Good day, and thank you for standing by. Welcome to the Coface SA Full Year 2022 Results Presentation. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question- and- answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Xavier Durand, CEO. Please go ahead.
Thank you. Welcome, everyone. Thank you for logging in. Good evening. This is our full report in 2022. We're happy to share with you the results of the full year. As you see from the headlines, it's been a good year. We are reporting EUR 283 million of net profits, which means EUR 54.7 in the fourth quarter. As I go through these slides, you'll see that a lot of the trends that I will be describing will be similar to some of the things we've discussed in the prior quarters. This has been a year in a way of very high risk and volatility, at the same time strong performance by the company.
If you look at the volume, it's up 13.4%, all things equal. On a reported basis, we're close to 16%. Trade credits have had a very strong year, I mean by historical standards at 14.5%. Again, driven by client activity, in an environment which has been seen more inflation, I think, than we've had in the past. We broke a few records actually this year. One is the client retention, which we thought was already really, really high for the last few years, has gone up again at 92.9%. We are seeing double-digit growth in our other lines, business information up, close to 12% and 13% at full scope, factoring up 10%.
If you go to the loss ratio, it's coming in actually quite similar to last year. The combined ratio is up merely 0.3 points at 64.9. Actually, what happened is in 2020, we had a significant cost from government programs, which created actually a cost for Coface. We don't have that in 2022, but we do have more claims, so that we get pretty much the same net loss ratio. The net cost ratio is down 2.5 points to, I think, our record 28.8% for the year. As you'll see later, it's both operating leverage and efficiency, and on the other side, higher reinsurance commissions.
Our combined ratio comes in for the fourth quarter at 68%. It continued to be really good. As I said, EUR 283 for the year is the total profit. We acquired a company in the last, in the first few weeks of the year, but it's this deal we signed at the end of last year, called Rel8ed. It's based in North America. It's an innovative open source data company. It brings us the ability to source data that's complementary to what we have. It increases our data patrimony, and it also helps us with tools to better manage and take advantage of that data.
I think it's a nice addition to the skill set of Coface on the data side. If I go to the next page, you see that we end the year with a strong balance sheet, with a solvency ratio of 201%. A return on average tangible equity stands at for us, a record of 15.6% for the total year. The solvency is obviously above our target range. We have been able to maintain our reinsurance commissions versus last year. That's despite the fact that the market was generally much tighter than it was last year, and I think that's the general fact for the private reinsurance market around the world. We feel good about that.
We are therefore proposing a payout of 80% corresponding to EUR 1.52 per share, which is clearly in line with our Build to Lead target and leaves some room to finance continued growth. I think the most important thing for me is when you look at this year, we've continued to stay focused on operations and delivering on the things we had planned, as well as the things that showed up during the year. We've managed the risk situation in Russia, I think well. I'll explain that later. We've taken advantage of a relatively benign claims environment to introduce a new global collection system, spanning 40+ countries, and we'll be happy to have that as things normalize.
We've increased our business information venture workforce by almost 200 people. That's both on the distribution side and also on making sure that we build a factory that's able to deliver the products that we're building. Then we've completed the full assessment of our carbon footprint, and we've committed some capital to green initiatives, which complements our offering. Another year of, I would say, strong delivery by the Coface team. On page six, just two highlights. One , on exposures on the left-hand side. We talk about our exposures a couple times a year. You can see that it's grown about 14% during the year to a record EUR 667 billion.
When you look at it over a longer period of time, since 2017, it's grown about 6.6% per year. That's very much in line with our premium growth. As I've had the chance to explain in the past, the quality of that book, we feel good about. The low DRA percentage is at a record low. The average DRA, which is the better risk assessment or the average score, if you will, of the book, is close to the recent highs. I think we feel like we're adequately positioned in the face of an economy which is obviously slowing and more volatile. A bit of an update on the right-hand side on Russia.
When the war started in February, we had exposures of about EUR 4.8 billion. We've brought this down to EUR 0.6 billion at the end of the year. That's an 87% reduction despite the appreciation of the ruble. We've seen moderate claims activity. We have booked reserves. I explained that before in Q3. We haven't added anything in Q4. It's just been redistributed amongst the regions to reflect the actual exposures that we have in each one of the regions to Russia.
I think the team's done a good job here, again, mitigating with our clients a significant amount of risk exposure while making sure we remain very sensitive to the needs of our clients and as they were downscaling or dealing with their own situations as well. On the next page, you have a bit of an update which we provide on a regular basis on the Build to Lead targets that we'd set for ourselves with our four-year plan. I think it speaks for itself. Our combined ratio is well below the target. Our solvency rates remain way above our target. Payout ratio is consistent with what we promised. It's actually been higher in the last couple of years.
Our return on average tangible equity, as I said, is reaching a record and over the four last year period is well above the 9.5% that we had that we had targeted. We feel like we're delivering on the plan. Things are happening as we were expecting. On page eight, a bit of an update. It's always the same page I'm showing, so you guys are probably used to the format here on ESG and CSR. Clearly in green is highlighted the stuff that we've focused on and delivered in 2022. We spoke about our doubling down on our exposure on the ESG projects in a Single Risk area by 2025. We've committed capital there.
We have further decreased our emissions of greenhouse gas of our investment portfolio, about EUR 3 billion that we manage. We've also joined the NZAOA and the United Nations Principles for Responsible Investment. We are now within a framework, I think, that is recognized by the market. We can measure our progress in very specific terms like other players in the world. On the responsible enterprise, we completed a full carbon footprint assessment of the company. We've developed a plan to get to net zero by 2050. We're, you know, we've got the plan, we're rolling it out.
We've seriously reinforced both our culture through training, digital training, face-to-face training, and our governance through the mechanisms we put in place to make sure we involve as many people as we can in this initiative in the company. On page 10, I go to the more traditional pages here. You see the growth of 13.4% ex FX for the year. Trade credit is up 14.4%. Other revenues, which includes both the business information and the debt collection, is up 8.3%. Business info is, let's say, roughly, at total parameter, about 13% up. The factoring is up 10%, and the debt collection fees are down because we've had less activity.
I think the good news here on this page is that the fees that we derive from our trade credit insurance business are up 8.6%. It's been a couple of years, I would say, since we've seen some positive growth. We had negative activity here for a number of years. There's a beginning of a change here. On the next page, you can see the growth by region. I think the highlight is everybody's pretty much growing in the same ballpark, anywhere from 10%-13%, 14% except Latin America for the same reasons we explained in the prior quarters, which is the strong price increases we've seen in the commodity space, both hard and soft commodities, where Latin America is a big producer.
You see, you know, pretty much every other region growing for the pretty much the same reasons, which we'll talk about in a minute. Factoring is growing nicely, particularly in Central Europe. A bit less in Germany, as we have seen activity slow down in Germany in line with the economy and the pressure that's being put on the energy sector. If you go to page 12, you see, and this is consistent with everything we've said for the last four quarters, new business is a bit lower than the prior years, and we've kind of consciously stayed out of transactions we believe were just not right from a profitability standpoint. The retention rate is, as I said, at a record 92.9%.
That for us is a very good number. Price effect is pretty much in line with prior quarters. We're down at about 3%. The volume effect is very high compared to other years, but slower than it was in Q3. We are clearly seeing a slowdown in the economy in Q4, and that's not a surprise. I think, you're all aware of the macro environment here, which has been leading to stagflation kind of environment. If I go to page 13 on the losses, it's been another very good year at 34.2% in Q4 and 31.2 for the full year. We've been saying this for a year and a half, there's really no news. Normalization is underway.
The number of claims is increasing since the middle of 2021. We're close to the pre-crisis levels right now. We are seeing an increase also in the larger losses. Clearly the interest rate hikes, the rise in energy prices, the slowdown in the economy post the COVID recovery, some of the supply chain issues that we've seen in electronics or auto components or other things are biting. Large losses are increasing. They're still below average. We've increased the reserves during the year in Q3 relative to Russia. You see on the bottom here, the new year comes in at, for 2022, at 80% reserves. There's two things in there.
There's the Russian reserves, there's also a large Latin American claim that we are facing, like the rest of the market, which is built in here, for which we've taken a large majority of the losses. There's significant throwbacks from the prior years. 51.6% is by historical levels pretty high. That reflects the strong performance of the 2021 and 2020 layers in our book. That leads us with page 14, where you see, you know, still pretty benign loss picture. The four largest markets at the bottom, which are also the most stable, all performed well during the year at anywhere from 14% to, say, 35%-36%.
On the most volatile segments on the top, you see that the picture is actually pretty good. An increase in Latin America, which reflects this large loss that I was talking about. If you go to the next page, we got the quarterly picture. What you see immediately is Latin America took a significant reserve on that claim in Q4. At the same time, Central Europe's a big drop because we had booked some reserves in Q3, which were then reallocated to where we hold the exposures, and that's Western Europe and Northern Europe, which explains the increase in Q4. Middle and Africa is pretty much on a normalization curve. Not much to say there.
If I go to page 16, on the cost side, our total costs are up 12.6%, and that's made of two parts. One is an 18% increase in the external acquisition cost, basically the commissions we pay to intermediaries. That reflects also the strong performance on the loss side because there's some profit-sharing agreements included in those commissions. The internal costs are up 10.9%. Amongst those costs, you see about 1.7 points which are linked to our investments in the business information space, 2.6% which are linked to overall inflation, and then variable costs linked to the premiums, again, here that taxes and things like this, which are 3.6%.
Overall, clearly the internal costs are growing less despite our investments and despite the, I'd say, the variable costs growing much less than the premiums. We are getting operating leverage, which leads to a cost ratio for the year, slightly above 2021, on a growth side. From a net standpoint, we're, we are, I think, at our record, 28.8%. With that, I'm gonna turn it over to Phalla to take us through some other pages.
Good evening, everybody. I'm taking the reinsurance page. We're here on page 17. Premium session rate is at 27%. I think here, of course, we are not, we don't have the public schemes anymore in 2022, a little bit back to a pre-COVID period. If we look at the session, the claim session rate is at 15.5%. I just want to remind you that in Q1, we drew the line related to the public schemes, reserve release. For the following quarters, of course, the fact that we have positive developments are benefiting for, to the reinsurers as well, in Q2, Q3 and Q4. As Xavier mentioned, we have higher commissions, reinsurance commissions, to reflect the past loss, low loss ratio activity.
All in, the reinsurance result end up at -EUR 147 million, compared to -EUR 314 last year. As regards the renewal of our reinsurance treaties, I would say that it has been very successful, especially if we look at the very hard market in reinsurance space. The quota share remains unchanged at 23%, the terms and conditions were pretty similar to what we got last year. This leads to the next page with the net combined ratio slightly below 65%. Still a low loss ratio through the cycle, as you can see. If we want to compare apples to apples, I would compare that with the full year 2021, 54.5%, without the public scheme.
On this page, you can see that the net loss ratio has increased from 23.2 to 36. This reflects the last normalization, the fact that we have booked up some reserve on Russia, and we have booked up also a reserve on a very large claim, at, in Q4. Net cost ratio on the other side, you can see the drop by 2.5 points, thanks to the cost discipline but also from higher insurance commission. We move to the next page on the financial portfolio side, the mark to market, year-end 2022 of our investment portfolio end up slightly below EUR 3 billion. In terms of assets allocation, you can see that we have continued to de-risk with equity now at 3%, bonds at 77%.
We are still piling up some cash, which is a liquid asset at 12% of our total investment portfolio. Coming from, I think, the generation of cash coming from our business, and of course we're keeping a high level of cash ahead of our dividend payments. In terms of investment yield, you can see that we have started to really pick up the yield as the accounting yield without the realized gain is moving from 1.1%-1.5%. All the new money that we are investing is above 2%. Something that we have mentioned already in Q3 is the hyperinflation, the application of IAS 29, hyperinflation on Turkey and Argentina, and this has a negative impact on our investment income by EUR 13 million pre-tax.
This led us to a very strong net income for full year 2022 at EUR 283 million with an operating income up 32% from EUR 330 million- EUR 440 million. Tax rate almost unchanged at 26% and a net income, as Xavier said, up 26% compared to last year. Return on average tangible equity on the next page. I will start with the change in equity. I think we're starting with a EUR 2.1 billion of IFRS equity at the end of last year. Of course, we paid up our mid dividend in May 2022.
We are accounting for a net income of the year and where the equity has been impacted, you know, in the, as we said in previous quarters, by the increase of interest rate environment, this is the minus EUR 265 million that you see on this chart. This leads us to a total IFRS equity of EUR 1.9 billion. Return on average tangible equity moving from 12.2% to 15.6%. This is coming from the very good technical results net of the tax. We're coming to the capital management part, I will start with the balance sheet, totaling EUR 8.4 billion. A couple of things on this page. I will start with the factoring assets and factoring liabilities that are totally matching, slightly below EUR 3 billion.
We discussed or we went through the investment, insurance investment side at EUR 3 billion. What is not noticeable actually is the financing liabilities, which is our hybrid debt. I think last year it was around slightly above EUR 380 million. You can see that here, the EUR 534 million is in fact made of two tranches. The first one related to the initial hybrid debt that we have repaid partially in September. Also a new, I would say, EUR 300 million 10 years fully fetched Solvency II Tier 2 that we have reissued in September. We have a couple of pages on IFRS 17 later on.
In terms of financial strength, the three rating agencies confirm our rating with a stable outlook, coming from AM Best and Fitch, and a positive outlook coming from Moody's in October 2022. Book value per share at EUR 13.2 and tangible book value per share at EUR 11.5. Moving to the Solvency II page, which is page 24. We are end up with the Solvency II ratio at 201%. I think some things to be highlighted here is of course, the fact that the liability management that we did in September boosted temporarily the solvency ratio by 10%.
If you really want to compare apples to apples, I will be comparing 196 to 191, which again, is very strong given the fact that we are increasing our business, we're increasing exposure, but we have stayed very disciplined and rigorous in our underwriting process. On the right-hand side, you can see the usual stress test. On the first part, which is the financial stress test on interest rates, spread and equity shock. Again, we will be staying way above the upper range of our comfort zone. On the bottom right side, you have the two stresses related to the one in 50 event and the one in 20 event.
As a reminder, the one in 50 event is what we got in the year 2008 with a combined ratio above 110%. Here again, we'll be above the upper range of our comfort zone. If you move to the next page, you see the breakdown of our capital requirements. The insurance capital requirements based on our partial internal model will end up at 976. You add up the requirement related to the factoring activities, we end up with the total capital requirements of EUR 1.2 billion to be compared to the EUR 2.4 billion of eligible funds.
We've added a couple pages on IFRS 17 and IFRS 9. As you know, we're going to change the way we count for the business linked to the introduction of these new regulations. We just wanted to give you a flavor for first, how we've done it, and then what it means for the company. Page 27 really describes how we've gone about implementing this program. Our state of mind is to try to minimize the disruption on the business, to try to keep it as simple as we can. We applied what we call a simplified Premium Allocation Approach, which is allowed by the fact that our book is short in duration.
We're not getting into the more complex Contractual Service Margin discussion that others might have to go into. We want to make sure we continue to provide KPIs that allow to follow the business as everybody is used to, whether it's premiums, combined ratio, return on average tangible equity. We wanna stay coherent with the current reserving principles. We will apply IFRS 17 for the first time as of January 1, 2022. Obviously we remain consistent with the Solvency II processes, which we don't wanna change for this. When you put all of that into the equation, what we've done is the following. Our reserving philosophy remains broadly unchanged. We are not obviously going to change the strategy for the business.
Built to Lead is on. The principles by which we run the business are the same. The metrics we're using for Built to Lead will remain valid. 80% combined ratio, 9.5% ROATE, and 80% payout ratio. You're gonna ask, "So what does this change?" The way we record cash flows over the lifetime of a policy, which is, as you know, they're mainly annual, but their life can expand to, I don't know, one to two years. The cash flows are unchanged. What the new rules do is they tend to accelerate the recognition of profits, and therefore they also increase the volatility from quarter to quarter.
When we applied the new methodology for the first time as of January 1, 2022, it translates by slightly increased shareholders equity, which means that some of the profits we would've recognized faster in the IFRS 17 versus IFRS 4. That's EUR 91 million. That's about EUR 0.6 per share. That's 4.3% of our equity. It's not changing our financial leverage. We will be publishing in April the details on how we apply that in first time, and also what the 2022 pro forma looks like when you look at it from an IFRS 17 standpoint. We wanted to provide that kind of a overview, and then Phalla is gonna take us through a couple more pages that are a bit more technical.
I think if you move to the next page, you can see the opening balance sheet at the first of January 2022 or end of December 2021, which is basically the same. On the left-hand side you have, you know, this is what we have published under IFRS 4. The total, the total asset and liability, EUR 8 billion. What it will look like under IFRS 17 is what you have on the right-hand side. A couple of comments here, of course, factoring asset and liabilities won't change because not impacted at all by IFRS 17. Insurance investments neither, nor the goodwill, nor the hybrid loan. What is changing is basically what you see in the middle of the chart, which is the, I think it's the dark green.
other assets, other liabilities and insurance reserve, noting that in insurance reserve you have not only the claims reserve but also the premium reserves. This is all together. Here, I think there are a couple of things in IFRS 17. One is, as Xavier said, you know, we're changing the some of the recognition path or timing compared to IFRS 4, and this will be reflected in the change in equity, moving from EUR 2.1 billion to EUR 2.2 billion, which is almost EUR 91 million net of tax. This is the real change. All the changes that is implied by IFRS 17, all the netting that we have to do on the insurance assets and liabilities, that is completely netted, and this explain the decrease of total balance sheet by almost EUR 700 million.
You move to the next page. Let's move to IFRS 9. You know that IFRS 9, we don't have to apply the first time application at the end of 2021, sorry. Because we're entering, I think the go live is the 1st of January 2023. I just want to give you a flavor of what would be the classification of our year-end investment portfolio into an IFRS 9 accounting view. If you look at the chart on the left-hand side, you have the total investment portfolio, the EUR 2.9 that we just talked about, and the outer ring is the asset allocation that we have today. What you have in the inner ring is what it will look like in the accounting classification of these assets.
Changes here is the following, of course, today you know that under IAS 39, which is the currently the full year 2022 accounting principle, all the fair value, so the mark-to-market goes into equity, and this is what we have reflected in the previous pages. Under IFRS 9, part of that, so if we put aside the accounting, the amortized cost, which is the 4% that you see here, which is basically all the term deposit that we have. You have two classifications, asset that will go into fair value through OCI, which is a fair value through equity, pretty much similar to what we have today. You also have a chunk of the portfolio, a part of the portfolio that will go into a fair value to P&L.
This will bring, obviously, some volatility into the P&L. If what we have here, basically the 17% of fair value through P&L is made of monetary funds, the cash, infra and real estate funds, and some non-listed equities. Obviously all these liquid assets, the 12% of loans deposits and liquid assets that we have will go into fair value to P&L. The underlying value is very low. You have the long-term investment, which is the infra fund that goes there as well. In terms of equity, we have classified the equity through fair value to OCI, which means that only the dividend will flow to P&L, or the realized gain or unrealized gain and loss will flow into equity.
As we already discussed, we have moved a little bit of portfolio fully focusing on govies, reducing the listed exposure on equity. We are lowering our real estate funds and real estate exposure and we're growing the allocation to infra asset class.
A bit longer presentation than usual, but just to wrap it up here before we go into the Q&A. I think we clearly continue to deliver strong performance and operations in 2022. It's exemplified, I think, by the growth that we've seen in all of our business lines, the average tangible equity return, which is at a record. The fact that we've kinda contained the loss ratio despite the Russia and the large loss situation in Latin America. In terms of the environment, it's clearly pretty volatile. I mean, we have seen a slowdown in the economy in Q4. I think we're all aware of the risks. I mean, I can go through the list, but we're talking about the Ukraine and Russia conflict.
We're talking about inflation, which is back. We're talking about interest rates, which are increasing, QE, which is going, reopening or the closing of countries based on COVID. Social and political, I would say, challenges, pretty much everywhere. It's a, it's a volatile environment. Not everything went wrong actually, because we had a warmer winter than planned. Some, there's been a curve in demand and for gas, which has resulted in lower energy prices than we might have feared. Elections turned out not to disrupt politics as much as we could have feared, et cetera, et cetera. Still, I would say the conditions for a volatile environment remain, and we're not done with this stuff. I think, we're watching this carefully.
I think everybody in different industries is pretty much aware of this. States continue to intervene, but their ability to do so is put under some stress because they can't spend money forever. We see clearly a normalization underway, which is progressive, but which is happening. Despite the fact that it's likely to be more volatile, we think we've got the right strategy. We think we've got the right culture. I think all the challenges that we've had to face, we've pretty much been able to manage so far. That's why we think, you know, we're gonna go through the last year of our plan in 2023 and then prepare for the next one, which we'll be explaining in about a year.
We've got, engaged teams, client feedback is good and the balance sheet is strong, so that we feel we are, well-positioned. That's basically the story. I'm gonna turn it over back to the audience here for, questions that you might have.
Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We will now take the first question. It comes from the line of Michael Huttner from Berenberg. Please go ahead, your line is open.
Fantastic. Thank you so much. Thank you, Phalla. Thank you, Xavier. Amazing results. Amazing. I was speaking to IR who said it could have been two years a share, which is extraordinary. I had three questions. The first one, I'm really sorry, I didn't quite follow on the reinsurance. I think you said terms and conditions largely unchanged, reinsurance commissions largely unchanged. Does this apply to 2022, or is this a renegotiation for 2023? On the hybrid, it sounds, but I think you said it in the past, and I've forgotten, that part of this EUR 534 million is due to be repaid at some stage. I just wondered if you could remind us when.
And then you said on IFRS 17, the reserving philosophy would be broadly unchanged. I was interested to hear broadly and not 100% unchanged. I just wondered if you can explain a little bit what actually is changing. Thank you.
On the reinsurance, it's pretty simple. 23 pretty much looks like 22. That's all. Maybe we were too complex in explaining this, we've renewed the contracts pretty much on the same terms. I hope that clarifies. On the reserving philosophy, I think we'll have more discussions in April. What I'm saying is, we have been operating under a certain framework, we are not changing the way we're thinking about, you know, reserving for risk and trying to protect for the future and all that good stuff. Phalla, you wanna say a word?
Yeah. We'll be opening, you know, the new vintage at certain level. Of course, you know, all the prior year development, positive or negative, will flow the same way. That's what we mean.
Then in terms of the hybrid, yes, there is a piece that needs to be repaid.
That's two tranches, Michael. Remember, I think we had the first tranche, which was EUR 300 million that would mature in March 2024, for which we made a liability management. We repaid part of that. EUR 230 million remains in our books, and we have reissued a new one, 10 years in September 2022, so it would mature in September 2032, for EUR 300 million.
Brilliant. Thank you. That's amazingly efficient. Thank you very much.
Thank you. We will now take next question. It comes from the line of Hadley Cohen from Deutsche Bank. Please go ahead. Your line is open.
Hi. Thanks very much. Quickly following on from Michael's question. I think, Phalla, does that mean that on a pro forma basis, the solvency ratio is around 190%, I think you said. Linked to that, I noticed that the sensitivity to a one in 50 year stress scenario has gone down a lot. I think it was 37 points at the first half, and it's now 20 points. Can you just explain what's going on there, please? Second question is around the expense ratio of 28.8%. How should we think about this going forward? Is it reasonable to assume that costs should continue to be lower than volume growth?
Therefore, there's still room for margin improvement on the cost ratio. My final question is in relation to the information business. Firstly, the 11.6% growth year-on-year, Xavier. I mean, that sounds a little bit light in the context of the sort of ambitions that you've got for that business. Is that fair, or do you think I'm being overly harsh? And to what extent can the Rel8ed transaction help in that respect? And also, if possible, can we get, I think you call it the contribution margin for the information business or the operating margin or whatever you have? Thanks very much.
Yeah. Let me. On the pro forma, you're right. It's, if we had-
It's EUR 191.
It's EUR 191 if we had repaid the entirety.
If we stay at the same level, we'll stay. Yeah.
We stay at the same level of external debt. You wanna talk about the one fifty-
Yeah. The 1, 180, which is the one in 50. Basically, I think what we have to take into account here is the fact that we are underwriting. I would say we have been very disciplined in our underwriting. The quality of the portfolio is contributing, of course, to amortize the stress test of our, you know, solvency is one thing. The second thing is, you may have noticed we have base estimate, which is we have opened the year at a very high level, at 80% of new vintage. Of course, when you go to the stress test, you are, you're falling from a lower, I would say, level.
On the expenses, we've been striving for the last seven years to deliver operating leverage, which means growing the cost less than we are growing the revenues. There's no reason we're gonna change that. However, we've been helped clearly in 2022 by, I would say, very strong growth in the premiums. We've also been helped by the fact that low, low claims ratios means that the reinsurance programs are delivering superior returns, if you will, which impact the cost ratio down. Plus, so I would say our thriving to continue to get operating leverage will continue. Those other elements are more function of the environment.
In terms of the information business, as you know, this is like an internal startup. We are learning, we're building, we are exploring. We're doing all sorts of things at the same time. We do have double-digit growth. It's been a few years in a row. We are seeing Q4 with comparables that are higher from last year. There's some volatility. I think we already had that discussion, I think probably a year ago.
Where we do have volatility quarter to quarter. I don't think it changes our opinion that there's something to be done there. Clearly, I mean, as any startup, you know, there's there's gonna be things that we do well, things that we do, we learn, and there's gonna be some volatility. Overall, I'm not changing my stance that I think at this stage, this is something that we should pursue and which is interesting. In terms of the margin, it kind of pays for itself in terms of growth, plus or minus. You don't see an impact of this business line on our bottom line at this stage. I don't think that's really what we're striving for.
We're looking more for developing use cases that are innovative and different from what we did before, where we are learning a lot about data actually, as we do this. It has a positive impact on the base credit insurance business because we're improving the quality of the data, we're improving the breadth and depth of what we have, and we're able to feed back some technology into the core credit insurance business. I just point to the acquisition that we made where actually, things we wouldn't have done if we didn't have this information business opportunity. That's where we are. I think that's a long answer to your question.
Very helpful. Thanks very much.
Thank you. We will now take the next question. It comes from the line of Thomas Fossard from HSBC. Please go ahead. Your line is open.
You guys, good afternoon or good evening, everyone. The first question will be related to the new debt collection systems that you've rolled out. I think that in the press release or in the slide, you're calling it state-of-the-art or leading or... Can you explain us why you change and why it could be an advantage for you compared to the competition or, I mean, yeah? Just to better understand what the benefits of it.
The second question would be related to, in your press release, you're talking about a level recoveries of 51.6 percentage points, which I think is a pretty high number, compared to what you probably think to get on average over or cross cycle. I'm taking the occasion that you're spotting this number to get a bit more of, maybe, you know, granularity around it and why this was the case this year, and was it? How it compared to, you know, previous phase of cycle or if you have a kind of medium to long- term averages in terms of average recoveries. Thank you.
Yeah. Maybe starting with that one, I think on our page, which page is it? You actually see that number that you're mentioning. Page 13, if you go to the presentation. We highlight the sequence over the last two years of a recovery. You see that we open the... The dark blue is the opening year. It was like in 2018, it was 75, 73, 78, 66, and 80. Then the, I would say, more flashy blue is the recovery, so the 51.6 that you just mentioned compares to the 47-
Sorry, sorry. Okay, okay. That's BYDs. Okay. I was, okay, wrong footed with what you call recoveries. This was average recoveries on the losses. Yeah, okay. Right.
Yeah. No, no, no.
The prior year developments.
Okay. It's prior year developments.
Okay, okay.
I think it's pretty consistent.
Yeah, yeah. Sorry. Sorry.
Okay. In terms of the new debt code system. Basically, you know, we were with a multiplicity of systems that came from different horizons that had been developed over the years. We're an old company. We operate in 100 countries. We have old systems that have been tailored to the needs of each one of those countries over the years. But the issue is they're all different, and they don't communicate. It's hard for us to put out an offer to say we're gonna do one product, you know, in terms of debt collection around the world, and this is how it's gonna work, and you're gonna have transparency through it. We didn't have this. It took us years.
I mean, it's hard to do, quite frankly. What it does for us is the following. Now we have everybody working on one system, mainly. I mean, there's still a few out there, but mainly most of it is that way, which provides transparency into what's going on, allows to do multi-country clients contracts, and basically puts us on a better technology, which is shared and get rid of the old system. It reduces the complexity of our information technology stack. I think there's a number of benefits here. As we know that the, you know, the environment is normalizing, I think it provides a better platform to talk about this product more proactively to our clients.
Internally and externally.
Internally and externally, as well, because we don't necessarily do collections just for ourselves. We do collections for clients that are not credit insurance clients, but might want to use that system and our capabilities to just go and collect stuff in 200 countries if we want.
In terms of admin costs, I mean, do we have to think about decommissioning, system decommissioning, expense savings? That would be the one additional question. The second will be on the information business. I think that you mentioned 200 additional FTEs this year. What the kind of critical size you're aiming in terms of FTEs and?
Yeah.
Do you think that actually you're close to reaching the critical side or you will have to produce same effort again in?
Yeah. In terms of the debt collection system costs or for that matter, other systems that we might change. You know, when you upgrade to a new technology, it's usually more expensive than the old one, which has been amortized and everybody's comfortable with, but is unsustainable because you're just gonna get rid of it. At some point, nobody wants to actually support it, so it's a risk. It also slows you down, 'cause when you wanna launch something, you lack the ability to implement quickly. Then your interfaces become incredibly complex as you have to interface every new system with that multiplicity. I think the saving is more on the simplicity, the speed, than it is just a pure cost play, you know.
You see that across, I would say almost, all industries, but in financial services, this is pretty much true. On FTEs, yeah, we added 200 people. Basically, what we're doing is we're trying to build a, a franchise that would span a considerable, part of the world. We're adding people both in the front end and the back end and the data space. You know, there's a, there's a bunch of things that we need to do. We're investing, I think, for the future. To tell you where that ends, I don't, I don't know. I mean, we don't make forward-looking statements, but I think 200 people looks like on one side, like it's significant.
On the other hand, when you look at the scope of what we're dealing with in terms of the clients, the geographies, et cetera, it's still a relatively modest number, I would think. We'll see. I mean, as things develop, we will adjust our plans, you know.
Okay. Understood. Thank you.
Thank you. We will now take the next question. It comes from the line of Michael Huttner from Berenberg. Please go ahead. Your line is open.
Hi there. Thank you. Thanks for the opportunity. Lots of questions on numbers. You're talking about the quality of the portfolio, the exposure of EUR 660 billion, I think. I just wonder if you could give us some numbers both on the low quality exposure and the average exposure. What those numbers are. Business information, what's the total FTEs there now? I keep asking on bonding. I'm not sure it's so relevant anymore, but it was a topic a few years ago. I just wondered if you can give an update, how big it is or is it growing or whatever. Finally, maybe a business update, not forward looking, but maybe through to the 16th of February in the evening, that would be lovely. Thank you.
Okay. I mean, nothing particularly to report as of, as of mid-February. I mean, you know, we pretty much the trends I've described continue and that's where we are. Really not that much to say. In terms of the, of the bonding, yes, we have had an initiative to grow our bonding business. We've introduced bonding in Romania. We've started, I think, you know, in Spain. We're expanding that franchise, but at a pace which is...
The premium growth in bonding is slightly below 10%, so it's really close to the double- digits as well.
It remains on our radar screen. I mean, this is. We're focusing on bonds that are more medium and smaller size versus the large chunks we could subscribe at a central level 'cause we think that's where the franchise would be most valuable. I'm sorry for the noise 'cause we have some kind of a automated system here that wants to close my shutters. What was the other question? BI, we have about 300 people in this business right now. A lot of the FTEs I'm talking about, they're just very new. They just joined and so we're really in the infancy here. Then in terms of the quality portfolio, I don't have the metrics handy, but we have reduced the proportion of what we call the low-quality DRAs, which is a zero to four, and it's below 5%.
Yeah, it's at 5%. When we look at through the cycle, this, the proportion of the zero-four, which is a very low quality of our portfolio, used to be eight, so we're really reducing it.
We reduced it. I mean, I don't remember the average, but the average is less.
It was eight. We are. It's probably the lowest that we've-
You realize that when the economy is good and companies that have been infused with a lot of, a lot of public money, it's like consumers. Everybody's been saving over the course of the last couple of years, and obviously, that's gonna change with cycle. We know that.
Brilliant. Thank you very much.
Thank you. We will now take the next question. It comes from the line of Benoit Valleaux from Oddo BHF. Please go ahead. Your line is open.
Yes, good evening. I have a few questions on my side. The first one, just a confirmation. Is it fair to assume that under IFRS 17, your trade earnings will be broadly similar to the EUR 283 million you have reported? Second question regarding the acquisition on data you mentioned. I assume it's a relatively small acquisition, but nevertheless, could you give us some figures in terms of price and assumptions of significant goodwill behind this? What could be the sensitivity impact and what is expected later on investment of such kind of acquisition? Do you see some other opportunity of acquisition on information, data, artificial intelligence, and so on? Maybe the third question is regarding your risk appetite.
When you look at your loss ratio trend, if you do some restatement of this large claim that time in Q4, it seems Q4 loss ratio is lower than Q3, which was lower than Q2. Same time, you mentioned obviously a kind of normalization in your claim frequency. You have some excess capital. My point is, could you change a little bit your risk appetite going forward? Because, I mean, you know, you have this excess capital and at the same time, even if there are some uncertainty, I would say that see of job position is lower than it was a few months ago. Thank you.
Yeah, I understand. On the acquisition start, it's a small deal, so you're not gonna, you're not gonna see an impact on our metrics. It's more, for me, symbolic of the fact that we're moving from being an old traditional business to something that is a lot more modern, a lot more digital, a lot more technical. I think, yes, to the question, would we wanna do more? Yes, we would wanna do more, but we're looking for things that add value, where the combination of that acquisition with our scale and scope brings value. You know, that's what we're trying to build here.
This is a company that we have actually been working with for a couple of years, which significantly enhances our ability to manipulate and to collect data. We think that just adding it to our, to our infrastructure here gives them an opportunity to use what they're doing on a larger scale and gives us a critical skill that we didn't have before. It makes a ton of sense for us. Phalla is gonna talk about the.
The IFRS 17.
IFRS 17, yeah.
Benoit, I think what we're showing here is the first time application, which is the January 1st, 2022. What you're asking for is the full year 2022 in IFRS 17. Bear with me. You will know, I think, a little bit more in April, because we are still going through it.
In terms of your point on the risk appetite, I mean, yes, we had a large claim. I don't know if you can always exclude the large claims as saying that they are, you know. Yes, this is an outlier. As I said, normalization is underway in the sense that the low point was reached June 2021, and since then it's been increasing. It did not normalize as fast as we thought it would. It is, it is normalizing. I think it's a good thing for our industry, by the way, because without claims, I don't think we have a whole lot legitimacy. The numbers are growing and we're seeing more what we call severity or more of the larger claims.
Do we have the risk appetite? We think we do in that, Some of the deals that you wanna that you would have to write to accelerate significantly the growth rate of the business would be, in my view, in our view, not deals we like that much. We're having that conversation with ourselves on a regular basis. I think it positions us to seize opportunity if something happens. Nothing may happen, but if you got a shock in the system then it would help us. but we are, we're continuing to be very conscious of, or very. We have the desire to grow the franchise, there's no question.
Okay, thank you.
Thank you. We will now take the next question. It comes from the line of Thomas Fossard from HSBC. Please go ahead. Your line is open.
Yeah. Just a last question on the new production for the one ten. You mentioned about, you know, being staying disciplined in the market, I mean, if I relate this to the minus 3% in terms of price decline, doesn't seems to be a super competitive market yet. Can you help me to understand what keeps you on the break in terms of new business?
I'm not sure I get your point. You're saying that -3 is not a huge decline? Is that what you're saying?
Yeah. I think - 3 is, yeah, it's a change compared to the previous year. It does not, for me, it does not lead to believe that the market is in a super competitive environment. I'm trying to relate, you know, what I, my understanding of the competition in the market currently with your new production line.
That's Thomas, I think for a client to change provider is a big deal. It's not just price. I mean, it's not like you're just trading on a desk and somebody puts in a lower price and boom, you're off, you know? It involves technology, it involves people, it involves trust, it involves, you know, a lot of data exchanges and a lot of development, IT developments that have to be put in or disassembled. A lot of contractual negotiations, a lot of ruptures. I don't think the market is as simple as just saying, you know, well, somebody's got a better price, and we're gonna move that account. That's not the way it works. It's a lot of trust.
Okay. I was also trying to relate to the 110 compared to the three previous years.
What I would.
You had very strong
What I would point you to is, you know, the, over the long- term, this business has seen significant price reductions. I mean, I think it's severalfold price cuts in 20 years, right? I think the prices this industry charged, I would say 20 years ago, were probably three or four times what it is today. So there's, there are productivity gains being made and passed on to our clients on an annual basis. In a crisis year like 2020 when everybody thinks, you know, the sky is gonna fall, you see an increase in price, which is not very often. It's a rare event. What you see here is that over the course of the next 12 months, basically that increase has been erased and passed back on to the clients.
You're gonna see that kinda trend play out. As long as I've been around and we've had price decrease, but at the slope at which this happens is based on the level of competitiveness, and this is a year where I think there's more competition, no question for me.
Okay. Thank you.
Thank you. There are no further questions at this time. I would like to hand back over to the speakers for final remarks.
Well, we are four minutes past seven. It's the usual time allocation we have for this. Thank you for your questions, by the way, and for logging in. We appreciate you being part of this. Our next agenda will be 16th of May with... What is this? Tu, tu, tu.
AGM.
AGM, with the annual general shareholders meeting. The 22nd of May, we have the ex-dividend date, the May 24th, the payment of the dividend. O f May 25th, we will publish our first quarter's 2023 results. The 10th of August, the results for the first half, and the November 14th, the results for first nine months of the year. That's our kinda calendar. Of course, we'll talk about IFRS 17, sometime in April.
Yes.
Thank you for joining, and, we'll speak to you soon.
Thank you all.
That does conclude our conference for today. Thank you for participating. You may all disconnect.