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Edited Transcript of COFA.PA earnings conference call or presentation 23-Oct-19 4:00pm GMT

Nine Months 2019 Coface SA Earnings Call

BOIS-COLOMBES Oct 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Coface SA earnings conference call or presentation Wednesday, October 23, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Carine Pichon

COFACE SA - Chief Financial & Risk Officer

* Xavier Pascal Durand

COFACE SA - CEO & GM

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Conference Call Participants

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* Benoit Petrarque

Kepler Cheuvreux, Research Division - Head of Benelux Equity Research

* Hadley Cohen

Deutsche Bank AG, Research Division - Research Analyst

* Rahul A. Parekh

JP Morgan Chase & Co, Research Division - Analyst

* Thomas Fossard

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

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the conference call for the presentation of Coface results for the period ended September 30. (Operator Instructions) As a reminder, this conference call is being recorded.

Your host for today's conference call will be Mr. Xavier Durand, CEO; and Ms. Carine Pichon, CFO. I will now turn the call over to Mr. Xavier Durand. Sir, please go ahead.

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Xavier Pascal Durand, COFACE SA - CEO & GM [2]

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Thank you, and welcome all to our third quarter reports call. As you can see on the presentation that's going to follow, we report another strong quarter in Q3. I'll just go through the key numbers here. Turnover is up 5.6% at constant FX and perimeter. Q3 itself is up 3.8%. That's a bit slower than the prior 2 quarters, but I guess it's on a backdrop of a slowing global economy. We see all regions continuing to contribute to growth, as you'll see in the details in the page to follow. New production is actually improving. Retention remains very high. We're seeing lower client activity growth, and that's very consistent with everything that we know and hear about in terms of the global economy being slower.

On the loss side, another strong quarter. The first 9 months' loss ratio is stable at 45.1%. The net combined ratio is better by 2.3% at 76.8%. If you look at Q3 itself, the loss ratio was 47.1%, it's better 1.4% on the backdrop of a more volatile and riskier economy. The cost ratio itself for the first 9 months has improved by 2.3% at 31.7%, that's better than the 34%, obviously, from last year. We continue to keep very tight cost controls, and we're also helped this year by the business growth that we've enjoyed through the first 9 months of the year.

So that brings the net combined ratio at 78.1% for the first 3 quarters of the year. That results in a net income at EUR 117.3 million. The third quarter comes in at EUR 38.8 million. So if you compare the first 9 months to last year, you'll see we're up 19% year-over-year. And when you look at the third quarter itself, we're up 27% versus last year at the same time, that's adjusted for a EUR 5 million FX gain that we had recorded last year, which did not repeat itself this year.

So I think we can say it's a strong quarter in a slowing economy. The return on average tangible equity stands at 9.5% for the first 9 months. In terms of the business itself, we're in the last stretch, as you know, of our Fit to Win plan execution. We're really focused, as I've highlighted in prior discussions, on continuing to deliver in this slower environment and slowing environment. We're still waiting for regulatory response on our partial internal model, so there's really no news here on that front from last quarter. And the business, obviously, as you can imagine, is now actively preparing our next plan, and we have a target here of presenting this plan at the beginning of next year, consistent with the end of Fit to Win.

So I'm just going to take you through the usual pages, going to Page 6 first to talk about the growth. As I've said, it's 5.6% for the first 9 months of the year. Again, trade credit insurance is performing pretty well at 6.7% at constant FX and perimeter. The third quarter at plus 5 is slowing down versus the prior quarters, so I think that was expected and it's consistent with the slowing trade backdrop that we've talked about and actually have to put in our plans.

The growth is still driven, we'll see that on the next page, by very strong retention and client activity, which has been good in the first half. Pricing remains under control. The other revenues are flat versus last year, and on one side, we're still repositioning the factoring portfolios, so that's down 2.5%. But we've got a new team in place and they're working hard to improve this business. I think they're -- I think we're going to see results there. And then on the -- and that's compensated by other revenues, which are continuing to grow.

If I go to page 7, and we look at the breakdown by region, you'll see that Western Europe is enjoying an almost 3% growth, which is driven by new business, good retention, higher single-risk business, so an improved performance here in Western Europe. Northern Europe has a growth rate of 2%, and the good news is that the trade credit insurance itself is growing 3%, with a bit of a drag, as I've mentioned, on factoring. Both new sales and retention are better and price pressure is actually improving as well.

Central Europe, growing at 2.3%. We are happy with the acquisition we made of PKZ. It's -- we've integrated the business in the second quarter, and I think the efforts that we've made -- been making on improving risk are actually paying off.

Med & Africa has very steady growth at almost 5% for the period. Both new business and activity remained strong. North America had a bit of a slower quarter, that's not linked to any change in the trend. It's more a one-off, linked to a large single risk policy, which has been canceled, and the reason is that the underlying project that it was tied to did not happen. But still, better retention and better new business in that part of the world.

Asia Pacific continues with steady growth that -- when you take out the one-offs that we enjoyed last year, the growth rate is, like-for-like, is 8.2% for Asia Pacific. And then Latin America, pretty much consistent with what you've seen in the prior quarters, continued to grow strongly. The actual growth rate would be about 26% when you adjust for continued variations in FX, and we've seen some more movement, particularly in Argentina over the course of the 9 months of the year.

If I go to the next page on -- and the other way to look at growth, you see that new production is actually improving after hitting a low in 2018. We're very consistent in the way we write business, but the efforts that we put into improving the efficiency of our sales forces, improving our processes, and are actually starting to pay off. So we have growth from last year.

Retention is at a record level of 92.2%. So continued steady execution here on this one. Price is better. I mean, it's still negative, but it's better than it's been in the last 4, 5 years. And we see here the impact of the re-risking of the economy, which allows, in certain areas, certain segments to get better price for the risk that we are taking. And as I mentioned, on the bottom, you see that the volume effect, which is the underlying growth of our clients' business is half of what it was last year at the same time, so we're at 2.4% versus 4.8%, and we are seeing a continuous decline in clients' activity. Actually for the third quarter, the total activity was 0.3%. So clearly, lower than we've had in the last 18 months.

If we look now on the next page to the loss ratio, you see that it remains strong in an environment which is more complex. If you go to the left of the page, and you see the first 9 months, the loss ratio before reinsurance and including claims handling expenses comes in at 42.6%, so that's 1.2% better than it was last year at the same time.

You see the quarterly sequence to the right and I just point out, again, to the numbers in white, which are adjusted for FX and for the facultative reinsurance policies that we write on risk that we don't want to necessarily keep on our own book. And you see that the sequence here is 43.6%, 46.3%, 42.2%, 41.9%, and then 45.1%. So clearly the quarter is higher, but it's still very good and it's on the back of a claims activity, which is increasing slightly in an environment which is slowing down.

So you go to the bottom of that page, you see that we still open the new year at 74.5%. So very consistent with what we've done in the last -- in the last 4 years. And we still enjoy strong recoveries from -- strong [loanings] from past underwriting years at 34.5%. And I think, again, good performance for the quarter here.

The next page, on Page 10, describes the loss performance by region. And I'd just start by pointing to the 4 largest and more stable markets that we report here. Central Europe has actually improved at below 40% for the first 9 months, and that's a reflection of the work that we've had on -- that we've made on improving the risk underwriting in some markets that has become more volatile. Western Europe, that's 33.2%, very strong quarter and very strong first 9 months. Northern Europe, you see the improvements here from the last 4 years at 43.2%. So the work again that we're conducting in turning around that part of the world is actually paying off.

Med & Africa, very stable, below 50%. So nothing much to say here. The top 3 markets, traditionally, are the more volatile. You see North America for the first 9 months coming in at 47.7%. So a bit of a hike you hear on the third quarter for North America, that's linked to one larger claim in the retail sector, which was material at the North American level that's so at the Coface overall level.

Asia-Pacific continuing to be strong, 26.6%. So again, stronger performance. And then Latin America, in what is a -- if you look at the news and the headlines here, it remains a pretty volatile part of the world. Coming in at, when you adjusted for FX impacts at 40 -- 53.7%, sorry, which I think, in this environment, is pretty good performance. So net-net, I would say this continues to be strong.

If you look at Page 11. On the cost side, they're down 1.9% quarter-on-quarter. I just want to point out that we had about EUR 2 million of one-off savings this quarter that are linked to some reserve throwback and things like this, which will not repeat themselves over the next quarters. But when you take that out, you see that our total costs are very much stable, and you see the cost ratio before reinsurance on the right-hand side for the quarter coming in at 33.7%.

We continue to be extremely disciplined and we continue to drive savings wherever we find them. And you see on the bottom right-hand side how, for the first 9 months of the year, the cost ratio has gone down from 35.8% to 33.8%. So a 2-point improvement. And you see how the bulk of this is driven by the fact that our premiums have been growing faster than our cost base and giving us operating leverage.

So I think that's it from my section. I'm going to now turn it over to Carine to talk about the usual reinsurance in other pages.

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Carine Pichon, COFACE SA - Chief Financial & Risk Officer [3]

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Thank you, Xavier. Good evening, everybody. So we have Slide #12. So reinsurance results continued to reflect a very low loss ratio, and also a stabilization for accounting cession rate. As you may see in the detail, premium cession rate has been stabilized at 28.9%, and claims cession rates is slightly lower than last year, mainly because we have had some old years' recoveries that we passed to the reinsurance. So all in, reinsurance results was in line with what we have seen in terms of loss -- level of loss ratio.

Continuing to Slide #13. Our net combined ratio is very robust at 76.8%, far below through the cycle average. Comparing with the end of 9 months of 2018, it represents an improvement by 2.27 point of percentage of this net combined ratio, thanks to a very low ratio -- loss ratio, which is stable in an environment you know is riskier. And also, we have been able to improve of cost ratio by 2.3 points, thanks to, as just commented by Xavier, positive operating leverage, and also some one-off savings.

On a quarterly basis, this improvement is even far higher and because the combined ratio of Q3 '19 is 78.1%. Last year, if you remember, it was 82.8%. So it means more or less a 5 point of improvement.

Mainly just to remind you that we have had in Q3 '18 some FX movements more important than usual because of what's happened at that time in Argentina and Turkey. So if we adjust the FX movement in Q3 '18 and also in Q3 '19, this means that the loss ratio went from 44.4% to 46.3%, so a slight increase knowing that we have been able to avoid most major market losses, I'm sure you know, on which we don't have anything.

Page 14, some comments on the financial portfolio. So we continue to try to diversify as much as possible the risk appetite framework. As to now, we have been able to stabilize the accounting yield at 1.2%, as you may see in an environment, which are clearly the lower interest rate environment.

Some negative one-off, just to remind you, we have decided at the beginning of the year to disinvest in Peru, because we do believe that keeping a little structure was too heavy and that we can save our clients from other countries, and some impairments and some nonconsolidated entities that's the reason why it's aligned although it's higher in the 9 months compared with last year.

Slide 15 is now on net income. So increased by 19%. Looking at the company's strong operating performance. We also have had very few restructuring charges as you may see, a minus EUR 2.3 million. Our tax rate has continued to improve. It's 28%, it was 35%, so we continue to benefit from that growth tax expense result, and all-in on the pro forma basis of Q3, which is at EUR 38.8 million, is up by 27% compared with Q3 '18.

Continuing to Page 16, to look at the equity and return on that equity. First of all, just on the equities on the top of the slide. You see that the distribution we have done at the beginning of the year is smaller than the same results of the first 9 months. We have benefited in a certain way by an increase of revaluation reserve, it's EUR 1 million on our bond portfolio as interest rates have decreased that reevaluated the historical bond portfolio, and net of tax, it represents an increase of EUR 67 million on the equity.

In terms of returns, reminding that last year we have 7.7%, so improvements in technical results improvement in growth, improvement in cost, improvement of going loss ratio, allows us to improve our return by more or less 2 points, a lower contribution to financial results, particularly investment interest rate environment.

And on top of that, we benefit from, as I say, the higher -- or lower free tax rate, and this contributes to a 0.5 points of additional return to the global one. And all in, we have 9.5%

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Xavier Pascal Durand, COFACE SA - CEO & GM [4]

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So I'm just going to wrap this up before we go into the Q&A. On Page 18, I think we can call this a strong quarter. Clearly, there is slower economic growth, which is starting to be visible in our numbers. You see it in our client's activity, which is growing at a much slower pace than in the past, but we see, obviously, the impact percolating through the financial portfolio returns of lower interest rates in the market.

On the loss side, we see frequency increasing. But as Carine has said, we've avoided most major market losses at this stage, so it gives us more confidence that the strategy that we are -- that we've put in place is actually working. Our net combined ratio at 76.8%, with a stable loss ratio of 45.1%. Improving cost ratio, there's a bit one-off in there, but still, I mean, I think, we can say that the performance is pretty good. And then at EUR 117.3 million net income for the first 9 months, 9.5% RoATE, I think it looks like a pretty good delivery for the third quarter.

As I mentioned, Fit to Win is -- we're in the last stretch here, so we're in the few final months of the plan. We're really focused on driving the execution. The environment is slowing, but I think it's actually a good test for the strategy and for the business.

We're still awaiting the regulatory response on the partial internal model, really no news to report here. As you know, they have until beginning of February to get back to us. And then we are actively working on the next plan. So that's, obviously, involving a lot of people in the business. And our target is to put it forward to the market beginning of next year.

So that's the story. With that, I'd like to turn it over to the usual Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have one first question from Mr. Benoit Petrarque.

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Benoit Petrarque, Kepler Cheuvreux, Research Division - Head of Benelux Equity Research [2]

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Benoit from Kepler Cheuvreux. So a couple of questions on my side. The first one is on the next plan. Could you give us a bit the direction you are looking at? I guess, you're looking at something on capital, obviously, on distribution? But could you give us a bit more -- not your details, but even the direction, at least? Do you think cost will be focused again like it has been? Or will that be a bit less? So just looking for the directions.

Second one is on, while one of the segment you've put in your slide, like the slowdown of the economic growth. Just wanted to have your feeling about how serious it can be for you? Are we just talking about slowing down of maybe volume growth, general growth on the back of slower activity? Or will that translate into, maybe, a small pickup of cleanse in the coming quarter?

What are your expectations in this -- along the slowing economy? And the last one was actually to the -- around cost. I've seen acquisition cost down. I was wondering if the one-off is relating to that? Or what can explain while very good achievement on [reducing] cost, given the growth year-on-year?

And maybe also on the cost side, I think you have a 31% cost ratio this quarter. I just wanted to get the figure excluding the one-offs on a group basis?

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Xavier Pascal Durand, COFACE SA - CEO & GM [3]

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Okay. Maybe deal in reverse order, the acquisition costs are down, but I think the U.S. -- if you remember, we have purchased our Asian distribution in the U.S., so we have actually internalized some cost, so they came out of the acquisition cost and it came back in, albeit better, at the internal cost line, right? So I think there's really no news here from what we've experienced in the past quarters.

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Carine Pichon, COFACE SA - Chief Financial & Risk Officer [4]

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No, and then you just -- on this quarter, we told you that we have conformed single-risk policy in the U.S. and [new well] recognition rates is a little bit higher, so you have a small effect into them. That's the main trend is what the [value save].

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Xavier Pascal Durand, COFACE SA - CEO & GM [5]

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The slowdown of the economy, I mean, I think, that's very consistent with what we've described here. So we see lower client activity, I mean, I don't think it's actually a surprise, by the way. We have planned for this, so I don't think it comes to a surprise to us, and hopefully not to you. What we are seeing here is an increase in frequencies. And the good news for us, I think, is, so far, we haven't seen -- we haven't been hit by large claims like we could be.

And I think the -- at this stage, it all revolves around what the environment holds for us. I mean, we are seeing a slowdown in the economy. I think the forecast is for next year to be a bit lower than this year in terms of growth. We're not seeing, at this stage, a major recession coming, or at least that's not the central scenario, even though it's always very hard to predict what the future holds for us. But -- so I think some of these trends that we're seeing here, we expect to continue to be at play.

I would just point out that, it's not been just a walk in the park for us in terms of risk over the last few months or a year-or-so. We've had to manage a number of stress situations in a number of parts of the world, and the teams are really focused on that in delivering and executing on all these different points. So this concept of agility that we have put forward is really being tested here, as we speak.

In terms of the next plan, well, of course, I'm not going to give you the content of the next plan before the next plan. I don't think that would be fair. I made the comment last time, and I'll repeat this, that I think we're executing on a quarter by quarter basis, and I think the basis or the foundations, if you will, that we've laid for Fit to Win are good ones. I think we're -- as time passes, we're seeing this work.

So I've said, I think, Fit to Win is the right strategy. I think the business culture is improving, so there's no reason that will change or we would be altering that in major ways. That being said, I'm not going to give you the details of the plan beyond that.

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Carine Pichon, COFACE SA - Chief Financial & Risk Officer [6]

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And maybe, just to comment to add on your question on how will be the cost ratio results one-off, I can tell you that, and I'll tell you. So issue on the cost ratio, Page 11, before reinsurance. On the 9-month basis, was at 33.8% would have been 34%, so it's 0.2 points. And in a quarterly basis, the impact was 0.6 points.

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Operator [7]

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Next question is from Mr. Hadley Cohen from Deutsche Bank.

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Hadley Cohen, Deutsche Bank AG, Research Division - Research Analyst [8]

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Two questions, please. Firstly, you mentioned, Xavier, around the investment return pressures. I guess that's not a surprise in the current environment. But can you tell us please what your current reinvestment rate is, please? And I guess, when we talk to other TNC or non-life insurance companies, they're sort of looking to offset the pressure from investment returns through improved pricing. To what extent do you feel you can do that in credit insurance?

I mean, I guess, the pricing is improving, but it's still negative. To what extent is there? Can you push pricing higher towards a lower investment income? And then my second question is around Latin America. Latin America was one of the problem child early on 2 or 3 years ago, and you did a very good job in terms of reducing exposure there and improving profitability. But I've noticed that you started to accelerate growth quite a lot in the last few quarters, and actually, in the third quarter, it looks like there was a bit of a -- there was a higher loss ratio in Latin America, around I think just under 60% adjusted for FX.

Is there anything that we should be concerned about there? What kind of comfort can you get that we're not going back into the issues that we faced 2 to 3 years ago?

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Xavier Pascal Durand, COFACE SA - CEO & GM [9]

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Yes. So let me start with the investment return, and I'll then pitch it over to Carine to talk about the question on the reinvestment. But clearly, returns are lower in the market. We're not as exposed as you would see in other kind of insurance lines with much longer maturities. However, the renewal of our investment happens more often as a result of this, right? So clearly, on one hand, we are impacted by lower interest rates.

What I can tell you is we're not the only ones. So the other participants in this market will see the same effect. So as a total in the industry, clearly, the share of returns that is derived from the investment portfolio was going to come down. And then the question is, what's the pricing strategy of the market going to be, because we will be competitive whatever the market lands, we will have to be competitive. So I think the answer is very much -- as much in the competitive space as there is a -- just a question of this single factor playing out. And I think the competitive space for me is a continuum. So what we do there is not going to be different from some of the trends you've seen so far.

Carine, you want to talk about the...

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Carine Pichon, COFACE SA - Chief Financial & Risk Officer [10]

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So the investments -- the reinvestment yield that we've done as of today is a little lower than 1%. So you see that we have around about possibly 1.2%, so it's slightly lower, meaning that a portfolio is a duration of around 4 years. So let's say the impact is, as what Xavier say, the follower of that investment on life which is very vulnerable, multi-layer portfolio, but we still have an impact, and that's what we are seeing every year.

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Xavier Pascal Durand, COFACE SA - CEO & GM [11]

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On Latin America, I mean, clearly, this is a part of the world on which we're very watchful. It's a small piece of our business, but it's one that has had, historically, more volatility. You're right to point that out. We haven't forgotten.

As I have mentioned in the past, our growth there -- I mean, first, just to describe that business, more than 50% of that business are international contracts, where we take risk in Latin America, but we also take risk in many other parts of the world as part of a global contract. So Latin America is just a piece of the equation for global relationship. And so we are very careful that the overall relationship makes sense for us to carry, not just the Latin American piece.

The second thing I would say is that we do differentiate between types of risks in Latin America, so we will be, clearly, today, more positive on Brazil, for example, than we are on Argentina, which has been a recurring volatile and difficult place. I think our teams, by the way, are doing a great job in Argentina, but they are faced with a very tough environment. It is also -- on the other side, it's also a sales argument, if you will, for us to drive growth globally, because the ability to do some business in that part of the world is a differentiating factor.

So I think that's the way I think about Latin America. We're very careful. We're not accelerating the growth in Latin America for Latin America's sake. That's not what we're doing. And we are subject to some volatility. Clearly, Argentina is a tough space right now, there's no question. We see volatility, social risk actually popping up in and out in different countries, so we're very watchful of this.

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Operator [12]

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Next question is from Mr. Thomas Fossard from HSBC.

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Thomas Fossard, HSBC, Research Division - Co-Head of European Insurance and Analyst [13]

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Just a couple questions. The first one would be related to the Q3 eye-catching losses that we've seen in aviation and travel. Can you tell us if you're completely out of any of those claims? I'm specifically pointing to Thomas Cook. I know that you don't like to talk individual names, but this one is a very big one. There is a big [shortage] loss in the market. And I was wondering if you had absolutely no exposure at all and you're clean on that one?

Second question would be related to your reinsurance strategy going into 2020. Obviously, little loss this year, at least on a 9 months basis. So this is costing you EUR 65 billion of profit. I was wondering if there were any willingness from your side to repay more of your business going into 2020 and 2021? And if so, it is the right time to do it?

And the last question would be on your 9.5% return on tangible assets. So 9.5% is a borderline. You were targeting also the 9% was taking into account on the basis points in terms of capital transition. I'm not sure that you did the 1% yet. So just wanted to get an update on where we are so far in terms of capital return? And what remains to be done? And if this is still a, I would say, on your plan to do it in the coming quarters?

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Xavier Pascal Durand, COFACE SA - CEO & GM [14]

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All right. So let me start with -- in the order of your questions. Yes, there's been some pretty visible events in the aviation and travel industry, and I'm happy to say we're just not impacted at all. So Coface is actually performing extremely well through that series of events.

So that's all I have to say on it. I'm not going to dwell anymore. Our reinsurance strategy, that's something we're thinking about. I mean, clearly, it'll also be tied to our internal model validation and the consequences of that. So we are going through a full searching discussion and also with the market in terms of how to -- if and how to evolve that strategy. Being conscious, one, that obviously as our results are good, we're also letting the reinsurers benefit from this, but also that the market is slowing and that we have to be cognizant of the balance year through the cycle.

So I think we'll say more about this when we have clarity on the plan on one side and on the internal model on the other side.

In terms of the return on equity, yes, 9.5% is better than the 9% we had offered. It's not the end-of-the-year number. There's always some seasonality. I would say we've been clear in the discussion that we wanted to gain about 100 basis points from capital optimization, and we think we've done about 0.4 of that so far. So the rest is tied to our pending discussion on the internal model. And only when we have clarity on this we'll be -- I think we will be able to factor that in. So that's the story around capital optimization.

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Operator [15]

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Next question from Mr. Rahul Parekh from JPMorgan.

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Rahul A. Parekh, JP Morgan Chase & Co, Research Division - Analyst [16]

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I have 3, 4 questions, please. My first question is on your loss ratio. Your loss ratio has increased from Q1 if we see, from Q1 '19 to Q2 to Q3, it has steadily increased. Just some comments on your outlook going forward.

My second question is on your cost issue and the benefit you have received on operating leverage. Just to understand how much operating leverage you still have to play with? As in, how much growth can you still get with full benefit from operating leverage?

The third question is on -- you know the bankruptcies we've seen, a few in aviation and tourism. And so just wanted to know, which of your -- which are the top 2 sectors that you are probably more exposed to than the others?

And my last question is, on your bankruptcies, again, is there usually a cap on your -- on the loss that you take because the bankruptcies can be very volatile in numbers, in a total number sense?

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Xavier Pascal Durand, COFACE SA - CEO & GM [17]

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I'm sorry, I'm just trying to understand better your second -- your third and fourth questions. So in terms of aviation and tourism, I mentioned earlier that we had not been impacted by what's happened. And I'm not sure what your question was?

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Rahul A. Parekh, JP Morgan Chase & Co, Research Division - Analyst [18]

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No. No. My question was that, which are the top 2 sectors that you are probably most exposed to overall? And my fourth question was that, on bankruptcies, is there a cap on a bankruptcy that -- this is the cap on your loss that your loss cannot exceed this number when you draw a contract?

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Carine Pichon, COFACE SA - Chief Financial & Risk Officer [19]

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Okay. On the loss, I will take on the cap, or the maximum loss. On our recent strategy, we have one opportunity, which is there to avoid that on one name, so on one risk. We say for more than [3%] of our shareholder's [portfolio]. So that is a maximum loss we may have on one name. So that's the first thing.

The second one, not frequency, we have the [contract] share that we share with the reinsurers, a proportion to 26% of our losses speak to reinsurance. So that's the way we think, and we are working on loss on one name and more globally on the whole portfolio.

I am not sure we capture this question just before we said that we don't have any losses on large losses on travel and aviation that occurred during the past months...

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Xavier Pascal Durand, COFACE SA - CEO & GM [20]

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He wants to know which other sectors we are most exposed to, in absolute terms.

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Carine Pichon, COFACE SA - Chief Financial & Risk Officer [21]

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Okay. So -- okay. So I think, maybe -- I think we have the street of exposure for geographic -- we've excluded in a yearly basis. So it's agricultural, it's chemi, building. We also have some metals. So it's quite diversified. I think maybe if you want a further picture of our exposure, you may see that I think on H1...

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Xavier Pascal Durand, COFACE SA - CEO & GM [22]

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Every half year, we...

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Carine Pichon, COFACE SA - Chief Financial & Risk Officer [23]

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Yes. (inaudible)

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Xavier Pascal Durand, COFACE SA - CEO & GM [24]

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You'll see it's quite diversified. But we're really -- I mean, we're really exposed to a broad set of industries and a broad set of countries. So the portfolio of Coface is really spread out. But as Carine mentioned, agri-food, chemistry, industry, there's a lot of sectors that we're exposed to.

In terms of your question on cost and loss, clearly, I mean, when there's growth in the top line, it's easier to get operating leverage than when there's not, right? So we have been -- over the past few years, we've been driving cost out as fast as we could, and we have been making the thoughtful investments we thought were necessary to run the business well. We are also making sure we do not trade-off cost for risk, because I think in this business, you make it or break it on the loss line, and you have to have the right infrastructure to manage losses.

So we've been thoughtful about reinvesting the money in areas that we think makes sense, but clearly, I think your assumption that lower growth means lower cost/benefit is absolutely right. It's a lot easier to get operational leverage when you have growth in the -- more growth than when we have less.

And in terms of losses, yes, they've been going up, but they're -- I would just remind you that they're still at a very good level versus the target we've set for the combined ratio through the cycle. So I consider that in this kind of an environment, the business is actually, as I said, performing well.

And then if you look for the first 9 months of the year, we're at 42.6% versus last year at 43.8%. So I'm not sure -- I mean, I'm not sure what to really add to this.

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Operator [25]

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We have another question from Mr. Thomas Fossard from HSBC.

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Thomas Fossard, HSBC, Research Division - Co-Head of European Insurance and Analyst [26]

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Two additional questions. First would be on the pricing environments. So actually you've got -- still going to get the 1.1% 9 months at '19, with the, I would say, (inaudible) going to be, I mean, there's a lot of fear regarding a recession scenario in 2020. Do you see, I would say, a possibility that overall prices will be up? I mean, will be in quality territory in 2020?

And second question would be related to your -- through very high positive [TYDs], 9 months at 34.5%? In light of you being maybe obviously more cautious in 2020, should we expect this 34.5% 9 months [pricing] to lower just because the impacts are going to be more, maybe, cautious in '24? And recurring a bit for 2020 and 2021?

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Xavier Pascal Durand, COFACE SA - CEO & GM [27]

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Yes. So the pricing environment, and I think we've had this discussion a number of times over the past few quarters, because, I guess, you would expect prices to be somehow correlated inversely with risk levels, right? But I think if you look at our loss performance today, it remains very strong despite the fact that the environment is slowing down, there is still a large number of clients that see strong performance. The -- so the pricing events that we see are more local or sectorial or linked to certain areas where we see more pricing power. I think in the past we've seen in this industry, that price capability follows risk events, but with a lag.

I would also say that, in total, we are managing the total amount of exposure that we take versus the amount of price that we get. And I think that's another way to look at price is how much risk and quantity are we taking versus the amount of premiums that we're collecting. And on that side, you see that we were actually flat. Through the first part of the year, we have the same amount of growth and exposures than we have in premiums.

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Carine Pichon, COFACE SA - Chief Financial & Risk Officer [28]

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And maybe on your second question, on reserving. So we haven't changed the reserving policy as of today. So no, I can't comment any more. No change expected at that stage.

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Operator [29]

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(Operator Instructions)

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Xavier Pascal Durand, COFACE SA - CEO & GM [30]

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All right, well I guess, if there are no other questions, there's no need to torture everybody. I just want to thank you again for logging in and being part of this call.

As I said, we're in the last stretch of the year, last stretch of Fit to Win, so for us, symbolically, it's pretty important. And maybe -- is there another question?

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Operator [31]

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Yes. There is another question, sorry, from Mr. Rahul Parekh from JPMorgan.

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Rahul A. Parekh, JP Morgan Chase & Co, Research Division - Analyst [32]

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Sorry for the late last question, but I just forgot something. So I just wanted to know that is your new plan, is the presentation of your new plan linked to the approval of the PIM? As in would you be -- would you wait until a decision is announced on the PIM before coming out with a new plan?

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Carine Pichon, COFACE SA - Chief Financial & Risk Officer [33]

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So maybe on the plan, what we plan is to present it on the beginning of Q1 of next year, for Q1 2020. And that should take it with the -- or we'll assign that with French regulatory body as up to February to tell us what will happen next [month] is a deadline. So that's what we will say.

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Operator [34]

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Sir, we have no other questions.

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Xavier Pascal Durand, COFACE SA - CEO & GM [35]

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Well, great. So as I was saying, we're in the last stretch. For us, we're focused on a few things right now. Execution in this environment, putting together the new plan, as we mentioned. So we will be reporting our total year performance in February, February 5. So that's, I think, our next opportunity to chat directly.

So in the meantime, thank you for logging in, and I think I will call this an end to this call. Thank you very much.

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Operator [36]

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Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.