Unipol Grupo Spa

Ladies and gentlemen, good afternoon. This is the chorus call operator. Welcome to the Q&A session on the consolidated preliminary results of 31st of December 2021 Gruppo Unipol. Group CEO is Mr. Carlo Cimberi. After a short introduction, you can ask questions.

Mr. Cimberi, the floor is yours. Thank you. Good afternoon, everyone. I'm here today with my colleague, Mr. La Terza.

I have a short introduction, a very short one before giving the floor to you for your questions. And by the way, apart from the presentation that has already been commented and described this morning, I'm here just to tell you that this is the last year of our Mission Evolve 2019-2021 plan. You can find here some of the final details of the plan. Once again, that, as I said before, closes or ends with these financial statements. Of course, you can have more details and insights, of course, during the presentation of the next business plan. So the next BP, now, as usual for our group, it will take place in the month of May. So I have to say the figures are really self-explanatory. I mean, as you can see, we have reached cumulative profits higher than the level we have forecasted three years ago in a market context that, of course, in the past three years was definitely very much different than the scenario we could imagine three years ago. So once again, it goes without saying that in the past two years, it has been highly strongly impacted by the COVID-19 pandemic. So there's been a temporary stop or even lockdown by the authorities. We have complied anyway with the commitments we had with the market in terms of remuneration of the capital. I have to say that we have, in terms of only POSAI, we have exceeded abundantly the total dividends, once again, that we forecasted to distribute. And this means that our shares are now at very high, well, I should say, between the highest levels of remuneration of the Italian market these days. Now, we're doing this by keeping... solvency level, which is absolutely above the range, once again, that we set three years ago. And again, in terms of Unipol, but also Unipol's side, this is the fruit of the policies, choices, asset allocation decisions, and of course, the results that we've been able to reach. So once again, these results are much bigger than what we thought, or actually much higher than our targets. So we thought, of course, we want to be in compliance with the good management principles. So we want to adopt very conservative policies in terms of the last quarter of this financial statement. So in particular I'm talking about the provisions item. So we have increased significantly the provisioning buffer that then translates into the capital considering the solvency to metrics. So basically, we have reached 2 billion euros capital or own funds that depends directly on the provisioning delta. Now, in our opinion, this is another key driver, if you will, to be able in the next plan and scenario we have on the market once again we will be able to have high margins and again uh this means we will reach the targets that we will share with you and hopefully uh well those objectives will be highly appreciated by the market so this being said and uh because of course we will be talking about the plan and in the future in the uh month of may meeting the uh Time has come for possible questions on the results of 2021. This is the College Collaborator. If you want to ask a question, dial star followed by one on your phone. If you want to get out of the booking list, please dial star followed by two. Please use the receiver of your telephone. If you want to ask a question, once again, please dial star followed by one now. Thank you. The first question is from Elena Perini from Intesa, Sao Paulo. Go ahead. Good afternoon, Carlo and Matteo. Good afternoon, everyone. I have some questions. The first one is on your solvency ratio that has improved between September and December or the end of the year. So you have already partly explained that this was due to a higher, let's say, caution in terms of provisions. have there been other components or factors in the past quarter that have translated into a benefit? Because if I'm not mistaken, the data going back to September 2021 didn't yet include the pro rata dividend. I also have questions on the non-live business. Now, as for the motor business, Do you think we have some signs of recovery in terms of average premium? Again, as for the current year, so 2022, do you think... we can have once again some recovery or let's say a plus sign also on the motor business, even if I know the non-motor business will probably grow more in terms of premium. At the same time, I'd like to ask you the breakdown of the use or release of provisions. I know that most of this had already been done in the first three quarters of the year. Thank you. Thank you very much. I have to say that this is basically due to the following reasons. I need to go back to reserves, or if you will, provisions. If you consider the capital data due to the excess provisioning, this is what I mentioned before, so 2 billion euros. Once again, this is the delta between the, let's say, best estimate on the one side we do and the balance sheet data. So the best estimate is something we do because of solvency. Now, as for the best estimate, I mean, throughout the entire year, we calculated on the 31st of December of the previous year. And of course, step by step, we will, you know, slightly adjust all of the claims paid throughout the year. Then you remove, of course, the part of provision having to do, I mean, there's a correlation with the claims paid. So only at the end of the year, so at the 31st of December, we recalculate the best estimate. So in this case, we have to take into account, I mean, the actuarial valuations, and we also have to implement all the models that you are familiar with. So, we have Ferguson, Leeds, and many other models. So, if you consider, I mean, the projections, I mean, the forecast of the models that we calculate, take into account all the movements, the so-called generations, so not only what we pay during the year, but also the projections or forecasts so as to establish the ultimate cost. So, the calculation of the year provision, I mean, it's done by the actuarial function, and it highlights a further excess of capital versus what we used to calculate throughout the year, starting from the 2020 provisions and then removing the claims paid in 2021. So there's an increase in delta or gap between, on the one side, the final best estimate calculation, on the other side, let's say, the financial statements calculation, So we have two factors. Best estimate is lower than the one we calculated during the year. But on the other side, if you will, we have a bigger delta coming from our financial statements. So there was also a question on the use or release provisions. This is due on September the 30th. I don't remember if we had this detail on the last quarter in the presentation, but anyway, you can see here 18 million euros. So these are some little changes, if you will. So as for the total provisions, I have here the absolute values for the year. So we have €580 million in 2019, €550 million in 2020, and €336 million in 2021. So once again, this was the total released provisions in terms of percent rate, 7.3%, 7%, 4.2% respectively. Now, as for the motor business trends, the floor goes to Matteo. Good afternoon, Elena. Thank you for the question. Now, as for the markets, I have to say that this market is still highly competitive. I mean, there's a strong, let's say, sensitivity towards prices. And, of course, we have to consider this factor. Now, as for our own, let's say, internal dynamics, we closed this year, as you can see in the presentation, with a reduction of average premium, which is around 3%. But the average premium started a sort of a stabilization phase starting from the past summer because of tariff adjustments that we have started implementing. I should say, in the second half 2021. And we did so considering the 2022 market. I mean, you know, road traffic is basically back to the 2019 pre-COVID levels as a consequence of what we expect is increasing frequency, which is a consequence of this coming back to pre-COVID. As for inflation, yes, I know there's inflation. Maybe in Europe this is less impacting than many other geographies around the world. But anyway, this is one of the focal points we have to take into account if you consider the pricing and then the cost of maintenance or even spare parts. Now, this means we have to adjust our tariffs or, once again, premium, which is, in our opinion, unavoidable and impossible to be delayed, so much so that we started this policy, if you will, in the second half last year. Now, how can this reflect into the increase of the average premium in 2022? Well, it depends on the churn rates we have today. on the portfolio. As a consequence, they depend on the competitiveness level of the market and many other dynamics that, of course, cannot be foreseen, well, at least in detail. Anyway, as we said in the past, this is our strategy. So we have to revise our tariff mechanisms in order to consider factors or dynamics which, in our opinion, are quite clear. Next question is from the conference in English from Sudarshan Bokhara from Societe General. Please go ahead.

Hi. Good afternoon, everyone. My question is with regard – I have a few questions. First one with regards to the modal TPA. and reserve strengthening. So if I see on slide number 11, there is 49 million reserve strengthening in the motor TPL business in the fourth quarter. So, I mean, what does this relate to? And, you know, is this just routine prudence or is there anything more specific to that? And why I'm asking this is because, you know, the table on the left-hand side shows deteriorating claims trends. So Does this reserve strengthening have anything to do with that? My second question is on the life earnings. So your life earnings have been much better than expected and slightly higher than your run rate guidance. So what is the reason for this beat? And if you could provide some more color on that, is this driven by any one-offs? That's my second question. And the third question, if I may, is on the combined ratio. So I was just doing a back of the envelope calculation on your fourth quarter combined ratio, which comes to around 105% just for the fourth quarter standalone. And if I assumed that you did a you know, a normalized reserve release in the fourth quarter, the sort of implied combined ratio would be below 90%. So, I mean, which is pretty solid. So can you just tell me what is driving this strong combined ratio despite the higher large losses in the fourth quarter?

Thank you.

Thank you for the question. Now, for the first question, let me tell you that, you know, I basically have to, you know, repeat what I said before, and I'm using, let's say, different words, because you were, you know, mentioning slide number 11, so 49%. This is on the motor provisions. And then you have the savings. I mean, this is basically the percent rate that we can save versus, I mean, the payment of claims. So we have... This is basically what we saved considering our provisions. So this absolute value, so in terms of, we have saved 49%, and let me check, this means 660 million euros on the motor TPL. So, throughout the entire year, of course. Now, out of this, what we have in the statements is 78 million euros. All the other, let's say, the rest of the amount has been left into the provisions, and actually they have increased, I mean, the provisioning. And once again, we have reassessed all of the provisions on the residual claims. We have used some money for the so-called reopenings. We also have some other small details here. Once again, €664 million. This is the envelope of the amount of money we have saved on the claims page. What you can find in the statement is €78 million. And 69%, I'm already again talking about the TPL, general TPL, we have 500 million euros saved on claims paid, of which you will find 80 million euros in the statement. So if you consider, I mean, the motor TPL and the general TPL, which are basically the two most important provision items here, So out of €1.16 billion savings, what you can find in the statement is €158 million. Once again, this is exclusively due to caution. I mean, we want to strengthen, once again. our own, let's say, assets in terms of provisions. This is what we want to strengthen and to increase. Once again, we think this is a major, very important strategic level if you really want to face in total peace of mind and with a high level of strength the next business plan. In, as I said before, any market scenario we may encounter, the market may become more competitive. It may become less competitive. It doesn't matter because we have a high level of provisions. This means that we will definitely hit the target we set. I also have to say that if you consider, if you will, a different logic, I mean, considering the financial statements, we have 2.3 billion euros cumulative profits, so much higher than the plan. We think that this is a wise thing. We don't want to increase these profits, let's say, too much because they are already exceeding the targets. So if you remember, this is what I told you when commenting, you know, the first nine months of the year. So, based on the results that already at that time we had the fourth quarter, the last one of the year, would have been anyway a quarter strongly conditioned by, if you will, expectations or forecasts for the future. So, in some sense, this is due to just caution. I mean, we don't have any, let's say, difficulties or hardships or... We don't foresee any specific phenomena, something that may happen in the future, not at all. So once again, we want to be sustainable. So we want to have these results for a long time in the future, which is, by the way, what we have always done. Once again, we plan on a long-term basis. And by the way, we are very happy because we have complied the market targets. But once again, for you, this is no news because as far as I remember, In the last three business plans of this company, we have always, you know, complied with or even exceeded, I mean, the result targets, the sole mobility targets. The same happens also in terms of paying out dividends. Now, as for the CR, so the combined ratio after releasing the provisions, and this is, by the way, your third question. So how would the CR be with the release of provisions? Well, this is a mathematical exercise, but in my opinion, it doesn't really translate into any value because the question would be which kind of provisions. I mean, this is included into the financial policies Otherwise, I mean, this calculation would be really theoretical, and it should be done with the numbers I've given you before. So, for example, on the motor TPL for the entire year, we have left aside something like 664 million euros. This is what we saved, and 78 is what we have paid. So, if we had translated all of this money into the financial statement, well... Of course, I don't have any calculator here, but it's quite easy to really understand, I mean, what the combined ratio would have been. But once again, you know, in my opinion, it has basically no value. Let me give the floor to Matteo for the live question. Now, as for the live question, yes, the one-off took place last year because, you know, in 2021, there had been some changes of the AA or asset allocation. Once again, we have also sold the one component of the share investment, so we made capital losses, while this year is a normal or regular year. So under this perspective, let me start from the so-called technical or industrial profits. You know, for example, mortality or even the provision is from or against expenditures. Now, in terms of industrial, in that case, we have 130, 140 million euros. So in terms of turnover. You also have to add to what you see, page 14 of our presentation, 92 BPS or basis points, which is the part of financial profits that stays into the pocket of the company. If you apply this to 35 billion euros of provisions, well, you have a total of 330 million euros. which is the so-called financial part. If you do the sums, so plus 130, you have the life top line. You have to remove 100 million euros of fees, which is what we pay to distributors, and you also have to remove or to subtract between 130 and 140 million euros for structural fees. And once again, the range is always the same. I mean, between 200 and 250 million euros, which is our, let's say, cash flow, if you will, or we can also call it EBIT, E-B-I-T, of the live business. And once again, this is the normal, ordinary level. Now, you may have some years, some special years, for example, last year, we've carried down some changes in the asset allocation. So either positively or negatively, just like last year, gave us the possibility to have, I mean, a smaller profit. Well, this is a one-off. So 2021 may be considered a normal year, at least under that point of view.

All right. Thank you very much.

Next question is from the original conference from Andrea Liza from Equity. Okay, thank you. Thank you so much for taking my questions. Now, my first question is the following. Can you give us some color or some sensitivity or even some general indications, if you will, on what the impact of an increase of interest rate may be on the live but also on the non-live business? Can I also have the updated sensitivities of Solvus2 having to do with rate hike and And, well, the hikes of the spread, but also the hike of the inflation. Okay, so this is it. A couple of questions. Thank you. Thank you for the questions. Now, of course, I will be considering the current assets that we have. So during the next months, we'll see if this changes. Anyway, if I take a snapshot of the current rates, and if I consider Unipol as a group, the rate hike means plus 7%. Sorry, if you have an increase by 50 basis points, this translates into plus 7%. seven points in terms of solvency there will be a decrease of 10 bps of the rates that would translate in minus two points in terms of solvency the same happens with unipol size so plus 50 bps means nine points in terms of solvency plus a decrease of 10 basis points would turn into one let's say a point in terms of solvency less Next question is from Christina Plocka from Bellarmine, please. Good afternoon, everyone. Good afternoon, Mr. Chamberlain. Well, first of all, thank you so much for sharing results with us. I have a question. Can we have some color on the inflation rate for the cost of paying claims? Now, on the future, I mean, hypothesis or, I mean, the estimate or the foresee of the cost of claims. So if I understand the question correctly, well, in this case, considering the current scenarios, we work based on 3% inflation rate. Once again, I hope I have understood the question. I mean, sort of forecast for the future, right?

Yes, definitely. Thank you. Next question is from the conference in English.

From Peter Elliott from Kepler, please.

Thank you very much. Three questions from me, please. Apologies if these have been asked already. My line dropped off a couple of times, and I didn't hear all the answers, but I didn't hear the answers to these. The first one really was just coming back to the claims ratio issue. I mean, obviously the large losses were very high in Q4. If you adjust for the large losses and the reserve releases, then the Q4 claims ratio was four points lower than it was in the first nine months of the year. So I'm just wondering if you can help me understand why the underlying claims ratio was so low in Q4 and why the large losses were so high in Q4. And maybe you could remind us of the definition of what counts as a large loss. The second question, you've talked a lot about the prudency that you've employed. Is there a limit on how prudent you can be? Obviously, at some point, I guess you have some discussions with your auditors, et cetera, about just how far you can be the right side of best estimate. But I'd be just interested in the color and whether we could expect how much more we could expect on this if the situation arose. Final question on Unipol Rec. Sorry if I've missed this in the release, but could you tell us exactly what the profit was of Unipol Rec? and also how you think this might develop in the future.

Thank you very much.

Thank you for the questions, Peter. Now, as for the reserves, as I said before, I mean, your question is on, of course, the large claims or the so-called catastrophes. I mean, this is the name we use to define, I mean, large claims. And, of course, you want to know if they have impacted on, well, reserves. Well, the straight answer is no, because when I talk about reserves in general, I have to say that it is directly linked to the prudence or caution considerations that I have shared before in terms of the size of the results that we have already reached. So we don't want to increase the results further and of course at the same time we want to become stronger for the future. So it is not linked to that. Now in the fourth queue we have had some major claims, bigger sized, if you will, the so-called catastrophes But in terms of the overview of the year, so the claims belonging to this category, well, I have to say that they have amounted to around 180 million euros. We had 160 million euros last year. So, well, as you can see, there's not, I mean, a huge, if you will, gap in terms of the total amount of the claims considering this size category. And once again, they don't have any impact on the reserves policies. Now, and let me go further. If you consider the total amount of the claims having to do with natural catastrophes plus the so-called large-sized or big claims, I have to say that the total cost we had was... Very similar, once again, to the costs we had last year, around 550 to 560 million euros. Once again, this is the total number. As a consequence, this is not what has a major impact on the different reserves policies we had this year, in particular in the fourth quarter of 2021, as compared to what we had last year. Now, this was to answer your first question. Your second question, I mean, the limits of, I mean, how prudent or cautious we can be, well, especially considering the frequency and considering, I mean, the motor business, also taking into account the frequency we expect, well, It goes without saying that, you know, the more discontinuations you have on the market, I mean, you have plenty of, you know, discontinuities or ups and downs on the market. Well, the more you have to be prudent once again when, you know, looking at the future. This is what I mean. I mean, there have been so many discontinuities in the past years on the historical trends or in general trends. Now, this was due to, let's say, external shock, which in this case is, of course, the COVID-19 pandemic. Now, the point is we need to foresee accurately and precisely enough when the situation is back to normal. And, you know, in terms of the claim frequency, so, well, we are waiting to go back to the normal situation, so to say. So even if you consider the current situation based on what I read in the mass media, that of course keep talking about the trend towards the new normal, so regulations which are now approved by the government, I mean all of the reopenings, and then they remove day after day plenty of limits. Well, this means that there should be a quick return to normal. Now, what we see, well, first of all, one month is too early, okay, because we started doing this in January. Anyway, we see that today, I mean, in terms of the size of traffic in general, And, you know, by the way, this is what we can, you know, get from our black boxes. You know, they represent 10% of the global fleet, so to say, here in Italy. So they are quite a reliable trend or indicator on the trend. So once again, traffic... is going back to the levels we had in January 2020. And, you know, January 2020, that was just a little before the pandemic. OK, so that was still normal, so to say. What has changed is the distribution. I mean, there's less, you know, traffic density in the largest towns and especially in the, you know, rush hours. So I have to say that this is one of the factors that we are considering, and this is the reason why the claim level is now lower than all the claims that were reported two years ago in a normal situation. So if you imagine, I mean, the future frequency, and I'm now going back to your question, I mean, what was the limit to prove this? Well, You know, Peter, I don't know, maybe no one knows where the limit is. Anyway, we think, we imagine that the frequency of our scenario will rise. And, you know, stepwise, gradually it will go back to the levels that there were very close to the pre-pandemic levels. But I also have to say at the same time that we also have other factors or other impacting factors. For example, we have more and more technology on cars. We have more and more sensors installed. At the same time, we do have, thanks to this, an effect or an impact on the claim reduction. They may, you know, because we need, of course, a longer observation time, not just one month. I can't tell you if this is a structural phenomenon or not. Now, what is sure is that this year there's been a significant drop of the... Incidents of claims with damages to passengers or drivers. And this is a trend that we already had in 2020. Once again, this is a trend that we can see. Of course, this has nothing to do with COVID. Now, is this going to continue? I mean, or maybe will it sort of plateau? It's difficult to say. So once again. There's been a big shock, so a discontinuity because of COVID. Now the new normal scenario is something we keep an eye on. We update it every single day. We change it. We adjust it, you know, every single day. And this is, by the way, the reason why, because we have the possibility, we want to be even more prudent in terms of reserves. And the reason is we want to better manage possible future scenarios. There was another question on Unipol REC, right? Now I have to say that REC, let me check the financial statements, I mean profits are 1.5 million euros net. So this is the result of Unipol REC and there are other indicators on REC. This is something you can see in the relevant slide. Now as for the future of Unipol REC. I have to say that we have already released much more than 50% of its own portfolio. So the residual part for Unipol REC having to do with credits or loans to be recovered on a total of 2.7 billion euros of gross loans. Now, the value we have to recover is now €350 million, which represents something like 12%, well, actually just a little bit more than 12% of the gross loans value. Now, meanwhile, we have, let's say, saved the money thanks to the profits made in the past. So, the net assets is now €440 million, which is higher. by 140 million, so higher than the capital that had been assigned. Originally, Iraq had a 300 million euros capital.

Could I come back on the first question? Oh, yes, please.

Yes, sorry, thank you very much. I just wanted to come back on the first question. Because what I was asking about actually was the fourth quarter on its own or the fourth quarter compared to the first three quarters. Because if I adjust for reserve releases and large losses, my question is not about reserve releases. My question is about the underlying. If I adjust the claims ratio for reserve releases and large losses, then the Q4 claims ratio was four points lower than than it was in the first nine months. So I'm just trying to understand why was the underlying claims performance so much better in Q4 than the first nine months of the year?

So once again, 4% lower of the first quarters. Well, this means that there's been quite a good evolution. And well, this means that there's been plenty of production of the basic business or elementary business. I'm now checking the general overview. And again, this means we haven't had any claim, for example, from natural events. Maybe you remember in the third quarter, there had been a strong impact generated by the so-called catastrophes. And we also had the same impact on our reassurance company. Again, a very strong impact of the storms in Germany for our reassurance business. If I'm not mistaken, the cost we had to pay was around 15 million euros. And that was worth one point, I mean, in terms of loss ratio, considering the entire company business. Now, these phenomena, and once again, most of them have taken place in the third quarter. We just didn't have them in the fourth quarter. So apart from reserves, this is the consequence of a better, let's say, technical behavior. I mean, there's been a higher incidence of production. So the premium coming from the basic business and especially less catastrophes. So less big claims versus the three previous quarters of the same year. Next question is from the original conference. This is a follow-up from Andrea Lizzi from Equita, please. Thank you so much. I'd like to go back to the point having to do with the rates. Now, your answer on the solvency ratio is very clear, but can I have some color on the impact that you expect on the live and non-live business in a context where rates are higher than the current ones?

Thank you.

Now, as Carlo just told us, the rate hike, which is one of the hottest topics these days, of course, I'm referring to the basic rates, so the swap curve. Now, this has a positive impact on our solvency ratio, SR, because we have assets and liabilities which are absolutely matched. So if you have a parallel rate hike, well, of course, it's a big benefit, a big advantage for the live business because we now have 1% average guarantees. So if you have a high rate, a rate hike, this means that we can really improve the best estimator of the live business but also the non-live business because in this case you discount the cash flows at higher rates so once again this has a positive effect and now the situation is different when you consider all what is happening all around I mean the rate hike which is what's happening these days or in the recent weeks because What we see today is also an increase of the spread level between the swap and Italy. Well, maybe this is a little bit less proportional, but there's also spread increase on corporate bonds. Now, again, it goes without saying this has a negative impact on our ratios dynamics. Much less negative that it than it could have been without the diversification policy of the assets that we started the last year. Well, actually, it was right in the middle of 2020, and this is what we have completed. In that case, the Italian GOVI's exposure is now at around 39%. Anyway, it's below 40% out of the total investments we have. So if you have a rate hike increase on the basic rates, which is what's happening right now, well, this is something positive considering our solvency or even solvability profile, I mean, from the financial point of view. Now, of course, all of what is happening right at the basis, I mean, of the rate hikes, I mean, the perspectives are different. rising rate of inflation. Considering what we said before in terms of claims, well, this is one of the focal points that we have commented before. Okay, very clear.

Thank you.

Mr. Chimbrey, ladies and gentlemen, for the time being, we don't have any other questions in the waiting line. Okay, then. So thank you so much for your questions, and thank you so much for attending this conference call. And we will then have another meeting in May. In that meeting, we will be talking about the – Details of the first quarter 2022 plus the business plan. Thank you so much. Bye.