COFACE SA (COFA) Earnings Call Transcript & Summary

Thank you, and welcome to all the people who've joined us today. It's a bit of an odd call in the middle of the summer. We appreciate your flexibility. We're delighted to present our First Half '23 Results. You see from the headline, continued good performance from the company, EUR 128.8 million net profit in the first half, solvency at 192%. And when you go through the different items of the P&L, I think you see continued performance with turnover up 11.1%, all things equal, including 11.2% for TCI, which continues to be driven by client activity, pretty much the same trends you've seen in prior quarters. Our client retention is still at a record -- historical record for the business, pricing is down as in the first quarter, but obviously recovering from last year. And we continue to see good momentum in our business information line of business, which is up almost 15% for the first half; factoring up 5%, so you will notice there a slowdown, it was double-digit in the first quarter and clearly slowed down significantly in the second quarter. I think it reflects a clear slowdown in the economy in Germany and in Poland. Factoring is typically the line of business for us, which has impacted soonest. So, it's an indication of, I would say, a slowdown in the European economy. The loss ratio for the first half stands at 40.3%. It's up almost 4 points from last year, which included some government payouts, the last pieces of the government payout. That brings our net combined ratio to 65.5%. I think it's really a very strong level, up 2 points from the first half of '22. The loss ratio is slightly below 40%. It's up 7 points from last year in a risk environment, which is continuing to normalize. And the cost ratio at 25.2% stands at a very, very low level, which reflects both, I would say, our cost controls, high reinsurance commissions, and also it's interesting to note that we have continued and we're continuing to invest in our business transformation and our growth. So, a good performance there as well. So that brings the annualized RoATE to 14.3%. As I said, the solvency at 192% is above our target range -- long-term target range of 155% to 175%, so the company is strong. I should have said that obviously we're reporting all those numbers now under the new accounting rules of IFRS 17 and IFRS 9. So, going to the next page, we've added a page here on the environment, because I think it's interesting for everybody to follow where we stand in the cycle. So, you see on the top left client activity for the last 5 years with clearly a dip during COVID in 2020, and a strong recovery buoyed by inflation actually also in '21 and '22. Clearly, in this first half of '23, we're seeing slower client activity. And we think there is a very significant slowdown here going on with 2.8%. You can see, on the bottom left hand corner, the change in corporate insolvencies. So, the dark blue line represents the change versus last year. You see that in most countries, we're actually up in insolvencies, U.K. is up 7%, France 43%, Germany 20%, U.S. 33%. One exception were still -- is Italy, sorry, at minus 5%. And then, the green line shows where we stand vis-a-vis the 2019 pre-COVID, I would say, more normal stats and you can see it's already well above in U.K. kind of back to 19% in France, still below in Germany, U.S., and Italy. But clearly, I think the normalization we've been talking about for the last 2 years is happening, it's continuing to happen. In that context, we're managing risk carefully. Our exposure growth is 3% in the first half of this year to EUR 690 billion. That compares to a growth of about 13% last year. We've increased our prevention actions in close coordination with our clients, and you can see that versus 2019, which we consider to be kind of like a reference normal year, we're at 27% year-to-date and 66% in June. Our client activity is back to 2019 levels. We see obviously commodities, metals, energy, offsetting continued price increases in the agro-food sector. And then, I've already spoken about the insolvency. So, the bottom right chart just reflects what I've been talking about in terms of the number of our actions. So clearly, there is a slowdown in the economy. The insolvencies are rising, and we are managing the situation very, very carefully. That's, I think, the job that we -- the mission that we set for ourselves. I've got a page on Page 6 on CSR, another important topic for Coface. As you know, we've been now investing for a number of years in this sector. I'll just go through the key changes here, which are highlighted in dark green. On the responsible insurer side, we're continuing to expand our commercial exclusion policy. So far, we weren't covering sale, transport or dealings of thermal, coal and oil. We've just added new exclusions, which pertain to drilling, extraction equipments in relation with fossil energy, the sale of jet or bunkering fuel, and financing of these activities. So, we're continuing to expand our exclusion to areas which are, we think, most carbon intensive and most damaging to the environment. We've, for the second year, performed a climate stress scenario in our stress case for the regulators. We're continuing our work to decrease the emissions of our investment portfolio, and we formally joined the NZAOA, which is the Net Zero Asset Owner Alliance, together with about another 80 asset owners. This is different from the NZIA, Net Zero Insurance Alliance, which had multiple defections. We've set a goal of 30% reduction for the emissions of our portfolio in 2025 versus 2020. I have to say, we need to say that the way this is calculated, we outsource this to a third-party, not to named Amundi. There continues to be methodology changes in the way this is accounting for, but there's nothing that leads us to believe that we're not going to reach that goal. I think we're well on track to do that and committed to those goals. In terms of employees, we continue to survey very closely the morale of our employees. And for the first time, we're now above the benchmark of the industry in our employee Net Promoter Score, which for Coface, it's been a long time that we have been actually lagging the industry. So, for us, it shows that we continue to make progress and get more engagement from our employee base. We continue to drive our initiative to promote ESG projects in the area of Single Risk, and that's going actually very well, well above our target in that area. In terms of being a responsible employer -- sorry, in terms of fighting carbon, you can see on the responsible enterprise part that we are putting in place a series of measurements to capture our consumption of carbon. We've done a full assessment of our carbon consumption last year. And now, we're in the mode of trying to reduce that footprint. It's basically for us mainly buildings that we use, the transportations that we use, and the technology and IT consumption that we have as a business. And so, we're putting in place the KPIs that are allowing us to really keep track of where we are, and I think we're making significant progress. In terms of communications and infrastructure, this is all based on a now well ingrained infrastructure. We have trained people, we have champions in every part of the world to follow these initiatives and aligning the entire company. As you know, the regulations around the space are getting more and more complex pretty quickly, and we're gearing up to be able to report to the different sets of regulations that are being put in place. So that's where we are on CSR, absolutely committed to continuing to drive that part of the business. On Page 8, I'm just going to go through the usual pages that you're now very familiar with. You see the growth components, 11.1% total, 11.2% for trade credit insurance, other revenues up 10.4%. I already mentioned the 15% for business information. Third-party debt collection, we're doing more in that space now that we have launched a single system globally to collect, and we're seeing 35% growth on the back of a renewed initiative on this one, and also, I would say, a market which is more favorable, and then factoring up 5%. I've already talked about this. The good news here is on the insurance fees, which are recovering with 11.3% growth in the first half at constant FX, and that's really helping in terms of the cost ratio. When you go to Page 9, you can look at the geography and the growth by geography. It's kind of the continuation of the story we had in the first quarter. Western Europe is up, but there's an element of one-off here, so we're around the 10% or -- 9%, 10% growth without that one-off in Western Europe. So, Northern Europe, which is Germany, is up 7%. Central Europe is up 0, but if we take out the runoff that we're doing in Russia, we would be closer to about 6%. Med & Africa continues to see good growth at 15%, North America at 7%. Asia Pacific recovering from a lull we had at the Q1, mainly tied to lower sales in the ICT technology sector. And Latin America continuing to be strong, driven by, I would say, soft commodities and good retention of our clients. If you go to the other way to look at our growth, which is the different components, I've already spoken about the volume effect on the bottom, which is much lower than last year. I'm getting back to, I would say, the kind of numbers we were used to seeing in the past with, I already mentioned, a significant slowdown, I think, in some parts of the world. The price effect is better than last year, but still negative. I think we're seeing better momentum on that front. The retention rate is at a record, 94.4% is our historic record, so continuing to perform for our clients here. Great NPS scores and very focused on that. And then, in the end, the new production is rebounding from last year, so it's very consistent with the strategy we've laid out to make sure we control the risks when things are too good to be true and make sure that we remain ready to write business when the markets are a little bit more favorable. If you go to the next page on the loss ratio, you see that it was another good quarter at 38.1% loss ratio before reinsurance and including claims handling expenses. As I've said now for the last 2 years, so you've heard me say that, I'll say it again, normalization is slow, but it is happening. The number of claims has been increasing since the middle of 2021. So we're now 2 years into this. It's very near pre-COVID level. The large losses are increasing, but they're still below, I would say, the average in the cycle. The reserve releases, you can see on the bottom right-hand side, remain at a high level because we're coming out of a couple years of very good performance. That's the 36.3% you see in the more intense blue line, which compares to the prior years, which were, I think, exceptional, but are still higher than what we would get in the normal year. And then, you see that we've opened a new year at, say, 73.4% on your IFRS 17 rules that would compare, just for reference, to about 77.5% in the IFRS 4 world that we used to know, and it puts us pretty much within the range of what we would have done under IFRS 4. So, we're still reserving at a pretty significant level. On the next page, we see the annual losses and the first half of 2023. I'd rather comment the next page, which is the quarterly results, because I think it's more telling at this point in the year. On the bottom, you have the 4 largest and more stable markets. You can see that there's really not that much to report here. The Western Europe losses continue to be very good at around 35%, Northern Europe at 29%, Central Europe at 33%, and Med & Africa at 46%. So really not much movement here and continued strong performance. 3 more volatile, smaller but more volatile markets historically, North America, Latin America, Asia. You can see that not much to report again on North America or Asia Pacific, and a drop in Latin America following the big loss that we had, the big fraud we had at the end of last year in Brazil, things normalizing. But this is an area of the world where we are seeing more losses and where we are actively working. So, I would say, that's the story on risk. I've got a page on Page 14 on cost. And there again, we are continuing on our strategy to make steady productivity gains and at the same time continue to invest in our business. You see the costs are up 10.2%. That compares to the 11.2% of growth that we've had in the business, so still we're getting operating leverage. At the same time, internal costs are growing 10.4%, but within that you have 2.4% that are costs that go into our building of the business information line, so really more like an 8% without this comparing to the 11.2% of growth in the premiums. And then, it's noteworthy to say that the cost ratio has been improved by about 0.5 point through the increased fee revenues that we've been enjoying through the beginning of the year. So, it brings us to, I would say, a record level for Coface, probably for this industry, a 25% cost ratio net for the first half of 2023. With that, I'm going to pass it over to Phalla to take us through the next few pages.

Thanks, Xavier. So we are on Page 15 on the reinsurance results. I will start with the premium cession rate staying at 27.1% comparable to half here last year. This is, we're going back to the pre-COVID standout of cession rate -- on premium cession rate. If we look at the claims cession rate, it has moved from 17.2% to 25.4%, knowing that last year in the first half, we have drawn the line on the reserve release related to the public scheme. So, this explains the 17.2%, while this year, I think, again, we're coming back to, I would say, a pre-COVID situation, even though in half one, you may recollect that we have, it is slightly impacted by the excess of loss on the very large claims that we have in Latin America. We're still benefiting from the higher reinsurance commissions, and this leads to reinsurance results moving from minus EUR 83 million last year to minus EUR 47.4 million this year. If we move to the next page, the net combined ratio stands at 65.5%. Again, I like to compare April to April. So, if we look at the half year 2022 without public schemes, we have stood at 57.2% with a net cost ratio moving from 26.5% to 25.2%. And as we mentioned, this is a very good cost discipline, high reinsurance commissions within an inflationary environment, very low net cost ratio. Net loss ratio, on the other hand, is moving from 30.7% to 40.3% on a comparable basis, and this is really reflecting the loss normalization environment that we're going through. We move to the financial portfolio, the investment portfolio. I will start with the chart on the top left-hand side. So, the mark-to-market of our investment portfolio stands at EUR 2.88 billion or almost EUR 2.9 billion. The asset allocation has not changed much since a couple of months now, with, I think, the majority of investments in bonds at 77%, a very low portion on equity at 3%, investment on real estate funds at 7%, and the remaining part of the asset allocation is on liquid assets. Key highlights, the first one is on the fact that the recurring income from our investment portfolio has now, I think, accounted for almost EUR 32 million at half year, with the new money invested at 3.4%. Clearly, we are really benefiting from the higher interest rate environment. The fair value to P&L, this line accounts for both realized gain and loss and unrealized gain and loss. And as already discussed in the first quarter, we have booked a negative mark-to-market on real estate investments with investment funds. We booked minus EUR 12 million in Q1, and we booked additional minus EUR 4 million in Q2. FX lines is reflecting also the fact that we have to account for or -- to apply IAS 29 related to the hyperinflation in Argentina and Turkey, and this has accounted for minus EUR 6.4 million. Another thing I want to highlight is the new line, which is the insurance finance expense line, introduced by IFRS 17. We discussed that a little bit earlier on the gross loss ratio, where you have the discount effect. So now, the discount effect that used to be under IFRS 4, the reserve was undiscounted and booked at the technical results. Now, we have to isolate the discount effect in the financial line, which is financial income and expenses in these [ IFE ] specific lines. This leads us to a strong half-year net income of almost EUR 129 million, out of which almost EUR 68 million is coming from the quarter 2. Compared to the pro forma of last year, I think the net results will be down 4.4%, knowing that last year we have not booked anything related to hyperinflation. If we move to Page 19, which is the return on average tangible equity, I start with the IFRS equity with the opening year at EUR 2.018 billion. We have paid our dividend in May, EUR 227 million. We accounted for, of course, the net income of the period, and then EUR 16.6 million, this is the annualized gain that we have on our investment portfolio, mainly bonds and equities. This leads us to an IFRS equity and a period of EUR 1.9 billion and return on average tangible equity moving from 12.7% to 14.3%. Let's move now to the capital management. So now I'm on Page 21. That shows the balance sheet, a very strong balance sheet. Total assets, total liabilities standing at EUR 7.7 billion. We discussed about the insurance investments at EUR 2.9 billion. Factoring assets at EUR 3.1 billion, totally backed by factoring rebalancing. We have not changed the hybrid debt and, of course, the shareholder net equity that we discussed about at EUR 1.9 billion. In terms of rating, the financial strength, I want to highlight that in May, AM Best has affirmed our excellent A rating with a stable outlook. Book value per share at EUR 12.9, and tangible book value per share at EUR 11.3. I think, with the trading -- the stock trading that is showing today at EUR 13.4, I think we are above book value per share. The market is giving us some credit. We move to the solvency page on Page 22. So, we're moving from a 201% end of last year to 192%. And the 192% at half year '23 to be compared as well to the 192% of H1 '22. You can see that the decrease is really coming from the SCR, so the capital consumption is coming from our insurance business and our factoring business. We are basically financing our organic growth. And 192% is still comfortable, way above the upper range of our comfort zone. On the right-hand side, again, we have these 2 stress tests that you used to see. The first one on the top block is the stress test related to the financial market shocks in terms of interest rate, spread and equity market. You can see that applying all the shocks will be still way above the upper range of our comfort zone, and this is mainly to the fact that we have derisked the portfolio, I think, over the past 18 months now. On the bottom right side, you have also the shocks against the crisis scenarios, the 1 in 20 events and the 1 in 50 events. Again, 1 in 50 is the 2008 crisis with a combined ratio above 100%. Here we will be either above the upper range of our comfort zone or in the middle range of our comfort zone. If we move to the next page, it just shows you the breakdown of the capital requirements between insurance and factoring. So, capital requirements standing at EUR 1.278 billion to be compared to eligible own funds of EUR 2.451 billion. This leads to a solvency ratio of 192%. Xavier, I give you the floor back to you.

Okay. Just to conclude, another strong quarter. I would say, very good results in line with the prior years in an environment that I've stressed that which is changing. We're seeing double-digit growth in both the business information and the trade credit insurance lines. The combined ratio under IFRS 17 is at 65.5%. By all standards, that's outstanding. Annual return on equity, we've mentioned 14.5%. The credit cycle is turning. I mean, after a very unusual and discretionary outbreak, we're seeing lower economic growth and lower inflation, which are driving lower client activity. The central banks around the world are dead set on taming inflation. It takes about a year for a monetary policy to start affecting the real world. I think we're starting to see that, but there's more to come. So, corporates are facing less availability of financing and they're facing higher financing costs. We know the regulators are obviously watchful of not going too far, but it'll take, I think, a little bit more pain before they start easing off. In this context, we're continuing to deploy our strategy really with a lot of constants. We are actively managing our risk in the areas or sectors or countries or whatever, where it is less favorable. We're continuing to invest and building our services and investing to grow some of the new platforms that we've spoken about. We're really focusing on the clients. Our eNPS score and our NPS score with clients are both at a record level. And then, we are making progress on our agenda for CSR, which is becoming more and more important to the business. So, all on track. We're also happy to announce that we will present a new plan because we're coming to the end of Built-to-Lead. And that's going to be March 5th in 2024. So we're still a while away, but obviously working on it. And we're excited about presenting the continuation of the Coface story for the next 4 years. With that, I think that's all we have for you today. And we are ready to take any questions.

[Operator Instructions] We are now going to proceed with our first question, and the questions come from the line of Hadley Cohen from Deutsche Bank.

Another great quarter. A couple of questions, please, on the solvency and a couple of questions on the investment income, please. So, firstly, on solvency, 192%. Am I right in thinking that we should think of that more like 182%, given the expected debt maturity later in the year, or am I missing something there? And then, just on the sensitivities. Even though your overall insured exposures have been going up over the last few years, your sensitivity to market shocks and credit market shocks have been coming down. But it looks like the sensitivities have increased relative to the previous ones. So, I'm just -- particularly the 1 in 50. So, I'm just wondering if you can give some detail around that, please. And then, on the investment side, I think the regular income in the second quarter was around about EUR 17 million. I'm just wondering, is there -- are there any sort of funnies in that or is it reasonable to assume that we can sort of annualize that sort of number in terms of thinking about the investment income outlook? Obviously, we might have to make some adjustments for hyperinflation and the like, but all else equal, can we annualize the EUR 17 million number? And any guidance you can give around the IFI and how we think about the outlook for that, maybe what the underlying level was in the second quarter and any sensitivities to market movements or how we can think about that?

So, I will leave the second question to Phalla, but under her control, by the way, I will try to provide some clarity on the solvency piece. We are at 192%. You're right to say that, that includes excess debt that we had taken on when we got the opportunity, and we're actually happy we did it. We do intend to refinance the debt that's coming due beginning of next year, if the market lets us do it, you never know. We were also happy we took that debt so far because whatever happens, we'll be in a good position. On the sensitivities, I think on solvency, there's 2 things that are happening here, 1 is procyclicality of the calculations, and the second one is some, what do you call it, some seasonality. So, the procyclicality means that when you're stressing something that is very low, stress is proportionate. And so, you get less sensitivity than when you're starting from a higher point. The seasonality is that when you do it at the end of the year, you pretty much know what the renewals look like. When you do it at the middle of the year, you have to take a series of assumptions for what's going to happen next year. And we tend to be a little bit conservative on those assumptions. We never know. So it's just modeling here. So, I hope that explains the solvency piece. I'm going to let Phalla take the investment income questions there.

So, taking the investment questions, you're right. I think quarter 2, we had a recurring income, EUR 17 million. I think this is probably the slow pace of our recurring income increase to take into account that, of course, the interest rate environment is increasing. So there's nothing, I would say, unusual or one-off in EUR 17 million. And I think that is paying off in terms of our investment strategy.

But then just on the IFI guidance, how we should think about that going forward?

Well, I think that's -- I would say it really depends -- I'll put it this way. We will help you to model it, I believe that, that would be the question. And if we assume that the interest, -- the yield curve is at 3%, I'll put it this way. And what we have in terms of premium, net premium per quarter is, what, EUR 300 million. All being equals, I think you just do the math. And of course, all depends on the movement of the interest rate. But if we assume that we have a flattish yield curve -- risk-free yield curve at 3%, with EUR 300 million net earned premium per quarter, we'll do the math together.

We are now going to proceed with our next question, and the questions come from the line of Benoit Valleaux from ODDO BHF.

A few questions on my side. First 1, maybe regarding your risk appetite, there is a slightly better momentum in terms of new production in Q2 versus Q1. So, I just want to have this reflect some slight change or not into your risk appetite. The second question is related to reserve releases. Under IFRS 17, you are at roughly 36 percentage point in H1, similar to Q1. So, how do you see it? Do you believe that this is a fair assumption to assume broadly similar level for full year this year or not? And maybe a third question, just come back again on investment income. And when you look at your new reinvestment rate, which was at 2% -- 2.0% in Q1 and 3.4% in H1, suggesting maybe broadly 4.8% in Q2. So, I just like to understand what explains the increase of this investment rate from Q1 to Q2 this year.

Okay. So, the 2 second questions will go to Phalla and I'll take the first 1. On the risk appetite, we haven't fundamentally changed our risk appetite. I mean, we're trying to be smart. As you know, what we do is, we try to get good clients when we can. And these good clients are people that are going to be partnering with us over a long period of time. And we will together go through the good and the bad times of the credit cycle. So that's really the main thing we look at. Then at the time that we write a policy, we will look at the request for limits. And that is a very detailed line by line assessment that is being made. So, we have pretty well defined and strict guidelines around the way we do it. And obviously, I think in a market where the risk is going up, you see more interest from clients. You see also probably a bit of rationalization in the market, although it's still probably early to say that. And that probably explains why we're doing a little better.

I think the reserve release on the IFRS 17, it is a reserve release related to prior year. So it's really prior year development. I cannot predict that it will remain the same in the coming months or coming quarters. It really depends on how the developments will go. But I would say that we have been maintaining the same philosophy in terms of reserving. That's for sure. Moving from 1 note to another doesn't change that. And what is clear that the COVID period reserve has been released partially, the 2020 reserve has been released partially last year. I think what is remaining is, we have a 2-year business. It will be '21 and partially '22. It really depends on how it will evolve. I cannot comment much more on this 1. In terms of investment, yes, we invested now at 3.4%. You know that in Q1 it was above 2%. We're really taking advantage of the yield curve, I think, which is reversing one. You have the short-term rate higher than the long-term rate, and this is really fitting our business.

Maybe just a follow-up regarding reserve releases. It's fair to assume that there's still no reserve releases related to Russia, Q2, H1 this year.

Well, I think, we have, again, the Russian case, we have a reserve and in covers Russia and business that we're doing in Russia. So, really related to what would come out in terms of notification, so far, what we can say is that Russia laws is behaving probably the same way that what we are seeing in other regions. So there's no specific, I would say, case or behavior of the loss situation in Russia. So, it will evolve, and it will be -- well, we can say that in Russia, you know that the exposure has been drastically reduced. Now we have probably ended up with less than EUR 500 million or even EUR 400 million of exposure. And we have the reserving against this exposure according to our reserving policy.

[Operator Instructions] We are now going to take our next question, and the questions come from the line of Michael Huttner from Berenberg.

Again, fantastic results. If I were an investor, I'd always be kind of always puzzled. Your tone is so measured and the results are so good. I just wondered what your tone will be when the results might not be so good. So, I don't know. But anyway, that was just an aside. I've got loads of little questions, and I hope you don't mind. So first one, the retention is huge, 94.4%. I can't remember. I think you said in the previous quarter of the record, but this sounds like the record. So I just wondered -- and I know you did say kind of rationalization and all sorts, but I just wondered if you can give a little bit more color on that and on the pricing outlook. It looks as if the market is much firmer than I'd expected. The second one is on business information. Now, you probably won't answer my question, but I was looking at the Catalana accounts, and I noticed they have a big business, which appears to be the same as yours. So I just wondered, who are your competitors? Who do you see as your competitors in what you're trying to do? Are you unique, or are there other people? Just to get a feel for that particular market. The third question is on the reinsurance results. If I were a reinsurer, I'd still be quite happy with EUR 47 million, but obviously not as happy as with EUR 87 million. And I just wondered if there's any exceptional here, which I should adjust for in the EUR 87 million, kind of thinking, well, actually, the EUR 87 million included the government schemes or something. My fear, my concern is that when it comes to renewals, I know we're not quite there yet, the reinsurers will say, actually, no, we want a lot more than we're getting at the moment. That's my kind of thing. On real estate, is it done? I really don't remember your comments in Q1, but I was hoping it was done, and there's a little bit more to bring through, I'm just wondering. And also, linked to that, I noticed that investment assets are down Q2 versus Q1. That's not a big move, EUR 3.02 billion to EUR 2.88 billion, but just wondered why that should be, given that you're growing your business, so I don't quite understand that. And then, the last question -- I'm really sorry, it's a whole catalogue. It's just I'm not quite with it today, and I've got lots of other results. The IFRS, so we've got the discount unwind I call the IFI, as Hadley said. The number I can't see, but I'm completely not informed on this. It's just a question, where's the discounting benefit, and how much is that? So I can set off, kind of think about how those 2 are related. Sorry about all this.

Michael, so let me answer a few. I'll leave Phalla to deal with investment assets, which I think is linked to the dividend, but maybe she'll have a better idea.

Exactly.

IFRS, is that what it is? Okay, so we can knock that one out. We paid a dividend, right? Yes. The IFRS discount, she'll deal with this one, and the real estate. I mean, if anybody can say that real estate is done at this stage in the cycle, good luck. So, in terms of retention, you're right to point this is a record for us. It's a very good number, I think, for the industry. We've just been working it. I mean, we have just put in place a whole process around this, because we understand the value of a client relationship, and that's really what makes Coface what it is. So, we have a process. I mean, the market is what it is. We need to compete. We need to remain competitive. I think our cost ratio makes us quite competitive. We need to be within the market in terms of risk appetite, and we make sure we are, but we're working all these aspects, and I think that's why the retention is what it is. In terms of business information, I didn't get the name of the business you were mentioning. I'm not sure I caught that.

Number two. So you're number three. Number two is a trade, yes? Catalana.

In what?

In business information? So I'm not sure they are your competitor, but I do see in their accounts there's a big C-line. They call business information, and that's Catalana or [ Atradius], however, you call them.

I'm not aware. I'm sorry. So they have a historic -- it corresponds to, I think, what we call our historic business, which we have in Central Europe and in Israel. In these places, historically, Credit Ventures and Coface had a basic information setup where we produce information. We're kind of competing with the likes of all the bigger information providers out there. I don't want to mention names, but all the offers you can get in the marketplace. So, I think that's what they're doing. They had a company called Graydon. I think they sold that actually in the last 12 months. So I don't know what else they have in there, but that's, I think, what we're referring to. But I think you should ask them. In terms of us, we are unique in the sense that we're a one-stop shop. So we have about 100 different sources of information that we are utilizing for our own good for credit insurance. We monitor millions of companies for our own purposes. And we have mapped all the different scores and all the different systems to be able to provide a one-stop shop experience to anybody that's looking for data across the globe. So that's the first thing that makes us, I think, unique. And the second thing is, we're not just -- actually, we're mainly not providing basic information, which is not our line of business, but we are providing insights and scores and ratings or expectancies of default on companies, which is more value-added than we do from a different vantage point, which is we've got $700 billion of credit risk hanging on this, and we've done it for a century. And I think we have experience proving that we can do it in all the different phases of the cycle. So, I think that's our unique selling point, and that's why, in that dimension, I think we're quite unique. In terms of the reinsurance, I would say, I mean, we are getting good conditions in the marketplace, but clearly, I think, it remains a good program for the reinsurers. I can't tell you what the next round of discussions is going to be like. I think it's way too early in the cycle, so we have to go through that, and we'll see how things pan out. Every year is a new story, but I think it remains a good program, driven by our performance, by the way. The fact that we perform is what makes it good. Phalla, you wanted to add something on this 1?

Yes, I think on the reinsurance side, I think a couple of things to be added. So, in 2020, of course, the external reinsurers have a lower base because the $83 million that we're showing in 2020, part of that, almost $35 million, went to the government that put in place the public schemes. So, in 2023, we don't have the public schemes anymore, so everything goes to the external reinsurers. I think that answers your question. And then, in terms of renewal, just adding to what Larry said, I think the reinsurers are enjoying with us the good results that we have so far in the past at least 2 years.

And on the discounting? Then Phalla?

Yes, on discounting. No, go ahead. You had 3 questions on real estate. I think I told you what I think. But Phalla, do you have anything else to add on this one? We had a whole page on Q1. We told you how we're managing that exposure, but clearly we're still invested and it's not over and we're subject to whatever the markets will drive.

And in terms of the discounting, Phalla, do you want to take that question? Yes, I think it's under FH 17, we just isolate this discounting effect into the financial line. So if we want, and this is why we're trying to compare April to April, under IFRS 4, it will have stayed in technical results. I hope this answers your question.

So if I phrase it differently, I'm sure you did answer it. It's just that my mind today has really gone blank a little bit. I'm really sorry. So what I'm trying to understand is, if I give you some of the numbers for, say, Allianz or Zurich or Axe or whatever, so they have a big discounting number within the combined ratio. Typically, it's around EUR 400 million for these companies. And then, they have an unwind of the discount, as you have it, in the financial income. And that is typically at the moment EUR 300 million, so it's a half-year basis. They have a net positive, if you will, of somewhere between EUR 300 million and EUR 400 million. And that's kind of the number I'm trying to kind of isolate. I'm not sure I'm asking it properly.

I understand. I would guess -- so for us, it's the same thing, right? You get a discount, which we've highlighted here, on the reserve. So that lowers your loss ratio. And you take an amortization of that discount on the right-hand side in the finance revenues. But just to be noted, there's a big difference between [ Axe ] and us is, we're a lot more short-term, right? So, our discounting happens over the course of, let's say, 3 years max or 2.5 years max. So there should be less of a difference. But there's just intuition here, I haven't done the math, to be honest.

And may I ask just a follow-on? I did ask Thomas earlier, and he gave me an answer, but maybe he obviously had to deal with lots of questions very quickly. Can you talk about the quality of the EUR 700 billion relative to Q1 or 2019 or whatever?

I don't think there's much of a change here. I mean, quite frankly, over a quarter, I mean, as you know -- the fact that we have 94% retention means that we have the same clients, right, essentially, that we had a quarter ago plus or minus 1% or something like this. So we pretty much invested in the same lines, in the same businesses, with the same people doing the same kind of trades. So, I know it's not the exact answer to your question, but it gives you a feel. We're a pretty stable business. And then in terms of the quality, it varies mainly because, in some instances, the economy is tougher, so companies get downgraded. And against that, we are working the book by doing all the actions I described on the second page of my presentation. So, I don't have a number for you here, but essentially, I think the book is continuing to be pretty good.

[Operator Instructions] We have no further questions at this time. I hand back to Mr. Durand for closing remarks. Thank you.

Well, look, I just want to thank everybody for making the effort to join us on 11th of August, which is typically middle of summer, and everybody's got things to do, hopefully, and also, on a day where there's a lot of publications happening. So, thank you all. Thank you for your question. Thanks for following the story. And we look forward to speaking with you in November when we present our third quarter, and have a great summer, everybody.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.