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

Hello, and welcome to the UNIQA Group results of the first to third quarter for 2021. My name is Jess, and I'll be your coordinator for today's event. [Operator Instructions] I will now hand over to your host, Andreas Brandstetter, Group CEO, to begin today's call. Thank you.

Thank you. Good afternoon, ladies and gentlemen, and thank you very much for your interest in our results. I think that after the first 3 quarters of this year, we see a very strong technical result across all major business lines, if I may invite you to follow me on Page 5 of our presentation, then you see the first details before I hand over to Kurt Svoboda, our CFO. What we see is an 18% increase on the premium side, top level, mainly driven by the integration of the AXA companies in Czech Republic, in Slovakia and Poland. But also accompanied by, I would say, a satisfying organic growth of around 2% in our home market Austria. Lower impairments and realized gains, as you know, in Q1 of this year on the sale of equities and fixed income lead to an increased net investment income of 5%. I'm very happy that we see the first results of our cost-cutting program. If you see our operating expenses, but maybe then the group cost ratio development, I see ourselves right well on track to reach our long-term goal of UNIQA 3.0. Very happy to report a further decrease of the combined ratio. Despite a series of weather events in this year, especially in the month of June and July, especially in Austria and in Czech Republic. And the result -- as a result of all of this, and this is very -- very happy to report a much improved earnings before tax by 40%, up to nearly EUR 300 million, reflecting, as I just mentioned, on the one hand, lower cost ratio, but also on the other hand, increased investment result. So having said this, and to understand a little bit more about the details, I may hand over to our CFO, Kurt, who will start, I will assume, by page then 8, yes.

Yes. Welcome from my side, Page 8 about the growth of the first 9 months were a quite nice growth by 18%. Of course, this is deteriorated from the AXA integration, which was not included in the 9 months 2020. But even excluding this, we have good growth of more than 3% in the P&C business, good growth also on the health side. Focus is P&C business. And with this, we are very satisfied and even better than expected. Where as far on the cost ratio on Page #9, a solid development from 27% cost ratio down to 26.4%. The cost program actions that we took, they are on [ track ]. We have the social plan in Austria, which is done and where we have now the situation that with this also the release of people is done. And with this, the cost program with the EUR 100 million and reducing the cost ratio is on track in both segments as well as Austria and also in the international segment. Leads me to Page #10, the P&C combined ratio by 94.2%. Here to be a little bit more precise, we have in these 9 months included NatCat events of, on a gross basis, more than EUR 190 million. We have -- in that result included also major claims in an amount of EUR 160 million on a gross basis. On the other hand, we have released from the COVID side and from the situation of less commuting, less mobility, which helps us, especially in Austria. And we took this also as a background also to strengthen our reserve in Zurich and in Austria, knowing that this situation is not sustainable and things may arise in the future. But even including this, we have a good solid development in the convent ratio with 94.2%. And in the cost ratio, the cost program is reflected. Page 11, why is the P&C EBIT minus EUR 8 million then worst in combination to the last quarters? This has to do with the NatCat and with the major claims plus the reserve topic I explained minutes ago. On the health side, EUR 25 million EBIT in quarter 3. Also here, COVID situation in Austria and respectively, with our situation with the private hospitals, the situation is like that, that many surgeries and things like that are postponed. And with this, we have also here created reserves for more or less IBNR topics in the future. Life, EUR 66 million. This is driven by the international business as it is stated below. We have the pension business, we have the AXA business and we have Russia, where we have good results that drive this EUR 66 million. With this, I came to the last page, which I would like to comment is about the investment activities. On the first [ plan ], it looks that we have in 9 months topic of less investment results, where it is the situation that we have less inflows coming from the Life business and also some depreciations done on the participation side. And with this, we are quite comfortable. The average yield is of around more than 2.5%, and this is in line with this what we expect, and also in line with this what we have as an average current interest rate for the Life business. With these comments, I hand back to Andreas for the outlook of the year '21.

Thank you, Kurt. Well, it will be no big surprise for you that we seek our outlook and that we confirm EBIT in the range of EUR 330 million to EUR 350 million. This was the amount which we already mentioned in July of this year. Might ask why we are so prudent. Look, the year is not over yet and still 6 quite, I would say, tough weeks to come, got no idea what COVID will mean this in our core market, just to give you one example. We confirm that we are aiming and that we are thinking to reach and improve profitability in our core underwriting business, continuing the very solid development of the last quarters. As far as dividends are concerned, we said that we want to return to the pre-corona path by -- in the next couple of years. If you have in mind that we paid for 2019 and '20, [ EUR 0.80 ] per share. And if you remember that within UNIQA 3.0, our new strategy program, we addressed that our overall strategy is a payout ratio between 50% to 60%, I think you'll make your own calculations and conclusions out of this. Everything I said, of course, means that we assume that there will be any kind of further extraordinary negative development in this year. So thanks a lot for listening to Kurt and me, and I may invite you now we may invite you to address all your questions. Thank you.

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

Mr. Brandstetter, you just talked about the outlook and that it might be perceived as conservative for the full year. Can you just talk a little more about what you expect in Q4? You've generated a profit of nearly EUR 300 million in the first 3 quarters. So that gives us a range of EUR 30 million to EUR 50 million around -- for the fourth quarter. What do you expect to happen? Do you anticipate any higher expenses? Are you investing into better profitability midterm in Q4, some insights would be very helpful. And then secondly, on the larger topic, inflation, how and where do you see that -- do you see the inflation impacting your business? And what do you anticipate also for next year? And then maybe taking this into the topic of interest rates and yields, has that changed your view on your mid- to long-term yield outlook? Have you altered your expectations at all? Does that have any implications for your investment portfolio?

Okay. Thomas, this is Kurt speaking. If I may take all 3 questions. The first one is about the outlook. Look, when we calculated the outlook, we have been very cautious and also not knowing what the COVID situation looks like in that case. So with this, we expect, even with the existing situation that the fourth quarter will be a good one and that we will be on the upper range of the EUR 340 million or even more in that respect. Second question that you raised is about inflation. It's a good question, Thomas, because we are calculating with inflation. So we have downside scenarios calculated by 50 basis points and 100 basis points, so downside scenarios for UNIQA and the impact so far. It takes a little bit longer to run this through the whole finance workflow chain, if I may call it like that. But in case of a 50 basis point inflation increase, we expect a low double-digit number of impact -- negative impact on our EBIT. Where does this come from? The major impact comes from Austria on the cost side and on the asset side. This is one thing. And the other thing is international-wise, we are in a midsized single-digit number. Here, it comes from mostly from the claims side because we have contracts with euro or U.S. dollar denomination. The policy is mostly in local currency. And with this, the impact is the greatest one. So this to the inflation question and your last question, Thomas, was about our outlook on the yield side. So we calculate our plans with a moderate increase of 15, 1-5, basis points increase on the euro swap curve.

There are currently no questions in the queue. [Operator Instructions] The next question comes from the line of Thomas Unger from Erste Group.

I just had one more question and a little bit of detail on the individual business lines. In P&C, you -- the profitability suffered a bit in Q3. And so that the expenses, the net OpEx were higher in the quarter than in previous quarters, commissions increased but also other operating expenses in the cost ratio was up. At the same time, there was an improvement in the Life segment, has there -- was there a shift between those 2 segments? Or is there another reason for the worsening in the P&C segment?

The most important thing, Thomas, is the reserve topic I talked about. So the reserve strengthening is of more than 2% on the premium side. And therefore, this impacts EBIT then to that great extent. The cost side is not worth mentioning. It's more or less seasonal development, but we have no changes in the allocation between Life and P&C. So the major impact comes from the reserve situation and, of course, also from the payments for NatCat and major claims.

There are no further questions in the queue. So I will hand the call back to your host for some closing remarks.

Okay. Then thank you for listening, and thank you for taking your questions. Andreas and myself, wish you a nice remaining day, stay healthy, and thank you.

Thank you for joining today's call. You may now disconnect your lines.