COFACE SA (COFA) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the COFACE SA Full Year 2022 Results Presentation. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Xavier Durand, CEO. Please go ahead.

Thank you. Welcome, everyone. Thank you for logging in. Good evening. This is our full report 2022. We're happy to share with you the results for the full year. As you see from the headlines, it's been a good year. We are reporting EUR 283 million of net profit, which means EUR 54.7 million in the fourth quarter. As I go through these slides, you'll see that a lot of the trends that I will be describing will be similar to some of the things we've discussed in the prior quarters. This has been a year in a way of very high risk and volatility and the same time, strong performance by the company. If you look at the volume, it's up 13.4%, all things equal. On a reported basis, we're close to 16. Trade Credit has had a very strong year. I mean, by historical standards at 14.5, again, driven by client activity in an environment which has been seen more inflation, I think, than we've had in the past. We broke a few records actually this year. One is the client retention, which we thought was already really, really high for the last few years, has gone up again at 92.9. We are seeing double-digit growth in our other lines, business information up close to 12% and 13% at full scope factoring up 10%. If you go to the loss ratio, it's coming in actually quite similar to last year. The combined ratio is up nearly 0.3 points at 64.9%. Actually, what happened is in 2020, we had a significant cost from government programs, which created actually a cost or Coface. We don't have that in 2022, but we do have more claims so that we get pretty much the same net loss ratio. The net cost ratio is down 2.5 points to, I think, a record 28.8% for the year. And as you'll see later, it's both operating leverage and efficiency and on the other side, a higher reinsurance commissions. Our combined ratio comes in at -- for the fourth quarter at 68%. So it continues to be really good. As I said, EUR 283 million for the year is the total profit. We acquired a company in the last -- in the first few weeks of the year, but this is a deal we signed at the end of last year called [ Related ]. It's based in North America. It's an innovative open-source data company. It brings us the building source data, that's complementary to what we have. So it increases our data patrimony, and it also helps us with tools to better manage and take advantage of that data. So I think it's a nice addition to the skill set of Coface on identified. If I go to the next page, you see that we end the year with a strong balance sheet with a solvency ratio of 201%. Return on average tangible equity stands at for us, a record of 15.6% for the total year. The solvency is obviously above our target range. We have been able to maintain our reinsurance commissions versus last year. And that's despite the fact that the market was generally much tighter than it was last year. And I think that's the general fact for the private reinsurance market around the world. So we feel good about that. We are, therefore, proposing a payout of 80% corresponding to EUR 1.52 per share, which is clearly in line with our build to lead target and leave some room to finance continued growth. I think the most important thing for me is when you look at this year, is we've continued to stay focused on operations and delivering on the things we had planned as well as the things that showed up during the year. We've managed the risk situation in Russia, I think, well. I'll explain that later. We've taken advantage of a relatively benign claims environment to introduce a new global collection system, spanning 40-plus countries, and we'll be happy to have that as things normalize. We've increased our business information venture workforce by almost 200 people, and that's both on the distribution side and also on making sure that we build a factory that's able to deliver the products that we're building. And then we've completed the full assessment of our carbon footprint, and we've committed some capital to green initiatives, which complements our offering. So another year of, I would say, strong delivery by the Coface team. On Page 6, just 2 highlights. One, on exposures. On the left-hand side, we do that. We talked about our exposures a couple of times a year. You can see that it's grown about 14% during the year to a record EUR 667 billion. When you look at it over a longer period of time, since 2017, it's grown about 6.6% per year. That's very much in line with our premium growth. And as I've had the chance to explain in the past, the quality of that book, we feel good about. The low DRA percentage is at a record low and the average ERA, which is the better risk assessment or the average score, if you will, of the book is close to the recent highs. So I think we feel like we're adequately positioned in the face of an economy, which is obviously slowing and more volatile. A bit of an update on the right-hand side on Russia. We -- when they were started in February, we had exposures of about EUR 4.8 billion. We brought this down to EUR 0.6 billion at the end of the year. So that's an 87% reduction despite the appreciation of the ruble. We've seen moderate claims activity. We have booked reserves. I explained that before in Q3. And we haven't added anything in Q4. It's just been redistributed amongst the regions to reflect the actual exposures that we have in each one of the regions to Russia. But I think the team has done a good job here, again, mitigating with our clients a significant amount of risk exposure while making sure we remain very sensitive to the needs of our clients and as they were down scaling or dealing with their own situations as well. On the next page, you have a bit of an update, which we provide on a regular basis on the build to lead targets that we'd set for ourselves with our 4-year plan. I think it speaks for itself. Our combined ratio is well below the target. Our solvency has remained way above our target. The payout ratio is consistent with what we promised. It's actually been higher in the last couple of years. Return on average tangible equity, as I said, is reaching a record. And over the 4 last year period is well above the 9.5% that we had targeted. So we feel like we're delivering on the plan, things are happening as we were expecting. On Page 8, a bit of an update. It's always the same page I'm showing. So you guys probably used the format here on ESG and CSR. Clearly, in green has highlighted the stuff that we've focused on and delivered in 2022. We spoke about our doubling down on our exposure on ESG projects in a single risk area by 2025. So we've committed capital there. We have further decreased our emissions of greenhouse gas of our investment portfolio, about EUR 3 billion that we manage. We've also joined the NZAOA and the United Nations principles for responsible investing. So we are now within a framework, I think, that is recognized by the market and we can measure our progress in very specific terms, like other players in the world. On responsible enterprise, we completed a full carbon footprint assessment of the company. We've developed a plan to get to net 0 by 2050. And so we're -- we've got the plan. We're rolling it out. And then we've seriously reinforced both our culture through training, digital training, face-to-face training and our governance through the mechanisms we put in place to make sure we involve as many people as we can in this initiative in the company. On Page 10, I go to the more traditional pages here. So you see the growth of 13.4% ex FX for the year. Trade Credit is up EUR 14.4 million other revenues, which includes both the business information and the debt collection is up 8.3%. So business inflow is, let's say, roughly a total parameter about 13% up. The factoring is up 10% and the debt collection fees are down because we've had less activity. I think the good news here on this page is that the fees that we derive from our trade credit insurance business are up 8.6%. It's been a couple of years, I would say, since we've seen some positive growth. We had negative activity here for a number of years. So there's a beginning of a change here. On the next page, you can see the growth by region. And I think the highlight is everybody is pretty much growing in the same ballpark and anywhere from 10% to 13%, 14%, except Latin America for the same reasons we explained in the prior quarters, which is the strong price increases we've seen in the commodity space, both hard and soft commodities where Latin America is a big producer. But you see pretty much every other region growing for the pretty much the same reasons, which we'll talk about in a minute. Factoring is growing nicely, particularly in the Central Europe, a bit less in Germany as we have seen activity slowdown in Germany in line with the economy and the pressure that's being put on the energy sector. If you go to Page 12, you see and this is consistent with everything we've said for the last 4 quarters. New business is a bit lower than the prior years, and we've kind of consciously stayed out of transactions we believe we're just not right from a profitability standpoint. The retention rate is, as I said, at a record 92.9%. So that, for us, is a very good number. Price effect is pretty much in line with prior quarters. We're down about 3%. And the volume effect is very high compared to other years, but slower than it was in Q3. We are clearly seeing a slowdown in the economy in Q4, and that's not a surprise. I think you're all aware of the macro environment here, which have been leading to a stagflation kind of environment. If I go to Page 13 on the losses. It's been another very good year at 34.2%. And in Q4 and 31.2% for the full year. We've been saying this for 1.5 years. So there's really no news. Normalization is underway. The number of claims is increasing since the middle of 2021. We're close to the precrisis levels right now. We are seeing an increase also in the larger losses. Clearly, the interest rate hikes, the rise in energy prices, the slowdown in the economy post, the COVID recovery, some of the supply chain issues that we've seen in electronics or auto components or other things. Our biting. We -- large losses are increasing. They're still below average. We've increased the reserves during the year in Q3 relative to Russia. And -- but you see on the bottom here, the new year comes in at 22 at 80% reserves. There's 2 things in there. There's the Russian reserves, and there's also a large Latin American claim that we are facing like the rest of the market, which is built in here for which we've taken a large majority of the losses. And then there's significant throwbacks from the prior years. 51.6% is by historical levels pretty high. That reflects the strong performance of the 2021 and 2020 layers in our book. So that leaves us with Page 14, where you see still a pretty benign loss picture. The 4 largest markets at the bottom, which are also the most stable, all performed well during the year at anywhere from 14% to, say, 35%, 36%. On the most volatile segments on the top, you see that the picture is actually pretty good, an increase in Latin America, which reflects this large loss that I was talking about. And if you go to the next page, we've got the quarterly picture. So what you see immediately is in Latin America took a significant reserve on that claim in Q4. At the same time, Central Europe is a big drop because we had booked some reserves in Q3, which were then reallocated to where we hold the exposures, and that's Western Europe and Northern Europe, which explains the increase in Q4 and then Midland Africa is pretty much on a normalization curve. So not much to say there. If I go to Page 16, on the cost side, so our total costs are up 12.6%. And that's made of 2 parts. One is the 18% increase in the external acquisition costs, basically the commissions we pay to intermediaries that reflects also the strong performance on the loss side because there's some profit-sharing agreements included in those commissions. The internal costs are up 10.9%. And amongst those costs, you see about 1.7 points, which are linked to our investments in the business information space. 2.6%, which are linked to overall inflation. And then variable costs linked to the premiums, again, here that taxes and things like this, which are 3.6%. So overall, clearly, the internal costs are growing less despite our investments and despite the, I'd say, the variable costs growing much less than the premium. So we are getting operating leverage, which leads to the cost ratio for the year slightly above 2021 on the growth side. But from a net standpoint, we are, I think, at a record 28.8%. With that, I'm going to turn it over to Phalla to take us through some other pages.

Good evening, everybody. So I'm taking the [indiscernible] page we review on Page 17. So premium sessions at 27%. I think here, of course, we are not -- well, we don't have the public schemes anymore in 2022. So a little bit back to pre-COVID period. If we look at the session -- the claims cession rate is at 15.5%. I just want to remind you that in Q1, we draw the line related to the public schemes with [ vols ]. And for the following quarters, of course, the fact that we have positive developments are benefiting to the reinsurers as well in Q2, Q3 and Q4. As Xavier mentioned, we have higher commissions, insurance commissions to reflect the past loss -- low loss ratio activity. And all in, the resins results end up at minus 147 million compared to the minus 314 million last year. As regards the renewal of our reinsurance treaties, I would say that it has been very successful, especially if we look at the very hard market intervention space, the quota share remains unchanged at 23% and the [indiscernible] conditions were pretty similar to what we got last year. This leads to the next page with a net combined ratio slightly below 65%, still a low loss ratio through the cycle, as you can see. If we want to compare April, I will compare that with the full year '21, 54.5 without the public scheme. So on this page, you can see that the net loss ratio has increased from 23.2 to 36. This will flex the lost normalization. The fact that we have booked up to reserve on Russia, and we have booked up also reserve on the very large claims in Q4. Net cost ratio on the other side, you can see the drop by 2.5 points, thanks to the [indiscernible] but also from higher insurance commissions. If we move to the next page on the financial portfolio side, the mark-to-market year-end 2022 of our investment continued portfolio end up slightly below EUR 3 billion. In terms of asset allocation, you can see that we have to derisk with equity now at 3%, bonds at 77%. And we are still filling up some cash, which is the liquid asset at 12% of the total investment portfolio coming from, I think, the generation of cash coming from our business. And of course, we have kept -- keeping a high level of cash ahead of our dividend payments. In terms of investment yields, you can see that we have started to pick up the yield -- the accounting yield without the realized gain is moving from 1.1, 1.5 and all the new money that we are investing is above 2%. Something that we have mentioned already in Q3 is the hyperinflation, the application of IAS 29, hyperinflation on Turkey and Argentina, and this has a negative impact on investment income by EUR 13 million pretax. This lead us to a very strong net income for full year 2022 at EUR 283 million, with an operating income up 32% from EUR 330 million to EUR 414 million. Tax rate, almost unchanged at 26 and the net income, as you said, up 26% compared to last year. Return on average tangible equity on the next page. So I will start with the change in equity. We have -- I think we're starting with the EUR 2.1 billion of IFRS equity at the end of last year. Of course, we paid up our dividend in May 2022. We are accounting for a net income of the year and where the equity has been impacted, as we said in previous quarters, by the increase of interest rate environment. This is the minus EUR 265 million that you see on this chart. This leads us to a total IFRS equity of EUR 1.9 billion. Return on average tangible equity moving from 12.2% to 15.6%. This is coming from the very good technical results, net of the tax. Now we're coming to the capital management part, and I will start with the balance sheet. Totaling EUR 8.4 billion. So a couple of things on this page. I will start with the factoring assets and factoring liabilities that are totally matching slightly below EUR 3 billion. We discussed or went to the investment insurance investment side of EUR 3 billion. What is noticeable actually is the financing liabilities, which is our hybrid debt. I think last year, it was around slightly above EUR 380 million. And you can see that here, the EUR 534 million is, in fact, made of 2 tranches. The first one related to the initial hybrid debt that we have -- we paid partially in September and also a new, I would say, EUR 300 million, 10 years fully fetched Solvency II Tier 2 that we have issued in September. We have a couple of pages on IFRS 17 later on. In terms of financial strength, so the 3 rating agencies confirmed our rating with a stable outlook coming from AM Best and Fitch and a positive outlook coming from Moody's in October 2022. Book value per share at EUR 13.2 and tangible book value per share at EUR 11.5. Moving to the Solvency II page, which is Page 24. So we ended up with the Solvency II ratio at 201%. I think some things to be highlighted here is, of course, the fact that the [indiscernible] management that we did in September boosted temporarily the solvency ratio by 10%. So if you really want to compare apples to apples, I will be comparing 196 to 191, which again, is very strong given the fact that we are increasing our business, we're increasing exposure, but we have stayed very disciplined and rigorous in our underwriting process. On the right-hand side, you can see the usual stress test. So on the first part, which is the financial stress test on the interest rate spread and equity shock, again, we will be staying way above the upper range of our comfort zone. On the bottom right side, you have the 2 stresses related to the 150 events and 120 event. As a reminder, the 150 event is the -- is what we got in the year 2008, with a combined ratio of above 110%. And here again, will be above the upper range of our comfort zone. If you move to the next page, you see the breakdown of our capital requirements. So the insurance capital requirements based on our partial internal model, we end up at 976. You add up the requirement related to the factoring activities. We end up with the total capital requirements of EUR 1.2 billion to be compared to the EUR 2.4 billion of eligible [indiscernible].

So we added a couple of pages on IFRS 17 and IFRS 9. As you know, we're going to change the way we count for the business linked to the introduction of these new regulations. I just -- we just wanted to give you a flavor for, first, how we've done it and then what it means for the company. Page 27 really describes how we've gone about implementing this program. We -- our state of mind is to try to minimize the disruption on the business to try to keep it as simple as we can. So we applied what we call a simplified premium allocation approach, which is allowed by the fact that our book is short in duration. So we're not getting into the more complex contractual service margin discussion that others might have to go into. We want to make sure we continue to provide KPIs that allow to follow the business as everybody is used to, whether it's premiums, combined ratio, return on average tangible equity. We want to stay coherent with the current reserving principles. We will apply IFRS 17 for the first time as of January 1, 2022. And then obviously, we remain consistent with the Solvency II processes, which we don't want to change for this. So when you put all of that into the equation, what we've done is the following, our reserving philosophy remains broadly unchanged. We are not obviously going to change the strategy for the business. Build to Lead is on, the principles by which we run the business are the same. The metrics we're using for Build to Lead will remain valid. The 80% combined ratio, 9.5% RoATE, an 80% payout ratio. So you're going to ask so what does this change? The way we record cash flows over the lifetime of the policy, which is -- as you know, they're mainly annual, but their life can expand on now months, 2 years. The cash flows are unchanged. What the new rules do is they tend to accelerate the recognition of profit and therefore, they increase -- they also increase the volatility from quarter-to-quarter. When we applied the new methodology to -- for the first time as of January 1, '22, it translates by a slightly increased shareholders' equity, which means that some of the profits we would have recognized faster in the IFRS 17 versus IFRS 4. That's EUR 91 million. That's about EUR 0.6 per share. It's 4.3% of our equity. It's not changing our financial leverage, and then we will be publishing in April the details on how we apply that in the first time and also what the 2022 pro forma looks like when you look at it from an IFRS 17 standpoint. So we wanted to provide that kind of an overview, and then Phalla is going to take us through a couple of more pages that are a bit more technical.

Yes. So I think if you move to the next page, you can see the opening balance sheet at the 1st of January 2022 for end of December 21, which is basically the same. So on the left-hand side, you have -- this is what we have published on [indiscernible] 4, so the total asset inability at EUR 8 billion. What it will look like under IFRS 17 is what you have on the right-hand side. So a couple of comments here. Of course, factoring asset analities won't change because it not impacted at all by IFRS 17. Insurance investments neither nor the goodwill nor the hybrid loan. So what is changing is basically what you see in the middle of the chart, which is the -- I think it's the dark green. So other assets, other liabilities and insurance reserves, noting that [indiscernible] reserves you have, not only the claims reserves but also the premium reserves. So this is all together. And here, I think there's a couple of things in IFRS 17. One is, as Xavier said, we're changing some of the recognition path or timing compared to IFRS 4, and this will be reflected in the change in equity moving from EUR 2.1 billion to EUR 2.2 billion, which is almost EUR 91 million net of tax. This is the real change, but all the changes that is implied by [indiscernible] all the netting that we have to do on the insurance assets and liabilities that is completely netted and this explains the decrease of total balance sheet by almost EUR 700 million. If you move to the next page, so let's move to IFRS 9. You know that IFRS 9, we don't have to apply the first half application at the end of 2021, sorry. But because we are entering, I think the go live is the 1st of Jan 23. I just wanted to give you a flavor of what would be the classification of our year-end investment portfolio into an IFRS 9 accounting view. So if you look at the chart on the left-hand side, you have the total investment portfolio, the EUR 2.9 million that we just talked about. And the outer ring is the asset allocation that we have today. What you have in the inner ring is what it will look like in the accounting classification of these assets. So changes here is the following, of course, today, that under IAS 39, which is the currently the full year 2022 accounting principle, all the fair value, so the mark-to-market goes into equity, and this is what we have reflected in the previous pages. On the IFRS 9, part of that, so if we put aside the accounting -- the amortized cost, which is the 4% that you see here, which is basically all the term deposit that we have, you have 2 classifications, assets that would go into fair value through OCI, which is a fair value through equity, pretty much similar to what we have today. But you also have a chunk of the portfolio -- part of the portfolio that will go into a fair value to P&L. So this will bring obviously some volatility into the P&L. And if you -- what we have here, basically, the 17% of our value to P&L is made of monetary funds, the cash, infra and real estate funds and some non-listed equities. So obviously, all these liquid assets, the 12% of loan deposit liquid that we have will go into fair value to P&L. This will -- the underlying [ variety ] is very low. And then you have the long-term investment, which is [indiscernible] that goes there as well. In terms of equity, we have classified the equity through fair value to OCI, which means that only the dividend would flow to P&L or the realized gain or unrealized gain and not will flow into equity. And as we already discussed, we have moved a little bit of portfolio for refocusing on [indiscernible]', reducing the listed exposure on equity. We are lowering our real estate funds and with effect exposure, and we're growing the allocations to import asset class.

So a bit longer presentation than usual. But just to wrap it up here before we go into the Q&A, I think we clearly continue to deliver strong performance and operations in 2022. It's exemplified, I think, by the growth that we've seen in all of our business lines, the average tangible equity return, which is at a record. And the fact that we've kind of contained the loss ratio despite the Russia and the large loss situation in Latin America. In terms of the environment, it's pretty volatile. I mean we have seen a slowdown in the economy in Q4. I think we're all aware of the risk. I mean I can go through a list, but we're talking about the Ukraine and Russia conflict. We're talking about inflation, which is back, and we're talking about interest rates, which are increasing QE, which is going, reopening or the closing of countries based on COVID, social and political, I would say, challenges pretty much everywhere. So it's a volatile environment. Not everything went wrong actually because we had a warmer winter than planned. Some -- there's been a curve in demand for gas which has resulted in lower energy prices than we might have feared. Elections turned out not to disrupt politics as much as we could have feared, et cetera, et cetera. Still, I would say the conditions for a volatile environment remain, and we're not done with this stuff. So I think we're watching this carefully. I think everybody in different industries is pretty much aware of this. States continue to intervene, but their ability to do so is put under some stress because they can't spend money forever. And we see clearly a normalization underway, which is progressive, but which is happening. So the fact -- despite the fact that it's likely to be more volatile. And we think we've got the right strategy. We think we've got the right culture. I think all the challenges that we've had to face, we've pretty much been able to manage so far. And that's why we think we're going to go through the last year of our plan in 2023 and then prepare for the next one, which we'll be explaining in about a year. But we've got an engaged team. Client feedback is good and the balance sheet is strong so that we feel we are well positioned. So that's basically the story. I'm going to turn it over back to the audience here for questions that you might have.

[Operator Instructions] We will now take the first question. It comes from the line of Michael Huttner from Berenberg.

Xavier and Phalla, amazing results, amazing speaking to has said it could have been 2 years a share, which is extraordinary. I have 3 questions. The first one, and I didn't -- I'm really sorry, I didn't quite follow on the reinsurance. So I think you said terms and conditions largely unchanged, insurance commissions largely unchanged. But is this -- does this apply to 2022? Or is this a renegotiation for 2023? Then on the hybrid, it sounds, but I think you said it in the past and I've forgotten that part of this EUR 534 million is due to be repaid at some stage. I just wondered if you could remind us when. And then you said on IFRS 17, the reserving philosophy would be broadly unchanged. I was interested broadly not 100% unchanged. So I just wondered if you can explain a little bit what actually is changing.

Well, on the reinsurance, it's pretty simple. '23 pretty much looks like '22. So that's all. Maybe we were too complex in explaining this. But we've renewed the contracts pretty much on the same term. So I hope that clarifies. On the reserving philosophy, I think we'll have more discussions in April. But what I'm saying is we have been operating under a certain framework and we are not changing the way we're thinking about reserving for risk and trying to protect for the future and all that good stuff. So Phalla, do you want to say a word?

Yes. We will be opening the new vintage at a certain level and of course, see all the Pioneer development, positive or negative would flow the same way. That's what we're meaning.

And then in terms of the hybrid, yes, there is a piece that needs to be…

Yes, so there 2 tranches, Michael. So remember, I think we had the first tranche, which was EUR 300 million that will mature in March 2024, for which we made a liability management. So we paid part of that. So EUR 230 million remains in our books, and we have -- we issued a new one 10 years in September 2022. So it would mature in September '32 for EUR 300 million.

We will now take the next question. It comes from the line of Hadley Cohen from Deutsche Bank.

So just quickly following on from Michael's question. So I think all does that mean that sort of on a sort of pro forma basis, the solvency ratio is around 19%, I think you said. And then sort of linked to that, I noticed that the sensitivity to a 1 in 50-year stress scenario has gone down a lot. I think it was 37 points at the first half and it's now 20 points. Can you just explain what's going on there, please? Second question is around the expense ratio of 28.8%. I mean how should we think about this going forward? Is it reasonable to assume that costs should continue to be lower than volume growth, and therefore, there's still room for margin improvement on the cost ratio? And then my final question is in relation to the information business. Firstly, the 11.6% growth year-on-year Xavier, I mean, that sounds a little bit light in the context of the sort of ambitions that you've got for that business. Is that fair? Or do you income being overly harsh and to what extent can be related transaction help in that respect? And then also, if possible, is it -- can we get, I think you call it the contribution margin for the information business or the operating margin or whatever you have?

Yes. So let me -- on the pro forma, you're right. It's...

191.

It's 191 if we had repaid the entirety of -- we say at the same level of external debt. Do you want to talk about the...

Yes. The [ 180 ] which is the 150. So basically, I think what we have to take into account here is the fact that we are on rising, I would say, we have been very disciplined in our [ underwriting ]. So the quality of the portfolio is contributing, of course, to amortize the stress test of our solvency. This is one thing. The similar thing as you may have noticed we have a best estimate, which is we have opened the year at a very high level at 80% of new vintage. And of course, when you go to the stress test, you're falling from a lower, will say a level.

On the expenses, so we have been striving for the last 7 years to deliver operating leverage, which means growing the cost less than we are growing the revenues. So there's no reason we're going to change that. However, we've been helped clearly in 2022 by, I would say, very strong growth in the premiums. We've also been helped by the fact that low claims ratios means that the reinsurance programs are delivering superior returns, if you will, which impact the cost ratio down. So plus -- so I would say our thriving to continue to get operating leverage will continue. Those other elements are more a function of the environment. In terms of the information business, as you know, this is like an internal startup. So we are learning, we're building, we are exploring, we're doing all sorts of things at the same time. We had a -- we do have double-digit growth. It's been a few years in a row. We are seeing Q4 with comparables that are higher from last year. So there's some volatility. I think we already had that discussion, I think, probably a year ago, where we do have volatility quarter-to-quarter. I don't think it changes our opinion that there's something to be done there. But clearly, I mean, as any start-up, the there's going to be things that we do well, things we do, we learn and there's going to be some volatility. But overall, I'm not changing my stance that I think at this stage, this is something that we should pursue and which is interesting. In terms of the margin, it kind of pays for itself in terms of growth, plus or minus. So you don't see an impact of this business line on our bottom line at this stage. But I don't think that's really what we're striving for. We're looking more for developing use cases that are innovative and different from what we did before. We are learning a lot about data actually as we do this, and it has a positive impact on the base credit insurance business because we're improving the quality of the data. We're improving the breadth and depth of what we have and we're able to feed back some technology into the core credit insurance business. I'd just point to the acquisition that we made, where actually things we wouldn't have done if we didn't have this information business opportunity. So that's where we are. I think that's a long answer to your question.

We will now take the next question. It comes from the line of Thomas Fossard from HSBC.

The first question will be related to the new debt collection systems that you've rolled out. I think that in the press release or in the slide you're calling it state-of-the-art or leaving or can you explain us why it changed and why it would be -- it could be an advantage for you compared to the competition or -- I mean, yes, just to better understand the benefits of it. The second question would be related to -- in your press release, you're talking about a level of ores of 51.6 percentage points, which I think is a pretty high number compared to what you probably think to get on average over cross cycle. And I'm taking the occasion that you're supporting this number to get a bit more of maybe granularity around it and why this was the case this year? And was it -- and how it compares to previous side of the cycle if you have a kind of medium- to long-term averages in terms of average recoveries.

Yes. So maybe starting with that one. I think on our page, which page is it? You actually see that number that you're mentioning Page 13, if you go to the presentation, we highlight the sequence over the last few years of recovery. So you see that we opened the dark blue is the opening year. So it was like in '18, it was 75, 73, 78, 66 and 80. And then the I'd say, more flashy blue is the recovery. So the 516 that you just mentioned compares to 43.

Sorry, sorry, sorry. Okay. Okay. That's BYD, Okay. I was [indiscernible] wrong footed with what you call recovery. So it was average recoveries on the losses. Yes, okay. Right.

Yes, no, no, no.

The prior year developments.

Okay. It's prior year development. So I think it's pretty [indiscernible]. Okay. And then in terms of the new debt ecosystem. So basically, we were with a, I would say, a slew of or a multiplicity of systems that came from different horizons that were -- have been developed over the years. We're an old company. We operate in 100 countries. We have old systems that have been tailored to the needs of each one of those countries over the years. And -- but the issue is they're all different and they don't communicate, and it's hard for us to put out an offer to say we're going to do 1 product in terms of debt collection around the world, and this is how it's going to work, and you're going to have transparency through it. But we didn't have this. So we -- it took us years. I mean it's hard to do, quite frankly. But what it does for us is the following. Now we have everybody working on 1 system mainly. I mean, there's still a few out there, but mainly most of it is that way, which provides transparency into what's going on, allow us to do multi-country client contracts and basically puts us on a better technology, which is shared and get rid of the old system. So it reduces the complexity of our information technology stack. So I think there's a number of benefits here. And as we know that the environment is normalizing. I think it provides a better platform to talk about this product more proactively to our clients.

Internally and externally.

Internally and externally as well because we don't necessarily do collections just for ourselves. We do collections for clients that are not credit insurance clients, but might want to use that system and our capabilities to just go and collect stuff in 200 countries, if we want.

And in terms of admin costs, I mean, do we have to think about decommissioning, system decommissioning expense savings? That would be the one additional question. And the second will be on the information business. I think that you mentioned 200 additional FTEs this year. With the kind of critical size you're aiming in terms of FTEs. And do you think that actually you're close to reaching the critical side or you would have to produce a semi-[indiscernible]…

So yes, let me -- so in terms of the debt collection system costs or, for that matter, other systems that we might change, when you upgrade to a new technology, it's usually more expensive than the old one, which has been amortized and everybody is comfortable with, but is unsustainable because you're just going to get rid of it. At some point, nobody wants to actually support it. So it's a risk. It also slows you down because when you want to launch something, you lack the ability to implement quickly and then your interfaces become incredibly complex because you have to interface every new system with that multiplicity. So I think the saving is more on the simplicity, the speed the -- than it is just a pure cost play. And you see that across, I would say, all industries, but in financial services, this is pretty much true. On FTEs, yes, we added 200 people. Basically, what we're doing is we're trying to build a franchise that would span a considerable part of the world. And we're adding people, both in the front end and the back end and the data space, and there's a bunch of things that we need to do. So we're investing, I think, for the future. To tell you where that ends, I don't know. I mean we don't make forward-looking statements, but I think 200 people looks like on one side, like it's significant. But on the other hand, when you look at the scope of what we're dealing with in terms of the clients, the geographies, et cetera, it's still a relatively modest number, I would think. But we'll see. I mean, as things develop, we will adjust our plans.

We will now take the next question. It comes from the line of Michael Huttner from Berenberg.

Lot of questions on numbers. You're talking about the quality of the portfolio, the exposure of EUR 660 million. I think I just wonder if you could give us some numbers both on the low-quality exposure and the average exposure. What's that those numbers are. Business information, what's the total FTEs there now? Then [indiscernible] I keep asking on bonding. I'm not sure it's so relevant anymore, but it was a topic a few years ago. I just wondered if you can give an update how big it is? Or is this growing or whatever? And finally, maybe a business update, not forward-looking, but maybe through to the 16th of February in the [indiscernible], that would be lovely.

Okay. I mean nothing particular to report as of mid-February. I mean we pretty much the trends I've described continue and that's where we are. So really not that much to say. In terms of the bonding, yes, we have had an initiative to grow our bonding business. We've introduced bonding in Romania. We've started, I think, in Spain, we are -- so we're expanding that franchise but at a pace, which is a...

So the growth, the premium growth in bonding is slightly below 10%. So it's really close to the double digit as well.

So it remains on our radar screen. I mean this is a -- we're focusing on bonds that are more medium and smaller size versus the large chunks we could subscribe at a central level because we think that's where the franchise would be most valuable. I'm sorry for the noise because we have some kind of an automated system here that wants to close my shutters anyway. What was the other question? BI, we have about 300 people in this business right now. A lot of the EFTs, I'm talking about, they're just very new. They just joined, and so we're really in the infancy here. And then in terms of the quality portfolio, I don't have the metrics handy, but we have reduced the proportion of what we call the low-quality DRAs, which is 0 to 4 and it's below 5%.

Yes, it's at 5%. When the -- we look at through the cycle, the proportion of the 0% to 4%, which is a very low quality of our portfolio used to be 8. So we're really reducing it.

So we reduced it. I mean I don't remember the average, but the average is…

Okay. So we are -- it's probably the lowest that...

You realize that when the economy is good, companies that have been infused with a lot of public money, it's like consumers. Everybody's been saving over the course of the last couple of years. And obviously, that's going to change with the cycle. So we know that.

We will now take the next question. It comes from the line of Benoit Valleaux from ODDO BHF.

A few questions on my side. The first one, just a confirmation. Is it fair to assume that under IFRS 17, your '22 earnings will have been broadly similar to the EUR 283 million you have reported. Second question regarding acquisition on data. You mentioned I assume it's actually a small acquisition, but nevertheless, could you give us some figures in terms of price and assume significant goodwill [indiscernible]. So what could be the Solvency II impact? And what is expected or on investment of such kind of acquisition? And do you see some other portent of acquisition and information that are artificial intelligence and so on. And maybe the third question is regarding your risk appetite. When you look at your loss ratio trend and if you do some restatement of these large claims LatAm in Q4, it seems Q4 loss ratio is lower than Q3, which was lower than Q2. And then at the same time, you mentioned obviously a kind of normalization in sequence. So -- and also you have some excess capital. So my point is, could you change a little bit your risk capital going forward? Because, I mean, you have this excess capital and same time, even there are some uncertainties, I would say that share of job recession is lower than 3 months ago.

Yes. I understand. So on the acquisition start, it's a small deal. So you're not going to see our -- an impact on our metrics. It's more for me, symbolic of the fact that we're moving from being an old traditional business to something that is a lot more modern, a lot more digital, a lot more technical. And I think, yes, to the question, would we want to do more? Yes, we would want to do more. But we're looking for things that add value where the combination of that acquisition with our scale and scope brings value. That's what we're trying to build here. So this is a company that we have actually been working with for a couple of years, which significantly enhances our ability to manipulate and to collect data. And we think that just adding it to our infrastructure here, it gives them an opportunity to use what they're doing on a larger scale and gives us a critical skill that we didn't have before. So it makes a ton of sense for us. Phalla is going to talk about the...

IFRS 17.

IFRS 17, yes.

Benoit, I think what we're showing here is the first-time application, which is the first of [ 2022 ]. What you're asking for is the full year 2022 in IFRS 17. Bear with me, you will know, I think, a little bit more in April because we are still going through it.

In terms of your point on the risk appetite, I mean, yes, we had a large claim. I don't know if you can always exclude the large claims of saying that they are -- so yes, this is an outlier. Normal-- as I said, normalization is underway in the sense that the low point was reached June '21. And since then, it's been increasing. So it did not normalize as fast as we thought it would, but it is normalizing. I think it's a good thing for our industry, by the way, because without claims, I don't think we have a whole lot of legitimacy. But it's -- the numbers are growing, and we're seeing more, what we call severity or more of the larger claims. Do we have the risk appetite? We think we do in that the -- some of the deals that you want to -- you would have to write to accelerate significantly the growth rate of the business would be, in my view, in our view, not deals we like that much. So we're having that conversation with ourselves on a regular basis. I think it positions us to seize opportunity if something happens, nothing may happen. But if you got a shock in the system, and it would help us. And -- but we're continuing to be very conscious of -- or very -- we have the desire to grow the franchise. There's no question.

We will now take the next question. It comes from the line of Thomas Fossard from HSBC.

Yes. Just a last question. The new production of the 110. You mentioned about being disciplined in the market. But I mean, if I relate this to the minus 3% in terms of price decline, doesn't seems to be a super competitive market yet. So can you help me to understand what keeps you on the break in terms of new business?

I'm not sure I get your point. You're saying that minus 3% is not a huge decline. Is that what you're saying?

Yes. I think minus 3 is -- yes, it's a change compared to the previous job, but it does not -- for me, it doesn't lead to -- do you believe that the market is in a super petite environment. And I'm trying to relate what I -- my understanding of the competition in the market currently with your new production...

But Thomas, I think for a client to change provider is a big deal. And that -- it's not just price. I mean, it's not like you're just trading on a desk and somebody puts in a lower price and boom your off. You've got a -- it involves technology and involves people. It involves trust and involves a lot of data exchanges and a lot of development, IT developments have to be put in or disassembled a lot of contractual negotiations, a lot of rupture. So I don't think the market is as simple as just saying, while somebody's got a better price and we're going to move that account. That's not the way it works. [indiscernible]

Okay. But I was also trying to relate to the 110 compared to the 3 previous years...

What I would... What I was pointing to is, over the long term, this business has seen significant price reductions. I mean I think it's several fold price cut in 20 years, right? I think the prices of this industry charge, I would say, 20 years ago, we're probably 3 or 4x what it is today. So there is -- there are productivity gains being made and passed on to our clients on an annual basis. In a crisis year like 2020, when everybody thinks the sky is going to fall, you see an increase in price, which is not very often. It's a rare event. And what you see here is that over the course of the next 12 months, basically, that increase has been a race and pass it back on to the client. So you're going to see that kind of trend play out as long as I've been around, and we've had price decrease. But the slope at which this happens is based on the level of competitiveness. And this is a year where I think there is more competition. No question for me.

There are no further questions at this time. I would like to hand back over to the speakers for final remarks.

Well, we are 4 minutes past 7, it's the usual time allocation we have for this. So thank you for your questions, by the way, and for logging in. We appreciate your green part of this. Our next agenda will be 16th of May with -- where is this? AGM with the Annual General Shareholders Meeting. And then the 22nd of May, we have the ex-dividend date, 24th of May, the payment of the dividend. 25th of May, we will publish our first quarter's 2023 results on the 10th of August, the results for the first half and the 14th of November, the results for the first 9 months of the year. So that's our kind of calendar. And then, of course, we'll talk about IFRS 17 sometime in April. Thank you for joining, and we'll speak to you soon.

Thank you.

That does conclude our conference for today. Thank you for participating. You may all disconnect.