Interview with Manlio LOSTUZZI, Generali International CEE Regional Officer and CEO of Generali CEE Holding

16 March 2023 — Daniela GHETU
Interview with Manlio LOSTUZZI, Generali International CEE Regional Officer
and CEO of Generali CEE Holding
XPRIMM: To start with, Mr. Lostuzzi please provide our readers more details on Generali CEE Holding - what is its scope and role within the Generali Group?

Manlio LOSTUZZI: Generali CEE Holding has been established in 2015 in Prague after the acquisition of the insurance market leader Cesk? pojist'ovna from the Czech investment group PPF and today oversees ten subsidiaries' companies across the Central and Eastern Europe region. Following a geographical reorganization within the Generali Group, as of September 1st 2022, the CEE region has been incorporated under the Generali International unit together with the company we have in Asia, Latin America and Mediterranean area. Consequently, Austria is not anymore part of our perimeter and the Moscow representative office in Russia has been closed.

Generali Group has solid historical roots in CEE, it is one of the areas where has invested more worldwide in the last ten years, and it sees it as an important area of growth. We contribute with about 5% of the overall Group's premiums and 10% of the operating profit.

Clearly, because of the war, which is very close to our markets, last year has been a very challenging year. Apart from Argentina and Turkey, the CEE is the region with one of the highest inflation rates in the Group. But at the same time, notwithstanding this geopolitical problem, the region achieved outstanding results. The positive performance is motivated by the Lifetime partner relationship we build with our clients, technical features, and underwriting discipline. In my opinion, it is a big value. I arrived here in September 2022 and I found a talented and solid management, which allowed us a smooth transition after the changes made last year. As members of the International unit, we are now, by nature, the most diverse unit of Generali and our aim is to be even more the engine of growth and profitability of our Group.

XPRIMM: International Generali CEE assumed a leadership position in the region. While leadership may be defined in different terms, what is the criteria of choice for your company? In your opinion, has your Holding achieved its potential in the region?

M.L.: If you want to convince shareholders to invest in an area, you have to be profitable. On the other side, we, at Generali, are concentrating on profitable growth because, as our Group CEO, Philippe Donnet, says, "volume is for vanity, profitability is for sanity." If you grow in a sound way, it means you are able to establish a long-lasting relationship with your clients.

The distribution network is another crucial pillar to grow in a market. There are different solutions depending on the local context: in certain markets banks are very strong partners, real growth drivers, in others brokers or multi agents are better positioned. I always push in creating our own strong sales network where it's possible because it guarantees better quality, in terms of the relationship with the clients.

It is fundamental to establish discipline in your distribution network, apart and in addition of the law requirements as increased transparency and support for the clients. The way you train your intermediaries, as well as the way your products are built, is instrumental.

So, when talking about leadership, for sure the market share is a relevant indicator. But we cannot forget that for the shareholders, profitability is of the utmost importance and, as such, for us it's relevant to produce a proper remuneration of the capital.

XPRIMM: In these terms, which of the CEE markets do you think are the top?

M.L.: For us, the company we have in the Czech Republic is the biggest one. As former state-owned company, we have inherited a large base of customers.

Obviously, it is more difficult becoming a market leader in the countries we entered later, but it is always possible to change your position with a relevant acquisition. The target is to achieve a leadership position by combining organic growth and possible acquisitions. At Generali we are always vigilant to see if there are opportunities to make acquisitions that could allow us also to increase our critical mass and thus increase efficiency.

Our main challenge in this region is modernizing all the IT infrastructure. This is extremely important to be more efficient and also to provide a better service to our clients. For instance, in Romania now we have about 98% of the policies that are digital. Following this path, we reach our sustainability goal and provide a modern service to our clients.

XPRIMM: How do you accommodate the differences between the markets? Because we are speaking all the time about CEE but in fact CEE is a conglomerate of very different markets in terms of size, culture, maturity etc.

M.L.: Yes, we are talking about a multifaceted region, with countries having different legislation, languages, also different characteristics. But I am coming from Italy and, within the same country, the "business landscape" is variegated. Milan is completely different from Palermo, but also within Sicily there are big differences between the West and the East part. The South of Italy, for example Naples, is a completely different reality than the North of the country. So, overall, Italy is a very complex market, each region with its peculiarities.

Similarly, the CEE gathers under the same umbrella very different markets, including non-EU countries as Serbia, for instance, with legislation which is sometime much different from that you may find in the EU markets, or countries as Hungary, which belongs to the EU, but behaves sometimes in a very "strange" way, with some unique taxes.

Nevertheless, there are also similarities. One of them is a peculiarity of the region that differentiates it from the rest of the geographies of the Generali Group: the proportion between the non-life and life business in this region is 70% to 30%, which is quite reversed in comparison with the Western European markets.

XPRIMM: In strictly financial terms the CEE region accounts for a small share of Generali Group's business. Yet, the Group decided years ago, when it divested some of its less relevant markets, to maintain its CEE operations. What is Generali Group's view on the future of its CEE business?

M.L.: The CEE region is considered by Generali Group a market with a potential of growth, and we want to be present, while we have dismissed participations in countries where we had a marginal market participation and where we didn't see an interesting future.

Despite the growth has not yet reached the expectations, the results are positive. Nevertheless, we believe that soon the regional business will continue to grow, and we have already leadership position in many of the region's countries.

XPRIMM: It is largely acknowledged that the markets in the CEE region have overcome the pandemic crisis' challenges better than expected. However, now they are challenged by new difficulties raised by the economic effects of the war in Ukraine. Inflation hit harder in the CEE region than in the Western economies. In your opinion, how should insurers deal with this challenge?

M.L.: This year, one of the main challenges for our Group, not only in CEE, is fighting inflation. We are putting in place a lot of measures, starting from reducing the operating costs and also optimizing motor repairs costs.

However, these practical measures to fight inflation are not meant just for improving our results, but also to avoiding transferring 100% of the inflation effect to our customers. It would be very easy to simply adjust prices with inflation, but it would be a shallow approach because the situation is more complex. and has an impact also on the value of the insured assets, therefore we need to also look at it from this perspective because we are facing a serious risk of underinsurance.

It is crucial to properly adequate the coverage to the situation because otherwise, if the risk occurs, the outcome may be serious. The same goes for third party liability insurance, because the damage you could produce to the other may be of much higher value than expected.

XPRIMM: What about reinsurance? Because these days it is a problem also here.

L.M.: Obviously, the reinsurance market is in a hardening phase, but so much as the direct business. The trend is especially visible in Europe, because the prices for property reinsurance were very low after many years of soft market. The 2023 renewal saw a significant increase in reinsurance rates, mostly because of two reasons. On one side, reinsurers have suffered heavy losses, especially in the US. Unfortunately, in the reinsurance market, even if you didn't produce any big losses to the reinsurer, you pay also for the loss happening in other geographies. For instance, Generali has a certain exposure in US, on the commercial properties segment and, although the hurricane that happened last year didn't touch the industrial area, but mainly the residential area, where we are not present, this year the prices went up also for us. The second important reason, independent from the insurance market, is the increase in interest rates, which made reinsurers' own protection on the retrocession market more expensive.

No need to say that there is also the pure technical aspect related mainly to natural catastrophes. We had recently the earthquake in Turkey, last year Germany, Czech Republic and Austria were flooded. The climate change has a clear impact, and the number of calamities is increasing. As a consequence, the cost of insurance is higher, in particular from the CAT exposure. Of course, the earthquake risk is independent from the climate change and, although it is rather a high risk in some European countries, including Italy, it is a well-known risk, properly priced.

What is becoming more and more problematic for the insurance market, at least in Europe, is handling risks correlated with the climate. On one hand, the risks considered "traditional" for this part of the world are increasing in severity; on the other, we have experienced in the last years calamities as hurricanes not known to this area.

XPRIMM: Finally, Generali Group has also made a name for itself by its constant focus on sustainability and a positive social impact on the local communities. Is this something that applies also within International Generali CEE?

M.L.: Sustainability is the originator of the Generali Group strategy "Lifetime Partner 2021-2024: Driving Growth". This means creating long-term value, preserving the environment, and acting for the common good. To deliver sustainable long-term value, we have four "Responsible" roles to play as an Investor, an Insurer, an Employer, and a Citizen. We aim to have a full ESG integration in the direct investments by 2024 and a carbon neutral investment portfolio by 2050. In the CEE region to pursue the role of Responsible insurer, we discontinued existing contracts with corporate clients related to the insurance of coal plants and we are fostering a sustainable transition for SMEs. In conclusion, we are enabling a diverse, equity and inclusive policy across our employees and activated in all CEE countries programs to support families in need and newborn babies with health issues through The Human Safety Net, a social innovation hub powered by Generali Group headquartered in Venice. Last year, our management, employees, agents supported thousands of Ukrainian refugees escaped in Poland, Czech Republic, Hungary, Romania with donations, sheltering and ad hoc initiatives as free car insurances.

Interview conducted by Daniela Ghetu

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