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

Hello, and welcome to the UNIQA Group Results of the First Half Year 2021. My name is Jah, and I'll be your coordinator for today's event. [Operator Instructions] I will now hand you over to your host, Mr. Kurt Svoboda to begin today's call. Thank you.

Thank you, and a warm welcome to all the participants in the call for UNIQA's 6 months '21 results. I'm referring to the presentation, which is available via the UNIQA website and starting on Page #5. I'll give an overview to a very satisfying result for the first 6 months of the year '21. Starting with the snapshot. What jumps to the eye is a 17% growth on the gross premium written. Of course, influenced by the situation that the integration of the former AXA companies are now to a full extent done. The organic growth, which is stated here, was about 2% in Austria but also in the international business, where without AXA, a very comfortable organic growth in the first 6 months. Costs and the ratio decreased, of course, as a part of our cost program that is -- that was announced also during the Capital Markets Day. And of course, especially in the CEE regions, after the integration, the greatest cost savings are to come in the second quarter and then in the year 2022. We had announced this quarter on the investment side coming from no significant impairments in the whole portfolio of more than EUR 20 billion, a good result from current income and carrying forward the gains that we realized in the first quarter out of the change in our strategy on the equity portfolio. A combined ratio with 92.6% is outstanding and much below our long-term target, of course, influenced from certain effects like COVID, less mobility. On the other hand, I won't talk about this then in the section on the comment later, also influenced by the floodings which took place in the first half year. A strong technical result, leading to a nice double-digit ROE, and solvency ratio stable or close to 200%. And for us, therefore, the main challenge is to continue this good work after the first 6 months and to focus on our long-term targets that we presented to you with the new strategy of UNIQA 3.0. Not to forget, looking on Page #5, the investment yield is 2.7 percentage points. It is much above the average guaranteed interest that the company has to cover for the Life business in Austria, which is around 2.3%. Page #6. We talked about the nice annualized ROE, about 10.1%. And of course, due to this good result, also the earnings per share increased rapidly. Group results. Jumping to Page #8 and looking a little bit on the revenue side. So the growth came out of several channels. First of all, the corporate business in Austria, where we took certain measurements on the pricing, on the portfolio sanitation has a quite nice growth. Also, the bank in general in Austria with Raiffeisen is growing steadily and the Life business, of course, still moderate demand on that level but the shrinking portfolio is less than 1%. And this is good because we are here in a situation with the new products and also with the new IT that we're implementing and with new products that we are preparing. We see also here a little bit of a -- I would not say light in the tunnel but stabilization on -- in the portfolio. International business was focusing on the transferring of the former AXA business into our books and not losing too much clients and partners, which we achieved. And therefore, we have a nice growth in that respect. And don't forget that with the Russian portfolio, where we have a good growth also here, negative FX effects a little bit deteriorated the growth. So therefore, very comfortable and good growth that we can report after 6 months. Next page, about the cost ratio. Looking on the absolute amount is a little bit misleading because in the year 2020, AXA, of course, is not included. And therefore, it gives a little bit of a different picture. But if you look together on the cost ratio, which is 26.9%, it's a quite good development, which we are satisfying. What is the reason for that? So a, part -- the first part of the cost-cutting program is visible; b, we have also the synergies on the integration of AXA included here. So around 50% of that what we expect for the year 2021 is already included in the first half year. If you take into consideration that the spending for the integration costs, like branding, marketing, consultancy and stuff like that, is the full extent covered in the first half year. In that case, we are also satisfying with the integration synergies. Also to talk about the integration of AXA here. So what I can report is that we achieved the last agreement from the National Bank in Czech Republic by end of August. So also with this, we can report that the integration of AXA is also formally and from a financial perspective, agreed and with the end of August done. Combined ratio on the next slide, 92.6% is certainly an all-time low for the UNIQA Group. What's behind? Behind is, besides the good [ Durban ] on the cost side also has very strong underwriting result on the so-called the main business. Included in this combined ratio is around EUR 100 million gross and a EUR 45 million net effect of floodings in the first half year. So the June flooding is included in that respect from Austria, Czech Republic and a little bit in Poland. The reinsurance is included also in that respect. And with this, we have also covered the most impressive flooding in the last 15 years within UNIQA Group. COVID-19, of course, also in the second quarter, I gave a little bit of a backwind. So we can expect around 2% of this combined ratio is a COVID impact coming from less mobility, coming from lower frequencies, especially on the motor business. And this is the thing that is for us not that sustainable for the next year. But even taking into consideration this and excluding the high impact from the flooding, the technical ratio of UNIQA is in a very, very good development. Health business, the next page. We are back on our underlying long-term trends to grow in Austria, somewhere between 2% and 3%. Of course, due to the integration of the AXA business, we posted a little bit higher growth this year. From a technical perspective, we see that the demand for medical treatment is a little bit lower than it was in the previous years. We cautiously reserved for that. But on the other hand, we believe still that this comes back then at least in the next years that these treatments have to be covered. On the Life business, Page 13, I talked about the relatively stable development in Austria, a different picture in this new region. We are unit linked and especially in the former AXA countries, this business is growing. New business margin has recovered, but of course, a little bit of higher interest rate. So stabilization in the Life business can be reported. Page 14, net investment income. I talked about this in the snapshot picture. So the EUR 307 million is a strong investment result driven by less impairments than last year. The equity and the fixed income side, we took gains from the first quarter with us, and with this also some increased current income after 6 months. No major gains to be reported from the real estate side. Here a stable development we can report. This brings me on my last page, 16, to the outlook. So I think you have already read and you are informed about our top release, where we increased our guidance for this year. And with these good results and also taking into consideration that floodings and regional storms and hailstorms are impacting the results, we are confident to reach this target. And with this, I want to end my speech and looking forward to take your questions now. Thank you.

[Operator Instructions] And the first question comes from the line of Thomas Unger from Erste Group.

My first question would, right away, relate to the end of the presentation, your outlook. Do you see it as very cautious now? You've achieved the EUR 216 million in earnings before tax in the first half and the guidance is for EUR 330 million to EUR 350 million. And taking into account what you said also for the operating costs that the benefits should be coming through from the efficiency gains in the second half, do you anticipate any nonrecurring effects for the end of the year, Q4 or anything else? That would be my first question. The second question would relate to the reserves booked last year for COVID-related claims. Where does that stand now? Have you used it or have you released any of it in the first half or in Q2? And what do you anticipate for the second half from that? And then also, you talked about the NatCat impact in June. But what do you anticipate from the summer events from the floodings in July, especially? Do you have an estimate already for what the impact on UNIQA net and gross could be?

Thank you, Thomas. So starting with your first question. Yes, firstly, it looks like there is a little bit of a cautious outlook planning. If you take EUR 216 million after 6 months, why not double this after 12 months? What we anticipated, Thomas, is on the one hand that we do not calculate with further non-impairments in the next 6 months. I think from that perspective, we have calculated that some impairments can come and will come. Equity side or fixed income side or corporate bond side, it comes. Secondly is the topic of UNIQA always had a seasonality in the cost situation. So the first quarter is the strongest quarter with the cost. This comes from many project calculations, from many invoicing in the first -- in the fourth quarter. So this is also a topic that you can see on our balance sheet. And the last one is a little bit coming to that what you asked in your third question. We are cautious because we see that the development on climate is changing rapidly. And this will also have an impact on the claims side. And we believe that especially this regional hailstorms and flooding that they also lead to a growth in net result. And with this, we calculate an impact also in the second quarter, which led us then to this EUR 330 million to EUR 350 million from that perspective. Second question, Thomas, was on the reserves that we built on COVID. I guess you refer to the health business. And with this, I can tell you that we did not release a sense. So regionally we reserved additionally from that perspective. And also the P&C business, we took aside a little bit for the COVID impacts for the next month. Last question is about...

Let me jump in here. I think Thomas referred to the reserves, which we had given last year for the business interruption cases, so the EUR 70 million net negative effect on the P&L last year. Is that correct, Thomas?

Right. Right. The EUR 70 million at the end of last year, yes.

Okay. Sorry for the misunderstanding. From that, the half of this is released, Half of this is still there because we have to wait until we have all these claims filed with the customers. So 50% is released, 50% is still open. Thank you. And the third question is about the NatCat in June and the floodings in the summer rains. And this is exactly what I stated in the first answer, Thomas. We see that this flooding last week, this week in July, these are so-called [ single ] rains on a local perspective, where reinsurance is of internally or mostly internally. And with this, we are cautious in planning. So far, we have no numbers, but it is still a double-digit amount that we expect here to pay.

The next question comes from the line of Cintia Cheong from InsuranceERM.

Three questions, if I may. The first question, congratulations on the profits, which quadrupled. So that's a very good result. I just wanted to know why your consolidated net profit quadruple to EUR 171 million? I can see you enjoyed positive impacts on multiple fronts. So for example, higher investment result, lower cost and successful integration of the AXA's previous businesses. But do you see a single major factor behind this profit hike? Or is it the result of multiple factors? So that's question one. Question two, you just mentioned about the flat cost. You said you don't have numbers yet, just that it's double digit. Could I just check with you whether you meant double-digit million euros? And thirdly, back to the costs. I just wanted to know if you have any recent update about cost in IFRS 17 program? I know that cost -- it has been costing a lot from issuers. So I just wanted to see if you have any updated figures in terms of the accounting standard?

So I'll start with question #2, the floodings. Look, as this event is something that's incoming, I would say, each week, we are, at the moment, not in a position to give you a complete number in terms of what does this mean for a gross net basis. And when I say a double-digit amount, it's somewhere around EUR 50 million, which I expect at least that will come for the summer flooding in July and in August. Anyhow, this is calculated in the outlook that we announced several weeks ago. Third question, about IFRS 9/17. Look, we are at the moment in a position that we can say the project itself is at UNIQA in a quite good shape. We are preparing for a dry run in this year, in the second half of the year, where we see it in the first results. In terms of budget and in terms of a cost perspective, please allow me to say, as this project is running and we have not calculated and invoiced all the things, I cannot give you a whole amount. What I can tell you is that, generally, I expect the whole project that will be finished then in '23 will be around 2 to 2x the cost of Solvency II implementation that we have and Solvency II implementation was of around EUR 25 million for UNIQA. For the first question, sorry, there was a little bit of a noise in the line. I just understood that you are talking and that we have been questioning about the consolidated profit. But honestly speaking, I did not get technically the exact question. So could you repeat it again and help me to then -- to understand better?