Unipol Assicurazioni S.p.A. (UNI) Earnings Call Transcript & Summary

Welcome to the Q&A session on the consolidated preliminary results from the 31st December 2020 Gruppo Unipol. Group CEO, Mr. Carlo Cimbri, will go through a short introduction. Then he will take questions. Mr. Cimbri, floor is yours. Thank you.

Many thanks, and good afternoon, everyone. I'm here together with Dr. Laterza, he's the UnipolSai General Director. Now as usual, you must have read our press release plus the presentation this morning. So without further ado, I do confirm we can now take questions right away. Thank you.

[Operator Instructions] Question #1 is from the Elena, Sanpaulo -- Elena Perini from Intesa Sanpaulo.

I have 3 questions, if it's all possible. Question number one is on the results of UnipolSai. So fourth quarter, we know that the tax rate was very low, so I'd like to know if you have some one-off or extraordinary effects. So I'd like to know if you can give us some color about what happened from the tax point of view. Question number 2, concerning dividends. So do you know when you will be able to pay them? So maybe you need to talk to the regulators. And then as for the Unipol 2019 dividend, do you have any idea, any thoughts on how to, let's say, turn it in favor of shareholders? Read some days ago an article on the fact that the new table should be already on the so-called [ macro lesions ]. So are you working on this? Any color about this?

Thank you so much, Elena. Now as for question number one, so question number one was on the, well, tax benefits or tax effects, let's say. So well, I have to say that you're right. As for Q3, we do have some taxes and levies having to do with the financial year. There are some differences in terms of the 2019 balance and the end of June 2020 balance. It's just some, let's say, calculations differences. Anyway, most important item is the so-called Patent box. Now by Patent box, we mean the use of intangible [indiscernible], for example, software programs or marketing. So as for the 5 years from 2015 to 2019, well, in this case, there's a lower tax rate. So we had never taken this element into account. So this is the first time you see it in the financial statements. Anyway, we signed an agreement with the Italian inland revenue. So of course, you have to see it here. So the value of this item is EUR 50 million. Now as for your second question, the question was on the -- well, dividends. Okay. Let me clarify the situation right now. So this, of course, is for Unipol -- I mean for the group but also for UnipolSai. This is going to be, let's say, put forward at the general meeting. All of this has already been approved by the regulator because maybe you know that in compliance with the regulator's recommendations -- by the way, the very last one, I mean the latest recommendations. Well, we have already talked, see the regulator. So we have specified and described, I mean, the expected results, which is exactly what we have shown you, well, this morning. So we also talked about the solvability. We also talked about the quality of our financial statements. So not only, I mean, the benefits, but all the elements that make our financial statements are very strong, but also very, let's say, cautious, very prudent. So very strong on reservations. And funds -- very prudent, if you will, also on many other items. So again -- once again, we have explained our opinions. There was a debate with the regulator. So what we are showing you today and this is going to be the proposal to be put forward at the next general meeting. Again, all of this has already been taken into account by the regulator. I'm now referring to the dividend distribution proposal, so what we would be distributing this year, 2021. As for the dividends that we have set aside in 2019, well, it will stay there so it is right into our balance sheet. There's a specific item, let's say, reserves on profits. There, you will find, I mean, the amount that we think we have to distribute in 2019, but that was discontinued based on the, well, indications given to us by the regulator in 2019. So at that time -- so that was a little bit more than 1 year ago. Well, those recommendations have turned into a profitable, if you will, prescriptions. I mean it's something mandatory. I'm sure you remember what came from the European Central Bank. But many other prescriptions from IVASS here in Italy or EIOPA concerned in the month of July. Maybe remember that in the month of July, there was a ban so it was impossible to do dividend distribution. Now that prescription, let's say, deadline was end of December. Now the European Central Bank also gave us other prescriptions. So the limit, if I'm not mistaken, was 15%. So this is total amount of 2 years profit that was the maximum threshold or the maximum ceiling for banks. So we have to comply with the specific level of CET1, 20 points CET1, if I'm not mistaken. So on the insurance side, I have to say that there was another recommendation. So we had to talk about this with the surveillance body, and of course, once again, the caution was the keyword. And this is the procedure we have to stick to. You understand that the dividend we're distributing represents exactly 33%, so the total profits of 2 years. So this is basically almost 100% more than what is allowed, I mean, in the banking industry from the European Central Bank. So once again, this is our intent today, which is exactly the intent we had 1 year ago. So for 2019, but also for 2020 financial statements, our balance sheets are very sturdy and robust. As you have seen this morning, we have improved our solvability situation in terms of consolidated group level, but also in terms of UnipolSai. So let's say, we have all the, well, conditions that we have met in order to meet the business plan, which is the accumulated distribution of EUR 600 million over 3 years, we will pay EUR 200 million this year. Well, we're still going through, well, a special situation because all of the obligations from the regulators still depends on COVID-19. Now together with regulators, once again, we will share opinions and we will do this as soon as the regulator confirms that, let's say, the high-risk situation, which is what we have today has gone away. So in a few words, in a nutshell, we will keep into our provisions or funds all the profits we would like to distribute because they are included into the 2019-2021 business plan. So we will do this as soon as the regulator says that conditions -- or general conditions are met, but also the group conditions are met to do so. As for UnipolSai, once again, we talked about our opinion on UnipolSai and we decided to keep the payout unchanged, which is what we approved in the previous financial year. Now this year, I mean, the profit in terms of GAAP are now much better. So this is why we increased from EUR 0.16 to EUR 0.19. So once again, the payout is unchanged. Once again, we have maintained the same payout for UnipolSai versus the previous year. And then the year -- so once again, based on the program for Unipol Gruppo, you have the annual dividend or 33% of cumulated profits over the past 2 years. So if you take into account the so-called [ macro lesion ] table, which is your question number three. Let me give the floor to Matteo for further insights.

And then as for the [ macro lesion ] table, the current situation is as follows. So you know that the Italian Economic Development Ministry has recently came up with a presidential decree for [ macro lesions ], I mean, more than 9%. But basically, there's a final consultation. We also have the so-called State Council and the presidential decree. So once again, this -- for the time being, I mean, well, we don't know exactly when it will be enforced. Now based on our assessments, there are no major changes in terms of our forecast concerning the cost -- I mean the additional cost versus our current payment practices. Maybe the only uncertainty is the fact that there may be the so-called psychological damage, which has to be quantified. But in our opinion, it will not impact our, let's say, payments or reimbursement practices, okay? So this is the only update I can share with you right now.

Next question is from Alberto Villa from Intermonte.

I also have 3 questions. Question number one. Considering, I mean, the recent fluctuations of rates, what do you think about the investment profitability levels in 2021? Do you think there will be some adjustments to the investment policy after the derisking in diversification policies throughout 2020? So have you concluded, I mean, that phase? And if so, or what about your, let's say, management of 2021 in terms of expected profitability, but also asset allocation? Second question is, can I have an update on the fact that the bancassurance's scope is now becoming bigger after acquiring the, I mean, subsidiaries from UBI. Do you have some extra details, extra color about this UBI move because, I mean, some time ago, it was impossible to have some detailed information. Maybe today, you have more insights. So do you know how -- I mean the scope will look like? So would it become bigger? That's for sure. The third question is a possible comment, if at all possible, on some rumors on possible M&As in the banking sector because you are the biggest, I mean, shareholder of a bank, which is often mentioned in the list of the, well, potential M&A banks list. So what is your attitude and what are your expectations concerning possible M&A business, if you will, in the banking industry?

Thank you so much. As for question number one, Alberto, now question number one was on the rate changes and the changes to the asset allocation, AA. You know that starting from the beginning of H2 last year, we have started changing our AA because we want to reduce our exposure to Italian BTPs. And as you said, I would want to diversify towards a component of portfolio, which is basically 50% on govies concerning the core area. So basically, Germany, France and the core countries. The other part has to do with the credit markets, if you will, on the middle top rating level because the aim here is to match the benchmark portfolio based on which we calculated the volatility adjustment. We also have a very small residual component, much smaller than the first one and the second one, having to do with real assets, so basically infrastructures, renewable energies. Also, within the green investment plan, which, as you know, we have started. This is part of our business plan. Now we are in an advanced phase because, as you must have seen, our exposure objective was 40% to Italian govies. So we closed the year with 42% in market values. So please consider that the excellent performance of govies increases the value of the securities. So the value is now much higher than it was when we started blending this operation. So this financial moves help us speed up this operation. As I've said before, we are almost at the end of this operation. We just have 2% points in terms of govies exposure, which is basically nothing. So once again, this is what I can tell you we have completed, I mean, the revision and optimization operation of asset allocation. So this being said, I do expect rates to stay low for quite a long time, well, for 2021 -- throughout 2021. So we want to -- don't expect any change. We do not expect any change either to our asset allocation policy because it goes without saying that it gives the benefit maybe not to the absolute value of solvency, which is what we got at the end of the year, but it is good for the volatility of own funds in terms of market variations that we may bump into or go through in the next months or quarters. Just to give you an example. End 2019, on a group level, our sensitivity to Italian govies, so out of 100 basis points, we had 26 points solvency. Today, we have 20 solvency points. So this means we have reduced our exposure to volatility by 30%. So this is the logical move based on this. So we carried out the variation of the asset allocation. I think we have reached our target levels. As for your second question, so the bancassurance, so the UBI operation. We don't have details about this operation, not yet, because this phase -- I mean the acquisition will be done during 2021. So before doing this, I think that at the end of the month of February, if I'm not mistaken, there will be the real migration operation acquired by BPER, so the customers -- I mean that BPER has just acquired from UBI. So only later, in the second stage, we will define what to do with Banca Intesa. Intesa has purchased, I mean, all of the joint ventures, so 100% of joint ventures that UBI had with Aviva and Cattolica. So as you know, we will get 1/3 of their portfolio, as you know, because basically we will take the portfolio having to do with those customers who will migrate onto the BPER platform. Now in general -- but once again, this is very rough and refined data. So we will get basically EUR 10 billion insurance provisions or reserves for the Life business. And as for the Life business, once again, they are working, I mean, on the final results. But 2020 is a very unique year. So back to 2019, the business or the collection was included between EUR 1.3 billion and EUR 1.5 billion for the so-called ordinary damages. Of course, I'm still talking about the Life business. I don't have the real figures concerning the Non-Life business, but this is maybe not really interesting because as for the BPER customers, I mean, we will apply our own strategy. So anyway, if you consider what the UBI was doing, I mean, the figure here is quite small. In our opinion, the key major interesting potential is on the Non-Life business. But of course, in that case, we need to have a new product system, if you will, to do so. And we think we do have this kind of possibility or skills. So the potential still has to be assessed. This is sort of building something from scratch, but we will improve or apply our strategies, products and procedures. Once again, in a preliminary way, I would say that this operation will have an impact, which is around 5 solvency points. So this is what will happen in terms of consolidated solvency. So we're talking about group level solvency, consolidated solvency. So once again, 5 solvency points. Further last question was on possible M&A in the banking business. Well, I keep saying that -- so I keep saying -- by the way, this is to connect -- to echo the previous question. So BPER is about ready to -- almost ready to migrate the customers they're getting from UBI. This is not at the end of a pathway. Well, this is the beginning because, of course, after the migration, we will start with the real business, which is the integration of this new world into the BPER world. Of course, I'm talking about the employees, I'm talking about the staff that will be included into the BPER world together with customers that will be taken care off by BPER. So this bank, BPER, is now busy. So of course, they are working in this kind of discontinuity situation, an extraordinary one-off situation. And of course, this will characterize all of the work by BPER throughout the entire financial year. And do not forget that 2021 won't be, again, an ordinary year. And well, even more so, I mean, in the banking business -- even more in the banking business than in the insurance business because of the cost of the epidemic. Now I know that the vaccination campaign will speed up. But of course, I'm sure -- well, we know that 2021 will be characterized by, let's say, nonordinary or extraordinary situations, which is, by the way, exactly what we told you at the end of last year and all the, I would say, cautious attitude that we have implemented onto the 2020 financial statements because we don't think we will go back to a new normal -- or a new economic normal in 2021. So BPER plan is really very clear. Among other things, by the way, BPER also has a final deadline. So the current Board of Directors is about, I mean, to -- well, expire, I mean, in the month of April. So in 2 months, they will have new directors in the Board. So of course, it is not in these months that BPER can carry out an extraordinary operation. It is not at the right time. Absolutely not. Well, we also think that, that's a consolidation of the banking business. Now this consolidation in the banking business is now slower, if you will, than the insurance business. So again, the banking business has to catch up. Of course, there will be consolidation, so M&As, and there are different options on the market today. In my opinion, you have to take your time and you also have to consider the conditions of every single banking group. So this is what's happening to BPER today. Now as shareholders, we are still, let's say, listening to what's happening on the market, looking at the market in order to create value and something that does good to our investments. So we will do what will make us stronger, deeply rooted with major economies of scale. So of course, we are looking at the window. And then we are not only a financial partner, but we also are an industrial partner. So Unipol is taking note or ideas or proposals. So the management of BPER may want to share ideas with us. And of course, we would need to assess how good that operation is in terms of financial business, but also in terms of the industrial business because every single operation may bring about this kind of advantage to Unipol Group. Once again, BPER, together with Banca Popolare di Sondrio is one of our partners in the bancassurance business. So we may want to change the BPER scope, maybe a merger with BPER. So it is up to us to take into account to assess which kind of returns, so how interesting these opinions are with a different bancassurance channel. Now considering our size, you know that we are one of the leading groups in Italy in terms of the banking business, so we are shareholders in the banking business. So of course, we need to, well, distribute or sell our products. Well, I guess this is one of the highlights and key points of the Unipol's industrial strategy. Once again, we are looking around us. We are willing to accept value-creating opportunities, something that also has a major positive impact on the industrial structure of Unipol Gruppo.

Just as a follow-up on the first question. Matteo, can you tell us about the investments on Life and Non-Life business?

In terms of rates, I mean, now. On the Non-Life, the reinvestment rates are around 50 bps. So you can take this part of credit. In some cases, you also obtain some liquidity prices or premiums. Then we also have a small part, as I said before, having to do with real assets and this gives you the opportunity to have some enhancements on 1 European core component. If you consider the ratio, I mean, 5 -- 4, 5 years, well, you are negative in that case. As for the Life business, we are close to 100 basis points. So I'm sure you understand that today, on the traditional Life policies world, our strategy is to have cash flow matching, which is actually a real matching so that we have to keep the reinvestment flows at a minimum because, of course, we don't want to reduce the profitability level of the segregated accounts.

The next question is from the conference in English from Peter Eliot of Kepler Cheuvreux.

So I have a couple of questions on solvency, first of all. And I was wondering if you could explain why the required capital has increased so much across the fourth quarter? So for Unipol side, it went from 3.2 to 3.5 across Q4. I was hoping you can explain that. And then, I mean, obviously, you've got a very high solvency ratio at the moment. Now is the time to be prudent. But just looking into the longer term, I'm wondering if you can sort of give hints as to how that strong solvency position could be used? Does it offer you any optionality? And then on the sensitivity, you very kindly gave the sensitivity of Unipol Gruppo to BTP spreads. Could you also give the sensitivity of UnipolSai? And then if I could just ask 2 questions on the underwriting results. If I look at the expense ratio in Q4, it looks like it was about 6 percentage points higher than usual. I know there's normally some seasonality there, but it seems quite high. I was just wondering if you could explain what happened. And I was wondering if you could also say what the reserve releases were.

Thank you for questions. Now as for, well, the reasons why, I mean, the solvency capital requirement, the SCR, has gone up in Q4, as you said, well, this is due to the fact that in Q4 there was, on average, an increase of the spreads on level on our investments. So on our securities, or let's say, the packages of our govies, okay? So that's the reason why. Today, the spread has dropped a lot so in the month of January, beginning of February, thanks to the great expectations on the new government. But as you know, Q4 2020 was characterized by the sort of the beginning of the instability of our government that led to Prime Minister Conte leaving the government, so the spread change versus the previous view. But also on the corporate securities, so the spread increase on corporate products generated an increase of the calculation of the spread level on the Italian securities. So this is basically the reason why SCR level went up in Q4. Let's say, market risk in a nutshell. Now on a long-term basis, how can we use this excess of capital that we have? Well, I have to say that, unfortunately, the solvency metrics are very volatile. Well, by the way, as Mr. Villa said before, we have adopted some vestment policies or, let's say, derisking policies aiming at reducing the volatility of solvency. But you have to remember that solvency, once again, is a specific metric. And it is absolutely volatile, much more volatile, than other metrics in order to calculate, I mean -- well, to calculate the same levels, but in the banking industry. So this means that we have a buffer -- capital buffers that we have to comply with, which are much higher just because the volatility is higher. So once again, it goes without saying that if A is high, B is also high. So let's say we don't do any long-term plan. And if you do these kind of plans in a very uncertain phase, I mean, with the pandemic, with the -- well, Italian, but also global economic situation, if you do plans now, it wouldn't be a great idea. So we do not plan how to use the excess capital for some pre-sensed or predefined aim. No, we don't do so. We have this very high capital level because if you have some opportunities, well, we know we have the money to take advantage of those opportunities. As you've seen before, I mean, there was the BPER opportunity. So we supported BPER so that we can widen our scope or even our bancassurance portfolio and our insurance product and distribution network. I think that this SCR level is a consequence of solvency. I mean we just don't want to grow it because we have a specific objective. We don't have any capital redistribution or capital payments objective. Well, some people may have some doubts because they say, well, you have such a high level of solvency, so this is something that you may want to do. No way. The regulators, as you know, does not even include to do this in such a specific phase, but we don't even ask the question because we really want to have a robust solvency level because, once again, this allows us to take advantage of possible strategic opportunities. As for Unipol Group sensitivity level. Okay. Matteo, please? UnipolSai, sorry. Not the group. UnipolSai.

Well, UnipolSai has -- I mean in terms of Italian govies, as I said before, when I talked about the group, so we had 26 points. Now we have 20. Well, UnipolSai had 37 points end 2019, and well, lending figure is 23. So also on -- UnipolSai has a major reduction in terms of the govies exposure. You also have some short technical questions, one on the expense ratio of the fourth quarter that was going up. So higher versus a seasonal trend. So you're right, there's a seasonality effect in the last quarter, in quarter 4. Now this year, this is a little stronger because the expense ratio is now calculated on -- not onto the gross premium. But -- so on this kind of premiums, we have the impact of the reserve -- reservation that we have in order to pay the so-called un mese per te. So we pay 1 month worth of cover back to our customers. So people have used the vouchers and this is why this provision was EUR 100 million in September. It is now EUR 150 million. And of course, this reduces gross premium and it increases expense ratio, okay? So this is, in a nutshell, the technical explanation of the reason of the higher level of the expense ratio. There was also a question on how to release or when to release these provisions. Now this year, this was basically in line with last year. The impact is, let's say, 7% of the premiums. So we have EUR 550 million in total, of which EUR 180 million on Motor and the rest of the non-Motor business.