Unipol Grupo Spa

The General Director of Unipol, Mr. Matteo La Terza, will share with you a short introduction, and then he will be available for questions. Mr. La Terza, the floor is yours. Good morning, ladies and gentlemen. You must all have seen the presentation and read the communique, so the press release, so no presentation is required. I'm here with Enrico San Pietro, the Insurance Business General Director, and I'm here ready to take your questions. Thank you. So, if you want to ask a question, please dial star followed by one on your phone. To get out of the booking list, please dial star followed by two. Please ask your questions by using the receiver of your phone. So if you want to ask a question, please dial star followed by one now. Thank you. First question from the regional conference is from Michele Ballatore from KPW. Please. Thank you. Now this is my first question for you and it is on the investment yield IY. So especially in the non-life business it went up a lot versus H1 2021. So can we have some color about this? Second question is again on the investments yield. So, corporate bonds reduction and the Italian GovViz reduction. I know there's been a slowdown or a cut. Now, is the cut due to the market only? Or are you repositioning it away? Third question. What about the GovViz strategy? Is it going to change? Because they went up a little bit. Thank you. Well, thank you for the question. Now, as for question number one, on the IEY, so investment yield of the non-life business, we have many factors to take into account. The first one is due to the significant presence in our portfolio of inflation bonds. Now, of course, the coupons were impacted positively by the increase of the European inflation rate in the past months. So I think that this is a non-repeatable attitude or fact, because if it becomes fixed or structural, we would have an advantage on the investment parts. But we have to go through some criticalities in terms of our liabilities on the non-life businesses. Apart from this, we carried out major investments in terms of liquidity that we had in our portfolio, and we have had the possibility to invest at very interesting rates versus the past. Now, this means we've been able to strengthen the structural coupon yield of our portfolio. We also have the dividend components, and now it has given a more than proportionate contribution versus the same time last year. And then on the non-life business, we have allocated plenty of real assets, investments, or alternative investments. Of course, they have a higher profitability versus what you can see on the fixed rate market there. So we are investing our cash flows on the non-life business between 2% and 2.5%. This is what we invest on a diversified portfolio where we have Italian gobies, 35%. The remaining part is European gobies and corporate gobies again. So we also have the dividend component, we have the inflation component, and of course, well, it depends on how it will go in the next quarters, and then we also have the alternative investments. This is the strategy we carried out, I mean, some years ago. We want to reduce the investments in Italian gobies. We want to reinvest the cash flows in other securities, I mean, bonds or Europe core parts. the credit components on the high rating levels I mean from single a upwards and then a small part in alternative investments the objective is we want to have the right profitability that fits or meets our objectives as for the Italian gobies a total exposure is now 35 percent now during the six months we have reduced our securities by around 1 billion euros and the remaining part is market to market i mean the italian gob is lost a little bit their value more than proportionally versus many other fixed rate income so in terms of aa or asset allocation this means we have reduced the percent allocation. So right now we don't think there will be any change in the assets composition. What we have now is 200 basis points spread between the BTP and Bund. So we are close to political elections. So we prefer to have a cautious prudent attitude right now before making decisions. on the financial assets portfolio. Thank you. Next question is from the conference in English from David Palmer from BMP. Excellent, please.

Hello. Thank you for taking my questions. So the first one is on P&T and the NATCAT impact in H1, which in 2Q especially, seemed a bit high. Can you remind us how your reinsurance cover works and whether you have any plans of tweaking that going forward? My second question is still on P&T. What was the support from prior year releases in the first half, please? And then lastly, on life, so another strong quarter and LIFE making your last guidance for free tax results seem quite conservative now. Could you update us on this and your expectations for the LIFE contribution?

Thank you. Thank you.

As for the... release of reserves or provisions, I have to say that this semester has been characterized by the fact of going back to normal. I'm sharing this with you because the previous half year was a special one. Maybe you remember we've been very prudent, very cautious on the provisioning policies. I mean, there were no provisions, but the release part only had to do with the so-called recoveries on the accidents or claim management. On the first half of 2022, we have released the provisions for €260 million, more or less in line with what we've always used to do in normal years, I mean from 2019 backwards. So this is, you know, to answer your first question. Let me answer on the live question and then my colleague will be talking about Netcat. Now, as for the live business, we enjoyed quite a good half of the year. It's been fed by the recovery of the technical part. So we have, you know, mortality related profits, expenditure reserves, commissions and repurchase or payback. but also financial recovery. Now, this happens because we've been able... to slightly increase the profitability of our GS or separate management at the same time we have reduced the guaranteed minimum level by 5 BPS while the financial liquidity or profitability increased likewise so one part of this delta has been seen as financial margin on the life business so the joint effect of these two behaviours generated the live results that you can see in the first half of the year. As for the second half, so age 2, the technical part keeps having a similar evolution versus the previous age. The financial part exclusively depends on the evolution of the interest rates in the next months or so. As you've seen, there's been a lowering, so a cut of the rates from the closing of the H1 to today. Anyway, they are still interesting levels. On the life business, we now invest between 2.5% and 3.5% range. Now this means that hopefully we will be able to slightly improve the financial profitability. So in general this is the context in which we will be operating in the next months or so. The objective being to confirm and hopefully slightly improve the live business results. of H1. As for the net cuts, the floor goes to Enrico. Good afternoon, everyone. Well, let's say that first and foremost, if you take into account the direct business before reassurance, the incidence of the sum of catastrophe claims or large amount claims Well, this has increased versus H121. Well, basically, this is due to the large amount of claims, if you will. So there's a modest, I mean a slight increase of the cost of natural events. Also in July, we are, let's say, back on track. As for the reassurance, now the reassurance protection, especially in terms of atmospheric events, but also in terms of the large amount of claims. So this is based on two treaties, if you will. In this case, we have a major, important aggregated franchise. So in the first H, so H1, this franchise, if you will, has not been saturated yet. So the recovery of the reassurance is not exactly what you can see at the end of the year. H121, the recovery of the reassurance, was basically due to the fact of using, let's say, the claims money of the previous years with a positive recovery. So basically, the reassurance protection system is just like the one we had last year and by its own nature. So we have the so-called major aggregated franchises. So it shows positive effects in the second half of the year. Next question is from the original conference from Gianluca Ferrari, Mediobanca, please. Thank you so much. Hello, Matteo and Enrico. Good afternoon. My first question is on the motor business. I guess Q2, you know, the auto combined ratio is 101. if I'm not mistaken. So we don't have the technical profitability context that we had before. Other competitors raised tariffs so I can see 1% year on year, flat month on month. So how or when will the tariff increase will be visible and how and when will we go under 100? So, in the recent decree, some foreign companies cannot operate in Italy if there's no direct indemnization. So, am I correct? So, a tariff rate increase won't increase the competition from some players because they have played, let's say, different cards than yours. So... tariff increase contest won't be good for you. The second question is for the non-motor business. There's an indexation of many lines that I can see so I wonder how many lines are linked to the inflation in terms of tariffs, I mean. And I can see the health business with a high performance, so I guess, you know, the health basically is one of these lines. As for the life top line, this is my third question. I think Q2 includes a minus 23% year-on-year, especially on bank assurance. Well, of course, I know what the context of the market is, but I wonder what happens on the bank channel. So do you think something different may happen? For example, going back to flat debt. Okay, fourth question. Tax rate at 31.7% H1. This is, well, a little bit higher than our expectations. A yearly guidance would be very useful. Thank you. Okay then, let me answer on the live question before give the floor to Enrico in terms of the motor vehicle, so the motor business. So Bank Assurance live business. we do not follow any you know production targets or you know premiums on the investment component traditionally our parameter is the investment you know production especially on the traditional components and we compare this to our own if you will capacity in terms of production concerning our gs So separated management. So there's a bank assurance component, which is sort of independent. It's not a novelty. It's something we know. And we just wanted to produce, I mean, those volumes of premiums exactly on the traditional business. I also have to say that we sell, you know, the hybrid. So hybrids, I mean, between unit length on the one side and traditional products on the other. And this is what we will probably do also for the next six months. The only element that requires a little bit more insights is the increase of the interest rates. Now, this means we will have the possibility, if you will, to increase the production component that has to do with the so-called branch number one or first section. Because, of course, now we can do this with quite a good financial balance, a high profitability, and also in terms of ALM. This is something that we are discussing about right now, provided that rates stay unchanged. So, possibly, there may be an increase of the maximum level of production in terms of live business. Enrico will answer the motor vehicle question. Good afternoon, General Luca. Now, as for the car business, of course, this is very interesting, maybe the most interesting business for many of us. Now, there's a natural increase of the acclaimed frequency after two very positive years, I mean, 2020 and 2021. Well, this is the main reason why there's been an increase of the combined ratio. As for this topic, and thanks to all of our actions, but also because of the composition, which is more favorable in terms of damages to people instead of damages to things, we don't have major effects on the average cost. So today, we think we are in line in terms of reaching our objectives for 2022. So at the end of summer, we have to do what we need to make sure we can also hit the 2023 targets because, as you know, the tariff maneuvers take some months before showing their effects. We agree on the so-called competition package because there's a competition fairness, if you will, Now, of course, you have to have the card, I mean, for those operating on the Italian market. So we see some very positive effects, if you will, in the competitive context or scenario that removes gaps or deltas in the future. This means that there will be a better industrial result. As for the non-motor vehicle business, there's a major growth that we have experienced. It's based on many reasons. In terms of health, of course, there's been a big business from Unisalute expanding its business together with the growth of Bank Assurance. So ARCA ends in CONTRA. As for the non-motor vehicle parts of Unipol side, we have different effects. The first one is very significant, of course, the increase of prices because, of course, this is one of the things we have done. We also have the so-called premium adjustment because for some years companies have had, if you will, you know shrinking turnovers but now turnovers are going up premium adjustments impacted positively on this as for the indexation you know we have around the 0.5 billion euros portfolio being indexed plus another part so the total is basically 1 billion This is the portfolio figure onto which we can work on prices so as to adjust prices every year. As I told in the past, we have a specific contractual mechanism. So on the most recent generations, I mean on the previous five years, we can adjust the price to the technical needs we have. So once again, €1 billion portfolio. Out of this... we are able to do this kind of business on 1 billion, especially on property. And we are doing this even well beyond the effects of inflation. For example, atmospheric events, tariffs or rates go up much more than many other rates. Now, as for the tax rates forecast to the end of the year, well, Now, first of all, if you compare this tax rate with the H121 rate, you have to consider that in H121, we carried out the real estate revaluation plus the goodwill. So basically we had 80 million euros to reduce it. So you cannot compare H121 to H122. So in terms of forecasts, well the calculation is quite impossible to do today because you know the tax calculation is done on the local balance sheets and you know that in Italy they consider the securities portfolio movements so on the balance sheets today we have all of the working capital part in this case we can see value losses And, of course, we don't know if they will be projected as is. Of course, it won't be like this. It can be either better or worse. So the final calculation will only be carried out at the end of the year. For the time being, we have to be happy with this very solid forecast. But, of course, it is based on June 30, 2020. Okay, that's perfect. Thank you. Next question is from the English conference from Michael Hapner from Bergen, please.

Thank you so much. And I had four questions, unfortunately. I'm really sorry. It's just I didn't, I couldn't catch all of what was said before and I really apologize. The first one is pricing on motor. I understood from the earlier answer that you're actually happy with pricing as it is. I just wondered what the figure was. And you said that you're on track to achieve the full year target. And I just wondered what that target is, given that the combined ratio of 98% in motor at the half-year looks higher than what I would have expected. That's my first question. The second question is on reserving. I think I understood you to say that you're not adding extra to reserves more than you would normally do. But there's one sentence in the press release which I'm struggling with. It says – it's in a paragraph called combined ratio – The performance in the other divisions is positive, along with maintenance of the reserving of claims for previous financial periods indicated by significant savings on claims paid. The way I understand it, but please, if you could explain, is that the savings from the claim settlement, so the 40% or 70%, whatever the ratio is, is going into reserves. and is not going to earnings, and my guess is that's a significant amount, somewhere around 150 or 200. I just wondered if you could confirm that. Then, can you give us the sovereignty figures today for Unipol Group and Unipol SAI? And the only other question is on the reinsurance. How far are we from that attachment point for the aggregate? Thank you.

Okay, thank you so much. I hope I've understood all the questions.

Okay, I'm not going to comply with a sequence of your questions. Anyway, there's one question on the reservation or provisioning policies and on the release of the reserves from the previous financial years. Now, as I said before, we have released all of these reserves around 260 million euros, which is 6% of the reserves. premiums that we have in our accounts. Now, this is our reserve release, if you will, which is very standard. This is what we have typically released in normal years. Now, when I say normal, I'm not talking about the COVID years, because in the COVID years, our reservation policies were very conservative. Now in 2022 luckily enough so we are back to a normal standard year so we have taken into account once again the standard operations and in this case we have that kind of reserves release. Just to give you a general idea on the motor vehicle business the average savings versus the reservations. Of course, I'm talking about the previous years by around 45% versus the year reserved. So this is quite a lot. So considering the reopenings of claims and considering the re-appreciations that we do on the claims that we have in our portfolio, But also considering the BNR and also the recovery balance, the release on the motor vehicle from the previous years is around 70 million euros. So more or less this is the level concerning the motor vehicle business. So this is not an extra release of reserves, but this is absolutely normal. Okay, there was also a question on solvency. So, well, let's say a short update on solvency as of today. Now, I don't have the updated figures to give you right now, but please consider the following. So, starting June the 30th and then until today, there's been a recovery of the financial markets, a general recovery, so I'm talking about equity, but I'm also talking about credit. And I have to say that also Italian BTP is slightly, they say, going down. So, We hope there will be an improvement. So 201% we have for Unipol Grupo and 276% of the economic capital of Unipol side. Now, of course, we are on a higher, if you will, territory versus the figures we had at the end of June. There's also a question on pricing of the motor business and reassuring. And once again, the comment will be given to you by Enrico. Okay, well let's say that our target for 2022 full year on the motor vehicle business is lower than the one we are seeing today considering the first half result. we have already undertaken some actions in order to hit the targets. Now, as for the tariff actions, I mean the ones that we have carried out already, but also the future ones, well, these actions cannot be seen very clearly in terms of portfolio average premium. They are very much diversified, so they have the so-called composition effect. I mean, So we don't have the worst customers with high premiums. Those who stay pay a higher price. But the average premium, because of the composition of the portfolio, does not reflect or it does not show this improvement. As for the functioning mechanism of our treaties, because some so-called aggregates are taken into account... I don't have here the precise figures. Let's say that in general, we know that the multiple, now the multiple is a multi-line aggregate. So you have the claims coming from different businesses. I mean, motor, property, and then general, you know, accountability. And the aggregate franchise is 25 million euros. And of course, also the, let's say the starting point is a just some millions, even if it's different, considering every line. If you consider Atmos-3, which is our aggregate mechanism to have protection against atmospheric events, includes all the events that have produced claims worth more than 5 million euros so the exceeding part is introduced into the aggregate figure and the aggregate is around 160 million euros today if I'm not mistaken now this usually happens in the second half so when we go over 160 million euros the treaty starts triggering recoveries Thank you, that's very clear. Okay. Next question is from the original conference from Andrea Lisi from Equita. Good afternoon. Can I have an update on the delta between the value of the reserves in the balance sheet and the best estimate solvency? It was more than 2 billion euros if I'm not mistaken. And second question, can we have a reconciliation, so just some color, having to do with the direct business of the year, well actually the first half of the year, I should say, thank you. Okay, let me start from your second question on the combined ratio net IRS of the first half of the year. Enrico, please. Well, let's say that at the first glance, which is what you can see in the presentation, well, you can see a very positive result in the non-motor business. Now, in terms of growth, but also in terms of margin. So as for the growth, yes, we do grow on many different lines. So we have already talked about the property, we've talked about the health, and we also grow on the general responsibility. We work on every single channel, we grow on every channel, but even more so on the bank assurance, which is characterized by a higher level of profitability. So as you can see, when we publish the end of year results, you can see the ratio going up of ARCA, Assicurazione and Incontra. So that kind of growth also contributes to the improvements of the CR, the combined ratio. If you consider the main lines, well, of course, it depends on the, you know, underwriting policies, but also in terms of policies that want to develop, you know, those customers with a higher profitability. As for the motor business, on the total product liability, on TPL, we have an increase of the combined ratio. which is basically due to the increase of the claim frequency. Now, the levels today are still lower than those we had in 2019. But, of course, they are higher than 2020 and 2021 because, as we said before, they were, you know, well, they have been exceptionally positive. So I have to say the increase of the frequency is, once again, below the pre-COVID, you know, normal distance. I have to say that today we actually do have an increase of claims reported due to the situation that I have just described. As of today, we don't have a significant impact on inflation on the average cost. Our settlement policy, but also the market behavior, if you will, are offsetting the inflation effects thanks to at least two factors factor number one you can see very small claims coming back back in 2020 and in the first stage of 2021 that frequency was dramatically going down more than proportionally on the very small claims now we are going back to normal so we can see more and more small and very small claims Now, this has a positive impact on the average cost composition. There's a second positive effect on the average cost. This is due to the mix between damages to things and damages to individuals. This rate improves thanks to our industrial actions. Now, the average cost of claim of personal damage is much higher than things. A small change in this composition has definitely very positive consequences. As for the non-motor business, sorry, as for the CBT, as we say, so motor business, but not a total product liability, H1 is much, much better in terms of profitability than the first H2021 that was stricken especially by high impact, very negative atmospheric events. Let me go back to inflation for a second, Andrea. It hasn't had a significant impact on the average cost of the current business H1, but of course it has and it will have an impact in the future for many different reasons. Reason number one. It's a fact that there's a high inflation rate, especially on 2022. So, well, we also have many other elements, if you will, having to do with the regulatory framework. For example, the new table published by the Italian ministry on the so-called micro lesions or micro accidents. There's another table from the court of Milan on the, you know, other types of, you know, individual damages. So this will add to the inflation effect. Anyway, this means that we have taken into account all these things in the calculation of the best estimates of our own liabilities. And in terms of H1, we have added 200 million euros to consider all of these aspects. Now, this means that there's a reduction of the gap between the balance sheet, the reserves on the one side and the best estimates on the other. same amount, so today we have 1.8 billion euros. There were, you know, big, you know, let's say amounts in terms of balance sheets. Now, the solvency that we have published June the 30th considers in terms of only poll group, but also only poll size, so we do consider this impact. Thank you. The next question is from the conference in English from Sudarshan Bhutala from Societe Generale, please.

Hi, thank you for taking my questions. My first question is regarding the demand for the non-motor products. So, I mean, given the current challenging macroeconomic environment, are you seeing any impact for the demand of non-mandatory non-motor products? That's the first question. The second question is around the combined ratio development. So, first is the increase in expense ratio by 0.9%. Can you just explain what's sort of driving this? Is it just a business mix or is there anything more to it? And the second part is on the underlying or attrition loss ratio. Now, that seems to have deteriorated by about three percentage points versus last year. Now, I understand that a large part of this deterioration is due to the non-repeat of frequency benefits. But if you adjust for that, what is the underlying trend? Thank you.

Thank you so much for your questions. Let me give you some color on the evolution of the non-motor business. Now, this business, non-motor business, is going very well in terms of premiums but also in terms of profitability. Now, this is what's happening on every single business line. In particular, in terms of health, as we said before, but in general, in Italy, there's a major demand of coverage. I mean, personal coverage, but also companies' coverage business. When I say companies, well, basically, I mean the small and medium enterprises, SMEs. which is what we can see. There's a strong, strong growth on all the distribution network, our agencies network, for example, but also and especially the bank assurance network. There's not much, let's say, price sensitivity. I mean, customers pay attention to the features of the product in terms of the guarantees offered. So the growth we are having on the non-motor business is more than 10% in general. And I have to say that also throughout the month of July, this trend has been reconfirmed. Now, of course, it goes without saying that this sector depends very much on the economy. So our wish is to, well, to have the right economic growth context, which is, you know, positive enough and it will be very supportive. Now as for your second question, let me give the floor to Enrico. Okay, I hope you have understood the meaning of the question. Yes, this is what I hope as well. Okay then, this is my answer. Now as for the ER or expense ratio that's going up, as you can see in the first age 2022 versus 2021, well, The main reason is a composition effect between the model and the non-model business. So the non-model business, as we said before, grows by more than 10%. And of course the level of the commissions on the non-MOTO is much higher than the MOTO business commissions. This is the main reason why the expense ratio went up. Second part of the question, it was let's say on the dynamics of the loss ratio net of the increase of the frequency. Well actually If you consider total product liability, mortar total product liability, what we see on the fundamentals is an average cost that in H1 goes up just a little bit and the average premium is flat. So as of today, we don't have any important major phenomena concerning a worsening or an aggravation in terms of something different than the increase of frequency now considering the future inflation of course is a key factor as Matteo said before and of course we are working on this to keep having the right level of profitability now also for the non-motor business I have to say that we have improving situations now this improvement may be bigger If we hadn't had higher costs due to severe or big claims, and there's also been, well, many more, you know, atmospheric events on the Monmoto business. At the end of July, we went back to ordinary business. So the underlying evolution of the business. is now based on a very positive evolution of the non-motor business characterized by the increase of the frequency in the motor business.

Thank you.

Let me remind you, if you want to ask a question, you can now dial star followed by one on your phone. So once again, for further questions, please dial star followed by one now.

Thank you.

Next question is from the original conference from Alessia Magni from Barclays. Good afternoon. I have a question on the average motor premium. What are your market expectations, especially on Unipol for the next quarters? Thank you. Well, Now, we have communicated our business plan in the month of May. We have also shared our growth objectives in terms of premium, well, based on a three-year-long accumulated premium growth. If I'm not mistaken, the motor business premium should go up by 3%. Now, the motor business is a mature market, as you know, so if you want to grow there, Either you steal market shares to your competitors or you have to go through repricing of the product. Now, we do think there will be a repricing from us, but also from the system, which is a consequence of a simple fact. I mean, claim frequencies are slowing, slowing, going back to the pre-COVID levels. OK, very slowly going back to the pre-COVID levels or so. As a consequence, you know, the prices, you know, we have very low levels, you know, and they represent a situation which is, you know, in line with the pandemic context. So prices do the same. Plus, you have inflation, which is another key phenomenon, and I'm sure it will have an impact on the average price of the managed, you know, business. And, of course, we have to go through a repricing policy of the tariffs. Now this will happen within a context where, you know, if it doesn't happen, I mean, the entire market would stay in a technical loss situation. So in a very low interest rate context, this cannot last for too long. So the expectation goes towards a repricing of the market prices. Next question is from the conference in English from Michael Hubner from Pan American Police.

I just saw that your associate BP ER had really good results. The share price is up, I think, 10% or something. And, of course, you also invested in another big bank assurance relationship. And I just wondered... Has your stance in those two investments changed? Are you going to put more money at work to support them, and particularly since the business they're producing in non-motor is so profitable? That would be my first question. And the second question is, now that you have more clarity and you've given us the targets for the next three years, at what stage will you start thinking about growth outside of Italy? Thank you.

Thank you. Now, as for the BPER, we're now talking about results that the only poll group reached thanks to the distribution capacity of BPER. I mean, as you can see, the distribution and production performances in terms of you know, non-live business, well, they grow a lot in general. And in particular, this growth comes from the bank assurance channel, and specifically from Arca Assicurazione, whose growth has been, you know, supported by the BPER distribution network. We have added new offices, I mean, new subsidiaries, thanks to the OB Banker operation. In this case, the BPER distribution potential is now much, much bigger than the one they had in the past. Now, we definitely contributed to that transaction by participating in the capital increase to give support to the UB Bank operation. And that was, from our own perspective, fantastic. an absolutely profitable investment because, well, not only did we contribute to the BPER value creation, but at the same time, we have improved the distribution capacity of BPER itself. Now, we have a business plan which is especially based on the boost of the bank assurance business. So, We absolutely believe in the fact that our partners BPER and Banca Popolare Sondrio, BPS, can continue this pathway made of growth and development, which, of course, is mutually interesting. Now, as for the international growth, well, we drew up a plan. Now, our plan is exclusively based on the domestic growth because, well, this is a logical evolution for us. Today, the management is 100% focused on reaching the business plan objectives. So, no, we don't have other objectives. So, everything is based on opening new ways. Thank you. Mr. Tetsa, for the time being, there are no other questions booked. Okay, then, thank you so much. So enjoy your holidays, and we will see you next November. Thank you so much. Bye-bye.