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

Hello, and welcome to UNIQA Group Results for the First Half Year 2025. My name is Laura, 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, and welcome to UNIQA's Group results after 6 months in the year '25. And hopefully, everybody had a good vacation in this summer. UNIQA after 6 months in the year '25, I'm now on Page #4 of our presentation. We are delivering a result which is quite impressive even after 6 months and the first part of the cat season with EUR 296 million earnings before tax. This is plus 7% versus the year 2024. For us, important is the good diversification of the portfolio, which is 57% coming from the Austrian business in terms of revenues, around 40% coming from the international business and 5% even now from UNIQA Re external business in Switzerland. We grew with this 10% versus 2024, and I'll come back later on which lines of business is driven. We're quite satisfied with a 90.5% net combined ratio, which is another improvement in relation to the previous years and a high solvency ratio, which is several aspects I will explain later on with 284 percentage points in the year 2025. On Page #5, we are seeing the P&L short-term conversion. So I would like to stress that the 10% growth I was referring before is coming with a very high-end part from the international business. And here, in the international business, Poland is the driver of the business. So Poland still here with high growth in the motor business, but also in other lines is a high contributor followed by Czech Republic, followed also by Hungary and then the SEE region. Austria is stable is roughly 5% in a very mature market. So we are very satisfied with this. Growth driver in P&C, Life and Health business is good in Austria. We had a technical result, which is 23% better than 2024. We have less large claims and the cut season is not over now. But for the time being, we have minor that we had to take into consideration in our books. But here, we are far away from that what we had in the previous years, especially with Boris in 2024. Admin cost ratio, on the one hand, under budget in terms of administration costs, but also driven by the high growth. So with this, a good path in the direction of achieving the targets of UNIQA 3.0 in '28. Quite okay, we are with the new investment yield of 4.8% and the average investment yield in total 3.1 percentage points. So this means also in the Life book, the average guaranteed interest rate, we are now below 2 percentage points. And with this, we are very good covering these interest guarantees in the especially Austrian Life book. When we move on, on the next page with the return on equity, which is also here in line with the targets that we set for 2028 and the other KPIs are also in line with this, what we expected. The CSM on Page #7 has several impacts that we have to talk about. First of all, interest rate movements, especially on the longer end, has a huge impact on our liability side and then also especially in Life Austria and Health Austria, an impact on the interest rates and on the assumption changes. So around here, we have more than EUR 450 million out of this EUR 570 million is coming from interest movements in the first half year. Another part that is worth mentioning here is that STRABAG, and I will explain STRABAG later on when we talk about the investment results. STRABAG is here a contributor by EUR 50 million, and this leads to a high assumption changes or economic grants of EUR 570 million. And with this also then in the future, higher releases out of the CSM for UNIQA. Page 8, talk about the top line. I mentioned Poland, I mentioned UNIQA Re with the external business. And with this, we are quite in line with the achievement of the CAGRs, International and Austria, 8% and 3% for 2028. For the time being, we are growing in all lines of business in all segments very profitable. And this is one of the key drivers of the profitability in the first half. We talked about the cost side. Here you have the split on Page #9 on Austria and on International. So we are in group below target. We're in Austria below target. We are international wise in line with the target achievements. We have to take into consideration that in the international business, we have around EUR 10 million as an extraordinary impact this year for the setting up of the SEE 6 regions. So these are the countries, Romania, Bosnia, Croatia, Serbia, more countries that we are putting together in one group. And the nonrecurring EUR 10 million are one part in 2025, which are impacting the admin cost ratio. Page #10, I talked about a very favorable situation on the claims side. You see here the different levers of reinsurance discounting effect and NatCat. We have also quite good runoff result, which is driving this net loss ratio in 2025. And here, we are below that what we expected. Driving driver is on the one hand, low major claims, so especially in Austria and the cut result with EUR 70 million is far away from that what we had in average in the previous years. CSM, I talked about on Page 11, we just see here a very good Life result with EUR 104 million on a technical basis. So that means new business margin with 9% are contributing to this good technical result. We can also say that the international business, especially with biometric products, PPR products is a good contributor to this good technical result of EUR 104 million. Same in the Health business on Page #12. Here, we have the Austrian business, of course, dominating the profitability. Good new business, especially on the young population and on the young clients leading to an improvement of 20% from technical result comparing to 2024. The new business values on Page #13, I mentioned have 9% on the health business, we have around 11.8% on the saving protection. So you see here that also the profitability is quite okay. Of course, volume-wise, there's always room for improvement. But we see here also in Austria sort of comeback of the Life business in that respect. Let's now move to the investment portfolio and explain a little bit the STRABAG situation and UNIQA. So I'm now on the Page #16. We have EUR 400 million on net interest income, which was driven by, on the one hand, good ordinary income from the development of the bonds in the portfolio. And then we have an impact of around EUR 170 million from the STRABAG contribution in the first half year. This EUR 117 million can be divided into 2 items into 2 operations. The one is the sale of 1.5% STRABAG shares that we had, which have been not syndicated. And the rest EUR 49 million is coming from an operative adjustment on STRABAG in the second quarter. So let's start with the sale. So we sold EUR 1.5 billion out of the non-syndicated shares, which have been in UNIQA belonging to the Health segment. As you know that in the Health segment, we are using the variable fee approach as the variable fee approach has also the so-called underlying item effects. We have to, in that case, neutralize these efforts that we see on the net investment income. So EUR 67 million was the impact on the net investment income, and this has been neutralized in the fair value change of underlying item, which is in the box of the EUR 279 million. This is according to the standard. And therefore, the impact on the EBT side on IFRS basis was 0. On the other hand, why did we do it? Because it was, on the one hand, for us a cash contributor. It was for us also for the local GAAP impact, and this was the reason of the sale of the STRABAG shares, but we do not see them under IFRS again because variable fee approach does not reflect anything in the P&L. A little bit differently is the operative adjustment. So it was EUR 49 million. The EUR 49 million are belonging to that, that STRABAG delivered a much more better EBT than the originally planned. And this was then shown because they have also different balance sheet year and the fiscal year. And with this adjustment for our part and for our share, EUR 5 million out of this EUR 49 million are then reflected in EBT and a part in the P&C business and the part is also here in the Life and in the Health business. And therefore, and this is what I explained to you a couple of minutes ago, we had also a contribution to the CSM. And this means that with the release of the CSM slowly over the time of the contracts, these positive impacts of STRABAG are also then visible in the EBT, but not at once as was in history under IFRS 4. So this for you as an information and update to STRABAG. So this leads me now to the outlook and our announcement of the safe to date. So with this quite good development on the first half year with good growth with high profitability in P&C with a good situation in the Life business with an excellent development in the international business. We see a positive situation to increase our outlook to EUR 490 million to EUR 510 million. Again, I have to say despite some major cut events, still there is August and September to go, but this is for us a feasible situation that we see. Sticking to the 50% to 60% payout ratio, so we do not plan any bonus dividends even of the STRABAG situation because this had also an impact on the solvency ratio. On the other hand, we have to take into consideration that the solvency ratio will decrease now in the third quarter starting because that -- because we prepaid the Tier 2 instrument of EUR 200 million, and this does not anymore account for a positive situation. But this 10% for us, okay. And STRABAG is volatile. We know this. So we see an ordinary and normalized situation on the Solvency II ratio on 260% and this is what we stated also on the capital market and therefore, no need for extra bonus dividends in that respect. And last but not least, again, save the date for 24th of November Investor Event in Vienna, more things to come and also on the 26th November Investor Event in London. Both are related to 35 years UNIQA at the Vienna Stock Exchange. With this, I thank you for listening. And now I'm opening for your questions and for your discussions. Thank you.

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

Lovely results. I've got 3 questions, dividend cash. And I was curious about the Austrian Life comment, the margin, I didn't quite hear that. So on the dividend, if I apply 50% to 60% to your earnings growth, I get somewhere around EUR 0.64 to EUR 0.78. DPS, assuming tax is normal and everything. So it's just a range. Last year or '24, the dividend was EUR 0.60. So if I take the midpoint, EUR 0.72, I would get a 20% dividend increase, which is lovely. But I just wondered if that's the kind of -- if I would be very out of line to think of that? That's the first question. The second is you mentioned STRABAG and the accounting is different in local GAAP. So I just wondered if this gain of EUR 65 million, whether it increased your cash at the holding. And the last question is on the Austrian Life. You highlighted a very nice new business margin. It's not Austrian Life, it's Life. I just wondered, these are extraordinary numbers. I'm not used to them. I'm used to Allianz and Generali being around 4%, 5% or something. I just wondered what drives this.

Okay, Michael, thank you. So I'll start with the dividend. Look, Michael, I think your calculation is quite valid, but I think it's too early to talk about this because we have to see what comes out, and we have to range 50% to 60%. So that means we have also to decide finally in which point we will decide to go for. But of course, we are looking that the growth of the dividend is in line with the growth of the profit. And I think this is what we see as a sustainable growth also on the dividend side. So this would be my answer in that case. So it should be something around end of the year where we know more about this to say in that respect. STRABAG, yes, you're right. We have this different treatment between IFRS, we have a fee approach and local GAAP, which is according to acquisition costs and valuation. And that's correct. We've got a quite nice cash impact to the holding out of these 1.5% on the shares, which helps us also -- which helps us on the one hand for the payback of the Tier 2 instrument funding several investments. And this was one of the reasons why we took this decision. And the third question is about the Austrian Life book, where does this come from? The new business values of around 9% in total of the Austrian -- of the Life book and is coming from 3 elements: a, we have a very favorable situation on the lab side; b, also the longevity situation is quite okay for the Austrian book and the interest rate environment helps us also in that respect. So these are the 3 levers that help us for the Life book Austria, but also international-wise to have this good profitability.

And we'll now take our next question from August Marcan of UBS.

First one is a very quick one on solvency. Can you give the breakdown of the number between own funds and SCR? Then the second one on targets. You upgraded the full year '25 targets, but you left the kind of the medium-term CMD targets unchanged. Do you expect some worsening of conditions in the market for UNIQA in the upcoming years? Or is there any other reason not to update the medium-term targets as well? And then finally, on the CSM, I was just wondering why the sustainability ratio, so the new business CSM versus the release is down year-over-year. It seems to be now in the low 70s and the target around 90s. How do you see -- what are some actions that you need to take to get to that 90% target?

Okay. So I'll start with the first one, Solvency II, the own funds are EUR 7.366 billion and the SCR is EUR 2.595 billion. So these are the 2 numbers leading to the 284 percentage points. I give you also the number for the first quarter for 2025, if you want, EUR 6.937 billion was the own funds and EUR 2.530 billion was the SCR leading to 274 percentage points. And exactly the increase was coming from STRABAG. Additionally, 6% and interest rates. This is the rest of the 10%. The second question on the medium term. A very valid question. And we are planning to deliver a new outlook on that on the two Capital Markets Day in Austria and in Vienna because this has to do on the one hand with our strategic planning, which is now in next week starting and going over the weeks of September. This has to do also with the scenarios that we are wanting to see. But at the moment, I can tell you that I see positively also the medium outlook to be increased for the years '26 to '28, but we have to be careful when you have the U.S.A. effect, you have the topic of Austria and the politics. And this is what we have to discuss internally how far can we increase the medium output. But of course, we are dealing with this. And so far, I can tell you just a tendency that this will be increased also. And your last question goes about how to achieve a 90% target of the CSM. Yes, you're right. So for the time being, what we see is Life -- sorry, Health, we are completely in plan with that what we expected. So the solvency [indiscernible] ratio is okay. The portfolio is okay and also the tendency of the health book is okay. In Life, we are struggling with 2 things. The first one was the interest rate. That's one thing because this increases the CSM and then the release is lower over the years. But we're also a little bit lacking of volume. And that's an operative topic. Volume in Austria, especially on the biometric products, and internationally, we have a situation that markets are showing a tendency and we are floating in the market that we are moving to short-term business. And short-term business is not bad, but short-term business means that the realization is faster. And with this, the release of the CSM is different than what we planned. So we are working also here on actions, especially with our bank partner internally with new products so that we are coming back. So we still see the 90% as achievable and these actions are planned for the second half of the year so that we also see the target of 2025 with 72% roughly to be achieved.

And we'll now take our next question from Antoine Bouchetoux of AlphaValue.

So 3 questions for me, too. The first one would be on your full year '25 guidance, the EUR 490 million to EUR 510 million PBT guidance. So you did EUR 277.5 million in the first half. And obviously, last year, as you mentioned, there was the very significant impact of Storm Boris. So I was trying to look at the numbers for H2 and thinking that despite the fact that you upgraded your guidance, it maybe still looks a bit conservative. So that would be my first question. Then on Life business, the CSM release has been growing at a faster pace than the overall CSM for a few quarters now. And I was trying to -- well, I was wondering if you could help me better maybe model the Life CSM, meaning should we consider maybe the current levels in absolute terms, so in millions of euros going forward? Or should we still consider the CSM release as a percentage of the closing CSM? So I was wondering if you could help me with that. And still on Life, we talked about the new business margins. They have declined in recent quarters, but they seem to be stabilizing at the current levels for the -- in Q1 and Q2. And so I was wondering if we should expect this trend to continue going forward.

Okay. So to your first question, on the first glance, you're right, the team is okay with around -- roughly rounded up EUR 300 million. We're just doing EUR 200 million in the second half of the year. So what does this mean? I think there are a couple of things we have to take into consideration. First of all, UNIQA's situation that the second half year is from operational-wise, automatically a little bit slower than the first one. This has to do with, a, that we have, especially in the international business, the big new -- the new business volume is coming in the first quarter. So in that respect, we are seeing that we are slowing in the growth. Second thing is that the very good cost, especially the administration cost development, which an under fulfillment of the plan in the first half year of around EUR 20 million to EUR 30 million is something that we are not catching up automatically, but we do not expect that this high underfulfillment is stable because many projects make their end invoicing by the fourth quarter, and this is always the highest burden at UNIQA on the cost side in the last quarter. Thirdly, that if you -- we have also some in the investment result, we did some validation of the real estate portfolio, made here some gains of around EUR 15 million, which we do not expect in the second half of the year. And then we have to take into consideration what the interest movement is about. So we see that in the last 2 months, especially the interest rates on the short term, meaning up to the 5 years was in disadvantage of us because especially for discounting effects, we are lacking of 0.5% in the first half year. So if this stays like that, we are also likely have another 0.5% to 1%, and that means the positive discounting effect can not be calculated in that security level as it was in the last years. And with this, I think we have to take care, especially also on major claims and maybe the one around NatCat. And there, we are very cautious in that respect because if we come up and say, hey, guys, we are expecting EUR 520 million to EUR 530 million. And then we have exact those things, the counterbalance is rather limited. And therefore, we say, okay, this is what we can be -- this is what we can deliver. The rest is something which is a little bit of a bet, and we have some things that we have to take into consideration. So a very long answer to a simple question, but you see we have here some effects which are not recurring in the second half of the year. Your second question was about the Life business, the release, if you can take this as a modeling effect. So a short answer, and I think the colleagues from the IR team can give you more on that for your modeling. You can say the release is rather stable. So we do not see a big movement in the release. So this is something that we can count on. We have a duration of around 11 years. So this is something that is very stable. Where we have the situation, which is a little bit of unsecurity is the economic variance as we are very interest sensitive because of the longest portfolio, it can happen that we have a high economic variance, and this is increasing the CSM and then there is an impact also on the release. So this is something that is, for us, the biggest topic to work with. And on the new business margin, I think at the moment, with -- and I explained this also in the question the caller from UBS, with this, we are fine. As long as we see this situation on the lab side, as we see this on the situation on the portfolio, this is for us rather stable. When there is the movement on the interest side, okay, this can change, but the 9% for us are fine and at the moment are also our internal hurdles.

And we'll now take our next question from Thomas Unger of Erste Group.