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Earnings Call Analysis
Q2-2024 Analysis
Coface SA
In the first half of 2024, Coface reported a net income of EUR 142.3 million, reflecting a 10% increase compared to the previous year. The company has maintained robust solvency at 195%, which is well above its target range of 155% to 175%. This performance is a testament to Coface's ability to navigate a complex economic landscape, despite a 3.1% decline in turnover, now standing at EUR 923 million.
Trade credit insurance premiums decreased by 5.3% at constant exchange rates, which indicates a contraction in client activity—a trend mirrored across various regions. Notably, client retention remains high, albeit slightly lower than the record levels observed in 2023. This decline in premiums suggests competitive pressures and possibly a more cautious underwriting stance as the company adapts to shifting market conditions.
A bright spot in Coface’s business is its business information segment, which recorded impressive growth of almost 17% at constant exchange rates. This expansion is crucial, compensating for some of the declines in trade credit insurance premiums. Additionally, fees collected from insurance clients increased by nearly 9%, indicating a strategic pivot toward enhancing service offerings and client engagement.
The broader economic backdrop remains challenging, with inflation rates easing but political and economic uncertainties persisting. Insolvencies are reportedly on the rise across multiple markets, surpassing pre-pandemic levels. Coface emphasized the ongoing geopolitical tensions and the impact of changing economic conditions, particularly in regions like Europe and Asia, on client activities and demand for services.
Coface's cost ratio increased to 32.6%, driven by a combination of higher investments in strategic initiatives and inflationary pressures. However, the management believes these investments are necessary for long-term growth and operational efficiency, particularly in its 'Power the Core' strategy, which aims to leverage technology and data analytics to improve service delivery.
While specific forward-looking guidance remains cautious due to economic uncertainties, management indicated that they are focusing on navigating present challenges while positioning the firm for future growth. The target of achieving profitability for their business information segment by 2027 is still in place, representing a commitment to innovation and market responsiveness.
Regionally, the company faced negative growth in areas such as North America and Asia Pacific, which saw declines of 6-9%. In contrast, the Mediterranean and Africa regions posted a 6% growth, highlighting disparities in market conditions and opportunities globally. This regional variation underscores the importance of localized strategies and adaptability.
Coface's results reflect a resilient organization navigating headwinds in a complex economic environment. With significant investments in growth areas and a commitment to maintaining robust financial health, Coface is well-placed to adapt and thrive. Investors should remain attentive to how the company manages its strategic initiatives against ongoing market uncertainties.
Good day, and thank you for standing by. Welcome to the Coface SA H1 2024 Results Presentation. [Operator Instructions] Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speakers today, Xavier Durand, CEO; and Phalla Gervais, CFO. Please go ahead.
Thank you very much, and good evening, everyone. Welcome to this midyear announcement for Coface. I realized that we're beginning August and everybody is kind of nearing the end of the season. So thank you. We really appreciate your time being with us.
As you all have seen, I'll start directly with the highlights on Page 4. We've reported net income in the first half of 2024 of EUR 142.3 million with very strong solvency at 195%. That means 10% profit growth from last year for Coface. You see the main points underneath, pretty much a continuation of, I would say, the story that we've been laying out for the last few quarters, actually a few years. Turnover is at EUR 923 million, which is down 3.1%, all else equal versus last year. Notably, trade credit interest premiums are down 5.3% at constant FX, pretty much the same trends going on, as I said, client activity, which remains actually slightly negative for the first half.
Client retention continues to be high. It's down though from the record that we had in 2023. Pricing is better than last year, but pretty much in line with the historic trend of -- coming down by 1.5% a year. Good news on the business information, which again, is growing double digit at almost 17% at constant FX; factoring, which is sometimes seen as a bit of a precursor is down 2.6%; Q2 was up 1%, so slightly better Q2 than Q1.
You see that the losses have been pretty benign through the quarter again with a net loss ratio of 35%, which is actually 5 points better than last year. That brings the net combined ratio to 63.5% by all means a very strong performance. We have seen, as we write stable opening year reserving and high reserve releases on prior exercises. The cost ratio has increased by 3.2%, pretty much the same trend as in the first quarter with 28.4% at midyear, which reflects both lower revenues, better mix and the continuation of our deliberate investments in line with our Power
The Core strategic plan.
So a few other changes, we are moving Western Africa and Morocco from the Mediterranean region to the Western Europe region. That's where most of the clients in that area are from -- actually from France, still makes more sense for us from an operating standpoint and that will be affected from the third quarter reporting, so not yet in this one.
As you have seen the annualized return on average tangible equity at 15.3% is extremely high for Coface. We have a solvency ratio, which remains above the target range of 155% to 175%. So by all means, a very strong first half for Coface.
In terms of the economy, I think as you probably are all aware, the -- I mean, we navigated a pretty uncertain world, and that remains. We have seen inflation decelerate. We have seen a slower economy, I would guess, weigh on premiums. Political uncertainty remains high. This is a high election year for many, many places in the world, actually, probably a record this year. We still -- we've seen all the uncertainties in France coming from the anticipated elections, they'll have to go to the U.S. elections.
We continue to see an uptick in insolvencies in pretty much every market around the world. And by now, it is clear that the insolvencies are higher than what we saw in 2019 prior to the COVID crisis. Of course, public debt and public deficits remain challenging. We have increased public debt through the COVID period and that leaves less room for governments to navigate. And finally, we are seeing increased pressure on company's earnings. I think that was pretty clear from the latest round of announcements over the last couple of weeks.
Unclear where China is going. I mean, the economy is still growing, but slower than in the past. The tech boom that's been kind of driving a lot of attention, uncertain whether that's going to last. We continue to see the normalization we've been talking about for now 3 years, continues to happen. And I think we've done a lot of progress, made a lot of progress on inflation, but it's -- we always thought that the last mile would be the hard one. And so when and if central banks are going to respond and how they respond to a slower inflation, but not quite yet where they want it and economic conditions that may be getting a little bit more difficult. That is a question that everybody has got in their minds.
Trade has gone back to kind of normal after COVID, but we see a more intense geopolitical activity, particularly in the Middle East, more challenges around trade between the big blocks, U.S., China and Europe and China, continued pressure on what does it mean to transition from an energy standpoint. So there's plenty really to go around in terms of things that can impact the economy. Very difficult to say where everything is going, but I think we remain extremely true to our motto, which is be prepared, help our clients deal with this volatility. And as you know, we are very much a short-term credit company, and our job is not to plan for one scenario, but to be ready to respond quickly and efficiently to whatever the world is holding for us.
Making progress on our CSR strategy on Page 6. The darker green areas are the areas where we have been making some progress during -- notably during the quarter. We show the same page, so it might be a little bit repetitive for those of you who have followed those calls. But we kind of track our progress versus the key goals, which are at the bottom of each one of the columns here. And I just want to highlight that our exposure to ESG projects has doubled and actually, it's been going quite well on that front.
We are continuing to drive down the emissions that we create through our investment portfolio. We are making happen our responsible IT plan, which means putting more pressure on those who we work with in terms of how much carbon is being consumed in providing those services or those equipment.
We are making a lot of progress from an employer standpoint. We -- our last survey, which we did not long ago, shows that now the employee brand is actually strong and the NPS score of our employees in terms of working for Coface is now clearly above the benchmark in our industry. So I think the fact that the company is performing is also being felt inside the company and creating a good environment for people to work. We are working more on disabilities because I think this inclusiveness and inclusion is a big theme here. We are conducting a new carbon footprint assessment. We've done one a couple of years ago, and we want to show how much progress and make sure we track the progress we've made.
We are ready, I would say, we're going to be ready for the CSRD rollout, which is a big deal for companies like us. And then our ratings keep coming in, EcoVadis gave us a silver metal, which means we're in the top 15 companies, that was in June. So confirming that the efforts that we're making are being noticed in the market. And finally, we're making progress on including all of our employees and are making sure our policies are clearly laid out and known and we bring people into this initiative.
So I would say, good progress on CSR. Going back to the business on Page 8, I mentioned some of these numbers. Revenue is down 3.1%, premiums down 5.3%, pretty much stuff that you've seen in the first quarter. Other revenues, notably [ go up ] 6.5%. As I said, business information has grown pretty well at almost 17%. Third-party debt collection, that's something that's pretty small, but we're seeing good traction. We now have good systems to do this on a global basis and we're getting more than 20% growth on that line. Factoring, as I said, doing better in Q2. So that's encouraging. And then the fees we get from our insurance clients, even though the premiums are down 5%, the fees are up almost [ 9% ]. So that makes a difference on our P&L. So I think very good execution from the teams here on fees.
You see on Page 9, the breakout by region. No big surprise here, Western Europe, down almost 4%; Northern Europe, Central Europe. So clearly, the toughest part of the European economy now, which includes Germany and Central Europe, down about 7%. A bright spot in Med and Africa, which continues to grow. This is the region for us that's been growing the most consistently over time, so we're up 6% there. Negative growth again in North America at minus 6% or 7%. That's really driven by client activity, quite frankly. Asia Pacific down 9% and Latin America after a couple of years of very strong growth is seeing a bit of reduction at minus 8%.
We've moved, as you are aware, Mexico from Latin America to North America. I thought it made more sense, so that's why you see some differences in the numbers. But nevertheless, kind of reflects, I would say, the global economy and the fact that commodity prices have normalized and client activities are being impacted.
On Page 10, you see some of the same trends continue that we've already highlighted. New business is better. Actually, this is better than '22 and '23. We see increased demand for the product, clearly in an environment which is perceived as more risky and I think actually that helps. We are also benefiting from the investments that we've made and we have planned to make in our Power the Core plan.
The retention rates remains extremely high, but not quite as high as it was in '23 and '22, that I think, reflects both a very competitive environment and the fact that we have put in place risk mitigation plans on a number of accounts that we felt weren't balanced in a way we'd like them to be. So a bit less there, but still very good. Prices, as you see, better than '22, better than '23. And volume is really the big one, that's explaining a lot of our [ liker ] growth this year at a negative 0.1% through the first half of the year.
On the next page, losses, a pretty benign story, as I said. You can see the quarters lined up on the top and really not that much to talk about. We see a number of claims continue to increase that started in the mid-'21 after the COVID incentives or mitigation plans were put in place by the government. We are seeing, obviously, lower premiums have a mechanical effect on the loss ratio. And severity, I mean, I think the insolvencies are on the rise. They started with the smaller companies. And clearly, it's working its way up to the food chain and we see that the larger companies now are -- have their P&L that is a little bit more under pressure than before.
You can see that on the bottom right, we continue to book reserves at pretty much the same levels as before. The blue part minus 44% shows strong reserve releases from prior vintages. So again, very strong execution on risk here.
On the Page 12 is the midyear picture compared to full year, not that much to report, frankly. We had a spike in Latin America in '23. It's obviously better in this quarter. That's the smallest and most volatile region, of Coface, only 4%, and you can see on Page 13, the story developed by quarter, that's probably more interesting. So really a pretty benign story with the volatility I spoke about in Latin America, but clearly, not an easy region, but one that is essential for us in terms of our ability to play a global game here. And as you know, there are very few firms that are able to do this well.
On the cost side, you see a continuation on Page 14 of some of the trends I've highlighted in Q1. Costs are up overall 6.9%. The cost ratio, if you look to the bottom right, went from 29.6% to 32.6%. So that's a gross increase of 3 points. And if you look at where that comes from, 1 point is due to the decrease in premiums; 1.6 point is the investments that we're making, really clearly laid out in our Power the Core plan. And then we have embarked a cost inflation of about 1.9 points, which is the result of some of the delayed cost increases that we've seen through the inflation period in 2023 and the end of '22.
So this is partially offset by better fees, better business information revenues for 1.5 points. And I think it's interesting to note here in terms of our execution of the business information strategy that despite all the investments that we're making in this line of business and they are quite significant. At this stage, we are well above 500 people in this business and these did not exist 4 years ago. And that has been a neutral investments, both in terms of the P&L and the cost ratio. So underneath the performance of Coface is also another revolution happening here. And that gives us quite a lot of insights into data, into decision science, into technology that we didn't have before.
So I'll turn it over to Phalla to talk about Page 15 here.
Thanks, Xavier. So on the reinsurance side, we look at -- it's pretty similar to what we have in Q1 with a premium cessation rate at 27.7%, a claims cession rate at 22.1%. Of course, the ranges are also following the fortune that we have on the claims side. This lead us to a reinsurance result of minus EUR 64 million is a good result for the reinsurers. And of course, I think we are negotiating good commissions in front of it.
If we move to the following page, Page 16, the net combined ratio at 63.4%, minus 2 points compared to first half last year with a net cost ratio increasing and the net loss ratio decreasing by 5 points, knowing that, of course, in Q1 '23, we have these large claims in Latin America that we don't have this year. If we look at the net cost ratio, 63.7%. This is really pretty similar to what we had in Q1 '24.
Moving to Page 17, investment portfolio. The mark-to-market value stands at almost EUR 3.2 billion. This is pretty similar to what we had again in Q1 '24. Having said that, between the 2 quarters, we have paid EUR 194 million of dividends generated by, I think, the operating cash that we have from a very good business performance is helping on this side.
The recurring income at half year '24 amounted EUR 48 million. You can see that the average accounting yield is increasing, I think it is now reaching [ 1.5% ] for half year, which is a very good performance and our new money is now invested in a much higher rate than it used to be.
In terms of realized gain and loss, so we have realized gains coming from divestment in money market funds. Of course, last year, we have a high level of cash in asset class that we have invested in money market funds, awaiting for the dividend payment and the first tranche of total debt payments. And when we use this cash, of course, we sold the money market funds and we realized the gains. This more than offset the continuous unrealized loss that we have booked in our investments in real estate funds, of course, at a much lower level than what we have booked last year.
In terms of FX, we have booked -- we continue to book the negative impact on hyper inflation in Turkey and Argentina, and again, at a lower level that we used to book in previous year. Insurance finance expenses stabilized at almost EUR 18 million. This is pretty much similar amount between 2 quarters -- the 2 first quarters. This lead us to a net income at EUR 142.3 million, as Xavier said, is 10% up compared to last year with an operating income improvement by 17.5%.
Return on average tangible equity, now we're now on Page 19. The IFRS equity is moving from EUR 2.05 billion to almost EUR 2 billion, nothing much to be reported here except that we have paid our dividend, EUR 104 million and we have accounted for the net income of the period. This lead us to a return of average tangible equity increase from 13.4% to 15.3%, mainly driven by the very good financial results compared to last year.
For this quarter, of course, is half year, so we will have a part which is capital management section. Here, I'm moving to Page 21. The total balance sheet stands at EUR 7.8 billion. We discussed about the insurance investments, which is our investment portfolio of EUR 3.2 billion. Factoring assets, almost EUR 3.1 billion has not changed much, totally backed by factoring liabilities. And of course, our financing liabilities are Tier 2 date, the 2 tranche of 300 million that we have issued last year and the year before, including accrued interest that you should see on this page.
I just want to remind you that we have been graded by AM Best, at A excellent with a stable outlook, which is very good for us. And the book value per share stands at EUR 13.4. We are trading slightly below this level today, but it used to be above this level in past couple of weeks.
Let's move now to the solvency ratio, very robust one again. We're moving from 199% at the end of '23 to 194%. You can see the [ works ] here and we have been negatively impacted by the -- on the capital consumption on the insurance part. But this is partially offset by the very good business performance that is shown on the own funds variation and own funds creation.
On the right-hand side, we have the usual stress test. So the first block is the financial market stresses, and you can see that in all cases, we'll be above the upper range on our comfort zone. The second block is the crisis scenarios, 1 in 50 scenarios being the 2008 financial crisis similar scenario. And here again, we will be at the upper range of our comfort zone.
Moving to Page 23, this is just the details of our SCR, our capital requirements. You can see the first part, which is the insurance underwriting risk, of course, market risk, counter-party risk. And then you have the factoring capital requirement EUR 243 million, has not moved much, totaling with a total SCR, so capital requirement of EUR 1,377 million to be compared to our own funds eligible -- submitted own fund of EUR 2.68 billion.
Xavier, I'm giving the floor back to you.
Yes, clear. So just to wrap it up, a good start to the year, up 10% in terms of net profit at EUR 142.3 million. You've seen that the combined ratio at 63.4% remains below through the targets -- through the cycle targets. The economy is clearly kind of slow. Where it's going, I think, is anybody's guess at this stage, we are very well aware of the tension between trying to bring down inflation and at the same time, not kill the economy that the governments are going through. A lot of political uncertainty, a lot of geopolitics, a lot of trade issues, a lot of technology changes and questions.
So I would say, in a way, a good place for our business in terms of demand, clearly more uncertain in terms of risk. Returns are good. I think what we feel good about is the growth in our business -- information business and fees compensates now. It's visible in our balance sheet, some of the decline of the trade credit insurance. So even though these businesses are still kind of small, they are helping the overall picture for Coface.
The -- we're making investments, but these investments are covered by the revenues. We now have well above 500 people dedicated to this in the company. This is core growth. And it really gives us better insights and helps us understand better the power of technology and how we can use it to put it to work for the company.
So we're going to continue to do what we said we would do, which is invest in data and connectivity and services. As we described during the Power the Core plan at the beginning of the year. So the credit cycle clearly is entering a new complicated phase, I guess, but that's what we do is to help our clients navigate through this environment.
So it's about as much as I can say. I think we're going to turn it over to those on the call for questions as we do usually.
[Operator Instructions] And your first question comes from the line of Michael Huttner from Berenberg.
I had lots of little questions as usual, but the -- I suppose the bigger one is when you think about the past couple of days, does anything -- where you think, oh my gosh, this is something which really does affect us or there could be something hidden out there that we haven't thought about or we have thought about and it's now coming to true. I don't know, the share prices and the interest rate changes have been quite sudden. That's the first one.
And then lots of little questions. One is on the business information. Q1 was plus 22% growth; Q2, if I use [ '17 and stuff ] is plus 12%. I know you don't like giving guidance, but the trend is not out here. Is there anything you can say about this?
And then on the real estate, Q1 was minus EUR 6.5 million. I noticed you say total impairments or whatever were a negative 4-point-something million in H1. So that implies -- does that imply that real estate turn positive in Q2? These are lots of little questions.
Okay. So I'll leave the real estate question for Phalla and I'll try to provide some clarity on the other ones. Lots of volatility, yes, this is market volatility, right? I mean, very hard to comment or drive any fundamental views from what's happening in the markets. I mean, I think there's been a lot of hype around technology, AI, and there's been the 7 incredible stocks that people have been following. Has it gone too high? I don't know. I mean, we don't -- as you know, we don't base our strategy on markets. We are very conservative in terms of our own portfolio.
The thing we have noticed is company's earnings are more under pressure, I think, than in the past. And again, is it a surprise? I would say, not really. What's more interesting is the timing. I think we have seen normalization over the course of the last few years. We probably would have expected pressure to build up a bit sooner. So QE had lasting effects. We're seeing now that the companies are a little bit more under pressure, and that's something that we thought would happen. We just -- it's anybody's guess exactly when that is going to be.
Your question around business information, I mean, it's pretty much -- I've made that comment, I think, several times over the course of the last couple of years, but I wouldn't try to read too much into one quarterly result or another, by the way, whether it's higher up or it's still a fairly small business that has some volatility or some chunky bits into it. So I wouldn't try to drive too much out of one figure.
Phalla, do you want to talk about real estate one?
Yes. I'm taking the real estate -- yes, that's true. So we have -- it has been reduced because we received some, the real estate also received some -- not dividends, but the rental from the real estate. So yes, it compensates the unrealized losses we booked in Q1, a little bit. And I'm not saying, Michael, don't make me say it, I'm not saying that it will be the same trend in Q3, I don't know.
But just to understand, so I was right in minus EUR 6.5 million and minus EUR 4.5 million and the positive -- okay.
Yes. That's true, exactly. It's a mark-to-market. So the mark-to-market has been a little bit more positive, but who knows.
We will now go to the next question. And your next question comes from the line of Benoit Valleaux from ODDO BHF.
A few questions on my side. The first one, a more important one is regarding to your activity when I look at your TCI premiums, it has decreased at a constant effect by 3% in Q1 and broadly 7% in Q2. When I look at volume effect, it's still close to 0% as in Q1, prices down broadly as in Q1, but client retention is still decreasing a little bit, and it seems that in terms of new production, the increase in Q2 versus Q2 is relatively modest. So I just wanted to understand, when you look at the declines, what is your view coming really from purely the client activity from maybe stronger competition and from a more strict underwriting policy because it's in that you are relatively, we say, conservative in your underwriting policy?
And linked to this question, I know that you [ don't like ] to provide any guidance, but anyway, is it fair to assume after this decrease in H1 that on a full year base, we might assume a slight decrease? I know that H2 should be a bit more favorable in terms of comparison base, but any color or any comment on this will be great.
The second question just to know regarding France in terms of risk management, if you took any measures linked to political uncertainties or not? And the third question is related to your solvency margin, which is at 195% or 20 percentage points above the high end of your target range. So it's great to have high solvency margin in account [indiscernible]. But the main question is, how do you see your target range, because now the economic growth is quite modest. So do you plan to use part of [indiscernible] solvency next year, for example, by changing a little bit as a part of your reinsurance treaty, which will come to [indiscernible]. I mean, are you fine with [ 995 ] and you can keep it at high level for quite a long period of time.
Okay. So quite a broad range of questions here. On the activity, so you understand how this works, right? We set a minimum premium in the contracts with the clients and then the clients make declarations of actually what their turnover is. And that varies by region and by contract in terms of how frequently it's done. So the -- it kind of reflects the turnover of our own clients. We tend to be more towards material goods and services and tend to be a little bit more sensitive to commodity prices. So I think that's really what these numbers say. I mean, they -- we're comparing to a pretty high base last year because we had both growth and inflation. And this year, it's the reverse.
I'm not going to make any forward-looking statements, so -- because I think it's anybody's guess actually, where the economy is headed and whether we are going to see a slowdown -- a real slowdown in the economy or not. So -- but I would just like you to think through how it's -- basically, we had a couple of years with strong activity driven in part by inflation. Inflation has clearly come down and the economy now is returning back to its -- I would say, 2-point something, 2.4% growth rate. And so that's what you're seeing in these numbers.
In terms of France, we have not -- we don't take like broad measures on the basis of, by the way, what kind of certainty do you have on anything right now. It's unclear what is going to change, when it's going to change, how it's going to change and to what extent it is going to be bad or unfavorable or good or whatever for companies. So way too early to have any view. I think we have to see what plays out and we have to understand -- I think that's the mantra of what we do as a business is we don't take broad measures or take those kinds of bets, but we are keen on understanding what certain policies and what certain trends do to companies in detail, company by company. We have 5 million counterparties out there.
So when we understand what's going on, then we will derive consequences. But I -- if it's needed, if it's required, if it's warranted, if it makes sense. I don't see anything that I can point to at this stage that would allow us to do that. The other thing I would tell you is France is about 14% of our business. So it is by far not the majority of what we do.
In terms of solvency, I think we've always, for the last few years, have the same line, and I'll repeat it again. We are above it's true, our target, I think, as you said, and I assure that you it is good to be with a strong solvency position and by the way, a strong profitable business at this point in the cycle. I think it's a good place to be. We always said that we would manage capital in a very disciplined way. So we will allocate capital to growth if core growth is there. We will allocate capital to acquisitions if we find good ones at the right price, with the right, as I always say, skills or scale benefits for Coface and then we will be disciplined about returning capital as we have to shareholders that we don't believe we need. So no change here in terms of our policy or the way we think of the business.
Okay. And if I may, just regarding reinsurance coverage. I mean, could you envisage to change a little bit or to increase your retention or not at all? I mean, you can -- you still want to keep say, for long term...
Again, these decisions are made once a year. They are made towards the end of the year and we don't again provide any forward-looking statement.
And the other thing I would tell you is that partnerships with reinsurers is a long-term deal, right? We need reinsurers to take the risks, the individual risk and the collective risk that we cannot keep on our own. We have long-term partnerships. It's a very stable base of reinsurance that we work with. So I would say these are things that need to be considered over the long term, not just the short term.
We will now take the next question. And the question comes from the line of Amalie Zdravkovic from Deutsche Bank.
This is Amalie from Deutsche Bank. I just have one from my side. So given what we're seeing in the economy and the markets now and kind of what you've touched upon already, which industries and geographies are you sort of looking to reduce exposures in and which do you sort of see as more attractive markets and geographies now?
Amalie, this is a question, again, that is dealt with on a micro basis. So Coface has about EUR 700 billion, as you know, of credit exposures on something like EUR 5 million different lines, covering 200 different countries and we're pretty much invested, as you know, in virtually all the aspects of the world economy. With a skewed, I would say, more and more presence, I would say, in industrials and bit less on services, about 50%, Europe, 50% rest of the world, and no huge geographic concentration.
So I think we -- what we have seen over the course of the last few years is those economies that have variable interest rates have more difficulties around construction and real estate. We have seen retail be difficult. We have seen actually supply chains impact and change in technology impact, the automobile industry. So for me, there's not a whole lot of news at this point. I think we -- what we tend to do is we tend to, as I said, to the -- in response to the other question, is to look at a micro company-by-company trends. We publish obviously, sector and country evaluations, and these are revised on a regular basis and they're public and available.
But then we tend to make decisions on a country by -- on a company-by-company basis based on where they are exactly in their value chain and which of these things are impacting them more. So very hard to answer on a broad base because that's not the way we run the business, actually.
We will now take the next question, and it comes from the line of Phil Ross from BNP Paribas.
A high-level question for me first, please. If I look at Slide 11, the bullet point commentary on the right-hand side is quite negative around claims frequency, severity and pricing as well. And then if I look at the quarterly prints on the left-hand side, that trending downwards quite nicely over the quarters. Just looking for your perspective on how you would link those 2 aspects and how you're...
I'm sorry, you're referring to Page 11.
Slide 11.
So Slide 11, you're looking at the comments on the top right, right?
Yes. So the 3 aspects of normalization versus the fact that the -- your loss ratio pre-reinsurance is trending downwards quite nicely in a positive direction. So I guess, it's a chance to give yourself some credit, I don't know whether your -- you feel that you're navigating the negative scenarios by [ significant ] strength, good loss control, risk management, et cetera?
Well, I mean, clearly, we're disciplined. The one thing I would say is -- so we -- I've been saying this for 3 years. So apologies for those of you who have heard this probably 12 times already, but I'll say it one more time. We expected at the end of the COVID measures, mid-'21, we said we think normalization is starting and it's taken 3 years, I mean, right, to get to where we are. And we have seen -- we don't have it here, but we sometimes provide those curves. We have seen company insolvencies rise from a very low point in the middle of '21. That was the lowest point, I think, historically that I've ever seen because the governments threw a lot of money at companies and these companies were kind of in some ways would probably have had more difficulties without that money and earlier.
And then that continues, right? So we've been prepared for this. It's not like we didn't see it coming. It happened slowly, which gives us an opportunity to really dose very precisely how long we want to stay in a given name and when we think it's not reasonable to be there anymore. So that's the work that the company is doing. And we make 12,000 credit decisions per day. So back to Amalie's question, it's hard to -- it pinpoints just to a very industrial and very detailed way of managing risk, which is not broad based, which is not based on making bets on where the economy is going, but really looking at what's happening company by company.
And as things have been developing steadily and up in terms of risk, but at the same time, under some long time, I would say it has given us the opportunity to address. I think that's what you see in those numbers. I don't know if that was your question, but...
Yes. No, I appreciate you have said things along those lines previously, but it's just helpful to hear how you see it currently. So thank you for the observation.
I had one more slightly detailed question, if that's okay. On the half year statement, I was looking for the risk adjustment for non-financial risk, which I think you gave us before half year last year and obviously, at year-end, I can't see it in the report. So I'm just wondering if that has changed or if there is a number you can give us for the risk adjustment figure.
That's one for a follow on here.
Yes, we'll follow up on this one. I think it's just an adjustment. We follow up with you, Phil.
Thank you. Next question the next question is a follow-up from Michael Huttner from Berenberg.
I had 3. The first one, the kind of scenarios really. If interest rates were to continue falling sharply 100 bps or whatever, can you explain what the impact would be on the discounting and on the financial expense, investment financial expense? I know they would both go down, but I wonder what is the relative speed and how much will they go down? Just again a color, is there -- how much of a drag would that be in the very short term in terms of reported numbers?
And then the next one is on inflation. I think I misunderstood your inflation in the past. I thought it was just the inflation when I buy my coffee and it keeps going up. But I think the implication I hear is, inflation is for you because you have lots of clients who trend commodity businesses. And so when inflation commodities are high, you get more revenues and when they're lower, you actually get lower revenues. It's not just a rate of change, which changes, it's actually you get less revenues. And I just wondered whether you can give us a feel for how much of a factor that is or could be?
And then the last one is a very cheeky one. I think you explained once that -- thanks to technology and the more data stuff and everything, you can now reach decisions kind of almost globally, very, very quickly. We use Zoom but maybe use Teams or just a phone call or whatever, you can get all your people together very quickly and make decisions. How many of those calls have you been or has the frequency of these calls changed much?
Okay. Let me start -- I'll leave the first one for Phalla. I mean -- but I'll take the next 2. Inflation is indeed how much you pay for stuff, right? So you -- what can I say? If you buy your coffee EUR 5 and the next day, EUR 1, that's a significant change. You don't tend to see those kinds of changes in consumer products. But when it comes to commodities, you do see much rapid and much more magnitude in the changes. So for those clients of us who sell a product, we ensure that they get paid for the value of that product when they sold it. And that can vary quite significantly and our billing is based on a percentage of that price, right? So it's exactly the same thing as inflation, except the inflation for commodities is stronger or there's more volatility and more short-term movement than you see in consumer prices.
When it comes to technology, I mean, I think this is something we continue to invest on very regularly with determination. It's not a short-term endeavor, it's a long-term endeavor. We see every year technology allows us to improve our scores, to improve our speed, to improve our accuracy, to make less errors, to connect people better between themselves. So what technology does is that a lot of the decisions that we make initially manually become more automatable. We tend to see that the digital tools become more reliable, more effective. The Gini scores improves. It's not one size fits all. It's score by score, sector by sector, country by country. So it's really bottom-up groundwork and it takes a long time to develop those skills and those tools.
So I think you're seeing that improvement happen by the way, in every industry, but in our industry as well. And it's percolating through our system. So I can't tell you how many calls we make because actually, today, 60% of the decisions we make are made by computers, right? So there is actually not a call happening, there is a computer decision that's -- we make 12,000 of these every day, so we don't have people calling 12,000 times. It would not be manageable.
And I know I'm being really cheeky, but just -- and I know you don't provide guidance, but is there any one-off, Warren Buffett calls it people swim naked when tide goes out that you're aware of at the moment.
What do you mean like counterparties out there, companies?
Yes. So I don't know if we -- basically, I suppose I'm asking about Q3 really, now in July, will there have been any larger events would be worth lagging?
I mean, there's always -- imagine, Michael, we manage 5 million credit lines, right? So there's always something going on in the world. I mean, that's our world, right? We have exposures of [ 600-something-billion euros ] on 5 million different lines, probably 3 million companies in 200 different markets. So pretty much anything that happens in the credit space, we are kind of involved in, in one way or another, right? So it's a bit -- it's a bit difficult to answer your question because, yes, there are things going on like there's always something going on in our business. I mean that's what our people do. And we monitor those very clearly. The whole game is to try to be there as long as it is reasonable to be there and try to get out before it's not reasonable either anymore.
We will now take the next question. And your next question comes from the line of Benoit Valleaux from ODDO BHF.
A few follow-up questions also on my side. Maybe the first one is related to BI. When you look at your Q1 figures, you reported a small benefit from this activity, now it's neutral in H1. So as you said, you [ will have to ] pay too much attention on quarterly figures. And you mentioned it on the revenue side. But just wanted to know if there is or there has been an acceleration in your investment in Q2 or not really? And if you want to maintain the same pace of growth in your investment by year end and maybe '25, knowing that you have this RoATE contribution target for '27. So I don't know if you expect this business to start to be profitable in '25 or '26 or maybe more earlier at the end of the plan? That's the first question.
Maybe second question, sorry, is related to IFE, insurance finance expenses, there are some volatility on quarterly figures. If you look at last year [indiscernible] can was very low, but to increase the peak has been reached in Q3 last year and decrease in Q1 -- increase in Q1, decrease in Q2. So do you have any view on what could be -- what could we expect for H2 this year at this point of time?
And maybe the third question is related to your solvency margin again, sorry. I know there is this Solvency II review. You have your own internal model. I mean, do you have any room to improve your model? Do you have any plan to improve this in the near future or not at all?
I'll start with the last one, and then I'll -- I'll start with the last one here. I mean, model improvements is something we work on all the time, right? I mean -- but the -- it's a very regulated space with very clear detailed rules with regulators, basically controlling everything we do. So there is a program to continuously try to improve and refine our internal model as we do for scores, for credit scores. But it's never something that is radical or there's a whole program around it, which is being worked on in very close supervision and coordination with the regulators. So that's just as much as I can tell you there.
In terms of business information, our view hasn't changed. This is an internal startup, which we think warrants our time, our attention and the investments that we're making into it. We weren't intending to send any signal -- any particular signal by saying it's neutral. It's roughly neutral on our P&L. I wouldn't try to read any quarterly number all that smartly because it is such a moving space in which we're making quite a lot of investments where we're signing up new clients. We're developing new tools. We have new people. We have new value propositions literally every week.
So I wouldn't try to read too much. I think the goal here, as we said in our Power the Core plan is to both try to grow it as quickly as it is feasible without obviously impacting the P&L in a way that would be hard to bear. And we set a goal in 2027, just to highlight the fact that we think over the medium term, this thing is going to be profitable. This hasn't changed. We haven't changed our view. It is a space that is actually allowing us to learn a lot because we have a lot more brains, we have a lot more, I would say, resources around data and technology than we had before. And so I think it's good for the company. But I wouldn't try to read anything specific in terms of timing or profits or growth. I don't know, Phalla, if you want to take the IFE...
Yes, I would like the IFE discussion. I'll come back to the first question on IFE. Couple of things on IFE, it really depends on 2 items. The first one is the level of technical reserves. And of course, the basis, which is our technical result has increased compared to last year. The second item that lead the changes in IFE is a level of interest rate. I think -- but on this side, last year, the interest rate movement has been much more, I would say, volatile than this year. So this year is probably a little bit more stable. And I think that drive the conversions that you are mentioning between the 2 periods.
So level of technical reserves has increased, the business has increased. And last year, I think the IFE was really linked to the movement of interest rates that are probably more volatile. And this year, you can look at the interest rate is probably much more stable and that explains the level of IFE we have.
It's been more stable for now.
For now, oh, I'm talking about half year, of course.
There are currently no further questions. I will hand the call back for any closing remarks.
Well, look, I think we're right on time. So I just want to thank all of you for logging in on the beginning of the summer day and summer week in August. So we will be meeting again for Q3. And in the meantime, thank you very much for your attendance today.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.