Assicurazioni Generli Adr

Good afternoon. This is the Coral School conference operator. Welcome and thank you for joining the Generali Group nine-month 2023 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Fabio Cleva, Head of Investor and Rating Agency Relations. Please go ahead, sir.

Thank you, operator. Hello, everyone, and welcome to our nine-month 2023 results conference call. Here with us, we have our Group General Manager, Marco Cezanne, and our Group CFO, Cristiano Borean. Before opening the Q&A session, Marco and Cristiano would like to share some opening remarks. Marco, over to you.

Thank you, Fabio. Hi to everyone. Welcome on the call. And let me start by saying that our third quarter financial result confirmed the group operational delivery and the ongoing implementation of the action aimed at addressing the macro environment. which, as you all know, has become more uncertain after the recent geopolitical development. I will start with the client, as usual, and we are very pleased that customers value positively the action that we put in place to enhance our value proposition. In the third quarter, 23, we further consolidated the number one position in our peer group in terms of net promoter score. In addition, retention is confirmed at 89% and more than 50% of our customers are relying on Generali to cover at least two or more of their needs. Let me also touch an important point here. As most of you have seen in the news, this is a difficult time for some of the communities in some of the countries in which we operate and due to recent weather events. We are very close to this community. We have defined several initiatives and we are present on the ground to support people. And I would like to thank all of our colleagues and agents who are working hard to guarantee full support to our clients. Let's now see briefly our business, and we start with life. So in terms of volume, the third quarter saw a continuation of the industry trend observed year-to-date. Protection reached €3.6 billion of net flow, while Unitlink achieved around €4 billion. Protection continued to generate around 40% of our new business value. Concerning lapse, we observe an improvement in lapses in Italy, especially in the bank assurance channel. You know that in this year, this is the channel that suffered more. And we have seen a gradual normalization of the outflow in France. The net outflow numbers were impacted also by the cancellation of the quasi-money market product in Germany and by some planned expiry and low-margin bank assurance product in China. These specific outflows have had an immaterial impact on the CSM, as Cristiano will explain to you in a moment. The surrenders in our life portfolio during the third Q were 1.6 billion lower than the second Q, which led to halving of the net outflow in the third Q versus those recorded in the second Q. Our business unit have adapted to meet the changing customer appetite and preserve market competitiveness. In particular, we are continuing to update our existing product and launching new products more attractive in the current market context. Let me also say that we maintain a strong focus on the new business underwriting discipline, on protection and health business, and on capital-like products enhanced by protection riders. Our strategy will continue to be oriented to bundle solutions addressing multiple customer needs within a single product in line with our lifetime partners' ambition. These tailor-made solutions are better suited to respond to client needs and are also less exposed to competition from government bonds. Let's look now to P&C. So P&C business growth has confirmed the trend seen year-to-date. So the third quarter 23, gross return premium were up 11.9%. At half-year 23 presentation, we disclosed an increase in the average premium in our retail and SME book of 6.4%. At nine months, the average premium was up 6.9% compared to nine months 22. With growth-based improvement across the portfolio and an acceleration in motor where the average annual premium increase has improved from 3.2% at half-year to 3.9% at nine months. These figures are reflecting both a generalized upturn in personal line and will continue in the coming quarters, and I would say even years, as we have entered in an environment where adaptive pricing is part of our ongoing strategy. Therefore, we will continue to increase tariffs in line with our granular view of claims inflation and frequency. We are also continuing to implement the technical measures necessary to pursue profitable growth, especially in terms of portfolio enhancing and claims management. Clearly, the third quarter recorded significant weather events, in particular in the hailstorm in Italy in July and August. The unusually nut-cut burden reported in the quarter mainly derives from the so-called secondary perils and, of course, from organic and inorganic growth of portfolio. Nevertheless, our undiscounted current year loss ratio, excluding NatCat, remains strong and improving at 67.2%, with a 70 bps improvement versus 9-month-22%. Moving to investment. So our investment yield remained very good versus in-force book and market at 4.3% in life and 4% in PNC. We increased cash buffer and reduced bond duration. On listed equity, we maintain a prudent approach and we tactically reduce exposure by harvesting gains after the positive performance here today. A sizable portion of the residual exposure is edged via derivative options. In credit, we confirm our selective approach with low exposure to more cyclical sector and highly leveraged companies. On private asset, we have been more selective in terms of new commitment, balancing attractive opportunity, especially in private debt valuation with ILM constraint. Finally, let me underline that our exposure to Israel and the Middle East, both in terms of business and investment, is immaterial. In conclusion, this result of the third quarter of 2023 confirmed the group's continued ability to deliver solid growth and execute on our strategic plan, in line with our lifetime partner purpose. As we move into the last quarter of the year, we are confident about the right direction on which we are steering the group. So thank you for your attention, and now I hand it over to Cristiano.

Thank you, Marco, and hello, everyone. Let me provide you some color on our nine-month 2023 financial performance to complement the perspective on the underlying business trends and in addition to what we published on our website this morning. Let me say first of all that the numbers show a very strong and resilient performance. Our top line continues to grow in our key areas of focus, namely non-motor P&C. The non-motor gross rate and premium growth continue to expand, posting a 10.1% year-on-year growth, helping further the rebalancing of our P&C business mix. Excluding the contribution from Europe Assistance Strong Growth, no-motor GWPs have risen by 8%. Our motor P&C top line is also showing clear signs of improvement, as the ongoing tariff strengthening continues to progressively filter through the income statement. P&C has recorded a significant increase in operating result from 1.43 billion a year ago to 2.15 billion at nine months 2013, no, 2013. This increase stems from three main drivers. The 350 million increase in the undiscounted operating insurance service result. The 416 million increase from discounting. The 45 million reduction in the P&C operating investment result. These results embed the significant 875 million undiscounted NatCat experience, of which 687 million only in the third quarter. As a reference, last year we had 559 million NatCat at 9 months. Looking at the nine months 2023 compared to the same period of last year, the current year undiscounted loss ratio, excluding net cut, shows a 0.7 percentage point improvement, despite a higher impact from man-made losses, in particular in the second quarter. Focusing on the discounting, let me share with you that thanks to higher volumes and interest rates and also reflecting the NatCat experience, we now expect the current year discount benefit to exceed the high end of the 750-800 million guidance for the full year. The prior year release for the quarter is broadly in line with the previous quarters at 2.8 percentage point. Moving to life, the operating result is broadly stable year on year if we exclude the 60 million one-off we recorded at half year 2023, with an improvement compared to the previous quarter. Life net inflows were minus 1.2 billion, with a visible improvement compared to the previous quarter, also thanks to lower surrenders, which are showing a reassuring trend of gradual growth. It is also important to emphasize that a portion of the outflows recorded during the third quarter is associated to low-margin products such as pseudo-banking products in Germany, with a marginal amount of embedded CSM. The third quarter 2023 new business volumes expressed in PVMVP terms grew by 7.8% compared to the same period of last year, reversing the trend observed in the previous two quarters. Thanks to this strong performance, at nine months 2023, the live new business was minus 8.6% year-on-year, with a significant improvement compared to the minus 14% at half-year 2023. The year-on-year change reflects primarily the impact of higher interest rates on the discounting of future premiums. The volumes in terms of annual premium equivalent, which is not affected by the discounting impact, are stable compared to last year. The normalized CSM growth was around 3.8% on a nine-month basis, thanks to the contribution of a strong and predictable expected return, with the new business CSM broadly offsetting the CSM release. In the fourth quarter, we expect a stronger new business CSM, not affected by the third quarter seasonality. Therefore, the year-end 2023 normalized CSM growth will likely exceed the 4% guidance we gave you. I would like also to provide you an overview of the main moving parts from the 5.1 billion operating result to the 2.979 billion adjusted net result. Let's start with the non-operating investment result, which was 240 million at the nine months 2023. Let me highlight that the ongoing portfolio turnover that we are performing within our asset allocation strategy is on the one hand reinvesting the proceeds in liquid fixed income assets at higher yields, while on the other hand it is also resulting in some realization of capital losses with an impact on the non-operating investment result at year-end. Given the trends witnessed during 2023 in real estate market, I would also anticipate some potential impairment in the ballpark of mid-double digit on the real estate at cost in the P&C segment. This may impact the non-operating investment result in the fourth quarter within the context of the year-end appraisal process. Non-operating holding expenses were 453 million and were broadly flat compared to last year. Net other non-operating expenses were minus 397 million and they included 94 million euro of restructuring costs. As you know, we traditionally book the majority of our restructuring costs on the fourth quarter, and I would expect an amount slightly higher than the around 200 million we recorded at final year 2022 for year end 2023. Within the net, other non-operating expenses, we had a 77 negative million impact stemming from IAS 29 hyperinflation accounting. The tax rate for the nine months was around 29.5%, with 1.382 billion taxes paid. All these moving parts led to a reported net result of 2.8 billion euro. The adjusted net result of 2.979 billion stems from the 158 million adjustment mainly from P&L on assets at fair value for profit and loss and hyperinflation accounting. We confirm our solid capital position with the solvency ratio at 224%. The year-to-date increase reflects around 17 percentage points from the robust normalized capital generation thanks to the growth of both the live and non-live segments and one percentage point of economic variances. These effects were partially offset by minus two points resulting from the lower eligibility of part of Catholic subordinated debt, minus three points from the combination of capital movements and M&A, and minus 9 percentage points of non-economic variances. At the end of October, the solvency ratio is estimated at 222%, reflecting primarily the economic variances on spreads and equities. Thank you for your attention. Operator, we are now ready to take questions.

Thank you. This is the Coral School Conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from David Barmer with Bank of America. Please go ahead.

Yes, good morning. Thank you for taking my questions. I have two on PNC and one on life, please. So the first one on PNC, so if I look on a quarterly basis, the underlying loss ratio adjusted for discounting, for PYD, for net gas and man-made deteriorated by about 90 bps versus the first half and remains quite elevated. So can you explain what's what's happening there and when you think you'll be able to reach your previous guidance of 95% for the combined ratio. And then the second question is on the discounting benefits. So you're saying it's going to be above the the previous guidance you gave us here. Can you be a bit more precise on what sort of level we should expect for the year and next year, please? And in parallel to that, you previously said that the finance expenses should increase by about $200 million next year. Is that still the case, or should it be a bit higher? And my last question on life. So, Cristiano, you've been mentioning during the quarter that we could see some revisions of assumptions. It doesn't seem like the experience was that bad in the third quarter. But did you end up changing anything during the quarter? And if so, what were the operating variances in your CSM more forward than Q3? Thank you.

Thank you, David. The questions are all for Cristiano.

Okay. Thank you, David. Let's look at the third quarter in isolation, and let's compare it also in a progressive way in order to understand the underlying dynamic. So, first of all, let's compare the third quarter 23 versus the third quarter 22, which was the point of the highest impact in 2022 of the cost of claims, right? And let's see how this evolves. If I take the current year loss ratio and I don't include the natural catastrophe, the current year loss ratio undiscounted improves by 1.8 percentage points to 67.6%, looking only at the third quarter in isolation. And this is a first picture. Second picture, let's look at how this is evolving compared to the second quarter 23. In the third quarter, 23 in isolation. Again, if I take the combined, the current year loss ratio undiscounted, excluding natural catastrophes, I see from the previous quarter an improvement of 0.6 percentage point, which is another sign of progressive dynamics. So All in all, clearly, when I look at the 9 months 22 to 9 months 23, we already commented a 0.7 percentage point, and you know that we had higher man-made losses. What I'm trying to tell you is that we are making dynamic pictures on an evolving animal, which is the profit you would like to extract, and seeing whether the 12 to 18 months time span we explained to you is technically entering into... The numbers of the account. And if you see this, we are having a confirmed guidance on to that because we do see this improvement. Then clearly, if you tell me, are you going to stop your dynamic? No, we are ruthless. And we will be ruthless because all our actions are targeted to get towards the guidance that you are mentioning. Clearly, this is a guidance which needs the time to have the full amount of increase of tariff, a dynamic approach entering. This is for the first point. Then, related to the discounting, the number of... of the discounting guidance we would like to give you due to the fact that there are very, very simple underlying dynamics behind. There is a higher stock, both of revenues and of claims, because we have more claims due also, especially to the natural catastrophes, so means a higher discounting than expected. And as well, we have a higher amount of interest rate dynamic compared to the point we were observing. So the guidance for the final year 2023 has been shifted towards 850 to 900 million euro. So, for what regards the insurance finance expenses, we confirm the 200 million euro, if not only slightly lifting them up due to the underlying dynamics. Then, looking at the CSM movement and the lapses question, I would like to tell you that broadly in the quarter, we do have some experience variance, which is... absolutely marginal in decreasing on the order of the double-digit million euros because of low amount of difference compared to expected and because of the low value of what was exiting, taking the case of the German business, which is basically broadly zero, having 0.01% new business margin. We are also having small adjustment to the experience and also hypothesis, which is bringing together with the economic variances a net effect of minus 200 million euro.

Thank you, Cristiano. Just if I can follow up on your first question, when do you expect you'll be able to get to the 95 on discount? Is that a half-year, 24 ambition?

So, clearly, the high amount of natural catastrophe experience and the continuous experience we are having, I think you read, we commented already, but we can deep dive. We have high double-digit impact already after the nine months because there were other events. is having an effect. I stress again, in order to give a final guidance also on that, we would like to give you some more details in January at the end during the investor day, simply because there are a couple of moving parts. Number one, There is the effect of the final reinsurance and the structure of reinsurance and the impact on reinsurance and the capability to have interest of reinsurer in taking the coverage. Second, there is a changing law environment under discussion in Italy, which is imposing mandatory coverage to small medium enterprises which could have in any case something to be evaluated so we need to understand the final stuff and then also we will have the integration of the newly acquired entity so we would like to give you a better guidance when the scenario is more clear I just reconfirm that all the pricing action and then eventually Marco please integrate if you want now or later we are heading ruthlessly in order to get to the 95% trajectory because all the pricing actions are continuously adapted to that.

Next question, please.

The next question is from Farouk Hanif with JP Morgan. Please go ahead.

Hi, everybody. Thank you so much. Just following on from some of your comments, so firstly, What are you thinking about in terms of NatCat? So I know you're going to wait and see what's happening with kind of reinsurance capacity and pricing. But I think that you've already seen a move in the market. And I think the early indications are that probably not much has changed. So what do you see as your kind of longer term outlook for NatCat, at least qualitatively? And then secondly, given all these moving parts that you've had in discounting effect, how will that affect the dynamic now between finance expenses and investment income? I mean, from the models and the numbers that you gave, it sounds like there's going to be a bit of a squeeze on that before it – given the unwind effect on finance expenses. But is this made worse by the higher discounting effect that you've had in Q3? And then I guess my last question is, can you talk about the holding results? So, you know, it sounds like, I mean, it's in line with last year, but you talk about intergroup dividends from France and some other factors. I just wanted to understand how one-off in nature these may or may not be. Thank you.

Thank you very much, Farouk. The first question clearly is for Marco and then the second and the third question are for Cristiano.

So, hi, Farouk. So let me start by saying that clearly, as Cristiano has said, so after the nine months, we saw an additional event that we quantify as in high double digit. And so... we see what's next. So it's difficult to imagine what is coming between now and the end of the year. I think what you're pointing out in terms of long-term outlook is what do we expect in terms of trend and what we have seen in terms of trend and what we expect for 2024 and 2025. So I would say we have seen an increase of what we call secondary perils. That means that these type of events are becoming more frequent. And so this is something that we need to consider into our pricing action for the next year. We cannot think about – we cannot rely on the insurance market. You know, it's becoming more tough on these kind of coverages on the secondary period. So I would say we will make sure that we adapt prices on P&C in the next months, also including this type of effect. And I would say this is adding on the inflation part. From now on, I think it's going to be an ongoing exercise that we do. So we are now in an environment with inflation, so we need to – every year adapt tariffs to this environment.

Yes, Farouk. So regarding the higher discounting in third quarter, so for sure a higher amount of discounting should be reflected in a higher amount of finance expenses. It's a natural translation. It's the other side of the Libra, let's say, with a different timing. But in the investing income dynamic that you are observing has an important combination of effect which you should take into account. I would say that more than 70%, 70% around, is broadly linked to, let's say, fixed income and interest rate, purely related income part, which is following. And thanks to our investment strategy, even going above the change of rates, which are risk-free, while we are taking also in the mix asset allocation, other asset class, not only government, there is the credit spread above that. On top of that, we have asset allocation towards long-term value accretion strategies like equity listed or unlisted versus also other kind of form of private asset. Clearly, these are over the cycle increasing and giving the risk premium above the purely movement of the rate. So we are expecting, and this is the reason of the value accretion of the asset, and strategic asset allocation what you are taking over the cycle to get exactly overcoming this dynamic. It is in this context you should say, please don't forget that, for example, in the first nine months we are experiencing, for example, lower dividend stemming from our private equity investment, for example, which are explaining partially the reduction towards a normal linear purely fixed income, which is in any case something which has a longer term higher value because of this delay in the realization. On the third On the third question related to the holding another result, the infra-group dividends are not one of nature because are related to the allocation of the shareholding of our internal party, especially in this case it is related to General France also holding part of our asset management shares. So it is a recurring effect in nature, and there are a couple of positive environments of bringing further positive results. One is related to our pension management business company in Chile, Plan Vital, and another one of our activity of banking-related support in Germany through Badinia, which is benefiting from this higher environment.

If I may just quickly, it sounds like your answer on that, Kat, is we're probably not going to increase our budget because we're going to try and price it. Is that a good way of summarizing what you just said?

Well, yeah. So we are trying to – well, what we will do, we will clearly increase price also for the share of NatCat that we see as – it's difficult to call it a stable trend, but I would say for the part of the trend that we see that it's going to happen, yes, we will price and we will increase prices to adjust for that, yes.

Okay. Thank you very much.

Next question, please.

The next question is from Peter Elliott with Kepler-Chevreux. Please go ahead.

Thank you very much. First question, I was just wondering if you can tell us what impact you expect from the life guarantee fund that's being introduced in Italy from next year. The second question, sorry to come back on the discounting. You mentioned, Cristiano, about the NatCat claims. I mean, I'm guessing that some of those claims might be paid quite quickly. And I'm thinking, you know, maybe they could end up being paid quicker than the assumption that's been made in the reserving and therefore the discounting. Could you just remind us how it would work if they do end up sort of get paid back quicker? Would we see, you know, how would the sort of clawback of that discounting work, Rahul? And then the third one, sorry, apologies. I hope I didn't miss this in your introduction. But are you able to give us any more detail on the life earnings split? So, I mean, the investment result would be very helpful being a relatively large number. But, yeah, anything you can give us on that extra, that would be very helpful. Thank you.

Thank you very much, Peter. All the three questions are for Cristiano.

Thank you, Peter. I will kindly ask you to repeat the third one, which I'm sorry I didn't get, if you please.

I think it was, Peter, on the split of the life operating result by driver, correct?

Yes, exactly. And anything else you can give us that wasn't in the press release, I mean, investment results would be very helpful.

Okay, yeah, absolutely. So, life guarantee fund expectation, it is related to law under discussion in Italy. So, if we just make the mathematical what-if hypothesis of the law being approved as it is, this would entail a 40 million net impact for the next 10 years related to the actual state of the law. The second question, natural catastrophe, the speed in payment versus the assumption, I really like your question because I think from the information we give, you can understand easily that the discounted and undiscounted effect on it shows that these are very short-paying claims which are embedded in the calculation. So if we pay them before, we will have less risk. unwinding going forward because we clearly have lower reserves staying there. On the contrary, if we pay them too early, clearly they have also an impact on the cash view versus the P&L view, which clearly has a different pattern acceleration. These are the two components related to that. On the life, the split of the life earnings is basically you have 2.16 billion euro in operating insurance service result and 630 million euro in operating investment result. So the operating insurance service result is decreasing 37 million on a nine-month basis, and the operating investment result is increasing by 5 million on a nine-month basis. I recall you, but half year we were already commenting the impact we had on the reinsurance accepted business in our general employee benefits. So this is net of this 1.0. If I look at the quarter over quarter, I already commented in introductory speed that we were growing, and this is why we have this healthy direction which should be reflected also in the fourth quarter.

Thank you very much.

Thank you, Peter. Next question, please.

The next question is from Michael Hosner with Barenburg. Please go ahead.

Fantastic. Thank you very much. And well done for delivering in a clearly difficult environment. I have three questions. One is on aggregate reinsurance. The second is on net inflows. And the third is maybe the comment in the press release which I saw. I didn't understand. It's towards the tail end, page 8, near the bottom. The Board of Directors approved the policy, et cetera, et cetera. So on the aggregate, could you give us a feel for what the current aggregate is? And, of course, I'm assuming it is attaching now. And how that could be renewed next year? This is the aggregate reinsurance. The second is on net inflows. I just wondered if you could actually give us the figures, because your commentary is very good, but I get confused so easily. I'd be really interested in just having the quarter net inflows, you know, Q1, Q2, Q3 for Italy, and maybe a feel for October and how you see the rest. I assume you have line of sight now to breaking even. And then, of course, this comment on the broad strategy, I'm not quite clear. Thank you.

Thank you very much, Michael. So the first question on the cut aggregate is for Marco. The quarterly development of net inflows with a focus on Italy and by line of business is for Cristiano, while the third question regarding the part in the outlook section of the press release is also for Cristiano. Marco, of course, if you want to comment, feel free to do that.

So in terms of cut aggregate, just to remind, we have a cut aggregate with attachment point to 800 million. Just as a reminder, cut aggregate is limited to property engineering and motor-owned damage. So just to clarify. So... In terms of renewal, so clearly it's always a discussion and we are going to enter into the renewal phase very soon. So we are going to see how that is going to be rediscussed. I think that it's, you know, given... What we see in the market is not going to be soft for this type of coverages, and so we are going to see what's the cost-benefit analysis on this type of coverage. Also keeping in mind that our portfolio is growing. in terms of organic growth and inorganic growth. So we are fine with the coverage we have, but clearly it depends a lot from the cost-benefit analysis we will do during the renewal phase.

Thank you.

Okay, Michael, good morning first. So Italy and France, especially dynamic, I think you were asking, on the third quarter standalone due, if I compare the previous quarter with this quarter, so second quarter, third quarter, we have a positive 500 million effect of inflation. Let's say lower net outflows in the saving and pension. Same amount in the saving basically in France, 500 million lower amount of outflow. Commenting the October number, I would say focusing on the saving, we should take into account that there are two different dynamics. Whenever there is in a month an issuance from the Italian government, We do experience in this channel still some outflow from the point of view of reallocating toward this because it is a preference to the high net worth, those kind of underwriting, while in France we are observing another reduction in the exit, which means that the trend is in the saving and pension business getting further stabilizing. Going on the third question on the explanation of the board policy approval, this is related to the dynamic approach of the group, which is willing to always improve, according to ESG strategy, the G component, which means the interaction with the shareholders. And by shareholders, we mean all the shareholders, and this is framing a higher frequency of moment of contact with all the shareholders clearly if we want to enter to better detail i suggest to allocate better time and ask our esg investor relational officer which are more than happy to go you in the nitty-gritty of what are the actual change by chain but the policy and the trend is making generally more and more open transparent and frequently interacting with everybody

Thank you. Just on the net inflows, I'm really sorry. I'm so stupid. You mentioned this figure of 500, and I don't know whether it means a lesser decline or positive. So on France, if I look at the half year, you had minus 916 at the half year. So if I take your comment on the 500 million, that would mean that France is now minus 400, so there's a 500 million net inflow, whereas in Italy the trend is continuing negative and there's not much change there. Is that how I can interpret this?

Yeah, to interpret the number, let's make it simple and make the number example. So we are only commenting the saving and pension business line, so we are not commenting the others, and we look at that. In the second quarter... uh for example italy had a minus 1.5 billion outflow and now in the third quarter as minus 1 billion outflow in the france in the third in the third second quarter had 1.35 billion outflow and now as a minus 800 million outflow which shows the 500 million improvement on both of both cases i hope you get This is coherent, Michael, to what we said, that we are seeing a reassuring trend of normalization, okay?

Absolutely. And then I'm going to be really cheeky. Does the data in October show any more normalization? Could you comment on that? The answer I would love to hear is to see you say you see, hear you say, and on the 16th of January, whenever, we will be positive.

There you go. Yeah, let me take this one, Michael. So I would say, as Cristiano said in October, we had an issue of BTP. So I would say we would say that the trend is continuing. But I would not expect every single week to be better than the week before. So I would say we have a normalization trend. It can go up and down. We are seeing better development of our product, of our retention, and our work on the client is working much, much better. And so that's what we expect. But I would not make it week by week differences because that's not what a trend means. Absolutely. Of course. Thank you so much. Thank you. Thank you.

Next question, please.

The next question is from Andrew Ritchie with Autonomous. Please go ahead.

Oh, hi there. Sorry, the first question was actually just to clarify, you didn't answer, are you actually in the aggregate and making recoveries now? Does that insulate you from 4Q catastrophe losses net? That's the first question. Second question, I notice Italian motor pricing momentum has improved a lot in the second half, if I look at industry data or even some of the price comparison sites. I'm curious, is that momentum increasing because, more broadly, carriers are seeing a change in frequency and severity? Italy's been very benign in the last, you know, compared to other countries. Has that maybe changed a bit? So some comment on the claims, severity frequency trends in Italy. Third question, you mentioned the new mandatory insurance cover, which I believe, or maybe you should clarify, I think that's in the budget law for Italy, and it's going to be mandatory natural catastrophe cover for SMEs. I'm curious, is that an opportunity? Is it possible for you to write that and not end up taking on even more NACAT risk? And then just a final question. It sounds like you're still seeing some vulnerability in Italy when we get BTP velore issuances, which may happen again. Marco, you mentioned further product innovation, and you mentioned particularly to combat the attraction of higher bond yields. What are the additional innovations? Is this more of you started some of that earlier in the year, or is there like a meaningful additional wave of further innovations on the life side, focusing particularly on Italy?

Thanks, Andrew. Marco, I would say that all the questions here are for you.

Okay, so let me go one by one. Let's start from the aggregate question. Yeah, we are now in the aggregate. But let me just remind you that clearly aggregate covers specific lines, so not every single event that might happen. And also... We will see that also the per-event protection work in addition to the aggregate recovery. So I would say we are in the aggregate now, and we will see by the end of the year how this has worked, also including the per-event and also looking at which type of event will happen between now and the end of the year. So this is, in short, where we stand on the CAT aggregate. So pricing for Italy. So I agree. So that's what you mentioned. It's actually what we see. So it's still frequency overall in Italy still under the level of 2019. So that's an important reference point that we use. We have seen and we are continuing to see a good development of our motor price increase. And so the action are taking place and we do see growth. that coming in into our portfolio. So these are going from injected increase rate to average premium to earned premium. So we are seeing that development coming in. So if I – one other topic that clearly we need to comment is that clearly in Italy, MOD has been affected by the nut cut. So what I'm telling you is the trend net of the nut cut that actually happened and impacted the MOD guarantee. So overall, we are seeing at the moment a development of our average price. even more than in line with what we call the risk premium, that is a combination of claims, inflation, and frequency. So that's overall what we see in Italy. On your third question, so mandatory insurance coverage, So I have to say it's still in discussion. So how this will be executed. So I would say that there are still discussions that are going on. And so it's difficult at the moment to give you a very specific game plan for 2024 in terms of what is our commercial strategy and what is going to be our pricing strategy together with this, and also what is going to be our reinsurance strategy together with all of this. So we are defining this game plan. What I can tell you is that given that this is going to be apparently a mandatory insurance covering, so we are – We will need to give a price to every single customer, but also taking into account what we see in terms of development of NATCAT and in particular on secondary event, this pricing will include these expected loss and this exposure. So this is what we are going to price in. Okay. Fourth question, vulnerability to BTP. So and what is the additional product innovation? So we do have seen impact on just a few days before the BTP issuance. But what I care to say is that we are looking at the overall trend. And as you put product innovation into the market, you need some time to let this innovation work. So what we are doing, we are trying to make sure that our return on our policies is – in line or better than the return of the market. So you see that our product will have features like the one that I described, I think, in the last call, if I remember well, which is having two segregated fines in parallel in one product to make sure one is higher and more dynamic and the other one is stable and giving the base return. And so all of these type of action, retention and new business action, I would say we are seeing them picking up and getting traction on our clients. Okay.

Thanks. Thank you very much, Andrea. Next question, please.

The next question is from William Hawkins with KBW. Please go ahead.

Hello, thank you very much. This has already been a great Q&A, so I apologize if I'm suddenly going over covered ground. I do want to come back to the cats, please. Of your three Q losses, can you just be a bit more precise about what is specific to the hail and closely related weather events in northern Italy and the German area, gross and net? And then adjunct to that, you have already touched on it, but I just want to get another feel for the impact of the renewal season going into next year. You know, I normally assume that for a company as big and good as you, that these things are kind of lost in the rounding ultimately. So clearly, as you said, it's not going to be a softer market. But do you worry that this is going to be a harder market for you guys in a way that I'm actually going to see in my model? Or is the good news that it's kind of, you know, as I say, lost in the rounding? Again, the subtext there is I'm wondering, you've always argued in the past that Italy is a diversifying positive for reinsurers. I wonder if in a world of more focus in secondary payrolls, maybe that dynamic has flipped. Secondly, please, I'm sorry, you may already have said this, but what precisely was the impact of experience and assumption variances on the CSM roll forward in the third quarter? It was 725 in the first half. I thought I heard you say 200, but I might have misunderstood what you were talking about. And then related, can I assume that zeroes in the future, or is there still more assumption true ups you may need to do at the end of the year? And then lastly, seeing as it hasn't come up, capital management plans. I know this isn't the focus today, but I think you've been clearer about the unspent M&A budget and resource issues that may affect your thought process about what you're gonna do with that. So can you just update us on the unspent M&A budget, please?

Thank you very much, William. I would say let's start with question number three and four for Cristiano, while question number one and two are for Marco.

Yes, William. Let's discuss. What I said before was that if I was looking on the only quarterly move from half year 23 to nine months 23 of the CSM, The joint effect of market and operating variances is minus 200 million euro. We did have slightly high double-digit negative variances of experience part, which is decreasing compared to the pattern observed in the first two quarters. which is coherent with the changes in assumption we made. So are we going to make further changes in assumption in the last quarter? This is potentially in the ballpark, but clearly this is also depending on the dynamic I was commenting before also with Michael, answering to Michael, because clearly we are observing a decreasing trend in the lapse rate of the saving business, which is the one practically moving the operational assumption hypothesis. So this is the effect. On the fourth question, I do confirm that if by the end of 2024 we will not consume the €0.5 billion budget which is expected to be there in case of absence of any further M&A or redeployment, we will for sure give back the money, as already said, to the shareholders. I hand over to Marco. Thank you.

So, William, I'm sorry I will ask you to repeat the second question. The line was not clear, so could you just give me the question?

Sorry. On the NatCats point, I just wanted a bit more clarity on precisely the hail and weather events because presumably there was other stuff going on in the third quarter as well. I wanted to get a hint on the growth to net loss. And then I also just wanted to get a feel for how material this issue is to your reinsurance renewals. I appreciate it's a difficult conversation, but I'm just wondering in my world if it's something that will end up being visible or hopefully kind of netted out in the rounding.

Okay, so when we talk about the event in Italy that happened in July and August, we are talking about around 485 million gross. So that is more or less the type of... Order of Magdalen that we have seen, and clearly you're right. So some of these similar events you're going to see also in the fourth quarter. And so it's very similar. So not the amount, but I would say the type of event. So on the renewal season for the reinsurance, I wouldn't say that we're worried for the art market. We do think that we have specific features that are typically well-received by reinsurance. So I still think that the type of diversification we bring to the market is valuable. The type of, I would say... healthy portfolio that we bring into the market is valuable. And so it's just a matter to understand exactly how hard is going to be the market. And also, as I said before, we will need to understand exactly this in light of the growth of the portfolio that we have, because clearly we have a portfolio that keeps on growing for years. organic reason and for inorganic moves, and so that also has an impact of the type of reinsurance that we are going to buy in the market.

Very helpful. Thank you. Next question, please.

The next question is from Gianluca Ferrari in Mediobanca. Please go ahead.

Yes, hi, good afternoon, everyone. Two left for me, please. The first one is on claims inflation. If you can comment on the average cost of claim we are experiencing in Europe, not only in Italy. The second one, if I got it right, Marco mentioned during the speech a reduced bond duration. It's not very clear to me, considering the expectations for lower rates into next year. why you have decided to do so, if I got it right, and eventually if you had some changes in the mix between floaters and fixed rate or how you are preparing for a potential lower interest rate scenario in 2024. Thank you.

Thank you Gianluca. I would say that both questions are for Marco.

Yes, so let's start from the cost of claims in Europe. So let me say that... So before actually mentioning the different countries, I want to say that we need to remember that the claims inflation that we see, it's typically lagging what you see in the CPI, like general inflation, let's call it like this. So we do see in some countries still an increasing claims, but I would say nothing different than what we have seen so far. In terms of trend, this is really what we have seen even in the half year. So the trend is continuing. I would say overall is same situation that we highlighted a few months ago. So we have countries with still high inflation like Germany, where I think next renewal season that is in January, we are going to still increase prices at, you know, high double digit. So that's what we expect. what we expect, or there are countries like, for example, Italy with the low claims inflation. Clearly, all of this is helped because we overall now, without going to the specific country, we do see frequencies still not picking up at the 2019 level. So overall, our risk premium is increasing. is increasing broadly in line with our increase of average price. So we do see that this is still the environment. And as I said, we need to prepare ourselves for months and probably still years where we increase prices every year, every renewal, because that's the inflationary environment that we see. So that's what we are preparing to do. That's what we are doing still on the next year. And so that's a different mindset compared to what we had, for example, last year where we had to catch up on the inflation spike. Now we are more into run rate increase in inflation. I mentioned the reduction of bond duration just because this was the right thing to do for our ALM. It's not in terms of view on the market. It's just because with some lapses, our duration decreased, and so we had to adjust the duration. So your last question in terms of preparing for lower interest rate scenario next year, I think we need to have in mind that what we care is to match our asset and liability. So that's the thing that we always try to do. Don't take bet on how the interest rates are going up or going down, but we care to be matched going forward with our asset and liability. That's what we need to do. That's what's protecting ourselves and our policyholders, so that's what we will continue to do.

Thank you very much.

Next question, please.

The last question is from Ashik Musadi with Morgan Stanley. Please go ahead.

Yeah, thank you, and good afternoon. Just a couple of questions I have. Sorry to go back on the CAT aggregate. I mean, you mentioned that $100 million is where the attachment starts. Can you give us some color as to for how long is the attachment for CAT aggregates? And you mentioned that it's for property engineering, home and damage. Can you be a bit more specific to that? or any other detail on that, because I would have thought that it would be for your regular NatCat, but it looks like it's very specific cat aggregate that you have. So that's the first question. And secondly, Krishanu, I guess you mentioned that there will be some real estate-related impairment in PNC of about mid-double-digit, if I'm not wrong. Is there any such thing going on in the life business as well? And what is driving that? Any color on that would be very helpful as well. Thank you.

So clearly, Marco, the first question is for you, while the second one is for Cristiano.

Yeah, so just to make sure we have the clear view on the category. So I said that it works. So the attachment point is 800 million. So, again, it's not working for any type of damage, but it's limited to property engineering and motor-owned damage in the motor coverages. So these are the line where it's working. So any type of, for example, so let's make an example. In marine, cut aggregate will not cover any damage, for example, on the marine line. So you see, and you should expect that we... before going and giving any forecast on how the category will work to see exactly which type of damages are going to happen in the next few months and then see how that will... Another point that I can give you is that our cut aggregate works on franchise and not on deductible as most of the other cut aggregate that are on the market. So that is also a qualifying point of our cut aggregate. How long is the coverage? I mean, probably you mean it works for 300 million. So that's the type of coverage. capacity that we have in our category. So it's, it attached at 800 million and it works for 300 million.

That's fine. Thanks.

Hello, Ashik. It's Cristiano. I go for the second one. So let me recall two basic points. In PNC, when we did the transition onto IFRS 17 and 9, we kept the direct holding of real estates at cost, coherently with the previous accounting, since it was possible. Clearly, All the other real estate, both the real estate funds and the real estate allocated into the life business, which is mainly VFA, are with a different dynamic, fully at a mark-to-market with the movement of fair value. So I was commenting the stock of potential impairments related to the book accounting pocket related there. Clearly, any effect on the life part is not material because of the VFA nature, which is then reflected throughout the revenue recognition period of the length of the liabilities. As for sure, there are adjustments in the prices, as has been already observed in the vast majority of the portfolio, because we have already seen more than two-thirds of the portfolio fully reassessed in value. There is only one-third which is assessed on an annual basis. Okay.

Thank you. Thanks a lot.

Thanks very much, Ashik. Unfortunately, we finish the time for Q&A for this call, and clearly the IR team remains at your disposal for any follow-up question you may have. Have a nice day.

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.