Business Plan. Milan, 23 June 2011

Transcription

1 Business Plan Milan, 23 June 2011

2 Agenda Results achieved in the period Our views of the insurance market Objectives Strategy 1

3 Cattolica Group in 2010 Premiums: 4.8 billion euros Earnings: 70 million euros Reserves: 15.4 billion euros Shareholders Equity: 1.4 billion euros Dividend Yield: 4.7 % Company 115 years old Agencies: Bank branches: Welfare and pension products advisors: 420 Shareholders: Staff: Trustees: Advisors: Agency staff: More than families 2

4 The growth process of Cattolica Group Profitability crisis Strategic uncertainty Business turnaround Consolidation of strategic partnerships Strengthening and upgrading of the organization Sustainable profit growth Capital strength 3

5 During the worst crisis in recent history, we improved technical management and strengthened distribution capability Plan Non-Life technical management improvement Distribution capacity strengthening Results achieved in the period 2010 Combined Ratio at 97.7% vs. a market average of 103.2% 1 ; ~8 percentage point reduction of the Combined Ratio over 3 years vs. a 7 percentage point worsening of the market Premium growth higher than the market average Adequate reserve ratio maintained with a reserved Motor TPL claims reduction in 2010: 34% on 2007 claims, 23% on 2008 claims and 16% on 2009 claims (with a substantially unchanged portfolio) Bancassurance Improved competitive positioning and business mix in 2010 through the renewal of the agreements with UBI, BPVi, Cassa di Risparmio San Miniato and Banca di Credito Popolare di Torre del Greco Added potential access to a high number of bank branches through the new partnership with ICCREA Proprietary/nonexclusive networks Agency network: first phase of reorganization and increase of average agency size completed 150 new agencies (~70 exclusive and ~80 nonexclusive) Launch of a proprietary network specialized in pension products has been started (420 advisors) Refocused TUA on the nonexclusive business segment 1 Estimate based on the analysis of data published by insurance companies listed in Italy 4

6 ... while simplifying our corporate structure and strengthening our capital Plan Results achieved in the period Operating and corporate structure rationalization 70% of the management team renewed (90% of the top management) Corporate simplification through the reduction of 12 companies (6 of which in ) New IT systems to reduce IT costs over the plan period Started the realization of Group Life and non-life product factories Reduction of total administrative expenses by 17% (non-life G&A reduced by ~20%) Development of staff resources through training, requalification and the new 6-year supplementary contract Capital and governance system strength "A" rating and outlook improvement Solvency I ratio at 146%, among the highest in the Italian market Investment management performance in line with best competitors A company with diffuse shareholdership and deep roots in local communities Cattolica Group went through the worst financial crisis of the last 70 years achieving better return on invested capital than competitors 5

7 In 3 years we reduced our Combined Ratio by over 8 percentage points, while market average increased by 7 points Percent Cattolica Group Combined Ratio evolution Market average 1 Combined Ratio evolution pp pp Loss ratio evolution Loss ratio evolution pp pp data: Infobila, Italian insurance direct market data: estimate based on the analysis of data published by insurance companies listed in Italy Source: ANIA, financial statements of listed companies 6

8 In Life, we renewed the agreements with UBI, BPVi, Cassa di Risparmio San Miniato, Banca di Credito Popolare di Torre del Greco and signed a new strategic partnership with the BCCs Number of branches 1 Key elements of the agreement year agreement based on shared targets on new business value and stability of reserves Renewal of existing agreements year agreement based on shared targets on Life new business value and non-life technical performance year agreement based on shared targets on Life new business value New strategic partnership year agreement based on contractualized targets on Life new business value Distribution agreement both for Life and non-life 1 Number of branches with which an agreement was in place at 31 March Ex Lombarda network 7

9 We have started a process to strengthen our agencies by increasing their average size and professional capabilities 2010, million euros, number of agencies Evolution of Cattolica's exclusive agency network 1.3 1,085 Average portfolio: +25% Agency consolidation New agencies

10 2010, percent Our motor TPL portfolio is concentrated in areas with lower claims frequency Portfolio breakdown by size of the town where the agency is based Number of Group Motor TPL policies Group claims frequency < residents > residents 50% 5% 20% 7% 8% Market average 1 20% 6% 10% 10% 11% Market average 1 1 ANIA: Motor TPL frequency per district, Q Source: ANIA 9

11 We simplified our corporate structure corporate structure evolution Cattolica Non-life companies TUA ABC Lombarda Assicurazioni Duomo Life companies Cattolica Previdenza Lombarda Vita Risparmio & Previdenza San Miniato Previdenza Non-insurance companies Cattolica Services Cattolica Immobiliare DICA Cattolica Investim. SIM Merger of Uni One Assicurazioni into Duomo Assicurazioni Merger of Eurosav into Risparmio & Previdenza Merger of Duomo Previdenza into Cattolica Merger of Personal Life into Cattolica Sale of the equity investment in Nuova San Zeno Immobiliare Uni One CIRA BCC Assicurazioni Persona Life Duomo Previdenza Eurosav BPV Vita BCC Vita Berica Vita Nuova San Zeno Immobil. Verona SGR Business School Demerger of Duomo Uni One to Cattolica Merger of DICA into CITS Disposal of Cattolica Investimenti SIM Voluntary wind-up of Lombarda Assicurazioni Merger of Verona SGR into BPVi Group New companies in partnership with BCC, UBI Banca and BPVi Launch of the Cattolica Group Business School Cattolica Life 10

12 We upgraded our IT systems investing in state-of-the-art online systems in all business areas enterprise wide Baseline situation IT system frozen in the past : Mainframe-based applications portfolio Separation between Agency and Company IT systems Data misalignments between center and periphery Complex, closed and inflexible architecture Completed actions Online systems with nextgeneration languages capable of multi-channel operation New online Motor system New system for claims New accounting system New investment management system Upgrade of agency IT systems Multi-company online integrated platform 11

13 Agenda Results achieved in the period Our views of the insurance market Objectives Strategy 12

14 The economic environment is characterized by strong uncertainties: the plan is based on a prudential, slow recovery scenario Key elements of uncertainty Evolution of macroeconomic trends Sovereign debt crisis (Greece, Ireland, Portugal, Spain) Uncertainties in monetary policies and in interest rate trends Potential inflation risk Instability of exchange rates Restrictions in public expenditure and pressure on banks and insurance companies Changes in taxation Plan assumptions The management has adopted prudent economic scenario assumptions based on a slow recovery Real GDP: low annual growth (1.0% 1.5%) Interest rate: moderate rate increase Inflation: contained within 2.0% per annum planning specific management actions that will be undertaken in case different scenarios should occur 13

15 Our views of the insurance market during the next three years Life profitability influenced by interest rate dynamics and Solvency II impact Improvement of the Motor cycle and opportunities for growth in non-motor P&C lines (particularly in the SME segment) Competitive pressure on cost structure 4 Centricity of distribution: Non-Life: agency channel still strong, although new distribution channels are growing (banks, post offices, web) Life: predominance of the banking channel, stable volumes in agency networks and increased focus on Welfare and pensions General insurance industry need to invest in human resources to rebuild technical knowledge, after years of skill impoverishment Growing role of regulations, particularly with Solvency II Renewed interest of investors in local champions with distinctive technical performance and low volatility of results 14

16 Motor TPL market should recover profitability after severe losses in the last few years Key drivers Average premium Technical premium Average cost of claims Frequency Number of policies Trend Rationale Companies focusing on profitability recovery/risk selection Growth of average premium Growth of cost of injury claims as a result of evolution of Court decisions Cost of material damage claims growing with inflation, after previous strong increases Decrease of average number of claims due to greater attention to road safety and potential reduction of car utilization Stable for Motor TPL: no significant changes expected in number of vehicles Potential reduction in Motor additional coverages due to increased TPL premium and ageing of vehicles 15

17 Non-Motor market profitability is expected to remain stable while volumes are growing Key drivers Trend Rationale Average premium Inertial: in line with inflation Technical premium Average cost of claims Frequency Number of policies Inertial: in line with inflation Inertial: number of claims stable, with differences across customer segments/types of coverages Greater penetration in the retail and SME segments Uncertainties related to the macroeconomic scenario for the corporate segment 16

18 There are growth opportunities in the non-motor business, particularly in the SME segment 2008 In Italy, Small and Medium Enterprises are an attractive target market SMEs are underinsured in the non-motor business In Italy, penetration is significantly lower than in other European countries At least 50% of SMEs is underinsured SMEs Type of company 100% = Large: (>250 empl.) Medium ( empl.) Small (10-49 empl.) G.D.P. billions, % Number of companies Thousands, % Large: 0.1% Medium: 0.5% Small: 4.8% Micro and individual Micro and individual (0-9 empl.)

19 In non-life, agents will continue playing a central role in a context of increasing channel diversification Percent Breakdown by non-life channels CAGR Agents % Brokers Direct Banks and post offices % 10% 15% E 2012E 2013E Source: ANIA 18

20 The Cattolica Group view on Solvency II Key elements of current risk management practices Consistent risk management strategy, operationally linked to business strategy Solvency II provides an opportunity to improve Company capabilities and performance if managed with an approach that is substantial and businessoriented, and not just based on ex-post checks Widespread risk culture in all business functions and presence of the Risk Management function in operational and strategic areas Empowerment and responsibility of technical staff in monitoring and managing risks (e.g. underwriters, claims managers, analysts) 19

21 Cattolica's plan is actively managed with a forward looking scenario planning Active management of the reference scenarios Inertial Starting position state Strategic levers Active management Plan aspiration Initial planning performed on a base case scenario Identification of trigger points on plan variables that could affect the achievement of key results Predefinition of management actions to be undertaken if the trigger points are reached, to maintain course towards the plan aspiration anticipates and implements the forwardlooking approach required by Solvency II Solvency II (ORSA second pillar) requires forward-looking management of risks and of the corresponding solvency requirements The plan's trigger points are based on the target risk profile and on business variables that could affect the achievement of key economic results, specifically: Interest rates Inflation Non-Life technical cycle Distribution channel mix 20

22 Agenda Results achieved in the period Our views of the insurance market Objectives Strategy 21

23 The Group aims at reaching ambitious goals in terms of profitability Million euros Consolidated net earnings Non-Life Life Group net profit Group ROE ROTE 3 16 (25 2 ) % 9% 8% 12% x 2 CoR 4 NBV 97,7% <95% Before minorities, includes extraordinary expenses, includes 2 million euros of net earnings reallocated from non-insurance companies to non-life and 1 million to Life 2 Gross of non-recurring extraordinary expenses of ~9 million euros (Lehman and Iceland-related policies) 3 Group net earnings over shareholders equity excluding goodwill and other intangible assets 4 Net of reinsurance 22

24 and growth, preserving its capital strength Non-Life premiums Million euros Life reserves Million euros +4% p.a. Growth +4% p.a. 12,100 13,800 1,594 1, Capital strength Solvency Ratio 1, percent Rating Dividends per share, euros Standard & Poor s Target Rating: A Maintenance of an attractive payout policy (>60%) 0,9 1 Before dividend distribution Solvency I 2010 Solvency II

25 Agenda Results achieved in the period Our views of the insurance market Objectives Strategy 24

26 The growth process of Cattolica Group Profitability crisis Strategic uncertainty Business turnaround Consolidation of strategic partnerships Strengthening and upgrading of the organization Sustainable profit growth Capital strength 25

27 Key distinctive factors of the Group Company operating with a cooperative business model and strong territorial footprint, which provides stability and autonomy, characterized by a large shareholder base and a strong business, social and institutional network Agent network strongly aligned with Group strategies, very loyal to the Company and operating in the most attracting Italian regions Rock-solid banking partnerships to increase distribution of policies through bancassurance channel Excellent technical skills and ability to succesfully complete turnarounds Modern, efficient and dynamic operating and corporate structure High focus on enhancing and developing skills of human resources 26

28 Cattolica Group strategy for the next 3 years 1 Improve Life profitability 2 Strengthen non-life technical excellence and profitability 3 Enhance distribution 4 Optimize business decisions in a Solvency II perspective 5 Reduce structural costs 6 Enhance technical and professional skills 7 Improve market communication 27

29 1 Improve Life profitability Million euros Financial targets Key initiatives Net Profit Increase of strategic bank partnership profitability: Renewed distribution agreements with mutual commitments on new business value targets Product line review with a Solvency II perspective, focusing on Life linked and maturity guarantee contracts Reserves 12,100 1,700 13,800 Development and distribution through proprietary networks of a Life product line with a strong focus on insurance and retirement benefits NBV Plan impact Progressive portfolio replacement / turnover in favor of higher profitability products Optimization of the operating model and cost reduction: Product factory consolidation at Group level Integrated platform Rationalization of the product offering 1 Non-recurrent extraordinary expenses of ~9 million euros (Lehman and Iceland-related policies) 2 Includes reallocation of 1 million euros of net profit from non-insurance companies 28

30 1 Life net earnings evolution during the next three years Million euros Life net earnings evolution in the period Net profit 2010 Substitution of lower margin reserves Net growth of reserves Reduction of expenses Net profit Gross of non-recurrent extraordinary expenses (Lehman and Iceland-related policies) of ~9 million euros. Includes reallocation of 1 million euros net profit from noninsurance companies to Life 29

31 1 Substitution of lower margin reserves with new business Million euros, percent Evolution of reserves over the period x x Reserves with adequate profitability Reserves with low profitability Average company margin Reserves with current profitability greater than 0.55% (mainly business from past 3 years and new business) 39% 64% 85% 91% 80 bps Low profitability (<0.55%) reserves, in run-off 61% 36% 15% 9% 20 bps

32 1 Innovation of the product line with a Solvency II perspective banking partnerships Longer product maturities Long-term investment product Maturity guarantee product Current product range Unit-linked Multi-line product Cattolica Life products Min. guarantee reduction to 1.5% Index-linked Lower capital absorption Long-term investment product: traditional Life insurance product with 7, 9, and 12 year maturities and no redemption penalties for retirement planning reasons, with revaluation only at maturity Multi-line product: including both traditional and linked components Cattolica Life products: unitlinked products issued by the Irish subsidiary Cattolica Life Unit-linked product: retail version of the current Private segment product Index-linked product: compliant with capital absorption rules under new national regulations (ISVAP reg.32) 31

33 Cattolica Group strategy for the next 3 years 1 Improve Life profitability 2 Strengthen non-life technical excellence and profitability 3 Enhance distribution 4 Optimize business decisions in a Solvency II perspective 5 Reduce structural costs 6 Enhance technical and professional skills 7 Improve market communication 32

34 2 Strengthen non-life technical excellence and profitability Financial targets Net profit, euro millions Combined ratio, percent <95 ~25 ~70 Key initiatives Strengthening technical excellence Improvement of claims management Continuous pricing innovation Final phase of the reengineering of the underwriting process Premiums 2, euro millions Non-Motor +4% 1, , ,000 Motor Growth Development of the SME opportunity Strengthening/enhancement of the agency network Enhancement of the service component and of the focus on the customer 2010 Plan impact Includes 2 million euros of net profit reallocated from non-insurance companies 2 Gross written premiums 33

35 2 Non-Life net earnings evolution during the next three years Million euros Non-Life net earnings evolution in the period Net earnings 2010 Increase of volumes Loss ratio reduction Expense reduction and investment management Net earnings

36 2 Claims management improvement Key initiatives Objective Contain the growth of the average claims settlement cost below the market average Further improvement of the customer service level Anti-fraud: completion of the automated suspect claims detection system Increased steering towards company repair shop network Reviewed agent grant system to incentivize quality of conduct in claims opening phases of the claims management process Increased efficiency with the adoption of the electronic filing system Strengthened internal control on the quality of the claims settlement phase of the process 35

37 2 Development of the SME opportunity SME opportunity for Cattolica Group SMEs represent an access point to a broader system of relations (entrepreneurs, employees, suppliers) Possibility of benefiting from: A widespread presence of SMEs in our target groups Deep roots in medium and smallsized towns New next-generation IT system Bank partners (BPVi, BCC) with a cooperative structure, with significant footprint in the segment Key contents of the SME project Dedicated organizational structure SME support campaign based on: Specialized dedicated technical staff Risk analysis tool for insurance check up Multichannel distribution approach Agency network enhancement: focusing agents on the management of higher valueadded accounts (non-standard products, SMEs, SOHOs artisans, retailers and farmers) Partnerships with bank networks for a coordinated, synergic sales approach Optimized use of the new IT system: possibility of managing a customized offering in an automated manner, with no increase in underwriting expenses 36

38 Cattolica Group strategy for the next 3 years 1 Improve Life profitability 2 Strengthen non-life technical excellence and profitability 3 Enhance distribution 4 Optimize business decisions in a Solvency II perspective 5 Reduce structural costs 6 Enhance technical and professional skills 7 Improve market communication 37

39 3 Enhance distribution strengthening the agency network Strategic objective Enhance the agency network in terms of Technical skills (e.g. ability to promote Life, Welfare and pension products, SME offering) Customer relation and service skills on a wider range of insurance needs Key initiatives Increase scale: average size of agency portfolio at 2 million euros in 2013 (+25% compared to 2010) Integrated sales support to facilitate a better local market knowledge Business training leveraging Cattolica Business School Product range integration through partnerships with niche players (eg. warranty, travel, arts) Technological support to increase operational efficiency and ability to interact with clients (eg. agents websites) 38

40 3 Network consolidation and average size increase Million euros, number of agencies Evolution of Cattolica's tied agency network 1.6 Average portfolio: +25% Agency consolidation New agencies

41 3 Maximize opportunities in emerging non-life distribution channels Traditional channel Initiatives planned for the Plan period Multi-channel technological platform Internet Banking partnerships Development of a webbased offer integrated with the partner home banking system Development of a service model for affinity groups 40

42 Cattolica Group strategy for the next 3 years 1 Improve Life profitability 2 Strengthen non-life technical excellence and profitability 3 Enhance distribution 4 Optimize business decisions in a Solvency II perspective 5 Reduce structural costs 6 Enhance technical and professional skills 7 Improve market communication 41

43 4 Optimizing our business decisions with a Solvency II perspective 2013 target Solvency II ratio > 130% Started capital optimization process with a Solvency II perspective: Optimization of investment management based on Solvency II Decrease of the minimum guaranteed rates on our traditional Life products Increase weight of unit/index-linked policies in our portfolio Change in non-life portfolio towards a mix with low capital absorption (e.g. short tail business) High financial flexibility (e.g. preauthorization to issue up to 300 million euros of subordinated debt) 42

44 4 Life and non-life asset allocation Percent 2011 asset allocation at 31 march 2011 Liquidity, short term Gov t Fixed rate Gov t Corporate Bonds Equities Real Estate 100%=10 bln Life asset allocation 1 100%=2.5 bln Non-Life asset allocation Portfolio duration (years) ~4 ~2 Strategy Non-Life portfolio: Potential increase in duration (e.g. 1 year) in case of increase in interest rates Life portfolio: Maintaining tactically a duration of liabilities shorter than assets to hedge against potential rates increase Increase in floating rate bonds with floor or with spreads above minimum guaranteed rates General policies for all portfolios: Optimization of asset composition based on Solvency II Stock picking based on fundamental analysis (due diligence for each investment > 5m ) 1 Unit and Index Linked not included 43

45 Cattolica Group strategy for the next 3 years 1 Improve Life profitability 2 Strengthen non-life technical excellence and profitability 3 Enhance distribution 4 Optimize business decisions in a Solvency II perspective 5 Reduce structural costs 6 Enhance technical and professional skills 7 Improve market communication 44

46 5 Structural reduction of operating costs 2013 economic target Total Group operating costs Million euros General expenses IT Personnel Delta Million euros Key initiatives Decrease in general expenses thanks to corporate structure simplification and purchasing processes optimization Full implementation of new online IT systems (non-life, claims and integrated Life platform) resulting in savings on IT outsourcing costs Non-Life G&A ratio Decrease of ~20% from 2010 to 2013 Rationalization/efficiency enhancement of operating processes, organization and offices, achieving synergies at Group level 45

47 Cattolica Group strategy for the next 3 years 1 Improve Life profitability 2 Strengthen non-life technical excellence and profitability 3 Enhance distribution 4 Optimize business decisions in a Solvency II perspective 5 Reduce structural costs 6 Enhance technical and professional skills 7 Improve market communication 46

48 6 Enhancing technical and professional skills Strategic objective Actions Enhance technical expertise within Cattolica Group in a growing trend of depletion and obsolescence of technical skills in the Italian market Strengthen the newly established role of welfare and pension products advisors: Development of specific skills Deployment of the new professionals throughout the Group (transfer of skills, talent pool) Maximization of mobility among different corporate functions, aiming at developing skills: 300 people involved over the next 3 years Technical training for approximately person-days every year through the dedicated Business School training facility of the Group 47

49 Cattolica Group strategy for the next 3 years 1 Improve Life profitability 2 Strengthen non-life technical excellence and profitability 3 Enhance distribution 4 Optimize business decisions in a Solvency II perspective 5 Reduce structural costs 6 Enhance technical and professional skills 7 Improve market communication 48

50 7 Improvement of market communication Strategy Intensify communication and transparency towards the financial community and shareholders on Group performance and strategies Next steps Increased availability to conduct one-to-one discussions with key analysts and investors Upgrade of our web-site to improve availability of information and quality of reporting to shareholders and investors Emphasis on the Company shared values, in order to affirm a company model with strong roots to serve local markets and managed to achieve sustainable growth and profits 49

51 Cattolica Group strategy responsibilities and objectives Group strategy Responsibility 2013 targets 1 Improve Life profitability 2 Strengthen non-life technical excellence and profitability 3 Enhance distribution 5 Reduce structural costs 6 Enhance technical and professional skills Barbera Cristiano Gavazzi Fattorelli Nahum Masini Barbera Cattani Cristiano 4 Optimize business decisions in a Solvency II Gavazzi perspective Vesentini Net profit: 50 million NBV: 45 million Net profit: 90 million Loss ratio: 1 pp reduction Non-Life premiums: 1.8 bln Life premiums: 3.2 billion Life reserves: 14 billion Piva Group cost reduction: 25 million Piva Solvency II ratio: > 130% Technical excellence of human resources Interfunctional teams created to implement plan initiatives Economic targets embedded in MBO system of the company 7 Improve market communication Gavazzi Rating: A 50

52 Cattolica Group targets Double Group Net Profits Growth of non-life premiums and Life reserves ~4% per year ROE increase from 5% to 9% Maintenance of an attractive payout policy (>60%) Solvency II ratio greater than 130% 51

53 Appendix 52

54 Summary of the 2013 targets for the Group Euro millions Non-Life Life Group Non-Life premiums CoR Net profit Life premiums APE 2 Life Reserves NBV NBM 2 Net profit Consolidated profits Group profits ROE ROTE ,7% <95% % 12% 16 1 (25 3 ) % 9% 8% 12% 1 Includes reallocation of 1 million euros net profit from non-insurance companies to Life and 2 million euros to non-life 2 APE is regular premiums from new business plus 10% of single premiums 3 Gross of non-recurring extraordinary expenses of ~9 million euros (Lehman and Iceland-related policies) 53

55 DISCLAIMER This document has been prepared by Cattolica Assicurazioni based on data from internal sources (year-end financial statements, consolidated Group financial statements, internal reporting and other company documentation, etc.) for the sole purpose of providing information on the Group s results and future operating strategies. Given this, it can in no way be used as a basis for possible investment decisions. It is not a solicitation to buy or sell shares. No part of the document can be taken to be the cause of or reason for agreements or commitments of any type or kind whatsoever, nor can it be relied upon for agreements and commitments.information contained in the document concerning forecasts has been prepared according to various assumptions and/or elements that might ultimately materialise differently to present expectations. Results might therefore change. Cattolica therefore in no way provides any guarantee, either explicit or tacit, as regards the integrity or accuracy of the information or opinions contained in the document, nor can any degree of reliability be attributed to the same, inasmuch as it has not been subjected to independent verification. Responsibility for use of the information and opinions contained in the document lies solely with the user. In any case Cattolica, within legally admissible limits, will not consider itself liable for any damages, direct or indirect, that third parties might claim due to utilisation of incomplete or inaccurate information. For any further information concerning Cattolica Assicurazioni and its related Group, reference must be made exclusively to the information given in the annual, quarterly, and interim reports and financial statements. The full versions of these documents, which constitute the factual basis and proof for all legal purposes, are lodged at the company s registered offices and are available to anyone requesting them. Reproduction or full or partial publication and distribution of the information contained herein to third parties is prohibited. Acceptance of the present document automatically signifies recognition of the aforesaid constraints. 54

56 Business Plan Milan, 23 June 2011