Assicurazioni Generali S.p.A. (OTCPK:ARZGF) Q2 2022 Earnings Conference Call August 2, 2022 6:00 AM ET
Company Participants
Fabio Cleva – Investor Relations
Philippe Donnet – Group Chief Executive Officer
Cristiano Borean – Group Chief Financial Officer
Conference Call Participants
David Barma – BNP Paribas
Andrew Sinclair – Bank of America
Peter Eliot – Kepler Cheuvreux
Farooq Hanif – JPMorgan
Michael Huttner – Berenberg
Andrew Ritchie – Autonomous
Steven Haywood – HSBC
William Hawkins – KBW
Gianluca Ferrari – Mediobanca
Will Hardcastle – UBS
Ashik Musaddi – Morgan Stanley
Elena Perini – Intesa Sanpaolo
Operator
Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Generali Group First Half 2022 Results 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 Agency Relations. Please, go ahead.
Fabio Cleva
Good morning, everyone, and welcome to our conference call for the first half 2022 financial results. The call will be hosted by the Group CEO, Philippe Donnet; and the Group CFO, Cristiano Borean. Before opening the Q&A session, let me hand it over to Mr. Donnet for some opening remarks. Philippe, the line is yours.
Philippe Donnet
Thank you, Fabio, and thanks to all of you for joining today’s call. Earlier this morning, Generali published its financial results for the first half of 2022. Even in a challenging scenario characterized by the war in Ukraine and dramatic human consequences, rising inflation, higher interest rates and recession concerns, our group was able to further confirm its strength, solidity and resilience. This was also thanks to a set of measures that we promptly adopted, including adjusting our pricing policy to be as effective as possible in this environment.
I would now like to underline four key highlights that emerged during the first six months of this year. First our gross written premiums grew by — grew to €41.9 billion a 2.4% increase compared to the first half of 2021 on a like-for-like basis. In particular, property and casualty premiums posted strong growth of 8.5%.
I would like to underline that, non-motor premium, a key focus of our Lifetime Partner 24 strategy grew by 10.7%. Let me remind you that at our Investor Day in December of last year, we set a target to grow them by 4% a year — average year over the three years of the plan. We are already witnessing the strong development of this key pillar of our profitable growth strategy right from the start.
Our Life net inflows were resilient at €6.2 billion, in line with the strategic portfolio repositioning towards protection up by 7% and unit-linked which grew by 2.1%. This shows the effectiveness of our distribution network. Moreover, the trend in traditional savings net inflows reflects targeted in-force management activities and are further improving our profitability.
Second, our operating results rose to over €3.1 billion, up by 4.8% from the first six months of 2021, thanks to the broad-based and the Life positive performance of all our business lines. I’m also pleased by the material contribution from Cattolica to our operating result, which was nearly €140 million. Following the squeeze-out process, we will be able to accelerate even further the integration of Cattolica into our group. The Life new business margin grew to an impressive 5.23%, while the combined ratio at 92.5% was solid as well.
Third, our net results stood at €1.4 billion. Without the impairments related to Russian investments, we would have posted a stable net result of €1.54 billion. And finally, we confirmed our extremely solid capital position with a solvency ratio of 233%, compared to 227% at year-end 2021, underlining the resilience of our business.
The 233% solvency ratio already reflects the impact of the announced €500 million share buyback program that will be implemented starting from tomorrow. Our strong capital position, the healthy operating profitability and the proactive actions put in place to manage the macroeconomic scenario, especially on the pricing front make me very confident in our ability to achieve all the targets of our Lifetime Partner 24 driving growth plan.
I look forward to continue this – here with all our people to make Generali an even stronger and more sustainable global insurance and asset management group. Before we open our Q&A, please let me remind you of our virtual Investor Day that will be held on December 13, this year.
Thank you once again for your continued interest for our group and we are now happy to answer any questions you may have. Thank you.
Question-and-Answer Session
Operator
Thank you. 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 with BNP Exane. Please go ahead.
David Barma
Hello. Thank you for taking my questions. The first one is on Life, and on lapse rate. So industry data shows that, lapse rates are starting to rise in recent months. What are you seeing in your portfolio, especially in France and in Italy? And secondly, a small thing on Life. The profit sharing rate and the Life investment results seems quite low in H1. Can you explain, what’s driving that please? And secondly, on P&C, can you give us an update on the kind of claim inflation rates you’re seeing in your main P&C units at the moment? And how comfortable, you are in being able to reflect those price adjustments? Thank you.
Fabio Cleva
Thank you, David. I would kindly ask, Philippe to take the first question and Cristiano to continue with the second and third question.
Philippe Donnet
Yes. Hello, David. So far we do not experience any significant increase in the lapse rates. As you know, we have a strong proprietary distribution, especially in Italy and Germany, which allow us to have a great monitoring of our – portfolio of our customers. It’s always a bit more challenging in France, as you know, because of the nature of the distribution channel. But I would say, so far so good. Maybe Cristiano, can confirm with some numbers. But definitely, so far we do not see any significant increase in lapse rates.
Cristiano Borean
Yes Philippe. I can integrate, especially regarding David’s question on France. Compared to the first half of 2021 lapse rate decreased in the saving line and did not increase. So, this is just to tell you that on average in France, we have lower lapse rate by the first half of 2021, and this is as well consistent with the product strategy that we are pursuing. If you want, I go on explaining the profit-sharing rate that seems low, due to the fact that, there are three key drivers. Don’t forget that, these profit sharing are driven by the rule plus the integration of some reserves.
First of all, I would like to recall you that compared to last year due to the announced change in the reserving amount in Switzerland we had a lower amount reserved. And as well, we had also a lower ZZR gains for the German part, which together, which will transfer one-to-one liabilities, and as well in Germany since we stopped the commercialization of the recent product, which has an important element of commission, this commission which are part of the risk result. The risk result has a lower profit sharing amount compared to the average investment component. And all these put together are bringing to this effect.
David Barma
And how much did you reserve for Switzerland in eight months?
Cristiano Borean
Almost CHF100 million, and this is the average we confirm that the average amount to be reserved in the year was twice of it. Still today having higher rates, we could have been lower, but we are keeping a prudent staffs due to the market volatility okay? Then David you also had a question on P&C claims inflation, right?
David Barma
Yes.
Cristiano Borean
Yes. Let’s go on the absurd inflation seen in the different units. What we are observing especially if we look at the evolution on the different countries, we should say that the claims severity are increasing in some countries by something in between 5% to 10% depending on the lines more in France and Germany on the Motor Other Damages.
While in the Motor TPL, the claims is a little bit — the claims situation is a little bit lower. Looking at the motor overall, I think that the country shows the higher growth of inflation part is Germany which is coupled with a competitive market. For what regards the other countries, we do experience a little bit of increase in France and almost a flattish effect in Italy.
What is important to know is that Italy was benefiting from a first quarter of a lower effect. If I just look in isolation in the second quarter we are getting to a kind of a high single-digit increase in inflation and this is consistent with the trend that we are observing.
Fabio Cleva
Next question please.
Operator
The next question is from Andrew Sinclair with Bank of America. Please go ahead.
Andrew Sinclair
Thanks and afternoon. Three for me, please. Firstly, just on PYD a little bit lower in H1 than we’ve maybe seen over the last few years. Really wondering is that just driven by caution on inflation or anything to be aware of here? And what should we expect for the rest of the year?
And secondly was on investment income. Good to see the figures going higher, but how much of an impact are you seeing on pricing as investment income goes higher? Are you seeing any markets where the higher investment income is leading to upward pressure and combined ratios for more competition on the underwriting side? And thirdly, just if you can break down the P&C premium growth into what was pricing versus what was exposure growth in H1? Thanks.
Fabio Cleva
Thank you. Cristiano for you.
Cristiano Borean
Yes. Andrew. For what regards to the prior year development outlook and in general what happened in the first half, we need to split into two components. One component is something that maybe we have to talk a little bit which is the Argentina hyperinflationary effect which is basically allowing — in the representation, we decided to present which is the most conservative one, an effect which is practically reducing the prior year development benefit because of the inflation effect.
Out of this which is accounting for 0.2, 0.3 percentage point reduction compared to the average normalized level, we observed a little bit of lower reduction both in Germany, Central Eastern Europe also because of some specific portfolio like in Poland which we are restructuring and as well because of some prudent staffs that we are taking in this uncertain environment due to the fact that we do think that inflation is not far from the peak.
But for sure, we experienced the first six months which was a little bit uncertain. Now looking at five-year inflation rate, you see that the market is pricing it down and the behavior could be different going forward. The second question related to the investment income. Is it bringing pressure on pricing in some countries? Well — operating in almost 60 countries in the world. The pressure is not so big in the European countries because it is more an inflation-driven development.
We see an increase in rates in the Central Eastern Europe countries, but that is positively adding on the investment result, while being kept under control through pricing in the inflation part.
Outside Europe for sure, there are countries, which are more managing the combined ratio as overall combination between technical and investment. For example, recently, we consolidated India in our books and that is a typical country, which has an average combined ratio around 100% and where the catch-up and the investment result is bringing the positive contribution in the P&C.
The third question related to the P&C premium growth, the pricing exposure. I would say that, in motor, it is all pricing-driven. And in non-motor, it is driven partially, because of a very important effect we have in our reserves. I would like to recall you — in our products, I would like to recall you that, we have close to let’s say 50% in the non-motor component of indexation of our policies. Just to be aware that the retail component in motor is two-thirds with indexation. The small medium enterprise half of it is with indexation and basically one-third the accident has. And this is helping in bringing up.
On top of that, there is the commercial push that Philippe was mentioning, which was seen in all the lines, including Europe assistance which is growing at a very fast pace 74% half year of [indiscernible] because of some important contracts they won in the travel space, especially with Expedia and Airbnb, which are bringing a lot of profitable business into the books.
Fabio Cleva
Next question please.
Operator
The next question is from Peter Eliot with Kepler Cheuvreux. Please go ahead.
Peter Eliot
Many thanks. Just a couple of quick follow-ups. First of all, on the non-Life underwriting outlook, I guess, if I look at specifically Italian motor, you’re talking about premiums being up only 0.7%. So I was wondering, if you could comment sort of specifically there on the outlook. In the Life result, just wondering, if you would point to anything sort of being particularly unsustainable in the strong technical result that we’ve seen or whether you think that is — can continue?
And then finally, you’ve guided before to the private equity contribution likely being sort of around last year’s level, less than €100 million of one-offs. I appreciate quarterly volatility is always going to be there, but I was just wondering, if you could update us on your current view on the outlook there? Thank you very much.
Fabio Cleva
Thank you, Peter. Cristiano, these are all for you.
Cristiano Borean
Okay. So Peter, good morning, and regarding the Italian underwriting outlook, the Italian motor outlook in the last quarter, what is important is that, we observed a decrease of the — so the second derivative is changing. So the trend is to be keeping the low inflection point on the average premium we are seeing in our motor portfolio, which means that, the tariff increase which were already injected and as we already said, that will be further injected in another wave going forward are starting to catching up. So the underwriting outlook, you should expect average premium to have a little bit of growth.
And if we take the motor overall, including the Motor Other Damages, we are also growing in this kind of line. Please be aware that the market in Italy is always competitive, but frequency stays below pre-COVID level and this is still helping the limiting on the combined ratio increase. What is important is that the tariff injection is allowing also to have coverage going forward.
On the second question, related to the Life segment, can the technical results continue so at this pace? In the first half, we had a joint effect of positive technical result, which was counterbalanced by a countereffect in the investment results, which is basically allowing a kind of profit sharing on some mortality risk that we had in France, which is overall showing when I look line-by-line a slightly higher technical result in the first half and a slightly lower investment results.
So my guidance is that going forward, you should get a little bit higher investment results in the second half of the year stemming from this, as well as the technical not growing at this pace, but still growing because of what I also was saying the technical result will be supported by the stop of the listed product say in Germany, which were improving now the risk result hence the technical, and our collection of unit-linked is continuing, which is supporting the technical result.
The third question on private equity contribution. So on the first half of 2022, you observed that we did not repeat the unicorn investment we got in the first half of 2021, which was basically impacting €100 million benefit last year, which is not repeatable.
Looking forward in the 2022 space, private equity is on a fair value basis still extremely resilient. There are some changes related to the market evaluation in some lines. But still we have an overall positive growth on the total return, which is not necessarily reflecting in the accounting because as you know, we account as of today starting from a year will be different — the private equity result when it is closed by the private equity fund manager.
What we are seeing is that, notwithstanding, the fact that there is — the lines we are investing in are sufficiently well-diversified and insulated from — we are far away from investing in leverage by our staff. We are very much into the health and very well-diversified including Asian investment, which are supporting. What is happening is that we are seeing potentially as a slowdown from the private equity fund manager in realizing the capital gain and eventually wait for lower market volatility to realize them to try to maximize the full final value.
But this is just a matter of time delay. This could add some — from the accounting perspective some shift. But as I was saying you looking at the guidance I gave in Life segment coupled with the huge increase in the non-motor net earned premium, which will grow progressively because today we account for gross written premium, but we need to see the net earned premium, which will grow progressively because today we account for gross written premium but we need to see the net earned premium growth. You will have further contribution.
Don’t forget, as I said before that next year private equity will be accounted on a fair value basis. Hence, all these value accretive investment will change according to the fund manager evaluation and the booked value.
Fabio Cleva
Next question please.
Operator
The next question is from Farooq Hanif with JPMorgan. Please go ahead.
Farooq Hanif
Hi everybody. Thanks every much. Just returning first to P&C. When we look at your 2Q current year loss ratio, there is a big deterioration. Could you explain what the drivers were whether for example that was Argentina related? More broadly you seem to be talking about a picture of claims inflation picking up in each of your countries in motor and pricing is starting to respond but possibly not exceeding it.
So if we exclude Argentina, you’re still quite close to our 92% combined ratio. So could you just reiterate your confidence in that target and what you can do to get there and maintain it if things go wrong?
Could you also — just two more things sorry. Could you also give us the benefit that you see of COVID in motor claim frequency in the combined ratio?
And lastly could you just tell us what the PE contribution was in your current return in Life and the non-Life? Thank you.
Fabio Cleva
Thank you Farooq. Cristiano, I think they are all for you. Just to sum up is — one question on current year loss ratio and the dynamics and the — whether there were COVID benefits in P&C and the contribution of private equity on Life versus P&C. Is that correct Farooq?
Farooq Hanif
Yes that’s correct. Thank you so much to summarize.
Fabio Cleva
Thank you.
Cristiano Borean
Okay. Good morning Farooq. So commenting the second quarter combined ratio that you’ve seen is 94.5%. I would not take this as a, guidance for the rest of the year. This was particularly influenced also by the natural catastrophe impact and also by some effects which is a time effect.
When you look in such a small timeframe one quarter, the difference between the manifestations in the claims of the increase in some lines I was commenting before versus the time needed to have the net earned premium accruing into the book, you have this time delay. Hence, this 94.5% guidance is overestimating the long-term combined ratio level.
And so we are sticking more looking at the data that I’m daily checking going to a level which is consistent with the amount of 92% net of the Argentina effect which is a little bit slightly out of our control due to the effect of hyperinflation which could trigger this tricky effect.
Another thing you have to take into account, please don’t forget, that a 0.3 percentage point of expense ratio are up simply because we are consolidating Cattolica. Cattolica has more than a double expense ratio — called it administrative expense ratio compared to the group and compared to Italy, which means that, when we will complete the integration this will go down which is exactly consistent with the value creation of the synergy we always told you. So please look at this in that perspective.
Clients’ inflation and picking up confidence in reaching the target is what I think I was commenting to you. Don’t forget but a driver also helping this is the growth higher than the target expected in the non-motor component and non-motor component has — so far has had a lower impact from inflation and has a higher stickiness in the behavior of the client also according to the renewal strategy and as well can bring a little bit of more high natural catastrophe exposure. But don’t forget that our coverage is the most protective within all the peers.
The COVID benefit related to the first half 2022 are extremely limited. I would like more to recall, the COVID benefit that we had last year in the first half 2021 where our 89.7% reported combined ratio would have seen as 91.2%. I recall that, last year the first half especially the first quarter for Germany was the lowest ever recorded due to a huge and massive lockdown.
So putting all this together, we should get to a minor effect related to — then to the COVID part. Notwithstanding the fact that more than COVID could help what some countries are deciding or making according to the increased cost of fuel.
For example, please notice that starting from Germany they created a €9 per month train and circulation which people are using in a visible way as well as in France things, are now starting. And so this is a more material effect which is still keeping frequency below the pre-COVID level. Then, going to the fourth question.
Philippe Donnet
Cristiano?
Cristiano Borean
Yes please.
Philippe Donnet
I would like to add a few comments on this. There is an echo coming from the rooms. Yes, I would like to add a few comments to confirm that our confidence in keeping the combined ratio under control. So I confirm what Cristiano said about, the frequency that the motor frequency will — is not back to the level we had before the COVID.
And I think that’s for many reasons that the change in the behaviors of the people because of the price of the oil the frequency will not come back to the pre-COVID level. Then on top of the repricing decision we are going to take in the Property & Casualty business. There are also some other decisions we are already implementing. We are intensifying the portfolio pruning. This is really important. We are intensifying the underwriting discipline.
And on top of this, we are also giving even more attention to claims management because also in claims management there are some points of combined ratio to get. So, this is something that we know quite well.
We are already implementing all these technical decisions and with the strong group we have on our distribution we can get the benefit of this decision. And this makes us quite confident in our ability to — on the long run to control our combined ratio and to keep it in the good zone I would say. Sorry to interrupt Cristiano.
Cristiano Borean
No. Thank you, Philippe. You just highlighted what our daily job is to bring the machine working. And I complete the fourth question on private equity Farooq. Just to be sure you are requesting the accounting contribution of private equity in Life and P&C. You know that we have the two regions that we are giving also you in the backup. I give you both so that you have all the elements and you have full clarity.
So, the total contribution of Lion River in the accounting figures that we present is €26 million in Life, €72 million in P&C, €30 million in Asset & Wealth Management. For what regards the pro forma as if we have €46 million in Life, €50 million in P&C, €74 million in Asset & Wealth Management. So, I think this is clarifying the two dimensions you’re looking at. And next year, finally, we will have IFRS 9 with full allocation at fair value and no more double rate.
Fabio Cleva
Next question please.
Operator
The next question is from Michael Huttner with Berenberg. Please go ahead.
Michael Huttner
Thank you very much. As you said Philippe, given the climate’s amazing results. I had two questions. First one is on cash flow and cash at holding. I know it’s not in the presentation and I know it’s not normally something you speak of, but given the strength in solvency, maybe you can say a few words.
I remember the figure of €4.1 billion in December and you reiterated your cash remittance guidance, which I think is over €8.5 billion or something for the three years. So, I just wondered maybe you can give us a feel for this figure now. I was thinking maybe €3.3 billion was the figure in December.
The second is on Cattolica. Philippe you said — it was interesting you said Cattolica might — interpretation get better and €140 million in the second half year. And I just wondered how quickly it could get better? I remember the figure of €80 million improvement, but maybe there’s already something which could happen now that you’re close to the squeeze-out state.
And my third question is very simply on the motor. Coming back — I’m sorry the efficiency of your IR, I understand Motor — so you published a figure of 97.4% in the half year combined ratio. Last year as I understand it was 88%, so it’s a nine point deterioration. And both — Cristiano and Philippe you both mentioned that this will normalize. My fear is that it will normalize, but it will go to 100% before it normalizes. What can you say to kind of — against that? Thank you.
Fabio Cleva
Thank you very much Michael. If okay, Philippe, you take the question on Cattolica, then Cristiano integrates and Cristiano takes the question on the holding cash flow and the Motor business combined ratio in addition to what we already said so far.
Philippe Donnet
Okay. Hello Michael and thank you for your comment. No, definitely, on Cattolica, we said we are talking about at least €80 million of synergies run rate. So, we said at least €80 million. So I confirm that it will be at least €80 million.
The good news is that the run rate will be achieved sooner than expected, because definitely the path we are implementing now with the squeeze out, that will be completed in the next two weeks, and the delisting of the company will definitely accelerate the integration process of Cattolica compared to the merger, which were requiring the shareholders’ meetings and so on. So, this is a good news. So at least, €80 million of synergies and we will get the benefit of them sooner than expected.
Michael Huttner
Thank you.
Cristiano Borean
First of all, good morning, Michael. I integrate the number on the half year results from Cattolica, so that you have the full picture. The operating result contribution from Cattolica was €138 million €41 million in Life segment and €96 million in the P&C segment for an overall contribution to group result of €60 million in the half year result.
For what regards the first question, Michael I always recall you that you should not account one-to-one every single euro we have in the holding, because there are money which are already reserved. For example, for the buyback, which we start tomorrow, for example, for the repayment of debt and also to close some upcoming M&A deals, still not closed like Malaysia, which we hope soon that will be announced.
So, in reality — I start from the end and then I mount it back. At the end, you should imagine that by the end of this year, after having implemented the buyback and after having done the M&A payment for Malaysia, we will end up with free cash to be used for capital deployment in the holding of €700 million to €750 million.
Yes, now we are starting with a much higher level, which is above the December 1, let’s say, not €4.9 billion but you don’t forget that there is a €1 billion buffer some couple of billion of operating treasury, which is just temporary there to be managed by the company. And so, you have to strip all this number out and take what is then really less. The most important number in my answer is this one.
And then there was another question on the motor business deterioration. Will it go to 100%? Well, there are some countries which were suffering on this. We have minor countries affected. For example, this was happening in Poland, but there is a pricing strengthening. Overall, broad geographies pricing strengthening will start kicking in.
And so far we are going to see more benefit from the rate increasing injection, the one already done, but I recall you there will be other round of rate injection, which are going to pump up in order to control the combined ratio.
Don’t forget that also the increase not only of VC has to take some time, because one thing is the gross written premium and one thing is the net earned premium. So we need time to flow the benefit of the tariff increase to the end and premium versus the only — the one which are written.
Michael Huttner
That’s very helpful. Thank you.
Fabio Cleva
Next question please.
Operator
The next question is from Andrew Ritchie with Autonomous. Please go ahead.
Andrew Ritchie
Hi, there. Just a couple of clarifications. On the non-motor growth, I think you mentioned Cristiano that a lot of that is related to indexation. Is it all — or how much of that growth is just indexation effect? And I’m assuming just to clarify most of that is the property related so is a natural indexation. But if you could just clarify that. And I guess that’s the reason why you would feel the sort of 90% combined that you’re running in non-motor – is defendable because there’s sort of a natural protection from severity. But if you could just clarify those aspects on non-motor that would be useful.
Secondly, just remind us of your catastrophe cover protection for the rest of the year. Given that you are running sort of above budget I suppose are above long-term for the half year, I presume you’re closer to attaching sort of aggregate protection, if you could just remind us on that.
And then the final question. Your current yield in fixed income just fixed income has improved 20 basis points annualized. I’m just a bit surprised because the reinvestment yield is not above the fixed income in-force yield and you spent a long time extending duration. So I’m surprised it’s showing the benefit as quickly as it is. Can you just explain why that is?
Fabio Cleva
Thank you, Andrew. They are all for you Cristiano.
Cristiano Borean
Yes. So indexation – thanks for the question because this allows me also to tell that there are even countries where motor has indexation. And – for example in Austria, 85% of our portfolio almost as indexation and again, this is telling why we are also confident to manage this.
Regarding the non-motor part, yes for sure I could say that on average something which is closer to 50% to 60% of the portfolio has indexation. Indexation is linked to the published inflation rate, which is helping to cover. On top of this the piece which has not indexation and in some cases also the one with indexation according to some pricing policy could have received by some increase.
For example, we did something like this in Italy on the non-motor, which is allowing also to foster the growth. So the reality is that this is exactly getting to the point of having a resilient combined ratio in the non-motor. And that’s why I was telling you that the importance of the growth in this segment is relevant according to sustainability in this environment.
Regarding the Cat protection of this year we – just for your info, we moved due to the market dynamic and as well to the capacity in our portfolio to have a small increase in the retention level for our aggregate protection – Cat aggregate protection. We move it from €500 million to €600 million. Having said that, about 50% of the aggregator insurance has been utilized at a half year so €300 million. So we have room then to have further cover and protection.
This is by the way one of the strength, if I look at Generali in the let’s say risk-adjusted – risk management capacity of those results because we are limiting the volatility of our combined ratio, thanks to this posture. Current yield is 16 to 20 bps. It is not as high as their investment. Their investment is only the director investment is not taking into account the private debt done through third-party funds or some provident funds, which is pulling it higher.
There is another effect which is not seen there that we have some investment in inflation-linked bonds, which is for – especially for example, looking at the French portfolio, we’re kicking up increasing the current yield. And there is a piece related also to our investment in Argentina, which are all basically inflation linked in one way or allow me to say in the other.
Fabio Cleva
Next question, please.
Operator
The next question is from Steven Haywood with HSBC. Please go ahead.
Steven Haywood
Thanks very much. Sort of two questions from me following on to the previous question about the reinvestment and investment yield. I saw that your Life reinvestment new money yield is around 2.0% and it’s only increased 50 basis points since the first half last year, which seems low considering, where markets have moved and on considering that your P&C reinvestment rate is now at 2.3%. Can you explain what is going on here? I noticed also that your bond duration has dropped by over a year as well in your Life business. And secondly, on financial debt leverage. On a Solvency II basis, you provided this disclosure of the full year results of 19.6%. Can you give an update of what that leverages as of the first half 2022? And would you be able to give us a financial debt leverage on Solvency II, but excluding the expected profits included in future premiums is that possible? Thank you.
Fabio Cleva
Thank you, Steven. Cristiano, they are all for you.
Cristiano Borean
Hello, Steven. So the reinvestment Life and P&C what is going on there. So Life has been — again, I go back to what I said before to Andrew. When we see 2%, it is not taking into account the private debt component which was invested through funds and this is not the direct investment level. So you don’t see the full effect and a part of our new money yields were invested there. On another scale, there was also an effect of having invested a little bit more in government bond versus corporate, thanks to the environment where basically rates were going higher and this was allowing us a lower capital consumption not changing the return — having a little bit of benefit out of this.
For what regards the effect in Life there is a small — also other effects. There were some bonds of Switzerland portfolio, which were maturing and has been reinvested. And as you know Switzerland rates are slightly lower and especially we profited to invest in government Swiss rates which are the best one under the solvency test environment. Regarding P&C, there it is kicking in more the contribution from Central Eastern Europe where we have a very strong growth and their rates keep that up much and this is also changing the investment yield behavior.
Regarding the financial debt leverage going on this at final year, we added 19.6% on Solvency II, which I appreciate you are looking at, because the actual accounting principle are going to expire and becoming also for a rating agency in a totally different environment next year taking for example into account the contractual service margin for many of them. I see at 2022, we would be 20.6% if we exclude the sustainability bond that has been issued at year-end — at the end of the second quarter we would be at 20.1%. Okay?
Fabio Cleva
Next question please.
Operator
The next question is from William Hawkins with KBW. Please go ahead.
William Hawkins
Hello, gentlemen. Thank you for taking my questions. First of all, just the Italian investment margin, specifically Christian that was €670 million which was a big increase year-on-year. Is that all just Cattolica and so can I double it for the full year, or is there anything else specific going on driving the Italian investment margin? Secondly, directionally and qualitatively across the Life and non-Life business operating profits, what might we have seen that’s different in terms of the trends, if we were looking at IFRS 17 and 9? Again, presumably you’re running background tests on that. So I’m just trying to figure out, can I trust all these IFRS numbers, or would we have seen different stuff on the new basis?
Thirdly please, the €2 billion of capital generation could you just give me the key components of that between non-Life Life in-force and new business? And then lastly — sorry if it’s four. You’ve had a lot of discussion with your shareholders over the past six months. Do you think there’s been any evolution in your thought process about where you’re taking Generali as a result of that, or if anything has it just reaffirmed your commitment to the December business plan? Thank you.
Fabio Cleva
Thank you very much. William, I would kindly ask Philippe to answer the fourth question and Cristiano then to take the one on the Italian investment margin and the difference between IFRS 17 and 9 and the composition of the capital generation.
Philippe Donnet
Okay. Hello, William. Well, I didn’t have that much interaction with the very vocal shareholders in the past six months, but they’ve been very vocal. They’ve been presenting an alternative strategy and alternative management team.
And then, as you know, on April 29th from the shareholders’ meeting, the shareholders have made a very clear choice, which is that they wanted our plan, so Lifetime Partner 24 driving growth, the plan presented December last year. They wanted this plan implemented by this management team — by our management team. That was a very clear choice expressed on the day of the shareholders’ meeting.
And today — as of today, together with the whole management team, we are fully committed to implement successfully and over time our new plan. We didn’t change at all the plan. The discussion, as you said, with the shareholders didn’t make us change our mind on the validity of our plan. So the plan has not changed.
And I can confirm that we are fully committed in implementing the plan as it is. Of course, we are evolving in a world that is changing, that is every day more challenging. We are fully aware of that. And this is another reason for us to be fully focused on the execution of the plan.
And I would say that, these results — these half year results are another proof of the fact that, on the one hand our plan is the right one for our company and that, so far, we are — we already started implementing successfully the plan. So I can confirm our full commitment to all the targets of our plan.
Cristiano Borean
So, William, I start with the Italian investment margin. The effect is explained by a couple of points. The number one is that last year we had some extra reserving in one line, which has not been repeated, also because of the new environment. On the contrary, we could get more on the release than in the allocation due to this environment.
And second, the driver of in-force management activities. We worked a lot on the liabilities and working on the liabilities is allowing to have lower guarantees in the portfolio. There were some reshuffling of existing contracts, which is bringing down also the amount of money that are with the average guarantee, having them decrease the amount of money which were going to the policyholder. This is profitable for the investment margin and it is continuing.
From what regards the second question, the difference in IFRS 17 and 9 and the trends. Well, first of all, we are in the process of completing all the accounting transitions, all the accounting changes and in the discussion with the auditors. We will dedicate a specific Investor Day event where we would like to make all the education and prepare you for reading and understanding the Generali approach on December 13th. We followed in the public disclosure of the ESMA request that we are more qualitative in nature.
One thing I would like now to highlight hopefully, thanks to the change in the new accounting standards, what we are observing today in the IFRS shareholder equity movement from beginning of this year to half year, it will be finally sanitized, because we are not working in a economical environment in this representation, because the movement of the asset is not consistent with the movement of the liabilities, while next year this will be forced. So you will be aligned.
Then you will see a much lower extent of movement compared to the €10 billion change you observed in this. Which is I think also correct and helpful in the real basic logic of why also the standards could have been more supportive.
Having said that, the extra information is that you will be more and more economically in the indicator, both for Life and for P&C, but please take the patience to wait a few more months and we will give you — and prepare you for full induction.
On the third question, related to the capital generation, the capital generation we had 9.4 percentage points of solvency capital generation, in the first half, which were extremely supported by the Solvency II value of new production, because of the higher level of profitability more than only in the volumes. And this accounted for €1.45 billion of capital generation almost €1.5 billion in Life.
And as well in P&C, we had slightly more than €700 million of non-Life capital-generation accounting for 3%, while Life was generating 7.1% and we had then the effect of the financial and the holding financial is Banca Generali, €200 million 1% and the holding was almost €400 million of charges and this is negatively impacting almost two percentage points. These are the element.
Fabio Cleva
Next question, please.
Operator
The next question is from Gianluca Ferrari with Mediobanca. Please go ahead.
Gianluca Ferrari
Yes. Hi. Good afternoon. I was looking at the slide commentary and you are mentioning the segment Other €77 million contribution from real estate of, which €58 million, being a kind of extraordinary. Can you please describe, what happened with respect to the real estate? The second one, is on the motor combined ratio the 97.4%. If you can provide us, with the Italian and the key combined ratio of the Motor business? Last question, is if there is anything material you have to flag to us, with reference to the sensitivities of your solvency ratio regarding, what could have happened in the second quarter to make them different from what we already have? Thank you.
Fabio Cleva
Cristiano, they are all for you.
Cristiano Borean
Yes. Good morning, Gianluca. So contribution from real estate. The €77 million improvement and the €58 million non-recurring were more related at the €58 million to hedging effect, of interest rates that we put in the funds, in order to have protection in the fund strategy coherently to the part. Then, don’t forget that 2021 figure, when I look on a relative basis, was a little bit depressed by COVID and some rents and points were not fully completed. So we had this little bit effect explaining also on the negative side of the 2021 part.
For, what regards the question related to the combined ratio of motor in our business of — Italian business, we have — including Italian business including Cattolica, it is running at 97.4% half year combined ratio, while you were asking specifically….
Gianluca Ferrari
With Europe.
Cristiano Borean
Sorry?
Gianluca Ferrari
With Europe, also if you can…
Cristiano Borean
You see — I was coming. Sorry, I’m not so — in Central Eastern Europe, you are referring only Central Eastern Europe not Austria and Center Eastern Europe. If we look just at Central Eastern Europe, out of combined ratio in the half year 2022, is 88.5%. Okay? You know this is our clearly, most profitable motor business segment — business geographical segment we have.
For what regard the solvency sensitivities update well, first of all I have to tell you one thing. No one asked me. I have to tell you that at the end of July, the all ace equal you know — the country VA specific adjustment on solvency is a complicated three-factor thing, but keeping constant the base rate, as well — keeping constant all the corporate bond spread 59 basis points more of opening of the BTP versus the best rate. Swap would have triggered the so-called country specific VA, which would entail not only a large different solvency but in a much lower sensitivity towards it, okay? So please keep this in mind when we commented.
Forgetting about this, our sensitivity on BTP at year-end was 13%. We are expecting to be not far from this range of the fear [ph]. Don’t forget but anyhow our exposure has decreased both in amount of mark-to-market and as well because of maturities.
And another thing, which is important for me to mention is that while at the year-end our interest rate sensitivities were plus nine and minus 10 versus a plus 50 and minus 50 bps movement of base rate, today they are in the range of being the half of this because of the higher interest rate environment, which for me is bringing you a message of funnel of movement, which is less large than before and so more controllable on these elements.
Don’t forget that the BTP sensitivity is also decreasing because of the liabilities. So the products, which we are doing in Italy, which are more and more term life with no guarantees in the savings business where basically you are transferring the risk to the policyholder.
Fabio Cleva
Next question please.
Operator
The next question is from Will Hardcastle with UBS. Please go ahead.
Will Hardcastle
Hi. Thanks for taking the questions. The first one is very simple. Thanks very much for giving us those inflation data points for motor across your core regions. I guess, asking something very simple and I’m sorry if I missed it. What have the price increases been on those year-on-year so far? You talk about a price injection and another price injection, are we trending above that, or is it once we’ve got the next price injection, you’d hope to be around there?
And the second one is just thinking about higher wage costs thinking about risk of recession, I guess. Within your non-motor portfolio, are there specific lines of business there that you’d look to be taking proactive action or in order to stay ahead of that thinking about other things other than just indexation clauses? Thank you.
Fabio Cleva
Thank you, Will. If okay I would kindly ask Philippe to start asking the first question, which this also tariff policy, and Cristiano to integrate and then answer the second question.
Philippe Donnet
Well, we are taking actions to mitigate the impact of inflation on the cost of claims on the general expenses as well, continue into account also the evolution of the claims frequency. But as I said before, the evolution of the claims frequency is obviously higher than during the COVID, but not back to pre-COVID level. So this is quite positive.
We are at head office monitoring the price increase, but it also has to be decided that — at the local level because we need to take into account the single situation, the situation of single companies in their local markets. We need also to take into account the local competition. We are increasing the price of the new business and we will increase also — we’re going to increase also the price. We are already increasing the prices also of the policies in portfolio. The increases will be significant — definitely significant. This is what happens normally in a world with inflation. So I would say there is nothing extraordinary.
The increase of the cost of close at this stage on the motor insurance business is coming more from the spare parts not yet from the labor cost. This is what we’ve seen so far. So we will be very reactive, very proactive and monitor very carefully. And I would say even aggressively, the price increase.
I would like to make a comment on this. So I would say that for a young professional the insurance business, inflation is quite new and they are definitely not used to increase prices. But for old insurance professionals like me, inflation is something we are used to, and we are used to increase prices in the insurance business. This is definitely a habit we lost in the past few years, because there was no inflation, but we are back to this and we are going to — we’re coming back to normal regular and significant price increase every year.
Cristiano Borean
Yes. William, I continue to answer you. Just to close I give you a number. The average price injected increase in motor was 4% in the first round and then Philippe confirmed that there will be other rounds, which will go there, because don’t forget that the dynamic the gross dynamic between the average cost claim increase versus the frequency brings the full risk premium growing at a lower pace than the claim cost, which is allowing us through the pricing and as well through the pruning and as well to the management of the claims thanks to acceleration of payment, and as well to cash offer versus body shop to keep it under the control.
The second question related to no motor portfolio. Are there any specific actions? Well, for sure. Let’s split the portfolio in two. Speaking about the global corporate and commercial component, which is 10% of the full premium of the group, that is surfing the wave of price increase of the market. Still the market is sufficiently hard and is going on because of pricing.
On the other lines, especially retail small medium enterprises, what is happening is that we are more in bundled product offer, which is allowing to a higher average premium sale per single product, and which is allowing to keep us — and keep up in growth of premium as well. So it is a combination of the pricing, but as well as the offering with bundle, which is also acting well because it has a much lower cost of acquisition acting on our existing clients starting first and with a higher stickiness.
Fabio Cleva
Next question please.
Operator
The next question is from Ashik Musaddi with Morgan Stanley. Please go ahead.
Ashik Musaddi
Thank you. Good afternoon Cristiano, and good afternoon Philippe. Just a couple of questions I have is, first of all, just going back to Will’s question. I mean, is it possible to get some color about this pricing versus inflation and frequency by region? As to, is there any particular region where you would say that there is still gap between how much you are able to charge to the customer and how much inflation is going up? I mean, you had mentioned on the claims side, I mean, Germany, France are a bit of a place where things are running a bit ahead. So if you can just give some color versus pricing that would be very helpful. So that’s number one.
And secondly, I mean, if I just take a step back, I mean, Philippe, you clearly mentioned that there is no change to the plan, and thanks to the vote. It’s evident that investors like the plan you have — the 29th of April vote. So just one question related to that. I mean, your solvency is very strong. Your cash balance is very strong. Your share price has come down, because of markets. So how do we think about your M&A versus capital return strategy here? I mean, would you say — would you not say that this is a time when you can buyback a lot of your stock at a lot cheaper valuation rather than spending that money in uncertain buyback in an uncertain world? So how would you think about that? I mean is there a reason to revisit that — doing buyback at the end of the three-year plan, or would you say, it’s still too early for that? These are my two questions. Thank you.
Fabio Cleva
Philippe, the second question on the, let’s say, M&A versus buyback is for you, while Cristiano will take the first question.
Philippe Donnet
So, thank you. Hello. Yes. So I’ll start with the second. Okay. Hello, Ashik. Well, basically, we are not changing our strategic framework for M&A. We are going to stick to our financial discipline on M&A definitely — exactly as we did it in the past three years. So we will be very selective, very financially disciplined. It’s very important for us to be focused on the strategic fit on the cultural fit and on the financial discipline, when we are considering M&A opportunity. So this doesn’t change. Talking about share buyback, we will start a share buyback program tomorrow, the one that we committed, because we still had excess capital at the year – at the end of our previous three years plan.
I think basically we will do the same. We will go for studying opportunities if they are good enough for the next three years and at the end of the three years, we will consider what we should do with the excess capital, if there is some. I think it would not be a good idea to decide, as of today, because as of today, the stock price is very low. It would not be a good idea for shareholders, if we would decide to dedicate 100% of the cash to share buyback, because we also need to think of the longer term, and we also need to think further diversifying, the sources of earnings. I think it’s important that, we continue increasing the earnings coming from health insurance, coming from asset management.
I think, it’s important to make our earnings more – even more predictable, even more stable even less volatile. So we also need to invest. And this is also our job. So, I basically, don’t confirm our strategy. We are fully aware of the interest of share buyback right now. We take this into account. But it should – we are not going to change the longer-term strategy, and we will make an update regularly with all of you, I would say every year.
Ashik Musaddi
Very clear. Thank you. Thanks, Philippe.
Cristiano Borean
Hello, Ashik, it’s Cristiano. Pricing and frequency get in any particular region, let’s split the world basically into – in the big four economies. So, I would say that, as we heard before Central Eastern Europe is more reactive and starting from a healthier level; France is more reactive starting anyhow from a higher average market level of motor combined ratio because of the competition, but more reactive; less reactive Italy, because of the market competition in motor; and less reactive Germany, again, because of the market dynamics.
The trends are more evident in the retail SME and corporate segment. And in general, just to make you an example, all the non-motor component is helped also to subsidizing this, because it is growing at a healthy – and also re-priced above the technical need non-motor, which is allowing to catch up. So this is the let’s say diagnosis you are asking.
Ashik Musaddi
Very clear. Thanks a lot, Cristian.
Fabio Cleva
We have time for one last question.
Operator
The last question is from Elena Perini with Intesa Sanpaolo. Please go ahead.
Elena Perini
Yes. Good afternoon. I’ve got two questions. The first one is related to the performance fees in the Asset Management business. I was a bit surprised to see from your slide that the amount in the first half of the current year is higher than the first half of last year. Due to market environment I would have expected an opposite trend.
And the other question is about P&C operating results. You are resilient year-on-year despite a higher combined ratio also due to the hyperinflation in Argentina. I was wondering whether in the second half we could expect a similar resiliency with a different mix compared to last year? So a lower technical profit due to a higher combined ratio, and higher in the investment result also due to the different interest rate environment? Thank you.
Fabio Cleva
Thank you, Elena. Cristiano, they are both for you.
Cristiano Borean
Yes. Good morning, Elena. So the performance in the Asset Management business. Let me recall you that the old €38 million of the performances were booked in the first quarter. Nothing was booked in the second quarter. It was a technical effect also related more to the business. And we are not expecting going forward to see more performance fees. There are very few stemming out from this market volatility.
For the second question related to the P&C operating result, I would say that in the second half the resiliency should start to pick up from the point of view of seeing the action in the growth because one thing is gross written premium, one thing is net earned premium so we will see the basis of the combined ratio that denominator growing and which should support the counterbalancing effect on the one side of the inflation, but as well to improve on the trend.
And on the other side the investment result it is in the first half effect. Don’t forget that there was the one-off payment also the dividend of Banca Generali, which is not expected to come in the second half, which is accounted in our P&C operating as well as there is an increase of the reinvestment income, especially, in the Central Eastern Europe and as well in Argentina and as well in the rest of the business for an extent, which is bringing up the second half non-extraordinary component — I mean, not extraordinary, but cannot be repeated twice per year we paid dividend once. So having said that, the guidance is in that direction with this kind of rebalancing where the underlying current income is growing up net of this contribution.
Fabio Cleva
Okay operator, we have no more time for questions.
Operator
I confirm there are no more questions, gentlemen. The floor is back to you for any closing remarks.
Fabio Cleva
Thank you very much to everyone to listen to the call and for your questions, and the Investor Relations department remains at your disposal for any follow-up that you may need. Have a nice day.
Operator
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.
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