UNIQA Insurance Group AG (UQA) Earnings Call Transcript & Summary

Good afternoon, and welcome to the UNIQA Group preliminary figures 2019 hosted by Andreas Brandstetter, CEO; and Kurt Svoboda, CFO/CRO. My name is Kevin. I'll be your coordinator for today's conference. [Operator Instructions] I'm now handing over to Andreas Brandstetter, CEO, to begin today's conference. Please go ahead.

Good afternoon, ladies and gentlemen, and welcome on our call on the preliminary 2019. In a nutshell, earnings before taxes above expectations based on, again, improved combined ratio net and stable investment result in the previous year. If we head on to Page 4, for our CFO, Kurt, speaking into the details of the balance sheet and the result 2019. A few comments on this page. On the one hand, we see a quite positive, I would say, solid growth, mainly driven by P&C and Health, overall, up 1.2%. Then second, we see higher operating expenses. We also see a cost ratio which is up, mainly driven by decreased deferral of acquisition costs in the Austrian Life business, plus by higher admin costs, mainly due to the IT projects we talked about already a couple of months ago. Combined ratio down by 0.4 percentage points, mainly driven by [ unfavorable ] (sic) [ favorable ] underlying claims development and by a strong P&C growth in the level of 2.6%. Overall, this leads to a profit before tax, as I mentioned, at the same level as 2018, whereas in the previous year, we had this extraordinary effect from our sale of the participation in the Casinos Austria in our books. Proposal to the general assembly taking place in May will be, again, increase of the dividend, EUR 0.01 per share up to EUR 0.54 per share. And I'm handing over to Kurt, starting with the financials on Page 7.

Yes. Welcome from my side. Talking about the P&C, Life and Health business. On the revenue side, what we want to highlight is, on the one hand, that with the 1.2 percentage points growth, UNIQA is according to our strategy in 2019 exactly on plan. We have less single premiums sold in 2019, but this was done on purpose, especially on index-linked products in Austria with the banking sector, [ we stocked further ] because of profitability reasons, especially for the customer's purpose. When we look on our P&C side, they have a very good growth in Austria, close to that what the market will give in Austria. And in international business, we prolonged the consolidation of the business, stepping back from motor going to non-motor business, with this having slightly less growth than in the previous years, but especially from the profitability we have in this -- in that case. When we talk about Health business, Austrian is dominating the market and in UNIQA. And as a market leader, with the 4 percentage growth in general, we are exactly in line with that what we planned. On Page #8, when we come to the cost side, and the cost ratio is certainly one of the things that -- pain points in the year 2019, and therefore, this will be a strong focus in UNIQA 3.0. A cost ratio of 27.2% is certainly something that we would like to have in the future. And therefore, this is part of our program starting and we will be announcing in mid of 2020. What was caused many projects, especially on the IT side and also a very active development, which impacts the cost, has been the main drivers for this increase, especially on the operating expenses. When it comes to the combined ratio, Page #9, I'm referring 96.4%. What I want to inform you is, and we talked about this in the recent conference calls, the good development of the P&C guidance. Our increasing profitability led us to the possibility that we could build up a P&C risk buffer with more than 1 percentage point in Q4. And with this, even we can't achieve a 96.4 percentage points combined ratio, that means our operative combined ratio is more than 1%, better than the one we have here in the balance sheet. Page #10, the P&C result in total, nothing to add to that what I've said before. Just if you have a look on the Q4 stand-alone earnings before tax, this is impacted by this risk buffer I described some minutes ago. On the Health side, we see a good development in the fourth quarter on the benefit ratio. 82 percentage points means that we are, a, now with our new processes in line with our paying structures, so especially on nonstationary tariffs. We have around 3 to 4 days on payments. And with this, we could also improve the periodic development on the Health business. On the last slide, nothing to add. We have good profitability coming from the international business, in that case, especially Russia and Czech Republic. Austrian Life business is stable. And we could also afford that within 2019, we have been able to strengthen our [ 3 ] RFP, the profit participation by around EUR 13 million that is included in this result. To the investment activities, some words besides that what you can read here. Please be informed that our average yield that we achieved was 2.8%. Also, new money yield is 2.8%. We had a EUR 3.2 billion topic on shifting the portfolio. This is because we had a strategic asset allocation shift from short-term and midterm-oriented bonds into infrastructure with illiquidity premium. And for that, we also had some gains realized, 40 -- EUR 54 million in 2019. But as you heard from my explanations, most of this EUR 54 million have been used for strengthening the mathematical reserves and also create some room for the future, and it's not directly impacting the EBITDA. Infrastructure, for us, important because of, a, sustainability, long-lasting and fitting to the duration of the portfolio, which is, on the liability side, on average 13 years in the Life business. Solvency, not mentioned or not stated here. But just to inform you, we expect by the year-end around 215 percentage points, plus/minus, without, of course, including the AXA merger, which takes place by end of 2020 to be expected. Outlook for the full year 2020 is that we see slightly increasing gross written premiums by promoting our strategy in the Life business in Austria and in the international business, of course, a next level and a next step to improve the combined ratio in 2020. On the investment result, we do not expect the result on that level of EUR 535 million for 2020. But of course, from a yield perspective, we would see us in the range that we are in 2019. And the dividend proposal for the AGM for the full year 2019 will be of EUR 0.54, which is in relation to the share price by the end of the year of around 5.9 percentage as a dividend yield. So that's my explanation to the full year 2019 and the outlook for 2020, and I'm now happy to take questions from your side. Thank you.

[Operator Instructions] Our first question comes from the line of Oliver Simkovic from RCB.

Two questions. The first one is regarding your premium growth guidance. So you're guiding a slight increase for 2020. Does this mean that AXA is rather expected completely towards the end of the fourth quarter, so it does not affect premium growth in 2020? And then the second question is about the change to the group restructuring that you released yesterday. Maybe you could give us some insight into what actually led to the decision to no longer consolidate the holding company into the operating entities? And yes, maybe you could elaborate on that?

Thank you, Mr. Simkovic. Taking your first question, that's correct, the AXA merger is not included in the statement of the slightly increase in the premium development. We expect the closing -- the final closing in the fourth quarter. And depending on the timing, we have then either one quarter in our consolidated balance sheet or nothing. That depends on the timing. Just for technical information, if the closing takes place in the second half of the fourth quarter, then according to IFRS rules, we cannot consolidate AXA in 2020. But our guessing at the moment is that we will have one quarter included in our consolidated statements. But for the time being, the outlook is without AXA. Your second question about the restructuring that we announced yesterday. Decision to go for 2 companies and to leave the holding company in a noninsurance entity is based on 3 elements: a, it would have been possible, but only with a very high tax burden, which we are not willing to take. We talk in that case of more than 1 tax year payment on UNIQA Group level. So this is, for us, not acceptable. Second thing is there would have been also some legal restriction or uncertainties, which we would not like to take, especially with UNIQA 3.0. And the third thing is by having the restructuring case like this, we came -- we can come to the same efficiency and to the same improvements as we always stated by having one company and one entity for the insurance business, and the holding company stays as a financial holding. And with this, we can take out all the synergies that we planned and that we will announce by mid of the year.

Our next question comes from the line of Thomas Unger from Erste Group.

I was just interested on the outlook of the dividends, especially for 2020. I didn't see any -- that mentioned anymore that you would like to increase the dividends per share annually. So do you still stick to that outlook for 2020 that you intend to increase the dividend for that year? I understand that sort of the midterm outlook would probably be given with the update of the strategy by mid this year, so I would really be interested only in 2020 and how you see it also in light of the acquisitions that you just made. The second question would be on the outlook for 2020, earnings before tax is expected to be flat, net investment income down. How do you expect to compensate for that decline in the investment income? Also, the insurance technical in the results was weaker in 2018 than in 2019. And I have said you just explained that you had some additional reserving in Q4. Is that enough of a buffer for 2018 to generate a stable earnings before tax in 2020? And then the third question, maybe on Poland. Maybe you could -- you're now increasing with the AXA acquisition. You're now increasing your exposure to Poland on non-life motor insurance substantially. And in non-life in Poland, the premiums have decreased in -- at UNIQA in 2019. So how confident are you that you'll be able to increase the profitability there? The competitive environment has been -- was fluctuating in Poland in the last few years, has been -- it was the state of the year at that time. So how confident are you that you'll be able to generate higher premiums and profitability there?