Assicurazioni Generali SpA
MIL:G
Earnings Call Analysis
Q2-2023 Analysis
Assicurazioni Generali SpA
The company has demonstrated a strong financial performance, with its gross written premiums escalating to €42.2 billion, reflecting a growth of 3.6%. This upward trajectory is an indicator of expanding business operations and a more robust market presence. Furthermore, a significant surge in the operating result to over €3.7 billion, amounting to a 28% increase, has been powered primarily by the Property & Casualty segment, which alone witnessed an 85.7% boost in its operating results to €1.85 billion.
A remarkable growth in adjusted net results has been observed, with figures soaring to over €2.3 billion, up nearly 61%. This tremendous growth has translated into a 64.6% increase in adjusted earnings per share, driven by improved operating results, diversified profit channels, and a one-time capital gain from the disposal of a London real estate development. Additionally, the net result improved robustly to €2.2 billion, climbing from €864 million in the previous half-year.
The company's financial stability is underscored by an extremely solid capital position, with a solvency ratio at 228%, which is up from 221%. This 7 percentage point rise is mainly due to the strong contribution of normalized capital generation, which increased to €2.7 billion from €2 billion in the previous half-year.
Two key acquisitions have been spotlighted, demonstrating the company's strategic intent to solidify its insurance and asset management market position. The acquisition of Liberty Seguros, for instance, underscores a commitment to growth and leadership within the European Insurance Sector. These acquisitions are consistent with the company's strategic and financial frameworks, ensuring a strategic and cultural fit in addition to financial discipline.
In line with the company's 'Lifetime Partner 24' plan, a commitment has been made to increase dividends consistently over the coming years, within a specified range based on the amounts to be disbursed throughout the plan's course. This pledge reflects a forward-looking and shareholder-friendly dividend policy.
Management has asserted confidence in being fully on track to meet all key financial targets announced back in December 2021. Despite challenges in the external environment, the quality of results and achievements in 2022 reinforce this belief. Further updates on the progress of the plan will be communicated, with an Investor Day scheduled on January 30, 2024, where detailed insights will be shared.
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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Generali Group Half Year 2023 Results Presentation Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Fabio Cleva, Head of Investor and Rating Agencies Relations. Please go ahead, sir.
Thank you, operator. Good afternoon and welcome to Assicurazioni Generali fiscal 2023 results presentation. Here with us today, we have our Group CEO, Philippe Donnet; our Group General Manager, Marco Sesana; and our Group CFO, Cristiano Borean.
Before starting a quick housekeeping note. As we progress through the implementation of IFRS 17 and 9, we have made some minor updates to our 2022 preliminary comparative numbers. While the changes are negligible for the sake of completeness and accuracy, we've published an updated version of the financial supplement that we shared with you on our website, and we added a dedicated slide in the back half of the results presentation.
Before we open the Q&A session, let me hand it over to our Group CEO for some opening remarks. Philippe, the floor is yours.
Thank you, Fabio, and thanks to all of you for joining this call. Today, we published our financial results for the first half of 2023, which are being presented under the new IFRS 17 and IFRS 9 accounting standards. These figures confirm, once again, that Generali is an increasingly profitable, diversified and resilient group, and that enjoys a strong financial position.
I'd like to focus your attention on five key messages. First, our gross written premiums rose to €42.2 billion, up by 3.6% versus the first half of 2022. This was thanks to the robust growth in the Property & Casualty segment, which rose by 10.6%, while Premiums and Life remain stable.
Focusing on the Property & Casualty segment, non-motor premiums improved significantly by 10.7% achieving widespread growth across all main areas in which our group operates. It is worth highlighting that Europ Assistance premiums grew by 44%, thanks to the continued increase in the travel business. The motor line rose by 11% across all the main geographies, thanks to the tariff strengthening we implemented selective volume growth, and also the hyperinflation in Argentina.
Life's net inflows were minus €877 million with positive net inflows in both unit-linked and protection, thanks to our proprietary agent distribution network, partially compensating net outflows from savings. This is in line with our strategy to reposition the Life business portfolio towards more profitable capital light products, and it also reflects the industry trends observed in the banking channels in Italy and France.
Second, we recorded excellent growth both in terms of operating results and adjusted earnings. The operating result rose to over €3.7 billion, up by 28% from the half year 2022. This was driven by the strong contribution from the Property & Casualty segment, whose operating results recorded an 85.7% increase rising to €1.85 billion.
On the technical front, the combined ratio improved by 5.4 percentage points to 91.6% driven by a lower loss ratio. The Property & Casualty operating investment income increased by 26.2% also benefiting from the acquisitions closed during 2022. The Life segment was solid at €1.81 billion and the new business margin was excellent at 5.81%, up by 0.31 percentage points.
Let me highlight that over 40% of our new business value is generated in the highly profitable production segment, which continues to show healthy growth rates. Furthermore, the operating results of the Asset & Wealth Management segment rose to €498 million, up by 1.3% with Banca Generali, improving by 41.2%.
Focusing on the earnings, the adjusted net results saw a substantial increase to over €2.3 billion, up by nearly 61% from half year 2020, translating into a 64.6% rise in the adjusted earnings per share. This was driven by the improved operating results which benefited from diversified profit sources together with the non-recurring capital gain of €193 million net of taxes related to the disposal of a London real estate development.
It also reflects the impact from €97 million in impairments and Russian fixed income instruments recorded during the first half of last year. The net result also improved to €2.2 billion up from €864 million at half year 2022.
Third, we confirmed our extremely solid capital position with a solvency ratio at 228%, up from 221% at full year 2022. The seven percentage points, increase mainly reflected the robust contribution of the normalized capital generation at €2.7 billion up from €2 billion at half year 2022.
Fourth, as you know, we recently announced two key acquisitions that will strengthen our market position both in the insurance and in the asset management space. The acquisition of Liberty Seguros, we have generally enhanced its growth profile further develop the Property & Casualty business and confirm its leadership in the European Insurance Sector.
It also underlines our commitment to Spain, where as a result we will reach the fourth position on the Property & Casualty market and Portugal, where we will consolidate our number two position.
Besides these two key markets, we will enter the Irish Property & Casualty retail market for the first time. The transaction will also generate additional economies of scale, thanks to cost reduction IT optimization and the opportunity for cross-selling of Generali products.
On the asset management side, with Conning Holdings Limited and its affiliates, we are adding a leading global asset manager with a strong customer base in the US and Asia. Conning is known, for long-standing expertise in serving insurance and other institutional clients, which makes it highly complementary to our asset management culture.
The integration of Conning and its affiliates into our ecosystem will create a combined platform with €650 billion in assets under management and high-quality diversified capability across many asset classes. This acquisition is therefore, key to reinforce Generali's positioning as a leading global asset manager while significantly scaling its third-party business.
Finally, as we have now passed the halfway mark in the execution of our strategic plan Lifetime Partner 24: Driving Growth, I confirm, that we are fully on track to reach all the key financial targets we announced in December 2021.
This is further problem not only to the quality of the results we are presenting today, but more broadly, by what we achieved in 2022 even with all the challenges in the external environment has and continues to pose.
We will keep fully updated on the progress on the plan in the coming months. And we are pleased to inform you that on January 30 2024, we will be hosting an Investor Day. Thank you very much again for your continued interest in Generali.
The floor is now open to for all your questions.
This is the Chorus Call conference operator. We will now begin the question-and-answer session. [Operator Instructions] The first question is from David Barma from Bank of America. Please go ahead.
Yes hello. Three questions for me, please. The first one on, the P&C combined ratio, so if I exclude the effect of discounting of prior year releases and nat cats the underlying has deteriorated from the first quarter. Can you give us some color on this and what your outlook is for the rest of the year, please?
Secondly on, Life, so you've looked at charge in the second quarter for higher lapses in France and Italy. Is this a forward-looking measure and what were your lapse rate levels in the second quarter, please?
And then lastly on operating capital generation, so it normalized a bit in the second quarter but remains very strong and it puts you way ahead of your cumulative 12 billion targets. My question relates to the remittances. And so should we expect the cash conversion payouts that you set out at your last CNP to remain valid in this new OCG environment? Thank you.
Thank you very much, David. I think the first question is for Cristiano on the number side, and clearly Marco could intervene also in the business dynamics. Regarding the question on the charge for lapses is for Cristiano. And then the question on the capital generation relate to forward-looking remittance that is for Cristiano as well.
Hello, David. So first of all, I want to be clear on the evolution on the second quarter versus the first quarter. But at least, I would like to highlight that the second quarter was also impacted by a higher amount over the average on man-made so-called, which are part of the attritional are not the pure attritional part, but we are part of that, which would basically more than double than the average. This is also reflecting something in the order of less than €50 million -- less than €40 million for Rio for example in France, which is really something common from this point of view.
Regarding the effect, I do agree with you that there is on the undiscounted current year combined ratio after adjustment for natural catastrophe as more deterioration. First of all, if I look at the second quarter 2023 versus first quarter 2023 there are effects, which are compensating when I look this translating into euro terms, because on one side the euro term effect is basically euro, but because it's a strong effect of a higher amount of revenues, because of the very large growth we obtained, and we’re still obtaining in the prospective collection that you are seeing also going forward. And there's no deterioration on the additional part of 0.4 percentage points.
On the second question, service for lapse in France and Italy, they are the combination of two effects. And I would like to comment on the slightly more than €700 million operating balances that you've seen in the first part of CSM movement. Those charges are almost evenly split between what is the value of the exited experienced policies versus another charge for a more prudent lapse behavior going forward, notwithstanding, the fact that we have observed in the last part of the second quarter and in the beginning and the third as a delay of this dynamic. So I mean a reduction of the speed of these exits may be also related to the different clients now moving because clearly the fastest moving clients were already run and moved out.
Regarding that part, I would like to say further looking this is embedding also this prudency and there are main actions that we are doing in order to have this under control, and maybe I will let Marco comment also on the product.
Just to conclude the answer on resistance [ph] and then I'll hand it back to Marco, capital generation is strong. Capital generation is absolutely helped also by the higher interest rate, which are seen in the discounting, capital generation being the capital has to be discounted by informatical trends, which means better development especially also in the P&C or when you look at the solvency.
And by the way I would like to forfeit to give some more guidance looking on the effect on the remittances going forward, as well as some capital management one-off that should be conducive and improving compared to what I've seen so far projected.
I hand over now to the General Manager on the product effect for Life.
So, hi, David and hi, everyone on the call. Great to have you here. So I will start with the P&C underlying core. So just to say that you have seen the development on the average premium that we have in the first semester, I think it's something that we discussed previously. It's unfolding. It's clearly something that we are seeing. So our average premium for the different line of business is increasing. And so especially on motor, we should expect we will see an improvement on the underlying combined ratio of motor. That is something that we expect.
In terms of non-motor we are protecting really well with our profitability. So that's something that you already can see. But in terms of motor, all yield improvement on the different geographies where we are pushing for price increase, quarter-after-quarter are materializing and you would see a benefit coming up in the combined ratio attritional of the current year.
So, one additional comment on your second question on Life. So we have seen, I would say in the second quarter, a better environment in terms of lapses. And as we see -- as we go into the third quarter, we see even a slight improvement still on the lapses, bringing an improvement also on net inflows. We are now unfolding part of all of the different products that we plan and we designed for reacting to this environment, both on the retention side and also on the new business side. So this is coming up. First, the product we're introducing the market in June. So we should see the first result in probably in mid of July and then coming up in September. So we are positive on this. And so we will see, I believe a better environment going forward to the third quarter.
Thank you. If I can just…
Next question, please. Yes please, David. Go ahead.
Yes just a quickly follow-up on the lapse point. You're saying, half of it is more forward-looking and it split between France and Italy. If I take €300 million split between the two countries and I put that next to the -- your liabilities we're only talking about a few basis points. And if I look at the industry data for Italy for instance, the lapse rates are up 100 basis points in the first quarter. So, does this mean, we should expect more to come in the second half, or are you saying that in Q3, the lapse rates are already back up to '21, '22 levels?
Yes. First of all, as you know the embedded the lapse rate is -- so we are talking about a deviation from the projected one. So we are putting -- put that in the projection, okay? It is a matter between intensity and duration. The action that we are seeing so far, especially for example in Italy, the emotional movement happened mainly in the month of February which is behind us so far with all also, let's say the system solution found around is bringing a different trend. We think that despite as [indiscernible] also it's like allow me to make a physical example. We are the fastest animals running out of the door when we open the door the client moved so far. Then we have the others which are moving in a different way. And then, we are also seeing the dynamic from the offer that we are pushing for which is unfolding. So, what is projected is for duration and intensity, which so far compared to the normal projected effect, is what could be expected, before also having the final outcome of all the action that also Marco was explaining. So I hope this clarifies, but it is gaining let's say past year to normality.
Okay. Thank you.
Next question, please.
The next question is from Steven Haywood from HSBC. Please go ahead.
Thank you, very much. Three questions for me. Just following on from the lapse trend. There was a six percentage point negative impact on the Solvency II ratio from a non-economic assumption. Can you tell me, how much of it was from the change in the lapse assumption or the lapse experience? Thank you. Secondly, you've given the tariff changes by product on 1H '23 versus 1H '22. Could you provide us the tariff changes by country as well for Italy, France and Germany? That is very helpful? And then thirdly, you mentioned in the slide commentary that you see other tariff increases, that's scheduled in the second half of this year. Can you tell us, how much is it for which countries and which products? Thank you, very much.
Thank you, very much, Steven. I think the first question is for Cristiano, while the second and the third are for Marco.
Yes, Steven, so the certain disturbance movement we came at the half year movement. So from year end to our [indiscernible], the six percentage points, half of it is explained by this hyper -- related to the lapses we were mentioning including the experience.
Thank you. Marco, than we have a question on tariff changing in the second half of 2023.
Yes. So, I would start by saying that in all geographies that we see we are projecting tariff changes. So, all is like, what we show in terms of average price increase, it's really coming from a broad range of geographies. And all of the geographies are showing positive signs. So, I couldn't mention any geography that is behind or not doing the type of increase that we think is important to close the gap. And the gap that we are seeing that we typically -- when we think about profitability, it's really the difference between our price, average price increase and our risk premium increases. So, I have to tell you that we still see a frequency that is lower compared to 2019. So, there is still a good effect that we are enjoying. And we are also seeing, I would say across the different geographies and more predictable inflation, claims inflation. So something that is in the range of what we projected last year. So we do not have major surprises in terms of inflation. So I would say that probably in Italy, it is where we have the lowest inflation in frequency. So we are seeing price increases that are completely closing the gap of this in Germany.
We have a significant price increase. And you mentioned and I'm mixing also your third question because in reality for example in Germany, we already had an additional tariff increase in June so in the end of the first semester, in the first half because we have seen the need of updating that. So we go in updating the tariffs, where we see a strong need.
I don't have in mind a major need in terms of price increase. What I also would like to underline is that we are also leveraging on portfolio pruning, claims management. So all of this is acting on restoring a lot of stability and keeping in terms of non-motor our profitability. So that's overall what we see in terms of price increase and adjustments that we need to do.
Okay. Can I just follow up with a quick question on your combined ratio target. Do you still see movement in the low magnitude combined ratio target next year and on what basis?
Yes, Steven, I will take this one. Just for the sake of completeness, I think it is useful for you to receive the full explanation of the 6% negative impact on non-economic assumption, where as I told you it was all the parts related to the lapses. And the vast majority of the average 3% [ph] is explained by the buyback we exploited in the first quarter of the year in order to have the long-term incentive plan served going forward.
And the rest is really is 0.2 percentage points related to the growth in our Chinese business. So relating to the combined ratio target, reiterating the 95% and discounted guidance, which is the most important one to look at because clearly the discounting is more volatile depending not only ourself because ourself is the part on the discounting on higher volumes as we experienced in the second quarter, which helped having better discounting as well, not only interest rate but the largest component driving this industry development.
The undiscounted past is confirmed because I think that the action that Marco told you before will progressively unfold. And if you look also on the technical parameters part of the acquisition average premium and the evolution through progressively in the balance sheet. Don't forget that there is a kind of a chorus [ph] effect as well in the inflation dynamic pricing claims versus pricing because you take the time to see it unfolding progressively. So it is confirmed modular clearly some jigging around.
We have for example, I can anticipate in July some higher natural capacity event which is the typical also part happening in the third quarter, which is one of the most impacted, which would incur something of the order of 250 million impact of what has been offered on top of the half year number so far on the production, which is still well within our budgeted part also on an average basis.
Next question, please.?
Thanks very much.
The next question is from Peter Eliot from Kepler Cheuvreux. Please go ahead.
Thank you very much. First of all, thank you very much for changing your reporting date to avoid some of your peers very helpful move, thank you. In terms of questions, I wanted to focus I guess on a couple of the sort of big surprises today, in terms of the non-life investment income and the discounting effect. On the investment income I think it's probably fair to say that it was a bit higher than you had been sort of expecting or driving us towards assuming you agree with that statement. I'm just wondering if you can explain what drove the surprise compared with what you were expecting?
And on the discounting, I'm still struggling a little bit with the seasonality to be honest. I know you said it's non-linear but you seem to be saying for this year that you expect basically one-third in Q1, one-third in Q2 and then one-third across the whole of H2, bearing in mind that H2 should have some relative tailwinds I think from script volume and interest rates. Just that final bit seems quite low to me. So I'm just wondering if you can help me understand that at all?
And then finally, one quick one on the asset management. Just wondering if you could clarify the outlook for the cost-income ratio. And you talked about the strengthening of the operating machine but I'm not quite clear whether that's sort of one-off or whether that's a sort of ongoing investment we should expect? Thanks very much.
Thank you very much, Peter. Only three questions, Cristiano for you.
Yes. Thank you, Peter also for the acknowledging the flexibility and not overcrowding a single day. So, on the nonlife investment income, the sustainability is pretty much there because the improvement observed in the first half 2023 versus 2022, of €164 million could be split in three important drivers on top of the average also increase of the investment rate. You need to be aware that, we enlarged our perimeter through the embedding of the recent acquisitions, which means something in the order of €60 million positive effect
We had also some further dividends from private equity for the order of €53 million, and were clearly the improvement, also coming from our South America, Argentina which is related to inflation. On top of that, which is explaining I would say, 80% of this delta. Also the rest our 20% is more recurring as well in the nature. So all of these, could be explain because we enlarge the perimeter we had some productivity, which is really volatile seasonality, but has some capability to be repeated going forward. And as well there is a normal behavior in Argentina. This is the combination of the effect higher volumes, higher rate of reinvestment perimeter. On the discount…
Could I very quickly, -- sorry. That's very helpful. I missed the private equity dividends, the number. I don't know, if you're able to repeat that.
Yes. €60 million perimeter and larger €53 million from a private equity dividend and €24 million from Argentina, are explaining almost already 80% of the movement. The rest is normal as well increasing also due to the reinvestment rate at higher rate of the existing book as well the enlargement. This is why, we're doing this as recurrent, okay? I hope, this clarifies.
It does. Thank you very much.
Okay, discounting. So first of all, you have seen that we raised a little bit the guidance from the previous one €650 million €700 million to €750 million to €800 million. This is the joint effect of two things, slightly higher effect of interest rates and slightly higher volumes, which put together translating in euro terms means something else. It is very important to remember, that when we speak about discounting, there is also a discounting of the prior year. So, if I just spit out the prior year discounting, which is a more erratic in nature because it's depending on what is happening on the release and the effect on the best estimate, the current year only was discounting €250 million in the first quarter, €509 million in the first half.
And this, let's say, similar effect slide here is explained by higher rates and higher volumes. This is consistent to the projection. So, it's almost linear because of this effect and not because it is not linear. There is nonlinearity, but this effect has been polluting this nonlinearity brings it to looks like similarly linear.
On the asset management side, yes, the cost-to-income ratio is higher for two reasons. First of all, last year we had a higher amount of performance fees, which were not repeated this year because we had €34 million higher performance compared to this year. We have some IT investments. I would like to give you a couple of examples. We are investing in the evolution for anti-money laundering reason of our [indiscernible].
We are investing in all the upgrades of the information on the ESG feature, which is extremely important also for the future compliance reporting towards the European directives as well as the importance for us to better select the investments, we are making according to our sustainability strategy. And this means that the decrease of asset management revenues, is bringing the joint effect. Going forward in the second half of the 2023, the guidance is for tighter control in the business suite on the expenses especially, on the IT and the consulting one, which will bring a better development provided that we are able to revamp the revenues. I hope, this clarifies.
Yes. Thanks very much.
Thank you, Peter. Next question, please?
The next question is from Farooq Hanif from JPMorgan. Please go ahead.
Hi, everybody. Thank you very much. I just want to go back to your 95% undiscounted guidance. You said, a metric that there was some deterioration in loss ratio in 2Q, even if you allow from man-made losses. So, is the implication here that you will have slightly higher loss ratio, but offset by reserve releases? And then can you comment on the COVID-19 reinsurance coverage, and was there any other potential COVID related reserve leases that we can look forward to in the next period? Secondly, going back to your comments about tariff increases accelerating. I mean, are you implying here that we could see higher than the growth rate that we saw in 1H in the second half or at least the same in premiums?
And my last question is, you talked about the kind of discounting effect but you also have the unwind. I know you provided a slide on it and I don't want to go through that now because it's a bit complicated, but if we look at the net of investment income and the IFE the insurance finance expenses should we expect that this is going to be quite stable net margin going forward, or will the way the curve is working meaning that there might be a squeeze in the next few years between investment income and IFE? Thank you very much.
Thank you very much, Farooq. I will take the first question and the last question are for you. While the second one with the tariff increases and the impact on premiums are both for you and for Marco. So if you would like to start the first question.
Yes. Good morning, Farooq. So going back to understand the combined ratio guidance 95%. Clearly, when you say a number we are not talking about the perfect banking line very single digit after the coma. But for sure, this is the range which we are keeping and confirming the direction also, because of the uncertainty in natural catastrophe. In general, the deterioration of the second quarter is as we explained driven by this higher amount of -- versus the average of man-made.
Going forward, we have to remember that the third quarter is the most intense as usual and it is confirmed from the evidence on the natural capacity but we need also to recall that in the second part of the year, there is a progressive unfolding of the tariff strengthening measure and the pruning that we are doing and there are some portfolios as well which are accounted as a loss component, which will reverse back in the second part of the year, which is again a little bit more conducive.
Regarding the COVID-19 reserve release in the outlook that was a kind of a conservative approach towards this which are for the positive and as you know it is something which is not something we can reproduce.
On the contrary, the guidance we gave over the cycle on the two percentage points of is still confirm where basically evenly splitted between the risk adjustment release and the best estimate prudency we are putting, especially allow me to say in very good years which prudency should be higher like these ones. Then I hand over to Marco on the tariff increase. And then I will answer the third one.
Hi. Yes. So let me probably give you a broader answer. So when we think about the increase in tariff the way we think about is really protecting the profitability of the business. So when you have installation going on 3%, 5%, 6% or even 20% as we have in Hungary, what we really think is not a one-off measure, but an ongoing exercise that we keep on doing on at the portfolio level, where we see the need of updating our premium to keep them in line with our risk premium, so to keeping them in line with frequency and change inflation. We have seen as we have commented multiple times we have seen claims inflation, especially, let me iterate on a material damage.
So we -- the real part of inflation is on material damage. And we think this is going to be present also in the next year. So we would not stop price increasing or price increase overall this year. But for us, it's an ongoing exercise that we will keep on doing to maintain profitability of our portfolio.
Going back to what we expect. We clearly expect, these tariff increase especially for motor where there is a time line in seeing the result of our price increase, moving up in the second part of the year. But again, I think it's important to remind that this is -- now we see 3.2% across year. We were seeing 2% in the first Q. We were seeing 0.9% at the end of 2022. So, we will see the tariff increase going to the level of inflation multiplied by frequency that we think is the right level to offset the overall movement in our claims.
So, this is how we think about this. And it's important to see that also we think that inflation is not going to disappear in 2024. So, you're going to see price increase constantly over time in the next months, because that's the way we think about maintaining the profitability of our business. Back to you, Cristiano.
Thank you, Marco. Farooq, on the unwinding clearly yes, it is complicated but the key message is this. There is a different speed between the discounting impact and the unwinding impact and we have shown it I think also in the back half slide. You have seen the full impact of seeing our locked-in rate unfolding up, I don't know, as unwind is much lower than what you see as an effect when you look on the discounting. You have seen that you need basically six years to get 80% of the impact but you can find on a single generation from the implied discounted rate curve, which is explained I think in our presentation properly, which means that yes, you have a deteriorating effect.
This effect is in any case counter balance by the asset allocation. On the asset allocation, we have higher amount of growth and as well at rich premium which you think you can earn over the long-term above the risk rate because for sure to close this gap including everything in government bonds. But since we are not investing everything in government bonds because we want to earn over the cycle a higher premium because we have capital to be allocated to take this risk and remunerate higher. We think that the effect could be, depending on the different timely recognition of this excess premium in periods.
I take an example real estate. Real estate we are not serving an increase of the rents but in Life and in P&C because of higher quality of our prime location of real estate, which clearly started with a little bit of lag compared to the speed of the increased rate, which is unfolding. On private equity, for example, where we also had and we'll see dividends it is depending on interest rates when the interest rates are so high like we -- usually the exit from the private equity funds delays and wait for a stabilization of rate.
So, over the cycle this is not squeezing. On the quarter period, yes, we could expect this to further be enhanced compared to the dynamics. But over the cycle, this is going - it is a pure effect. Don't forget that we also have private debt, which is a floating plus spread, which is compensating also partially this. So it is really an asset allocation decision the speed of closing this gap versus the business growth. I hope this gives the combination of this interaction.
Thank you very much. Thank you.
Next question please?
The next question is from Michael Huttner from Berenberg. Please go ahead.
Thank you very much. And I'd like to address these questions to Philippe, because it's lovely to listen to the boss, I must say, but I don't know if it stands true of course and it's an honor to hear him. So I hope these are addressable to the boss. So the first one is on dividend growth. The second would be on deals and how happy you are with them? And on the third is on the remaining €500 million and whether you kind of think I could buy something with this or not actually, I'll give it to shareholders.
So, on the dividend, so we've had these extraordinary net income and EPS growth numbers. I mean some 28%, some 60%, some 65%, which is huge and of course, it's half year but it does give a yield for the full year as well. And I just wonder if that means that your ambition or flexibility or how you call it for dividends which at the moment is constrained by your plans €5.4 billion to €5.6 billion where there might be a little bit of room for maneuver that.
The second is on the deals you've done how happy you are with them. The reason I ask is for analyst these deals are really complicated, we touched every single number and we kind of get a little bit lost in the detail. And I just wondered how would you you're sitting and you've got all this stuff you have a fairly good view of what's happening whether you're done with the deals how much more there is yet to come in the next business plan. Just a feel for where we are on track and then the final little question is €500 million. Thank you.
Thank you. Thank you, Michael. So on the dividend, I can confirm that we will be growing dividends in the next few years consistently with what we have announced when we presented our plan Lifetime Partner 24. So this is the basic commitment dividends will be growing. We gave a range on the amount of dividend that should be paid during the course of the plan. Of course, if we can do more we will be happy to do more, but I will let our CFO comment on this. Yes, maybe Cristiano, you should remind that our dividend policy for this plan?
Yes Philippe. I remind that the €5.2 billion to €5.6 billion are well on track and we are on the mid-high range and there is a ratchet policy. So, as Michael you will know we will never get to a proposal lower than the previous year, which is also pulling up after the 2023 paid dividend on the 2022 result. So, for sure this is a point of focus together with the improved remittance in cash flow generation capacity I was commenting before.
On M&A Michael, of course, I'm very happy with the GLC we made not only the last one, which I will comment but all of them Cattolica, for example was also a great deal both from strategic and financial standpoint.
I mean we are making -- we've been very selective in the past few years in making acquisitions. We've been always very consistent with the strategic and financial framework we disclosed. As you know we don't do an acquisition if there is no strategic and cultural fit. And if it doesn't fit with our financial discipline, we will proceed to give up and we've been giving up many opportunities. So, we've been very selective, very consistent with our strategy and we are very happy with all our acquisitions.
The leadership figure also is very important to increase our Property & Casualty business, to improve significantly our footprint in Spain, which is a very good market and we needed to upscale our business in Spain. This was very important.
On top of this we are also increasing slightly, but still significantly our business in Portugal and we are entering in the Irish market, which is very different from the UK market, which is a good market for us. And we also have an opportunity with this transaction. We have still our direct business which is as you know also part of our strategy.
So, it's definitely a good opportunity for us. It's also a great opportunity for us to further strengthen our leadership in the European market, which is important -- very important to us.
As you know one of the key of the success of this transaction obviously also the quality and the speed of our integration. But as you know we have already shown that we are very good at integrating the companies we are acquiring and good at extracting all the synergies. So, we will do it once again with Liberty Seguros.
We are also happy because it is important for our M&A team. It's been not only for M&A team, but for the whole management team and for the Board of Directors, it is also important to show that we are able to make a good deal, a good transaction even in a very competitive process because the process for Liberty Seguros was quite competitive.
The deal -- coming deal is completely different. It was born as a competitive process that very soon we entered in a bilateral discussion. As you know it's no cash deal. We have a very good partner in Taiwan with another life insurance company and they're in the six-point-something percent of the total combined asset management company.
It's a no-cash deal. We will be paying this acquisition with paper not with Assicurazioni Generali paper, but with Generali Investment paper. And thanks to this deal we are not only upscaling our LDI business, we are a strong player in the LDI business in Europe. We are now becoming a strong player in the LDI business also in the US. And we are also acquiring affiliates like Octagon which brings us more capabilities on a very interesting asset classes.
So, this is a great opportunity for us to continue building our global asset management platform acquiring both third-party clients, distribution capabilities, and asset managing capabilities as well. So, I confirm that we are very happy with those deals. And we would not have done this deal if we are not very happy with them.
The third question…
€100 million…
Yes, yes. Okay. So we've been using €2.3 billion for Liberty Seguros. We've been using also €500 million for the closing of the Cattolica deal and to also acquire the control of both Indian joint ventures. So we've been using a significant amount compared to what was available for M&A. As you know we also have an excess capital of €300 million in Liberty Seguros something like €300 million left for acquisitions. So we have as you said a €500 million buffer.
I don't know if we will be able to give this for other acquisitions. As you know it takes a lot of time to make a good acquisition. These deals very good deals needed a very long time to become mature. So I don't think what we -- how we are going to use this capital by the end of the plan.
The end of the plan is closed and we as I said we are more than half way of the plan. The maturation of deal is quite long. And we stick to our commitment to return the unused capitals to shareholders at the end of the plan. So please leave us this flexibility until the end of the plan. As you know we will not go for silly acquisition. We will go for acquisition only if they create value for all shareholders. But we definitely have in mind that share buybacks is not part of our capital management policy.
Perfect. Thank you so much. Thank you.
Thank you, Michael.
The next question is from William Hawkins from KBW. Please go ahead.
Hello. Thank you very much. Cristiano, you've got your breath back I hope because I'm back on to you I'm afraid. Coming back to the combined ratio I would just like to touch on that again. I think you've confirmed that it's the undiscounted headline combined ratio, which you're primarily managing towards and we've just had 95% for that.
How do you think that figure is trending into 2024 and 2025? To me there's big moving parts in different directions. You've got inflation that's negative, pricing that's positive, business mix which I think is probably positive. And then you've got massive investment income which may mean you don't need to make the same combined ratio that you would have done in the past to hit the combined ROE targets.
So how are we thinking about the direction for that 95% over time? Is it going down or going up? Related to that if I may are you guys moving into a world where there is a connection between the impact of discounting and how you're setting the undiscounted combined ratio? Because you're talking like it's not, which personally I like. But there are quite a few companies that are now saying look we're getting such a benefit from the discounting that we might as well use that as an opportunity to make more conservative undiscounted loss picks. I don't know if actually training your thought process?
And then lastly on the combined ratio if I may sorry. But you made reference on this call so it kind of being obvious that Nat Cats are seasonal in the third quarter. Maybe I misunderstood but to me that's not obvious. If you're an American business the hurricane season comes in the third quarter. But if you're a European business it's normally November, December, January, February when we get the bad weather and the Nat Cat season. So maybe I misunderstood if you could talk about that?
Then secondly, can you just confirm what were the total dividends in the first half or the second quarter for the non-life business. You kind of gave us a private equity figure, but I'd like to know the total dividends just so I can figure out how much of that €788 million is recurring in the second half?
And then lastly please you may have indirectly touched on it, but I got confused. In the Life result you've got in the profit €138 million of negative experience variances. I'm not really sure what those were or how they broke down because when you look in your financial supplement that figure actually included a positive from Italy and then a negative from a couple of other markets.
So I'm confused about what those experience arises were in the first half? And I don't know if in the future I just plug in a zero because experiences should gravitate around zero or if we're discovering that they should be structurally negative or maybe positive? Thank you.
Thank you very much, William. There are several questions here more than three but I would say that the combined ratio guidance is for Cristiano together with the second again discounting call, as let's say, a target of the business. And on the third quarter nat cat, Marco could comment and the dividend contribution to the P&C investment result is for Cristiano together with the last question on the negative experience value on Life.
William, so clearly, I confirm why we are managing the discounted combined ratio so far, because it is a process of managing in the end the final cash flow that can be paid out to the group head office remittances in the results. So far very few geographies are adopting this principle as local gap, local gap principle are not taking the undiscounted sales -- sorry, the discounted combined ratio as a result.
So, one driver of future potential changes when this could happen is in the logic of when everybody will adopt locally. And you know that there are some big geographies that will never happen. Some will progressively get it, but it is important and I'm linking also to the question going forward in general on how to look at the other approaches giving more the discounted result.
We would like to avoid the discount combined ratio of the target, because when positive effect comes in the interest rate, there are two ways to stay within this number; one, is being prudent; and the second one is allowing the business to deteriorate the underlying technical profitability, which is something we do not want to do and we do not want to move into cash flow underwriting, which is the potential risk if you manage the discounted element.
The undiscounted is protecting you in the real underlying technical signs and the capacity of managing this, because also from the point of view of the business, it is a little bit much more complex to manage pricing of products at the same speed of the movement of the market interest rate, as you can imagine also for steering the full business, which is more technically aligned to that.
Going forward 2024, 2025, is it 95% the magical number? So, we do think that we are obtaining the mix. We are for sure we are improving more and more the weight of non-motor due to the growth of non-motor and which is getting to more healthier loss ratio for sure after the expenses of higher expenses allow me the joke.
So this is getting to more, let's say, sound behavior around this. In order also to add 2024, 2025 unfolding fully the benefit of the motor tariff and the motor pruning done, it looks like to be pretty much a good direction of travel to be confirmed and confirmed. We go on the third part on Marco on the natural catastrophe, I ask him to comment.
Yes, Cristiano. Maybe I can add also one comment on the number two, because I think you said that what we are willing to do. And I reiterate the fact that technically, it's very difficult to move pricing claims all these industrial lever according to what is the way interest rate externally. So, it's in the way -- the more we are prudent on the other underwriting side, the better we see protected against the different context of the market. So, I would say clearly, we would like -- as I always reiterate to have a sound and prudent underwriting policy in terms of combined ratio.
So, coming to your question on the nat cat. So I would say, so when we talk about forecasting nat cat is always a difficult topic, right. But if I look at our experience in the past years, our experience is showing a concentration of Nat Cat in Q2 and Q3 with normally Q4 there is more better than -- it's more benign than the other quarter. So that's the type of experience we have that it's not prediction, but that's type -- that's the experience that we have in the past in several years.
We are not exposing the Northern Europe countries. So the Q1 euro storm probably worries us less than other player. While what happened in July for example in Italy, Greece in other Eastern European countries something that we will experience going forward, and you will see in the numbers in the second half. Cristiano, back to you I think for the fourth quarter, right.
Yes, the fourth question -- the second question, the dividends of P&C. In isolation, collective dividend in the second quarter of €99 million, while overall on half year 2023 the full six months is €125 million. So, just to clarify these numbers on the equity and equity-like increment.
So what are the negative variances in the Life component, we were saying it is exactly related to the experience of the change we had on the one-off effect we were commenting on the Generali employee benefit business where the accepted reinsurance has been modeled once and forever in a new way in order to capture the full effect which is affecting one-off €160 million. If you take this out overall and then there are -- these are number growth then there are some reinsurance intermediate part, so this part is gross and then there is a net effect in the €60 million I was commenting to you is just to let you appraise the fact that taking out this one-off effect which is not going to be repeated anymore. The Life is as we said more predictable and unfolding exactly with the sensitivities which we are showing.
Fantastic and helpful. Thank you.
Thanks to you, William.
We apologies, that due to the lack of time, the next question will be the last question. The next question is from Iain Pearce from Exane BNP Paribas. Please go ahead.
Hi. Thanks for taking my question. Hopefully a few quick ones. The first one was just at the start of the call, you mentioned you were making some changes and taking some action on products to help insulate you from lapse risk and you think that'll be beneficial in the second half. I was just hoping you could provide a bit more detail on what you're actually doing now, particularly on the product side to sort of help on lapse risk? And if that's baked into your assumptions around the CSM move that you saw from the non-economic variances?
And the second one was just on the cost ratio in P&C, obviously picking up, it sounds like a mix effect. Do you expect that to continue going forward? And do you expect that to be more than offset by the improvement in the loss ratio going forward? Thank you.
So thank you very much. Iain, I think the first question is for Marco and maybe Cristiano if you want to add a color regarding the indication for the CFM while the customer expense ratio trends in P&C are for you Cristiano.
Yeah. So I can add a couple of points to what I said before. So we expect benefit from the product that we are launching. And I would divide as I said into conception to different type of actions. So one, we have some action on the retention side. So when we have to limit lapses, when we have to retain customers, so we can put in place some action like for example giving a little bit more benefit on the yield of the saves that fund to the customer and making sure they can have an option to stay in with us. And there are a set of actions that we can put on the table to retain customers including making a switch on for example other segregated fund which can provide a little bit better yield.
In terms of new business, we are updating all of our offerings. So I typically mention one product that has been launched in June, so it probably with a couple of -- with two segregated funds. One is larger stable with lower yields. The other one is a more secreted fund in terms of size, but it can provide you a little bit better yield. So overall, we are making our product more competitive in this environment, trying to capture more volumes that are in the market at the moment.
Clearly, this depends from the different geographies. It's very important on the different geographies, as we typically state the type of distribution that we have, the type of segment in the market that we have and the type -- typically the mass market it's something where you can have a better value proposition while the high network is more looking for yield. So that's kind of different. And the third element that we typically mention is really the type of product that we can put on the -- in the market bundle with the insurance value proposition that is very important in our value proposition.
So this is one element. The other element clearly in the external context. So if you look at the spread between our segregated fund for example or the goal is five years or 10 years of the specific markets where we operate. That difference is going to give you some change in the last experience that we have. Of course, Germany is different and France is different and Italy. So that is overall what we expect. So we expect some material benefits from this type of action in the second half already. If we look at -- as I said if I look at July that is better than probably one of the best month in the year in terms of net inflow. So we do expect benefits from this.
Yes. Thank you, Marco. I mean completely what even better is clearly, there are for example a retention campaign which are embedded in the CSM and some commercial actions. In general, apart from these cases, there are no direct link between the future business. I'm not speaking on the existing one, but the new business in the assumptions, included in the financial relates only to the book, which is enforced. Clearly, those actions might affect in the future quite lower margins as we were saying, has been embedded.
Then it is a matter also of data and also common sense in understanding, what we were saying before. Clearly, the most sensitive animals exited from the fence, when the door was open and now you are left with different dynamic. It's like having two different temperature of your gas, in the room. So, you need to take into account, what you have now in the book. I think this is the way it is embedded.
To conclude on the cost expense ratio and P&C. Clearly, we have a change of a threefold effect in 2023, which is more visible. We had M&A and embedding on the acquired entities, which for example for India, when we did the step-up consolidating this in India is a market where commissions are pretty high. As well, we developed faster in the second half of 2022 and now it's fully visible in 2023, the travel business of Europ Assistance, which as well has a very high acquisition cost with a healthy as a component on the ratio.
In Italy, there are campaigns which are shifting more towards the non-motor and within the motor a huge push towards the motor other damages, which is a healthy more valuable path that you can see it also in a competitive market like Italy. So all the trends, put together say that basically are bringing to a different balance and also thanks to the higher overall growth of non-motor, there is a rebalancing in the mix between acquisition costs and loss ratio, which is in any case is being considered as well on the positive side that has a reduction, higher emission costs but also administrative expenses are expecting to be managing manage down especially, also when we complete fully the integration of Cattolica, with the full synergies that we see more on the P&C book of it. So, I'll stop here and hand it over.
Yes. Before we close the call, the group CEO, would like to make some opening remarks -- closing remark.
Yes. Thank you, Fabio. Well, first of all, I would like to please thank all of you, for attending this call on 9th of August. I would like to give you a few messages. Definitely these are very good and very strong results, both in terms of capital position, profitability and growth of the business. And definitely, the last two acquisitions, we will further strengthen our group.
I think it's very important that we are able to achieve some good results, despite a very challenging and changing environment and we were able to do so because of the quality and the experience of the management team, which was very much focused on implementing our strategy.
As you can see, our strategy is working very well at any kind of environment. So, not only able once again, to confirm that we will be able to achieve all the financial targets of our plan Lifetime Partner 24 Driving Growth. But I think that beyond this, we can be very positive on -- confident the next strategic cycle, because this success and the success of the implementation of this plan, we made possible a new ambitious plan. So, we are not only delivering good results, but we are also preparing a bright and exciting future for Generali. So, thank you, once again for being with us today. Bye-bye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.