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

Hello and welcome to the UNIQA Group Results for the First Quarter 2023. My name is George, and I will be your coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions] I'd like to turn the call over to your host today, Mr. Kurt Svoboda. Please go ahead, sir.

Ladies and gentlemen, welcome to UNIQA's first quarter 2023, which is the first time done on the new accounting standard on IFRS 9 and 17. Therefore, there is no comparability to numbers to prior years, to prior quarters. We give you the guidance the first time with this quarter and also then in the next quarter step-wise. Please be aware that some of the new KPIs are also in a different way calculated than in previous years. So combined ratio, cost ratios or even ROE are not that comparable to the standards in IFRS 4, which was well up to the end of the year 2020. Also looking on the indicative numbers of the year '22, which we did in a restatement, here, the driver was the interest rate, and in that case, also the new accounting scheme, but we will come to that later on. I'm now referring to the Page #4 on the slide deck, which is available on the UNIQA website. So first of all, we have an effect on equity. We told this in previous conference calls and in our [ AGM ]. And our first message is, as we are also looking around what others in Europe are doing, so we are reporting the pure equity. We do not take the CSM into consideration for any equity purpose. Second thing is limited impact on the property and casualty segment, which is applying the PAA method, the premium allocation method. Anyhow, please be aware that UNIQA reports all its key guides and numbers on a cross [ few ]. We do not split up so far the reinsurance results as we did in the previous year as the panel isn't that case for us on a gross basis clear. Measurement and accounting depending on the type of contract, just make it -- a reminder that UNIQA has big volume on personal lines, especially in Austria with the Health business and also including the international business on the Life side. And for all this business, which has a profit participation, we use the VFA approach. That means also in relation to the -- in net investment result, which we have here a different view than in previous years. Increased transparency, we see this also. Of course, it's the first time that we report on those numbers. So step-wise, we also then include more details in our reporting starting with Q2 and the half year. And again, to stress that all these have no impact on UNIQA's strategy, UNIQA 3.0, and our focus on the technical profitability. Plus, we see also no impact on our dividend policy that we proposed. Page #5, the opening balance on the 1st January 2022 as in comparison, I would like to highlight here three things: a, there is a trend, not only in UNIQA but also on other European levels, but in that case, UNIQA, that the equity in comparison to IFRS 4, so the old accounting scheme, is less discounts, on the one hand, from no deferred acquisition costs anymore in UNIQA's position. I just make a reminder that UNIQA was in the first row implementing IFRS 4, U.S. GAAP standard. And then the U.S. GAAP standard, we had 2 deferred acquisition costs over the lifetime of the period -- of the policy period. This is the reason why we have this impact. This has to do with the first application of the IFRS standard anyhow in the year 2000. Second thing is that we have a fair value of investment properties. This has to do with the VFA approach that we applied. We have property or real estate in this portfolio. And in that case, we had to increase the value to the market value. And this is the reason why EUR 1 billion on capital was, in that case, created. Anyhow, we end up with operating balance by capital by EUR 2.576 [ million ]. This was lower than by the end of 2022 and came up by the end of the first quarter 2023, again, on this level of around EUR 2.6 [ billion ]. So key message in that case is UNIQA has, on IFRS 9, 17, lower capital than in the history. This is one reason why return on equities go up at UNIQA. And the last message on this page before I hand over to Andreas Brandstetter is the CSM visible on the liability column on the right-hand side, LRC CSM starting position, EUR 4.4 [ billion ] for predominantly the personal line business at UNIQA, and the value by the end of first quarter was EUR 5.7 [ billion ]. I will elaborate this in some minutes. For Chapter 2.1, I would like to hand over to Andreas to guide you through the most important things on operating flavor for the first quarter 2022 -- '23, sorry.

Thank you so much, Kurt. You know that one opening statement from my side will be that we feel very comfortable with the new IFRS regime, which -- this is what we are sure about over time. For sure, we increased transparency among insurers and -- which has this more, as Kurt stated, explicitly forward-looking character, especially in the business around personal lines. And we feel so comfortable because we, under the new regime, see our strong development of the 2 prior years, 2021 and 2022, continued if we had a look on the main KPIs on Slide 8. If you go to this -- if you have a look on this P&L, you find broad term, which, of course, doesn't exist anymore under the new regime as the first one. All of us know gross written premium doesn't exist anymore. We talk about insurance revenue, but we can't compare the terms because they have a different content. So we have the 6.5 percentage growth on the top line, which is a very, very good development. We managed [indiscernible] to this as a good message to keep our clients. So we didn't lose clients, we didn't lose portfolio, at least not this, which is [ often the key ]. Second, we could increase our prices there, where it was necessary in both our [ 4 ] markets, meaning Austria, plus Eastern Europe. And last but not least, also we have been able to gain new customers to the right, satisfying new amount of new business. If you have a look on the 3 business lines, we see a growth of almost 10%, to be precise, 9.8% in the P&C business on a group level. We see an increase of 6.2% in the Health business and a small drop, given the macroeconomic circumstances, in Life business of around 1.8%. So this overall [ lease ] to the 6.5% mentioned here, if you would ask about the insurance revenue, in your restated comparison towards the Q1 2022, we would have an increase of 13%, just to give you also this number. So we really can be satisfied and happy with the top line. Very good to talk about initial technical results. You see this net insurance service result, also a new term, which we have to get used to, excellent profitability, driven by various [ parameter ] stores. We had the first quarter, which not see the better claims, so we have been lucky in this first quarter. But we also -- due to a restructured quality of the portfolio in the corporate business, they've been experiencing less claims in the corporate business on the P&C side. Then you also see, and Kurt will come back to it in a second about the CSM, the contractual service margin, you see that in Health release the CSM [indiscernible] the release of the period. And in Life, the CSM release is higher than expected due to higher interest rates. But the key message is that the technical performance of this group, in addition to the growth perspective, has been very satisfying. If we look on the 2 numbers, just you see EUR 73 million on CSM release in the prior quarter, and now we have EUR 79 million. I think this is a quite stable and good development, which makes us also happy and confident for the upcoming quarters. The net financial result was already mentioned. You see a clear positive development as far as the net investment income is concerned, significantly higher than in the first 3 months of 2022. [ UA ] is mentioned here to a stable interest rate. So it's a very nice recurring ongoing normalized income and stabilized exposures to Russian and Ukrainian bonds, which, as you know, have been hitting us in the last year rise quite substantially. As a consequence of all of this, our earnings before taxes has been decreasing significantly up to EUR 124 million. And once again, that increase will be both driven by only broadened technical developments, which is really satisfied; and second, by increased investment income. The cost to do it is under control. You see the absolute terms over here. There's a continued high discipline on the cost side. And overall, this makes us quite satisfied as far as the first 3 months of this year in [ achieving this mission ] has been concerned. Kurt now is with the guidance. There was all the details. And we may start on Page 9, where it's about the key financial indicators.

The key financial indicators, I would like to highlight two. The first one is a very solid regular capital position with 253 percentage. Of course, this has to do with the favorable interest rate development. But on the other hand, also the profitable technical business is driving this increase up to above 250 percentage points. Return on equity, I mentioned 17%, of course, not comparable on a calculated basis to the numbers you see on the left-hand side. Talking about the profit addition to that, what you heard from Andreas, we can inform that inflation in 2023 is already [ covered ] by all -- in our products and prices. So the pricing took place starting in 2023 with all possible index and indexations, international and Austria, plus reinsurance. And we see no significant changes in lapse rate or in losing customers. So this is an additional information. On the claims side, besides that what was just held on a very favorable development on the claims, we see also no impact from the indexation as this was already embedded to our claims setting and reserving by the end of the year 2022. So in that case, we see, by the ongoing inflation level, no impact for 2023. Page #10, the new business in the group. 4.4% new business margin for the personal lines by present value of new business premiums of around close to EUR 800 million. So we expect an overachievement of the year '22, leading to a volume of EUR 35 million for the whole group. Just here information, why this is not comparable with the CSM level? We include, on the CSM level, as Andreas said, only the direct attributable costs. On the new business or MCEV, we have the full loaded costs in that respect. But generally, a very favorable good development on this side. The split between Life and Health is 3.9 in the Health -- Life business, 5.5% new business margin on the Health side. Page #11, the first time to show the contractual service margin of income by a level of EUR 3.6 billion on the Health side and EUR 2.1 billion on the Life side. The driver on the assumption changes is, on the one hand, the interest rate. So on the Health side, close to EUR 80 million; on the Life side, more than EUR 40 million. The rest comes from indexation on the Health side and on the Life side, less profit participation because of lower hidden reserves in the portfolio. This is the [ key driver ] portfolio, #12, investment portfolio. On the one hand, we gained favorable EUR 229 million on the other comprehensive income. So in that case, we are catching up that -- what we lost in the year 2022. By the way, the OCI recoverage period of UNIQA by sustainable interest rate is of around 5 years. Expected credit loss is very stable, slightly profit by EUR 3 million by this year. Please note that UNIQA, due to the change from the IAS 39 to IFRS 9, also changed the fair value, which goes through the P&L. In previous years, it was around 5% to 6%. Now we have 14% of EUR 25 [ billion ], which are going through the P&L, and therefore, more volatility. This is, by the way, also the reason why the period 2022, which we -- most indicative was, in that case, negative. Page #13, the investment income part of the investment result, EUR 124 million, predominantly ordinary income; a little bit of FX gains around EUR 12 million; the rest is costs and some realized losses. With this, information on Ukraine and Russia unchanged to previous years. And with this, I would like to pause here and give you also the possibility to raise now questions to Andreas and to myself.

Yes just on the last slide, let's please come in. The outlook is missing on Slide 16, it's Andreas speaking. And if you have been listening to Kurt, you will be not surprised that you'll find us positive as far as the outlook for the full year is concerned, as far as the insurance business itself is concerned. We expect an ongoing satisfying trend on the top line as far as the growth is concerned. And you might have seen, as heard, we have been growing in our big markets in the first quarter in Austria by more than 5%, Slovakia by 14%, Czech Republic by 11%. We expect this trend to continue. We expect the trend to continue that we have a good quality in our insurance portfolio, both in the retail business and in the corporate business, of course, subject to any kind of weather-related claims, which we cannot predict. But this is a one clear comment that the good development of UNIQA 3.0, which we experienced in 2021; and two, we expect also to go on in this year. We are not so clear about the capital markets. And we expect, of course, some ongoing uncertainty. And having said so, we cannot give you a clear guidance for the full year 2023. What we can confirm, as you hear about this as far as the dividend is concerned for the year 2022, was EUR 0.55 per share, which [ vary about our offers ] we will propose to the AGM on June 6. So let me close here. We may thank you for listening to us, and we are now very happy to take on all your questions.

[Operator Instructions] Our first question is from Michael Huttner, calling from Berenberg.

And I'm sorry I don't cover you in, but I'm really curious. The results were stunning. And I just wondered if you can explain, is there a single driver to this? I had in mind that it's underwriting. So I think it's now called the insurance service margin in -- mainly in the CEE and Poland, but I may be mistaken. Any simple explanation to the big trend for your lovely rise in profits would be very appreciated. And that's my only question.

Michael, I give you the answer in a twofold way. You said what are the single drivers. I would say, there are 2 drivers. High profits -- sorry, high growth in relation with a very favorable profit, meaning we have a very good technical result coming from, more or less, no NatCat claims, as Andreas stated. The major claims are around EUR 25 million, which is, according to UNIQA, very little. And the basic claims, plus the frequency of the claims is reduced. Basically, in Austria, it's about 45 percentage points and defined as all claims below EUR 500,000. And international-wise, we are dropping from 52 to 48 percentage points. These are the 2 drivers of this, as you call it, stunning result.

[Operator Instructions] We'll now go to Rok Stibric, calling from RBI.

It's Rok speaking. I will have a couple of questions. And if you will, I propose to go through them by business line. Starting with the P&C segment, there was a remarkable growth of almost 10%. Could you please share what were the respective premium growth rates in motor and nonmotor insurance? And where did you observe better claims development?

Okay. So I can give you the answers. In a way of motor business, out of this 10%, is around more than 11%. And the nonmotor business, on a group level, is of around 7%. These are the numbers I can give you in that respect of the P&C business growth.

Okay. Moving to health insurance. Last year, the cost of health services quite increased in Austria, for example. Are you seeing these pressures now easing? Are the benefits growth -- is the benefit growth slowing down?