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 9 Months 2023 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Matteo Laterza, CEO of UnipolSai and General Manager of Unipol. Please go ahead, sir.

Good morning, and thank you very much for joining us to this first 9 months results meeting. I'm here with the General Manager, Enrico San Pietro. And as usual, before opening the floor to the questions, let me make a very brief introduction on the numbers. I will start from the P&C business where top line was -- growth was quite robust even if the 3.8% growth in terms of premium that you saw in the presentation, to me, underestimate our commercial effectiveness because it doesn't take in consideration the policy splitting strategy that we massively applied year-to-date above all in the Motor TPL business. In fact, the 1.2% premium growth in Motor adjusted for the policy splitting is a number close to 5%. And in non-motor, the 6.2 million is a number above 7%. In particular, in non-motor was very high the performance of Health insurance business with almost 17% of growth in premium. And on this pillar, we are ahead of schedule to reach the target of our industrial plan at the end of 2024. On technical profitability, the third quarter was impacted by several trends and events. I will start from Motor TPL where we saw 3 important trends. The first one is the increase in the average premium that year-to-date is above 7%, so the upward trend is accelerating. Second, we had in the third quarter a slowdown in terms of claim and it is another positive trend, and the third one that I wanted to mention is the slowdown in the average cost of claims. All these 3 trends were positive in terms of impact in the profit technical profitability, even if we have not yet reached a decent level of combined ratio in Motor TPL, we are in a good track to reach it quite soon. On the negative side, the third quarter of this year was impacted quite massively by nat cat. You saw in the presentation that nat cat plus large claim impacted net of reinsurance 11.5 percentage points versus 7.1% in the first half of this year. And of course, the main contributor to this -- to this deterioration is due to the event that we had in the second half of July in the northern part of Italy. And I have to say that this is the main driver of the deterioration of the combined ratio that closed in September at 98.6%. In Life, we had a quite positive trend in terms of premium in all the line of business. Very important is the positive net inflows in the traditional products, where we are close to EUR 300 million overall. Very important is the contribution of the bancassurance in this side. And we maintain in life a quite good level of profitability in line with our forecast of profitability that we had in -- for 2023. Finally, and then we close this introduction in terms of solvency, we have a group solvency at 218%, exactly the same than at the end of June, we had above all 2 main drivers: one positive that is the capital generation contribution and on the negative side, third quarter was quite negative in terms of performance of financial market. We had a deterioration of the spread of government bonds on one side, equity market had a negative performance in the third quarter. And the -- these 2 main drivers had a negative impact on the own funds. And at the end, these 2 elements were offsetting each other, and we closed the solvency at 218%. At UnipolSai level, we have more or less the same kind of remarks to say on solvency. Having said that, with Eric, we are -- now we open the floor to the questions. Thank you very much.

This is the Chorus Call conference operator. We will now begin the question and answer session. [Operator Instructions] The first question is from Peter Eliot of Kepler Cheuvreux.

Three questions from me, please. I note the proposal to introduce a sort of guarantee fund for life insurance in Italy. I was just wondering if you could talk a little bit about that and what impact you think it might have? That would be the first question. The second question is the expense ratio looks a little bit high if I calculate it right, it looks like 27.5% in Q3 in isolation after 26.3% in H1. Just wondering if you could comment on that. And the third question is the CSM, the operating and economic variance. I guess there's a lot of things going on in the plus 151. I'm just wondering if you can sort of help us split those out. I mean, in particular, it would be good to understand the sort of the recurring return and any assumption changes you might have made due to the experience you've seen.

Okay, Peter, concerning the first question, first of all, this new rule will be applied in 2024. So we didn't have any impact on the numbers of 2023. We did some math on the possible impact of the fund on our numbers, and we shouldn't have an impact above EUR 20 million every year. So it is not material in our case. In terms of economic variance of the CSM, we had a positive contribution of the economic variance of, I remember well, EUR 270 million and -- EUR 241 million, sorry. And I don't have the exact number of the component of the -- of this -- I don't have the exact number of the component of the yield that you are asking, but roughly 2/3 of that are due to the yield component of the economic variance and the rest are financial variables. But maybe we can do a dedicated call with the IR to have more insight on that. Sorry. On the expense ratio, I leave the floor to Enrico to comment on that.

I'm sorry, maybe your line is muted. We cannot hear.

Could I maybe just come back while we're waiting for that one. Could I just come back on the first 2 questions quickly, please. When you said EUR 20 million per year, is that EUR 20 million per year impact on your P&L?

Yes, Peter. Because it is a 50 basis point on technical reserves on 10 years, split it on 10 years. And you had to pay and had to account these items in your P&L.

Okay. So your P&L would -- I mean, it would be hit by high single-digit impact on your Life P&L then?

Yes. gross of tax is EUR 20 million.

Okay. And on the CSM, the -- was there any impact from assumption changes? So did you make any changes as a result of sort of persistency experience?

No, we didn't make a change in the assumption. We had some negative impact coming from the operating variables due to the fact that surrenders are higher than in the past and so you have to take into consideration this. But in terms of actuarial assumptions we didn't make any change.

The next question is from Andrea Lisi of Equita.

The first one is on nat cat. So we have seen a lot of impact in the third quarter. If it is possible to meeting that, how long tail of what observed in the third quarter can also affect the fourth quarter? And I know that it is really preliminary, but we saw that in Italy there were several events, weather events also in the last weeks. So if you have already an idea of what could be the impact? And if you can summarize again the protection that provides to you the reinsurance treaty that you have and how it's protecting you in the third quarter? The second question is about the proposal of the draft of the budget law of extending mandatory insurance coverage for [indiscernible] events for corporate and SME, and so if you can comment on this and the potential impact for you. I know that it is really preliminary, but that to have an idea, and what do you expect? And the last is more of an accounting issue. How do you consolidate the stake in Sondrio after the group has reached close to 20% stake?

I will start from the final one, and I will leave the floor to Enrico for the other 2. Sondrio is not consolidated in the numbers at the first 9 months because we completed the transaction at the beginning of October. It will be consolidated in the final result at the end of 2023. And you will see the contribution in the next conference call in the beginning of 2024. Concerning the numbers, the new rule on the mandatory insurance coverage for PMI for nat cat, it is an opportunity. A new market is opening, and we will, of course, take this opportunity in order to give our clients all the coverage they need. But in this -- on this matter and the other question, I leave the floor to Enrico.

To go on with material statement on the new load that will very likely put this mandatory coverage for nat cat on enterprises, we appreciate the effort of the government since this kind of scheme is already present in several number of -- several countries in Europe and outside Europe and is something useful for a country. Of course, it depends on how you implement it. And we hope to be able to discuss it for some open points in which we think we could do better as a country. First of all, the role of the state as the ultimate cover for very, very large events that we can expect in more than 200 years period. So we are studying this issue and discussing and we hope this could be an opportunity, not only for an insurance company but also for our country to develop. Going back to the first question about the nat cat. Of course, as you have seen, this is the main issue for the third quarter deterioration in combined ratio. This is something that was partially offset by reinsurance. But to remember you how our insurance schemes are working, basically, we have an aggregate cover with different [indiscernible]. The name of this scheme is Multiple that has a capacity of EUR 85 million and this capacity was basically exhausted. So we recovered EUR 85 million from this scheme, other EUR 9 million from the Hail On Crop cover reinsurance cover. And over that, we have the traditional excess of loss cover for nat cat that has a priority our retention of EUR 150 million. So basically, we have not yet recovered nothing from this. If events will further deteriorate, it could happen. And we are not yet able to have an estimate about Tuscany flood. First information doesn't look this big like it was in Romania, the event, but of course, it's too early to give any estimate on that.

The next question is from Michael Huttner of Berenberg.

Well done for lovely results. I had lots of questions, basically lots of numbers, if you could provide them. So if I list them and maybe you can help. So first of all, what was the growth and the net cost of the nat cat in Q3? The second, you said the pricing and claims in Motors. I heard pricing up over 7%. Can you give us the figures on the claims cost because you said they were down? And you said in the introduction, I think, that the average cost is down. I just wonder if you can give us percentages because when people say down, I'm not sure if they mean down versus trend or down in absolute or down which quarter on which quarter? So any precise indications would help. Then you said Motor TPL, your -- the direction of travel is good, but you're not where you want to be. I think I remember the target is to get around 93%. My guess is you're at 96%, but maybe you can give us the number for Motor TPL. On the reinsurance, what I have been reading in the various publications is that the cost is going to go up sharply. And I just wondered how you can -- how you're going to integrate it and whether you would start raising the pricing in the non-motor sharply to reflect that? And then the final is on IFRS 17. It's not specific to you. I asked this question for all companies, but could you possibly give me the number on discounting, which is included in the combined ratio and also the unwind of the discount, which is included in investment income? I'm sorry for these number questions, but it's just that Unipol looks so set to kind of get really better. I'd like to be able to create a good business case.

I will start from the final question and then I will leave Enrico the floor for the other one. In the discount factor of the -- in the combined ratio is 3.6 percentage points. And concerning all the first part of the question in Motor, I said that average premium is going up by 7% -- above 7%. And in the third quarter, we had a slowdown in terms of claims but year-to-date, they are flat. They are up 0.8% and -- and in the average cost of claims in Motor TPL, we had the slowing down of inflation that is still quite high but lower than in the first 2 quarters. And we had also some positive impact coming from less body injuries in percentage of the total compared to the same number in the first half of the year. So overall, all these gave a positive contribution to average cost of claim that in September 2023 is up a little bit lower than 2%.

Compared to what period?

Sorry?

Compared with which period, the 2%?

Yes, today. Then I leave the floor to Enrico for the other part of the question.

Yes. Okay. Let me add some color on Motor to party liability. And as Matteo told us, we've been discussing since last November about price increases. We did it in November and February and then almost every month in the springtime. Nowadays, when we offer some -- the average renewal price on the customer that comes to the expiration date of the contract, our offer exceeds 20% increase on average. This average is very differentiated from a single customer to another since we already had a very precise tariffication model, and we were able to sharpen further this model. So basically, what's happening is that customers that are remaining with us, the vast majority luckily, are paying on average 12% more. And so months after months, the average -- the average premium is growing. And on the other hand, the customer that does doesn't renew with us are giving an advantage in terms of loss frequency, so loss frequency is decreasing. And also the percentage of bodily injury claim is decreasing too, as Matteo told us. And this is very relevant since roughly speaking, the average cost of a material damage claim is 5x smaller than an average claim with bodily injury. Last but not least, we had a good summer in terms of very large claims on Motor compared to the last year. So in the end, things are improving and of course, we are not yet at our target, but we are very confident to be on track to recover in a few months, of course, as we discussed, it takes time to see the effects of all the actions that we have taken.

Do you have a figure for the MTPL combined ratio?

Yes. More or less, your guess was right around 97% is 97.7%, the combined rate of Motor Third Party Liability. And so on Motor Third Party Liability, we are definitely on track. On the other hand, unfortunately, the nat cat events had a negative effect on property, obviously, but also on Motor other damages. So when you look at our motor combined ratio, there are 2 very visible effects, one positive on Motor Third Party Liability, the second negative on motor other damages. As far as reinsurance is concerned, of course, there are a lot of discussion on the renewal for 2024. Since we already had a very high level of retention, as we told us -- as we told, EUR 150 million of retention, basically, our treaties are less in the spot of the reinsurance and so of course, we are discussing and we'll probably have to pay some million more, but in our view is not that material in terms of cost increase, but you are completely right on the fact that we need to work on non-motor pricing extensively. We are working on that to having 2024, a very extensive increase in property prices since, of course, we need to restore profitability, 2023, looks like an outlier in terms of nat cat losses, but of course, recent years tell us and the other companies in Italy, not only in Italy, that property prices need to be increased.

And do you have a figure for the July event in terms of the loss to the group?

July event, of course. It depends on which kind of time period, you take it to account when you look at the event of the last part of July, 24, 25 of July at the end of September, the amount of this event on property was around EUR 150 million, so not yet able to recover anything from reinsurance, but very close. If you take into account all the July month is sorry, taking into account the third quarter impact is a number that is around EUR 450 million. So if you take into account what happened in May with the flood in Romania and in July, basically, we are -- we have more than EUR 450 million cost on nat cat compared to the previous year.

Just repeat that so I understand because [indiscernible], I didn't -- so EUR 450 million year-to-date, including the floods in the second quarter?

Yes. If you take the difference at the year -- at the end of September, we have more EUR 450, EUR 100 more or less from the flood and from the July storm.

That's fair. Thank you very much.

Sorry, Michael, I didn't give you the unwinding effect of the discount which is EUR 60 million.

The next question is from Elena Perini of Intesa Sanpaolo.

Actually, I didn't have the opportunity to follow your introduction, so I apologize if you have already answered some of them. The first question is about the low tax rate that you had in the third quarter, I was wondering whether you can give us some details on the impact in terms of Euro millions and the topics that it is referred to. The second question is about your Life business. You were very good in the first half in terms of net inflows, I was wondering how the business is going in the -- was in the third quarter and now it is going now in terms of inflows for both the traditional policies and hybrid and unit-linked.

Thank you to you, Elena. And concerning the first question, yes, the tax rate in September was lower than usual. We had some special situation that we applied. First of all, we applied the new patent box to several companies that belong to our group that had for the third quarter, a positive effect on the tax rate. And secondly, in the long-term trend business in mobility, in Motor, we did some adjustment -- the fiscal value of -- adjustment on the fiscal value of the goodwill. And on the back of that we had some positive implication in the tax rate. These are the main -- 2 main source of the benefit that we had in the -- in the first 9 months result. Concerning the Life business, the trend is continuing to go very well. The growth rate is much lower than the first half but because in the first half, there were some easy comparison due to the -- some new mandates in pension funds in September in the third quarter '22, we got some very important mandate also. And so the growth rate in the premium business is lower. Nevertheless, the performance of the distribution network was very good, both in the agent distribution network and in the Bancassurance, Above all, in the Bancassurance and thanks to this, we had positive inflows. Of course, surrenders are higher than in the 2022 because of the increase of interest rate and because of the competition coming from other kind of products. The first one are the Italian government bonds. But nevertheless, we continue to have positive inflows and it is a very good sign in order to maintain and to be able to invest new cash flows at higher yield in order to enhance and improve the yield of the segregated funds and you can see some numbers in the presentation where we are increasing the yield that we rebate to our clients in order to maintain a certain level of competitiveness versus either kind of products coming from asset management or fixed income securities or others.

Some numbers on the net inflows?

The net inflows in the traditional product is close to EUR 300 million today, sorry, we are in terms of net inflows, we are close to EUR 500 million. No. I was -- because I said this in the introduction, there is in the presentation, EUR 265 million.

Okay. Thank you.

Sorry. We also have to confirm what you were hearing. So we had an increase in the nat cat cost at the end of the third quarter, around EUR 450 million net of reinsurance, and this include May floods and also July storms.

The next question is from Gian Luca Ferrari of Mediobanca.

Only 2 last for me. The first one is on protection and Motor other damages. I was wondering, and I think Enrico already replying to Michael gave a bit of an answer to this. What are the managerial actions you are putting in place to face the recurrent higher combined ratio on these business lines? I think Enrico mentioned repricing starting from next year. Any other measures such as portfolio running or reducing the exposure to some kind of business lines or specific businesses or specific geographic regions? The second is probably a strange one, but I was noticing the great expansion in the business of Unipol Rental and considering also the multiples of some specialized players such as ALD, I was wondering if you have ever considered at some point, an IPO of this business?

Thank you to you, Gianluca. I will answer to the second and I will leave Enrico answer to the first one. Actually, we recently completed the merger with SFA, which is the company specialized in the long-term rent old before BPER Banca. And we are starting a very important project focused on the distribution of the products using our distribution network of agents that are able and they demonstrated to be very effective in the production of new contracts. Just to give you an idea of the 87,000 contracts sold in June. -- sorry, of the 132,000 contracts sold in September, more than 20,000 -- more than -- sorry, more than 35,000 were sold by our agents. And it is a very important number because it is growing year by year. And the level of profitability of this contract is higher than a contract -- a corporate contract or sold that will direct distribution channel. This project is focused also on the distribution of the banking Bancassurance channel using BPER Banca, of course, we are still at the beginning of the project and consequently, the idea of doing an IPO is not on the table at the moment. This is the main -- the only thing I can say -- tell you. Then I will -- Enrico later answer to the other question.

Okay. Thank you, Gianluca. So the first question was about Motor rather damages class. First of all, of course, let me remember that in this class, there is not only the coverage for nat cat event, but also other relevant coverage like test, fire, CASCO and so on. So basically, this part, the cover of nat cat is now a little more than EUR 100 million premium written, but of course, it's really concerning not since July, but has been a few years in which we are increasing prices on this kind of cover, and we are going to increase more of this. Adding to increasing prices, also changes in the product cover, so introducing some limitation, some further deductibles for instance, or lost emits on individual contracts and also putting a higher attention on geographical distribution of our risk. So we used to do that, and we are going to do even more on property, of course, but we will apply soon this same approach also to cast to moderate the damages.

The next question is from Michael is a follow-up from Michael Huttner of Berenberg.

I'm sorry. So the 3 questions. One is on the banking Sondrio BPR, what's the future? Are you going to increase your banking, whatever it seems a very profitable business? The second is on Eurovita, what has happened? I understand the transaction is closed. And I just wondered what the impact is on your business in terms of solvency volumes? And the third one is I didn't -- I didn't -- my hearing is really bad and I'm really, really sorry. When you replied in the previous question, you mentioned the figure, I think of EUR 100 million for premiums, and I didn't quite understand what this related to, whether it was Motor or property. I was just interested.

Concerning our investment in the in the banking business, we completed our investment by reaching 20% stake in a little bit less than 20% stake in Banca Popolare di Sondrio. It is the way in which we -- in which we execute our strategy in the Bancassurance by considering that a strategic and industrial partnership. And in this sense, having a stake -- a significant stake is very important to us in order to have a strategic and industrial partnership with the 2 banks. And the fact that in Bancassurance, we have positive inflows in Life insurance, which is a sort of contrary situation compared to the market system in general is a proof of how effective is our partnership with the 2 banks. So this is the reason why we invested in the 2 banks. The investment is also profitable, both on a financial point of view and on a commercial point of view because Bancassurance is one of the main driver of growth of premium. And so we are very happy about that. Concerning Eurovita, we just got started with Eurovita with the opening of surrenders. As Unipol Group, we invested EUR 50 million of capital. It is our share on 22.5% of shares of the company. Kronos Vita, which is the new company created in order to manage the life insurance portfolio of the company has a solvency ratio, which is now in a comfort zone. And so we think that we are all set with this investment at the moment. As you know, we have 2 years since the signing of the term sheet in order to split Kronos Vita in 5 carve-outs of portfolio. And in this time spend, we will take part of the portfolio and we will migrate this in Unipol side. Having said that, I don't expect significant further capital injection going forward, but we will see depending on the trend of surrenders of the company. On the third question, I leave Enrico to answer.

Okay, I hope we are able to understand better than before the fact that we were discussing about Motor other damages class. That accounts for us more than EUR 800 million of premium written because there are several coverage, the most important are test, fire, CASCO and so on. In this class, there is also the nat cat cover, the motor hard cover that accounts for a little more than EUR 100 million of premium written, EUR 110 million, more or less.

[Operator Instructions]. Gentlemen, there are no more questions registered at this time.

Okay. Thank you very much for attending this meeting and we will meet again next year for the final year results. Thank you very much.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.