Good morning, ladies and gentlemen. This is the conference call operator. Welcome to the Q&A session on the presentation of the results of the first nine months of 2022 Gruppo Unipol. UnipolSai General Manager Unipol, Matteo Laterza will share with you a short introduction, and then he will accept questions. Mr. Laterza, the floor is yours.
Good afternoon, ladies and gentlemen, and thank you for being with us. Now, I have a short introduction on the results. You must have seen the presentation and even the press release. We closed the first nine months with a growth in terms of Life but also Non-Life business. In particular in the Non-Life business, we have the Non-MV business development, +10%. We grow on all the businesses, especially the big development in the health area.
In terms of distribution, what is really significant is the growth coming from bancassurance. In terms of profitability or combined ratio, what is very good is the profitability in the Non-Motor Vehicle business. As for the NV, we do have some, let's say, criticalities. This is due to the impact of inflation on the average cost of the managed business. This has an impact on the NV combined ratio. Especially if you make a comparison with the nine months of 2021, where of course, the context was characterized by, you know, the lockdown in the first part of the previous financial year. Of course, the 2021-2022 comparison is, let's say, a disadvantage for this reason. In the Life business, the development is fed by the growth of pension funds.
We see a slowdown, a very minor slowdown on investment policies, and this is in compliance with the general market trend. In terms of profitability, we have the slightly negative impact due to the evolution of financial markets on the financial component of Life business profitability. It has an impact on the quarter, which is a one-off. This is due to the fact that in the quarter, markets have underperformed. In terms of solvency, this is flat. I mean, there's a slight reduction, which is due to the market effect. Let's say that this was offset by the profits of the quarter. Within the market effect, there's been a positive contribution from the increase of interest rates on solvency. This is what happened.
In terms of profitability, we thought we can continue the Best Estimate Liabilities to consider the inflation impact on the future performances. We think inflation is not a phenomenon having to do with what happened this year or even next year. It is a variable to be observed on a multi-year basis. We think we've been very cautious, very prudent in terms of the Best Estimate Liabilities, items. Now, this is worth 3%, maybe 4%. It justifies the 4% reduction in terms of group level solvency versus the value we had at the end of June. I'm here with the General Manager, Enrico San Pietro, to take all of your questions. Thank you.
If you want to ask a question, please dial star followed by one on your telephone. If you want to cancel your booking, please dial star followed by two. Please ask your questions speaking close to the receiver. Once again, for questions, please dial star followed by one now. Thank you. The first question is from the original language conference from Gianluca Ferrari, Mediobanca, please.
Good afternoon, everyone. First question is on CR, combined ratio. I see 3.8. In Q3, the situation is usually favorable, so I have to say that this is close to 94%. Your target in the business plan is 92.6% in 2024. Can you give us some color on the MV and Non-MV trends? Is this the right trend? Considering the trends on the MV, you have explained the inflation impact. They will be reabsorbed, maybe based on tariff increases. As for the Non-MV, the improvement is definitely remarkable. This is due to indexation.
The effect of the top line that we saw in the first nine months once again. The situation is due to worsen, in my opinion. Once again, can you give us some color on the MV, but also non-MV businesses. Are we reaching 92.6%? As for the life business, you already clarified doubts on Q3, so on Q4, we should go back to a normalized rate. My question is the following. Just like other European players, will you have some differences in terms of IFRS 17? Thank you.
Let me start on the life business. The floor will go to Enrico. As for the non-life. Now, as I said before, on the life business, I mean, in Q3, we have had an impact due to the financial component, especially the one due to the valuations and realizations. They have impacted the Q3 result.
Now, if you check the evolution of financial markets today, I mean, from September 3rd , what is happening is a one-off, which is only, let's say, impacting Q3. In terms of Q4, we should go back to normal versus, I mean, towards the trend that I have shown in the previous meetings. As for IFRS 17, well, especially in terms of life component, of course, this will be a major additional element on the contribution of the so-called CSM, Contractual Service Margin, to the business or financial statements, if you will, of the next years.
As we have already said in previous meetings, we do not expect major changes versus the, you know, profits dynamics. Now, of course, quarter after quarter, there may be higher volatility in the life business profits, because this will, you know, depend on the updates of the curve parameters that we do have to implement in order to estimate them in the release of CSM in every single quarter. Now, overall, if you consider this long, if you will, term scenario, we do not expect major changes.
In terms of CSM releases, what about the durations are you choosing? Which durations? Can you share this?
10 years. This is our duration.
Okay, perfect. Thank you.
Good morning. Hello, Gianluca. Now, let's talk about the non-life business. CR, combined ratio today is in line or in compliance with our plan objectives. Now, it goes without saying that there are phenomena, especially inflation, so this is a little higher than the forecast that we had at the beginning of the plan. We think that the tariff measures, including the reduction of the average cost of every claim. Now, I think that these two factors are keeping us in the right pathway in terms of, you know, MV evolution, and inflation. As we said in a previous meeting for the results of the first six months of the year, the impact of the inflation in the first part of the year was offset by many positive, well, factors.
The first one is, it sounds like a paradox, but as I said before, claims, very small claims are back. The so-called composition effect on the average cost was beneficial. We also have a very important beneficial impact on the incidence of claims with injuries out of the total. We keep seeing a drop, which is of course positive for us. You know, our you know settlement model has been improved. We now work with you know new systems, for example, with the delivery of spare parts, so we can control inflation well, much better than any other system. Now, this being said, today, the average cost of the MV at the end of September, it is up by 2% versus the previous year.
To face this phenomenon, as Matteo said, that this is not a temporary one. We have also implemented tariff changes. The last one, November 1. Of course, I don't have the results, but this is quite significant. This means that the MV result should be once again in line with our targets. As for the non-MV, the framework is quite special, so we need a longer comment in terms of growth. Now other dynamic is different. Let's start from UnipolSai. The non-MV premium increases is a little bit more than 5%. Number of policies in our portfolio is flat. On macro level, I have to say it is a so-called price effect only. There's another significant phenomenon on the premium, let's say, adjustments of the general insurers.
In 2021, there's been a huge increase of companies turnover, which translates today in more so-called regulations or adjustments. Property prices are changing in terms of increasing rates, especially for new policies or the renewal of the largest corporate policies, plus the indexation effect. I mean, there's an automatic increase or even a non-automatic one of the amount insured and the premium. Most of, you know, these benefits shouldn't be a temporary on the total result. On the health, we have an important growth, which is more than 12%. Let's say a little bit more than 50% is the increase of the number of insured, including companies and retail. A little bit less than 50% is the price increase, which is the improvement of margins.
This is also due to the renegotiation of some large contracts we had at the end of last year. There's another key driver, bancassurance. Here we have Arca and Incontra. This is basically the increase of number of policies or risks, but I mean very profitable risks. Bancassurance with their retail non-MV production produces very high technical results. I hope I've given you hopefully the flavor of the general framework. We think we can continue on what we have done. This is the right way to reach the objectives we have in the plan.
Yes, very useful. Thank you.
Next question is from the conference in English from Peter Eliot, Kepler Cheuvreux, please.
Thank you very much. Three questions from me, please. The first one is, now I noted that you are moving towards shorter duration bonds. Just wondering if you could clarify what impact that has had on your solvency ratio and also on your sensitivity of your solvency ratio. Second question, I'm hoping you can give us the amount of reserve releases in the quarter.
I'd be interested actually in your view as to why you don't include these within the morning release, because for me, it seems like quite a material number to understanding the underlying combined ratio. So yeah, I'd be interested in your comment there. Finally, one of your competitors yesterday reported some large reserve releases in the Italian life business due to the higher interest rates. You don't seem to have been reporting the same thing. I'm just wondering, might we get anything like that? Thank you.
Thank you so much. As for the bond portfolio, our duration is matched, you know, with the duration of liabilities. The duration of bonds went down just because of the way of calculation, the mode of calculation. If rates go up, the duration goes down, not because we carried out special operations. When you calculate the duration, the level of interest rates is inversely proportional to the calculation of the modified duration. Now, just to give you a flavor of the sensitivity, which is, you know, one of your questions, I can now share with you an idea that has to do with the actual variation of solvency throughout the quarter. Now, the spread between Italian BTP and German Bund became bigger of basically 50 basis points in the quarter. Now, what happened, as I said before, is the following: the market effect.
The total overall market effect on the own portfolio solvency was negative, minus 5%. Now, if you consider 5%, we had three positive points due to the increase of interest rates. The swap rate went up, and this impacts positively on our solvency, which is what we saw many times in terms of sensitivity. Now, the three positive points have been more than offset by three negative points due to the increase of the Italian government spread levels. 52 basis points, we lost three points because of the Italian government's exposure. Three more points, this is what we lost because the credit, you know, spread became bigger again throughout the quarter. Two points due to the reduction of the values of the shares or equity markets. The total is minus five or five negative points.
There was a positive contribution, three points, thanks to the year profits. As I've said before, we've been very cautious. We have recalibrated the claims best estimates to consider the effects of the inflation, and the contribution of this move is four points, as I said before. Now, in general, this explains, I mean, the change of solvency throughout the quarter and gives you, in my opinion, an actual flavor of the sensitivity of our portfolio based on real data. This is not an estimate on the real variations on the market experienced in the quarter. I have to say these changes have been quite big. As for the provisions or reserves release. Now, in general, again, throughout nine months, we have released the reserves for less than EUR 500 million. This is the overall, you know, figure.
I mean, 180 on Non-MV, the rest on the non-Non-MV business. We keep having savings from on the so-called reserve, both Non-MV and non-Non-MV, which are quite high. This is what we have implemented in our reserves policies. We usually communicate the total reserve release at the end of the year, because it is at the end of the year that we can count on a specific assessment, so a very precise evaluation of the reserve release situation. This is our general policy, I mean, in terms of communication. Now, you were mentioning our competitors. Of course, I do not understand the great.
I mean, the relationship between interest rate hike and reserve release. Anyway, we maintain our reserve policy, which is very, very cautious again. I'm now going back to the metaphor that our CEO used at the insurance forum some days ago on the three pigs fairy tale. One has a house made of hay, the other one in wood, the third one in bricks. We decided to be the one with the house made of bricks. This means, you know, reserves policies which are really, really very prudent. Cautious in terms of balance sheet, but also in terms of solvency.
Okay. Thank you very much.
Next question from the original language conference from Andrea Lisi from Equita, please.
I have two questions. Can I have an update from you on the investment yield considering, you know, the life and non-life business? I also have an update on the renewal of the bancassurance agreement with Sondrio. When should we expect it? Thank you.
As for the reinvestment yield, how much we reinvest, you know, cash flows, if I understood correctly. On the well, life business but also on the non-life business, we managed to invest at, let's say, reasonable rates versus those we found, you know, exactly one year ago. In terms of non-life, it's between 2.5% and 3%. On the life, we have around 3.5%, maybe 4%.
Now, again, it goes without saying that our portfolio has the duration that you have seen. Now, overall, you know, securities coming to maturity within this year are worth EUR 3 billion, a little bit less than EUR 3 billion, actually. Before the reinvestment rates impact or reflect in structural rates of the whole portfolio, some time is required. Hopefully interest rates will stay as such for quite a while, so we have enough time to build a portfolio with better profitability than the one we had before, which is, by the way, very high. The one, you know, the profitability of our life and long life portfolio now has quite a high rate. As for your second question, we do have this agreement with Banca Popolare dell'Emilia Romagna and Banca Popolare di Sondrio.
We are right at the very end of the discussions for the renewal of this agreement, and the agreement has come to, let's say, maturity. The deadline is once again at the end of the year. We do trust and we're confident we will be able to renew this agreement within the same schedule.
Thank you.
Next question is from the conference in English from Sebastian Bautz from Société Générale.
Hi there. This is Sebastian from Société Générale. My first question is around the motor business. Can you please provide some color on the frequency trends, the motor claim frequency trend? Because there were some comments that there is, you know, there has been a decline in frequency in the recent weeks. Any color on that would be very helpful. Again, second question, which is also on motor business. Looking at Q3 standalone motor premiums, they were up just 0.6%. I mean, can you just give some color on how the pricing is developing and you know what this means for the margin? My third question is on the life business. On the experience around lapses and surrenders, how has that been? I mean, is there any sort of concern around that? Thank you.
Okay. Let me now answer the question on life, and then Enrico will be answering on the MV part. Our life portfolio right now is concentrated or focused on retail customers. This means it is sort of, you know, broken down, fragmented, and we do not see any significant impact in terms of repayments. Just to give you an idea on figures or the general dynamics, in the first nine months of 2021, we have had around EUR 1.4 billion repayments on UnipolSai against the EUR 1.3 billion, more or less in 2021.
The change is EUR 100 million. The total reserves are around EUR 26 billion on UnipolSai. As for RCA, this is even smaller, only EUR 300 million versus EUR 230 million in 2021. Despite the hike of interest rates that may encourage you know the redemption increase phenomenon in order to go to other investment types, once again, for the time being, we are not seeing this. There is no increase of redemptions that's alarming for us. Not at all. Now, as for the MV question, the floor goes now to Enrico.
Thank you. You had a question on the frequency. Now, as for the frequency, I have to say it's going quite well. Now of course, we have just, let's say, experienced a couple of very weird unique years. You know that the frequency is always compared to the last normal year. That was of course 2019. I mean, we also make a comparison with 2021.
As compared to 2021, what we see is an increase of the frequency, well, especially, you know, originated in the very first part of the year, because the first part of 2021 was still characterized by major, you know, restrictions due to COVID. Now, if we compare this with the normal, if you will, frequency of 2019, well, we can see that we are still significantly below. You know, this is a positive result. This is due, in our opinion, on the one side, to the composition of the portfolio, because, I mean, this is more and more stable.
The retention and renewal rates went up so much more than before. Now this has strengthened, you know, our portfolio, whose technical evolution is much better, so the composition is better. There's also another positive effect. By the way, this is what you can see by measuring the mileage of the vehicles of our Black Box customers. Now there's been a reduction of mileage, and once again, this is single digit, but it's quite important anyway. Well, of course, this also depends, we think, on the cost of fuel, which is very high. In general, this is also due to the general overall economic situation. Once again, back to frequency. The frequency situation, so to say, is quite good today.
Now, as for the premiums, I have to say that actually as of today and as of the average premium, well, basically this is flat. The average, you know, premium is flat. It's not changing. But we do have a composition effect that we also mentioned, you know, three months ago. When you apply tariff increases, which is what we started doing in spring, those, you know, increases are very much, you know, customized. I mean, it depends on the profile. This is much higher on the lower margin customers. These customers renew a little bit less than the others. These customers, you know, have higher average premiums versus the average of the portfolio. As a consequence, the average premium is reduced.
Now, this being said, we keep working so as to hike the average premium and in particular, as I said, one second ago to Gianluca Ferrari, we have just increased tariffs. I mean, we started just some days ago, significantly from November the first. We think that in the next months also this will generate an increase of the average premium, which is absolutely necessary to keep having a positive margin level.
All right. Thank you.
We now have Elena Perini from Intesa Sanpaolo, Research Analyst.
Good morning, everyone. Now, I have three questions. The first one is on the life business to really understand what the profitability level that you consider as of today, because you talked about a major impact in terms of realizations and evaluations for Q3. Can you give us some color on the recurring profitability level considering the current rate increase, which has a positive effect on the financial profitability?
As for bancassurance, you talked about the renewal of the agreement with Sondrio and BPER, Banca Popolare dell'Emilia Romagna. Now, the JV with Incontra will probably be dismissed, if it's true. I mean, can you give us some color on this possibility? If there's no renewal, what would the impact be on your accounts? Last but not least, an update, if at all possible, on UnipolMove. I'd like to know how many devices you now have and what the offer is that you are putting forward right now. Have you already started selling additional services?
Thank you, Elena. Okay, let me start from the Life business question. Now, we have in a specific slide, we have presented the financial margin that we retain or withhold on the overall financial income of Life policies, which is around 94 basis points. We also have other items, the so-called technical profits. As for the time being, the ordinary profitability range of the Life business is between EUR 200 million and EUR 250 million. This is the current level. Interest rates are going up, and then while they go up, the additional components will go to the insured and less and less to the company.
Of course, we have to reach, I mean, the minimum level. You know, over that level, the yield, if you will, goes to the customer, not to the company. There's not a perfect balance between the increase and the reduction of rates, because an increase of rates would then bring about some benefits in terms of profitability, but not much more than this. I mean, maybe not really higher than the one we have now. As for bancassurance, we do have an industrial plan to 2024, so we haven't taken into account the renewal of the JV with Incontra. Now, this JV won't be renewed, but once again, this has no impact whatsoever on our accounts because we have already considered this on the KPIs that we have shared back in May on the industrial plan.
Now, as for UnipolMove, we now have more than 350,000 devices. Now, of course, I'm not talking about the service component, which is so important for us. This creates, I mean, a flow of customers, you know, in our offices, in our agencies. Not only can we sign the UnipolMove contract, but we can also do something more with those customers, especially in terms of insurance. I'm now talking about a product that, you know, at full speed, you know, at the very beginning, 36 months are free of charge. You know, our customers pay EUR 1 a month. This basically is a product that gives us EUR 12 a year. There is no significant impact on the turnover or the revenue from UnipolMove.
It's a service component, which is so important because it's really able, I mean, to, let's say, integrate services in the mobility ecosystem. This means agents have the possibility, you know, to do cross or upselling from the insurance point of view, which is what's happening actually with quite encouraging results.
Thank you.
The next question is from the conference in English from Michael Huttner at Berenberg. Please.
Thank you so much. Lovely results as usual. I have lots of questions, but they may be, you know, I'm never quite sure. I think at some stage, I can't remember when you talked about the settlement ratio on claims, you know, the actual claims paid versus what you'd originally reserved. I have in memory, and I'm probably wrong, a figure of 45%. I'm just wondering if you can update us if that's a relevant figure. The second is I noticed in Arca there was a slowdown. Now extremely high levels, it's. I'm not being critical, just to understand. Six months, 46, 48% growth. At the Q3 as a standalone, because the average dropped to 38%, I think, in nine months. A standalone Q3 is 22%.
I'm just wondering what's happening there. I was expecting more, because I think the garage network is coming on stream. Just to give a feel for it. Then the black boxes. I heard the question on UnipolMove, and I'm not sure if my question's redundant, but I think you had, from memory, 40% black boxes in your system. And I can't remember the precise numbers, 1.6 million or something.
Maybe you can update us on that and whether, you know, if rates are rising, people will try to save money by going to black boxes, I don't know. Then the final question. I know you did say motor is fine, it's on track, but the difference between the non-motor combined ratio now, I think 98% or just under 99%, and your target, which is around 93%, seems so large. I just wonder if you can reassure us more, maybe give us a little bit more color. Thank you.
Well, thank you so much. As for the reserve payment of the previous years, let me rephrase what I said before. We are saving money versus what we have reserved in terms of the settlement, so the payment of claims referring to the previous years. This is exactly 45%. If we have, you know, the total reserves, which is 100, for example, we now save 45% versus what we had reserved. Again, the remaining part is something you don't see in the financial statement, but then we sort of reopen claims, and we reassess claims we still have in the portfolio, and this is quite a significant level.
If you consider, I mean, out of the balance, the, you know, component put in the financial statement is around EUR 150 million. This is the Unipol side. We also have Linear. In this case, we have, you know, another component, I mean, other releases. EUR 150 million plus 30, which is Linear, you know, and then we have the MV business from Arca. The total is exactly EUR 180 million, which I have mentioned before. In a nutshell, this is the breakdown of the ratio situation on the MV. Now, as for Arca, you're right, there's a slowdown. Arca sells investment products, basically hybrid products. You have the so-called first level but also third-level component, so it's hybrid. In Q3, there's been a major drop of financial markets, especially equity markets.
You're right, there's been a slowdown in terms of production or income. As I said before, this concerns us, Arca, and the whole market, which is going down. You know, the recent months have been characterized heavily by, I mean the worst growth rate in terms of income or production, as we say, in the life business for many years. In this case, the impact is due to financial markets. As for BBs, the black boxes, now, we have 4 million black boxes installed. There's no growth. I mean, now we have reached a very high level of saturation. Most black boxes are sold in Southern Italy. In that case, the penetration level is really very high. Now, as for your last question, let me give the floor to Enrico. On the MV question. The, let's say, difference between non-motor and, target. Enrico.
Oh, okay, the target in the plan and the combined ratio. Okay. Yes, both, I would say. Okay. Once again, if I understand correctly, the question concerns the differences between, you know, the objectives you can see in the plan on the one side, and on the other side, the current combined ratios in the MV, but also the Non-MV business. Now, as for the Non-MV business target, and if you compare this with what you can see in the plan, well, basically the target has already been reached because we now have 85% combined ratio. The target was 85.9%, so here we are. We also have plenty of time to further improve, I mean, this ratio.
I should say that this number, so this part as of today, is highly advanced, if you will. On the MV, so on the motor business, the effect on the inflation, on the average cost as of today has generated a result, which is of course, you know, not yet the one we have in the plan. Because the one we have in the plan includes many different benefits or advantages, if you will, depending on the implementation of some specific actions, not just in terms of pricing, but what is also very important is the settlement. We would like to reduce the cost of claims with injuries, and we also would like, you know, our network to work more and better. Reaching the target you can see in the plan is feasible, viable today.
Of course, we have to do something. We have to intervene, especially on pricing, a little bit more than we thought, you know, just some months ago. As I said before, this is what we are doing. We did it in May, and then we did it again in November. Very probably we will do it again in order to do all what it takes to hit the targets.
Thank you very much.
If you want to ask a question, please dial star followed by one on your phone. Once again, if you have other questions, please dial star followed by one on your telephone now. Next question is from the English conference. This is from Mike Larson from Bernstein. Please.
Thank you very much. Rafael, I understand UnipolReC has been sold for EUR 300 million, so you'll get cash for this. What would you do with the cash? That's my question. Thank you.
You're right. I mean, the cash will be in our pockets at the very beginning of December, so in a few weeks. Now, figures on the thirtieth of September already incorporate a small capital loss of EUR 30 million before tax. This is due to the sale of the credit portfolio of UnipolReC. The capital loss is already included. The cash will be invested in securities, and of course, we will use it to improve the net financial position of the holding company, considering the liabilities, the financial liabilities that the holding company now has. There will be, if you will, improvement by around EUR 300 million. This is something you already knew because the operation was announced in June, back in June. Once again, reinvestment will be done in securities. There are no special operations we would like to do with that money.
Thank you very much.
Oh, Mr. Laterza, ladies and gentlemen, questions are over. Thank you.
Thank you so much for participating. See you in the month of February 2023 to comment the financial statement results. Thank you so much. Enjoy the rest of the day. Bye-bye.