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

[Interpreted] Good morning. This is the Chorus Call operator. Welcome to the Q&A session on the consolidated results of 30th of September 2020 Gruppo Unipol. Our group CEO, Carlo Cimbri, after a short introduction, will take your questions. Mr. Cimbri, floor is yours. Stay connected. Conference due to resume soon. Okay. The sound is back. Okay, then. So I don't have to add anything else to our presentation. I'm sure that there would be questions and plenty of for food for thought that you may want to share with us. Thank you.

[Interpreted] Just go ahead. [Operator Instructions] Question number one is from Elena Perini from Intesa Sanpaolo.

[Interpreted] I have just a couple of questions I'd like to share with you. The first one concerns what you are experiencing in terms of the Life business. So do you see people taking back their policies because of the second lockdown? So there may be some, let's say, difficult economic situations, especially in terms of small and medium enterprises or professionals or business owners, their companies may be still closed, so they will be closed. The second question is, do you have some update in terms of dividends? And when we got a conference from Generali yesterday, and they think IVASS I-V-A-S-S, may remove the ban. So just would like to know what your opinion about this is? And which kind of intention you have in terms of paying dividends?

[Interpreted] Okay. Let me give the floor to Matteo for the first part of the question.

So a question on the Life business. Don't forget, our policy portfolio is basically focused on retail customers. So basically, we have persons, I mean, individuals. And the small and medium enterprises or maybe corporate chunk is quite small. So no, well, people didn't take back their policies. I mean, this rate, even in the first pandemic. I mean, this rate has been reduced because, as you know, interest rates are now negative. So they went down. And the Life policy is the last, if you will, document or investment, which is taken back versus many other types of investments that you can find in the portfolios of families now. This is a second lockdown, the so-called soft lockdown, which has just begun. So well, I don't think there would be any stress on, well, consumers or customers now. It all depends on how long it would be. But for the time being, the trend we see is definitely opposite. I mean people are kind of reducing the lapse rate we have on the UnipolSai portfolio, but also on Arca Vita's.

Yes. I still have to give an answer on dividends before introducing the second question. Okay. That was sort of an unexpected question, so to say. So in terms of dividends, and well, you know that I have shared some opinions about this in the month of August when we have approved the data and the numbers of the first 6 months of the year. I mean, so solid intention based on the results that we have got in 2019, and this is also based on the current results. So it is our intention -- solid intention to comply with what is written in the industrial plan. So in terms of the no quantity of massive dividends to be distributed in terms of Unipol Gruppo but also in terms of UnipolSai. So this is what we still want to do in terms of solvency levels but also in terms of financial resources, which is what we keep, we store. I mean, of course, I'm talking about what we have saved last year, including what we are saving right now. So this is what we're doing because, of course, we would like to redistribute in the dividends and this is fair. I mean, this money has to go back to shareholders as soon as we can. So we don't know exactly what our industry regulator wants to do. And as you have mentioned, I mean, the sector regulator is IVASS, so I-V-A-S-S. And they don't need any, let's say, spokespersons, I mean to tell us what to do. I mean they have plenty of top qualified, well, representative. And so as soon as they want or as soon as they can, they will tell us what to do concerning, I mean, this subject. And as for dividends, there's a recommendation that has been sent out to the Italian market. This is not an isolated, I mean, one-off situation. This is happening all over Europe, and it's based on an organization or above it. I mean, the European Central Bank, together with EIOPA. And again, it's been, let's say, harmonized and taken into account by local, national regulators. I know that throughout 2019, there have been some diverse situations. So I think that I'm not mentioning what the European regulator said, and the example I had shared with you refers to the month of July. So they had these some recommendations from industry regulators. So we just wanted to be on the cautious side. And we have complied with this kind of recommendations also in the first part of the year. So as you know, we have distributed the Gruppo Sai dividends, but 85% of those dividends basically don't go out of the group because, I mean, they apparently go out, but then they come back. So there's been -- the other recommendations from other regulators in different countries in Europe. Well, somebody made different choices. But then I think that the, let's say, European recommendation is the one that's been harmonized and taken into account by every single regulator in the industry. So as far as I know, in the second half of the year, no dividends ever have been distributed by anyone. So of course, I mean, we compete with other, well, of course, competitors. I know that there have been some gaps or some differences, but I think that in this extraordinary situation, which is what the world is experiencing right now in terms of the COVID-19 pandemic, well, I think that this is something that may happen. They shouldn't. We'd rather avoid this, but I know that this is something that may happen in the extraordinary situations. So -- well, what we do is working, striving, I mean, to increase our profits to become, let's say, as solid as we can in terms of our balance sheet. We are ready to distribute dividends. So we can do this as soon as the safety conditions to do so are met. And of course, I hope that we will find soon a solution for the pandemic, it will take months, of course. So I hope that -- well, we can reasonably think of a new normal business in the near future. So as I said in August, I do confirm here that the group will distribute dividends, which is what is written clearly into our business plan. And you know that we are about to close. I mean, the second year of the business plan and the results that you have seen are self-explanatory in terms of our dividend capability. I think we have the right resources and the right positioning on the market. We have a solid business. So all of this will give us the opportunity to reach, well, high targets in compliance with our estimates or forecasts also for 2021. So once again, we are taking into account and meeting all the conditions to meet the contents of our business plan. There are some limits or thresholds around us, but this does not depend on us. So once again, I'm here to tell you that as soon as this is over, of course, we will have the opportunity. I mean, to pay remuneration to shareholders, which is what shareholders expect, I mean, those who at least have believed in our business plan.

[Interpreted] Next question is from Gian Luca Ferrari from Mediobanca.

[Interpreted] I'd like to go back to one of the points raised by Matteo. So I can see that the curve is negative on the BTPs. Now the diagram that I can see Page 10 is very clear. So this is an asset class, which is less and less important for you. So back to Q3. Where did you look for yield? Which kind of business did you have on the Non-Life business? I'd like to go back to one of the previous meetings with ANIA, A-N-I-A. So no guaranteed capital for the so-called RT or first level for branches. So is this something that you talked about with ANIA, so with the regulator recently? Second and last question. Q4, should we expect some value realignment on the real estate and the hotel business?

[Interpreted] Now as for the investments carried out in Q3, so this is your first question. The value of the transfers we've carried out on BTP have been allocated into a specific portfolio. And there's one part, if you will, of the European core, which is basically France and Germany. So you can imagine that the investment yield is now basically negative. It's a component. I mean it's an investment component, which is quite large, quite big in -- well, credit notes of securities having a high rating. So the central value is a -- so there are other interesting investment opportunities. So yes, we've taken advantage of those opportunities. Now the investments on the European core investment is on the extra long part of the curve. I mean, the negative, if you will, side is very limited, very small. The reinvestment we've carried out was made on 1% to 1.5% rate. I'm talking about the Life business, basically, because of what we have carried out was focused basically, once again, on the Life business, and in particular, on the so-called GS. Now as for the Non-Life, well, investment rate is around 0.5%. So this is the average rate you have today when you reinvest cash flows. But once again, this is a small part. Now as for the so-called first level or first branch of products, I mean, with the possibility not to guarantee the capital. Well, you know that this is a long debate that started so long ago. Now we are not included into the ANIA, A-N-I-A's roundtables because, of course, we are not an active partner there. But anyway, we talk about this with regulators. And there are no news, no novelties, that this kind of securities has to guarantee at least the value, I mean, the capital. So it's really very difficult now to talk about traditional products, so much so that we have discontinued, I mean, the placement of first branch or first level products. So basically, we almost exclusively sell the multi-branch products. So they can be reevaluated or reassessed. Once again, they contain quite many unit-linked products. Your second question was on real estate. Well, there have been no depreciations on the month of September. And as for the end of the year, well, we will take this into account, I mean, depending on the situation at the end of the year. But for the time being, well, the answer is no. No criticalities I'd like to share with you today. Let me continue this answer. Okay. Second part of the question. So what to expect at the end of the year? So in general, you know that we are going through some unique times or abnormal situations. And as you can see by reading our results, but also the results of many other, well, companies in this industry. Well, this is something which is, well, nonconventional, if you know what I mean. If you check our plan forecast, of course, we wouldn't have imagined this kind of results, I mean, in the first 9 months or 3 quarters of the year. So of course, it's easy to understand, but this depends on the current situation. So you know very well that we're going through some uncertainties, and not just in our industry, but also considering, I mean, the economic situation. I think that today in this kind of prolonged -- I mean, progressive and uncertain times, we are managing and we will be managing our products with so much, let's say, caution. This is what I said before when talking about dividends. So we do hope the situation will end soon. But of course, no one here has a crystal ball, so we don't know when it's going to end. This means that we have to expect 2021 with an ongoing pandemic where at least for the first part of the year and all the consequences that this entails. So back to you, Gian Luca, assessment or evaluations will be based on caution. So we will have sort of an extra caution versus an ordinary situation because once again, we have no interest whatsoever, if you will, to let's say, feed the results that they share. I mean, what we want to do is to guarantee a main stability or hitting the target in 2021 or in the next financial year up to our ambitions. I mean, I mean, no matter what the scenario will be. So we will strive to have some buffers or provisions or even reserve in all the branches of our business. So back to your question on real estate. Now if you take a picture, if you will, or a snapshot of our real estate business. Well, today, there's no room for prudential depreciations because today, more or less, we have EUR 3.8 billion. This is the value of our real estate. And basically, we have -- well, the evaluation says EUR 400 million extra or more, once again, this is sort of a forecast, I mean, what we hope we could earn. But anyway, we know that this is aggregate data. So it doesn't take into account any single industry. Now back to your question, as for the hotel business. Now hotels, if you will, are just one part of our assets. And the hotel situations or the entire, if you will, hospitality situation in this country. Well, it's something that everyone knows. I mean we are right into the same situation. Anyway, we think that the hotel business is going through, let's say, contingent, I mean, a temporary crisis. Again, this is not a final crisis. I mean, the problem is not tourists going to other countries and maybe Italy will have negative results. No way, I mean, tourism will be back, business will be back, people will keep traveling or resume traveling rather. We just have -- well, so to say, wait for a normal life. So once again, the hotel business is going through a contingent crisis. Of course, you need to be very solid, very strong. In Italy, the hotel business is very -- how can I say, very fragmented, I mean, in terms of owners. So there may be different situations on the hotel business, but this is not something that's happening to us. Because once again, we are very strong and sturdy to support and foster the hotel business. So well, as long as this is necessary. So once again, just before -- to all the way before going back to normal. So we are here to support the hotel business. There may be some prudential evaluations. Well, maybe we're not doing this for hotels. We just want to have prudential evaluation of all of our assets, just thinking of the future, but also aiming at stabilizing results. You can see here that the result in November is, let's say, out of scale, so totally different versus the ordinary business.

[Interpreted] Last question is from the conference in English from Peter Eliot from Kepler Cheuvreux.

I had 3 questions, please. The first one, just returning to the Life division, but maybe looking at the earnings, specifically because, obviously, they've been weak this year for a number of reasons. I just wondering, has anything changed in the business fundamentally? Or would you say it's all one-off? And I guess what I'm really asking is, what do you think of as a sort of normal run rate of earnings for the Life division from here? The second question is on Non-Life. And I'm just wondering if you could talk about the pressure you're seeing on pricing at the moment with the lower claims frequency that we've had. And then the final question is, I guess Unipol hasn't been buying shares in UnipolSai for the last couple of months. I mean obviously those shares seem to be just as good value as they were over the summer when you were buying, and you're still below 90%. So I'd just be interested to get an update on your thoughts there.

[Interpreted] Well, thank you for the questions now. As for the Life business, this was, Mr. Eliot, one of the key points that we talked about when we shared the results on the first 6 months. Now we have deeply modified our asset allocation strategy because we have reduced the shares exposures on the specific business, which is the banking business. You know that in that case, we got EUR 110 million capital losses. So that was, of course, a one-off. And it has had a major impact on the 2020 accounts. Of course, this is also something that you can see in September 2020. So the effect is going on. Well, as I said before, it's important to say that, that is a one-off. In terms of RR or run rate, the Life business today produces something like 90 basis points on the total provisions of our portfolio, 90%, 9-0. So this is the level we have today. Of course, we expect an ordinary profitability, so no capital losses or no capital gains directly attributable to the Life business. So just to tell you in general how the portfolio is behaving right now because, I mean, without any runoffs, well, basically, we have between 85 and 90 bps on provisions. There was -- if I'm not mistaken, there was another question on the -- right, of the pricing. Now the pricing on the TPL, now as you know, the prices have been lower and lower, especially because, I mean, frequencies. So accidents have reduced so much. So of course, pricing is still going down. And I think that this will continue, well, until the end of this year. Then as for 2021, we have to consider all of the effects having to do with, hopefully, a return to normal or a foreseeable increase of frequencies. So hopefully, and presumably there would be a stabilization of pricing. Peter, I'd like to add the following. Going back to pricing question. Now as far as we are concerned directly, at least. Back on to the average premium this year, don't forget that you have to consider one of the choices we made in April. Maybe you remember that in April, we decided to give 1 month of insurance coverage back to our customers. And that was highly advertised initiative and the name was un mese per te. So 1 month back to you, and this is what we have to consider. So if you consider the average policies or premium, well, this is basically 8% of the, well, premium. So of the income, 1 month back is 1/12 of the yearly business. Now many customers have renovated their policies. Our renovation rate of our policies is now 87%, 8-7%. So this means that customers have used, I mean, the voucher that we have sent in. This means that you can have basically 1 month of the premium coverage back into the pockets of our customers. Of course, this has an impact on to the average premium and as a consequence, I mean, the specific pressure that we have on the average premium in this financial year. As for your third question, I mean, the strategy that we are implementing right now on the -- well, one of the companies we control, which is UnipolSai. As I said in some previous conferences, you have to remember that what we do is a very careful evaluation and assessment of the values of this company. So this is our biggest asset. And of course, while we do purchase shares at the right time or when we think that there's a value gap, a significant value gap between the value that this company has in our opinion, on the one side, and on the other side, what is really worth on the market. So this is what led us to, as I said before, 85%, which is now the shares we have in the capital of UnipolSai. And the strategy is still there unchanged. I mean, we keep following with as much attention and focus as possible. If we haven't done this in the past 2 months, well, maybe it's because my colleagues in the finance departments think that there were no right conditions. But once again, the strategy is still there. So we think that there's room for maneuver. So if there is a value to take advantage of in the company we control, well, we just go ahead and purchase some of their shares. Based on the results of this company, and we think this company will also do this in the future. So we think that this is one of the best investments possible for our company in terms of cash -- I mean the cash we have in the holding company.

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

[Interpreted] I have some questions. Now the first question concerns the accident frequency in Q3 versus Q3 2019. What have you seen? And there have been new further restrictions in the past weeks. So what about the car accidents or claim frequency? Can you tell us more about the financial situation about this today. I also have a question on combined ratio. I remember that in the H1, H2, you had a very prudential, very cautious policy. Can you confirm this for Q3? And what about the IFRS provision as of today?

[Interpreted] Thank you for your questions. Now as for the frequency, well, of course, I mean, mobility went back into this region and into this country starting from June 1. So after the first lockdown. So mobility was back, and the space that we sort of went back to normality. Now this new normal has taken place very gradually. I mean, step wise, it has almost reached in terms of traffic and mobility, it has almost reached the same level we had 1 year before. So this is what happened in September. Now claims take some time. So there's a sort of a time gap or a delay. So in Q3, we still see a claim level, which is a little lower than the previous year. But once again, the difference was very, very small if you compare this with the lockdown season, so beginning of the year. It is still too early to carry out an assessment or a forecast of what's about to happen. Now we have the so-called soft lockdown, which is what we started here at the beginning of November. So we had just started implementing the soft lockdown measures. I don't think it's the right time to make any forecast on what is going to happen in the next weeks or so. I think that more or less, we are very, very close, I mean, to normal ordinary level. So traffic is just slightly smaller than the situation exactly 1 year ago. Of course, once again, it depends on the, well, infection rate and the possible further measures that the government may decide to implement in order to face this current situation. You also mentioned the financial position. Yes, just 1 second, I'm just taking the floor to tell you that as for the net financial position. So NFP Unipol Gruppo. We now have EUR 1.5 billion, a little bit less than EUR 1.5 billion. This is what's happening at the 30th of September. So end of September, EUR 1.5 billion. And if I'm not mistaken, well, we have made an investment. So we have underwritten 10% of the BPER Bank capital decrease. This is around EUR 80 million, 8-0, so just a little bit less than EUR 80 million. So the -- as for, once again, the NFP, I think that, that was in the presentation. Anyway, as you know very well, in the month of September. So 2 months ago, we put EUR 750 million. This is a new bond. And this is what we have done to increase our cash and cash equivalent because we saw that the market conditions lately are very, well, favorable for us. So in this case, our coupon is 3.25% with [ serial ]. by doing so, we've been able to, I mean, stretch the duration of our total debt. So once again, we've been able to increase our cash and cash equivalents. So today, we have EUR 1.5 billion liquid assets on top of strategic assets so without considering 85% of UnipolSai. And then there's a residual part that we still have to sell of the UnipolReC portfolio. So we may recover EUR 450 million versus the EUR 700 million we had 2 years ago. And we also have 10% BPER in our portfolio. I mean, all the rest is represented by cash or liquid assets totaling more than EUR 1.5 billion. As for the FS reserves, now we -- well, considering the latest date, we have a little bit more than EUR 1 billion. We had [ Technical Difficulty ]

Ladies and gentlemen, please hold the line. The conference will resume shortly. Thank you. Ladies and gentlemen ...

[Interpreted] We also wanted to have other buffers. And we needed to have more trust and confidence for -- I mean, facing 2021 together. Sorry, we missed a couple of seconds of speech because of line problem, sorry. Okay. Once again the operator is telling us the line is now back. Okay. Andrea, sorry, I was told that maybe you couldn't hear me for some seconds.

[Interpreted] Okay. Combined ratio, yes, maybe the answer on the combined ratio. We couldn't hear that.