to James' question. We also saw experience variance rise in 1H '25 — could you talk about that? And there's a positive operating variance in the CSM after years of negative variance driven by assumption changes, so it would help if you explained how we should think about that going forward. Second, back to the attritional loss ratio: after the full year results, you said you were targeting a 95% or lower undiscounted combined ratio by FY '25 — what do you know now that you didn't know then that's trending better since you made that statement? For instance, when you discuss the gap between pricing and risk premium, is that better than you thought when you made that statement? And my last point, a very quick clarification: I saw some commentary about a high tax rate in 2Q. Could you tell us what that was, what the effect was, and what you expect for the second half?

Thanks a lot, Farooq. This question concerns the Life operating result as well as the tax rate for Cristiano, and then the 1 on the attritional loss ratio is directed to Giulio.