Vienna Insurance Group AG Wiener Versicherung Gruppe
OTC:VNRGF
Vienna Insurance Group AG Wiener Versicherung Gruppe
OTC:VNRGF
Price:
72
USD
Market Closed
Market Cap:
$9.2B
Add Note
Add Target
Capture your thoughts and set a target
Decide at what price you'd be comfortable buying and we'll help you stay ready.
Based on
Margin of Safety
0%
10%
20%
30%
40%
50%
Your Price Target
Linked to
current price
· In Buy Zone
Loading
Note attached
Choose the stock you wish to monitor with a price target
Popular Picks
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
Bank of America Corp
NYSE:BAC
|
US |
|
Mastercard Inc
NYSE:MA
|
US |
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
Pfizer Inc
NYSE:PFE
|
US |
|
Nike Inc
NYSE:NKE
|
US |
|
Visa Inc
NYSE:V
|
US |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
Coca-Cola Co
NYSE:KO
|
US |
|
Verizon Communications Inc
NYSE:VZ
|
US |
|
Chevron Corp
NYSE:CVX
|
US |
|
Walt Disney Co
NYSE:DIS
|
US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
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, operator. Ladies and gentlemen, welcome to today's call for the first quarter results 2022. Liane Hirner, our CFRO, is going to take you through the presentation. And Liane and Peter Hofinger, are ready to take questions afterwards. Liane, please go ahead.
Thank you, Nina, and welcome to today's conference call. The first quarter of 2022, and I guess it's true for all of us is overshadowed by the terrible war still ongoing in the Ukraine. A lot has changed since 24th of February and apart from the human suffering of all the directly affected people, we will all have to deal with the geopolitical and economic consequences.
Our priority was and is to help and support, especially our colleagues in the Ukraine and those who had to flee to the neighboring countries. We all hope for the war to end soon but cannot predict the future. What we know are the results of the VIG Group in the first quarter 2022, and I'm happy to quickly guide you through a good set of results.
On Slide 3, the highlights demonstrate the strong operating performance of the group in the first 3 months. Gross written premiums grew by 11.2% to an amount of EUR 3.5 billion. The combined ratio of 94.6% improved compared to 95.2% in Q1 last year with a better claims and cost ratio.
Profits before taxes of EUR 123.8 million include precautionary measures, which we took in relation to the Russian investment exposure. The group's Russian exposure amounts to EUR 190 million, mainly corporate and sovereign bonds compared to the originally announced EUR 210 million. We don't include the cash deposits of Sberbank of group companies in the Balkan region anymore as local banks were taken over.
In the income statement on Page 5, you can see the decrease of 15.7% in the financial result. Here the precautionary measures in the size of about EUR 75 million comes through. Business-wise, Q1 proved to be solid with double-digit premium growth. The development of the expenses for claims and insurance benefits and the acquisition and administration expenses are in line with the net earned premium growth. Overall, a satisfying result before taxes of EUR 123.8 million, slightly down by 3.3% compared to Q1 last year. Let's take a closer look at the premium development.
On Slide 6, we present favorable growth rates in all our segments. The overall double-digit growth of 11.2% includes some seasonality. Q1 is always the strongest quarter due to renewals.
Moreover, given to the bankruptcy of City Insurance in Romania end of last year, the market for motor third-party liability got redistributed, driving the double-digit growth in the extended CEE segment.
Romania contributed EUR 78.6 million, additional premium in first quarter which is not to be expected for the quarters to come. As you can see on Slide 7, all lines of business show positive premium developments. Other property, MTPL and Health growing double digit and Life regular as well as Life single business both increased by over 5%.
On Page 8, we have the profit before taxes by segment. The most obvious development is the decrease in Austria caused by the precautionary measures taken in relation to the Russian investment exposure. There is a small impact due to these measures also in the extended CEE segment impacting the financial results, which we will discuss in more detail in a few minutes.
Over the page, let's have a look at the combined ratios in the P&C business first. Improved cost and claims ratio add up to a combined ratio of 94.6% in Q1. This includes the impact of a NatCat event in February. But as all our major segments came in with better combined ratio, the strong operating performance could compensate for that. In combined ratio, the combined ratio in the special market segment being up 3.1 percentage points is driven by Turkey.
With this, I will move to the financial result on Page 10. Current income in Q1 was stable. We had higher income from appreciations and from disposal of investments compared to last year. The overall increased income could only partly offset the higher expense, especially driven by the other expenses, which include the roughly EUR 75 million precautionary measures for the group's Russian investment exposure. In case impairments would become necessary, which we will have to evaluate on a case-by-case basis at half year, the impact would shift from other expenses to the impairment of investments.
The split of EUR 36.1 billion investment portfolio, which is shown on Slide 11, is stable compared to the year-end with a solid bond rating structure and no substantial changes in the bond issuer split, both shown on the right-hand side of the slide. Bonds with 68.7% make up the far biggest part of investments.
Now let me summarize the first quarter developments as presented on Slide 12. We are pleased with the strong start of all our group companies into this year with overall double-digit top line growth and expect the premium growth development to normalize over the year. For the group's Russian investment exposure of roughly EUR 190 million, we have taken precautionary measures in the size of about EUR 75 million that impacted the financial result. The favorable combined ratio of 94.6% and the operationally strong business development makes us confident to achieve the positive operating performance we are aiming for in 2022 despite the unchanged geopolitical and economic uncertainties.
In the following slides, in section of the presentation, we show our set of slides solvency data for year-end 2021. We have so far only announced in our results presentation, the solvency ratio of 250%, including the transitionals on technical provisions. On Slide 14, you can see the development of the Solvency II own funds, which are up to EUR 10.3 billion, mainly driven by IFRS surplus and revaluation differences.
In addition to that, the solvency capital requirement increased to EUR 4.1 billion. In the first quarter 2022, the development of the solvency ratio is slightly positive and was mainly affected by the developments in the capital markets, especially the positive effect for VIG due to increases in the interest rate curve overcompensated the negative effect of decreasing stock markets.
Our risk profile is shown on Page 15 and is very similar to previous years. Taking into account our partial internal model, market risk ranks #1 with a risk share of 62%, followed by underwriting risks, life, nonlife and health with 24% and operational risks with 7%.
Over the page, we present the capital structure of VIG on Slide 16. 85% of VIG's capital is of highest Tier 1 quality and only 1% of VIG's eligible own funds are classified as Tier 3 capital.
Overall, this demonstrates the strong capitalization of VIG Group. On the right side, you can see the resulting uptake capacities, allowing for sound financial flexibility.
On Slide 17, you can see the development of the own funds from year-end 2020 to year-end 2021 in more detail. As already mentioned, the development is mainly driven by the operating IFRS surplus and the positive development of the revaluation reserve for which deferred taxes have to be taken into account. In total, the own funds of VIG increased by EUR 1.5 billion in 2021.
Before we open the Q&A session, I would like to say a few words regarding the sensitivities on Slide 18. You might have noticed that compared to last year, the interest rate sensitivity is calculated with a 50 basis points shift instead of the so far 100 basis points. This got adapted based on the EIOPA proposal in the course of the current Solvency II review.
Moreover, we have decided to calculate the sensitivity on government bonds in addition to the spread on corporate bonds, given the size of the government bonds in our portfolio. Please note that as of yesterday, also the English version of the SFCR is online on our website. Of course, Investor Relations, together with enterprise risk management are at your disposal for a more detailed discussion on solvency.
With this, I have come to the end of my presentation, and we are now ready to take your questions.
[Operator Instructions] The first question is from the line of [indiscernible] from RBI.
The first one is regarding this precautionary EUR 75 million that you booked in the financial result. As I understand it, this is not an impairment yet. It's just a provision. How was this calculated? And what assumptions did you use here? I would ask them one by one, if that's okay.
Okay. Thank you for your questions. The precautionary measures were booked in the other expenses in the financial result in the amount of EUR 75 million. This is so to say, a net effect on the profit before taxes. And it is mainly based on the Russian investments of EUR 190 million and represents approximately a 50% precautionary measure, which has been taken in the first quarter.
The final evaluation will be or is expected to be done at half year when we have to analyze the impairment, any impairment need case by case. And if we come to an impairment in half year, we will reallocate these cautionary measures within the financial result.
The second one, you mentioned in your presentation, deposits at Sberbank. Could you also quantify those, what the exposure is here? And will those have to be written off?
Exposure against Sberbank amounts to approximately EUR 22 million, and this was included in the initial exposure. In the meantime, the banks were taken over. So they have new owners, and they have been excluded from the exposure. So no impairment risk from that side.
Okay. My last question is on Romania and the premium growth that you have there, I believe this is driven by the bankruptcy of City Insurance. Could you give us an indication on how profitable this business is? I mean, I guess most of it is in motor insurance. Yes, just any indication in this direction would be good.
Thank you for the question. First of all, the solvency of Citi Bank -- of City Insurance happened in September, they had 45% of market share. The bankruptcy proceedings have been then approved by the court in February. And all the contracts of Citibank ceased validity beginning of May. So this means that within these months from end of September until beginning of May, the whole portfolio needed to be newly distributed in the market.
Therefore, we are not expecting this growth to go forward with the same dynamic as we have seen in the first quarter. Still in Romania, you have a mechanism, which is called reference tariff and you can go over this reference tariff in certain segments with an actuarial calculation. We have, in most of our segments, doubled the average premium. And I do believe we have a fair chance to not making losses with the Romanian motor book.
The next question is from the line of Fossard from HSBC.
Just a follow-up question on the EUR 75 million of precautionary charges. If my understanding is right, so that's -- you're saying to us that the net impact on the -- the bottom line is EUR 75 million, i.e., EUR 75 million is already net of tax and net of any policyholders attribution if you could clarify.
The second question will be related to property and to the other property line where the growth is quite significant in Q1. I just wanted to better understand which lines or subsegments are we talking about or what is really driving this strong growth since the start of the year. And if you could provide maybe some granularity on what was driven by volumes or exposure growth versus pricing?
And the third and last question for now would be coming back to your Slide #9, where it is showing the evolution of the combined ratio. Actually, I appreciate that your cost income ratio, the cost ratio was down slightly at the group level. But when I'm looking at Austria, this was flat. Czech Republic was up. Poland was up. Extended CEE was up as well. Also the rate of growth in premium were pretty strong. So as if you were not beneficiating from or benefiting from any operating -- positive operating leverage.
So I was wondering if you could talk a bit about wage inflation going into this region and possibly if this was something which were starting to be more impactful on your margins. And how we should think about this in terms of future development?
I'm happy to take your first question. To clarify the effect on the precautionary measures of EUR 75 million. This is the effect on profit before tax. So it's after profit participation, but before taxes.
Can you quantify how much was the exact number on the net? Should we apply the average tax rate or any [ finishes ] to have in mind here.
Yes, just take the average tax rate, and you will have approximately the net effect.
Thank you for your question on property. The property growth in the first quarter is mainly driven by the group function by the holding company, where we deal with international clients operating in more than one country in our region.
On one hand side, we were able to increase our rates quite significantly in the last renewal, but also derisked with increased deductible. On the other hand side, we were also winning new clients. We see less attraction for our international clients in the region to insure themselves with international monoliners, which are not based in our region, but functioning out of other places in Europe or the U.S. where we were able to win business.
There is one other effect which is driving the growth in Czech Republic. This is single effect there, the renewal date of 1 or 2 large customers has been shifted from the last year, and this will level out throughout the year.
Okay. So I infer from your reply that actually the growth in other segments was mainly driven by reinsurance and renewals at [indiscernible]...
Corporate business. Corporate business, international corporate business. It was also driven by reinsurance, the corporate business.
Regarding your last question, the development of the combined ratio. The cost ratio is decreasing in the group -- in the segment group functions, mainly due to the fact that in prior year, we had higher costs relating to strategic projects in the first quarter 2021.
All right. And looking at, I would say, I'm not at a more local level and specifically to check out Poland or extended sea. I can see that despite growing quite significantly, double-digit, it seems to be that cost income is going up. So I mean, should we fear any wage inflation -- so we have to -- yes, be concerned about wage inflation coming into your books? Or I mean it seems to be that we're not benefiting from any positive operating leverage at the present time.
It's -- wage increase does not really come through. It's not really the driver for this development. It's mainly reinsurance commission which is increasing -- decreasing, sorry, some direction. Reinsurance commission is.
The next question is from the line of Thomas Unger from Erste Group.
I would have two follow-ups to start with. First of all, I would like to come back to the Russian exposure then the investment exposure. Is that the EUR 190 million, is that growth of -- or is it deducted -- did you deduct these EUR 75 million from that figure. I guess it's EUR 190 million, and if impaired, then you deducted from the exposure that you show here, is that correct?
Yes, that's correct, the EUR 100 million are the gross -- is the gross amount without any deductions. And we just took precautionary measures in the amount of EUR 75 million. But EUR 190 million, no deductions on that side.
Right. Okay. Then continuing with Romania, and you talked about the failed competitor here. I saw that profitability was actually very good compared to previous years, previous quarters. The combined ratio is down to 95%. What can we expect from this market going forward? That's one question.
And the next question would be on your outlook. Is there anything -- we're 1 quarter into or more than 1 quarter into the year. Is there anything more specific that you can give us other than the positive development of the operating result or positive operating performance? Anything that you could -- that you expect on premiums, on the combined ratio, on profitability, et cetera?
And then lastly, on the financial results, is there anything -- do you see a support coming from the increase in yields now especially in some -- we've seen strong increases in bond yields in some CEE countries. Can we expect to see a positive impact on the current income on the financial results in this year, in the coming years? What do you expect from the yield environment here?
I take the question on Romania. And I refer maybe to what I have said some minutes ago when coming to the motor business. You know that we had already colorful past in Romania. So we are quite cautious in giving the direction for the future.
And what we -- you have to be aware about one thing you have in Romania, the obligation of contracting motor TPL. So also this makes business a bit different than maybe in some of the other countries. And you -- we see still some volatile political landscape, which could also have certain influences on our insurance business in Romania.
So as it looks like it goes into the right direction, nevertheless, I think for a market like Romania, cautiousness is the right attitude.
Come again to the financial results. As you already mentioned and as already I mentioned, the current income was quite stable in the first quarter of 2022. When we look back in the past quarters, current income was rather decreasing.
What we see now is an increase in interest rates. Overall, we rather expect a more gradual increase in the interest rates in the upcoming months. This is overall good for us, especially for the guaranteed life insurance portfolio in Austria. This is also good for our solvency ratio and this we already can observe.
So we will see how did this come through in the current income. This year, it's -- from today's point, hard to predict what really will happen in the next weeks and months.
Portfolio yields, is there -- do you expect this long term or mid- to long-term downward trend in the portfolio yield? Do you expect this at least to stabilize or even to turn around now in the coming periods? I mean the interest development or the yield development in CEE countries has really been gradual. It's been a jump now in the last few months. Do you expect an impact here?
We expect the average yield to stabilize. And of course, in some of our markets, we saw quite rapid interest rate increase. But overall for the group, we rather expect a stabilizing average yield.
Okay. And maybe just on the Solvency II ratio, you mentioned in the presentation that it's slightly up quarter-on-quarter. Could you quantify that up from 220% -- 250% year-end?
It's only some percentage points, I would expect up and rather slightly positive development in the first quarter.
Okay. And then maybe lastly on the question on the outlook, if there is anything more specific than the positive operating performance that you can give us.
Up to now, we are still not able to give an outlook for the whole year. As you know, we are cautious. And it's really hard to predict as long as there are no peace talks. I think nobody can really predict what will happen and when we look forward this year and the next months and weeks. So no outlook also from today's point of view.
[Operator Instructions] We have a follow-up question from the line of Fossard.
Just coming back on the P&C and with a focus on motor lines. Any market you will flag where rates -- the price increase is still running significantly above cost inflation? And any markets where you believe that actually -- or you will flag that where pricing is really not sufficient to cover claims inflation, an indication of magnitude just to reflect where you got some comfort in the current environment and where you believe that the market needs to adjust.
Just as a principal statement, we have 2 factors where we're always closely looking at: one thing is the claims inflation and the average claim; the other thing is the frequency. And one must be aware that in Central Eastern Europe differently than in Western Europe, there is a correlation between fuel prices and mileage driven and therefore, frequency. So one topic very clearly is claims inflation where we see currently different trends country-by-country. So it's not yet 100% clear picture, even though we are expecting to see that come through.
Generally asked about pricing in Motor TPL. I think I little bit emphasized the topic of Romania and for the other markets, it is pretty stable. And we are not just running for volumes. We very much also look on the profitability of our motor book.
And on the frequency, could you potentially quantify how much the frequency is running below currently pre-pandemic levels in...
There is a tendency of lowering it. But to give you the figures of the first quarter is, I think, not yet reliable enough, but we see the clear trends.
Thank you. There are no more questions at this time. I hand back to Nina for closing comments.
Thank you, everybody, for your interest and for listening in. I would like to take the opportunity to invite you to our virtual AGM this Friday. And the next scheduled call is going to be on the 18th of August when we are going to release the half year results for Vienna Insurance Group. Thank you, and goodbye.
Ladies and gentlemen, the conference is now conclude and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.