COFACE SA (COFA) Earnings Call Transcript & Summary

Good day and thank you for standing by. Welcome to the Coface Full Year 2023 Results Presentation Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Xavier Durand, CEO. Please go ahead, sir.

Thank you very much and good morning, everyone. Thank you for joining this call. We are very happy to report our total year results for 2023. Apologies for changing the usual timing of the call, a personal situation on my side here. So I appreciate the flexibility. But nevertheless, you all have had more time to digest a little bit of our publication. So I'm just going to as usual take you through first half of the presentation. In terms of Page 4, you've seen that we reported EUR 240 million of net profit, pretty much in line with last year, which means EUR 50.8 million in the fourth quarter of '23. Some of the same trends you've seen at play through the third quarter continue. Turnover is up 6% at constant FX and perimeter with trade insurance premiums growing 5.5%. We've seen a slowdown in the second half as we already highlighted in Q3 pretty much driven by the economy around the world. A very good year in terms of retention at 93% and I think it's clearly our record. Pricing has been down 1.9%, but it's pretty much closer to historical trends and better than it was in '22. Pleased with the business information growth at 17.3% for the year with a good Q4 at 23.4%. Factoring is slowing down and clearly the quickest one of our businesses to react to the economic conditions. On the loss side, I think it was another great quarter with net loss ratio at 37.7%, actually 2 points better than last year. The net combined ratio ends the year at 64.3%, it's 3 points better than '22. I remind everyone that we're presenting now all the accounts in the IFRS 17 methodology. We'll talk more later about the normalization of the risk environment, which continues albeit at a slow pace, but continues clearly. A very good year in terms of our cost ratio, we're at 26.6% again, that's a record for us. And it's both our discipline, high reinsurance commissions and despite all of that, we continue to invest. And then the combined ratio at 59% for Q4 I think is really strong and we've had some favorable developments on some large cases that we had to reserve in the past. So I think a strong quarter, another very good year for Coface. Just 1 admin situation. We've moved Mexico, which was part of Latin America, to North America just to reflect the economy and the corridor, the economic corridor between Mexico and the U.S., which is taking more and more importance. As you know, a lot of manufacturing is actually being redirected from Asia into Mexico, which has become the largest trading partner of the U.S. now. So we'll make that change happen. You'll see it in the Q1 reporting just to align the reporting with the way we run the business. On the next page, our solvency remains very strong at close to 200%. We've proposed a EUR 1.3 dividend per share. This has been our best year in terms of return on average tangible equity at 13.4%. The solvency is above the upper end of our target range. We've actually maintained our reinsurance conditions. The renewals went well and despite the fact that the market is still tight, I think we've been able to renew all of our treaties at stable conditions. So EUR 1.3 per share and that's 81%, just slightly above the 80% that we target in Build to Lead. I think as importantly and maybe perhaps more importantly, we've continued to deliver on our key operational milestones. We've transitioned to IFRS 17, went 1 full year in '23 on the reporting cycle. We've also confirmed, and I think you'll see it in the presentation, that the business information continues to grow and is a very highly synergistic business that fits very well within our core activity. Very happy to report that I've signed up for another 4 years as expected. And we are excited about presenting our new plan. We've kind of lifted the [ Build to Lead ] name, it's going to be Power the Core and we'll explain to you why that name on the 5th March when we will have our Investor Day. So that's pretty much the story. I'm going to take you through Page 6 now, just to remind everyone of the Build to Lead. The Build to Lead is officially over now. We've pretty much beaten every one of the metrics we set for ourselves. You can see the combined ratio, which for 3 years in a row has been significantly lower. Actually for the last 4 years, we were below the 80% target with a slight increase during COVID in '20. We've maintained a payout ratio above 80% with a couple of years where we were actually at 100%. The solvency ratio has remained very strong and above our target range. And our return on tangible equity has improved progressively to this record level last year at 13.3%. So clearly we're happy with what's happened during Build to Lead. Just 1 slide on Page 7 on situation in Argentina. It seems like every quarter, every 6 months, we have another one of these volatile situations to manage somewhere around the world. I thought it'd be helpful to let you know that we have EUR 1.5 billion of exposure to Argentinian debtors. Clearly we have a strong franchise there. What we do in Argentina matters because this is the part of the world that is difficult and that gives us credibility and great commercial arguments in the writing business in other parts of the world. So you can see on the left hand side of the chart that the Argentina peso value versus the USD was divided by 4 in the course of the year. Clearly the election in December was also a turning point. This has had an effect on us. We have changed our functional currency from Argentinian peso to the U.S. dollar because the majority of what we do over there is actually in U.S. dollars. It also still means that importers of goods in Argentina have to pay us in USD and USDs are hard to find when you're in Argentina, actually sometimes very difficult. So we are managing this dynamic situation I think as we've gained experience of doing so in the past years and decades. We've booked some reserves to reflect the increased level of risk and pretty much we're around this like we've been on all the other topics that have showed up in the past in Coface. On Page 8, just a quick summary update on our CSR. We've set some very clear targets for ourselves and see them at the bottom of each one of the columns. The darker green areas are the areas where we have been actively focusing on during the year '23. I've had several opportunities already to take you through this page. But just to remind you, we've continued to expand our commercial exclusion policy progressively as governments become clearer and clearer in defining the taxonomy of what's black and what's green. And we continue to restrict our intervention in the areas that are more carbon intensive. We have clearly allocated double the amount of funds to single risk exposure on ESG projects and that's going extremely well. And then we have continued to decrease the emissions of our investment portfolio. Our target is 30% by 2025 and we are on target to deliver. We've actually improved the company in terms of being an employer. We measure the engagement of our employees 3x a year through an external firm and we've seen that it's been continuously improving to where now we are above the industry benchmark. We have a clear goal of getting to 40% women in the Top 200 managers by 2030 and we're making steady progress. And then finally, in terms of being a responsible enterprise, we want to reduce our carbon emissions by 11% for our operations, which means a 28% reduction from where we started at and we've got a tool to measure this. It's really about 3 main things: it's usage of cars and transport; it's about office space, heating and air conditioning; and it is about the use of technology and the carbon that goes into making and powering that technology. So we're working on that, actually working from home policies actually help us a lot. And we're driving the culture. I mean there's a lot of communications that needs to be done, whether it is reporting or actually I think making the investing and community and all the stakeholders here aware of what we are doing. I think it's very clear we're focused and we are making it happen. On the next page, I will go through the usual stack. You'll recognize those pages for those who now have followed us for years. Page 10 shows our growth 6% for the year. We've seen, as I said, it slowed down in Q3, very clear. All countries, inflation is coming down and the economic growth has become much slower in the second half. That explains our trade credit insurance premiums growing at 5.4% in the year. Very high retention as I said. Some good news though. Other revenues are up more than 10% from '22. Information sales up 17% and 23% in Q4 I've already said this. Third-party collection it's small, but it's growing nicely at 42%. And it just shows that the risk level in the market is growing up. Factoring has slowed down actually faster than it started at the beginning of the year and is up still at 2.6% for the year. And then as you know, we don't just charge premiums, but also fees. So the fees we are getting from the insurance activity continue to grow faster than the premiums at 8.7% and that's important for us. If you look at Page 11, you see the spread of the growth amongst the different parts of the world. Western Europe slowed down still growing at 6%. Northern Europe, Germany, the whole industrial base has been hit actually harder than probably some of the other parts of the world so growing at 2%. Central Europe negative, but if you correct for I would say the rundown of our business in Russia, it would have been pretty much at 1.3% growth, pretty similar to Germany. A bright spot in Med and Africa, the Southern Europe countries have actually fared better with the regain of tourism and then those economies have actually performed better last year and you see that in our numbers as well. Continued growth in North America, Asia Pacific at 5% to 6%. And then Latin America still 11%, but that's a much decreased number than what we've seen in the prior couple of years as the commodities surge is coming to an end and they are falling back on more normal growth numbers. So that's the story by region. On the next page you see the different parts of the way we look at growth. Interesting to see that after several years of decrease, new business is actually up and starting to pick up. We've seen increased demand. As I said many times on the call, it's a very competitive and kind of brutal market, but we are holding our own. The retention rate is at a record for this company and we're very proud of our partnership and our ability to service clients in ways that convinces them to stick with us through the long term. The prices are down, but as you've seen, they've recovered from the lull in '22 and the 2 kind of exceptionally positive years that we've had in '20 and '21. Historically, this business is one where prices come down year-after-year to the tune of 1%, 1.5% and we're pretty much there. And then volume effect after 2 impressive years in '21 and '22, which we hadn't seen actually in a very, very long time, it's come back down on the back of lower inflation and lower growth to 2.3%. And I think that really explains the bulk of our slowdown in turnover. On Page 13, you see our loss story continues to be a very, very strong story with the quarter, Q4 2023 at 26% loss ratio before reinsurance. Normalization; I've been talking about this for 2.5, almost 3 years now; it's happening, but it's happening slowly. The number of claims has been increasing during that period, it's now about 8% lower than it was in '19. But the claims amount pretty much have been in '23 pretty much similar to what we had in '19. Severity still below I would say the historic average. You can see on the bottom right hand side that we've opened the new vintage quite high actually at close to 84% to reflect the political and economic uncertainty that we are seeing in the world. At the same time, the bonies from prior years have been actually pretty strong compared to historic levels. As I said, we've had some significant reserve leases on some files that we had particularly in Brazil. If you look at the next Page 14, you see a pretty benign story. This is the yearly view of risk for the different parts of the world where we operate. The 4 largest more stable economies at the bottom, pretty much everything at 40% or lower with the very stable results. The 3 smaller and more volatile traditionally markets on the top, still pretty benign stories. We know that we had 1 situation to manage in Latin America last year and I think we've pretty much got that under control. You actually look on Page 15, the quarterly story with very much nothing to report on the bottom 4 regions. And when you look at the top, it's been in an incredibly well-controlled environment with North America at 22% and Latin America now again in the low teens and then Asia Pacific actually having negative losses again in Q3, Q4. So very good, we feel good on the risk side. In terms of the cost ratio on Page 16, you see that our total cost went up about 7% for the year. The cost for the fourth quarter was up about 4% and the cost ratio on the right hand side in Q3 '23 was actually below what we had seen last year by about [ 0.3 ]. Our total internal costs were up 8.4%. You've got wage inflation in there for 2.5 points, you've got the investments that we've made in the business information space for another 2.5 points. And so we haven't stopped investing. We continue to put money in the things we think are important, whether it's technology or information or growth in our sales forces. And you can see on the bottom right hand side of the chart that we end the year under the IFRS 17 methodology at 31.5%, which is lower than '22. So despite the slowdown in the growth, we are still making some gains in cost ratio and continuing to invest I would say more than ever in our business. And I think it's very consistent with the story that we've been telling all of you for now several years in a row. With that, I'm going to turn it over to Phalla to take us through the next pages.

Thanks, Xavier. So let's move to the reinsurance page, Page 17. On this slide, premium cession rate at 27%, claim cession rate at 23%. I must say that we're going back to the pre-COVID strict application of our third-party reinsurance treaty. What we have to be noticed here is that first, we have renewed all our treaties, the proportional and nonproportional, pretty successfully in a sense where all the terms and conditions that we had last year has been renewed at the same level. What needs to be highlighted as well is that in Q1, we had this large loss in Latin America where for the first time in Coface story, we have reached the first level of our excess. With the release that we got, the recovery that we got in the first quarter, of course I think we're going back to the initial situation and again I think Coface has never reached the first level of excess of loss treaty. Moving to the next page. Net combined ratio at 64.3%. Couple of things to be highlighted. Net loss ratio is decreasing by 2 points. I would say that related to this, some reserve release that we had even if we have booked up some reserve related to Argentina and other spaces. Net cost ratio down 1.4% and this is the lowest level in the Coface story. I would want to highlight the fact that we have I think really thanks to also cost discipline, but also the commissions we see from the reinsurers that has been helping us in the net cost ratio in 2023. If we move to Page 19, financial portfolio. The mark-to-market value ending at EUR 3.3 billion. Couple of things to highlight. You know that in November last year, we have issued a new EUR 300 million of Tier 2 debt and of course this is in advance to a repayment of our first tranche of Tier 2 debt that will happen in couple of weeks now, which is by the end of March, we will have to repay EUR 230 million. So the mark-to-market value that you see here will go down pretty much to the historical level of EUR 3 billion, which is our run rate, I will put it this way. In terms of asset allocation, we have not changed anything. We have already derisked our investment portfolio and we continue, as you know, to divest in our real estate investment funds. If we move to the right hand side, which is the investment income, couple of things to be highlighted. Of course the recurring income you can see that it has now reached EUR 65 million at annual basis, which is probably doubling what we had in 2021. With new money invested in at 3.9% and we're still enjoying the fact that the interest rate is still high and the yield curve is still inversed. Realized gain and loss minus EUR 3.7 million. We have taken some realized gain that only partially offset the negative mark-to-market that we got on the real estate investment funds that we already commented a lot during 2023. Total negative impact is minus EUR 29 million. We believe that this will have put behind us I think big chunk of this devaluation in an investment fund. Of course we will expect some of that also happening in Q1 and Q2, but not at the same level that we had in 2023. FX, we largely explained that I think in the previous page coming from Argentina and we also booked as usual a hyperinflation unfortunately in Turkey and Argentina service entity. I will finish with the insurance finance expense at EUR 40 million. This is totally in line with what we saw in Q3. I think Q3 was EUR 30 million. Now we're just having another quarter adding up. This lead us to a very good net income EUR 240.5 million. This is probably in line with what we had last year with a similar tax rate. Return on average tangible equity and we're starting with the change in equity. IFRS equity starting at EUR 2.019 billion. This is the priority straightforward work with payment of dividends and we record of course our net income of the year leading to an ending IFRS equity at EUR 2.051 billion. Lead us to a return on average tangible equity from 12.7%, we of course have our technical result, financial result net of tax and end up with 13.4%, which is again one of the highest that Coface has seen since long time. Moving now to the capital management side. Solid balance sheet. EUR 7.9 billion of total assets and total liabilities. We discussed about the insurance investment at EUR 3.3 billion. Factoring assets EUR 2.9 billion backed by factoring liability. What needs to be highlighted or I would like to highlight is the EUR 832 million of hybrid debt. Here we have, as I said, the 3 tranches and EUR 230 million will be repaid at the end of March '24, which is probably in a couple of weeks now. So we're going back to the usual situation of Tier 2 debt at EUR 600 million for 10 or 11 years now. It has not changed any rating. Financial strength has been usual. You can see the upgrade from Moody's in September and the stable outlook from Fitch and AM Best. Tangible book value per share at EUR 12.2 and book value per share at EUR 13.8. Moving to the solvency part and we're moving from 201% last year to almost 199% this year. You can see that the own fund generation which is the 28.7 percentage points contributions to the solvency ratio is more than offsetting the capital consumptions coming for our business growth either in insurance or in factoring. And of course we have allowed for the dividend payment that will happen in May '24. On the right hand side, we have the usual financial stock shocks and economic shocks. I will start with the financial market shock with the interest rate increase, price increase and equity market shocks. Well, thanks to the fact that we have already derisked our investment portfolio, you can see that the shock has a very minimal impact on our solvency. In terms of economic crisis, we have seen usual 1 in 20 events and 1 in 50 events. We used to say that the 1 in 50 events in the 2008 period crisis and here again we will be above the upper range of our comfort zone. So very strong balance sheet and healthy, I would say, solvency ratio. If we move to Page 25, this is where you have the breakdown of the SCR, which is the solvency capital requirement and the eligible own funds. Nothing in particular to be added except the fact that if you look at the eligible own funds, the Tier 2 debt that is allowed to be taken into account in our solvency calculation is at EUR 626 million to be compared to the EUR 832 million that stands in our balance sheet. This is due to the fact that in solvency you have this threshold and we are taking already the haircuts related to this threshold, which means in a nutshell that the 199% of solvency ratio as of end of December, all being echoed after the repayment of our first tranche of Tier 2 debt will go down to 198%, which does not change much to the strength of our balance sheet today. With this, I will turn back again to Xavier for the final remarks. Xavier?

Okay. I thought there was an echo and I put myself on mute and I started speaking. Sorry, everyone. So just to wrap this up. This has been another very good year. You've seen that we've come in just symbolically above last year in terms of net profits. The economy is slowing. We've got a very good net combined ratio at 64.3%. Return on average tangible equity at 13.4% is clearly our record. You see that some of the initiatives that we've taken are actually paying off. Business information and debt collection are growth opportunities for us. We've managed the volatility. I mean it continues in the market and nobody knows what's next. But clearly I think we continue to demonstrate that we're able to manage these situations. We're at the end of Build to Lead and I think we had a good run. We've met or exceeded all of our targets and we're excited about what we're going to talk about next actually on the 5th of March. That's coming up very, very soon. So hold your breath. It's not far now. We're going to build on Build to Lead. That's an interesting way to look at it and highlights what we're going to do in the next chapter of our growth story. So that's the wrap up. We're very happy to take questions now as we usually do.

[Operator Instructions] The first question comes from the line of Hadley Cohen from Deutsche Bank.

Hopefully you can hear me well. First question, I was wondering if you could, Xavier, gave us a little bit of insight into your thought process around the dividend proposal, please. I mean I understand it's an 80% payout ratio and it implies a 10% cash dividend yield at current price levels. So I'm certainly not complaining. But objectively your earnings are pretty much flat year-on-year, solvency is pretty much flat year-on-year and it sounds like your outlook is at least in line if not slightly better than 12 months ago. So I'm just wondering why the dividend proposal is lower year-on-year. Second question is linked to that and I guess essentially is the 155% to 175% still the right target range for solvency? The reason why I asked that is solvency is obviously well above that range. And I think, Phalla, you mentioned even after adjusting for the debt repayment, it remains at that level and even after a 1 in 50 stress scenario, it still above the upper end of the target range. So I'm just wondering if that is still the right range and if it is, at what point can we start thinking about deployment or usage of some of that excess capital? And then my final question, a very quick one and apologies if I've missed this. But I think in the fourth quarter, the combined ratio was obviously benefiting from the release in Brazil. But my understanding I think is that there is at least some offset coming from more conservatism in your initial loss picks in relation to Brazil and Argentina. So I'm just wondering if you could give us what the net positive effect on the net combined ratio was in the fourth quarter?

Okay. You're right relative to the reserves, I mentioned that on the call, and I'll let Phalla talk about this. I just want to address your first question, which is really wide actually; it's around the capital allocation and capital management policy. I think we've been very, very consistent, actually that probably consistency is what I'm trying to do here in general. But on that topic, we've also been very consistent of one, having a strong balance sheet and proving to the market that we are resilient and that this company will continue to perform and can manage the environment. And the second thing is that we are ready to seize the opportunities that the market might offer us and we've said that I think several times over the course of the last few years first of all on the range. The range is a discussion that we have with the regulator about where should we be as an institution and that's not something we change really laterally here and I think that's a level that we've agreed with them when we launched our internal model and it was approved and that's really the range that I think matches the needs of this company. Now in terms of capital allocation, really we are pursuing 3 goals. One is core growth and we want to be able to fund core growth. Nobody thought in '21, '22 or even '23 that we would have that kind of growth in this industry because this is an industry that used to pretty much grow as GDP and grows as nominal GDP. So our ability to feel very comfortable even if inflation picks up or whatever I think is important. The second thing is we do want to remain open to opportunities. We've done a few acquisitions, they weren't very big. But I think it's something we like to be able to do not necessarily very big ones, but ones that matter for the business. And then third, I think we consistently have been returning capital at or higher than the targets that we've set. I mean I understand that 1% is not much more than -- 81% is not much higher than 80% so it's more symbolic. But still I mean I think we've in the past been a company that was one of the first to be authorized after COVID to redistribute some equity or some capital by the regulators to the markets and that's part of our story. So this is what we do. I think the company is performing and I think obviously during the plan we'll talk about this kind of stuff, but that's really our position here. Phalla, you want to talk about the...

Yes. I think the second question is related to the reserve release that we have on the large payment in Q4 that will come for a range of 7 points to 8 points.

Our next question comes from the line of Michael Huttner from Berenberg.

I'm hesitating to ask questions because a, the results are so good; but b, the [ 6 months ] has almost with us. So I only have 2 actually. The first one is that reserving figure that you just said, the 7 points to 8 points. Is that the net of the slightly higher than normal initial loss pick and the release of Brazil or is it just the release of Brazil? And then the other question is my traditional question because I always forget the answer and I'm really sorry. On reinsurance, so you said that in Q1 due to the Brazil large loss, you had actually impacted the excessive loss treaty. But now because of the reimbursement, this has kind of receded. I just wondered can you remind us what's the level of this loss treaty? I always have a figure in mind of EUR 50 million, but I'm hopeless on this. And then the last one, you did you said deals and that's been many smaller deals. I just wonder if you can give us a total figure for the period maybe whether it was EUR 50 million or EUR 100 million or whatever just to get a feel for it basically. And I did have 1 last one, but it's not particularly relevant. Is to try and gauge the EUR 1.5 billion exposure to Argentina. What's the exposure to Russia now after all the dust has settled?

Phalla, actually I'm tempted to let you answer all these questions pretty much.

Well, I'll take the first 2. So reserving when I was talking about the 8 points is really the release on the large claims that we had in Q4 that I was answering the questions of Hadley. The second one in terms of excessive loss, I think that is the first tranche of excessive loss and I think it's pretty much disclosed, the EUR 54 million.

And just to check, EUR 64 million?

EUR 54 million.

It increased actually. Last year we were -- because we reflected inflation in our treaties. Your question on the deals, they were quite small quite frankly so far, right?

The deal was very small. And last question on Russia, I think the total exposure at the end of 2023 is around EUR 430 million before reinsurance of course.

[Operator Instructions] Our next question comes from the line of Benoit Valleaux from ODDO BHF.

A few questions on my side. The first one maybe on the business. So you said last year, price decreased by 1.9%. Long term is more decreased between 1% and 1.5%. I mean how do you see the trend beginning of the year because you say that the economic is slowing down clearly. But at the opposite, your combination loss ratio remained very good last year. So we'll expect some broadly similar price decrease this year or not? And linked to this, do you intend to some extent to change a little bit your risk appetite or do you plan to remain I would say as conservative as you've been last year? The second question is related to solvency. When I look your sensitivity through an economic crisis, this sensitivity has reduced at your end compared to what it was at the end of June. So I don't know if there is any specific explanation. And linked to this, just to check if you have changed or not at all your attachment point regarding your reinsurance coverage in the case of loss. And the third point may be related to IFE. So it was EUR 40 million full year '23, EUR 10 million in Q4, but there have been some volatility over the year depending on quarters. Do you have any view on what could be the amount of IFE for this year?

So let me talk about price first. I mean as I said, this industry makes productivity gains. These gains are passed on to clients pretty much through time. The price decrease at minus 1.9% is just a little more than we see, say on average it probably went down 1.5% over the last 10 years, something like this. You're right to say we have strong results and despite the environments being more risky, I mean we see more demand in the market, but the competition remains very strong. So I would say that trend is likely to continue because of the level of competition we see in the market and everybody is aware that our combined ratio is something that is just the aggregation of what our clients see. So clearly there's continued pressure on price. In terms of the sensitivity to the shocks. There's an element of cyclicality in that, which means that when things are good, the shocks look also better and when things are bad, the shocks also look worse. But I'll let Phalla talk about whether there are any changes in what we've done and then I'll also let her answer the question on the IFE?

So I think we have not changed the model so there's no big changes. We have lower NDT attachment point, but this has always been taken into account in Q2. So there's no change much either on this side. So no, I think if you look at the sensitivity and why in the 150 we're at this level, that's exactly what Xavier said, which is the whole cycle of the model. And if we are open at the level that we have opened the new vintage, of course when you have a shock, the shock hits you less that than if you have opened at a lower level. But no, we're not changing -- there's no big changes in our model. In terms of IFE so the sensitivity of course all depends on the interest rate. But if interest rate is not moving that much up and down, the level that we have in '24 will be pretty similar to what we have in '23 of course subject to big swing in interest rates.

Our next question comes from the line of Philip Ross from BNP Paribas.

First one on reserve releases and the reserving approach. You gave us the figures for the 4Q net change related to Brazil, which was helpful. I guess that was related to the timing of the change on what I think the specific client was, was there was an event in 4Q in December so that makes sense. But I'm just wondering was there any seasonality we should expect going forward on reserve releases review? So should we be thinking about 4Q as the time every year when you make some changes or does IFRS 17 give you less control over when you might make some notable reserve releases and hence when that might affect reported numbers? That's the first question. Second question, just a quick update if I can on business information. You highlighted in Q3 that a big share of that business was from Israel albeit it was relatively low growth and I think last week we started to see some GDP headlines for 4Q from Israel. So I just wondered whether there was any update on a change in that situation. It doesn't really look like it's been much of a drag on growth, but any update would be helpful.

I'll take that one. You're right to say that.

Related to the release. So the reserve release that we had on Brazil in Q4 is not coming from the model or IFRS 17. It's coming from the fact that we have some recoveries coming through. So it is the actual recoveries that lead to this reserve release. Hope it answers your question.

Yes, I understand it's related to actuals. But I was just wondering about is there anything we can -- any steer you can give us on the sort of timing or process of releases when you might do a reserve review every year. Is that going to be a Q4 thing or just it could happen any time?

Well, it happens any time because you know that we are a short-term business. So as I said after 2 years cash being cash, the reality is that your developments will finish in 2 years' time and this would -- if you have put some reserve at the beginning and you're not using it, after 2 years you release this reserve by vintage. So there's nothing particular in the model that tells you that in any particular quarter you will have more releases than the other. It's really depending on the vintage of your reserving.

And then on Israel, we did highlight that we have this historic business in Israel, which is one of the 2 places where we started from in Coface. So we've been working that business, which is not exactly the same model as what we're developing, which is more elaborate risk services here. But it has been performing fine, I would say, throughout this crisis. As usual in a crisis, there's some stress, but there's also opportunities because our services tend to be in demand. So Israel has been okay actually through this period.

Our next question comes from the line of Michael Huttner from Berenberg.

I have 4, but they're very small. One is Mexico, so you're moving that to North America. I just wondered how big that is, what impact? The second is on discounting. I'm sure there's a number somewhere, but I couldn't find it. I just wondered if you can say how much the impact was on the combined ratio. Third is I think in the past you've had 3-year plans and this sounds like it will be a 4-year plan. Can one infer anything from that meaning the future is bright or I don't know anything? And then the final number is estimated and I'm not quite sure how you did the math so apologies. You had I think initial loss pick in Q3 or 9 months of about 77% or something and now you're at 83% and I try to estimate that 83% for the year so the change maybe about 20 points on the last quarter. And I estimated from that that you added EUR 90 million to reserves. But a, I'm not sure if that's the right number. But b, also you traditionally add to reserves in the last quarter. So I just wondered if you can kind of suggest what is the moving part here which is the relevant one.

I'll take the 3 versus 4 year in Mexico and you can talk about the rest, Phalla. But last year plan Build to Lead was a 4-year plan. The only 3-year plan we did was when I joined. We had Fit to Win, which was a really restructuring and get your basics right kind of thing and that was a 3-year plan and then we moved to a 4-year plan. So I think this business is really trying to write a long-term value creation story and I think 4 years is a good period to show significant progress on some of these fundamentals. And so that's why we are and we stayed on 4 years since then. In terms of Mexico, I mean it's a Tier 2 country for us, but it's so imbricated with U.S. I mean you have all the maquiladoras which pretty much does subcontract work for the large industrials and services in the U.S. We were running actually the Latin American region from Mexico a few years back and now I think our center of gravity has moved back to South America over there and it made more sense for us to run Mexico with North America. We have actually started to put the servicing centers for the U.S. in Mexico so there's also an element of productivity here and that's why we made the move. But I think it's more convenient, more logical, more intertwined closer, I mean et cetera, et cetera. Do you want to take the rest, Phalla?

Yes, indeed. So in terms of discounting rate and impact on solvency we're talking about, it has not changed much around 3 points in net combined ratio. Then the last question is related to the Q4 reserving and you're right. We released some reserve, but we also have booked up some reserve, as Xavier said, on Argentina and we book it up in the region where the risk has been underwritten.

It was my guess EUR 90 million, was that too excessive or should I do a comparison year-on-year or something like that?

Yes, we booked up some reserve in Q4. So basically if you look at the Q4 only, I think the new vintage has been opened at very high level.

Thank you. We have no further questions at this time. I will now hand back to you for closing remarks.

Well, look, thank you. I mean it's a bit of an awkward situation because literally in a week we're going to be talking about the next 4 years. So I think hopefully you'll find that interesting and it will give you a broader perspective on our journey to date and going forward. And so I look forward to that discussion. I just want to thank you for calling in. And obviously the next meeting is going to be a lot longer and we'll have a lot to talk about. So thank you very much and see you soon.

Thank you. See you next week.

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