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

This is the Chorus call operator. Welcome to the Q&A question. We will be talking about Unipol and UnipolSai data and the CEO, Carlo Cimbri, will go through a short introduction, and then he will be available to pick up and answer your question. Dr. Cimbri, floor is yours. Thank you.

Thank you so much, and good morning, everyone. Now as usual, well, I have basically nothing to add to the contents of what we have published, so the press releases we have released this morning. So this is our habit. I'm here with the General Director, Mr. Laterza. So once again, we are available, so do not hesitate to send us or to ask us questions. Thank you.

[Operator Instructions] Question number one is from Elena Perini from Intesa Sanpaolo from the Italian conference call.

Carlo and Matteo, I have 3 questions, if at all, possible. Question number one. On the trend, I can see in the Non-Life. So in the second quarter, I saw an increase of the CR, so the combined ratio. So I just wanted to have some more light and color on the impact that you expect on the second half of the year in terms of the evolution of the motor business of frequency or rates, but also the impact of the -- well, of what happened in the past months? Now as for the life business, this is my second question. I have to say that in the second Q, there's been a very positive, I mean, contribution in terms of capital gains. So my question is, do you still have some components that you have to go or maybe to give back to the insured? And what can we expect? I mean, which kind of trends can we expect? I mean, a sustainable trend for the second half of the year? And then the third and last question is some color on the net financial position of the holding company at the end of the H1, which, in my opinion, is also -- well, a newer presentation. I mean, just some extra details on the net financial position. And again, the trends that you are expecting.

Thank you so much for your questions. Now let me answer your first question that has to do with the evolution of the combined ratio in the first H 2021. Now of course, we also have to take into account, if you will, the entire H1 context then, in particular, Q2 versus H1 2020. That, of course, was deeply characterized by very restrictive lockdown situations. I mean, much more, let's say, restrictive than the lockdowns we have experienced in H1 2021. Now all of this happens in a context in which the average premium kept going down. And this is also due to the un mese per te, 1 month for you campaign that we have closed some months ago in April. But let's say that it continues until the end of the year because -- now we offer the possibility to all of those customers to have and down this year to use the voucher, and they can do this also in the, let's say, second renewal. So once again, the context, as you know very well, is characterized by rates and frequencies, which are higher than H1 2020. This is due to the, if you will, lower intensity of the lockdown measures between the 2 periods. Our average premium is going down, and then the average cost of what we manage is going up. We have to say that the combined ratio and the second Q well mirrors the actual situation of the first half of 2021. Now what we do on a daily basis is the monitoring of the motorway traffic, but also road traffic in general because we have 4 million black boxes that we have installed on the cars of our customers. And what we see today is that traffic is exactly back to the pre-pandemic level. So -- well, basically, 2019 figures. Now all of this hasn't yet brought about the, let's say, increase of the frequencies. But in the second half of the year, this may happen because once again, we are right in the middle of quite a solid intense economic recovery context. So this may happen. Now considering all of these factors, well, we need to really think or imagine the possible future dynamics of the pricing of our products because, of course, what we want to do is to sort of not been surprised by the possible increase of frequencies in the second part of the year. Now as for the Non-MV business. Now in this case, the situation is a little bit less intense than the motor vehicle. But if you consider the health or accidents, well, H1 2020 was an exceptional one. I mean, in positive terms because -- once again, because of restrictions of mobility of citizens, I mean, there's been a major drop of frequencies. Now H1 '21 is basically a sort of a comeback to a normal situation. Well, maybe normal is a little bit too much. We do have some mobility restrictions also in 2021, but that was much less intense than before. So in terms of the ratio, I mean, considering the frequency and the premium, let's say that the situation is much closer to the average values in terms of accidents or claims in these 2 sectors. So in this sector, I don't think there will be major changes in H2 '21.

First of all, thank you for your questions, sir. Okay. Just some more insights to add to what Matteo has just told you. Now there's a metro trend starting now, and this will be a long-term trend. So what we see today is that, as Matteo said before, traffic is back to the pre-pandemic level or let's say, the same data we have in 2019. But we have far less claims than the 2019. So I have to say that as for the rate or the frequency, it's still very low now. We have plenty of unanswered questions. I mean, will frequency go back to the 2019 frequency? Or how long will it take? We don't know, but in terms of claims, the situation is still positive. And once again, we are not even close to what happened in 2019. Then it goes without saying that if you ask the question, okay, what about the drop of price in the market in the last 5 years? Well, the drop, if I'm not mistaken, was 35%, so 35% drop of the average premium. So if you consider this, it goes without saying, once again, that the trends that we will have in the future. Well, of course, prices have to be adjusted once again. So there's been a unique extraordinary phase. So prices went down in an extraordinary way. So we also have reduced the prices by 7%, 8% last year. But of course, prices are meant to be realigned once again. So as to a strike, if you will, the right technical balance in those cases where frequency should go up. Now in phases or times like this, basically, this is what we did last year as well. We have to be very cautious in terms of provisioning. So as you can see here, we are not using reserves or provisions in H1 '21. Maybe just some, having to do with both. We have recovered. But as you can see, once again, we have not touched the provisions, which is exactly what we did last year. So the combined ratio is just changing very -- in a very small part, just to have some so-called the recovery percent that we get from last year. We also would like to be as cautious also for the future because we want to have a strong, robust margins. If at all necessary, we would like to use this to keep the benefits or the profits of the group on a high level. And of course, we will be talking about this during the presentation of the next business plan that will take place spring 2022. Let me pick another question. There was a point on natural events. Now in the first H '21, we have had an impact that was a little bit smaller, lower than H1 2020, so a little bit less than EUR 70 million instead of EUR 80 million, which is what we got in H1 '20. After the closing of the first H, we had some peaks due to hail storms. Now it's a little bit too early to make a total assessment of the impact of hail storms. So we are right at the beginning of the natural events season. So considering these events and based on our forecast, we have basically the same impact in terms of natural events that we had in 2020. No major changes. But once again, as I said before, we are here in Italy right at the very beginning of the, let's say, well, stronger or extreme event season. So it would be too early to talk about this now. As for the Life business, we have received a small contribution from capital gain. Maybe remember that in the previous H, we had a negative contribution because we have realized capital losses. This is due to a big change of the asset allocation, which is what we had implemented. And we did that in order to improve and enhance the risk profile and even the capital profile of our group. And I have to say that this had definitely a positive impact as a whole on our solvability. Now in H1 '21, this kind of negative elements on the Life business hasn't taken place as a consequence. So we went back to an ordinary normal profitability level. So as we said, well, sometimes in the past, the general life business is between EUR 150 million to EUR 200 million a year. I'm now talking about the financial components of the Life business, of course. And I have to say that if the total yield of financial assets is EUR 100 million, well, what we would hold, I mean, for the shareholders is 90 basis points, and the rest is given to insured. Now this is what happens in a normal situation, which is the first half 2021. If I'm not mistaken, you can see this in one of our slides. This trend is a sustainable one. I mean, if we don't have extraordinary events, if we don't have, let's say, positive or negative realizations from the financial point of view, this is the structure of the Life business. And I have to say that so far, we are 100% aligned or complying with this kind of setup. Now there was another question on the net financial position in FB, which is what you can see Slide 20 of our presentation. EUR 1.2 billion in net financial position. This is the current situation of the group. I have to say, we also have -- well, we maintain a very strong financial flexibility. And by this, I mean that we have EUR 2.8 billion of debt, of which EUR 2.5 billion on the market. We also have liquid assets EUR 1.6 billion. That, of course, represents the financial flexibility leverage that gives us the opportunity to be, let's say, ready and prepared to any strategic option on the market.

Next question is from the conference in English from Peter Eliot from Kepler Cheuvreux.

3 questions, please. The first one, UnipolSai's solo solvency ratio was up very strongly. I mean all the solvency ratios were up, but the solo ratio was up 18 points across Q2. I was wondering if you could just explain the moving parts of that. What contributed to those 18 points? That would be the first question. The second question is maybe just a follow-up on the claims frequency. I was wondering if from your data, you can tell that why the frequency has not come back as much as the traffic? Is that to do with the driving patterns, maybe sort of less in rush hour? Any insights you could give into that would be very useful. And then finally, I was wondering if you could just comment on the momentum at UnipolReC and outlook. It looks like the recovery rate is -- yes, I mean, not quite as good as it used to be. So just wondering on the outlook there.

Thank you so much. Now as for solvency ratio as, I have to say that the increase of the solvency ratio is basically due -- as I said before, we made a sort of a change to the asset allocation last year. So that change has given us a positive contribution. So it has improved the solvency ratio. So I'm sure you remember that we have reduced the exposure to Italian [ govies ]. This is what we have done during the 3 months. So in this case, I'm making a comparison versus March 31, 2021. Italian securities spread went up. I mean, Italy versus Germany, I mean. So -- well, that was not a significant increase, but it was an increase anyway. So the negative impact was less than proportional versus what it could have been in an ordinary normal context. We also have the benefits and the profits. We have adjusted the Life portfolio because every single trimester, we have, for example, high guarantees coming to a deadline. So the value in-force is negative for those products. While we produce, I mean, we make new products with no yield guarantees, only capital guarantee at the very end. So I mean, the final deadline, so on maturity. This means that every single trimester, so every quarter, we have a 5% improvement to solvency. Thanks to what I just said. There's also a negative element, which is the reimbursement of subordinated loans, so EUR 380 million. We knew about this because, of course, we had the maturity to comply with. I have already talked about asset allocation. In terms of SCR, there's been a reduction of market risk, which is the consequence of many investment policies that we have implemented. So overall, this has led to an improvement of solvency ratio. Now of course, this is something we could forecast. Thanks to all the actions we have implemented now. In terms of market, the equity component, but also the credit component, you know that we have quite a large exposure that have very well performed in the quarter. So this has helped us counteract the negative effect due to the increasing spread levels. So there was also another question. Yes, a follow-up question on the frequency. So once again, you're right. I mean, traffic is back to pre-pandemic level of 2019, but frequency is still lower. Well, first of all, let me tell you that, I don't think there's just one single reason. I think there are many different elements that so to -- all together have generated this situation. Now as for July, we have minus 16% claims versus July 2019. So once again, minus 16% versus the figure we had 2 years ago. So the gap is a big one. So let me try and explain this, why we think this is happening. Let's say that -- I mean, the life of people, life of citizens is not yet back to normal. We can't compare the current situation with the situation we have in 2019. We have so many companies, organizations working, I mean, where employees are working from home. So as you said, the density of traffic, especially in the large metropolitan areas is different. We don't have the high concentration. So people, let's say, travel in the same way. But at the same time, it's a different driving habit. This is a factor that, of course, reduces, I mean, the frequency of accidents and as a consequence with the number of claims. You also have to consider that technology is now different. I mean, if you make a comparison between technology today and technology 2 years ago, well, of course, we made a step forward. And so this is sort of a structural behavioral reason. So as I said before, there is not just one single factor or factor, which is responsible for this job. Now we're very cautious and very prudent. So what we see today is not structural. I mean, we see something like minus 15%, minus 16%, even minus 20%. So I think we have to expect that the realignment of the frequency back to the previous values. It will happen in our opinion. So of course, so we keep our eyes open. And we pay attention to our pricing policies because what we want is to sort of considering, I mean, the changes with possible tariff or price increases. As for UnipolReC, I have to say that, in the first 6 months of the year, the recovery rate was, if I'm not mistaken, 27%. Last year, it was 30%. So I'm really talking about values, which are very close to what we already had 1 year ago. It very much depends on the files, taking into account the practices people implement. So we used to recover on our portfolio only. So portfolio of Unipol Banca. But then from BPER, we have purchased EUR 1 billion that we paid only [ EUR 0.08 ]. So they are different credits or different loans. They are paid a little bit less than what we used to pay before. And in this case, this has an impact on the average percent recovery rates. In the past, we have many products covered with a guarantee. So once again, it's a blend. It's a mix of factors. But once again, we're very happy and satisfied in terms of recovery percent rates. I have to say the ReC in the first months of the year has closed its debt position. So I'm sure you remember that ReC had a very special structure. So there was equity and debt. So we have reimbursed the debt. We now have a little bit less than EUR 400 million old assets that we have to receive out of total mass of around EUR 3 billion. So EUR 2.9 billion exactly. So we keep being so positive on ReC. And once again, it is, let's say, up to the task. So what we decided, I mean, to create it, let's say, that we also decided not to sell the nonperforming positions. Don't forget the nonperforming positions are now priced between 10%, 15%, 20%, while we recover on average, 27% in this month and then in the 2 previous years, a 30%. So on the ReC, we are very satisfied.

Next question is from Andrea Lisi from Equita.

Now my first question is on, again, the CR or combined ratio. So considering that, as you said, the claim frequency is still lower than the pre-COVID level. So implicitly, the second -- in the second quarter, the combined ratio is on why the high level? So there's a pricing pressure. So can you give us some color on this situation, please? The second question is on the tax benefit that we saw for Unipol and UnipolSai. Can you tell us a little bit more about this? Because I guess I have missed some information. What about the, let's say, situation with [ leccare este ]? So can you confirm the figures H1? And how are this figures broken down in the various business units?

Okay. I'll try and be as, let's say, precise and accurate as possible in terms of explaining the combined ratio. Now average premium, overall has gone down 6% to 6.5% considering individual portfolio, but also the float portfolio. So if you consider all of the other factors, the impact of this, of course, has to be negative on the combined ratio. Considering all what we said before, so I'm not repeating the same concepts. Average cost of what we manage has gone up. And then the average cost, I mean, of what we have paid in the past year went up because of many factors. Once again, prices are going up. Our manpower costs are also going up. So this means that the increase was around 4%, maybe 5% year-on-year. Now of course, this has a negative impact on the MV combined ratio. Now when it comes to the frequency, I have to say, right, once again, the frequency is lower than 2019, as Carlo said before. Now if you compare this with 2020 with a full lockdown semester, of course, the situation is totally different. So also from this point of view, if you make a comparison with the first half 2020, of course, the combined ratio is worse than what it was 12 months ago. I think these are the 3 key elements you have to take into account if you want to have a general assessment on the MV combined ratio situation. Don't forget, as Carlo said before, that in terms of provision release policy as well, in this first half of the year, we didn't do so. Well, the only thing is the so-called the recovery that systematically, but also physiologically, we do have -- on the management part of the policy we have to pay the MV claims. As for the Non-MV business, I have to say that what happened here in the first half of the year. On some businesses, for example, accidents or health care, there's been an extraordinary reduction of cases because, once again, most people were at home, so of course, so there's a reduction of claims or accidents, which is something that, of course, didn't happen in the first half of this year. Now as for the tax or fiscal component, and this was one of your 3 questions. I can tell you that based on what is included into the so-called balance sheet law approved in 2021, we have realigned the difference or the gap we had versus the goodwill value that you could see in the balance sheet. So once again, there was a gap versus the so-called the tax or fiscal balance sheet. The difference of the gap was EUR 283 million. And the law says that we can pay a lump sum 3% tax. So in this case, we have paid EUR 9 million that you can find in the balance sheet. So thanks to this, you can recover the fiscal value of the delta. So the gap between the ordinary balance sheet and the fiscal balance sheet at EUR 283 million. In terms of taxes, the value is EUR 94 million that we will receive in terms of paying less taxes in the next year. So once again, the gap between EUR 94 million, which is the fiscal benefit, if you will, which is something, once again, you can find in the balance sheet, and we will receive it in terms of paying less taxes in the next year. So on the other side, we have a lump sum, so a one-off amount, EUR 9 million. So the total is between EUR 83 million and EUR 85 million, if I'm not mistaken. And again, this is the so-called item that you will find exactly into the balance sheet. There was another question on the leccare este agreements. And now I do confirm. So once again, also this amount is something you could find in the balance sheet, EUR 22 million in terms of Non-Life, EUR 7 million Life and EUR 12 million in the real estate because, I mean, there was an agreement. So there were some real estate companies involved in the former, if you will, Fondiaria Group. So they managed, I mean, to receive the part that they had to receive. The total is EUR 43 million, which is the total amount of this transaction.

Next question is from Sudarshan Bhutra from Societe Generale.