Unipol Grupo Spa

Good afternoon. This is the Coruscant Conference Operator. Welcome and thank you for joining the Unipol Group Consolidated Results at March 31st, 2025 Q&A session conference call. At this time, I would like to turn the conference over to Mr. Matteo Laterza, CEO of Unipol, for a brief introduction. Please go ahead, sir.

Good morning to everyone, and thank you for participating to this call on first quarter 25 result. I am here with Enrico Sanpietro, general manager of Unipol, to answer to your call. As usual, let me make some remarks on the numbers that we disclosed yesterday evening. It was a solid quarter, both in PNC and in life. On P&C, we had a good growth on premium driven by all distribution channel, mainly bank assurance. And at the same time, we had also a solid improvement in technical profitability with a combined ratio reaching 91%. Also in life, we had an improvement in technical profitability in the margin of life. And at the same time, we had also a quite significant improvement in net inflows driven both by the and bank assurance distribution network, but also by a slowdown that we are observing in the surrender rate in the first quarter of 2025. On the investment side, the contribution to earnings was very strong, driven by an improvement in the current yield, a coupon plus dividend, and also by the contribution of realized gains in our financial asset portfolio. Finally, solvency, 218%, driven by the contribution of the capital generation, that gross of dividend is in the whereabout of 4%. And as you have seen in the presentation, the numbers that we disclosed incorporates also the estimated dividend for 2025. And so it is, for the first time, a number net of dividend for the current year. Having said that, as I said before, I am with Enrico ready to open the floor to the questions. Thank you very much.

Thank you. Anyone who wishes to ask a question may press a star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Tomaso Niedu of Kepler-Chevreux. Please go ahead.

Hello and thank you for taking my questions. Strong results. Well done. I have three questions, please. The first one is on combined ratio. Very strong despite lower reserve release. Can you please provide us more color on its split on motor and non-motor and how it was last year. Also, if you can provide us more info on the split of attritional versus large losses, I guess large losses were not material in the quarter. The second question is on the expense ratio. It seems a bit higher than expected. Is this due to channel mix, increased commissions or any structural impact on expense base. So any caller would be helpful. And then, sorry, the last one on realized gains. 113 million this quarter. I understand this is opportunistic and usually front-loaded. However, given your plan was considering only marginal contribution from that, Can you help us understand how to recalibrate our expectation at least for 2025? Thank you.

Thank you to you. I will start from the final question and then I will leave Enrico to answer to the other two. Concerning the contribution to investment income. Overall, the realized gain is a byproduct of the strategy that the investment team implement in order to change part of the financial asset portfolio in order to take opportunity in financial markets. So this time, first quarter 25 is we had to realize some gains as a consequence of the need to sell some assets in order to reinvest in others. And in general, what we are doing is to continue our strategy of diversification of the fixed income portfolio in order also to take advantage of the increase in interest rate that we saw in the core European fixed income security in the first quarter as a consequence of what happened above all in the final part of the quarter in fixed income securities as a consequence of the fact that we had an increase in the yield of some assets like Bund or French Oates or other European core in which we are diversifying versus Italian government bonds. Having said that, of course, in the next quarter, you can't replicate this contribution, but you should only replicate what we defined the current yield. That means... the contribution coming from coupons and dividend. Having said that, of course, I can't exclude that in the next quarter we could have other change in the asset allocation portfolio that as a consequence can give a contribution to the investment yield. If you want to be prudent in your assumption, you should use only the contribution coming from coupon and dividends. Then I leave Enrico to answer to the other two.

Good morning. As you mentioned, the combined ratio was really good, a little better than in our plan. Basically, for motor, we've been working on pricing during 2024. and so we were able to see a gradual improvement on motor tour party liability combined ratio that is going on also in the first quarter in 2025 and will very likely go on for the whole year. We can also add the fact that we had a very good results from claims recoveries of previous year claims and also a better quarter on motor other damages that improved because of all the action that we implemented in 2024, both on pricing and on the risking and so the contribution to the result is really relevant. The second question is about expense ratio. The main reason you can see this increase is the fact that our agent remuneration scheme has a relevant part of the total remuneration that is related to the technical profitability. So when we improve our loss ratio, there are some additional reward to our agents that result in a little higher expense ratio.

Thank you.

The next question is from Elena Perini of Intesa San Paolo. Please go ahead.

Yes, good afternoon and thank you for taking my questions. I've got three questions. The first one is again on the combined ratio. Basically, you were at the same level of last year, around 91% at consolidated level, with an improvement in the motor per combined ratio offset by a worsening in the non-motor ratio. As regards the non-motor component, do you expect the 90% combined ratio level to remain as sustainable in the medium term or would you expect it to increase or also during the year and going forward. And as regards the motor one, also in this respect, how would you try to maintain such a good level going forward? The second question is on the sustainability of the financial income yield, not the component regarding the capital gains, but the pure yield. If you can provide us with the outlook going forward for this year. And then a final question about your stakes in the banks. There is an exchange offer that was announced by Diper on Banca Popolare di Sondrio. Should you surpass the 20% level in the capital of the new entity, what kind of actions would you take to Would you be happy with such a level? I can remember that in the past you mentioned that you would prefer not to exceed this level. So is it still like this or has something changed? Thank you.

Thank you, Elena. I will start from the sustainability of the investment income on the current component, because concerning the realized gain, I always answer that, of course, you can't assume the replication of this contribution in a for the next three quarters, and also for the next three years of the industrial plan. Concerning the current yield, we have today in the component of portfolio that is not related to the policyholder, that means the P&C portfolio and the free the free asset in life, we have in the first quarter a current yield that is above 4%, that is higher than what we assume for all the industrial plan. Looking at the numbers that we are seeing today, and above all, the contribution coming from the dividend stream of our equity investment, I can say that for 2025, this number is sustainable for 2025. We will see if in relation to what the interest level, the interest rate will be, In the next future, today we are quite close to the assumption of our industrial plan. So there are not so many changes that I can make on the fixed income component of the portfolio. As I said before, the contribution coming from dividend is above what were our assumption of the industrial plan. So anyway. We will see in 26, 27, which will be the market condition of our investment in equity in order to see if this number will be sustainable also for the next couple of years. Concerning the third question that concerns our stake in... in BIPER we already said when we met last time that it is not on the table any request of authorization to exceed our 20% stake in BIPER and of course I confirm this and consequently in case of exchange offer would not have a success at 100% we would have a to sell some BIPER shares as a result of the tender offer. In this regard, I have to say that we already fixed this issue by the subscription of a financial instrument, basically based on a forward sale of BIPER shares. for the maximum amount of B per share that we would have to sell in case of 35% success of the tender offer, which is, as you know, the trigger of validity of the tender offer. And in this case, we would be forced to sell the maximum number of shares of BIPER. And so in case of a success between 35% and 100%, that is the best case scenario, we could mix the settlement of this forward sale, part in cash and part physical, in order to maintain, in any case of success of the tender offer, a stake of 20%. So we already executed this financial instrument. We already sold forward the shares. And so the only thing that we have to do is to wait for the final result of the tender offer in order to decide which part we will have to settle cash and which part we will have to settle physically in order to maintain, in any case, our 20% stake in deeper. I don't know if it was clear.

This second part about the case between 35% and 100% is not so clear for me. Could you say it again, please?

It is, Elena, a sale forward, vendita termine. the azioni in Italian and the amount is the maximum share that we would have to sell in case of 35 success of the tender offer that in this case we would exceed the 20% stake for the maximum as a consequence of the tender offer. Having said that we can settle the forward sale, both cash and physical. And depending on how many shares we would have to sell physically after the final result, we will settle physically at the maturity of the contract. The rest will be settled cash. So if I make again an example, If the result will be 35%, we will settle 100% of the sale physically. In case of 100% success, we will settle all cash. In the middle, where we will have to sell part physically, we will do it physically, and the rest will be settled in cash. So any kind of result we will have of the tender offer, we already have fixed the issue today.

Okay, thank you.

Okay.

Good morning Elena. For the first question about the combined ratio, of course about motor we already disclosed what was driving the good results in the first quarter and we think that the market condition in which basically all the market need to keep prices increasing to cover the increase of the inflation of the average cost of the claim put us in a competitive condition in which we think we are able to maintain the level of combination in motor that is in our plan. For non-motor, of course, there was a worst thing. The first quarter in 2024 was positively affected from prior year reserve release in property. You remember we had a massive amount of claims of events in NatCat in summer 2023. We had a very strong prudent reservation at the year end 2023 and in the following months these results evolved positively. This is something that is not repeating in this quarter. And also in non-motor, we expect to be able to keep the same level of combined ratio that is really close to what we put in the plan. So in non-motor, our target is to get around 90% of combined ratio.

Okay, thank you very much.

The next question is from Michael Hutner of Barenburg. Please go ahead.

Fantastic. I had four questions. I hope that's okay. The first one is any news flow on the potential sale of Unihotel, which I think would give you a billion, which would be very nice. The second is on the very strong growth in health, 21%, which I think is ahead of your planned target. I seem to remember a figure somewhere around 13 or something, but I may be wrong. I just wondered how sustainable and where is this growth coming from? The third question is on the pricing and retention. That's my last two questions joined together. In Motor, I was discussing with your wonderful team last night that you took pricing action before your competitors in 24, and now your pricing is maybe 4% or something, and the peer group is probably around 6% or 7%, so you're regaining market share, the retention is going up. Can you talk a little bit more about those dynamics in pricing and retention, and if my numbers are correct? Thank you very much.

Thank you to you, Michael. Concerning Un Hotel, I have no update and no news to share. To tell you, as I said several times, we are very happy in maintaining the asset in our portfolio. It is making money, very good level of profitability, not only for Un Hotel, that is the Opco, but also concerning the yield that comes from the real estate asset investment that we have supporting the business of of the hotel. As I said before, every time we set up an industrial plan, we consider all the opportunities for an asset that has a very good profitability but is not fully integrated with our core business. The base case is to continue with the investment in the asset in order to maintain and improve our profitability and we also consider other opportunities like disposal of the asset. In this regard Of course, we have an ambition of interest rate of return, and in case we would have satisfaction in this regard, we would take an opportunity the offer. At the moment, I don't have any news and update to give to you in this regard. and for the other two.

Good morning, Michael. So about motor pricing and the market situation, we, as you correctly said, did some pricing action in 2023 and the first part of 2024. Now the situation is basically that the increase that on a yearly basis is around 3% of the average premium is more or less what we are seeing from the EVAS report is the market average increase. So our competitive situation is more or less stable. and that's why also our retention rate is back to the level we had and is a very good level for us compared to the market results. So we can see the near future for this year probably continuing this kind of environment and so the chance to be able to offset inflation of the average cost of the claim with price increase and to keep the combined ratio stable. When it comes to health insurance, the overall first quarter result is a little lower than 21%. 21% is Unisalute results. The overall group results is around 16%. But, of course, it was a very good quarter. Some relevant contracts and also the production from the retail networks of agents and back assurance performed very well. but we expect this kind of growth to slow down. So we at the moment confirm what our growth target in health that on average on the three-year plan is a little less than 8% average annual growth.

That's hugely helpful. And may I just ask a very quick follow-on? On the health, is the combined ratio Can you give us a feel? Is it in line with a 90% non-motor, or is it below or above? Just to have a feel, thank you.

Yeah, Michael, it's very close, a little lower than 90%. So perfectly in line with the overall non-motor combination.

Brilliant. Thank you so much.

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

Yes, hi, good afternoon. Sorry to come back on the non-motor combined ratio, but I was wondering if you can elaborate a bit more on the moving parts, meaning PYD, but also man-made and large losses and not cut that affected the seven points deterioration year on year. So if we can have a reconciliation of the seven points. On life, the 7% decline in G&A savings in Ramo Primo, is this driven by you? So meaning that you are now trying to refocus more and more the network towards multi-class and unit against Ramo Primo, or there is just something else explaining this decline in the first quarter. And the final one is on the dividend accrual that you introduced starting from this quarter. A couple of curiosities. One is why you decided to go for your own internal estimate of 2025 DV and not like many other competitors using the actual 2024 with a top up in Q4, depending from the dividend you will announce at the end. And a link to this, if it is correct to assume that the dividend accrual was having an impact in the region of three points. Thank you.

Okay. Concerning life, the production has been driven Above all, as I said, by bank assurance distribution network that was very active. Also in Multiramo, that is a product that embedded in bundle a component of traditional and a component of traditional. of unit linked. This is, as you correctly said, the main reason why there has been this small decline in growth in In Ramo Primo, having said that, we usually define the budget of traditional products depending on the asset and liability management needs. of each segregated portfolio for each year. And so the comparison versus the previous year is not for us an indication of quality of growth. So a decline of 7% for us is not, in a sort of sense, meaningful or material for our strategy. Concerning the issue of the solvency, the impact of the dividend is in the whereabout of 3%, so your assumption is correct. We are just in the first quarter of of the year, so the assumption of dividend in the solvency that we use must not be an indication for you for the estimation of the dividend of 2025. the estimation of the dividend of 2025 has to be based on what we said in our industrial plan where we forecast a cumulated 2.2 billion of dividend overall and a compounded annual growth rate of 10%. You have to keep in mind this, of course, in the assumption of the dividend that we will use insolvency there is a very strict correlation between the two but of course the final decision on dividend will be a decision that the board will take at the beginning of next year so we have plenty of time yet to make an assumption of what we will pay in 2025 thank you Enrico for the other question

Good morning Gianluca so the question was about the non-motor combined ratio deterioration of course we have to consider that the results in 2024 was very good 83% compared to the good 90% of 2025 the main reason for the deterioration of the loss ratio as you can see there is a deterioration of a little more than five percentage points in loss ratio was what I already said about the positive evolution of pre-oreal reserves that in 2023 were strengthened after the nut-cut events on property and in the first part of 2024. had this positive evolution. There is another impact on combined ratio that is related to the expense ratio and commissions. So as you can see, the expense ratio is growing 1.6 point. and mainly because our agent compensation is partially related to the technical performance and so after the good technical performance in 2024 we are estimating the impact on what we call RAPID, so the incentive scheme on profitability also in non-motor And we can also add that we offer to our agent a prize to be able to deliver the results on the portfolio, the risking in property. So as you remember, we had a very relevant action in the second half of 2023 and during 2024. Our agents were able to discuss with their customers to adapt new prices and conditions of our portfolio and in this quarter there is the price that is a little more than 5 million euros that is one-off, of course.

Sorry, and the impact of NatCat and ManMade?

Oh, sorry, Natkat and Mamed is not relevant and very similar between the first quarter in 2025 and 2024. So, of course, about Natkat, the following quarter will be more relevant, of course.

Thank you very much.

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

Good afternoon. Most of the questions have already been asked, but a couple of questions from my side. One was again on nut-cut and man-made products. What is the budget that you have in mind for 2025 and maybe for the entire plan on that point? You already discussed during the business plan presentation. I was wondering if there is any update and maybe something more specific for this year. And the second is on the other segment. There is volatility, obviously, related to the business of the hotels that is seasonal. But can we take the first quarter pre-tax as an indication, multiplied by four, and having an idea of what we could expect from this segment going forward? Thank you.

Thank you, Alberto. On NatCat, then Enrico will elaborate, but as we said during our industrial plan presentation, we have a quite prudent as usual approach on estimating NatCat impact on our numbers. And as we said in the presentation, our assumption is more prudent than what was the nutcat impact in 2024, as an assumption. And this was, as you remember, the reason why the forecast of combined ratio in non-motor was... quite conservative. In terms of volatility of the hotel business, if I understood well, we are talking about very low numbers, because if I remember well by heart, the net loss of the first quarter of the hotel is in the way about of 3 million so it's a very small number and the forecast for hotel is to have a good level of profitability so you can't of course replicate the first quarter in the next three, but it is a trend that will uplift the number in the second, third, and fourth quarter. Having said that, the real issue of The number overall is that the first quarter usually is light of NatCat impact, but above all, in the third and fourth quarter, you have the most significant negative contribution coming from NatCat. But on this, I will leave the floor to Enrico to elaborate more.

Yes, thank you Matteo. Good morning Alberto. So Matteo has already told the main information about it. So of course our budget that was calculated with our probabilistic method that is consistent with also the risk management calculation of the capital needed, of the SCR needed for this kind of risk. is projecting on average in the three-year plan 100 million more than what we reported in 2024. So 100 million every year, of course. So we think it's prudent, it's consistent. So far so good, but as Matteo told us, the first quarter is not relevant for this. Maybe it could be interesting also to add here that we are going to sign on top of our reinsurance programme a new aggregate cover for property damages on nut cut that can protect us even better than the existing program in a situation in which several medium-sized events can occur. And so this is something we are going to elaborate better in the next weeks. But in our opinion, it's something that makes even more reliable our target.

Thanks, that's very interesting. I was just wondering what is the, let's say, prudence you have embedded also in light of the fact that you, as discussed before, decreased the guarantees you give on property and some other lines.

Yes, basically what we are doing is we've been doing to reduce exposures and concentration of risk. Of course, we are going on with this. On the other side, of course, there is the new compulsory coverage for companies for net cut risk that still is not that relevant, but when it will finally become effective, will probably increase a little bit our current trend, but basically we put this kind of prudence with this kind of calculation I described that has a very prudent assumption also in terms of probability that are included in the model.

Thank you.

The next question is a follow-up from Thomas Oniedou of Kepler-Chevreux. Please go ahead.

Thank you very much. Just a quick follow-up on the non-life and in particular on the combined ratio again. So I was wondering on the discounting benefit headwind. Can you please quantify what was the benefit difference and again on its unwinding? Should we consider this quarter a reliable run rate amount for the other quarters. Thank you.

The discount rate in the first quarter of 2025 was 2.4%, almost half of what it was in the first quarter of 2024. and it's difficult to give an indication of the next quarter because it will depend on the level of interest rates at that time. At the present level of interest rate, it is, but I can't exclude that in case of a big change in the yield curve, we would have to adopt a different number. But this is it at the moment. In terms of unwinding, we have 48 million of unwinding. That is almost exactly the same number that we used in the first quarter, 24.

Okay, perfect. Thank you.

The next question is a follow-up from Michael Hartner of Baramark. Please go ahead.

Thank you so much for this opportunity. I failed to attend your investor day, so I'm really sorry. With your $2.2 billion dividend commitment and $3.4 billion insurance profit, my guess is you're accumulating cash. Just a general question, what's the intention there, please?

Okay, so first of all, we have to generate it before taking a decision on what to do. This is our assumption. We are in a very good track in the first quarter to produce organic capital generation, as we showed in the number of first quarter of 25. And this one billion of... Organic capital generated after paying dividend can be used in many ways. The first one is to maintain a buffer in capital that can protect us in case of big risk-off trend of financial market. We saw in the first week of April the consequences in financial market of the very tough approach that U.S. administration used in the tariffs. Now financial market restored the same level in which we were At the end of the quarter, but we have to be prepared to face any kind of environment and also an environment in which financial market can have a negative impact on our solvency. And in this context, having one billion of extra buffer can help us. Another way to use the extra buffer is to finance growth opportunity organically. Of course, we are doing a lot of effort in growing in bank assurance and in health insurance, but also in any other opportunities in terms of line of business. And having capital is very supporting opportunity. in case of a decision of growing more than we were assuming in our industrial plan, and also in case of neither of the two alternative wood materialized, we could decide to distribute this additional capital. It is very early to take this kind of decision, but we have all these three open options, all these three opportunities open for a decision.

Very helpful. Thank you.

For any further questions, please press star and one on your telephone. Mr. La Terza, there are no more questions registered at this time.

Okay, thank you very much for spending time with us, and we will meet again for the first half result. Thank you very much.