Unipol Grupo Spa

Ladies and gentlemen, good morning. This is the Cori's Call Operator. This is the Q&A session on the rationalization of the Unipol Groupo together with the preliminary consolidated results at the 31st of December 2023 Groupo Unipol. Managing Director, CEO Unipol SAI, Matteo La Terza. We'll go through a short introduction and he will then be available for taking your questions. Mr. Loftafson, please go ahead. Good afternoon, ladies and gentlemen, and thank you so much for being virtually with us now. Now, I'm sure you know the most important piece of news of today, which is the streamlining or rationalization of the group, thanks to the merger of Unipol-SAI into Unipol Grupo Financiario. Now, we will be considering the exchange rates. So, 0.3 Unipol shares. Unipol SAE exchanged per one share. Unipol Grupo at the same time. Unipol Grupo is now launching a voluntary cash-based offer or tender. The price is 2.70 euros. Again, at the same time, we have announced the results of last year, 2023. These results are in my opinion very good also considering the difficulties typical of 2023 especially considering our natural catastrophes that have impacted heavily on the last year's business plus all the inflation related implications. and this is something we saw in the motor vehicle MV business so despite these difficulties as a result the group level is 1.3 billion euros 766 million for Unipol SAI so there's been a strong resiliency from our normal life business and again many other areas which are as important including the contribution of the health business which is bigger and bigger business plus the contribution of bank assurances or health and bank assurances. These are two of the key pillars of our business plan without forgetting the life business giving a major contribution to the comprehensive overall results of the group. Now, in terms of solvency, and this is my last point before getting questions, total solvency is 200%. Now, it includes the consolidation of BPS, Banca Popolare di Sondrio, which is what we didn't have last year, September 30th. It also includes the... Distribution of dividends. Now, as you have seen in the presentation, we have 37 cents, sorry, 38 cents, says the speaker, for Unipol Gruppo, and 0.165 cents for Unipol SAI. Of course, I'm talking about euros. That being said, I'm here with Enrico San Pietro to take your questions. Thank you. If you want to ask a question, please dial cross 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 phone. If you want to ask a question, please you can dial star followed by one now. The first question is from the Italian conference from Alberto Villa from Intermonte, please. Good afternoon and thank you. Good afternoon, Matteo. I have some considerations I'd like to share with you, but some questions on this operation. My first question is the following. What will be the pulse to merger solvency level? Because the current Unipol-Sci minority shareholders may take part in the cash offer, but also in those cases where there may be equity or shares exchange. So based on this solvency level, which may be the considerations concerning the distributions or the dividends in the future. So what about the possible solvency level for the group in the future? I mean, as the right range so as to carry out your business. Of course, this concerns this extraordinary operation. The other point, the other consideration is on the initiatives that you are putting together in order to improve the profitability of the non-life business, so the combined ratio. Can you tell us more about the tariff policies? Can you also tell us more about any possible change in the coverage level that you offer customers, for example, hail storms that have impacted negatively on 2023? Thank you. Now as for your first question, Alberto, now as you correctly said, the solvency of the combined entity depends on the percentages of participation to the public offering. So basically the starting point is quite similar. you the situation we had at the end of last year so figures you saw let's say that in case of total complete participation into the offer well this has an improving effect of course we haven't quantified it yet so in those cases where there's no total participation all the way to let's say zero percent in terms of accepting the the offer anyway the final figure if you will goes from the current number upwards now we know that in terms of this company on a combined level now from the structural point of view we do generate capital so in the future this organization will be able to improve its solvency position Now, it is too early to talk about possible dividends or paying dividends on the new organization. Of course, there will be evaluations and assessments done in the future. Now, as for the non-life business, let me ask Enrico to take this question. sorry to take the floor, this is Mr. Chamberlain now before giving the floor to Enrico on the non-life business I'd like to share an important point with you concerning solvency now of course we keep talking about the consolidated solvency level the way you can see it in printed documents anyway I'd like to share a key point with you Now, this point has to do with a very special, if you will, situation here. We are an insurance group, so we consolidate 20% of two banks in our equity, and this triggers a major consequence or effect on solvency just because I mean when I say solvency of course I'm talking about the percent rate and this is due because of the nature of the solvency levels or the regulatory capital of banks because of course their percentages are much lower. than those characterizing the insurance sector. So for banks we have 14, 16, even 16%. So Monte Pasky they have 18%. Now this is a unique case. Once again, this factor generates a sort of an optical effect that It doesn't really allow you to understand the solvability of the group. Now, I'm sharing this with you for the following reason. Now, for any reason, if we decided to slightly reduce our stake in the banks, We wouldn't be obliged to do the consolidation in that case. So our solvency, now this is not an exact figure, this is a very very close proxy, so it would be very similar to the solvency level of the insurance business. So when Unipol, I mean we consolidated 200, so the insurance solvency would be 239. So 239, if we want to go there, we just have to sell some percent, if you will, of the two stakes in the bank. So we do no longer consolidate them and sort of like magically, you know, the solvency would go up to 239. Okay, so once again, sorry to interrupt you, but I heard about solvency. I really needed to share this point with you. Okay, let me take advantage of having you there. So in your opinion, what works for the right range of solvency may be for the post-merger group? Well, if you consolidate in a stable way, well, let's say between 200 and 220. So this is our objective. Thank you. Okay then, so let me talk about the industrial development or evolution. And Alberto, once again, good afternoon. So in terms of MV, so let's say elementary business, which is basically the guarantee against CVT, so the catastrophes. Now in terms of motor vehicle, So, we already talked about this on the previous conference calls. So, we started a major repricing policy some months ago, and month after month, as we announced, the tariff increases get into the premiums. So, today, well, actually in 2023, average premiums went up by around 10%, and the selectivity, if you will, of our tariff generates a more than proportionate, let's say, high risks together with an improvement of claim rate. So in the final part of the year we have to add the consolidation of two other elements that have a positive impact on the average claim cost. So this is the consolidation of the reduction of the incident of claims with injuries, in this case average costs are higher, out of the number of total claims and the incidence which is lower than last year on serious or severe claims now these two items impacted positively on the combined ratios concerning the MV business so even if you know in different technical forms they also impacted I mean the IFRS 17 So I have to say that the journey, if you will, has been started some time ago. We keep traveling along that journey because we want to complete the recovery of margins, which is one of our targets. As for the non-MV business, well, you know very well what happened on the Italian market. It's been heavily impacted by the atmospheric events, so natural catastrophes. They took place in 2023 in a real extraordinary way and again they represent a trend. All insurance companies have to take into account this negative trend. We are doing this in a very bold way because we started massive actions on hundreds of thousands of policies we have in our portfolio, especially those located in northern Italian regions. So this means increasing prices significantly sometimes, but we also have decided to change or amend the regulatory conditions, and particularly by including and increasing the percent of the damage that's not paid so this is an operation that we do for the first time as the first company doing this in the market and i'm sure this may help us rebalance the area in the non-motor vehicle claim i have to say that we this is where we had the worst results while on other businesses for example injuries and health and many other businesses, we keep having extremely positive results. Thank you. Next question is from the conference in English, from Michael Hackner from Pellenberg, please.

Thank you.

You certainly surprised me on the timing and also the decisiveness of this announcement. I have three questions. The first one, following from Alberto Vila's question, can you talk a little bit more, a little bit about the potential here? In particular, is there a tax benefit or are there cost-cutting? The tax would be of interest to me. The second is on the combined ratio, which in non-motors is stunning. I know you might say not stunning is the wrong word, but below 100% given the loss you've suffered is very good. I just wondered if you could maybe share whether there have been any reserve releases which helped smooth the results out. And then on the third point, you just now explained that you've increased the deductibles, increased the pricing in non-motor. Can you say a little bit on the reinsurance side, so where you hedge your risks? What's happened in terms of coverage? Does the reinsurance contract cover losses on motor-owned damage? And what's happened to the limits? And maybe give a feel for how the pricing has changed. And then the final point, and I'm really sorry for that many questions. So you talked about solvency and said, yeah, if you reduce the banking stakes marginally, you get this huge jump in solvency. You also said that pro forma as a deal, if the deal is accepted by shareholders or they subscribe, then solvency goes up. Can you explain the mechanism? My feeling is it's very simply because the 2.7 euro deal offer price or tender price is slightly below the sum to two earned capital value. Sorry for the many questions. And yeah, congratulations. This is great news.

Thank you. Thank you so much for your questions. Now, as for the first part of your question, the one concerning the cost synergies, well, of course, we do have some cost synergies having to do with the merger between the two organizations. And, well, I'm talking about operating costs, but, of course, I mean, the size here is not really significant. even if this is let's say the you know a running perspective you're right we also have the tax or fiscal effect because this means that we won't have to consider the goodwill now this means that there may be perspective fiscal benefits in the future there's an upfront payment to be done so the comprehensive the final effect is around 176 million euros So once again, this is the total benefit considering the payment first, the plus future benefits. Now this concerns the merger. Now F4DCR or combined ratio in the non-motor business. So you said that it is surprising to see that this is very good despite natural events. This is what I understand from your question and of course Enrico will also give you other insights and considerations. Anyway, the effect of natural catastrophes, yes, there's a runoff or provisions to be used but also some recoveries in terms of reassurance which are quite high so this means that we've been able to close you know the numbers with the results that i have just shared now f4 bank solvency which is once again the point raised or explained by carlo chimbrey let me let me be a little bit more specific on this point now when you consolidate a bank stake into you know the capital equity. Now this stake is no longer considered equity in terms of SCCR but it is consolidated. So basically we consider all the risk weighted asset components So this is the list of elements that are part of the capital. And all of this is done in solvency to a ratio point of view, which is kind of different versus the bank tiering systems. So this type of process, if you will, leads to, let's say, the fact of increasing the capital. that becomes bigger heavier but of course at the same time the solvency index is less volatile I mean the index that you will have you know over the years in the future now again this is what happens if you do the consolidation on the net you know equity if you don't do this if you don't do the consolidation which is what would happen if we sold a small stake and this is what Carlo Cimbri just said well We would go back to the previous situation. So no consolidation. You don't consider the risk of weighted assets. You don't consider the bank capital level. You would only consider the equity investments of the bank stake. And again, this would lead to an absolute value benefit. And again, this means that the solvency scope, when you consider the insurance element, it would go to 239%. We mentioned before, which is also what you can find in the analyst presentation. Let me go back to what you said about the 2.7 euros. I didn't get the question. Maybe you want to complete the non-motor vehicle business part. Okay, yes, Michael, good afternoon. Thank you, Matteo. Yes, let me go back to your question on reassurance. now of course this year the contribution was positive and well a big one on our end of year accounts because we think we may recover more than 500 million euros thanks to reassurance and especially based on those agreements or treaties considering or concerning you know natural catastrophes and the so-called multiple aggregator that was the the name So what happened to those renewals? Well, conditions were not met to renew the aggregators, so the multiple has not been renewed. Well, vice versa, on the other side of the business, if you will, we have increased the coverage of the property per event treaty. We have also included the CWT events. So today we have the same level of priority, which is 150 million euros. Well, into the events we will have property damages, but we will also have the so-called VT damages. So these have been the most important changes of the insurance program. So some of them have been a little bit less important and more technical. But because we now have no multiple aggregator, Let's say priorities of the other vertical treaties have been lowered, for example, fire because of risk.

Just to understand, the reinsurance needs motor-owned damage?

We can't hear you. We haven't heard the question. We cannot hear you.

Yes, sorry. Sorry, sorry, sorry. Hang on. Wait, wait. I'll use my phone. It's a bit noisy here. Sorry.

Is it better? Hello? Hello? Can you hear me?

And my question, if you can hear me, otherwise please ignore me. Wonderful. It was just on the reinsurance to understand how the... Exposure or the cover of the reinsurance treaty has changed. So I understand the aggregators is no longer. And on the per peril, does the per peril now include in addition to property motor own damage, which I believe was not covered before.

Is that right?

Next question from the original conference is from Gianluca Ferrari from Mediobanca, please. Good afternoon, everyone. Okay, can I go back to the improvements of combined ratio of motor vehicles, especially the current year loss ratio? I see a 10-point improvement versus the previous half year. Matteo mentioned the runoff. Is it possible to have the runoff numbers at the end of the year? But also some information on the fourth quarter. The second question is on the operating variances. So 188 million euros. Can you give us some color just to know what they are due to? The third question is on this operation. Can I have some insights on the timeline? So when the offer will be opened, when it will be closed and when the effective date will be. Thank you. Thank you Gianluca. Let me start with the operating variances question because as you must have seen the impact is really significant and by the way this is due to the updates of the policyholder behavior in terms of you know that the increase of interest rates has had a big impact in terms of foreseeing the behavior of customers and of course this has impacted negatively on the operating variables of the CSM so basically this is the key reason Now as for your question on the timeline of this operation of course we have to approve the merger project we also have to ask the relevant authority in order to launch the purchase offer it still has to be defined of course that this will be communicated officially as soon as we are sure about the launch date of the offer. Then of course we have to consider the IVAS authorization time. It depends on how much time they will need in order to receive the authorization. So once again we need to stick to the standard time to be defined by the regulation. In general, unless there are difficulties, we should be ready within the end of the year. As for the run-off question, maybe Enrico. Good afternoon, Gianluca. So, as we said before, On MV insurance, in the last month of the year, we have had some positive effects. I mean, some of them had already been announced. For example, the increase of average premium that we have collected or applied. We also said that incidents of severe claims and claims with injuries, they also were positive. Again, the impact of these was positive on this business together with the beneficial effect of the loss component, I mean the future of the margin of the business. And again, this has had quite an important effect. You need to add In the past, in the balance sheet, of course, we had the so-called release of the LIC. Now, basically, this means that at the end of the year, we have to pay attention to the evolution of the claim reserves or provisions. So this means that the value is basically concentrated in the fourth queue. which is, by the way, what also happened in the previous years. This is worth four points yearly of the combined ratio of the MV business. Thank you. Next question is from Andrea Lisi from Ecuador. Please go ahead. Thank you so much for taking my questions. Question number one, it's a personal reflection on a strategic level concerning this operation. If I remember correctly, in the past you said that these operations are required to have strategic flexibility from UnipolSci in case of possible operations. Don't you see any possibility on this topic? And then did you check your strategy? So can we have some color on this? There's another question on the flexibility on the dividends. You have partly answered already saying that there will be specific communications about this in the future. I have a third question. What do you expect in terms of the 2024 trend? So what about the financial results for 2024? Any insight, Occollo, on your reinvestments and what do you expect in the future? Andrea, thank you so much for your three questions. Yes. Well, I have to say that this is the strategic framework that we've always supported in the past years. We kept a holding structure. Of course, we knew about the costs of this structure because we wanted to maintain, if you will, the financial flexibility required in order to take advantage of possible growth opportunities externally. so this was the underlying reason behind this behavior which is what we have repeated and re-enacted in the past years now on the website Once again, recently there were no opportunities that may generate value, so conditions were not met in order to present our shareholders an integration operation. So let's say a few opportunities from that point of view. And well especially I have to say that the context has completely changed in the past 12 months. I mean that this cost, of course once again we knew about the cost and basically I'm talking about the cost of maintaining a holding structure. also considering debt now that cost was not very much significant because of the interest rate level that we had until 12 or 18 months ago so that was almost close to zero and again this means that we could you know pay this cost well relatively easily Now, well, as you know, the entire context I have described has basically changed in the past 12 months, or maybe also 18 months, because the interest rate structure has completely changed. now on the one side there were and there are no opportunities to continue you know in-depth analysis on possible combinations being able to generate value on the other side you know maintaining this structure today but also mid long term will entail you know bigger costs much bigger and higher than the costs that we had until some months ago so this is the reason why We decided to make this decision. Now, this is what we announced today, but of course, we've been thinking about this for quite a long time. And again, this is leading, if you will, to a higher level of flexibility also in terms. of the cost structure. Well, you have to know that a combined identity that turns into an operating insurance company, well, basically this company doesn't need to do senior funding operations, which is what happens in other companies, for example, are holding companies based on stakes. So we are now much more, if you will, and better ready to take up the challenges of the future, considering that the interest rates are now on a different level. So let me go back to your question, talking about interest rates, the question of investments, by the way. Now, we haven't changed our investment policies. We have reached an exposure level to Italian securities or GOBIs that in our opinion is a well-balanced situation. We've also diversified on other government bonds from the Eurozone. We've also invested heavily in the credit world on the medium to high rating buckets and we have also built quite a good position on alternative assets basically a real asset. and infrastructure so in terms of size this is not very significant I mean versus the investments on fixed income securities but anyway that part is becoming bigger and again it strengthens and you know boosts the total portfolio yield level now the context today you know the interest rates are also on the short part of the curve are between 3.5 and 3.75 percent so I have to say that the curve, if you will, is quite flat. But in terms of absolute levels, today's interest rates give us the possibility to take into account the financial management components in a more optimistic way versus the assumptions we had in the plan some time ago when we created the plan which is in force today. Of course, well, based on the interest rates developments and evolutions, there may be this kind of, you know, reduction of the rates, so we may want to reconsider how to position ourselves. But for the time being, we don't think there will be major changes to our portfolio composition. Thank you. Next question is from Elena Perini from Intesa, Sao Paulo. Please go ahead. thank you so much I have a couple of questions on this operation and also a follow-up request on the one of the comments that you have just shared and another a final question now as for this operation my question is you have just talked about interest rates so can we have some insights or some more information on on one of the main aims of the operations, which is what I've read in the press release. You want to optimize the funding level. Now, as for solvency, based on the indications you've given us, you said at least 200% also in case of total participation or acceptance to the offer. Is this because there will be a benefit of minorities, this is what I imagine. So I just need you to confirm this assumption of mine. And can you please go back to the fiscal benefits of the release of the Goodwill? Because my line was a little unclear before. And then what about the live business in 2023? And then what about the traditional policies? Because in the first nine months, you were one of the few companies on a positive level. Well, basically the only one with a positive behavior in the list of listed companies. Thank you. Thank you for your questions, Elena. Now, question number one, interest rates. You know, this is one of the rationales of the streamlining or rationalization operation. Well, the main point is the one I have just mentioned. I mean, now, because Unipol Grupo will become an insurance company, so, as a consequence, a so-called operating company, of course, we have access to the markets on a privileged way, so, much, much better, if you will, than a holding company. For example, if you issue bonds, maybe senior bonds or subordinated bonds as a holding company, well, basically and usually, what you have is a premium on the yield to be offered to investors, which is different than the one of an operating company. So, as a consequence, The fact that there will be a merger gives you the opportunity to have an improvement of market access conditions. Now, this being said, operating insurance companies typically do not issue senior debt. Only some have done this. We don't want and we won't issue senior debt. senior debt as Unipol Assicurazioni SBA but in general you know the merger between the two companies will lead to a major benefit now as for 200% so this 200% level well I have to say that This level is an approximate one. I mean, it's between 200 and 220, as Carlo Cimri said. You know, this is our target. This is the target we would like to reach. It is a trend that we would like to hit. Now, as for your point on minorities, well... the impact of minority depends on the percent of acceptance of the offer. If there's a total 100% participation or acceptance to the offer, So if you consider the excess of capital of minorities, so this is a positive difference, if you will, well, it is basically offset by the disbursement, so the payment we have to have in terms of public offer. Now, because we have 100% of the company, so this means that we have paid, you know, this consideration to all of the future capital generation will be a benefit for the shareholders who will remain. Once again, this is an element that, in my personal opinion, strengthens and also boosts the offer rationale for Unipol Gruppo shareholders. Now, as for the tax benefits that you mentioned, you may talk about this with our investor-relators, because there are technical details and I cannot dwell on them. I am not an expert in that matter. I was talking about life, life collection. Yes, life business. You're right, there was another question. As for the life business income, this is what we have done by focusing it especially on the first level or first branch policies because We need to strike a balance of the cash flows between incoming flows and outgoing flows, which is what you've seen. We are with a positive net collection level, and this is due basically to the good performance of the Bank Assurance Channel. Including agents, I mean agents did quite well as well, but once again bank assurance was the key channel and it was, if you will, a big help in order to, you know, to offset the, let's say, releases or exits. This is normal, I mean interest rates go up, so, you know, people want to, you know, have their capitals back, but once again we need to have the right balance in terms of general comprehensive cash flows. Okay, thank you. Thank you so much. Next question is from the conference in English from Louise Miles from Morgan Stanley. Please go ahead.

Hi, good afternoon. Thanks for taking my questions. My first one is on how you're going to fund the deal. I think you said in the slides you're going to pay up to 1.1 billion in your own cash. I noticed in the slides that you said that you had one and a half billion of liquid assets at the holding company. So how much cash do you think is reasonable for you guys to have at the holding company after you've paid for the remaining stake of UnipolSci? Is 400 million enough? Would be good to get some color on that. My second question is on the Solvency II debt held at UnipolSci. So will this get moved to the new entity? Will it get moved to Unipol Groupo? And do you need any form of consent solicitation to move it? Or can you do that without permission from the bondholders? And then finally, just one more question on the debt. So I think you're kind of suggesting that the new consolidated group won't be issuing any more senior debt because you simply, you know, you don't have need for it anymore, really. Does that suggest that you're going to pay back the senior debt that's outstanding early? And what is the debt leverage of the entire company post transaction. Thanks.

thank you now as for your first question now the value of the offer refers to own funds of the company so you can see the situation as of 31st of december 2023 now this is you know february 2024 so the situation has improved versus what you can see once again at the end of december 2023 so once again we have plenty of resources to fund the tender of Unipol Group towards UnipolSci. We also have underwritten a cash confirmation just to confirm total availability in our accounts. Now as for your second question, There won't be any changes in terms of bonds issued by Unipol SAE. By this, I mean that all the bonds issued by Unipol SAE will be included into the combined identity. Its name will be Unipol Assicurazione SBA. The bonds from Unipol SAE, in terms of trigger, of course, I'm talking about the subordinated bonds, they depend on the solvency of Unipol SAE, but also on the solvency of the group. So, as a consequence, I don't see any major change or amendments to the reasons that the bondholders of Uniposei own this kind of operation. So I would say no type of consent is required from Unipol's bondholders concerning this point. As for Unipol Group's bonds, now as I have said before we will become an operating insurance company so in the future we won't have any interest. And issuing senior debt because once again an insurance company collects premiums and we pay claims. So basically we don't need to be funded. We will hold the bonds. Of course I've talked about Unipol Group's bonds. We will hold them in our assets. together with you know the cash that we collected when we issued bonds once again we do not foresee any liability management operations well as of today now it depends on market conditions if market conditions change well there may be interesting you know debt related operations that we will take them into account and we will communicate this to you For further questions, please dial the star followed by one on your telephone now. Thank you. Mr. Lattersa, for the time being, we have no other questions booked. Thank you so much. So we will see you in May. Thank you. Thank you. Bye-bye. Have a nice rest of the day. Bye.