DFV Deutsche Familienversicherung AG

XETRA:DFV

Earnings Call Transcript 2023-Q1

[Operator]

Good day, ladies and gentlemen. Thank you for standing by. Welcome and thank you for joining the DFV Analyst Conference Q1 2023. [Operator Instructions]It is my pleasure and I would now like to turn the conference over to Karsten, CFO. Please go ahead.

[Karsten Paetzmann, executive]

Yes, thanks a lot. Good afternoon, ladies and gentlemen and a warm welcome to the presentation of the Q1 2023 financial figures of Deutsche Familienversicherung. My name is Karsten Paetzmann and I'm the CFO of this company. This presentation is special in one respect because it's the first one where we apply IFRS 17 and IFRS 9, following a 20-year long process a new IFRS regime for insurance contract was finally introduced on January 1st, 2023. And as a result, the figures which I will present in the following minutes look differently. We have adopted not only IFRS 17 insurance contract, but also IFRS 9 financial instrument in or as of January 2023. That includes new measurement models, a new presentation of financial data and extended disclosure requirements, which you will see at the half year results and finally at the annual report for 2023.I have already during our presentation of the 2022 group result and the preliminary data in February and March provided some conceptual guidance, which our team has prepared. So I'll refer to that conceptual guidance if you look for further information. Furthermore, I want to be quite clear about the following. DFV will continue to apply HGB local German GAAP accounting for internal purposes and that is especially because we are directed towards our aspiration to be able to pay dividends to our dear shareholders quite soon in the future. That is a goal, which is central to the [indiscernible] of DFV and I just want to be clear before I now experience and to discover together with you the new financial data based on IFRS 17 and IFRS 9.And as a starting point, we have three new KPIs. The first one is called insurance revenue, which has grown by 5% year-over-year. That is a KPI similar to growth written premium the one which we reported on over the last years, which is not there anymore in IFRS accounting. It's now called insurance revenue and it's a bit different to growth written premium, but it's a good indicator for the business volume, which we have recorded in the reporting period.The second KPI is called Insurance service result and it is something like an operational result in German physicians [indiscernible] but it's different to what we reported on in the past. And with a quite pleasing result, I can open up the IFRS accounts for Q1 2023 because this KPI has increased by 39% year-over-year. And finally, depicted on this page is the combined ratio. Well, if you follow us -- if you have followed us over the last years, you are aware of this KPI. However, it is calculated a bit differently, which I will show you on the following slide. We have been able to decrease this KPI a little bit from 96% in Q1 2022 to 95% in the first quarter of 2023 and compared to the combined ratios we reported on over the last years, it's generally like 2% to 3% lower.So let's now look at the insurance service result and the statement of comprehensive income. On this page, we have illustrated the first few lines of the statement of comprehensive income and the line items are new, which you will notice. It starts with the insurance revenue, the indicator of the -- for the revenue of the volume of our company, which has, as mentioned, increased by 5% in the first quarter of 2023.Actually, we are quite pleased with this result and the new business volume which has been won in the first quarter is above expectations and above our business plan, which includes EUR15 million new business for 2023. So this is kind of pleasing and we are happy to announce that we continue to win business and we continue to be a growth business also in 2023.The further, the next increased line item is called acquisition cost or amortization acquisition cost, which reflects acquisition costs paid in the past and we call it as an asset and then in periods following amortized as long as the product life continues. This line item has gone up from Q1 '22 to Q1 '23. However, this is a reflection, it entirely reflects acquisition cost paid in the past. If you follow Deutsche Familienversicherung's presentation, you are aware that we have a completely new sales approach, which is more efficient, we pay less to our product partner to our intermediaries and therefore, this increase in acquisition cost does not reflect the current development in the sales area.The next line item is called other insurance expenses, which refers to operating expenses and we have again been able to decrease this line item by 13% in the first quarter of 2023. Then you see a line item called net expenses from reinsurance contracts held, which includes all amounts or net amounts paid to reinsurers for services, reinsurance services provided. This line item has gone up quite significantly from EUR1.6 million year-over-year to EUR2.9 million and that is actually due to an enhanced profitability in the underlying growth business at Deutsche Familienversicherung, I consider this increase kind of an extraordinary one-off amount.And finally, this leads to the insurance service result, the operating results from insurance services provided, which has gone up by 39% in the first quarter to EUR2.4 million. Also shown on this table, the ratios. You see the claims ratio, which has been stable at 68% both period shown. The acquisition expense ratio, which has gone up from 10% to 11% as mentioned. And you see that the admin expense ratio has gone down from 18% to 16%. Overall, the combined net ratio has decreased from 96% to 95%.At the bottom of this page, we have provided for illustration purposes, how we calculate the combined ratio. And that is not only to educate you that cannot be our task, but it is to be clear how we do this because if you look at presentations of other insurance companies reporting under IFRS 17, you will see multiple ways how to calculate the combined ratio and we wanted to provide as a service to you I may say, we wanted to provide the formula, so you can reconcile the numbers which we present.Now this slide show the statement of comprehensive income up to the insurance service result. And on our next slide, we will continue on to further line items. So we again start with the insurance service result, which was EUR2.4 million in Q1 2023 and then we add the net financial results. This has decreased from EUR1.5 million in the first quarter of '22 to EUR0.3 million in the first quarter of 2023.Now what is that the result of? It is the result of a net investment income of EUR5.0 million in the first quarter of '22 and I have to be clear that this number was to a large degree driven by unrealized fair value changes from options to be more specific from interest rate options, which have come out favorably for Deutsche Familienversicherung and that is something that we have not done in the first quarter of 2023 and you see that the net interest income is -- sorry, the net investment income has more or less collapsed to EUR0.6 million. But that is current revenue in our so-called Freies Vermogen portfolio and that is stable and that is sufficient to provide the underlying insurance business with return.The next line item, net insurance finance expenses is somewhat newly introduced by IFRS 17. What you see here in Q1 2022 is that a large amount of a gain. And that is because under IFRS 17, if you choose the so-called OCI options, you can net off the P&L effect that arise from so-called participating business, which we have done. Because for participating business, the overwhelming part of the return achieved belongs to the insured, not to the shareholders. And therefore, this illustrates that the net financial result is the result of net investment income earned and such netting off for the part that goes to the insurance.IFRS 9 and this is actually not IFRS 17 now, but IFRS 9 includes a large portion of volatility, which we have experienced already in both reporting periods shown and which we will experience in further reporting periods come because unrealized fair value changes in the investment portfolio of some of the asset classes will be recognized directly in profit and loss. And that is exactly what we see here, following a Q1 2022, where we had a large part -- to a large part, unrealized -- unrealized market changes recorded directly in the P&L, we miss out on such unrealized profit in the Q1 2023.I'm happy to provide further information afterwards if you would like to have some. The further line item below is the other result which relates mainly to costs that are not referred that do not refer to the operating business and that has been flat in both period shown at EUR0.8 million. And finally, this leads to a profit before tax, which has decreased from EUR2.3 million in Q1 2022 to Q1 2023.Now if I continue to compare Q1 2022 and Q1 2023, this is based on a restatement of Q1 2022. If you are following our press conferences frequently, you might remember that we recorded and presented a profit before tax of EUR1.4 million actually one year ago and now we present a restated profit before tax of EUR2.3 million.On the following slide now, we would like to give you a few insights where these differences come from. Now this graph is bridge starts on the left with the old profit before tax of EUR1.4 million and guides you through a total of five adjustment to the new profit before tax following IFRS 17 and IFRS 9 of EUR2.3 million. The main differences are, number one, the new fair value through profit and loss measurement introduced by IFRS 9. That has led in Q1 2022 to an increase of the profit before tax of EUR3.0 million. There's another small impacts coming out of IFRS 9 depicted by number two.Interesting is number three where accounting mismatches under the measurement model of VFA, which is one of the three measurement models provided by IFRS 17, where accounting mismatches are eliminated and that refers to number one, i.e., to fair value through P&L measurement of IFRS 9 and other P&L effective elements in the profit before tax. And therefore, the netting effect of EUR3.5 million is even larger than the EUR3.0 million.And further on, number four refers to insurance acquisition cash flow asset. These are acquisition cost paid out to intermediaries for winning new businesses where we have decided to record an asset on and now we amortize this asset as shown on the previous slides. And finally, number five, refers to other -- to a number of other IFRS 17 impacts, overall leading to a new profit before tax, which is higher than the one initially recorded and presented one year ago.I would also like on this slide to give you a few operating indicators. And as mentioned earlier, we continue to apply HGB German GAAP accounting for internal purposes. These KPIs show you for the three reporting segments, which we have how the net earned premiums and the claims ratios have developed. If I start on the right with our newest reporting segment called inward reinsurance segment. There we have stable net earned premiums of EUR9.0 million and a loss ratio or claims ration which is near to 0, this is a stable business, which contributes to the overall positive development of our company.And now let's talk about the health segment on the left, the segment that is by far the largest and that includes our core business, dental insurance. And by the way dental insurance, I just learnt this morning, the Deutsche Familienversicherung has won again the first price at the Stiftung Warentest which I believe is the most important product rating agency in Germany for insurance product. We are again winner, first price winner for dental insurance in Germany.So this dental product which about represents 50% of our revenues in primary insurance is included in these figures and I can let you know that we continue to grow also in this half segment from EUR18.1 million to EUR19.4 million, which is a growth rate of about 7% year-over-year. The claims ratio in this segment is a bit fluctuating. It was at 61.9% in the first quarter and that is before allocation to actuarial reserve and I consider, we consider this to be a profitable business. It's in line with actual guidance.And now I come to the red segment, the Property-Casualty segment, the one that has the highest growth rate. Again, the net earned premiums are shown and they have grown from EUR2.4 million in Q1 2022 to EUR3.0 million in Q1 2023, which is a growth of about 25% year-over-year. And I'm more than delighted to confirm that the claims ratio in this fast-growing reporting segment continues to be quite pleasing. It's now at 44.2% and that is I consider it a very good claims ratio for a young business, which we partly started only a few years ago, if I refer to pet insurance. So that gives you, I believe, a few insights into our reporting segments and how the operating business is actually running.And with that, I would like to sum up three key messages, which I would like to leave with you. The first message is that we believe that our transition towards a sustainable, profitable business remains on track. We have various multiple initiatives that point into the right direction to be profitable and to earn the return that our shareholders deserve. Number two is, Q1 2023 has been an excellent quarter. We report an operating performance of -- that is up 39% in compliance with the new IFRS standards, which is, I think actually excellent. And we continue to have high discipline both on product pricing and on selling products to the market via the sales channel.The third message which we would like to leave with you is that, yes, as expected, the financial results coming out of IFRS 9 are more volatile than in the past. However, the profit before tax earned in the first quarter confirms and we confirm that our profit guidance for 2023 of EUR3 million to EUR5 million is confirmed. And more generally as a takeaway, my conclusion to the first quarter includes five elements.The first one is our efficient sales force. We are more digital, we are more direct and we win business at a rate that is above plan. Second, we have modern marketing campaigns. There were TV spots. If you look German TV, you will notice that there are fantastic new spots and I can tell you that as we speak right now, there's another one on the set right now and I have heard that the [ docs ] on the set actually behave. So we look forward to see this TV commercial in a few weeks.Number three, innovative products. Yes, we will launch a new pet product. We will launch a new long-term cap product and we have launched a new combi product where you have seen this in the TV spots, I think, starting January 2nd or 3rd. So we continue to have a pipeline of innovation and we will let you know. Number four, process automation. We continue to be active throughout the customer life cycle in our company from winning customers online through operations up to paying out claims.We continue to buy, to be disperse, to automate whatever can be automated inside Deutsche Familienversicherung. And number five is a further professionalization throughout our organization. We will be more digital soon, we will be of higher quality with higher quality control soon and we will be quicker, quicker in everything we do vis-a-vis the clients and that is to the benefit of our customers and obviously also to the benefit of our shareholders.Now combining our sustainable, profitable business with a -- at least few of this with the spirit of a young firm and all this in a regulated industry, I believe we can conclude by saying DFV remains exciting.And with that, I hand back to the moderator.

[Operator]

[Operator Instructions] First question from Jochen Schmitt from Metzler.

[Jochen Schmitt, analyst]

I have five questions, please. Firstly, on Slide 7, the bridge from pretax earnings Q1 last year under former accounting to the new accounting regime, the EUR1.8 million of capitalized acquisition cost which you show here, is this net of amortization of acquisition cost? That's my first question.

[Karsten Paetzmann, executive]

To be clear about this, I should answer this now immediately and then return to question two, okay. Understood.

[Jochen Schmitt, analyst]

Sorry for that.

[Karsten Paetzmann, executive]

No, no, no, no, we just had another month in previous conference that I waited for five questions, this makes it easier actually for me. Now you refer to paid asset, that is the movement in Q1 2022. And that actually includes the recognition of new assets and also amortization, I believe, for previously recorded assets. So it's the change between IFRS 4 and IFRS 17.

[Jochen Schmitt, analyst]

Okay. So in -- that would often my understanding. Second question, could you comment on the influence of the current interest rate environment on your insurance service result. I assume that there are some tailwind from recent rates or to ask a question in a slightly different way, would the insurance service result which you stated for Q1 last year would have looked somewhat better if today's interest rates would have been applied in the discounting?

[Karsten Paetzmann, executive]

Okay. Understood. Now the IFRS standard setup is quite clear about differentiating operational expenses and revenues from financial expenses and revenues and the insurance service result, which you refer to does not include fewer return from investment. Therefore, any impact from interest rate wise this would be either reflected in higher revenues or higher claims payout, which we actually, for this period, I couldn't even have a good guess on what that is. You are right that we obviously have business and that we obviously look at the premiums of our product, but I could not give a good guess of what the impact of that would be in the operational business. Maybe with one exclusion, we have seen in the PET business, we have been -- we have seen a revision of the German Gebuhrenordnung for the doctors that became effective in the fourth quarter. And that is -- is that something that refers or is the result of inflation or interest rate changes, I couldn't tell you because there has not been a vision for many years. No, I would say on this question changes on the insurance service result has been the two period shown here.

[Jochen Schmitt, analyst]

Then the third question, you stated a stable development of the running investment result on Slide 6 of the presentation. I assume it's probably some increase due to new money flows and the current interest rate in us.

[Karsten Paetzmann, executive]

Yes, of course, you're right to say this. But as a relative number, this has been stable, yeah.

[Jochen Schmitt, analyst]

Then fourth question, could you provide a figure for the CSM in the balance sheet?

[Karsten Paetzmann, executive]

Not presently. We are not ready to disclose this to the public and I ask you to -- let's wait for half year figures when we meet again, please.

[Jochen Schmitt, analyst]

And the last question which if you want to answer on German GAAP, German GAAP [indiscernible].

[Karsten Paetzmann, executive]

Generally, our tax rate, if that is the question, is around 31, no?

[Jochen Schmitt, analyst]

I'm just asking for the result according to German GAAP, according to HGB, either tax or an after-tax level, just if you want to disclose it?

[Karsten Paetzmann, executive]

No, I'm not in a position to do so because, so we have a group of business, as you are aware and I cannot disclose figures for just one company. But what I can tell you and this is obviously in line with what I've told in the beginning, we continue to drive our business internally based on German GAAP figures. And -- but what I can say if there were a large difference between IFRS and HGB numbers, I would let you know also pleasing for us that we have -- with a great team actually have introduced IFRS 17 at DFV.

[Operator]

[Operator Instructions] It seems to be no further questions at this time and I hand back to Karsten for closing comments.

[Karsten Paetzmann, executive]

Okay. If there's no further question, well, I know that the new IFRS regime is kind of complex. If you have further questions, next to me sits Lutz Kiesewetter. The two of us we are ready to talk to you on a 1-on-1 basis or whatever you feel is adequate, we invite you if you have further questions for listening. Thank you for your interest and thank you for standing by with Deutsche Familienversicherung. I believe we have a great bright future and it's great to have you and other shareholders with us. Thanks a lot and have a great afternoon.

[Operator]

Karsten, there is one question came in, if that's okay, to take it?

[Karsten Paetzmann, executive]

Of course.

[Operator]

Which is from Rene Locher from Stifel.

[René Locher, analyst]

Karsten, I have sent you a couple of question via e-mail. So I guess you have not checked your e-mail, but thank you very much for taking my question.

[Karsten Paetzmann, executive]

I'm sorry, if I hold this presentation, I cannot read e-mail at the same time, sorry about this. But it shows me that this e-mail, he was copied in obviously went into quarantine because it obviously included some excel or word document, whatever.

[René Locher, analyst]

Might be that it's coming from Switzerland, no, okay.

[Karsten Paetzmann, executive]

But what I can, really, what I can offer you now is that we take a look at the e-mail. It will come out of the current time and we will call you, how is that?

[René Locher, analyst]

Okay, that's fine for me. Thank you.

[Karsten Paetzmann, executive]

When we call you afterward [indiscernible] for you.

[René Locher, analyst]

Perfect, thank you.

[Karsten Paetzmann, executive]

And with that, probably back to the moderator.

[Operator]

Yes and that was our last question for today.

[Karsten Paetzmann, executive]

And you are sure about this?

[Operator]

There is nobody in the queue right now.

[Karsten Paetzmann, executive]

Okay. Ladies and gentlemen, again, thank you. Thank you for listening. Thank you for your interest. Great to have you on board at Deutsche Familienversicherung. Take care. Bye-bye.

[Operator]

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