Cattolica 2008-2010: Turning Around to Higher Profitability 9th Deutsche Bank Italian Conference Giovan Battista Mazzucchelli General Manager Milan, May 30 2008
2007 and 1Q2008 update 2008-10 Business Plan 2
2007 Results: Premiums million Non-life Life Premiums* Change 06-07 Premiums* Change 06-07 Non Motor 1,591 533 1,532 562-3.7% +5.2% 2.186 2.129-2.6% Motor 1.058 970-8.2% 2006 2007 2006 2007-24,2% Primarily due to portfolio reforms in 2007 to achieve technical improvement recovery Mostly related to termination of agreement with BPV * Gross direct business 3
2007 Results: non-life technical result Non-life % Claims ratio * Combined Ratio* 109.0 105.7-3.3 84.1 77.1-7,0 About 4,1 p.p. due to lower run off About 2,9 p.p. as a result of actions undertaken Normalized 100.6 2006 99.0 2007 +1.6 2006 2007 Expense ratio * 25.8 22.4 G&A 6.5 8.0 8.0 +3,4 +1,5 One-off restructuring items New personnel contracts IT investments Commissions 15.9 2006 17.8 2007 +1,9 Business mix change Deferred acquisition costs totally charged * Direct business 4
Result breakdown million 2007 Results: Consolidated profit Consolidated result 2006 +159 2007 +46 Net extraordinary items* +185 +32 One time costs** - -32 Result net of non-recurring items -26 +46 * Minorities and real estate selling ** Deferred acquisition commission totally charged 5
1Q2008 Results million Total premiums* Non-Life premiums* Growth of total premiums primarily due to BPVI contribution and nonmotor business Non-life Life 1,046 1,049 145,8 389 130,4 376 230 647 259,1 665 1Q 07 1Q 08 Growth 07/08 % +0.3-3.3 +2.8 Non Motor Motor 389 376 145,8 129 130,4 146 230 260 259,1 230 1Q 07 1Q 08 Growth 07-08 % -3.3 +13.2-11.5 Primarily due to portfolio reforms Claims ratio* Consolidated net profit Non-life technical improvement through portfolio selection and changing business mix 75.4 77.1 72.7 230 259,1 259,1 Growth 07-08 % -2,7 21 13 Growth 07-08 % -38.1% Primarily due to lower contribution of financial result, as consequence of market turmoil 1Q 07 2007 1Q 08 1Q 07 1Q 08 * Direct business. Total and life premiums include investment contracts 6
2007 and 1Q2008 update 2008-10 Business Plan 7
Market scenario Competitiveness increase : Weak Volumes with life growth rates contraction Increasing pressure on Motor tariffs Strengthening of International Groups Reforms evolution with structural impacts: Claims direct indemnity system Prohibition of exclusive mandate clauses for agents Changes on Bonus-Malus system Withdraw of non-life multi-year policies without penalty Pension reform and trend towards new needs (Pension Gap) Growth of new needs due to the progressive population ageing (health, assistance, savings/investments management) Increasing importance of customer service in claims management processes Increasing importance of service levels to distribution and channel innovation Importance of products offer specialization Increasing value of differentiated focus targeted to customer segments 8
Cattolica strategic model Actions Development guidelines Strategic development, Partnership and M&A Focus on core business with improvement of technical performance Strengthening of Group distribution capacity Product innovation Proprietary agency network Banking channels New channels New markets Increase and completion of product offer also through the set-up of specialized partnerships New products (injuries, health, home) Ex: Target/ partnership to increase distribution capacity Eurizon UBI Assicurazioni Search for new channels New banking partnerships (Barclays) Abroad development in partnership Partnerships, also capital ones, with leading players; Ex: Partnership with Azimut Operative Partnership with: MAPFRE Asistencia ARAG, Focus on specific customer segments Shareholders members Ecclesiastic Entities and Onlus Agricultural world Efficient capital structure and implementation of an advanced ERM System New ways to manage historical partnership 9
In the strengthening distribution capacity process are included the three recent M&A operations Acquisition of EurizonVita Life consultants business unit 18 April 2008 270 dedicated sale consultants distributed across Italy (target of 1.000 in the medium term) 30 offices located in Italy s biggest cities Innovative, specialized, fully operational call center (Servizio Amico) Motivated and highly qualified management structure IntesaSanPaolo Group owns 19,9% Acquisition of multimandate agency network of UBI Assicurazioni 50 multi-mandate agents 16 April 2008 Primarily located in northern Italy Partnership for development of Cattolica Investimenti SIM 12 March 2008 Azimut Group at 14,99% Product and processes/services innovation for our agents/fas Further development of Company distribution capacity New proprietary specialized distribution channel that (in medium term) could reposition the Group distribution structure Accelerating TUA Assicurazioni evolution as leading Italian insurance player in multi-mandatory distribution Our agency network will distribute innovative products and services provided by the market leading player 10
Management core beliefs Ample room for structural improvement in technical operations Strong potential for rationalization of corporate structure and costs Sustainable build up of distribution capacity Proactive, although prudent, investment strategy Efficient capital structure 11
Structural improvement in technical operations Objective Improve technical operations by aligning performance with best competitors Sustainable claims ratio Percent 77.1 71.0 2007 2010-5.3 Claims ratio reduction 2007-2010 pp Run off 3.0 3.5 Conservative estimate of 2-3 points of run-off Initiatives Develop new tariff rates revise the Motor and Basic Lines tariffs to comply with regulatory changes (Bersani Bis) and improve technical performance Reform Motor portfolio and release of nonperforming agencies constant attention on technical portfolio performance Improve claims management process launch and roll-out of claims excellence program Modify the mix improve technical performance by increasing growth in highprofit channels and in the retail segment of Non Motor Impact on claims ratio pp 1.3 1.5 0.9 1.1 ~2.0 0.8 12
Simplify the Group structure eliminating at least 7 companies and completing the operational integration Objective Rationalize the corporate structure and reduce costs, aligning with market performance G&A ratio Per cent 8.0 5.0 2007 2010 Impact on 2010 technical result EUR million -3.0pp -30 Rationalize the corporate structure 2007 Duomo Previdenza merged in Cattolica Persona Life merged in Cattolica 2008-2009 Merge of Duomo Spinoff of CIRA Spinoff of Cattolica Previdenza in Azienda Merge of DICA e CITS Improve Group effectiveness: New IT platforms Integration of product factories Rationalization of product range Net reduction of G&A expenses 2007-2010 million 7 Net reduction of G&A expenses million 23 13
Detail of future Group corporate structure Companies involved Corporate vehicles Old Corporate structure* Future Corporate structure Duomo Unione Cattolica Berica Vita Cattolica Investimenti SIM 2007 Merge of Duomo Previdenza into Cattolica Merge of Persona Life into Cattolica CIRA Cattolica Berica Vita Cattolica Investimenti SIM CIRA TUA ABC Lombarda Assicurazioni Risparmio Previdenza San Miniato Previdenza Lombarda Vita Cattolica previd. in azienda Vicenza Life Persona Life Cattolica Immobiliare Cattolica IT Services DICA (claims) Duomo Previdenza 2008-2009 Merge of Duomo Spinoff of CIRA Spinoff of Cattolica Previdenza Merge of DICA and CITS** G&A expences reduction 2007-2010 EUR Milion 7 TUA ABC Alternative P&C channel Risparmio Previdenza San Miniato previdenza Lombarda Vita Cattolica previd. in azienda Vicenza Life Lombarda Assicurazioni Bancassurance Cattolica Immobiliare Asset management * 30 Sept. 2007, fully consolidated companies and controlled ** Subject to further evaluation following normative changes 14
Reduce Group expenses Objective Achieve efficiencies acting on New IT platforms Integration of product factories Rationalization of the product range Reduction of G&A expense EUR million 23 Timing Actions launched in 2007 Actions scheduled within the Plan period Description Launched replacement of IT system with new Group on-line system Identified cost reduction drivers, especially after rollout of IT systems: administrative, life and finance Unification of Group IT systems with implementation of new P&C platforms for Motor (March 2008) and Non-Motor (end 2009). The new on-line system will be extended to all Cattolica agencies (end 2008) and thereafter to the whole Group (~March 2009) Implementation of new claims system (end 2008) Efficiency improvement programs on IT infrastructure Reduction of personnel and outsourcing/consulting expenses IT Costs* EUR Million Personnel/ outsourcing costs* EUR Million 31 27 65 46 2007F 2010-4 -19 ** After allocation to commercial costs and claims 15
Life business: sustainable build up of distribution network Objective Build up distribution capacity by consolidating the agency network and developing new initiatives Gross premiums* EUR million Non-Life 3,661 1,532 Life 2,129 2007 4,950 1,869 3,081 2010 +1.289 Life business: initiatives Strengthen existing banking partner ships and explore new market opportunities: Consolidation of the unified Life sales network Sensitizing of the agency network, exclusive and non-exclusive, to selling Life products Marketing initiatives and sales thrust on Life products in the agency network Incentives to "historical" agencies with experience in selling Life products Strengthen existing banking partnerships and explore new market opportunities: Exploration of new partnership opportunities in the market Consolidation of average branch productivity in Lombarda Vita Bring up to speed Berica Vita and Vicenza Life agreements Growth mn +130 +820 * Direct labor 16
Develop Retail P&C distribution capacity Agents CAGR 2007-10 Percent Objective Develop retail P&C distribution capacity also with focus on non traditional channels Non Motor Motor 1,390 464 928 1,504 552 952 2.5 5.7 0.9 2007 2010 Gross premiums EUR million Non Motor Motor 1,532 562 970 2007 1,869 764 1.105 2010 +337 CAGR 2007-2010 Percent 6.9 10.8 4.4 P&C Bancassurance Non Motor Motor Other P&C channels Non Motor Motor 3 35 32 2007F 100 60 40 82 55 27 2010 283 156 127 CAGR 2007-10 Percent 32.8 19.8 108.0 CAGR 2007-10 Percent 41.4 37.5 47.0 2007F 2010 * Direct labor 17
Proactive, although prudent, investment strategy Objective Improve financial return on both Life and P&C portfolios Average investment returns* Percent 3.2 4.0 +0.8 Description Life reserves: Restore product competitiveness, leveraging 10 years reserves duration Higher reliance on external, specialised asset manager Systematic scout for value assets on fundamental basis and 10 years horizon equity with sustainable dividend core real estate investment underpriced corporate bond 2007F 2010 P&C reserves: Maximisation of returns within annual risk budgeting boundaries: 2008 target: 4% return, stop-loss at 3.5% In following years targets and stop-loss levels will be adjusted according to unrealised profits 18
Efficient capital structure Initiatives Adopt a generous dividend policy provide a satisfactory remuneration to shareholders Maintain good patrimonial solidity safeguard capital adequacy also to maintain a rating in single A area Implement an advanced Enterprise Risk Management system with a Solvency II outlook Manage capital with flexibility put in place a flexible capital management policy to optimize results for shareholders 19
2010 operational and financial targets 2010 Targets KPI Target 2010 Group net profit (gross minorities) Group net profit EUR 204 million EUR 180 million CAGR 07-10/ Total premiums Life Premiums 2 P&C Premiums 2 EUR 4,950 million EUR 3,081 million EUR 1,869 million +10.6% +13.1% +6.9% 1 CoR 3 93,7% -10.5 pp Claims ratio 3 71.0% -5.3 pp G&A ratio 3 5.0 % -3.0 pp Commission ratio 16.5% +0.9 pp Financial returns 4.0% +0.8 pp NBV EUR 40 million +8-+12% 1 Sustained primarily by channels other than agencies 2 Direct labor. 3 Direct labor. Other technical item equal to 1.2%. 20
Work plan Programs Turnaround of the P&C insurance 1 operations Owner Cardinaletti Objectives Claims ratio P&C 71% 2 Corporate rationalization Mella Institutional, HQ and administrative costs -10% 3 Reduction operating costs Masini Personnel costs -4% Outsourcing costs -9% 4 IT integration Camera IT costs -5% 5 Strengthen distribution network for Life/Pension and P&C Cattani Gross Premiums EUR million 1,790 6 Increase of penetration level of the bancassurance channel Battista Gross Premiums EUR million 2,747 7 Asset management improvement Gavazzi Average portfolios return 4.0% 8 Risk management and capital structure Fezzi Efficient risk/capital management 21
Contacts Giulio Fezzi Head of Strategic planning Head of Investor Relations Tel. +39 045 8391620 e-mail: giulio.fezzi@cattolicaassicurazioni.it Chiara Adria Investor Relations Tel. +39 045 8391229 e-mail: chiara.adria@cattolicaassicurazioni.it Adriana Andreis Investor Relations Tel. +39 045 8391510 e-mail:adriana.andreis@cattolicaassicurazioni.it Andrea Battista Piero Gavazzi Head of Bancassurance e-mail: andrea.battista@cattolicaassicurazioni.it CFO e-mail: piero.gavazzi@cattolicaassicurazioni.it 22
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. 23
Cattolica 2008-2010: Turning Around to Higher Profitability 9th Deutsche Bank Italian Conference Giovan Battista Mazzucchelli General Manager Milan, May 30 2008