Good afternoon, this is the conference operator. Welcome, and thank you for joining the Unipol Group First Quarter 2023 results and Q&A session conference. At this time, I would like to turn the conference over to Mr. Matteo Laterza, CEO of UnipolSai and General Manager of Unipol. Please go ahead, sir.
Good afternoon to everyone. I'm here with Enrico San Pietro, Insurance General Manager. Before opening the floor to the Q&A, let me make some comment on the first quarter that we closed at the 31st of March. As you know, it is the first quarter in which we applied the new accounting standards, IFRS 17 and IFRS 9. We look forward to give more information and more disclosure in the next quarter.
We start from the P&C business, where at level of top line, we achieved a very solid top line growth, matching the assumption of our industrial plan, above all in non-motor, where we grew in all the line of business, above all in health, where UniSalute achieved a growth of more than 40% in terms of premium, driven not only by the traditional business but also by the fact that starting from January of this year, we started to distribute UniSalute product to both the agents and bancassurance distribution network. By the way, bancassurance was in general, one of the most important driver of growth in general in non-motor.
Considering motor, top line grew close to 2%, driven both by an increase of the number of clients in the first quarter and from the pricing effect that is just starting to give some effect in the increase of the premium collected. Talking to the profitability, the combined ratio as you, as you saw, had a small deterioration. This deterioration is driven both by an increase of frequency that we achieved in all the line of business, a lot of the line of business, in particular, also in motor, where on top of that, we continue to see the impact of inflation, impacting in the average cost of claim.
Combining these two effects and the fact that the pricing strategy is just starting to have an effect, but it is just at the beginning, it takes place the big part of the increase of the combined ratio versus the same number at the end of March 2022. In life, we had a very strong growth as you saw in the presentation. This growth is driven by the pension funds business, where we achieved a very important mandate for the management of very important pension funds. In general, we are working in increasing the yield of the segregated funds, where we achieved an increase of more than six basis points.
At same time, we reduced the average of minimum guarantee of one basis points. In terms of surrenders, of course, there is a small increase compared to the same number in the first quarter 2022. it's much a small extent, and we are still very far from the level of surrender that we had before the COVID. Just to give you a period in which the absolute level of interest rates in the Italian government bond were at the same level in which we are today. Concerning investments, the contribution of investment income in the first quarter of 2023 was very strong, driven by the very good performance of financial markets.
We had a tightening of the spread, across the board, both in the Italian BTP versus Bund, and also in the credit market, in all the segments of the credit market. On top of that, also equity market performed very well. This is the reason why the contribution of investment in first quarter 2023 was good on the opposite on what it were in the first quarter 2022, applying the new accounting standards, IFRS 9. The capital generation produced by the group and the good performance in financial markets was the main driver of the improvement of the solvency ratio, both at group level and at UnipolSai level. These are the main remarks and comments that I can make on the first quarter 2023. Having said that, with Enrico, we are open to answers to your questions. Thank you.
Thank you. This is the conference operator.
Well done on really lovely results. I had a few questions, one on the combined ratio, one on the lapses in life, and one on the capital generation or the I think areas of strength. On the combined ratios, there was a worsening of 150 basis points, according to the slide. I just wondered if you can talk a little bit more about this, you know, how much impact here, how much inflation was and how much frequency. Also I'd be interested to have your view or your feeling on when the pricing will start to reverse the increase in combined ratio, the exact, you know, background, the 150 basis points, whether it's Q4 or is this next year.
The second is on the life surrenders, you say they're still at low levels compared to a previous time when in-interest, interest rates were this high. I just wondered if you could give us some numbers around this, even in terms of lapse ratio or amount of policies, what they are now and what they were in this prior period, just to get a feel for it. Then the final one is on the operating capital generation and the rise in the solvency ratio, 350% in UnipolSai, which is really lovely. It's, you must be delighted. I just wondered if you can talk a little bit about the capital generation and how strong it was and how you see that developing.
Only question really the aim is understanding whether I should just multiply the result by four to get to the top three. Thank you.
Thank you to you. I will answer to the second interpretation. We'll Enrico let answer to the number, so to do a combined ratio. Concerning lapses, just to give you a number, the lapse rate compared to the technical reserve in the first quarter of 2023 was 1.7% versus 1.5%, which was the number in Q1 2022. There is a small increase, but it is absolutely negligible. Just to give you another information, in terms of net inflows at group level, we have just consuming the traditional products, not Unit-Linked, and other pension funds and others. We have the total premium collected that's completely the maturity and lapses.
We have not, we have not outflows in the first quarter, so we didn't. Was not in the position to sell asset to fund the surrenders. Of course, as I said, we are working to increase our distribution capability of traditional products in order to be able to invest net inflows at interest yield level that they are between 4% and 5%, in order to increase the yield of the segregated funds next that in order to give our policyholder an interest rate that is comparable and competitive with what they can get from deposits, money market funds, treasury bill, and whatever.
In terms of capital generation in solvency, just to give you some numbers, we had an improvement of 13 basis points in the solvency ratio. We passed from 220 to 213. Of that, five percentage points are capital generation and nine percentage points are the effect of the positive performance of financial markets. These are the main driver of the improvement of solvency. At UnipolSai level, the contribution of capital generation is six percentage points, and 13 are explained in the capital model by the positive performance of financial market. With that, I let Enrico answer to the combined ratio.
Thank you. Okay. Good morning. Combined ratio, as you have seen, is worsening from 97.5 to 102 in motor business. This is the main driver. Yes, of course, the non-motor business has a small improvement in combined ratio. Basically the worsening is related to motor business. In this, we are seeing in the first quarter a negative impact of inflation and also a negative impact in loss frequency. More or less, we can consider the worsening is around five percentage points, and roughly speaking, you can speak in half due to inflation and half due to increase in loss frequency compared to the first quarter of 2022.
We haven't seen yet material impact of price increases on earn of premium. It takes time to see the impact because you need not only to be able to have an increase in premium written, but also the increasing internal premium. Basically what we see for the future is as the months go, the year goes on, we will see more and more the impact of our price increases that were very significant, both in November and even more in February. We are seeing some impact also on the retention rate. That, of course, is lowering a little bit, but not that much to be a really concerning issue so far.
Thank you, Enrico. Thank you.
Next question from Peter Eliot with Kepler Cheuvreux . Please go ahead.
Thank you very much. Yeah, just a quick follow-up from me first of all, actually on the life efficiency. I was just wondering if you could elaborate a little bit. I mean, those numbers were very helpful. Just wondering if you could comment on the various channels. I mean, and maybe particularly what you're seeing in bancassurance would be helpful. Secondly, just looking at the IFRS 17 impact, in your March presentation, you said you expected the combined ratio to increase. On slide seven in today's presentation, the sheets seem to show a decrease from IFRS 17. I'm just wondering if you could sort of clarify the accounting impact, be helpful.
On life, obviously we don't have the earnings by sources this time. I'm just wondering if you can give us any disclosure to help sort of break down, you know, that overall profit, and in particular, you know, whether we might get any quantification of the contractual service margin and the moving parts of that, such as how much was released. Maybe that's just later in the year with the full disclosure, but it'd be useful to know what we might get there. Thank you very much.
Okay, Peter. Just to give you more color on the life business by the two main distribution channel in which we are involved. There are no big differences between the two, in the sense that both channels are in equilibrium in terms of net inflows coming in order to be invested in segregated funds. bancassurance is in a positive net inflows, even if this is not a big amount. More or less EUR 150 million of net inflows coming from the bancassurance. Premium are more than surrendered by, and the maturity by EUR 150 million.
There is an opposite number in the agent distribution channel, where we have net outflows of EUR 140 million, more or less. Consider that these numbers has to be compared to EUR 25 billion of technical reserves. The impact is negligible compared to the absolute level of technical reserve.
As I said, our commitment is focused on increasing our distribution capability of traditional products in both distribution channels in order to improve the net inflows, be able to invest at yield that today are between 4% and 5%, and to improve further the absolute level of asset yield that is above the highest in the industry, in order to be more and more competitive with other investments, and in order to give much more distribution power to our sellers. Possibility to sell traditional products to our clients. In terms of IFRS 17 impact, yes, we did.
We said that there is, there will be an increase, in the combined ratio as a by-product of the way in which we apply the formula of calculation of that. This can be explained in the chart that we disclosed in the presentation on the effect of new metrics. There is a very small change between the two, and it is very difficult to make a comment on that.
What is important is the effect on the combined ratio driven by what Enrico said before as a consequence of the increase of frequency and average cost of claim. This is the main point that should be commented today on top of the formula that we use in IFRS 17. Considering the life earnings by sources, this is one of the information that we want to add in the next quarter, because as I said before, we are just at the beginning, so we want to be sure that the numbers and the way in which we present the numbers are solid. We do our best to improve and to give this disclosure starting from the next quarter. The effect, the CSM release that we released at, as in the P&L in life is EUR 57 million.
Okay, great. That's very helpful. Thank you. Could I just one cheeky follow-up on the combined ratio? I suspect you might not give this, given this is a Q1, but it's worth a try. I mean, obviously, the runoff is now, you know, the changing risk adjustment, but can you give us any indication of what the release in non-life was at all?
We don't have a runoff release in the first quarter 2023 because on the new accounting standards there are not in the Q1.
Okay. Okay. Thanks very much.
The next question is from Suresh Athukorala with Societe Generale. Please go ahead.
Hi. Thanks for taking my questions. The first one is on the life business. I recollect that you had mentioned about an annual profit guidance of around EUR 250 million, so EUR 53 million in 2023. That's slightly lower than the run rate. Any comments where for this or how we should view this going forward? That's the first question. The second question is on the motor pricing. Can you just give some idea about, you know, what is the level of price increases that you're injecting in the motor business, and how does that compare with the claims inflation? You know, the increases with the risk of claims inflation, how does that sort of compare?
The third question is with regards to UnipolSai and the dividend target for 2020 to 2024. I mean, given the very strong solvency ratio, I mean, how should we think about the dividend for UnipolSai? I mean, would it still be at, you know, the levels that you gave for 2022, I mean, you know, the reduction or should we expect to beat on that target? Thank you very much.
Thank you to you. Concerning the first question, you remember very well, but you remember the top of the range that I said, because usually I say that the range of life business profitability is between EUR 200 million and EUR 250 million.
Mm-hmm.
We are in the range. Having said that, it is just the first quarter. Of course, our commitment is focused to be on the top of the range. Don't be misleading by multiplying by four the number of the Q1, because there are a lot of items that have to be to take in consideration, like, for instance, the effective investment, the mirroring, the CSM and a lot of things. We are in this range. As I said, we look forward to be in the higher part, in the higher part of the range. Considering the motor business, and I will leave the floor to Enrico to comment on it.
We did two important price increase. Of course, as we said before, the full effect of this price increase has to be seen in full at the end of 2023, beginning of 2024. In the meantime, the effect of inflation is impacting at 100%, starting from the second half of 2023. There is a sort of lagging thing and premium income and claim and claim inflation. On the final question is really too early to comment on dividends. Consider also that the dividend is decided according and based on the local GAAP balance sheet. Local GAAP balance sheet is impacted positively or negatively by the performance of financial market. We are still in May, it is really too early to make any kind of comment on dividends.
All right. Thank you very much.
Okay. Let me add some color on the second question about motor pricing versus claim inflation. Probably you remember what we discussed that the previous time about our price increases. Our price increases were in November and February. If you sum up the effect of both, on average, the renewal offer that our customer are receiving are more expensive around 15%. This doesn't mean that the average premium will increase of 15%. Of course, there are some other effects that are decreasing this impact. The most important one are the amount of discounts that we give to our agents to deal with the customers around 3%.
The fact that at renewal, customer have some option to reduce, increase, adopting, for instance, the telematic devices or signing a clause that obliges them to bring the car in our fair repair network in a claim, of course. Last but not least, there is an effect, a competition effect related to the fact that since we increase more, prices when is needed, the average premium of the contract that we don't renew is higher compared to the average portfolio premium. Even if you discount all those effects, you can expect an increase of the average of premium, around 7%-8%, versus an inflation that was on our claims in motor around 5% in 2022. If you look at the first quarter, roughly speaking, compared to the first quarter of 2022, you can measure an inflation effort on the average cost of claim that is around 2.5%.
All right. Thank you. Very helpful.
The next question is from Elena Perini with Intesa Sanpaolo. Please go ahead.
Yes. Good afternoon, thank you for taking my questions. The first one is about the recent floods in Emilia-Romagna. I don't know, I think that probably it's too early, but I would like to know if you have already any ideas of the potential claims or the potential risks attached. Second question is about your shareholder's equity that I'm referring in particular to page two of the press release of UnipolSai, but I think at the same time is also Unipol. You had a positive difference between IFRS 4 and IFRS 17, and at the end of the first quarter 2022. Under IFRS 4 you had EUR 5.6 billion, and under IFRS 17 you had EUR 6.5 billion. What drives this difference, if I may? Thank you.
Okay, Elena. I will answer to the final question. Then I will leave the floor to Enrico for the first one. The main effect between 2022 and first quarter 2022, IFRS 4 and IFRS 9, if I understood well. Equity value, IFRS 17 and IFRS 9, is driven by the performance of financial market in the two time horizon, because at the 31st of March 2022, we had a very negative performance of financial market that impacted on the IFRS available-for-sale reserve.
Quarter-on-quarter, there was a very positive performance of financial market that was impacted positively, both in the fair value to OCI component of the portfolio and also in the component accounted to fair value to P&L. This explain the most of the difference between the two numbers.
I'm sorry, but I was wrong in mentioning, because it was not at the end of the first quarter 2022, but at the end of.
Yeah.
2022.
Yeah. It is the same.
Okay.
It is the same. The first quarter, 2023 was very positive.
Mm-hmm.
In the sense that the absolute level of bill decreased both in BTP and in Bund. As prioritised, the credit market performed very well, equity market performed very well, and consequently the financial asset value increased. This is the main reason of. Consider also that applying the IFRS 17 technical reserves are discounted. You have also a positive impact on the liability side of the balance sheet compared to the IFRS 4.
Okay, thank you.
Okay. Hi, Elena. About recent flood in Emilia, is definitely too early to have some figures. Of course, we are collecting all the information as soon as possible. At that very early stage, it doesn't seem really concerning events on our overall profitability.
Okay, thank you very much.
Next question is a follow-up from Michael Huttner with Berenberg. Please go ahead.
Thank you. Sorry again, and for the noise, and thank you for taking my question. I have lots and lots of all numbers and probably say, well, it'll in Q2, but here we go. I just wondering if you have a number for the CSM. You gave the release, so I can kind of work it out. My guess is it's about EUR 3 billion, but I just want a clear number. Maybe you can give us the solvency today. I know markets haven't moved a lot, not in quarter to date, but maybe you have a number. I'm interested to know if there's a difference between the performance of your two bancassurance partners, BPER Banca and Banca Popolare di Sondrio.
If there's any, kind of, check going to be any change going forward in this. The final, is maybe a stupid question using the words of my colleague, your non-life, non-motor, motor growth 1.7%. I just wonder if you can give it to us in a, in a kind of underlying way, you know, adjusting for the change in accounting for these, repeats or whatever premiums. Thank you.
Okay. Concerning the CSM value, we started at the end of 2021 with a little bit more than EUR 2 billion, as you said. We closed at the 31st of March 2023 with the number of 2021 was 3.263, to be precise. At the end of March 2023 was EUR 3.1 billion. This is these are the two numbers that you were asking. Concerning the performance in bancassurance of the two partners with which we have an agreement, BPER Banca and Sondrio. As I said, the performance was very strong in both player.
Of all in health insurance, where we started with the project of UniSalute. We are using UniSalute brand and distributing products both through BPER Banca distribution network and also Sondrio. We have very positive numbers also in the other lines of business, above all in non-motor, which is the area which we are focusing the most. Concerning the non-motor, I have to say that what Enrico already said is the most significant component in order to comment the number. We have not significant change in the absolute level of the number that can justify the transition from the old to the new accounting principle.
Of course, the components that contribute to build up the numbers are different because there are not any more big amount release that we use in the old accounting standard. We have the CSM, we have the loss component, we have the fact that we discount the cash flows at the yield curve plus liquidity premium. Of course the component that contribute to this capital amount, the numbers are different compared to the component that were used with the old accounting standards.
Thank you.
Okay. Let me add the something about the motor growth, because if I understand well, you're asking also to have a comment of the 1.7% increase in the motor. Please give me the opportunity to add some relevant information on this. You have to normalize the effect of motor growth, that if you don't take it into account with new offer we have on our customers, is around 5%, not 1.7%. The new offer is basically a new monthly installment scheme that is not financing the whole premium, but something more similar to a subscription economy solution. You pay with a credit card or save at debit monthly. We send you monthly certificate via email.
This new offer is reporting a very significant interest. As you can imagine, a lot of our customers don't put in our written premium the whole year of premium, but only the single month that they are paying. There is no effect on earned premium or on our profit and loss account. If you look at growth, this makes a material difference.
Thank you. Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. For any further questions, please press star and one on your telephone. The next question is from Alberto Villa with Intermonte. Please go ahead.
Hi, good afternoon. Just a question on the outlook for investment income contribution. It was very strong in the first quarter in especially in non-life. I was wondering if we can expect a similar trend going forward. Any color on that would be helpful. Thank you.
Yes, Alberto. There are two components that you have to keep in mind. The first one is I guess the most important and is the core yield of the portfolio, which come from the coupon and dividends that we get from our investment, that are very stable and are increasing. Today are close to 3.2%. If interest rate will continue to be at this level or higher, of course, we look forward to increase this number. The second one is much more volatile, that come from the performance of financial market. This is a very important thing that we said when we met for the IFRS 17 and 9.
In the sense that, in the first quarter 2022, we had a much higher component classified as fair value through P&L than what we have today. This is the reason why in the first quarter 2022, we had a so negative effect coming from investment income, because the component classified as fair value through P&L impacted very negatively on our accounts. Today we have a much lower exposure to that. This is the reason why the positive impact coming from investment that will be attributed to the valuation and financial asset, is much lower than the loss that we got in 2022. This is what.
This is to say that our commitment is focused on lowering the volatility of our P&L on financial market performance, both in the upside and in the downside. In general, if you see a positive performance of financial market, we have to expect a positive impact coming from not only coupons and dividends, but also from valuation. On the opposite, you can expect a deterioration, which will be much, much lower than what we would have got in 2022 if the new accounting principle were applied starting from January 2022.
Thank you.
Next question is from Alessia Magni with Barclays. Please go ahead.
Thanks. Good afternoon, everyone. Just a quick question from my side. Do you think that the price increases that you have to through so far are enough to achieve your combined ratio target, or are you planning to increase prices even further? Thank you.
Okay. What we plan to doing about pricing was related on inflation forecast. On this side we can say that our price increases when they will become fully visible on earned premium could be enough. On the other side, we are seeing some increase in loss frequency, not that big, but this will need some more increases, which we are planning, and we will probably introduce in the next months.
Perfect. Thank you.
Mr. Laterza, there are no more questions registered at this time. Excuse me, there is a follow-up question from Michael Huttner with Berenberg. Please go ahead.
Sorry about that. It's. Thank you so much, and I'm really sorry. You were talking about these, you explained lastly the, the monthly premium. I just wondered if I, monthly premium policy from Unipol, does it mean that effectively I bought an annual policy and I have to pay every month? Can I at the end of any month, decide to actually, I don't need this policy anymore and then just stop?
Okay, thank you, Michael. Until now, in our flagship company, UnipolSai, contracts are have a one year duration. The customer can pay monthly, and we send them a monthly certificate. What we are experiencing in our new enterprise, BeRebel, we discussed during the industrial plan plan presentation, is monthly contracts. The customer sign a contract for one month. Of course, every month, the contract is renewed if the customer want to renew it. Basically now in our portfolio contracts have a yearly duration. With this new offer, some customers, quite big amount of customers are paying at monthly installments.
Thank you. Thank you.
Mr. Laterza, there are no more questions registered at this time.
Okay. Thank you very much to all of you, we will meet again for the first half result. Thank you very much, have a good day. Bye-bye.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.