Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Unipol Consolidated Results at September 30th, 2025, 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. Matteo Laterza, CEO of Unipol. Please go ahead, sir.
Good morning to everyone. Thank you for participating in this call. As you have seen this morning, we reported a net profit of EUR 1.12 billion in the first nine months of the year. Let me say, first of all, that this number incorporates the exceptional contribution coming from the exchange tender offer launched by BPR Banca on Banca Popolare di Sondrio. In particular, there was a positive impact of EUR 240 million gross of tax and EUR 150 million net. On the negative side, in the third quarter, we charged our numbers with a provision of almost EUR 80 million for the re-addition of the early retirement incentive fund for our employees. Before opening the floor to the question, let me say something on how the business has performed in the quarter.
In P&C, we had a very solid trend in the top line, as usual, driven by health business and bancassurance distribution channel. Concerning the technical profitability, the motor business is completely on track compared to our target of the industrial plan, both in terms of average premium, claim frequency, and average cost of claim. In non-motor, we decided to be very conservative in our reserving policy, mainly regarding the treatment of NATCAT in the quarter. In life, we had a very solid growth in the top line, driven both by the agents and bancassurance. As you have seen in the presentation, we succeeded to increase quite consistently the yield of the asset under management by almost 12 basis points by rebating almost eight to the policyholder and keeping four basis points to remunerate our capital.
This is, in good part, explaining the improvement of the profitability of the life business. The finance department did a very good job, not only in life but also in non-life, and they gave a substantial contribution to the overall numbers. Finally, concerning solvency, we had a small reduction of a couple of basis points where the organic capital generation was more than offset by some change in non-economic variance and in the SER calculation almost regarding the banking business. Having said that, I am here with Enrico San Pietro, and we are ready to answer your questions. Thank you very much.
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. We will pause for a moment as callers join the queue. The first question is from Tommaso Onidi of Kepler Cheuvreux. Please go ahead.
Hello, and thank you for taking my questions. The first one is a question on the combined ratio and more specifically on the expense ratio, which still looks quite high and maybe overshadows a bit the very good attritional trends. Maybe if you could walk us through what's behind the higher expense ratio, especially I remember first half you were talking about the agency remuneration mechanism or if this time is also for the early retirement you were talking about, and if this high expense ratio is something structural or just temporary. On the positive side, still on the combined ratio, the attritional losses were again very strong this quarter, maybe even stronger than the first two quarters. What's driving that improvement? Is it mainly mixed pricing or something more structuring claims management? The second question is on the investment portfolio.
I noticed that the cash now represents only 1.5% of total investment, so could you help us understand whether you are comfortable with such a low cash position and if you see room to rebuild some liquidity going forward? On the broader asset mix, if you can give us a sense of how is split the illiquid part of the portfolio, maybe more specifically the alternative and how it's performing in terms of yield and contribution. Just the last one is on Solvency II, which ended a bit lower, in particular the insurance group at 265%. Could you elaborate a little bit on what drove the decline? Was it for the new banking perimeter or market-related factors? Thank you a lot.
Thank you to you. I will answer to all the questions. I will leave Enrico to elaborate on what you said on the expense ratio. First of all, on the expense ratio, the early retirement provision is not in the expense ratio. It is in the other income and cost, and so it is not considered in the expense. Enrico will elaborate more on that. Concerning the investment portfolio, yes, we reduced the investment in cash, but we are very comfortable on that, considered that we have more than a couple of billion EUR of securities whose term to maturity is less than one year. The component of very liquid asset is very consistent.
For us, the investment that we allocate in cash depends on the cash flow analysis that we had going forward in consideration to the very important payment that we have to say, like payment of taxes or payment of dividend. At this time, with this percentage, we are all set. Concerning the alternative asset, we have, as you have seen in the asset allocation investment in alternative asset, they are almost investment in the real asset component. There is a part allocated in private equity. We do not have private credit in our investment scope since the beginning because in our elaboration in setting up the strategic asset allocation, we never considered the asset class as a possible target of investment because the risk-reward profile of this asset class was not enough to remunerate our need of capital.
In other words, the expected yield on this kind of asset class was not worth to remunerate the capital absorption coming from the investment in this kind of investment. Finally, concerning the solvency, let me say more on that. We had a reduction for the group from 222- 220. Let me explain the bridge from 222- 220. We have lost a couple of percentage points in terms of model change. We generated capital for 6 percentage points. We had 2% points of positive economic variance as a consequence of the positive performance of financial market. We deducted 3% points as non-economic variance.
That means that there were some items that were not performing in line with our expectation in terms of budget assumption and plan, in particular considering the surrender rate that was way below the market but a little bit higher compared to our assumption. We had 3% points less in terms of capital movement because we have to consider the part of organic capital generation that we pay as expected dividend. Finally, we have lost 3% points in terms of SER change, part due to the insurance perimeter and part to the increase of the risk in the banking business. It is the update of the risk of the banks from the 31st of March to the 30th of June. This explains the 2% points that we have lost in the group.
You have asked also why the insurance group have lost more, and we are at 265%. The answer is quite easy. The rule that we have to follow in calculating the solvency in some cases are, in some extent, stupid in the sense that we had in the past a 20% stake in Banca Popolare di Sondrio and 20% stake in BPR. This was the situation at the 30th of June. Today, we have 20% of BPR that owns more than 80% of Banca Popolare di Sondrio. This means that applying this rule of solvency, we have more concentration risk. As a matter of fact, nothing changed compared to the situation at the 30th of June, but the simple fact that we have one-only stake of a bigger bank brings to a higher concentration risk compared to the 30th of June.
The reality is that nothing changed. If something changed, it is positive because we will take advantage of the synergy that hopefully BPR will do on Banca Popolare di Sondrio. The application of the rule brings to a reduction of solvency of the insurance group to 265%, that anyway is a very large number. Enrico on the expense.
Good morning, Tommaso. Your questions were about expense ratio and also combined ratio, and maybe we can also elaborate on this. Starting with the expense ratio, the main reason of the increase, if you compare the figure with the same figure of the same period of the last year, is what we discussed in the last month. It is about the incentive schemes for our agents that relate to the technical profitability, the amount of incentives we pay.
It's something very important for us that aligns more than any competitor in the market, our interest to the interest of our agents. There are similar schemes both in motor and non-motor. What's happening both in motor and non-motor is since the scheme is related to how profitable is the portfolio of the agency, at the same time, what kind of growth they are delivering to us. Since things are going really well, the amount of incentives we are calculating to pay is more relevant, especially because both of those schemes in motor and non-motor are related to a period of two years. This year, we are considering the estimation of 2025 results and the actual results of 2024. Last year, we were considering 2024; that was a very good year, and 2023; that was not a good year.
This change is generating the difference in expense ratio. For combined ratio, of course, we can elaborate a lot on this. The overall view is very positive. Everything is going according to our plan. We have relevant improvement in motor business. That is due to the fact that in motor third-party liability, action we took about pricing are working. Loss frequency is decreasing, and the average cost of the claim is not suffering like last year, the spike related to the Milan Court tables. There is also a significant improvement in motor other damages result.
Of course, the action in the strategic plan are working, but also the comparison with the previous year needs to take into account the fact that we had at the beginning of 2024 a negative evolution of the claim reserve that in summer 2023, the hailstorms in 2023, we were not able to estimate it properly. We had something negative in the first part of 2024. Basically, this is the situation in motor. We are viewing a market situation in which prices are increasing. The speed of this increase is lowering down in the market. The last figure that I think on the market we can share is a 3.5% increase year on year. We did our increases before the market in 2023, and now we are increasing less than the market. This is favorable also for our market position.
In non-motor, things are a little bit more complex. The overall attritional loss ratio on the direct business is improving, but this is offset by an additional reinsurance cost, reinsurance cost that is due to the new aggregate scheme that protects us on a NATCAT event even more than before. Of course, the fact that when the direct business is so positive, you have very small recoveries from reinsurance. This is the first point. The second point is we are more prudent in the prior year reserve release than the year before. This is quite relevant, accounts for 1.5 percentage points of combined ratio. Last but not least, what Matteo said about our prudence that we applied also to the NATCAT provisions. The overall result is positive. The underlying trends are positive.
We are even more than usual confident to deliver the results we put in our plan.
Thank you. Thank you a lot.
The next question is from Michael Hüttner of Berenberg. Please go ahead.
Fantastic. Thank you so much. You've answered the questions, so I'm struggling to find them here, but I do have a few. The first one is on something that Fitz mentioned, and I think generally also in a pre-close call. And apologies if I get it completely wrong because it's very new to me. It's the regional tax in Italy, the plan to raise this and how this will affect insurers and who will pay for it. Is it the policyholders, the companies? Beyond that, I know nothing except that there's a raise in some form of indirect product tax. And Fitz seemed quite optimistic about this, but I don't know anything. Any indications on that would be super, super helpful. The second would be on more details on the lovely disclosure you've given us.
Maybe can you give us a feel for when you say you've been prudent on the NATCAT number, which is the same, right? Nine months 2024, nine months 2025 is 6.1%. Can you help us think about how we could kind of judge this level of prudence? The last question is on motor, which is stunning, seriously stunning, particularly since I know you're quite conservative anyway. You're kind of, you've achieved, you're at the planned target and pricing is still going up. I just wondered whether you can give us a little bit of a feel, A, for the own damage, which is clearly not a compulsory cover. How come it's so successful? B, what will happen now that you have one less competitor in the market? AXA is buying one of your peers. C, you discussed the frequency.
I'll give you the answers I've had on frequency from some of your peers. Zurich said frequency is down, but they didn't give details. AXA said frequency is down due to because it didn't rain. In other words, the cars didn't slide around. Yeah, those are the only two indications I've had. Anyway, thank you very much.
Okay. I tried to answer to the first question concerning tax. Then you did a lot of questions on combined ratio, NATCAT, motor, and I will leave Enrico to elaborate on that. I suppose that your question regards the discussion on the financial law, the budget law in our country. As you know, there is still a discussion. It is not a law. We are in the process to understand which will be the final impact of the budget law on our numbers, of course, starting from 2026.
At the moment, with the information that we have, we will have some impact that I do not consider meaningful and material for the delivery of our numbers and target of our industrial plan, above all considering the so-called ERAP increase that is in the proposal, the main component of the tax seat that will be in charge of insurance company going forward. I have to say in general that, of course, we will have an impact in perpetuity. As usual, we will apply the new law, and we did not change the target of our industrial plan because of that. I will leave Enrico to answer to all the questions.
Hi, Michael. So a lot of questions.
Thank you.
Yeah. The first one, I hope to be able to remind every question. The first one was about the NATCAT approach. As you for sure know, for the Italian season of weather-related events, it was benign. Of course, we have to take into account the volatility of this kind of business line. This resulted in one percentage point, additional percentage points related in non-motor combined ratio related compared to the previous year. That was also benign. More or less, I can give you this kind of size of the issue. Going on this, when we talk about motor, results are very good. We are now in a situation in which prices are still going up. The average cost of the claim is back to normal after the spike that we saw last year for the Milan Court tables adoption.
Also, the prior reserve release is back to normal. Probably you asked also something about motor other damages.
Yes, please .
Yeah, in which, as you mentioned, is not compulsory in Italy. It's made of several covers, this kind of business line. And there are also here non-cat covers on hailstorms on cars, for instance, and other kinds of covers, so theft, fire, casco, and so on. We are improving. Our price action on the cover that needs this kind of action are working well. And motor other damage, as far as casco is concerned, are not that big in our portfolio or in Italian motor portfolio. Basically, it's something that is not we are very careful to be good in pricing, but it's not very big as a portfolio. Another question about the market is related, if I understood properly, about the acquisition of Prima.it by AXA.
Of course, we still have to see what will happen in the future, but in my personal view, that could be something positive for the market. We will have to wait. If I do not remember badly, AXA announced that in the second half of 2026, they will become the carrier of Prima.it, that, as you remember, is an MGA. In the medium term, I see a positive evolution for the market and also for us of this kind of operation. About frequency, yes, frequency is likely decreasing. In our comparison, there are not comparisons related to the third quarter of the year. They are not so updated. We have seen in the last period that our loss frequency is better than the market, is improving a little better than the market. There is a factor that is external.
Of course, maybe raining, maybe the fact this is a long-term trend about the cars that have every year a little better technology to avoid or reduce the impact of a claim, customer behavior, and so on. There are long-term trends about frequency decreasing, and we think we are adding a little more about, of course, the pricing precision that is driving down loss frequency. We are at the end of a long period of decrease in the loss frequency, so you do not have to expect any other major reduction, but still, we are optimistic about this. I think we covered all the questions you asked.
Super helpful. Thank you very, very much.
The next question is from Andrea Lisi of Equita. Please go ahead.
Hi, everybody. Thank you for taking my questions. The first one is on the amount you provisioned for the fund for the staff exit, EUR 80 million. What should we expect going on in the sense that should we expect other amount to be provisioned also in the next years, or do you feel that with this EUR 80 million, you have done for most of the idea that you have about staff reduction? The second question is on the net financial result in life that was quite high. If you can provide us some indication on this. If you just read in the newspapers the platform that was launched with Confindustria in collaboration with Poste Italiane and Intesa Sanpaolo on NATCAT policies for corporates, if you can provide some color on that and what are your expectations on this segment. Thank you.
Thank you to you, Andrea. As you remember, when we met in March for the industrial plan, we discussed about the early retirement solidarity fund. It is a part of our people and technology pillar of the industrial plan because we look forward to have a generational change in our HR component of our investment. In doing it, we incentivize, of course, this change by applying an early retirement solidarity fund. The answer is yes, it will be repeated, this number for the next couple of years because this is very important for us in order to accelerate the generational change in our company, in order to acquire new skills in terms of the use of new technologies. It is very important for the application and the implementation of the most important project that we are implementing in the company.
We do not consider anymore this number as exceptional. I mention it because, of course, it hit the third quarter for this component, and you can expect the same for the next couple of years, at least. Concerning the net financial result in life, yes, as I said in the introduction, the finance department did a very good job overall, both in life and in non-life. In particular, in life, they did a lot of things in terms of change of asset allocation in order to accelerate the yield enhancement of the yield of these segregated portfolios or gestioni separate, where we succeeded to increase the yield by 12 basis points compared to the same number in September 2024. And 12 basis points is a lot because you have to consider that we have almost EUR 40 billion of asset under management, and it is a very important number.
Of these 12 basis points, 8 was rebated to the policyholder, and 4 was kept by the company and used to remunerate the capital. This is the most important contribution to the improvement of the net profitability of the life business. On Confindustria, Enrico managed the project, and I leave the floor to him.
Thank you. Good morning, Andrea. We signed a Confindustria agreement on Monday with the partnership also of Poste Italiane and Intesa Sanpaolo insurance companies. The innovation in this is that you can, if you are a company that needs to buy the cover that now is compulsory, do it also through the digital properties of Confindustria that can make you enter into our platform.
This could be a good thing to give an additional option to all the small companies, especially that need to comply with the new regulation by the end of the year. What we have seen so far is that the process is quite slow. Of course, large companies were already covered for the vast majority. Medium size are, of course, complying. As you know, in our country, we have more than 4 million small companies. I personally do not expect that all the 4 million companies will be covered by the end of the year, but this process will take time also in 2026 and maybe even more. Of course, it is an opportunity.
It's an opportunity that we are also considering prudently about pricing and the writing, geographical concentration that are something, in our view, very important to be able to catch this opportunity without increasing the volatility of our results.
Super clear. Thank you.
The next question is from Augusto Marcianò of UBS. Please go ahead.
Hi. Thanks for taking my questions. I have two quick ones. First, on combined ratio and second, on the investments. On the combined ratio, it seems like the PYD has gone up year over year quite a bit. Can you give some guidance what you consider would be a normalized level for your PYD and discounting? The second question, a bit more forward-looking on the investment. Since the start of your strategic plan, BTPs and other yields have been down, especially on the shorter term where your non-life business kind of sits, how confident are you in your yield targets? Can you talk a bit more about what levers can you pull to meet your yield targets that you set out in your strategic plan? Thank you.
Thank you to you. I will start from the second question, then I will leave Enrico to answer to the first. Yes, the spread of BTPs versus bond has consistently decreased. This explains, in good part, the positive contribution of economic variance to the solvency ratio. On the other hand, we had also an upward, smoothly upward trend in the base rate, both in the swap rate and also in the bond yield. For us, it is very important, of course, the absolute level of the investment yield that remains for the BTPs way above the whereabout of 3.5% in the 10-year maturity. For the bond, we are in the area of 2.65%-2.70%. That for us is fine. The average of the minimum guarantee in our life book is 70 basis points.
This level of risk-free rate or swap or bond, as you can define, at 2.6 is fair enough to fit the minimum guarantee and the level of yield that we have to rebate to our policyholder in order to offer them a decent level of yield for our clients. Of course, at 75 basis points of spread, Italian government bonds are not so cheap as they were when the spread was at hundreds of basis points that we had in the past, that gave us the opportunity to invest and to continue to invest and increase our weight in Italian government bonds. This is not the case today. We have an investment of EUR 17 billion in Italian government bonds.
We look forward to maintain this investment going forward and to diversify in other assets like other European govis, like Germany or also France can be an opportunity if there will be a prosecution of the widening of the spread there. We will get more diversification. At the same time, we will be able to match the target of our industrial plan, where we are not worried at all. The absolute level of yield is more or less a little bit higher than where we were at the beginning of the year when we launched and we discussed about our industrial plan. There is nothing that worries us in this extent. I leave Enrico's answer on the combined ratio.
Oh, yes. Good morning, Augusto. The first part of the question was about the prior year development.
Of course, you can see now an improvement compared to last year, but you have to take into consideration that last year was not a normal year. It was a year in which the impact of the Milan Court tables on permanent disability affected, of course, both the average cost of the claim of the current year, but also the prior year development. Basically, we are going back to normal. This is a level you can expect, maybe even slightly higher than this also for the future. As far as the discount effect is concerned, it depends on the interest rates environment. Now it is 2.3. You can find also in the unwinding amount the same effect with the opposite sign in our accounts.
Thank you.
The next question is a follow-up from Michael Hüttner of Berenberg. Please go ahead.
Thank you very much for this opportunity. I just wanted to understand, you spoke a little bit about a small rise in lapses, still well below the market. Can you explain what is driving this, please?
No, Michael. This was to explain the negative contribution to the solvency of the so-called non-economic variance. Non-economic variance gave a negative contribution to solvency of 3% points. This comes from some change in assumption regarding what were the assumptions at the beginning of the year in terms of surrender rate of life insurance business and what we had in real numbers at the closing of September 2025. Even if Unipol has a surrender rate that is way under the market average of our competitors, compared to the assumption of the beginning of the year, the surrender rate was a little bit higher compared to our assumption. This explains, after the, of course, the update of the numbers in our capital model, we had a 3 percentage point decrease coming from what we called the non-economic variance, but the justification and the explanation is what I said.
I don't know if I was clear in the explanation now.
Absolutely. Thank you very much. Thank you.
Okay.
For any further questions, please press star and one on your telephone. Gentlemen, there are no more questions registered at this time.
Okay. Thank you very much for participating to this call, and we will update in February for the final year result. Thank you very much to everyone.