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Edited Transcript of UNI.MI earnings conference call or presentation 14-Feb-20 11:00am GMT

Preliminary 2019 Unipol Gruppo SpA and UnipolSai Assicurazioni SpA Earnings Call

Bologna Feb 17, 2020 (Thomson StreetEvents) -- Edited Transcript of Unipol Gruppo SpA earnings conference call or presentation Friday, February 14, 2020 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Carlo Cimbri

Unipol Gruppo S.p.A. - Group CEO, MD & Executive Director

* Matteo Laterza

UnipolSai Assicurazioni S.p.A. - General Manager

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Conference Call Participants

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* Alessia Magni

Barclays Bank PLC, Research Division - Research Analyst

* Andrea Lisi

Equita SIM S.p.A., Research Division - Research Analyst

* Elena Perini

Banca IMI SpA, Research Division - Research Analyst

* Gian Luca Ferrari

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Equity Analyst

* Peter Eliot

Kepler Cheuvreux, Research Division - Head of Insurance Sector Research

* Rahul A. Parekh

JP Morgan Chase & Co, Research Division - Analyst

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Presentation

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Operator [1]

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Good morning. This is the Chorus call operator. Welcome to the Q&A session on the consolidated preliminary financial results 31st of December 2019 Gruppo Unipol to you. Group CEO, Mr. Carlo Cimbri, will go through a short introduction, then he will be available for your questions. So Mr. Cimbri, please.

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Carlo Cimbri, Unipol Gruppo S.p.A. - Group CEO, MD & Executive Director [2]

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[Interpreted] Good morning, everyone. Now my introduction, as usual, will stay short. And I guess you have already read the communication and the press releases, so you went through the presentation. I'm here with Matteo Laterza, the General Director, UnipolSai. We are here available, and you get to -- get your questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Question number one is from Gian Luca Ferrari, Mediobanca.

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Gian Luca Ferrari, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Equity Analyst [2]

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[Interpreted] I have 3 questions, if possible. The first one is on the results of the fourth quarter. So EUR 19 million of pretax slippages on the Life business. This is a little bit lower than last year and the previous quarters. Are there any technical reasons why the result was smaller -- lower than the usual result? Second question is on the tax rate. I see here, 13% in the fourth quarter, 25% on the year. I would like to understand what impacted, I mean, the tax rates of this quarter? And what we can expect for full next year? A further last question concerns to the other business, UnipolSai. I see here that there is a gross loss of around EUR 10 million on the real estate. I guess this is value realignment but that's on the other business, I don't find any explanation or special phenomenon in your press release. So I'd like to know why EUR 10 million?

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Carlo Cimbri, Unipol Gruppo S.p.A. - Group CEO, MD & Executive Director [3]

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[Interpreted] Matteo, please go ahead.

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Matteo Laterza, UnipolSai Assicurazioni S.p.A. - General Manager [4]

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[Interpreted] Mr. Luca. Now first of all, as for Life and the question on the Life business. Well, I have to say that basically, the result has to do with the financial operations that we have carried out during the fourth quarter. So [40], this is for ordinary business, and there are no technical reasons behind this. And I have to say that these operations from the IAS accounting does impact on the scheduled accounting. This is during the quarter. I mean, the impact can be quantified within around EUR 20 million. There is more to this, I mean, some financial transactions that have made a reduction of the technical result of the fourth quarter, but I mean, this is now actually not very important. I mean nothing special to say under this perspective because every time we update the financial yields, sometimes the stockholder, GS separated managements and all of the activities we have to carry out, we do have some impact on the shared accounting and the financial results.

Gian Luca, you also had a question on tax flow rate, Q4, right?

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Gian Luca Ferrari, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Equity Analyst [5]

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[Interpreted] Yes.

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Matteo Laterza, UnipolSai Assicurazioni S.p.A. - General Manager [6]

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[Interpreted] Well, I have to say that this is just sort of an optical effect, if you will. I mean, if you consider the reported IAS result, you'll know that this incorporates -- I mean there is accounting item which is the -- basically, the badwill of BPER. So if you make a comparison, I mean, the rate goes down to 15.6%. So if you remove this item or this component, which will also get -- this is just a distortion, we've had a sort of an optical effect. Tax rate would be around 26%. So this is basically aligned to what? So we have now, it will go what we will have in the future. So I have to say that this impact on the third quarter is once again a sort of an optical effect, nothing more than this. Thank you.

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Carlo Cimbri, Unipol Gruppo S.p.A. - Group CEO, MD & Executive Director [7]

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There was a third question, if I'm not mistaken, yes, other business matter. After the UnipolSai, other business effect. Well, I have to say that the impact because there is some depreciation so that we have carried out from some diversified business. And in particular, so there was a (inaudible), so our devaluation around -- by around EUR 10 million. So this had an impact on the entire division and on to the relevant accounting.

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Operator [8]

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Next question from Elena Perini from Banca IMI.

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Elena Perini, Banca IMI SpA, Research Division - Research Analyst [9]

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[Interpreted] I have some questions. Now question number one, in particular, concerns the Unipol dividend level. I can see that there's been a remarkable increase versus last year. And well, basically, the space that we are now ready to distribute around EUR 200 million on 2019, which is 1/3 of your development total guidance. So based on this, should we expect at least (inaudible)? I know that you have confirmed your targets, but may we see some upside?

My second question. Well, if you confirm for me, the -- I mean, your view of the family TPL. So there is a new tariff that should be implemented in the next month or so. So what do you think about this? And what may be the potential impact for you? And so once again, do you think you can offset that in some ways? I have another question. So the gross sub-cash position of the holding company at the end of 2019. And I also have a follow-up on the previous question, on the tax rate question. So how (inaudible) so for the current year, it should be again around 25% of the full year?

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Unidentified Company Representative, [10]

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[Interpreted] Elena. Back to your dividend question. Okay. Let me tell you the following about dividends just by way of introduction. This morning, I have read the report from some of my colleagues from different companies commenting these results. And I found -- well, some colleagues say that they were surprised seeing this increase of the holding company dividend level. Now this is something I have read on different papers. Well, this has surprised me because I remember the last conference call of the quarter numbers, I know you don't see me, but our friends listed to market. I remember he was almost ready to kill me because during the conference call, I said that the dividend would have been around 1/3 of the total dividend we can see in the plan, which is what you said before. Now as far as I am concerned, well, that was totally expected, I mean, the reason is -- which is what I told you, I mean, the reason was that once we sold the bank, the holding company from the structural point of view, has -- I mean, consider the dividends from UnipolSai. We have such an income-generative position so that this target, I mean, EUR 200 million, which is basically EUR 600 million for the year, in my opinion, this target is absolutely included into our comfort zone in terms of the holding company accounts. So once again, I've been surprised on the surprise of other people.

So based on this, let me tell you what we have done in terms of dividend policy. In this case, I sort of step down onto UnipolSai. Now as for UnipolSai, the results for the year, those were some of the issues, but also the solidity of our accounts, the good results in terms of solvency, the solidity on the portfolio and the very good performances on almost every single segment of our business. All of this encouraged us to do so, to anticipate, I mean, the target we have in 2021 in terms of the total mass of dividends to be distributed. So basically, we're coming earlier. So we have anticipated, so to say, our target.

Now just to give you some intro on the future. This is, sort of, well, anticipation. Well, this is not a new starting point onto which we can imagine, I mean, a growing trend. Let's say, it's a sort of a -- it's a preview, it's an anticipation that we felt the good news, and we can confirm this also for the next financial years. Let's say that this is the dividend target that we will also be working on also in 2020 and 2021. So if we manage, by the way, I do believe we can. So if we manage to keep this level, we will then comply with the cumulative dividend target. Well, let me rephrase this, we will be able to improve then, which is what we announced earlier in the month of May last year in the business plan. So this is for UnipolSai, but the same happens for Unipol Gruppo, UG. This is the dividend target. And this is what is possible to do. So well, of course, we will see -- I mean, what happens in the next years or so. But we do have the possibility to, well, also manage some possible improvement. But let's say that we start on the basis of 1/3 of the target over the next 3 years.

Okay. So this is what concerns the -- our dividend policy. Now as for the family TPL. Well, it depends on when it will be into force. And then if it will be in the force, I have read some news on possible postponement. Anyway, I mean, apart from this well possible postponements or not, there will be sort of a time effect. Anyway, I already have the opportunity to talk about the rationale of this policy or this decision, if you will. And I think the debt rationale, well -- and by the way, this is what we sold it. I mean this is the way we sold it. I mean it is for families. But let's say that this is a policy that, unfortunately, will produce some, well, unbalanced effects.

Okay. I don't need to highlight once again that this has nothing to do with technical criteria or merit criteria, but let's say, rather this is a standard, if you will, a regulation, which is very populist. But the effect it will produce is the following. It will impact negatively on the, let's say, least wealthy families because the least wealthy families have just 1 car only, maybe the wealthiest families have 2, 3, 4 cars, motor bikes and other means of, let's say, locomotion. So this has nothing to do with the marriage level, and the impact would be positive for those who have many cars. So this is basically a discount, which is not applicable to those having many cars. And this amount of money will be paid by those families who will only have 1 car, because, once again, what will companies do? Well, of course, they will increase prices so they have to adjust, I mean, this different tariff components so that eventually, this operation will have to generate a sort of perfect balance. So it is a 0 balance approach. And you know why? Well, because, I mean, some people who have already (inaudible) will pay a little bit more money. And the benefit, once again, will be for those who are the luckiest. So the wealthiest people who have many cars, they will get an advantage. In terms of effects for us, on our accounts, we estimate 0 impact.

You also asked a question on the gross cash Unipol. Now the total assets at the 31st of December is around EUR 900 million. So once again, more or less EUR 900 million. And let me check, around EUR 500 million of this has invested in cash or, let's say, short-term or very short-term securities. And then the rest is invested in equities or longer-term securities.

There was also a question on the tax rate side. Now tax rate, I do confirm, it will be around 25% for 2020. If -- I mean if there are no extraordinary events, I confirm it would be around 25%. Many thanks.

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Operator [11]

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Next question is from the conference in English from Peter Eliot, Kepler Cheuvreux.

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Peter Eliot, Kepler Cheuvreux, Research Division - Head of Insurance Sector Research [12]

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If I could ask 3 questions, please. The first one, I was surprised that the yield you've managed to achieve in Life, you were saying that the average yield was 3.4% at the 9-month stage, and that's gone up to 3.44%. So I was just wondering how you've managed to increase the average yield in this environment. The second question was, the holding cost at Unipol level as well, I believe, were higher than normal. And I was just wondering if you could explain what's happened there? And whether it's a one-off? And how you see the ongoing level of holding costs at the Unipol level? And the third question. I was just wondering -- I was looking at Slide 13, you showed the duration mismatch, and I was just a bit confused and wondering how to interpret that. And you showed, for example, more than 12 years for the holding company. And yes, just wondering if you could help me interpret that.

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Matteo Laterza, UnipolSai Assicurazioni S.p.A. - General Manager [13]

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[Interpreted] Many thanks. Now as for the Life questions, so 3.4% yield of assets with, at the same time, a reduction of the average minimum guaranteed level. Well, my answer is the following. If you go through the cash flows, especially in the UnipolSai, we have had something less, let's say, payments due to the exit of a major patient fund. If I'm not mistaken, it has taken place middle last year so in midyear. So once again, the negative, let's say, payments have yields which are very close to 0%. Now it goes, with that said, that all of the new production has been invested onto the long part of the curve. So not 3.4%, rather at the yield rate, they were between 2.5% and 3%. The cost of the sale tax because, of course, we don't have cash as the yield is 0 and because we have invested cash flows for 2.5%, maybe 3%. We managed -- I mean, thanks to this situation. So the cash flows were negative. So this is why we have improved the yields of GS 3.4%, which is what you can see in the slide.

Now in particular, I mean that pension fund that has a guaranteed yield, well, around 2%. Well, it allowed us that -- to have a new production with a 0% at guarantee level. So the cost of goods of this is that the reduction has been a multiple that's proportional on the minimum guaranteed levels. Now of course, if you consider the current interest rates, well, this cannot be repeated over and over again in the future because we have, let's say, very flat cash flows. We are able to have a duration of the Life, which is a little bit less than 8 years. This helps us have a yield, which is definitely higher than the 3%, which is, by the way, what we expect throughout the plan.

As for your second question on the holding. Let's say that this is sort of a -- this is a simple comparison. So it's a comparison just to complement the figures and the data because actually, I mean, the duration mismatch is particularly significant in the Non-Life -- well, you know that Mr. Cimbri already answered, I mean, a question on the liquidity. So the cash position on the holding company. Our cash position is definitely very, very strong because as you know, I mean, a holding company does need to have plenty of cash. So the duration mismatch is not that significant. I mean it is much more significant on the Life and Non-Life. What is much more important around this holding is the cash flow matching. I mean the fact that being able to face one form liabilities on a multiyear time window, this is a totally different exercise. And we are much more focused on this second point.

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Carlo Cimbri, Unipol Gruppo S.p.A. - Group CEO, MD & Executive Director [14]

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Let me also tell you that, I mean, the holding companies say -- keep saying, we keep cash because we want to be financially flexible, not because we need it. We think that from the strategic point of view, we think it is so important to be very flexible in the financial flows because there may be opportunities to take advantage of. So this is the reason why we have a strong liquidity buffer in the holding company. So it generate the effects that you know very well. But as Matteo said before, the duration, mismatch of the holding company, I mean, doesn't actually mean anything.

Back to the holding situation. You had a question on the costs of the holding company. Now because in 2019, we had large, let's say, space for maneuver, I mean, plenty of margins in terms of the holding company because we have the dividend stocks that we have collected. And at the same time, we also have the opportunity in the very first months of the year to take advantage of the movement of the rate curve. Well, actually, the Italian BTD curve, and this means that we have a very predictable trade on BTD, generating additional capital, again, EUR 60 million, maybe EUR 70 million, and all of this is now into our accounts. So we have benefits and profits from financial business for EUR 60 million or EUR 70 million. So once again, the balance sheet, if you will, of the holding company was so positive and rich this year. In terms of dividend target, this is what I said before. So once again, we had a wonderful position on that point. So we thought that the use of, let's say, this extra amount of money to do some potential provisioning. And of course, we hope we don't have to use these provisions or maybe only just one part. But once again, on the credentials side, I mean, we want to be very cautious. So we did this for 2 reasons: reason number one, there are some, well, cases of litigation that, I mean, we have, let's say, inherited following the transfer of Unipol Banca. I mean now our accounts, we have some, let's say, liabilities that Unipol Banca had, so some litigation cases. So independent, I mean, from the solution of this litigation. So hopefully, we don't have to pay anything. But let's say that just to be covered and protected, there's been plenty of provisioning concerning, I mean, the bank position.

We also state -- well, sorry, also in terms of commitment, there was another commitment. I mean we had to take care of a contract from the bank on IT systems, and this is what we paid for. And you can see this in the financial accounts. And once again, because we have this extra money, we provisioned a lot in order to, let's say, get protected against the possible staff costs. Well, basically, by this, I mean, some encouragement and bonuses to having to do with the seniority of our staff. We have a remuneration system that rewards so much, let's say, the loyalty to the group year after year. And so in these statements, you can also see that we have provisioned some money that we may want to use in the next years or so for this kind of need. So once again, all these items as well as all of these provisions are one-off provisions. Let's say, we have chosen to do this now just because we had so much, let's say, space for maneuver that we had in our accounts.

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Peter Eliot, Kepler Cheuvreux, Research Division - Head of Insurance Sector Research [15]

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Okay. I'd like to follow-up quickly, if I may. So first of all, just on the mismatch question. To be honest, it wasn't the holding company that I was worried about. Really, I'm not. I mentioned that number because it was a big number. It was more just trying to understand the math that had been involved in that calculation as to what you're actually looking at there so we could understand what was meant by the mismatches? And the second thing, on the provisioning, are you able to give us any sense of what the maximum downside risk might be from these litigations and other sources that you've provisioned against? I mean have you provisioned to the maximum amount in full? Or is it possible that there might be something further to come in the future?

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Unidentified Company Representative, [16]

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[Interpreted] Okay. Let me be as clear as possible on the calculations. Sorry, I thought your question was really -- well, on the holding company. No problem. Now the calculation is very simple because I mean, we consolidate the duration of the assets. And we do this based on some markets, some methodologies. So you have [multified] durations that we take into account. Onto the non-bond component, we do some assumptions on the value of equity and real estate. Anyway, in those 2 cases, the duration with that methodologies cannot be calculated.

As for liabilities, I mean, we start from the perspective, our cash flows on Life, but also on the Non-Life business. And on this, we calculate the duration just as if it was a fixed income security. So we take into account our cash flows, based on the curve and debt we use in order to calculate the source mobility or either service, if you will, index. Then the 2 points are compared. We calculate the mismatch. So we have one mismatch level on Life, another one on Non-Life. So on the Non-Life, there is a slight mismatch, which is positive. I mean assets, let's say, a longer than the liabilities profile and then vice versa on the Life, there are some very, very small reinvestment preference. Now this, let's say, that if you consider, for example, the rate of risk when you calculate the solvency capital refinements of the company as a whole, well, the size is very small. And of course, this is not the most important element required to identify the most important risk factors of our company versus, for example, spread risk or equity risk or, once again, technical risk or even Life and Non-Life risks and the other.

As for the maximum litigation risk, and this is one of the reasons why we are doing the provisioning, we defined it as a maximum level of EUR 15 million, 1-5, on the, once again, litigation cases, we have inherited from Unipol.

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Operator [17]

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Next question is from the original conference that's from Andrea Lisi from Equita.

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Andrea Lisi, Equita SIM S.p.A., Research Division - Research Analyst [18]

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[Interpreted] Well, many of my questions have already been answered. But I just have a follow-up update question on how you see the evolution with the MV universe, but also in the Non-MV universe? The trend we saw in the past year, do you think it can be repeated? Or can it continue very consistently, I mean, in the very strong way also in the next years? I also would like to know if you could give us, I mean, some information on the combined ratio without releasing provisions? And do you think that this will continue also in the next years? So what about the reinvestment yield, Life and Non-Life, if possible?

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Matteo Laterza, UnipolSai Assicurazioni S.p.A. - General Manager [19]

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[Interpreted] Now as for the market perspective, once again, Carlo Cimbri has already spoken about the so-called family bonus. So I won't talk about this. I mean the car or MV market is still a fairly competitive market, where the -- I mean, the process of the market and even the acquisition of extra shares of the market, well, it very much depends on how effective we are in the, well, the collection and payments, I mean, processes. We have reached very important results because we have reduced the average cost of the so-called manage the cases. And of course, we would like to keep having this position. I mean we also would like to improve it in a context, which is, as I said before, very competitive. So we just have to move on and continue, I mean, with this system. Now the use of telematics is, once again, a very qualifying element, if you will, if you really, really want to become more and more effective under this point of view. And we also keep working on our MyGlass and Auto Presto&Bene franchise in (inaudible) so that the average cost will be kept as low as possible.

As for the Non-MV business, well, this context is totally different. We have a much bigger, higher growth rate. Now it very much depends on the distribution channel. For example, the bancassurance is a channel for us, but in general, also for the market, is playing a very important role. Growth rates show double figures -- I mean double digits, and especially health sectors, for example, the health business. And on this, we need to keep investing because, once again, we have to make these channels even more effective. Even the traditional agency network is increasing now. Of course, it is very important for us. And of course, it will never grow as much as the rest of the channels, but I think there's growing sensitivity and awareness of the market and consumer's been buying protection systems from the Non-MV business, also for more sophisticated products versus the more standardized products that are usually sold by the bancassurance networks.

So from this perspective, from this point of view, I mean, the strategy where altogether jointly, we keep developing the bancassurance channel in terms of the Non-MV business, especially in some industries, for example, the health care systems. And at the same time, we keep investing on increasing efficiency and commercial effectiveness of our agents. So these are the key ways in order to move on and improve the business in the Non-MV universe.

You also had a question on the combined ratio CR and the stockholder relief or use of provisions. So this year, if you could see our financial statements, so we have 7.3. So we have 4, 4 of the MV business and around 10 in the Non-MV business. Now as I keep saying in the meetings we have, I mean, with you, your colleagues, also abroad -- this is the part of phasing of what has been paid and that you can really see in the financial statements. So -- and you also have to check how much money we save on what we pay versus the provisioned amount when it comes to do the payments during the year. And also considering, I mean, the markups that are based, I mean, on the actuarial models. Of course, you don't see them yet, but I can tell you that, I mean, let's say, after elevated (inaudible) these financial statements, the excess, so the buffer or the markup, let's say, that we have versus the actuarial model is higher than last year, and it is higher than it was in 2017.

I can also tell you that the excess of service-related provision level, so in terms of additional capital, it still stands at around EUR 1 billion, which is what we also had last year. And this is happening because, of course, if you take into account the 2 major, let's say, 2 major, I mean, blocks of provisioning, so the TPL MV, well, we have closed the year with savings on what we paid on claims, there was a 47.5% in TPL MV, the Motor Vehicle of TPL. So in absolute values, if you consider, I mean, the provision, let's say, claim level, we have saved EUR 850 million. And as for the MV, we have EUR 150 million that you can find in the financial statements. So there's a lot of questions of releasing provisions that features a small piece of all what we have saved on what we have paid. And the same on the so-called RCG. So in this case, we have saved 6% to 6.5% out of the total paid amount. So on the EUR 570 million, we have saved EUR 150 million. It can be found in the financial statements. So this gives you a total general overview and interpretation, if you will, of the provisioning policy. Now this policy also this year, which is what also happened in the past 7, 8 years, we keep accumulating. So we pile up, but we don't spend money.

There was also a part of your question on the reinvestment rate. As for the reinvestment rates maybe in terms of future perspectives, right?

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Andrea Lisi, Equita SIM S.p.A., Research Division - Research Analyst [20]

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[Interpreted] Yes.

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Matteo Laterza, UnipolSai Assicurazioni S.p.A. - General Manager [21]

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[Interpreted] Let's say that today on the Non-MV, the reinvestment rate is quite short. I mean if you manage to have 0.5% and 1%, well, this is a really great result. So you have to have a general asset allocation, considering the reinvestments in (inaudible), especially Italian Government Securities, plus some credit, plus a small part of investments, which we are partly increasing, which is the base of the real assets. So this is the only sector where we can -- where we manage to have quite good returns on investment ROI. In terms of analysis of the possibility of working on longer terms and longer, let's say, maturity as well, this means we can have between 1.5% to 2%. Now the targets that I had briefly mentioned before is to have a perfect match between what comes in and what goes out so that we can reduce, at a minimum level, the reinvestment in cash flows, so that we can protect 3.4% as long as possible. I know it's also a question of time. So we would like to keep 3.4% for as long as possible. So we would like to reduce, I mean, cash flows that could be reinvested. I mean this is the real most important element concerning, I mean, the allocation of what we can use for, let's say, renewable policies. Also, in terms of distribution capacity for the year that has just begun.

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Operator [22]

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Next question is from the conference in English from Rahul Parekh at JPMorgan.

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Rahul A. Parekh, JP Morgan Chase & Co, Research Division - Analyst [23]

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I have 2 questions, please. One is on UnipolReC. I just wanted to understand one thing. I think the gross book value reduction was EUR 360 million, and you made EUR 12 million on it, which implies a margin of 3%, slightly somewhere around that range. So I just wanted to understand 2 things that one is that I think your target was EUR 500 million deduction per year. So is that a cumulative target over 3 years? And the second one is what is the net margin that you probably -- the net -- normalized net margin that you expect to make from this business over 2020, 2021? And my second question is on your solvency ratio. Just your solvency ratios for UniSai as well are now much higher than the target range that you have. So any comments on that, whether are you looking for deals? Or how are you planning to use that excess capital that you have?

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Unidentified Company Representative, [24]

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[Interpreted] Thank you. Now on UnipoReC. As for this company, let me tell you the following: we are very, very satisfied, very happy of this business because -- and also in just second year of business, we have kept some recovery percent rate on the gross rate, which is 30%. So this is much, much higher, much more than the so-called load. The load is the value that you can see in the UnipolReC balance sheet. Let me remind you, it was 20% of the value. So the loans or credits that had been spin off UnipolSai and said the value was EUR 0.08. So EUR 0.08, this is the value of the credits or loans that we have purchased from BPER last year. So for the second year, we do 30%. I can also tell you that a certain percentage of recovery between 28% and 30%, well, this is the recovery percent rate that we would like to have also for the next financial year. So if you consider the entire business plan or industrial plan, the ambitious target that UnipolReC has is to keep growing these levels. I mean the recovery levels being around 30%. This is the ambitious target of the company. Now this will give us the opportunity to reduce further the gross levels and net value of this operation. And if what I'm telling you is confirmed, well, this will reconfirm that our choice, I mean, keeping the loans and managing recovery ourselves or in-house is definitely a profitable choice for our growth.

You had a second question on solvency. Okay, well, let me tell you that as for solvency, and in terms of UnipolSai economic capital, so we have more than 250%. So you are right. This is well beyond the targets that we have defined when we drafted the plan. But we also have to remember that -- I mean just remember the sensitivity of our solvency through the main financial variables. For example, the Italian companies contacts. We don't have as many as we had in the past. But anyway, they account for more or less 50% of our portfolio. So for example, if you have 100 bps change of the interest rate on the Italian companies, so if you have increased by 100 basis points, of course, if you don't apply the rationale, I mean, the volatility adjustment and based on the new metrics just approved by IOTA. So if there is an increase of 100 bps, we would lose around 37 bps in terms of solvability. So we don't have this capacity of excess capital in order to face, I mean, a huge earthquake, so to say. We do this in order to face some dynamic behaviors that may happen in our country in terms of the volatility of our government securities. During the year, we experienced a reduction of 100 basis points on this program. In the past, there was an increase by 100 bps. So this level of capital gives us the opportunity to, let's say, have total piece of mind in terms of managing future events in those contexts.

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Operator [25]

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Next question is from the conference in Italia from Alessia Magni from Barclays.

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Alessia Magni, Barclays Bank PLC, Research Division - Research Analyst [26]

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[Interpreted] I have a question. So versus 2018 in Unipol Gruppo, I can see an improvement of the loss ratio, net of reinsurance, but this is counterbalanced by ER or expense ratio. Can you please give me some color on this, let's say, position on the expense ratio, ER?

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Unidentified Company Representative, [27]

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[Interpreted] You are right. This is a deterioration that we totally expected. I mean we have an additional agreement with our distribution network. And based on this agreement we sort of to co-participate into the technical improvements, but also technical aggravation of our company. So if there is an improvement of the technical, let's say, ratio, a small part of this improvement goes to our distribution network.

Secondly, another important component, if you will, which is our more and more significance, concerning the production of the non-MV universe is represented by bancassurance. I mean their provisional levels are a little higher. So if you make a proportion, if you make a comparison, this means that there is an increase of, well, the expense ratio because of provisioning. In terms of costs, by the way, this was also included in our plan. We have carried out, and we will keep carrying out the investments, especially on the technological components and the commercial component, for example, the advertising campaign. So this, well, let's say, increases a little bit, the cost level of the expense ratio, ER. So these 3 factors have generated this situation. So this means an increase in the expense ratio, which is something totally expected and in full compliance with our plan.

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Operator [28]

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Next question is from the conference in English from (inaudible) from Societe Generale.

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Unidentified Analyst, [29]

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So just one question regarding UnipolReC. I just wanted to know if you are open to taking any new loans on to this book. I mean I was just reading somewhere that BPER is looking at selling EUR 1 billion of its gross book. So what is your strategy around that?

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Unidentified Company Representative, [30]

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[Interpreted] Thank you for the question. UnipolReC, as I have said in the past, is, for us, so-called the company which is just functional in order to pursue a specific strategy. And the strategy was removing the bank from the group and putting it into another banking group. So this is the reason why UnipolReC was born or incorporated. And please do not forget, we have always believed that managing loans in-house is a business which is more profitable than selling loans based on a discount rate. And these are some operations that basically all banks in Italy were forced to do. But once again, this is -- our job is different. Our business is different. Our business is insurance. So we want to do a proper insurance business. We want to create profitable companies, which are interconnected because of the business they have to the world of insurance. So once again, we have no intention -- and in this case, I go back to your question, we don't want to further invest in purchasing deteriorated loans or bad loans. And even what we got last year in BPER, this was included into the strategy concerning the transfer of the bank business. So once again, this business won't become a new business line of the group. But our colleagues have worked hard so that with the loans we have, we will be able to get as much value as possible. But once again, we're very focused on our core business, which is insurance.

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Unidentified Analyst, [31]

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Okay. Sorry, just one more question, if I may. This is on the Non-Motor business. And I just wanted to understand the competitive landscape in that business. And how the increased competition from banks is affecting the margins of -- margins and the combined ratio in that -- in the Non-Motor lines?

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Unidentified Company Representative, [32]

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[Interpreted] Now as for competition from banks on this, well, business, I'll have to say that -- I may summarize my position like this. This is marginal now so unimportant. And it will be unimportant or marginal in the long term also for the Motor business because I think that the MV business will be, let's say, managed by agents. But it is basically a question of direct-to-market. So let's say, the web-based companies. Banks will play a much more important role in terms of developing some Non-Motor segments. For example, we have some experience with some joint ventures, with our banking partners. Now we know that if we create a smart intelligence or well-done health package, well that product will be easily sold by banks and the same happens or the same goes for funding small and medium enterprises. I'm sure that banks have an advantage. So they can really propose the insurance packages with great opportunities for success in terms of proposition to their customers. So back to your question. In some segments of the Non-Life business and especially in the Non-MV business, I'm sure the banks will be a significant player in the next years or so.

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Unidentified Analyst, [33]

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And are you seeing a deterioration in the combined ratio of those lines?

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Unidentified Company Representative, [34]

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[Interpreted] No, I don't think that this generates a deterioration. So it is not the competition that generates a deterioration of the ratio. I mean -- well, I have to make a distinction, wait a second, please. I mean, the MV is one business. And in that case, there is plenty, plenty of competition. In the Non-MV business, I'll say that the key focus of the insurance industry, so this is a product that can be distributed by banks or agents or so -- no matter who does the distribution. I'm saying that the key focal point is the evolution or the development of the so-called atmospheric events, weather-related events or catastrophes. So I think the metrics change. So we evaluate or assess those risks in a different way. I mean, our historical databases are not very, let's say, reliable. We don't use them so much. So this will serve the entire insurance business. Of course, I mean, not only the Italian business, this is the global insurance business.

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Operator [35]

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Next question is a follow-up from Peter Eliot from Kepler Cheuvreux.

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Peter Eliot, Kepler Cheuvreux, Research Division - Head of Insurance Sector Research [36]

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Three more questions, if I may. The first one is, we've had another year where the reinsurers have had to cover quite high claims. I'm just wondering if you can share anything on those conversations you've been having with them and what we can expect in terms of your sort of reinsurance cover in terms of conditions this year and beyond? And second question was just going back to the solvency, I was struggling to understand the big improvement we saw across Q4 because if we adjust the Q3 level for the 13 points of dividend at UnipolSai, then it's the starting point of [2 3 6]. So it's gone up quite a lot, despite the fact that rising interest rates and widening BTP spreads should both be negative really. So just wondering if you can explain the walk there. And the third question is on the Life division. I'm just looking at the cash view. Obviously, we've had some shattered accounting and other effects this quarter. I was wondering if you could just share what the cash remittance is from the Life division. And whether it will be impacted at all by some of the things that we're seeing.

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Matteo Laterza, UnipolSai Assicurazioni S.p.A. - General Manager [37]

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[Interpreted] Now as for the reassurance question, and we have highlighted this as a very important element also when drafting and presenting the plan. Anyway, one of the elements that reduced dramatically, I mean, the impact of the so-called weather events or atmospheric events was the coverage on this kind of weather in our catastrophes defined by the so-called Atmos. It was a treaty but it was a catastrophe from the issues at the beginning of last year. So on the occasion of the renewal of this agreement we were able to review it, of course, but based on different logics. Also considering the cost for the reinsurers -- for the cost of the treaty, I mean, for the reinsurance. Anyway, we've managed, I mean, to review it also in this case, even if the cost yield, I mean, ratio is different. The same was done with the other very important treaty, whose name is multiple. Now also in the case of the multiple treaty, it's being reviewed at slightly different conditions. I mean, we haven't dramatically changed the conditions, but we counted this year as well to be able to count on these 2 treaties.

Now as for the improvement of solvency, I have to say that starting December and then all the way to the end of the year, now there was something negative, which is the dividends that hasn't been considered in September, while they have been taken into account at the end of the year. There has been some negative impacts due to the evolution of the securities portfolio because during the quarter, the spread slightly went up. So this had a negative effect on the securities portfolio. There is a major positive effect, which is due to the adjustment of the best estimated technical provisions. This is what Mr. Cimbri said before on our provisioning policies. This means that the -- let's say, a recalibration of the best estimates on the damages. This mean the EUR 500 million, even the best estimates on the Life business on -- from the beginning of the year, okay? So I'm not talking about the quarter, but this related to an improvement of the EUR 300 million. This is due to the fact that there are some vintage or Life policies with very high levels of guarantees. And so we also have new value production in. So if you do Life technical provisions or calculations, where the effect was very positive on the market. You also talked about the evolution of the net, I mean, collection? Well, I have to say that in general, the net collection was positive, and the total was around EUR 400 million of the policies that can be reassessable. So the so-called branch 1 and branch 5. This was in both UnipolSai and even in Arca, which is the bancassurance company, we have with Banca Popolare dell'Emilia Romagna and Sondrio. We also have positive components on the branch 1 and 6. In this case, branch or level 6 gave some major contribution during the year. We got 2 important, I mean, mandates of pension funds belonging to the so-called branch or level 6. In the future, we count on the fact that we will always have balance in terms of net collection because we don't want to have plenty of cash flow to be reinvested in the current very negative interest rate context.

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Peter Eliot, Kepler Cheuvreux, Research Division - Head of Insurance Sector Research [38]

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Can I maybe just quickly follow-up on the EUR 300 million that you identified from the Life business? I'm just wondering, was -- should we think of that as one-off or ongoing? And I guess, it's probably related to the pension funds that you referred to earlier, which widened the investment spread. But I'm just wondering if you could -- whether the runoff was a guaranteed portfolio? And whether we should expect the sort of fund's ratio to gradually improve from that in the future?

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Unidentified Company Representative, [39]

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[Interpreted] Yes, of course, it's a one-off now. That level depends on the quality of the new production that you make. And of course, we do new production, so 0% guarantee. And the provisional -- I mean, the level we sort of compensate, I mean, the risk that we have. But it also depends on the deadline levels of the liabilities. So the more the policies we have high in our guaranteed annuals, so the more they grow out. And of course, so once again, there are plenty of deadlines on maturities. So of course, they grow out. But you also have another component of the so-called full Life or whole Life. This depends on the actuarial data. So demographics or even the factor that the customers may want to redeem the policy. So when they have 3% or 4%, they usually don't want it back unless they run in an absolute need. The recovery rates of those passive levels are very, very low. So this cannot be repeated, considering that huge size of the impact. It depends very much on what we have in terms of coming in. So the imports or the new production, this is something we can plan. It also depends on the old portfolio component that close out. And the best estimate for liability calculated on market levels. This value is higher than the system where you don't consider the implicit assessments because this is actually negative or impacting.

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Operator [40]

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Mr. Cimbri, this is it with questions.

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Carlo Cimbri, Unipol Gruppo S.p.A. - Group CEO, MD & Executive Director [41]

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[Interpreted] Thank you so much for participating. Thank you also to all of my colleagues. And of course, in the next month of May, we will be talking about the quarter accounts. Thank you. Bye-bye.

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Operator [42]

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This is the Chorus Call operator. The conference is over. You can now disconnect your devices. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]