Vienna Insurance Group AG (VIG) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Vienna Insurance Group Conference Call. [Operator Instructions] I would now like to turn the conference over to Nina. Please go ahead.

Thank you. Good afternoon from Vienna to all our listeners. Today, here in Vienna are Liane Hirner, our CFO; and Peter Thirring, member of the Board. They are going to host the call. Liane will lead you through a short presentation. And afterwards, we are ready to take your questions. Please, Liane, go ahead.

Thank you, Nina, and a good afternoon to all participants. It's a pleasure for me to present strong results for the first 3 quarters of 2021 and despite the pandemic, which is still a topic in CEE and substantial NatCat events this year. As you can see on Slide 4 of the presentation, Vienna Insurance Group recognized strong premium growth and solid profit development in the first 9 months 2021. Premiums were up by 5.1%, amounting to EUR 8.4 billion, resulting from growth in all lines of business, except single premium life business. Profit before taxes increased by 41.2% to EUR 367.1 million. Earnings per share were up by 56.9% to EUR 2.86 based on a net profit of EUR 275 million. Given this year's NatCat events, our combined ratio as of end of September 2021, is at favorable 95.2% and stable since year-end 2020. On the 1 hand, the decreased claims ratio was supported by the comprehensive reinsurance program. On the other hand, the continuous positive impact from the Agenda 2020 initiative as well as the lower frequency, not only but especially in motor, in some of our major markets helped to outbalance an outcome effects. I will elaborate on that in more detail in a few minutes. Now let's move to Slide 6 and the income statement first. The increased profit before taxes of EUR 376 million was mainly driven by a better financial result, up 3.5% and less other expenses. Last year, the second quarter included goodwill impairments of EUR 118 million for Bulgaria, Georgia and Croatia. This is also the reason for the normalized tax ratio of 25.2% after 9 months 2021 compared to 31.2% last year. Over the page, we give an overview of our 3 biggest markets, Austria, Czechia and Poland. These 3 markets together account for 2/3 of our premium volume and make up more than 90% of profits in 9 months 2021. Premium growth in the 3 markets is mainly coming from other property, motor and health business. In Austria, the double-digit growth profit growth is based on better technical results in life and health. Whereas in Poland, we see the technical result in the P&C business improved due to the favorable combined ratio development. In addition, the comparative period last year in Poland was impacted by an impairment of an insurance portfolio. In the Czech Republic, the strong performance in P&C could not fully outweigh the impact of higher acquisition costs due to increased new business in life and lead to a small profit decrease of EUR 4 million. With EUR 149 million, the Czech Republic is the market is the highest profit contribution in the first 9 months 2021. I would like to take this opportunity to inform you about the new segmentation we are going to provide the full year results 2021 in the course of developing our new strategy program, VIG 25. We have also reviewed our markets and country responsibilities. Instead of 12 reportable segments, we will focus on 6 reportable segments, giving a better overview going forward. These segments will be Austria, Czech Republic, Poland, extended CEE, special markets and group functions. Special markets will include Germany, Liechtenstein, Turkey and Georgia. For 2022, we will provide you with the presentation and XL files, as usual, but adapted to the new segments. On Slide 8, we show the gross written premium trends by segments and are more than satisfied with the solid growth rates in nearly all of them. Only Slovakia and the other markets, Germany and Liechtenstein show minor premium decreases driven by less life single premium business. This development is also confirmed on Slide 9, where we look at premiums by life single business -- premium business with all showing growth except for the lines premium business. More than 2/3 of the overall EUR 404 million premium growth in the first 3 quarters of 2021 are coming from our other property business, which strongly grew by 7.4% followed by the Motor Casco or Motor Own Damage insurance, with a plus of 8.6%, contributing EUR 84 million to overall premium growth. A detailed premium split by lines of business and country is provided in the back of the presentation on Slides 32 and 33. With this, I would like to move to Slide 10 showing the overall overview of group profit before taxes by segment. I had touched on the profit developments of Austria, Czechia and Poland earlier and also mentioned the goodwill impairments last year that impacted the segment's Bulgaria, Turkey, Georgia and remaining CEE. Let me explain the decrease in Romania, where the profit in 9 months 2021 came down from EUR 14 million to roughly EUR 2 million. In the light of the bankruptcy of city insurance in September this year, we are closely monitoring the situation in Romania. The impact on the Romanian insurance market, especially on the motor third-party liability business is difficult to predict. Therefore, the result in Romania is impacted by the bankruptcy of city insurance and also increased the combined ratio for 9 months 2021 above 100%. This leads me to Slide 11 and the overall stable combined ratio of 95.2% in 9 months 2021. In our last call for the half year results, we already mentioned the 2 major NatCat events this year. The first event being the hailstorm end of June and the second event being flood pans beginning of July. Gross NatCat losses for the period amounted to approximately EUR 353 million. The net impact of the recorded NatCat events was limited to roughly EUR 90 million due to the comprehensive reinsurance program. Despite these NatCat losses, which are already after 9 months clearly above the long-term average, we were able to keep our combined ratio stable. This was partly due to a better claims experience, not only but especially in motor in some of our major markets and partly also due to ongoing positive effects from Agenda 2020 initiatives. Over the page on Slide 12. No substantial changes compared to the previous period on our investment split are shown. The portfolio by asset classes on the left includes in deposits and cash, the EUR 300 million restricted Tier 1 instruments placed with the main shareholder in the second quarter. The bond portfolio split by rating and issuer on the left is rather stable. So let's directly move to the financial results on Page 13. Compared to the same period last year, we were able to achieve a slightly increased financial result, excluding at equity consolidated companies of EUR 522.8 million up 0.9% on the back of more stable capital markets. In Q3 last year, higher depreciation and impairments of investments came through in accordance with our impairment rules. An effect that unfortunately did not occur again this year and together with the decreased exchange rate changes and other expenses offset the decreased total income. Let me finish my short results overview on Slide 14. We are fully in line to achieve our targets for 2021. Based on the positive performance in the first 3 quarters, we expect the premium volume to exceed the level of EUR 10.4 billion from last year. Profit before taxes despite this year's NatCat events is back to a precrisis level. We confirm our profit target in the range of EUR 450 million to EUR 500 million and are confident to keep our combined ratio at around 95% at year-end, as planned. Let me add a final remark regarding our solvency ratio. At half year, we announced 267% and are pleased to see the stable development here with the solvency ratio at the end of September at the same level as of half year. With this, I have come to the end of my presentation, and together with Peter, we are now happy to take your questions.

[Operator Instructions] The first question is from the line of Oliver Simkovic.

Three questions from my side. The first 1 relating to the growth. How much of the strong growth of the past 2 quarters would you see as temporary catch-up effects? And how much do you see as sustainable for the coming quarter or some for next year? My second question is also somewhat related to this regarding the pricing and then also inflation. Do you see pricing growth outpacing claims inflation in the coming quarters in our regions and thus also supporting the combined ratio. My last question is not really business related, but regarding IFRS 17, which is approaching faster than anyone is, I think, really comfortable with. Could you tell us about the progress of the project for you internally? And also whether there is a chance that you will provide some preliminary IFRS 17 confirms for financials sometime next year or ahead of the Q1 [ '23 ] implementation to the market and analysts so we can kind of have a view on it?

Peter Thirring speaking. Thank you for your questions. If I understood the first question, right, because I'm not sure it's about what is the very original growth in this year was a catch-up from the last years. Looking on this and if you look on our different growth of business lines, Motor TPL and other properties, natural growth of this year. There could be some kind of catch-up potentially in the Casco business. As obviously, in Central and Eastern Europe due to the lockdowns and less traveling, people saved some of the money, which they were willing to spend buying cars or having the first payments for leasing. So looking forward to next year, I would see a similar dynamic going forward, maybe with a certain lower dynamic in Casco business if this was your question. The second topic is pricing growth inflation. Currently, we cannot see an universe picture of claims inflation in our region, there are very different developments. I would expect that we will see a certain inflation going forward. One has to be aware that on 1 hand side, on our Austrian portfolio, where we have long-term contracts. We have indexes there, not consumer price indexes, but we have specific indexes relevant for the business line. So for example, in Casco business, it's an index of car repair costs. So therefore, there is an optimization of the premium increase to the development of the claims inflation in Central Eastern Europe, we principally have 1-year contract. So depending on what we see, we can adopt our pricing on a year-to-year basis.

I'm happy to take the question regarding our IFRS 17 program. We started our group-wide program in 2018. And the project is running according to our project plan. What we did in the last couple of months with some high-level peers, and currently, we started our dry run with the first time that we also use our new IT systems. As you know, the transition balance sheet date is the first of January 2022. So next year, we will have first indications and numbers regarding the comparative period. And we will, of course, communicate to all of you as soon as we have first results next year in 2022.

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

First, I would like to pick up on 2 of the questions that were just answered. First, starting with the with premium growth. Now specifically in P&C in other property, can you tell us a little bit more of how this premium growth in Q2 and Q3 was generated? Have you acquired new customers? Or is it -- are you adjusting the prices upward? Is that the main driver of the premium growth there? And then secondly, you've talked about the claims inflation. But more generally, what is your assumption for inflation and how it would impact VIG on the group level in the coming year probably? And also, if there are any adjustments in your outlook for yields, any adjustments in the investment portfolio that will be helpful. And then maybe what you've touched upon in the presentation when you talked about Romania, the earnings before tax is actually the loss -- it dropped to a loss before tax in Q3. And you mentioned the bankruptcy of City Insurance. Can you just walk us through how that affected VIG?

Thank you for the questions for premium growth on other properties. Those are the drivers. It's new clients, but also a premium increase. On 1 hand side, what we see in our region, including Austria, that the monoliners commerce line are more focused on the core markets in Western Europe or the U.S. and less in our region, which gives us the opportunity to win new clients. On the other hand side, due to the hardening generally of the market, we are also able to increase our prices. So it's not only driven by price increases, but we are also winning new clients. If I also take your question 3 for Romania. City Insurance had a market share of 45% in motor TPL. This is now coming on the market. There is a certain system in Romania of the reference price. And with certain calculation, you can differentiate your pricing to the reference price. And this is limiting somehow your ability in this market to adopt them to the risk adjusted prices. Therefore, also having in mind that there has been a bankruptcy in the year 2016 with Astra which then was quite a volatility on the market in combination that until very recently, there was no government in Romania we are impacted here by this volatility, and therefore, also this can be seen in the third quarter results.

Regarding your question concerning the claims inflation, we are, of course, closely monitoring the development. And what I can say is that we confirmed our target for 2021. Of course, when it comes to the investment side, we expect a small increase of the euro swap curve. But for the moment, for the time being, we are really closely monitoring the situation, and we will see how this works through.

And if you talk about inflation and not only claims inflation, but cost -- the cost side, the cost structure of VIG on a group level. Is there -- do you expect a negative impact on your earnings in the coming year from rising inflation?

We are also benefiting of wage inflation of our customers as they have a higher disposable income also to ensure, for example, in the pension fund business. So therefore, the -- if there is a wage inflation to be expected, yes, we will have, on 1 hand side, an impact on our cost side. But on the other hand side, we will have a positive impact on our premium side.

[Operator Instructions] There are no more questions at this time. I hand back to Nina for closing comments.

Thank you very much, and thank you to all our listeners and your interest in Ben Insurance Group. In case you have further questions, please get in touch with Investor Relations. Stay healthy, and goodbye from Vienna.

Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.