Generali (BIT:GASI) Group (G.MI) has reported its earnings for the first nine months of 2024, showcasing a robust performance despite challenging market conditions. The Group General Manager, Marco Sesana, and Group CFO, Cristiano Borean, provided insights into the company's operational improvements and financial results during the earnings call.
Key highlights include a rise in new business volume, particularly in the Protection segment, and a strong combined ratio in the Property and Casualty (P&C) sector. Despite lower interest rates, Italy has seen a return to positive net collection, with expectations for continued positive inflow by year-end.
The company also anticipates a moderate impact on its Solvency 2 ratio from a joint venture closure in China.
Key Takeaways
- New business margin in Life insurance stands at 4.92%, with a 9% increase in volume.
- P&C sector shows an improved combined ratio of 96.3%.
- Life operating results surged by nearly 11% compared to the same quarter last year.
- Investment results increased by over 20% year-on-year to €266 million.
- A significant increase in variances for Q3 2023, with economic variances at €400 million.
- Motor insurance premiums rose by 7.5%, with a focus on profitability and strategic growth.
- Cash flow is reported between €3.7 billion to €3.8 billion, with a €1 billion liquidity buffer.
- The Solvency ratio is reported at 209%.
- Restructuring costs are expected to halve in 2024 from €300 million in 2023.
Company Outlook
- Generali targets a combined ratio below 96% by end-2024.
- Forecasts positive net inflow in Italy by year-end 2024.
- The company is managing conservative initial loss picks in P&C.
- Anticipates growth strategy focusing on motor, SME, and Accident and Health segments.
- Expects profitability growth from rate increases and improved underwriting.
Bearish Highlights
- Lower margins expected due to declining interest rates.
- Q4 may see a slight decrease in new business margins due to seasonal effects.
- Anticipates restructuring costs and potential impairments in Q4.
Bullish Highlights
- Strong equity market performance globally and reduced market volatility.
- Life business's reinvestment yield projected between 3.6% and 3.8%.
- New business value growth trends expected to continue accelerating.
Misses
- Operating variances exceeded €100 million, primarily due to lapses.
- Non-recurring items impacted Life investment results, including a €40 million cost from increased hedging in Switzerland.
Q&A Highlights
- Management expects a minor impact on the Solvency 2 ratio from the closure of a joint venture in China.
- The company is adapting strategies to maintain efficiency in capital management.
- Investor Day scheduled for January 30, 2024, in Venice, where further guidance will be provided.
Generali Group's earnings call underscored the company's resilience and strategic focus on growth and profitability. With a solid performance in both the Life and P&C sectors, the company is navigating the challenges of the current financial landscape while positioning itself for future success. The upcoming Investor Day is anticipated to offer further insights into the company's direction and strategies for the coming year.
Full transcript - None (ARZGF) Q3 2024:
Operator: Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Generali Group Nine-Month 2024 Results Presentation. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Fabio Cleva, Head of Investor and Rating Agencies Relations. Please go ahead, sir.
Fabio Cleva: Hello, everyone. And welcome to Generali nine-month 2024 results call. Here with us today we have the Group General Manager, Marco Sesana; the CEO of Insurance, Giulio Terzariol; and the Group CFO, Cristiano Borean. Before opening the Q&A session, let me hand over to Marco and Cristiano for some brief opening remarks.
Marco Sesana: Thank you, Fabio, and hi, everyone. Good morning. Let me start by saying that our third quarter has confirmed the continued business and operational improvement achieved throughout the year and the positive effect of the commercial and technical action implemented since 2023. At the same time, we have maintained a solid Net Promoter Score leadership position versus peers. This is thanks to our ability to connect with multi-holding customers and a clear reflection of our Lifetime Partner proposition. I would like today to share three key highlights from the third quarter with you. The first one is in Life. We confirm a robust new production trend leading to sizable net inflow concentrated in our preferred line of business. At the first half 2024 result call, we provided the guidance on the new business margin between 4.5% and 5%. I am pleased to confirm that the third quarter we reach at 4.92% new business margin. While we confirm our guidance, we expect a lower new business margin in the fourth quarter compared to the third quarter given the declining interest rate and the impact of product mix on the margin. The third quarter also enjoy a 9% growth in new business volume Protection growing by 11.5%. As presented at our Investor Day in January 2024, we see attractive opportunities for long-term profitable growth in Protection in the coming years. Protection generated again over 40% of our new business value in the past quarter. As we commented previously, lapses in France have basically normalized to the level seen in 2022. In Italy, we have continued to see a decrease in lapses in the second half of the year. We fully expect this trend to continue as the competition from government bonds and bank deposits gradually abates. Italy returned to positive net collection in the third quarter and we confirmed that we expect the Italian business to achieve a positive net inflow for the year by the end of 2024. At that point, we will evaluate how to gradually scale back some of the commercial incentive introduced last year to support production. My second message is about the P&C business trends. The numbers we released today confirm the positive those effect driven by both rising tariff and normalizing claims inflation in a context of overall benign frequency. Going into more detail, the annual average premium for our 10 main markets grew by 6.8% overall. In the motor line, this increase is equal to 7.5% and translates into an annual earned premium of 6.5%, more than compensating increase of the risk premium of 0.3%. We continue to implement our pricing and technical excellence strategy, and this is increasingly resulting into a positive development in the attritional combined ratio. The undiscounted combined ratio has improved to 96.3%, down by 1.4% compared to the last year. The third quarter improvement in the undiscounted attritional combined ratio was also supported by very benign frequency and low incidence of severe bodily injury claims. While we would not project the rate of improvement of the third quarter linearly into the future, it is certainly very encouraging to see this trend as we enter into a new strategic cycle. We confirm our confidence to reach our target to the end of 2024 with an undiscounted combined ratio below 96%. This, despite an impact from natural catastrophe that at the nine months 2024 is about 100 basis points higher than what we have budgeted. Our confidence is based on the strong improvement of our underlying underwriting result that is becoming increasingly visible in the numbers. And indeed, my third message is about nat cat. Clearly, the third quarter has been an adverse one. It is a development that we will take into account within our new plan, where a higher budget for natural catastrophe will be appropriate. Most likely, this event will lead to a continuation of the hardening cycle in personal line in Europe. During the last month of the year, we usually experience a more benign trend for weather events in consideration of the footprint of our portfolio. Natural events since the end of September are estimated to lead to around 100 additional net natural catastrophe losses so far in the fourth quarter. In addition, we book a €20 million mainly loss from the riots in Martinique. Concerning the tragic events we have all seen in Spain, let me look past the economic impact and express our sorrow for the many people affected. To support this effort, Generali is actively supporting the Spanish Red Cross with financial aid. To express our solidarity with the affected areas, we have also launched a global fundraising campaign to support the Spanish Red Cross on the ground, focusing on helping those displaced from their homes or cut off from essential services. We are also actively providing support through our Human Safety Net Foundation in the areas in which it operates in Spain. Thank you for your attention and let me now hand over to Cristiano.
Cristiano Borean: Thank you, Marco, and hello, everyone. Let me provide you some additional color on our nine months 2024 financial performance to complement what you’ve just heard on the underlying business trends. Starting with Life, the operating result in the third quarter is up almost 11% compared to the third quarter of 2023. There are two points I wanted to flag you. Firstly, the CSM grew by almost €500 million in the third quarter, despite around €100 million of negative operating variances, mostly related to lapses. I expect that for the full second half of 2024, we may record an amount of operating variances similar to what we had in the first half of the year within the context of the annual update of assumptions that will be completed by December. Secondly, investment results in the quarter at €266 million is up over 20% year-on-year. Let me highlight that this growth also reflects non-recurring elements in the comparison between 2024 and 2023. Moving to P&C, Marco has already commented on the improvement in the combined ratio. Let me emphasize that this improvement is of a very high quality, entirely driven by the current year component, as we maintained a prior year development in line with our 2 percentage points guidance. As Marco said, we confirm our undiscounted core guidance below 96% for 2024, which reflects the improvement in the underlying technical profitability. This confirmation is, of course, subject to the final tally of natural catastrophes. Looking ahead to the fourth quarter, we expect the P&C business to have a minimal amount of current year discounting, I would say around €50 million, reflecting the lower interest rates and the intra-year trend of discounting. On the current year loss ratio, we will continue to see the benefit of tariff increases, but we will also book conservative initial loss picks in line with the Generali’s longstanding approach to prudent reserving. On the non-operating result, please consider that in the fourth quarter, we expect to have some restructuring costs which may also be driven by the recent acquisitions, and in addition, we are also likely to record some impairments on a selected number of real estate exposures within the context of the end-of-year appraisals. Concerning the tax reform currently under discussion in France, we expect to book around minus €14 million in the fourth quarter in case the final version of the corporate tax measures reflects what has been discussed so far. Finally, on Solvency, please note that by the end of the year, we expect to complete the closing of the step-up in the Generali China P&C joint venture, which is expected to have a minus 1-percentage-point impact on our final year 2024 Solvency 2 ratio. As the year draws to a close, let me thank you for your continued support. I look forward to seeing you at our Investor Day in Venice on January 30th. Operator, we are now ready for Q&A. Let me anticipate, but given we have our Investor Day coming up in January, we may defer the forward-looking questions to that venue.
Operator: Thank you. This is the Chorus Call conference operator. [Operator Instructions] The first question is from Andrew Baker of Goldman Sachs (NYSE:GS).
Andrew Baker: Great. Thank you for taking my questions. So, the first is on -- just on the P&C attritional. So, you know benign frequency, sort of low bodily injury claims in Q3 and you caution us from projecting linearly going forward. Are you just able to give us a bit more color on sort of breaking that out in terms of how much of the attritional you would have considered more sort one-off or a quarterly benefit in 3Q? And then secondly, on the Life CSM, can you just help me unpack the variances a little bit? So, the expected return in Q3 actually looked like it was up a little bit and that was lower rates. So, curious what’s going on there. And then I think you mentioned the €100 million of operating variances that was primarily lapses. And then just directionally, what was the impact from the economic variances? That would be really helpful. Thank you.
Fabio Cleva: Thank you very much, Andrew. Cristiano, both questions are for you.
Cristiano Borean: Hi, Andrew. So, about the effect of benign frequency and disinflation, which we all seen below the pre-COVID level, which is an important trend still being confirmed quarter-after-quarter, there was more a comment related to the bodily injury part. Notwithstanding that, I would like to point out one thing. I think that, the -- as I said in the introductory speech, for sure you will see a continuation of the improvement of the technical profitability going forward and this is in the number. And so, if we just accumulate the first nine months and you get to the year-end number, there will be further improvement on the year-end 2024 number versus the year-end 2023. The speed of this acceleration will also be mitigated from what I said, but we will continue to exercise strict prudence in terms of initial loss peaks. Please, the disinflationary forces are becoming increasingly visible in the number, so you should continue to project, but at an appropriate level, as I was saying. This is on the first question. The second question, the variances we have seen in the quarter, I would say, it is of the order of €400 million for the economic variances in the third quarter versus the healthier number and slightly more than €100 million in the operating variances, the vast majority being clearly related to the fact of the lapses. On the economic variances, the major drivers are the positive equity market performance all around the world, both in Europe and in Asia, and as well the positive impact of lower market volatilities, which, as you know, has a benefit in the time value of option of guarantees. These, I would say, are the two major drivers with slightly more benefit from the equity performances, more than upsetting the negative interest rate effect, which is about €100 million negative.
Fabio Cleva: Next (LON:NXT) question, please.
Operator: The next question is from David Barma of Bank of America (NYSE:BAC).
David Barma: Hello. Thanks for taking my questions. On -- two small ones on Life, please. Firstly, on the investment results, so clearly another good quarter. You suggest there’s some non-recurring items in here. Is the proportion the same as what you suggested in Q2, which I think was half of the annual growth, so if you can give a bit of color on this? And then on the new business margin, so 4.9% in 3Q, is there still an impact in there from the French Protection business that was booked in Q1 this year and from the various marketing actions taken in Italy, and maybe if you can quantify those things together? And then lastly, on P&C, if you can give us an update on pricing versus claims inflation in your main markets and where you’re seeing some pretty strong renewals at the end of the year? Thank you.
Fabio Cleva: Thank you very much, David. The first question on the Life investment result, as well as the one on the new business margin, are for Cristiano, while the question on pricing versus claims inflation and the outlook on the renewals is for Giulio.
Cristiano Borean: Hi, David. So, what I would deem as recurring versus non-recurring is more related to what was not recurring in the third quarter 2023, more than non-recurring in the third quarter 2024. And in third quarter 2023, we had some effect of -- negative effect of increased hedging costs in Switzerland, because as we told you in the past, we were changing the dynamic hedging into a more stable asset liability management, which, by the way, helped a lot supporting the Solvency of our Life entity, which is the right thing to be done, but had a cost of around, I think, €40 million in the last third quarter 2023. This is the main element I would comment there. On the second part of new business margin, we do still have commercial action in place, but we don’t have any impact from the French Protection effect, because that was fully booked already. And the effect of commercial actions in mainly concentrated in Italy, are in the order of 30 basis points to 40 basis points, if I add up all of them.
Giulio Terzariol: Okay. The question about pricing, I can tell you on the motor side we have price increases on average of about 7.5% and that’s well ahead of the risk premium increase that we see. It’s about almost 4-percentage-point ahead of that, so that’s a big improvement. Also consider that when you look at our numbers, the earned premium increase is a little bit below the average premium increase, so there is an improvement which is almost embedded as we go into also next year. As we think about the motor, there we see an increase more of 4% of the average premium, but we are improving the attrition or loss ratio, excluding the man-made, by about 1%. So this means that basically the increase in average premium is almost 3-percentage-point ahead of the risk premium, and on the Accident and Health we see an improvement almost of very high single digits, so there is a lot of strength in what we are seeing right now. And as we think about the beginning of 2025, we are still going to go for increases in premium which are at least matching a risk premium increase or ahead of that, depending on the case. So from that point of view we are starting from a strong basis and we still push to make sure that we consolidate what we think is a very good position. That’s all my pricing.
Fabio Cleva: Next question, please.
Operator: The next question is from Michael Huttner of Berenberg.
Michael Huttner: Yeah. Thank you so much. I loved your sentence on the jaws of a crocodile and I suppose my question is how long is the jaw? In other words, does it reach to, I know it’s forward looking, so I don’t know, 2026, 2027, 2028. I’ll give you a background. I was at the lunch of your Spanish competitor on Monday, and they also mentioned the jaws of a crocodile, but they said two years, so I’m hoping you can say thanks to your pricing actions still to come, maybe three years, who knows. My second question would be on cash. I know it’s far too early, and you probably say again and leave that, but I know there is a lot of one-off cash this year, but maybe you can give a feel given the very strong outlook in both your core businesses with how quickly that €700 million might be cashed back or earned back or whatever in terms of getting the cash flow back up to current levels. And then my final question, and I’m sorry, it’s three. In the operate, in the Solvency, your fantastic IR gave me a very detailed split of the Solvency movement, which includes 1.5% operating variance negative. I’m sure it’s something you’ve already mentioned, but I’d be curious? Thank you.
Fabio Cleva: Thank you very much, Michael. I think the question on the crocodile jaws effect is for Marco, while the question on cash and on the solvency movement, especially the operating variances are for Cristiano.
Marco Sesana: So, hi, Michael.
Michael Huttner: Good morning.
Marco Sesana: So we expect -- so I want to build on what Giulio just said. So we are very positive in the sense that we see embedded still price increase coming in the next month and we are pushing for that. And we see an overall risk premium that is going in the right direction. So what do I mean? Inflation is still there. So we do still see some part of the business that has inflation. Keep in mind that there is a lag effect between what you see on the consumer price inflation and what we see in the claims inflation. So the decrease is coming a little bit later from what you see in the public market. But this is also compensated by the trend in frequency that, so far is going in the right direction. I would say it’s a trend, it’s something that we see since many quarters. So I would say we do see that there is potential for continuing this margin expansion for the next quarters. On top of this, you correctly mentioned the nat cat effect that will have an impact on the rates that we will see, both on corporate and commercial and on retail. Because clearly, all of us will need to deal with a different, I would say, mindset on nat cat, not only on the technical side, so understanding exactly how much do we -- how do we manage volatility and how do we make sure that we are properly on this risk, but also will have an effect on pricing. So clearly this will give us some room to additionally increase prices in the next quarter.
Michael Huttner: Thank you.
Cristiano Borean: Hi, Michael. So going to cash, having said that at the nine months including the operating cash, we were having something of the order of €3.7 billion, €3.8 billion, but you have to strip out of this money the operating part, where what matters for you is to know that we have the usual €1 billion of liquidity buffer plus the money to cover the buyback and minor spare €100 million out of that. For sure we will give you the full detail on the Investor Day about the future evolution. The only thing I would like to highlight to you is that in 2024 we were able to have again from a specific capital management operation excess cash repatriation, for example, the one we were commenting in Austria, and as we highlighted this year we presented and completed operation also for restructuring of participation composition in our, for example, Italian entity, which will bring, as we already commented, the further benefit which we will comment at the Investor Day.
Michael Huttner: Got it. Thank you.
Cristiano Borean: And on the economic non -- other movements, non-economic variances of the Solvency, the 1.5-percentage-point, I would say there are mainly a couple of drivers, evenly split. The first one is a slightly higher investment risk to the portfolio because of the risk-bearing capacity and evolution and when it is active it is accounted in this piece of the non-economic, because it is actively decided by the management, and the other piece are some small non-recurring and non-operating expenses which are then accounted there.
Michael Huttner: Brilliant. Thank you very much.
Fabio Cleva: Next question, please.
Operator: The next question is from Will Hardcastle of UBS.
Will Hardcastle: Thanks for taking the questions. On the motor side, thanks for the big picture comments on pricing globally. I guess which countries are you most confident of growing volumes in at the moment and anywhere where you still feel a little bit of retrenching is necessary? And just, it certainly sounds like the nat cat budget is being focused on. I guess, what do you think here has gone wrong in the budget setting over the last two years? Is it just a higher frequency and severity of events versus the reinsurance shift in the last couple of years and is there anything you can do on reinsurance or is it simply just raise the budget? Thank you.
Fabio Cleva: Thank you very much, Will. The first question is for Giulio, while the second question is for Marco.
Giulio Terzariol: Yeah. I would say coming to motor, I wouldn’t highlight a market where we see necessarily more potential to grow the business and also the focus is not necessarily on motor. So what we are seeing right now on motor, we are more or less holding the line on the risking force and this is going to be also somehow the strategy as we go into 2024. Where we see growth is on the motor, on SME, on Accident and Health. So that’s where we are focusing on and that’s also part of our strategy of the so-called multi-holding customers. So from that point of view, localistically, and there is also the Life side, by the way, as we think about the multi-holding. So localistically, the situation, and it’s not about pushing necessarily the production on the motor side, where we are very much focused on making sure that we have a very, very strong combined ratio. So that’s the situation. The pruning, we will continue to do pruning. We have about 200 million pruning that we do every year. To a certain degree, we should expect this to continue. So the combination of nice rate increases plus all the things that we do on the underwriting should bode well from a profitability point of view, and from a growth point of view, we expect to get the growth, not necessarily from motor, but from the other lines of business.
Marco Sesana: So on nat cat budget. So I don’t think there is anything that necessarily went wrong in the last year in the budgeting phase. It’s more, I would say, we are seeing this trend also coupled with many other trends that we see in the industry, but also let me underline that what we are seeing is also an effect of the increased portfolio level that we have. So we have been growing a lot, so it’s clearly, the type of disease events that we experience are going up. On the reinsurance side, it’s -- we have been changing, slightly updating the structure of reinsurance over the last couple of years. We will see in this renewal what we can do about this. I don’t expect major changes, to be honest, in the structure. What I do see as important is to think about the climate change at 360 degrees in a different way. So it’s not only about claims, it’s about the type of services that we will provide, the type of coverages that we will provide, how we will be able to manage volatility differently in the future, but also how can we stay closer to the client when something happens. So overall, we will talk about this in January, in our Investor Day. I would say that this is something that we will see more in the future and will drive also prices in the future.
Fabio Cleva: Next question, please.
Operator: The next question is from James Shuck of Citi.
James Shuck: Hi. Good morning. Good afternoon. I had a question on the restructuring costs to begin with. You mentioned that in your comment. Restructuring costs have been a bit of a feature at Generali for many years, absorbing quite a high proportion of the net income. I think last year kind of came in around the €300 million level. I’m just wondering kind of where we’re going to settle this year and then the kind of outlook as we go into the next plan. So ideally, that should be fading away to zero, but I’m just keen to get your thoughts on that. So that’s my first question. Secondly, I think, Cristiano, you’d indicated in the past for the Life insurance service results that the full year would see that the sum of the lost component, experience variances and other income expenses would be negative low triple-digit millions, which it looks like it will end up being. My question is kind of on the outlook for that, because I’m just keen to understand if we’re going to see an element of those recurring going forward, because that would be a key consideration in earnings growth outlook? And then if I may just quickly just ask about the trajectory for the investment income in P&C. So wherever we land at this year-end, will you be expecting growth in absolute terms in the investment income? Are you still seeing a positive difference between the running yield and the reinvestment yield? Thank you very much.
Fabio Cleva: Thank you very much, James. Cristiano, the three questions are all for you.
Cristiano Borean: Hi, James. So for sure, let me remind you, but in 2023, there was a very specific restructuring charge a larger €200 million euro in our country, Italy, where there was an agreed with the union and operation. We are not foreseeing for 2024 this kind of level. What I just recall is that in 2024, there are also the acquisition done so far, but the level is absolutely lower, I would say halving the level you are seeing there for 2023, if I have to make a guess for the year end 2024, this about restructuring. And they are going forward -- with the actual perimeter we are having, they are going forward to decline, and clearly, we are continuously looking for efficiency solution and measures and on that, for sure, we will comment more on the Investor Day. On the second question related to the insurance service result for the lost component experience balance and other, the outlook for 2024 is coherent with the guidance of low-triple digits between minus €150 million, minus €200 million, which is consistent. Going forward, you need to be aware that this kind of element, especially I’m expecting the experience variance on the component to scale down materially compared to the number we have seen so far and the number I was commenting will be posted also in the cumulated, but don’t forget that one of them, which is the loss component, is volatile and depending sometimes on the market condition. So clearly we are reducing the ALM risk in the portfolio, but there are assets which can bring up and down. Just take the case of the third quarter where market -- equity market went well and some unit of accounts reversed from negative loss component into the positive, creating a positive P&L. Regarding the trajectory, third question, for the investment income in P&C, we -- where we will land in 2024 and the balance between running and investment yield. I would say that, first of all, don’t forget that in 2023 we had something of the order of €50 million not repeated in 2024 of specific private equity dividend payment on performance fees structures, which has not been repeated this year and is more erratic in nature, so you should not project it forward. While we have observed an extension of the perimeter of the asset under management because of the acquisition of Liberty and which in the P&C only is bringing €60 million in the first nine months of this result posted today. So their investment yield is still above 30 basis points above the current return, which is 50 basis points above the current return, so 3.6% versus 3.1%. And don’t forget that our asset allocation in P&C is skewed also with 30% of non-fixed income assets which are not following the same pattern of their investment, but over the cycle we are earning a risk premium and this is going to be seen going forward.
James Shuck: That’s really helpful.
Fabio Cleva: Next question, please.
Operator: The next question is from William Hawkins (NASDAQ:HWKN) of KBW.
William Hawkins: Hello. Thank you. Lots of your questions have eaten mine up already, so one, please. Just back on Michael Huttner’s question about the Solvency ratio. First of all, just for housekeeping, can you tell me the numerator and the denominator behind the 209%, please? But more importantly, we’re now in the third quarter, I think, of seeing the operating variances being an increase in the SCR, having historically seen that as a tailwind to the Solvency. Are we now into a structural pattern where because your business is growing and because of inflation and that kind of thing, your SCR from an operating point of view will be rising, or should we still be assuming that that is a tailwind from reducing SCR from operating items in the future? Thank you.
Cristiano Borean: Hi, William. So, numerator, €48.9 billion. Denominator, €23.4 billion euro. And in the end, 209%. Going to your question on the operating variances effect and the SCR, operating variances are affected also, as I was showing before, sometimes from changes also in strategic asset allocation because we consider this a kind of managerial action, so it’s more in the operation of the company than only the purely passive economic variances effect of your final choices that you are taking. So, I always call a kind of alpha versus beta component in the investment decision and being it alpha in the operating. So, what we should add on top of that is clearly that we are now adapting the hypothesis and our processes that we discuss and decide in the third quarter and we act in the fourth quarter usually to update those assumptions, which were still for modeling reason taking a kind of weighted average and timely weighted average effect on this, which is dragging a little bit still some of these attacks. But going forward, I think that thinking about these effects should more be linked to the investment decision on our risk-bearing capacity. And on the SCR, I would say that all the actions we are doing is to be efficient in the way we are managing the SCR and there are capital management tools, which we are already pulling in the past and we commented out already, be it through reinsurance, be it through specific hedging of fees in the unit-linked world, as we did already, which are allowing to have a grow with not a large SCR increase and being effective because our aim is also to have an improved return on the capital -- risk capital employed.
Fabio Cleva: Next question please.
Operator: The next question is from Elena Perini of Intesa Sanpaolo (OTC:ISNPY).
Elena Perini: Yes. Thank you for taking my questions. Actually I have only one. It is about your outflows from the saving products still in the third quarter. So I know that you expect to be back to positive flows in Italy by the end of the year, but I would like to have a bit more color also on other countries and on the overall picture for the group? Thank you.
Fabio Cleva: Yes, Elena. I would say this question is for Giulio.
Giulio Terzariol: Yes. So I would say generally when you look just at the saving part of the equation we see negative outflows in Italy, the saving side, but when you put all together you can see that the inflows situation is improving significantly. For the standalone quarter in Italy we have positive flows. That’s very important to highlight. And also we see that’s also important the reduction of the lapses, so the surrender. I’m comparing here the quarter 2020, this quarter 2024 to the third quarter 2023. So we see a very different dynamic. When you go outside Italy generally we saw already a nice improvement in the first six months and we continue to see a good development. So from a flow situation, I would say, very good development across the Board and starting, I would say, the summer of this year also a different trend in Italy. So we would expect at this point in time that on the total flows we are going to be positive also in Italy by the end of the year.
Elena Perini: Okay. Thank you.
Marco Sesana: Maybe I can add one point on the fact that we do expect new business margins, sorry, that is going to decrease slightly in the fourth quarter. This is due, it’s a typical effect of the last quarter of the year where you have a big campaign from the agent side to get net inflows. And so typically the mix -- and also you have, sorry, a renewal on some group business. So I would say the mix overall will have an effect of decreasing slightly the new business margins. So I think it’s important to say that. And also to say that we have discussed the topic of lapses over the last quarter and we do still think that our franchise of agents are performing really in a very good way both in Italy and in France.
Fabio Cleva: Next question please.
Operator: The next question is from Andrea Lisi of Equita.
Andrea Lisi: Yeah. Thank you for taking my question. The first one is on the contribution from investment, the one that you said before as regards the yield on the front book and on the back book. If you can provide the data also for the Life business? The second question is still on Life considering also what you said on the new business margin that should be expected slightly down in the fourth quarter relative to the third one. Should we expect the trend in terms of growth year-on-year of the new business value to continue to accelerate as we have seen starting from the start of the year? And yeah, as regards the last question is on P&C, on the combined addition impact of nat cat. Maybe I have not understood well but just to have confirmation that the impact of additional nat cat that you have seen so far in the fourth quarter is further €100 million. Just to have confirmation on that. Thank you.
Fabio Cleva: Thank you very much Andrea. The first and second question are for Cristiano, while the third one is for Marco.
Cristiano Borean: Hi, Andrea. The first number is the Life reinvestment yield in the total book before it is between 3.6% and 3.8%, depending if you add or not also the debt part, which is the largest, the highest number, the 3.76%, as well as we are observing the effect of having a benefit from this kind of allocation and restored inflow into this projection. The second element on the Life new business margin on the trajectory, it is the combination of a little bit of, I would say, 20 basis points to lower interest rate for the pricing itself. Just to make you an example, if I had to measure the third quarter in isolation, the 4.92 bps of the third quarter new business margin with the end of period hypothesis, not with the beginning, there are 6 basis points further of this down, which shows that there is some sensitivity, as we said, for the basis points movement. So, there is this part together with a very positive improvement of the profitability of our Protection business. Protection business is going further up and it is going and growing up, as Marco was commenting before. So, the end trajectory will benefit from pulling out in a right moment of the commercial action together with certain clear mix of offer. We will be different from the zero interest environment, which could have some slightly lower effect, but we confirm that the 4.5% to 5% new business margin range is there. In the new business value full effect, this year we had this drop and we are planning to work on improving it, but on that we will comment more in the investor day.
Marco Sesana: Yes. On the last question, Andrea, you understood correctly. So, so far in the fourth quarter we had €100 million and we are halfway in the fourth quarter. So, we see. Yes.
Andrea Lisi: Thank you.
Fabio Cleva: Next question, please.
Operator: The next question is from Steven Haywood of HSBC.
Steven Haywood: Thank you very much. Three questions, mostly clarifications here. On the nat cat side of things, can you tell me about the reinstatement premiums that you’ve had, if you can give a nominal amount and whether they were paid in the third quarter or fourth quarter, whether they come in the nat cat budget or coming in attritional, please? Secondly, you mentioned about some impairments on real estate investments. Could you give some indication of the geography and the potential percentage sort of amounts that you’re seeing? And then thirdly, clarification on the Life CSM rolled forward in nine months. What was the economic variances and operating variances? Thank you.
Fabio Cleva: Thank you very much, Steven. The first question is for Marco on the reinstatement premium, while the question on real estate impairment and on the CSM rolled forward, the variances both economic and operating are for Cristiano.
Marco Sesana: Yeah. So, regarding the reinstatement premium, at the third quarter we are at around €15 million and those are already booked in the attritional development. So, that’s what you have in the account so far.
Cristiano Borean: So, Steven, going to the expected impairment real estate, I would say we are in the region of €25 million to €50 million in the last quarter and they are concentrated according to our exposure, which is mainly in Italy and small effect also in the other countries. But I would say the largest exposure is there. On the CSM rolled forward, the economic variances, as I was saying before, in the third quarter, so from half year number was €400 million positive economic variances and €100 million, so to be extremely precise, €405 million economic variances and €112 million negative operating variances, positive €405 million economic variances.
Steven Haywood: Thank you.
Fabio Cleva: Next question, please.
Operator: The next question is a follow-up from David Barma of Bank of America.
David Barma: Hello. Thanks for taking my follow-up. Just a few small things, please. On taxes first, you gave an amount for France. What is that based on? I would have expected a much higher taxable base for your French business. And for Italy, should we expect anything following the tax and for a tax asset package that was presented? Then secondly, on motor, apologies if I missed that, but what was the undiscounted combined ratio for motor in the nine months? And then lastly, on asset management, revenues were pretty strong in the quarter. But I wanted to ask about the difference between Conning and the rest of Generali. On average, you generate about 20 bps revenue margin. Is there a big difference between the two units? Thank you.
Fabio Cleva: Thank you very much, David. All the three questions are for Cristiano.
Cristiano Borean: Yes, David. So the €40 million estimate is based on the existing proposal, which we understood also how the process should go, which is not a given process, but stating if this proposal goes up to the end, the €40 million of a more taxable effect comes, because basically you increase the yearly for the full year retrospectively to full year 2024 taxable base and this comes from the fact that the corporate tax rate increased. So the taxable base is not increased per se. By the way, there are some plus and minus coming also on the local GAAP from realized capital losses to turn also the portfolio and other positive leasing taxes, which are reducing the potential effect on the full net result. But at the end of the story, it is really coming from the increase of the corporate tax, I would say something in the order of 10-percentage-point, which the law is embedding. On the undiscounted combined ratio in motor in the nine months, with pleasure I tell you it is 99%, the total one, including also the natural catastrophe 3-point. It’s just keeping out the discounting. On the questions related to the trend of revenues are stronger, Conning versus Generali, what is the difference in revenue margin? Well, I would say that the revenues were split, the €343 million of revenues were split between €85 million almost in Conning and €260 million, I would say, almost in the Generali perimeter. Don’t forget that in the Generali perimeter, we have, yes, a higher weight of liability driven as a base, but we have also other asset capabilities. Conning, the largest contributor apart from the liability driven is the CLO business of Octagon. So the average margin is not extremely different when you make the sum of these two pieces around the 20 bps.
Fabio Cleva: Next question, please.
Operator: The next question is from Michael Huttner of Berenberg.
Michael Huttner: Thank you so much for this opportunity. Very quickly, it’s on the expense ratio and I was -- it was lovely to see nine months 2023, 29.4%, nine months 2024, 28.5%. Can you talk a little bit about this and how much more there may be to come? Sorry, I always want more. Thank you.
Fabio Cleva: Yes. Thank you very much, Michael. The question is for Cristiano.
Cristiano Borean: Yes, Michael. So the 0.9-percentage-point improvement over the nine months is driven, I would split into basically two components. The first 0.6-percentage-point improvement is the combination of two effects. First, we consolidated Liberty, and by definition, being a largely motor business has a lower expense ratio. So it is a mechanical effect. The other effect, which is the 0.6-percentage-point is evenly split. 0.3-percentage-point benefit from consolidating Liberty. Another 0.3-percentage-point is a lower effect from the inflationary component of Argentina, which has an inflation going down compared to previous year. Then we are left to, let’s say, more economically actively driven 0.3-percentage-point, which is a split half with the mix of commission we are having compared to the previous year and half from an improvement of the ratio between the growth of the insurance revenues and the growth of the cost.
Michael Huttner: Fantastic. That’s very clear. I did have one last question if I may and it’s a positive one. It’s -- last year I think the time or the year before you tried to orient us towards the nine-month results and this feels more like you’re happy to orient people to Q3 as a standalone. My feeling is this is because the quarterly is set to kind of, I’ll exaggerate a little bit, rocket. Is that the right impression to get? Thank you.
Cristiano Borean: Yeah. I hope I understood the question. So you are saying that the third is better than the fourth in your expectation, that’s why we are focusing on it. Did I get the right question or not?
Michael Huttner: Yeah. No. I’m just saying you’re focusing on quarterly, so it means that the quarterly trends are set to accelerate. Is that the right read?
Cristiano Borean: Yeah. As I was saying, we are focusing on the quarterly because clearly we are observing in the integrated nine months a fair representation of what we were saying in the half year 2024, which I personally think was not fully reflecting the good effect that we were already technically seeing, okay. And this was also related to the fact that we wanted to have some more confirmation, okay. So at this point, I would say that the fourth quarter, as you know, Generali has some one of the effects related to the impairment in the real estate component I was mentioning before because we have the review of -- the full review of the book, the last 20%, 17% to be reviewed. Then we have the restructuring to be booked about the Liberty part. But in the end, we are also expecting to have less natural catastrophe than the one observed in this quarter. So in the projection, I will see that, what I was telling last time, this quarter is a fair representation of what you could expect further.
Michael Huttner: Fantastic. That’s superb. Thank you, Cristiano.
Fabio Cleva: Thank you, Michael. Next question, please.
Operator: The next question is from Farquhar Murray of Autonomous.
Farquhar Murray: Good morning, all. Just one question for me. Actually, I was just following up on Michael’s question there on the loss ratio improvement. I mean, I can understand that obviously the 0.3-percentage-point you might refer to as economic is probably the only component that’s within your control. But just to double check, obviously, Liberty is probably going to persist. I presume the inflationary component in Argentina persists if inflation remains low and presumably the economic component you’re identifying is a matter of you continuing your efforts there. So I mean, broadly, would all of those 0.9-percentage-point actually persist going forward or have I misunderstood something? Thanks.
Fabio Cleva: Cristiano?
Cristiano Borean: Yes. Yes, Farquhar. So, basically, I was saying that, if I compare year-over-year, it is the embedding of Liberty. Don’t forget that Liberty has a PPA, so purchase price allocation of this, which is polluting this effect. On a going forward, the effect of having the unearned premium reserve and treated as an expense versus another in the release has some polluting accounting effect. So I would say don’t overweight on the Liberty side. Clearly, Liberty has a lower total expense ratio because it has a higher motor business. So part -- the good part of it is explained by the underlying. On the Argentina side, last year, we were experiencing a higher inflationary movement. This first quarter was high, but now it is going down. So you should, I think, understand that the negative impacting effect of Argentina could be lower going forward and that was my comment on the 0.9-percentage-point -- 0.6-percentage-point component out of the 0.9-percentage-point. In particular, Argentina has a better 0.3-percentage-point, which was reflected in the if situation stays like that, I think continue. Clearly, then, it is depending on the reduction of farther Argentina. What is important is the 0.3-percentage-point fully in the, let’s say, hand of the control management, which is going forward. On top of that, we will comment for further guidance in the Investor Day.
Farquhar Murray: Great. Thanks very much.
Fabio Cleva: Next question, please.
Operator: At the moment, we don’t have other questions registered.
Marco Sesana: So thanks very much, everyone, for participating to our call. The IR team remains, of course, at your full disposal for any follow-ups and we look forward to see many of you at our Investor Day in Venice on January the 30th. Good-bye.
Operator: Ladies and gentlemen, thank you for joining. The conference now over. You may disconnect your telephones. Thank you.
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