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

A wonderful good afternoon, ladies and gentlemen. Welcome to the results for the first half year 2024 Conference Call and Live Webcast. My name is [indiscernible], the Chorus Call operator. [Operator Instructions] The conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions] At this time, it is my pleasure to hand over to Nina. Please go ahead, Nina.

Thank you, [indiscernible], and good afternoon, and welcome to everyone to VIG's Half year 2024 Results Call. Today, Liane Hirner, our CFO, will guide you through the presentation and will then answer your questions together with Peter Hofinger, who is live connected with us from the European Forum Alba. I now hand over to Liane. Please go ahead.

Thank you, Nina. And also a very warm welcome from my side to all those attending our results call. We are pleased with the results of our group, which was able to achieve -- which we were able to achieve in the first half of 2024. And the favorable development of our key figures, which are shown on Slide 3, give us the confidence with regards to the expected full year performance. On Slide 3, we show our key performance indicators. Our insurance service revenue of EUR 5.9 billion is up by 10%, primarily driven by the growth in P&C segment. Our profit before taxes did more than double in the previous period, further increased by 3.9% to EUR 481 million. The net combined ratio for P&C of 93.3% improved by 0.7 percentage points, an overall better claims ratio of 61% and the robust stable cost ratio of 32.2% contributed to this positive development. Based on the annualized net profit after taxes and noncontrolling interest, earnings per share moved up to EUR 5.38 and our operating return on equity increased to 16.2%. The solvency ratio of VIG Group, including transitional measures ongoing strong at 265%. Both own funds of EUR 10.477 million and the SCR of EUR 3.950 million increase, as a consequence of the increased profitable business that we are underwriting. The solvency ratio, excluding transitional stood at 243% and is on the same level as at year-end 2023. Before we go into details of the financials, let me shortly draw your attention from the confirmation of our Standard & Poor's rating. Even under the revised criteria of the S&P Capital Model, VIG is rated A+ with stable outlook. Thus VIG remains on the best-rated companies of the Austrian Traded Index. S&P highlights the Group's solid capital buffer at the highest confidence level of 99.99% as well as VIG's financial leverage, which firmly moved below 40%. On this slide, we only mentioned some of the key strengths and risks identified by Standard & Poors. The full research update is available on our website. With this, I would like to switch to the next Slide 6. Here, as we go into the details of the key figures of the profit and loss statements on the following slides, I will only briefly comment on the development of the insurance service result reinsurance health, moving from minus EUR 22 million to minus EUR 320 million. This is where, amongst others, the impact of the weather-related claims becomes visible. In the first half of 2023, we had EUR 256 million of gross weather-related claims of which almost EUR 160 million were covered by reinsurance. In the first half of 2024, gross weather-related claims were significantly lower at EUR 123 million, of which only roughly EUR 12 million were covered by reinsurance. This development of weather related claims is the main driver for the lower insurance service result reinsurance health. Over the page, on Slide 7, we showed the details of the insurance service revenue issued business grew up by 10%. Double-digit growth rates were recorded in the segments, Poland, Extended CEE and Special markets. In absolute terms, Austria, Poland, Romania, Slovakia and Türkiye are the main contributors of the substantial plus of EUR 538.6 million in insurance service revenue, which is driven by the positive development of the property and casualty business. On Slide 8, you can see this in the reinsurance service revenue breakdown by lines of business. Here are the property with plus 13%. Casco with plus 12%; and MTPL with plus 9% revenue growth demonstrates the strength of our P&C business. In the first half of 2024, also Health and Life businesses of profit participation contributed with double-digit growth rates both clubs together totaling more than EUR 100 million in absolute terms. On the next slide, we can present similar positive developments. Result before taxes further grew by 3.9%. This rise originated predominantly from the growth in the segment's extended CEE, Poland and Austria. The decline in the Czech Republic in the first half of 2024 is driven by a lower result in the life insurance and an increased claims ratio in P&C. The split between claims and cost ratios, we show on Slide 10. The net combined ratio of the group improved to 93.3%, including a stable discounting impact of 3.1% on the claims ratio. As mentioned before, when speaking about the results development in the Czech Republic, a higher number of property claims and an increased net impact of weather related claims are the reasons for the increases in the combined ratio in Austria as well as in Czech Republic. On the contrary, a favorable claims development [indiscernible] was the reason for the strong improvement in the combined ratio of the special markets. With this, I would like to move on to Slide #11 and the CSM and margin development of the Life & Health business. On the left, the Life and Health CSM role further shows a slight net CSM decline of the period of 2.8%, driven by the CSM release in Life & Health, which amounted to EUR 279 million and smaller impact of changes in variable fee and FX effects. The new business CSM in Life & Health was strong at EUR 216 million, with an excellent new business margin of 9.8% for the half year 2024 after 8.9% at year-end, confirming the profitability of business sold in 2024. Over the page, we presented details of the total capital investment result. Here, the investment result increased by 5.1% to roughly EUR 1.15 billion, positively impacted by the average new investment yield VIG, which was 5.3% at half year 2024. The only specific one-off to be mentioned here is the development of the impairment losses, including reversed gains on financial instruments. The increase was driven by a change in risk provision of fair value through OCI bonds. With this, I would like to switch to Slide 13. On Slide 13, we present investment split for EUR 35.4 billion. These are the investments held at VIG's own risk excluding the investments for unit and index-linked life insurance. The total capital investment portfolio, including unit-linked and index-linked products as of June 2024 amounted to EUR 43.1 billion. Here, there are no substantial changes to mention, neither in the asset pit on the left nor in the bond breakdowns by rating issuer on the right-hand side of the slide. Over the page on Slide 14, I would like to end my presentation with a short executive summary for the first half of this year. The strong results and positive developments that I have just presented to you give us confidence for the second half of the year. Weather-related claims as we have already experienced in July and August remain a topic for the rest of the year and their impact is hardly to predict. Based on these developments and expectations, we confirm our guidance for the full year profit before taxes to be in the range of EUR 825 million to EUR 875 million for 2024. With the solid operational business performance and positive combined ratio development that we have seen already in the first 6 months, we expect profit before taxes on the upper end of the announced target range at year-end. Our strong capitalization reaffirmed by Standard & Poor's A+ rating with a stable outlook backs our diversified business model and our ability to navigate even in uncertain environments. In addition, at the beginning of September, Christoph Rath, a very experienced manager from our group will join the management team of VIG as Deputy Member of the Managing Board. All of this, we feel very well positioned at all levels, not only for the second half of this year, but overall for the continued long-term resilient positive development of our group. With this, I have come to the end of my presentation, and we are happy to take your questions you might have.

[Operator Instructions] Our first question today comes from August Marcan from UBS.

I have two. First one is on P&C. How do you -- how do you see the year-to-date 2H developments, pricing claims in July and August? And my second question is with the S&P review now done. How do you think about excess capital that you hold any usage forward? Any thoughts about it? Thank you.

Thank you. Liane speaking. I would like to take your second question regarding Standard & Poor's review and our good capital position. We are growing. We have been growing in the past years, and we still aim to grow and use the excess capital mainly for growth -- organic growth, but also for future M&A activities.

Thank you. I'm taking your question one. If I understood it right, it is mainly about the recent claims in July and August. There haven't been because there was also the topic of pricing. There hasn't been tremendous changes in July, August of pricing. So it must be claimed, so the question. You saw that our region, specifically Austria were severely hit by weather-related claims. Nevertheless, we cannot yet give you a serious estimation of the figure. I would not think that it will have a significant impact looking on the whole development over the 12 months.

The next question comes from Rock [indiscernible] from RBI.

This is Rock speaking. First of all, thank you very much for the presentation. I would like to learn more about two topics and have the following questions. So number one, last year, you announced an internal restructuring and streamlining of activities in Poland. Could you perhaps comment about the status of this project? Have you already seen any improvements in overheads as a result of this project? And second, how do you see the Life & Health segment developing in the second half of the year?

Thank you. I will take the first question for Poland. First of all, we got the official approvals for the merger of the nonlife companies with 1st of July. We are expecting the official approvals in the next 2 months to come for the merger of [indiscernible] company. In the meanwhile, we have already started to streamline our organization and very much also on topics of IT and back office. One can see that also in the first half year results that our results are quite well developed in the first half year in relation to the last first half year. But this is not only due to first restructuring efforts. This also has to do with the market environment. We also see in Poland rising rates in motor. From this rising rates and motor, we are benefiting. So we are quite well on track with the simplification of our structures in Poland.

So regarding your second question, Life and Health development of the second half year. What we currently see is a stable production volume. Also on the capital markets side, we see a little bit increased volatility, which we expect to be continued. We are a little bit cautious on that, but overall, I would say we see or we expect stable development in the Life and Health side. I hope this answered your questions.

Yes. Thank you very much.

The next question comes from Bhavin Kumar Rathod from HSBC.

I have three on my side. The first one would be on the strong insurance revenue growth on the P&C business. It would be helpful if you could just provide further breakdown of this strong development between pricing and volume be provide additional color by different geographies. The second one would be on the higher Property and weather-related claims we are seeing in Austria and Czech Republic. So particularly with respect to the Property claim. Could you provide some color as in what's driving that? Is it because of higher frequency or higher severity? And is it a more structural change that you are seeing in these markets? And the third one would be on the CO3 program that you launched last year, the collaboration, communication and cooperation. Can you provide some color on how are you seeing the development of this program? Are we already seeing some synergies coming up from that program? And any outlook on how we should be seeing that developing going forward in terms of synergies?

Thank you for the questions. I start -- I answer your all three questions, and I'll start with the first one. Pricing and volume. Frankly speaking, it's a bit difficult to answer due to our various different countries and including various different business lines. We are looking on two different aspects. One is pricing, but this also would include inflationary effects, meaning that automatically, some insurance, for example, in property business are increasing Q2 inflation, which results in a premium growth, but it's not yet also having a rate increase. So we are taking rate increase and inflationary effects in relation to increase of number of risks. A very, very rough estimate would be that our volume growth in P&C is driven 60% by the first effect, so pricing and inflation and 40% by an increase of number of risks. If we come to the second question, which is about the property claims, Austria, Czech Republic. What we see, and I think it was also a little bit explained in the presentation of Liane, is that -- we do have a quite conservative reinsurance program, which is protecting us for severity. So you saw last year when we had, for example, the earthquake in Türkiye, most of it was covered by reinsurance. Yes, this year and specifically in the summer months, we do have a different characteristic of the NatCat Events, which is a higher frequency, but lower severity, which means this stays more in our self-retention. And you can see the difference between gross and net in the first half. So there, we have the effect of frequency, not of severity. Coming to the third topic, we have been intensively working on CO3. We have developed cooperation synergy plans country by country on one hand side. And specifically, I can also mention here, Romania, where we have identified additional areas where we can realize synergies or in Bulgaria. On the other hand side, we have also implemented a group-wide technical tool, which allows a know-how exchange between all group companies. And on this platform, we also see first successes country by country, benefiting from my experiences of the various countries in these areas. So CO3, we are quite happy how it is progressing and looking forward in the next years to come, then also to see the effect in our P&L. I hope this answered your questions.

The next question comes from Youdish Chicooree.

I've got three questions, please. The first two questions is actually on the P&C combined ratio. The first one is on the special markets improvement of 6 points to 93% in the first half. Is that the level which you think is sustainable going forward? And then secondly, on the combined ratio. If I look at the increases in Austria and Czech Republic, I mean, how much of the increase is down to just a weather-related claims? And how much of that is possibly more structural? And then my final question is on the Life side. If I look at your CSM, I think earlier you mentioned you expect stable development on production. Would it be fair to assume that the CSM release should be a fairly stable figure, at least in the second half, if there is no major financial market moves going forward. Thank you.

Thank you for your questions. I will answer your first two questions. Special markets -- within special markets, we also have included Türkiye. You know that in Türkiye, we are facing challenges with a significant high inflation. Our colleagues there are quite experienced in tackling this inflation. We are constantly adopting our premiums according to these inflation topics. Due to the volatility of the Turkish market, I cannot confess here that this level now of the claims ratio will be as sustainable going forward. But I'm quite optimistic that we should be in this area looking forward. But again, there is volatility and uncertainty in the Turkish market, which does not allow to give a very clear guidance to count on this for the years to come.

Al right. Understood.

Yes. When I come to your second question, Austria and Czech Republic and you see in both there has been a jump in the claims ratio in the first half. There is maybe if you say, structural, one could say maybe 2, 3 percentage points more or less in both areas where we see a certain rise in claims ratios also in motor business. Well, I think we had exceptional claims ratios in motor business the years before, also still as a consequence out of the COVID years and lower frequency claims. So I think now we are back in the normal world. This is maybe the part which one could be say structural or normalized. The rest is clearly, on one hand side, in Austria with an unusual accumulation in the first half of small- to medium-sized fire claims and the weather-related claims and in Czech Republic, the weather-related claims. I hope I have answered.

Just to be clear, right, because when I look at the half year and half year movements, there's quite a big change in the loss ratios and even the claim cost ratios have come down quite a bit. So you're saying there is roughly goals achieved, which is...

No, this is also to do with a certain structural change in the reinsurance in Austria.

All right. Okay. Got it.

So I'm happy to take your last question, your third question regarding the CSM release of the Life & Health business. Here, I would like to comment that we expect a stable development for the second half. The only thing is I would like to remind you is that there is no big change in the changes in variable fee for example, big interest rate changes, but we do not expect that. So we expect rather stable development. And I would also like to inform you that on Page 32 of the half year report, you can see the run-off pattern of the CSM. We have more details, yes.

[Operator Instructions] The next question comes from Thomas Unger from Aster Group.

Thank for the presentation as well. I mostly have follow-up questions. First, I'd like to hear about the Czech Republic in general. You've spoken about the weather-related claims, which have been higher, but the revenue growth also was a bit sluggish with plus 3% in the first half, combined ratio higher earnings before tax down. But -- also if you could talk about the Life side and how, in general, you see the insurance business in the Czech Republic developing. The second question would be on your outlook on revenues for the coming months in the second half and going into 2025. You had double-digit revenue increases in Casco almost in MTPL, the Property, Health and Life without profit participation. Now with the inflation pressure easing, what do you expect for the coming quarters? Do you see these dynamics slowing down going into 2025? That would be my second question. Thirdly, on your -- you mentioned the use of excess capital. But do you have a feeling of where the dividend proposal could be for 2024 earnings? You made a very good progress towards your guidance for the full year 2024, if you hit that mark on the upper end of the guidance, where do you expect to be with dividends? Do you expect a higher increase this year than last year? And lastly, just on the weather-related claims, you mentioned the figures for this year and last year, first half 2023. I missed the last year figure, if you could repeat that, please.

Okay. Thank you. I will take your first two questions, and I'll start from the back to the beginning. The figures of last year for NatCat claims were EUR 256 million gross and EUR 97 million net. This year, EUR 123 million gross and EUR 111 million net. If I come to your question to growth dynamic going forward. You are fully right. We also have very much benefited the last years in adopting our premium levels according to the inflation as inflation goes down, certain mechanism, also certain indexes but also certain annual renewals will slow down. So from this in our book, there will be a bit less dynamic in premium growth. On the other hand, if you look on the economic development in Central Eastern Europe, we had some kind of overview in the first quarter analyst call. But even in the meanwhile, all the forecasts have been confirmed and even increased for Central Eastern Europe. So we see more or less a growth across the place. A GDP growth of 3% and 3% plus. And very differently than to Western Europe, the salary inflation, which we see in Central Eastern Europe, combined with a significant lower income tax than we have in Western Europe, meaning that the disposable income of the populations in our markets, much more grown up means that this is a push for the internal demand. So there is a very fair chance that we can compensate the inflation adaptation momentum by the momentum of a strong internal demand within our markets. So I would expect us to grow also next year in a similar dimension as we are here today. When it comes to Czech Republic, which was your question. We do have a unique extraordinary position in Czech Republic with a market share above 30%. We do see in Czech Republic already in -- for our CEE market, it's the maturest market by insurance penetration, but also by what we call risk literacy, we do have this unique [indiscernible] name with [indiscernible], which is an institution in Czech Republic. Yes, there has been this first half year, a certain reduction in our profitability in Life business, but I think in the years to come, this will then normalize. There are also certain effects for the last two years when introducing IFRS 17. So I think this will then balance out. In the Non-Life segment, I would also see here positive developments. Yes, it will be more moderate then maybe in comparison to some more emerging markets in our portfolio, but this is due to the maturity. And I would not expect to seeing this high frequency of NatCat events each and every year to come. This first half year were hit in [indiscernible]. Overall, I'm very positive and very optimistic about our position and our development in Czech Republic.

I'm happy to take your third question regarding the dividend proposal. Here, I would like to remind you that in Q4 2023, we changed our dividend policy, meaning that the last year's dividend is the minimum dividend for the next year. So this is minimum EUR 1.40 for this year. And also, I pointed out that we expect profit before taxes on the upper end of the announced target range this year. And as we always said, we want to be a stable and reliable partner to our shareholders. So our earnings development should also be the basis for the dividend proposal. But at the end of the day, we decide when the 2024 results are finalized. So this is what I can say for the moment.

Ladies and gentlemen, that was the last question for today. And I would like to hand back to Nina for closing comments.

Thanks, and thank you for your interest. We look forward to presenting the first to third quarter highlights on the 26th of November. If you have any further questions in the meantime, please do contact the Investor Relations team. We're happy to help. Have a good afternoon, and goodbye.

Bye-bye.

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