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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Generali Group First Quarter 2021 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Fabio Cleva, Head of Investor and Rating Agency Relations. Please go ahead, sir.
Thank you. Good morning, everyone, and welcome to Generali First Quarter 2022 Results Conference Call. Here with us, we have our Group CFO, Cristiano Borean. Before starting the Q&A session, let me hand it over to Cristiano for some opening remarks.
Thank you. Good morning, everyone. I would like to share with you a few comments on the tragedy we are witnessing close to us. Generali has a historically strong presence in Eastern Europe, and we feel very close to the Ukrainian people. Generali, The Human Safety Net and all our colleagues have participated in a joint effort to provide support through donations and volunteering initiatives. In addition to the human tragedy, the Ukraine conflict has also affected our first quarter results. Let me summarize what have been the main impact stemming from our exposure to Russian and Ukrainian investments. At the end of the first quarter, the fair value of the 38.5% stake in the Russian insurer, Ingosstrakh, amounted to EUR 176 million compared to the EUR 384 million at year-end 2021. At the end of the first quarter, the fair value on Russian fixed income instruments directly held by the group amounted to EUR 40 million compared to EUR 188 million at year-end 2021. Those fair value changes implied an impairment, which negatively impacted our first quarter net result for a total amount of EUR 136 million.
Let me clarify that Ingosstrakh continues to operate as it has a solid domestic market position in Russia. The fair value of the investment in the company will be reassessed for the first half 2022 results. And in case of an extreme scenario resulting in a full write-off of the participation, the additional net result impact would be EUR 126 million. Concerning the remaining EUR 40 million Russian fixed income direct exposures, which are all denominated in euros and U.S. dollars, they reflect an average fair value of around 24% of nominal value. Assuming a full write-off of this fixed income exposure to 0, the net result impact would amount to EUR 37 million.
Even in the extreme scenario of a full write-off of all our direct Russian investments, the capital position of the Austria, Central and Eastern Europe region and its remittance to the group would not be at risk. As already stated in the press release published this morning, the group also had negligible Russian and Ukrainian in direct investments and unit-linked investments, which amounted to EUR 43 million and EUR 34 million, respectively, at the end of this quarter.
Thank you, Cristiano. Operator, we are now ready to open the Q&A session.
[Operator Instructions] The first question is from Andrew Sinclair with Bank of America.
Three from me, please. Firstly, just can you let us know what was the operating result contribution from Cattolica in the quarter, ideally if possible, breaking that down into different segments, P&C, Life, et cetera. Secondly was just on the current year loss ratio evolution. Just really wondered if you can walk us through the moving parts year-on-year, what was from normalizing post COVID? How much from inflation? How much from integrating Cattolica, et cetera? And thirdly, was just with bond yields going higher, what are your current reinvestment rates? How do they compare with earned rates on the portfolio? And just any guidance you can provide on investment income would be super helpful.
Thank you, Andrew. So let's start with the first question. I give you the breakdown of the EUR 52 million total operating result contribution of Cattolica Group in the first quarter 2022 for Generali. EUR 8 million were devoted to the Life segment and EUR 444 million were devoted to the P&C segment. The pro rata net result contribution of Cattolica for the quarter was EUR 33 million. With regard the moving parts of the P&C loss ratio and in general, we think that the effect is combinate by, on the current year, you see an year-over-year drop of 0.6 percentage points. So the current year loss ratio is 62.8%, while natural catastrophe had impacted the loss ratio by 1.4 percentage points. And the delta is 0.6%. So basically, you have a 0.6% delta in the attritional part and a 0.6 delta in the natural catastrophe, which is affecting the total loss ratio before the prior year. And then we have a slightly lower prior year release in the quarter, which were basically 1 percentage point less than the previous quarter. I would like to anticipate maybe eventually the point that in the first quarter, still we had a small positive effect in the month of January, stemming out from the huge wave of COVID, which was not affecting people severely, but for some time, had people stuck at home. And in percentage, we observed a little bit of benefit, not material. But for sure, you have to expect, going forward, the current year combined loss ratio component not to have this tract throughout the part of the yearend 2022. Related to the reinvestment yield, we have an increase of the reinvestment yield in the P&C component which is basically above 2%. It is 2.1%, and it is above our plan expectation, let's say, 100 basis points above. While we have the Life component, which had a 1.7% reinvestment rate, which is basically 50 basis points above. This is also for technical mix difference also on both regional and of a combination of relative weight between government and corporate slightly higher in the Life component with a slightly relative higher amount of government versus corporate compared to the P&C.
The next question is from Peter Eliot with Kepler Cheuvreux.
Three from me as well, please. First, just maybe if I could just follow up on Andrew's question actually on the -- specifically on the attritional loss year, but current year [indiscernible]. I mean, I guess you said this rose 0.6 percentage points year-on-year, but that doesn't seem very much to me considering the traffic trends. And I think last year, you said that the Q1 ratio was depressed by 1.7 points due to COVID. I may have misunderstood, but I thought you said it came in at 88% and would have been 89.7%. So I'm just wondering why the underlying hasn't increased? A little bit more comment, that would be great. The second question is on asset management. You don't tell us the share of the private equity results, but it's clear from the pro forma disclosure that it was at least EUR 47 million this quarter, probably higher, I guess. That obviously compared to an operating result of EUR 130 million ex performance fees. So it seems that a large part of the asset management division is actually coming from the minority share of Lion River rather than from managing client assets. So I guess my question is just whether you could clarify that for us, whether you could clarify how much of the historical asset management results have come from Lion River? I don't know if we can maybe have a number for 2021 or something, that would be very helpful. And then finally, just a general question. I guess it's always difficult for us from the information presented to gauge the sustainability of the results. I'm wondering, Cristiano, if you could just highlight the items that you would consider to be one-off in nature. If you were sitting in our shoes, what would not be sustainable within the operating results?
Thank you, Peter. So attritional loss ratio, traffic trend and delta, I have to make a couple of information. For sure, we observed some specific effect, and in the first quarter 2021, I take the case of a country, I speak last year, the first -- in Germany, we had the lowest ever number of claims because of the severe lockdown which the country suffered. This year is not the same. But a little bit of more spread around, January only people staying home, plus the fact that there is a structural effect we are observing. I would like to recall you one thing about frequencies. Still, we are not above the 2019 frequency level. We are slightly below, which means is that in a pre-COVID world, we have some lower effect. We could -- I mean, it's too early to say, but could be something structural and related also to the new way of working, where basically everybody is affected after coming back at work from the post-COVID opening, which we are basically observing. So the trend, in my opinion, is more related to the combination of lower frequency still not having propagated and a combination between the average premium and the average cost, which so far is keeping, clearly, that is the point of attention to be focused on the equilibrium versus the increase of the average cost. But on frequency, this is helping to support also this level of technical result. Second point I would like to highlight on this is the fact that don't forget that even though we have a lower share of Global Corporate & Commercial in our book, which is 10%, we had, on average, 16.7 percentage point increase in the premium of that segment, which is supporting a positive trend. And having very specific lines and different, not affected by COVID, this is also releasing a little bit of support in the loss ratio. Second point related to asset management. I think we need to clarify in the pro forma representation we published on the EUR 47 million. Please, this has to be considered also related to the fact that some of these investment funds are allocated to as well the Asset & Wealth Management, as well as some fees fund. And seasonality around this has a slightly higher effect of concentration, and you should not consider this as the major driver, as you were saying, of the Asset Management result. The Asset Management result is mainly driven by the fees and the revenues we are taking primarily on our captive business and growing also on our amount of result. Lion River 2021 dividends affected only EUR 65 million revenues versus the EUR 1.3 billion revenues of the segment of Asset Management. So we need to take also into account the seasonality I was mentioning before. For with regards to the third point, what are the one-off in nature in the operating result. I think that an element, for sure, of consideration should be that, last year we had some negative effect in the real estate business which affected the holding another segment. And this year, they are not there anymore. On the operating result, I would say there are no specific one-off point related apart from this part. I would like to recall you that this year, we also reduced the amount of capital gain in the first quarter 2022 versus the first quarter 2021, because in the first quarter 2021, we did some also clean up. So there were some known affecting element. There are both in the nonoperating, if I can complete, integrate the question, some potential one-off, not only the negative ones related to the effect of the impairment, especially the Russian one. As well, there are some positive derivative movement from hedging, which are counterbalancing. So you cannot keep them into account if the trend reverse of the market, including some hedging or increase on interest rate. So I hope I gave you the color. I think if I take the sum of the plus and the minus is the operating result is broadly in line with some positive effect this year of delta because there was some negative one-off last year. And then there are some one-off in the nonoperating negative for the impairment, but very large, and some tens of millions as well positive on the hedging of market condition and interest rates.
That's great. Could I just check that I understood the second point. You said 2021 dividends was EUR 65 million. So if I look at the pro forma delta for last year of 14, so you're saying EUR 65 million of dividends, EUR 79 million of allocated private equity results. Is that the right interpretation?
Yes. Yes. And also recall on the first point, as I said before, this is correct for the private equity, and I want again to restate that the first quarter attritional loss ratio should be projected going forward, not at the same level for the reason I was mentioning of the cross effect of frequencies and as well, the effect of the average cost, coupled with increase in tariff that we are expecting, will anyhow bring us within the targeted range that we confirmed in December, which will be to stay below the 92%. But I would not expect the same level of combined ratio of the first quarter for these technical reasons.
Great. Could I be very cheeky, while I've got the mic, because I don't think we've ever given the total private equity contribution for the full year '21. Are you able to give us that and also for this quarter? Sorry, I've been greedy.
Apologies. Do you mean for the entirety of the group?
Yes, yes.
Yes. I think it is -- in the operating result, what you are asking me is the total operating result contribution of the private equity segment for the quarter, which is EUR 75 million for the first quarter 2022 in -- compared to EUR 100 million -- almost EUR 102 million in the first quarter 2021.
Sorry, no, it was full year '21 I was asking.
No. No, I was reporting the first quarter '21 versus first quarter '22.
Peter, we can come back to you on this separately if you're okay with this?
Yes, of course.
The next question is from David Barma with BNP Paribas Exane.
Three questions from me. Firstly, to come back on P&C. Could you give us some color on what pricing is doing in your main markets in recent months, especially in motor liability? Secondly, on Life, the new business margin was quite strong in Q1. How would that look like on taking into account the market movements, which we've seen in Q1, as I think the methodology takes December market conditions? And then lastly, could you just help us bridge the capital position, please, from full year to end of March?
Yes, David. So first of all, P&C color on pricing in the main market, I would like to stress that we already started increasing tariff and this has been injected. Clearly, there is a time lag between the moment you inject and the moment you start observing the average premium increase because the average premium has some inertia compared to the increase you are doing. And we are constantly monitoring the technical equilibrium being ready to further act in case of continuous -- continuation of the inflationary environment. So I would say that all across the board, these actions have been implemented and are foreseen as an extra in case of need in order to stay on what we claimed as a target. Clearly, this is done in the equilibrium within the reaction of the collection, but as well, the main focus for us is, as you know, the technical result. So our main markets, I would say that there is an already injected average increase of the order of at least 2.5% to 3% all across the lines, and further element of reaction are foreseen in the next months if the situation is like this, and it is what we believe. So we are actually thinking that is always equal other actions will be needed in order to stay and keep the desired level of profitability in euro terms, not only in relative terms. Life and New Business Value, strong in first quarter. Yes, it is driven heavily by our capacity to grow present value new business premium in the unit-linked segment, which grew on a like-for-like basis by 17%, and as well growing the marginality around this. Let me just make a very simple number. If I take the 4.94% margin and which, as you know, by methodology is calculated with the beginning of period assumption, which is basically saying January 1, to make it simple, year-end 2021. If I use the end of March situation, which is still lower than the actual that we are observing in the month of April and May, that will be the starting point, the same 4.94% will become 5.25%. So on New Business Value, this is important. I would like to take the opportunity in answering you to remind that while on New Business Value, this is in a certain sense, visible, if there is an increase of rates and market turmoil, the business of the stock of the existing unit-linked and as well any asset management fees captured, is captured on a lower stock. So for sure, in the projection going forward, you need to take it on a movement of lower stock. You have seen the movement we had in our unit-linked stock, which went down, notwithstanding the EUR 2.6 billion net inflow of the quarter. So clearly, this has also to be modeled properly as an element of fees dependency on market value on the unit-linked and on the asset management. Third point, capital position roll forward from year-end '21, so the starting point is 227% and we are ending at 237% because, basically, we were impacted 1 percentage point broadly by regulatory changes and we had 5 percentage points of capital generation before deducting the dividend. And then we have the economic variances of around 11 percentage points. Noneconomic variance is slightly more than 1% negative. M&A effect of about 2 percentage points and as well capital movements of 2 percentage points, which is the effect of the deduction product of the dividend. I would like to profit -- to highlight and update the latest sensitivity estimation we had on the solvency position as of Monday, May 16, and including the completed transaction in India P&C, which -- where we obtained the majority with the 74% of the shareholding, and embedding, even if we are still waiting for the regulatory authorization, the approved buyback by the General Shareholder Meeting of April 29, we will end up at 230, 2-3-0 percentage points. I want to add another thing, that since we have some outstanding M&A to be closed, meaningfully, in particular, our La Medicale in France and Malaysia, we have something in the order of 7 to 8 percentage points still to be deducted in a projected year-end view when you will have those transactions completed. I think I can add another -- to anticipate, if you allow me, what you should expect. I think I would like to give you also an update to the sensitivity on the interest rate of our Solvency Ratio, having had this big move in the first quarter of rates, which clearly put our guarantees out of the money on average and so reducing the sensitivity. While at the year-end 2021, we published a sensitivity to an increase of 50 basis points in the base rates of 9 percentage points. So solvency would have increased by 9 percentage points with 50 basis points up. Today, the 9 percentage points became 6 percentage points for 50 basis points up. And the interest rate down minus 50 basis points at year-end 2021 was 10 percentage points down. At the end of first quarter, our sensitivity moved to minus 8 percentage points for 50 basis points down interest rate. I think this is also helping you in understanding how to get to the 230 Solvency Ratio I was mentioning for May.
The next question is from Farooq Hanif with JPMorgan.
I want to talk about -- firstly, about growth. So your top line growth was extremely strong in both Life and Non-Life, I think, 6% each before Cattolica. So can you explain what you think is sustainable in that? So if markets are remaining volatile, do you still think you can get this transition to unit-linked and grow that? And in non-Life, what is driving that growth? I mean how much of that is coming from moving into further into non-motor and capturing share? So if you could comment on that probably it'll be helpful. Secondly, can you remind us when the country-specific VA kicks in, I'm guessing it's very, very soon or if not already, and what that does to your sensibilities to B2B? And then lastly, you mentioned already higher bond yields not being in your assumptions, so how significant could this be within your 6% to 8% EPS target range? I mean how much of a benefit could it be, maybe to sales and also to Life status and also to your earnings?
Yes. Sorry, Farooq, can you repeat the last question? What are the benefits from yields, you are meaning, the interest rate movement and spreads? You meant that? Okay, now just to be sure.
Yes. I mean from -- particularly given your 6% to 8% EPS range, I mean, does this really support the upper end?
Great. Thank you. So I have few other questions. So first question related to growth. Top line is strong. The sustainability of this trend despite market volatility. Well, let me try to diversify the discussion in 2 pieces. Looking at Life, I would make some comments related, for example, products we are selling which are with a higher component of unit-linked, which for sure in a volatile environment, think about the Italian hybrid product we are pushing as a strategic driver for increasing capital lightness of our portfolio, they could be less attractive going forward in an environment of high uncertainty. So maybe the same amount of trend, since we don't want to give up strategic direction versus volumes on that because we have a very clear guidance around this in the steering, I think that could be a point of attention in the Life growth. For the rest, we are extremely looking at selective underwriting, think about what we already did in France, putting a huge percentage of unit-linked in the phones and with the multi-support component of unit-linked. So there is not a specific trend of growth, if not only in the preferred lines, which we still keep, thanks to the diversification. In Germany, we have a very stable production and I think this is less affected. And Austria, Central and Eastern Europe are very much into the protection component. As well as in Spain, there is a huge protection component, which is less affected by the uncertainty of the market. So I would put a little bit more emphasis on hybrid production, for example, in Italy, and going forward, to not be at the same level of growth projected in the first quarter. For the rest, I think we can keep oppose the momentum in Life. In P&C, the growth is driven by the component of non-motor mainly because motor, net of some inflation adjustment, it is less -- it is more stable. So P&C is growing throughout the non-motor, thanks also to the 16.7% average increase, we are serving Global Corporate & Commercial. But in any case, without it, we have anyhow a good growth of non-motor because this is the strategic focus. And there I confirm that we will go above the 4% CAGR, which has been set as a strategic target on December 15 in the plan Lifetime Partner 24. For with regards the second question, specific VA kicks in and impact on BTP sensitivity. With the first quarter '22 condition, the risk country VA would need another 162 basis point increase in the BTP spreads with flat corporate spreads in order to be activated. Don't forget, it is a tricky game. It is 2 variables, and not 1 variable game, and the trigger is joined. So assuming spreads not moving corporate, the BTP should increase by 162. If spreads corporate opens up as well, then it is opening even more the need of BTP to start triggering because this is the tricky of the rule. I want -- If you want, I can even update through the movement of end of April assuming as end of April level of spreads staying flat of corporate, that number would have reduced by 30 basis points to EUR 133 million. okay? So these are the levels of extra BTP opening versus before starting up in the country VA. Third question, the benefit from higher yields and spread on our earnings per share target. For sure, this is a supportive element on the earnings per share. On the 3-year period, this could bring more value in the reinvestment part, takes a little bit of time anyhow to be projected. So you need to look really on the 3-year time, so we can have some support. Then for sure, we need also to take into account -- but in some cases, our investment amount was driven by the provisioning, think about Germany, the provision which we do expect not to happen anymore soon for sure in this condition starting from 2023.
So you have less to be reinvested versus what you had in the book. So we do think that, that could be a positive element, able to counterbalance the increase in the inflation we are observing on one side on the cost of claims versus the pricing component. And for sure, there is always a time lag between the increase of the cost of claim and the pricing on the P&C to support it. And as well in the wages expenses because all across the board, we see that pressure on this disposable income of our employees is mounting. So clearly, we need to do another thing to keep this. Do not count only on the earnings coming from higher yields, but as well increase the speed of acceleration of operating machine efficiency transformation having a prioritization of the project, which brings the efficiency in order to map and stay also in the containment of the wages.
Just one follow-up, please. Is non-motor still generally significantly more profitable than motor?
Yes, it is. And it is going to stay significantly more profitable than motor all across geographies. The only geography where there is not too far difference between motor and non-motor is Austria and Central and Eastern Europe because of specific market, let's say, equilibrium.
The next question is from Will Hardcastle with UBS.
I guess slightly following on from that. First of all, we're thinking about Germany and Italy motor premium specifically, you made a statement that they've reduced year-on-year. I guess some color on the respective markets, differentiating back on what's price driven, what's volume driven, whether it's been particularly aggressive competition and then perhaps overlaying it with inflation discussions on those specific markets. And secondly, just regarding geographies and which lines of business, I guess from a high-level view, where would we -- where should we be most concerned by inflationary pressures to your business, whether it's from the perspective as to pass through to customers or from a back book perspective?
Yes. Thanks, Will. So Germany and Italy, motor premiums. I'll start from Germany. Germany has basically -- if you look at the overall average motor premium, it is broadly stable and the effect is a combination of increased -- mild increase in the Motor Other Damages while flattish to slightly declining motor TPL. And this has to be taken into consideration because of the frequency, especially in the upsell so far, which is driving as well an equilibrium on the pricing. We are, in any case, seeing clearly some competition, but we are continuing our distribution strategy. Don't forget that we have 3 channels in Germany, which is the proprietary channel, let's say, the third one with [indiscernible], DVAG, plus we have our direct distribution through Kosmos and then we have the broker channel with [indiscernible].
And there, we are working, especially with bundling products, which have also a component of non-motor, which is helping also to have overall profitability of the P&C on the desired level. Notwithstanding this, even in this country, as all across the board, we are ready also to act according to inflation. Italy, among the 2 countries, for sure, the country where the competition is higher. Notwithstanding our leading position, we are obviously, within this market, which is becoming, let's say, under pressure from with regards the average premium because, especially in the motor TPL, we still see a decline in average premium for the frequency reason I was mentioning. While we have a very positive trend in the Motor Other Damages, which is supported by our fleet and, in general, strategic product enrichment strategy that we are pushing. So the basic strategy as well is not different. The group will act accordingly, clearly starting from a leading position and having all the point. But we have already heard publicly on the press, but we are not alone in the movement in these kind of countries on the tariff.
For with regards the second question, where should we see inflation impacting the business, I would like to give you 3 angles. If you look at our sensitivities, let's say, if you look at our movement of solvency from year-end 2021 to first quarter '22, we had an increase of projected cost from the point of view of the normal way you do it with the indicators. And that impacted 2 percentage points our solvency negatively. These are mainly related to the normal cost -- operating cost, and in minor part, also, to the inflation cost on the claims. Because I recall you on the claims of P&C, we already explained that we are reserved with another embedded inflation in the motor TPL between 4% to 5%, which is on a yearly basis up to the end of the last claim, resilient towards the environment we have in prudent. So you should see inflation biting more on the part potentially of the wages. And so this is what we need to manage according with the acceleration of the strategic project. The other component where inflation could touch is in the claim related to the newly underwriting business, hence, the -- what I commented in the first question, reactive approach and proactive approach in managing through pricing, but not only, also through risk selection and as well simplification of client management, which is a very important driver that we are still pursuing because we are continuing also to simplify the way we operate for the claims management, reducing the, let's say, factories of paying claims, a number of claims, in order also to achieve the sufficient efficiencies to tackle this. So these are the counter levers we are trying to use.
The next question is from Andrew Ritchie with Autonomous.
First question, I remember asking you about your expectations for private equity at the beginning of the year at the time of the full year results, and you were suggesting it would be down slightly. I'm talking here, by the way, the total return on private equity, not the dividend. Has your expectation lowered again on that? I mean, I see in Q1, the total return was lower than the dividends. I appreciate some timing issue there. But given market volatility, should we think the total return on private equity might be lower than maybe you were expecting? So an update on that is useful. Secondly, just a numbers question. The Life profit growth was quite strong in the technical result, but I'm just checking, last year, there was EUR 27 million of COVID impact in there. Was there any COVID impact in Q1 this year? And the final question, I'm still left a little bit confused what exactly you're saying on non-Life claims severity. I guess I'm contrasting it with how relaxed management were at the time of the full year results on this issue and things seem to have changed. You brought up several times yourself that there's a lot more non-Life claims inflation. Can you just give us a sense what severity is running at in -- just I don't know, Italian motor, for example, I think one of your competitors last week suggested it was running at 6%, what do you think is running at? And presumably you've been surprised at the speed of which the severity trends have changed.
Yes, Andrew. So private equity. Last year, we were positively affected by some one-off, let's say, unicorn investment, which we're basically creating a kind of over the average cycle result. Normalizing for it, which was contributing in the order of something EUR 100 million operating result, not net, I think that we had the first re-discussion and we confirm the 2022 view on the budget. Still, our private equity is resilient. It is producing positive results according to this. And one area of focus for sure is the dependency on the leverage of this result of the private equity. Our investment selection and investment strategies are extremely focused around this source. So far, we are confirming it. And here, we could express a sufficient robustness because of the already established track record, I should say, on it. Second question related to the Life profit growth, starting with the technical result. The covenant impact this year is broadly negligible because we exited from the high effect of the last 2021, we're still, in average countries, which are, let's say, more far away like Brazil, but even I remember the big effect we had in India and other countries, could have affected this. Now we are really in the negligible number. So we are speaking something which is still in the single-digit deviation. You cannot have a material effect of a negative impact around this. For with regards the non-Life claims severity, for sure, I think that still, we are not worried about the movement. And what we are observing so far is especially some specific movement where, for sure, claim severity is growing at a faster -- at the fastest pace in Germany and in Italy, for example, still we are observing some increase of cost, overall, when I -- when we look on average spare parts, including the Motor Other Damages. So if I start looking for example, of what I observed not only in Germany but as well in France and, in general, in Italy, I can tell you that on average, the average cost is growing by 5% in Germany and 4.3% in France. Then you have a kind of counter and intuitive effect on the average cost in Italy in the first quarter '22, which is decreasing also because, in Italy, there is a kind of different mix and some lower amount of damages, bodily damages. So net of this, I think you have this overall effect. For with regards the effect of -- total, I just like to give you a slight color on the second answer I gave you. Last year, we had EUR 27 million impact from the COVID. And now, I told you that we are relevant of the single-digit million euro, which is basically negligible compared to the effect of last year.
The next question is from James Shuck with Citi.
So first question for me on the Life side. Just looking at the Life operating profit, it's up 7% in the first quarter. And some moving pieces in there that I find difficult to kind of think about for the rest of the year, because the flows are really strong, the investment result was actually down in the first quarter driven by lower realized gains, but then you had a 20% increase in the technical results, which you're saying is driven by higher sales of unit-linked in protection, but I would have thought that more driven by the back book, rather necessarily just purely the new business sales. So I guess you've kind of guided towards the Italian investment margin coming down slightly due to Cattolica in terms of basis points, but underlying ex that being flat. So when we look kind of look forward, given all the market volatility that we're seeing and given that the realized gains have kind of evaporated somewhat and the investment margin may not be behaving quite as you thought, and then you've got this technical result impact that's benefiting. Pulling all that together and thinking about the outlook for the Life operating profit for the full year, I find quite difficult. So anything you can add on that to help me would be very useful, please. And then the second question on asset management. The operating revenues in relation to the AUM around 20 basis points. And I think that was true last year as it is in Q1. When you compare those versus peers that is a low number, particularly if you exclude the performance fees. First quarter is more like 17 basis points now. Now some of that might be due to low fee charges on the internal funds as opposed to the external ones. But could you just help me understand why those operating revenues in relation to the AUM are low relative to peers?
Yes, James. So let's try to put together the discussion of the Life operating profit. I would say that the year-end view stays in an increase of the operating profit of mid-single digit percentage points, okay, compared to the prior year result. So what is driving it? First of all, in the investment margin, you have noticed, it is broadly stable. But I would like to highlight that, yes, unrealized gains could be reduced, but on fixed income it is not what we are using when we manage the portfolio, it's more related on the equity part. And we are also going more in the approach, which will start grasping starting from next year, where more we look at the way of the asset classes, total return component versus only the pure part, which means capital gain are less interesting, especially in this environment, but also on a recurring basis. I'm referring to the new accounting principle view of having the normalization of any capital gain in the Life book and amortizing it throughout the Life of the contract as will happen from next year. From with regards the effects, I would like to say, in the investment component, you have a plus and minuses. While you have a better improvement in the Italian operation, you have a decrease, for example, in Asia because we realized some capital losses there because we wanted to exit from the Chinese -- not exit, reduce the Chinese equity exposure due to the exacerbating situation of the COVID and the impact on the economy in order to derisk a little bit this. So you don't see an immediate increase, which on the contrary, would have been there. We reduced also the capital gain. Also, I'm thinking about France reduction in order to measure also in the -- move away on long term.
On the contrary, the technical profit increased. It is true that the stock is the one driving. Don't forget anyhow that there is a huge contribution of unit-linked growing. And there are specific countries like there it is interesting for you to know in France, unit-linked is not part of the profit sharing, while still is in Germany, because all the results of, like, companies are shared with the 100% of the results with the policyholder. That part is not share. So France, you see a feasible increase of the technical contribution from the unit-linked, which is a positive driver. On the contrary, you still see productive existing very profitable business of protection, which is materializing both in Italy and as well in Asia. Because the stock produced technical result, which we start seeing and that was more a stock effect than a flow effect. So putting all together, I stick to the mid-single-digit operating result increase. To the second question moving -- Moving to the second question. I think that for sure, compared to the peers, don't forget that we have a higher portion of fixed income and liability-driven investment mandate, which are lower management fees than the peers and a share of third-party that is also lower. For sure, we are speaking about mandates mainly coming still, we always said that our revenues were 70% captive and 30% third-party. And when we speak about the 70% captive, clearly, you are extracting on fixed income basically based. We are trying to increase it, thanks to the real asset strategy. And the private debt, including the private equity are ways also to create alignment of interest and the increase of value. For sure, these are the main drivers. So we have a lower component of [ non-liability-driven ], non-fixed income, specific alpha value with higher fees compared to some other peers. So this is the underlying reason of the operating revenues over asset under management driver.
That's very helpful. Can I just -- on the Italian investment margin, excluding Cattolica, are you still confident that, that investment margin can stay flat in terms of basis points? So is there an inflection point at some point and then equity markets fall that that's no longer the case?
Yes. Just to be sure, you are asking me net of Cattolica, what is the Italian investment margin driving going forward, correct?
No. I think you commented that excluding Cattolica, the Italian investment margin in terms of basis points would -- is expected to be stable in '22. So I'm just trying to get some insight into whether that's still the case. And if equity markets continue to fall at what point does that come under stress?
Yes, it is resilient. And also the prudency and the deriksing done in the previous year which is helping to reduce, let's say, the -- on one side on the impairments, on the other side that the need eventually in adverse situation to realize gains. So I confirm the stability of it.
The next question is from Michael Huttner with Berenberg.
I have 2 questions. The first one is on asset management. And I just wondered if you could give us the 2021 figures, which we can use as a starting point as it were, the full year. And including in them, maybe the performance fee figure, which was in there last year. And then the second question is on the cash at holding. I know you only give it once a year, but because solvency is up so strongly, I kind of keep thinking there's probably more here than there was at the year-end. I think it was EUR 4.1 billion. And then the last one is a bit philosophical, so I'm not sure if it's very valid. But if I imagine high inflations, you have to raise pricing for that, so need more capital because capital in non-Life is a little bit linked to premiums. Does it mean that higher inflation actually indirectly hit solvency, not just the direct effect of higher cost?
Michael, so let me start from the last question since I like to start with philosophy because this is, I think, important. I do say that -- I did say and I do confirm that inflation had a hit on our solvency of 2 percentage points because it's the joint effect of projected higher expenses, which has to be projected with mechanical indexes and not always, let's say, budgeted cost because you have to project it for the full life of the contract. So your budget usually is a 3-year one. So you have some mechanical effect, which is driving also, for example, in inflation. On the other side, you have as well the fact that you have some counterbalancing component also in P&C. I prefer to mention that many of our P&C product, non-motor in Austria, Germany, are indexed to inflation. So there is a natural adjustment around this, which is helping to manage the situation. So philosophically, but also practically, what is happening is that our solvency, yes, has -- is impacted if there is an increase. The only point is that the projected rule is not the one related purely on the HICP inflation. So you should not think that if the harmonized inflation core price -- index core price increases by 50 basis points, our projected Solvency II inflation grows by 50 basis points. This is not a one-to-one relation, but there is a mechanical effect. But even some positive benefit of inflation effect in some health business, especially in Germany, because of the effect on the cost and the premium you pay related to those costs of medical, how the contract is built and how the rule happens.
So you have a lot of plus and minuses. At the end, there is a net minus. And the higher biting effect, in my opinion, you have inflation, you need to really, first of all, make an anatomy of this and splitting what is the inflation in the wages, which is negative, what is the inflation in the claims, which is negative, but you project contrary to the effect of the pricing and what is already embedded in the best estimate of the liabilities, which is helping and supporting you. So net-net, yes, there is a negative effect mainly driven, in my opinion, by the wages component, if I have to say. Second question on the cash at holding. We don't disclose really the total number. But I want to tell you, it is a very simple exercise which we do backward together, okay? Don't forget, and I hope all investors will not forget, that next week we will pay our EUR 1.7 billion dividend. We have still EUR 300 million to be withdrawn as of July 2022 of our subordinated debt, so which adds to EUR 2 billion, if you sum up the 2. If you take as well into consideration that we have already committed to a buyback and some M&A, which in total already has another EUR 1 billion of cash already to be put aside. And on top of this, we have already completed 99% of the year 2022 remittances. Allow me to simplify to almost everything, we have already the excess free cash on top of the dividend of the EUR 1 billion, as I was mentioning, we were able to construct every year. The net holding cash flow when you deduct the dividend on the yearly side, you are basically in the order of EUR 1 billion available for you.
So you add all these components and you add also the fact that I always stay with EUR 1 billion in this volatile environment of cash buffer. All the rest is the treasury part, which you don't have to consider because of the nature, which is not free money just used to maximize the centralization and the results and return and, let's say, liquidity risk around it, but it is not fungible for external operation. So for with regard asset management fees, which was the first question. So in 2021, we had therefore -- I'm speaking about Asset Management and not Asset & Wealth Management, because don't forget that there is also Banca Generali in the segment. So I'm just referring to Asset Management. In 2021, we had EUR 57 million of performance fees. And I recall you that last year, Banca Generali had -- this is for Asset Management, and Banca Generali had an exceptional EUR 220 million performance fees, which I think they already explained well on the market, but I want to recall you, this year due to the mechanism of the high watermark. If market does not go back to the level of the starting point, we are not foreseeing, not even forecasting, further performance fees for Banca Generali. I think this is the answer I gave to you.
The next question is from William Hawkins with KBW.
Cristiano, thank you for your time. In the Solvency Ratio, the 237%, could you tell us the numerator and the denominator, please? It's quite a big movement, so it would be helpful to know that change. And then secondly, the 11 percentage points that you referred to for the market movement, you've already given us the detail on inflation. And again, I don't want to get too much more detail on this, but there's been a number of companies that have reported solvency ratios where the market sensitivities they've published have been quite visibly offset by inflation and volatility. I mean my perception for Generali is whilst you have mentioned inflation, -- the overall change seems to be in line with the market sensitivities you gave at the beginning of the year. So it feels to me that you've had the benefit of the markets without these offsetting drags that have hurt other companies. I'm not sure how you're thinking about that, maybe I've misunderstood the sensitivities. I don't need loads of detail. Just it's a positive surprise that I'm a bit confused by. And then 2 other things briefly, please. The unrealized gains now seem to be almost eradicated, and presumably by the time we take account of the second quarter, they're gone. Do you care about that? Or is it completely irrelevant what your unrealized gains are on an IFRS basis? And then finally, the 6% non-Life gross written premium growth, how do I think about the change in net earned premiums? That's what will drive your underwriting result. And maybe I'm overthinking it, but because of the changes in earnings and how you're earning premiums and because of Cattolica. How should I think how net earned premiums are moving first quarter and first half relative to that 6% in gross written?
Yes, William. So let's start with the Solvency Ratio. Solvency Ratio as of first quarter '22, the 237% is composed by EUR 50.2 billion of own funds and EUR 21.2 billion of solvency capital requirement. This is numerator and the denominator. Then the 11 percentage points of market variances, the sensitivities were offset by inflation and volatility. For us, I would like to, first of all, tell you that I had some comments that the movement we had was not sufficiently in line with what the sensitivities were. But allow me to say that I did an outside-in -- I know you can think I'm biased, but I did a really a mathematical outside-in sensitivity, and I was finding myself there slightly higher, net of the 2 percentage point of inflation, which were not reported for other sensitivity. Yes, we had some negative effect on volatilities of 2 percentage points, which is maybe not easy to capture, but all the other factors were coherent with what were the sensitivity projected. So for us, this is how it worked. And I recall that the movement of the rate was basically for us just was the largest one. And we feel the market variances was 14 percentage points of solvency, the base rates, I mean the interest rate improvement.
The second -- the third question on the unrealized gains. Do we care about the unrealized gains. For sure -- first of all, they are not eradicated because we need to understand what are unrealized gains. There are on balance sheet and off balance sheet unrealized gains. I do want to recall you that Generali off balance sheet has one of the largest stock of unrealized gain in the real estate industry broadly, I would say, which is visible when you move from IFRS equity tangible component versus the own funds when you do the reconciliation. Second point, yes, the interest rate and the corporate opened up. I think that you are at a level where you could be on the interest rate, as of the number of today, not far for not having any more unrealized gains overall broadly with plus and minuses. But still, we have a positive unrealized gains in the space of our private equity investment fund unit on top of what are in the real estate. We do care only on the short-term flexibility. In general, I would like to recall you, the reason why we are not also managing and increasing, we were more prudent on the capital gain, it is, on one side, the economic view of interest in this moment, and as well, the projected view as of the results next year in the IFRS 17 and 9 environment, where basically what will matter most is the ALM matching. So for example, in a portfolio, Life portfolio, having unrealized gains drying up if you are matched and you do not observe, as we are today not observing any deviation from the operating assumption, including lapses, deaths, morbidity, if the portfolio is matched, this is the best way to manage in the new environment of IFRS 17 and 9, the portfolio. This is the way we look at it. And I recall you that also on the IFRS 9 next year, you can find yourself with less impairments because of the rule of fair value for CI accounting in the P&C component, while in this year, you can have still this volatility. So you have a lot of plus and minuses. As a fact, there are -- there will be next year higher volatility from the instrument, which will be accounted for value through profit and loss by the new rules. But in general, managing the unrealized gains for us is something which is really for the short-term flexibility. We just do look at against the market volatility. Then what is the difference in the effect of -- and the growth of the net earned premium versus the gross written premium component. If I just look at the 6.4% effect on the growth I see, for example, on the net earned premium, something which is of the order of slightly less than 1 percentage point lower growth versus the 6% of GWP in return premium, but it is marginally and coming from the growth we observed last year. Because you know that if you started from a lower level -- and correctly, your question is coming from this, and then you had an acceleration throughout the part of the year, the net and premium is the pro rata part. So you need the full 12 months to get to the 6%. So I think that this is sufficiently to give you the guidance in the 12 months or less equal, you get to the same level of net earned premium and GWP growth.
Operator, we have no more time for questions. However, the Investor Relations department remain at the disposal of all the analysts and investors that would have additional questions. Feel free to reach out to us. And thanks very much for your attention.
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