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

Welcome to UNIQA Group results for the First Half Year 2024 Conference Call. My name is Allan, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Kurt Svoboda, to begin today's conference. Thank you.

Thank you, and welcome to UNIQA's presentation on half year 2024. I refer to the document, which is published on the website, and start on Page #5 with an overview, a very strong EBITDA in the first half year of 2024 in relation to the last year and also in relation to our internal plan, which is driven on the one hand by very great growth in both markets, international and Austria. We grow in the international markets exceptionally higher at 12%. Austria, we have a P&C growth of 5%, which is an older market, and Health growth of 10% and still in Life, focus around plus/minus 0 over the first 6 months. This growth is followed by a very favorable development of the claim side, especially on the P&C side, which means on the one hand, we see good development on the loss side, have also better-than-expected situation on the weather-related claims, and this leads to a combined ratio on a gross basis of 87.3%, which is also better than last year, which is 87.7 %. The financial result is driven by more or less not worth mentioning topic. Of course, interest rates increased which gave us a boost on the unrealized gains and these lead to a net investment income of EUR 438 million. And overall, we are then fine with earnings before tax of EUR 277 million, which is a great improvement of close to 20% in relation to the year '23. If you look at the different topics also on Page #6, the key financial indicators, increase in earnings per share following the good results, the same the book value and ROE on a good position of 16.3 percentage points. Interest rates, especially on the OCI led to a decrease in the equity position, and this was one of the main drivers of the decrease of 2.2%. Solvency position is close to [ 270%, ] exactly 266% on a very good and solid level. CSM, Page #7. On the one hand, profitability drove the development of the new business. Second, a good development in the net invested income is partially also going into the CSM, and that's the reason why the increase of the CSM and then also the higher lease impacted, especially Life and Health book. Growth on the segments I explained on Page #8, we see also no worth mentioning lapses in the regions or in our countries, even that's here or there. The inflation rate is still very high. So very stable development over our customers and also all lines of business. Costs are under control and led also to a little slightly decrease of the cost ratio, which is described on Page #9. Of course, we have our investments, especially in IT, in Austria, digitalization and HR development, but believe that the costs will be slightly below the plan for this year by the end of the year. On the P&C side, Page #10, a robust results driven by a good technical results in both segments. I can report that we have rather no worth mentioning major claims in the first 6 months, just volume is a higher amount in Serbia. The rest is very favorable. Of course, nothing that we expect the same development in the second half year, but it shows that the portfolio is quite stable. Steel portfolio restructuring, especially in Austria is ongoing. But here, we have for this more than 80% of the half year, made our homework. Second, we have a relative claim situation in Austria with around EUR 45 million impacting the result, which is in line with the last year, slightly better than the average. And this is also ongoing, up-to-date, and runoffs of EUR 85 million offsetting the moderate cuts, also impacting the favorable result of P&C. This leads then to what I said combined ratio of 87% and also [indiscernible]. So stable situation on that side. Basic claims ratio is more or less in line, basic claims everything is below EUR 500,000. So of course here, we can see a sustainable development in the first 6 months. Life business, dominated by the CSM, I explained it before. Of course, we have high volumes that mature coming from the banks, 10 and 15 years ago. This is the situation where we sold high volumes on single premiums, especially in the unit-linked business and also -- but also the traditional, and this is the reason why the growth in Life is behind the growth in the other business lines. Different in Health, Page #12, a very good growth with 10.7% on the insurance revenue. Outbound tariff is something that was higher claims payments in the first half year. Still, we believe that this is going down in the second half of the year. But anyhow, all the earnings before taxes is EUR 19 million, following the expectation and also the profitability coming from the Health business. This is also visible that on Page #13, on the New Business Values, especially for Health and Life shown here. We doubled more the -- doubled the development in the comparison to the first 3 months. And this on the one hand, the interest rate impact and on other hand a profitability impact from the products. Our core markets and also on Page #14, we can report that all markets are positive and all markets have the same trend. A good growth be sustainable and better technical results, and this is visible here in comparison to Austria and the main countries in the international places like Poland, Czech and Slovakia and [ SA 6 ], which we treat as one more or less artificial company within UNIQA. In the investment portfolio, we have a stable position and the result is driven by, as I said in the beginning, a favorable development on the interest side, but also less impairments and no worth mentioning impairments over the first 6 months. The new money yield, I also report on this part of the presentation, is of about 4.3% and the average yield that we achieved in the first 6 months and the whole portfolio is 2.9 percentage points, which is slightly better than in 2023. Investment activities, not with a big difference to that, what we also reported in the previous calls. So this brings me to the outlook of the year 2024. We see cautious for the year 2024 because, a, not cat season is not over, especially weather-related claims. We saw this in the year 2023, when the development between half year and full year are more than tripled in that area or even in the year 2022, half year to full year even doubled. So anyhow, with this, we see a very positive development of the year 2024, so that we can achieve the expected results, which was a little bit in line. With that, what UNIQA developed and showed in 2023. With this, I'll stop my presentation, and be happy to take the one or other questions from you. Thank you.

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

I'd like to continue on with what you said about the Outlook 2024. You're cautious because of the NatCat season not being over. Can you tell us anything about the bad weather claims and development in Austria and other countries in Q3? So very recently, in July and also in August, did you expect the combined ratio to be impacted in Q3? That's the first question. And the second would be on the -- if you have any details on the large claim that you mentioned in the presentation, I believe in Serbia, that had a 3 percentage point impact on the combined ratio [indiscernible] international, if I'm correct? And then thirdly and lastly, on Russia, there was a positive effect in the discontinued operations right above the bottom line. If you could tell what happened here and the -- you continue to expect that the exit will be completed by year-end, the exit from Russia, were there any new developments here?

Thank you, Thomas. Given the first question. So the impact in July was rather low, so we talk here about EUR 17 million to EUR 20 million that we can report in July. August so far is a little bit too early, but nothing that brings the combined ratio at the moment for Q3 in a big danger. So yes, we saw the pictures in Vienna, we saw the pictures in Burgenland, but this is something that is our plans and forecasts included. So I would say at the moment, no major hit on the combined ratio for Q3 and also for the Q4 results. Second is your question about the large claim [indiscernible] somewhere in the middle Serbia, where the gross result is about EUR 31 million impact in UNIQA. It's a coinsurance with noninsurance company, and we've taken that case net retention of EUR 10 million. The rest goes to the external reinsurer, and this is the impact that you saw in the report. On Russia, I can report, I would say, rather done. So in a metaphor, if you see a marathon that we took here, we announced kilometer 42, so still 500 meters to go. That means, yes, we received those days, the official paper from the Russian government that they agreed on the exit in Russia. So what's happening now is the last step that this has to be translated lately into the different languages and then also offsetting the deal. So I would say that takes a little bit of [ 20 ] days, and then we can -- we would report that Russia exit is finalized.

Okay. So that -- what you had in discontinued operations in Q...

In Q3, this will disappear.

We will take our next question from August Marcan, UBS.

My first question is on the P&C combined ratio. A very strong combined ratio, but I saw there was about 4% positive development from [ PYD. ] What would you expect a normalized level going forward of [ PYD ] to and normal level of cats that you usually budget for? And my second question is on solvency ratio. Again, very strong solvency ratio. Could you give us some moving parts between OCG markets, how we got to the 1H number?

So combined ratio, we calculate because we see that Austria is heavily hit by weather-related claims and cat claims over the last years, and we calculate internally up on a 3.5% impact in combined ratio. But it is already included in our plan. So I would say, if it stays like that, then we are in plan or slightly better. Solvency II, I couldn't get the question, sorry, because I was not getting it correctly. Strong Solvency II ratio and your question was exactly what?

Yes. Just to walk from full-year number to 1H number. What was the market impact? What would be the OCG impact? Just breaking down the building blocks of the solvency, if possible?

So the interest rate movement was visible in the sensitivities. So I cannot give you now the exact numbers. Sorry for that, we will deliver this to you. But the only impact that we saw between the different stages is the interest rates. All other things are more or less stable at the moment.

[Operator Instructions] We will take our next question from Michael Huttner of Berenberg.

I'm sorry, I jumped on the call late, so apologies if I'm asking something which has already been asked. I was interested in Health, which looks really strong, particularly in terms of new business. And I just wondered if you can maybe talk about the outlook here. I see it's both interest rates in Austria and biometric in rest of the [ sea ]. I just wonder what the trends look like going forward as this is a big part of the profit. And then the other, I was interested to see that the Life profit, and I perceive and maybe I'm wrong, the Life business to be -- sorry, the Life revenues, the Life business to be less growthy as it was. It still went up, and I just wondered what the outlook is there, whether there's an improvement in the trend or something.

Michael, thank you for questions. So first one is Health business, yes, you're right. We are quite comfortable with the situation on the Life and the Health business. So what we see as a first half year trend was that the outbound tariffs we had higher claims payments. This is maybe customer-driven. But on the other hand, we have also growth behind that. Secondly, the inbound tariff is highly profitable, high demand, and this drives the profitability from the product itself. Secondly, we also have a favorable development from the net invest income, which goes then with a portion to the CSM and with the release also impacts the business. So in that case, interest development, unrealized gains and also higher ordinary income is also a part of the profitability of the health business, which we see at the moment also in that trend for the rest of the year. Right. Yes, you're right, less growth. This has to do with high maturity of products coming from the year 10 or 15 years ago, where UNIQA was selling high single premiums, high volumes in that respect. We cannot, in that case, absorb these maturities, and therefore, the growth is lower than in Health or in P&C. Growth is coming predominantly from the international business. Austria is having minus 3% in that respect because of that what I said in the beginning. On the other hand, that's what we are selling in the Life business is okay, biometric products in that case, which is also reflected in the IFRS statement because unit-linked and index-linked is not part of the P&L anymore on the IFRS. And same like in health, we also have a favorable net investment income, which then goes to the CSM and is reflected in the release of the CSM, of course, accordingly to the duration of the contracts in Life.

We will take our next question from August Marcan, UBS.

Just a quick follow-up. There was around EUR 200 million positive effect in your equity in the bucket other, could you just give a bit of detail what will happen there?

So first answer is that has to do a little bit with the FX development in our countries, especially Polish zloty and Czech crown and this is reflected in the other position.

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

Sorry about that. It's just -- I was -- I think you mentioned that the group cost ratio improved from a little bit from 31-point-something to 31-point something a little bit less. But -- and I think you also mentioned the IT, but the IT either that would cost less, so the impact would not be as quick. Could you maybe talk about how you see the cost ratio developing, please?

We see the cost ratio development on a sustainable basis over the next year decreasing. This is a target that we have to fulfill. And yes, IT is one of the major spendings that we have, a, this is last part of the UIP platform plus innovation and digital trends that we are following. But anyhow, costs have to be lower than the growth, and therefore, we expect a reduced cost ratio not only in Q3, but also what I can say so far as a strategic target for the upcoming periods.

[Operator Instructions] There are no further questions on the line. So I'll now hand you back to your host for closing remarks.

Yes. Thank you very much. Thank you also for your participation and for your questions, and wish you a remaining successful week and the remaining successful and nice summer. Thank you.

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