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Coface SA
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Ladies and gentlemen, welcome to the conference call for the presentation of Coface results for the period ended March 31. [Operator Instructions] As a reminder, this conference call is being recorded. Your hosts for today's conference call will be Mr. Xavier Durand, CEO of Coface; and Madame Carine Pichon, Group CFO and Risk Director. I would like to turn the call over to Mr. Xavier Durand. Sir, you may begin.
Good evening, everyone, and thank you for joining our call. Tonight, we are pleased to report our first quarter 2018 numbers. As usually, I will speak with Carine for 25 to 30 minutes, and then we will turn it over to questions and answer. I'll directly go to our summary on Page 4. As you can see, our Fit to Win plan execution is driving returns in what is a sound economic environment. Our turnover for the quarter reaches EUR 344 million, which is up 2.1% at constant FX and perimeter. This quarter, we're seeing both mature and emerging markets growing, with a strong input from client activity. Our client retention continues to climb further despite what is a very competitive pricing environment. Our first quarter net loss ratio is down 18.3 points to 39.8%, and our net combined ratio stands at 72.5% for the quarter. We're continuing to see favorable trends and losses, particularly in Asia and North America. And mature markets, as you will see in the later pages, remain stable. We're seeing favorable past claims managements and recoveries, which continue in what is a supportive economic environment. Our net cost ratio stands at 32.7% versus 33.9% in the first quarter of 2017. It is driven by a continuation of our strict cost control and the fact we're also seeing higher commissions from reinsurance. We're making continued business investments that are fully funded by cost savings, as we have highlighted in the past calls. In total, our net income share of the group stands at EUR 35.5 million for the quarter, which drives our returns on average tangible equity to 8.8% for the quarter. As I mentioned at the end of last year, 2018 is a year of focus on execution, on deepening our execution on our plan Fit to Win. We're continuing to drive a deep cultural process and systems transformation. So far this year, we have achieved a EUR 6 million additional cost savings versus the first quarter of 2017, and we are confirming the total target of EUR 13 million annualized target for 2018. We are making thoughtful, disciplined investments of EUR 6 million additional million euros into growth, risk management, compliance and process transformation. I'm going to go through the next few pages. Going to Page 6, where we provide more input on the top line. As I said, turnover growth for the quarter stands at 2.1%, driven by client activity. The growth is also driven by higher retention rates, which stands at a very high level, and we'll see that on the next page. Clearly, we operate in an improved economic environment, which continues to drive significant pricing pressure. We are seeing other revenues, which includes factoring and services be down by 3.3% versus last year. This is driven by lower factoring revenues in Germany as we continue to focus on deal pricing and profitability. Our fees to earn premiums has increased by 0.5% on sales of information, which we have been driving, and I think that's good news for the business. If we go to the geographic split of our turnover growth for the quarter on Page 7, you'd see that all the large mature markets are in fact performing better, with Western Europe growing at 3.6% on the basis of the record retention and growing client activity. Northern Europe is still negative, but within that number is a flat performance for credit insurance. As you know, it's been declining for a while. And we are down in the factoring business, as I explained before. Central Europe and Mediterranean and Africa are accelerating at 5.2% and 7.1%, respectively. North America, while it is still negative, it's doing better as the portfolio is now stabilized. And as you know, as you will see later, we have much better losses, which are driving premium refunds for better-performing contracts. Asia Pacific has started to grow again, now that, I would say, the cleanup phase is over. And while the headline numbers in Latin America look disappointing at 10.8% negative, this is driven by the late bookings on large international contracts, which we expect will normalize itself over the course of the coming quarters and also the fact that we have higher premium refunds, a result of the much better loss performance in that part of the world. If I go to Page 8, where we split the different components of the top line, you see that we're off to a relatively slow start in the new business. On one hand, we're being thoughtful about what to write and at which terms, recognizing this is a competitive market. At the same time, there are delayed bookings, and we expect this performance to improve over the next quarters. Retention rate stands at 93.9%, which is the highest that it's been in the last 4 years. We are seeing a record level of client retention. Price effect, as you see, is minus 1.9%, so slightly below last year, reflecting what is a competitive price environment at this point in the cycle. And last, volume effect is positive 2%, as it also highlights a good point in the economy, and that confirms what we have started to see at the fourth quarter 2017. If I go to Page 9, where we talk about losses, you see that we are now in the sixth consecutive quarter of loss ratio improvement. And for the quarter, the loss ratio stands at 39.7%, slightly below what we had seen in the fourth quarter of 2017, which, as you remember, had also been impacted by about EUR 10 million of losses, which we had selectively reinsured to the market. So it's at a record level, I would say, in line with the recent quarters. We continue to see strong momentum, which is supported by the positive economic environment and also some favorable prior periods underwriting development on the back of an improving cycle and a good job that the teams are doing on managing prior claims. I think we can say we are actually seeing the full effect of the action plan that we've put in place in September 2016 in the context of our Fit to Win plan. There's been no change in our reserving policy. And on the bottom of Page 9, you can see that the prior year bonis are well above historical leverage reflecting the point that we are in at the cycle. If I move to Page 10, we have the usual split of the loss performance by region. I would start again by the 4 more stable regions that are at the bottom of this page. And you can see at Central Europe, remains in the area of 50% at 52.3%, so stable. Western Europe, which had, had a spike in the fourth quarter of 2017 due to one large file in some selectively reinsured contract is back to pre, pre-events of 42%. Northern Europe continues to be stable at 54.8%. And Med and Africa again is around the 50% line. The good news comes from the 3 regions which had caused us more difficulties, with North America at slightly below 0 on the back of better prior year recoveries after a spike in the fourth quarter of 2017. Asia Pacific, coming from the minus negative at Q4, again slightly below 0. And Latin America, normalizing back to the 30% range, as we could have expected. On Page 11 is our cost performance. You can see that our total costs are up 2.8% at constant FX and down 0.8% in nominal terms. EUR 40 million for external costs, down EUR 1 million from the first quarter last year. Internal costs are flat. You can see on the right hand -- top right hand of the chart the walk from last year to this year. We get a positive EUR 4 million benefit from FX. We have driven a further EUR 6 million savings through our Fit to Win initiative, which we've been talking now about for the last 6 quarters. As I said, we are making deliberate reinvestments to some of these savings into initiatives, which are geared around managing risks and managing growth and driving further growth. We have EUR 4 million of inflation, which brings us back to the EUR 131 million equivalent to first quarter last year. As I said, earlier in the summary, we've been driving the EUR 6 million additional cost savings versus the first quarter of 2017, and we are confirming the annualized target of EUR 30 million that we had highlighted at the time of the plan. You can see on the bottom right hand of this chart the evolution quarter-by-quarter by cost ratio, and for the quarter, it stands at 34.8%. I'm now going to turn it over to Carine to take us through the next few pages.
Thank you, Xavier, and good evening, everybody. So let's move to Page 12 on reinsurance. Our reinsurance result had been impacted by record low loss ratio and also growing accounting cession rate. If you remember, we have decided to increase our cession rate from 20% to 26% last year and also for this year. And so here, you have the full effects and you see that we see the -- in the premium 28.7% including quote share and all of the treaties and the same cession for our claim. All-in-all, we have a negative reinsurance result by EUR 16.5 million, which reflects the very good loss ratio and low loss ration we have on this quarter. Page 13, what is our net combined ratio, so it's at 72.5%. You have quarter-to-quarter trend, you see that quarter-by-quarter, we have made decrease this combined ratio sans through improvement on loss ratio, which is at a little lower than 40% and also an improvement on the cost ratio, which is at the 32.7%, which is lower than the previous quarters. In term of financial portfolio, Page 14, we have a slight increase of investment income. You look at income from investment portfolio without gain on sales in the middle of this chart, you see that we went from EUR 9.8 million to EUR 10 million. So we are still in a -- as you know, in a very low interest rate environment, but we try to keep the accounting yield [indiscernible], and we also are benefiting from a lower FX effect with Q1 '17 and Q1 '18, which explain the reason why our net investment income went from around EUR 6 million to a little more than EUR 8 million for Q1 '18. All in all, Page 15, you have our net income at EUR 35.5 million. Operating income is in the outcome of the improvement in turnover and also in net combined ratio, and we multiply by 3 at EUR 58.4 million, in line with more recent quarters. And our tax rate also has continued to decrease. It was previously in Q1 '17 a little more than 50%, and we came back to 35% for this quarter. Another way to express this improvement in profitability is the return on average tangible equity evolution, Page 16. Last year, we were at 5.3%, and you see that we went to 8.8%. And the main driver is technical result, our operating result, which I just say before, have been multiplied by 3, and you have here the expression in point of percentage of return.
So just to wrap up this presentation I'm going to go to Page 18. I think the takeaway for me is this is clearly another strong quarter of execution on our Fit to Win plan and what is an overall favorable economic environment. You see that for the first quarter, our operating income is multiplied by 3 at EUR 58.4 million. Our net combined ratio at 72.5% is driven by a record low loss ratio of 39.8%. And our return stands at a high of 8.8%. We are proposing, as we mentioned before, to the General Assembly a dividend per share of EUR 0.34 for the year 2017. And as you know, we started on a share buyback program executing that program. It's a EUR 30 million program. At this stage, it's about 20% completed. As I mentioned before, 2018 is the year of deepening and intensification of the implementation of our Fit to Win plan. We're driving an intense cultural transformation into the company -- into every part of the company, which is underpinned by our key values of client focus, expertise, collaboration, courage and accountability. To me, it's very important that this is driven deep into the company. We have just launched a new tagline for Coface, which is Coface For Trade. It's an affirmative statement which expresses our belief that commerce is a driver of wealth, of stability, of development. And in general terms, it's good for the community. We are also working actively on the third pillar of our Fit to Win plan, which is capital management. We are, on one hand, closely monitoring the recent proposal by the European body -- the regulatory body called EIOPA, which is purporting changes to the standard formula, which we think could have, if approved, an adverse impact on our business. At the same time, we're also progressing the developments of our partial internal model, with the goal now, we can say, to submit this model by the end of the first half of 2019. We're confirming, overall, our guidance of EUR 30 million of costs savings for 2018 and a combined ratio targeted across the cycle of 83% after the implementation of our plan. So that's kind of the summary for the presentation for this quarter. With that, I'm happy to turn it over to you and to take the questions.
[Operator Instructions] The first question from Mr. Guilhem Horvath from Exane BNP Paribas.
The first one is on the Solvency II model. So first of all, on the standup model, can you elaborate a little bit more on what could be the reasons -- change that you mentioned from EIOPA? And what could be the impact on Coface's solvency ratio? And second, on internal model, how would you describe the advancement of the billing process? Because you mentioned that you launched the process in -- at Full Year '17 Conference Call, now you give a time frame for submitting the model. Should you -- should we expect you to be at the very early stage? Or is it already quite advanced? And the last question on internal model is, is there any reason why you would end up with capital consumption, which would be materially different to what peers achieve? Because I think that Euler is today consuming quite a low level of capital compared to you on a net and premium basis. And then my second question is on the target for 2018, and you continue to say that you expect improvements to continue. Am I correct in thinking that you would report a better combined ratio in Q2 '18? Is this the way we should understand this target?
Okay. Sorry, we're writing down the questions. So let me start with the Solvency II model. I think in terms of the development of a model like this, this is a -- this is not a small undertaking. It's also an iterative process. As we said, we announced this process last year. We announced it's happening at the last quarter. What I know is that we have enough progress at this stage that we can foresee, that we would be able to -- or at least that's our target, to submit this program by the end of the first half of 2019. So that's quite a bit still far away. As it is an iterative process, I think it's too early to give a detailed assessment of exactly where we stand. I think we just see that we are progressing through that effort. In terms of the impact that this will have, it's very hard for us to say before we have actually had a discussion and seen some feedback from the regulator. As I mentioned several times before, there are no other accredited insurers who have developed such a model in the French market, so we are the first ones to do this. It's a first for us, and it's also a first for the regulators, so I think it would be unwise to forecast where this could end. But clearly, we're going through that effort because we think it could have a positive impact on our business. When it comes to the evolutions that we're monitoring from the EIOPA, it's still early days, and I think it's recent, but this is a process that takes -- involves them making a recommendation and then the European commission enacting some changes and legislation on that basis. So there are several steps that still need to happen. We think that the impact could be negative on our business, and then that's why we're flagging it, and we'll be monitoring that closely going forward. In terms of the -- what was the second question?
On target for '18 in term of combined ratio.
Well, I don't think we should think of it any differently than what we've highlighted at the end of Q4, which is we expected -- we said, I think, that we expected the momentum that we were seeing in the fourth quarter to continue into 2018, particularly in the first half of the year, and I don't think we've changed our view on that. Carine, do you want to…
Just a quick follow-up on the EIOPA's thing. Can you explain a little bit more what they intend to do there? Maybe it's very technical that I don't understand why it would be negative for your business.
Okay. Maybe I can take that question, Guilhem. In fact, EIOPA is reflecting to change formula, parameter of calibration, which concern the part for capital requirement, which is linked to underwriting risk. And then by making the change in parameter, it could have a negative impact on this capital requirement and may increase our need. So it's on one parameter in solvency capital requirement for premium.
Okay. And any estimates how this could be?
Yes, what we can say on that is that if the new calibration will be implemented and if we have the correct interpretation because that's -- we are really at early days, so we will need to confirm that. We will remain close to the middle of the range of the solvency concept, and this is before any litigation or management action we could take. So that's why we consider it could be significant. But our first assessment but really early assessment is that we should remain in our solvency concept case.
Was there a third question?
No, I think it's okay.
That was okay? I was trying to think through -- yes, okay.
So next question for Michael Huttner from JPMorgan.
Yes, I'm really sorry. I'm standing on the street, so it's a little bit noisy, but I hope it's okay. I had 3 questions. The first one is, very kindly, you gave comments on the loss ratio by reason saying Asia Pac is -- oh, sorry Med-Af, Mediterranean-Africa 50%. Which should be Lat Am, normal 30%. Could you give a color like this for Asia Pac and North America, please? So this would -- it's better to understand where the loss ratio or the combined ratio could end up after we've gone through the cycle of very big [indiscernible]. And the second is on the solvency. I remember, in Q4, the solvency improved massively because you had a low combined ratio. And I just wondered if there is another impact like that we should expect because the combined ratio has gone down one more notch, if you like. And then the last question is, could you just remind me of the -- you said with the new changes, the adverse changes at EIOPA, you'd be at the middle of your target range. Could you remind me when that is, please?
Well, I mean, on the first question on the loss ratio, I mean, I think we've always said we're targeting a combined ratio of about 83% so -- through the cycle. As you know and as you've seen, our combined ratio is much lower than that at this stage, so I think what this reflects is that we're at the -- actually the high point in the cycle. There's no running an insurance business with very, very low loss ratios over time, and so we do expect these loss ratios in any region actually overtime to normalize and oscillate around the mean. So I don't think we're expecting anything different when it comes to North America or to Asia for that matter because the market forces will, in any case, revert the whole market to the mean.
And when exact mean, please? You very kindly gave the mean for Med-Af, and you gave color statement for the others. Where would the mean be?
It's not -- there's not a mean for market. It's the mean -- the mean is what we've always said. It's around the 50% mark, which is more or less what we're seeing in other markets. When it comes to -- when it comes -- what was the other question? I think it was related, which is solvency improvement. I mean, again -- do you want to take that one?
Yes, just on that because your question was to know if we could anticipate any further improvement on solvency ratio because you see the loss ratio is better on this quarter, slightly better than the quarter before. What we showed indeed is that with the solvency ratio, you know the way we estimate our ratio is in the best estimated view. So to make this simple, we already anticipate most of the positive effect through to here on the Q4 ratio.
Say that again. Say that again. So the solvency is based on Q4?
Yes, solvency ratio you have at the end of December 2017 is based on estimation of the year to come, and so it has already anticipated improvement in the loss ratio, the part of it.
Okay, okay, okay. Okay. And what -- and then you said -- you had something about the -- you saw it's a bit middle of the target range. Could you remind me of the target ranges?
Okay. So the concept case, the target range in term of solvency ratio is between 140% to 160%.
140% to 160%, okay. And with the buyback in dividends, you saw it should be at [ a bit ] 164% of solvency.
So the 164% would be...
166%
No, that's why we had this called last year at the end of December '17 already included the share buyback program because we already anticipate what would happen on the year to come, so it's already included.
Okay. So this adverse thing, if I count it, it's plus around 14 points. Is that similar to what Euler had? Euler had a trend of hiccups when they first introduced their internal model, which was 20 points, I think. Was it a similar kind of reaction of the regulator?
I think it's different if I may -- I don't know exactly what is Euler, but Euler is related to the discretion on internal model with their own regulator. What they are discussing here is relating to standard formula, not internal model.
This is something that's industry-wide. It's not something specific to Coface.
No, nothing to do with Coface.
And if it's industry-wide, does it mean that the end buyer of credit insurance would save the same cost of capital from all his [indiscernible] or their providers in terms of credit insurance?
Depending on and whether they're operating under the standard formula or if they have an internal model, so I think it makes the internal model question even more important. And to be clear, this is early days, and I think there's more discussions to be had on this topic with the regulators.
Okay. Next question from Benoit Petrarque from Kepler Cheuvreux.
Two questions on my side. The first one will be on the loss ratio for the current year. I'm on the Page 9 on the slide. I see 72.4%. It's actually pretty stable versus the past 4 years, although, you have been investing a lot in risk management and improvement of underwritings. So I was trying to understand why this current year loss ratio is still relatively high in your current context also considering all the investment which has been made. So trying to understand a bit more this figure of 72.4%, why it's still at this level. And the second question was on the cost. So you've achieved EUR 9 million year-to-date, EUR 19 million last year. So you actually have EUR 28 million. It's very close to the EUR 30 million as you've put. So I was wondering -- or we have to think about the rest of the year would anticipate more cost inflation? Or are you still confident that you can kind of get cost more aggressively than the EUR 30 million?
Well, let me start with that last question because I wanted to make sure we avoid any confusion here. We -- in order to -- when we made our plan Fit to Win, that was in the third quarter of 2016, and we started counting cost savings on the basis of the '16 cost. So when we say we have made EUR 9 million for the quarter, it means we have made EUR 6 million in addition to the EUR 3 million that we already had saved in the first quarter of 2017 versus '16. So I hope that clarifies. We had EUR 3 million of savings last year in the first quarter. This year, we've another EUR 6 million of savings. So total at EUR 9 million, and the EUR 9 million compares to the EUR 30 million, right?
Okay. So it's -- so you've done like EUR 22 million. Is that right? You achieved EUR 22 million out of the EUR 30 million. Is that kind of...
EUR 19 million plus -- I don't know if we -- yes, kind of, yes. Was it EUR 6 million-plus...
Yes, yes.
EUR 6 million plus EUR 19 million?
And I think that's equal.
A little more than that, I guess. But I think we had just to find a way to count that would be as least confusing as possible and still not super simple that -- it just shows that we're moving, we're driving hard, moving resources from areas of the business that are least interesting into places where we think it's better used and actually necessary like risk management on one side, and growth initiatives on the other side.
On loss ratio, Benoit, your question on 72.4%, which is the current year loss ratio, we haven't changed any reserving policy, and that's the beginning of the year. We -- our policy is that we prefer to be a little [ reticent here ] because we don't have a lot of information, so we will see the benefit, if any, coming for the quarters to come.
So is that true to assume like the Q1 -- the reserving policy in Q1 '18 is much more conservative than what we have seen in the past years?
No, no, it's the same.
It's the same.
The same fact we don't have a lot of information...
But then I was trying to understand why then we don't see -- given all the investments you have done on risk management, why we don't see a starting point, which is actually lower because you are more -- much more about to anticipate risk than you have done in the past. So I was wondering why this level is relatively stable despite investment.
Yes, it's relatively stable, and I mean, it's quite not abnormal when you start the year even though we strongly believe that all what we have done in risk and infrastructure will have positive effect to get the level that we have a little more risk margin because there is more volatility at the start of the year.
Next question from Roland Pfänder from ODDO BHF.
Two questions from my side, please. Coming back to the prior year underwriting profits you booked in the first quarter. Could you provide us with an outlook for the next quarter? Will this number be on the same level? Or what would be a normalized level you would expect in 2, 3 quarters to come? I think that would be helpful to understand. And secondly, you improved your tax ratio to 35%. What would be the final tax ratio in 1 or 2 years following possible improvements you are planning for?
Well, typically, we don't provide a quarterly guidance on loss ratios going forward. So I mean, I think we -- this is something we're not going to do this year. Carine, you want to talk about the...
The tax ratio, so tax ratio is, as you mentioned, 35%. It's -- we may have some improvement in the future, but it really will depend and highly depend on the breakdown of our results in geographies. So let's say, we have made most of the improvement because I remind you that it came from 52%, which was very high. And now we are at 35%, so maybe there can be some positive to come. But first, it will be on the time here. And second, it really will depend on the breakdown of profitability per geography.
Okay. Next question from Thomas Fossard from HSBC.
I've got 2 questions. The first one will be on your insurance strategies. So obviously, with the potential negative impact you foresee on your solvency ratio on a standup formula basis, how potentially should this impact your reinsurance program and insurance buying sorts thought process, basically? Actually, you mentioned that you are expecting to go back to the middle of the range if no management actions. I guess that's all the management actions you could take to change slightly your mind on the reinsurance buying process. So just wanted to get a bit more clarity on that front. And the second point, with that, in your -- Xavier, in your previous statement, I think that you mentioned the fact that -- and to quote you, I think that you mentioned that we were at the top of the cycle. So just want to better understand if you meant top of the credit cycle or top of the reserving release cycle. I mean, just to be a bit more clear on what you meant with this quote?
Well look, I think I'll start with that one. I think it's the economic cycle, and by the way, our loss experience tends to follow the economic cycle. So I think what we've seen is, as we said last quarter, we have seen in 2017 a synchronous growth in all regions of the world. I think that hasn't happened for 30 years or so. And we have seen Europe pulled back from the economic crisis after 9 -- 8, 9 years of sluggish growth. We have seen a recovery in the emerging markets. We have seen the U.S. continue on an unprecedented 9-year expansion cycle. So I think what we're saying here is this is as good condition as we can foresee. And if you look at some of the risks out there whether there is political, geopolitical risk, whether it's the talk about trade wars, whether it's -- there's some -- or the amount of debt that's out there in the market, I think it's hard for us to see how things would get significantly better from where they are. So I think our view is this is probably the peak of the economic cycle. And while we can never predict or know what's going to happen, and I would be hard-pressed to do that, I think it's reasonable to consider that this is a particularly good part of the cycle. And this is a question that I've been asked in the past, and I don't think it was as clear maybe as today, I think, where is actually going pretty well. On the reinsurance strategy, look, the thing I want to point out, it's still very early days as part of this regulatory discussion going on. It's quite new. I think there has to be further discussion with the regulatory bodies in terms of what their intentions are and what exactly they want to make happen and when and if it's going to happen. The only thing I can tell you is if our cost of capital is increased as a result of something like this, then obviously the difference in cost of capital with the reinsurers would also decrease, which would make potentially, and it's a lot of ifs and precautions here, which make the recourse to reinsurers potentially more attractive, if that were to be the case. So I mean, I'm going to take a few language of precautions here. We haven't changed our reinsurance policy. I think we highlighted the changes we made at the end of last quarter. And at this stage, that we have no other plans, and I think this is something we will have to see down the road if these things continue to materialize.
Okay. Just one additional follow-up. Just to come back on your comments regarding the current cycle, of the economic cycle. I mean, everything is going fine on the economic cycle, but still your -- the growth coming from your client is just 2%. So it does not seem to look slight -- to come slight into the growth -- the top line growth of your own clients.
Well, I mean, I think you've got a mixture of effects, so I'd be hard-pressed to give you the details. But if you look at what -- where it comes from over the last 4 years, it's clearly much higher than it's been in the past, and it involves a number of things, our clients in different sectors. The commodity prices, as we know, have a particularly important factor of this Carine, you want to say a word on this?
Yes, maybe you should come back, Thomas, on Page 8. You see that volume effect is around 2% for this quarter because the effect on 1 quarter, which come from 1.1%, so it more or less has dwindled. They're comparing with latter and even if you compare with '15 and '16. So we do see impact on the activity.
Strong impact.
Yes. If you look at -- that's why I think it's specifically because it's a quarterly effect.
Quarterly effect that's cumulative, so pretty strong.
Next question from Guilhem Horvath from Exane BNP Paribas.
Just 2 quick ones. The first one is on Russia. You mentioned geopolitical risk and trade wars. What's your exposure to Russia today. And do you see any deterioration from Russia? Or do you expect some to come? And then the second is on the accounting yield that starts to be flattish now, I think, on top of what we'll have in the future? So should we expect with the accounting yield to remain flat in the future? Is this your base assumption?
Okay. I think on the -- let me talk a bit about Russia. Russia has been a tough spot for the company, particularly I think back in 2014, and this was driven by a series of things. One was the oil prices coming down, which severely impacted the Russian economy, and then there were obviously sanctions from the U.S., which aggravated the issue, and then we had reciprocal sanctions from Russia on European products, which further stressed the situation. So I think what we've seen over the course of the last 12 months is the comeback of the Russian economy into positive growth. It's been helped by the recovery -- relative recovery in oil prices. So I think our outlook on Russia is actually probably better than it was a couple of years ago. Now clearly, every time there is a sanction from the U.S., it impacts, as we see, and I think we've seen it lately, it impacts their economy in the -- particularly these days, more of sectors, individual sectors. We've seen the price of aluminum jump after the announcement of sanctions on Russel. At the same time, then there has been posturing, and probably there will be a delay or dampening of these sanctions. So there are risks, but I don't think it's going to change a better overall economic outlook for Russia from what we were seeing a couple of years ago. And as far as the accounting yield on the portfolio, I think you're referring to bonds, right, and interest rates?
Yes. I mean, if you go to Slide 14 it looks to become...
Yes, so I think the outlook, as you know -- and most of our book is in Europe, with the second largest being in U.S. You know that our maturities are relatively short, but we don't expect a significant increase in interest rates in Europe to happen at least before the end of this year, potentially into next year. So it will take time for any increase in interest rates if it happens to materialize in our book in any meaningful way. So I think that's a very consistent with what you're seeing on this page.
But remaining flat, that's going to happen, right? I mean, you're going to -- you're not going to have any deterioration going forward? That's not what you expect?
I think, I think, flattish, I don't know. I think we're in an environment where rates have been low now for quite some time. And I think up to last year, we're still reinvesting at lower rates than -- and still today, we're still reinvesting in a slightly lower rate than what's in the book. So what proportion of the book and how long that lasts will determine the answer to the precise answer to that question.
Next question from Mr. Michael Huttner from JPMorgan.
It was about the U.K., U.K. exposure. Just wondered if you could say what is your exposure to the U.K. if assuming -- if maybe not one of those -- it could be the exception to this very positive economic scenario we're seeing? And the second is, the large claim, or rather, large reserve you had in Q4 '17, is the [ range ] back of that reserve included in the Q1 prior development? Or is it yet to come?
Well, let me say a word about the U.K. because the -- clearly, what we are seeing in the U.K. is that Brexit has bitten the U.K. economy. Reality is that, obviously, it's had a pretty significant impact on the currency, that exports are actually pretty good but imports have suffered, that a lot of companies have actually postponed investment decisions, that it's driven some inflation in the U.K. market, that the level of indebtedness of U.K. consumers has risen. And so we see all these numbers impacting the U.K. economy, all these phenomenons. And there has been some pretty well-publicized insolvencies in the U.K. with the latest being Bargain Booze and Conviviality and the Pavilion, the construction company and a few others. So the U.K. outlook, while it is still positive because there is growth in U.K., we think the growth in U.K. is actually being driven by the economic cycle we're seeing in the rest of Europe. And the U.S. and U.K. proportionally doing less not as well, I would say, as the rest of the European market. Carine, you want to talk about the ...
The last thing you mentioned -- that we have mentioned in Q4, they're still in the book, so we haven't changed our assessment at that stage.
And that was EUR 10 million? Was that, that figure?
It represent 9.7 points of loss ratio, but despite all this -- and part of this is reinsurers, so I will say whatever the release we may have on this claim won't have an impact on -- at the end of the next result, and the other part would have an effect if we had said -- but as I said, we don't have any information to do that.
Okay. And what was the figure for the U.K. exposure?
Sorry?
I'm so sorry, I don't have that...
What was the figure for the U.K. exposure?
Yes, I don't have that number right in front of me. I'll need to get back to you on this one.
And it would be very nice for you if you would because it's not published anywhere else that's why I asked you today.
We do, I think on an annual basis, provide some details on our exposures. So in Q4 statements in the reference document, you will see these numbers. I do not believe they vary materially change from the end of last quarter. That's why I was a bit surprised with you.
We don't have any questions for the moment. [Operator Instructions] We don't have any question.
All right. Well, look, I don't need -- I don't think we need to torture people for questions here. I just want to maybe wrap this up. Thank you, everybody, again for logging into our call. We're driving the execution hard here, there's a lot to do. As I said, we're deepening our effort to change the culture and the performance of the business deep down. I think some of the things we've launched clearly are working, and that's a good feel to the company. And I look forward to telling you more about how we're doing on our next call for the second quarter. Thanks, everybody, for joining.
Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.