Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Generali Group First Quarter 2022 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Fabio Cleva, Head of Investor and Rating Agency Relations. Please go ahead, sir.
Thank you. Good morning, everyone, and welcome to Generali First Quarter 2022 Results Conference Call. Here with us, we have our Group CFO, Cristiano Borean. Before starting the Q&A session, let me hand it over to Cristiano for some opening remarks.
Thank you. Good morning, everyone. I would like to share with you a few comments on the tragedy we are witnessing close to us. Generali has an historically strong presence in Eastern Europe, and we feel very close to the Ukrainian people. Generali, The Human Safety Net, and all our colleagues have participated in a joint effort to provide support through donations and volunteering initiatives. In addition to the human tragedy, the Ukraine conflict has also affected our first quarter results. Let me summarize what have been the main impacts stemming from our exposure to Russian and Ukrainian investments. At the end of the first quarter, the fair value of the 38.5% stake in the Russian insurer, Ingosstrakh, amounted to EUR 176 million, compared to EUR 384 million at year-end 2021.
At the end of the first quarter, the fair value on Russian fixed income instruments directly held by the group amounted to EUR 40 million, compared to EUR 188 million at year-end 2021. Those fair value changes implied an impairment which negatively impacted our first quarter net result for a total amount of EUR 136 million. Let me clarify that Ingosstrakh continues to operate as it has a solid domestic market position in Russia. The fair value of the investment in the company will be reassessed for the first half of 2022 results. In case of an extreme scenario resulting in a full write-off of the participation, the additional net result impact would be EUR 126 million.
Concerning the remaining EUR 40 million Russian fixed income direct exposures, which are all denominated in euros and U.S. dollars, they reflect an average fair value of around 24% of nominal value. Assuming a full write-off of this fixed income exposure to zero, the net result impact would amount to EUR 37 million. Even in the extreme scenario of a full write-off of all our direct Russian investments, the capital position of the Austria, Central and Eastern Europe region and its remittance to the group would not be at risk. As already stated in the press release published this morning, the group also had negligible Russian and Ukrainian indirect investments and unit-linked investments, which amounted to EUR 43 million and EUR 34 million, respectively, at the end of this quarter.
Thank you, Cristiano. Operator, we are now ready to open the Q&A session.
Thank you. This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Andrew Sinclair with Bank of America. Please go ahead.
Thank you very much. Three from me, please. First, can you let us know what was the operating result contribution from Cattolica in the quarter, ideally, if possible, breaking that down into the different segments, P&C, Life, et cetera? Second, just on the current year loss ratio evolution. Just really wondering if you can walk us through the moving parts year on year, what was from normalizing post-COVID, how much from inflation, how much from integrating Cattolica, et cetera. Third, with bond yields going higher, what are your current reinvestment rates? How do they compare with earned rates on the portfolio? And just any guidance you can provide on investment income would be super helpful. Thank you.
Thank you, Andrew. Let's start with the first question. I give you the breakdown of the EUR 52 million total operating result contribution of Cattolica Group in the first quarter 2022 for Generali. EUR 8 million were devoted to the Life segment and EUR 44 million were devoted to the P&C segment. The pro rata net result contribution of Cattolica for the quarter was EUR 33 million. Regarding the moving parts of the P&C loss ratio, and in general, we think that the effect is combined by on the current year, you see a year-over-year drop of 0.6 percentage points. The current year loss ratio is 62.8%, while natural catastrophe have impacted the loss ratio by 1.4 percentage points.
The delta is 0.6. Basically, you have a 0.6 delta in the attritional part, and a 0.6 delta in the natural catastrophe, which is affecting the total loss ratio before the prior year. We have slightly lower prior year release in the quarter, which were basically one percentage point less than the previous quarter. I would like to anticipate, maybe eventually, the point that in the first quarter, still, we had a small positive effect in the month of January, stemming from the huge wave of COVID, which was not affecting people severely, but for some time had people stuck at home.
In percentage, we observed a little bit of benefit, not material, but for sure, you have to expect going forward the current year combined loss ratio component not to add the structure throughout the part of the year-end 2022. Related to the reinvestment yield, we have an increase of the reinvestment yield in the P&C component, which is basically above 2%. It is 2.1%, and it is above our plan expectation, let's say 100 basis points above. While we have the life component, which had a 1.7% reinvestment rate, which is basically 50 basis points above.
This is also for technical, mix, difference also on both of regional and of combination of relative weight between government and corporate, slightly higher in the life component, with a slightly relative higher amount of government versus corporate compared to the P&C. Next question, please.
The next question is from Iain Pearce with Kepler Cheuvreux. Please go ahead.
Thank you very much. Three from me as well, please. First of all, just maybe if I could just follow up on Andrew's question, actually, specifically on the attritional loss ratio for current year ex-nat cats. I mean, I guess, you know, you said this rose 0.6 percentage points year-on-year, but that doesn't seem very much to me, considering the inflation trends. I think last year you said that the Q1 ratio was depressed by 1.7 points due to COVID. I may have misunderstood, but I thought you said it came in at 88% and would have been 89.7. I'm just wondering, you know, why the underlying hasn't increased a little bit more. Comment, that'd be great.
The second question is on asset management. You don't tell us the share of the private equity result, but it's clear from the pro forma disclosure that it was at least EUR 47 million this quarter, probably higher, I guess. That obviously compares to an operating result of EUR 130 million ex performance fees. It seems that a large part of the asset management division is actually coming from the minority share of Lion River rather than from managing client assets. I guess my question is just whether you could clarify that for us, you know, whether you could clarify how much of the historical asset management results has come from Lion River. I don't know if we can maybe have a number for 2021 or something, but that'd be very helpful.
Finally, just a general question, I guess it's always difficult for us from the information presented, you know, to gauge the sustainability of the results. I'm wondering, Cristiano, if you could just highlight the items that you would consider to be one-off in nature if you were sitting in our shoes. Yeah, what would not be sustainable within the operating results? Thank you very much.
Thank you, Iain Pearce. Attritional loss ratio trajectory and delta. I have to make a couple of information. For sure, we observe some specific effect and in the first quarter 2021, I take the case of a country. I speak last year, the first, in Germany, we had the lowest ever number of claims because of the severe lockdown which the country suffered. This year is not the same. A little bit more spread around January only, people staying home, plus the fact that there is a structural effect we are observing. I would like to remind you one thing about frequencies. Still, we are not above the 2019 frequency level.
We are slightly below, which means in a pre-COVID world, we have some lower effect. I mean, it's too early to say, but could be something structural and related also to the new way of working, where basically everybody is affected after coming back at work from the post-COVID opening, which we are basically observing. The trend, in my opinion, is more related to the combination of lower frequency still not having propagated and a combination between the average premium and the average cost, which so far is keeping. Clearly, that is the point of attention to be focused on the equilibrium versus the increase of the average cost. On frequency, this is helping to support also this level of technical result.
Second point I would like to highlight on this is the fact that don't forget that even though we have a lower share of global corporate commercial in our book, which is 10%, we had on average 16.7 percentage point increase in the premium of that segment, which is supporting a positive trend. Having a very specific lines and different, not affected by COVID, this is also releasing a little bit of support in the loss ratio. Second point related to asset management. I think we need to clarify in the pro forma representation we published on the EUR 47 million.
Please, this has to be considered also related to the fact that some of these investment fund are allocated to as well, the asset and wealth management, as well as some fees fund. Seasonality around this has a slightly higher effect of concentration, and you should not consider this as the major driver, as you were saying, of the asset management result. The asset management result is mainly driven by the fees and the revenues we are taking primarily on our captive business and growingly also on our AUM. Lion River 2021 dividends affected only EUR 65 million revenues versus the EUR 1.3 billion revenues of the segment of asset management.
We need to take also into account the seasonality I was mentioning before. For what regards the third point, what are the one-off in nature in the operating result? I think that the element for sure of consideration should be that last year we had some negative effect in the real estate business which affected the holding in our segment, and this year they are not there anymore. On the operating result, I would say there are no specific one-off point related apart from this part.
I would like to remind you that this year we also reduced the amount of capital gain in the first quarter 2022 versus the first quarter 2021 because in the first quarter 2021 we did some also clean up. There were some non affecting element. There are though in the non-operating if I can complete integrate the question some potential one-off not only the negative ones related to the effect of the impairment especially the Russian one. As well there are some positive derivative movement from hedging which are counterbalancing so you cannot take them into account if the trend reverse of the market including some hedging on increase on interest rate. I hope I gave you the color.
I think if I take the sum of the plus and the minuses, the operating result is broadly in line with some positive effect this year of Delta, because there was some negative one-off last year. Then there are some one-off in the non-operating, negative for the impairment, but very large, and some tens of millions EUR as well, positive on the hedging of market condition and interest rates.
That's great. Thank you much. Could I just check that I understood the second point. You said 2021 dividends was EUR 65 million. If I look at the pro forma delta for last year of 14, we're saying EUR 65 million of dividends, EUR 79 million of allocated private equity results. Is that the right interpretation?
Yes. Also recall on the first point, as I said before, this is correct for the private equity, and I want again to restate that the first quarter attritional loss ratio should be projected going forward, not at the same level, for the reason I was mentioning of the cross effect of frequencies and as well the effect of the average cost, which, coupled with increase in tariff that we are expecting will anyhow bring us within the targeted range that we confirmed in December, which will be to stay below the 92%. I would not expect the same level of combined ratio of the first quarter for these technical reasons.
That's great. Thank you, Cristiano Borean. Could I be very cheeky, like, very cheeky, just while I've got the mic, because I don't think we were ever given the total private equity contribution for the full year 2021. Are you able to give us that, and also for this quarter? Sorry, I'm being greedy.
Apologies. Do you mean for the entirety of the group?
Yes, I do. Yes, yes.
Yes. I think it is in the operating result. What you are asking me is the total operating result contribution of the private equity segment for the quarter, which is EUR 75 million for the first quarter 2022, compared to EUR 100 million, almost EUR 102 million in the first quarter 2021.
Sorry, no. It was the full year 2021 I was after.
No. No, I was reporting the year, first quarter 2021 versus first quarter 2022. Pearce, we can come back to you on this separately, if you're okay with this.
Yes, of course, of course.
Thank you. Next question, please.
The next question is from Farooq Hanif with JPMorgan . Please go ahead.
Good morning. Three questions from me, please. Firstly, to come back on P&C, could you give us some color on what pricing is doing in your main markets in recent months, especially in motor liability? Secondly, on Life, the new business margin was quite strong in Q1. How would that look like taking into account the market movements which we've seen in Q1, as I think the methodology takes December market conditions? Lastly, could you just help us bridge the capital position, please, from full year to end of March? Thank you.
Yes, Farooq. First of all, P&C combined pricing in the main market, I would like to stress that we already started increasing tariff, and this has been adjusted. Clearly, there is a time lag between the moment you adjust and the moment you start observing the average premium increase because the average premiums has some inertia compared to the increase you are doing. We are constantly monitoring the technical equilibrium, being ready to further act in case of continuation of the inflationary environment. I would say that all across the board, these actions have been implemented and are foreseen as an extra in case of need in order to stay on what we claimed as a target.
Clearly, this is done in the equilibrium within the reaction of the collection. As well, the main focus for us is, as you know, the technical result. On main markets, I would say that there is an already injected average increase of the order of at least the 2.5%-3%, all across the lines, and a further element of reaction are foreseen in the next months, if the situation is like this, and this it is what we believe. We are actually thinking that, all else equal, other actions will be needed in order to stay and keep the desired level of profitability in euro terms and not only in relative terms.
Life new business value, strong in first quarter, yes, it is driven heavily by our capacity to grow present value new business premium in the unit-linked segment, which grew on a like-for-like basis by 17%, and as well, growing the marginality around this. Let me just make a very simple number. If I take the 4.94% margin, and which, as you know by methodology, is calculated with the beginning of period assumption, which is basically saying January 1st, or to make it simple, year end 2021, if I use the end of March situation, which is still lower than the actuals we are observing in the months of April and May, that will be the starting point, the same 4.94% will become 5.25%.
On new business value, this is important. I would like to take the opportunity in answering you to remind that while on new business value, this is, in a certain sense, visible, if there is an increase of rates and a market turmoil, the business of the stock, of the existing unit-linked, and as well any asset management fees captured, is captured on a lower stock. For sure, in the projection going forward, you need to take it, on a movement of a lower stock. You have seen, the movement we had in our unit-linked stock, which went down, notwithstanding the EUR 2.6 billion net inflow of the quarter.
Clearly, this has also to be modeled properly, as an element of fees dependency on market value on the unit-linked and on the asset management. Third point, capital position roll forward from year-end 2021. The starting point is 227, and we are ending at 237 because basically we were impacted one percentage point broadly by regulatory changes. We had five percentage points of capital generation before deducting the dividend. Then we have the economic variances of around 11 percentage points. Non-economic variance is slightly more than 1% negative. M&A effect of about two percentage points.
As well, capital movements of two percentage points, which is the effect of the deduction pro rata of the dividend. I would like to take the opportunity to highlight and update the latest sensitivity estimation we had on the solvency position as of Monday, May 16th. Including the completed transaction in India P&C, which we obtained the majority with the 74% of the shareholding. Embedding, even if we are still waiting for the regulatory authorization, the approved buyback by the Generali shareholder meeting on April 29th, we would end up at 230 percentage point.
I want to add another thing, that, since we have some outstanding M&A to be closed, meaningfully, in particular, our La Médicale in France and, Malaysia, we have something in the order of seven to eight percentage points still, to be deducted, in a projected year-end view when you will have those transaction completed. I think I can add another to anticipate, if you allow me, what you should expect. I think I would like to give you also an update to the sensitivity on the interest rate of our solvency ratio, having had this big move in the first quarter of rates, which clearly put our guarantees out of the money on average, and so reducing the sensitivity.
While at year-end 2021, we published a sensitivity to an increase of 50 basis points in the base rates of nine percentage points. Solvency would have increased by nine percentage points with 50 basis points up. Today, the nine percentage points became six percentage points for a 50 basis points up. The interest rate down minus 50 basis points at year-end 2021 was 10 percentage points down. At end of first quarter, our sensitivity moved to minus eight percentage points for 50 basis points down interest rate. I think this is also helping you in understanding how to get to the 230 solvency ratio I was mentioning for May. Next question, please.
The next question is from Farooq Hanif with JP Morgan. Please go ahead.
Hi, everybody. Thanks a lot. I wanna talk about, firstly, about growth. Your top line growth was extremely strong in both life and non-life, I think 6% each, before Cattolica. You know, can you explain what you think is sustainable in that? You know, if markets are remaining volatile, do you still think you can get this transition to unit-linked and grow that? In non-life, what is driving that growth? I mean, how much of that is coming from, you know, moving further into non-motor and capturing share? If you could comment on that'd be really helpful. Secondly, can you remind us when the country-specific VA kicks in?
I'm guessing it's very, very soon, or if not already, and what that does to your sensitivities to BTP. Then lastly, you mentioned already higher bond yields, you know, not being in your assumptions. How significant could this be, within your 6%-8% EPS target range? I mean, how much of a benefit could it be maybe to sales and also to, you know, life sales, and also to your earnings? Thank you.
Yes. Sorry, Farooq, can you repeat the last question?
Yes.
What are the benefit from yields, you are meaning interest rate movement and spreads?
Yeah.
You mean, you meant that. Okay. No, just to be sure.
Yeah, I mean from, particularly given your 6%-8% EPS range, I mean, does this really support the upper end?
Great. Thank you. Now I have cleared the question. First, question related to growth. Top line is strong. The sustainability of this trend, despite market volatility. Well, let me try to diversify the discussion in two pieces. Looking at life, I would make some comment related, for example, products we are selling, which are with a higher component of unit link, which for sure in a volatile environment, think about the Italian hybrid product we are pushing as a strategic driver for increasing capital lightness of our portfolio. They could be less attractive going forward in an environment of high uncertainty.
Maybe the same amount of trend, since we don't want to give up strategic direction versus volumes on that because we have a very clear guidance around this in the steering. I think that could be a point of attention in the life growth. For the rest, we are extremely looking at selective underwriting. I think about what we already did in France, putting a huge percentage of Unit Link in the funds annually, with the multi-support component of Unit Link. There is not a specific trend of growth, if not only in the preferred lines, which we still keep thanks to the diversification. In Germany, we have a very stable production, and I think this is less affected.
Austria, Central and Eastern Europe are very much into the protection component as well as in Spain, there is a huge protection component which is less affected by the uncertainty of the market. I would put a little bit more of emphasis on hybrid protection, for example, in Italy going forward to not be at the same level of growth projected in the first quarter. For the rest, I think we can keep up with the momentum in life. In P&C, the growth is driven by the component of non-motor mainly, because motor, net of some inflation adjustment, it is less, it is more stable. P&C is growing throughout the non-motor, thanks also to the 16.7% average increase we have seen in Global Corporate and Commercial.
In any case, without it, we have anyhow a good growth of Non-Motor because this is the strategic focus, and there I confirm that we will go above the 4% CAGR, which has been set as a strategic target on December 15 in the plan Lifetime Partner 24. For what regards the second question, specific VA kick-in impact on BTP sensitivity. With the first quarter 2022 condition, the risk country VA would need another 162 basis point increase in the BTP spreads with flat corporate spreads in order to be activated. Don't forget, it is a tricky game. It is two variables and not one variable game, and the trigger is joint.
Assuming spreads not moving corporate, the BTP should increase by 162. If spreads corporate opens up as well, then it is opening even more the need of BTP to start triggering because this is the tricky part of the rule. If you want, I can even update through the movement of end of April, assuming as end of April level of spreads staying flat of BTP of corporate, that number would have been reduced by 30 basis points to 133. Okay. These are the levels as of extra BTP opening versus before starting having the country VA. Third question, the benefit from higher yields and spreads on our earnings per share target.
For sure, this is a supportive element on the earnings per share. On the three-year period, this could bring more value in the reinvestment part. Takes a little bit of time anyhow to be projected. You need to look really on the three-year time. We can have some support. For sure, we need also to take into account, but in some cases, our reinvestment amount was driven by the provisioning. Think about Germany, the provisioning, which we do expect not to happen anymore soon, for sure, in this condition, starting from 2023. You have less to be reinvested versus what you had in the book.
We do think that could be a positive element able to counterbalance the increase in the inflation we are observing on one side on the cost of claim versus the pricing component. For sure, there is always a time lag between the increase of the cost of claim and the pricing on the P&C to support it, and as well in the wages expenses, because all across the board, we see that pressure on disposable income of our employees is mounting.
Clearly, we need to do another thing to keep this: do not count only on the earnings coming from higher yields, but as well increase the speed of acceleration of operating model efficiency transformation, having a prioritization of the project which brings the efficiency in order to meet and stay also in the containment of the wages.
Just one follow-up, please. Thank you for that. Is Non-Motor still generally significantly more profitable than Motor?
Yes, it is. It is going to stay significantly more profitable than Motor all across geographies. The only geography where there is not a too far difference between Motor and Non-Motor is Austria, Central and Eastern Europe because of specific market, let's say, equilibrium.
Okay. Thank you so much. Thank you.
Welcome.
The next question is from William Hawkins with UBS. Please go ahead.
Oh, hi, good afternoon, and thanks for taking the questions. I guess slightly following on from that, first of all, just thinking about Germany and Italy motor premium specifically, you made a statement they've reduced year on year. I guess some color on the respective markets, you know, differentiating that from the, what's price driven, what's volume driven, whether it's particularly aggressive competition, and then perhaps overlaying it with inflation discussions on those specific markets. And secondly, just regarding geographies and which lines of business, I guess from a high level view, where should we be most concerned on inflationary pressures for your business, whether it's from a front book perspective, it's tough to pass through to customers or from a back book perspective? Thanks.
Yes, thanks, Will. Germany and Italy motor premiums. I start from Germany. Germany has basically, if you look at the overall average motor premium, it is broadly stable. The effect is a combination of mild increase in the motor other damages, while flattish to slightly declining motor TPL, and this has to be taken into consideration because of the frequency, especially in the upscale so far, which is driving as well an equilibrium on the pricing. We are in any case seeing clearly some competition, but we are continuing our distribution strategy.
Don't forget that we have three channels in Germany, which is the proprietary channel, let's say preferred one with Generali Deutschland AG, the DEAG, plus we have our direct distribution through Cosmos, and then we have the broker channel with Dialog. There, we are working especially with bundling products, which have also a component of non-motor, which is helping also to have an overall profitability of the P&C to the desired level. Notwithstanding this, even in this country, as all across the board, we are ready also to act according to inflation. Italy, among the two countries, for sure, the country where the competition is higher.
Notwithstanding our leading position, we are obviously within this market, which is becoming, let's say, under pressure from what regards the average premium, because especially in the motor TPL, we still see a decline in average premium for the frequency reason I was mentioning. While we have a very positive trend in the motor other damages, which is supported by our fleet and in general strategic product enrichment strategy that we are pushing. The basic strategy as well is not different. The group will act accordingly, clearly, starting from a leading position and having all the point. We have already heard publicly in the press that we are not alone in the movement in these kind of countries on the tariff.
In what regard, the second question, where should we see inflation impacting the business? I would like to give you three angles. If you look at our sensitivities, let's say if you look at our movement of solvency from year-end 2021 to first quarter 2022, we had an increase of projected cost from the point of view of the normal way you do it in, with the indicators. That impacted two percentage points our solvency negatively.
These are mainly related to the normal cost, operating cost, and in a minor part, also to the inflation cost on the claims, because I recall you on the claims of P&C, we already explained that we are reserved with an average embedded inflation in the motor TPL between 4%-5%, which is, on the yearly basis, up to the end of the last claim, resilient towards the environment we have and prudent. You should see inflation biting more on the part potentially of the wages, and so this is what we need to manage according with the acceleration of the strategic project. The other component where inflation could attach is in the claim related to the newly underwriting business.
Hence the what I commented in the first question, reactive approach and proactive approach in managing through pricing, but not only, also through risk selection and as well simplification of claims management, which is a very important driver that we are still pursuing because we are continuing also to simplify the way we operate for the claims management, reducing the, let's say, frequency of paying claims, number of claims, in order also to achieve the sufficient efficiencies to tackle this. These are the counterlevers we are trying to use.
Next question, please.
The next question is from Andrew Ritchie with Autonomous. Please go ahead.
Our first question, I remember asking you about your expectations for private equity at the beginning of the year, at the time of the full year results, and you were suggesting it would be down slightly. I'm talking here, by the way, the total return on private equity, not the dividends. Has your expectation lowered again on that? I mean, I see in Q1 the total return was lower than the dividends. I could appreciate some timing issue there, but given market volatility, should we think the total return on private equity might be lower than maybe you were expecting? An update on that is useful. Secondly, just a numbers question. The life profit growth was quite strong in the technical result, but I'm just checking.
Last year, there was EUR 27 million of COVID impact in there. Was there any COVID impact in Q1 this year? The final question, I'm still left a little bit confused on what exactly you're saying on non-life claims severity. I guess I'm contrasting it with how relaxed management were at the time of the full year results on this issue, and things seem to have changed. You brought it up several times yourself that there's a lot more non-life claims inflation. Can you just give us a sense, what severity is running at in just, I don't know, Italian motor, for example? I think one of your competitors last week suggested it was running at 6%. What do you think it's running at?
You know, presumably, you've been surprised at the speed at which the severity trends have changed. Thanks.
Yes, Andrew. Private equity. Last year, we were positively affected by some one-off, let's say unicorn investment, which were basically creating a kind of over the average cycle result. Normalizing for it, which was contributing in the order of something, EUR 100 million operating result, not net. I think that we had the first re-discussion, and we confirm the 2022 view on the budget. Still, our private equity is resilient. It is producing a positive result according to this. One area of focus for sure is the dependency on the leverage of this result of the private equity. Our investment selection and investment strategy is extremely focused around this.
So far, we are confirming it, and here we could express sufficiently robustness because of the already established track record, I should say, on it. Second, question related to the life profit growth, strong in the technical result. The COVID-19 impact this year is broadly negligible because we exited from the high effect of the last 2021. We're still in average countries, which are let's say more far away, like Brazil. But even I remember the big effect we had in India and in other countries could have affected this. Now we are really in the negligible numbers, or we are speaking something which is still in the single digit deviation. You cannot have a material effect of a negative impact around this.
For what regards the non-life claim severity, for sure, I think that still we are not worried about the movement. What we are observing so far is especially some specific movement where for sure claim severity is growing at a faster pace in Germany than in Italy, for example. Still we are observing some increase of cost overall when we look on average spare parts, including the motor and other damages. If I start looking, for example, of what I observe, not only in Germany, but as well in France and in general in Italy, I can tell you that on average, the cost is growing by 5% in Germany and 4.3% in France.
You have a kind of counterintuitive effect on the average cost in Italy in the first quarter 2022, which is decreasing also because in Italy there is a kind of different mix and some lower amount of damages, bodily damages. Net of this, I think you have this overall effect. For what regards the total effect, I just like to give you a slight color on the second answer I gave you. Last year we had EUR 27 million impact from the COVID. Now I told you that we are at a level of the single-digit million EUR, which is basically a negligible compared to the effect of last year.
Okay. Thank you.
Next question, please.
The next question is from James Shuck with Citi. Please go ahead.
Hi, Cristiano. First question for me on the life side, just looking at the life operating profit, it's up 7% in the first quarter, and some moving pieces in there that I find difficult to kind of think about for the rest of the year because the flows are really strong. The investment result was actually down in first quarter and driven by lower realized gains, but then you had a 20% increase in the technical results, which you're saying is driven by high sales of unit links and protection, but I would have thought that'd be more driven by the back book, rather than necessarily just purely the new business sales.
I guess you've kind of guided towards the Italian investment margin coming down slightly due to Cattolica, in terms of basis points, but underlying ex that being flat. When we look forward, given all the market volatility that we're seeing and given that the realized gains have kind of evaporated somewhat, the investment margin may not be behaving quite as you thought, and then you've got the this technical result impact that's benefiting. Pulling all that together and thinking about the outlook for the life operating profit for the year I find quite difficult. Anything you can add on that to help me would be very useful, please. And then the second question on asset management.
The operating revenues in relation to the AUM around 20 basis points, and I think that was true last year as it is in Q1. When you compare those versus peers, that looks a low number, particularly if you exclude the performance fees. First quarter's more like 17 basis points. Now, some of that might be due to low fee charges on the internal funds as opposed to the external ones. Could you just help me understand why those operating revenues in relation to the AUM are low relative to peers? Thank you.
Yes, James. Let's try to put together the discussion of the life operating profit. I would say that the year-end view stays in an increase of the operating profit of mid-single-digit percentage points, okay, compared to the prior year result. What is driving it? First of all, in the investment margin, you have noticed it is broadly stable. I would like to highlight that, yes, our realized gains could be reduced, but on fixed income, it is not what we are using when we manage the portfolio. It is more related on the equity part.
We are also going more in the approach which we start grasping starting from next year, where more we look at the way of the asset classes' total return component versus only the pure part, which means capital gain are less interesting, especially in this environment, but also on a recurring basis. I'm referring to the new accounting principle view of having the normalization of any capital gain in the life book, and amortizing it throughout the life of the contract, as will happen from next year. From what regards the effects, I would like to say in the investment component, you have a plus and minuses.
While you have a better improvement in the Italian operation, you have a decrease, for example, in Asia because we realized some capital losses there because we wanted to exit from the Chinese, reduce the Chinese equity exposure due to the exacerbating situation of the COVID and the impact on the economy in order to de-risk a little bit this, so you don't see an immediate increase which in, on the contrary would have been there. We reduce also the capital gain. Also, I'm thinking about France, reduction in order to manage also in the smooth way on long term. On the contrary, the technical profit increased. It is true that the stock is the one driving.
Don't forget anyhow that there is a huge contribution of unit-linked growing, and there are specific countries, like there it is interesting for you to know, in France, unit-linked is not part of the profit sharing, while it still is in Germany, because all the results of life companies are shared with the 100% of the results with the policyholder. That part is not shared. France you see a visible increase of the technical contribution from the unit-linked, which is a positive driver.
On the contrary, you still see productive, existing very profitable business of protection, which is materializing both in Italy and as well in Asia because the stocks produce technical result, which we start seeing, and that is more a stock effect but than a flow effect. Putting all together, it speaks to the mid-single-digit operating result increase. Moving to the second question. I think that for sure, compared to the peers, don't forget that we have a higher portion of fixed-income liability-driven investment mandate, which are lower management fees than the peers, and a share of third-party that is also lower. For sure, we are speaking about mandates mainly coming.
Still, we always have said that our revenues were 70% captive and 30% third party. When we speak about the 70% captive, clearly you are extracting on fixed income basically based. We are trying to increase it thanks to the real asset strategy, and the private debt, including the private equity, are ways also to create alignment of interest and increase of value. For sure, these are the main drivers. We have a lower component of non-liability driven, non-fixed income specific alpha value with higher fees compared to some other peers. This is the underlying reason of the operating revenues over asset under management driver.
That's very helpful, Cristiano. Thank you. Can I just on the Italian investment margin excluding Cattolica, are you still confident that investment margin can stay flat in terms of basis points? Or is there an inflection point at some point and when equity markets fall that's no longer the case?
Yes. Just, to be sure, you are asking me net of Cattolica, what is the Italian investment margin driving, going forward, correct?
Well, I think you commented that excluding Cattolica, the Italian investment margin in terms of basis points is expected to be stable in 2022. I'm just kind of trying to get some insight into whether that's still the case and, you know, if equity markets continue to fall, at what point does that come under stress?
Yes. It is resilient, and also the prudence and the de-risking done in the previous years is helping to reduce, let's say, the, on one side, the impairments, on the other side, the need eventually in an adverse situation to realize gains. I confirm the stability of it.
Okay, that's great. Thank you very much.
Next question, please.
The next question is from Michael Huttner with Berenberg. Please go ahead.
Thank you very much. Thank you for all your explanations so far. I have two questions. The first one is on asset management, and I just wondered if you could give us the 2021 figures which we can use as a starting point, as it were, the full year, and including in them maybe the performance fee figure which was in there last year. Then the second question is on the cash at holding. I know you only give it once a year, but because solvency is up so strongly, I kind of keep thinking, well, there's probably more here than there was at the year-end. I think it was EUR 4.1 billion. Then the last one is a bit philosophical, so I'm not sure if it's very valid.
If I imagine a high inflation, so you have to raise pricing for that, so you need more capital, good capital in non-life is a little bit linked to premiums. Does it mean that high inflation actually indirectly eats solvency, not just the direct effect of higher costs? Thank you.
Hi, Michael. Let me start from the last question since I like to start with philosophy because this is, I think, important. I do say that I did say, and I do confirm that inflation had a hit on our solvency of two percentage points because it's the joint effect of projected higher expenses, which has to be projected with mechanical indexes and not with the, let's say, budgeted cost, because you have to project it for the full life of the contract. Your budget usually is a three-year one. You have some mechanical effect, which is driving also, for example, in the inflation.
On the other side, you have as well the fact that you have some counterbalancing component also in P&C. It's important to mention that many of our P&C products non-motor in Austria, Germany, are indexed to inflation. There is a natural adjustment around this, which is helping to manage the situation. Philosophically, but also practically, what is happening is that our solvency is impacted if there is an increase. The only point is that the projected ratio is not the one related purely on the HICP inflation. You should not think that if the HICP increases by 50 basis points, our projected solvency ratio goes by 50 basis points.
This is not one-to-one relation, but there is a mechanical effect. We have even some positive benefit of inflation effect in some health business, especially in Germany, because of the effect on the cost and the premium you pay related to those cost of medical, how the contract is built and how the rule happens. You have a lot of plus and minuses.
At the end, there is a net minus, and the higher biting effect, in my opinion, when you have inflation, you need to really, first of all, make an anatomy of this and splitting what is the inflation in the wages, which is negative, what is the inflation in the claims, which is negative, and that you project contrary to the effect of the pricing and what is already embedded in the best estimate of the liabilities, which is helping and supporting you. Net, yes, there is a negative effect, mainly driven, in my opinion, by the wages component, if I have to say. Second question on the cash at holding.
You, we don't disclose really the total number, but I want to tell you, it is a very simple exercise which we do backward together, okay? Don't forget, and I hope all investor will not forget, that next week we will pay our EUR 1.7 billion dividend. We have still EUR 300 million to be withdrawn as of July 2022 of our subordinated debt, so which adds to EUR 2 billion if you sum up the two. If you take as well into consideration that we have already committed to a buyback and some M&A, which in total already has another EUR 1 billion of cash already to be put aside. On top of this, we have already completed 99% of the year 2022 remittances. Allow me to simplify to almost everything.
We have already the excess free cash on top of the dividend of EUR 1 billion, as I was mentioning, we were able to construct every year, no? The net holding cash flow, net, when you deduct the dividend on the yearly side, you are basically in the order of EUR 1 billion available for you. You add all this component, and you add also the fact that I always stay with EUR 1 billion in this volatile environment of cash buffer. All the rest is the treasury part, which you don't have to consider because of the nature, which is not free money, and you just use it to maximize the centralization and the result and return and, let's say, liquidity risk around it. It is not tangible for external operation.
In what regard, asset management fees, which was the first question. In 2021, I'm speaking about asset management and not asset and wealth management, because don't forget that there is also Banca Generali in the segment. I'm just referring to asset management. In 2021, we had EUR 57 million of performance fees. This is for asset management. I remind you that last year, Banca Generali had an exceptional EUR 220 million performance fees, which I think they already explained well on the market.
I want to recall you this year, due to the mechanism of the high-water mark, if market does not go back to the level of the starting point, we are not foreseeing, not even forecasting further performance fees for bank, for Banca Generali. I think this is the answer I gave to you.
That's fantastic. That's so clear. Thank you so much, Cristiano.
Next question, please.
The next question is from William Hawkins with KBW. Please go ahead.
Hi, Cristiano. Thank you for your time. In the solvency ratio, the 237%, could you tell us the numerator and the denominator, please? It's quite a big movement, so it'd be helpful to know that change. Secondly, the 11 percentage points that you referred to for the market movement, you've already given us the detail on inflation. Again, I don't wanna get too much more detail on this, but there's been a number of companies that have reported solvency ratios where the market sensitivities they've published have been quite visibly offset by inflation and volatility. I mean, my perception for Generali is while you have mentioned inflation, the overall change seems to be in line with the market sensitivities you gave at the beginning of the year.
It feels to me that you've had the benefit of the markets without these offsetting drags that have hurt other companies. I'm not sure how you're thinking about that. Maybe I've misunderstood the sensitivities. You know, I don't need loads of detail. It's just a positive surprise that I'm a bit confused by. Then two other things briefly, please. The unrealized gains now seem to be almost eradicated, and presumably by the time we take account of the second quarter, they're gone. Do you care about that, or is it completely irrelevant what your unrealized gains are on an IFRS basis? Then finally, the 6% non-life gross written premium growth, how do I think about the change in net earned premiums? That's what will drive your underwriting result.
Maybe I'm overthinking it, but, you know, because of the changes in earnings and the, you know, how you're earning premiums and because of Cattolica, how should I think about how net earned premiums are moving first quarter and first half relative to that 6% in gross written? Thank you.
Yes, William. Let's start with the solvency ratio. Solvency ratio as of first quarter 2022, the 237% is composed of EUR 50.2 billion of own funds and EUR 21.2 billion of solvency capital requirement. This is numerator and the denominator. The 11 percentage points of market variances, the sensitivities were offset by inflation and volatility. For us, I would like to first of all tell you that I had some comments that the movement we had was not sufficiently in line with what the sensitivities were.
allow me to say that I did an outside-in, and I know you can think I'm biased, but I did really a mathematical outside-in sensitivity, and I was finding myself there slightly higher net of the two percentage points of inflation, which were not reported for you as a sensitivity. Yes, we had some negative effect on volatilities of two percentage points, which is maybe not easy to capture, but all the other factors were coherent with what the sensitivities projected. For us, this is how it worked.
I recall that the movement of the rate was basically for us just the largest one, and within the market variances was 14 percentage points of solvency, the base rate, I mean, the interest rate improvement. The third question on the unrealized gains. Do we care about the unrealized gains? For sure, first of all, they are not eradicated because we need to understand what are our unrealized gains. There are on-balance-sheet and off-balance-sheet unrealized gain.
I do want to remind you that Generali off balance sheet has one of the largest stock of unrealized gain in the real estate industry, broadly, I would say, which is visible when you move from IFRS equity, tangible component versus the own funds, when you do the reconciliation. Second point, yes, the interest rates and the corporates opened up. I think that you are at a level where you could be on the interest rates as of today, not far from not having any more unrealized gains overall, broadly with plus and minuses. Still we have a positive unrealized gains in the space of our private equity investment fund unit on top of what are in the real estate. We do care only about the short-term flexibility.
In general, I would like to recall you the reason why we are not also managing and increasing; we are more prudent on the capital gain. It is on one side, the economic view on interest in this moment, and as well the projected view of the results next year in the IFRS 17 and 9 environment, where basically what will matter most is the ALM matching. For example, in a portfolio, life portfolio, having unrealized gains drying up if you are matched and you do not observe, as we are today, not observing any deviation from the operating assumption, including lapses, deaths, morbidity. If the portfolio is matched, this is the best way to manage in the new environment of IFRS 17 and 9, the portfolio.
This is the way we look at it. I remind you that also on the IFRS 9, next year, you can find yourselves with less impairments because of the rule of fair value for OCI accounting in the P&C component, while in this year, you can have still this volatility. You have a lot of plus and minuses. In fact, there will be next year higher volatility from the instruments, which will be accounted as fair value through profit or loss by the new rules. In general, managing the unrealized gains for us is something which is really for the short-term flexibility. We just do look at it against the market volatility.
What is the difference in the effect of and the growth of the net earned premium versus the gross written premium component?
If I just look at the 6.4% effect on the growth, I see, for example, on the net earned premium, something which is of the order of slightly less than one percentage point lower growth versus the 6% of GWP in net earned premium, but it is marginally and coming from the growth we observed last year, because you know that if you started from a lower level, and correctly your question is coming from this, and then you had an acceleration throughout the part of the year, the net earned premium is the pro rata part, so you need the full 12 months to get to the 6%.
I think that this is sufficient to give you the guidance in the twelve months or less. You'll get to the same level of net earned premium and GWP growth.
Fantastic. Thank you, Cristiano.
Operator, we have no more time for questions. However, the investor relations department remain at the disposal of all the analysts and investors that would have additional questions. Feel free to reach out to us, and thanks very much for your attention.
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