COFACE SA (COFA) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to COFACE results for the period ending September 2021. [Operator Instructions] I would like to hand the conference over for your speaker today, Xavier Durand. Please go ahead, sir.

Thank you, and good evening, everybody. Thank you for joining this third quarter earnings call. And just before we get into the meat, I just want to acknowledge that this is going to be the last call for Carine Pichon. She's been our CFO for a very long time. I think this is her 30th earnings call as a listed entity and probably the 40th quarterly closing that she's accomplished. So she will be taking us as usual through the second part of the presentation. On the call, we have Phalla Gervais, who will be taking over from her. And so going forward, she will be the one presenting, of course. Let me now start with the results. I hope the sound is okay because I'm getting some feedback. I don't know if that's okay. The -- on the results. So we are happy to report a very strong quarter. You can see from the numbers, our total net income for the year comes in at EUR 190.9 million at the end of September, of which EUR 67.7 million in the third quarter alone, which in itself is a record for COFACE. I think it's a strong quarter, not just because of the net profits, but also because of the other metrics. Our turnover is up 7.9% at constant FX and perimeter. It's up almost 9%, 8.9% year-on-year in the third quarter. And when you look at underneath that, you see that trade credit insurance premiums which is our core business, is up 9.3%. We're actually seeing that impact of the rebound in the economy as well as the repricing that we've done last year. Talking about the pricing, it's still positive year-to-date, up 1.6%. But as we highlighted in the last quarter, the competition has been increasing quite significantly, and it's turned negative for now 2 quarters in a row, 1.3% cumulated. The other good news is our information services business, which we've been focusing on and continues to see momentum. We are up 13.4% year-to-date and 18% in the third quarter, as we had indicated priorly. On the same -- on the loss side, it's more of the same, I would say with a net loss ratio, which is down almost 30 points to 25.4%, bringing the net combined ratio to 56.1% for the first 9 months of the year. The Q3 net loss ratio is at 31.4%, which is down almost 19 points from the third quarter of 2020. We continue to see a low level of loss activity, although we probably reached the trough, I would say, during the Q3. 9 months 2021 net cost ratio is up 0.6 points versus the first 9 months of 2020, but it's better than the first 9 months of 2019 as we continue to invest and our variable costs are back to more normal levels after, I would say, an exceptionally low year when we have COVID in 2020. The net combined ratio is 62.4% for the first -- for the third quarter. If we exclude the impact of government schemes, it's at 53.5%. As you can see, the government schemes cost are accelerating. What's happening is the years '20 and '21 are starting to mature. And we -- and that phenomenon of acceleration of government cost is going to continue for some time. We'll have more on that. But it lowered our pretax profit by EUR 32 million in the third quarter and EUR 57 million year-to-date '21. So I've already spoken about the net income totality. It brings our return on average tangible equity year-to-date to 13.9%. Going into Page 5. I just wanted to highlight some of the management changes. You've seen a few announcements come through. We continue to evolve and strengthen our leadership team as part of our normal activity. I've just mentioned the switch that is taking place between Carine Pichon and Phalla Gervais. Carine has begun to head our Western Europe region, one of our largest regions. So she will now appear in the bottom of this chart. Antonio Marchitelli, who's been leading that region for the better part of 4 years will stay with us. He is [Audio Gap] specialty businesses, meaning [Audio Gap] also confirmed in his role, Jaworski, who is now leading Central East and Eastern Europe. He has been with us for a long time and was so far the leader of our [Audio Gap]. In the same spirit, we have appointed Marcele Lemos to meat up our South American business. She has been, so far, the leader of our Brazil business and has been more than 20 years in the credit insurance space. For the record, I just want to point out that out of our 7 regions in COFACE, we now have 4 of them led by women, representing about 74% of the turnover of the company. So I think we're demonstrating that we're taking gender diversity very seriously and not just in support functions, but also in key operating roles for the company. Moving on to the pages that you are more familiar with, Page 7, just highlight -- some highlights on the growth story. You can see the total growth at 7.9%. I've already mentioned that trade credit insurance is up 9.3%, all other things being equal. We are seeing positive client activity. Business information sales, I think that's encouraging at 18% in the third quarter. Factoring another one of our important adjacencies, up almost 11% year-to-date and more than 10% in the third quarter. We're seeing finance volumes rebound in line with the economy. One of the corollaries, I would say, of having a low level of losses is that third-party collection revenues are down, and I think that's pretty understandable. They're down 5.3% year-to-date. We're seeing the same phenomenon when it comes to fees collected from our insured clients as collection fees are also down and that's driving our insurance-related fees divided by earned premiums ratio down for the quarter -- actually for the first 9 months of the year. When we take a look on Page 8 at the geographies, you see that we have actually a very broad-based recovery in terms of our volumes with some really nice growth numbers across the key regions here. Western Europe is up 6%; Northern Europe, almost 11%, 10.6%; Central Europe, above 7%; Med and Africa above 8%; North America, which has been one of the volatile markets, is up 2%, and I think they're seeing some recovery; Asia Pacific is up 5%; and Latin America is having an exceptionally high 18.8% growth on the back of prices. You know that our business there is mainly driven around agro food, chemicals, raw materials. And as you know, there's been quite a lot of price appreciation in these spaces, which is helping our Latin America business see some very nice growth. On Page 9, we look at the usual operating metrics. You can see that it's still a year of strong performance at COFACE on -- in terms of new business, we are having the second best year in our history. Not quite as good as 2020, but definitely continued growth. Retention rate is close to our highest. We are seeing a bit more competition as we speak, and I think I've already highlighted that. You're seeing it as well when it comes to price, which is still up 1.6% year-to-date, but has been going down, and I mentioned that already last quarter. During the third quarter, our prices have gone down about 0.7%, still positive year-to-date. And then clearly, we are seeing at the bottom of the chart, the rebound in terms of the economy with the volume effect being the growth that we get from the growth of our clients turnover being up 5% from last year, year-to-date. And that's, again, in line with what we had indicated in the second quarter call. Looking to the risk slide on Page 10. You can see that we're having another quite extraordinary quarter in terms of losses with 16.9% loss ratio before reinsurance and including claims handling expenses. Operationally, we are seeing a low level of activity on large losses and low frequencies. We do believe the low point in the cycle has been reached probably at the beginning of the quarter, the last quarter Q3. In this context, we've not changed our reserving policy. What you see on the bottom right hand is the opening of the 2021 new vintage, which is now lower at 70.5%, reflecting the -- what's happening as the year starts to develop. You also see some very large bonis coming from the prior vintages at 47.9%. At this point in the year, these bonis come about 2/3 from the underwriting year '19 and 1/3 from the underwriting year in 2020. That matters, as you know, since for a good chunk of 2020 and the first half of 2021, we have been protected for about 2/3 of our book by government schemes. I'm talking mainly France, Germany, Italy and the U.K. These government schemes mean that we're immunized against losses, but also, I guess, against gains and [ bonis ] when it comes to these vintages. That's why you will see that the cost of government programs has increased. And we do expect this to continue for another few quarters. It's temporary, but it doesn't mean we're not performing. It just means it's going to weigh on our upside for that period of time. On Page 11. If you take a look at losses by region, I think the chart is pretty clear. It's quite an incredible picture. You look at the 4 largest and most stable regions at the bottom of the chart, and they're all below 30%, Central Europe at 16%. And then if you look at the more volatile markets, which we typically place at the top of the chart, well, clearly, they're very, very low, all in the teens with Asia Pac at 11% and Latin America at 8.9%. On Page 12, we show the quarterly developments and the story is even more spectacular with Western Europe, Northern Europe and Med & Africa, well below 30%. Central Europe, North America, Asia Pac and Latin America are all at close to 0 with even a negative loss rate for Latin America as the year is rolling out much better than we had anticipated. If we look at Page 13, going to the cost side now. You can see that our costs are up about 12% quarter-on-quarter from Q3 2020. You need to keep in mind that 2020, we were right in the midst of the COVID crisis, so pretty much on lockdown. This was a tougher year, of course, for COFACE. So meaning T&L was down. We had lower bonuses, lower volumes. This year, we are growing again actually at a pretty fast rate. Variable costs are up, bonuses and compensation are going back up on the back of a very strong year. You can see that our cost ratio is marginally up from the first 9 months of 2020. And there's a couple of things going on here. One, we are investing in our information business, and I've highlighted this already a few times. That's costing us about 0.5 points of cost ratio. We are seeing lower debt collection fees, as I've already explained, linked to low claims, and that's costing us another 0.5% of cost ratio. At the same time, the business continues to drive operating leverage, meaning that growth in our premium is higher than the growth in our core operating cost to run that business. So our first 9 months costs have gone up by 3%, whereas our revenues have increased by 5%. And when you put it all in, it means that our cost ratio at 33%, you can see that on the bottom right-hand side of the chart, is just barely higher than what it was in the first 9 months of '20, but it's lower than a more normal year as a reference, which is 2019. With that, I'm going to turn it for the last time to Carine to take us through the rest of the pages.

Thank you, Xavier, and good evening, everyone. Happy for my last call to comment these figures now. So as usual, I will comment Page 14, reinsurance results, which as previous quarters, reflects a very low loss activity, just been described and also public scheme. Cost of reinsurance, you see that on the bottom is around EUR 164 million, EUR 57 million is linked to public schemes, and I will come back more into detail in the slide afterwards. But globally, loss ratio being low, I mean it's a higher cost for us. Premium cession rates at 43.4% is up by 0.7 points compared with last year, whereas we have a lower cession rate on claims side, mainly because we are releasing important reserves on the underwriting year 2020. So higher cost of reinsurance because of low loss activity. On public scheme, which we have a dedicated slide just afterwards. So recognition of government schemes impact is accelerating. We have 2 ways to look at this impact. The first 1 on the top left is on the combined ratio. To remind, in blue because the usual graph we show you, but in blue, you have the combined ratio published. And in green is the combined ratio without public schemes. What you may see is that up to Q2 2021 included the impact of government schemes were positive on the combined ratio. But now it has completely the contrary in fiscal '21 because more or less, we have seen, I mean, all premiums around that. But now we have with the relief that we are giving back to the government. [ Integers are ] accelerating on pretax profit, what you have on the bottom left, where you see that we have started to be negative in Q3 '20, and it has been accelerated between EUR 10 million and EUR 15 million up to June and EUR 32 million in Q3 2021. So clearly, the costs to COFACE, partly offsetting very strong profitability are likely to increase in the coming quarters. And why, because in country where schemes are in place, the majority of potential future reserve release, which are attached to underwriting year '20 and up to mid-2021 when government scheme ended, but this potential future reserve release will benefit to government. Continuing now and looking at the net combined ratio, slide afterwards, at 56.1%, a record low loss ratio. On a cumulative basis in the first 9 months of this year, you see that cost ratio is slightly up by 0.6 points, but clearly improved compared with I would say, a reference year in '19 by 1 point. And net loss ratio also improved at 25.4%. So around 30% increase compared with last year, reflecting low return of loss. On a quarterly basis, which is the graph behind, 62.4% is the combined ratio for the Q3 2021. Loss ratio at 31.4%, which is up compared with previous quarters. And then the fact that it is up, it's not because of loss ratio differentials is higher. We are seeing it was the contrary trend that is because I mean the public schemes weights on new business and more than offset improvement on past years. So that's why you may see a net combined ratio. On the financial portfolio side, noting specific new compared with also previous quarters. We have resilient income. The average yield on average investment portfolio without realized gains is at 0.86%. End of September 2020, it was 0.91%. So quite similar resilient investment income. We have realized some gains on this quarter on one specific real estate fund. It's little more than EUR 4 million. And maybe you may see that the investment portfolio is growing due to strong operating cash flows. And we continue to progressively deploy our excess liquidity. So I would say strong operating performance basically on the low combined ratio and a resilient investment income leads Page 18 to a current operating income at EUR 266 million. Tax rate at 23% on this quarter, so quite similar to before. So we have an accumulated tax rate at 24%. And net profit at EUR 191 million, clearly multiplied by 5x 9 months '20, but what is clearly more relevant is to compare that net income to 2019, so precrisis level and it's plus 63%. So a significant increase of percentage compared with '19, too. Page 19 is our return on average tangible equity, so 13.9%, clearly on the back of a huge increase coming from technical profits with a strong underlying commercial and profitability levels. Financial results is driving also growth but at a lower extent. And our equity are up above EUR 2 billion now on the back of good net income results. So that's for me to comment that. And now I leave to Xavier for the key takeaways and the outlook.

Thanks, Carine, and thanks for this contribution. On Page 21, so I mean when it comes to kind of looking at this quarter, clearly, we reached a record in terms of profitability. And on the back of 2 key trends. One is we're still seeing low claims across all regions. And then secondly, more importantly, I think we're continuing to see strong operational performance from the different areas of the business. In terms of the economy, it's been rebounding throughout the summer. As you're aware, we're facing some uncertainties, sporadic flare-ups here and there of COVID, so it's not completely over. We are seeing supply chains that have been disrupted during COVID, having trouble getting reorganized and that's going to take some time. It's generating cost inflation. It's generating delays in production. It's disrupting the world as we knew it before COVID. I think the bank, the central banks and the states have now begun to remove the support that they've provided during COVID. They're eager to get the economies off of the support line. So that's starting to happen. We do expect insolvencies as a result of both this withdrawal of support and of course, some of these disruptions to normalize. But we think the most likely scenario at this stage is that this will happen progressively. As I've already highlighted, in this context, the substantial reserve releases that are -- would be attached to underwriting years '20 and first half of '21 for the reasons that we described would mostly benefit to the government who signed the schemes, and therefore, it would weigh on our numbers in terms of capturing some of that upside. We continue to implement our build-to-lead strategy. We really haven't changed what we're thinking about and what our priorities are. We're navigating, I would say, the -- what is in front of us tactically with resilience, and I would say, with agility. I'm encouraged actually by the resilience of our core credit insurance business. And we are -- we've demonstrated another strong quarter of growth in our adjacencies. We're seeing some momentum here. So I think I can kind of sum it up, I think we're -- the company is doing well. Although I would say, over the next few quarters, we will be immunized. I think that's probably the word that fits best here, in terms of benefiting from upside from the contract that we signed by the -- with the government. So that's pretty much the story. With that, I'm going to turn it over to the Q&A session.

[Operator Instructions] And sir, your first question comes from the line of Michael Huttner.

Again, amazing results. And I note the cautious kind of turn on that. Which year would -- what's coming up now for the next couple of quarters, what do they look like 2019, 2018, '17 or, well, hopefully, not 2020 just as a feel for how we can gauge the progression. My feeling, and here, I may be wrong is because you benefit a lot from the raw material cycle that, in fact, the -- we might continue getting positive surprises. But maybe -- I don't know if you can say anything. Then on the information services, you're saying extra investment. I just wondered, maybe can you give us an indication of what the profitability of this business is now either as a number or as a margin or, I don't know, something would be really, really helpful. I imagine in a couple of years, we will have to put it separately in the valuations. I don't know if we can do that yet. And then the last point is -- no, I don't -- I guess how much money would you pay as dividend? Sorry, it's a really stupid question, but that's all I have.

Thanks, Michael. Interesting questions. I mean, first of all, on your first question, I mean, we typically, as you know, I mean, I'm going to say this again as frustrating as it is, we don't provide forward guidance. I think your point, we are in an economy that's rebounded pretty strongly after COVID. There's some pent-up demand out there, and you're very well aware of this. There's inflation in raw materials and commodities. There's also disruptions, and it's hard for car manufacturers to just find chips and be able to produce the car. So they're just not selling. So I think it's a mixed bag. I mean, it's growing. It's probably going to slow somewhat. The question is whether the consumers who have accumulated so much money during the crisis are actually going to spend that money. I think that's really the question here. So I don't have all the answers. And then how COVID in the end ends up? Is this the end of it? Are we going to see flare-ups? Is there going to be some kind of a new strain coming through. I don't know. I think we have more tools in the developed markets. I think the nondeveloped economies is still iffy. What I would say is it's not a bad environment for COFACE to operate in. I mean there's uncertainty, there's risk, there's movement, there's stuff. That's what we are here for. So I would just tell you that for that much. In terms of the information business. I am, as I said, encouraged by the fact that it's growing. It is a profitable business. I'm not going to give you the margin number. We've not disclosed the individual margin numbers of each one of our product lines. I mean, maybe someday, if we have to value that separately, we'll have to make a change, but it's not the case today. We are making thoughtful investments, but we are making determined investments in this space. I think it's a great way for us to monetize the knowledge and increase the range of services that we have for our clients and all by using the same infrastructure and the same knowledge base and the same expertise pool that we have for trade credit insurance. So it's -- that's probably as much as I'll tell you. And your last question was about the dividend. Well, we really have -- unfortunately, we really haven't changed our strategy or our priorities, funding core growth and funding external opportunities for acquisitions, if there are some. And then finally, returning excess capital to shareholders. What I'll tell you though is, I mean, you know that we've already made EUR 190 million for the first 9 months of the year. So calculating 80% of that is pretty easy, and our policy states that we will return at least that going forward. So given the level of solvency, which, as you know, is strong for the company. So that's as much as I'll be able to answer today.

Sir, your next question comes from the line of David Barma.

My first question is on -- coming back on the comments on the outlook and trying to understand the drag from the prior year releases in the next quarter. Just wanted to confirm a number that you gave certainly in your introductory remarks. Did you say that only 1/3 of the PYD in Q3 was from 2020? And so if that's the case, should we just expect a multiple of the number you provide on Slide 15 for the drag from government schemes? And then secondly, on capital. I know you don't provide solvency numbers at Q3, but can you give us just a directional view of where capital is now given the many moving parts in the second half with growth, the scheme is still impacting that? And yes, and that's it from my side.

Yes. Okay. Well, yes, I did mention that year-to-date, when it comes to the bonis that we're getting from past vintages, about 2/3 came from, say, mainly '19 and a little bit of prior years and 1/3 from 2020. And you are -- I mean, naturally as '19 runs off, that proportion is going to change, right? In terms of the capital position. You know that we ended the first half of the year at a very strong point. I mean we haven't -- we really -- we're not changing our approach. We're not changing the discipline we apply to handing out credit limits. You're saying that our business is growing. So clearly, we have to fund that growth. I mean, that's -- there's no mystery around this. But at the same time, we're not changing the discipline that we have. We -- our premiums are growing in line with the activity of our clients and the risk that we take. So I mean, overall, I do still expect us to be in a good position. But we do -- as you point out, we do not provide these numbers in Q1 and Q3. So we'll have to wait until the end of the year to give you an exact figure on this.

Your next question comes from the line of Benoit Petrarque.

A few questions on my side. Just coming back on the government schemes and the previous year releases. When do you think you will get most of your -- the visibility on the 2020 vintage? Could that be already in the fourth quarter? And I wanted to understand the process. Do you get a push of any kind from governments to try to settle, let's say, losses a bit quicker than normal because releases can take quite some time? And I was wondering if that will be a very slow process release or that could be coming in 1 or 2 quarters, i.e., Q4, Q1? And can you help us to kind of quantify the pressure from that on earnings going forward? Any help would be very useful there. Second one is on the pricing pressure. I was wondering where it comes from. Any particular geographies? Is that more Europe? Or is that broad-based pressure? And then the last one. I was just trying to think about 2022, it's like we're almost there. And could 2022 be a kind of normal year where, I mean, obviously, we do see risk government will be out. Could we think about 80% normalized combined ratio in 2022 as you see it now? Without providing any guidance, just could that be a normalized year? And Carine, thank you very much for all the time you spent with us and good luck.

Thanks, Benoit. I mean let me take maybe the shorter one, the price pressure. I mean you've seen the loss numbers, right? I mean they're low everywhere. So I mean the price pressure is a normal reaction, I think not just from the industry, but if you're a client, if you're a broker, you're going to basically try to use this to negotiate better prices, right? So it's pretty broad. I don't think it's specific to any particular place. In terms of the government schemes. So your question about timing, I mean, I mentioned that going back to the prior discussion, about 1/3 of our bonis so far were about year '20, which means 2/3 were your, call it, 19, right? So if things are things logical a year from now, we'll be about in the same position regarding year '20, right? I haven't really disclosed anything fantastic here. So that's maybe the way to think about timing. When it comes to what 2022 is going to look like, I think so far, we've had everything wrong, right? Every time we've tried to think about the crisis. I mean, if you remember, beginning of '20, everybody was thinking this could be the mother of all crises. If we -- so there's still a lot of uncertainty. What I just think is the most likely scenario, which I've described, which doesn't mean it's going to happen 100%, but it seems plausible that you would see some kind of a withdrawing of -- an increasing withdrawing of government measures that you're still going to see some supply chain disruptions for some time. I mean everybody is saying now it's going to take a year, maybe a little bit more. That you're going to have social tensions, geopolitical tensions. So yes, I do expect the loss or the insolvencies to pick up some speed. At what speed, I don't know. I mean I think -- that's what we do well in COFACE is we're able to navigate an environment which is not easy to navigate because it's multi-factors. It's multi-geographies, it's multi-sectors. And that's what we do. That's our job. So I don't know if I'm helping you, but at least I'm giving you a sense that this is exactly what we do. This is exactly -- and it's because there is this uncertainty that we actually have a business.

Right. Just conceptually, you have a gap on the combined ratio with and without schemes of about 10 percentage points. That could become a little bit more, if I understand it correctly going forward. But let's say, I assume 10 percentage points. So is that conceptually correct to think that you need to generate an underlying at 70% to get to an 80% level next year because I guess there will still be a drag from 2020 potentially slightly -- well, more significant in 2022.

Yes. I mean the -- I don't know if I understand what your -- I'm not sure I understand what your question is here. The 70%, 80%, what is this? I'm sorry.

Well, your normalized level is 80%, but you need to -- I assume you will have a 10 percentage point hit on -- from the schemes. So you need to have a kind of core at 70%.

The trick here is that the hit, I don't know, I don't know how I can call it, whatever, the cost is probably a better -- the cost of the government programs is a function of the level of losses, right? Because if -- say if there were 0 losses, all of the reserves would go back to the government. If there's high losses, there will be low cost to the government. So that's a variable cost. You understand? We're -- in a way, it's kind of like we're immunized. You know what I mean?

Yes. Yes.

For the portion of the business, which it falls under those schemes.

So your next question comes from the line of Benoit Valleaux.

Two questions on my side. First one is related to this competitive market environment, just to see with you if you see any increasing in the self-insurance from your customers. Any change in terms of behaviors of acquiring, I would say, credit insurance coverage. And on top of this, maybe it's not a question related to Q3. But I mean do you see or do you feel any new kind of description of meaning maybe some fintech, which are developing some new kind of business model, which could compete with some of your business lines? And the second question is related to reinsurance coverage. I don't know if you can tell regarding the next renewals issue, what do you expect in terms of pricing if you might increase your retention for the part of the reinsurance business, which comes to renewals?

Yes, these are good points. So in terms of self insurance, it's always been something that's around. I mean there are companies every year that make the decision to go and self-insure. There tend to be 2 categories. One is the very large groups that make the investments, and they usually have very stable businesses. So they know their clients very well and they make the investment to build up the infrastructure themselves to do this. The other ones are companies that are small, that are not -- haven't been with credit insurance very long and they just happen to either run short of money to pay premiums or they have other priorities and they decide to self-insure. So typically, in a low loss environment, yes, you're seeing more temptation, I would say, to go down that route. That tends to reverse when things get bad, right? I mean, it's like you buying some kind of an insurance product for -- that's not mandatory. If you perceive that the risk is low, you'll be more tempted. So there's some of that going on, which to some extent, is marginally impacting our retention. In terms of the fintechs, I've had the opportunity to talk about this a few times. There's 2 things fintechs can do. They can try to compete with us in the core business, but then they have to be insurance companies, and they're not fintechs anymore, so they tend to be -- they quickly become big and regulators and all that stuff. The other one is to provide information or related services that would allow a company to self-insure better, and that's what we're doing because I think our infrastructure, having data on more than 100 million companies in 200 countries and being interfaced with so many systems and having the experience of being able to understand what these numbers mean and having sometimes tens of years of underwriting experience, that's hard to reproduce. So I think fintechs are interesting in that they will help us improve. They will improve some processes. And when they do that, it's our challenge to go and do better and maybe absorb some of that technology into our own operations. And I've said this for 5 years, I don't think anything different is happening, quite frankly. When it comes to reinsurance, it's too early here to say what's going to happen. I mean, clearly, if we're having good results, then the insurance industry is having great results on the back of that. So there's a negotiation to be had here, and it's too early to say which way it's going to go. We have our opinion and reinsurers out there have their opinions, and we have to confront these, too.

Sir, your next question comes from the line of Thomas Fossard.

Two questions. The first one would be related to your solvency position. You're not providing the number at the end of September, but I guess that you are still in a pretty healthy capital position, probably holding some excess. Given the fact that you might be a bit limited at the present time in terms of giving back this excess because of the constraints you may have in doing share buybacks at the present time. I mean, does that mean that actually we should think about you deploying this capital in -- potentially in acquisitions? And obviously, you're growing quite significantly and fast in the information business. So I was wondering if potential -- this was potentially one area where you should -- you could focus your attention in terms of inorganic growth? The second question, maybe for Carine, would be back to Slide 15. Looking at the chart, bottom chart, it seems to be that the acceleration in the cost of the scheme is around EUR 20 million pretax per quarter. So I mean, will this math be correct that I mean, with unchanged claims level, actually, 20 times 4 quarter mean that you will end up with a pretax profit which will be running EUR 80 million lower than they've been running this year, so EUR 60 million pretax. So if you're ending up the year at EUR 210 million or EUR 220 million, does that mean that with unchanged loss experience, the 2022 net income would be around EUR 150 million, EUR 160 million?

That's a very -- Carine, I hope you enjoyed the question.

Yes, yes. Thank you. I like this. Hope it is my last question, Thomas.

Look, in terms of the first question -- I'll let Carine answer the second one, of course. In terms of the first question, we've always said that we are open to acquisitions. We have actually done a couple of acquisitions. We're very happy we did them. They're working out very well for us. So we're always open, but we're not ready to buy anything at any price. It has to make a lot of sense. The price has got to be right. We've got to see how it fits well in terms of being a bolt-on or an extension. We said there's 2 things we'll do. We're either going to add scale, and that was the -- this is what we did in the prior acquisitions or we are going to add skills, things that we don't know how to do well ourselves that somebody else is going to do better and give us that capability. So I don't exclude that we could look at other things than just traditional credit insurance. But again, the price has got to be right, and it's got to fit in. And you know that in terms of information or other businesses like this, the multiples can quickly become quite impressive. So it's about finding that right thing that we are -- that I just described. Carine, do you want to take question number 2?

Yes. Yes. So I mean, the question really means, of course, you know that we don't give any forward-looking statement, Thomas, but also that it will depend, I think, as we told before, the level of claims going forward. What we know and that's why we mentioned it is that the cost of the government, it will depend on the level of reserve release for 2020 and beginning of or the first part of 2021 because of the scope of the guarantees. For 2020, we already told you just before that we have only, let's say, 1/3 of the reserve release up to end of September, which linked to that. There is still a part which is not yet there. And 2021, it will really depend on the level of [ low loss ] knowing that when you look at the opening year for 2021, it's around 70%. So well, it will depend on that. Just maybe have in mind that in general, it's between this [ chart and on the right here under ] the -- most part of the development is maximum 2 years. So I mean it's something we will have to see in the years to come.

But looking at the chart, it seems to be that the blue ROE is indicating that actually this EUR 32 million is going to maybe go further down in Q4 2021. I mean is unlikely to stabilize at EUR 32 million, if you see what I mean. So I mean...

What I say, I mean it is -- what is clear is that as of today, to make it simple, we don't see so much premium to the states because government schemes have ended at the end of June. We may have some -- I mean, end of premium but not so much. So what will happen is what will happen to the level of IBNR we have and how much will we have released. So that's the question in front of us. So good news could be that if level of loss ratio is still low, it's a good news. But then we'll have to give [ probably ] to the government. The extent of the government's, I mean, cost will depend on the extent of the reserve release on this year.

Okay. The lively distributions we had in the past.

It makes the short term -- I mean these government programs are extraordinary in that. It's the first time we have this, right, in the balance sheet. So it does introduce something different and harder or unusual, I would say, in the short term. But I just want to say again what I've said earlier, which is this is going to be temporary and underlying this, if you think a little bit more long term, we have a business here that's going pretty well.

And yourself, you will be earning -- I mean, if things are going well. I mean, of course, the government will benefit, and they will have the profit share of it. But I guess that you've been also pretty cautious yourself in preserving all those years. So I mean, at the end of the day, you should benefit as well from still pretty healthy reserve releases in the coming years.

Well, I mean, again, there's a short-term effect here, which, once it's gone, we will -- obviously, it will be a lot simpler to model it.

[Operator Instructions] And we got a follow-up question, comes from the line of Michael Huttner.

I had 3 questions. One is a little cheeky. The other 1 is -- the other 2 are numbers. You talked about the government schemes and the boni. Is there a similar impact in -- sorry, I'm spitting. I'm really sorry. Is there a similar impact in terms of how the reinsurance, the traditional -- the normal reinsurance contracts, right? Or do they -- are they much more kind of smooth and we don't have to kind of watch out for humps or something? The second is the initial loss pick in 9 months of 70 point-something percent, before it used to be 73%. Is it significant in any way? And then the last one, and that's the cheeky one, I'm really sorry. You've got all these managers, which is fantastic. When I arrive at a new place, I'm thinking, I'm king of the castle, I can do what I like. I can grow and I know everything better. Is there a risk that they're a little bit enthusiastic in growth?

Who is enthusiastic? I'm sorry. I didn't get that.

You said you had new managers in the various units, new heads in some regions. People who are -- maybe they have got experience, but they're actually new in post.

Well, I mean we always -- I'll take that one, and maybe I'll let Carine handle the other 2. The -- we've always changed people. I mean, since I joined, there's always been, I would say, a healthy normal rotation of people, right? I think this is part of the normal life of a company where managers get to a certain point where either they want to do something else or we think that there could be a benefit for a change. So I mean, it's all -- I think it's a pretty normal life. We haven't done anything during the COVID time. We were kind of like managing the crisis and kind of hunkering down. So it's not unusual that we would see a little bit of activity on that front. The first question, what was that? I'm trying to remember.

So the reinsurance, you highlighted that the governments are benefiting a lot from the reserve release, the boni.

Yes. But the reinsurers -- first of all, it's not like we have reinsured 90%, right? It's more like -- it's mainly the quota share is more like a 23% rate level. But essentially, the reinsurance schemes they work where if you have a good year, then it's quota share, then that quota goes to the reinsurer, right?

Maybe on this one, if I may interrupt, Xavier. If I understand well your question, but I'm not sure I understand well, Michael, your question. Private reinsurance goes after states reinsurance. So it means that for 2020 and first half of '21, I mean we apply first external government schemes. And then we apply our current and normal reinsurance external one. So it means that they have had lower in a certain way premium [ CDDs ] because of the government schemes. But it has been stopped starting 1st July of this year. I don't know if it was your question.

Yes, no, no. That's probably a better answer than I could have asked. And the 70%, sorry?

And the what?

And the initial loss tick in the 9 months is 70%. And it was previous period, 73% or 75%.

You mean the opening loss ratio for underwriting year 2021.

Yes.

Yes. I mean, it's also -- I mean, it's usual reserving methodology and model. And in fact, we have applied them and see that because of the loss we -- I mean it's -- we have a lower opening loss ratio. That's what happened because of the loss activity, which is low.

And may I ask a last question. I'm really sorry. I remember when you mentioned in the past, the movements in solvency ratio, you explained that partly it reflects the expected loss experience. In that, is there something to say? Could it lead to a movement, which you're not expecting in terms of solvency ratio?

We are anticipating loss ratio, but not the accounting one. You know it's the best estimate in Solvency II. I mean -- so that estimate is also recalibrated in the quarter based on the current losses. So we are readdressing it. That's what I can say. Yes, the mechanism in this one. We are not expecting anything specific as of today, but that's the way it works. So we will readdress it at the end of the year based on what we will have seen in the last quarter.

But we are with an internal model now, right? So essentially, a good chunk of our solvencies determined -- or capital requirements is determined by the exposures that we take.

Yes. Then the best estimate is used for the equity. So you're right on the solvency capital level. But for the equity level, which is in front of that is based on -- it's more or less up based on that estimate calculation.

No more questions at this time. Please continue.

Okay. We're right on the hour. I mean this is -- we're getting -- like these calls are becoming perfect. So I just want to thank you all again for attending. I want to thank Carine for her collaboration publicly over the last -- well, over -- in my entire tenure as the CEO of COFACE. I wish her luck in her new role. Welcome, Phalla. Thank you again for joining. And I give you a rendezvous, as we say in French, for our quarterly earnings call, which will be in January -- sorry, in February, right?

Right.

For the totality of the year 2021.

And thank you, Xavier. I thank the opportunity and thanks all of you guys. It was a pleasure. And I will follow in case [ the stock ] -- and I'm interested in any case to create value for COFACE. So thank you, everyone. And thank you, Xavier, for the support.

That concludes our conference for today. Thank you for participating. You may now all disconnect.

Thank you.