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

[Interpreted] Ladies and gentlemen, good morning. This is the Chorus Call operator. Welcome to the Q&A session on the consolidated preliminary results for 31st of March 2021 Gruppo Unipol. The group CEO, Mr. Carlo Cimbri, will go through a short introduction and is now available to take up questions. Mr. Cimbri, floor is yours.

[Interpreted] Thank you so much. Good afternoon. I'm here with my colleague, Mr. Laterza. I usually do. I think I'm ready to take questions. Thank you.

[Interpreted] [Operator Instructions] Question #1 is from Elena Perini from Intesa Sanpaolo.

[Interpreted] Good afternoon, everyone. This is my question. What are the key trends that you are seeing on the market right now in terms of Non-Life. So of course, it's just a question of a few weeks. But after the very few reopenings, that you already expect an impact, especially in terms of the frequency of claims, motor vehicle claims. As for the Life business, we saw a sort of a weak result in the first Q. And can you just expand on this? So which are the main impacts of this? And which can be the future trends or perspectives for the next quarters?

[Interpreted] Okay. Thank you. Elena, thank you so much. Just a quick word on the first part of the question, then I'll leave the second part to Matteo. Now what we are observing is quite easy to understand from every one of you. Because, I mean, it has been sort of lowering, if you will, of the lockdown measures, banks are progressively being lifted. And you know, I mean, you read it in newspapers. I mean we have better and better news as compared to the previous months, I mean, on the perspectives of the vaccination campaigns but also in terms, if you will, of the circle, the new normal or return to normality, which is what you can really see every single day in the street or in the roads. I mean people, citizens, so people are sort of also anticipating this kind of trend. And they are also, well, using, of course, our boxes in a different way. We are now very close to the traffic or circulation values that we had, of course, well, not in 2020, but in 2019. So I have to say that the trend, this is, of course, our observation point and of course, this is not just a pure, if you will, observation, I mean it's something based on scientific data. So what we expect now is an increase of frequency of claims. Well, we don't know which levels, we will see. So we will keep our eyes open during summer, maybe more domestic traffic, we don't think there will be the same number of tourists that we have -- usually have in summer. But then, of course, we have the autumn month so this is of course what we expect the vaccination campaign will be, let's say, ended, so once again, we will be right into the new normality. So it's difficult to say which kind of frequency will we see, I don't think -- well, not for this year, we won't go back to the levels that we had before 2020 because what's happening. I mean there's been a frequency reduction year after year, and this has been happening for some years. This is due to many factors, including the fact that, of course, well, there's more and more technology and a higher and higher level of safety on cars. But I'm sure frequency will go up. Let's say, they will become a little bit more normal. So not what we saw in the past year. So if you also consider the pressure on prices, so the steady decrease that we see on the average price and average time. And of course, I'm talking now about market data. This is what we have to expect in terms of the car business, maybe at the end of this year, but of course, for the beginning of next year, and there will be a sort of a technical price insufficiency that you have on the market today, considering the claim trends. This is the vision, which is now sort of driving our financial policies. So in compliance with what we did last year, and I'm sure we talked about this when we presented the financial statements. So also if you consider, I mean, these quarterly financial statements, we've been very cautious in, well, drafting our economic statements. The same for reservations or provisioning. Matteo will also be talking about this when he talks about the Life business. We managed the financial statements as if it was just one single element, so Life and Non-Life. If we have more margins, so we will be able to reach the economic results objectives, also in presence of the phenomena that I was talking to you about. So independent of the trend of the market, of course, we'll look at our results with trust. So our economic results have to be in line with our objective. So we can really count on strong buffers. They will give us the opportunity to manage the near future at best. Matteo, back to you.

[Interpreted] Now, Mr. Cimbri said it all on the, let's say, car business. Now as for the noncar or non-motor business, now the dynamic there has been different. It's been positive, especially when it comes to the agency distribution network. We have had the good performances in the, let's say, so-called people business. But also small and medium enterprises business. Of course, it goes without saying this is extremely positive as an aspect. And as for the evolution of the dynamics, well, it very much depends on the evolution of the Italian economy in the next quarters. Also considering how the traffic regulations will be approved or modified. So in general, of course, it depends on the general recovery. What is very good is the health trend. So once again, under this perspective, I only have positive news. Now you asked a question on the Life result. And now you know that the first quarter is not very much representing the general dynamic of the business. And I understand that we usually now make a comparison with 2020. There were huge asset allocation changes, which led us to have different latent, if you will, losses on the portfolio, latent capital losses. So if you make a comparison to 2020, this is not the right comparison, if you will. In the first quarter, we had very cautious policies, as Carlo said before, in terms of reserves and provisioning, especially when it comes to pure risk policies. We also had less financial income that concerned, if you will, with the Life assets. Don't forget, the Q1, as I said before, is not the right one, if you will, to take into account because the financial assets go to mark-to-market, it depends, of course, on the realization policies while the evolution of the liabilities depends on the yield rates available. If you consider the evolution of financial markets and then the level of interest rates today, this evolution, of the so-called, GSM, during the year will go down so also the so-called, technical interests, will go down as well. So this is the explanation of the results of the Q1 now I have to say that it was not very significant in quantitative terms, I mean, considering the possible better evolution or better trend during the rest of the year.

[Interpreted] So next question is from the conference in English from...

I didn't hear -- this is Peter Eliot. Can I ask a question?

[Interpreted] Yes, exactly. Yes, you can, please.

First question is, can you tell us what the reserve releases in Non-Life were this quarter? And then I had two quick follow-ups on Elena's questions. Firstly, on the Life, I mean, in the past, we've come to think of the Life business as running at about EUR 200 million of earnings a year. Is that still a sort of appropriate level to think about, going forward, on an average basis? I appreciate there is going to be some ups and downs. And the other follow-up is on the Non-Life pricing development. I mean given your comments that -- it sounded like you were sort of saying at the start of 2022, prices might not be sufficient. Does that not mean that you should be maybe making a bit -- being a bit less competitive at this stage to try and prepare for that. I'm just wondering how you're thinking about the competitive environment as you go through the second half of this year?

[Interpreted] Now as for our policy on reservation, I would just, let's say, translate it into figures, what I said before by answering the previous question. Now as for the two main branches of reservation, I mean MV and TPL. Well, we only had the supported recoveries. So there were no so-called recoveries on any other type. So no release of reserves, which is very similar to what we did in the first quarter last year. So in multi vehicle, you can see the couple of figures are around EUR 9 million. Now as for all the other branches, of course, you know that they have, let's say, dynamics that are very much linked to the payments or liquidation processes. I mean, when we pay the claim. In this case, we have exactly the same index of release. So once again, yes, I'm just checking same release index that we had in the previous quarters. So as for the loss ratio, I mean, the reservation part considering the so-called recoveries and the releases of reservation sales is 2.6%, which is exactly the level we had in the first quarter last year. So we have followed exactly the same kind of policy. So basically, we haven't released, let's say, reserves in terms of valuation. It is also a technical issue. Second part of the question is on the Life. Matteo, can you answer the question?

[Interpreted] Yes. Okay. Here we go. Now as for the Life, this is the situation as of today. Let me start from what you can see on the slide on how much we keep on the Life benefits, consider the EUR 35 billion reserves on GS. We have EUR 35 billion. We have 90 basis points. So it's basically EUR 300 million. This is what we withheld -- withhold, plus technical margins. So you have mortality, and then we have the loading, and then we have many other reserves for this type of expenditure. So in general, EUR 130 million so these are the main income sources of Life. You have to remove what we use to pay the distribution network, roughly EUR 100 million and the costs having to do to the Life business, around EUR 150 million. So let's say, in a normalized situation, we have -- well, it's EUR 180 million now, but the real figure is -- well, exactly what you said before, so around EUR 200 million, as you said. So as I said before, in a year like 2020, where we realized more than EUR 100 million extraordinary losses on the 3 assets, well, this figure is downsized in an extraordinary way versus the normal business. Now, Peter, as for the question you had on the type of strategy, we will be following or we are already following, it isn't surprising, well, traditionally and since ever, I have to say, here in Unipol, the focus, if you will, is on the profitability, okay, not on volumes. Now of course, we are a player of the market and we stay on the market and we follow the trends of the market. But our strategy has to do with maintaining, if you will, a healthy, cautious management of the technical balance of what we do. So what we see today is aggressive prices, plenty of aggressive prices, as you know, especially from the smallest companies. Well, we let them do that. I mean, we try and protect our own customer portfolio. Of course, we do believe in having loyal customers. So we want to have regular, stable relationship, I mean, as why this is possible, I mean, offering other products, but also on the MV -- also on MV only, because also MV customers only have to become loyal customers. I remember, we talked about the ecosystems, I talked about when we launched the business plan, well, this is our target. For example, the mobility system that we are developing is doing exactly this. So we want to give more than one reasons to our customers to stay with us. So our strategy is not priced based. It is based on quality, the strength of the brand. It has a strong reputation, well the strongest reputation in the financial services sectors. So banks and the insurance companies will work on the quality of the network, services and technology. So we work on many different reasons that, of course, in our opinion, may turn into good reasons for people to choose us. Once again, we don't bet on the price. Well, those who believe in price, those companies that will have no other opportunities, just trying to get customers based on price only. Well, I know there are many different or even diversified situations. I mean there are companies who are willing to lose money. Some companies offer their car but to online agencies that only earn onto the intermediation, but then the company will supply the car that they will lose money. So as I said before, maybe within this year, and of course, at the beginning of next year, the trend is very clear. So as soon as we are back to normal in terms of traffic, and on the road, and the prices on the market, of course, the market will be into a technical loss situation. So we don't follow the market. We just stick to the strategy I have just explained.

[Interpreted] Next question is from Sudarshan Bhutra from Societe Generale.

[Interpreted] A few questions from my side. The first one is on capital management. Now I see that your solvency ratio for both UnipolSai and Unipol Group is well ahead of your target range. So what is -- I mean, what is your plan regarding managing your solvency ratio. I mean should we expect an increase in this target range in the upcoming business plan? Any thoughts around that, please? Second question is on the special dividend. Anything -- any update from the regulator or any headwinds to point out over there? My third question is on UnipolReC now. In the -- in your press release, you've mentioned that you -- that underlying trends in UnipolReC are strong. However, I failed to see that in the numbers that you've presented in the -- on Slide 13. So just some more color on what's happening in UnipolReC would be helpful.

[Interpreted] Thank you. Now as for our strategy on the solvency, well, let me tell you the following. Now it's being implemented, as you know very well, during 2020. There have been a correction of the asset allocation of our investments. And this is what we did because we just wanted to reduce the volatility of solvency. So this means that it has taken almost one year, and we have been able to reduce the -- Italian govies into our portfolio by 10%, and we have diversified on other forms of investment. So as to have a portfolio condition, which is closer, if you will, to the EIOPA curve. So what we want to have is a stable, if you will, flat solvency. It is above our target. I mean our -- the targets you can see in the plan, I mean. But as I said in many previous price conferences, we have to consider all of the different indicators by understanding very well what they mean. Solvency is a very volatile factor. And well, this is one of the limits of solvency. So hopefully, the regulator will change this. And of course, it is different versus the regulatory capital of the banks. So depending on how it is calculated, it is much more stable, much less volatile than insurance solvency. This is a limit due to solvency. I mean it was born like this since the very origin. So again, the European regulator helped by the national regulators, of course, and thanks to many different actions, yes, they are trying to find a remedy or a solution to this gap. But if the situation is like this. So if solvency is not corrected, so it could be less volatile or less exposed to the market volatility or to mark-to-market. Well, we have to consider that it is very volatile. So being volatile, we need to have some capital buffers that have to be bigger, wider than those who we indicated in our 3-year plan. So because we are higher in the solvency, don't worry. I mean there won't be any special measure considering the capital. Now if -- in this case, I'm talking about your second question. If you think that we have the intention to pay the dividends that we have frozen in 2019, yes, I do confirm also based on the results. Well, of course, we just didn't need this because we provisioned all of this into the 2020 financial statements. So I mean, we don't have to, if you will, create an extra benefits, okay, we are doing this, but this is, of course, concerning that current financial year. Anyway, our will is unchanged, together with the capacity we have to be able to distribute, so the 2019 dividends, once again, this is confirmed. There are no new, say, regulations or prescriptions from regulators. So we have to stick to what we already have. If I'm not mistaken, the deadline is for September 30. So once again, because we don't have any other measures or regulation. I do confirm our will, we will honor and maintain the commitment we've taken to the markets and as soon as we have the possibility to do this from the regulatory point of view. Now as for your question on UnipolReC. Now this is not some -- a real news. I mean, since the very incorporation of that company, and by the way, this is confirmed quarter-after-quarter, because if I'm not mistaken, it's been like this for 10 quarters, so 10 quarters of business for UnipolReC. Now the recovery trend is steady, which is great. And also in 2020, well, even if, as you know very well, among all of the activities that were frozen or even, if you will, slowed down during the pandemic, we also have all of the work, if you will, of the courts, the civil courts. And then all of the management of mortgages, credits that are not being paid, et cetera. So this was a physical -- a difficulty, but UnipolReC managed to recover 30%, I mean, net versus all the loans that have been attacked? Now, of course, we are working on every single type of credit, so guaranteed but also nonguaranteed. I don't have anything else to say. This was the only point. Once again, I do understand it's a complex time now in terms of courts. But UnipolReC, thanks to recoveries, transactions, we managed, as I said before, to comply with objectives. Let me also tell you that UnipolReC this year, that it's been funded partly with capital, partly with debt. At the very beginning, the debt was EUR 300 million. It was exactly EUR 300 million. UnipolReC, within this year, will totally cancel the debt. We have already canceled it because basically, we already have the money in our pockets. So the debt has gone. We are very happy of the business of UnipolReC, and this confirms the right strategy. So it's a strategy that we have been able to apply. So also my friends, bankers would have liked to do this, but you know that this was not possible for banks. It was not possible to keep the loans and recover them, while it was possible for an insurance company like ours. So we keep reducing the loans portfolio, which is what we have now.

[Interpreted] Next question from the conference in Italian from Andrea Lisi From Equita, please.

[Interpreted] A first question by going back to the dividend. If I'm not mistaken, in the last results call in February, you told us that the 2019 dividend of Unipol would hardly has been paid. So the EUR 200 million of unpaid in 2020, probably they more than helping, phase in '21 and even in '22. Is this confirmed? Or is the regulator doesn't change the situation? Do you think it is possible to pay this amount in 2021? My second question is on Life. And it concerns the fact that Arca has now the possibility to collect more, thanks to the bigger scope because of BPER. So do you think that the better Life business, so it will do good, I mean, on the EUR 200 million you set for. So EUR 200 million is the result of the Life division. Last point as for the investment portfolio. So between end 2020 and first quarter '21, I see you have increased liquidity. Just would like to know why you have chosen this kind of portfolio structure?

[Interpreted] Now as for dividends, as I said before, as soon as we have the right conditions, I mean, the regulatory conditions to really be free to do this, well, we will make a decision, and we will find I mean the best time to do the payment. And again, this is the reason why we would like to have a robust solvency as you know very well, you need to have a robust solvency to be able to do so. And we do have it. Where we'll strive to keep it unchanged in the next months. At the end, we will assess exactly what to do now. The target we have now, actually, the priority target is to keep the promise and stick to the commitment within the end of the business plan. You know that the -- well, the deadline is basically the approval of the balance sheet in 2021, so basically, I'm talking about April 2022. Now if we have the right -- I mean, at that time, we will have the right conditions to do different assessments. Now if we have the right conditions to do so even earlier, well, why not? But once again, this is our commitment and our objective, once again, depending on the regulatory conditions, we just want to stick to the business plan. Now as for Arca, now the UBI branches that the BPER has acquired, well, it has just happened and I know that there are around 30 branches coming from Banca Intesa, if I'm not mistaken. And of course, they now have to integrate them into the business. So once again, they have just stepped into the group. Now the very first figures seem to be positive. So they have already made EUR 50 million Life policies, just after 1 month for these branches. Anyway, if you really want to be a little bit more structured to have a complete view, looking forward, well, we have to wait for the new management so the new management and the new Board of Directors has just started, well, the office. And so of course, they will work to improve the integration of the branches. It's a new market, which is now inside of the BPER group. So we need this information, these figures, and then we will be talking about volumes, margin levels, contribution to be given to our Life business. I'm sure that you will see this in the new industrial or the new business plan. So this year, there will be a contribution, of course. But in order to reach our targets, well, we do not, let's say, bet on to this additional segment or business. So any extra will be welcome. But of course, we do have our own targets. We don't depend on the new segment. Of course, in the new business plan, I mean, the view will be a little bit more structured. Now this means that Matteo has kept some money in his pocket instead of investing it.

[Interpreted] Well, I kept the money in my pocket. And of course, you must have seen that the investment part in shares has increased in terms of asset allocation because at the end of last year, we did -- I mean, we made the point on the investment strategies, which is, again, what we do -- usually we do for 2021. So we didn't see a major value in the rate position, considering, I mean, the absolute levels we reached at the end of last year. Now we could see some value. I mean in the equity components but also in the real asset component. But -- well, especially this second part, the latter, is not liquid. This means we have developed a so-called barbell strategy. So aimed at increasing the liquidity component. And at the same time, the one having a higher risk profile, which is the real assets. So this is the reason why we started with the new strategy. Now this is what we started, and this is what we would like to stick to throughout the year, unless there are some great, well, earthquakes on the market-leading us to change our direction. Thank you.

[Interpreted] Mr. Chairman, ladies and gentlemen, for the time being, we have no other questions thank you.

[Interpreted] Thank you. Thank you so much for participating in our presentation. Thank you for your questions. So we will meet at the beginning of August for the conference call on the data of the first half of the year. I do hope you will all have been vaccinated. Thank you so much. Enjoy the rest of the day. Thank you. Bye-bye.

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