Coface SA

PAR:COFA

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, welcome to the conference call for the presentation of Coface results for the period ending September 30, 2020. [Operator Instructions] As a reminder, this conference call is being recorded. Your host for today's call will be Mr. Xavier Durand, CEO; and Carine Pichon, CFO. I will now turn the call over to Mr. Xavier Durand. Sir, you may begin.

[Xavier Pascal Durand, Chief Executive Officer]

Thank you very much, and good evening to all. Thank you for joining us tonight. We're happy to report our third quarter results tonight. And as you've seen from the headlines, we're reporting EUR 52.4 million of net profit in the first 9 months of the year, of which EUR 28.5 million in the third quarter. We're also activating, and I'll talk more about this, a EUR 15 million buyback program. In terms of the key headlines, our turnover is at EUR 1.82 billion. It's down 0.9% at constant FX and perimeter versus last year. The third quarter itself is down 2.2%. Underlying these trends, you see some of the same forces at play that we've already discussed in the past quarters. New business is at a record. Retention of clients is also at a record level, and that drives a positive net production of EUR 36 million -- almost EUR 37 million. We continue to see momentum in pricing. Pricing year-to-date is up 1%, which is a big change from what we've seen in the prior years at this time of the year. What we also observed, and this is no surprise, is that client activity is decreasing, and that's very much in line with everything we know and hear about and have forecasted in terms of the environment. In terms of losses through the first 9 months of the year, our loss ratio is up 10.1 points at 55.2%. That brings the net combined ratio up 8.5 points at 85.3%. If you look at the third quarter on its own, net loss ratio is actually better than the second quarter at 50%. It is up 2.8% versus the third quarter of 2019, but it is 7.4 points lower than what we had in the first half of 2020, which reflects a better level of loss activity, i.e., lower. Throughout the first 9 months of the year, our cost ratio has improved by 1.6 points at 30.1%, which reflects our continued focus on controlling costs. This brings the net combined ratio for the third quarter at 77.4%. We obviously benefit from the temporary impact of the higher cession rates, including with the government programs, which represented in total 6.8 points of impact in the quarter. Actually, in the third quarter, the impact of the government schemes is 1.1% for the net cost ratio and 5.7 points for the loss ratio. However, you remember that we had a benefit year-to-date at the end of the first half of EUR 8 million from the government programs. In the third quarter, it's actually a negative impact of EUR 1 million as our loss experience has improved significantly. So that brings our net income to EUR 52.4 million. As I said, EUR 28.5 million in the third quarter. That includes the EUR 8.9 million benefit from the purchase of GIEK Kreditt in Norway. And we had, as you remember, already announced that amount at the midyear results. It also brings the total annualized return on average tangible equity at 4.1%. So the company continues to execute. I think we're seeing, as we said, an improvement on the loss side, and we continue to have a strong balance sheet. We continue to execute. And as such, we felt that it was good to show a sign of confidence by launching a EUR 15 million share buyback program. On Page 5, you see some of the same charts that we've already seen in prior presentations. On the top is the evolution of the global GDP. It's down 4.8%, at least that's what we see for now for 2020. We do expect a rebound in 2021. But as we know, and we continue to see actually the impact today, the crisis is not over. COVID continues to spread through the different economies. And we think this pickup next year will be slower. It will be differentiated by country, by sector, by type of clients. And so it will take a while before the global economy comes back to the level that we enjoyed in 2019. As a result of this slower and differentiated growth trajectory, which we had forecasted, you can see at the bottom of this chart that our activity in terms of managing limits and running prevention actions on the portfolios of our clients, remember, everyone, we manage about 4 million different lines of credit on behalf of our clients. You can see that our level of activity has actually been multiplied by 2.5 this year versus last year with continued, although lower, activity in the third quarter. Our total exposure, as you can see on the right-hand side, as a result, are down 9.1% versus where they were at the end of last year. I will say that we haven't stopped writing business. We continue to write new limits for clients on a daily basis. And as we -- I've already said, and you will see in the next pages, we continue to write new business. If you go to Page 6, you will see that the government schemes now cover about 56.1% of our total balance sheet. I think there's a recognition by the different governments that credit insurance is key to maintaining confidence in between companies, and that intercompany credit is a big part of the funding of the economy. So we've finalized schemes with 12 countries. There's a couple more that are still being discussed, and they are here at -- in the darker green section, 8.7%. Most of that is actually Italy. It's too early yet to say what these schemes will become in 2021, whether they will be extended. And if they are extended, under which terms. So too early to have that discussion at this stage. Going to Page 8, and you're used to seeing these pages quarter-after-quarter. You see again our top line down 0.9%. Within this, trade credit insurance is down 1.1% at constant FX and perimeter. This is all driven by a lower level of client activity, and that's pretty understandable, given where the global economy is. Net production, which is new business, is up EUR 36.9 million. Our service revenues are up almost 7% versus the first 9 months of 2019. And you know that information is a piece -- a significant piece of our Build to Lead strategy. And that business itself is up 10% from last year despite the lower economy. Factoring is down 11.5% year-to-date. We know that this is a business that's been particularly impacted in the first half of the year, given the lockdowns that we were into. It actually started to recover in Q3. It's down 6.5%. And all of that is due to volume declines at our clients. Repricing actions and the turnaround of the business, which we've been talking about for now about 1.5 years, have actually started and are ongoing. Our fees are up 3.5% -- 3.3%, again, growing faster than our full turnover. And when you go to Page 9, and you see the usual breakdown by region, you see that the main factor here is the big headline is our client activity is lower. It's true for Western Europe, where basically we're flat from where we were last year. Northern Europe, which is Germany, is down 6. Part of this is because they are the country where we are actually a factor and where the factoring activity has been hit most. But also, it's an industrial country with a big share of automobile and other types of manufacturing, which has already been slowing down even before the COVID crisis. The Central European economy is very much tied to Germany and shrinking 3.6%, pretty much in line with Germany. Med and Africa, which usually grows at the tune of 5% to 6%, is lower, again, on client activity at 2%. You see below that North America is about flat. Asia, slightly positive. This is a part of the world where actually, growth has kept up better than in other places. In Latin America, very low growth at 2%, driven mainly by, as usual, very large client relationships that we have around the world. So if we go to Page 10, you see the usual breakdown of our growth story, new production, and that's -- I think that's a notable fact is the best that we've had in the last 5 years at EUR 114 million, up for the first 9 months. Retention is at a record high, 92.7%. Pricing is the best that it's been in 11 years and you can see 1% up. I remind you that contracts renew every month, but the bulk of our portfolio actually gets renewed towards the end of the year. And then volume effect, as we anticipated, as we knew, as we expected, is down 0.7%, and we do expect that to continue as I don't think the COVID crisis is over. If you go to Page 11 on the losses, you can see the numbers I was mentioning. First 9 months, up from 2019, we're at 57.6% loss ratio before reinsurance and including claims handling expenses. The -- you can see the quarterly sequence to the right of this, and you see that the impact of the crisis was pretty clear from the first quarter 2020, actually increasing in the second quarter and doing somewhat better actually in the third quarter at 54.8%. There's a number of things that are being factored here. The fact that during the lockdown, I think there were lower levels of activity, which means that there's fewer receivables coming late today. The impact, obviously, of the very much increased prevention actions that we've had on our portfolio, the impact of the different measures that the governments have taken all over the world, we're talking about EUR 12 trillion of cumulative support by all the different governments around the world. And you can see the effect of that in the fact that our recoveries on prior years is actually holding up pretty well. And I'll just point out to the bottom right-hand side of that chart, where you see that we've opened a new vintage year at 88.5%, which is 15 points higher than we usually would do like in '19 at 73.1%. The [ boni ] that we get from prior vintages is actually at 33.5%, so holding up pretty nicely, showing that actually the -- we're still able to collect pretty well. When we look at the split of risk by region. Page 12 gives you the cumulative 9-month story versus the full years -- the full prior years. I think you're all familiar with the fact that actually risk is increasing, but I think it's more interesting to look at Page 13, which gives you the quarterly breakdown. And as usual, I'll start with the 4 larger -- largest and more stable markets at the bottom of the page, and you can see that it's actually holding up pretty well. Western Europe had a spike in the first quarter. This is one big event. It's a market event in which we took our normal share, but it is pre-COVID. And since then, the market has been holding up pretty well around 46%. Northern Europe at 40% had a good quarter. Central Europe is holding up again around the 50% mark. And Med and Africa is up from where it used to be last year, but the bulk of this at this stage is higher reserves. This is not actual claims. And then the 3 regions, which are typically more volatile, you can see that North America usually tanks faster and recovers faster when there's an economic event. So we had a spike in Q2, but the numbers were coming in better in Q3. Asia Pacific had its crisis last year and wasn't as much impacted by COVID. So it's holding up pretty well. And then Latin America had a spike in Q2 at 112, that has come back down at 76%, 77%. We've been very active in managing the risk in that part of the world. Again, very -- working very closely with our clients to manage some pretty complicated situations over there. So overall, I would say, an improvement in most places. If you look at Page 14, you see that our total costs for the year are down 2.9%. They were already down at the midyear. And what you see here is the continuation of the same trends. First of all, we benefit from all the work that's been done for the last 4, 5 years in terms of the core infrastructure, the internalization of the U.S. agents, it's -- we're having the full year benefit of that. We're also -- obviously being in COVID and being stranded from -- or barred from traveling, we're getting the cost savings from travel P&L and other things like this. So in total, our costs are declining faster than our turnover, which obviously then means that the cost ratio is improving, as I said earlier, by about 1% versus last year. So that's the operating story. With this, I'm going to turn it over to Carine, who will take you through the usual second part of the presentation.

[Carine Pichon, Group Chief Financial & Risk Officer]

Thank you, Xavier. Good evening, everyone. So let's continue to look now at our reinsurance results. The reinsurance results as for the previous quarters reflects a high loss ratio, higher one, and also government schemes. Starting to comment government schemes, you know that they are in force in several countries since the second quarter of this year. The total impact on the 6 months is a positive contribution of EUR 7 million to reinsurance result of these schemes. However, to be noticed is that on the sole quarter of Q3, it was a negative impact of minus EUR 1 million, considering that the level of provision has decreased. Premiumization rate clearly is up as a consequence with government schemes fully in force. It represents now a premiumization rate, you may see on the top price of around 43%. So far higher than what we were used to have in '19. And also, it means that the net earned premium are down by 21% compared with last year. Also, a last thing to be mentioned is that the high cession rate of claims reflects also the high opening loss ratio. You have seen that we have kept at the same levels as at the end of June 2020. So only in cost of reinsurance, minus EUR 9.4 million offshore, so far below the EUR 64.8 million we had in '19, but quite normal when we are entering a crisis in the cycle. Page 16 is a net combined ratio of about 85.3%, an increase clearly compared with last year, particularly because of loss ratio because you may see that the net cost ratio is declining by 1.6 points, which is clearly a good cost discipline we are able to implement. And on a quarterly basis, what you may see on the bottom part of the slide is a decrease of share combined ratio by around 0.7 points, Q3 '19, Q3 '20. It stands at 77.4%. To be mentioned that the net cost ratio at 27.5% is decreasing, is benefiting also from more reinsurance commission applied to a smaller retail business. And the loss ratio is at 50%, so down by 7.9 points versus previous quarter, which is also reflecting a lower level of claims but also reinsurance level coming from the state. And we are anticipating that the effect, positive effect you may see on this ratio is partially reversed in the coming quarters. On the financial portfolio, still a quite resilient investment income. If you remember, when we entered the crisis, we took some -– a quick decision on increasing significantly our liquidity level to 22%. We are deciding, looking at what is going on from -- on the claims side that we can aggressively redeploy liquidity but keeping clearly a conservative strategy to protect the balance sheet. But having said that and considering, and I think not a surprise for anyone here, the low interest rate environment, accounting yield is declining around 1.2% in '19, around 0.9% in '20. So a resilient revenue but still declining because of the current environment. All in lead to our net income, so Page 18, at EUR 52.4 million, of which EUR 28.5 million in Q3 2020. What's worth to be mentioning is that the tax rate, which we haven't yet commented, a little lower than at the end of June but quite at 44% and 42% for Q3 '20. And the decline in net income, without any surprise, is coming from current operating income at EUR 98.1 million, down mostly on the higher loss ratio.In terms of equity, Page 19. You see that the equity has increased, so thanks to the results. Obviously, also to be mentioned that following what has happened in financial markets, the impact, net negative impact on the revaluation reserves on our financial instruments is lower than previous quarter. It represents minus EUR 6.8 million, but also quite, I would say, a nonmaterial impact on the equity to be compared with the higher impact at the end of June. So we are benefiting from the rebound on some markets. And finally, based on this equity and based on the results we have commented, the return on average tangible equity that we are following closing went down from 8.9% to 12.1%. And what is interesting in that chart is that you see that without also any surprise and continuing our activity, the main decline is coming from technical results, meaning loss ratio decline mostly. And the financial results and tax and other are declining, but the contribution to that decrease is far, far lower than, clearly, loss ratio evolution. So having said that now, I give the floor back to Xavier for the key takeaways and the outlook.

[Xavier Pascal Durand, Chief Executive Officer]

Right. Thanks, Carine. So basically, the way we look at this year 2020 so far, clearly, it's an unprecedented crisis. It's a sanitary crisis. It's having multiple consequences. We see it coming back. So we don't think we're done with it. But I think as we promised during the Build to Lead plan, which we launched ironically just 2 weeks before everybody got into lockdown, we're focused on execution. We're focused on showing resilience. I think Coface has generated, so far, 3 quarters of positive net income, totaling EUR 52.4 million for the first 9 months of the year in a quite disruptive economic environment. And we've all been doing this while maintaining prudent reserving. We're seeing a better claims level in Q3. We realized here that the crisis is not over. But we continue to both manage the short term and to deploy our Build to Lead strategy for the longer term. So whether it's focusing on commercial performance, pricing, service revenues, which are all developing pretty well, which is for the short term, we're also investing -- continuing to invest for the medium term in terms of systems and products. We're working on our information offer. We are -- we've just launched a bonding business in Eastern Europe, and we are continuing to enjoy a strong balance sheet. And we think that given the good operating KPIs, it was the right thing to do to launch a share buyback program, EUR 15 million. We all understand this is a limited amount, but it does send, I think, a message of confidence, and that's where we are. So the economic environment remains uncertain. It will depend on the virus. It will depend on how we are able to handle the virus as a society. It will also depend on how governments and central banks react or continue to react. I must say they've done an incredible job so far. For -- on our side, Coface, we continue to focus on both the short term and implementing our Build to Lead strategy. It's fully valid, and we don't see any reason to change our ambitions for the longer term. So with that, I'm happy to now turn it over to the room and to take any questions you guys might have for us.

[Operator]

[Operator Instructions] We have one first question from Mr. David Barma from Exane.

[David Barma, Research Analyst]

So firstly, could you talk a little bit about the renegotiations of government schemes in Europe, please? And especially in light of your performance year-to-date, are you actively negotiating with governments to renew those schemes into '21 or as a safety net? Or is it more of an industry discussion? If you can talk a little bit about that, that would be great. And then linked to that around reinsurance as we're approaching the end of the year, does the potential extension of those government schemes change anything from your perspective when it comes to your quota share reinsurance agreements? And then my last question is on capital return. I recognize we're still a quarter away from the end of the year, but I think the buyback announcement sends a strong signal. Could you discuss a little bit what has changed for you to be comfortable to announce this buyback today? Your uncertainty around the business is certainly less present, but still also questions around regulatory restrictions, use of government schemes, et cetera. So yes, what has changed basically? And shall we now expect you to go back to a sort of normal capital return policy pattern from now on?

[Xavier Pascal Durand, Chief Executive Officer]

Right. So the first thing I'll say about government schemes is that we're not alone. This is an industry-wide discussions and they're country-by-country discussions. So it's -- and the last thing I will tell you is that it's early days. I mean just to illustrate this, I mean, in a country like Italy, which is announced there would be a scheme put in place, the first one hasn't been signed yet. So it's still early days. It's country by country. It is an industry-wide discussion. Of course, we weigh in one way or another, but we're not the only ones involved here. And obviously, there are considerations when it comes to staying out of a certain scheme or deciding to go in and differentiating ourselves from the rest of the market. So too early to say where this is going. I think this also will be a function of what happens over the next, I would say, couple months as we see a resurgence of the virus and then how we're able to handle this whole thing and what impact it has on the economy. From a reinsurance standpoint, I mean, again, your question is what does it mean for the reinsurance market? I think, again, it's too early. I think these discussions are just barely starting, and they will probably carry on until the very last day of 2020. In terms of capital return, I think what we're saying here is, if you remember, we haven't paid a dividend in this year on the profits that we made last year in 2019. And if you recall, it was EUR 150 million. So the shareholder hasn't -- we were actually proactive in deciding not to pay a dividend because we felt we were in, back in March, in the zone of uncertainty. And prudence was the right thing to do, beefing up our resources and balance sheet and building up the trust with everybody in the market that's a constituency with Coface. What we're doing here is we're saying, well, we're 9 months later, things operationally have been so far pretty good. I mean, in relation to, obviously, the crisis, they're not as good as they were last year. That's pretty clear. And we just wanted to show a token of confidence and remind everyone that our -- I think our mission is not to just accumulate capital, but also to allocate capital smartly when it's possible. So that's what we're doing. I can't comment on the future. And obviously, none of what we do would be done without close coordination or creating surprise with any regulator anywhere.

[Operator]

Next question is from Hadley Cohen from Deutsche Bank.

[Hadley Cohen, Research Analyst]

A couple of questions. I think you've answered my first one around whether or not you had to get regulatory approval, but it seems from your last question, Xavier, the answer was yes to that. But a couple of operational questions, please. So firstly, on Slide 16, I think, Carine, you said that -- or it says in the presentation that the effect of the improved loss ratio is expected to partially reverse in the coming quarters. Can you just give a bit more detail of what you mean by that, please? Are you saying that the reversal is due to an anticipation of a pickup in claims activity? And implicitly by saying you expect it to partially reverse, that would suggest that it's not going to -- you're not expecting it to get back to the level it was in the second quarter. So I just want to check that I'm reading that correctly. And then secondly, on the cost side, can you talk about a little bit how much of these short-term benefits that you're seeing from a travel communication perspective and what have you? How much of that you expect to be a permanent saving going forward?

[Xavier Pascal Durand, Chief Executive Officer]

Maybe, Carine, if you're okay, I'll start with the cost piece?

[Carine Pichon, Group Chief Financial & Risk Officer]

Yes.

[Xavier Pascal Durand, Chief Executive Officer]

And then I'll turn it over to you to talk about the loss ratio question?

[Carine Pichon, Group Chief Financial & Risk Officer]

Okay.

[Xavier Pascal Durand, Chief Executive Officer]

Look, on the cost side, clearly, the way I look at this crisis is that it's an incredible accelerator of change. None of us, quite frankly, would have even thought of working remotely from home or stopping travel altogether. We -- none of us would probably have imagined it was possible to do it. And despite that, we've actually done it. I think you're seeing an accelerated transformation of the world, retail going from traditional to e-commerce. You're seeing also an acceleration of, actually, the energy transition. That being said, I don't think what we're going through right now is the permanent state. So there will be -- we will be going back to some traveling, we will be going back to meeting people. We will be going back to a number of these things. So I don't think you can say that these gains are going to be there forever. And I hope they won't actually because it means the economy will have to pick up again. And I think we all aspire to that. So I don't know if I'm answering your question. I think the -- where exactly, how much back we go -- how much we go back to what was before and how much of what we do today stays permanent is still something that we have to figure out.

[Carine Pichon, Group Chief Financial & Risk Officer]

So I can take the other question. So if we come back on Page 16, I think it's your question, Hadley. When I was mentioning that the effect is expected to partially reverse in coming quarters, this was in fact linked to reinsurance only, not at all on year loss of global claims, and I am not saying that claims will increase. It's more the effect of reinsurance. What is happening is that I mean all recoveries we have from the past is ceded to our external reinsurance to a level of around 23%, that's the quota share. And the new ones, let's say, which will come for the current underwriting year will go to the state and to cession rate, which will be more around 90% for them. So that just this technical effect, which is explaining that more and more, we're going to the time, more and more the effect of government schemes will be important to be compared the situation as of today. So that was the comment.

[Operator]

Next question is from Mr. Thomas Fossard from HSBC.

[Thomas Fossard, Co]

Quick question to start with on your solvency position. I see you are not quoting any numbers. Also, you [ collected ] our estimate for Q3. So just was wondering if you could update on what is the situation, what's the level of the Solvency II ratio at Q3? And I guess that's probably strong numbers [ to have deliver to us the ] EUR 15 million share buyback. So could you say what was the number? And also as you did in 2Q, what it will be excluding the government scheme? Second question relates to the EUR 15 million. I think that this is one of the most striking elements of your release tonight, especially, as we understand that regulator -- actually the French regulator is probably ---- is pretty cautious regarding giving more capital management freedom to financial institutions [French institutions also]. So could you tell us a bit more potentially what is the state of mind of your French regulator, and how they perceive your EUR 15 million share buyback? And the third question would be related to your exposure. It's down 9% year-to-date. Maybe you could shed some light on where you think then the highest or the most drastic reduction in exposure? And if currently you believe that you are where you wanted to be or if there is much more to be done in the coming quarters, potentially preparing your balance sheet to the gradual reduction of the government segment in the coming quarters?

[Xavier Pascal Durand, Chief Executive Officer]

Tom, I'll start with last 2 questions. And then again, Carine, if you want to take the solvency question after me, that will be maybe the best way. So managing exposures. I think last time we presented to you, we showed the exposure changes by region. And if you remember, there were some pretty significant differences. I think at the half year, I'm just talking on top of my mind, we were something like down 27% in Latin America, whereas there has been a much smaller impact in what we've perceived to be better, more stable markets. That's one dimension. I think if you look -- if you were to look at sectors or if you were to look at, say, company strength, you would see some similar differences. And they're pretty obvious because you read the papers like we do, and you understand clearly which sectors are more exposed and more difficult than others. So really, this is not just a -- we've committed to a few things when we started on the journey, the Fit to Win journey. Number one was that we would be staying very close to our clients and that we would not do see sweeping movements, computer-generated cuts without any discern, which was something that people had been complaining about when it came to Coface when I joined. So we haven't done any of this. We are looking at each individual situation very carefully. We're working with our clients to understand what they know, what we know, what makes sense, how far we can push it, and that's really our value add. This is really what Coface does. And I think one of the explanations of why, relatively speaking, we're actually doing okay is because people realize that this is a real value, that this is something that is hard to do and you need a lot of knowledge and a lot of expertise. And that's actually what we do. So I'm not giving you here a quantitative answer, but I'm giving you a qualitative answer explaining what we're doing. And clearly, there are differences. When it comes to the share buyback, I mean, I'm not going to speak on behalf of the regulator. I'm not the regulator, and I don't know their thinking. I just think that we felt that we had a strong balance sheet that we had, and Carine will talk about the solvency. We had the wherewithal to make a gesture. We -- as you -- I just reminded you that EUR 15 million has to be compared to the EUR 150 million that we did not distribute from last year and the EUR 50-something million that we made already this year. And we thought it was an amount that was very reasonable. And I think the regulator approved. With that, Carine, do you want to talk about the solvency?

[Carine Pichon, Group Chief Financial & Risk Officer]

Yes. So our solvency position from -- it's -- I mean, we didn't disclose it because we estimate it on a quarterly basis, but it's quite similar to what we have at the end of June. So you remember, we had a solvency around 191% and 8.0 without government scheme. So what I think is important to be mentioned and worth mentioning is our solvency ratio and position is far above our target range. Remember, I mean the upper range of this comfort scale is 175%. So we are still above that. And the EUR 15 million buyback, just to give you also a sense of what it represented on solvency, a little less than 1.3 points. So you see that globally, we have the capacity to give this buyback, and that's one of the reasons why we decided to do it.

[Operator]

Next question is from Edward Morris from JPMorgan.

[Edward Morris, Equity Analyst]

Two questions, please. First, I wonder if you can just talk about the differences in what you've experienced between Q2 and Q3? Obviously, there's quite a sharp improvement in the loss ratio. I'm just trying to understand, is that because the loss experience has been that much better in Q3? Or is it you taking a slightly different view and maybe feeling you don't have to be quite so conservative with your opening loss [PICs] or provisions, et cetera. And I think if you could sort of go on to talk about how you think the shape of this might evolve or at least just for the next few quarters, do you think we're at a point at the moment where we haven't really seen many credit events but are likely to going into early next year? Or is this a level that you sort of feel slightly more comfortable with? I realize that's quite a difficult view to give precisely, but just any kind of thoughts you have there would be helpful. And then secondly, just coming back again on the capital return. The way you were talking about this is in the context of not having paid out anything from last year's earnings. And I was interested that you phrased it that way. Should we, therefore, think of you making another capital management decision at the end of the year that is based around this year's earnings, i.e., the EUR 15 million as sort of token gesture because of what you couldn’t do last year? And then what really will be the binding constraint on capital return when it comes to the end of the year? Will it be a decision purely around your solvency? Or is it more likely to be governed by the regulated view again?

[Xavier Pascal Durand, Chief Executive Officer]

Well, to stay on that topic, we can never ignore the regulator, as you know. We are a regulated business. So I don't know what much more to say than any move we make will never be at the expense of surprising a regulator anywhere. And I think that's just normal. So we're subject to market forces here, which makes a ton of sense. And I was just trying to -- when I was mentioning '19, I was just trying to put in perspective the amount we are allocating to this share buyback versus some of -- the dimension of the company or its profitability last year. I'm just trying to give you a sense of perspective for what it is. On your 2 first questions, clearly, if I could forecast the loss, the industry losses or the credit losses in the world in the next 9 months, I would probably -- I could probably monetize this for a huge amount. This is just a joke. But I -- the way we looked at it is beginning in Q2, we knew, clearly, the world was changing. There was a crisis. Everything we thought to be true at the end of last year was not going to be true anymore. And as we expected, when you see such a reduction in GDP all over the world, we've seen a number of companies starting to face difficulties. And we've seen a number of bankruptcies, particularly large bankruptcies, take place. I mean I can just mention the endless list of U.S. retailers that went bust in the course of just the first few months. So I would say the companies that were weakest or in a more difficult position already with business models that were tense or under pressure, obviously, fell the first and were the first ones to show difficulties in this crisis. And so we had a wave of insolvencies that showed up. The governments were, as we said, very quick and very determined and very thorough in their approach to supporting the different economies around the world. And I think that's paying out. And as such, we have seen a better trend in the third quarter, and that's basically what we're showing here. That's basically what I can say about this.

[Operator]

[Operator Instructions] So we have another question from Mr. Thomas Fossard from HSBC.

[Thomas Fossard, Co]

Yes, sorry for coming back. I just have 2 additional questions. The first one would be related to your -- to the ownership from Natixis to Arch Capital. I think that you're still waiting for the regulatory approval. It's been quite a long time. So I was wondering if you had any update on the process, and if there were anything [ ongoing ] hurdle you were expecting? And also related to this question and coming back to your Solvency II ratio. As far as Coface is concerned, does that make things different being owned by a bank or Bermudian insurer when thinking about the right level of Solvency II ratio you need to hold on your own?

[Xavier Pascal Durand, Chief Executive Officer]

Yes. On the transaction, I mean, there's really no news. So I'm not going to make any further comments on anything we've said so far. The transaction's been announced. It's going through its normal regulatory approval process.And as I remind every time, we are the target. We are the object. We are not the transactor here. So for that, you will have to turn back to the participants in the transaction. In terms of the solvency rules, we are subject to solvency rules as a regulated insurance company in Europe. That's got nothing to do with who owns us. This is a -- we're subject to the regulation. And also, we apply a risk appetite framework or -- that we believe is right for the business, which is approved by the Board. And I don't expect this to change just because of ownership. So at this stage, I would say, to us, it's not going to change the way we look at solvency.

[Operator]

Next question is from Mr. Benoit Valleaux from ODDO BHF.

[Benoit Valleaux, Analyst]

Just one question on my side. When I look at the price effect trend, it suggests that you have had roughly on average 3% price increase in Q3. So I just wanted to know if you're happy with this level of price increase, and this is what you expect for the next quarters to come and if you see some competition on some areas or not?

[Xavier Pascal Durand, Chief Executive Officer]

Yes. I can tell you this is a client-by-client discussion. This is a situation-by-situation thing. There's no overarching rule here. I mean, we're not applying something across the board. So we're here to build long-term profitable relationships with clients that are willing to partner with us over the long haul and through the cycles. And this is very much a one-by-one discussion. So I wouldn't -- and I'm not going to make any forward-looking statement relative to where pricing ends. I think there's multiple factors that are involved here, one of which is where the crisis goes and where the economy goes.

[Operator]

Sir, we have no other questions.

[Xavier Pascal Durand, Chief Executive Officer]

Okay. Well, what time is it now? It's -- we're right about -- we're a little bit earlier than usual. But if there are no other questions, I would just suggest that we close the call. I just want to thank everybody for spending the time being with us tonight. Our next call will be, what is it? Beginning of February, 10th of February, and that will be for the full year results for Coface. I think we'll all remember 2020, but we’ve still got a couple of months to go through. So we're focused on the task, and I look forward to speaking with you at the beginning of next year. Thank you very much.

[Operator]

Ladies and gentlemen, this concludes the conference call. Thanks for your participation. You may now disconnect.