A new way to gain competitive advantage in motor business UBS Italian Financial Services Conference 2007 Competing for sustainable returns Milan, February 2nd 2007 1
Agenda The strategic scenario The joint-venture specialised in motor business Mapfre Group in brief Conclusions 2
The market macroscenario Insurance market Strongly generalist market Significant price competition Specialization by business area in order to develop true specific know-how and thus obtain real competitive advantage Motor market Signals of uncertainty on the cycle evolution (prices, frequency and average costs) Competitive and regulatory evolution where decisive key factors for success will be : Customer services Assistance to agents Ongoing innovation 3
The Group reference scenario 110 years of history 6 Italian Insurance Group (6 non-life and 6 Life) 5 bn premiums collection and 2 mn clients 1.500 proprietary agencies (3 network in Italian market) Reserve ratio at all-time high (187,5%) Standard & Poors A- Rating A relevant unexpressed potential Friendship with Mapfre Group 1 Spanish Insurance Group 1 Non-life insurance Group in Latin America 11 Non-life insurance Group in Europe Strong specialisation in motor business Cattolica Group partner for 20 years Standard & Poors AA Rating A large portfolio of strategic options.. Result of a relationships system on which Cattolica model is based Very fluid period for Italian and European financial and insurance markets 4
The Cattolica way Preliminary Internal evolution Lever on the economic system of relationships and partnerships (insurance, banking, technological) Incremental strategic options Strategic Rationale Value extraction maximisation from the Group present structures Speed up change, innovation and focus on structures Consolidation of dimensions and open new ways for the future 5
Preliminary strategic guidelines on the Group business model reorganization MISSION Preliminary Becoming the player of reference for personal and small business customers, characterised by a specialised, flexible and modular business architecture aiming for product and process innovation, focus on operating excellence and top-quality customer service. Main strategic objectives: Pursuit of increasing legal-entity simplification based on a rationale of integration and specialisation by business/channel, based on a limited number of product factories. The above-mentioned information represent a preliminary indication of the strategic guidelines of the future Cattolica Group development. 6
Agenda The strategic scenario The joint-venture specialised in motor business Mapfre Group in brief Conclusions 7
The corporate deal THE DEAL Shareholders Mapfre entry with 50% stake in Cattolica Group s agency motor business (1) of Cattolica Assicurazioni, Duomo Assicurazioni and UniOne Assicurazioni Start of a 50/50 JV named Mapfre Cattolica Auto (MCA) Purchase by Mapfre of a 50% interest in MCA against a cash payment of 473 million. 50% 50% Motor Business A U T O (2) Life business and other nonlife classes INSURANCE CHANNELS One integrated network of ~ 1.500 agencies > 2 mn clients Services sharing Life Bancassurance BANK CHANNEL Non-life Bancassurance > 2.900 bank branches (1) Motor TPL, PDC (fire & theft) and motor products add-ons, with exception of commercial business done by the parent company with its shareholder members and all business relating to TUA Assicurazioni. The partnership excludes all bancassurance P&C. (2 ) Exemplifying brand 8
Key numbers and joint-venture mission Key numbers Annual gross consolidated premiums: >1 mld* Shareholders equity: ~ 400 mn Distribution network: 1.426 agencies 50/50 joint-venture, as defined by IAS 31 MISSION Set up a corporate vehicle specialised in motor business which, thanks to Mapfre contribution, leader in motor business in Spain, will be able to fully interpret the competitive and regulatory change underway in the Italian Motor insurance market, through: an integrated approach to customer service an integrated distribution network widespread on the whole national territory with a client-oriented approach technical excellence combined with a distinctive tariffcustomisation capability product and process constant innovation Sharing of operative services in order to support risk underwriting and claims management whole processes Cross Fertilization of Experiences Lever on Mapfre capabilities, as innovation catalyst and accelerator. Both groups will benefit from the mutual exchange of experiences and know how * Aggregated 2005 9
The joint-venture will distribute its own products through Cattolica Group whole agency network One agency network 3 100 48 38 263 15 146 94 148 29.3% 21 53 23 147 54 9 81 Agencies number 1,426 625 569 N: 739 C: 418 S: 269 51.8% 14 75 18.9% 42 MOTOR (1) Strength points A U T O Focus on operative structures Specialisation by product and by channel Leadership in competence Agency network integration (2) 57 (1) Motor TPL, PDC (fire & theft) and motor products add-ons, with exception of commercial business done by the parent company with its shareholder members and all business relating to TUA Assicurazioni. The partnership excludes all bancassurance P&C. (2 ) Exemplifying brand 10
The Joint-venture Governance Board of Directors will consist of an even number of members, half appointed by Cattolica and half by Mapfre Corporate positions and Management Chairman appointed by Cattolica Vice chairman appointed by Mapfre CEO appointed by Cattolica after acceptance by Mapfre For the next 3 years the JV s CEO will be Ezio Paolo Reggia General Manager will be indicated by Mapfre 11
Timetable, conditions and Master Agreement Timetable and conditions Master Agreement (some details) 15 February 2007 Within 2007 Signature of Master Agreement Entire operation execution The deal is subject to the issue of approvals by ISVAP and other relevant authorities The Master Agreement will have an initial 5- year duration and will govern, among other things, the parties commitment to verify, close to initial and subsequent expiries, the possibility of agreeing on further 5-year renewals. If the agreement is not renewed upon expiry, or if solely potential decision-making impasses occur relating to matters of strategic importance for the joint-venture, an exit mechanism is envisaged by means of put and call options at market conditions. 12
Full affinity of values By way of confirmation of the full affinity of values and continuation of the Cattolica Group s tradition, MCA s by-laws will reserve not less than 2% of its earning for the Cattolica Assicurazioni Foundation. The funds thus gathered will be managed and paid out under the name Fondo Mapfre Cattolica in order to develop mutually agreed social initiatives. 13
Agenda The strategic scenario The joint-venture specialised in motor business Mapfre Group in brief Conclusions 14
The Mapfre Group in brief Mapfre profile Key numbers (pro forma) (1) No. 1 Spanish insurance Group, with a market share of 17,8% in non-life and 9,5% in life Leadership in the Spanish motor market with a market share of 21% and an average combined ratio in the last 10 years lower of 7.4% than the market sector in Spain. Most well known brand and the largest sales network in Spanish market 1 non-life insurance Group in Latin America and present in 12 countries 2005 2004 % 05/04 Gross written premiums 10.087,8 8.900,5 13,3% Premiums earned, net of reinsurance 8.563,7 7.543,2 13,5% Result before tax and minority shareholders 921,1 837,1 10,0% Result after tax and minority shareholders 497,5 455,9 9,1% 2005 2004 % 05/04 Investments and cash 24.614,4 21.911,1 12,3% Technical reserves 23.283,6 20.264,2 14,9% - Life insurance reserves 15.041,1 13.679,3 10,0% - Other technical reserves 8.242,5 6.584,9 25,2% Financial debt 615,4 490,9 25,4% Strategic partnership with CAJA MADRID, 4th largest financial institution in Spain Financial Strength Rating: A+/positive outlook of AM Best and AA/stable outlook of Standard & Poor s 15
Mapfre s best practice and competitive advantages in motor business Strong service content and client-oriented approach Rapid reply through multichannel network: agencies, telephone, internet Rigorous technical Underwriting process Strong focus on on claims management and internalisation of of key activities Wide product range Tariff personalisation Customer segmentation Innovation FOCUS ON CLIENT PRODUCT TECHNICAL FUNDAMENTALS COST CONTROL Rigorous budget Precise allocation of of all all expenses Expense ratio: 4,5 p.p. below the market Scale economies Simple Decentralised Cutting-edge IT COMMERCIAL POLICY Discipline Consistent with management policies Transparent for for clients 16
Mapfre: combined ratio and market share evolution in motor business MARKET SHARE (1) COMBINED RATIO 21.0% 20.0% 20.1% 103.9% 100.3% 102.3% MARKET AVERAGE* 19.3% 19.5% -7,4 p.p. 94.,2% 94.9% MAPFRE AVERAGE* 91.,5% 90.3% 88.9% 90.5% 2001 2002 2003 2004 2005 1999 2000 2001 2002 2003 2004 2005 (1) Source: DGSFP, ICEA. * Average combined ratio of motor Spanish market and of Mapfre1995-2005 1 Spanish Insurance Group by market share in motor business Technical profitability: average combined ratio in last 10 years well below the market (-7,4 p.p.) Claims settlement speed: Damage to assets: 90% (Mkt Spain 78% - Mkt Italy 72%) Claims with bodily injuries : 63% (Mkt Spain 57% - Mkt Italy 37%) 17
Agenda The strategic scenario The joint-venture specialised in motor business Mapfre Group in brief Conclusions 18
Conclusions The Group s new Business Plan for the period 2007-2010, which will develop the business features and operating and financial targets through to 2010 of the Cattolica Group as a whole including those relating to the joint venture with Mapfre will be presented in specific events for the financial and institutional community and for the media, in Milan and Verona, presumably by the end of February 2007. 19
A new way to gain competitive advantage in motor business UBS Italian Financial Services Conference 2007 Competing for sustainable returns Milan, February 2nd 2007 20