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

[Interpreted] Ladies and gentlemen, good afternoon. This is the Chorus Call operator. Welcome to the Q&A session on the consolidated preliminary results of 2021 Gruppo Unipol. Group CEO is Mr. Carlo Cimbri. After a short introduction, you can ask questions. Sir, the floor is yours.

[Interpreted] Good afternoon, everyone. I'm here today with my colleague, Mr. Laterza. I have a short introduction, a very short one before giving the floor to you for your questions. And by the way, apart from the presentation, it has already been commented and described this morning. I'm here just to tell you that this is the last year of our mission at both 2019-2021 plan. You can find here some of the final details of the plan. But again, that, as I said before, closes or ends with these financial statements. Of course, you can have more details and insight, of course, during the presentation of the next business plan. So the next BP now as usual for our group, it will take place in the month of May. So I have to say the figures are really self-explanatory. I mean, as you can see, we have reached cumulative profits are higher than the level we had forecasted 3 years ago in a market context that, of course, in the past 3 years was definitely very much different than the scenario we could imagine 3 years ago. So once again, it goes without saying that in the past 2 years, it has been highly strongly impacted by the COVID-19 pandemic. So there's been a temporary stop or even lockdown by the authorities. We have compliance anyway with the commitments we have with the market in terms of remuneration of the capital. I have to say that we have -- in terms of UnipolSai, we have exceeded abundantly the total dividends once again that we forecasted to distribute. And this means that our shares are now at very high, well, I should say, between the highest levels of remuneration of the market these days. Now we're doing this by keeping solvency level, which is absolutely above the range once again that we said a few years ago. And again, in terms of Unipol, but also UnipolSai, this is the fruit of the policies, choices, asset allocation, decisions and, of course, the results that we've been able to reach. So once again, these results are much bigger than what before, but actually much higher than our targets. So we thought, of course, we want to be in compliance with the good management principles. So we want to adopt very conservative policies in terms of the last quarter of this financial statement. So in particular, I'm talking about the provisions item. So we have increased significantly the provisioning buffer that then translates into the capital considering the Solvency II metrics. So basically, we have reached EUR 2 billion capital or own funds that depend directly on the provisioning of delta. Now in our opinion, this is another key driver, if you will, to be able in the next plan and whatever scenario we have for the market. Once again, we will be able to have high margins. And again, this means we will reach the targets that we will share with you. And hopefully, well, those objectives will be highly appreciated by the market. So with this being said and because, of course, we will be confident about the plan and in the future in the month of May meeting. The time has come for possible questions on the results of 2021.

[Interpreted] [Operator Instructions] The first question is from Elena Perini from Intesa Sanpaolo.

[Interpreted] I have some questions. The first one is on your solvency ratio that has improved between September and December [indiscernible]. So partly explained, this was due to a higher, let's say, caution in terms of provisions. Have there been other component or factors in the past quarter that have translated into a benefit? Because if I'm not mistaken, the dates are going back to September 2021. They don't yet include the pro rata dividend. I also have questions on the non-life business. Now as for the motor business, do you think we have some signs of recovery in terms of average premium? Again, as for the current year so [ 21'/'22 ], do you think we can have once again some recovery or, let's say, a plus sign also on the motor business, even if I know the non-motor business will probably grow more intensive premium. At the same time, I'd like to ask you the breakdown of the use of release of provisions. I know that most of this has already been done in the last 3 quarters of the year.

[Interpreted] Okay, Elena. Thank you for the questions. Now as for the, well, increase of the solvency position, in the last quarter because I think we already had the 208 at the 30th of September. So I have to say that this is basically due to the following reasons. I need to go back to our reserves or, if you will, provisions. If you consider the capital debt due to the excess provision, this is what I mentioned before. So EUR 2 billion, once again, to see the delta between the, let's say, best estimate on the one side, we do and the balance sheet data as that is not because of [indiscernible]. Now as for the best estimate, I mean throughout the entire year, we calculated on the 31st of December of the previous year. And of course, by step, we will slightly adjust all of the claims paid throughout the year. Then if you remove, of course, the [ Casa ] provision having to do, I mean there is a correlation with the claims paid. So only at the end of the year, so at the 31st of December, we recalculate the best estimate. So in this case, we have to take into account a media actuarial valuations, and we also have to implement all the models that you are familiar with. So we have focus on legs and many other models. So if you consider the projections, I mean, the forecast of the models that we calculate, taking into account all the new movements, the so-called degenerations, not only what we pay throughout the year are also the projections or forecast for us to establish the ultimate cost. So the calculation of the provision based on it is done by the actuarial function and it's a highlight as excess of capital versus what reduced the calculator throughout the year starting from the 2020 provisions and then removing the claims paid in 2021. So there is an increase in delta or gap between [indiscernible] the final best estimate calculation on the other side, let's say, the financial statements provisions. So we have 2 factors. Best estimate is lower than the one we calculated during the year. But on the other side, if you will, we have a bigger delta coming from our financial statements. So there was also a question on the use or release provisions. And this is due on September 30. I don't remember, if we had this detail on the last quarter in the presentation. But anyway, you can see here EUR 18 million. So there's some little changes, if you will. So as for the total provisions, I have here the absolute values for the year. So we have EUR 518 million in 2019, EUR 550 million in 2020 and EUR 336 million in '21. So once again, this was the total release provisions in terms of percent rate of 7.3%, 7% and 4.3%, respectively. Now as for the motor business trends. So the floor goes to Matteo.

[Interpreted] Now as for the market, I have to say that this market is still highly competitive. I mean, there is a strong, say, sensitivity towards prices. And of course, we have to consider this spectrum. Now as for our own, let's say, internal dynamics, we closed this year, as you can see in the presentation, with a reduction of average premium which is around 3%. But the average premium started sort of a stabilization phase starting from the past summer because of tariff adjustment that we have started commenting, I should say, in the second half 2021. And we did so, considering the 2023 market, I mean, grow the traffic. It's basically back to the 2019 pre-COVID levels. As a consequence of what we expect, there is increase in frequency, which is a consequence of this coming back to pre-COVID. As for inflation, yes, I know there's inflation. Maybe in Europe, this is less impacting than many other geographies around the world. But anyway, this is one of the focus points. We have to take into account, if you consider the pricing and then the cost of maintenance or even spare parts. Now this means we have to adjust our tariffs or once again premium, which is in our opinion, unavoidable and impossible to be delayed so much so that we started, I mean, this policy, if you will, in the second half last year. Now how can this reflect into the increase of the average premium in 2022? Well, it depends on the churn rates we have on the portfolio. As a consequence, they depend on the competitiveness level of the market and many other dynamics that, of course, cannot be foreseen, well, at least in detail. Anyway, as we said in the past, this is our strategy. So we have to revise our tariff mechanisms in order to consider factors or dynamics, which, in our opinion, are quite clear.

[Interpreted] Next question is from the conference in English from Sudarshan Bhutra from Societe Generale.

My question is with regard -- I have a few questions. First one, with regards to the Motor TPL and reserve strengthening. So if I see on Slide #11, there is a EUR 49 million reserve strengthening in the Motor TPL business in the fourth quarter. So I mean what does this relate to. And is this just a routine prudence? Or is there anything more specific to that? And why I'm asking this is because the table on the left-hand side shows deteriorating claims transfer. So does this reserve strengthening have anything to do with that? My second question is on the Life earnings. So your Life earnings have been much better than expected and much and slightly higher than your run rate guidance. So what is the reason for this speed? And if you could provide some more color on that? Is this driven by any one-offs? That's my second question. And the third question, if I may, is on the combined ratio. So I was just doing the back of the envelope calculation on your fourth quarter combined ratio, which comes to around 105% just for the fourth quarter stand-alone. And if I assumed that you did a normalized reserve release in the fourth quarter, the sort of implied combined ratio will be below 90%. So I mean, which is pretty solid. So can you just tell me what is driving this strong combined ratio despite the higher large losses in the fourth quarter?

[Interpreted] Thank you for the question. For the first question, let me tell you that I basically have to repeat what I said before, and I'm using, let's say, different words. So because you were mentioning Slide #11, so 49%. This is on Motor provisions. And then you have the savings. I mean, this is basically the percent rate that we can say versus, I mean, the payment of claims. So we have -- this is basically what we say considering our provisions. So this is absolute value. So in terms of -- we have saved a 49% and let me check, this means EUR 660 million is on the Motor TPL, so throughout the entire year, of course. And now out of this, what we have in the statement is EUR 78 million. All the other, let's say, the rest of the amount has been left into the provisions. And actually, they have increased. I mean, the provisioning and once again, we have reassessed all of the provisions of the residual claims. We have used for the so-called reopenings have some other small details. Once again, EUR 664 million. This is the envelope of the amount of money we have saved on the claims paid. What you can find in the statement is EUR 78 million and 69% already again, talking about the TPL, we have EUR 500 million of saved on claims paid, of which EUR 80 million in the statement. So if you consider that, I mean, the Motor TPL and the general TPL, which are the 2 most important provision items, so out of EUR 1.16 billion savings, what you can find in the statement is EUR 158 million. Once again, this is exclusively due to caution. I mean, we want to strengthen once again our own, let's say, well, assets in terms of provisions. This is what we want to strengthen and to increase. Once again, we think this is a major, very important strategic level. If you will really want to face in total peace of mind and with a high level of strength the next business plan. And as I've said before, any market scenario we may encounter, the market may become more competitive. It may become less competitive. It doesn't matter because we have a high level of provisions. This means that we will definitely hit the target we set. I also have to say that if you consider, if you will, a different logic, I mean consideration the financial statements, we have EUR 2.3 billion cumulative profits, so much higher than the plan. We think that this is a wise thing. So we don't want to increase, I mean, these profits, let's say, too much because they are already exceeding the targets. So if you remember, this is what I told you when commenting the first and 9 months of the year. So they -- at that time, we had the fourth quarter, the last 1 of the year would have been anyway and quarter strongly conditioned by, if you will, expectations or forecasts for the future. So it's just a thought -- this is due to just caution. I mean, we don't have any, let's say, difficulties or hardships or we don't foresee any specific phenomenon something that may happen in the future and not at all. So once again, we want to be sustainable. So we want to have these results for a long time in the future, which is, by the way, what we have always been. Once again, we plan on a long-term basis. And by the way, we are very happy because we have compliance with the market targets. But once again, for you, this is no news because if I remember, in the last 3 business plans of this company, we have always complied with or even exceeded, I mean, the result targets, the solvability targets. The same happens also in terms of paying out dividends. Now as for the CR, so the combined ratio. After releasing the provisions, and this is by the way, your third question, so how would the CR be with the release of provisions where they see some mathematical exercise. But in my opinion, it really translated to any value because the question would be, which kind of provisions. I mean this is included into the financial policies. Otherwise, I mean, this calculation would be really theoretical, and it should be done with the numbers I've given you before. So for example, on the Motor TPL for the entire year, we have left the side something like EUR 664 million. This is what we saved. The EUR 78 million is what we have paid. So if we have translated all of this money into the financial statements, well, of course, I don't have any calculator here, but it's quite easy to really understand, I mean, what the combined ratio would have been. But once again, in my opinion, it has basically no value. Let me give the floor to Matteo for the Life question.

Now Life question, yes, it took place last year because in 2021, there had been some changes of the AA or Arca Assicurazioni. So again, we have also sold the 1 component of the share of investments that we made the capital losses, -- what is normal regular year. So under this perspective, the so-called technical or industrial profits, the, for example, mortality or even the provision is from or against expenditures. Now in terms of industrial, in that case, we have EUR 130 million, EUR 140 million. So in terms of turnover, you also have to add to what you see Page 14 of our presentation, 92 bps or basis points, which is part of financial profit that stays into the pocket of the company. If you apply this to EUR 35 billion of provisions, so well, you have a total of EUR 330 million, which is the so-called financial part. If you do the [ sums of plus ] of EUR 130 million, you have the Life top line. You have to remove EUR 100 million of fees, which is what we pay to distributors. And you also have to remove or to subtract between EUR 130 million and EUR 140 million for structural costs. And once again, the range is all the same. I mean between EUR 200 million and EUR 250 million, which is our, let's say, cash flow, if you will, or we can also call it EBIT, E-B-I-T of the Life business, and once again, to see the normal ordinary level. Now you may have some deals and some special deals, for example, last year, but carry down some changes in the asset allocation. So either positively or negatively just like last year gave us the possibility to have, I mean, a smaller profit where this is a one-off. So 2021 may be considered a normal year at least under that point of view.

[Interpreted] Next question is from the original conference from Andrea Lisi from Equita.

[Interpreted] Now my first question is the following. Can you give us some color or some sensitivity or even some general indications, if you will, on what the impact of an increase of interest rates and maybe on the Life, but also on the Non-Life business? Can I also have the updated expense activities [indiscernible] versus having to do with rate hike? And well, the hikes of the spread, but also the hike of the inflation, okay? So this is a couple of questions.

[Interpreted] Thank you for the questions. Now of course, I will be considering, I mean, the current assets that we have. So it will be next month, so we'll see if there is changes anyway. If I take a snapshot of the current rates, and if I consider Unipol as a group, the rate hike means plus 7% -- sorry, if you have an increase by 50 basis points, this translates into plus 7 points in terms of solvency, there will be a decrease of 10 bps of the rates that will translate in minus 2 points in terms of Solvency. The same happens with UnipolSai. So plus 50 bps means 9 points in terms of solvency, plus a decrease of 10 basis points would turn into one, let's say, a point in terms of solvency [ less ].

Next question is from Krisine Bokaro from Perene.

[Interpreted] Thank you so much for sharing results with us. I have a question. Can we have some color on the inflation rate for the cost of paying claims?

[Interpreted] Now on the future, I mean, hypotheses or I mean, the estimate or the foresee of the cost of claims. So if I understand the question correctly, well, in this case, considering the current scenarios, we work based on a 3% inflation rate. Once again, I hope I have understood the question, I mean, sort of forecast for the future, right.

[Interpreted] Yes, definitely.

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

Three questions from me, please. Apologies if these have been asked already. My line dropped off a couple of times, and I didn't hear all the answers, but I didn't hear the answers to these. The first one really was just coming back to the claims ratio. I mean, obviously, the large losses were very high in Q4. If you adjust for the large losses and the reserve releases, then the Q4 claims ratio was 4 points lower than it was in the first 9 months of the year. So I'm just wondering, if you can help me understand why the underlying claims ratio was so low in Q4. And why the large losses were so high in Q4? And maybe you could remind us of the definition of what counts as a large loss. The second question, you've talked a lot about the prudency that you've employed. Is there a limit on how prudent you can be? I mean, obviously, at some point, I guess, you have some discussions with your auditors, et cetera, about just how far you can be the right side of best estimate. But I'd be just interested in any color on whether we could expect how much more we could expect on this, if a situation arose. Final question on UnipolReC, sorry if I've missed this in the release, but could you tell us exactly what the profit was of UnipolReC? And also how you think this might develop in the future?

[Interpreted] Thank you for the questions, Peter. Now as for the results, as I said before. I mean your question is on, of course, will be a large only claims, so the so-called catastrophes. I mean this is the name we use to define, I mean, large claims. And of course, you want to know if they have impacted on the result. Well, the answer -- straight answer is because we want to, let's say in general, I have to say that it is directly linked to the prudence or [ total ] considerations that I have shared before in terms of the size of the results that we have already reached, okay? So we don't want to increase the results further. And of course, at the same time, we want to become stronger for the future, okay? So it is not linked to that. Now in the fourth Q, we have had some major claims, bigger size, if you will, the so-called catastrophes. But in terms of the overview of the year, so the claims belonging to this category. Well, I have to say that they have amounted at say around [ EUR 118 million ], so we have EUR 160 million last year. So well, as you can see, that's not coming a huge, if you will, gap in terms of the total amount of the claims considering this size. And once again, they don't have any impact on the reserve policies. Now -- and let me go further. If you consider the total amount of the claims having to do with natural capacities plastics so-called large size or big claims, I have to say that the total cost we had was very similar, once again, to the costs that we had last year around EUR 550 million to EUR 560 million. Once again, this is the total number. As a consequence, this is not what has a major impact on the different reserve policies we have this year in particular in the fourth quarter 2021 as compared to what we had last year. Now this was to answer your first question. Your second question, I mean, the limits of, I mean, how prudent or cautious we can be, whether especially considering the frequency and considering, I mean, the motor business also taking into account the frequency we expect. Well, it goes without saying that the more discontinuations you have on the market, I mean, you have plenty of discontinuities or ups and downs of the market. Well, the more you have to be prudent, once again, when you look into the future. This is what I mean. I mean there have been so many discontinuities in the past years on the historical trends or in general trends. Now this was due to, let's say, external shock, which in this case is, of course, the COVID-19 pandemic. Now the point is we need to foresee accurately and precisely enough when the situation is back to normal and in terms of the claim frequency. So well, we are waiting to go back to the normal situation, so to say. So even if you consider the current situation based on what I read in the mass media that, of course, keep talking about the trend towards the new normal regulations, which are now approved by the government. I mean, all of the reopenings, and then they are removed day after day plenty of limits, well, this means that there should be a quick return to normal. Now what we see, first of all, 1 month is too early, okay? Because we started doing this in January. Anyway, we see that today, I mean, in terms of the size of traffic in general, and by the way, this is what we can get from our black boxes. You know that they represent 10% of the global fleet, so to say, here in -- so we are quite reliable trend or indicator on the trend. So once again, traffic is going back to the levels we have in January 2020, and January 2020, that was just a little before the pandemic, okay, so that was still normal, so to say. What has changed is the distribution. I mean this next traffic density in the largest [indiscernible] and especially in the rush hours. So I have to say that this is one of the factors that we are considering, and this is the reason why the claim level is now lower than all the claims that they were reported 2 years ago in a normal situation. So if you imagine, I mean, the future frequency and I'm now going back to your question, I mean, what is the prudence. Well, I don't know. Maybe no one knows where the limit is. Anyway, we think, we imagine that the frequency of our scenario will rise. And step-wise, gradually, it will go back to the levels that they were very close to the pre-pandemic levels. But I also have to say at the same time that we also have other factors or other impacting factors. For example, we have more and more technology on cars. We have more and more sensors. At the same time, we do have -- thanks to this, an effect or impact on the claim reduction. They may because we need, of course, a longer observation time, not just 1 month. I can't tell you if this is a structural phenomenon or not. Now what is sure is that this year, there's been a significant drop of the incidence of claims with damages to passengers or drivers, and this is a trend that we already had in 2020. Once again, this is a trend that we can see. Of course, this has nothing to do with COVID now. Is this going to continue? I mean -- or maybe will it sort of plateau? It's difficult to say. So once again, that's been a big shock so at this continuity because of COVID. Now the new normal scenario is something we keep an eye on. We update it every single day. We change it. We adjust it every single day. And this is, by the way, the reason why because we have the possibility, we want to be even more prudent in terms of results. And the reason is that we want to better manage possible future scenarios. There was another question on UnipolReC, right. Now I have to say that ReC, let me check the financial statements. I mean, profits are EUR 1.5 million net. So this is the result of UnipolReC. And there are other indicators on ReC, this is something you can see in the relevant slide. Now as for the future of UnipolReC, I have to say that we have already released much more than 50% of its own portfolio. So the residual part for UnipolReC having to do, I mean with credits or loans to be recovered on a total of EUR 2.7 billion of gross loans. Now the value we have to recover is now EUR 350 million, which represents something like 12%, well actually just a little bit more than 12% of the gross loans valued. Now meanwhile, we have, let's say, saved the money, thanks to the profits made in the past. So the net assets is now [ EUR 440 million ], which is higher by EUR 140 million, so higher than the capital that had been assigned. Originally, ReC had EUR 300 million capital.

Could I come back on the first question?

[Interpreted] Yes, please.

Yes, I just wanted to come back on the first question, because what I was asking about actually was the fourth quarter on its own or the fourth quarter compared to the first 3 quarters. Because if I adjust for reserve releases and large losses, my question is not about reserve releases. My question is about the underlying, if I adjust the claims ratio for reserve releases and large losses, then the Q4 claims ratio was 4 points lower than it was in the first 9 months. So I'm just trying to understand why did the underlying -- why was the underlying claims performance so much better in Q4 than the first 9 months of the year.

[Interpreted] So once again, 4% lower of the first quarter, well, this means that it's been quite a good evolution in -- well, there's been plenty of production of the basic business or [ entry ] business. I'm now checking the general overview. And again, this means that we haven't had any claim, for example, from natural events. Maybe you remember in the third quarter, there has been a strong impact generated by the so-called catastrophes. And we also have the same impact on our reassurance company. Again, a very strong impact of the storms in Germany for our reassurance business, or if I'm not mistaken, the cost we had to pay was around [ EUR 50 million ]. And that was worth 1 point, I mean, in terms of loss ratio considering the entire company business. Now this phenomenon and, once again, most of them have taken place in the third quarter, we just didn't have them in the fourth quarter. So apart from reserves, this is the consequence of a better, let's say, technical behavior. I mean there's been a higher incidence of production. So the premium coming from the basic business and especially less catastrophes, so less big claims versus the 3 previous quarters of the same year.

[Interpreted] Next question is from the original conference. This is a follow up from Andrea Lisi from Equita.

[Interpreted] I'd like to go back to the point having to do with the rates. Now you enter on the solvency ratios very clear. But can I have some color on the impact that you expect on the Life and non-Life business in a context where rates are higher than the current ones?

[Interpreted] Now as Carlo just told us, the rate hike, which is one of the hottest topics these days, of course, I'm referring to the basic rate so the swap curve. Now this has a positive impact on our solvency ratio as our -- because we have assets and liabilities, which are absolutely matched. So if you have a parallel rate hike, well, of course, it's a big benefit, a big advantage for the Life business because we now have a 1% average guarantees. So if you have a rate hike, this means that we can really improve the best estimate of the Life business, but also the non-life business because in this case, you discount the cash flows at higher rates and so once again this has a positive effect. Now the situation is different when you consider all what is happening all around that may be a rate hike, which is what's happening these days or in the recent weeks, because what we see today is also an increase of the spread level between the swap and Italy. Well, maybe this is a little bit less proportional but there's also spread increase on corporate bonds. Now again, it goes without saying this has a negative impact on our ratios dynamics, much less negative than it could have been without the diversification policy of the assets that we started the last year. Well, actually, it was right in the middle of 2020, and this is what we have completed. In that case, the Italian government exposure is down at around 39%. Anyway, it's below 40% out of the total investments we have. So if you have a rate hike increase on the basic rates, which is what's happening right now, well, this is something positive, considering our solvency or even so mobility profile, I mean, from a financial point of view. Now of course, all the work is happening right on the basis, I mean, of the rate hikes. I mean, the perspectives are rising rate of inflation, considering what we said before in terms of claims, this is one of the focal points that we have commented before.

[Interpreted] Ladies and gentlemen, for the time being. We don't have any other questions in the waiting line.

[Interpreted] Okay, then. So thank you so much for your questions, and thank you so much for attending this conference call. And we will then have another meeting in May. In that meeting, we will be talking about the details of the first quarter 2022 plus the business plan. Thank you so much. Goodbye.

[Interpreted] This is the Chorus Call operator. The conference call is over. You can disconnect your telephones. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]