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

The General Director of Unipol -- of UnipolSai, Mr. Matteo Laterza, will share with you a short introduction, and then he will be available for questions. Mr. Laterza, the floor is yours.

[Interpreted] good morning, ladies and gentlemen. You must all have seen the presentation and read the communication of the press release. So no presentation is required. I'm here with Enrico San Pietro, the Insurance Business General Director. And I'm here ready to take your questions. Thank you.

[Operator Instructions] First question from the original conference is from Michele Ballatore from KBW.

[Interpreted] Now this is my first question to you. And it is on the investment yield, IY. So especially in the Non-Life Business, it went up a lot versus H1 2021. So can we have some color about this? . Second question is again on the investments. So corporate bonds reduction and the Italian govies reduction. I know there's been a slowdown or a cut now. Is the cuts due to the market only? Or are you repositioning it away? Third question, what about the govies strategy? Is it going to change? Because they went up a little bit.

[Interpreted] Well, thank you for the question. Now as for question #1 on the IY, so investment yield of the Non-Life business. We have many factors to take into account. The first one is due to the significant presence in our portfolio of inflation bonds. Now of course, the coupons were impacted positively by the increase of the European inflation rate in the past months. So I think that this is a nonrepeatable attitude or fact because if it becomes fixed or structural, we would have an advantage on the investment part, but we have to go through some criticalities in terms of our liabilities on the Non-Life Business. Apart from this, we carried out major investments in terms of liquidity that we had in our portfolio, and we have had the possibility to invest at a very interesting rates [ versus ] the past. Now this means we've been able to strengthen the structural coupon yield of our portfolio. We also have the dividend component, and now it has given a more than proportionate contribution versus the same time last year. And then on the Non-Life Business, we have allocated plenty of real asset investments or alternative investments. Of course, they have a higher profitability versus what you can see on the fixed rate market. So we are investing our cash flows on the Non-Life Business between 2% and 2.5%. This is what we invest on a diversified portfolio where we have Italian govies 35%. Some of the remaining part is the European govies and corporate govies again. So we also have the dividend component. We have the inflation component. And of course, well, it depends on how it will go in the next quarters. And then we also have the alternative investments. This is the strategy we carried out some years ago. We want to reduce the investments in Italian govies. We want to reinvest cash flows in other securities, I mean, bonds or Europe core parts. The credit components on the high rating levels, I mean, from single A upwards and then a small part in alternative investments. The objective is we want to have the right profitability that fits or meets our objectives. As for the Italian govies, total exposure is now 35%. Now during the 6 months, we have reduced our securities by around EUR 1 billion. And the remaining part is market-to-market. I mean the Italian govies has lost a little bit their value more than proportionately versus many other fixed rate income. So in terms of AA or asset allocation, this means we have reduced the percent allocation. So right now, we don't think there will be any change in the asset composition. What we have now is 200 basis points spread between BTP and Bund. So we are close to political elections. So we prefer to have a cautious prudent attitude right now before making decisions on the financial assets portfolio. Thank you.

Next question is from the conference in English from [ Dalla-Palma ] from BNP Exane.

So the first one is on P&C and the nat cat impact in H1, which in 2Q especially seemed a bit high. Can you remind us how your reinsurance cover works and whether you have any plans of tweaking that going forward? My second question is on -- still on P&C. What was the support from prior year releases in the first half, please? And then lastly on Life. So another strong quarter in Life, making your last guidance for pretax results quite conservative now. Could you update us on this and your expectations for the Life contribution?

[Interpreted] Thank you. Now as for the release of reserves or provisions, I have to say that this semester has been characterized by the fact they're going back to normal. I'm sharing this with you because the previous half year was a special one. Maybe you remember, we've been very prudent, very cautious on the provisioning policies. I mean there were no provisions, but the release part only had to do with the so-called recoveries on the, well, accidents or claim managements. On the first half of 2022, we have released the provisions for EUR 260 million, more or less in line with what we've always used to do in normal years, I mean, from 2019 backward. So this is to answer your first question. Let me answer on the Life question, and then my colleague will be talking about nat cat. Now as for the Life business, we enjoyed quite a good half of the year. It's being [ fed ] by the recovery of the technical part. So we have more parity related profits, expenditure reserves, commissions and repurchase or payback, but also financial recovery. Now this happens because we've been able to slightly increase the profitability of our GS or separate management. At the same time, we have reduced the guaranteed minimum levels by 5 bps while the financial liquidity or profitability increase likewise. So one part of this delta has been seen as financial margin on the Life business. So the joint effect of these 2 behaviors generated the Life results that you could see in the previous -- I mean in the first half of the year. As for the second half, so H2, the technical part keeps having a similar evolution versus the previous H. The financial part exclusively depends on the evolution of the interest rates in the next months or so. So as you've seen, there's been a lowering. So I can't [ tell ] the rates from the closing of the H1 to today. Anyway, there are still interesting levels. On the Life business, we now invest between 2.5% and 3.5% range. Now this means that, well, hopefully, we will be able to slightly improve the financial profitability. And okay. So in general, this is the context in which we'll be operating in the next month or so, the objective being to well confirm and hopefully slightly improve the Life business results of H1. As for the nat cat, the floor goes to Enrico.

[Interpreted] Good afternoon, everyone. Well, let's say that, first and foremost, if you take into account the direct business before reinsurance, the incidence of the sum of catastrophe claims or large amount of claims, well, this has increased versus H1 '21. Well, basically, this is due to the large amount of claims, if it were. So there's a modest -- I mean a slight increase of the cost of natural events also in July, we are, let's say, back on track. As for the reinsurance, now the reinsurance protection, especially against atmospheric events, but also in terms of the large amount of claims. Well, this is based on 2 treaties, if you will. In this case, we have a major important aggregated franchise. So in the first H, so H1, this franchise, if you will, has not been saturated yet. So the recovery of the reinsurance is not exactly what you can see at the end of the year. H1 '21, the recovery of the reinsurance was basically due to the fact that using, let's say, the claims money of the previous years with a positive recovery. So basically, the reinsurance protection system is just like the one we had last year and by its own nature. So we have the so-called major aggregated franchises. So it shows positive effects in the second half of the year.

Next question is from the original conference from Gian Luca Ferrari, Mediobanca.

[Interpreted] My first question is on the motor business. I guess, Q2, the auto combined ratio was 101%, if I'm not mistaken. So we don't have the technical profitability context that we had before. Other competitors raised tariffs. So I can say 1% year-on-year, flat month-on-month. So how or when will the tariff increase will be visible? And how and when will we go under 100%? So in the recent decree, some foreign companies cannot operate in Italy if there's no direct indemnization. So am I correct? So a tariff rate increase won't increase the competition from some players because they have played, let's say, different cards than yours. So tariff increase context won't be good for you. The second question is for the nonmotor business. There's an indexation of many lines that I can see. So I wonder how many lines are linked to the inflation in terms of tariffs. I mean and I can see the health business with a high performance. So I guess the health basically is one of these lines. As for the Life top line. This is my third question. I think Q2 includes a minus 23% year-on-year, especially on bancassurance. Well, of course, I know what the context of the market is. But I wonder what happens on the bank channel. So do you think something different may happen, for example, going back to flat? Okay. Fourth question, tax rate of [indiscernible] H1. This is well a little bit higher than our expectations. A yearly guidance would be very useful.

[Interpreted] Okay. Then let me answer on the Life question before I give the floor to Enrico in terms of the motor vehicles or the motor business. So Bancassurance, Life business, we do not follow any production targets or premiums on the investment component. Traditionally, our parameter is the investment production, especially on the traditional components, and we compare this to our own, if you will, capacity in terms of production concerning our GS, so separated management. So that's our bancassurance component, which is sort of independent. It's not a novelty. It's something we know. And We just wanted to produce, I mean, those volumes of premiums exactly on the traditional business. I also have to say that we sell the hybrid products. So hybrids are being between unit-linked on the one side and traditional products on the other, and this is what we will probably do also for the next 6 months. The only element that requires a little bit more insights is the increase of the interest rates. Now this means we will have the possibility, if you will, to increase the production component that has to do with the so-called branch #1 or first section because, of course, now we can do this with quite a good financial balance, high profitability and also in terms of ALM. This is something that we are discussing about right now, well, provided that rates stay unchanged. So possibly, there may be an increase of the maximum level of production in terms of Life business. Enrico will answer the motor vehicle questions.

[Interpreted] Gian Luca. Now as for the car business. Of course, this is very interesting. Maybe the most interesting business for many of us. Now there's a natural increase of the claim frequency after 2 very positive years I mean in 2020 and 2021. Well, this is the main reason why there's been an increase of the combined ratio. As for this topic, thanks to all of our actions, but also because of the composition, which is more favorable in terms of damages to people instead of damages to things, we don't have major effects on the average cost. So today, we think we are in line in terms of reaching our objectives for 2022. So at the end of summer, we have to do what we need to make sure we can also hit the 2023 targets because, as you know, the tariff maneuvers take some months before showing their effects. We agree on the so-called competition package because there's a competition fairness, if you will. Now of course, you have to have the card, I mean, for those operating on the Italian market. So we see some very positive effects, if you will, in the competitive context or a scenario that removes gaps or deltas. And in the future, this means that there will be a better industrial result. As for the non-motor vehicle business, there's a major growth that we have experienced, and it's based on many reasons in terms of health. Of course, there's been a big business from [indiscernible] expanded its business together with the growth of bancassurance. So Arca and Incontra. So-- as for the non-motor vehicle part of Unipol side, we have different effects. The first one is very significant, of course, the increase of prices because, of course, this is one of the things we have done. We also have the so-called premium adjustment. Because for some years, companies have had, if you will, shrinking turnovers. But now turnovers are going up, premium adjustments impacted positively on this. As for the indexation, we have around EUR 0.5 billion portfolio being indexed, plus another part. So the total is basically EUR 1 billion. This is the portfolio figure after which we can work on prices so as to adjust prices every year. As I told in the past, we have a specific contractual mechanism. So on the most recent generations, I mean, on the previous 5 years, we can adjust the price to the technical needs we have. So once again, EUR 1 billion portfolio. Out of this, we are able, I mean, to do this kind of business on EUR 1 billion, especially on property. And we are doing this even well beyond the effects of inflation. For example, of atmospheric events, tariffs or rates go up much more than many other rates. Now as for the tax rates, our forecast to the end of the year, well, now first of all, if you compare this tax rate with the H1 '21 rate, you have to consider that in H1 '21, we carried out the real estate revaluation, plus the goodwill. So basically, we had EUR 80 million to reduce it. So you cannot compare H1 '21 to H1 '22. So in terms of forecast, while the calculation is quite impossible to do today because the tax calculation is done on the local balance sheet. And you know that in Italy, they consider the securities portfolio [indiscernible]. So on the balance sheet today, we have all of the working capital part. In this case, we can see value losses. And of course, we don't know if they will be projected as if. Of course, it won't be like this. It can be either better or worse. So the final calculation will only be carried out at the end of the year. For the time being, we have to be happy with this very solid forecast. But of course, it is based on June 30, 2022. Okay, that's perfect. Thank you.

Next question is from the English conference from Michael Huttner from Berenberg.

And [indiscernible] sorry. It's just I didn't -- I couldn't catch all of what was said before, and I really apologize. The first one is pricing on motor. I understood from the earlier answer that you're actually happy with pricing as it is. So I just wondered what the figure was. And you said that you're on track to achieve the full year target. And I just wondered what that target is, given that the combined ratio of 98% in motor at the half year looks higher than what I would have expected. That's my first question. The second question is on reserving. I think I understood you to say that you're not adding extra to reserves more than you would normally do. But there's one sentence in the press release, which I'm struggling with. It says -- it's in the paragraph called combined ratio. The performance in the other divisions is positive, along with maintenance of the reserving of claims, previous financial periods, indicated by significant savings on claims paid. The way I understand it, but please, if you could explain, is that the savings from the claim settlement, the 40% or 70%, whatever the ratio is, is going into reserves and is not going to earnings? And my guess is that's a significant amount, somewhere around EUR 150 million or EUR 200 million. I just wondered if you could confirm that. Then can you give roughly solvency figures today for Unipol Group and UnipolSai? And the only other question is on the reinsurance, how far are we from that attachment point for the aggregate?

[Interpreted] Okay. Thank you so much. I hope [indiscernible] understood all the questions, okay? I'm not going to comply with the sequence of your questions. Anyway, there's one question on the reservation or provisioning policies and on the release of the reserves from the previous financial years. Now as I said before, we have released all of these reserves around EUR 260 million, which is 6% of the premiums that we have in our accounts. Now this is a reserve release, if you will, which is very standard. This is what we have typically released in normal years. Now when I say normal, I'm not talking about the COVID years because in the COVID years, our reservation policies were very conservative. Now in 2022, luckily enough, so we are back to a normal standard year. So we have taken into account once again the standard operations. And in this case, we have that kind of reserve release. Just to give you a general idea on the motor vehicle business, the average savings versus the reservation, of course, I'm talking about the previous years by around 45% versus the reserve. So this is quite a lot. So considering the reopenings of claims and considering the reappreciations that we do on the claims that we have in our portfolio, but also considering the [ B&R ] and also the recovery balance, the release on the motor vehicle from the previous years is around EUR 70 million. So more or less, this is the level of concern in the motor vehicle business. So this is not an extra release of reserves, but this is absolutely normal. Okay. There was also a question on solvency. So well, let's say, a short update of solvency as of today. Now I don't have the updated figures to give you right now, but please consider the following. So starting June 30 and then until to date, there's been a recovery of the financial markets, a general recovery. So I'm talking about equity, but I'm also talking about credit. And I have to say that also, Italian BTP is slightly, let's say, going down. So we hope there will be an improvement. So 201% we have for Unipol Gruppo and 276% of the economic capital of UnipolSai. Now of course, we are on a higher, if you will, territory versus the figures we had at the end of June. There's also pressure on pricing of the motor business and reassuring. And once again, the comment will be given to you by Enrico.