EuroBusiness Media (EBM): Groupama, one of Europe’s largest mutual insurance companies, report its 2010 first-half results. Christian Collin, welcome.
Christian Collin (CC): Thank you.
EBM: As Groupama’s Chief Financial and Risk Officer, what can you tell us about the Group’s first-half 2010 results?
CC: Well, the first half of the year was marked by strong growth, both in France and internationally. In France, our market share is increasing for property and casualty insurance. Our life and health insurance market share is holding steady, especially for individual retirement savings accounts. In terms of our international business, we are seeing a return to growth with outperformance in our major markets, especially in countries like Italy, Hungary, and Spain.
In terms of results, our 2010 first-half results were naturally affected by Xynthia, the windstorm that swept across Western Europe in February. We paid out—very quickly—some €200 million to our policyholders, customers, and members. The net cost to the Group after reinsurance and taxes was €75 million. What is encouraging, what we are very pleased with, is that despite the high claims and financial crisis, the Group managed to generate earnings of €127 million with a solvency ratio of 153%. This is a testament to our resilience.
EBM: What are the highlights for the first half of the year?
CC: So far this year, we have focused all of our efforts on improving our performance and operational efficiency on several fronts. In France, we have continued to streamline our business processes, control costs, and pool activities across the Group. We have also sharpened our focus on the consolidation of our life insurance businesses into a single structure, Groupama Gan Vie, with the clear goal of having a truly-automated, modern management platform to serve our five networks as well as our future external partners, similar to what we are doing with Amaguiz for non-life insurance. Internationally, we have focused on completing the integration of our recently-acquired subsidiaries, where we have leveraged synergies and set up several regional platforms.
Beyond our efforts to improve performance, we have also invested in distribution, forming some very promising partnerships like the one with the Casino group. This new partnership has been operational since June and will let us sell insurance policies at Casino stores via Casino bank. Another partnership that has earned quite a bit of coverage is the one with Banque Postale. This partnership will be operational by end-2010. Of course, we have also set up partnerships with organizations similar to ours like Agrica and Pro BTP, two provident and retirement savings institutions. We have also formed a number of international partnerships, such as the partnership that our Romanian subsidiary has formed with Renault Dacia.
We have also invested in direct online sales. You are no doubt familiar with Amaguiz, which we created just over two years ago. Amaguiz has grown quickly—faster than what we had originally forecasted in our business plan—and now has a portfolio of some 72,000 policies. We plan to leverage what we have learned with Amaguiz in several other countries.
EBM: We know that Groupama is opposed to Solvency II. Can you update us on how you are preparing to implement the regulation?
CC: You are right about Groupama’s position on the issue. We had reservations about the proposed regulation right from the outset. We have no problem with the principle of Solvency II, which is to assess capital requirements according to a company’s risk exposure, whether to asset risk or liability risk. There is nothing to argue with there. We do, however, oppose the way in which the regulation is to be applied, and we are continuing our lobbying efforts in association with all competitors. One of the major issues with the proposed regulation is the method for assessing capital requirements that is based on the principle—the rule—that the corresponding risk should be valued over a one-year time horizon. We feel that a one-year time horizon is totally incompatible with the insurance profession, where insurers typically manage liabilities over the long-term, especially in areas like construction, civil liability, and retirement.
That said, the Directive was passed over a year ago, so we have decided to work proactively to prepare for the implementation of Solvency II. We are working on several fronts. First of all, I have set up a team of 16 people and given them ample financial resources to develop an internal model to optimize our capital. We are also working on the results of the fifth quantitative impact study, which have to be submitted to the EU supervisor in October.
And—this is an important point—beyond the quantitative aspect of Solvency II, there is the whole Pillar II component covering risk management and internal controls; another area in which we are investing heavily. We have set up a pilot project within the Group—a regional branch in this case—where we will implement the necessary processes and governance systems in line with Pillar II. Based on the results of the pilot, we will start a broader implementation in 2011 and 2012.
EBM: Your results have been affected by extreme weather events. What lessons have you learned from this?
CC: This is an important issue, and I have three points to make. First, the cost of Xynthia is high. As I mentioned, we paid out €200 million to our policyholders and members. But its net cost of €75 million is something we can absorb. The proof lies in the fact that we reported earnings of €127 million.
Second, we have substantially increased our reinsurance against storm risk, both in terms of ceilings—we now have a maximum coverage that will allow us to withstand a storm with a probability of occurring once every 200 years—and in terms of retention.
The third, and last, point I would like to make is an extremely important one. We are very solidly anchored in the French property and casualty insurance market, especially in rural areas. We do not intend to pull back from what is a major strength for us. On the contrary, we want to capitalize on this strength. Therefore we have a clear strategy to mitigate the impact of severe weather events in France, which is to diversify. We plan to diversify both geographically and into life and health insurance. If you look at where we were 10 years ago, Groupama was almost 100% French. We now operate in 13 countries and 30% of our revenue comes from international business. In addition, 10 years ago the Group was a non-life-insurance company. Today more than 52% of our revenue comes from life and health insurance.
EBM: What is your outlook for the second half of 2010? Are you still on target with your 2010–2012 three-year plan?
CC: What we can say is that growth should remain strong since we are capitalizing on—and will continue to capitalize on—all of the investments we have made in marketing, distribution, and advertising. In terms of results, this year’s results will of course be affected by Xynthia, but the effects will be diluted over the full year. In terms of our strategic and operational targets for 2012, bear in mind that we are still in the early days of the 2010–2012 plan and that, given our results so far, there is no reason to change our 2012 targets. I can tell you that we are staying the course and I am confident that we will reach our goals.
EBM: Christian Collin, Groupama’s Chief Financial and Risk Officer, thank you.
CC: Thank you.
