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

Hello, and welcome to UNIQA Group Preliminary Figures 2022. Please note this call is being recorded. After the duration of the call, your lines will be on listen only. However, you have the opportunity to ask questions. [Operator Instructions] I will now hand over to your host, Andreas Brandstetter to begin today's conference. Thank you.

Thank you very much and hello. Thank you for your interest in joining us in our call concerning the preliminary results 2022. Very interesting year, which gives a proof of our very strong underlying insurance technical result. We'll have seen on slide 4 that we have some major impacts on the negative side as far as the asset management is concerned. But on the other hand, we could more than compensate it by incredible strong performance in insurance technique, especially in Q3 and mainly Q4 2022. If you move on to slide 5, a few comments on the P&L. The overall growth rate was around 3.9% splitted into on the one hand, 4.3% growth in Austria, one of our 2 home markets, followed by roughly 3.5% in the CE. Already now addressing the issue of the price indexation, around 1/3 of this growth rate of the overall 3.9% is supported by the price indexation, of course, as you know, mainly from the P&C business. Insurance benefits, a very good development, especially in Q3, mainly Q4 due to various factors. On the one hand, a very, I would say, still positive basic underlying portfolio in the retail business. This is something that you heard from us already in the previous quarters and years. And this is that not only in Austria, but also in CE, we made a very strong progress as far as the pure insurance business, the technical quality of our retail portfolio is concerned. This allowed us to digest on the one hand, major claims in the amount of more than EUR 240 million over the overall year, mainly, of course, coming from corporate business. And we also could adjust more than EUR 100 million negative impact from weather-related claims.  We see an amount of around EUR 115 million, which hits our P&L coming from weather-related claims. It's not as much as 2021, but is the third highest amount in the last 20 years. We had a strong support, of course, by the runoff results because in the first 6 months, following a very strong negative -- especially coming from large claims, we might have been a little bit too conservative as far as the second half of the year is concerned. And we also had a very good, let's say, and if it's coming from our external reinsurance corporations in this year 2022. Investment income could tackle it in a segment. Yes, we see impairments in the amount of roughly EUR 140 million by the year-end, coming from mainly Russia, around EUR 100 million and around EUR 40 million from Ukraine, around DKK 30 million coming from RBI and something like EUR 160 million from illiquid and certificates. Of course, partially at least offset by realized gains. However, we are around below the level of 2022 as far as our net investment income is concerned. Our burden before tax as a consequence of all this has been rising in the amount of around 10%, up to EUR 422 million. And due to a very low tax ratio in the amount of roughly 7%, 8% and our consolidated profit is a level of EUR 383 million. Similar the previous year to 2021, our proposal to the AGM by the EBITDA for dividend level of EUR 0.55 per stake.  Moving on to slide 7, the comments on our 2 operations in Ukraine and Russia, that both countries are not really relevant for either the premium side or the top line or for the bottom line, so the profit of the group. Starting with Russia immediately after the war started roughly one year ago. We went clear that this is not the future market for UNIQA. So this means that we stopped basically all relevant new business. So this means we have a constant loss of premium at a constant loss of cost of clients. Our portfolio is ranking. We have around EUR 60 million, EUR 60 million of premiums in Russia, which means this is less than 1% of the overall group's top line and the profit contribution is something like EUR 25 million. So if you put this into relation to EUR 422 million, you see the contribution is -- I wouldn't take the relevance, but it's very, very limited and very slow. About the future, we keep on repeating what Kurt mentioned in the previous calls, we are evaluating all options including a sale of the company. Of course, as you will understand, there are a lot of circumstances and circumstances and considerations, which we have to keep in mind. But as you know, we're confirming the evaluating all options but that the business itself is ranking from day to day. Ukraine, a different perspective, absolutely clear, this country has a huge potential. We are up and running there. You see that we are still serving around 1.6 million clients. We didn't only pay claims in the previous years. So we haven't been only up and running. We even collectively premium. So if the market was shrinking, either our company, of course, was shrinking due to the board, we could attract new clients, both on the retail and on the corporate side. And this I think is a very interesting sign. Our workforce basically is back in the country at a level of around 95%. So on the peak in March and April last year, we had around 25% of our workforce being leading going to Poland, to Czech Republic, Slovakia, Romania, this changed. So they almost returned all of them except around 5%, 7%. And there's a clear position from UNIQA that in this country where we are #2 in the market, we have a full dedication too. So this means it's not only a strong wave of, I would say, solidarity running through the whole UNIQA Group if it's about support in Ukraine. It's also clear that this market has a huge upside potential for us in the future. Just reminding you to one fact, one person living in Ukraine before the war was spending around EUR 45 per year on insurances, EUR 45 per year. The rest in Austria to give you a corresponding number, it's around EUR 2,000 on insurances per year. So I think this shows also on a long-term perspective, the huge catch-up potential of this country.  Having said so, we may head on to the detailed results, and I hand over to Kurt, our CFO, and invite you to join us on slide 9.

Ladies and gentlemen, talking about the growth of UNIQA on Page 9. So we see quite a good growth of 3.9 percentage points. This despite high inflation and price increases in all of our countries. If you divide this growth to Austria, it's about 4.3% and the international business, 3.4% on a stable FX position, international growth on a like-to-like business, close to 4 percentage points in that duration. We see no big lapses. So in that case, also a stable position on our clients. Indexation was a topic in all our business lines, P&C as well as life and also in the health business differently from the proceeding in Austria because of 10 years contracts normally in the retail business differently than in the international business, but we will say more than 95% of our clients took the indexation on their policies. Page #10, the cost ratio improved down to 27.2 percentage points. So in that case, we are clearly below the average inflation within UNIQA Group. This was due to a good cost controlling cost management in all -- in our business units. And what you see also here a quite good development of the other operating expenses since 2020 from EUR 632 million down to EUR 548 million. This despite of investments of EUR 45 million, which are more in accordance with our IT program, UNIQA Insurance Platform.  The compensation was already mentioned by Andreas, so you see quite impressive development in the last quarter. The claims ratio 54.9%. It's likely the same that we had in 2021. So in that case, it's not a single position. So we have this on the one hand. Also in the other years, retrocession was one thing, lower frequency. And also to mention is a very sustainable base claim development within the year '22. The P&C business itself, so in that case on Page #12, ended up with a good success and good profit of EUR 68 million. We talked about the most important implications. And in that case, we go on to the health business on page 13. What comes to the eye is the development of the cost benefit ratio in the fourth quarter. This has to do with higher claims and claims handling costs because of more people going into the hospitals and also inpatient and outpatient tariffs in that case, we have to pay more, plus that we also took the position in the year to strengthen a little bit our reserves in the health business by EUR 10 million, which is also embedded in this number. Live on page 14, sources of course, from the investment situation and from the impairments, clearly visible on the investment results. On the other hand, we had a good development on our reserve level and on the reserve development.  Coming to the investment activity on page #15. So Besides that, what are we had impairments in total on the group of EUR 380 million in 2022. Besides the already mentioned impairment in Russia and Ukraine bonds and RBI on other bonds on EUR 190 million, everything according to the increase of the interest rate. So we have no credit impairment or we have no other topics that we have to safeguard in that case is what everything related to the increase of the interest rates according to our portfolio, which is 80% of current bonds or corporate bonds, we have here this impact of the increase in interest rates guarantee in the P&L. Plus, what you also see is that our equity position lowered by EUR 1.1 billion. On the other hand, we achieved an average interest rates on the portfolio of 2 percentage points. The new money yield is 4.25 percentage points over the group on euros. And we have a solvency ratio, which is of around 245 percentage points by the end of the year. With this, we come to the outlook of 23 million, which Andreas will give you a short guidance.

In which just contains 3 small points at the end. Thank you Kurt. Love repeating about the dividend proposal of EUR 0.55, but saying that first, this is due to various reasons a transition year. You know that we are expecting or expecting we have IFRS 9, 17 which keeps us quite busy. So we've been treating development to see first results in Q1. Second, we -- you find us still ongoing, very optimistic about the resilience of our insurance technical portfolio. We are happy that we can serve currently -- more than 16 million clients in our 8 markets. We have been attracting around 300,000 new additional clients in the previous years. If you add then the clients which we have in the pension schemes, we have around 70 million people who trust our company, I think this is a very interesting and reliable and positive constant development. You heard about the constant improvement of our compound ratio. This is the reason why Kurt and me and whole team, we are very optimistic about the resilience and the robustness of our insurance business. Is it second comment. And the third comment will be a surprise for you, but same as 2022, we are hesitating giving you a clear outlook because there are so many uncertainties around. None of us expected or most of us didn't expect at least a Russian take one year ago. One day later, it happens, right? So we do not know what it will mean for energy situation. We do not know what it means for delivery change. We do not know what it will mean for inflation in Europe in our markets and basically the whole world. We do not know what's going on in Asia, what kind of global uncertainties we are facing, and this is the reason why there remains a significant uncertainty in capital markets. So the summary of all of this, no outlook, but a very clear positive estimation about all those things, which we can influence ourselves, and this is basically our core business. Thank you for listening to us. And Kurt and me we are very happy now to answer your questions.

[Operator Instructions] The first question comes from the line of Jakub Lichwa of Goldman Sachs.

One question I have is on the portfolio values or the book values that you have or the market value is really of the Ukraine and Russia exposure -- do I understand correctly that you essentially mark those down about 10% only. That will be question number one. And that's on slide 7. And if that's the case, like, can we get a little bit more context? Because I mean, obviously, Ukraine and Russia bonds are below those levels. I just wanted to understand what exactly is behind this valuation. Please.

Yes. Thank you. So the market value of our portfolio only on the Ukrainian bond is EUR 88 million by the end of the year, coming from EUR 126 million on the beginning of the year. So this is what we have. So the decision what you have to take into consideration is that we did -- we have to distinguish between home country and non-home country bonds in Ukraine that means those who are lying in Ukraine and those are lying outside of Ukraine. And also the question in which currency that we have euros, Ukrainian hryvnia or U.S. dollar and differently to those specifications, we took then the impairment of those EUR 39 million that Andreas mentioned. So you cannot count this overall bonds because we did a classification depending on currency and depending on the home country or not home country principle.

So is there -- can you say whether there is actually an observable input into those bonds then -- or is it just estimated values for these. I mean are they like, say, traded bonds.

The bonds are credit, the bonds and the market values are according to the lumber or other systems -- it was the own model that we defined here. So it's no official data that we use this.

Okay. So this would be some corporate bonds, I presume it cannot be government bonds.

Mixed.

Mixed. Okay. I mean just because Ukraine bonds, I think are trading below $0.20 on $1, so that's why it seemed like quite a bit of discrepancy to have a market value again at.

Yes. And what you also have to take into consideration that around about EUR 40 million that we booked into the OCI because of the accounting treatment.

Okay. Okay. I mean Yes. I mean I guess what followed is just like -- obviously, this is just a subset of your investment portfolio, which seems to be a little bit -- some other peers not years, but issuers have written off the value of the bonds. It seems to be a fairly, I don't know, say, aggressively marked. So that I'm just wondering if how the rest of the investment book is whether there is any really close to how you mark the rest of the investment book. But okay, there are observable inputs and the marks are in Bloomberg. So that's fine. And the second question, if I may. I know you've listed things like in terms of the planning uncertainty and sort of operational uncertainties, I mean it's -- obviously, it goes without saying that there is a lot happening in the world. And I can see why you're sort of hesitant to give that outlook -- having said that, the geographies which are problematic, if you will, and you said you pro presents an opportunity in the future, but Russia, they account for like less than 10% of your earnings before taxes. So that's one thing. I would imagine the situation in Asia that you mentioned inflation in Europe, I mean, they will have some sort of effect. But I was just wondering what are the P&L lines that you are most concerned about? Or it would seem to me, for example, that you have reported fairly stable combined ratio. And I guess inflation can feed a bit into that. I don't know whether you're expecting the general market to have impact on the premiums written, again or the underwriting conditions. Yes, just trying to think whether is there a guidance that you can give, let's say, ex Russia or ex Ukraine or you'd prefer still not to?

No, I think the answer is quite simple. They are not so much, let's say, cautious about our core business. I'm trying to figure it out, we are more cautious about developments on the macros and therefore, in the capital market. So having said this, if you just -- if you look on the last 2 years, 2021, 2022, following 2 years of corona, while we have so let's say, unclear first what corona might mean, meaning how robust is the business? Will people still buy insurance, we people see a wave of cancellation on our book, meaning in the retail business or in the corporate business. And this didn't happen, right? It did not happen it took a long years. It also did not happen last year. So we have been quite scared in March, April, when we saw inflation going away going off at around 9%, 10%, 11%. But if you think about Czech Republic, we saw inflation of 15. We saw Poland 17%. So we really -- we had a deep respect assuming there might be kind of cancellation coming, especially in those markets where household income isn't that high and versus so much room to maneuver into our customers. This all didn't happen, neither in Austria nor in CE. And having said so I mean, we still watch our book carefully, but there is constant new business flowing in. Even in the year, I may say this the first week 2023. We see a very stable development on the premium side. As I mentioned, supported in Austria, of course, by also the indexation, which is allowed by law. So again, come war, we're not so much concerned about the insurance business itself also having in mind again that in the last 2 years, we saw severe impacts coming from weather-related claims. And this is I think what you will hear from the whole industry, the upcoming future will be always.

Yes. I agree with that nobody can then give any guidance really because we obviously don't know.

It's about the capital market. It's highly appreciate the try. But due to uncertainty on the capital markets, and we saw a lot of hits which we have, especially also except Russia and except Ukraine last year coming from steadily increasing interest rates, we are cautious, okay? But that's to be cautious in the into a very positive way.

Next question comes from the line of Rok Stibric of Raiffeisen Bank International.

Congrats on the solid results despite all the headwinds in '22. Maybe I'll just have one question on this one-off tax development. Would you maybe be in a position to guide me with some figures? How come that this effective tax rate was so low in the last year?

Okay. So there are 2 things. We have a huge amount of loss carryforwards from the history. And second thing is, according to the differences between IFRS and local accounting gaps we had also a huge position of the positive deferred taxes, we are talking about close to EUR 50 million. Very low taxes from previous years, and this brings us to this very nice 7% tax ratio for 2022.

With respect to the loss carryforward, is there something remaining in the balance that could be utilized in the next years?

Yes. We have very good package of loss carried forward from the history, which we can then also use in the future. Certainly, we have to take gearing huge amount and for positions, but it's not eaten up all at the moment.

The next question comes from Thomas Unger of Erste Group.

Yes, good afternoon. Thank you all for taking my question. I would like to follow up on the investment income and maybe remaining just in Q4. And if you could give us the write-downs or the value corrections that you had in just this quarter, you had some very significant realized and unrealized losses in Q4. And then on the positive side, within the net investment income, the current income was very good, growing to nearly EUR 200 million in the quarter alone. Is that a signal for what we can expect going forward for the current income? And then my second question would be on the net insurance claims and benefits, and you touched upon that during your presentation, more than once. But if you could go through the operating segment again and give us some more color on what happened in especially in health and life and maybe also in P&C. And then a very last question for me would be on the dividend. Net profit was strong, especially in Q4. Why did you opt not to increase the payout ratio beyond those 44% proposed now?

Hi, Thomas, thanks for your questions. So we'll start with question number one on Q4 payments. So we had 2 major triggers in Q4. One was the already mentioned we talked about Ukrainian impairment of close to EUR 40 million roughly. Second thing is in Q4, we have illiquid assets regarding to some funds that has a big impact on the investment income. Here, it comes a little bit very technical, but I'll try to give you a guidance in half a minute. So we're talking about mortgage bond funds that we have here and the mortgage bonds. And according to the high increase of the interest rates, the necessity of an impairment. The impairment was of around EUR 150 million in that case. A part of that is lying in the Austrian Life business, and the impairment is only done in the IFRS because on local accounts, we are still enough fee reserves that we can cover this with a difference between the life the IFRS accounting scheme and the local accounting scheme, but to sort the possibility to create or to build up a deferred profit participation. And this is what we did. The profit participation is positive, but is what we see in the life business and technical result. The impairment is that what we see on the investment income. So just looking on the investment income since in that case, okay, what's going on there. But just take into account a EUR 65 million was the first profit participation for only those mortgage funds that we had.

5 million positive.

65.

65. Okay, thank you.

Okay. Your next question was regarding the dividend. Yes, it's true. We have a very nice net profit. And if you just set this into relation to our dividends, you end up below those 50% to 60%, what we always talk about on a sustainable basis, even if we would like to have it, we do see the 7% tax rate for UNIQA. So if you take it into account of the 20%, what we always said is as achievable, we are above the 50% payout ratio. This is what we see for us also sustainable and something that is importing to that. Also, looking a little bit on the things Andreas mentioned some uncertainties in the future. So keep this stable but not overdo this because of this onetime effect or the positive effect of the tax ratio and therefore, we keep the EUR 0.55. Your third second -- second question, sorry. I understood the technical performance of the 3 segments. Look Thomas, we have nothing to add like that. We had a very negative year on weather-related claims in relation to the 7 years average, it's EUR 14 million higher than the 7 years average in the history, only in UNIQA Austria. So the second thing is major claims because of, B, the situation of a bigger portfolio. B, it is also according to the presentation of the acquisition of AXA and AXA corporate tool. That's the thing. On the other hand, very stable position of the base claims or everything in the normal retail business, good development according to the reinsurance and the situation on the cost side, indexation we talked about. So this is for P&C. Health business is very stable. We do not get any -- we don't see this as a negative impact because of the development in the fourth quarter, this is normal. And in that case, we see also a great growth in the health business, especially in both segments, inpatient and outpatient. Tariffs, international-wise, the EUR 100 million that we have to the portfolio is good. It's growing, but predominantly, we're talking about Austria. And in the life business, what we have here is one thing where if you just look only on the growth, it's plus minus 0. This comes from the situation that we have very high outflows coming from the years of 2010, 2011, '12, where the 2 tools Austria was pushed enormously even with single premiums. And now the outflows are higher than inflows that the new business does not cover the outflows from the history, and that's the reason for the plus minus 0. But from the profitability, new business value is very positive. It's very good. The interest rate we talked about, we can early. So in that case, also for the life business this year I would say, positive to neutral development on the profitability and also for the future in that case, a good position.

And just on P&C, what you mentioned. I think you mentioned in the presentation also, what was the amount of major claims in 2022?

Yes. The major claims have been around close to EUR 300 million, which is for the portfolio for us, seems higher but it is what we see also from the history that this amount is that it can count for the future.

And those were individual single cases that made up the most $300 million.

Differently. This has been fire claims. These have been the claims on industries. There have been claims on the car insurance with annuities. So all this stuff around.

Okay. Thank you very much, And just one last one maybe. And you've also touched upon this in the presentation, but what is the -- how do you see customers reacting now to the premium increases and especially maybe in health insurance in Austria? What are the recent developments now last weeks, months.

So we see a very stable position on the customer side, even on the positive side. So we gathered around 300,000 new customers in the recent years. Indexation was taken. I think customers are seeking for safetiness and for clearance in that case, very stable position. I touched about these lapses neglectable. So in that case, we see no influence from any external factors coming.

Okay. Thank you very much.

Welcome.

[Operator Instructions] There are no further questions. I will hand back to your host to conclude today's conference.

Thank you for your time. I appreciate, stay healthy, stay safe, and looking forward to seeing you again. All the best. Bye-bye.

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