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Edited Transcript of CNP.PA earnings conference call or presentation 21-Feb-19 10:00am GMT

Full Year 2018 CNP Assurances SA Earnings Call

Paris Cedex 15 Feb 26, 2019 (Thomson StreetEvents) -- Edited Transcript of CNP Assurances SA earnings conference call or presentation Thursday, February 21, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Antoine Lissowski

CNP Assurances SA - CEO & Member of Management Board

* Jean-Baptiste Nessi

CNP Assurances SA - Chief Actuarial Officer of Fonction Actuarielle Groupe

* Thomas Béhar

CNP Assurances SA - CFO

* Xavier Larnaudie-Eiffel

CNP Assurances SA - Deputy CEO & Member of Executive Board

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Conference Call Participants

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* Michael Igor Huttner

JP Morgan Chase & Co, Research Division - Senior Analyst

* Nick Holmes

Societe Generale Cross Asset Research - Equity Analyst

* Thomas Fossard

HSBC, Research Division - Co-Head of European Insurance and Analyst

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Presentation

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Antoine Lissowski, CNP Assurances SA - CEO & Member of Management Board [1]

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Hello, everybody. Antoine Lissowski speaking for this conference about annual results of CNP. I am with the new CFO of the company, Thomas Béhar, which everybody knows probably and with Xavier Larnaudie, which is my Deputy CEO, who is the second official manager of the company. We will enter now in the view of different slides, which are presented here. And after, we will have a discussion with you.

Starting with executive summary. I would like to draw your attention on different main topics, which are very significant of what is our attitude and strategy now. First, we insist on the fact that we are implementing a multi-partner model, of which the sustainability has been confirmed in 2018.

We have successfully passed the first year of a new UniCredit partnership, which was signed at the end of 2017. We have signed a new agreement with CEF in Brazil for the activity on the largest part of a current business until 2041. We have developed with CNP Santander activities in 2 new countries. And we have new in premium savings segment 30 partnerships in France and in Luxembourg.

The product mix of the company was successfully refocused. You will see that on unit-linked savings, we have increased our part of the business and the personal risk and protection insurance represents now more than half of the EBIT of the company.

The policyholder appeal was enhanced with improved customer retentions, which materializes in policyholder dividend slightly above last year's, and new products and services, which are provided to our customers, which is in link with the next point for digital transformation, which is firmly bedded in the company. With a simplified policyholder and partner experience for everybody and many innovative solutions, among which we underline the fact that we have launched with La Banque Postale and its subsidiary, EasyBourse, a new company, EasyVie, which is a complete online life insurance company.

Doing that, we, nevertheless, insist on our social responsibility investing in a core commitment. And we have increased our focus on green investments. And we are still reducing the carbon footprint of the company. That all results in an increase of creation of value for investors and a higher dividend. And we integrate a new dividend policy, which will be expressed there. The core of this strategy is that we consider that our role is to create and provide value to our insured and to all our investors. It is what is our main topic.

If you look on Page 6 on the key figures of the company, I will not enter into detail of these slides, which encompasses informations which will be given out by Thomas in a second. The premium income is, if you look at the like-for-like figures, was up 4.1% last year. The EBIT was at 7.2% last year. You observe that the decrease of the value of real makes this growth more limited in reported figures.

The combined ratio of the company was improved. And that all resulted in attributable net profit up by 8.6% in like-for-like change at EUR 1,367,000,000. The cash flow and dividend are up. And we are proposing -- the board is proposing to the general assembly a dividend of EUR 0.89 by share, up by 6% to last year's. And the SCR coverage ratio stands now at 187% after having taken into account the cost of the renewal of our Brazilian agreements.

If you come now to the breakdown of our business with our different partners on Page 7, you see that the model of CNP of multi-partnership is confirmed. The first partner in term of activity is La Banque Postale with 26.4% of the business. We have then BPCE with 22%, Caixa Seguradora with roughly 17%, UniCredit with 10% and so and so.

And what is important there is to notice that all these partnerships are negotiated with term, which are expressed in the slide. That means that we are a company in a permanent renegotiation of its business model and partnership span. And that it is certainly one of the roots of our sustainability, which is that we navigate through different partners over the time. For instance, if you have had this slide 10 or 15 years ago probably Crédit Agricole would have had a large part of the business, which is now very insignificant.

I wanted to insist on Page 8 on a very important transformation, which is the digital transformation. All the insurance sector is focused on that. And we consider that in fact, we are already a digital company, though it is simply a way to simplify the customer and policyholder experience and the partners' experience when they interact with us. I quote there a series of apps, which were developed by CNP to discuss with each partners. For instance, with Kiwi UC for CNP Patrimoine partners to discuss with some insured. Filae is, for instance, an app which helps people to enter beneficiaries' contacts, which will be necessary at times when they -- this is for pay their policy to the beneficials.

And we have several other apps, which were installed over the time. And it is just part of the apps which we are introducing in order to embed the transformation in the company. Our view is that digitalization will not mean that the insurance sector is replaced by different startups or so or so. It is simply that we have internal startups as well as external startups in order to renew the experience of the customers and of the partners. And this is a process already existing.

On Page 9, you see how we have created value for investors over last year's. On the first part of the slides, you have a growth of earnings per share. For 2018, it is 6.6% growth at EUR 1.92. And regarding the net operating free cash flow per share, we have registered an increase by 31.4% this year. Excluding base effect of last year, the growth would have been 3.4% last year.

We have anticipated eventual risk with the transformation of organization of term insurance policy in France, long-term insurance policy in France, by reducing this net operating cash flow. In fact, the results of that was not so awful for us. There was, in fact, not very much modification in the policy of the company and in its business. But nevertheless, it marked the base effect last year.

Now we'll enter in operational business performance. And I give floor to Thomas.

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Thomas Béhar, CNP Assurances SA - CFO [2]

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Thank you, Antoine. Good morning, everyone. So I will comment the business performance, beginning with France. And as you may see on Slide 11, we have -- we continue to rebalance between euro and unit-linked products with net revenue from unit-linked of EUR 2.4 billion and a negative EUR 5.1 million for euro. So the expense reduction of 5.9% of our payment income for euro traditional saving products and an addition of 4.2% for unit-linked.

For the other activities that we have in France about personal risk and protection insurance, you still have something which comes from the new agreement with Crédit Agricole, where we have a one-off. And we changed our agreement, going from reinsurance to co-insurance and take the expense part of the reductions of the activities of this line, personal risk/protection. The other part is that we continue to select the risks that we take on personal risk insurance.

About the value of new business, you see that we have a reduction of our VNB of EUR 86 million going from EUR 498 million to EUR 414 million. This reduction of EUR 86 million is largely due for EUR 110 million about our activity of credits. 20% came from Crédit Agricole one-off and 80% from the end of renegotiation of credits that we observed in 2018 in France. And we are strictly aligned with the market for the end of renegotiations of the credits.

Going now next slide, Slide 12. You may see that we have increased our unit-linked business. And it now represents 22% of our premium income. This 22% is still below of the market of 28%. But we have reduced the difference between the markets, it's now 6%. You can see that what you have seen in the premium income, you don't see it in the revenue because our revenue are increasing of 5.3%. There are different effects coming from that. First of all, it's continuation of the improving of our mix product between traditional and unit-linked products and even in the traditional going to product with higher margin. On the second point is we have continued to improve our net insurance revenue for personal risk and protections. We have released some reserves due to better claims for the past. And the third part is higher revenue from own-funds portfolio, where we have net gains from the bonds this year.

All this activity has been done with a very, very high look about the administrative cost. And you can see the effects of our policy on the administrative costs. You have a slight decrease of 0.1%. So it's quite the same, EUR 612 million and EUR 611 million. And this also results of the cost base reduction of our administrative costs. And we have the full effect of our Operational Excellence Program of EUR 78 million on a full year basis. It means that our cost/income ratio is continue to decreasing. And it gave an EBIT increasing of 7.1% to EUR 1,903,000,000. So that's for France.

I will now go to Latin America, where you can see that we have an extraordinary increase of activity. It's 23.8%. It's above the decrease of the real of 19.5%. We are at constant exchange rate for that. And among these numbers, you can see that for unit-linked that we are selling our savings in Latin America. We have a very big increase of 35.3%. We are now -- we have now on that line of activity a market share of 14%. We are the fourth market player in Brazil for savings.

After all, the Caixa Seguradora market share stands at 9.9%. And you can see that for the other line, personal risk/protection insurance, we have an increase of 1%, which comes from our partner policy about credits, which is still present. On VNB, you can see the increase at exchange rate of 30 -- of going to EUR 215 million and an APE margin which is still very good of 30.1%. It has slightly decreased because of the rebalance between savings, which are traditionally lower APE margin than for protection insurance.

And we have taken in advance -- it will be the same also for Solvency II. We have taken in advance the effect of the new agreement with Caixa Econômica Federal for 3 lines of business. So we will reduce our rights to the economy of the business of 51.75% to 40%, and we'll pay EUR 1 million -- EUR 1 billion.

Now going to the revenue. So you can see the effect of the activity on the revenue with an increase at constant exchange rate of 11.3%, which is due to the activities that we have on pension and improvement in personal risk and protection insurance on one side. On the other side, you have the effects of the reduction of the financial revenue coming from investments. The SELIC rate decreased from 1 year to the other at an average of 40%. The administrative costs are increasing of 8.7%. And this increase is below the increase of the activity of 11.3%. It means that we get to an EBIT of 11.8% at EUR 1,097,000,000 of real, which is a very good result for Brazil.

Let's go now for Europe and excluding France. And you can see that the activity is also very, very good there with an increase of 32.7% of the activity. It comes from both lines of activity, savings/pensions and personal risk/protection insurance. The main progression comes from CNP UniCredit Vita and CNP Luxembourg. We have an increase of EUR 700 million for UniCredit Vita, which comes as a perfect foot of our new agreement with UniCredit. And they have developed euro and unit-linked products during the year. Same for CNP Luxembourg, our subsidiary is now fully in place. And we have a premium income of EUR 616 million, which is an increase of EUR 500 million in 1 year.

For personal risk and protection insurance, so you see in Slide 17 that we have an increase of 6.8% of the activity. And we are in the line of the business plan that we have developed with CNP Santander and continue to give all this effect. As a result, APE -- the VNB continue to progress with EUR 67 million. And the APE margin slightly reduced due to the rebalance between savings and pensions on one side and protection insurance on the other side.

Going now to revenue. So you can see the progress about pension savings in the revenue that you have seen on payment income. Because for the first year of the new agreement with UniCredit, we have agreed with them to pay higher commissions under the agreement. And so it works well. And to explain that, we have still this full revenue for that activity of EUR 96 million. You can see also for personal risk and protection that we have EUR 145 million. It comes from the other activities that we have in Italy for protection insurance, where with 2 banks, we have paid for the first year higher commissions. It's 2 local banks from Italy we have that new activity.

The administrative cost have increase of 6.9%. It comes mainly from CNP Santander, where you have an increase of activity. And you can see the effect of this increase in the EBIT. For CNP Santander, it goes from EUR 52 million to EUR 68 million. So decrease of CNP UniCredit Vita comes from the higher commissions that we have paid, EUR 67 million to EUR 48 million. And the other part, the minus EUR 9 million, comes from the additional commission that we have paid to the 2 local Italian banks for protection activities. That's for the activities line-by-line, area-by-area.

And let's go now to the financial performance and solvency. You can see that how we go from the EBIT to the attributable net profit on Slide 20. So first of all, the EBIT is EUR 2,924,000,000, an increase of 7.2%, which is higher than the 5% guidance that we have for last year. And on the guidance on the last 3 years, we have at an average of increase of 9.1%, which is above the 5% guidance. On how we go from EBIT to the net profit, you can see that there are not so many difference.

We have paid less tax in France due to a reduction of the tax expense in France. So we don't have the exceptional surtax that had last year. And as last year, we don't have the tax dividend anymore. We have less fair value adjustment and net gains of EUR 89 million to us. And it was EUR 200 million last year. And for the nonrecurring items, we continue to increase our PPE. And we'll explain that later. And so it gave an attributable net profit of EUR 1,367,000,000.

Let's go now to Page 21 for the net operating free cash flow. It has increased to EUR 1,462,000,000. This increase comes mainly from a reduction of the release of required capital. So you can see that it's -- last year, it was only EUR 199 million release. And now it's EUR 470 million of release. It comes -- last year, we reviewed what the different law for lapses and especially for savings and for protection insurance. And it means that required capital was higher last year than this year. And that explains this increase. But the main point comes from the MCEV operating profit, which has increased in line with the increase of the EBIT. It means that we have a net operating free cash flow of EUR 2.13 per share.

You can see on Slide 22 the increase in free surplus over a period of 2012 to 2018, which is EUR 4.2 billion. And on Slide 23, you have an explanation how we go to 187% for our solvency capital ratio. It's only a decrease of 3%. And it's mainly due to the fact that we have taken in advance the fact that we will pay BRL 4.65 billion to our partner, when we will go to the closing of our agreement. So it cost 7 points for the solvency capital ratio, which we have not -- that we would have a capital ratio of 194% with an increase of 4 points.

These 4 points comes from 5 points from the operational performance for the year. We are creating value year-after-year and it will reinforce our capital ratio. And at the opposite, you can see that the financial market conditions have only cost 1 points, which is very low and means a very robust balance sheet that we have today as an impact of the less favorable financial markets that we have known at the end of the year.

Let's go and have some words about the asset/liability management. So first of all, you can see for our policyholder yields that we decided to increase of 9 basis points last year, which means that we have a 1.58% of policyholder yields this year. It is one of the best of the 3 last years. We have done that. And we have narrowed the gap between the higher and the lower yields. And so we -- in doing that, we continue to reinforce our PPE reserve. And it's now 5.3% of the technical reserves.

We have not changed our policy about guaranteed yields, which means eliminating them. And you can see that we are not selling any yield in France with 0.02% of the average guaranteed yield. And so you can see the effect on the stock. It decreased from 0.34% to 0.28%.

You can see on Slide 27 how we have invest this year, mainly in bonds, equities. And you have the bond investment flows during this year. We have an reinvestment rate of 1.2%. Hedging strategy, so we have continued to reinforce our hedging strategy, which was important with the evolution of the CAC around we have known at the end of the year. And we continue to protect our portfolio against a risk of increase of interest rates.

Now Page 29. So it's just an example that we continue to invest in real business, in real economy. And you have 4 example of investments that we have decided in 2018. And part of that commitment is our ambition to continue to change our portfolio to be better and better green. So it's -- we are in advance of our objectives. So we have increased our investments. And we have met our objective of EUR 3 billion portfolio of green investments. If we enlarge that to energy and environmental transitions, so we have the ambition to invest EUR 5 billion more on investment on that side. And objective is met at 61% for that.

On the carbon point, so we are quite at the target with 0.27. The target is for 2021 for 0.25. And last, we have ambition to withdraw from the coal industry. So we -- no more share and we are eliminating them. We have companies that drive over 10% of their revenue from thermal coal. And we have stopped to invest in any companies that are involved in building new coal-fired power stations.

So that's some words from the past on 2018. And now Antoine will pass -- again, one -- I have still one before that, financial cost. So you can see that due to our new issue of Tier 2 in February 2018, so we'll be able to finance a redemption, possible redemption of our next Tier 1 of USD 5 million. And we continue to decrease the average cost of debt.

So now, I can pass the floor to Antoine, who will talk about perspective.

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Antoine Lissowski, CNP Assurances SA - CEO & Member of Management Board [3]

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Thank you, Thomas. The strategic priorities of our company are focused on 3 categories of partners. We have to deliver the best response to customer needs. We have to accelerate growth to partners of our different partnerships. And we have to offer investors long-term visibility and to deliver results to these investors.

Regarding the customers, we have 2 categories of customers at large. In Europe, people which are already covered most of their insurance needs and are looking for better protection in terms of security, protection of their lives and what can happen in the aging population and protection of their assets and what is happening in volatile financial market. The situation is slightly different in Latin America, where customers are young and have growing needs of protection, protection about pension, protection about protection at large and protection -- development of a protection in regions and in part of the population which are not protected at all so far.

To do that, we are -- we have a base of customers of 37 million in personal risk and protection businesses and 14 million customers in savings and pension businesses. That means that we have a very large bases of customers on which we can operate the transformation of the business model and which helps us to create new offers for new parts of customers or new products without damaging our business model. That is mainly concerning the long-term care and pension offers, mainly in Europe, but also in Brazil, where we will have to face pension reform in the forthcoming weeks.

And we have also conversely to pursue our digital transformation. It is technical, cultural and business model transformation, under which we will have to face a competition of newcomers in this industry. But to face this competition, we are well equipped in term of technology, in term of people and in term of knowledge of professional knowledge.

Regarding the growth of our partnerships, we have, of course, different views in France. Among banks, mainly in the high net worth individuals, which we equip through private banks, with employees benefits institution and mutual insurers, which in our environment are seeking different partners, this part of the profession in France was hurt by the impact of low interest rates over last years. And it is in a quick restructuration of the industry. And we have a role to play to help this restructuration.

Of course, we have to deepen our partnership with La Banque Postale. And we have already decided to increase the market share of La Banque Postale in life insurance in France. We have precise targets for the next 3 or 5 years in order to recover an important part of the market, which Banque Postale used to have 10 or 15 years ago. But through different diversifications, it displayed more activities in other businesses but on life insurance. We have now to refocus the forces on life insurance.

And we, of course, want to grow our Europe and Latin American businesses. We have not finished our discussions with our Brazilian partners regarding the renewal of partnerships after 2021. The part of the business which was renewed last year represents more than 70% of business and of value of the business. And there are still other sectors of activity operated by Caixa Econômica Federal, which remain to be discussed with us or with other partners.

We have registered a very good performance with UniCredit this year. And we think that it might be possible to develop other businesses with them into the forthcoming years. The same with Santander Consumer Finance, where the experience with them was very successful. And it was observed on the 2 sides. The CNP board observed that with a very requesting partner, we have managed to make a very good performance. And on insight, Santander does know that CNP offers an insurance set of possibilities, which can help their own development. And it is not the last. We have, of course, to give our investors long-term visibility and to do so to adopt to an attractive dividend policy.

If you look on the last years and last year, you see that between 2012 and 2018, we have created value. An investor, which bought share in 2012 for EUR 11.61, has doubled the value of its assets meantime by the change in prices of the company and the dividends of the company in itself. If you look last year itself simply, we have been better -- we have had a better performance than the CAC 40 and the STOXX Europe 600 insurance index. And it is the case over several years, '12 to '18. And it was also the case last year, where importantly the stock exchange was not so favorable. But an investor of CNP Assurances, nevertheless, had a positive performance last year.

It is one of the reasons for which the board yesterday accepted to propose to the general assembly, first, to renew the dividend policy. The priority will be still given to maintaining or increasing the dividend per share from year-to-year. It was already written in literal terms in the past. But now the board decided to add a payout ratio guidance of between 40% and 50% for this year and for the next years probably.

That means what? That means that the commitment of the company to distribute the value which it creates to a large set of shareholders is confirmed and strengthened by the board of the company. This possibility was adopted unanimously by the board and will be proposed at the general assembly at mid of April. That means that we will keep more than half of our profit to invest in organic or external growth for the next years. That being said, the company will recommend to its general assembly a dividend of EUR 0.89 by share, up 6%, which represents at the close of last year a dividend yield of 4.8%.

There were the most important informations which we wanted to provide to you. We are now open to answer to your questions. I think that we have, first, eventually a series of written questions which arrived. And after, we will open the floor to everyone.

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Questions and Answers

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Antoine Lissowski, CNP Assurances SA - CEO & Member of Management Board [1]

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The first question comes from David Barma. I think the language -- is there any update you can give us on the profitability of your French protection book, excluding Crédit Agricole and the impact of BUCA law? Why non-aggregated market laws don't seem to have changed much? Pricing of traditional players appear to have adjusted quite significantly. What is the impact of the BUCA amendment last year? Thomas?

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Thomas Béhar, CNP Assurances SA - CFO [2]

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Yes. So we don't disclose the profitability of each lines of business in terms of APE margin. What we can say is that last year, in advance, we increased the lapse rates of our protection insurance activity. And so we have taken in advance by prudence an increase of 50% of the lapse rate that we have. We have not yet seen that increase in terms of lapse rates in terms of reduction of the margins that we have on that activity. We have a slight increase of the lapse rate that we have. But it's very modest. And at the same time, we have developed insurance, individual protection insurance, which works well. But the main part, which comes from collective contracts, continue to give their full effect for this year.

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Antoine Lissowski, CNP Assurances SA - CEO & Member of Management Board [3]

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Okay. That means that I think that the BUCA reform came in the market, which in fact watched what was the right price and the competition didn't reduce significantly the condition of the competition.

Okay. The next question, please, if there is next written question. Okay, David again. Could you please give us some color on the dynamics of the French savings pension market? What are the drivers of earnings improvement in that segment? Thomas again.

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Thomas Béhar, CNP Assurances SA - CFO [4]

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Yes. You can see that we have for the activity, a reduction of the savings activity that we have with La Banque Postale and BPCE. BPCE, so we are in runoff, as you know. So we have still around EUR 6 billion -- EUR 5.9 billion of premium income for savings with BPCE. And we have EUR 7.9 billion of savings with La Banque Postale. You can see that on Page 10 of our press release. So we have decreased gains for the [size of that] in 2018. We didn't sign again the transformation of contracts that we have in 2017, where we have transformation with -- known as Focus Croissance transformation of products for both bonds. As the opposite, we have a very good increase of CNP Patrimoine, which is now present in France, EUR 2,158,000,000. You will see that on Page 8 of the press release. So it's an increase of more than EUR 1,200,000,000 of activity of CNP Patrimoine. So we have a very good increase for savings with the wealth revenue activity, higher wealth presence.

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Antoine Lissowski, CNP Assurances SA - CEO & Member of Management Board [5]

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Okay. I look if there is another written question. How should we think today of CNP's capacity to finance external growth either through further agreement in Brazil or other partnerships?

Well, as you see, we create value. The coverage ratio of the company is very comfortable. That means that we have absolutely no doubt on the capacity to finance further growth. I again underline the fact that the cost of a partial renewal of the agreement in Brazil was already taken into account in our SCR coverage ratio.

Next question, if there is one. Okay. You mentioned deepening your partnership with LBP. What areas would you like to develop?

The ambition with LBP, in life insurance mean you have to compromise on -- sorry, I would need to see -- on your group product and mixed ambitions of 2 elements compatible. We will not compromise anything when this agreement with LBP will enter in-force. The strength of the business model of CNP is precisely that we are bringing a shareholder a mix of different partnerships. And as you see in the figures, which were published in our press release this morning, the Banque Postale is only one among the numerous partners of CNP, among which some large partners. And it is clear that when Banque Postale, if and when it becomes a major shareholder of CNP, which is the fact which was announced by the Ministry of Finance and which is expected under certain conditions to happen in 2020, when this will occur, that will simply place La Banque Postale in a situation that will clearly push CNP to increase its activity, not only with Banque Postale but with all the partners of CNP in order to create the value to the main shareholder, which will become Banque Postale. Then it is clearly no conflict possible between the needs of Banque Postale as a partner and the request of Banque Postale as shareholder in the future. And it will not jeopardize at all any of our development.

Is there any other written question? Benoit Valleaux. What is the minimum solvency margin target, et cetera, et cetera? Well, we are still no minimum. Did it change since I took for CEO office? No?

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Thomas Béhar, CNP Assurances SA - CFO [6]

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No.

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Antoine Lissowski, CNP Assurances SA - CEO & Member of Management Board [7]

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Okay, no. PPE reserve. Okay, the yearly question about PPE reserve. Yes, I think that it is for Thomas. What do you expect in the next years? Do you believe the increase in the PPE should be more moderate in 2019 and in the future? Thomas?

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Thomas Béhar, CNP Assurances SA - CFO [8]

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I'm not sure that we express things for the future as we are commenting the 2018 accounts. What we have seen that we have continued to protect. And when you have bond rates, which are sovereign, in France around 0.50%, you need to protect your policyholder book in order that you have a very high risk of an increase of that. And so to facilitate for the future, we can use the PPE reserve to help in the future the policyholder dividends or continue to keep it for the future as a protection. So we will see in the future. It will be decided year-by-year. But at this stage, we continue to increase it in 2018.

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Antoine Lissowski, CNP Assurances SA - CEO & Member of Management Board [9]

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And concerning 2018, you can see certain inflection in our policy. The PPE is clearly there to protect the balance sheet of the company in cases of adverse interest rate moves. But allocation of the PPE is also a way to modulate the answer of a company to the inflation in France. In fact, we increase the policyholder dividend also in order to protect our customers to an increased inflation in 2018. And it is clearly the role of a company to moderate the growth of its policyholder dividend but to give a good protection in order to keep the customers protected against the inflation. And the PPE has 2 roles now.

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Thomas Béhar, CNP Assurances SA - CFO [10]

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You can also -- we are also doing some benchmark of the different protection, that's life -- French life insurance companies are doing in their balance sheet. And we may say that we are in the market towards our competitors and same kinds for the main players, the same kind of protection.

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Antoine Lissowski, CNP Assurances SA - CEO & Member of Management Board [11]

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Okay. We see there is another question. Is there -- are there other written questions? Now we can open the floor to oral question, if there are.

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Operator [12]

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Would you like to start with the questions from the telephone lines?

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Antoine Lissowski, CNP Assurances SA - CEO & Member of Management Board [13]

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Yes.

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Operator [14]

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(Operator Instructions) We have a first question from Michael Huttner, JPMorgan.

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Michael Igor Huttner, JP Morgan Chase & Co, Research Division - Senior Analyst [15]

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And congratulations, Mr. Lissowski, on your being CEO. That's fantastic news. I had 4 questions, if I may. The first one is on the new agreements in Brazil and the various moving parts, the new business, the bank book, et cetera. And I just wondered if any way there's a...

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Antoine Lissowski, CNP Assurances SA - CEO & Member of Management Board [16]

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So operator, can you please announce?

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Michael Igor Huttner, JP Morgan Chase & Co, Research Division - Senior Analyst [17]

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Hello, can you hear me?

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Operator [18]

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We've already announced the first question from Michael Huttner of JPMorgan.

(technical difficulty)

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Thomas Béhar, CNP Assurances SA - CFO [19]

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Could you please repeat your question, Michael?

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Michael Igor Huttner, JP Morgan Chase & Co, Research Division - Senior Analyst [20]

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What the earnings will look like after all this has happened. It's really complicated to try and work out if the earnings are up or down and whether EBIT can still go 5%. That would be the first question. The second, a similar question on the free cash flow, the EUR 1.46 billion figure, which is wonderful. I just wondered if you can give a feel for how this could develop. In the previous years, it had gone up massively, and this year, with the growth of only 3%. I mean, I know there's a one-off, so adjusting, it would mean -- unadjusted would mean much higher. On the digital, in the past, you discussed a little bit what the investment was. And I just wondered if you can give a figure for the total investment and maybe the dilution in earnings in the short term. I know these investments produce money. But initially, I assume they cost a little bit. And then the final is on Slide 22. Is the EUR 1 billion for Brazil in there? And also I'm sorry I wasn't listening properly. Where is the EUR 500 million decline in required capital from the bank book? Where is it coming from? This is relative to 2017.

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Antoine Lissowski, CNP Assurances SA - CEO & Member of Management Board [21]

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Okay, the question -- the first question is that we will not have guidance on EBIT now. It is replaced by the policy of dividend. The view is taken simply by the fact that there was such large differences in change between Europe and Latin America, which is an important area for us, that an EBIT guidance, it becomes meaningless from investors which are in Europe. And we prefer to replace that by a commitment in terms of dividend. I take at once third question and leave the others to Thomas. The investment in digital and the current dilution to earnings, the investment in digital is in fact included in the budget of costs of the company. And there is no specific dilution in terms of digital as the EUR 25 million of investments in digital at the level of the company are part of a global cost of the company and are considered in terms of cost-to-income ratio which decreases. Now I leave the 2 other questions to Thomas.

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Thomas Béhar, CNP Assurances SA - CFO [22]

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Yes. For OFCF, effectively it's growing like the percentage of the EBIT, which is the result of MCEV, is in line with the evolution of the EBIT. And Jean-Baptiste Nessi, who is the Chief Actuary, will answer the other question about the OFCF.

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Jean-Baptiste Nessi, CNP Assurances SA - Chief Actuarial Officer of Fonction Actuarielle Groupe [23]

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Yes. For the 3 component of the OFCF is the worth of the EBIT and the other one is the variation of the required capital. So what is the need of required capital for the new business and the fact that there are outflows due to lapses and debt? And is it creating a liberation of capital? So this variation of required capital is something that is quite hard to forecast because it is due to the earning of the year and new business that will be collected. But we can say that every year, there are lapses and so some of the capital will be free.

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Michael Igor Huttner, JP Morgan Chase & Co, Research Division - Senior Analyst [24]

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And on Slide 22? I have 2 questions on Slide 22. The one is the investment in Brazil, is it in there? And the second, if I look at the change this year versus last year, there was a reduction in required capital of EUR 0.5 billion, EUR 500 million. And I wondered, is there a particular item in there?

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Jean-Baptiste Nessi, CNP Assurances SA - Chief Actuarial Officer of Fonction Actuarielle Groupe [25]

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So yes, the free surplus include the payment of the Brazil. And for the second part of the question, the release of the capital, as I mentioned earlier, is due to lapses and evolution of the stock.

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Operator [26]

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The next question is from Thomas Fossard of HSBC.

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Thomas Fossard, HSBC, Research Division - Co-Head of European Insurance and Analyst [27]

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I've got several questions. I'm sorry, I've not find the way to ask my question in a written format on the website, so sorry to come into the telephone now. First question will be related to the new dividend guidance. Actually, can you comment on why now as actually we've been asking for a dividend policy for quite some years? And it is now coming, which is a good thing. But I mean, should we see this coming in relation to the emergence of Banque Postale being or becoming one of your main shareholder? So that was the first question. Second question regarding the payout ratio of 40%, 50%. We could say that on an absolute and relative basis, this still looks relatively low, and especially if we compare this payout ratio to your dividend cover, which is currently at 2.4x. So again, could you maybe elaborate a bit on the 40%, 50% payout ratio? The third question would be related to the PEO for the restructuring cost program in France. You're now at EUR 78 million achieved versus initially 60% -- EUR 60 million targeted. Are we coming to an end? Or are you -- have you got some plan to reload? And the last question would be regarding the flows, inflows you're currently seeing in unit-linked in France. It seemed strong in '18. But are you starting to notice that due to the market volatility seen in Q4, actually unit-linked inflows are on a slow start since the start of the year?

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Antoine Lissowski, CNP Assurances SA - CEO & Member of Management Board [28]

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I just take the first and the fourth question and leave 2 others to Thomas. Regarding the dividend policy, why to change it this year? It is clearly because we come from a period which is still existing under which CNP was [retained by the pact] and so and so and so. And we are entering in a period where there will be one major shareholder in the future if the process goes on. That means that the market must be informed of the intention of the board about the policy -- the dividend policy in this year and in the future. That means that the different shareholders, among which La Poste and La Banque Postale agree on the idea that there will be a dividend policy and that the dividend policy will be, on average, the same as average of the market today. And that means that clearly there will be a banalization of the situation of CNP in terms of a shareholder -- shareholdings. But there will also be banalization of a concept of having a guidance on the dividend policy and a commitment by shareholders, all the shareholders which are asked about at the general assembly to maintain policy of dividend, which is, I would say, at the same level as the rest of the market. It is an indication of maintaining the strategy of CNP as an interesting listed company and not a company which is to be incorporated within nebulous group of La Poste, Caisse des Dépôts and La Banque Postale. So it is clearly a message about the banalization of the situation also is a signal to the market that the policy in the dividend will be adjusted on the market practices. If I take now the fourth question about unit-linked at the end of the year, it is clear that the situation of financial market reduced on the French market in general and at CNP the sale of unit-linked. It is the case at the end of 2018. It is also the case in January, where the situation was also perturbed -- disturbed in France by different tax innovations in France in January. Then we cannot draw very strong consequences from what we see at the beginning of the year. But it is clear that our policy, which is to push the sale of unit-linked but push it prudently in order to avoid setback by the customers when there is a problem on the market. This policy is confirmed. Coming to the others' point?

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Thomas Béhar, CNP Assurances SA - CFO [29]

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For your question about the payout ratio, which is in our policy between 40% and 50% and can give 3 different explanation. First of all, it's consistent with what we did in the past and where we are today. We are at 46%. So the 40%, 50% range is where we are today, 46%. It was 47% last year. The second point is that we have seen what our competitors are doing. And of course, some of them are higher, others are below, some of them are only giving floor and not the full range where they can move. So we have seen that, and we have chosen to choose where we were today at 40% to 50% and is aligned with part of our competitors. And the third reason is when you say 40%, 50%, you can also say 60% to 50% that are kept for growth, organic growth and external growth. So it's also a signal for us also that the other parts remains for the growth that we are looking for. On the PEO, so the EUR 78 million, so effectively it came to an end. And we are changing our plan. And we are now introducing a new plan. It's name is (inaudible) optimisation du processus, so process optimization with 2 targets, target of reducing cost, of course, but also increasing the quality that we -- that the insured people are deserving. And so we are looking for both sides. Full digitalization, so you can win the 2 components in one time, so it's where we are going. We will not disclose for the moment target for this policy because we are nowadays building the new program of reduction of cost and increasing quality.

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Antoine Lissowski, CNP Assurances SA - CEO & Member of Management Board [30]

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So what's the third question?

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Thomas Fossard, HSBC, Research Division - Co-Head of European Insurance and Analyst [31]

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One last very quickly. You mentioned the upcoming pension reform in Brazil. I guess, that you would expect this to be a positive for your business in Brazil just in the tail.

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Antoine Lissowski, CNP Assurances SA - CEO & Member of Management Board [32]

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I give floor to Xavier Larnaudie, which is the chair of our Brazilian subsidiary. Xavier?

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Xavier Larnaudie-Eiffel, CNP Assurances SA - Deputy CEO & Member of Executive Board [33]

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Well, thank you, Antoine. Yes, I think your analysis is quite correct. We have the same. We expect the pension system reform, when it passes, to increase the attractiveness of our Presidencia products, where you have seen that we have a good performance there with our partner. So we see it as a positive factor.

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Operator [34]

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The next question is from Nick Holmes of Societe Generale.

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Nick Holmes, Societe Generale Cross Asset Research - Equity Analyst [35]

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Just a couple of follow-up questions. First, coming back on La Banque Postale. Wondered if you could give us a bit more detail, a bit more color about the plans to extend the partnership. You mentioned EasyVie. That sounds very interesting. Are there more initiatives like that in the pipeline? And then secondly, coming back on unit-linked sales, I wondered. Although obviously they're under pressure this year, do you think you can avoid the cyclicality of unit-linked sales? That has been a real problem for the product in the past.

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Antoine Lissowski, CNP Assurances SA - CEO & Member of Management Board [36]

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I take the first question. Regarding La Banque Postale, I will be very blunt. La Banque Postale was at 10% of the market share in life insurance 10 years ago. It has now 6% of market share. The simple target of coming back to the level of 10% would be, well -- could you repeat your question about unit-linked?

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Nick Holmes, Societe Generale Cross Asset Research - Equity Analyst [37]

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Yes. On the unit-linked, I wondered, looking at the longer term, you know that unit-linked in the past has really suffered from cyclicality because it's been so associated with market performance. And I just wondered, do you think that there is a structural change that has taken place now that guarantees -- interest rate guarantee, that is no longer being offered, that favors the product so that you can continue to expect a reasonably good level of unit-linked sales even if markets are not that strong?

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Antoine Lissowski, CNP Assurances SA - CEO & Member of Management Board [38]

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What is important is how do we sell unit-linked to our customers. So you have a regulation, which is in place, about the IDD regulation and it was already present in the past. All our partners are taking care about the unit-linked that they are selling to their client. It's never only unit-linked that are sold. It's always part of a portfolio. They are looking about the age and all the needs of the customers to avoid selling that to very old people or to avoid to sell that for poor people or for people who have only that line of products. So it's all the facts that we are looking about that. So it's on one end. On the other end, when you see the very low level of public interest rate with 0.50% today, so it's hard to say that you don't need to diversify your own book with -- between unit-linked and euro products. So it's -- with 0.50% in the long term, you can't expect, I think, a lot of financial interest in your own life product and you need to diversify with unit-linked to try to get a better income for the future. So it's the 2 points that are considered when we sell unit-linked products. Of course, for in case of death and all that events that occur, you have always a protection that is proposed to the customers.

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Operator [39]

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And we have a follow-up question from Michael Huttner of JPMorgan.

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Michael Igor Huttner, JP Morgan Chase & Co, Research Division - Senior Analyst [40]

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I have 2 questions. The one is on Brazil and the negotiations, maybe you can share with us some of the parameters of those negotiations. In particular, remind us of the -- of your financial flexibility, which is left, if you could. I think there's some amount in Brazil, which hasn't been touched. And second, Banque Postale becoming the single main shareholder, can you explain what this shareholding structure might look like at the end of all these processes?

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Antoine Lissowski, CNP Assurances SA - CEO & Member of Management Board [41]

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Regarding Brazil, there is no negotiation. In fact, we have finished the negotiation with them by signing the agreement in August 2018 on more than 70% of the business, which we have today. And there are further businesses, which are to be auctioned, if I hear my partner -- Brazilian partners. And we are expecting just this auction in order to make a proposal. That's all. And we had the first contact with the new team of our Brazilian partners 2 weeks ago. And it seems that they are very, I would say, eager to develop the business with us where we are at least. The second question was about?

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Michael Igor Huttner, JP Morgan Chase & Co, Research Division - Senior Analyst [42]

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Banque Postale, what's the shareholding?

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Antoine Lissowski, CNP Assurances SA - CEO & Member of Management Board [43]

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The shareholding of LBP, when I read what is written, the idea is that LBP will, in the end of process, retain 60% of CNP, the market having more than 21% as today and BPCE the rest. That means what? That means in fact, you have just to add to current LBP participation the share of Caisse des Dépôts and the share of State with a minor difference between LBP and BPCE due to existence of Sopassure, which is a holding subsidiary, which we have between themselves -- between them and which it is not retaining exactly a 50-50 by the 2. But I don't know in fact exactly the process. And all what was disclosed was simply that in the end, LBP should have more than 60% -- around 60% of CNP.

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Operator [44]

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There are currently no further questions. (Operator Instructions) We haven't received any further questions. I hand back to the speakers.

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Antoine Lissowski, CNP Assurances SA - CEO & Member of Management Board [45]

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Okay. Well, thank you very much, and see you next week for people which I will visit in London on Wednesday. Bye-bye.