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

Hello, and welcome to the UNIQA Group Preliminary Results 2023 Conference Call. My name is Francois, and I'll be your coordinator during the call. Please note that this conference is being recorded. [Operator Instructions] I will now hand you over to your host, Mr. Andreas Brandstetter and Mr. Kurt Svoboda, to begin today's conference. Thank you.

Thank you. Hello, ladies and gentlemen. Welcome to our full year 2023 investor call. Thank you for your time. What we see in this year is a continuity, I would say, a solid continuity of the very good business development of the business year 2021 and 2022. And if you look back what we told you in the previous calls, I think we see similar development in a good way and similar progress in our most important business fields. If we head on to Page #5 and if you look at our P&L. You will see a growth as far as insurance revenue is concerned by more than 12%. If we basically step back to the way in which we monitor our business, and this is still the gross written premium parameter, we see a growth of almost 10%, mainly coming, and Kurt will tackle it later, from our international business, which has been growing in CEE by 15% which excludes Russia and 5% which is coming from the home market, Austria. So this shows once again a very vital sales power in basically all sales channels, and this is something that we are very happy about to inform you. And again, this continuity in the trend is same as we saw in the last 2 years. If we then head onto Slide 5 and move to the technical result. You see a very stable development despite, and also this will be tackled by Kurt later on, some of the major claims hit in the year 2023 as well as hit by severe weather-related claims, which amount in our books roughly at around EUR 180 million. And we have to include also the one-off charge from a legal case in Austria, which also will be mentioned afterwards by Kurt. However, the technical performance in the international field was excellent. In the P&C field, we see combined ratios gross being at around 85%. And this is altogether a very favorable development, which leads to a compound ratio gross of 89.4%. That's an improvement of almost 2 percentage points if you compare this number to the previous year. If we have a look on the net investment income, it is, of course, much stronger this year due to higher current income and [indiscernible] year 2022, we have no significant impairments. We had in the previous year negative impacts coming from impairments in Russian bonds. And also, we saw in the year 2023 quite stable interest rates. All these very favorable developments lead to a profit before tax result of around EUR 426 million, which is a quite significant improvement towards the previous year on a like-to-like base IFRS 9/17. Income tax, you might be surprised. But Kurt will tackle it later. We have roughly 24-point-something percent, which is quite high. We expect the kind of normalized tax rate in upcoming years. It should be somewhere between 20% and 22%. Having said this, profit after tax and minorities up to EUR 303 million. You know that we cited already last year to exit our Russian operation, and we see the effects from these discontinued operations in the amount of roughly EUR 20 million below the earnings before tax. About our most important ratio, I think [indiscernible], I would say, satisfying discipline as far as the cost ratio is concerned. We already mentioned the P&C combined ratio gross. Maybe one comment about the new investment yield. This will also be tackled by Kurt in a couple of minutes. 4.7% improvement, again, compared to 2022. The amount of new money which we invested raised up to EUR 2.5 billion this year, which is roughly EUR 1 billion more than in the year 2022. And this thing also shows very good favorable development. Let us now tackle on Slide 6 the CSM, which as many of you know is heavily driven, of course, by our strong Health business, especially in our home market in Austria. And we see here this is slight decrease coming from something like EUR 5.4 billion, down to EUR 5.266 billion, which means less -- EUR 160 million less, predominantly coming from Health. This is -- we announced [ also '23, '24 ] out of 5.3. Now where does the decrease now come from? It's a result of the higher CSM release versus the new business in Life, which is the most important trigger, as well as a certain amount coming from the reclassification of Russian business because of the effect I mentioned 1 minute ago because of the discontinued operations. This amounted up to EUR 60 million. Having said this, as a consequence, the group's CSM release sustainability ratio is below 1 driven mainly -- only by the shortfall in Life, whereas we see a very good development in Health and P&C. The sustainability ratio in the Health business, for your information, is somewhere around 1.12. So this was a very short summary from my side. And if you then move on to Slide #7. I hand over to Kurt.

Ladies and gentlemen, welcome to presentation of year end 2023. Starting with key financial indicators. Earnings per share above EUR 1 with the accounting scheme of IFRS 9/17 [indiscernible] earnings. And we heard about the tax situation we had in 2023, [indiscernible] taken, and we have some increases of tax in 2 other countries, which led to this situation of 24% tax rate. But as already mentioned, we believe we plan on a [ gross written premium ] basis tax rate [indiscernible] in the previous years between 21 and 22 percentage points. One-offs, I have already mentioned, is accordingly communicated on the capital market. It was about the [indiscernible] case and the second was [indiscernible], which I will explain. Return on equity of 14.1 percentage points is a nice development. Our shareholders' equity ramped up by EUR 800 million. So it's about EUR 2.7 billion by the end of the year 2023. Increase comes from the development of the interest rates, and this is partly coming from the OCI movement. Capital position was 225%, very favorable for UNIQA. On the growth side, Page #8. Here, we show the insurance revenue per business line to give you also flavor on how these are linked to the premium gross and gross written premium basis. So property and causality, the premium gross was 14.4%, coming in with very good development from the retail business. But we are growing also the corporate lines in both segments Austria and international business. Health, 8.3% on a gross written premium basis. Inflation is a component, which has been considered here, but also had new business in both in inpatient and outpatient tariffs and also in the international business growing demand on health services. Life, 14.2% on an insurance revenue basis, minus 0.4% on a gross written premium basis. So that's a big difference, significantly [indiscernible] on the one hand. And the second thing is that we are doing -- we have some of the maturing portfolios resulting from the contracts [indiscernible] premium volumes that outflows are at the moment higher than the inflows, and this relates to this minus 0.4 percentage points on the Life side on premium basis. Page 9, the cost development. So on one hand, we are showing here the group cost ratio based on, on the one hand, insurance revenue in relation to the costs in the proposition of commissions and administration of costs. So the EUR 1.9 billion has a roughly EUR 1 billion component of administration expenses [indiscernible]. About EUR 870 million is coming from commission. And in that case, we are leading to this EUR 1.9 billion on cost. We have composition between direct and indirect costs between 86% and 13%. And we speak to another report that on the administration side, yes, we are still working on the IT program of [indiscernible] also working on new front and that we are doing here. We have regulatory impacts from the [indiscernible] Artificial Intelligence Act and things like that, which leads to a cost increase in comparison to 2022. But we are still in line with our budget, and we are also in line with our investment strategy. P&C, Page #10. We see a very good development of the combined ratio. We also report the first time the combined ratio was split between discounted and undiscounted. We can read the discounting effects in the last line of the comments. Also for us, important to say, okay, what does it mean for the business and how are going to include it. And we can report on that, that UNIQA is working on the discounted and undiscounted method so that here we have no impact also on the [indiscernible] for our customers and for our clients. We see a very favorable development of the capital result, having a plus of EUR 31 million, driven by the international business. It is an extraordinary, good development. On the other hand, we have negative impacts on NatCat and the weather-related claims, which can also leave out from the comments. Austrian portfolio, which is a mix between climate-related events and also portfolio [indiscernible] in Austria. Coming to the Life business in detail on Page 11. I would like to highlight the CSM development, a couple of things. A, as mentioned in the growth, we have high outflows from maturing portfolio, which leads to higher CSM release in the period. Then the new business which is still favorable, and we show a little bit later also our profitability on that side that we can compensate the high outflows with the new business. [indiscernible] CSM by 7 percentage points, which was [ for 2 years ] from the existing business. Important to say on the right-hand side on the table that using -- with a higher maturity that support [indiscernible] but the financial result is lower in comparison to the net investment income. This has to do with the underlying item CZ&SK. Health in Austria, same story, on the next page. We have a very good new business, which is also from a volume and from a profitability basis. It's really good. We have communication topic, which are also embedded in the new business. But generally, the volume in terms of profitability is very, very good. Here, we released our CSM from the [indiscernible] portfolio by 2.8 percentage points [ on 35 years ]. We also use the indexation pattern in our cash flows [indiscernible] for the future. Now Page #13, country overview. On the one hand, Austria is a result of EUR 299 million. Please note that this result [indiscernible] from the international units is included and international business within EUR 229.7 million, actually EUR 230 million, which is the best result in the international business. We have taken out 3 countries, Poland, Czech Republic and Slovakia. [indiscernible] in the new projects that we've launched 1.5 years ago, which led us to situations of the countries that are stated in the segment like one artificial company. We can use synergies here on the administration side and the IT side, especially on the product side. And we believe that these countries are developing prospectively by a result of EUR 90 million in 2023 to become more and more better and also in the future in dividend stream for UNIQA. We see an excellent compensation for the 3 countries, 87.5 to 84.6 in SEE5 [indiscernible] good technical results, which please note is the composition of Life, Health and P&C, not only the P&C technical results. New business value on the next page, Page 14. We showed you the Life results on new business margin calculation by NBV and in the [indiscernible] different tax effect, risk adjustment and cost effects and some other topics. But generally, the message is that our personal lines and business margin is extremely good. Yes, we know that the present value is higher in the Health business than in the Life business. These are the topics are explained to you. So [indiscernible] on new business values based on IFRS 9/17 of EUR 199 million. The respective number for the old scheme in value terms is EUR 160 million. This leads me to the investment portfolio, investment portfolio, as stated, around EUR 800 million improvement in the OCI, other comprehensive income, which is [indiscernible] coming from movements in the interest rates. You see below that the interest rates between '22 and '23 had an impact of 52 basis points. And this reflects in our portfolio, which is predominantly coming from the bonds of EUR 800 million. Expected credit loss development is a EUR 30 million impact and [indiscernible] also the impact of Signa [indiscernible] has portfolio of roughly EUR 80 million nominal value invested in Signa prime bonds. And with this, we made an impairment of down to 30%. And accordingly to the accounting principles from IFRS 9 in combination with IFRS 17, the P&L effect was, on group level, EUR 8 million in 2023. [indiscernible] we are happy to take your questions and your discussion points in the investment activity and [indiscernible] results was explained by the interest rate drop by 52 basis points. [indiscernible] 4.7 was also mentioned. Please also be aware that we traded 1 billion more in 2023 than in 2022, so 2.5 billion trade volume in 2023, using the opportunity on the interest side. And on the other hand, also we used opportunity to invest in [indiscernible] related investments. The portfolio of UNIQA is, on average, a minus [ 80 ]. And last but not least, a very good development also on our real estate portfolio. Lettable of 30 million on impairments that we have to take. On the contrary, we have 26 million on the write-ups in the real estate portfolio. So stable position. We see a step-up also in the international countries where we have real estate portfolio. With this, I want to close the presentation, and now we are free to take the questions.

Sorry, forgive us 1 second. A few comments before we close on Slide 18. Well, despite the macroeconomic and geopolitical uncertainties and despite weather-related claims, which we expect to remain high due to ongoing climate change, we are quite positive as far as our outlook for the running year 2024 is concerned. Let me just briefly tell you why this is the case. So first of all, we expect a further improvement as far as our profitability is concerned of our core business. And this means both core markets, CEE and Austria. Why? Because we mentioned at the very beginning and [indiscernible] the overall productivity, which we have, and it's just another kind of flash light from 2023 but also from the last years. The overall productivity in our sales unit is high, and we expect this to remain despite everything around inflation for, again, both core markets also in 2024. [indiscernible] the large part of our book, especially in P&C and in Health in Austria is protected by price indexation. So we see [indiscernible] ratio in our portfolio, nothing which should keep us so -- which should make us worry. And P&C, especially Health, we can completely cover and protected by the price indexation. This goes also for Austria. We had quite significant progress as far as cost discipline is made. So I think we are fine on this side. And underwriting discipline in the new business, especially on the corporate book side, is -- at the moment we are satisfied, right? So as I said, this also covers everything that, most products that we can influence. We think it will be under our own control that makes us happy. And We cannot guarantee that we can reduce impacts from weather-related claims. I don't know of anything else executing factors. But this is the reason why we are positive as far as the further development in 2024 is concerned. We tackled the results and dividend of EUR 0.57 per share is the proposal in June to the AGM. And I think that Kurt always said as in the last calls, our overall aim and keep in mind that we will give an update on our strategy as far as 2025 and onwards is concerned in Capital Markets Day somewhere by year-end, that a progressive dividend policy also [indiscernible] something which would characterize, I think, our investor strategy. So having said this, thank you for listening to Kurt and to me. And now we're finally happy to take all your questions.

[Operator Instructions] The first question comes from the line of Rok Stibric from Raiffeisen Bank International.

I would just have a few ones, maybe starting with the CSM release. Would it possible to provide some drivers of that level of CSM release expected in 2024? Briefly looking at it with sales kind of to be lower in 2024 than it was in '23, but anything that you might be able to share on this topic would be extremely helpful. Next question I have is related to the outlook. Just to be on the same page here, the profitability that you mentioned is something that you are referring on profit before taxes level or net income level? And the last question that I have is related to the solvency ratio. At the moment, it's very high level and above your regional targets of 170%. While it's understood that, on one hand, you're keeping some buffer in anticipation of rate cuts, could you maybe share some light on this, if you plan to consider some M&A opportunities after successful AXA deal? Or would you rather allocate more attention to change your dividend policy?

Thank you. So starting with the first question, CSM release on 2024, depending on the -- or assuming that the interest rates are on the same level as seen by the end of year, so we see roughly around EUR 300 million as a CSM release for this year. This is something that is in line with, on the one hand, the [indiscernible], and on the other hand, [indiscernible] that comes in, including the cost development on that level. The second topic is about outlook, which is reflected by the EBT. And the third topic is about 7th June. We always take 255 percentage points, yes, it's above the level that we fixed as a borderline, 170%. But bear in mind that these topics, they are also taken into consideration. A, we are ahead of the [indiscernible], which we don't know what is the outcome. And therefore, we take the buffer, which we see [indiscernible] can go in both directions depending on the outcome of the discussion. Second topic is we always carry without a buffer between 30% and 40% for M&A transactions. I mean along with some good news for some topics that we have to cover. And the first topic is, yes, we would be ready for all the activities in terms of along with the event, along extraordinary topics we have to cover. And this is for us in the position to say, okay, 250 basis point percentage points and do not see at the moment any actions to take, no matter in terms of share buyback or increase of the dividend, possibilities given, but it's a question if anyone would take it.

[Operator Instructions] The next question comes from the line of Thomas Unger from Erste Group.

Yes. So I would ask to review them. Firstly, on Russia, what is the progress that you're making on your exit plans? Do you have any time scheduled for the next months? How much longer do you think it would take to get the transaction flow? And then secondly, on -- also related to Russia on STRABAG. And what are your thoughts on the potential changes in the shareholder structure? If you could share those with us, I'd really appreciate that. And then thirdly, if you could just tell us your net combined ratio for '23 and also '22.

I'll take the first 2, and Kurt will take the third question. Yes. Sorry, just to get a refreshment here. Russia, well, we are in, I would say, decent and serious dialogue with the Russian regulator. So we fulfilled all the requirements as far as the investment and tranche of the shares are concerned. And we expect the closing of the deal in half year, first half year 2024. But of course, I cannot guarantee this because we have not, let's say, this kind of influence. But we have felt positive that we can close the transaction within the next 5 months. This is about the first question. Second question, I think this is a kind of transaction which took place between 2 parties to whom we have no close relation. So this is not something that we'd like to comment. Of course, as a shareholder of STRABAG, having around 15%, we are interested in a stable development of the company and also, of course, that the operational business, the daily business of the construction company in all parts of the world where STRABAG is active is nothing that by -- I would say, a kind of not really favorable shareholder structure, right? So please understand we don't want to make any further comments on this year. But we, of course, observe quite carefully what's happening as far as STRABAG is concerned. Just the participation itself and the development of this for us, really big and relevant and crucial participation. So the operational development, we're, at the moment, quite happy, as you know. About the last question, Kurt combined ratio net.

Combined ratio, Thomas, in both years, 92.8%. Why in both years they're same? We have different reinsurance impact, so the reinsurance impact in the year 2022 was 1.1 percentage points, and in 2023, 3.4. This has to do with, on the one hand, higher prices for reinsurance coverages. So just have in mind that from '22 to '23, UNIQA averaged 18% of the premium, and this is driving this 3.4%. So that's combined ratio, 92.8%.

Just staying with the combined ratio, do you plan to make any changes to your reinsurance policy, to your reinsurance strategy for '24 or beyond?

Not at the moment, Thomas.

The next question comes from line of Thomas Neuhold from Kepler Cheuvreux.

I also have 3 and I think it's best to say them one by one. Firstly, on the cost development, can you tell us what the total amount of one-off expenses was in 2023 and what the cost inflation would have been without the one-offs? And can you also please provide an outlook for the cost development in 2024?

Okay. So the overall inflation impact on the cost side was, in 2023, around 7 percentage points. Austria, international average, 2023 January to December. Second topic is the one-offs that we have in our cost element. So I talked about around EUR 1 billion on administration expenses on UNIQA. And we have one-offs defined as the investments in our IT system, one-offs defined as the investments or cost expenditures for transformation, SEE5, for example, and one-offs defined also as cost or expenditures for regulatory projects. Why this definition? Because we see this is coming for 1 or 2 years but not for the next 10 years. And this impact is around 10% to 12% from the level of administration effect. Outlook is that we see these one-offs on various manifestations or regulatory [indiscernible] regulatory topics do not come down. IT investments, our stated position in insurance platform is not done so far. So this is what we believe is stable. On the other hand, we are working on a new strategy program, which is also part of the efficiency. And we will come -- by autumn this year, there's more information on that and also what we expect on the cost side for '25 and the upcoming years.

The next question is on the position equity. There's a quite large positive change coming from measurement of equity and debt instruments. Can you provide more color on this position and especially give us [indiscernible] changes in interest rates and the yield curve?

Yes. This is pure market development coming from the bond side. And you know that our sensitivity is really impacted from the duration. So nothing new to that what you already know.

And the last question is you mentioned that the value of the real estate portfolio was roughly unchanged. If you look at the underlying real estate market in Central Europe, prices have been under pressure almost every year. So I was wondering if you can provide some color on the composition of the real estate portfolio in terms of segments and countries and also give us an indication when was the last time that the whole portfolio was valued by an independent valuer.

Yes. The valuation, we have on a regular basis each. So we have a 2-year turnover. That means 50% is valued each year. We have a location of the real estate on living 22%; retail, [ 8% ]; 6%, hotel; and the rest is offices.

[Operator Instructions] The next question comes from the line of Michael Huttner from Berenberg.

I'm sorry, I'm jumping in late, so my questions may have already been answered. I have 3. The first one is on pricing and merchant insurance in your 2 key markets, Poland and Austria. The second one is to the extent that the Life CSM is shrinking but the Life back book is shrinking maybe not very fast but still shrinking a little bit, how much capital are you releasing every year and then basically available for the investments elsewhere? And then I know you said you talked about it in the call, but I think you -- I think, maybe I'm mistaken, that you mentioned in your press release kind of more lumpy investment. I remember reading about Health, but I'm not 100% here. Can you please -- I know you [ treated ] this in September, but maybe give us some outline of your thinking or the magnitude or any kind of indication would be very helpful.

Mike, it's Andreas peaking. Thank you for dialing in. So I think we didn't really understand just from an acoustic point your last. You said health insurance or health investments. Did we get it right, your message?

Yes, but maybe I'm mistaken. I actually remembered from the press release. And thanks, you remember me. It's the more lumpy investment in infrastructure to help the Health, but it may be...

Yes, yes, I got it. What we told you is that we have a major investment in the upcoming years [indiscernible] in our hospitals. We are going to invest up to EUR 250, 2-5-0, million more or less in the renewal and expansion of the services into our hospitals. Both of them are located in Vienna. And we started this program already last year, and it will still go on to another 3 years. But the total amount is up to EUR 250 million. This is one thing. And then the second thing, which is more relevant, is that we acquired at the end of last year the major Polish telemedicine provider who have in Poland a market share of something like 25%, servicing there roughly 500,000 patients per year. Why we do this? Because we want to expand this company in telemed in other countries in the next years but also one way in Austria as soon as regulators [indiscernible] everything around investments and health infrastructure. Is this okay for you, Michael?

That's very clear.

Yes, sure. And then before Kurt comes back to your second question about the first -- your first question. So we tackled the issue of motor price and profitability indirectly when we talked about the outlook. The overall outlook, we expect for this year to be in target in terms of profitability of last year as far as profit to CapEx is concerned, right? What we said is, first, that despite uncertainties and geopolitical and macroeconomic signs, but despite this, we think that a further -- we're confident that the further improvement of our insurance technical results is highly possible. And this means that we keep on our high profitability in the P&C business. That's mainly driven strongly by the [indiscernible]. You know that we made significant progress there by the acquisition of AXA 3 years ago in our capabilities as far as the proper pricing is concerned. Of course, we run out now those capabilities, which is required in Poland, to other market. And if we have to look on the combined ratio overall in non-Life book, international, which is somewhere like around 85% gross, it shows that we are in a very high underwriting. I also mentioned this, that we have relevant capabilities and scale in the pricing. And we also how to get the price. We see negative relation at the moment with the [indiscernible] in danger, not to get the prices that we ask for. I hope this answer your question, Michael.

Yes. Topic #2 about the CSM release and also the Life book that is shrinking [indiscernible] and a very, very rough basis. So assuming based on historical level that interest rates stay where they are at this time, I would say the effect is rather neglectable because on the one hand, we lose underwriting risk because the policies are expiring and maturing and are out of the UNIQA Group. On the other hand, we also lose cash, and in that case, also the possibility to reinvest because also in that case, money goes out of the company. So the big impact does not come because also here, the volumes of these and the products that are expiring are a big mix of single premiums and coming from index and unit linked, which do not have that high impact on our solvency ratio or on the risk of capital. So I would not calculate more than 2% a year.

Thank you. There are no further questions. So I hand you back to your host to conclude today's conference.

Thank you for your time and your interest in the full year result 2023 of UNIQA. Be healthy, safe, and looking forward to seeing you or hearing from you quite soon. All the best. Bye-bye.

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