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Edited Transcript of GCO.MC earnings conference call or presentation 4-May-20 2:30pm GMT

Q1 2020 Grupo Catalana Occidente SA Earnings Presentation

Barcelona May 23, 2020 (Thomson StreetEvents) -- Edited Transcript of Grupo Catalana Occidente SA earnings conference call or presentation Monday, May 4, 2020 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Carlos Felipe González Bailac

Grupo Catalana Occidente, S.A. - Financial Director

* Francisco José Arregui Laborda

Grupo Catalana Occidente, S.A. - Director General & Secretary

* José Ignacio Álvarez Juste

Grupo Catalana Occidente, S.A. - CEO & Director

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Presentation

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Francisco José Arregui Laborda, Grupo Catalana Occidente, S.A. - Director General & Secretary [1]

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Good afternoon. It is a pleasure to be here with you again to inform you about the functioning of the business in the first quarter of Catalana Occidente. I'm Francisco Arregui, and I am here with Carlos González, Financial Manager, CFO. And first of all, I wanted to thank you not only for your online presence at this event, but at any rate, the continuous attention you pay to the business of Catalana Occidente. You can formulate any questions you have online. We will try to give as many answers as possible at the end of the presentation. And whatever cannot be answered at the end of the presentation will be answered via the usual channels.

We will now be talking about how things have been during the first quarter of 2020. Accounts that were approved by the -- I mean, the general shareholders' meeting last week and were made public. And within the current context, I must say that things have been reasonably good despite the high competition in the insurance sector in Spain; adverse weather conditions at the beginning of the year, we will be talking about Gloria later; and of course, the health care crisis due to COVID, which has led to a stopping of industries and businesses, and with a great deal of uncertainties still about its duration and the consequences it will bring about. And we're no longer talking about deceleration, we're talking about significant reduction in growth.

So we'll follow the agenda you can see on screen. I'll start with the economic environment. Things have changed quickly, suddenly. And as we said in the previous presentations, we continued to develop our activities in a difficult economic environment due to the globalization volatility. Anything that happens in the world, political uncertainty, conflicts, anything has an immediate impact on our businesses. But the truth is that at the end of the year, we were still talking about a deceleration in all geographical areas. We were still talking about growth in all geographical areas, as you can see in the figures, in an environment of low inflation and interest rates that were still very low, at historical lows. And we were approaching a deceleration of growth. You can see it specifically in Europe and in Spain.

But the truth is that all of that landscape has been broken with the COVID health care crisis, the stopping of the Chinese industry, the lack of supply in production chains in February, and then it reached the rest of the world afterwards. During the second quarter of -- the second half of March, we saw how the entire industry and trade stopped activities, and it's difficult to forecast how the economy will be -- the general economy will be in the future but, at any rate, in all estimations, point toward the fact that there will be a reduction in growth, a significant reduction in growth.

And the difference you can see between 2020 figures in black, which was estimation of the IMF at the beginning of the year as compared to the figures in red with significant decreases in the Eurozone, 7.5%. And these are also forecasts by the IMF in April. And in most forecasts, what we can see are very broad ranges of decreases, 6% to 8% in Spain to some 13%. And what is clear at any rate is that the economic crisis will impact us all. It will impact our business, specifically credit insurance, which is the one that is the most sensitive to the economic cycles because traditional business, as you well know, is very defensive as a consequence of the synergies of portfolios.

Here, you can see the indicators we've been mentioning. And truth is that the insurance sector in Spain, if we think about how things have gone this quarter, we've said oftentimes in the past that it had an exemplary functioning during the crisis. It's been growing for many years now, since 2015, and now we are at the limit of growth, if we consider single premiums decreases. And now we are seeing a growth of 6.8%, as you can see on the screen, although negatively impacted by the 24% decrease in savings. Separate from savings and despite COVID, we see growth in all lines, except for motor, which is practically flat with minus 0.4%. And you can see a growth of 4.8% in life risk, 6.1% in health, 6.4% (sic) [4.6%] in multi-risk and almost 1% in others.

I said a minute ago that in the context that I described and despite the adverse weather conditions at the beginning of the COVID crisis, which only impacted fully the traditional business in the second half of March, things have -- despite all that, things have gone reasonably well, especially in the magnitudes that are closer to the 3 main pillars of our general policies: growth, profitability and solvency. We will see it in a minute, but we grow a bit above 11% in terms of turnover with, as I said, an inorganic component that we will explain; and secondly, with the very good result of the traditional business, increasing and which is -- what supports the results of the business in this first quarter. And we continue to maintain a solid solvency position. We will explain this, seeing this P&L, this summarized P&L, first-line income and then the end results. And later on, the Financial Manager will go in more detail. We see we grow this 11.3% that I already said a minute ago, and this breaks down into 18% growth in traditional business, which is almost 22% if we look only at recurring premiums, because we continue decreasing by 7.6% in single premiums life.

This does not concern us because these are the ones that contribute the least value to our business, especially with low interest rates, such as now. And the truth is that we can grow in all lines of business. We will see it in a minute. And of course, there's a negative impact in new production, but we grow in all lines of business. And the increase has a certain inorganic component because in 2019 -- because the integration was in February, we still did not have the Antares premiums, as we've explained on multiple occasions. Therefore, since this business is very seasonal, almost EUR 120 million in January, the growth that you can see now on screen is 2.1% would be pro forma without accounting for the January premiums of Antares.

In credit insurance, we don't grow so much, but we do grow by 3%, far from the 7.3% we were growing during the first quarter of the previous year. And this is due to a series of reasons: Basically, lower sales amongst our policyholders; the inflation rate especially outside of Spain; and the business is practically flat in Spain, no growth, as we will see later on. And from the point of view of results, well, there is a reduction. You know about the minus 10.4% in the consolidate, that due to the good functioning of the traditional business, becomes only minus 8.3% in terms of attributed result. You can also see that nonrecurring still damages us a bit more than last year by EUR 6 million. And here, we have multiple factors: Because we have almost EUR 18 million in terms of impairment of financial portfolio, and the tax provision that was unbooked due to the fact that we won a litigation against the public body due to the Groupama issue.

As to the operational results of both businesses, the result of the traditional business is very good, 7.8% increase. And I would say that basically, there are 2 key aspects here. One is multi-risk. It's the only one that drops by 6.5% as a consequence of the weather situation, Gloria, which was a -- had a great impact for us. And it had an impact on our accounts by almost EUR 9 million. And the other -- the flip side has been the result of motor, honestly good, with an increase of 27% with a claims ratio of 1.5% less than that of the same period of the previous year and as a consequence, basically, of the lockdown during the state of emergency, although this only has an impact on the last 15 days of March.

And it's less good in credit risk, and the result is less good, 23.1% decrease. Carlos will talk about this more later. But versus the first quarter of last year, we've had an increase of 10 points of claims ratio, 52.4%. And regarding the -- from this increase of claims ratio, comes into different factors. I can say on the one hand that we have not yet -- at the end of the first quarter, we have not yet seen an increase of frequency of claims due to COVID-19. It's too soon. It's too recent. We still need to see the different terms for the declarations, the maturity of invoices. We have had more claims in the first quarter of last year, non-related to COVID. And we must say, you must be aware of the fact that our technical provision calculation system makes a sophisticated and predictive system, which determines that it should capture future claims ratios as it adjusts with its own parameters or as we adjust it.

And in this regard, I must say that we've been very cautious, very conservative with this crisis, although we do not know whether this level of cautiousness will be enough or not because it remains to see what will happen. And if we don't, we don't know whether there will be an increase of claims ratio.

And finally, I must speak about the greater deal of actions that we have taken due to this extraordinary situation of the COVID-19 crisis, all of them essential for the good functioning of the business, the maintenance of the business. You can see them on the screen. I will not head into detail. But of course, the main thing at the beginning was to ensure employee protection and, at the same time, continuity of work. And I think we have fulfilled this perfectly well. And we have almost all -- some 99% of the employees are teleworking almost from the very beginning. And we were -- we, of course, cared for the maintenance of customer service, continuity in customer service through telematic means and also via expert reports, repairs, agency offices, et cetera.

In the traditional business, we've been more flexible in payment of receipts, installments and deferment. We have adapted prices according to the circumstances of the risk and the customer. We have preferred -- rather than to take general measures, we have preferred to give the capacity to our agents who are close to customers to adapt to the circumstances of each customer. We also offer a medical guidance service for all of our customers, 24-hour service.

There are a series of measures that are specific for credit insurance. Aside from flexibility in payment of receipts, just so in traditional business, we've also made -- implemented a measure of flexibility in the period of declaration of nonpayment, extending it by 30 days. And we are, in conducting conversations with the different governments, to implement different government protection services to national and international trade via credit insurance. And of course, measures to support society, there are many. Some of them, you can see on screen. I would say the most significant one is the participation that we've done with UNESPA in a fund that will file an insurance to protect health care professionals with a contribution of around EUR 2.3 million on our side.

From the point of view of diversification of the business, nothing new really. I always say that the weight of credit insurance in our portfolio is very significant. Since Atradius, it's 70-40. And from the geographical point of view, we are international, and Spain still represents a bit over 2/3 of our business. And the rest is basically in Europe and only around 6% outside of the old continent. Third key message, we maintain a solid capital and solvency position, and I'll talk about this later. And fourth message, we have a stable and growing dividend policy. And we stick to our commitment of remuneration to shareholders, even at difficult times, times of restrictions, as you will see shortly.

What can I say about share price performance? You can -- you know this perfectly well. We have a chart, a long-term chart here, very good performance in the long-term despite the drop in the past couple of months, a significant drop, with an internal revaluation of around 10%, much better to -- than other indexes closer to us. And in 2019, there was a drop of 4% more or less, and in -- although some of the stock exchanges had a very good performance then and a very significant drop in the first quarter of 2020. And in the past few days, well, this is not very different from that of other financial entities or insurance companies in Spain and in Europe. From the point of view of dividend yield, you know that we have a conservative dividend payout policy. This has been allowed by our shareholders, so that we can finance all of the expansion period. But it is also true that we always say and do, we have a stable and growing dividend policy. I think during the economic crisis of 2008 to 2009, with very bad results of credit insurance, we were able to maintain and even slightly increase the dividend. And from 2020, we've seen consistent increases of dividend, which in the past few years were between 6% and 7.5%.

You know perfectly well, too, and I rate -- I will let you know now that we were proposing to the general shareholders' meeting until a few days ago, a dividend -- a complementary dividend increase from 10% with a total dividend for 2019 with an increase of 7.3% versus the same magnitude for the previous year. As you well know, as well in the framework of the recommendation of suspension of dividend payout made by EIOPA, the general management of insurance and their superior bodies, as a consequence of COVID-19 crisis, we have been compelled to reconsider that dividend. And specifically, in a Board of Directors meeting on the 22nd of April, 2 decisions were made. On the one hand, it was withdrawn from the agenda of the general shareholders' meeting of last Thursday, the proposal of application of results was withdrawn from the agenda. We will need to formulate a new proposal that will then be taken to a new general shareholders' meeting to be approved in the second half of the year before the 31st of October. Although it is true that in that same Board, and so as not to break tradition of the dividend in May, and in order to maintain our strong commitment to shareholders, we agreed on a payment of a fourth interim dividend tied to 2019 with an amount being half that of what we originally proposed to the shareholders meeting, which would leave the payout of the company -- leave it at 21.1%.

So Carlos, you can now continue.

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Carlos Felipe González Bailac, Grupo Catalana Occidente, S.A. - Financial Director [2]

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Okay. Good afternoon. As usual, I will now give you a bit more detail about the performance of the traditional business and the credit insurance business. I will start with the traditional business.

The turnover of the traditional business stays at a growing trend, EUR 790 million with an increase of recurring premiums by 21.7% and a 2.7% if we discount the effect of the incorporation of Antares that Mr. Arregui mentioned before. On the other hand, the result continues to be positive with an increase of the technical result by 8%, which leads to an improvement also of the recurring result, reaching EUR 55.4 million with an increase of 7.8%. The basis of this increase of the technical result is due to a positive evolution of the general insurance results with contention of technical costs and improved efficiency, and we will later give you a description by line of business. 0.4 basis point improvement of the combined ratio, improving our differential versus the industry.

We will now analyze each of the lines of business. We'll start with multi-risk with a stable and strong growth, around 4.3%, a similar pace as that of the market. The market is growing at 4.6%. And this is due, on the one hand, to a good commercial dynamic of the company. And this good commercial dynamic is allowing to offset the drop of turnover due to Plus Ultra that you may all remember. Ever since they started on runoff, they are not contributing turnover increases, rather the contrary.

As to the combined ratio of the line, it is 90.5%, 1 point above last year. As a consequence, as we heard before, of the Gloria weather event, Gloria affected substantially our accounts in January. 5% -- it contributed a 5% increase of the claims ratio of this total percentage, and it is expected it will dilute throughout the year. As a summary, the technical result is impacted basically due to this reason, due to Gloria, going down to EUR 15.7 million.

Motor, we then increase in turnover of 2.6%, and this compares very well with the drop of 0.4% of the industry. The net increase of number of policyholders is what causes this increase in turnover. The combined ratio drops by 1.8 points, leading to 91.2%. A reduction of 1.5 points of technical cost, basically due to 2 reasons: The first was already mentioned, the lower frequency of claims during the second half of March due to the lockdown. But in January, February and beginning of March, we were already -- just like in other periods in the previous year, we were already having very good frequency ratios, frequency data and not very relevant peak claims. This allowed us to increase the technical result by 27.2%, which brings the P&L of this line up to EUR 14.5 million.

As to others, an increase by 3.3% in turnover. And despite the increase in claims ratio, the -- there's no reduction of commissions due to the portfolio mix. So the combined ratio improves by 0.3 points, leading to 82.5%. And this has allowed us to improve the technical results to EUR 13.7 million that you can see on screen.

And finally, regarding life, it continues in terms of periodic premiums of life in funeral, around 4%. And single premiums drop due to how unappealing they are now because of the low interest rates. In health, as you can see, there's a substantial increase, and it incorporates the turnover of Antares. In the previous year, most of the premiums were accounted for during the first quarter in health and, therefore, total turnover in Antares. Since they were accounted for in January last year, they were not incorporated in that year. And in terms of earned premiums, we see a growth of 3.5%. And as a result, technical results improved notably 15%, up to EUR 15.3 million, mainly due to the good claims behavior in life risk and health and mainly due to the Antares contribution to the results.

As a summary for the traditional business, the growth by 3% in earned premiums, the reduction of combined ratio and the good claims ratio of life with the incorporation of Antares, allows us to increase the technical result to the 8.2%, although there is -- the financial result drops a bit due to the low interest rates. As a summary and finally, the recurring result increases by 7.8%, up to EUR 55.4 million.

And now moving on to credit insurance business. Earned premiums, which is a volume of EUR 454 million with a growth by almost 5%, thanks to the inertia we've been having over the period before the COVID with the good evolution of sales both in 2020 and the readjustments of our estimations conducted at year-end 2019. As to the technical result, this goes down to EUR 57.1 million. And this is transferred also to the recurrent -- recurring results.

And as to risk exposure, the rate has moderated to 2.6% as compared to last year. But if we focus here, we see that during the first quarter of 2020, if we compare it to year-end 2019, you already start to see some reduction of our risk exposure, 0.6%. As a consequence, obviously, to the modification of our position in terms of risk exception and prudency levels in -- due to the COVID crisis risk, this new position in terms of risk acceptance is accelerating and becoming more obvious through the month of April.

Growth by geographical area. We see this on the current slide. This is a regular slide that we use in all reports and presentations. And as you can see, revenue concentrates in Europe. 85% of earned premiums are there. And in this geographical area is where we see the greatest concentration of the increase in turnover. We should note here that for the first time in the past 3 years, the Spanish market -- in the Spanish market, there has been a decrease, a minimal decrease, but a decrease still, of turnover. We can see this also in other areas such as Southern Europe.

And now on to talking about the net combined ratio evolution. Combined ratio is 83.5% (sic) [83.1%], an increase of 10 points in technical costs due to several factors that Mr. Arregui has already mentioned. Some of them are not related to COVID, such as the increase of frequency moderated in Europe and a bit higher in Spain and the recurrence of a series of peak claims and the increase of prudency in the assessment of usual claims related to COVID, as Mr. Arregui said, despite the fact that we have not gone to an unusual level of unpaid bills.

We now summarize the main drivers of the business. Revenue grows at a good pace as a consequence of the inertia of the increase of turnover from our customers. Although, as we said, there are areas in which growth is stopping in Spain and south of Europe, the technical result continues to be positive. Although there are impacts due to the COVID crisis, that leads us to be more conservative in the business. And we should also stress that we have a relevant reinsurance coverage that allows us to dampen this 37%, as you can see on the screen. And on the other hand, the technical result is compensated by the financial result, specifically speaking here due to the exchange rate differences. And with all of that and just the financial recurrence, the recurring result drops by 23.1% to the already mentioned EUR 48.3 million. And that will be all from me.

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José Ignacio Álvarez Juste, Grupo Catalana Occidente, S.A. - CEO & Director [3]

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Okay. So that will be all about the income statement.

Let's talk about capital and solvency. You have the traditional charts and figures that we use to explain it. And the truth is, as we always say, if we look on the right-hand side, the permanent resources at market value, if we incorporate capital gains, unrealized capital gains, which at the end of the quarter are EUR 4.2 billion, they have grown very significantly, going from a bit over EUR 300 million at the beginning of the century until this EUR 4.2 billion at the moment, multiplied more than times 13. And we've done this without capital increases, without dilution of shareholders, without asking them for money. As I said before, simply by keeping a significant part of the profits via the application of a prudent dividend payout policy that our shareholders allowed us, so that we could continue with the expansion period.

The truth of what happened in this first quarter is that for the first time after many quarters, the permanent resources at market value decreased instead of increased, by this 8.2% you can see on the screen. And all of the explanation, you can find in the line of adjustments, change for valuation adjustments, which shows the lower capital gains of our total financial assets net of taxes and participation of life insurance.

As to solvency, it is obvious, this is an essential magnitude in all of the insurance group. And I would say that as to the solvency ratio in 2019, our best estimation is still 213%. And I'm talking about best estimation because the official and final figure with all of the details and scenarios will be published in a few days when we publish the report on the financial situation and the solvency, the consolidated report of the group. At any rate, I can advance that it will be around 213%, as you can see now on screen, which means an improvement by 6 points as compared to that at year-end 2018. The main drivers of those movements have been, of course, in terms of upwards drivers: The generation of own resources and capital gains in fixed and variable income and downwards integration of Antares with all of its risks and with a goodwill that we explained on other occasions of EUR 22 million; secondly, the increase of market risk due to a high valuation of the investments; and finally, more retention of credit insurance less transferred to reinsurance, which, as you know, is the most demanding instead of -- in terms of capital consumption.

And as compared to 2018, we've been able to apply the 2020's position of technical provisions for life. Truth is -- the reality is that we understand the ratio is very good. It is better than most of our European competitors. All companies are above 170%, and the ratio stays at around 180% even in adverse scenarios. We do have to say that amongst those scenarios, we've not -- we did not contemplate a COVID scenario, which was unknown at the time. And own funds are high quality, 94% or Tier 1. Precisely due to that reason, I think because this -- equity solidity of the group is appreciated and the solidity of our business, both traditionally in credit. And globally speaking, both AM Best, that gives a rating to all of the companies in these industries, and Moody's, which only gives ratings to credit insurance businesses, they both increased our rating, you may remember, at the end of 2018. And they maintained it during this crisis situation with the only qualification being that Moody's, in this environment, has given us a negative perspective.

And finally, regarding investments. On screen, you can see that our investments, EUR 13.7 billion, minus 4.3% versus year-end 2019, approximately EUR 600 million less due to the reduction in value of fixed income and mainly variable income. You can see these -- you can see this 20% impact of the value of our variable income portfolio in this context of COVID crisis. I do not want to bore you with the details of the portfolio because you can find it in the annexes. And in the 2019 report, you will find all sorts of classifications. And I would just like to say that we understand we have a prudent investment policy, diversified investment. As you can see on screen and specifically with more than EUR 2 billion treasury and short-term monetary assets, cash and monitory assets and mainly also adapted to our liabilities, in terms of duration, et cetera, and all of the terms of the joint asset and liability management.

And finally, as you know, and as we stress -- as we stressed during the results presentation of the year, at these times of COVID-19, of course, all of these efforts are significant for many. We are a group that is very much committed with sustainability.

And well, that will be all. This would close this brief presentation of the first quarter of the year, and we are available for any questions that you may have sent via telematic means.

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Questions and Answers

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Francisco José Arregui Laborda, Grupo Catalana Occidente, S.A. - Director General & Secretary [1]

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Yes. We have received questions and classified them by type of question. And I will now pose them, not by order of importance, simply following logical criteria. We will talk about the questions you asked about the traditional business. The credit business, of course, there have been quite many questions. And I think this will summarize a lot of the information regarding that. And we've also received questions about solvency and dividend. Some of them may have already dealt with during the presentation, but it's always nice to discuss them again just in case they weren't clear.

We start with the ones related to the traditional business. The first one is about multi-risk. The question is whether the technical impairment will be maintained throughout the rest of the year? Or should it improve if there -- if Gloria hadn't existed, would the claims ratio be better due to COVID-19?

I will explain it with detail. This has been dealt with both in my opening remarks and by the Financial Manager. But of course, Gloria was a great impact weather event, especially in the line of home insurance. And it has been a weather event that has -- focus is in -- focused in the Levante area, where we have a significant market share, with 5 days of intense rain. Although they did not reach the minimum limit, so they will be covered by the compensation consortium. This has meant a very significant claim for us, around EUR 28 million. However, our policy and our reinsurance plan has worked adequately, and the impact on the P&L after reinsurance has been EUR 8.9 million at the level of the group.

As to the question about whether the claims ratio would have been better without this weather event, well, of course, it would have been better in net terms, those EUR 9 million. The truth is that it's been a bit more than 5 points in the claims ratio. And in relative terms, it will dilute as the year lapses.

And the last question about the traditional business, this one is about motor insurance. We see an improvement of the claims ratio. Do you think this will be maintained throughout the year? And are you thinking of returning part of the premiums due to the risk reduction as some competitors are doing?

This is a fact that we've also pointed out that the claims ratio of motor has improved by 1.5 percentage points during the first quarter of this year as compared to first quarter of the previous year, despite the fact that we've had some more big claims during this quarter due to the lockdown measures, due to the state of emergency in Spain, which has caused a drop in road traffic. The traffic authority said a short time ago that long road trips have dropped significantly, but this will not continue throughout the year. This will vary depending on the evolution of the lockdown. So we cannot guarantee that this 1.5 is -- this is due to these 15 days -- the last 15 days of March.

And as to the specific question about returning premiums of future discounts, we must say several things. On the one hand, you know motor insurance is compulsory, and it's on a yearly basis. So the fact that you don't use it or that you don't use insurance as much, well, this will have an impact only on 1 or 2 of the 12 months of the year. Secondly, we cannot know for certain what vehicles are not being used or what vehicles are being used less.

And finally, even if though -- even if they're not used, we cover many risks such as fire or other damage. And if the claims ratio drops for the entire year, we will bear it in mind in future terms. This is always done, of course, and of course, in a market as competitive as motor in Spain. But the truth is that for now, rather than generic measures, what we have done is we have given our agents, our distribution network, all the necessary capacity to make any necessary adjustments in each specific situation.

Okay. So now on to questions related to credit insurance. I tried to group them, group several of the questions made around 2 topics, 2 areas. One is related to the increase in turnover, and the second one is more about the claims ratio.

The first one, about credit insurance increase in turnover. Does this mean that you are insuring more risk? Or is this due to an increase in the average premium?

The risk management in all insurances and specifically in credit insurance is essential and even more so in a crisis environment. Truth is that risk exposure is dropping by 0.6% as compared to year-end 2019 and then more specifically, in those industries that may be more affected by the COVID crisis. However, we must say this, we have a long-term relationship with our customers. Therefore, this reduction cannot be made without distinctions. We are doing it person per person based on the financial strength of the buyer. But we know due to the internal rating given to us by the risk subscription service, this is updated and allows us to see what creditors may be at risk and may not be able to face their commitments.

On the other hand, our pricing system is also fed by the default probability of each debtor, mainly bearing in mind the country and the sector of the risk. This is why the premium is quickly adjusted to the risk that we take on. We should also bear in mind, in parallel, that our risk appetite will be positively impacted due to the agreements of the governments worldwide and especially in Europe. These are being negotiated at the moment. For example, we can already say that the agreement with the German government is already signed and approved, by which they will be in charge of a very significant part of the claims of COVID. So that the credit insurance companies will not have to drastically reduce their cover, which is an essential part, as you know, of the good functioning of commercial transactions.

The second one, regarding credit insurance, the increase of the claims ratio of credit insurance. Do you think this can worsen a lot more towards the end of the year? What part of this comes due to the payment of claims and, on the other hand, technical provisions? And could we understand that any increase in technical provisions would mean stabilizing the ratio throughout the year?

These are many questions. I will try not to skip any of them. We already said it during the presentation, the real situation is that at the end of the first quarter, we are seeing a bit of a higher frequency. But we have not really felt a true increase of claims ratio due to COVID. It is too soon to calculate it, to foresee the impact of defaults, and we have given an additional period of 30 days to our customers to declare a default or an unpaid bill, so that we can help them renegotiate with their debtors. And in the future, those potential defaults, we hope they will be mitigated by the liquidity support measures taken by the main governments in the world and more especially in Europe and from the point of view of claims ratio and the support of governments to credit insurance that I mentioned before.

However, and I already mentioned it in the presentation, and Carlos González also mentioned it, what is obvious is that we have a global system of technical and claim provision calculation, which anticipates claims ratio based on the parameters of the model and the adjustment of these parameters. And we've been very cautious at the end of the first quarter. As you know, the claims ratio has increased by 10 points, up to some 52%. It is true also that given the extraordinary uncertainty at the moment regarding the scope and the economic and social consequences of the crisis, we cannot guarantee that, that level of provisions may not be increased in the future, which would, of course, entail an increase of the claims ratio.

Okay. So now moving on to other miscellanea. They ask, can you give a bit more information about the impacts that you've suffered in your investments due to the current crisis?

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Carlos Felipe González Bailac, Grupo Catalana Occidente, S.A. - Financial Director [2]

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Yes. Of course, we can. And actually, this is information that I have at the moment. I have it handy. Our balance sheet has suffered the shock of the variable income in the stock market. The impact has been some EUR 342 million in value. And from the point of view of the income statement, the assets with higher historic costs, well, we've had to do an impairment or capital losses for a value of almost EUR 15 million in fixed income. And due to the increase of the credit spreads, we've had a lower value of EUR 274 million. At any rate, I would like to stress, just to give you a relative perspective to the drop of these investments, it's almost half of the value increase that they had during the previous year.

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Francisco José Arregui Laborda, Grupo Catalana Occidente, S.A. - Director General & Secretary [3]

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Regarding solvency, the solvency ratio of -- is 213% in 2019. This is what you announced. To what extent can it be impacted by the current crisis? And how much can the capital access drop?

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Carlos Felipe González Bailac, Grupo Catalana Occidente, S.A. - Financial Director [4]

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We do not have a solvency ratio at the end of the first quarter. The last one we have -- and it's not published yet. As I said, it will be published in a few days in the report on the financial situation and the solvency situation of the group. It will be -- but it's, for now, 213%, 6 points improvement versus the previous year. And in the report, you will see also our analysis of sensitivities to many different factors. And you will see an adverse scenario, which is very demanding, that, as I also said before, has nothing to do with COVID because COVID is subsequent to that year-end in that exercise. But at any rate, it means a significant stress for the parameters. It's a very demanding exercise with a drop of premiums between 5% and 10% in the most significant lines. The claims ratio in the group businesses that are very high, at the average of the 2008, 2009 prices, an increase of claims ratio in traditional business between 5% and 10%, which is quite demanding, quite taxing on the business, and all combined with a shock of variable income. So this scenario, which I insist is not a COVID scenario but it is a demanding scenario, it would involve an impact of around 30 points, between 29 and 30 points, drop in the solvency ratio. We would still be around 180% in the ratio. So what I can say for now is that we have a robust solvency situation and a capital access which is more than enough to face the current economic crisis.

Additionally, as additional information or complementary information, I can say that even if, as I said, we do not have the solvency ratio for the first quarter, we can advance that the impact of the market situation in March, the one I just referred to in terms of the value of variable and fixed income, would be 11 points in the solvency ratio.

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Francisco José Arregui Laborda, Grupo Catalana Occidente, S.A. - Director General & Secretary [5]

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Okay. Two final questions. One, regarding the shares, share price, they ask regarding the share and the low price. Do you think you've hit bottom?

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Carlos Felipe González Bailac, Grupo Catalana Occidente, S.A. - Financial Director [6]

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Well, I do not dare. I would never dare talk about share price performance. You know a lot more about that than we do. It is true that last year, at the end of the year, the performance of the Catalana share price was a bit different from that of the indexes. We've dropped some 4%, and the stock market performance was good, especially during the fourth quarter of the year. And at the moment, as you all know, the share price of Catalana has dropped but with a drop relatively similar to that of other companies in the financial sector, banks or insurance companies. Despite that, it is true that our free float is 34%. It's relatively small in absolute terms. And these may have an impact in terms of a lower liquidity, which, as you know, we try to take care of with a liquidity contract with GVC Gaesco under the legal terms. It is true that our share price might be -- maybe penalized due to our exposure to credit insurance. But it is less true that in the past, we've proven -- during the 2008, 2009 crisis, we proved that we have the capacity to manage risks in such a way that in a short time, we can again see positive results in the business, as happened back then. At any rate, we need to bear in mind that credit insurance has a significant cyclic component. But in the long term, it's a very profitable business.

And finally, we must not forget that it is still only half of our business, and that the traditional business is a very defensive business due to the inertias of the portfolio. And as you've seen, during the first quarter, we've seen exceptional results.

I must also add that at any rate, the current consensus of our analysts, the ones that have recently updated it, is buying value with an objective average price between EUR 29 and EUR 30. So the conclusion seems obvious, we are well below those reference prices in our share price.

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Francisco José Arregui Laborda, Grupo Catalana Occidente, S.A. - Director General & Secretary [7]

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And one question about the dividend. What is the reason for the -- having of the fourth dividend if you have a high solvency ratio?

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Carlos Felipe González Bailac, Grupo Catalana Occidente, S.A. - Financial Director [8]

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I think I've already mentioned this in quite a lot of detail during my presentation, but I have no problem in clarifying it. We are aware of the fact that we've had -- we've maintained a conservative dividend policy over the years, retaining a significant part of the result. Our shareholders have allowed us to do that so that we could fund all of these expansion periods that we've gone through. But at the same time, we are also aware of the fact that we have a stable and growing dividend policy. We've had it over the years and a strong commitment for shareholder remuneration. We've been able to, and we've seen it in the chart a minute ago, we've been able to even slightly increase the dividend at the worst times during 2008, 2009. And ever since 2010, we've had consistent dividend increases. In the past few years, they were between 6% and 7.5%. And I already said, and you already knew, that we had proposed to the shareholders' meeting an increase of 10% of the complementary dividend, which would have been an increase of 6.2% of the total amount. But unfortunately, in the context of the recommendations to suspend the dividend, this recommendation given by the European insurance supervisory body, EIOPA, and the general management for insurance, we've been compelled to reconsider that dividend. We've done so by withdrawing the proposal of results application that we will then need to take to another shareholders' meeting, which will need to be held before the 31st of October.

And secondly, so as not to break tradition of the May dividend and our strong commitment of shareholder remuneration, we've agreed on a fourth interim dividend, which is half the initially proposed amount. So we maintain remuneration even at these times of crisis and even with the recommendations.

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Francisco José Arregui Laborda, Grupo Catalana Occidente, S.A. - Director General & Secretary [9]

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Okay. So I think with these questions, we have tackled most of the issues that you've sent to us. And we will answer the rest of the questions over the coming days via the Investor Relations department. You also have all of the information on our website.

And finally, the next results presentation with the results of the second quarter will be on 16th July at 16:30. So thank you all very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]