Vienna Insurance Group AG (WSV2.F) Earnings Call Transcript & Summary

Hello, everyone, and a very warm welcome to the Austria ON AIR Conference. It is a real pleasure to have you all here today for this very last but not least call and in the special roundtable session. This session is dedicated to the Vienna Insurance Group AG, and we are truly delighted to have the chance to hear from the Investor Relations Manager, Katarzyna Bizon, who will share insights with us in just a moment. So without further ado, let me hand over to you, Katarzyna. The stage is yours.

Thank you. Good afternoon, everyone. I'm so delighted to welcome you to today's presentation of -- behalf of Vienna Insurance Group or as we use it, VIG. Thank you for your interest and taking the time to getting to know VIG. My name is Katarzyna Bizon, and I'm part of the Investor Relations team here in Vienna. Over the next 20, 30 minutes, let's see how it goes. I will walk you through VIG's introduction, our strategic direction, performance highlights and future outlook as of October. Let me move to the Slide #2. This would be a snapshot of who we are. VIG is well diversified, operating in 30 markets, serving around 33 million customers through more than 50 insurance companies and pension funds. VIG also has a diverse portfolio. Our insurance service revenue of EUR 12.1 billion at the year-end 2024 is well split between lines of business. Other Property and Casualty are our largest line at nearly 50%, followed by Motor business at around 30% and then Life and Health business at around 20%. VIG's solid capitalization represented by a solvency ratio of 261% at the year-end 2024 is also reflected in its S&P rating of A+ with stable outlook. Based on this strength and the very robust performance of the group in 2024, our dividend for that year was EUR 1.55 per share. I would like to highlight here that this marks a consistent payout history since VIG's IPO in 1994. [ For ] curiosity last October, we are celebrating 30 years on the Vienna Stock Exchange. Over the next slide, VIG's unique footprint in the CEE region is shown. We are the leading insurance group there. We distinguish between core markets and special markets. In our core markets, we aim to reach at least a top 3 position. The red colored countries, we have already achieved our goal with strong market shares and as market leader, for example, in Austria, Czech Republic, Slovakia, Hungary and Romania. How have we achieved this? VIG has built a strong footprint in the CEE through early market entry, long-term partnerships and the local brand approach, key differentiator from many other insurance groups. Central and Eastern Europe remains our focus and home market, and at the same time, it's a growth engine in Europe. Insurance penetration is still significantly below Western Europe, meaning there's plenty of room to grow. For example, while Austria's insurance density is above EUR 2,300 per capita, by far, most markets in the CEE are not reaching even half of that level with markets like Romania, Bulgaria or Serbia remain well below EUR 400. While insurance density remains low there, the economic fundamentals in the CEE region are quite strong. GDP growth in the next 4 years in the region is forecasted to outpace Western Europe and is led by countries like Poland or Croatia. EU members of Central East and Southeast Europe are expected to grow around 3x faster than the euro area in 2025 and twice as fast as the euro area the next year 2026. On the next slide, you can see the elements of VIG's success. Our diversification across countries and lines of business, combined with prudent management principles are essential to the resilience that VIG has demonstrated in recent years. Local entrepreneurship gives our group companies the flexibility they need to do business. We believe that local management and employees know best about the people, their needs and specifics of their markets. Multichannel distribution provides access to different customer groups and VIG's multi-brand policy focuses on regionally established brands. In addition, we follow a conservative investment and reinsurance policy, which ensures safe and profitable investments and protections against nat cat events like Storm Boris in September of last year. So in order to expand our leading position in CEE being the main objective of our still ongoing VIG '25 strategic program, we have set initiatives to optimize, enhance and expand our business model, which includes simplifying processes, adopting hybrid sales models and expanding into asset management and pension services. Very much connected to our strategy is sustainability, which is integrated into the strategy and complemented. VIG's group-wide sustainability program identifies 6 spheres of impact, divided into environmental focus and social focus. Through social focus, we understand fostering risk literacy, inclusion and volunteerism across our workforce and communities. Sustainability for us, it's not an add-on. It's how we ensure long-term value creation for all stakeholders today without doing so at the expense of tomorrow. Over the next slide, you see in more detail our environmental focus, the other side of the spheres. We target net zero by 2050 across our underwriting, asset management and operations. Prior to that, as an interim target by 2030, we aim for a 30% reduction in CO2 emissions from our 2023 baseline. So let's turn to our financial performance. VIG has paid dividend to shareholders every year, as I mentioned already before, since its listing in 1994 and aims to continue this track record in line with its updated dividend policy. Our dividend for 2024 increased to EUR 1.55 per share, which is a 10.7% rise consistent with the policy of at least maintaining the previous year's level and increasing continuously depending on the operating earnings development. In the first half of 2025, we delivered strong growth, higher -- and higher profitability despite one-off impacts such as goodwill impairment in Hungary. Profit before taxes rose by over 10% and our combined ratio improved to 91.9%, reflecting very disciplined underwriting and fewer weather-related claims. Our merger and acquisitions experience and the strong capitalization enable us to pursue our strategy of profitable growth and to achieve a positive performance even in a challenging and volatile market environment. On the M&A topic, in August, we have communicated that we have acquired an 80% stake in MOLDASIG and with that becoming a market leader in Moldova with an estimated market share of around 30%. Additionally, we have communicated as well that we are starting an exclusive due diligence process of a potential acquisition of a controlling stake in NÜRNBERGER, which is a German insurance company. As our VIG '25 strategy runs until the year-end, the new strategy 2026 to '28 is currently in development. We plan to share the first insights with the 9 months update, which will be on the 25th of November. And the KPIs and target details should follow in January 2026. So stay updated. Let's jump to our highlights of the 6 months. Insurance service revenue grew by 8.1% to EUR 6.4 billion. Profit before taxes increased to EUR 531 million, while earnings per share reached EUR 5.92 on an annualized based, and our annualized operating return on equity rose to 18.9%. So here, just a short sentence, our broad diversification in the top and bottom line supports our resilience and robust performance. Moving on to the Slide 16. This is our group income statement. So with regards to the goodwill impairment taken in Hungary that I already mentioned, please note that the profit before taxes in Hungary adjusted for this goodwill impairment would have amounted to EUR 16.8 million. So we have recorded an increase of 2.8% in the insurance service revenue to EUR 324.5 million, and the net combined ratio improved to 94.8%. So given the market environment, we are satisfied with the development in Hungary. However, the additional premium tax got prolonged until 2026 and further governmental initiatives cannot be excluded in Hungary. So this would be the reason why VIG fully in line with our conservative approach decided to go for this complete goodwill impairment and wrote down the remaining EUR 72.8 million of the goodwill. But despite this measure, we are able to achieve group profit before taxes of EUR 531 million and a net profit after taxes and noncontrolling interest of EUR 386.7 million and both up by around 10%. On the next slide, we show the details for the insurance service revenue of EUR 6.4 billion, being up by 8.1%. So our biggest segment with around EUR 1.9 billion in revenues and an increase of 8.6% is Extended CEE. So compared to the first 6 months of last year, 2024, Extended CEE contributed EUR 148.8 million more in revenue. It's worth mentioning that several CEE markets achieved double-digit revenue growth, for example, Slovakia with plus 12%, the Baltics with plus 11.5% and accounting for about half of the additional revenue. Just on a side note, our Extended CEE segment comprises nearly all core markets. They are not a separate segment. For example, the Baltic states, Hungary, Bulgaria, Romania, Albania, Croatia, Moldova and a few more. We are very pleased about the continuously sound insurance service revenue growth of 4.7% in Austria, 6.7% in the Czech Republic and 8.9% in Poland. However, outperforming all other segments in terms of revenue growth is Special Markets, up by 29.7%, driven by the ongoing very dynamic business development in Türkiye. So let's take a look at the breakdown of insurance service revenue by line of business. So MTPL with plus 11.2%, health with plus 15.1% as well as unit and index-linked life and life without profit participation with each roughly plus 11%. The present robust double-digit growth from an already high revenue level of more than EUR 3 billion. Other property grew by 3.9%, contributing around EUR 120 million of additional revenue. Again, this slide illustrates the diverse growth profile of the VIG. And currently, only the life insurance business with profit participation remains flat, but on a favorable level. On the next slide, the result before taxes is shown in a little bit more detail. So strongest growth contributor with plus EUR 21.2 million is Poland, followed by Czech Republic with plus EUR 17.9 million, both markets supported by significant improvements of the combined ratio. To be fair, if we adjust for the goodwill impairment, the one in Hungary, the segment Extended CEE would have been the top performer. Nevertheless, despite this impairment, we achieved double-digit profit growth of 10.5%, which demonstrates the strength of the business model. Over the page, the combined ratio details and the split between claims and cost ratios are shown. The net combined ratio improved to 91.9%, including a discounting impact that increased from 3.1% to 4.4% on the claims ratio. Significantly lower costs arising from weather-related claims and nat cats in the first 6 months of this year compared to the same period of last year were supporting this overall positive development. The substantial improvement by more than 4 percentage points, both in the Czech Republic and in Poland were additionally driven by positive developments in Motor. Moreover, Polish household insurance profited from higher average premiums. The deterioration of the combined ratio by 5 percentage points in the Special Markets is due to 2 factors. Firstly, one-off effect in the previous year; and then secondly, negative developments in Motor and other property in Türkiye this year. And let's move to Life and Health business and the contractual service margin. So the SM is the component that represents the future unearned profit expected to be earned over the duration of an insurance contract. So on the left, the Life/Health CSM roll-forward shows an increase of plus 8.9% for the period to a net CSM of EUR 6 billion, which was supported primarily by the rise in long-term interest rate curves. And although the CSM release of EUR 283 million could not be fully offset by the new business of EUR 228 million. The sustainability ratio improved to 80% after 77% in the 6 months 2024. The new business CSM in Life/Health was strong at EUR 228 million with a still favorable new business margin of 8.9% for the half year 2025, though slightly down from 10% at the year-end 2024. On the Slide 22, the investments held at our own risk further increased to EUR 37.5 billion, up around EUR 1 billion compared to the year-end. The split between the different asset classes is hardly changed with the vast majority of 74% invested in bonds. The total capital investment portfolio as of June 2025 amounted to EUR 45.6 billion. As there are only minor shifts in the bond rating split due to the portfolio quality improvement, I would move on to the solvency ratio. So the solvency ratio, including transitionals as of June 2025 increased to 278% after 261% at the year-end and 271% at March 2025, while the SCR of around EUR 4 billion, only slightly increased by 1.5% due to higher capital requirements for health and non-life insurance, the own funds of around EUR 11 billion increased by more than 8%, impacted by the positive interest rate development and the capital measures taken. The solvency ratio, excluding transitional measures of 238% underpins the strong capitalization of the VIG and allows us to successfully further develop our business model and to look at the business opportunities in our markets. So I would summarize here that VIG remains on track for a record year. We expect to close 2025 at the upper end of our profit target range of between EUR 950 million and EUR 1 billion with solid growth, strong solvency position and a clear strategy for sustainable expansion, we are quite confident in the ability to continue delivering value. I would like here to thank you for your attention and give back to [ Judith. ] Thank you.

Thank you so much, Katarzyna, for this insightful presentation. Ladies and gentlemen, it is your turn now as we move forward into our Q&A session. [Operator Instructions] The VIG 2025 strategic program from 2021 to 2025 has 3 pillars, efficiency, customer proximity and value creation. What are the top 2 to 3 stretch goals under each pillar that you consider most challenging to hit? And what contingency plans exist if you fall short?

Let me maybe jump, efficiency, customer proximity and value creation. To be fair, this is very much also the first country-to-country. And as one of our key business model that differentiates us is the decentralization, meaning on the like business decisions, meaning customer proximity, a lot of decisions are taken locally by the local companies by their management as they know their markets best. On the efficiency, we try to combine sometimes and support the back-office processes and support. We have newly established CO 3 department, which stands for communication, collaboration and cooperation. And we focus very much on connecting our company so they can exchange with their experience with their sometimes challenges and how they solve and where they can connect strength. Sometimes, it's challenging to be top 3 among top 3 players in our core markets. We managed to have -- to achieve this in many countries. But for example, Poland, we are still their top 4, which is quite challenging. But last year, we had mergers after the Aegon business acquisition. So we are working on this very hard. So yes, I hope this brought a little bit more light to this question.

And one more, VIG emphasized hybrid distribution like digital and personal and multichannel sales, agents, brokers and bancassurance, in which markets or product lines is the digital channel growth most advanced and where is adoption lagging?

So again, this is a very decentralized structure. So the distribution channels are actually also again decided by each company. I would say that usually the online sales is slightly slower in countries like Austria, where a lot comes from the history when -- where people are more connected to the agents, the online sales or bancassurance, which actually is super growing in Austria as well through our Erste cooperation, but is faster growing in Eastern Europe countries, which do not have that long history of the sales agent. And I don't know if it's okay to say they're more open for changes or like new technologies. It's sometimes easier to introduce. But again, it really differs market to market. One might actually wonder that the online sales should be growing slightly faster. But still, when people are checking online and comparing insurance products and offers, a lot of times, they still like them to go and sign the contract in person. So me as a millennial, I would -- thought this should be like growing a little bit faster, but here we are.

And in the meantime, we have received no further questions. I will hold the room for another moment. And one more is coming in. How are you using data analytics like AI, fraud detection, pricing, claims automation? In which markets are you most ahead and policy on transparency and fairness?

So this is very much now in -- a big topic, and it's -- also AI and data analytics is a big part of the next strategy program, and I hope we will be able to tell more. So far, we also have digital hubs. They are like connecting groups or like companies. So this will be an example where we try to join forces and support. So it's less each company by themselves. And the fraud detection is like very much supported by AI solutions. And there's a hub in Czech and in Poland. So this is very much -- I cannot yet now tell you, I would need to actually double check. So very much happy to follow up maybe with some numbers, but big topic, we have a customer experience hub and connecting the companies and big topic for our next strategy program 2026, 2028.

And one more question. Assuming you acquire NÜRNBERGER, will Germany become one of VIG's core markets?

So I have to admit this is a very, very hot topic. I was last month on a few conferences, and it's very, very like NÜRNBERGER is a big question. So we are ongoing now the due diligence process, hoping to be able to communicate the results still this year. But no, even with the potential acquisition of NÜRNBERGER -- I understand the question because of the size of the company, Germany will remain our special market, meaning where we focus to be a niche player on the profitability to be experts in one or the other specialty products, but Germany will not turn into a core market. We see it as an opportunity that potentially might sustain or support our further focus and growth in the CEE and CEE remains our home and core and focus.

And as no further questions have come in, we now come to the end of today's roundtable and also our today's Austria ON AIR conference. Should further questions arise at a later time, please feel free to contact us from Airtime or the Investor Relations team of Vienna Insurance Group AG. Thank you dearly, Katarzyna, and to all of you for attending this call and our Austria ON AIR conference. I wish you all a lovely beginning autumn. Stay healthy. And with this, I hand over again to Katarzyna for some final remarks.

So thank you again for your time and your interest. And as Judith already mentioned, of course, if you'd like to follow up or if you have further questions, please reach out Investor Relations team and me, we are always available and really, really happy to stay in touch. Goodbye. Have a lovely evening. Thank you.