Thank you for standing by. Welcome to the Coface publication of Q1 2022 Results conference call. 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 on your telephone. Please be advised that today's conference is being recorded. Thursday, the 28th of April, 2022. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Xavier Durand. Please go ahead.
Thank you, and welcome to all of you on this first quarter report call. As you've seen from the headline, it's been a really strong first quarter for Coface here, with EUR 66.2 million of net income for the quarter. I think we're pleased with the turnover line as well. You see, EUR 431 million, up 12.8% at constant FX and perimeter. Within that, you see our trade credit insurance premiums growing almost 15%, driven first of all by high client activity, but also our client retention is at a record close to 95%. Pricing continues to be down. I mean, that's a trend that we've seen now for the last nine months.
Also we continue to see double-digit growth in our information business, with strong momentum, and I'll make a few more comments along the way about what's going on there. In terms of the loss ratio, it's coming in at 40.7%. There's a little thing here. We've actually taken a further EUR 33 million for the quarter, in terms of the government's schemes cost. That brings the total accumulated cost to EUR 199 million. That for us means that we don't expect any further material impact for governments going forward. That's gonna be the last quarter where you're gonna see our numbers kind of skewed by that.
Without those government costs of this one-off, we would be at 30.4% in terms of the net loss ratio. Bringing the net combined ratio to 67.3 and 55.3, if we exclude the government schemes. Another, I think, important feature here is our net cost ratio, which is down 1.7 points to, I think for Coface, a record low of 26.6%, which reflects both operating leverage in the business and also a better reinsurance commissions. You know, net-net, EUR 66.2 million, that's up 17.5% from the first quarter of 2021. It brings the return on average tangible equity to 13.2%.
We're happy, obviously, to confirm the dividend per share at 1.5 EUR, which we'd already announced at the end of the year. Before we go into the usual slides, I just wanna, you know, take you through a little bit of the Ukraine-Russia risk story on page 5. Obviously that's on everybody's minds. We highlighted on the last call that our exposures were below 1% of our total. You can see on the top right-hand of the chart here, we went as of 28/02/2022 from EUR 4.8 billion of total exposures to, at the end of the quarter, which is 28/03/2022, so a month later, EUR 2.6 billion, so a reduction of 46%.
We've actually been very focused from the first day of this war on managing the existing exposure and reducing our risks. Just as a matter of background, about 80% of what we do in Russia is for large international clients and most of them being actually Europeans. You know, we've been focused on trying to reduce our exposures, collect the money on behalf of these clients, and we've in the meantime suspended writing new business. What we see right now is, you know, the Russian economy's actually been quite resilient. Payments have mostly continued to flow. There's been a flurry of sanctions and counter-sanctions, and we're addressing these in real time.
It's a pretty complex environment to manage, but I think we've been staying right on top of it. Our focus is really maintaining debt collection and key risk capabilities while we rightsize the operations. So far the financial impact has been pretty limited. The main claims that we've seen have been related to sanctions, as the Russian economy, as I've said, has proven pretty resilient. Just to illustrate, you know, to reflect this into our accounting, you see the gross loss ratio in Central Europe coming in at 76.6% versus an average of 28.9% for the group.
That includes obviously some reserves that we put in there to take into account what's going on in this part of the world. We're focusing, you know, on continuing to drive our risk and exposures down. With that, I'm gonna go through the usual slides that you're familiar with. Page 7, turnover growth, you know, 12.8%. Premiums 14.7%. You see other revenues up 5.2%, and that's really a mixture of both the business information sales up 11% and collection fees, which are obviously still low because obviously collections are low because claims are low.
Just to say a few words about the information business, we're continuing to invest with the determination in this line of business, which we believe is actually got nice potential for us. Just in the course of this quarter, we've had some really nice commercial wins. I'll just tell you that we signed one of the key German auto manufacturers. We've been able to sign one of the largest rating agencies in the world. We've been able to sign one of the largest credit card insurers in the world. We've been able to sign one of the largest aircraft manufacturers in the world.
You know, we see that the value proposition is actually taking hold and you'll see some variation in the numbers quarter to quarter because this is still a young business. We are continuing on this double-digit growth story here. The fees to earned premiums ratio is going down. Again, I mean, with this level of risk, it's not a surprise as the collection fees continue to be pretty low. On the next page 8, you see the breakdown we usually show on growth by region. What you see here is a bit of the reverse situation you had seen about a year ago when Western Europe was growing faster than the rest of the world.
This is due to accounting differences and the way the contracts work. This time it's kind of reversed, but it will normalize itself over the course of time. Western Europe at 6%, the rest of the regions, double-digit growth. Northern Europe, Germany 13%, Central Europe almost 22%, Mediterranean and Africa pretty steady at 11%, North America up double digits for the first time, Asia Pacific at 16%, and Latin America driven again by, you know, increased commodity prices and both hard and soft commodities, I would say, at almost 35% growth. On page 9, you see the usual breakdown of our new business and different components of growth. New business is back to where we were in the first quarter of 2019.
It's in line with pre-COVID levels. We're taking a selective approach on growth, given where the economy is. The retention rate is at a I would say absolute record for us of almost 95%. We've done really well there. There is a drop in pricing, which is continuing in line with what we talked about over the course of the last few quarters. Pretty much kind of offsets the growth in pricing that we've seen during COVID. Then the volume effect, which is the underlying trend of turnover of our clients, driven in good proportion by inflation, is up 4.4%, and that's really helping the top line for us.
As I said before, we're a pretty good, resilient business when it comes to operating in an inflationary environment. After this, I'm moving on to page 10 with the gross loss ratio coming in at 28.9%. That's still below the mid-cycle, despite the Ukraine-Russia crisis. What we see is continued normalization. Frequency has been increasing since the middle of last year. The number of large losses is increasing, while it's still below, I would say, the average of the cycle. We've seen pretty limited amount of claims related to Ukraine at this stage. We haven't implemented any change in our reserving policy. We're opening the new vintage at 75.4% to reflect on an environment which, you know, continues to be complicated.
You see, the bonis from the prior years still at 49.1%, just like last year. Just to mention, we do expect any potential risk linked to Russia and Ukraine to be more on the 2021 vintage than any other. Continuing to see pretty strong releases from prior years at this stage in the cycle. Going to the next page, eleven, which is the loss ratio by region. You can see on the bottom, the four largest and quite usually more stable markets performing pretty well. You know, 31.7% in Western Europe, just below 30% in Northern Europe. What I mentioned in Central Europe, you know, we chose to book a little bit more reserves here.
Mediterranean and Africa at 22%, quite benign. The top markets, usually volatile, but quite frankly very benign this time at 4% for North America, 1% for Latin America and 20% for Asia Pacific. The next page 12, tells pretty much the same story, but quarter by quarter. There's really not that much news here on this one from what I've just said. You can see, you know, now for many quarters in a row, we've had actually a pretty good story, and that's pretty much across the board, except for the Central Europe thing which I just described. I think, you know, we're continuing to perform on the risk side. On page 13, we go through the cost story.
You see that our costs are up 10.6%. Part of this is external acquisition costs, which are growing as the turnover is growing. Internal costs are up as well. You can see our cost ratio before reinsurance, lower than the prior quarters, but slightly higher actually than the first quarter of 2021. We've got a walk on the bottom right-hand side just to show that, yes, we are getting about 0.3% of operating leverage. That's just the growth of the premiums, which is higher than the growth of the cost. We are investing in the business information line, and you see that's costing us 0.4% of cost ratio.
Debt Collection, which is below the cycle and still from last year still lower actually, is another 0.2%. We end up the quarter at 31.6 before reinsurance. Just in terms of putting that in perspective, we come from the first quarter of 2019, before the COVID crisis, we come from 33.2. You know, despite the fact that we're investing quite significantly in new things, we're still able to reduce the gross cost ratio. I think that's the message I just wanted to convey to you guys. With that, I'm gonna turn it over, as usual, to Phalla, to take you through the next few pages.
Thanks, Xavier. On the reinsurance side, the results come down from -47 to -56.7. The key drivers here is that we start with the premium cession rate. Premium cession rate is down. Of course, I think we're seeing less premium than in Q1 last year as the public scheme at the backstop stopped at the end of June 2021. In terms of cession rate, you can see -2.5. That catches the eyes of everybody. This is really linked to the fact that we have prior year positive development, especially for year 2020 and 2021. Of course, all the reserve release, part of that goes back to the external reinsurers, and most of that, part of that also goes back to the government that put in place the public schemes.
That gives us, I think, the consequence on the net combined ratio at 67.3%, up from Q1 2021. To be noticed here, the fact that, of course, we have booked up some reserve related to the Ukrainian crisis. This is one thing. More importantly, the 67.3% is pretty much distorted by the public scheme's impact that we have taken this quarter. Impact is 12 points. To be also noticed is, of course, the net cost ratio at 26.6%. This is probably one of the lowest net cost ratio that we have seen in Coface, thanks to the operating leverage. Not only this one, you know, it's also thanks to the higher reinsurance commission that we have been able to renegotiate at the renewal in December 2021.
Let's move to the public schemes now. As I said, we took EUR 33 million this quarter. The total amount for us of the pre-tax impact for us is EUR 199 million since inception in 2020. We think that we have drawn the line here, and we booked everything behind us. With this, let's move to the financial portfolio. The strategic asset allocation, as you can see, has not changed much. The mark to market value of the assets, investment assets ended up at EUR 3 billion. Couple of things here to be highlighted. We still have a very high amount of cash coming from the operating performance, which is generating a lot of cash.
We're also holding a pretty high amount of cash, EUR 122.3 million to be paid as part of the dividend in a couple of weeks. What has been to be highlighted as well is the equity hedges that we have put in place turned out to be quite efficient. As you can see, uncertain contributed to EUR 4.4 million out of the EUR 12.2 of net investment income. As we are still holding a lot of cash, we'll redeploy it, and we take advantage of the interest increase that is coming up. As a result, we are delivering, again, a very strong net income this quarter at EUR 66.2, with an operating income up 20%, a little bit less than 21%.
Tax rate at 27%, so a net income up 17.5%. If we move to the return on average tangible equity, I will start with the change in equity since December 2021. Here, the net equity has slightly decreased from EUR 2.141 billion to EUR 2.135 billion. Drivers being the net income impact offset by the mark to market on the investment portfolio as interest rates increased. Return on average tangible equity from 12.2% to 13.2%. The only drivers here is, of course, our technical and financial results net of tax. With this, I hand back.
In terms of takeaway, I think we continue to be very focused, you know, on operating well. You see, you know, you see a few things here in this quarter. Double-digit growth in TCI, mainly activity and retention. Double-digit growth on the business information line. Operating income up almost 21%, despite the fact that we've taken a further EUR 33 million on the government schemes, and that's gonna be the end of it, and the Ukraine crisis reserves that I just mentioned. We haven't changed our reserving policy. We continue to very carefully monitor the risk environment. I'm sure you're all aware, first of all, the situation with Russia and Ukraine is quite volatile.
That's creating shortages and potentially aggravating the energy and commodity prices that we've seen already go up. It's also probably gonna create some inflation in the food supply areas. The sanctions against Russia and they are also gonna continue to complexify, I would say almost daily. There's also, as you're aware, a COVID outbreak in China which is causing a series of lockdowns, which themselves will have repercussions in terms of the supply chains. Which themselves will have, we believe, some repercussions on solvency of a number of companies. Continuing to see, you know, risks out there, which supports our idea of normalization of risk.
We're, you know, pleased to confirm EUR 1.5 dividend per share. We continue to be focused on allocating capital efficiently. As I highlighted last time, our priorities are, first, core growth, and there's some core growth here going on. You know, acquisitions, if we can find some, and then returning capital to shareholders, which we're doing with the EUR 1.5 dividend per share. You know, that's kind of the wrap for the quarter. Very short presentation, I have to say, 'cause I think it's pretty straightforward. We're happy to take questions from anybody at this stage.
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, please press the hash key. Please stand by while we compile the Q&A roster. Your first question comes from the line of David Balmer from BNP Paribas. Please ask your question.
Thank you and good evening, everyone. My first question would be, more broadly on the risk environment. It's pretty difficult to have a good view on the sector allocation and the changes there. In this environment and given the inflation, the inflationary risk, are you worried about some of your sector allocation? Have you started making sector changes within your risk budgets? That would be my first one. Secondly, on capital, I know you typically don't disclose solvency in the interim publications, but given the strong market movement year to date and the last effect from the government schemes, maybe you can give us an indication on where solvency stands versus the end of the year.
Then lastly, on single risk, and sorry if I've missed that somewhere in your disclosure, but can you remind us how big your single risk business is nowadays and what kind of actual risk you have in that bucket? Thank you.
Okay. Well, first of all, in terms of the risk environment, yes. We're not looking at it just by sector, but by company. You understand the way we look at business is a mixture of sector/country slash where companies are in the food chain or in the supply chains, if you will. It's all about the details. You will tend to see that our sector allocations over time, when you look at the macro numbers, don't move that much. What moves is the individual allocations that we make to this company or that company, because in one sector you have very different situations. We are actively monitoring the risk. We're actively managing it.
I think you're seeing it in the case of Russia, but that's not just the only case. We've been doing this now for years, and we had to do it for COVID. The story continues for us, you know. The fact that there's a little bit more risk in the market is actually not necessarily negative for this industry, because as you know, we've been operating at very low levels of risk for now quite some time. In terms of capital and solvency, we had announced. We usually announce our solvency twice a year, and we do not provide figures at each quarter.
I think what I would say is we still expect to see our solvency pretty strong at the end of this quarter, 'cause you see actually premiums going and so the reserve, the premium component of that is actually pretty strong. So I, you know, we feel pretty good about our solvency. In terms of single risk.
It's a little bit above.
Uh-
A little bit above 1% of premium. It's
It's about 1% of what we do. For those who might wonder, we actually do not have any airplanes because I guess the question's gonna come up. We have looked at these deals. I spent some time on them, and we've turned them down. We don't have any airplanes.
We have almost no exposure on single risk in Russia and Ukraine.
Yeah. That's that. I think that kinda closes that discussion. I hope that answers your questions.
Yeah. Thank you.
Your next question comes from the line of Benoît Valleaux from ODDO BHF. Please ask your question.
Yes. Good afternoon. Thank you. A few questions on my side. First of all, can you just tell us what has been the total group exposure at end March?
What has been the evolution year to date? Maybe I'm not seeing this information. Second question, related to Russia. You gave us an update on your exposure at end March. What could be the figures or what is the figures more or less at end April? Just to understand, I mean, how it has evolved over the last months. Maybe one question related to business information. You enjoyed 11% growth in Q1, which is still a significant growth, but nevertheless, it's going down a little bit compared to what you've seen over the last few years. What do you see as a potential growth rate over the next few years? I mean, do you believe that, let's say 15%-20% CAGR is achievable?
I mean, I don't know, you see this 11% compared to your potential growth in the future. Thank you.
Let me start with this last question, and I'll turn it to Phalla Gervais for the other two. In terms of BI, we grew at 11% in Q1. I mean, I'll just point you to last year when we had 9% in the Q1. It's a little bit better than last year. We ended last year at 18%, I think, in total. I wouldn't read too much out of one set of numbers for the quarter. We do not provide forward-looking statements, but this is an area that we continue to invest significantly in. With that, you wanna talk about exposures?
Yeah. Well, what we know, we're not disclosing much, but total exposure today is you can count on a kind of low single-digit% growth on our total exposure.
On the Russia end of April, of course, obviously the exposure is going down since, you know, numbers that you will see will be probably something pretty much below EUR 2 billion to the,
Okay.
I know. That's what, that was the question.
Okay. Thank you.
Your next question comes from the line of Thomas Fossard from HSBC. Please ask your question.
Oh, yes. Good evening, everyone. I've got a couple of questions. The first one would be related to the Russia provision. Can you please quantify how much it is in order to avoid to see a debate on, you know, the numbers, could be useful. The second question would be regarding your comment of a trend toward normalization. I think that this is your message today that the war so far is not creating too much of an issue but potentially accelerating the return to a more normal claims environment.
On this path toward a more normal, normalized claims environment, can you tell us a bit about the acceleration, so second derivative that you've been mentioning regarding frequency and severity of the losses, I mean, how it's changed since the start of the year? Also could you remind us what is a kind of normalized combined ratio now for Coface, given that you explained you had a lot of operating leverage accumulated over the past two, three years. Can you refresh our mind on what this means in terms of overall number? Thank you.
On the normalization, I've said that we had a surge, you know, in insolvencies at the first quarter, second quarter of 2020 when COVID started. The government poured money all over the economy and we reached a trough in insolvencies, I'd say June last year, you know, June 2021. Since then we've seen what I call a normalization going on. We thought it might have been a bit faster than what happened. I guess the government schemes were prolonged longer and, you know, there was less volatility than probably we anticipated. It is happening. I mean, I think that's the message we've been consistently giving you since June last year.
I think the war, yes, is accelerating or creating another set of things that are gonna create more activity. I think COVID continues in Asia. Whatever the event is, that's out there's something that's gonna happen that we anticipate is gonna create some return to normalcy, you know, for whatever that's worth. That's what I think that's what I call normalization. I mean, something we expected, something we're not really surprised of. You never know where it's gonna come from. You know, I think you, there's nothing here that comes out of the scenario that we kind of have to find for ourselves or, you know, the things that we expected to see.
In terms of what the combined ratio for Coface is, I mean, I think we have a four-year plan. We've given you a target. I mean, I have no reason to change that target today. What we're focused on doing, quite frankly, is just running the company as well as we can, you know, quarter by quarter, month by month, day by day, literally when it comes to some situations. That's what we do. I'll have to refer you to that plan. You wanna talk about the provision, Phalla?
You know, we haven't changed our reserving policy. Basically the way that we look at things is, of course, and you can see that in the numbers that were presented on the loss ratio related to Central Europe, backing up at 76.6%. Obviously this is providing for Russia cases, right? I think this will be the level of gross loss ratio that we have booked up for Russia.
That's the best, I mean.
And-
Quite frankly, this is a situation that's quite still ongoing, you know. It'll have to be updated on a quarterly basis. We don't know everything. I don't think anybody does, by the way. Yes, we took a view, you know, which includes some IBNR, but at this stage, I think we'll have to play it by ear.
There are no further questions. If I hand the call back to the speaker for any closing remarks.
No other questions. This may be the shortest call I've done in Coface. I'll take it as a good sign, I guess, or maybe there were fewer participants, or maybe the story's clearer. Anyways, no need to torture everybody. We will obviously be here if you have further questions to answer them, and we will meet again, I guess, in July for the second quarter results. On that call we'll be updating everything else like solvency and exposures and all that good stuff. Thank you very much for attending.