Thank you, and good evening, everybody. Thank you for joining this third quarter earnings call. Just before we get into the meat, I just want to acknowledge that this is going to be the last call for Carine Pichon. She's been our CFO for a very long time. I think this is her 30th earnings call as a listed entity and probably the 40th quarterly closing that she's accomplished. She will be taking us, as usual, through the second part of the presentation. On the call, we have Phalla Gervais, who will be taking over from her. Going forward, she will be the one presenting for us. Let me now start with the results. I hope the sound is okay because I'm getting some feedback.
I don't know if that's okay. On the results. We are happy to report a very strong quarter. You can see from the numbers, our total net income for the year comes in at EUR 190.9 million at the end of September, of which EUR 67.7 million in the third quarter alone, which in itself is a record for Coface. I think it's a strong quarter, not just because of the net profits, but also because of the other metrics. Our turnover is up 7.9% at constant FX and perimeter. It's up almost 9%, 8.9% year-on-year in the third quarter.
When you look underneath that, you see that trade credit insurance premiums, which is our core business, is up 9.3%. We're actually seeing that impact of the rebound in the economy as well as the repricing that we've done last year. Talking about the pricing, it's still positive year to date, up 1.6%. As we highlighted the last quarter, the competition has been increasing quite significantly, and it's turned negative for now two quarters in a row, 1.3% cumulative. The other good news is our information services business, which we've been focusing on, continues to see momentum. We are up 13.4% year to date and 18% in the third quarter as we had indicated previously.
On the loss side, it's more of the same, I would say, with a net loss ratio which is down almost 30 points to 25.4%, bringing the net combined ratio to 56.1% for the first nine months of the year. The Q3 net loss ratio is at 31.4, which is down almost 19 points from the third quarter of 2020. We continue to see a low level of loss activity, although we probably reached the trough, I would say, during the Q3. The nine months 2021 net cost ratio is up 0.6 points versus the first nine months of 2020.
It's better than the first nine months of 2019 as we continue to invest and our variable costs are back to more normal levels after, I would say, an exceptionally low year when we had COVID in 2020. The net combined ratio is 62.4% for the third quarter. If we exclude the impact of government schemes, it's at 53.5%. As you can see, the government schemes costs are accelerating. What's happening is, the years 2020 and 2021 are starting to mature and that phenomenon of acceleration of government costs is going to continue for some time.
We'll have more on that, but it's lowered our pre-tax profit by EUR 32 million in the third quarter and EUR 57 million year to date 2021. I've already spoken about the net income totality. It brings our return on average tangible equity year to date to 13.9%. Going into page five, I just wanted to highlight some management changes. You've seen a few announcements come through. We continue to evolve and strengthen our leadership team as part of our normal activity. I've just mentioned the switch that is taking place between Carine Pichon and Phalla Gervais. Carine is going on to head our Western Europe region, one of our largest regions, so she will now appear in the bottom of this chart.
Antonio Marchitelli, who's been leading that region for the better part of four years, will stay with us. He is going specialty businesses, meaning. Also confirmed in his role, Jarek Jaworski, who is now leading Central and Eastern Europe. He has been with us for a long time and was so far the leader of our business in Poland. In the same spirit, we have appointed Marcele Lemos to lead our South American business. She has been so far the leader of our Brazil business and has been more than 20 years in the credit insurance space.
For the record, I just want to point out that out of our seven regions in Coface, we now have four of them led by women, representing about 74% of the total turnover of the company. I think we're demonstrating that we're taking gender diversity very seriously, and not just in support functions, but also in key operating roles for the company. Moving on to the pages that you are more familiar with, page seven just highlights some highlights on the growth story. You can see the total growth at 7.9%. I've already mentioned that trade credit insurance is up 9.3%, all other things being equal. We are seeing positive client activity. Business information sales, I think that's encouraging at 18% in the third quarter.
Factoring, another one of our important adjacencies, up to almost 11% year-to-date and more than 10% in the third quarter. We're seeing finance volumes rebound in line with the economy. One of the corollaries, I would say, of having a low level of losses is that third-party collection revenues are down, and I think that's pretty understandable. They're down 5.3% year-to-date. We're seeing the same phenomenon when it comes to fees collected from our insured clients, as collection fees are also down, and that's driving our insurance-related fees divided by earned premiums ratio down for the quarter, actually for the first nine months of the year.
When we take a look on page eight at the geographies, you see that we have actually a very broad-based recovery in terms of our volumes with some really nice growth numbers across the key regions here. Western Europe is up 6%. Northern Europe almost 11%, 10.6%. Central Europe up 10%. Southern Med and Africa above 8%. North America, which has been one of the more volatile markets, is up 2%, and I think they're seeing some recovery. Asia Pacific is up 5%, and Latin America is having an exceptionally high 18.8% growth on the back of prices.
You know that our business there is mainly driven around agro food, chemicals, raw materials, and as you know, there's been quite a lot of price appreciation in these spaces, which is helping our Latin America business see some pretty nice growth. On page nine, we look at the usual operating metrics. You can see that it's still a year of strong performance for Coface. In terms of new business, we're having the second-best year in our history. Not quite as good as 2020, but definitely continued growth. Retention rate is close to our highest. We are seeing a bit more competition as we speak, and I think I've already highlighted that.
You're seeing it as well when it comes to price, which is still up 1.6% year-to-date, but has been going down. I mentioned that already last quarter. During the third quarter, our prices have gone down about 0.7%. Still positive year-to-date. Then clearly, we are seeing, at the bottom of the chart, the rebound in terms of the economy, with the volume effect being the growth that we get from the growth of our clients' turnover being up 5% from last year-to-date. That's, again, in line with what we had indicated in the second quarter call.
Looking to the risk slide on page 10, you can see that we're having another quite extraordinary quarter in terms of losses with 16.9% loss ratio before reinsurance and including claims handling expenses. Operationally, we are seeing a low level of activity on large losses and low frequencies. We do believe the low point in the cycle has been reached probably at the beginning of the quarter, the last quarter, Q3. In this context, we've not changed our reserving policy. What you see on the bottom right-hand is the opening of the 2021 new vintage, which is now lower at 70.5%, reflecting what's happening as the year starts to develop.
You also see some very large boni coming from the prior vintages at 47.9%. At this point in the year, these boni come about two-thirds from the underwriting year 2019 and one-third from the underwriting year 2020. That matters, as you know, since for a good chunk of 2020 and the H1 of 2021, we have been protected for about two-thirds of our book by government schemes. I'm talking mainly France, Germany, Italy, and U.K. These government schemes mean that we're immunized against losses, but also, I guess, against gains and boni when it comes to these vintages.
That's why you will see that the cost of government programs has increased, and we do expect this to continue for another few quarters. It's temporary, but it doesn't mean we're not performing. It just means it's going to weigh on our upside for that period of time. On page 11, if you take a look at losses by region, I think the chart is pretty clear. It's quite an incredible picture. You look at the four largest and most stable regions at the bottom of the chart, and they're all below 30%. Central Europe at 16%.
If you look at the more volatile markets, which we typically place at the top of the chart, well, clearly, they're very, very low and all in the teens, with Asia back at 11% and Latin America at 8.9%. On page 12, we show the quarterly development and the story's even more spectacular with, you know, Western Europe, Northern Europe, and Med and Africa well below 30%. Central Europe, North America, Asia PAC, and Latin America are all at close to zero with even a negative loss rate for Latin America as the year is rolling out much better than we had anticipated. If we look at page 13, I'm going to the cost slide now.
You can see that our costs are up about 12% quarter-on-quarter from Q3 2020. You need to keep in mind that 2020, we were right in the midst of the COVID crisis, so pretty much on lockdown. This was a tougher year of course for Coface. Meaning T&L was down. We had lower bonuses, lower volumes. This year, we are growing again, actually at a pretty fast rate. Variable costs are up. Bonuses and compensation are going back up, on the back of a very strong year. You can see that our cost ratio is marginally up from the first nine months of 2020, and there's a couple things going on here.
One, we are investing in our information business, and I've highlighted this already a few times. That's costing us about 0.5 points of cost ratio. We are seeing lower debt collection fees, as I've already explained, linked to low claims, and that's costing us another 0.5% of cost ratio. At the same time, the business continues to drive operating leverage, meaning that a growth in our premium is higher than the growth in our core operating costs to run that business. Our first nine months costs have gone up by 3%, whereas the revenues have increased by 5%.
When you put it all in, it means that our cost ratio at 33%, you can see that on the bottom right-hand side of the chart, is just barely higher than what it was in the first nine months of 2020, but is lower than a more normal year as a reference, which is 2019. With that, I'm going to turn it for the last time to Carine to take us through the rest of the pages.
Thank you, Xavier, and good evening, everyone. Happy for my last call to comment these figures now. As usual, I will comment page 14 reinsurance results, which, as previous quarters, reflects very low loss activity, just being described and also public schemes. Cost of reinsurance, you see that on the bottom, is around EUR 164 million. EUR 57 million is linked to public schemes, and I will come back more into detail in the slide afterwards. Globally, loss ratio being low, I mean, it's a higher cost for us. Premium cession rate at 43.4% is up by 0.7 point compared with last year.
Whereas we have a lower cession rate on claim side, mainly because we are releasing important reserves on underwriting year 2020. Higher cost of reinsurance because of low loss activity. On the public scheme, which we have a dedicated slide just afterwards. Recognition of government schemes impact is accelerating. We have two ways to look at this impact. The first one on the top left is on combined ratio. To remind, in blue because that's usual graph we show you, but in blue you have the combined ratio published, and in green is the combined ratio without public scheme. What you may see is that up to Q2 2021 included, the impact of government scheme were positive on the combined ratio.
Now it has completely the contrary in Q3 2021 because more or less we have seen the I mean all premiums around that, but now we have reserve release that we are giving back to the government. It is also accelerating on pre-tax profits, what you have on the bottom left, where you see that we have started to be negative in Q3 2020, and it has been accelerated between EUR 10 million and EUR 15 million up to June and EUR 32 million in Q3 2021. Clearly the cost to Coface partly offsetting very strong profitability are likely to increase in the coming quarters. Why?
Because in country where schemes are in place, the majority of potential future reserve release, which are attached to underwriting year 2020 and up to mid-2021, when government scheme ended, but this potential of future reserve release will benefit to governments. Continuing now and looking at the net combined ratio slide afterwards at 66.1%, so record low loss ratio. On accumulated basis on the first nine months of this year, you see that cost ratio is slightly up by 0.6 points, but clearly improved compared with, I would say a reference year in 2019 by one point.
Net loss ratio also improved at 25.4%, so around 30% decrease compared with last year, reflecting a low level of loss. On a quarterly basis, which is the graph behind, 62.4% is the combined ratio for the Q3 2021. Loss ratio at 31.4%, which is up compared with previous quarters. The fact that it is up is not because the loss ratio before reinsurance is higher. We are seeing the contrary trend, but it's because, I mean, the public schemes situation on new business more than offset improvement on past year. That's what you may see on a net combined ratio.
On the financial portfolio side, I have nothing specific new compared with previous quarters. We have a resilient income. The average yield on the average investment portfolio without realized gain is at 0.86%. End of September 2020, it was 0.91%, so quite similar, resilient investment income. We have realized some gain in this quarter on one specific real estate fund. It's a little more than EUR 4 million. Maybe you may see that the investment portfolio is growing due to strong operating cash flows, and we continue to progressively deploy our excess liquidity.
I will say strong operating performance takes clearly on a low combined ratio and a resilient investment income. Leads page 18 to a current operating income at EUR 266 million. Tax rate at 23% on this quarter, quite similar to before. We have an accumulated tax rate at 24%. Net profit at EUR 191 million, clearly multiplied not so far by 5x nine-month 2020. What is clearly more relevant is to compare that net income to 2019, pre-crisis level, and it's +63%. Significant increase of profit compared with 2019 too.
Page 19 is our return on average tangible equity. 13.9%, clearly on the back of a huge increase coming from technical profits, with a strong underlying commercial and profitability level. Financial result is driving also growth but at a lower extent. Our equity are up above EUR 2 billion now on the back clearly on this good net income results. That's for me to comment that. Now I leave to Xavier the key takeaways and the outlook.
Thanks, Carine, and thanks for this contribution. On page 21, I mean, when it comes to, you know, kind of looking at this quarter, clearly we reached a record in terms of profitability, and on the back of two key trends. One is we're still seeing low claims across all regions. Secondly, more importantly, I think, we're continuing to see strong operational performance from the different areas of the business. In terms of the economy, it's been rebounding throughout the summer. As you're aware, we're facing some uncertainties, sporadic flare-ups here and there of COVID, so it's not completely over.
We are seeing supply chains that have been disrupted during COVID having trouble getting reorganized, and that's gonna take some time. It's generating cost inflation. It's generating delays in production. It's disrupting the world as we knew it before COVID. I think the central banks and states have now begun to remove the support that they've provided during COVID. They're eager to get the economies off of the support line. That's starting to happen. We do expect insolvencies as a result of both this withdrawal of support and of course, some of these disruptions to normalize. We think the most likely scenario at this stage is that this will happen progressively.
As I've already highlighted, you know, in this context, the potential reserve releases that would be attached to underwriting years 2020 and H1 of 2021, for the reasons that we've described, would mostly benefit to the governments who sign the schemes, and therefore, it would weigh on our numbers in terms of capturing some of that upside. We continue to implement our Build to Lead strategy. We, you know, we really haven't changed what we're thinking about and our priorities. We're navigating, I would say, what is in front of us tactically, with resilience and I would say with agility. I'm encouraged actually by the resilience of our core credit insurance business.
We've demonstrated another strong quarter of growth in our adjacencies. We're seeing some momentum here. I think, you know, I can kind of sum it up. I think the company's doing well, although I would say over the next few quarters, we will be immunized. I think that's probably the word, you know, fits best here, in terms of benefiting from upside from the contract that we signed with the governments. That's pretty much the story. With that, I'm gonna turn it over to the Q&A session.
Thank you, sir. Once again, if you would like to ask questions. Just press the star one, and if you want to cancel it, just press the hash key. Once again, please press star one for questions. Sir, your first question comes from the line of Michael Huttner. Please go ahead. Your line is open.
Fantastic. Thank you very much, Xavier. Thank you, Carine. Again, amazing results. I know the course kind of turns. On that, which year would—what's coming up now, so the next couple of quarters, what do they look like 2019, 2018, 2017 or. Well, hopefully not 2020. Just as a feel for how we can gauge, you know, the progression. My feeling, here I may be wrong, is because you benefit a lot from the raw material cycle that in fact we might continue getting positive surprises. But maybe I don't know if you can say in the next. Then on the information services, you're saying extra investments.
I just wondered, maybe can you give us an indication of what the profitability of this business is now, either as a number or as a margin or, I don't know, something? That'd be really, really helpful. I imagine in a couple of years, we will have to put it separately in the valuations. I don't know if we can do that yet. I guess, how much money will you pay as dividend? Sorry, it's a really stupid question, but that's all I have. Thank you.
Thanks, Michael. Interesting questions. I mean, first of all, on your first question, I mean, we typically, as you know, I mean, I'm gonna have to say this again, as frustrating as it is, we don't provide forward guidance. I think your point, we are in an economy that's rebounded pretty strongly after COVID, and there's some pent-up demand out there, and you're very well aware of this. There's inflation in raw materials and commodities. There's also disruptions and, it's hard for car manufacturers to find chips and be able to produce the car, so they're just not selling. I think it's a mixed bag. I mean, it's growing. It's probably gonna slow somewhat.
Question is whether the consumers who have accumulated so much money during the crisis are actually gonna spend that money. You know, I think that's really the question here. I don't have all the answers. Then how COVID, in the end, ends up. Is this the end of it? Are we gonna see flare-ups? Is there gonna be some kind of a new strain coming through? I don't know. I think we have more tools in the developed markets. I think the non-developed economies are still you know iffy. What I would say is it's not a bad environment for Coface to operate in. I mean, there's uncertainty, there's risk, there's movement, there's stuff.
That's what we are here for. You know, I would just tell you that for that much. In terms of the information business, I am, as I said, encouraged by the fact that it's growing. It is a profitable business. I'm not gonna give you the margin number. We've not disclosed the individual margin numbers of each one of our product lines. I mean, maybe someday if we have to value that separately, we'll have to make a change, but it's not the case today. We are making thoughtful investments, but we are making determined investments in this space because I think it's a great way for us to monetize the knowledge and increase the range of services that we have for our clients.
All by using the same infrastructure and the same knowledge base and the same expertise pool that we have for trade credit insurance. That's probably as much as I'll tell you. Your last question was about the dividend. Well, unfortunately, we really haven't changed our strategy or our priorities, funding core growth, then funding external opportunities for acquisitions if there are some, and then finally returning excess capital to shareholders. What I'll tell you though is, I mean, you know that we've already made EUR 190 million for the first nine months of the year. Calculating 80% of that is pretty easy.
Our policy states that we will return at least that going forward. Given the level of solvency, which as you know, is strong for the company. That's as much as I'll be able to answer today.
That's brilliant. Thank you so much. Thank you.
Sir, your next question comes from the line of David Barma. Please go ahead. Your line is open.
Yes, good evening. My first question is on coming back on the comments on the outlook and trying to understand the drag from the prior year releases in the next quarter. Just wanted to confirm a number that you gave, Xavier, in your introductory remarks. Did you say that only one-third of the PYD in Q3 was from 2020? If that's the case, should we just expect a multiple of the number you provide on slide 15 for the drag from government schemes?
Secondly, on capital, I know you don't provide solvency numbers at Q3, but can you give us just a directional view of where capital is now, given the many moving parts in the H2 with growth, the scheme still impacting that, and yeah, that's it from my side.
Yeah. Okay. Well, yeah, I did mention that year to date, when it comes to the boni that we're getting from past vintages, about two-thirds came from, say, mainly 2019 and a little bit of prior years, and one-third from 2020. I mean, naturally as 2019 runs off, that proportion is gonna change, right? In terms of the capital position, you know that we ended the H1 of the year at a very strong point. I mean, we're not changing our approach. We're not changing the discipline we apply to handing out credit limits. You're seeing that our business is growing, so clearly, we have to fund that growth.
I mean, that's. There's no mystery around this. At the same time, we're not changing our discipline that we have. Our premiums are growing in line with, you know, with the activity of our clients and the risk that we take. I mean, overall, I do still expect us to be, you know, in a good position. We do, as you point out, we do not provide these numbers in Q1 and Q3, so we'll have to wait until the end of the year to give you an exact figure on this.
Thank you.
Your next question comes from the line of Benoît Pétrarque . Please go ahead, your line is open.
Yes, good evening. Yeah, a few questions on my side. Yeah, just coming back on the government schemes and the previous year releases. When do you think you will get most of your visibility on the 2020 vintage? Could that be already in the fourth quarter? You know, I wanted to understand the process. You know, do you get a push of any kind from governments to try to settle losses a bit quicker than normal? Because releases can take quite some time, and I was wondering if that will be a very slow process release or that could be coming in one or two quarters, i.e., Q4, Q1.
Can you help us to kind of quantify the pressure from that on earnings going forward? Any help will be very useful there. Second one is on the pricing pressure. I was wondering, you know, where it comes from, any particular geographies. Is that more Europe or is that broad-based pressure? Then the last one, I was just trying to think about 2022. It's like we're almost there and could 2022 be a kind of normal year where, I mean, obviously we do see government schemes will be out. Could we think about 80% normalized combined ratio in 2022, as you see it now?
Without providing any guidance, just, could that be a normalized year? Carine, thank you very much for all the time you spent with us, and good luck.
Thanks, Benoit. I mean, let me take them, maybe the shorter one, the price pressure. I mean, you've seen the loss numbers, right? I mean, they're low everywhere. I mean, the price pressure is a normal reaction, I think not just from the industry, but you know, if you're a client, if you're a broker, you're gonna basically try to use this to negotiate better prices, right? It's pretty broad. I don't think it's specific to any particular place.
In terms of the government schemes, your question about timing, I mean, I mentioned that, going back to the prior discussion, about a third of our boni so far were about year 2020, which means two thirds were year, call it 2019, right? If things are logical, a year from now we'll be about in the same position regarding year 2020, right? I haven't really disclosed anything fantastic here. That's maybe the way to think about timing. When it comes to what 2022's gonna look like, you know, I think so far we've had everything wrong, right?
Every time we've tried to think about the crisis, if you remember beginning of 2020, everybody was thinking this could be the mother of all crisis. There's still a lot of uncertainty. What I just think is the most likely scenario, which I've described, which doesn't mean it's gonna happen 100%, but it seems plausible that you would see some kind of a withdrawal of an increasing withdrawal of government measures. You're still gonna see some supply chain disruptions for some time. I mean, everybody's saying now it's gonna take a year, maybe a little bit more. You're gonna have social tensions, geopolitical tensions. Yes, I do expect the losses or the insolvencies to pick up some speed.
At what speed? I don't know. I mean, I think that's what we do well in Coface, is we're able to navigate an environment which is not easy to navigate because it's multi-factors, it's multi geographies, it's multi sectors, and that's what we do. That's our job, you know. I don't know if I'm helping you, but at least I'm giving you a sense that this is exactly what we do. This is exactly what we do because it's this uncertainty that we actually have a business. Yeah.
Right. Just conceptually, you have a gap on combined ratio with and without schemes of about 10 percentage points, that could become a little bit more, if I understand correctly, going forward, but let's say I assume 10 percentage points. So is that conceptually correct to think that you need to generate an underlying at 70% to get to an 80% level next year? 'Cause I guess there will still be a drag from 2020, potentially slightly, well, more significant in 2022.
Yeah. I mean, I'm not sure I understand what your question is here. The 70/80, what is this? I'm sorry.
Well, your normalized level is 80%.
Yeah.
You need to. You know, I assume you will have a 10 percentage point hit on from the schemes, so you need to have a kind of core at 70%.
You know, the trick here is that the hit, I don't know how I can call it, whatever, the cost is probably better. Cost of the government programs is a function of the level of losses, right? Because say if there were zero losses, all of the reserves would go back to the governments. If there's high losses, there will be low cost to the government, so that's a variable cost. You understand? In a way, it's kind of like we're immunized. You know what I mean?
Yeah. Yeah.
For the-
Yeah.
portion of the business which is held under those schemes.
Yeah. Yeah. Makes sense. Great. Thank you very much.
Sir, your next question comes from the line of Benoit Valleaux. Please go ahead, your line is open.
Yeah, good evening. Two questions on my side. First one is related to this competitive market or environment, just to see with you if you see any increase in the self-insurance from your customers, any change in terms of behaviors of acquiring, I would say, credit insurance coverage. In terms of this, maybe it's not a question related to Q3, but I mean, do you see or do you fear any new kind of disruption meaning maybe some fintech which are developing some new kind of business model, which could compete with some of your business lines. The second question is related to reinsurance coverage. I don't know if you can...
What can you tell regarding the next renewals issue? What do you expect in terms of pricing, and if you might increase your retention for the part of the reinsurance business which comes to the renewals? Thank you.
Yeah. That is a good point. In terms of self-insurance, it's always been something that's around. I mean, there are companies every year that make the decision to go and self-insure. They tend to be two categories. One is the very large groups that make the investments, and they usually have very stable businesses, so they know their clients very well, and they make the investment to build up the infrastructure themselves to do this. The other ones are companies that are small, that haven't been with credit insurance very long, and they just happen to either run short of money to pay premiums or, you know, they have other priorities and they decide to self-insure.
Typically, in a low loss environment, yes, you're seeing more temptation, I would say, to go down that route. That tends to reverse when things get bad, right? I mean, it's like you buying some kind of insurance product that's not mandatory. If you perceive that the risk is low, you'll be more tempted. There's some of that going on, which to some extent is marginally impacting our retention. In terms of the fintechs, I've had the opportunity to talk about this a few times. There's two things fintechs can do.
They can try to compete with us in the core business, but then they have to be insurance companies, and they're not fintechs anymore, so they tend to be. They quickly become big and regulated and all that stuff. The other one is to provide information or related services that would allow a company to self-insure better. That's what we're doing because I think our infrastructure, you know, having data on more than 100 million companies in 200 countries and being interfaced with so many systems and having the experience of being able to understand what these numbers mean, and having sometimes tens of years of underwriting experience, that's hard to reproduce. I think fintechs are interesting in that they will help us improve.
They will improve some processes. When they do that, it's our challenge to go and do better and maybe absorb some of that technology into our own operations. I've said this for five years. I don't think anything different is happening, quite frankly. When it comes to reinsurance, it's too early here to say what's gonna happen. I mean, clearly, if we're having good results, then the insurance industry is having great results on the back of that. There's a negotiation to be had here, and it's too early to say which way it's gonna go. We have our opinion, and the reinsurers have theirs or their opinions, and we have to confront these two.
Okay. Thank you. Thank you, Carine.
Sir, your next question comes from the line of Thomas Fossard. Please go ahead, your line is open.
Oh, good evening, everyone. Two questions. The first one would be related to your solvency position. You're not providing the number at the end of September, but I guess that you're still in a pretty healthy capital position, probably holding some excess. Given the fact that you might be a bit limited at the present time in terms of, you know, giving back this excess, because of the constraints you may have on in doing share buybacks at the present time. I mean, does that mean that actually you should think about deploying this capital in potentially in acquisitions? And obviously, you're growing quite significantly and fast in the information business.
I was wondering if this was potentially one area where you could focus your attention in terms of inorganic growth. The second question may be for Carine, we'll be back to slide 15. Looking at the chart, bottom chart, it seems that the acceleration in the cost of the scheme is around EUR 20 million pre-tax per quarter. I mean, would this be correct that, I mean, with unchanged claims level, actually 20x four quarters mean that you will end up with a pre-tax profit which will be running EUR 80 million lower than they've been running this year, so EUR 60 million pre-tax.
If you're ending up the year at 210% or 220%, does that mean that with unchanged loss experience, the 2022 net income will be around EUR 150-EUR 160? Thank you.
That's a very, Carine, I hope you enjoy the question.
Yeah, yeah. Yes, thank you. I like this. I thought it was my last question, Thomas, but thanks.
Look, in terms of the first question, I'll let Carine answer the second one, of course. In terms of the first question, we've always said that we're open to acquisitions. We have actually done a couple acquisitions. We're very happy we did them. They're working out very well for us. We're always open, but we're not ready to buy anything at any price. It has to make a lot of sense. The price has gotta be right. We've gotta see how it fits well, in terms of being a bolt-on or an extension. We said there's two things we'll do.
We're either gonna add scale, and this is what we did in the prior acquisitions, or we are going to add skills, things that we don't know how to do well ourselves, that somebody else is gonna do better and give us that capability. I don't exclude that we could look at other things than just traditional credit insurance. Again, the price has gotta be right and it's gotta fit in. You know that in terms of information or other businesses like this, the multiples can quickly become quite impressive. It's about finding that right thing that I just described. Carine, you wanna take question number two?
The question really means, first, you know, that we don't give any forward-looking statement, Thomas, but also that it will depend, I think, as you told before, the level of claims going forward. What we know, and that's why we mention it, is that the cost for the government, it will depend on the level of reserve release for 2020 and beginning also the first part of 2021 because that's the scope of the guarantees. For 2020, we already told you just before that we have only, let's say, one- third of the reserve release up to end of September, which is into that. There is still a part which is not yet there.
2021, it will really depend on the level of flow of loss, knowing that when we look at the opening year for 2021, it's around 70%. Really it will depend on that. Just maybe have in mind that in general, it's between the start of an underwriting year and the most part of the development, it's maximum two years. I mean, it's something we will have to see in the year to come.
Thanks, Carine. Looking at the chart, it seems that the blue arrow is indicating that actually this 32% is going to maybe go further down in Q4 2021. I mean, it's unlikely to stabilize at 32%.
If you see what I mean.
Yeah.
I mean.
No, but what I say, I mean, it is, what is clear is that as of today, to make it simple, we don't see so much premium to the states because government schemes have ended at the end of June. We may have some, I mean, end of premium, but not so much. What will happen is what will happen to the level of IBNR we have and how much we will release. That's the question in front of us. A good news could be that if level of loss ratio is still low, it's good news, but then we would have to give part of it to the government.
You have a big, yeah.
The extent of the government cost will depend on the extent of the release on UY21.
Okay.
Sorry, uncertain.
Yeah, so it
The lively discussions we had in the past.
It makes the short term. I mean, these government programs are extraordinary in that it's the first time we have this in, right, in the balance sheet. It does introduce something different and harder or unusual, I would say, in the short term. I just want to say again what I've said earlier, which is, this is going to be temporary. Underlying this, you know, if you think a little bit more long term, we have a business here that's going pretty well.
You yourself will be earning, I mean, you know, if things are going well. I mean, of course, the government will benefit, and they will have their profit share of it. I guess that you've been also pretty cautious yourself in reserving all those years. I mean, at the end of the day, you should benefit as well from still pretty healthy reserve releases in the coming years.
Well, I mean, again, there's a short-term effect here, which, once it's gone, we will obviously, it'll be a lot simpler to model, yeah.
Okay, fine.
Once again, if you would like to ask questions, just press star one. We got a follow-up question, comes from the line of Michael Huttner. Please go ahead, your line is open.
I had three questions. One is re-checking. The other one is, the other two are numbers. You talked about the government schemes and the boni. Sorry, I'm stuttering. I'm really sorry. Is there a similar impact in terms of how the reinsurance, the traditional, the normal reinsurance contracts work? Or are they much more kind of smooth and we don't have to kind of watch out for humps or something? The second is the initial loss pick in at nine months was 70-something%. Before it used to be 73%. Is it significant in any way?
The last one, and that's the cheeky one. I'm really sorry. You've got all these managers, which is fantastic. When I arrive at a new place, I'm always thinking, "Well, I'm king of the castle. I can do what I like. You know, I can grow, and I know everything better." Is there a risk that they're a little bit enthusiastic in growth? Thank you.
Who is enthusiastic? I'm sorry. I didn't get the last-
You said you had new managers in the various units, and you had, you know, in some region, you know, people who are, maybe they've got experience, but they're actually new in post.
I'll take that one. Maybe I'll let Carine handle the other two. We've always changed people. I mean, since I joined, there's always been a healthy, normal rotation of people, right? I think this is part of the normal life of a company, where managers get to a certain point where either they wanna do something else or you know, we think that there could be a benefit for a change. I mean, it's all. I think it's pretty normal life. We haven't done anything during the COVID time. We were kind of like managing the crisis and kind of hunkering down. It's not unusual that we would see a little bit of activity on that front.
The first question, what was that? I'm trying the numbers.
The reinsurers, you know, you highlighted-
Oh, the reinsurers.
How the governments are benefiting a lot from the reserve release, the boni.
The reinsurers, first of all, it's not like we have reinsured 90%, right? It's more like it's mainly the quota share is more like a 23% level, right. Essentially the reinsurance schemes, they work where if you have a good year, then it's a quota share, then that quota goes to the reinsurer, right?
If I may interrupt, Xavier, if I understand well your question, but I'm not sure I understand well, Mikael, your question. Private reinsurance goes after state reinsurance. It means that for 2020 and 2021, and H1 of 2021, I mean, we apply for external government schemes, and then we apply our current and normal external reinsurance. It means that they have had lower, in a certain way, premium ceded because of the government schemes. It has been stopped starting first July of this year. I don't know if it was your question, but that's-
Yeah, yeah. No, no, that's probably a better answer than I could have asked, so thank you. And the 70%?
The what? Sorry.
The initial loss ratio in the nine months is 70%, and it was previous quarter period 73% or 75%.
You mean the opening loss ratio.
Yeah.
For underwriting year 2021? Yes. I mean, it's also. I mean, it's usual reserving methodology and model, and in fact, we apply them and see that because of low loss, we have a lower opening loss ratio. That's what happened, because of the loss activity, which is low.
May I ask a last question? I'm really sorry. I remember when you mentioned in the past the movements in solvency ratio, you explained that it partly reflects the expected loss experience. In that, is there something to say? Could it lead to a movement which we're not expecting in terms of solvency ratio?
We are anticipating loss ratio, but you know, not the accounting one. You know it's the best estimate in Solvency II. I mean, best estimate is also recalibrated every quarter based on the current losses. We are re-adjusting it. That's what I can say. Yes, it's the mechanism is this one. We are not expecting anything specific as of today, but that's the way it works. We will re-adjust it at the end of the year based on what we would have seen in the last quarter.
We are with an internal model now, right? Essentially, a good chunk of our solvency is determined, or capital requirements is determined by the exposures that we take.
Yes. The best estimate is used for the equity. You're right for the-
Yeah.
Solvency capital level. For the equity level, which is in front of that, it's more or less up based on best estimate calculation.
Yeah.
Thank you so much. Thank you.
No more questions at this time. Please continue.
Okay. We're right on the hour. I mean, like, these calls are becoming perfect. I just wanna thank you all again for attending. I wanna thank Carine for her collaboration publicly over my entire tenure as the CEO of Coface. Wish her luck in her new role. Welcome, Phalla. Thank you again for joining and giving you a rendezvous, as we say in French, for our quarterly earnings call, which will be in February, right? For the totality of the year 2021.
Thank you, Xavier. I take the opportunity, and thanks to all you guys. It was a pleasure. Still, I will follow in case the stock. I'm interested in indicate to create value for Coface. Thank you everyone, and thanks Xavier for the support.