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

Good day, and welcome to the UNIQA Group results of the first -- the third quarter 2022 Conference Call. Please note today's conference is being recorded. I will now turn the conference over Kurt Svoboda. Please go ahead.

Thank you much, and welcome to UNIQA's presentation of the first 9 months results 2022. I go directly to Page #5 of the presentation, which is available via the website of UNIQA where the snapshot after 9 months shows us that we have a very good development on the profitability. The consolidated profit increased by 3 percentage points in relation to the year '21. These are several effects. Let's start on the top line with a 4.3 percentage growth, which is, of course, driven by inflation and by indexation. I will come to that in a minute. But on the other hand, also the operative sales efforts have been very stable and are good after the 9 months and see no impact so far from the economy. We have -- the next topic is the net invested income, which is EUR 370 million, of course, less than in the year '21. Still, we have impairments on the Russian bonds. Whilst other impairments, I will explain this in the section, where we talk about the net invested income. A very prospective development on the operating expenses. Admin costs are down by 10%. Commissions are increasing. This has to do, on the one hand, with the growth; and on the other hand, we have also an effect of different acquisition costs as we are recording and accounting with these gap tenders. This leads us then to an insurance technical result of around EUR 170 million and earnings before tax 275 percentage points (sic) [ EUR 275 million ]. Coming to the ratios, combined ratio is 94.4%, which is the best single quarter in this year even in comparison to other quarters. We have very prospective development on the P&C side within this quarter. And this despite the effect of the inflation. Investment yields are 2.4 percentage points, and the new money yield, which as reported is around 4 percentage points for this year for the whole group. On the next page, #6, [indiscernible] percentage points. You know that we have, according to our health business, the [indiscernible] especially in the health business. This helps us in that case that our solvency ratio jumps up to 244 percentage points. And on the other hand, the return on equity is a new high 12.6 percentage points. This has to do, of course, with the [ HTI ] development over the last 9 months. But that -- as an introduction and an overview about the results after 9 months. Coming to page #7, Ukraine and Russia. [indiscernible]. So we can take from [ 100 ] impairments that we had in the first half year. EUR 128 million roughly has been lowered to EUR 104 million. So that means we have some write-ups because of the better performance of the Russian bonds that we impaired after 6 months. So EUR 110 million is the amount that is included in this third quarter. Besides, we can say that still we are ongoing on the discussion and on the calculation and on the strategic options that we have with Russia, so we think by the end of the year, we will have our decision how to proceed with our entity in Moscow. Coming to the group results, Page #9, talking about the growth of 4.3% on the gross written premium. So the split is 5% Austria and around 4% international-wise. What is important to know we also have a 1.5% inflation impact, in international business, around 2 percentage points inflation impact that is embedded. And jumping to the cost ratio. The cost ratio has increased. It has to do with the commission, as I stated before. On the one hand, following the premium online [indiscernible]. What's important [indiscernible] for us is that amortization costs are lowering and in relation to 2021 are improving even they are below our internal brands that we have in nice development from our cost side. P&C, Page #11. So we have the development of the combined ratio. What I can say besides is that, on the one hand, we have success to low combined ratio [indiscernible] Let me state over that our claims ratio within the combined ratio has improved significantly. It's also visible that we have [indiscernible]. In that case, overall [indiscernible] overall entities and [indiscernible]. Last it was expected that the cost [indiscernible] that generally are [ decreasing ] also on the cost ratio side on the P&C combined ratio. Then jumping to the next slide, which is the investment activity on Page #12. Within a year, [indiscernible]. That's also included in our results that we had some [indiscernible] and other payments other than the group very soon with the increase of the interest rate. Of course, this has also a significant impact on the valuation of [indiscernible] fund contest. So overall, we can talk about here around EUR 65 million impact that is shown in the results of 2022 of the 9 months coming from accounting and valuations on several funds. [indiscernible] result, STRABAG no change [indiscernible] stable in that case and with a 2.4% general investment, we can state that we're [indiscernible] in the area. So far, the activities and the summary in a nutshell. So to sum it up is, on the one hand, a very good development of the sell side. Stable position, and we see in that case also no changes in the fourth quarter and a very good level of profitability in all 3 business lines, Health, P&C and in Life. I'll stop here before we come then the outlook and open up the meeting for questions and discussions. Thank you.

[Operator Instructions] We will take the first question from [ Roc Strubeck from RBI ].

So you had a strong combined ratio of 93.3% in the quarter, especially given the inflationary pressures. Could you maybe share more light how can we think of it in the coming quarters? And maybe what can we expect in the future? Second question would be regarding the current income in the third quarter. Was this solely driven by the rising interest rate environment? Or were there some additional aspects? And the last question that I have is regarding the guidance. Previously, you've been providing quantified guidance, and I understand that it was not possible due to uncertainty this year. However, do you plan to continue publishing quantified guidance again in fiscal year '23 or not?

Thanks for the question. So let's start with this question number one, [indiscernible] compensation. The outlook, it means that we can achieve a combined ratio in total which is better than the results that you saw on 9 months. So that means we can imagine that the combined ratios goes down even in the fourth quarter. Of course, I have to set the disclaimer, if they are not major not [indiscernible] then, we have no interest for a [indiscernible] up through there some weeks ago. If there are some, I don't know, history as well [indiscernible] no pressure and things like that, it can hit also the development. But on a normal basis, we see at the moment a very good stable position even up to now, which makes us prospective and comfortable that the compensation can go down because costs are clear. And with this, the outlook looks a little bit better than Q3 at the moment so far on a group level. And second question was about current income and to drive on that. Yes, the one hand was the interest rates and the development of the markets that come to then that position that income was increasing. On the other hand, we are also investing and reinvesting and with this achieving better positions than in prior years. So our strategic asset allocation still has not changed. And yes, of course, it's because of the possibility if possible because of the situation on the negative fee reserves. That changed the portfolio and switched into higher-yielding assets. On the other hand, our strategic asset allocation with infrastructure, which comes from bonds. And with this also for the future take with us some liquidity premiums have not changed. On the guidance, we see at the moment 2 things for 2022, which made us in a way to say, okay, we do not give it -- wanted of this guidance, but can you please [indiscernible] this guidance probably thinking on the one hand, the situation on the capital markets. So the discussion on further increases on the interest rates on ESG impacts on the portfolio of UNIQA so we are the leading company with assets under management on the financial sector. There are also some FX that can then hit the accounting and, with this, it makes us very difficult to say how this sets up. And the second thing is we operate in Russia and in Ukraine, and in this case, it is all to be considered that there can be some situations like it was 2 days ago, the situation in Poland. If this turns out differently, it has an impact on the global situation and also on the economy. And with this, the outlook would be unserious in our position. So what I can tell you is that keeping out those 2 elements plus nat cat, we see a very prospective development in the fourth quarter and also better positioning than expected. For the full year 2023, we will do a revised planning with IFRS 17, and we will come up early beginning 2023 with this and give you then with this guidance on IFRS 17 basis.

[Operator Instructions] We now move to the next question from Thomas Unger from Erste Group.

Just on the outlook next quarter or the next quarters, 2023. If you could talk about a little bit more about the cost pressures that you're facing and how you could mitigate this inflationary pressure and where do you see the admin costs especially developing in the next year. Then secondly, I'd like to ask about the sector -- new sector taxes in Hungary, the windfall taxes on the insurance sector also. Was that booked in Q3 already? Is there something to be booked in Q4? And when do you expect those expenses to -- or which quarter to be hit in 2023? And you mentioned the new money yield, 4% I think is what you said in the presentation. Could you be more specific what does that relate to? And how do you generate this currently? That will be interesting for me. And then also to clarify, I believe you said you will make a decision on your operations in Russia by year-end. Is that correct?

Thomas, starting with the last one, yes, that's correct, by the year-end, you can expect this. And starting with the outlook on litigation and the cost outlook. Yes, we have some integration generally. We see at the moment the impact organization is coming also on the cost side. So we have this already within Q3. Of course, the biggest hit we will have then in '23, but that comes within in a minute. In our planning, we see, on the one hand, an inflation scenario for the upcoming year, where we think, on a general basis, around 8%, what we see on average inflation impact on the good level, of course, differently in the countries, Austria, [indiscernible] in Czech Republic [ about 8% ] in total on average. The deflation effect that we can do, Thomas, is, on the one hand, we are thoroughly thinking on which project makes sense for the future, maybe also that in case stop some projects or [indiscernible] second thing is, of course, on the personnel cost side. And that means not each person to be replaced in the future. Then we have the effects, especially in the international segment, where we have the last year on the AXA integration, which helps us in that case because we are now working on the IT integration. And we see we have more compensation effect more than we choose to -- originally planned. We have a project in our so-called Southern Eastern major markets in the areas to be to the extra [indiscernible] area where we are integrating those 5 countries into one half, and this is also sales of around EUR 10 million to EUR 12 million of costs, [indiscernible] costs. And on the topic of contracts and on external factors, even consultancy. So this is the mitigation effect that we, at the moment, see. More guidance in general then from us on the guidance for '23 as I mentioned beginning of the next year. Next...

Mitigating effects versus the 8% that you assumed for the group, can I safely assume that you expect to be materially below this 8% on OpEx for next year?

No, not the [indiscernible] I think when we talk about this, we can say that we mitigate 50 to 60 percentage points. Especially on the Austrian side, we call it [indiscernible] and things like that, you are limited in that respect. We feel the Austrian negotiations on the color [indiscernible]. And the tax effect in Hungary at UNIQA is around EUR 8 million a year. So we book it on a quarterly basis. That's already included. And this is for 2 years. So it's one for year '22 and for year '23. And with this, we have hopefully then done this burden. The money we have for this then is based on fixed income, and that's it.

That's fixed income Austria? Or is that fixed income portfolio for the whole group?

That's the whole group.

There are currently no further questions. [Operator Instructions] As there are no further questions on the phone. I'd like to hand the call back over to Mr. Svoboda for any closing remarks.

Yes, thank you. So closing remarks mean, on the one hand, outlook for the year '22. So what we can say that the top line, we expect another resilient basis and accordingly, to the first 9 months. Secondly, we have continued uncertainty, and this is also applicable for the year '23. As I mentioned, this is Ukraine. This is Russia situation and economic situation arising out of that. For the year '23, nothing that what I have already stated. The transition to IFRS 17 will be done accordingly, and we will come along with this in the beginning of '23. And basis, and this is then broken out of the changes in the accounting scheme. We do not bank on changing any topics on our UNIQA 3.0 strategy. So the continued focus is to improve the core business no matter in which accounting scheme we do this. About cadence for the year '22, we speak to our already mentioned payout ratio between 50 and 60 percentage points. Thank you for listening, and thank you for being with us and have a successful rest of the day.

Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.