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

[Audio Gap] democratic kind of tragedy, those developments are not -- I repeat, they are not a major threat for our financial performance or for our business itself. And why this is the case despite the fact that we are a market ranked #2 in Ukraine, Kurt, our CFO, will highlight in a few minutes. . Let me start with a few words on the summary in Q4, where you see some indicators which are very good and all very positive. They're all either beat our expectations or are in line with our expectations for the year 2021. All those positive factors are, starting with the cost ratio, the combined ratio, the growth up more than [ 20% ]. All those lead to earnings before tax of EUR 382 million and a net result of EUR 315 million. We are very happy that we could achieve such a good result already in the very first year of UNIQA 3.0, which, as you know, started last year and which will terminate in 2025. Especially when we take into account several negative effects, which we'll discuss now on the following pages. On Slide 5, if you have a look on the snapshot. We see that growth came down in Q4. But year-over-year, we still report a growth of 14%, of course, mainly driven by the integration, by the successful and completed integration of the AXA companies in Czech Republic, in Slovakia and in Poland. But on the other hand, we see some very satisfying growth on the home market in Austria, more than 2%, which is in line with longer-term trends as our expectations. You will learn more about our net investment income in a couple of minutes, which was very strong in Q4 again. What we did and you know it is that we shifted part of our portfolio in order to align with our sustainability strategy and thereby, we managed to realize gains, mainly equities. And this came on top of an already strong result, which we had in the past. So another point important to mention is the cost topic as maybe the most important or one of the most prominent targets of UNIQA 3.0. And the progress which we made is already visible in the decreased cost ratio, it came down by 2 percentage points. For the full year, I will talk about this more in detail in the next couple of minutes. But please have in mind that this is just a kind of intermediate goal which we reached because the target for 2025 is 25%, and it changes. So it came down from 29.4% [indiscernible] to step but nothing more. So there's still a lot of potential in this. Combined ratio, 93.7% is one of the main drivers of our excellent results, especially when we take into account that this combined ratio includes a quite serious number of NatCat events, especially in Q2 and Q3, and an increased amount of large losses in the corporate business in both our core markets, Austria plus CEE, then I think it started in a market for positive development. We are pleased with this combined ratio by the way of -- it's better than we expected in our midterm plans at this point of time. Having said so and having given you some highlights on those figures, I may hand over to Kurt to give you some further information regarding these results in detail.

Ladies and gentlemen, welcome to UNIQA's full year group results in detail. On Page 8 to the gross written premium development, which is with EUR 6.4 billion roughly, the biggest amount that this group ever had. Integration of CEE and AXA is included. We have good growth in both segments, International and Austria in the P&C and in the health segment, and we have a good growth in life in the International business. So even that they are a year of pandemic or more or less a year of pandemic situation, we have a significant growth in motor business in Austria, more than 3%; and International around 4 percentage points. We have a good balance between retail and corporate business growth, and this despite the situation of lockdowns and of different pandemic -- problematic, especially in Austria, the western part of the region, tourists and hotels. We see a trend that products for health are more in demand especially of outpatient tariffs, and this was also driving the growth in health in Austria. Life, a good growth in International coming especially from the CEE region, around Czech Republic and Poland, unit-linked and index-linked products are dominating the growth in the Life. Austria on a stable position. That means that what we lose on expiring contracts, we can balance out with new business, especially also here a tendency on more unit- and index-linked products. Coming to Page #9, the cost ratio, the 27.4%, is better than expected and in line with the UNIQA 3.0 target. We have the first fruits of our cost-cutting program, where we are with EUR 40 million, 4-0, below our expectation. Of course, in comparison to the previous year, this doesn't turn out because, in 2020, AXA was not included or just was 1 quarter. For this year, it's including the full amount of AXA. But on a like-for-like basis, we reduced our costs significantly. The P&C combined ratio, 93.3%. This despite major net covenants, we had around EUR 270 million on NatCat events in 2021 on a gross basis. We have furthermore some significant amounts of major claims, especially in the area of fire and property insurance. And we have also -- yes, that's correct, we had a backwind of COVID less commuting, less mobility. And we can say of roughly 1% we see the impact on the combined ratio from COVID. On the other hand, more than 1% is the impact of the higher NatCat events than average of the last 10 years. Especially in Austria, where you maybe remember in June, the hailstorm, which EUR 117 million, which was the highest net cat payment since the last 20 years. Therefore, Page #11, the P&C business was, in that case, always impacted by these claims payments. But generally, it is EUR 107 million, and we have strong contribution to the result of EUR 382 million. The same for the health business and outstanding EBITDA and good technical development. Yes, over the year, we see profit effects that -- with less payments and less hospitality days that we have deposit impact on the -- especially cost benefit ratio of UNIQA. In total, we can say that around EUR 70 million impact on the health business was. On the other hand, we also built some reserves that give us, for the future, the comfort of paying these postponed hospitality -- hospital and surgery costs. The Life business, stable driven from AXA and CEE, especially in the pension funds was included in that segment. A good performance on the pension fund, better than planned, with EUR 20 million was a big contributor to this good EBT in the Life business. On the other hand, don't forget that we get that UNIQA placed in 2021 in December, we posted a EUR 335 million, which impacted the result of -- with [ EUR 66 million ], which is part of the investment activities, which you can see on Page #14. [ Impairment fees ] is described on the right-hand side, the result of EUR 71 million. And also what we can report it's the first time that we had a significant contribution from our venture capital, with around close to EUR 30 million on IFRS gains by this bundle in the end of 2022. Now some words on Ukraine and on our Russian exposure. So besides the human and the most [indiscernible] problematic that we have here, from an economic point of view, we have in Ukraine situation where UNIQA has -- run the company, which is in life and non-life, around EUR 110 million of premiums, with an EBT contribution in '21 by EUR 11 million. We have no goodwills in that case. We have no good internal financing. That's an instrument, and we do get low exposure in the eastern part of Ukraine. And with this on the one hand on the safe side. Economic-wise, you can also report that our assets that we have in Ukraine, they amount to the level of EUR 150 million roughly being dominated by bonds of around EUR 100 million, the rest is cash and property. So what's important there, if it comes to that we have here the valuation differently than in the previous days, the first impact of the depreciation goes to our own funds to the OCI and not tied to the P&L. Impairments, all will then arrive in the P&L when they are sustainable and when they are gone, which at the moment is for us, not foreseeable. Therefore, this means the impact can cause an adverse case situation, EUR 100 million on the own fund, which has an effect on the solvency position. That's correct. But EUR 100 million does not keep up on our solvency position that much. Even that if you have in mind that interest rates, especially in the first 2 months 2022, has increased rapidly. The Russian portfolio with our company together with the [indiscernible] the joint venture, 75%; [indiscernible], 25%; [indiscernible] is of around EUR 74 million of gross written premium and a profit contribution of around EUR 16 million, 1-6. The portfolio that we have here is around EUR 380 million, 3-8-0, on assets under management. EUR 300 million belong government debt. It's a position that is in Russia and also a part of it in some other companies of UNIQA as well. Also, in that case, same amount and same procedures. That means this valuation impacts are going directly to the OCI and only on a sustainable basis then over the P&L. For us, at the moment, it is more important to say that our current wins and, if possible, also the customers that we are gearing for, we are in direct contact. We are also safeguarding IT sites, cybersecurity and telecommunications. And so far, we can report that we have no damages in that respect. All around the day's communicated sanctions that have been started from European Union, they do not apply to UNIQA, meaning we have no critical issues on these sanctions, either on the compliance side, more on the financial impact. I was talking about the financial impact here is the Swiss code is canceled between the European Union and Russia. Of course, this is not easy for us, but we can overcome these 3 different areas. So far, my estimation to the situation of Ukraine and Russia in our portfolio and some details on the financial results 2021 and for the outlook, I give back to Andreas.

Outlook normally is quite short. As you know in our presentation at this time, we kind of ask a little bit more patience because we understood the probably you think we are too conservative about the year 2022. So let me give some feedback while we are a little bit cautious this time. Well, what we're sure about and you have details on Slide 16 is that we also expect a very resilient top line in both our core markets. Second, we think that the combined ratio and the cost ratio approximately will remain on the same very positive level as we saw last year. There are some risks in involved. Yes, we do not see such kind of -- any kind of -- or we don't expect any kind of positive contribution from COVID, what you see is true. But on the other hand, the portfolio, which we currently have as in our book proved to be really resilient and really strong. We have some reduced financing costs in our P&L in this year compared to the past, which gives us, of course, backing. And on the other hand, [ I would ] like to comment on a couple of segments. We expect very high uncertainty of capital markets around inflation, interest rates and fee politics. So where does this come from? Please give me some minutes on this topic. We think that, of course, primarily right now, the current situation this year leads to higher uncertainty, not just in the region itself but to all capital markets across Europe. It's the wrong thing. Then we see central banks which started to react to a possible period of prolonged inflation. Could mentioned it briefly before, but after many years, a very, let's say, accommodative monetary policy, many central banks around the globe started to tighten their stance or communicated their intention to do so in 2021. Contrary to some central banks in CEE, the ECP itself still seems to be rather late compared to the fed and others. But finally, also we started to somehow acknowledge information. Another point if you think about, we hope that -- it is really our hope we do not know, there is no certainty around it, but the pandemic is mostly behind us. But for this time, this is the right proposition. And then one thing which could already commented on is our investor results 2021 was really a very strong one, I would say extraordinary strong one. We would not expect the same contribution from the investment side each year. And therefore, we need to be careful when we think about expectations on this side, on the side of [indiscernible]. So to sum it up, we can't give you today really, I would say, solid, clear exact guidance on our investment results. This is the trickiest thing. On the other hand, what we're sure about is the resilience of our core business. And I think it is something where we proved in the last couple of years that we show a constant improvement. And this got much affected now by this very positive and profitable portfolio from AXA. First, as mentioned, we expect premiums to be flat or up this year. So there is no [ call ] in our premium, no major threat that did not shrink on the top line. Second, we see the combined ratio to be around the same level as last year, as we mentioned, with positive and negative effects nearly balancing out in last year and disciplined underwriting, including our ability or provability to adjust prices when necessary. We go into 2021 with a lot of confidence regarding this common ratio, clear target is to be or to reach again the 93.7%, which we showed for 2021. And then I already mentioned it, but let's underline it once again, that clearly we will continue to maintain a very strict cost control or to keep the cost ratio at around the current level or to dig even deeper, having the [ 25% ] as a target line for 2025. So summary of a second message is the -- maybe the more cautious we are on the side of investment results, the more clear and the more confident we are on that what we manage to manage, and this is the underwriting result. And therefore, if you take those 2 factors together, the let's say, the question mark around investment result. But on the other hand, a very positive outlook on our core business. Therefore, we ask for your kind understanding that we do not -- we cannot give you a clear guidance today for the EBT for 2022. What we can give you is a guarantee that the payout ratio, and this is the promise which we made to you at the end of 2019, start of 2020, when we introduced UNIQA 3.0, that the payout ratio will be 50% and 60% also for the year 2022. And having the EUR 0.55 per share in mind, which we will propose to the AGM in May, and having in mind that this means a payout ratio of 53-point-something percent, I think you see that we keep our promise. So thank you for listening to Kurt and to me, and we are very happy to answer your questions.

[Operator Instructions] And the first question comes from line of Oliver Simkovic from RBI.

One follow-up here. I know the details on sanctions are not clear. But any other sanctions, except the exclusion terms that could hurt your operations in the country? And also have you taken precautions to prepare for potential escalation of sanctions?

So far, we cannot imagine that any sanctions gives us a harm on the business in Ukraine and in Russia. That's -- for the time, that's what we can say. We are not of the opinion that there is the business impossible to make, and therefore, all other things we can manage. We have 2 ways where we can immediately react on the pension risk, that is placed from the European Union. We are immediately in the decision also to react on different types of asset management. We are also in the position to react on our portfolio management with the insurance company. So this is, so far, what we can say. And out of that, Oliver, I would say, from that level, we are -- at the moment, we have learned that this will change thematically within days and the things we have never been aware of. But at the moment and from a worst-case scenario planning, we do not see any sanctions that can harm the business.

My second question is on your premium growth guidance. I mean given the current inflationary environment, a flat to increasing versus 2021 seems, as you already mentioned, a quite conservative outlook. Could you maybe give some color on what assumptions are underlying this in terms of segments which seems to be declining, where you see faster growth? And also any potential overall economic effects from the current geopolitical environment included in this guidance?

I think we have with 3 elements of the first element is that for us, profitability is first, growth is second. Good. Second is, yes, it can happen that our profit that our growth is better than planned, but this has to do with indexation coming out from the inflation adoption. So you know or maybe you know that we have a mechanism that we can, in Austria, for example, and in most of the international regions, we can adapt the according to an index. In Austria, for example, the so-called power cost index. With this, we can increase the premium according to this index. This is it was in the last year of around 1.5, 2.5 percentage points at the moment. Probably who is doing homework and house building can most -- the moment is index is about 13%, 1-3. But this is just an increase to cover. On the other hand, the higher payments on the claims side, so it's not a real growth that we have. So therefore, we skip this out of the real growth effect. And thirdly, Oliver, yes, it can come that out of this global drivers from -- coming from the war in Russia and Ukraine, there is an impact also on the -- on European situation which, by the way, we do not see so far at the moment. So coming back, growth is okay for us when it is profitable.

That's clear. But to understand it correctly, that the inflation, that the guidance refers more to real growth and inflation could come on top of that or...

Yes, that's correct. In our growth, there is inflation embedded on around -- between 2% and 2.5%.

Okay. That's clear. And lastly, on the cost ratio in Q4 has increased again to more than 30%. I understand that this is partially driven by one-off effects, full years is 27.4% guiding for flat development. I was wondering whether you don't expect more of the cost saving measures that were announced at Capital Markets Day to become effective in 2022? Or is this just a cautious step in light of the impact of the inflation on the cost base? Or could you maybe provide some more information on this why expect this...

Yes, to cut a long story short, it's 2 effects. First of all, the business in UNIQA is that in the fourth quarter, we have always the highest invoices and with this also the highest contribution to the cost. So this goes also in line with the big projects that we have especially on the IT side, on the digital side. And we spent more than EUR 80 million in that case in 2021, and this was more or less in the fourth quarter. The guidance of the cost ratio for the -- on the fulfillment basis on IFRS 4, I have to say, is to keep that level at least for '22.

There are currently questions in queue. [Operator Instructions] The next question comes from the line of Thomas Unger from Erste Group.

Is it too early to take any mid- to long-term strategic decisions in -- for those 2 countries? Is an exit possible? Or is that just not a topic right now in the current situation? And then relating to the 2021 or the Q4 figures and results, if you could tell us something about the loss ratio in Q4, is it really low compared to the previous quarters? That's one point. And then also if you could walk through the investment income and the realized and unrealized gains and break that down for us, again, I would appreciate that. And then lastly, in Life insurance, the claims and benefits in Q4 were quite high. Is there a specific explanation for that also?

Andreas here. Thank you for your questions. I would like to take the first one. Yes, as we indicated, it's quite early to draw any conclusions after our exposure in Russia and Ukraine. We have a presence in Ukraine for more than 15 years. So this means we are used to the market as we try to figure out in a state. We are there #2 at a premium of around EUR 100 million, which doesn't seem to be that much, but we are serving more than 1 million clients. And it took us quite a danger for us to build out our market position there to, frankly spoken, the current [ situation ] is a very fair one for us because we have 800 million motivated people there on the spot to really fight for this company and has a quite significant level as far as this situation is concerned, of resolution currently as among the management team here. On the other hand, we experienced already a number of crisis in Ukraine around Maidan, and we had this serious flu a couple of years ago there, and we have, 2014, some experience with the Russian invasion in Crimea and also in the Donbas around Luhansk and Donetsk. And it came to all the solutions, right? So I mean, I would say, if you like this comment, if we decided our Austrian companies to go to CEE 30 years ago already, we knew that it will take some time in this part of the world will make the progress which we all expect, not only economic area but also political life. So having said so, we still hope that there will be a solution around Ukraine. This is one part of my answer to your question. And second, of course, the Russian question is deeply connected to it. Although here, I may ask for your patience and clarification that we can give you not a concrete, I would say, guidance today. But of course, we're monitoring that very carefully how the next steps in those 2 countries will be. The major information is the one which could provide it to you a couple of minutes before. Yes, it's absolutely an American and demographically tragedy, but the economic consequences for UNIQA, they are not of a major relevance. And I think this is a little bit cynical to say, but we will carefully watch what's going on there in the next couple of weeks and months. Kurt, can you take the other question?

Second question, Thomas, was around your combined ratio development, especially in Q4. It's right, whereas in Q4, 2 extremes on the one hand. The cost ratio on the P&C side was very high according to the development of the costs that we have. And on the other hand, we had in the fourth quarter, nearly no big events, especially on the NatCat side and on the other hand, also accordingly to the pandemic situation also in the next shutdown. And therefore, a very solid base claims development. This was not the case in Q2 and in Q3. If you just remember June, July others, the big hailstorms and thunderstorms in Austria, that's around EUR 260 million on gross impact on this side. And this led to the situation that the loss ratio was, in the fourth quarter, extremely good and led to a combined ratio stand-alone on Q4 92.5%. Just to give you a guidance, Q3, the stand-alone combined ratio was 97.3%; Q2, 94.2%; and Q1 lockdown, 90.9%. So far, the explanation to that. The third question, sorry to answer is -- I missed this start preparing the second one.

It was about the investment income. And...

Correct. And the realized gains -- realized and unrealized gains in Q4 alone was extraordinarily strong in this quarter. If you could break that down for us.

Yes. First, you are correct. There was one write-off on the ventures. I mentioned this in the speech of around EUR 29 million. It was [indiscernible] and some other minor start-ups. This was done in Q4. And although a real estate sale in the Q4 with [ EUR 36 ], and this led to this impact in Q4.

There are no further questions in the queue. So I'll hand the call back to your host to close today's call.

Sorry, was there one question regarding Life business or did you cover it?

That no further questions in the queue.

Okay, there was a question from outside, operator. There's one question open from Thomas at the end and not sure if you answered all the question of Thomas, if you answer please come in once again. Okay, it's obviously done. Okay. So operator, are there no questions left? Is it true?

Yes. There are no further questions in the queue.

Okay. So thank you so much. Thank you for interest in our preliminary results 2021. Have a good day. Stay healthy and hope to see you soon in a physical way. Bye-bye.

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