Good afternoon. This is the Chorus Call operator. Welcome, and thank you for joining the Unipol 9 months 2023 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. Matteo Laterza, CEO of UnipolSai, and General Manager of Unipol. Please go ahead, sir.
Good morning, and thank you very much for joining us to this first nine months result meeting. I'm here with the General Manager, Enrico San Pietro, and as usual, before opening the floor to the questions, let me make a very brief introduction on the numbers. I will start from the P&C business, where top line growth was quite robust, even if the 3.8% growth in terms of premium that you saw in the presentation to me underestimate our commercial effectiveness because it doesn't take in consideration the policy splitting strategy that we massively applied here to date above all in the motor TPL business.
In fact, the 1.2% premium growth in motor, adjusted for the policy splitting, is a number close to 5%, and in non-motor, the 6.2 is a number above 7%. In particular, in non-motor was very high, the performance of health insurance business with almost 17% of growth in premium. On this pillar, we are ahead of schedule to reach the target of our industrial plan at the end of 2024. On technical profitability, the third quarter was impacted by several trends and events. We start from Motor TPL, where we saw three important trends.
The first one is, the increase in the average premium that, year to date, is, above 7%, so the upward trend is, accelerating. Second, we had, in the third quarter, a, a slowdown in terms of claim, and it is another positive, trend. And, the third one that I wanted to mention is the slowdown in the average cost of claim. All these three trends were, positive in, in terms of, impact in the, profit, technical profitability. Even if, we are not yet reached, a decent level of, combined ratio in Motor TPL, we are in a good track to reach it, quite, quite soon.
On the negative side, the third quarter of this year was impacted quite massively by gnat catcher . You saw in the presentation that nat cat plus large claim impacted net reinsurance 11.5 percentage point versus 7.1 in the first half of this year. And of course, the main contributor to this deterioration is due to the event that we had in the second half of July in the northern part of Italy. And I have to say that this is the main driver of the deterioration of the combined ratio that closed in September at 98.6%.
In Life, we had a quite positive trend in terms of premium in all the line of business. Very important is the positive net inflows in the traditional products, where we are close to EUR 300 million overall. Very important is the contribution of the bancassurance in this side, and we maintain in Life a quite good level of profitability in line with our forecast of profitability that we had for 2023. Finally, and I will close this introduction, in terms of solvency, we have a group solvency at 218%, exactly the same than at the end of June.
We had, above all, two main drivers, one positive, that is the capital generation contribution, and on the negative side, the third quarter was quite negative in terms of performance of financial market. We had a deterioration of the spread of government bonds.
On one side, equity market had a negative performance in the third quarter, and these two main driver had a negative impact on the own funds, and at the end, these two elements were offsetting each other, and we closed the solvency at 218%. At UnipolSai level, we have more or less the same kind of remarks to say on solvency. Having said that, with Enrico, we are now we open the floor to the question. Thank you very much.
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 Peter Eliot of Kepler Cheuvreux. Please go ahead.
Thank you very much. Three questions from me, please. I note the, you know, the proposal to introduce a sort of guarantee fund for life insurance in Italy. I was just wondering if you could talk a little bit about that and what impact, you know, you think it might have. That would be the first question. The second question is the expense ratio looks a little bit high. If I calculate it right, it looks like 27.5% in Q3 in isolation, after 26.3 in H1. Just wondering if you could comment on that. And the third question is the CSM, the operating and economic variance. I guess there's a lot of things going on in the +151.
I'm just wondering if you can sort of help us split those out. I mean, in particular, it would be good to understand the sort of the recurring return and any assumption changes you might have made due to the experience you've seen. Many thanks.
Okay, Peter, I will, concerning the first, the first question, first of all, this new rule will be applied in 2024, so we didn't have any impact on the numbers of 2023. We did some math on the possible impact of the fund on our numbers, and we shouldn't have an impact above EUR 20 million every year, so it is not material in our case. In terms of economic variance of the CSM, we had a positive contribution of the economic variance of, I remember, well, EUR 270 million, and EUR 241 million, sorry.
I don't have the exact number of the component of the yield that you are asking, but roughly, two thirds of that are due to the yield component of the economic variance, and the rest are financial variables. But maybe we can do a dedicated call with the IR to have more insight on that.
Okay. Thank you. Could I just-
Sorry. Oh!
Yeah.
On the expense ratio, I leave the floor to Enrico to comment on that.
I'm sorry, maybe your line is muted. We cannot hear anyone.
Could I maybe just come back while we're waiting for that one, could I just come back on the first two questions quickly, please? When you said EUR 20 million per year, is that, is that EUR 20 million per year impact on your PNL, or is that,
Yes.
Yeah.
Yes, Peter.
Okay
Because, it is a 50 basis point on technical reserves on 10 years-
Okay.
Split it on 10 years, and you have to pay, and you have to account this item in your PNL.
Okay, so your PNL would, I mean-
Yeah.
It would be hit by high, high single digit impact on your, on your life PNL then?
Yeah. Gross of tax is , EUR 20 million. Yeah.
Yeah. Okay. And on the CSM, was there any impact from assumption changes? So did you make any changes as a result of sort of persistency experience?
No, we didn't make a change in the assumption. We had some negative impact coming from the operating variables, due to the fact that surrenders are higher than-
Mm
in the past. And so you have to take in consideration this. But in terms of actual assumption, we didn't make any change.
Okay. Thank you very much.
Yeah.
The next question is from Andrea L isi of Equita. Please go ahead.
Hi, thank you for taking my question. The first one is on gnat catcher . So, we have seen a lot of impact in the third quarter.
... If it is possible to imagine that how long a tail of what observed in the third quarter can also affect the fourth quarter? And I know that it is really preliminary, but we saw that in Italy, there were several bad events, weather events also in the last weeks. So if you have already an idea of what could be the impact, and if you can summarize again the protection that provides to you, the reinsurance treaty that you have, and how it protected you in the third quarter.
The second question is about the proposal of the draft of the budget law of extending mandatory insurance coverage for catastrophic events for corporates and SME. And so, if you can comment on this, and on the potential impact for you, I know that it is really preliminary, but just to have an idea on what you expect. And the last is more of an accounting issue: How do you consolidate the stake in Sondrio after the group has reached close to 20% stake? Thank you.
We start from the final one, and I will leave the floor to Enrico for the other two. Sondrio is not consolidated in the numbers at the first nine months because we completed the transaction at the beginning of October. It will be consolidated in the final result at the end of 2023, and you will see the contribution in the next conference call at the beginning of 2024.
Concerning the numbers, the new rule on the mandatory insurance coverage for PMI, for nat cat, it is an opportunity. A new market is opening, and we will of course in order to give our clients all the coverage they need. But on this matter and the other question, I leave the floor to Enrico.
To go on with Matteo's statement on the new law that will very likely put this mandatory coverage for nat cat on enterprises, we appreciate the effort of the government, since this kind of scheme is already present in several number of several countries in Europe and outside Europe, and it's something useful for a country. Of course, it depends on how you implement it, and we hope to be able to discuss it for some open points i n which we think we could do better as a country.
First of all, the role of the state as the ultimate cover for very, very large events that we can expect in more than 200 years period. So, we are studying this issue and discussing. And we hope this could be an opportunity not only for an insurance company, but also for our country to develop. Going back to the first question, about the gnat catcher . Of course, as you have seen, this is the main issue for the third quarter deterioration in combined ratio.
This is something that was partially offset by reinsurance, but to remember you how our insurance schemes are working, basically, we have an aggregate cover with different parties. The name of this scheme is Multiple, that has a capacity of EUR 85 million, and this capacity was basically exhausted. So we recover EUR 85 million from this scheme, other EUR 9 million from the hail on crops cover, reinsurance cover. And over that, we have the traditional excessive loss cover for nat cat, that has a priority, a retention of 150 million.
So basically, we have not yet recovered nothing from this. If the events will further deteriorate, it could happen, and we are not yet able to have an estimate about Tuscany flood. First information doesn't look this big like it was in Romania, the event, but of course it's too early to give any estimate on that.
Thank you.
The next question is from Michael Huttner of Berenberg. Please go ahead.
Thank you very much, and, well done for lovely results. I had lots of questions, basically, lots of numbers, if you could provide them. So, if I list them and maybe you can help. So first of all, what was the growth and the net cost of the nat cat in Q3? The second, you said the pricing and claims in motors, I heard pricing up over 7%. Can you give us the figures on the claims cost? Because you said they were down, and you said in the introduction, I think, that, you know, the average cost is down.
I just wonder if you can give us percentages, 'cause when people say down, I'm not sure if they mean down versus trend or down in absolute or down which quarter on which quarter. So any precise indications would help. Then you said Motor TPL, you're the direction of travel is good, but you're not where you want to be. I think I remember the target is to get around 93%. My guess is you're at 96, but maybe you can give us the number for Motor TPL.
On the reinsurance, what I've been reading in the various publications is that the cost is going to go up sharply, and I just wondered how you can—how you're going to integrate it, and whether you would start raising the pricing in the non-motor sharply to reflect that. And then the final is on IFRS 17.
It's not specific to you. I ask this question for all companies, but could you possibly give me the number on discounting, which is included in the combined ratio, and also the unwind of the discount, which is included in investment income? I'm sorry for all these number questions, but it's just that Unipol looks so set to kind of get really better. I'd like to be able to create a good business case. Thank you.
I will start from the final question, and then I will leave Enrico the floor for the other one. In the discount factor in the combined ratio is 3.6 percentage points. And concerning all the first part of the question in motor, I said that average premium is going up by 7%, above 7%. And in the third quarter, we had a slowdown in terms of claims, but year to date, they are flat. They are up 0.8%.
In the average cost of claim in Motor TPL, we had the slowing down of inflation that is still quite high, but lower than in the first two quarters. And we had also some positive impact coming from less body injuries in percentage of the total, compared to the same number in the first half of the year. So overall, all these gave a positive contribution to average cost of claim that in September 2023 is up a little bit lower than 2%.
Compared to what period?
Sorry?
Compared with which period, the 2%?
Year to date.
Okay. Mm-hmm. Mm-hmm.
Yeah. Then I leave the floor to Enrico for the other part of the question. Yeah.
Thank you.
Yeah. Okay. Let me add some color on motor third-party liability, and as Matteo told us, we've been discussing since last November about price increases. We did it in November, in February, and then almost every month in the springtime. Nowadays, when we offer the average renewal price on the customer that comes to the expiration date of the contract, our offer exceed 20% increase on average. This average is very differentiated from a single customer to another, since we already had a very precise tariffication model, and we were able to sharpen further this model.
So basically, what's happening is that, customers that are remaining with us, the vast majority, luckily, are paying on average 12% more, and so months after months, the average premium is growing. And on the other hand, the customer that doesn't renew with us are giving an advantage in terms of loss frequency. So loss frequency is decreasing, and also the percentage of bodily injuries claim is decreasing too, as Matteo told us, and this is very relevant since, roughly speaking, the average cost of a material damage claim is five times smaller than an average claim with bodily injury.
Last but not least, we had a good summer in terms of very large claims on motor, compared to the last year. In the end, things are improving, and, of course, we are not yet at our target, but we are very confident to be on track to recover in a few months. Of course, as we discussed, it takes time to see the effects of all the action that we have taken. So-
Do you have a figure for the MTPL combined ratio?
Oh, yeah, yeah. More or less, your guess was right around 97, it's 97.7, the combined ratio-
Wow!
of motor third party liability.
That's amazing. Fantastic. Well done.
So, on motor third party liability, we are definitely on track. On the other hand, unfortunately, the nat cat events had a negative effect on property, obviously, but also on motor other damages. So when you look at our motor combined ratio, there are two very visible effects: one positive on motor third party liability, the second negative on motor other damages. As far as reinsurance is concerned, of course, there are a lot of discussion on the renewal for 2024. Since we already had a very high level on retention, as we told us, as we told EUR 150 million of retention, basically, our treaties are less in the spot of the reinsurance.
And so, of course, we are discussing, and we'll probably have to pay some EUR million more, but, in our view, is not that material in terms of cost increase. But you are, completely right on the fact that, we need to, work on non-motor pricing extensively. We are working on that, to have in 2024, a very extensive, increase, in, property prices, since, of course, we need to restore profitability. 2023 looks like an outlier in terms of, nat cat losses, but of course, recent years, tell us, and tell the other companies, in Italy, not only in Italy, that, property prices need to be increased.
Do you have a figure for the July event, in terms of the loss to the group?
July event, of course. It depends on which kind of time period you take into account. When you look at the event of the last part of July, 24, 25 of July, at the end of September, the amount of this event on property was around EUR 150, so not yet able to recover anything from reinsurance, but very close.
If you take into account all the July month... Oh, sorry. Take into account the third quarter impact, is a number that is around EUR 450 million. So if you take into account what happened in May with the flood in Romagna and in July, basically, we have more than EUR 450 million cost on the gnat catcher , compared to the previous year.
Just repeat that, so I understand, 'cause my acoustics, I didn't So EUR 450 million year to date, including the floods in the second quarter?
Yeah. If you take the difference at the end of September-
Mm-hmm
we have more EUR 450, EUR 100 more or less from the flood-
Mm-hmm
-and the rest from the July storm.
Brilliant. That's very helpful. Thank you very much.
Sorry, Michael, I didn't give you the unwinding effect of the-
Mm-hmm
-discounts, which is EUR 60 million.
Excellent. That's helpful. Thank you very much.
The next question is from Elena Perini of Intesa Sanpaolo. Please go ahead.
Yes. Thank you very much for taking my questions. Actually, I didn't have the opportunity to follow your introduction, so I apologize if you have already answered some of them. The first question is about the low tax rate that you had in the third quarter. I was wondering whether you can give us some details on the impact in terms of EUR, of EUR million and the topics that it is referred to.
The second question is about your life business. You were very good in the first half in terms of net inflows. I was wondering how the business is going in the third quarter, and now it is going now, in terms of inflows for both the traditional policies and hybrid and unit link. Thank you.
Thank you to you, Elena. Concerning the first question, yes, the tax rate in September was lower than usual. We had some special situation that we applied. First of all, we applied the new patent box to several companies that belong to our group, that had, for the third quarter, a positive effect on the tax rate. And secondly, in the longer-term trend business, in mobility, in motor, we did some adjustment on the fiscal value of the goodwill. And on the back of that, we had some positive implication in the tax rate.
These are the main, two main source of the benefit that we had in the first nine months result. Concerning the life business, the trend is continuing to go very well. The growth rate is much lower than the first half, but because in the first half, there were some easy comparison due to the some new mandates in pension funds.
In September 2022, in the third quarter, we got some very important mandate also, and so the growth rate in the premium business is lower. Nevertheless, the performance of the distribution network was very good, both in the agent distribution network and in the bancassurance.
Above all in the bancassurance, thanks to this, we had a positive inflows. Of course, surrenders are higher than in 2022 because of the increase of interest rate and because of the competition coming from other kind of products. The first one are the Italian government bonds. But, nevertheless, we continue to have positive inflows, and it is a very good sign in order to maintain and to be able to invest new cash flows at higher yield in order to enhance and improve the yield of the segregated funds.
You can see some numbers in the presentation where we are increasing the yield that we debate to our clients in order to maintain a certain level of competitiveness versus either kind of products coming from asset management or fixed income securities or others.
Uh-
Yeah.
There are some numbers on the net inflows?
We are the net inflows in the traditional product is close to EUR 300 million today. Sorry, In terms of net inflows, we are close to EUR 500 million.
Okay. Thank you very much.
Sorry, sorry. No, no, I was, because I did, I said this in the introduction. There is in the presentation, EUR 265 million.
Okay, okay. Thank you.
And, uh-
The next-
Sorry, Elena, we also have to confirm what you were hearing. So, we had an increase in the nat cat cost at the end of the third quarter, around EUR 450 million, net of insurance. And, this include May flood and also July hailstorms.
The next question is from Gianluca Ferrari of Mediobanca. Please go ahead.
Yes. Hi, good morning. Only two left for me. The first one is on protection and motor other damages. I was wondering, and I think Enrico already replying to Michael, gave a bit of of an answer to this: What are the managerial actions you are putting in place to face the recurrent higher combined ratio on these business lines? I think Enrico mentioned a repricing starting from next year. Any other measures such as portfolio pruning or reducing the exposure to some kind of business lines or specific businesses or specific geographic regions.
The second is probably a strange one, but I was noticing the great expansion in the business of UnipolRental, and considering also the multiples of some specialized players such as ALD, I was wondering if you have ever considered, at some point, an IPO of this business? Thank you.
Thank you to you, Gianluca. I will answer to the second, and I will leave Enrico answer to the first one. Actually, we recently completed the merger with SIFA, which is the company specialized in the long-term rent owned before by BPER Banca. We are starting a very important project focused on the distribution of the products, using our distribution network of agents, that are able, and they demonstrated to be very effective in the production of new contracts. Just to give you an idea of the 87,000 contracts sold in June...
Sorry, of the 132,000 contracts sold in September, more than 35,000 were sold by our agents. And it is a very important number, because it is growing year by year, and the level of profitability of this contract is higher than a corporate contract sold through the direct distribution channel. This project is focused also on the distribution of the bancassurance channel, using BPER Banca, of course. We are still at the beginning of the project, and consequently, the idea of doing an IPO is not on the table at the moment.
This is the main, the only-
Thank you.
I can say to tell you. Then I will, Enrico, let answer to the other question.
Okay. Thank you, Gianluca. So, the first question was about motor other damages class. First of all, of course, let me remember that in this class, there is not only the coverage for nat cat event, but also other relevant coverage like, as theft, fire, Kasko, and so on. So basically, this part, the cover of nat cat, is now a little more than EUR 100 million premium written, but of course is really concerning, not since July, but it's been a few years in which we are increasing prices on this kind of covers, and we are going to increase more this.
Adding to increasing prices, also changes in the product cover, so introducing some limitation, some virtual deductibles, for instance, or loss limits on individual contracts, and also putting a higher attention on geographical distribution of our risk. So we used to do that, and we are going to do even more on property, of course, but we will apply soon this same approach also to nat cat, to moderate the damages.
Thank you very much.
The next question is from Michael, it's a follow-up from Michael Huttner of Berenberg. Please go ahead.
Thank you very much for this opportunity, and I'm sorry. So the three questions, one is on the banking, you know, Sondrio, BPER, what's the future? Are you going to increase your banking, whatever, it seems a very profitable business. The second is on Eurovita. What has happened? I understand the transaction is closed, and I just wondered what the impact is on your business in terms of solvency, volumes, I don't know. And the third one is, I didn't... My hearing is really bad, and I'm really sorry.
When you replied in the previous question, you mentioned the figure, I think, of EUR 100 million for premiums, and I didn't quite understand what this related to, whether it was motor hull or property. I was just interested. Thank you.
Okay. Concerning our investment in the banking business, we completed our investment by reaching twenty percent stake in, little bit less than 20% stake in Banca Popolare di Sondrio. It is the way in which we execute our strategy in the bancassurance by considering that a strategic and industrial partnership, and in this sense, having a significant stake is very important to us in order to have a strategic and industrial partnership with the two banks.
The fact that in bancassurance we have positive inflows in life insurance, which is a sort of contrarian situation compared to the market system in general, is a proof of how effective is our partnership with the two banks. So this is the reason why we invested in the two banks. The investment is also profitable, both on a financial point of view and on a commercial point of view, because bancassurance is one of the main driver of growth of premium, and so we are very happy about that.
Concerning Eurovita, we just got started with Eurovita, with the opening of surrenders. As Unipol Group, we invested EUR 50 million of capital. It is our share on the 22.5% of shares of the company. Cronos Vita, which is the new company created in order to manage the life insurance portfolio of the company, has a solvency ratio, which is now in a comfort zone. And so, we think that we are all set with this investment at the moment.
As you know, we have two years since the signing of the term sheet in order to split Cronos Vita in five carve-outs of portfolio. And, in this time span, we will take part of the portfolio, and we will migrate this in UnipolSai . Having said that, I don't expect significant further capital injection going forward, but we will see, depending on the trend of surrenders of the company. On the third question, I leave Enrico answer.
Okay, hope that we were able to understand better than before the fact that we were discussing about motor other damages class, that accounts for as more than EUR 800 million of premium return, because there are several coverage. The most important are test, fire, Kasko, and so on. In this class, there is also the nat cat cover, the motor hull cover , that accounts for a little more than EUR 100 million of premium return, 110 million, more or less.
So clear. Thank you so much. Thank you, and, and I'm sorry for asking so many questions. Thank you.
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 attending this meeting, and we will meet again next year for the final year results. Thank you very much.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.