DFV Deutsche Familienversicherung AG

XETRA:DFV

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the DFV Analyst Conference Q3 2023. [Operator Instructions] I would now like to turn the conference over to Dr. Karsten Paetzmann, CFO. Please go ahead.

[Karsten Paetzmann, executive]

Ladies and gentlemen, a very warm welcome to the presentation of the financial results of the first 9 months of 2023. Thank you for joining, and let's get started with 3 specific KPIs, which highlight the financial performance of the first 9 months of 2023.

The first KPI I would like to comment on is the insurance revenue under IFRS 17, which grew by 8% year-over-year. The combined ratio decreased a bit to 96%, signaling a robust operating profitability, and I would dig deeper into this later on. Overall, we have been busy preparing a solid, robust profit before tax of EUR 4.4 million, which I will show you the details on the following slide.

This slide actually depicts the first part of the statement of comprehensive income under IFRS from the insurance revenue at the top to the insurance service result at the bottom. And the second page, which follows this one will show you the rest of the statement of cognitive income. The insurance revenue increased by EUR 6.8 million or 8% to EUR 97.3 million. And please be reminded that insurance revenue under IFRS 17 also includes the unlocking of the contractual service margin, which is effectively containing the future profits of the contracts. The inwards reinsurance business, which we have entered in, I think, 2 years ago, precisely 2 years ago is also included and recognized with its P&L effect only. The -- back to the table, the insurance service expenses increased a bit to [ EUR 58.7 million ]. And at the bottom of this table, you see the resulting KPIs. The claims ratio in this respect is stable, it even decreased a bit to 61.5%.

The next line item is the acquisition cost, which includes both the amortization amount of historical customer acquisition costs under the PAA model as well as the current distribution costs of the period. And this line item increased by EUR 3.4 million. The acquisition expense ratio showed at the bottom of this table, increased to 19.5%.

The other insurance expenses containing administration expenses decreased to EUR 14.3 million. This is a decrease of the admin expense ratio to 15.0%. The next line item includes the net expenses from reinsurance contracts held due to a recalibration of the respective model, we have seen a decrease of this line item to EUR 1.9 million. And this all results in an insurance service result, this is -- that has increased to EUR 3.8 million for the first 9 months of 2023.

The respective KPI is the combined ratio, which has effectively decreased a bit year-over-year to 96.0%. And now on the following slide, let me continue on the statement of comprehensive income. We again start with the insurance service result of EUR 3.8 million. This is added by the net financial results under IFRS 9 and IFRS 17 which has decreased to EUR 2.4 million compared to EUR 4.6 million in the first 9 months of 2022.

On the right side of this slide, you see a few comments. Maybe the most important comment is the current investment return, which remains stable, which is important for the -- if you have joined in our press conference on the Q2 financial figures, you will remember that we experienced some hits on the investment portfolio. There have been no further hits in Q3. And therefore, this quarter has been kind of better in terms of experience on the market. However, all real estate risks included in our investment portfolio remained on agenda.

Another line item I would like to comment on is the other result which has been -- has increased to negative EUR 1.8 million. This increase by EUR 0.5 million is effectively related to one-off restructuring expenses. And these are actually one-off expenses that will not recur again. This is an amount we just had to recognize in the third quarter.

Overall, the profit before tax is at EUR 4.4 million after the first 9 months of 2023, which is, in our view, in line with our full year's profit of EUR 3 million to EUR 5 million. However, I would again like to refer to the volatility on the financial market, which has caused some turbulences also on the side of Deutsche Familienversicherung, which has caused actually the net investment income to go down to EUR 1.3 million. Overall, the operating profitability is robust, as explained on the previous page. And we are profitable and we think that the profit before tax of EUR 4.4 million is a clear sign that we can achieve the full year guidance.

To summarize, we have seen a revenue growth of 8% in the first 9 months year-over-year. And we have, in addition, started a bundle of initiatives to further increase profit and growth. These are effectively price increases, we have increased rates on some of the major products, and this will become effective on January 1, 2024.

The operating profitability is robust, and if you have joined our press conferences for the last quarters, you will have seen the same. I continue to say that we have a robust operating profitability. And however, we continue to improve our internal processes, a big part of it is to further digitalize the customer experience to become more customer-oriented and effectively to be more profitable in the future. Overall, please keep in mind the volatility on the capital market. However, we are confirming our profit guidance of EUR 3 million to EUR 5 million for the financial year of 2023.

And with that, I would like to show you this small table of upcoming press conferences. The first is on November 27, the German Equity Forum in Frankfurt and the other one is effectively in Hong Kong, Asia. As you might know, our CEO and founder, Stefan Knoll, is frequently invited to conferences. And from time to time, he confirms and attends. And this is the one because we think that Deutsche Familienversicherung has something to say to the market and to the insurance and Insurtech community.

We are profitable. We have a solid business model. However, our share price is still far from the intrinsic value of Deutsche Familienversicherung. And with that, I give back the mic to the moderator and be happy to take on your questions.

[Operator]

[Operator Instructions] And the first question comes from Jochen Schmitt from Metzler.

[Jochen Schmitt, analyst]

I have one question, please. Given the capital market developments quarter-to-date, what would be your expectation for the valuation result from your investments accounted for at fair value through P&L in the current quarter as of today, would you expect some markups or rather a neutral or negative earnings contribution from today's perspective? That's my question.

[Karsten Paetzmann, executive]

Okay. Thank you, Jochen. Yes, a good question, effectively. As you know, and I know you know, under IFRS, only a limited number of financial instrument is marked at fair value through P&L. And Deutsche Familienversicherung this is mainly the real estate portfolio, which is held in a fund and it's the equity ETF portfolio, which is decreasing. I think I have stressed before that we are decreasing the equity share in our portfolio. And therefore, it's mainly real estate and it's a bit of equities.

Now to your question, Jochen, I don't know. I cannot tell you what the stock prices will be doing until the end of the year. We are in kind of, I don't want to say alert, but when it comes to real estate portfolio, we have just had our asset management conference with our asset manager, and we are -- we feel to be good positioned on the market, when it comes to the real estate portfolio because it's very diversified by asset classes, but also by region. It's a Western European portfolio, a mixed portfolio. Jochen, I cannot tell you. I cannot tell you we are prepared for everything, but my best guess will be a neutral development in the fourth quarter. We have so far not seen any adverse development. I hope this answers your question.

[Jochen Schmitt, analyst]

Yes. Just a brief follow-up, if I may. So for the equity part of your fair value through P&L investments, quarter-to-date, I mean, based on the share prices as of today, you would probably book some markups. That's probably right, isn't it? I mean just for the equity portion, apart from the real estate investment...

[Karsten Paetzmann, executive]

I get your question. I wouldn't make such a such a general comment, but there are good signs that we are at least neutral until the end of the year. You are correct.

[Operator]

[Operator Instructions] So it seems there are no further questions at this time, and I hand back to Dr. Karsten Paetzmann for closing comments.

[Karsten Paetzmann, executive]

Okay. Thank you. I would like to thank the audience actually for dialing in, for being interested in Deutsche Familienversicherung. As pointed out, our operating profitability is stable and robust. And we look forward to -- together with our shareholders, to have a profitable growth avenue ahead.

With that, again, thank you, and take care. Bye-bye.

[Operator]

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