Uniqa Insurance Group AG

VSE:UQA

Welcome to the UNIQA Group Results for the First to Third Quarter 2024 Conference Call. My name is Alan, and I'll be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions]

I will now hand you over to your host, Andreas Brandstetter to begin today's conference. Thank you.

Thank you. Hello, and welcome to our call on the first 3 quarters results 2024. Well, a couple of weeks ago, I would have said it's a quite unexpected and spectacular result of those first 9 months because we saw a very linear and positive development of our business in our two core markets. But then as you know, we had to digest the impact of Boris; the floodings in six of our countries, which, of course, left some impact.

But let's walk through the P&L line by line. So first, very positive. We keep the constant growth in both of our markets, CE in Austria plus in our business segments: retail, corporate and bank, plus in all 3 product groups. This means P&C, Health and Life in the same speed basically, as we told you about in the first quarter and the second quarter. This means in concrete that in Austria altogether, we have been growing by more than 9% on base of the gross written premium. In Austria by roughly more than 4.5% and in the international segment, nearly 14%. So this means Sales is fine. We have definitely no issue to sell our products at reasonable and profitable prices for us. If you switch into the new IFRS 9/17 regime, you see that the insurance revenue corresponding to this was growing by also roughly 10% compared to the first three quarters 2023. This is the first very positive element.

Second topic, I mentioned Boris. So the P&C combined ratio moved up to 93.3%, which means it's worse than the first 3 quarters 2023. Just a pure impact from Boris alone and Kurt, our CFO, COO, will come back to it in a couple of minutes. Just a pure impact from Boris alone on a gross base amounted -- went up to 5.6 percentage points, which is quite a lot. The good thing is, and also this will be tackled by Kurt afterwards that the relief coming from the external reinsurance was quite significant in those first 9 months.

Everything around Boris, frankly spoken on net base is already digested in this result of the first three quarters. Adding a very positive development from the net investment income, which improved quite significantly, around EUR 170 million compared to the prior year and accompanied by average net new investment yield, which decreased just slightly down to 4.4%. This led to a very good development as far as the profit before tax is concerned, which stayed stable or went up just by 1% and amounted to EUR 340 million compared to EUR 336 million from the year 2023.

Why we are satisfied with this? Because we see how robust our business model is in both of our markets. We see that we have been able to digest a nat cat such as Boris because the remaining quality of the portfolio of our P&C portfolio was too robust and so stable that we easily managed to digest such an impact. It's quite relevant because in this part of the world, we have to deal with such nat cat event, of course, also in the upcoming years.

The profit after tax increased by EUR 16 million, up to EUR 264 million and at the end before I hand over to Kurt, let me make one comment about our country portfolio. You might have read today that we decided yesterday to decrease the numbers in which of countries in which you present in CE. You know that until the day before yesterday, we have been present in 17 countries after we left Russia successfully in September this year.

Now we had a look in a very careful way on our sources of profits. We looked very carefully, which countries in which side need which span of management attention and so we decided yesterday finally to step out from Albania, North Macedonia and Kosovo, not because those countries have not been successful countries. They always contributed profitable to our group results. But frankly spoken, even if we take all of them 3 together, they just represented something like 1.5% of the total company's top line.

So if we had to balance about our management resources, if we thought about, okay, which countries will be more important in the future. That is very clear. It's, of course, Poland, it's Czech Republic and Slovakia plus all those countries whom we really brought together under 1 regime. We call it Southern and Eastern Europe 6, meaning all the Balkans countries but however, we said let's leave those 3 countries and sell it back to basically the founder and our co-investor who currently has a local businessman who currently still owns 10% of the company. Meaning also that with those 14 countries in which UNIQA is present now after the sale, we are happy. So this is also the base for the new strategy program, which we're going to present to you on December 11 in London and we will not exit any other further markets.

Having said so, this was a snapshot on the first 9 months. And Kurt, I may hand over to you.

Thank you very much, and welcome also from my side. I'm on Page 6 of the presentation, talking about Boris in more detail. Besides the impact on the combined ratio gross and net, as you can see here, the information to give is that the gross impact was more half-half Austria and international business. So in total, from the EUR 184 million that belong to Austria, EUR 94 million belongs to the international business, within the international business, Czech Republic was most hit and Poland, the second most hit from Boris in Q3, and this will also stay for the year-end, keyword year-end, we expect that on a maximum, this gross amount goes up by the year-end from EUR 184 million to EUR 230 million, 2-3-0, which on a net basis, would then have an impact of plus EUR 4 million, which is considered a reinstatement premium from the reinsurance contract.

So the maximum amount of impact we expect to file about EUR 86 million by the year-end 2024. For the next year, generally, we expect the winding up of the complete Boris loss within the next 12 to 18 months. That means the payments. That means also those claims, which are not clear. So that means within -- by the end of '25 maximum that we can say if we have a gain or loss out of the reserves. So far, no impact for 2025, we expect at the moment.

Page 7, the key financial indicators following the development cost to profit. One thing that jumps to the eye is the return on equity, which goes down by minus 4.4 percentage points. This has to do with changes in equity. It's on the one hand, interest rate and the impact on the equity. We had then changes in adoption in the year 2023. So this to be clear by reading the ROE, Solvency II, on a very stable, still high position on 262 percentage points.

CSM, Page #8. I think 2 things are worth mentioning here. UNIQA has a growing CSM, which comes from two elements: a, from a very profitable business in the Health segment, especially coming from Austria. And on the other hand, the CSM generally is growing because of the strong performance on our financial result, which then, especially in Health and Life business goes then directly to the CSM and this then in that case, allocated over the lifetime of the contracts generally or the is the reason why the sustainability ratio went down a little bit. But no worry from an operative perspective, this has the impact on the one hand from higher income performance. And on the other hand, from the good new business that we write in the health business.

The release is generally the same, EUR 247 million to EUR 245 million in the last year. So in that case, a very sustainable development on the release. Talking about growth on Page 9, a little bit deep dive property and casualty. Austria rose by around 5% in P&C, internationally more than 14%. Health Austria up 10%, international business, I think we can, in that case, neglect. Life business completely different, Austria minus 3.7%, international business plus 11%. This is the reason why the Life profitability is that high. This is mainly driven by the international business.

Cost, Page 10, are under control. Nothing worth mentioning in that case. So we speak to our programs. We have no overshoots within our projects. So therefore, I can directly jump on Page 11, which is the P&C result. On the first glance, it looks like that the result is driven by the financial results. But just have in mind that the technical result is impacted by EUR 82 million from Boris. And that's, I think, in relation like-by-like, a quite tremendous effort especially coming from the basic claims and from the solid development on our portfolio. Then looking on the last business, Page #12. We mentioned the development on the international business that drives the growth in the insurance revenue. CSM is stable, so nothing special to report on that. The same for the health business, which I also explained in my introduction.

That brings me to the report on Page #14, the so-called new values on the group. The contractual service margin in the new business is constantly high at around 10%, 9.9% in total, which is, for us, quite good and important and this means also that we expect the contractual service new business value also by the end of the year, higher than 2023. So we have a step-by-step increase of roughly EUR 55 million per quarter. This as you can see on the right-hand side on this graph. So adding EUR 55 million to 9 months, we will end up around EUR 230 million roughly by the end of the year, which is then also positively impacting the CSM.

Core markets an overview, Page #15, I think this is reflecting what I said in the beginning, the 104.5% combined ratio in Czech and Slovakia is impacted by the gross effects of Boris, around EUR 53 million, which is, in that case, to report. Same visible in Poland, a jump from 86% to 90%, coming from a EUR 40 million impact from Boris and Austria are jumping to 90.9% to 93.3% with the impact of around EUR 90 million on a gross basis.

So this is an add-on to the impact on the combined ratios on Boris in the main countries that are affected. Still, I can report that the basic claim or the attritional claims development is quite good here. We are running a loss ratio of less than 53% in 9 months.

In the end, a look on the investment result, which is on the one hand tuned by a stable development on the ECL development. So we see here no big movements, which is okay for you, the development on the 10-year Austrian current bond curve, which is going down from 3.0% to 2.63% by the end of 9 months, which has a little bit of impact in some economic perspective. But with good unrealized gains plus the contribution of STRABAG plus also some realizations we did, especially before the U.S. elections, we manage a financial result, which is EUR 182 million. And here also report no changes in our strategic asset allocation.

I would like to stop here in my presentation and would now open up the conference call for the Q&As before we then come in the end to our outlook before we close the meeting.

[Operator Instructions] We will take our first question from August Marcan, UBS.

I've got broad 3 topics. First 1 on reinsurance. Have you already had your talks with your reinsurance about 2025 renewals? How does the pricing and terms look on that? And also, did you use the automatic reinstatements in the past? And did you stop using them or you never use that tools?

Then the second 1 would be on the CSM. It looks to me that in the 3Q stand-alone, there was about EUR 120 million of negative variances. What is driving that? And then finally, on P&C, how has the claim environment and weather been in 4Q so far?

Thank you. So please understand that for our financial compliance reasons, I cannot give you a direct answer on the reinsurance negotiations for the year 2025. But what I can say so far is that we are below that what we expected in our budget. So no impact for 2025 regarding our internal outlook, which will then present on the Capital Markets Day in London.

An add-on question to that was that you said if you use automatic reinstatements, yes, we do. So we have an automatic reinstatement contract, which means that we have coverage over the year, no matter when the contract goes due.

The next question I wrote down is the P&C development so far on weather-related claims in the fourth quarter. I can tell you that knock on wood, nothing so far to report out on a negative basis. Austria stable. Our core markets stable, so no impact neither from storm nor from rain and Spain, which was hit heavily in the last week is UNIQA not present. Your CSM questions, we did not get quite okay. Can you repeat it again, please?

Yes, sure. So on the 3Q stand-alone, if you look at group CSM, it seems to be about $120 million of negative variances. I was just wondering what's driving that?

So honestly speaking, at the moment, I cannot quite clearly see this number. So can we agree that you get the direct feedback from our IR team that we can then make a deep dive with you. So honestly speaking, we do not see this, but maybe we have a different view on that. We will come up to you afterwards directly on a written basis, okay?

Sure.

We will take our next question from Rok Stibric, Raiffeisen Bank International.

I will just have 2 questions. And the first 1 is on profitability, technical profitability in Life segment. Could you please elaborate a bit on what is driving the claims expenses? And my second question is on Solvency/M&A topics, following your ad hoc release yesterday, could we expect UNIQA back in the M&A game with some acquisitions going forward? Or would you rather use this strong solvency position for other purposes?

Thank you, Rok. I'll start with the first question. So the profit or the claims development in the Life business that you see is coming mainly from a high claims payment or payments that we have to do because of high maturing portfolio, which is coming especially from bank business 10, 15 years ago. So this is at the moment, all the reason why we are not growing in the Life business. So our new business is much more or less than the new business, therefore, the minus 3.7% at this pace also been in because we have high payouts of the maturing portfolio.

Second question about M&A, Andreas will give you the word.

Yes, it's a good question, Rok. Thank you for asking this. It's a tricky one because we have been handling this AXA acquisition, which we then conducted, I think, in Q3 2020, for a couple of years, so now industry in patience. And yes, we want to keep the buffer for being ready for potential acquisitions in our market, right? So if then in our core markets where we are now, so please don't expect us to enter new markets. What options do we have there? Basically two: first to hunt classical insurance companies such as ours like P&C, Life, health insurance companies being present in retail and corporate business. So we call it like classical insurance companies.

The other options which we are always checking is what about vertical integration. We see consolidation in broker business. We see some digital attackers coming around, which makes it maybe more easy to basically cross existing national borders. So those options we do have. Here is the but. The but is we're just looking if then for M&A opportunity with a relevant size because if you had a chance to compare our figures to market, you saw that in the first 3 quarters this year in our International segment, we have been growing by more than EUR 300 million, EUR 300 million on the gross written premium. And now told you a couple of minutes ago, Kurt and me that we invest in Albania, and we lose the EUR 100 million, okay, on the same way or in the same time we win within 1 year of EUR 300 million.

Having said so, we would not go for a kind of mini Mickey Mouse acquisition. So it would be if something which is really meaningful and which improves in a significant way our market position, especially in the big countries.

Do we currently see such an option? Not really. But of course, we're always constantly checking the market. We think our time will come. As I said before, at AXA, it might take some time, but we are positive that we can increase our positions on the markets also via M&A.

We will take our next question from [ Anton ] [indiscernible], [ Alpha Value ].

Two questions for me, please. My first question would be on P&C. The international businesses recorded a strong 14% increase in P&C insurance revenues in the first 9 months of the year. And I was wondering if you could give us an indication on the split between volume and prices and maybe looking ahead, how you see prices evolving in full year '25. Do you think that maybe the recent events will have an impact on pricing trends next year? And my second question is on health. I was wondering if you could give us more details on the drivers of interim service expenses so far this year? And maybe give us an indication of what we could expect for the fourth quarter and maybe next year also?

Okay. I'll start with the first question. So I think generally is in the international business at the moment, I would say, twofold. We have UNIQA USP in Poland, especially in the motor business, we have here, I think, very data-driven and very flexible and variable pricing tool, which allows us in all segments. No matter if online, if this is sales broker, if this is sales via our agents, to adapt the prices also according to the customer needs.

This is why the reason we have a great profitability in this business, so keep at least poise as we run the other business on a combined ratio below 90%. The second thing is in the other countries, especially in the CE countries, which we define as Czech Republic, Slovakia, Hungary, the rest in that case, from Poland, differently. Hungary is coming back with good development on growth. I think this new regime is the tax is okay and accepted. How does it mean? For the customers also then have to carry on a part of the tax. Differently in Czech Republic at the moment, the motor business, especially in the leasing and then Motor Casco is coming under pressure. This has to do little with inflation. This has to do also with market competition.

So we are, I would say, with the greatest development and pressure for the rest of the year and also for the year 2025. And generally, my answer would also lead to -- we see no worries in the year 2025. So Boris has no impact to us in the pricing segment and the markets relating to them, what I explained to you, we expect positive keep in the year 2025.

You asked also for the growth. So what is coming from volume and what is coming from prices. The answer is not that easy because it hangs together because pricing and volume is something, especially in the international business where you have one new contract is one decision. But if you say how many people or how many customers out of our around 50 million customers in the international business are performing year-by-year, I would say 1/3 is coming from customers that stay at UNIQA and constantly pay the prices. 2/3 is coming from improvement in pricing.

The other question, the drivers that you asked on the insurance expense which are increasing from EUR 819 to EUR 929 million. This is because of the good growth. If I remember, I stated 10% growth in Austria, that means people are also then taking care for them. That means hospitals, that means surgeries, that means also especially for stationary and for outbound tariffs, we pay their the need, let's call it like that. And if you look on the profitability, that's good because reflecting what we increased the new business on season, which keeps us then also on the long-term perspective and sustainable releases to see them. We expect in Q4 the same proportionally as the first 9 months.

[Operator Instructions] We will take our next question from Thomas Unger, Erste Group.

I have several. I would like to start with the disposal that you announced yesterday in the Western Balkans and if you could specify the financial impact that you'll see upon closing in 2025. And then remaining with the geographical footprint and your portfolio, in the beginning of the introductory speech, you didn't mentioned or I might have missed it, but you didn't mention Hungary as one of your core countries. How do you view it strategically? What you expect for 2025? And if you could also talk about the sector taxes for the coming year.

And then I'd like to move on to the outlook 2024, but maybe also something that you could give us for 2025, what is your expectations for the revenue dynamics? Do you think this -- what you saw thus far in 2024, is that sustainable next year? And also, how do you view cost ratio and efficiency evolving? And then maybe specifically on the '24 outlook from your press release, you mentioned that there's pressure on earnings from rising insurance service expenses in property as well as in health business and costs, if you could talk about this. I'd really appreciate it.

Thank you, Thomas. So I'll start with the financial impact of disposal of the so-called Almakos countries. So we will show these countries by the end of the year in the discontinued operations. And the positive effect we expect there is around EUR 12 million to EUR 13 million on an IFRS basis coming from the equity, consolidation plus the running result from the Q4. So that means by beginning of 2025, done. Also the reinsurance connections between these countries and UNIQA Re are closed by the end of the year.

Second thing is a little bit of outlook, Andreas will then tackle in the end of this call. For 2025, Thomas, let me give you a little bit of time. You know that we are organizing the Capital Markets Day in London, as Andreas already stated in December. And here, we will give you the full guidance for 2025 to 2028, the new strategy of UNIQA with all details also with the colleagues from the international business, Austria and on the personal lines. So please apologize that we do not do this upfront. Just one sentence. We do not expect big changes in the economic performance of UNIQA, but more to come then in London. About Hungary?

Yes. Like you can do it together, right? So Thomas, about Hungary. Kurt and me touched now briefly the country portfolio. We want to be present and frankly spoken with a question where do we earn our cost of capital, how much management attention, do we think certain counters should deserve and stuff like this. And what kind of growth potential will certain countries have. And frankly spoken, we talked very carefully about Hungary because we saw some political risks there, Kurt touch briefly before topic of tax. And so we didn't understand is there a kind of politics around which will further boost any kind of national tendencies there in Budapest under the urban regime.

So as mentioned by Kurt, this changed. So we made a clear decision staying in Hungary, restarting the business, looking for profitable growth and we are very confident that Hungary will deliver a significant value means on the top line, but also bottom line to our overall exposure and profit development in CE. So once again, of course, the largest country as far as profitability are concerned in Eastern Europe will remain by far Poland, followed then by Czech Republic and Slovakia, clear, but we will stay in Hungary, we will stay in Ukraine and as mentioned before, the remaining countries on the Balkans, we already basically brought together a couple of years ago, I think 2 years ago, under one common umbrella. As I mentioned, we call it SE6 having the big idea in mind, how can we bring down admin costs there? How can we see the region consisting out of many small markets in a better way? But this would be in a nutshell and just summarizing, adding and underlining what Kurt said before, the rest and please, I hope it's okay with you the rest to follow them in the Capital Markets Day on December 11 in London. Is it okay for you, Thomas, for the moment?

Yes. Yes.

In between to the colleague from UBS, who started in the beginning with this question, the open topic was the negative variance Q3 stand-alone to Q2. So finally, we found what you meant. I may answer the question in terms of the main impact comes from the interest shift from Q2 to Q3. And this led to these negative variances on the EUR 120 million you pointed out.

[Operator Instructions] There are no further questions on the line. So I'll now hand you back to your host for closing remarks.

Thank you so much. The closing remarks you find on Slide 19 is about the outlook, which was addressed before by Kurt.

So based on very solid core business with a very high proven, very high underwriting discipline in our two core markets, CE and Austria, which proved to be robust and resilient, even in difficult times and challenging times of natural catastrophes. We remain positive. We remain positive not only as Kurt mentioned, for the full year 2024, which we expect to be in line as far as profitability is concerned with the previous year, so 2023, but we remain also positive for the year 2025 and further on. And about all those plans in detail, we are very happy and proud to inform you on December 11, in London. I hope you have time to come by with the big pleasure.

Thank you so much. Thank you for your attention. Have a good day and a good week. Bye-bye.

Thank you for joining today's call. You may now disconnect.