COFACE SA (COFA) Earnings Call Transcript & Summary

Thank you. Good evening, everyone, and thank you for joining this call. We're happy to report our first half profit for in 2022. And as you probably saw in the headline, it's remained a very strong operating quarter in Q2 for Coface, EUR 144.4 million of net profit for the first half, solvency at 192%. I think if you look through the publications, and I'll highlight some of the numbers without necessarily commenting on each one of them, but see a number of items that are actually quite strong in quite a few instances, constitute a record for Coface. Our turnover is up 14.6%, 16.5% on a reported basis. Underneath that, you find trade credits at 16.1%. Retention of clients, I think at our best ever 93.9%. Pricing continues to be under pressure as we've experienced over the -- actually, the course of the last almost a year. Business information, remember, we had an 11% quarter in Q1. We -- in Q2, we saw good momentum with a slightly above 20% growth and strong high double-digit growth in the new business from last year. I mean, the losses remain really good at 39.4%. So that brings our combined ratio to 66%. And actually, if you exclude the impact that we had from the public schemes, which we took in Q1, which was EUR 33 million, it's actually better in Q2 than in Q1. The net cost ratio is down almost 4 points at 26.6%. I think that's clearly the best performance ever for Coface and we'll talk more about this. So when you look at the publication, I think it's a strong quarter, no question, EUR 78.2 million in Q2. Return on average tangible equity at 15.4%. And solvency well above the target range. I'll talk you a little bit more on the publication about the Board changes. And then one more piece of good news, we were upgraded in terms of our ESG rating from AA to a AAA by MSCI. And then finally, just for the record our NPS, which we really measure on a quarterly basis through thousands of clients across the entire globe, is up 10 points from last year at 37%. I think that's a pretty good number in this industry, if not the best. I added one -- we added one page on Page 5, to just show some of the changes that have happened from the time we started this transformation of Coface in the first half of 2016 to where we are today, I thought it would be interesting to just reflect a little bit. And you can see quite a lot of changes, a very significant deep transformation that's driving related metrics of premiums, up 33%. But if you recall, we started off by reducing premiums because we had to clean the book back in 2016. Client retention up almost 4 points. Solvency up 37 points. Shareholder equity up 11%, even though we have -- we've been paying out 100% of our net profit last year, if you recall, in terms of the dividend. The net cost ratio down by almost 8 points. The net loss ratio, obviously supported by a good environment at -- down 20%. And -- and then our newborn, I would say, information business, which we really started to drive back in '19 is up almost 50% from that period of time. And that translates into a return on average tangible equity story, which you can see -- sorry, on the right-hand side of the chart, showing steady improvement to 15.4% now with -- obviously the blip that we had in 2020 as we were going through the COVID crisis and in the whole government discussions that you're all familiar with. So I mean, deep transformation, Coface executes. Coface has got a plan. Coface is focused on that plan while managing the -- I would say, the -- whatever the environment has got to offer. So the story really doesn't change the operating principles underlying the business don't change, but we are focused on execution and consistency through the different periods. I'm moving now to Page 6. And I wanted to give you 2 updates. One is on underwriting, just to highlight here that you're seeing some significant growth in our total exposures. We're up 9% from the end of last year to, I think, our highest ever at EUR 642 billion. But what's interesting is if you look back 5 years, you will see that actually, the premiums have grown right in line with the exposure. Actually, premiums have grown slightly more than the exposures over time. And if you look at what's underneath that, you'll see that the -- what we call lower quality exposures are actually close to record lows, and the average exposure rating is actually closed its record high. So we are playing the game. We are supporting our clients through this recovery phase, but we are also attentive to what's going on in the environment and making sure that we remain consistent with our long-term strategy of creating value through the cycle. Another update on Russia. You may recall that we started this whole war with EUR 4.8 billion in exposures on Russia. As of today, it stands at EUR 1.4 billion. If we use a constant FX because, as you know, the ruble has appreciated paradoxically through that period, we would be at EUR 1 billion. So it means we pretty much reduced the exposures by about 80%, excluding FX since the beginning of this event. The bulk of what we do now is related to domestic Russian exposures for the benefit of large international clients that we work with. We took some reserves, as you're aware, for what might happen in Russia initially when this started, and pretty much we're seeing claims so far being quite reasonable. And then we are focused on maintaining our capabilities to: One, service our clients; and two, collect the monies that they are, and we are owed in the country, as we are also rightsizing operations because we -- as you know, we were not writing any new business here in Russia. so far, so good, I would say. But the situation that we are actively continuing to monitor. The next page really talks about our CSR strategy. And I put as a background in light gray, the slide that we showed you at the -- you will see on super imposition in green, the items that are moving, I thought it would be a practical way to just highlight the fact that we're not losing the plot here, we're continuing to move ahead. We -- and a few things have changed. We are integrating climate in our risk monitoring. Amongst all the scenarios we look, we look at the stress that the climate events would create on the company. We have now a formal diversity and inclusion policy approved by the Board. We have completed a full carbon footprint assessment of the company, which will be the basis for which we will build a plan to reduce it and eventually, if we can become a net carbon zero. And then I also already mentioned the upgrade in MSCI rating to AAA, and we have put in place a full CSR governance organization and structure within Coface. So we're continuing to move ahead on an important topic. And then finally, one last update on Page 8 about the Board. You're aware that we have -- we've had quite a few changes over the last year. Bernardo Sanchez is now our Chairman. We have 5 independent directors, 2 of which just joined Laetitia Leonard-Reuter is the CFO for Generali France. Really understands in depth the insurance sector and finance. Laurent Musy leads a global business with Terreal and brings a wealth of international experience. And then some of the metrics are interesting now. We have the 3 committees led by female independent directors. If you look at our pool of directors, 60% are independent, 50% are female, 50% are non-French. So I think we really have a good mix and the level of expertise and experience here that positions us well. With that, I am going to go to the usual presentations. And starting with Page 10, talking about turnover growth, 14.6%. Quite a high figure and historically for Coface, probably the best I've seen and probably the highest we've had in the business. We see that underneath this, trade credit insurance is growing at 16.1%. And then on a reporting basis, it's 18%. Other revenues are picking up some speed with 8.5% in the first half. Business information, as I mentioned, had a good quarter at over 20% in the second quarter. We still do not see the kind of collection fees that we would normally see through the cycle because the losses and the claims remain relatively moderate. And then factoring is up at almost 12% for the first half. Fees up 5.6%. So I think there's quite a good momentum in the metrics here. When you look on Page 11 across the regions, actually, I'm not going to comment every one of them because the trends underneath here are some of the pretty much the same, which is good retention and good client activity, which leads to double-digit growth in every single part of the world. And you see some of the metrics that are actually a bit more dynamic here, with Central Europe at 18%; North America at 14%; Asia at almost 23%; Latin America, almost 24%. And then some of our factoring businesses with -- in Eastern Europe, almost 50% growth as we see opportunities here for us to position ourselves. So on the next page, the makeup of our growth really hasn't changed that much from the prior quarters. You're seeing a little bit less new production. I think we remain committed to disciplined underwriting, I would say, in an environment, as you're aware, which is we consider to be skewed towards the downside. And also in a market where competition remains, in my view, a bit exuberant, the retention rate is the highest we've had. We are obviously seeing some price effect, but nothing different from what we've highlighted so far. And then in terms of the volume effect, which is a combination of the dynamism of the activity of our clients plus the inflation, you're seeing 8%, which is a very strong number. I move on to the next page about losses, which is Page 13. And you see we had another really good quarter here with a 32.2% loss ratio for the second quarter, bringing the first half at 30.6%. So almost the same as we had in 2021. We do, as I have already said, I don't know how many times, we do see normalization underway. The frequency has been increasing since the middle of last year, about a year ago. More large losses, even though they're still below, I would say, the average we expect in a cycle. And then a relatively contained amount of claims related to the crisis in Ukraine, which, as I said, we're monitoring very closely. So we haven't changed the reserving policy. You see that -- we opened the new year at a higher level to account for the fact that the environment is more risky in our view. We still get really good monies from the prior years, including from the year '21, which includes some Russian risk. And so another, I would say, a very strong quarter on the loss side. You can see that story split out on Page 14 across the different regions with the 4 large, more stable markets that I usually highlight first. At the bottom of the page, very stable, I would say, and below historical levels. Central Europe, a little blip here with the reserves we had booked in Russia, but that's not news. On the more volatile markets on the top side, still very benign picture, a bit of a tick up in North America. And if you look on Page 15, you'll see more and more quarterly splits in North America. What's happening is you have the combination of one claim, a larger claim with a progressive normalization, which is taking place like in any other places around the world. So pretty much -- not much to -- more to add on the loss side. In terms of the costs on Page 16. So you see that our total cost is up 8.7%. That includes, obviously, double-digit growth on the external acquisition costs. which are driven by broker fees essentially. And then I would say, continued but lower growth in the internal costs. We are gaining operating leverage, so we continue to be disciplined on cost execution. Our premiums are growing faster than our internal cost. We are seeing the cost ratio before reinsurance, obviously, down by 3 points from last year. You can see the net cost ratio is actually -- as I've mentioned earlier, is driven by also a reinsurance benefit. I have to say this cost management does not prevent us from investing in the business. So for one, we are spending money on technology, on systems and stuff like that. We haven't lost any of these things in terms of -- in our site. And then -- we continue to invest in our information business in a very dynamic way. We still don't see much revenues from collections. And I think that's tied to the environment. So I think, again, another good scorecard, I would say, on the cost side. With that, I'm going to turn it over as I usually do to Phalla to take us through the next few pages.

Thanks, Xavier. So we are now on Page 17, and we're talking about the reinsurance results. I just want to remind you that in H1 '21, all the public schemes were still in fourth till the end of June '21. That explains, of course, the premium cession rate that was at 48.5%. And then on the claims cession rate side at 62.7%, again, we had probably the top of the reserving period related to the COVID last year. I will go back to this year, Half 1 '22, which is a completely different story. If you look at the cession rate at 27.4%, we are much closer to our usual cession rate related to the, I would say, third-party reinsurance treaties that we usually have. And then on the claims cession rate side, 6.5%. A couple of things here. Remember that in Q1, we took EUR 33 million of costs related to the NPL, I will put it this way, of the public schemes and went back to the government that put in play such schemes. Of course, 6.5% is low and it's just illustrate and reflects the low loss environment that we have. As a bottom line, the reinsurance results really reflect this low past losses and the result goes down from minus EUR 84 million to minus EUR 102 million. Net combined ratio at 66%, moving up from 51.9% in the first half last year to 66%. If we want to again compare April to April, I will look at the chart of the combined ratio without the public scheme impact. And here, we're moving from 61.5% to 60%, with a less cost ratios down almost 4% as Xavier mentioned. This really thanks to the cost savings that were put in place despite the inflationary environment and the higher commissions that we have negotiated as a renewal. Net loss ratio moves up from 31% to 33.7% in which we have embedded the reserve book up on the Russian and Ukrainian crisis. With this, I'm moving to Page 18 -- or 19, sorry, on the financial portfolio. So the mark-to-market value of our investment of end up at EUR 2.8 billion. A couple of things to be highlighting here. On one side, we have been, of course, impacted or negatively impacted by the turbulent financial markets with the increase of interest rates, with increase of spread and with the drop of the equity market. We have also paid out EUR 225 million, almost EUR 225 million of dividend, end of May. But on the other hand, our operating performance and business performance has contributed a lot of cash, and we have a good cash generation here, which explains that our strategic asset allocation has not changed much. If you look at the fixed income, the bonds will be closer to 70%. What we can see here as well is that the liquidity level is still very, very high thanks to the cash generation from the business. We keep it at 18%, waiting for proactive deployment to pick up the interest rate, that increasing interest rate environment will benefit in the yield and investment income. Tactically, what we've done as well to make our portfolio even more resilient is to shorten the duration gap that we have, and we have reduced the duration of our investment portfolio by almost 1 year. And we have equity hedges in place that sound to be very efficient. As you can see, our net investment income moved up from EUR 15.9 million to EUR 24.4 million. As a result, a very strong, super strong net income for the first half at EUR 144 million, out of which only EUR 78 million coming from the second quarter. This is up 17.2% compared to last year, with a tax rate almost stable and at 25%. Return on average tangible equity, I will start with a change in equity. We -- let's look at the work from the full year '21, EUR 2.1 billion. Of course, we pay out our dividends to the shareholders. We accounted for the net income of the Q2. And then you have this mark-to-market movement impact overall, minus EUR 163 million, plus EUR 29 million, and then is this has driven down the mark-to-market investment portfolio. Return on average tangible equity from 12.2% to 15.4%. The work is only explained by the technical results and the financial results, net of tax. Any more? Let's move to the capital management, so now I'm on Page 23. Total balance sheet at EUR 8.5 billion. We -- nothing changed in the structure itself of our balance sheet. You can see that the hybrid debt is remaining the same. We just paid the coupons. And the financial -- I think the factoring assets are fully backed by factoring liabilities. IFRS 17 and the project is going on as planned. Nothing to be added here. Financial strength, some things to be highlighted, of course, the fact that AM Best has confirmed the fact that we are rating A, which is Excellent rating in April 2022. Book value per share at EUR 12.9. I'll just give you your own appreciation of where we are today. Tangible book value per share at EUR 11.3. If we move to the next page on Page 24, solvency ratio, I think, is down 4% from 196% to 192%. Here, something to be highlighted is the fact that given the resilience of our investment portfolio, this has not impacted much the Solvency ratio compared to last year. And I just want to infer you to the stress that we did in Q4 and that was shown to the -- well, to you guys. And this starting end of June, we're already at this level of stress and has been proven out to be very resilient. If you move to next page, which is Page 25, you can see how the 192% is made of, not much changed since last year. With this, I'll turn it back to Xavier for the key takeaways and the outlook.

Yes. Thank you. So as you've seen, I think we had another very strong operating performance in the second quarter, double-digit revenue growth in most business lines, return on average tangible equity of 12.5%. Solvency ratio well above the target range. I would say, despite the growth in the business because we do have to fund the growth in the business and some turbulence in the financial markets. We're not losing track of our clients. I've highlighted our NPS course. It's the most important thing for us. We think the outlook for the world has deteriorated markedly. I mean you're all aware of -- I mean, the list goes on and on and on, of geopolitical risk, health risks, inflation, interest rates, social risks, et cetera, et cetera, supply chains, COVID, I mean, you name it. So we are very well aware that the world may be at a turning point, and there could be downside risk. The higher interest rate environment does offer some more attractive investment opportunities, which we expect to materialize progressively over time. I think we've said that again and again. In this context, we remain disciplined. I think that the key word to Coface, we're focused and we're disciplined. We're focused on the things we highlighted during the layout of plan Build to Lead. Clients first. We rely on our culture to make sure that we have the best expertise available, that we are absolutely committed to the clients that we are collaborating very efficiently. And that we have the courage to address the situations that need to be addressed. We are consistent with our promise to create value through the cycle, and not just be looking for volume for volume's sakes. And we continue to invest in our business for operations, for systems, for technology and for new business development as we have been illustrating, I think, with the credit intelligence business. So that's where we are. I'm very happy to take questions if you have some, which I expect on from you over the -- going forward. I think we can turn it over to questions for the operator.

[Operator Instructions] We're now taking our first question. The first question from Hadley Cohen from Deutsche Bank.

Thanks very much, everyone. I have 4 questions, if I may, first 2 on solvency. I was just wondering if you could just talk a little bit more around the walk-through from the 196% to the 192% at the end of the first half. And in particular, the extent to which is the sort of derisking of the investment portfolio led to a positive impact on the solvency ratio in the first half and how we should think about the potential for more of that positive benefit to come through going forward? And then the second one related to the solvency is -- maybe I'm missing something obvious, but I noticed that the sensitivities to the stress scenarios has increased quite a lot this time around relative to previous sensitivities given. I'm just wondering if there's anything going on with that. Third question is on costs and cost ratio. And apologies at if I missed this in the discussion. But -- should we be thinking about this sort of 26.5%, 27% level as a sustainable level going forward? I mean, typically, we've always sort of thought of the 80% normalized is a 50-30 sort of split. But do you now see the expense ratio is staying sustainably below 30% in the current environment? And then the final question is around reinsurance and how you're thinking about that. And I guess, specifically, in a scenario where we start to see increased loss activity and more default insolvencies and what have you. Presumably, you will be looking to reduce your net exposed -- net insured exposures. And I'm just wondering how you're thinking about the balance of reducing your gross insured exposures and or increasing your reinsurance protection going forward?

I will take the solvency question. So that's 2 things. Let's talk about the work related to the investment portfolio. A couple of things to be highlighted here. As you can see, the mark-to-market impact, of course, is impacting our equity. So it's the a little bit impact. But if you look at the -- I think on Page 25, the market risk has decreased since last year. Last year, it was at EUR 388 million. This year, it's EUR 295 million, which means that what we are losing per se or the impact on fund related to the mark-to-market is compensated or even more than compensated by, of course, the SCR, so the capital consumption. And of course, this is -- so when you are in a very depressed market, you're falling from a lower level on the capital consumption. And this -- put it another way around, is really proving out the resilience of our portfolio -- our investment portfolio, which is we're going through all the shocks, investment, interest rates, spread widening and equity -- and of course, you have the impact on your mark-to-market, but you're consuming less SCR. So no impact -- actually no impact on your solvency because your portfolio is really resilient. And you can see the stress that we've made in half year, which is based on the half year situation and you know that the spread has been widening quite a lot already. It's still same kind of outcome, which is beyond our comfort zone. The second thing related to stress test related to the 1 in 50 and 1 in 10, couple of things. One thing -- key highlights here is the fact that, of course, we have increased our exposure by almost 10% from EUR 590 million to EUR 640 million. And of course this, in the stress scenario, cost you more. However, what I also want to highlight is this all the stress test in value the [ 120 and 110 ] is before ill-managed actions. So in the real life, it's -- in the real life what we do is when you see the loss environment going through the roof, you start to cut exactly what we did during the COVID period. But the stresses to say, doesn't reflect these management actions.

On your question around the cost ratio, I would distinguish between, I would say, the gross cost ratio, which we show on the cost page. which really represents the execution in the business of the, let's say, the premium growth and the cost growth and what we call net cost ratio, which is impacted by the terms of our reinsurance contracts, which may vary based on the cycle. So I think -- I think what you're seeing here is 2 things. And right now, they work in the same direction as it continued and you've seen that story develop over the course of the last 6 years. You see continued search for efficiency and operating leverage while we continue to invest, and we're not losing track of the longer-term plot here, invest in systems and technology and digitization and information and whatever else, market development and things like this. And then you see the benefit of a low claims environment translating into better reinsurance terms, which also adds the net cost ratio impact. I think that actually answers both of your questions. Probably.

Yes. Can I just quickly come back on the first solvency question? If we were to assume the interest rates remain where they are at current levels, presumably your own funds doesn't change. But presumably, you're also still reinvesting in higher quality assets, so your market risk should continue to reduce. So it's a net positive for solvency. Is that fair?

Yes. I will hire you as my investment director. Yes, it's fair.

We are going now to take our next question. The next question from Michael Huttner from Berenberg.

I was trying to think of a second question on your core business. And I suppose it's term is on a little bit somewhat Hadley asked, which is, the environment is looking so clouded. What are you not cutting exposures? So I suppose that would be my first one. The second one is, Phalla I'm really, really sorry. I wasn't paying attention. Could you repeat what you said on liquidity, how much liquidity you have and how much is upstream or something, that will really help a look through the slides, and I couldn't follow, I'm really sorry. The third question is on deals. So I imagine because you're extra well managed, you've got strong solvency. You've got cash, et cetera. A lot of people are knocking on your door saying, would you like to buy this? And I just wondered what the outlook is there? Then you said you're investing in information services. I could maybe guess at the figure, but maybe you can kind of within the EUR 304 million, which I think is the internal cost the first half, what proportion of that or just a feel for how much is the investment bid? And then my last question is on the Board members and you and the Board members just to get a feel for the composition. Could you distinguish or say how much of your Board now represents the -- your 30% shareholder? And how much is other kind of independent?

All right. So I'll take 3 and I'll leave 1 for Phalla. On the Board members, we have 4 Board members from Arch Capital. It's not changed since they joined, they replaced the 4 Board members we have from Natixis . So there's nothing new in terms of the governance here. In terms of deals, yes, we're -- I mean, we're open to doing M&A. I think our scope is both on the insurance side and on any other things that would add value to our core franchise, which we define as for our Build to Lead plan. So the main pillar and the adjacent businesses. So we're looking. But as you know, we've always been, I would say, picky in a good sense that we want to do the right deal, and we're just not looking for growth for growth's sake. So we're open. In terms of the environment, you're well aware that we're in an inflationary environment. The economy is recovering from COVID or has recovered completely. We're talking about the -- but obviously, the last -- the first half of this year. So we're here to support our clients. So we're growing our exposures to support our clients. They have legitimate business needs. We monitor the quality of the book. I'd just point out that over the long term, our premiums have grown just in line with our exposures. And I think I said that during the call, that the quality of our exposures is the highest it's ever been. So -- so yes, we've got to play the game. And then the last thing I would say is we are in a very competitive market, and we need to stand our ground here, and we're absolutely committed to doing this. Because what makes us good is our long-term client relationships. Phalla, do you have anything to add?

I'll take the question on liquidity. I think on Page 19 of the financial portfolio, you can see the percentage. So -- everything is related to it is loan deposits and not as 18% as of June, which is....

And I think you explained how much the cash flow was.

Well, I said that there's a lot of cash flows coming through. Even -- well, despite the fact that we have paid EUR 244 million -- almost EUR 225 million of dividends by end of May.

Okay. And on the cost, the information services, I'm not sure of the EUR 304 million.

We're not splitting that out. So all I can say is we -- this business has been pretty much self-funding its growth investments. We don't typically disclose cost by product line.

We are now going to take our next question. The next question from Benoit Valleaux.

A few question, first starting with the activity. You still record very high level of client retention rate, but you're also mentioning a bit stronger competition. And the same time, we've seen a decrease compared to last year in terms of new production. So I just would like if you can elaborate a little bit on this. I mean, is competition on one country for [indiscernible] Germany, where you gain some market share in liquidity or is it more across the board? And do you believe, for example, that despite this, you might expect some price increase going forward with amortization in claims frequency? Second question is still relative also to H1 '22. Usually, at the end of June, we've seen in the past that insolvency is a bit weak and weaker than at year-end. It is not really the case yet, I mean we've not seen any drop in H1. I mean have you applied any change in methodology just to understand? And can we assume maybe that you have further strengthen your level of results in H1 as you did last year or not, which could maybe partly explain a good Solvency II given? And maybe my last question, sorry, is on IFRS 17. I don't know if you can elaborate a bit more on the expected impact for you?

Okay. Well, let me talk about the market here. It's a very dynamic market. There's a lot of competition. I think we are pretty much -- since -- we had basically the crisis -- the COVID crisis back in '20 that created a spike in insolvency and quite frankly, quite some concern across the economy. I think we gained share throughout those last couple of years. We're taking a more, I would say, prudent or conservative or consistent, I don't know what to call it, stance as we are. We think, in a world where the downside risk is the biases stores downside -- and we're remaining completely consistent with our strategy of long-term value creation. But I mean the competition level is not abating, not at all. We're very, very focused on our client base and doing the right thing and staying very close and helpful to our clients. On the -- I'd just point one thing on the insolvency is that we make money, right, so that we're creating capital. So that helps, right? And then on IFRS, it's something which is to come, which will introduce a number of changes in the way we count. I think we'll have to take you guys through what that means and how that's going to work. We're going to have to -- obviously, there will be some changes. But I think it's a bit too early to talk about how that's going to work.

Yes. So on your question on Solvency II, we have not changed any of this for sure, is one thing that's clear. On IFRS 17, we're not disclosing any impact because we're still going through this. However, what I can tell you is that we are -- we're using the premium allocation approach and this has been approved by auditor.

Okay. And on the level of results, I mean, is it fair to assume that you have strengthened a little bit our results in H1 or not? -- means, of course.

We don't change our methodology. So we're also using the same methodologies. No change.

We're going now to take our next question. And the next question from Thomas Fossard from HSBC.

Two questions on my side which will be related to the return of the economic environment. Could you please indicate if you've seen in the Q2 close, if you're seeing any change in momentum in the economy, it seems to be that since a couple of weeks? Clearly, the environment seems to be deteriorating pretty fast. Actually, leading to significant GDP cuts for H2 and 2023. So I was wondering if you've noticed yourself kind of change in velocity in terms of maybe the recessionary environment, beginning in Europe. The second question would be related to your view regarding Germany, especially. Actually, Germany is a big market for all the credit insurers. Here the outlook seems to be a bit tricky regarding cash supply. Could you maybe put a focus on how big is Germany for you in terms of geographical exposure and potentially what are the kind of industries, Euro is most exposed to specifically related to [Technical Difficulty] .

Well, you had 2 questions. Is that all Thomas?

Yes, that's also now yes, sorry. Yes, 2 questions. One on the velocity of the deterioration and 1 more focus on Germany.

Yes. Well, look, I mean, you know how our business works. If there's going to be a change within our clients, we can see it through, obviously, the discussions we have with them or we can see it through their request or limits or we can see it through the claims, right? But that takes a little bit of time. It doesn't happen like within a time frame of a couple of weeks. So I would say what we focus our attention more on is how we see the economic environment, what our team of economists and our analysts forecast, and that's -- it's really our job. It's our value-add to look at the different countries and the different sectors and to monitor the level of risk in each one of these components. And if you're aware if you follow what we did, we publish both country risk assessments and sector risk assessments, and you've seen that the latest batch is clearly skewed towards to the downside. So no mystery here. We manage our exposures as a result of that anticipation, I would say. And we put our attention and the attention of our analysts on the sectors where we believe there is the most -- either downside or upside and where things need to be monitored closely. So nothing new for us. I mean, that's what we do. It's not something that's just suddenly starting in the onset of Q3. It's something we've been doing now for a very long time, and there's a continuum here in terms of Coface. In terms of Germany, it's obviously a huge market for credit insurance. It is, I think, our largest market close with others. It's one where we've been operating now for the longest time. I'll just remind you that next year, we will be 100 years in Germany. So Coface is going to celebrate in 2023, our century. We've gone through a few crisis over there. Clearly, Germany, the big question right now is gas and energy and how that affects their industry, something we've -- I can't say something new, something that's been on the agenda. It seems to be more likely to materialize probably now than it did a few -- a few months back. But still, I mean, something we're very, very attentive to. So about as much as I can say. Nothing surprising, if I may say, in terms of the developments that could happen there. We just have to take that into account.

And maybe, Xavier, one last question for you because I think that in the past, compared to [indiscernible]. I think that in the past, Coface has been less reactive to cut exposure or it's been late to cut exposure. But since you came actually, you strengthened all your risk analysis and risk framework and things like that. Maybe in order to take more timely decision and also maybe more commercially driven decision. And what's -- so I think yes, it's going in both directions. But what is striking me that actually, you've downgraded so much rating for a number of country risks and also industries. And still, I think it's still a bit surprising to see you ending Q2 at historic high level in terms of our risk exposure. So I fully understand that the risk quality is strong and you've got probably a better pool to monitor compared to what you had in the past or what you inherited from when you started over. But it seems to be that -- I mean have you already started to reduce? Or I mean are you still able to go into Q2 -- into H2 with the same level of risk exposure overall?

One thing, Thomas, you have to keep in mind is the economy -- the underlying activity of our clients is growing. I mean, it's not like -- you're aware of the headlines on inflation around the world. So our clients are growing. We are growing not just the exposures, we're growing the premiums. I think if you track our premiums to our exposures, would see that they perfectly match. So we got a bigger business. In nominal terms, there's no question, but the exposure level per amount of premium actually very consistent. And it's -- as I said, it's higher quality. So it's all based on real stuff going on in the real economy here. It's not -- it's not like we have changed or suddenly changed our risk appetite or something like this.

We are going now to take our next question. The next question from Michael Huttner.

The first one is maybe can you talk about the trading conditions here now in July, would you see in terms of any particularly large claims or whatever? Second, I was trying to -- you've got bigger lovely charts with the curve, the low loss ratio across most regions, both in Q1 and in H1. So using that and excuse my math, Central Europe, ex Russia, feels as if it's below 30%, would that be roughly the right level? The reason I ask is if for Russia, you put a big lump of provisions in Q1, that it will tend to normalize over the year, just give me a feel. And then the last question is, you did mention the large claim in North America, and I just wondered if you could say a few words more because, again, I missed it. And I'm sorry.

Yes. Well, the credit environment, there's nothing that I would say is that I don't think I haven't said already. So we reached a low point a year ago. We're seeing normalization happening. I give it to you that it's been probably slower than anybody was anticipating it might happen a year ago. But frequency has been rising. Large claims are still below the cycle, but they are rising. And they are happening across the industry, you would expect. Obviously, there's a lot of tension on raw materials. There's people that are squeezed in supply chains and you've seen some of the insolvencies in the most I would say, high-profile insolvencies lately has been Marelli in the auto space. It's been Geox and France on the construction industry. So all these guys are impacted by cost of materials and inflation and supply chains and all that good stuff. You also have some pressure on the retail space. Nothing new actually, but stuff that was already going on before the crisis, which has been eased a little bit during COVID because there's been a lot of stuff put in place and then now it's kind of catching up with people. So nothing I'm really surprised with, or we can claim that we'd be surprised with. In terms of North America, it is one large trial. We don't typically discuss them, but it's one where we have reduced our exposures quite significantly in time, and there's some residual stuff out there that we need to take into account, and we're being conservative. In terms of Central Europe, I don't know what the number is and we don't typically disclose numbers in partial sub numbers because I think we'd go crazy. But we did point out that we had booked some reserves in Central Europe relative to the Russian crisis. And then as you know, the claims will happen in a kind of random distribution in terms of geography. So we can never forecast where the claim is going to come from because we don't know which client is going to be impacted and which one of his tens of thousands of buyers is going to be the one that creates the issue. So we have to book it somewhere, we put it in Central Europe.

We are going now to take our next question. The next question from Benoit Valleaux.

Two quick follow-up questions on my side. First one is on client activity. As you mentioned, it has been very strong in H1. Can you please share with us what are your expectations for H2? I mean do you start to see some slowdown? And do you expect some slowdown in the second part of the year? And second question related to information. Is it fair not to assume that during a crisis, there should be an increasing demand? I mean, with the crisis to come, should we assume that there should be some additional growth on top of your already strong organic growth?

Well, 2 things. On client activity, typically, there's a delay between what goes on in the economy and what -- and the activity that's reported to us, right, because the activity has to first happen, and then it has to be reported. And we take that into account into our premium calculation and bookings. So it's always going to be a somewhat back-looking indicator. But I think your guess is as good as mine. I mean it's a macro play. We finance literally every sector and every country in the world. So we're very much linked to what happens to the global economy. Are we headed for a stagflation or recession? And that's a debate that's open, and we will have the answer in a year. So I think from that standpoint, I don't have much more to say. Your second question was? Information business. So yes, the information business, well, I mean, if there's risk, there's going to be demand for risk monitoring, right, I guess. So I would expect that like anything, if there's more turbulence, people will be more curious. Now as you know, this is a business which is really new for us in a way. It's not new, but it's something that we've put a focus on recently. And so we still have to go through it and it's literally a start-up within broader organization. And so there's many things that are going to affect the growth of that business, including the investments, the ramping up and, of course, the level of demand. I don't think that the level of demand is the main constraint today.

The next question from Benoit Petrarque.

Yes. actually. So the first question, just to come back on the cost ratio, because the gross cost ratio is clearly low and lower than it was before. I think we were at 30.6% in H1. So considering you are running currently at a low level speaking about the normalized combined ratio of 80% -- or do you have to think about kind of the -- this normalized level of combined ratio? Will that be currently probably below the 80% level? Or you are still kind of keeping your 80% normalized cost of risk -- cost of common ratio through the cycle? The second one is on the normalization of the combined ratio towards the 80%. I think you have been talking about normalization for quite some time. You are still running below the 70%. I was wondering -- could you talk about a bit kind of the speed of the normalization for the rest of the year? Will that be an acceleration? Or you still think it's going to be well below the normalized level for this year? On your theoretical maximum exposure, so the growth exposure, I think in the past, you said that you were -- the actual usage of this exposure is around 30%, 40%. Would that still be the case currently? And do you have a bit of granularity on your internal ratings kind of how much percentage will be like below investment grade currently on your total growth exposure. Could you guide us a bit on the underlying risk exposure on the total exposure? And then the last question is just to think about is and the gas cut potentially. Are you already in discussion with European states and probably Germany around kind of support in this next potential crisis of gas cuts into the winter, a bit like we had with COVID. Do you think the states will be asking you to support the economy again? Or is that something you are talking with the Germans? Or just wondering about that side.

Well, I mean, maybe I'll start with this one. I can tell you so far, there's been no discussion whatsoever. What the government are going to do, I think, is a question what they can -- what they want to do, what they can afford to do, how they're going to agree between the different countries on who bears the weight of such items. And it's not just going to be gas. I think it's also going to be debt. It's going to be how the governments in Europe agreed to support Italy, if there's some fragmentation in Italy. I think it's all up in the air. And quite frankly, I think first, credit insurance is probably very far away from their core considerations right now. But I'm sure that if there were a crisis, we always see it and the governments would obviously start paying attention, but it usually happens during the downturns. In terms of the cost ratio, as I said, we've got the gross cost ratio which is really more geared towards the core operating performance of the business. But there is also -- and I think I've said this for years now, there's some permeability between cost and loss. And the reason is some of the costs gets offset by reinsurance commissions, which explains the difference between the gross and the net. And those conditions could vary during a crisis. And the second thing is some fees change during upturns or downturns. And the most obvious one is the collection fees, which have been extremely low at a record low for the last for the last couple of years. And if claims go up, we have more losses. We also have more fees from the collection fees, which also plays into the cost ratio. So we -- I'm not going to change the guidance, obviously, that we've given, that we have a 4-year plan. We have a clear guidance that we've given in terms of what we want to achieve. There's still some permeability. I think I'm just saying this business is focused on executing best we can, and we don't miss a beat in a sense that we don't like a slack off, because I don't know, things would be good. And suddenly, we just relax. Now we don't relax. We continue to execute. We invest, we spend money. We save where we can. We allocate our resources where we think they are the best. And we try to improve the profile of the business in terms of its resilience and its ability to navigate whatever the environment is going to have to offer. And that's your -- as I said, your guess on that front is just as good as mine. The one thing I would say for everybody here is I think it's become harder and harder to forecast the global economy. What an individual in an office decides to do with the gas offer that he has is anybody's guess and it's not an economic model, right? The reaction of governments to a certain crisis is not in anybody's economic model. So I think political risk has probably risen, and that's something quite new for the world. And it pertains to energy, it pertains to conflict, armed conflict. It pertains to food. It pertains to all sorts of stuff, elections. And so that makes, I think, the world a bit more hard to forecast. And as such, I think what matters more, and I've been saying this again for years, so is your ability to deal with whatever is handed versus your ability to focus on one scenario and try to outsmart everybody else, which I think over the medium term, it's going to be harder. All right. Well, I think it's -- we've gone past for once we've gone a little bit past the hour. So thank you for your interest. I mean, we appreciate you guys following the company and probing and it keeps us as well on our toes, and it's a good dialogue. So I appreciate it. Thank you for joining. I think we're going to leave it here. As usual, we'll be able to follow up individually if there's questions. And we will all see you for our Q3, which when story continues. And then we'll be able to talk about whatever the scenario that has developed. Thank you, everyone.