Vienna Insurance Group AG Wiener Versicherung Gruppe

OTC:VNRGF

Earnings Call Transcript

[Operator]

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

[Higatzberger-Schwarz Nina, executive]

Thank you very much, and welcome, everyone, to Vienna Insurance Group 9 Months Results Conference Call. Liane Hirner, our CFO, will guide you through the presentation, and together with Peter Hofinger, take your questions afterwards. I now hand over to Liane. Please go ahead.

[Liane Hirner, executive]

Thank you, Nina, and a warm welcome to today's conference call for the results of the first 9 months 2022. As you can see from the results highlights presented on Slide 2, our strong premium and profit development continued in the third quarter 2022. Again, premium growth of 13.6% came from all segments and all lines of businesses, leading to gross written premiums of EUR 9.5 billion. Profit before taxes grew by 9.9%, EUR 413.4 million despite the measures of around EUR 126 million in relation to the Russian investment exposure, which we already took in the first half of this year. Our net result increased double-digit by 10.1%, leading to earnings per share of EUR 3.07.

As announced in our last call at the half year, our Q3 results now include the first-time consolidation of Aegon Hungary and Aegon Türkiye, on which I will come back in more detail in a few minutes. However, I would like to mention that also without the consolidation effects, premiums grew double digit by 10.1% and profit before taxes was up by 6.9%. The combined ratio as of end of September 2022 is at 95.1%. The claims ratio improved by 0.6 percentage points, while the cost ratio increased slightly to 32.5%. I will elaborate on that in more detail in a few minutes. Solvency ratio as of end of September 2022 is slightly above the level of the first half of this year, which it stood at 285%. Main positive impact is coming from rising interest rates, which was partly offset by the first-time consolidation effects from the closed acquisitions in Hungary and Türkiye.

Now let's move to Slide 3 and to the income statement. As already mentioned, the first-time consolidation of Aegon Hungary and Aegon Türkiye supported our favorable premium and profit development in Q3 2022. The first-time consolidation also impacted the higher other income as well as the increased other expenses. Without the consolidation effect, the 9.9% growth in profit before tax was mainly driven by better technical results in [ P&C and Life ]. Considering the measures we took in relation to the group's Russian investment exposure in the first half of this year, we are very pleased with the solid set of results.

Now over the page on Slide 4, we show the premium development by segment, and we are more than satisfied with the growth rate in all of them. First, let me add that we recorded premium growth in all our markets with the sole exception of Lichtenstein. Besides the first-time consolidation effect, the strong growth rate in extended CEE was mainly based on motor and property in Romania. The increase in the Baltic states came from motor and property as well as from Health. The Premium Plus in the special markets was supported by the consolidation of [ Türkiye ], but also by other property and health in [ total ]. Czech Republic [ still with ] double-digit growth rates in other property and motor.

Speaking of other property and motor, let's have a quick look on Slide 5, where we provide an overview of our premiums by line of business. The very good growth rates in motor, other property and life regular were supported by the first-time consolidation. However, in MTPL, the extraordinary growth was also driven by the bankruptcy of city insurance in Romania, which we already mentioned in our half-year 2022 call. The Baltic State recorded a very strong increase in health premiums, which is also the main contributor to the double-digit growth rate in this line of business.

On Page 6, we show the result before taxes by segment. Let me start with the development in Austria. A good result in absolute terms, considering the measures taken in relation to the Russian investment exposure. Business-wise, Austria was a strong performance, which is also reflected in the improved combined ratio of 94.3%. The decrease of EUR 10.2 million in Poland is coming from the decline in the financial result, which included positive effects from extraordinary gains in prior year periods. Better combined ratio developments in Bulgaria and Romania as well as the first-time consolidation of Aegon Hungary with a plus of EUR 6.9 million were the profit drivers in extended CEE. Speaking of Hungary, I would like to mention that the results already include 50% of the additional insurance tax for this year 2022, which amounts to around EUR 11 million in the third quarter.

The other 50% will follow in the fourth quarter this year. This additional tax on insurance premium is booked in other expenses. The profit growth by 16.4% in special markets is primarily due to the first-time consolidation of Aegon Türkiye, which contributed EUR 5.1 million. Over the page, let's have a look at the combined ratio in the P&C business. Overall, the group's combined ratio improved slightly to 95.1% compared to the prior year period. I already mentioned the better-combined ratio in Austria as well as the ratio improvement in Bulgaria and Romania leading overall to a decreased combined ratio in extended CEE. The deterioration in the combined ratio in the Czech Republic and the special markets results primarily from the motor lines of business, where higher average losses and higher frequency are becoming adherent.

With this, let's move to Page 8 and the financial results. We continue to see a positive development in the current income in the first 9 months of this year. Nevertheless, I want to emphasize that the plus of 10.2% is also impacted by the consolidation of the Aegon companies. The higher income from disposal of investments is driven by the sale of investment funds and bonds mainly in Austria. Increased impairments and other expenses are attributable to the measures in relation to the Russian bond exposure. With these measures, we have provided for more than 3/4 of the Russian sovereign and corporate bond exposure of around EUR 165 million.

Now let's turn to Slide 9 and our investment split, which is rather stable compared to year-end 2021. Here, I would like to mention that due to the consolidation of Aegon Hungary and Aegon Türkiye, there was a slight shift in the bond portfolio by rating as well as the bond portfolio by issuers, which you can see on the right side of this slide. Before we move to the Q&A, I would like to underline once again the strong premium and profit performance in the first 9 months of 2022. Despite the measures taken in relation to the Russian investment exposure, we were able to increase our profit before taxes by 9.9%.

Without the consolidation of Aegon Hungary and Aegon Türkiye, we would have profit growth of 6.9%. For the full year 2022, we, therefore, target premium growth of at least EUR 12 billion, a result before taxes above the prior year figure of EUR 511 million and a combined ratio of around 95% despite the challenging environment. Furthermore, I would like to let you know that we are planning an IFRS 179 teach-in for analysts and interested investors mid of December. Information and dial details will follow soon. Finally, let me point out our additional listing on the Budapest Stock Exchange. Since last Friday, we achieved shares are officially traded besides Vienna and Prague or San Budapest.

With this, I end my presentation, and we are ready to take your questions.

[Operator]

[Operator Instructions] First question is from the line of Youdish Chicooree with Autonomous Research.

[Youdish Chicooree, analyst]

I have -- the first question is on the combined ratio. You have guided to a combined ratio of around 95% for this year. I was wondering whether you could talk about the sustainability of this level going into 2023, given inflationary pressures and the fact that already in the third quarter was, I believe, 96.5%. So that's my first question. My second question is on the Czech Republic. If you just could just remind us of what's driving strong premium growth and the deterioration in combined ratio in the Czech Republic and whether going forward, you believe that you can actually adjust prices to actually offset some of the issues you've seen around severity and frequency in motor.

[Peter Höfinger, executive]

Thank you for your question. The increase of the combined ratio in the third quarter this year of 96.5% is on one hand side driven with the first-time consolidation of Aegon and therefore, also the including of the insurance tax, which has an impact on the combined ratio. Secondly, and this is also relevant for your second question is we had quite a higher number of weather-related claims in Czech Republic, which also had an impact on the combined ratio for the third quarter. Looking forward to next year. Maybe starting at the point and I think one has to keep this in mind in the region where we operate in Central Eastern Europe. Inflation is not something which is new, which is appearing the first time in the last 50 years as it is maybe in Western Europe.

All of our managers in Central Eastern Europe in their respective countries had already times of high inflation. So therefore, we do have experiences in how to deal with these issues and mechanisms are in place for dealing with it. On one hand side, depending on the country, we do have automatic indexation for long-term contracts which is not always linked to consumer price index, but also linked to construction price index or sometimes on the motor side, it's linked to a motor repair cost index, so the relevant price increases.

Secondly, where we have not long-term contracts, it's annual contracts where we always evaluate at the renewal of this contract as some insured [ adopt to some insured ] and, therefore, also the premium beside rate increases. So we feel quite committed also for year to come that our target to stay around 95%. If there is not a very exceptional [ events or ] a significantly higher frequency of [ event ] that we will be able to keep around this target, which we are putting ourselves.

[Youdish Chicooree, analyst]

Okay. Just to clarify, if we focus just on your main markets, you don't think they are all, let's say, competitive pressures or maybe regulatory pressure that could prevent you to do the pricing changes you want or something?

[Peter Höfinger, executive]

We do have the competitive pressure already today.

[Operator]

[Operator Instructions] Next question on the line is from Thomas Unger with Erste Group.

[Thomas Unger, analyst]

The first one, I would like to touch upon the financial results in Q3 alone. The current income was very high. You mentioned in the presentation that this was affected also by the first-time consolidation of the Aegon assets, fine. But also on the expenses side, it was quite a bit higher than in previous quarters with depreciation of investments, higher other expenses higher. What is behind those developments? And in P&C in the business line, P&C alone, it was negative in Q3.

So if you could explain that, I would appreciate it. And then looking at Austria only and also only in Q3, premiums were down. Is that due to a single premium life? And also the combined ratio was up compared to previous quarters. So if you could explain that, that would be helpful. And then lastly, you mentioned the windfall tax in Hungary to be booked in Q4 and already booked now in Q3. What about 2023? Will it be booked in the first quarter already? Or do you spread this out evenly across the quarters? And then I'd also be interested in your feeling whatever you can give us about 2023 in terms of premium growth in this environment.

[Liane Hirner, executive]

Thank you for your question. I will start regarding the financial results in Q3. This was in the other income area mainly impacted by the first-time consolidation of Aegon, with FX gains due to the U.S. dollar portfolio there. Other expenses is more a seasonal effect, nothing special. Regarding Hungary, the windfall tax was booked in EUR 11 million in -- as I announced in the third quarter and another EUR 11 million is expected to follow in the fourth quarter. For next year, the tax will be booked by each quarter and will be the same or expected to be in the same amount as this year. So we will spread it over the year. So Thomas, I guess with the last 2 questions, the first, financial results Q3 is answered. Is this okay?

[Thomas Unger, analyst]

Yes. Is that also the inflation for the P&C financial results being negative in Q3?

[Peter Höfinger, executive]

Maybe in the meanwhile, I'm answering -- I am trying to answer your last question, premium growth going forward next year. It's difficult to predict because it's very much dependent on the overall economic development in our region. This then combined with the inflation rate, clearly, the inflation is also a driver of the premium growth as we are increasing some insurance and correspondingly, the premiums. I would not expect to have this strong growth, which maybe we have been seeing this year. And then depending on the overall economic development, we will see how generally the markets and the premiums will develop. But this is very much really depending on the overall economic development. And I think for everybody, it's quite difficult to assess how GDP growth will develop in Europe next year.

[Thomas Unger, analyst]

Okay. And maybe just on the development in Q3 in Austria with premium soft quarter on quarter…

[Peter Höfinger, executive]

If I look in Austria, for sure, the non-life premiums to have -- we're growing. So the effect, I assume, will be in a lower-life single segment. So this is the reason here in Austria.

[Thomas Unger, analyst]

Okay. And any specific reason for the combined ratio being up in the quarter?

[Liane Hirner, executive]

97.5% to 97.6%. It's rather no special reason here, maybe a seasonal effect, but nothing I could…

[Thomas Unger, analyst]

Year-on-year, it's stable. But compared to the previous quarters, probably a seasonal effect. Okay.

[Liane Hirner, executive]

Maybe coming back to the question regarding financial results. Other expenses here included are precautionary measures for various projects, which we do always usually in the third quarter.

[Operator]

Next question is from the line of Bhavin Rathod with HSBC.

[Bhavin Rathod, analyst]

Am I audible?

[Operator]

We can hear you now.

[Bhavin Rathod, analyst]

Okay. Great. Sorry about that. Okay. So I have just a couple of questions from my side. The first one would be on Romania, given the fact that we have seen a significant improvement in the combined ratio, and it seems like the MTPL market is becoming more disciplined, and it appears that although you are #1 in Romania, but in the MTPL market, you're still not the number. So I just wanted to understand your strategy in terms of how are you thinking about growth in the MTPL market given the discipline that we are seeing in the MTPL market. That would be my first question.

The first one would be -- and the second one would be on Poland, stand-alone 3Q combined ratio again seems to be a bit on the higher side. If you could just comment a bit about what are we seeing in terms of competitive dynamics over there? That would be really helpful. And the last one would be on your reinvestment rate. If you could just provide what is your current reinvestment rate compared to the current lending yield.

[Peter Höfinger, executive]

Thank you for your questions. Let's start with Romania. Yes, in Romania, we are seeing now more risk-adequate premiums in motor TPL. Therefore, combined ratio is slightly below 100. This is not yet satisfying element, but you also know that Romania is a quite volatile market. There are also new market entrances coming to Romania, which will maybe again create maybe certain uncertainties within the motor TPL market. We have been -- our group has been very disciplined also in the growth of motor TPL. We are very much targeting in Romania to have a balanced portfolio between the different lines of business and not to be purely dependent just on one line of business where there are different strategies by competitors in the market.

But currently, I think we are on a reasonable way overall in Romania. When we go to Poland, in Poland, clearly, one can see that the competitive landscape is currently very intensive when it comes to motor TPL. You also see that we do have a negative growth in Poland in motor TPL. This is driven that we are disciplined and that we are not entering into this price war, specifically in the fleet business, we are very restrictive seen here in our book. I do not expect this to change this year, but I believe that maybe next year also due to the pressure of inflation and therefore, a certain increase of average claim will also again drive market pricing a bit up in the next year.

[Liane Hirner, executive]

Coming back to your question regarding the reinvestment rate. The new money yield in Austria in the first 9 months amounts to 2.47% and is has been -- has increased over the past months due to the rising interest.

[Bhavin Rathod, analyst]

Great. And how does it compare with the current year or running yield?

[Liane Hirner, executive]

The average yield on the fixed income in Austria for the 9 months is 2.48%, nearly the same.

[Bhavin Rathod, analyst]

Right. Understood. And quickly the last one, if I may. I just wanted to understand, should we be concerned about the windfall taxes in Czech Republic. Does it have any implication for G&A insurance?

[Liane Hirner, executive]

The additional tax from premiums is -- relates to Hungary. I think what you're referring to is maybe the banking sector. There is no additional windfall tax for insurance companies in Czech Republic.

[Operator]

There are no further questions at this time. I will hand back to Nina for closing comments.

[Higatzberger-Schwarz Nina, executive]

Okay. Thank you, everyone, for your interest and for listening in. As already mentioned, we are planning a virtual meeting on the topic of IFRS 19. Maybe take down a note probably on the afternoon of the 14th of December, we will provide more details soon. And please get in touch in case of further questions, the Investor Relations department is there for you. Thank you, and have a nice day. Goodbye.

[Operator]

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