Unipol Grupo Spa

Good morning. This is the Coral School Conference operator. Welcome and thank you for joining the Unipol Group first half 2024 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Matteo Laterza, General Manager of Unipol. Please go ahead, sir.

Good morning to everyone, and thank you for participating to this call. As usual, let me make some remarks on the presentation and on the result, and then we will open the floor to the question. As you have seen, for the first half result of 24, we did not represent any more Unipol SAI numbers as a consequence of the fact that it is delisted. We represented only Unipol Gruppo with a separate representation of the insurance business and the earnings coming from the consolidated banks. As you know, concerning the consolidated banks, we represent only the first quarter in the reported number, even if we, on a pro forma basis, represent also the contribution of the whole first half result of the two banks, Banca Popolare Isondrio and Bipper Bank. Starting from the insurance business, first of all, in PNC, we reported a very robust top-line growth in P&C, almost driven by the health business, but also the other line of business grew at a decent pace. Concerning the technical profitability, I have to remark that in the first half result combined ratio, was impacted by our decision to add some reserves, more than we expected at the end of 2023, as a result of the update made by the Court of Milan on the table regarding big injuries and mortal accidents As a result of this, we added in the liability incurred claim and discounted almost 100 million euros. And in the current year, best estimate, combining the motor TPL and general liabilities, we added something less than 50 million euros. And the total impact of this The combined effect of the two items hit by 3 percentage points on the combined ratio of the group. Very good result in terms of technical profitability in non-motor. as a consequence of the action that we implemented above all in the property line of business concerning both repricing and de-risking. It is an action that has begun quite recently at the beginning of this year, and it will last for at least 2024 and 2025. And so we expect to see from this line of business more positive implication going forward. In life, good result in terms of net inflows, above all driven by bank assurance, in particular BIPERBANCA. The technical result of life is more than what we achieved in the first half of 2023, even if we provisioned almost 18 million euros for for the guarantee fund for life insurance company that was prescripted by the financial law of last year. It is the provision that we made for the part that we expect in charge of Unipol Gruppo. Finally, insolvency. We closed a very robust number, 221 insolvencies. percent, notwithstanding negative performance of financial market in the second quarter of 2024, and also considering that the 100 percent result of the tender offer of Unipol Gruppo on Unipol-sized shares is impacted on the solvency ratio for 6 percentage points. Notwithstanding of these two components, the capital generation produced in the first half of the year by the group supported the increase of the solvency ratio at 221%. These are the most important remarks that I can do, for the first half of the year. I am with Enrico San Pietro, as usual, at your disposal for the question of the floor. Thank you very much.

Thank you. This is the Coruscant conference operator who will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question 2, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Elena Perini of Intesa San Paolo. Please go ahead.

Yes, thank you for taking my questions. The first question is on... on the PNC, on the PNC business. Um, so we, we read some press articles on, uh, a new, uh, regulation, uh, regarding the portability of the black, of the black boxes. So I was wondering, uh, whether, um, you have already made, um, some potential, uh, you know, thoughts, uh, on the, on the impact that, uh, this new rule could have on, uh, on your accounts and on your volumes, given that you are the first European insurance operator for black boxes. And then I have also a second question on the life business, really two questions on the life business. The first one is a confirmation on the impact of the new guarantee fund. You just mentioned 18 million, I think, for the first half. So I believe more or less 35, 36 for the full year. Just asking for a confirmation in that sense. And the third quarter, the question, the second on life, is about the CSM movement. which was up if we compare it to the end of 2023, but it is slightly down looking at the end of March. So if you can clarify the movements of the last quarter. Thank you very much.

Okay, Elena. First of all, concerning the low on portability of the black box market, We are still waiting for the final version of a possible of the law for the moment is what I know. But then I will leave the floor to Enrico that is more is more is more more information on and is studying more on this. We are studying on a minimum set of information that we will be. We will have to release to the client and then consequently to the new insurance company that will take the black box from the company. There is a discussion of the... that has to be paid from the new company to the old one for the information that has to be released, but we are just in the middle of the discussion that there is nothing of definitive as what I know. Then I will... let Enrico to say more on this. Concerning life, no, we make some provision as what I know for the full year. So at the moment, these 18 million has to be considered for the full 2024. So we are not forecasting more addition to the more provision on the guarantee fund. And concerning the CSM, there are some movements in the aggregate. First of all, the CSM produced, created with the new business is – more than we released in the first half. And I think this is the most important information that has to be considered for the assessment of the quality of the aggregate. Then there are some technical components that have to be taken into consideration. In particular... The negative impact comes from the operating variances that are estimated at 91 million for the first half of the year. Operating variances concern the change in the portfolio of products that happened in the first half of the year. and also the change in the assumption underlying the portfolio. And in this context, we added more risk adjustment in the portfolio, CSM following a very prudent approach and this additional risk adjustment is strongly related to the policyholder behavior that we consider in the assumption of the portfolio concerning what our policyholder would do potentially with the change of interest rates that can come in the hypothesis of scenarios that we consider in the calculation of the fulfillment cash flows. Then, I don't know, Enrico, if you have something more on portability of black box transactions.

Very few. Hi, Elena. Good morning, everybody. Matteo already told the important things. Portability, full portability, that means that a new company can use a previous device with all the information and the services is something that was prescribed by a law of 2012 and then 2017, but never arrived to be operational since there are a lot of technical problems to solve. What we are discussing nowadays is something more limited. It's about the chance for the customer to have information that are released by the black boxes about their meal age or some other few information to bring to another company to have more precise information. So, the draft of the law now is under discussion. There is an important thing for us, that is that the telematic service provider need to be compensated for this information that are given to other companies. And, of course, we are quite confident that the law can be be something we can handle without significant issues.

Okay, thank you very much Matteo and Enrico.

The next question is from Peter Elliot of Kepler Chevreux. Please go ahead.

Thank you very much. I had three questions. They're all kind of clarification questions on what's just been discussed, actually. But the first one, on the new tables issued by the Court of Milan, can you just, I mean, I'd understood that it was sort of half expected that something would be coming. So could you just touch on how much of that is already in your pricing or how much of it you've already allowed for and how much of it is a sort of additional negative surprise that you've now had to adjust for. That was the first question. The second one was on reserve releases. Thank you for the numbers in respect of the Milan tables. I'm just wondering, could you give us the total reserve releases? And if possible, it'd be great if you could split that between the runoff of risk adjustment and the pure prior year reserve development. And then the third question was just coming back to those operating variances that you've just discussed. Could I just clarify, I guess you're already seeing some lapses. And because of the interest rate environment and developments, you're saying that you are you are assuming that more people will lapse in the future. Is that the right interpretation? Thank you very much.

Okay, Peter, I will answer to the question number two and three, and then I will leave Enrico to elaborate to the first concerning Milan court questions. So concerning the reserve release, of course, this is a number on AFRS 17 approach. The total runoff is 3.4% in the first half of 2024, which means almost 100% 60 million, more or less. And the split is all based on risk adjustment, minus 3.7. On LIC, there was not reserve release, but a small addition as a consequence of what I remarked on the Milan court report. update of the tables and as a consequence our decision to reinforce the best estimate of the liability in current claim undiscounted then on the Milan court Enrico will tell more on what is reflected in the pricing of motor TPL Concerning the third question of the operating variances, at the end, the 91 million negative has to do with a setup of our model, also as a consequence of an update that we did in parallel in the internal model for the calculation of the capital. that can modelize more properly than we did in the past the policy older behavior. That is our assumption, but there are only assumptions on the possible reaction of our client to an increase of interest rate. In the number of scenarios that we modelize, at the end, the result is that Again, for a very prudent approach that we use, we expect a negative operating variances almost due to this component of the of the model. It is not it has nothing to do with a change of the attitude of our clients in real world situations. to surrenders, because on the contrary, we did not experience in the first half of 2024 an increase of surrenders compared to what happened in 2023. So it has nothing to do with the real world attitude of our clients, but only to the assumption of the model that we use for the capital and also for the calculation of the fulfillment cash flows. I hope to have been clear on that, and I leave Enrico's answer to the first question.

It was very clear, thank you.

Hi, Peter. So, of course, the update of the tables of the Milan Court were somehow expected. The average increase in these tables is 16%. Of course, this applies on a part of the claims, one term more or less. And our reserve, our assumption, were in a situation in which we can handle without any addition using our traditional prudence in reserving. But we decided to keep untouched that buffer of prudence, updating our reserves. The amount, the total amount is... On current year claims, motor third-party liability around 35 million, that are more or less a couple of percentage points on the combined ratio of motor third-party liability, and more or less 90 million on previous year claims. So, The overall addition we had is more than 120 million that accounts for 3 percentage points on the overall non-life combined ratio.

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

good morning everybody three for me please uh the first one is on the uh motor uh business i was wondering if after the tariff increase you lost uh contracts so if you can give us the delta ironia or versus end of 23 in terms of number of uh contracts you have and the second one is on the uh large beat you made on the solvency ratio so your solvency went up by four points in q2 Can you give us the breakdown between CapGen variances and M&A? It seems that some peers reporting this morning had negative variances in Q2. I presume this could be the case for you as well. So I was wondering how these four points or where they were coming from. The last one is we read a few weeks ago about an arbitration you had in the UK with Covea, I guess related to the pandemic. Some other issuers are having similar issues. Can you give us a bit of a sense of what is the issue here and the quantification of your legal issue with Covea? Thank you.

Thank you to you Gianluca. Yes, the first part of the price increase that we implemented starting from the end of 22, but above all, over the course of 2023, brought a loss of part of our portfolio. It was completely expected as a consequence of the price increase. This trend lasted until the early beginning of 2024, but starting from March, the trend inverted and we were starting to consolidate to increase growth. our portfolio of clients. So in terms of premium totally collected, the impact is positive because the price effect more than compensate the loss of the portfolio. Concerning the second question that is on dissolvency, As I said before, we had a negative impact coming from financial market, quite small, because at the end of June 2024, compared to March 2024, the performance was negative, but it was not absolutely a disaster. So we have lost two percentage points for the financial market. As I said in my introduction earlier, we have lost six percentage points as a consequence of the tender offer of Unipol Gruppo on Unipol SAI shares. But these eight percentage points were more than compensated by the capital generation did increase. in the first half of 2024, and also by the update of the enforced value in the life insurance business that usually creates own funds as a consequence of the fact that a lot of products with very high minimum guarantee go to maturity or are surrendered and they are substituted by new production with only capital guarantee and so this is a creation of value and as a consequence also creation of own funds. On the litigation of Covea, I... Sorry, Matteo.

Sorry, you didn't have any negative impact from economic and non-economic variances then.

Is that right? No, not significant.

Okay, thank you. Thank you.

Hi Gianluca, so as you mentioned, the issue about COVID business interruption claims is quite common in Europe since there is a lot of discussion and also some court working on the fact that usually there was property coverage And with a cut business interruption and the big discussion is about the fact that the pandemic can be considered or not considered a cut event. There is a more technical issue about how you aggregate the claims in terms of time, but this is why there are several court cases in which we also are involved with Covea about this issue with the arbitration going on, but I can tell you that the amount that can stem from this court decision is is not material on our figures.

Very clear. Thank you both.

The next question is from Alberto Villa of Intermonte. Please go ahead.

Hi, and thanks for taking my questions. The first one is on the outlook you mentioned in the press release. You mentioned that you were going to reach, if everything goes in the right direction, all the targets of the 2024 strategic plan I was wondering if this includes also the target on combined ratio of 92.6% which seemed to be quite ambitious at the end of 2023 and maybe now given the positive evolution we have seen in the numbers it's more doable The second question is back on the solvency. Can you maybe give us an idea of what is the potential impact of the derivative on the 4.7% stake on B per we can expect on the solvency in the future? And then, sorry, this is not specifically related on the second quarter results, but I wanted to ask, given a lot of press we have seen on the potential introduction of a windfall tax for financial companies. Maybe you can help us understand if there is any ongoing discussion between the insurance association and the government on anything related to that. It seems the government would like to have less increase in prices for motor vehicles. in Italy, but obviously this is a free market. But in any case, maybe if you can add something on that, it could be helpful. And finally, on the same note, there is always a lot of press speculation about your potential interest in getting a stake in the Monte dei Paschi, we discussed it many times in the past, but I wanted just to check if there is any new, let's say, tenor on this point you can share with us. Thank you very much.

Okay, Alberto, a lot of questions concerning the outlook. Yes, we are working in delivering the target of the industrial plan. We did some financial targets and also industrial targets, and we are working very hard to deliver both of them. There is also in this the combined ratio. Of course, it is quite early to say that we will for sure deliver this target because we are in the middle of the season in which NatCat... can have an impact on the numbers. The first half of the year are good, as you have been able to see. Up to now, I don't have evidence of further impact coming from this item. But as I said before, we are just in the middle of the season. So we will do our best. to deliver also the combined ratio target. Concerning solvency and the impact coming from the equity swap, the equity swap on BIPER is a financial instrument, and as all the financial instruments are mark-to-market, and the mark-to-market of the asset portfolio have an impact, positive or negative, Having said that, we have 60 billion of financial assets and the equity swap is 300 million euros. So in any way, this transaction could go positive or negative. I don't expect a significant impact on the solvency. Then there is the windfall tax. First of all, we are not in the association, so it is not to me that you have to make this question. I know that after this call there will be another, so you can do the same question to the next one. And we... We don't comment something that we read in the newspapers. And so we will see what will happen. We will do all what, of course, the Italian law prescribed going forward. And finally, there is the last one on Monte dei Paschi. I have to say that today we are fully committed with all the top management to work on the delivery of the target of the industrial plan and to work on the next industrial plan that will be very important for the consolidation of our business and for the new shape that the new group will take after the merger between Unipol Gruppo and Unipol SAI. These are the topics in which we are fully committed at the moment. I have no other remarks to do on that.

Thank you very much.

The next question is from Michael Hotner of Berenberg. Please go ahead.

Thank you very much, Matteo Nuenico. Two topics. The first one is on the dividend market. I'm not 100%, but I think there was a mention or talk of adjusting the payout to the peer average, which is maybe 50% or something. I wonder if you could say what your view on this is and whether this would be for after the current year plan or which could be included in 2024. And then the other one is on just going back to all these moving parts and the motor combined ratio. I don't know how to answer it because I'm struggling. I've got so many numbers going in and out. I don't know what to do with them. I think the simplest way to ask would be two questions. The first is to say, well, you've given us these numbers, I think 3.4% in runoff, of which 3.7% is risk adjustment and then the addition of 100 million for the Milan court. And I wonder if you can give us the equivalent number for 2023. And then maybe the simpler question is to say, well, What do you see as the underlying, excluding these kind of adjustments, combined ratio and motor at the moment? Thank you.

Concerning the dividend, I'm afraid that you have to be very patient to wait for indication on dividend. First of all, we are just in the middle of the year. It is true that the first half of the year was very solid, both on a consolidated basis and also on a local basis of Ulipo's side. That is the number that is very important for the dividend payout. But we are just halfway in 2024, so it's quite early to discuss about the dividend. The dividend policy will be One of the main arguments and topics that will be in which we will focus on the new industrial plan regarding the 2527. And so we will concentrate on this topic later. much later in the year concerning the dividend policy of 2024, but I think that for you it will be much more important the guidance and the KPI that we will disclose for next industrial plan regarding 2025-2027. Concerning the runoff, you have to remember when we did the presentation on the assumption on the IFRS 17 that we decided to have a very prudent approach in terms of positioning in percentile for the calculation of the risk adjustment in PNC. At that time, there was, and there is still, a lot of uncertainty concerning the inflation and the prospect of evolution of inflation, and so we decided to be very prudent in terms of risk adjustment. All of this is reflected in a runoff release of risk adjustment year by year, and so we You don't have to be surprised to see a runoff of 3.7% of risk adjustment. In the first half of 2023, the same number was 3.5%. And in 2023, we had a runoff of LIC for 2.3%. So the runoff release of 2023 was 5.8% versus 3.4% in 2024. Of course, without the runoff release, the combined ratio would have been 3.4% points higher than what we released in the presentation. And then on the motor... Enrico wants to add on this. Okay. Hi, Michael.

Let's try to go back to the basics of the underlying trends of motor third-party liability business. Basically, what we have about loss frequency is good news. Loss frequency is slightly decreasing. The average premium had a significant growth, as you remember, in 2023, almost 10%. And, of course, this is giving us earned premium that are increasing. And even if we... had lowered the amount of the increase that we asked for our renewals, we are still growing with the average premium. So basically, two of the three KPIs, loss frequencies and average premium, are improving. On the average cost of acclaim, that is the third one, of course, we have this impact of the Court of Milan tables. That is, of course. one-off for the previous year and something we need to incorporate in our tarification for the current year business but we have to do exactly as all the competitors have to do so we don't expect any change in our competitive position so I don't know if I was useful enough to understand the underlying trends or you need some other information about it

I'd be greedy if I may. Just ask one more. You know in your three-year plan you have, I think, a target figure for motor combined ratio. I can't remember it precisely, but I think from memory, was it like 95 or something, 96? All these trends which we're discussing now, how do they affect your view of this figure?

Oh, yeah. Of course, I guess that what Matteo told about the overall combined ratio target is valid also for the motor combined ratio. So we can deliver and we are working to deliver. And of course, what You can see at the first half results have very significant impact of the tables of the Milan court. But in the second half, I'm quite confident that you will see the improvement that is needed to reach our target.

That's very helpful. Thank you.

Sorry, Marco, if I remember, you also asked the runoff in motor business, right? Yes. In motor business overall, the runoff combined is only 90 basis points because there is the impact on Court of Milan that is, of course, in the motor and not in a motor.

And I would assume H1 2023, so the equivalent period last year, would be similar to the figure you gave for the portfolio as a whole, the 5.8.

Sorry. Can you repeat the question because I did not catch it?

Yes, no, I'm confusing you. I'm really apologizing. It's not my aim. So 90 bits is so helpful. This is H124. And what was the equivalent for H123?

In 2023, in motor was 7.3%. Thank you so much.

Total. Total. Yeah, very, very helpful. Thank you.

The next question is from Andrea Lisi of Equita. Please go ahead.

Good morning. Thank you for taking my question. The first one is, again, on the PNC. In particular, given the fact that, for what you said, we've seen combined ratio that is for the motor part for above 100%, do you think you continue to have room for for tariff increases and should we expect the continuation of your policy of increasing tariffs also over the next quarter? So do you think that most of the job has been already done? And the second is on life net inflows that were positive. But I saw that the second quarter was in some deceleration versus the first quarter. So just to understand which trend are you observing and what do you expect going on also about what are you feeling in the banks and in the agency and so what's the reaction of clients to your offer. And third, if you can update us on your investment policy also in a phase where rates are set to go down. So we should expect some changes in your investment policies. Thank you.

Okay. Concerning the price in motor, then Enrico will elaborate further. but consider that as a consequence of the action that we did in the past, there is a sort of inertial trend of prices that go forward without the necessity to make other price increase going forward. And it seems that this inertial trend is is at the moment enough to compensate all what is happening in the market, comprise the impact coming from the court of Milan. What I have to say is that the claim inflation is still very sticky, above all concerning the auto part prices, cost of labor, materials. And, of course, we face this stickiness by using our tools that, above all, are based on the canalization of claim in our network of Unipol service, where we still have... a very important advantage in terms of cost of claim that is still in the whereabout of 800 euros of saving for each claim canalized in Unipol service. Of course, also Unipol service is impacted by... auto part price increase and above all cost of labor but the absolute level of the price that we pay in this network is still much lower than what we get in car garage outside outside the network concerning life yes there is there has been a deceleration but above all because in the first quarter of the year started the very well in the bank assurance area of business. They produced a lot of production, a lot of traditional products, and so it is quite normal that in the second quarter of the year the trend could decelerate, but it's still very solid and above what we in general estimate as new production in 2020. 24. The arguments that our distribution network use to sell traditional products are arguments based on the tool and facilities that are proper of the traditional product versus other alternatives that the client can have, like asset management product or bank deposit or Fixed income securities, I'm talking about the possibility to have options embedded in the product, the possibility to take and to have the product for all your entire life. And above all, the possibility to be protected by the mark-to-market of the financial instruments that are underlying the product, because you have the possibility to surrender only considering the the coupon, the accrual of the guarantee of the segregated fund, except, of course, for the penalty that you have for the first years of maturity of the product. So using these arguments, we are able to support positive arguments net inflows that are very important for us because we are able to invest all this money in life at a yield that is between four and four and a half percent that allow us to increase the yield total yield of the back book in order to give more argument to our distribution network to compare the yield of the segregated portfolio with the bank deposit of fixed income securities. Concerning the investment policy, at the end, we are working up to now to maintain a decent level of cash in the portfolio. because we were in the middle of a very long-dated bull market, both in equity and in credit market. And so we kept a lot of cash in the bank account in order to be prepared to invest during a possible risk-off period. And now we are... maybe at the beginning of a correction of financial market where we take this opportunity without being rushed because we think that this correction can last for much more than what we the couple of weeks in which the bear market started or the correction started in order to possibly extend a little bit the duration of the portfolio and possibly to take some opportunities in the credit market and also in the equity market. As I said, we are not at all rushed to do it because possibly during this summer, this risk-off stage could last longer. for at least the summer period. So we think we will have opportunity to invest our cash at more interesting prices.

Thank you.

Gentlemen, there are no more questions registered at this time.

Okay, thank you very much for attending this call, and I wish you a good holiday for you, and if you do it, and in case not, good work. Thank you very much, and we will meet again in November.