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

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Unipol Gruppo 31st December 2022 Preliminary Results Q&A Session Conference Call. At this time, I would like to turn the conference over to Mr. Matteo Laterza, CEO of Unipol SA and General Manager of Unipol. Please go ahead, sir.

Good morning, and thank you very much for participating to this conference. Before opening the floor to questions, I will spend a few minutes to comment the primary 2022 financial results that we released this morning. I have to say, first of all, that there were very strong results despite the very challenging environment in which we have run the business last year. I will start to comment the [ PSC ], where the business -- in the business, we achieved a top line growth above 4%, mainly driven by non-motor business, where the main categories was the growth that we achieved in the health insurance with UniSalute growing double digit. In terms of distribution channels, bancassurance has been the main driver of growth with [indiscernible] growing in the whereabout 30%. On the other hand, in terms of technical profitability, 2022 was impacted by 2 different trends. If on one hand, in non-motor, we had a positive trend despite a slightly higher impact coming from net GAAP and large losses. In motor, on the other hand, we had a deterioration of the combined ratio, mainly driven by the increase in the average cost of claim that has been offset has been not offset yet by the repricing of the portfolio that we implemented starting from the second part of 2022. In Life, the business went pretty well despite a very challenging environment in terms of structure of interest rate the business grew above all in pension funds where we doubled the production compared to the number that we achieved in 2021. In terms of technical profitability, we achieved a very positive impact coming from both the financial component of the business and also the technical part, above all driven by the mortality component of the profitability. Finally, investment income was very solid. We increased base above all on the increase of the base rate of the [ frisk ] rate that gave us the possibility to diversify our financial portfolio by increasing the yield of the portfolio. And at the same time, we reduce the volatility of our own funds. This is very important target, considering that we closed 2022 with a very robust solvency ratio, both at [indiscernible] level and Unipol Gruppo. And this was a very solid pillar that the proposal of dividend of $0.16 in Unipol Sai, which is absolutely in line with the assumption of our industrial plan. We proposed $0.37 in Unipol Gruppo, which is above the target of the industrial [indiscernible]. So to sum up, I can say that we closed our first year of the industrial plan opening new ways being on track on all the main industrial and financial KPIs. And having said that, I open the floor to questions. I'm here with Enrico San Pietro, who is General Manager of the Insurance business, and we have open on all the questions that you have.

[Operator Instructions] The first question is from Andrea Lisi of Equita.

First question is on the effect that you are observing from the increase in tariffs in the motor business. If there is any impact on your 20, if there is an increase in share rate and -- or not? And the second question is still on the combined ratio for next year, given the increased interest on the other end, but the other specific effects if you feel confident in your business plan target of combined ratio or is still too early to say, also considering if you can provide some indication that if there are higher costs in terms of insurance. The second question is on the life. In particular, you usually guided for the Life pretax profit in the of EUR 250 million, if I'm wrong, what's the expecting current environment with interest rates that are different with respect to your guidance of the tax profit in life? And the last one is on observing any increase of redemption in traditional life products.

Okay. On the first 2 questions, I will give a general review, and then I will leave the floor to Enrico for more flavor. But as you know, starting from the second half of 2022 we started a repricing strategy of Motor TPL products in our case in order to follow what has been the trend of the average cost of claim in 2022. Our strategy in general will be to continue to follow the evolution of the average cost of claim in order to offset it in terms of pricing with the target to establish a decent level of profitability of the Motor TPL business. So it will be very important, which will be the evolution of the average cost of claim going forward in order to decide what will be the future strategy in terms of pricing. But you have to have in mind that our target is, as I said before, to establish a decent level of profitability in the business. Concerning Life the 2022 was positively impacted by 2 items. The first one concerns the contribution to the profitability of finance, the increase of interest rates across the board because it happened in all the financial markets, not only in Italian government bonds allowed us to increase the level of profitability of financial assets and consequently also the increase of the profitability for the company and also for the policy owner on the other hand. We had also a positive impact coming from the technical component of the profitability above all in the mortality component of the business. And in this kind of environment, I personally think that if the structure of interest rates will remain the same also in 2023, we can maintain this level of profitability. In terms of redemption, we didn't see a significant impact coming from redemption. Even if we are monitoring this trend very closely in order to in the soft of sales intervene on the commercial distribution channel level all with our agents in order to be able to be very close to the asset and liability management of our asset portfolio. But at the moment, we are not seeing any significant impact coming from redemption in traditional products. Then Enrico, if you want to add something on...

So going back to the Motor business. You ask if there are some visible effects on retention or churn rate related to our recent increase in tariffs. So far, so good. And here today, what we are registering is a very small decrease in our retention rate that is has been in the recent years at the top level of the market. And so of course, there are other increases that we have to implement in the year, and we will see what will happen. We are quite confident because all the market has the same need to restore technical profitability and increasing price to do so. And so we don't see a significant risk of deteriorating our competitive position. What Matteo said is, of course, also that we are working on tariffs and also on the other action that we put in our industrial plan, especially in handling to offset the impact of inflation. And so to be able to improve the technical profitability of our motor business. And so we are targeting and improving in 2023 compared to 2022 results and even more at the year-end of 2024 when we will and our industrial plan with the target that we put in it.

The next question is from Peter Eliot of Kepler Cheuvreux.

First of all, congratulations on the new format of the reporting sure gone down very well and much appreciated by many of us the call in English. So thank you very much for that. 3 questions, if I may. Perhaps, first of all, if I could follow up on the non-Life underwriting. I appreciate your comments about the outlook and the whole market needing to increase profitability, et cetera. I'm just wondering if you could specifically comment on whether you think prices are going up at the moment to offset claims inflation. I know you gave some stats in the presentation, but that was mostly sort of average over the year. And obviously, your prices started in the second half of the year. So I'm just interested in the current picture where the prices are going up at the moment enough to offset inflation. That would be the first one. The second one, maybe following up on the life results, great results and good news. I'm interested specifically in the other operating items, which were basically plus EUR 50 million for the year and sort of fairly consistently positive across the year. Is that a sort of normal run rate growth? And then the third one, maybe on the solidarity front. Just to confirm that we shouldn't see any more negative impact going through the P&L going forward. And I'm wondering if you can just give us any confidence on maybe the -- the actions you've taken, have an impact of your operational ability at all.

In Non-Life and in particular, in motor, we are, as I said, working on repricing. We already worked on repricing with the target to follow the evolution -- the evolution of the average cost of claims. Of course, there is a sort of lag between how the average cost of claim evolve and how the repricing can have a full effect in the portfolio because you take 1 year before all the repricing is in force. And so we are confident to be able to follow the average cost of claim on the base of the assumption that we have not only 2022, but what we think 2023. Having said that, there can be there could be some -- it all will depend on -- also on the general competitive environment on if the -- our assumption of inflation will be correct or not. And in case we will -- they will not -- we will intervene in order to reach our target to establish the profitability in the Motor business. In Life, the other operating items are all belonging and coming from the financial component of the technical profitability. It is able all due to what is called the shadow accounting item that is using consolidated P&L that will be replaced next year with the application of the IFRS 17. Shadow accounting is a byproduct of the financial component of the technical profitability. So you can consider it a component of the financial income of the business of life business. If it is a normal run rate, it will depend if the structure of interest rates will remain the same in 2023 or not? As I said several times, the normal profitability of the business were about EUR 250 million. In this case, we overdelivered because there is a very positive financial market structure. And also, there is -- we had a very positive result coming from the technical profitability. And this is the reason why we overdelivered in 2022. Conservative solidarity fund, as we said, when we released and the industrial plan, it is an upfront number that we have in -- we have in this industrial plan. But we can think going forward to allocate a more component of provision in order to further enhance the effectiveness of the cellular refunds starting from the next industrial plan.

The next question is from Sudarshan Bhutra of Societe Generale.

So a few questions from my side. First one is regarding the solvency ratio for FY ''22 versus the 9 months it. So I mean, it has been pretty strong, considering that you account for all the dividends in the fourth quarter. So can you please provide some details on what are the moving parts of the solvency in the fourth quarter, standalone? The second question is with regards to IFRS 17. When can we expect some more disclosure around that? Or is there some more insights on how you going to adapt the reporting in [indiscernible]. And the third question is around in the Life business, you have approximately EUR 6 billion of reserves, which are for the higher interest rate guarantee business. So are you -- I mean given the current interest rate environment, are you looking at any sort of in-force actions on this particular book or this portfolio? Any comments on that would be very helpful.

Okay. Concerning the solvency ratio, I will comment on the Gruppo numbers that was released at 21% with an increase of 4 percentage points compared to the number that we disclosed in 30th of September. And we had a positive impact coming from the positive effect of the performance of financial markets in reserves that it had -- was the base and enhanced with a positive impact on the own funds for 6 percentage points above all driven by the evolution of interest rates, the impact of the narrowing of the spread in credit -- in corporate bonds and also the positive performance of the equity market. We had a small negative impact coming from the widening of the spread of Italian BTPs from 2 percentage points. But adding all these components, we had a positive impact coming from financial market of 6 percentage points on our own funds. And on top of that, we had also a positive impact coming from the reduction of the solvency capital requirement of 3 percentage points. And adding all these components and deducting the dividend that we proposed a Gruppo level, we had an impact -- total impact positive for 4 percentage points overall. This is the reconstruction of the improvement of the solvency capital position. Concerning light business, no, we are not thinking about an action on the in-force portfolio. We are very confident with all our products in our technical reserves. Also considering the fact that we have seen a component that have a minimum guarantee that is above 3%. But we can afford this component of reserves without any kind of problem. And so we see any reason why we should think about an action on the in-force business. Finally, concerning the IFRS 17, we disclosed in our presentation that we will have a specific event at the end of March, in particular on the 24 March last year, where we will discuss all the topics concerning IFRS 17, our approach in the transition and which will be the impact on the main item of our balance sheet comparing the IFRS for '17 and also approaching the application of the IFRS 9 versus the [ 49 ].

Just one more question from my side, if I may. This is regarding the nonmotor business and the top line development in the fourth quarter stand-alone, which was just about plus 2% year-on-year versus plus 10% at 9 months. So I mean, any color on the strength or issue specific to fourth quarter would be very helpful.

So we had a very important growth in the first part of 2022, especially in the motor driven by growth on retail and mail and medium enterprises when we arrive at the year-end, we have a big corporate business renewal. And we didn't have the same growth in this period. And so that's why the overall growth had a slight reduction in the fourth quarter.

The next question is from George [indiscernible]

You've said in the past that you don't want to pull side and the group on note strategic flexibility. And we we've been very transparent about the value of group the discount could remain to 30% now, and it airs between 20% and 35%. Now everyone with any experience of this kind of constellation will agree that this discount will remain a fact of life, while merging the 2 companies would unlock about EUR 1.5 billion of value for shareholders of Gruppo. So the question is, what strategic steps can you take to create as much value as the mature leaving on the table and why can you take those steps only by keeping UnipolSai and Unipol separate.

Okay. Thank you for your question because it gives me the possibility to explain the rationale -- the rationale behind the decision to disclose the dividend policy that we will apply this year, in which we decided to increase the dividend of Unipol Gruppo quite consistently. And this is a decision that comes from the awareness on our side to be able to sustain over time a dividend policy that can persistently invert the priority in terms of dividend in between Unipol Gruppo, which is a holding company and which is an operating company because we think that if an investor decide to invest in a holding company, which has a higher risk, it is right that is remunerated more than in the case in which invest in an operating company, starting from the baseline that the level of profitability of the operating company is above the average of the market. So we start from level of profitability of the operating company that is as a natural effect, really interesting comparing other possible investments that we can do in the same sector. Unipol Gruppo has value as some of the part way above the market capitalization of the company. We are way above EUR 5 billion, having the market value of its and the net financial position of the company that today is less than -- a little bit more than EUR 800 million. We have a cost of debt that is in the word about of 3% with an average maturity of a little bit less than 5 years. And we were able to invest all the cash that we have in financial securities as yield today is above 3%. So we are in the condition, as I said before, to maintain a level of profitability at the holding company level that can justify the -- our capability to remunerate in terms of dividend yield, the holding company more than the operating company by inverting a trend that we had in the past few years. So in this case, all the discussions concerning the collapsing of the chain control have lot of sense in our -- on our point of view because we have put -- we have the condition now, as I said before, to deliver a yield of the holding company that is above the operating and that can justify the investment in the holding company.