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

Good day, and welcome to UNIQA Group's results for the first to third quarter 2023. Today's call is being recorded. At this time, I will now turn the call over to Kurt Svoboda. Please go ahead, sir.

Thank you, and welcome to all of you for UNIQA's results presentation for Q3 2023. I'm starting on Page #5 with the results of a view after 9 months ending up with an earnings before tax by EUR 305 million starting with a very good development on insurance revenue, which are more or less on the same level as the gross written premium, but I will come to that later. 9.3% growth in -- after first 9 months. Of that, a very stable development of the CSM release coming predominantly from Life and from Health with a EUR 238 million impact. Impact of technical result has been the weather-related claims. On a group level, after 9 months, we record here around EUR 150 million. In Austria on a stand-alone basis, around roughly EUR 130 million especially in August and September, [indiscernible] and Austria have been the regions that have been hit mostly. On the other hand, we have a very good result on the investment income, which is the so-called results coming from the current income of EUR 441 million, ending up on a financial result that means that the deduction of the unit-linked indexing of EUR 111 million. In comparison to minus in the year 2022. This came from the interest shift -- interest shift in 2022. With this, we end up at EUR 305 million EBIT. Last information that the operation in Russia are the first time we present in the profit of discontinued of operations with minus EUR 19 million coming from running results of minus EUR 4 million. Interest, the equivalent of the consolidation of the company. On with this we end up also on a combined ratio of gross 92% impact of the weather-related claims as the main driver. On the other hand, the good news is investment yield of 4.5% in first 9 months 2023. Status of sale of the Russian business on Page 6. So I think all of that you know. What is for us new is that, as I told you, we presented this in the line of discontinued operations. And so far, we are in good track with Raiffeisen Life Russia that is at least the first quarter of 2024 is then the done deal. And we can, in that case, also make the last consolidation steps. And the effect on UNIQA will be around this minus EUR 19 million, EUR 20 million expected for the whole year. Group CSM, Page #7, the assumption changes, the jump to the average of EUR 780 million. 3 drivers. First, increased interest rates. Second, the premium adjustments in the Health business led to profitability that is growing and less lapsed risk we count and see also in the profitable business in the Health side leads to these assumption changes and to a very favorable sustainability ratio on the Health side. That means the correlation between CSM release and new business by 1.1 the Health business, 0.4 in the Life business. The solvency ratio on the next page is stable at 244%. We expect a little bit increase by the year-end, the same for the return on equity close to 14%. Here also, but we expect a stable position, slightly better by the year-end, but I come to that in the end. P&C and Health business remain very strong growth side, page #9. Besides the numbers that you see here, I give you also the recurring -- the recurring gross written premium growth. So in the P&C side 14.4% is the growth on gross written premium. On the health side, 8.2% and on life side, minus 1.5%. So UNIQA had a very favorable growth in the first 9 months and also a very profitable growth in that respect in all of our markets. That means Austria and International wise, the business, the Life business in Austria has high outflows and with this, we cannot compensate this with new business. Page 11 (sic) [10], cost ratio, nothing new on that. We are a little bit better than planned. In relation to the previous years, of course, inflation drives the increase and also investments in our core IT systems. That brings me to the 3 segments. First on P&C on Page 11. Despite the numbers and description again, here the impact of the weather-related claims in Austria by EUR 130 million and on the group level, EUR 150 million, we see the impact on the combined ratio by 3.1% only from the Austrian business. The total amount of EUR 150 million impacts UNIQA's combined ratio by 5.2% exactly. And we have a very little reinsurance coverage on that because all these claims are in the range between EUR 3,000 to EUR 10,000 each. And this is far below the reinsurance net retention. Page 12, the Life business. Here, we see, on the one hand, the good development on the net investment income. On the one hand, part of it goes to the P&L on the financial results, stable position on the CSM. We released more than we grow and the growth comes predominantly from Poland, from Czech Republic and Slovakia with a significant amount of EUR 21 million, including the focus on the unit-linked products. In Austria, again, the high outflows do not -- cannot be compensated and that's the reason why EUR 14.2 million is only from Austria in that respect. Differently, then in Health. On the next page, here we have a very strong growth, also profitable growth. So we see no impact from inflation on the sales side, also no impact on the lapse ratio. What we see is that insurance service expenses are increasing. This comes from COVID effects that are now compensated. That means most of our clients get used of the stations and on our hospitals, and this leads to more payments in that respect. Page 14 about the new business in relation to the -- in relation to new business value, 4.3 percentage points for all of you is the new Personal Lines, new business margin, which is also in expectations of that what we see in the market. EUR 97 million is the new business value in that respect. So this is more or less in line with CSM. Leading to the last information, it's about the investment results. We have, on the one hand, a very stable development on the expected credit loss provisions. So around EUR 160 million stable. We have, in that respect, also a stable position on the other comprehensive income, close to EUR 2 billion for the whole portfolio. Out of that, bonds have a rather stable position with around EUR 1 billion. And we have been also calculating the pool to power effect. So when are these negative impacts catched up by ceteris paribus calculation, and we can tell you that around in 5 years, more than 60% of this negative OCI is covered. Investment activities in total, the last page before we come to your questions and answers. Again, 4.5% new investment yield is the basis for that. Our average rating on the portfolio is in AA rating over completely portfolio, Austria and International wise and no news on STRABAG, high impact on the results of UNIQA. Before we come to outlook and these topics for the future, I'm now opening the Q&A sessions for you. Thank you.

[Operator Instructions] We'll take our first question from Rob Rebrick from Raiffeisen Bank International.

So I'll start with the weather-related claims. You mentioned that in the 9 months, that was EUR 153 million on group level, out of which in Austria, EUR 130 million. My question here is, is this the full amount that is attributed to the Q3? Or there is some number that relates to the previous quarters?

So this is the all amount for 9 months. And I can give you a first guessing that around 2/3 is coming only in the third quarter.

Okay. My next question is related to the net invested income and here I'm speaking about Q3 only. I noticed that the amount decreased to around EUR 160 million in the third quarter here. And I was doing some back of the envelope calculations, and I think there were realized losses of around EUR 30 million. And I was wondering if there was something else that I'm missing here that could explain the drop year-over-year in the third quarter in the net invested income.

So the only answer is that we did not do realizations in the third quarter on a stand-alone basis. So we had, in that case, more on trading deals in first and second quarters. A, because there is no need of cash so far for us. So with the cash management is fine. And, b, also the opportunities have been less than in the first 6 months. So this is the answer for a little bit of a reduction on a stand-alone basis.

Okay. Moving on to Russia. You referred to EUR 19 million that was booked in 9 months. And my question here is only if this is the full amount that is solely related to Russian business or is there something else included in this EUR 19 million?

No. This is only Russia. As I said, the composition is around EUR 4 million -- minus EUR 4 million from the running business, so from the operational business, and the rest around EUR 15 million comes from the consolidation effect -- de-consolidation effect.

Okay. Great. Great. That's very helpful. My last question would be in terms of the year-end expectations. And I don't know, do you perhaps have some earnings targets that you could share since there's only a few weeks until the year-end. That would be extremely helpful with regard to forming dividend expectations, et cetera.

Yes. So, I will come to that, especially in the end when we talk about the outlook, so I can take it now also. Taking into consideration that on the one hand, yes, you're right, it's just a short time to go by the year-end. On the other hand, we have especially European-wide high uncertainties about politics, about economic impact out of the politics. But there is variables and no other Nat Cat events, we see that UNIQA is in a stable position to achieve at least that what on average we had in the last 2 years. And this is, for us, the outlook that we say very positive and optimistic for the year-end.

We will take our next question from Michael Huttner from Berenberg.

I had only 2 questions and they're a little bit generic and they're about the impact of natural catastrophes on your business. The first one is, and I can't remember whether you use the budget for natural catastrophes. But if you do, how are you reflecting this increased cost in -- at the 9-month stage 5% in terms of combined ratio? Whether you're including that going forward or including a portion saying, yes, it's higher? And the second is also related to that is on the reinsurance cost. How -- you mentioned your reinsurance program, and I can't remember whether you still had an aggregate cover and whether going forward, the structure of your reinsurance might change? And then the last question, of course, is on pricing. Are you or do you believe the market is -- will price these increased natural catastrophes as if they are regular events or will treat them as one-offs and ignore it?

Thanks, Michael. I'll start with the reinsurance topic. The Nat Cat program of UNIQA is at the moment with an entry point of EUR 50 million, 5-0. So everything between 0 and 50, we take on our book and everything that is EUR 50 million up is covered by reinsurance in different layers. We have for this Nat Cat event, Nat Cat in that case, also technical explanation is defined as an event within 72 hours and taking into consideration on a typical region or in a row. So that means everything that was visible in July, August and in September have been classified as non-Nat Cat events because, a, not in a row of 72 hours and, b, far below on a single claim basis of this EUR 50 million. Therefore, we carry this on our own book. Your second question is about pricing in the relation how do we reflect this in the pricing or channel of the market and the pricing of, a, the reinsurance companies are taking into account this increasing Cat or weather-related claims and in that case, also increase their prices, a. And b, are forcing the primary insurer to take more on their own in relation to previous years. So we expect generally UNIQA about the market that the entry points are going up in the future. Your first question, how do we deal with this in UNIQA, generally in the future and in our budget. Of course, we have a so-called Nat Cat buffer or Nat Cat plan buffer in our group. In 2023, we are a little bit below this. So we are exceeding this by EUR 15 million to EUR 20 million. And we have in our plans for '24 and '25, increase also the amount of weather-related and catastrophic events by around EUR 40 million on average. So this is how we calculate this in our books and how we treat it also within reinsurance and enterprising. And the last thing on that is because it's always a discussion also on the market. Do we give these prices on to our customers? Yes, to a certain extent. So that means it's based on the indexation. This is one thing. And on the other hand, we also have the opportunity, and we do this here or there that we increase the prices, especially to those risks that have been heavily hit in a row or in the recent years up to the situation that we are canceling policies which are visible that they are loss-making on a stable position over the years.

[Operator Instructions] We will take our next question from Thomas Unger from Erste Group.

Thank you for the presentation. I'd like to follow up or begin with 2 follow-up questions. Firstly, on the outlook, 2023, the last month or last quarter, you said that you would like to achieve at least what you had on average the last 2 years. What exactly are you talking about? Are you talking about the earnings before taxes now? Or what exactly were you're referring to? Anything more specific would be greatly appreciated for the fourth quarter. And here I'd also like to know if you expect any one-off -- any negative or positive one-offs in Q4, especially in the financial result? Is there anything that you feel has to be done about your bond exposure, especially to the real estate sector? And then secondly, as a follow-up on what you mentioned about Russia. The results, the negative result of discontinued operations, minus EUR 19 million, you took EUR 15 million negative, as I understand, as a nonrecurring effect. Does that mean that there's nothing else to be expected from Russia once it's deconsolidated, so no one-offs left? And then lastly, I'd like to ask you about the group cost ratio and how you feel about the level of the cost ratio now compared to last year and where you see it going in 2024?

Thank you, Thomas. Starting with your first question. Yes, I'm talking about EBIT before tax, without Russia. And referring to the last year's IFRS 4, but I think you know that, but still, we take this as a range where we see out by the end of 2023. I hope that's clear for you. I can give you the numbers, but I think we have them what we achieved in 2022 was EUR 421 million, the year before, EUR 382 million IFRS 4 results, EBIT. Second question, Thomas, is any one-offs that we see for the fourth quarter. So far not. Are there any risks in the line? Of course. So first of all, about real estate, especially in Austria, discussion on the rental basis and things like that. The second topic is the Cigna bond that UNIQA holds. So for both topics, we are carefully watching the market and for both topics, we have internally mitigation methods that lead to a situation that if both things came -- came through, the hit on UNIQA would be, I wouldn't say, neglectable, but not giving the robust EBITDA range in danger. Because if further depreciation on the valuation of real estate would come through, most of our real estate portfolio is allocated to the personal lines means Life and Health. And the IFRS 9 and 17 effect in this underlying item is more or less neutralizing all up and downs. That's the reason why you look, for example, on the Health business side, you have the financial result more or less 0 because it covers from underlying item, which is then shown on the CSM level. So that's...

So basically, no threats in the P&C portfolio?

Rather small amount is in the P&C portfolio, which is then neglectable. And here, we have different engine models because here we have the valuation and cost. Second thing is the Cigna bond, UNIQA holds around EUR 74 million in a bond and a little bit more of EUR 1 million in a fund. Here, we have taken some actions on the ECL basis and on the OCI level. The P&L effect is neglectable and less than EUR 5 million. Same story like on the real estate side, most of the allocation of the Cigna bond is to Life and to Health business and same effect on IFRS 9 and 17 leads to a situation that it's with this more or less protected by an amount of -- in a maximum of at the moment, EUR 28 million. If the complete bond would be depreciated and is not -- is allocated like at the moment. In the first 9 months, the effect is of around EUR 1 million. EUR 22 million is the OCI and the expected credit loss coverage we have of EUR 12 million. So that's the answer to those biggest risks that we are foreseeing at the moment, real estate and Cigna bond. Third is Russia. No one-off is expected in that case. So what comes again in the first quarter, Thomas, is the fourth quarter operating profit. So in that case, we expect EUR 1 million or EUR 2 million, which would then be added to this EUR 19 million, is the complete deconsolidation effect, and that's it. And about the last topic, cost ratio. So look, yes, we feel with that what we are comfortable. So that means for 2023, this is what we have and this is what we also planned for the upcoming years, Thomas. We are working constantly on improving and also on managing the costs better than in the past, meaning so that, of course, at least from 2025 onwards, you can expect that UNIQA is showing better cost ratio results than in the previous [indiscernible].

[Operator Instructions] We'll take our next question from Michael Huttner from Berenberg.

Really well done for really given the challenges, very strong results. Can you give us a little bit more update on Poland? I'm always curious because that's the business you bought a while back from AXA. I see the PZU share price has been fantastic this year. And I just wondered, of course, PZU is also banks is not just insurance, but I just wondered if you can give us a feel for the trends there.

If I understood you correct, it's about Poland?

Yes, please.

Yes. Okay. So a little bit of guidance for you, Michael. So UNIQA has a growth of 12%. The market has a growth of 10%. So we have a share of 6.1%, and we are ranked on the 6th marketplace in Poland. We have a P&C combined ratio on a gross basis. And this is, for us, one of the USPs of UNIQA and for us also a competitive advantage of 86.3 percentage points, 86.3 gross combined ratio, P&C. Even that we are working in a market with high motor and motor haul portfolio. Why that? Because we have from AXA also bought high knowledge on pricing, on dynamic pricing, on behavioral pricing. We can react, I wouldn't say within minutes, but in a very short time on the demand curve, online and off-line. And this means also that our net insurance service result is up by EUR 70 million. So that means if you look on our EBT, which is EUR 64 million in Poland, this comes more or less only from the insurance service results. So that means no big impact from one-offs or from other things. So a very good development on these technical results. The transformation project generally is giving us more synergies in the history plan. So we have some synergies at the moment by EUR 20 million running, up and running. And this is much more than the deal calculated. So for us, Poland, but also Czech Republic and Slovakia, the same in that case, is a very successful story and the integration is more or less done. Some things to do on the IT and on the product side. But then we have really done the deal. And as I said to you, very successfully integrated into UNIQA, but also on the nonfinancial basis, know-how, on people's management and culture. We have here a showcase on how to do integration.

There are no further questions on the line, and I would like to turn the call back over to speakers for additional or closing remarks.

Yes. So ladies and gentlemen, thank you for joining UNIQA's Group results 9 months 2023. Outlook, I already explained. Russian entity is on track so far. What stays is the reduced uncertainty even if there is just a small part of the group at the year-end. But we look optimistic for that. And with this, I end up the call. Thank you for this and have a remaining successful week. Thank you.

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