Assicurazioni Generali S.p.A. (ARZGF) Q1 2019 Results - Earnings Call Transcript

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About: Assicurazioni Generali S.p.A. (ARZGF)
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Earning Call Audio

Assicurazioni Generali S.p.A. (OTCPK:ARZGF) Q1 2019 Earnings Conference Call May 16, 2019 6:00 AM ET

Company Participants

Frederic de Courtois - General Manager

Giulia Raffo - Head of Investor Relations

Cristiano Borean - Group Chief Financial Officer

Conference Call Participants

Peter Eliot - Kepler Cheuvreux

James Shuck - Citi

Andrew Ritchie - Autonomous

Niccolo Dalla Palma - Exane BNP Paribas

Farooq Hanif - Credit Suisse

Michael Huttner - JP Morgan

Nick Holmes - Societe Generale

Giuseppe Mapelli - Equita

Johnny Vo - Goldman Sachs

Operator

Good afternoon. This is the Chorus Call conference operator. Welcome. And thank you for joining the Generali First Quarter 2019 Results Conference Call. As a reminder all participants are in a 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. Frederic de Courtois, General Manager of Generali. Please go ahead, sir.

Frederic de Courtois

Thank you. Good morning to you all. I would like first to welcome our new Head of Investor Relations, Giulia Raffo. And I'm sure all of you know Giulia. So we are extremely pleased to have Giulia on board in Generali together with a very strong investor relation team. Now, I leave the word to Julia.

Giulia Raffo

Thank you very much for the very kind introduction. Good morning, everyone. Welcome to our Q1 2019 results conference call. My name is Giulia Raffo and I'm here with our General Manager, Frederic de Courtois and our group CFO, Cristiano Borean. Before we open up the Q&A session, I would like to end over to Frederic and Cristiano for some opening remarks. Thank you very much.

Frederic de Courtois

Thank you, Giulia. Some comments from me. First, we are very pleased with the Q1 result, of course, these are only Q1 results, but we are very pleased with the result. We are pleased because they are strong industrial results and because they are absolutely in line with the targets of our new plan.

A few comments on the quality of these industrial results, first on the volume, so volumes are accelerating. We continue to see what we have seen last year, which is a good growth on the P&C side with the more than 3% growth and we are pleased with this. We had during the first quarter as you may have seen a very strong net inflow, so at more than 4 billion. And we're also happy with this, so we see a trend of accelerating growth.

Second comment on the margins, you have seen and I'm sure you will have questions on these that globally margins be it on the P&C side or on the Life side remain at the highest level. So this growth, this accelerated growth have just discussed about does not impact in a negative way the technical margins and we remain extremely focused on the technical margins.

Third comment and I'm sure you will also have questions on this. It's not totally easy to read the result of our asset management business and we will come back to this later. But let me just tell you that we are on track with our plan and we confirm our targets on the asset management. Last but not least, we continue to reduce costs. And the Q1 is on track with the targets that we had announced at our Investor Day and we see benefits in having a stronger growth and continuing to reduce the absolute amount of costs.

Thank you and I'll give the word to Cristiano.

Cristiano Borean

Good morning everyone. And thank you Frederic. As Frederic just mentioned, we are very pleased with these results as they confirm our focus on value generation and the profitable growth. Before we open the Q&A, I will like to spend a couple of words to explain the main drivers of the Solvency II ratio movements during the quarter.

Out of the total delta of 10 points, we can isolate 7 points driven by the expected implementation of regulatory changes. Specifically, we had one point impact from the lowering of the ultimate forward rate as required by EIOPA, 3 percentage points from EIOPA changes of their reference portfolio, which we use to discount the liabilities as well and 3 percentage points from the treatment of the French IRP business agreement we had with the regulator.

Apart of these 7 points when we look at the other part, our normalized capital generation contributed to more than 4.5 percentage points or if you want to compare after dividend accrual around 3 percentage points. So the partial redemption of subordinated debt in line with the leveraging strategy costed us 1 percentage points. The positive impact of M&A net of acquisition was below 2 points. I recall you we had acquisition in the first quarter. Financial variances had a negative impact of around 6 percentage points mainly driven by the combination of the falling risk free rates and the widening of the Italian GDP spreads.

I would like also to add that the effect of having Generali Leben in the March 31 accounts had 1 percentage point impact negative. And I hope this is helping explaining the bridge between the two periods. I would like to conclude adding that our estimated group solvency ratio at the end of April stood at 212%, also benefiting from the announced and closed sale of Generali Leben.

Many thanks for your attention. Let's now open the Q&A session.

Question-and-Answer Session

Operator

Excuse me this is the Chorus Call conference operator, we will now begin the question-and-answer session. [Operator Instructions] The first question is from Peter Eliot with Kepler Cheuvreux. Please go ahead.

Peter Eliot

Thank you very much. Sorry to start on the solvency, but that was very helpful though its moved to GSK as Cristiano said, thank you very much for that. And I guess within that the market movements were a little bit more than I'd been expecting, based on the sensitivities that you had disclosed. I'm just wondering if there's any particular reason there? Or do you think the sensitivities that you last disclosed are still appropriate in the current environment, that'd be the first question. And the second one, just looking forward on the solvency, I believe that new proposals are from the end of this year, the country VA will kick in at lower levels. If that's correct that those regulations were already in place today, can you say what benefit you would get on your ratio from that? I assume the sensitivity would then be the sort of plus or minus 7 percentage points in both directions once that was enforced. And then finally, separately, I was wondering if I could just ask on the asset management. I mean, I guess the earnings growth was a little bit - was up but is a little still was up, but as a little bit slower than we've seen or given the development, what we've seen there. And I was just wondering if you could perhaps comment and you said it was difficult to read. I was wondering if you could just give us a bit more help in understanding sort of economically progress there. Thanks very much.

Cristiano Borean

Thank you very much, Peter, for your questions. So let's start from the first question, which is the market movement is lightly higher than expected newer sensitivities. So let me try to clarify that the driver for the drop on the market variances as you know the interest rates sensitivity and then as you know, our sensitivity on the BTP movement which is calculated on the movement of the swap rate above the swap rater had a little higher effect than what was there in - explained in the sensitivities.

The second question related to the fact of the counter up and kicking level, I would like to recall you, as you know that what is going to be approved by year end '19 by the local regulator having been proposed by the European Commission Changes is not a change of the mechanism, per se, it's just a change of the threshold, above which you activate the mechanism. What does mean, from the sensitivity standpoint, what happens is that you would have lower attaching point of movement, asymmetric movement between the reference portfolio for EIOPA and the BTP that could trigger this, but sensitivity speaking, we have some sensitivity, as we said, in the benefits, at the level of the 7 percentage points should not change, but on the solvency of Italy simply would have trigger a better value starting from a lower spread movement of the BTP. And as you know, the trigger point has been decreased from 100 basis points to 85 basis points. Then I give the word to Frederick for the third question.

Frederic de Courtois

Good morning, Peter, on asset management, so as I said at the beginning, that's not too easy to read these results. So the increase of 5% of the operating result and of 24% of the net result, just to focus on the operating result. The first factor that you need to have in mind is that we have not consolidated in Q1, our new boutique and especially Sycomore and we will do it for the first half. But we haven't done it for the Q1. If we had consolidated the boutique in Q1, the increase of the operating result would have been 10% instead of 5%. So this is the first part of the answer. Second part of the answer, as you know that we are focusing more on private assets, I mean, bid for genealogy balance sheet or for third party asset management. There is some seasonality in the fees we receive, especially on private equity and real estate. And it also has an impact on the Q1 result. So to conclude, we absolutely confirm the ambition of the asset management and the linear progression of the results of the asset management business you need for this year and the coming years.

Peter Eliot

That's great. Thank you very much. And could I possibly just come back quickly on the Sycomore the country VA and I can probably go into the sum, but I was just wondering if you could confirm whether that would kick in at current levels? And also, are you able to quantify the benefits that you would get from that?

Cristiano Borean

Hi, Peter. So just try to clarify this point. Also, in the answer for the first question on the asymmetric movement in the markets in the sensitivities you use, to show the movement of the BTP being each sensitivity, a standalone sensitivity done above the swap curve, when you have the cross effect of swap rates decreasing, corporate bond decreasing, change in the reference portfolio weight of EIOPA of Italian BTP, as it happened in the review of the first quarter, you have a cross effect of joint movement which are against that potential threshold activation. So just to clarify that these would have not triggered at the first quarter. And this would have not triggered even at the levels you are observing today. And this is the reason why you get this extra sensitivity because this has not been triggered. I hope I answered your point.

Peter Eliot

Yeah, I think so. I'm not - I guess I was I was just looking for the benefits that you would get at the step this continuity as an when the country VA kicks in, but I can follow up offline.

Cristiano Borean

Principally on the on the sensitivities as we disclose.

Peter Eliot

Okay. Thank you.

Operator

The next question is from James Shuck with Citi. Please go ahead.

James Shuck

Hi, good morning. Good afternoon, everybody. Few questions for me please, firstly, the outlook for the tax rates at the group level. So you flagged the reduction in the Italian rates, I think your effective tax rate has historically been about 34%, going forward, kind of maybe a little bit less, but just keen to know what the guidance is that tax rate going forward, please. And whether that has actually been captured already in your at least 6% EPS growth targets. Secondly, on the asset management side of again, I think you split out third party AUM on the total AUM, but I think that includes Banca Generali. Could you give me the actual assets under management that relate purely to the AM division only please? And then just thinking about how the margins on those assets have developed in the quarter, I think there was some plans to increase the charging on some of the insurance assets. I just want to see whether that's come through at Q1 please.

Next question was around the acceleration growth point. But particularly on the life side, as you mentioned, you've seen the net inflows very strong in the quarter, 4 billion, also up about 60%. Year-on-year, it seems though the unit link to down lapses has done a bit better. And you're selling more traditional products, which is not necessarily the product that you want to be selling. And as a result of that your new business value is actually down slightly in the quarter. What's the outlook for the new business value growth going forward please? It seems to me as if you're setting lower margin things I accept that maybe unit linked might come back a little bit. But it seems a bit of a struggle to see the accelerated growth come through in the Life new business value. And just a very final quick one, could you tell me the contribution to operating profit from Generali Leben please in 2018 now that that deal is closed? Thank you.

Cristiano Borean

Okay. Hi, James this is Cristiano. So first point, the effect you're seeing in this quarter is, as we explained, driven mainly by an effect of lower taxation in Italy on a component and lower - a higher base of deductible earnings in China. This is a movement on the quarter; you should not focus only on the tax rate of this quarter. The guidance stays always in the 30% to 33% range and this is the range on to which we built the plan and there is no change on the party related to the - on the plan related to this.

Then related to the second question on the asset under management and non-third party I'm not sure if I get your point you would like to add this split between Banca Generali in the asset under management third party?

James Shuck

Yeah.

Cristiano Borean

Yeah, I give the word to further acre.

Frederic de Courtois

So hi, James, The third party asset management just to tell you, we had 72 billion of third party asset management at the end of the year and it moved to almost 84. So I would say plus 12 billion, then the Banca Generali impact out of this is 3 billion. So but one quarter of the increase, then I do not give you the split for the quarter on the inflow, the market value and so on. But I guess I hope I was clear in my answer.

Then moving to the Life net inflow; yes, so you're right. So the Life net inflow has been extremely strong. You're so right that we've sold less unit linked in Italy and in France, compared to 2018. This is usually due to the impact of financial markets at year end. Interesting to see that it was not the case in Germany, we've continued to increase unit linked sales in Germany, which by the way, is a good sign on the integration of our channels in Germany.

An additional comment on this - two additional comments on this, the first one is that the production sales are extremely strong. So in Q1, we've increased the new business and protection by 13%. And by the way, we see the technical margin, the positive technical margin flowing in the P&L on that, so strong protection sales. And my last comment, which is something that we are going to discuss next week in London, you know that especially in Italy, we sell more and more product only with maturity guarantee. So what I would call your thought capitalized with very good margins.

James Shuck

I guess, but why is the new business value not growing?

Frederic de Courtois

The new business value is not growing because of the lower unit linked new business.

Cristiano Borean

Yeah.

Frederic de Courtois

Cristiano, on the last one on GEL?

Cristiano Borean

On GEL, James, hope to be clear, being disposed entities the impact of Generali Leben in the 2018 results - on operating profit was zero, because it was fully accounted under IFRS 5 principal. So this is the way we accounted for it. Hope I gave you the clear answer with the figure of the year end result disclosure.

James Shuck

Maybe, maybe I'm misunderstanding it, but the - if I look at German Life divisional results for 2018. I thought I still had Generali Leben in it, is it not correct?

Cristiano Borean

No, it is not correct. When we do the comparison, like-for-like we always make the comparison, ex IFRS 5 entities in order to allow you to have the best comparison in the trend between the entities which are now in the group, what would have been their contribution last year. So I think it is a fair way to represent it. And I recall you last year results from Leben was also impacted from changes in asset allocation, which is not the recurring value result you can extract as we already discussed during the year end '18 results.

James Shuck

The 424 million operating results for Generali Leben, sorry for German Life was reported in 2018, I agree you changed the like-for-like when you report, but it seems like the reserves are still included at the full year 2018. And it seems that the profits that included in the operation result that some - maybe I can take that offline if I need to.

Cristiano Borean

No, James, but I confirm you it is not that we can go on offline, it is really the straight in strict application of the IFRS principle. Really the moment I sign or I have the knowledge of the high probability to deals realized I have to take this in this IFRS specific category, which is final net contribution and take everything out from the operating result contribution that was already done in 2018 after the signing and so everything has been cleared out.

James Shuck

Okay, that's great. Thank you very much.

Operator

The next question is from Andrew Ritchie with Autonomous. Please go ahead.

Andrew Ritchie

I wonder if you can gives us a bit more color on strong non-Life results. The combined ratio was kind of flattish year-on-year despite the fact I think in Q1 '18 you had a very, very benign man-made kind of average Nat Cat, so just a bit more color on Nat Cat moment experience, PYD experience on the combined ratio would be useful. Second question, cooperate German Bund yields back to the lows of 2016 pretty much, is there been any change in the group's reinvestment strategy to date in terms of geography, duration or any other measures you're taking to further address the decline once again back with lows in reinvestment rates. Thanks.

Frederic de Courtois

Good morning, Andrew, I'll start with the technical profit and the combined ratio. So I'll comment on the claims ratio, but the basic message is that the current year claims ratio excluding cat and man-made is actually - so attritional if I may say, is actually improving by 0.8 points. So let me tell you - let me give you a bit more color on this. The first comment is that you're right we had a quite benign quarter on cat. So we had a positive impact on cat. Then we had a negative impact on man-made, we had some more man-made compared to last year, first quarter last year. And last but not least, we had in this first quarter less result on previous years. So if you restate everything again, guarantee your attritional claims ratio is improving to Q1 last year by 0.8 points.

Cristiano Borean

Andrew, its Cristiano, for the second question, so indeed rates are low and we are managing strictly according to our investment strategy announced already during the strategic plan. For your information, if we just compare the current deal, quarter-over-quarter on the book, excluding the disposed entities because I would like not to talk about the sensitivity of Leben being not an issue of Generali anymore, we have the basically stable current yield. We are matched against our liabilities in our duration. And we are pursuing the strategy to invest in more private debt and infrastructure as announced which is important for us to keep some premium above the bund and above the bund itself you may be known having seen the results of the allocation on German government bond of the group we are absolutely not a big investor in this asset class. So we are basically matching again their liabilities, keeping the real asset strategy live and managing the dilution. Also, thanks to what Frederic said on the technical side, we are working with very profitable saving business underwriting with the new products especially the one we were mentioning in Italy and the strong new production as well done with the great organization in Germany.

Andrew Ritchie

Okay, great. Thank you.

Operator

The next question is from Niccolo Dalla Palma with Exane BNP Paribas. Please go ahead.

Niccolo Dalla Palma

Hi, good afternoon. So couple of questions from the business on the P&C side, so Q1, so3% growth after I think six years of negative reported growth, I appreciate that now like-for-like and content perimeter, but is it - are you happy to say that this is a turning point and just making sure that that level of Q1 –could we start extrapolating that or is there anything specific to Q1 and within that Italy is - it seems to have turned the corner as well. Are you happy with that going for a bit more, is the market discipline enough now to grow again a little bit in motor, so anything on outlook that would be helpful? And on the Life side, you mentioned on the on the flow generation front the lower surrenders, is there anything structural to this or was it just specific to the quarter and lastly a bit on let it on Solvency II, can you just quickly remind us of the future impact of the French pension treatment for coming years, so just a refresher that will be helpful.

Frederic de Courtois

Good morning, Niccolo. So on P&C top line, so we we're happy with the growth that we have of 3.1%. A few comments on this, the first one on Italy, Italy is starting again to grow. We had the 0.7% growth in Italy, which is linked to the fact that the average premium, the average motor premium in Italy is now stable. And like last year's, which is which is good news. Plus the fact that we have taken over the big fleet contract in Italy, for the stage vehicles, which we know well because we had it before, so we know that this is a profitable contract. So the Italian situation has improved on volumes. Apart from Italy, we continue to see relatively strong growth across the board. This is especially the case in Austria and CEE, France is growing well. If I had one explanation, but it would be too simple, I would say that our strategy to have to sell modular products, including more guarantees and services is giving some results. But I wouldn't say that this is the only explanation.

On the Life side, so I'll comment on - I'll comment in Asia and I'll let Cristiano comment on France. So in Asia, we had very strong business in the Q1. So more or less if I look at the net inflow, the net inflow in Q1 is increasing by close to 900 million. And let's say that it's half more premium than last year and half less surrenders. So why do we have less surrenders because in fact, last year was exceptional. The Q1 last year was exceptional because we had a generation of product coming to maturity. So we had a lot of surrenders last year. So I would say that this quarter in China is more normal than the quarter last year. Maybe last comment on China before I give the word to Cristiano, so you know that in China, the Q1, based on how the Chinese market works, is very much linked to beginning of the year campaigns. And very much focused on savings products, which are less profitable than what we have all over the year. In other words, we've sold in China in Q1 more savings product and less protection products that we usually do. And it will be smoothed over the year as we are starting again to sell more protection products and savings products. And it had a negative impact on the NBV in Asia and of the group.

Cristiano Borean

Thank you, Frederic. To complete the second question on France is it structural lower surrender rate, I can confirm you since last year, I mean, 2017 changes. I think it is a very structural change it coming from the fact that their tax benefit after September 2017 has been different in the product. So the people having older product are less prone to surrender because there is less benefit to open up a new contract after, so from this point of view within this as a structural and unfortunately, this behavior has not been accounted for in our Solvency II models because on the contrary, what happens is that the regulator asked to, let's say, a little bit strengthen the dynamic behavior of the policyholder. And apparently even when you look at your new business value, you have a much higher elasticity versus the interest rate moment but in the one you are really observing in the figures. By the way, this is also a factor of slightly affecting lower new business value when you look at the figure on our French business.

On the third question, how do we treat under Solvency II the IRP business over the pension business in France? There has been an agreement with the regulator that this business being treated in this regime IRP, which for the people doesn't know allows to treat in a kind of Solvency I like approach the business because of the longer term and because the lack of a final regulation in Europe around that had an agreement of accounting for the unrealized capital gain net of some technical shortfall in longevity risk, which are the longevity charges. I'm always mentioned, when I speak about the lower technical impact of those.

You had capital gain minus charges at year end '16, we were allowed to do to account for 100% of this figure for the whole year, for the year '17, we were allowed to have 75%, year '18 50 and year '19 25 and year '20 is the asymptotic landing point of 15%. So we have still as more impact of let's say about slightly more than one point next year to be expected around this agreement. What is important to know is that this is a digital effect. So you have at year end an amount, in the first quarter you report immediately the digital loss. That's why you see this 3 percentage point impact in our solvency as we disclosed in the own funds supplementary information at the end of '18. Hope I gave you sufficient visibility on that treatment.

Niccolo Dalla Palma

Thank you very much.

Operator

The next question is from Farooq Hanif with Credit Suisse. Please go ahead.

Farooq Hanif

Hi, everybody. Thanks very much. Just very quick question, so you mentioned the strong growth in non-motor in your mix, which clearly something that you've been wanting to do, how much of that is coming from Italy? And what proportion of your business in Italy now is in non-motor and P&C. And secondly, on the technical margin in Life, which is elevated, you mentioned the higher protection mix, so presumably this is sustainable for the rest of the year. Thanks.

Frederic de Courtois

Good morning, Farooq. So yes, we of course push to develop non-motor. In Italy actually, if you look at the figures, so first on premiums, the mix in Italy in Q1 is around 500 million motor and 700 million non-motor. Non-motor was slightly positive but close to zero and actually because of the big contract that we've taken over, motor grew close to 2% in the first Q1, so I would say that's a bit counterintuitive, because we try to develop non-motor, but in the Q1 motor grew more than non-motor.

Then on the technical margins, so I think your question was related to especially to protection. Right, so it was difficult to predict the future review volumes. But prediction is a high priority for us and for our distribution channels. Actually, I'm expecting more protection sales in Asia during the rest of the year. So if everything holds in other countries, I would expect, but again, this is a high level guess that production sales and new business could accelerate during the year but again, probably I take a small risk seeing this.

Farooq Hanif

Okay, that's very helpful. Thank you.

Operator

The next question is from Michael Huttner with JP Morgan. Please go ahead.

Michael Huttner

Fantastic, thank you very much. I had three questions. The first one is what is the amount of investments in alternatives, you mentioned infrastructure and also in private funds. The second is, if I take the 616 million adjusted figure, what - are we - is that equivalent to you have an 11.5 or over 11.5% target on that. And then the final question, just getting back to the solvency, at the beginning, I think there was a discussion around and you said that the sensitivities have changed. I just wondered if you could potentially give us an update on the current sensitivities to the BTP and the free. Thank you.

Cristiano Borean

Hi, Michael. So speaking about specific amount on investment and senior investment strategy, we do not disclose this amount. I just confirm you that our plan has a - and is three year time horizon to invest around 20 billion among real estate, between infrastructure, private debt, real estate and private equity. Second question related to the return on equity, I mean, if you just take the quarter given the impact of the capital gain, you are at a higher projected level on the year, but on the normalized effect, we are absolutely in line with what we are accounting and if not slightly higher due to this impact with respect to what we have disclosed in the strategic plan target.

The third question related to solvency update and sensitivity, basically, the sensitivity did not change in the meaning maybe I was not clear in the point. The fact that when you measure a sensitivity of a BTP spread the movement over swap curve, which is the first important point because there is clear reference right for solvencies to swap where you need to take into account different facts, when we disclose the sensitivity on BTP at year end '18 at 7 percentage point was a sensitivity where all a sequel, a movement of a few basis point would have triggered this effect of the country-specific VA. What happened in this quarter is about the joint effect of higher BTP spread, lower risk free rates and lower corporate bond rates and lower weight of the BTP in the EIOPA portfolio, which is the reference point on to which you calculate the difference created for time negative movement versus what you were expecting.

So everything moved it was not a single standalone movement of the BTP. That's why you should not have done this calculation with the 7 percentage point. But you should have done this with the one without the activation of the country VA, which was 12 percentage points. Sorry for the long explanation, but we are speaking about jointly movement of four different animals and among these four animals, there were many other small babies, which are all the different sub weights of the government's bond, and the other corporate spread the weights in the EIOPA portfolio. So it's quite complex. But the basic message is four different things moving together, all in the opposite direction, not allowing you to trigger a standalone sensitivity to seven. Hope this was clear.

Michael Huttner

If I may just - I think I understand and I love the phrase of the little babies kind of moving. But if I understand the activation unchanged would benefit by 12 points if it happened and the fact that the activation didn't happen and that all these things moved, is it that the problem or the thing we didn't calculate properly was at the activation point moved? Or is it that all these the BTPs and swap et cetera created the kind of correlation which increased the markets and the market movement.

Cristiano Borean

Just to clarify your first point, the activation when it happens is not 12 points; it is the difference in sensitivity versus 100 basis point movements moves from 12 points to seven points. Then when you speak about the movement and the market change, it is not that they are un-correlated. When you do a sensitivity you need to create a standalone movement, then you have the so called joint effect. The point here is - at year end I recall, I told you that we were basically less than two basis points from the activation, but the delta against which you move is again a moving factor because the delta which on to which you have to measure the movement of the BTP is not stable.

It's changing depending on the corporate bond change, the government, non-Italian change and as well the weight because if the EIOPA changes the reference portfolio as they did the weight of the Italian BTP could change the basis. So there was a joint effect of - on one side you have a movement, but on the other side the reference point your thermometer change in degrees, you see you are not more in the Kelvin you are in the Fahrenheit, just to explain it because we change the reference. This is the complexity of the system. Unfortunately, you cannot predict the movement of - the joint movement of four different elements but contributes to the activation trigger.

Michael Huttner

I understand. That's good enough. Really clear, thank you so much.

Operator

The next question is from Nick Holmes with Societe Generale. Please go ahead.

Nick Holmes

Hi there. Thank you very much. Couple of quick questions, I have a little bit more simple than the last one. Firstly, coming back on the unit linked sales do you see recovery so far in Q2 on the back of market recovery? And then secondly, on P&C just wondering, can you update us on whether the Italian banks are having any disruptive impact on P&C pricing? Thank you.

Cristiano Borean

So Q2 is in April I would say and high level comment slight recovery compared to Q1. Banks, we see no impact on our business in Italy.

Nick Holmes

Okay, very clear. Thank you very much.

Nick Holmes

Thank you, sure Nick.

Operator

The next question is from Giuseppe Mapelli with Equita. Please go ahead.

Giuseppe Mapelli

Yes, good afternoon. I have two questions. The first one is on your combined ratio, you stated that your underlying combined ratio improved by some 80 basis points year-on-year. Can you give us an idea and isolate what has been the impact on Nat Cat in the first quarter. Thank you.

Frederic de Courtois

Good morning, Giuseppe.

Giuseppe Mapelli

Good morning.

Frederic de Courtois

So I said that the - on the claims ratio, not on the combined we had the reduction of the attritional current claims ratio by 0.8 point. We have a slight deterioration of the acquisition costs because globally our business mix is moving towards non-motor, especially in Austria, In CEE and in Spain. So globally we have a slight deterioration of the expense ratio by 0.4 points. So if you do - the sum of the have minus 0.8 on the claims ratio, plus 0.4 on the acquisition ratio, so let's say minus 0.4 on the combined. Then on the impact of Cat Nat, so not including man-made the Q1 '19 impact was 0.9 points compared to 1.5 last year, so an improvement of 06, 07 points.

Giuseppe Mapelli

Thank you. And just another question on your role motor TPL trend that you're experiencing in Italy because someone is saying that the pressure so once again, increase in terms of average premium, can you share with us what's your view on the market and also for the outlook for 2019. Thank you.

Cristiano Borean

So what we see in Italy is as I said, now flat average premium. So it remains a competitive market, I confirm it. But flat average premium is much better than what we had before. The good news is that the frequencies are continuing to decrease. So I see a relatively significant improvement of the profitability in Italy, due to the as I said the flat average premium on one hand and the decreasing frequencies.

Giuseppe Mapelli

Thank you.

Operator

The next question is from Johnny Vo with Goldman Sachs. Please go ahead.

Johnny VO

Yeah. Thank you. Just asking about the remittance ratio and the remittances to the holding company, I guess you're adjusting the shareholder structure or the group structure, the financial structure of the group. And given where the solvency move has moved for this quarter, has that had any impact on the remittance profile of the group? The second thing is just again on the remittance, is the remittance following the organic capital generation of the group or is it exceeding the capital generation? And just third question, you make a point with regards to the current yield on your book, but what is the economic reinvestment rate, are they now above the previous reinvestment rates or below the reinvestment rates? This is on an economic basis. Thank you.

Cristiano Borean

Hi, Johnny. So first of all, restructuring of the Hold Co and the different intermediate Hold Co, at group, I confirm you that we are working in order to optimize our capital management framework as we announced at the group plan in November. So this is going on and which is also consistent with all the operations and also the way we will manage the cash upstream. On the fact that the movement in Solvency II, whether this is impacting or not our remittance capacity, I absolutely confirm you that there is no absolute change in that because we are still, as I recall you the 212% end of April and solvency level is a very solid one, which is absolutely in the middle of our risk appetite range, preferred range and there is nothing which is changing our structure of the plan.

On the second question, organic cash generation is it exceeding the capital generation? I mean, given the high level of capital generation we have, which is well above even the dividend capacity as you know, which is more than twice that one, I confirm you that the capital generation is higher than the cash generation. But as we explained also in November and we are continuing to explain this is just taking the time to see this increase going forward. Thanks to the higher profitability of the new products in the total transformation that we did the managing through our liabilities which are the product.

The third question related to the current yield their investment rates, if you compare -

Johnny VO

The economic reinvestment rates.

Cristiano Borean

Yeah. I mean, by economic reinvestment rate, I hope if we can agree on the definition it is the IRR of bond you're buying. So the -

Johnny VO

For the market value reinvestment right?

Cristiano Borean

Yeah. The market value which is related to that not the book accounting. I do agree. Yeah, yeah, indeed, on the market value reinvestment rate versus the previous quarter 2018 there are even in some cases due to the strategy of reinvestment in the so called private debt and real asset we have a slightly higher rates of versus first quarter '18 of reinvestment in non-Life and basically stable in Life. This is the actual situation in the group.

Johnny VO

Brilliant. Thank you.

Operator

Gentlemen, there are no more questions registered at this time.

Giulia Raffo

Thank you very much. As usual, the investor relations team remains available for any question or follow up you might have. I just wanted to say that we all look forward to seeing as many of you as possible at our Exploring Generali event, which is scheduled to take place in London on May 24. Next Friday. Thanks a lot everyone for your attention. Have a good day. Bye, bye.