Thank you for standing by. Welcome to the 2021 results announcement Coface conference call. At this time, all participants are in a listen only mode. After the speaker 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. 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 good evening, everyone. Thank you for joining this call. We're happy to report our full-year 2021 results. I think you're aware this has been quite an exceptional year for Coface. Nothing really happened as planned, but it's still a year where we managed to reach all of our key objectives. We're reporting today a total net profit of EUR 223.8 million net income, of which EUR 32.9 million in the fourth quarter of 2021. The piece I think I'm pleased with is the turnover growth, which reached EUR 1.568 million year- to- date, which is up 8.3%. Everything else similar for the year.
If you look at the underlying stories, trade credit insurance is growing close to 10% at 9.7. The pricing is still slightly positive, but as I've highlighted in the past quarters, it has now been negative for the last three quarters. We see information services growing 18% for the year and 30% in the fourth quarter. Factoring is up almost 11%. Debt collection is down 24%, but that's really not a surprise as the claims activity has been pretty low, and there's a very strong correlation between the two. Talking about claims, the loss ratio has improved by 14 points to 33% for the year. The net combined ratio comes in at 65%, 64.6. If you exclude the government schemes, we're at 54.5 for the year.
That brings the net loss ratio at 50.4% and actually 10.9% excluding government schemes for the fourth quarter. The net cost ratio has improved from last year by 0.8 points, and that brings the net combined ratio for the fourth quarter at 83%. I think the big news here is that what we've done on the government schemes it's lowered our pre-tax profit by EUR 116 million in 2021, of which EUR 103 million in the fourth quarter. Which means that we anticipate that a large majority of the expected cost of the government programs have now been taken into our accounts.
As I said, that brings the total net income for the year at EUR 223.8 million, which means an earnings per share at EUR 1.5 , which compares to the EUR 0.55 that we had in 2020. From a balance sheet standpoint, you see on the next page that we are coming out strong at the end of 2021. The solvency ratio comes in at 196%. What's important about it is we don't expect further significant impact from government schemes in that ratio. The solvency target, sorry, is way above our target of 155%-175%, as you know. We have renewed our reinsurance cession at 23% like prior years.
The private reinsurance program has been renewed at better conditions, despite the fact that the market is generally speaking, tighter. That brings the total return on average tangible equity for the year at 12.2%. This strong balance sheet and the profitability of the business allows for a record dividend of EUR 1.5 per share, which is a 100% payout ratio, which is right in line with what we've done and what we said we would do in our Build to Lead target. We delivered, I think, a very strong financial year, but also we are completely on track with our Build to Lead strategic objectives.
I like to give you a periodic update on where we are on these plans, and that's why we put in a page- on- page six, which gives you a bit of an update of what's happened during the year. You recognize here the two pillars. Number one, building leadership in the trade credit insurance space, and we've got three points here. One is simplifying and digitizing the operating model. If you think of where we are here, about 75% of our products have been migrated to the new product suite, which is a condition to further digitization of our business, and that's in the main market space. We have been investing, and we are investing heavily in digitization.
I mean, in total through the plan, we will invest about EUR 100 million in technology to make our business leaner, faster, better, and that's well underway. We're moving people into shared data centers, where we get more productivity, more standardization. One thing that's very important is client satisfaction. One way that we measure it is through NPS measurement like many other companies do. In the second half of 2021, our Net Promoter Score has been above 30%. I take that as a sign that, you know, we're moving in the right direction and this business is appreciated by its clients. In terms of information and risk capabilities, I think we've proven through the last two years that we can navigate a pretty volatile and uncertain environment.
This is one of the things we had discussed initially when I joined Coface. We're now using the Partial internal model for pricing. We are also investing in improving our trove of data. You know, this is one of the assets in Coface, and we're continuing to build and enlarge our database. We've gone from 70 million corporates. We're going to 130 million. We've also multiplied the number of fields that we track on each one of the companies by something like 10 times more. In terms of the growth, we've completely realigned our organizations across regions, and you're very well aware of what we've done there.
We've been driving retention for several years in a row through both service and technology, and we've been expanding progressively into new risk segments like excess of loss in the U.S., bonding in Romania, and other things. The second pillar is really about growing select specialties. Over the last three years, we've been turning around our factoring business. I think we've done a great job here driving better business through higher value segments, private equity, cross-border, improving the risk profile of the portfolio in terms of being self-liquidating, in terms of increasing efficiency and investing in our tools to manage this business, and then optimizing its capital consumption, which you'll see in the solvency calculations. Single risk and bonding is now led by a senior leader. We're reinforcing our business in the key markets.
We're launching new places, and we're starting to look at it from a reinsurance standpoint as well. Finally, information and services. That's certainly the biggest initiative we've had in terms of growth, or adjacencies in this business. We're aggressively developing it as a new core activity, if you will, of Coface. I have a page which I'll take you through in a bit later. We're investing in the platform. We're launching also, we're taking the opportunity of a relatively low claims environment to launch a new single tool in 45 countries for collections, which really updates our technology in this space. You know, a lot of stuff going on, not just managing the crisis, not just managing the performance, but also continuing to change this business at its heart.
If you go to the next page, Saban, I just wanted to give you a bit more color on what we're doing in terms of information. This whole thing started really with the realization that we had an underutilized asset in the company, which is the data we use for our own credit insurance business. We have assets in terms of companies, data. We have payment behavior, data. We have underwriting expertise. You know, hundreds of people around the world who are focused on managing the solvency and scoring companies. Then we have a global network and a global brand which is recognized in the industry.
When we come with data, it's not just data that is being collected by us, it's data that's being utilized to manage 600 billion of exposures, and I think that carries weight with our clients. We also realize there is a need for that kind of service in the market. People wanna make informed decisions. They want better quality. They want better speed. They want a one-stop shop. They want insights, not just data. I think we're well positioned to offer these kinds of products. We've been investing in the platform over the last few years, whether it's in terms of sales, recruiting more people. We've actually almost tripled the FTEs on this business.
We've multiplied by two the number of companies that we follow, and then by 10, as I said, the number of fields that we track on each company. We are expanding the range of products that we're offering, and then we're investing in the technology to be able to not just manage this data, but make it available in an easy format for our clients. I just wanted to show you some of the numbers here on the right-hand side. You see our total services are up 27% over the last three years. When you look at how that's made up, it's 48% growth in information and 29% decrease in debt collection. That will change at some point when the cycle reverses. Still, pretty good performance on our information business.
You see the reported number is EUR 42 million. That's what we consolidate. If you add the entities that are not consolidated, we're at EUR 48 million. The contribution margin, despite all the investments that we're making, is above 30%. This platform is able to actually self-finance the investments we're putting in it, and I think that's what I wanted to highlight here on the information business. On page eight, we see the key financial targets we set for Build to Lead. Combined ratio below 80%. You can see we were actually below for the last three years. This year is particularly strong at 64.6%. A payout ratio which is commensurate with our solvency ratio. Solvency has been way above our target range. You can see it again this year at 196%.
The payout ratio has been 100% for the last two years. The return on tangible equity, despite the fact that we have actually probably more equity than we really need, is at 12.2 for the year. Well above the 9.5% that we had set for target in Build to Lead. On page nine, I also wanted to give you an update on our CSR strategy. We're at this point now where we're embedding the strategy into our daily operations, and we're setting specific targets. I'll just take you through the three key pillars here. One is becoming a responsible insurer.
You know, a number of things we've done over the last couple of years. We've improved the ESG rating of our investment portfolio by one notch, so we went from C - to C. We've built and we've tested an internal tool to be able to assess the environmental impact of our debtor portfolio. This is something new. We've integrated some ESG indicators into our risk appetite statement. Where we wanna go is continue to work on the investment portfolio ESG rating. We set a clear target, you can see it at the bottom of this chart here, of 20% reduction of investment portfolio emissions by 2025. We want to integrate the environmental policy into our commercial policy.
That is enabled by the tool that we have, and also as the taxonomy of, you know, what is green, what is brown, and what is black, is gonna be developed. Upgrade our procurement policy. The second pillar is really being a responsible employer. We've worked hard on diversity and inclusion. The standards that have been made mandatory for French companies is now being applied throughout the world. We've improved our diversity index by three points over 2021. We've been very specific about LGBT+ inclusion. We've increased employee engagement by 24 points, and then we are developing employee development. We still need to formalize our diversity inclusion policy.
We continue to work on digital tools to be able to onboard people as we spend less time in the office and more digitally. We want all of these onboarding processes, training issues to be handled in an easier way for people. We've committed to a specific target of 40% in senior management. What we're talking about here is not the executive committee, but the top 200 jobs globally in the company. So that goes well beyond, I think, the targets that you know companies usually track. In terms of being a responsible enterprise, which is actually how much we ourselves consume in terms of carbon, we've launched a full carbon footprint assessment with an outside firm.
We've been working on our policies to reduce our carbon consumption, whether it's the introduction of electric vehicles in our fleet, the travel policies, how much our buildings consume, and how much we actually use buildings. There's two areas that we're still working on. One is to develop a reduction plan to achieve net zero. I think that's something we've got in front of us. As we move from more brick-and-mortar to more digital, to be able to define a responsible IT roadmap here, 'cause we're actually using more and more of the digital tools, and that transfers some of the burden on the IT. We set a short-term target of 3 gram reduction in our car fleet. We've got to start somewhere, and we're continuing to work on this.
Then the last pillar is really about driving the culture inside the company, making sure everybody is involved. We've got some grassroots movements that have been initiated by our employees, I think, which is called Green to Lead, actually. We're supporting that. We want to make sure that we have all of our employees formally trained by the end of 2022. We're revamping our governance. The goal here is to make it an enterprise endeavor, not just something that's managed from the top or dedicated to people in the company. With that, I'm going to take you now to the usual pages that we review during these calls. There's a lot of stability, as you know, in our presentations from here on.
So again, on page 11, a very strong growth year, 8.3% total. As I said, 9.7% CCI, 18% business information, and actually 30% in the fourth quarter. Factoring is up almost 11%. Third-party collections is down, so nothing new here. The fees ratio to premiums is down, and that's really driven by our, for our insured clients, the collection fees have been lower, and that's correlated, as I said, to lower claims. On page 12, we look at the geographies, and you see that actually growth has been pretty much spread out. The reasons underneath this are pretty consistent across regions.
I'm not gonna comment on them individually just to say, you know, you look at Western Europe, Northern Europe, Central Europe, Middle, and Africa, we're all in the 8%-9% range. North America is lower, but it's starting to pick up a little bit of momentum. Asia Pacific at 5%. Latin America, quite high at almost 15%. That's driven by commodity, agro food and prices. If we go to page 13, you can see, usually the way we look at growth, it's still a pretty good year for new business with EUR 129 million, so not quite as good as 2020 and 2019, but still pretty good. Retention is almost at a record, and it's been very stable actually for the last three years.
The price is still positive, but as I said, I mean, the market's gotten very, very competitive and pricing has been down during Q4 as it has between Q2 and Q3 as well. Then, the big driver here of our rebound is activity, which is up by 8.4%, which is a very strong performance after the drop in 2020. I'm now gonna go to page 14, talking about the loss ratio. You can see that it comes in at 21% for the full-year 2021. You look at the quarterly sequence here, and you see that we reached a very low point at 10.5% for Q4. Some of the same trends that I've highlighted before are still pretty much in play here.
Continued limited large loss activity. Low claims frequency across all the regions since Q3 2020. Still a high level of reserves which are being released. I think, as I said, you know, we've kind of reached the trough in claims. I think that was probably middle of last year, the end of the first half. Since then, we're seeing a normalization. There's been no change in our reserving policy. You can see on the bottom right-hand side that we're opening the new year at 66.3%, which really reflects our expectation that the normalization of claims is happening, but it's happening progressively. Then you're seeing the 47.7% bonus on prior years, which is actually exceptionally high.
If I go to page 15, you can see the loss numbers for the year by region. Quite a low number, pretty much across the board with, you know, Western Europe, Northern Europe, Central Europe, Med and Africa, all in the 20s or lower. The most volatile markets that we're usually more concerned with North America, Latin America, Asia Pacific, all in the teens or below. Really very strong year in terms of losses.
If you look at page 16, which gives you the quarterly story, where actually you can see that out of our seven regions, you actually have six of them that are in the single digits loss ratio for the quarter, and one, Mediterranean and Africa, is at 15%, which is quite benign for the business that we're in. Clearly, very strong performance across the board. On the cost side, page 17, you can see that our costs during the year have grown by 7.1%. That means they're growing and we know why. That's mainly employment costs, as we had low bonuses in 2020 on the back of lower performance. That has been reversed, obviously, in 2021.
However, the growth in the cost is lower than the growth in the premium, so we get operating leverage during the year. You can see our cost ratio before reinsurance dropping from 36% in Q4 2020 to 33% in Q4 2021. You can see the net cost ratio at the bottom right-hand side of the chart, going from 33.7 to 33.1. What we get is about 1.4 points of positive operating leverage. We get a negative, if I may say that way, from the investments that we've made in business information for -0.2. Then lower collection fees, I've already commented on that, and that's a negative -0.6. You know, we continue.
I think the message here on cost is we're disciplined, we're thoughtful, we continue to invest. Every year, you know, whether we're growing or not, you can see that we are actually improving the cost ratio of the business. With that, I'm gonna turn it over to Phalla to take us through the next pages.
Thanks, Xavier. When it comes down to reinsurance results, if it reflects the low loss activity and the impact of the public schemes. Let's start with the premium cession rate. It goes down from 46.4% - 39%. As a reminder, the public schemes ended on June 30 last year. The cession rates dropped. It is, I think, a very sharp drop from 50.7% - 5%. Indeed, the reserve releases resulting from prior years' positive development, especially in the year 2020, as mentioned by Xavier, go back to the reinsurers and in particular to the governments that put in place the public schemes. We have a dedicated page on this later on. Bottom line, the reinsurance result, which is a cost for Coface, moved from -EUR 44 million pre-tax to -EUR 314 million.
As regards the private reinsurance treaties, the renewal was done successfully, and we keep the same quota share with improved terms and conditions while the market was getting harder. If we move to the next page 20, let's focus on the government schemes and impact. Here, we think that we have recognized the large majority of the cost related to it. As in the chart on the top, left-hand side, you can see, I think you have two bars, the dark blue and the green. Dark blue being the published combined ratio, and the green being the result public schemes impact combined ratio. As we said last quarter, I think it was a turning point in Q3, where of course, I think the public schemes started to benefit from the reserve releases that we made.
It started in Q3. We have announced that it will be accelerated. Indeed, it has accelerated in Q4. As you can see that in Q4, the combined ratio, I think without the public schemes, is really low at 10.5%. The loss ratio, sorry. It turns out, of course, that the pre-tax impact in Q3 was EUR 32 million. Remember that we have this discussion, and now we have recognized EUR 103 million in Q4. We think that the vast majority will be behind us as we have the full-year 2021 take into account EUR 160 million impact of costs related to the public schemes.
When you go to the next page, all this translated into a net combined ratio at 64.6%, which is a record low for Coface. Moving from 79.8% on a year-to-date basis to 64.6%, with a decrease in the cost ratio by 0.8% and a decrease of loss ratio by 14.4%, and all this related to what we did with the reserve release and go back to the public schemes. I will move to the financial income or investment income. Couple of things to be highlighted here. First of all, I think the total investment portfolio of Coface is now above EUR 3 billion. We maintain a well-diversified strategy in terms of asset allocation.
We still continue to deploy the excess cash coming from the operating cash flows with, I think, the financial performance that we got and the low loss environment. In terms of yield, so the accounting yield without realized gain and FX impact ended up at 1.1, which is pretty stabilized now. If we include the realized gain that we made on some real estate fund last year and benefiting also from the FX impact, the accounting yield of the investment portfolio end up at 1.2%. All this, I think, lead us to a record earnings in full-year 2021, with an operating income that has more than double compared to previous years. The tax rate, which is pretty stabilized now at 23%, I think it was at 24% in Q3.
A net income recorded again at EUR 224 million, an EPS at 1.5 EUR. I hope that you will enjoy it. Payout ratio at 1%. In terms of return on average tangible equity, it goes up from 4.8%-12%. The drivers are only coming from the technical results and to a lesser extent, the financial results. The movement in terms of IFRS equity is pretty straightforward, as it is only made of the dividend paid in 2021 at EUR 83 million and, of course, increased by the net earnings of 2021 at EUR 224 million. Let's move now to the capital management and the capital page. I will start with the balance sheet side.
It's a very solid balance sheet ending up at EUR 8 billion. It has increased compared to last year. I think we're coming from EUR 7.5 billion last year to EUR 8 billion this year. Here it just reflects two things, the increase of the investment portfolio that we mentioned a little bit earlier, an increase of the factoring assets as I think the way we are growing our factoring business. IFRS 17 project is going as planned, and of course, I think what really need to be highlighted again is the fact that the three rating agencies have acknowledged the strength of our balance sheet, as Fitch, Moody's, and AM Best have put Coface on the stable watch last year. We end up with a tangible NAV at EUR 12.8. Just want to highlight this one.
Let's move to the solvency ratio. I think there's two pages there. I will start with the chart on the left-hand side where you can see the solvency ratio semester after semester, which come way above our comfort zone, or way above the upper range of our comfort zone at 175%. If you look at the middle chart, which is the evolution between year-end 2020 to year-end 2021, I want to, if we compare apples to apples, which is without the impact of the public schemes, we are moving from 191% to 194%, and the published ratio is at 205%, moving from 205% - 196%. What are the drivers here? Of course, there are three key components. The first is of course the SCR. The capital requirement has increased.
On insurance side, the increase of the capital requirement reflects first, I think the growth of exposure and the business growth of course and the low loss environment. On factoring side, the capital requirement increase reflects of course the business growth. The above SCR increase has an impact by approximately 30 points on the solvency ratio. All of that has been offset or more than offset by the increase of the own funds that reflects, of course our commercial performance, our business performance, and our financial performance. If you look at the own funds, the increase and impact on solvency ratio is at 39 points. This, of course allow us to set and propose a 100% payout ratio, still leading to a year-end solvency ratio at 196%.
On the right-hand side, I just want to go through the sensitivity of the solvency ratio, whether through the financial market shocks and stress tests or through the business shocks with the 1-in-20 and 1-in-50 events. In both cases, all cases will be within our comfort zone or above our comfort zone. Moving to the next page, I think how the solvency ratio is translated in terms of euro amounts. Two components here. If you look at the insurance SCR, it ended up at EUR 1.055 billion. This is an increase by EUR 146 million compared to last year, reflecting, as you can see on the bottom left-hand side, the increase of the exposure. The factoring SCR has increased by EUR 40 million.
In total, I think our SCR ended up at EUR 1.264 billion to be compared with the eligible own funds of EUR 2.472 billion and a ratio at 196%. Again, a very strong solvency and robust balance sheet. I'll leave the floor back to Xavier.
Just a few words to wrap this up, and then we'll move over to the Q&A session. I think it's been a great year, clearly, from a financial standpoint, it's clear. I think the salient points for me is that we've put the government schemes, a large majority of it, at least behind us. We have delivered strong growth and strong operating metrics, and that spans across our different product lines. You've seen the, you know, the growth in factoring 11%, the growth in premiums at close to 10%. We're continuing to invest in the business to make it better, whether it's digitization or the investments that we've made in the information line, which is starting to pick up some speed.
We've taken advantage of a low claims environment to continue to upgrade our technology with the claims system and a collection system which is globally implemented in 45 different countries. I think we are demonstrating our ability to grow through the cycle. We continue with an attractive capital management policy. We're gonna pay out 100% of our earnings. That means EUR 1.5 per share. I'll let you compute the percentage of the share price that means. That's pretty much the story for 2021. With that, I'm gonna open it up for questions.
Thank you. We will now begin the question and answer session. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your questions, please press the pound or hash key. The first question comes from the line of Michael Huttner from Berenberg. Please go ahead.
Thank you very much, and congratulations. These are amazing numbers. Everything is amazing. There's still questions. I have three, please. The first one is, the initial loss ratio, sorry, I, it sounds as I'm spitting, I'm not. The is 66.3%. It used to be 72%, 73% maybe. And you said it's still very conservative, so maybe you can give some color here. The other is the extraordinary growth of information services of 30% in Q4. I know you don't give guidance, but which number do I think about is kind of sustainable, the 18% for the year or that 30%, which is real number? And then the last question is the government schemes.
Can you give a bit of color or explain, or how do I compute how much is left? Thank you.
Yeah, hard questions. On the loss rates, I don't think we said what you said, but what we said is that normally we open the years as a factor of what we see during that year. It takes about 18 months after that for the year to completely roll off or mostly roll off. What we're saying here is that given what we've seen in 2021, we opened the total year 2021 at 66%, which is typically lower than what we would on a normal year do. That's because of just what we observed in 2021. That's this one. In terms of the information business, there's some seasonality. I mean, it's still a small business, right?
I mean, there's some of the deals are chunky. It's, there's some seasonality. You'll see that quarterly number move a little bit from time to time. I think the important thing for me is that you're seeing this business start to accelerate. We used to be a 3% growth business, and then we went to 5%, then we went to 11%. This year, we're delivering 18%. I think we're starting to see some growth, and that's encouraging for me in terms of the efforts that we've been putting into this and the response in the marketplace.
In terms of the government schemes, I think what we're saying here is, you know, if you look at these schemes, they've been going on for 2020 and 2021, so about nine months worth of reinsurance in 2020, and about six months in 2021 with slightly improved conditions. In 2020, I think we, at this stage, pretty much see where this is going and we've pretty much put that behind us. In 2021, we've taken a bite at it, and obviously, you know, there's always gonna be the question of how that shakes out. I think that's what we mean by when we say the vast majority of the, or a large majority, I'm gonna be very specific.
A large majority of the cost has been taken into account.
That's brilliant. Thank you very much. Thank you.
Thank you. Next question comes from the line of David P. Farmer from BNP Paribas Exane. Please go ahead.
Thank you and good evening. I have three questions, please. One on capital and two on the top line. On capital first, could you help us understand the different moving parts in the solvency ratio in the fourth quarter, please?
We see the negatives coming from the front loading of the government schemes, the growth in the total exposure, the higher dividend. Maybe if you could help us bridge the gap in the second half. My second question is on pricing in trade credit. Do you think what we're seeing in the fourth quarter is a good indication of what you're seeing so far in 2022? Or do you think some of the growing tensions or worries in the credit markets could mean a bit more pricing power for the insurers? My last question is on services. Thanks a lot for this additional disclosure.
Could you talk a little bit about where that growth is coming from, maybe in terms of, you know, types of clients or geographies, any color you could give us on what's been the key driver of that growth in information services? Thank you very much.
Yeah. Thanks, David. I'm probably gonna take it in reverse order and let Phalla take the question on capital. I guess you're referring to the walk that-
Yeah.
we provided.
I would.
She'll take you through this. In terms of services, you understand, we've launched a global initiative in services. We're at very different stages of maturity. We're seeing clients that are from the very small to the very large. It's actually, I would say at this stage it's too early to say to differentiate. I mean, we're seeing a very nice response both from small clients and from very large and very reputable clients. Obviously it's different channels, it's different products, it's different salespeople, it's different technology in terms of what we're doing.
We're seeing, you know, people that are interested in just data to run their operations, to assess credit, to assess their supply chains or to validate their models or do, you know, there's a whole bunch of things that are going on here. It's pretty broad-based. In terms of regions, I think it's too early to really see trends, but I think we're pretty much growing in every region in the world. In terms of pricing, you know, this industry has seen diminishing pricing trends over the last 20 years, you know, and that's something I highlighted before the crisis. Things changed at the beginning of the crisis because there was clearly a surge in risk levels.
I mean, I think the numbers are pretty clear. You've seen lower claims activity which means there's more pressure. I think that's just the natural level of competition you see in this market. I mean, it is a competitive market, there's no question about it. Where it goes from here, that will depend, I think, on the scenario that plays out. We've seen a very strong recovery in the economy in 2021. We anticipate growth in 2022, but less growth. As I said, we expect a normalization of claims, which has started middle of last year, but we expect that to be progressive. You know, I think it's pretty natural. I mean, the things are pretty clear in this business.
When there's low claims, there's more pressure. When there's a lot of claims and there's a lot of risk, there's less pressure, and that's just gonna continue. In terms of capital and the-
Yeah, I would take it.
Um.
In terms of capital, we have two pages on this one. As you can see, the work is really a year-end to year-end because this is how we published. The drivers are pretty much what you described. I think on the insurance side, the drivers is of course the growth that we are seeing, the increase of exposure and the low loss ratio that would cause us some SCR. It's where you can see the SCR mounting and the impact of the SCR on the insurance side with an impact of 24.8. On the factoring side, again, it's the growth, and you can see the growth that we are seeing in 2021 is plus, you know, double-digit growth.
Of course, this will drive, of course, capital consumption. But on the other hand, because we are really underwriting profitable performance business, the own funds is more than compensating and we have an increase of the net result that you can see. You can and it goes from our risk management, it goes from our cost discipline, it goes from our commercial performance and of course, we're also benefiting from the low loss environment. These are the key drivers. You have, you know, the own funds and performance more than offsetting the capital consumption to end up with a very strong again solvency ratio.
Thank you.
Thank you. Next question comes from the line of Hadley Cohen from Deutsche Bank. Please go ahead.
Hi. Thanks very much. Just following on from David P. Famer's question, perhaps I could ask in another way, please, Phalla. Just looking at the growth in own funds in 2021. It's grown by over EUR 200 million. Very simplistically, you're paying out 100% of earnings. I'm just wondering. I can understand what's driving the SCR movements, but it would be useful to understand why the own funds has grown as much as it has given you're paying out 100% of earnings. My second question, hopefully a very simple one. Tax rate was obviously lower than normal for this year. Are you still guiding to around the 30% level going forward?
Final question is, can you talk a little bit about the geopolitical risks at the moment, with regards Russia, Ukraine, how you're sort of adjusting your exposures to those markets and potentially energy industries and what have you. Thank you.
Yeah, I would take the first one. I think the on trend you can see the work on the page that we have shown. The on trend increase of course is made of the net earnings of the year, but it's this obviously on trend, right? So you also have the impact on the best estimate and the premium estimate, which is, you know, benefiting from the low loss ratio. This was one we normalized, but at the same time, the best estimate impact is also coming through on the SCR increase. So both are increasing. Of course, one is on numerator, one is on denominator. Then I think this is the first thing. On tax rate, I think it's 23%.
Yeah, the tax rate is really depending on various components. One is really the some different tax impact. This year, I think we have been able to reduce it. I would not guide you anything anyway, of course, but I think if you look at the past, I think the tax rate last year was at 37%, so you can, you know, figure it out a little bit on where we go. At 23%, yes, it's a probably low tax rate, and we'll be navigating something in between.
I mean, talking about geopolitical risk, I mean, clearly, so if I think of 2022, you know, what's in front of us, it looks like COVID is kind of behind us, but it's not hit every part of the world equally, so there's still, we're never completely sure that we're gonna be out of the woods. There's clearly a tightening of interest rates going on and QE is kind of going away. There's clearly some inflation, there's supply chain constraints, and there is geopolitical and social risks. I mean, so that's the sort of things that we're watching in general. When it comes to geopolitics, clearly there are tensions around Ukraine. We're very well aware of that.
It concerns not just Ukraine actually, but the countries around them, starting with Russia and then other countries that might be impacted. What we do is we just look at what it means by sector. We look at the different scenarios that can play out. You could have a prolonged standoff, I would say. Some volatility linked to this. I mean, the Ukrainian economy is gonna take a hit if that happens. By the way, we have very limited exposures in Ukraine. Then you could have some kind of a military action that starts, whether it's limited or it's more important. I think we're looking at all these scenarios, and we're looking at what they mean for different countries and what they mean for different industries. Not everybody's gonna be impacted the same.
If there's conflict going on, oil prices are gonna go up, gas prices are gonna go up. There's gonna be recession in some places. There's gonna be other areas that are much less impacted. We're looking at all of this, and I think the company's doing its job. We're, you know, in terms of of thinking through what it means and standing ready to handle whatever happens as we do usually.
Great. Thank you very much.
Thank you. Next question comes from the line of Benoît Valleaux from Oddo BHF. Please go ahead.
Yeah, great. There are a few questions on my side. First one may be regarding pricing. You mentioned 0.8% price decrease in Q4, and you enjoyed a very good level of claims frequency last year and even in H2. Can you please give us some color, I would say, on the trend you are enjoying year- to- date? I mean, do you see some more significant price increase and you fear that there could be some much more negative impact on the pricing going forward or not? Maybe second question is related to reserve releases. Just to come back maybe on first question, related to, I would say opening combined ratio.
When I look at what happened with the government scheme, for let's say, from March 2020 to end June 2021, as you say, a significant part of reserve releases from this period should belong to the government schemes, and you put a large part of the cost in Q4 last year. Nevertheless, I assume that you will not be able to book significant reserve releases on these underwriting quarters, and therefore, most of your reserve releases this year will come from H2 last year, maybe something, I don't know, before Q2 2020, and for the business which hasn't been concerned about government scheme. My question is just to know, do you believe that you will be able to achieve roughly 30 percentage points of reserve releases in 2022 as you've made in 2020, 2018, 2019?
Should we expect a much lower level of reserve releases? Maybe the third question for you is related to information. You are still investing in this ongoing business. When do you expect this business to generate some profit? Thank you.
Well, I mean, let me start with the last one, because I think we've disclosed the what we call the contribution margin of that business, so I don't think I need to say much more. It's a business that is in its infancy. We're gonna have to continue to invest. I think the trade-off is for me, there's no question that we need to invest in this business. It is a multi-forum, multi-geography, multi-type of clients kind of endeavor. I think we are just getting started, if I may say. In terms of reserve releases, I think you described it perfectly. I mean, there are a number of countries where we were reinsured quite heavily actually by the governments for a period of five quarters.
In these countries, we're protected from the downside, we're also protected from the upside. That's pretty clear. The outcome is pretty well known. Anything we do comes out of the other parts of the world or the periods of time when we were not reinsured. I think you're absolutely exact. I'm not gonna give you forward guidance on these things, and we never do. I'm gonna stick to my guns on this one, been doing this for six years. In terms of pricing, I mean, I kind of said it all. I mean, I don't have much more to add. You know that our contracts renew a good chunk of them towards the end of the year.
There's some more seasonality in renewals, I would say, at the end of the year. Then, you know, some others spread throughout the year. You've seen in the past, we had a number of years where the price decrease was, I don't know, 1.5% or something like this, you know, or at least in the past. I think the numbers I'm mentioning here are not completely out of range. It's hard to say. I mean, I think it will depend on, as I said, what the future holds for us in terms of risk. The one thing I would say is if this crisis has any learning, is that I think we had a few things happen during this crisis, right?
We had a lot of stress at the beginning in March, April, May 2020, before the government started to intervene. We had a complete reversal of situation following this, and now we're seeing a normalization. We've gone through three different cycles in the course of a year and a half, and I think we've proven or we're proving that so far we've been able to handle these different situations. I think to me, it just validates, if you will, the agility of the business and the fact that the business model seems to be working.
Okay, thank you.
Thank you. Next question comes from the line of Thomas Fossard from HSBC. Please go ahead.
Yes. Good evening all. Couple of questions from my side. Just to come back on the remaining cost of the public guarantees. Actually, if I were to run the math on a Solvency II basis, running the 196 compared to 194, this looks like I'm getting EUR 20 million, which doesn't seem to be the right calculation to do. Otherwise, not sure that you would have called it the majority. You would probably have, you know, worded it as the full, almost a full cost. Maybe you can help me to understand what represents these two points of solvency in the 196. Second question would be related to your credit exposure.
We are back to 588 at the end of the year. Just wanted to understand what was your risk appetite at this stage of the business cycle, if there is any, the stage of the macroeconomic environment. Should we expect you to stabilize? Or, I mean, you and you believe that the environment is pretty good to grow from this basis. Third question would be related to the normalization of the loss ratios. I think that when we last met around Christmas season, I think that you indicated at that time that the trend in the normalization of the loss ratios were different by countries.
At that time, you highlighted that France and Germany was still running at low level, while I think that you highlighted that already in December, Italy and Spain notably were back to more normal level. Can you just update on where we are for the main European countries? The last question, sorry for that. You know, regarding growth coming from your clients, I think at nine months you were at 5%, full- year you're 8%, implying a very strong growth coming from your clients in Q4 standalone. Does it mean that at the end of the day, you're clear beneficiary for your top line of inflation pressure building everywhere and all industries.
At the end of the day, we should expect a very strong top line growth for 2022. Thank you.
Again, I'm not gonna make forward-looking statements, but the fact that it's known that when our clients' business grows, we grow because our premiums are expressed as a percentage of their turnover. Which means that if there's inflation, their turnover tends to grow if they can pass on their prices to their clients, and our turnover grows. I think that's a true statement. This business, when there's inflation and high rates, tends to grow faster, and then we also get better returns on the investment portfolio. In terms of the normalization, I mean, I think I don't have much more to say. I mean, I think as I said, we've reached the trough. I think it was maybe June last year or something like this.
Since then, things have been creeping up. I would say nothing's really changed. Italy and Spain have been the countries that have normalized the quickest, with a few others. France and Germany have been low, and the governments are progressively taking out their support. I think we are seeing a normalization. I'm not gonna make any forward-looking statements again. In terms of credit exposures, you're right to say we have had, you know, after a decrease in Q2 2020, we kind of changed course as the government programs were kicking in. We have been supporting our clients with growth in our exposures of about 21% last year, which I think is probably the fastest that we've seen the growth.
I mean, what's driving this is really demand from our clients for legitimate business needs. You know, the commodities are trading as it has been growing. Our risk appetite, I can't comment on an overall risk appetite 'cause that's not the way we look at it. We look at it you know, country by country, segment by segment, industry by industry, company by company. It's a detailed work. What comes out of it is what comes out of it. We are very attentive to, as I said when we talked about the geopolitical risk, where we put our money, you know.
That's the value of what we do is a detailed you know one-by-one analysis of the value of the counterparties that we're insuring. The question on public guarantees-
No, I would take it.
Uh.
I think the way that you should look at it on the public guarantees with the impact on the capital. You know, the public guarantees is basically a reinsurance, right? It's a reinsurance scheme. When you're buying reinsurance, of course, it helps your capital position. And as you know, I think it has ended half year last year. I think the impact in at year-end would be it's really minor, not only due to the fact that, of course, we have put well the large majority of this behind us. It's also because this reinsurance has ended. If we look at it as a reinsurance, you know, it's the same way that we are doing now our private reinsurance, and it helps either way the performance.
Okay. If I'm right, EUR 20 million is what you still expect as a cost in 2022?
No. It's not what we're saying. It's here. You're, I think you're mixing up the costs and the capital consumptions and the capital positions.
Right. Okay.
Thank you. Next question comes from the line of Michael Huttner from Berenberg. Please go ahead.
Thank you very much. Two follow-up questions. One is, can you say what is your reinsurance limits on the excess of loss? In other words, if you had a single large claim, what is the maximum that you would have as a net loss, retained loss and with the rest going to the reinsurance? The second is, on Romania and bonding, I don't know much about. I've never been there, but I used to follow Vienna Insurance and also UNIQA. I don't think they ever made money in Romania. It's a lovely, wonderful country, but the claims always seem to be higher than expected.
I just wondered how much comfort you have that the trends in credit insurance and bonding in Romania would be better than the insurance on cars, which has been an issue for your peers.
Look, on this one, first of all, it's a venture. I mean, we've been expanding our bonding business across markets. Each market in bonding is different, right? That's probably what you mean. The range of what we insure varies and differs by market. It could be tax bonds. It could be performance bonds. It could be guarantees. I mean, there's a number of things I'm not describing in detail what we do in Romania here. In any case, it's not a huge venture.
We feel that this market is prone for what we typically do well and where we make money in the long term, which is kind of like retail-based, small tickets instead of doing very large transactions, right? I'm gonna turn it to Phalla for the insurance piece.
Yeah, on the reinsurance, the Excess of Loss that we are limited by. I think the highest limit is EUR 1.7 billion per claim, Excess of Loss.
How much?
EUR 1.7 billion.
I'm not sure your question.
Did we-
What was your question? I'm sorry.
No, no. If an event happens, what would be your maximum single loss exposure?
Well, it's 2% of our capital base? It's about EUR 50-something million.
Yeah. EUR 50-ish million.
Yeah.
Excellent. Thank you so much. Thank you.
Thank you. Next question comes from the line of Benoît Valleaux from Oddo BHF. Please go ahead.
Yes, hello. Just a follow-up question regarding still reinsurance. As you have still an excess capital, why haven't you decided, I would say, to reduce your quota share coverage in the past which came to renewals and about to increase your retention?
Well, I mean, that's, it's a tricky question in that, you're happy you're not reinsured when things are great, and you're less happy when things are bad. It's, you know, it's a long-term partnership here with reinsurers. We feel that. You know, we work both the quota share and the excess and the stop loss and all these things together. It's a decision that involves multiyear long-term partnerships and the mix of the different products we buy from the reinsurers. I think that's the best I can tell you in this.
Okay. Yeah. Thank you.
Thank you. Next question comes from the line of Thomas Fossard from HSBC. Please go ahead.
Yeah. Sorry. Just wanted to come back on the 196% Solvency II ratio. Because if I'm right, all the PBIC schemes have gone now. So why there is still a difference in the number you're computing at your end? And the second question would be, okay, so you're sitting on excess capital, you're leaving your quota share or your position unchanged. You have probably very limited ability to return capital through share buybacks because of the position of Arch Capital. So what are you going to do? What do you intend to do with such an excess capital? Which you said is putting also pressure on the return on tangible equity.
Well, I mean, a few things. I've said this, you know, for five years, so I'll just repeat it. Core growth is number one. External growth, if we can find opportunities, and last, we will return the money. This really hasn't changed.
Changed.
In terms of our capital allocation here. Fa, you wanna talk about the 94 and 96?
Yeah. I think that we will take it offline with Thomas to review.
Yeah. I mean, Thomas offering a call here to have a more in-depth discussion on the 2%. I mean, the government schemes are kind of behind us, but they're not completely because the,
You still have the tail end of what's going on.
You have the tail end of the roll-off of these vintages, right?
Yeah.
It takes about 18 months for these things.
It has not fully developed yet on the 2021.
Okay. You're underwriting. Understood.
Yeah.
Thank you. The last question comes from the line of Michael Huttner from Berenberg. Please go ahead.
Thank you so much. I'm really sorry for so many questions, but just one. Yeah, you mentioned external growth, if you can find opportunities. Is there anything you can say here?
Really, there isn't. I mean, Sorry, Michael. I mean, we look at deals. We like to make acquisitions if they're good ones. I've already said that there's two things that work for us. We either acquire some skills that we don't have, or we get some scale in some business that we like, right? The price has got to be right. That's still. Nothing's changed. We've done a couple. I wish they'd been bigger, but you know, we've done a couple, and they've been nice acquisitions, and we'll keep looking.
Lovely. Thank you.
Thank you. I hand over back to the speakers for final remarks.
Okay. Thank you. Well, actually, we've had more questions and more time than most other results calls. Thank you for joining us. The next call is gonna be on the twenty-eighth of April for the Q1. In the meantime, just wanna thank everybody for joining and wish you a great first quarter.
That does conclude our conference for today. Thank you for participating. You may all disconnect.