Unipol Grupo Spa

Ladies and gentlemen, good morning. This is the chorus call operator. Welcome to the Q&A session on the consolidated preliminary results of 31st of March 2021 Gruppo Unipol. The group CEO, Mr. Carlo Cimberi, will go through a short introduction and he's now available to take up questions. Mr. Cimberi, the floor is yours.

Thank you so much. Good afternoon. I'm here with my colleague, Mr. La Terza. As I usually do, I think I'm ready to take up questions.

Thank you. So if you want to ask a question, please dial star followed by one on your telephone. If you want to get out of the booking list, please dial star followed by two. Please ask your questions by using the receiver of the phone. Once again, if you want to ask a question, please dial star followed by one now. Question number one is from Elena Perini from Intesa, Sao Paulo, please. Good afternoon, everyone. This is my question. What are the key trends that you are seeing on the market right now in terms of non-life? Of course, it's just a question of a few weeks, but after the very few reopenings, do you already expect an impact, especially in terms of the frequency of claims, motor vehicle claims? As for the life business, we saw a sort of a weak result in the first few. And can you just expand on this? So which are the main impacts of this? and which can be the future trends or perspectives for the next quarters.

Thank you.

Okay, thank you, Enel. Thank you so much. Just a quick word on the first part of the question, then I leave the second part to Matteo. Now, what we are observing is quite easy to understand from every one of you, because, I mean, it has been sort of a lowering, if you will, of the lockdown measures. Bans are progressively being lifted. And, you know, I mean, you read it in newspapers. I mean, we have better and better news as compared to the previous months, I mean, on the perspectives of the vaccination campaigns, but also in terms, if you will, of the so-called new normal or return to normality, which is what you can really see every single day in the street or in the roads. I mean, people, citizens, people are sort of, you know, also anticipating this kind of trend

And they are also using, of course, our boxes in a different way.

We are now very close to the traffic or circulation values that we had, of course, well, not in 2020, but in 2019. So I have to say that the trend, this is, of course, our observation point. And of course, this is not just a pure, if you will, observation. I mean, it's something based on scientific data. So what we expect now is an increase of frequency of claims.

Well, we don't know which levels we will see.

So we will keep our eyes open. During summer, maybe more domestic traffic. We don't think there will be the same number of tourists that we have usually have in summer but then of course we have the autumn months so this is of course what we expect the vaccination campaign will be let's say ended so once again we will be right into the new normality so it's difficult to say which kind of frequency we will see I don't think well not for this year we won't go back to the levels We had before 2020, because you know what's happening. I mean, there's been a frequency reduction year after year, and this has been happening for some years. This is due to many factors, including the fact that, of course, well, there's more and more technology and a higher and higher level of safety on cars.

But I'm sure, well, frequency will go up.

Let's say they will become a little bit more normal. So not what we saw in the past year. So if you also consider the pressure on prices, so the steady decrease that we see on the average price and average time, and of course, I'm talking now about market data. This is what we have to expect in terms of the current business maybe at the end of this year but of course for the beginning of next year there will be a sort of a technical price insufficiency that you have on the market today considering the claim trends you know this is the vision which is now sort of driving our financial policies So in compliance with what we did last year, and I'm sure we talked about this when we presented the financial statements. So also if you consider, I mean, these quarterly financial statements, we've been very cautious in, well, drafting our economic statements. The same for reservations or provisioning. Matteo will also be talking about this when he talks about the life business. We manage the financial statements as if it was just one single element, so life and non-life. If we have more margins, we will be able to reach the economic results objectives also in presence of the phenomena that I was talking to you about. So independent of the trend of the market, of course, we look at our results with trust. So our economic results have to be in line with our objectives. So we can really count on strong buffers. They will give us the opportunity to manage the near future at best. Matteo, back to you. Now, Mr. Schimple said it all on the, let's say, car business. Now, as for the non-car or non-motor business, now, the dynamic there has been different. It's been positive, especially when it comes to the agency distribution network. We have had good performances in the, let's say, so-called people business, but also small and medium enterprises business. Of course, it goes without saying this is extremely positive as an aspect. Now, as for the evolution of the dynamics, well, it very much depends on the evolution of the Italian economy in the next quarters. Also considering how the traffic regulations will be approved or modified. So in general, of course, it depends on the general recovery. What is very good is the health trend. So once again, under this perspective, I only have positive news. Now, you asked a question on the life result. Now, you know that the first quarter is not very much representing the general dynamic of the business. And I understand that we usually now make a comparison with 2020. There were huge asset allocation changes, which led us to have different latent, if you will, losses on the portfolio, latent capital losses. So if you make a comparison to 2020, this is not the right comparison, if you will. In the first quarter, we had very cautious policies, as Carlos said before, in terms of reserves and provisioning, especially when it comes to pure risk policies. We also had less financial income that concerned, if you will, the live assets. Don't forget the Q1, as I said before, is not the right one, if you will, to take into account because the financial assets go to market. It depends, of course, on the realization policies, while the evolution of the liabilities depends on the yield rates available. If you consider the evolution of financial markets and then the level of interest rates today, this evolution of the so-called GS during the year will go down. So also the so-called technical interests will go down as well. So this is the explanation of the results of the Q1. Now, I have to say that it was not very significant in quantitative terms. I mean, considering the possible, you know, better evolution or better trend during the rest of the year. Thank you so much.

Next question is from the conference in English. Please.

I didn't hear. Is it Peter Elliott? You can ask a question.

Yes, exactly. Yes, you can. Please.

Yeah. Thank you. Thank you. First question is, can you tell us what the reserve releases in non-life were this quarter? And then I had two quick follow ups on Alina's questions. Firstly, on the life, I mean, in the past, we've come to think of the life business as running at about 200 million of earnings a year. Is that still a sort of appropriate level to think about going forward on an average basis? I appreciate there is going to be some ups and downs. And the other follow-up is on the non-life pricing development, I mean, given your comments that it sounded like you were sort of saying at the start of 2022 prices might not be sufficient. Does that not mean that you should be maybe making that being a bit less competitive at this stage to try and prepare for that? I'm just wondering how you're thinking about, you know, the competitive environment as you go through the second half of this year.

Thank you. Thank you for the question.

Now, as for our policy on reservation, I will just, let's say, translate it into figures what I said before by answering the previous question. Now, as for the two main branches of reservation, I mean, MV and TPL, well, we only had the so-called recoveries. So, there were no so-called recoveries on any other type, so no release of reserves, which is very similar to what we did in the first quarter last year. So in motor vehicle, you can see the capital figures, so around 9 million euros. Now as for all the other branches, of course you know that they have, let's say, dynamics that are very much linked to the payment or liquidation processes, I mean, when we pay the claim. In this case, we have exactly the same index of release. So once again, yes, I'm just checking same release index that we had in the previous quarters. So as for the loss ratio, I mean, the reservation part, considering the so-called recoveries and the releases of reservations is 2.6%, which is exactly the level we had in the first quarter last year. So we have followed exactly the same kind of policy. So basically, we haven't released, let's say, reserves in terms of valuation. It is also a technical issue. Second part of the question is on the life. Matteo, can you answer the question? Yes, okay, here we go. Now, as for the life, this is the situation as of today. Let me start from what you can see on the slide on how much we keep on the life benefits. Consider the 35 billion euros reserves, RGS. We have 35 billion, we have 90 basis points, so it's basically 300 million euros. This is what we withheld. Plus technical margins. So you have mortality, and then we have the loading, and then we have many other reserves, for example, expenditure. So in general, 130 million euros. So these are the main income sources of life. You have to remove what we use to pay the distribution network, roughly 100 million euros, and the costs are having to do to the live business around 150 million euros. So let's say in a normalized situation we have, well, it's 180 now, but the real figure is, well, exactly what you said before, so around 200 million euros, as you said. As I said before, in a year like 2020, where we realized more than 100 million euros extraordinary losses on the free assets, well, this figure is downsized in an extraordinary way versus the normal business. Now, Peter, as for the question you had on the type of strategy we will be following or we are already following in terms of pricing, Well, you know, traditionally, and seems ever, I have to say, here in Unipol, the focus, if you will, is on the profitability, okay, not on volumes. Now, of course, we are a player of the market, we stay on the market, and we follow the trends of the market. But, you know, our strategy has to do with maintaining, if you will, a healthy, cautious

management of the technical balance of what we do.

So what we see today is aggressive prices, plenty of aggressive prices, as you know, especially from the smallest companies. Well, we let them do that. I mean, we try and protect our own customer portfolio, Of course, we do believe in having loyal customers. We want to have a regular, stable relationship, as widely as possible, offering other products, but also on the MV, also on MV only, because also MV customers only have to become loyal customers. I remember we talked about the ecosystems I talked about when we launched The business plan, well, this is our target. For example, the mobility system that we are developing is doing exactly this. So we want to give more than one reason to our customers to stay with us.

So our strategy is not price-based.

It is based on quality, the strength of the brand. It has a strong reputation. Well, the strongest reputation reputation in the financial services sector, so banks and insurance companies. We work on the quality of the network services and technology. So we work on many different reasons that, of course, in our opinion, may turn into good reasons for people to choose us. Once again, we don't bet on the price. Well, those who believe in price are, you know, those companies that are well, have no other opportunities. I mean, just trying to, you know, get customers based on price only. Well, I know there are many different or even diversified situations. I mean, there are companies who are willing to lose money. Some companies offer their card to online agencies that only earn onto the intermediation, but then the company will supply the car that they will lose money. So as I said before, maybe within this year, and of course at the beginning of next year, the trend is very clear. So as soon as we are back to normal in terms of traffic on the road and the prices on the market, of course the market will be into a technical loss So we don't follow the market. We just stick to the strategy I have just explained.

Okay. Thank you very much.

Next question is from Sudarshan Vutra from Societe Generale.

Hi, good afternoon. A few questions from my side. The first one is on capital management. Now, I see that your solvency ratio for both Unipol SAI and Unipol Group is well ahead of your target range. So what is your plan regarding managing your solvency ratio? Should we expect an increase in this target range in the upcoming business plan? Any thoughts around that, please? Second question is on the special dividend. Any updates from the regulator or any headwinds to point out over there? My third question is on Unipol REC. Now, in your press release, you mentioned that underlying trends in Unipol REC are strong. I failed to see that in the numbers that you've presented on slide 13. So just some more color on what's happening in unipolar reg would be helpful.

Thank you. Thank you. Now, S4 was strategy on the solvency. Well, let me tell you the following. Now, it's been implemented, as you know very well, during 2020.

There have been a correction of the asset allocation of our investments, and this is what we did, because we just wanted to reduce the volatility of solvency. So this means that it has taken almost one year, and we have been able to reduce the Italian GOVIS into our portfolio by 10%, and we have diversified on other forms of investment so as to have a portfolio condition which is closer, if you will, to the EIOPA curve. So what we want to have is a stable, if you will, flat solvency, It is above our target. I mean, the targets you can see in the plan, I mean. But as I said in many previous, you know, press conferences, we have to consider all of the different indicators by understanding very well what they mean. You know, solvency is a very volatile factor. And, well, this is one of the limits of solvency. So hopefully the regulator will change this. And of course, it is different versus the regulatory capital of the banks. So depending on how it is calculated, it is much more stable, much less volatile than insurance solvency. This is a limit due to solvency. I mean, it was born like this since the very origin. So, again, the European regulator helped by the national regulators, of course, and thanks to many different actions, yes, they are trying to find a remedy or a solution to this gap. But, you know, if the situation is like this, so if solvency is not corrected, so it could be less volatile or less exposed to the market volatility or to market-to-market, well, we have to consider that it is very volatile.

So, being volatile, we need to have some capital buffers that have to be bigger, wider than those we indicated in our three-year plan. So,

Because we are higher dissolvency, don't worry. I mean, there won't be any special measure considering the capital. Now, in this case, I'm talking about your second question. If you think that we have the intention to pay the dividends that we have frozen in 2019, yes, I do confirm, also based on the results. Well, of course, we just didn't need this because we provisioned all of this into the 2020 financial statements. So, I mean, we don't have to, if you will, create extra benefits. Okay, we are doing this, but this is, of course, concerning the current financial year. Anyway, our will is unchanged together with the capacity we have to be able to distribute. So, the 2019 dividends, once again, this is confirmed.

The

There are no new regulations or prescriptions from regulators, so we have to stick to what we already have. If I'm not mistaken, the deadline is September the 30th. So, once again, because we don't have any other measures or regulations, I do confirm our will. We will honor and maintain the commitment we've taken to the market as soon as we have the possibility to do this from the regulatory point of view. Now, as for your question on the Unipol REC, now, this is not real news. I mean, since the very incorporation of that company, and by the way, this is confirmed that quarter after quarter, If I'm not mistaken, it's been like this for 10 quarters, so 10 quarters of distance for Unipol Rec. Now the recovery trend is steady, which is great. And also in 2020, well, even if, as you know very well, among all of the activities that were frozen or even, if you will, slowed down during the pandemic, we also have all of the work, if you will, of the courts, the civil courts, and then all of the management of mortgages, credits, and not being paid, etc. So this was a physical difficulty, but Unipol Rec managed to recover 30%. I mean net versus all the loans that have been attacked. Now, of course, we are working on every single type of credit, so guaranteed but also non-guaranteed. I don't have anything else to say. This was the only point. Once again, I do understand it's a complex time now in terms of courts, but Unipol REC, thanks to recoveries, transactions, we managed, as I said before, to comply with objectives. Let me also tell you that Unipol REC this year, you know that it's been funded partly with capital, partly with a debt. At the very beginning, the debt was 300 million euros. It was exactly 300 million euros. Unipol REC within this year will totally cancel the debt. We have already canceled it because basically we already have the money in our pocket. So the debt has gone. We are very happy of the business of Unipol Rec, and this confirms the right strategy. So it's a strategy that we've been able to apply. So also my friends, bankers, would have liked to do this, but you know that this was not possible for banks. It was not possible to keep the loans and recover them, while it was possible for an insurance company like ours. we keep reducing the loans portfolio, which is what we have now.

Thank you.

Next question from the conference in Italian, from Andrea Lizzi from Equitab, please. Good afternoon, and thank you so much for the call. The first question, by going back to the dividend, if I'm not mistaken, in the last results call in February, you told us that the 2019 dividend of Unipol would hardly have been paid. So the 200 billion unpaid in 2020, probably they wouldn't have been paid in 21 and even in 22. Is this confirmed or if the regulator doesn't change the situation? Do you think it is possible to pay this amount in 2021? My second question is on life and it concerns the fact that ARCA has now the possibility to collect more thanks to the bigger scope because of BP-ER. so do you think that the better life business so it will do good i mean on to the 200 million you said for so 200 million is the results of the live division last point as for the investment portfolio so between end 2020 and first quarter 21 i see you have increased uh liquidity um just would like to know why you have chosen this kind of portfolio structure thank you now as for dividends as i said before you know as soon as we have the right conditions i mean the regulatory conditions to really be free to do this Well, we will make a decision and we will find, I mean, the best time to do the payment. And again, this is the reason why we would like to have a robust solvency. As you know very well, you need to have a robust solvency to be able to do so, and we do have it. We will strive to keep it unchanged in the next months. And then we will assess exactly what to do now. The target we have now Actually, the priority target is to keep the promise and, you know, stick to the commitment within the ends of the business plan. You know that the, well, the deadline is basically approval of the balance sheet in 2021. So, basically, I'm talking about April 2022. Now, if we have the right, I mean, at that time, we will have the right conditions to do different, you know, assessments. Now, if we have the right conditions to do so even earlier, well, Why not? But once again, this is our commitment and our objective, once again, depending on the regulatory conditions, we just want to stick to the business plan. Now, as for ARCA, now the UBI branches that the BPER has acquired, well, it has just happened And I know that there are around 30 branches coming from Banca Intesa, if I'm not mistaken. And of course, they now have to integrate them into the business. So once again, they have just stepped into the group. Now, the very first figures seem to be positive. So they have already made 50 million euros life policies just after one month for these branches. Anyway, If you really want to be a little bit more structured and, you know, to have a complete view, you know, looking forward, well, we have to wait for the new management. So the new management and the new board of directors has just started, you know, well, the office. So, of course, they will work to improve the integration of the branches. It's a new market, which is now inside the BP ER group. So we need this information, these figures, and then we will be talking about volumes, margin levels, contribution to be given to our live business. I'm sure that you will see this in the new industrial or the new business plan. So this year, there will be a contribution, of course, but in order to reach our targets, well, we do not, let's say, bet onto this additional segment or business, so any extra will be welcome. But of course, we do have our own targets. We don't depend on the new segment. Of course, in the new business plan, I mean, the view will be a little bit more structured. Now, this means that, you know, Matteo has kept some money in his pocket instead of investing it. Well, I kept the money in my pocket, and of course, you must have seen that the investment part in shares has increased in terms of asset allocation, because at the end of last year, we made the point on the investment strategies, which is, again, what we usually do for 2021. So we didn't see a major value in the rate position, considering the absolute levels we reached at the end of last year. Now, we could see some value, I mean, in the equity component, but also in the real asset component. But, well, especially, you know, this second part, the latter, is not liquid. This means we have developed a so-called barbell strategy. So, aimed at increasing the liquidity component, and at the same time, the one having a higher risk profile, which is the real assets. So this is the reason why we started with the new strategy. Now, this is what we started, and this is what we would like to stick to throughout the year, unless there are some great earthquakes on the market leading us to change direction.

Thank you. Mr. Chamberlain, ladies and gentlemen, for the time being, we have no other questions.

Thank you.

Thank you so much for participating in our presentation. Thank you for your questions.

So we will meet at the beginning of August for the conference call on the

data of the first half of the year i do hope you will all have been vaccinated thank you so much enjoy the rest of the day thank you bye