Uniqa Insurance Group AG

VSE:UQA

Earnings Call Transcript

[Operator]

Hello, and welcome to UNIQA Group results of the first quarter 2020. My name is Jose, and I will be your coordinator for today's event. Please note this conference is being recorded [Operator Instructions]

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

[Andreas Brandstetter, executive]

Thank you, and good afternoon, ladies and gentlemen. Thank you for your time. Highly appreciate. It's the report out of a quite unusual and very special quarter one, very special times. I suggest to move on to Page 4 of our presentation, which provides a short snapshot on our results on our P&L. I would summarize saying that in some aspects, we see already some negative impacts, maybe some first negative impacts by COVID-19, in some other not or not yet. Very positive and not already concerned by COVID-19 remains the premium. You might have seen we show some really strong and very solid growth, especially in P&C and in Health business. And for the first time since many quarters, we see a kind of stabilization in the Life business with a growth of 0.3%. This is something very especially because of the very strong sales results in January and February and the first 2 weeks of March. We are not heavily impacted yet by COVID-19. If a little bit later on, we move to the outlook, we can give you some guidance what we expect as far as the rest of the year 2020 is concerned.

Net investment income. I'll touch a little bit later in a second. Insurance benefits has been growing by 2.2%, which means less than 3.2% on the growth side of the premium. And what is really positive to mention is that we have already included in those EUR 950 million a provision of EUR 37 million, mainly for results of COVID-19, mainly for covering insurance side on the P&C business in Austria. But we also have been digesting effects from NatCat. We had some storms in the first quarter 2020 in Austria and results from an earthquake in Albania, which already happened in the last year 2019. Further, we had some negative effects coming in this quarter. What does this mean? It means that, yes, we saw some negative impacts of COVID-19 as far as our insurance benefits are concerned. But on the other hand, the so-called basis claim, meaning the discipline for underwriting, obviously, is quite good because we could digest it already. What do we expect for the year -- for the whole year 2020 as far as insurance benefits are concerned? You might have noticed that during our recent call in -- I think, in April, 14th of April, 15th of April, when we communicated the profit warning for this year, we said that at the max we expect EUR 150 million, 1-5-0 impact, negative impact seen on the whole year 2020 for COVID-19. So you might say that those EUR 37.5 million, where it will be provision for in the first quarter is already 1 quarter. Will those EUR 150 million come or not? Too early to say. But at least here, we already see some kind of really first strong impact, some hit on our P&L as far as COVID-19 is concerned.

Operating expenses, an increase of 9.3%, not very positive in the first glance. If we look a little bit deeper, not really bad because on the one hand, yes, we see increased commissions, but this goes in line with growing volumes of our business and especially with the desired and planned turn of the portfolio because as you know, since some years, we really aim for decreasing our share in motor business in Eastern Europe and to really focus on the growth of other non-life business, excluding motor. This means higher provision, but overall the higher also profitability on this business. The second part and the main part of those operating expenses are linked to the acquisition of the AXA companies in Czech Republic, Slovakia, Poland. We'll come back a little bit later, but this acquisition already asks now for some higher admin costs, which will be a onetime effect and will not be repeated again.

Investment income, a decrease of roughly 12%, mainly due to impairments of equities and despite FX gains. What means despite FX gains? If you have a look on the next slide on Page 5, you see that we had in the last days of 2000 -- of the first quarter, we had some gain on the FX side. As you know, in some of our CEE markets, Life policies and corresponding assets are denominated in FX, this means euro and U.S. dollar. This is not something new. We have -- and this is now the P&L of the international business. As you see, we have EUR 35 million FX gains included in this investment income, mainly driven by Russia and by Ukraine. On the other hand, you see in the other nontechnical result, negative valuation effect of roughly EUR 28 million of the liability side. And this leads to a kind of relief for our insurance benefit. Having said this, the 12% might have been worse if this wouldn't have happened. Very positive to mention.

And then leading on to Page 6 of the presentation is about the SCR. It remained quite stable, given the circumstances in which we're currently living in. You know that our solvency ratio at the year-end 2019 had been 221%. You see now a small decrease of 17 percentage points, down to 204%. But overall, this is a very positive and robust situation for us, and we feel quite confident. Why I had to mention it here in special because after the acquisition after the integration of the AXA companies, which I mentioned before, we aim for -- we'd see, of course, a decrease of the solvency ratio. But also having digested it, and we expect the closing of this transaction to happen in Q4 of this year. After having digested this, we expect to be in the upper range of our target range between [ 155% and 190% ]. And this is the reason why it's very important to have this solid and stable solvency ratio.

All right. This was a brief overview about the main developments in Q1 and coming now to group results, I may hand over to Kurt Svoboda, our CFO. Please, Kurt, go ahead.

[Kurt Svoboda, executive]

Good afternoon, ladies and gentlemen. Let me guide you through the pages, starting on #8 about the situation around gross written premium, 3.2%. On a growth basis, quarter-by-quarter, it is not impacted by COVID-19 too far. So we have, in the first quarter, no big impacts on the growth side in our group. What we can state is that we have 2.6 percentage points in Austria on growth and more than 4% in UNIQA International.

Page #9, it's about the cost ratio. So explanation has been already given by Andreas Brandstetter. Just let me explain that. On the commission side, the business mix, especially in the international business and also in Austria, leads to an increase in commission. This is in line with the growth. On the other hand, this leads also then finally to a better profitability, especially in the international business, as just stating again back from motor business towards retail business and towards businesses out of the motor side.

Page #10. We talked about combined ratio, 97.8%, including a EUR 38 million provision on business interruption coming from COVID-19. So far, we calculate this as an gross for net, meaning no external reinsurance, as discussions with external insurers are still ongoing. If this is a pandemic case, if this is something that can be treated as a single risk or as an accumulated risk. So for the time being, restating, we account this as gross for nets in our group.

P&C business itself, Page #11 is, therefore, impacted on the one hand by the investment result. I'll come to that later on and by the EUR 38 million, the so-called basic claims up to EUR 500,000 are quite better than in the comparable time in 2019. So that means that the business at all is right growing. Health, the same. Negative impacts out of the investment result lead also to earnings before tax below the 0 baseline. And also the cost benefit ratio is deteriorated out of that. Again, here also, the business is stable. We see no trends in terms of lapses or -- but the new business is not enough. So in that case, the impact really comes from the investment result out of the first quarter.

I come to Page #14, about investment activities. You have been already heard about the FX development. So what we see in the first quarter impairments, especially on the equity side, that on the one hand, it's about the fund concept in our portfolio. And as we have to calculate each fund with a so-called look-through approach, this means that we had impairments of around EUR 30 million in the first quarter. If this catches up, also this information I want to give you, the catch-up on an equity position, will go through the OCR and not again to P&L. So in that case, these losses are done.

Real estate, just to mention, on a stable position. You know that we are treating them at amortized costs, and we see at the moment, no big impact out of less payments out of rental in Austria. So far additional information to the first quarter result.

And for the outlook, I would like to hand over back to Andreas.

[Andreas Brandstetter, executive]

Thanks a lot, Kurt. The outlook, just a brief summary on Page 16. Well, it's quite cautious, as you might have seen, the growth of 3.2%, which we saw on the premium side in Q1 cannot be expected to continue in Q2 and so on, even not repeatable. As far as P&C is concerned, we expect a decrease compared to the full year 2019, whereas we might assume that the health business due to our strong market position in Austria remained stable. By the way, it's a very interesting observation that in April when in some kind -- in some matters, in some fleets of businesses, the new business showed a decrease of somewhere 40%, 50%, 60%, and I'm not just talking about April. The demand for health business remains stable. So people obviously understood that they should do something for the health and we are, let's say, more confident as far as the Health business is concerned than on the P&C side. But let's see how things are going to develop.

We further expect an ongoing muted demand for the Life business. I guess we are very happy that we saw for the first time a kind of turnaround on a low level in Q1, meaning that we saw this increase of 0.3%. But we expect, due to the macroeconomic situation which we are in, and the ongoing low interest environment, that the demand will stay the low level.

Combined ratio as a result of what I just said, will, of course, increase, not possible to keep the level of 2019 at 96.4%. You know that our overall target has been to go and to reach 95% of combined ratio in the year 2020. This was our long-term target when we introduced UNIQA 2.0 to you in the year 2011. It's basically because now we really managed to bring it down from originally 104% to 100%, and then further down to 96.4%, but for this year it's very difficult to give a clear outlook, but for sure it is the 96.4%.

Net investment result, as a consequence of what Kurt told you, and as I mentioned at the beginning, is expected to decrease, of course, due to -- in relation to 2019, in which dimension and by how many percentage points [indiscernible]. Thus we will stay cautious as far as the investment result is concerned.

We repeat and have to repeat what we already mentioned to you in April, but we expect the year 2019 -- 2020, excuse me, the full year to possibly stay negative. And UNIQA is going to show for the whole year negative earnings before taxes, it might be. And also I have to confirm, unfortunately, that we keep on planning not to distribute dividends for the year 2020. As far as 2019 is concerned, we'll have general assembly on a virtual base next week on Monday. You know that we are going to shorten dividend, which we had planned at being EUR 0.54 per share, this would have remained for the 8th time in a row, an increase of the dividend per share. We will propose to cut it by 2/3 and to go down to EUR 0.18 per share. Not necessary to repeat that, of course, we stick to the announcement paying a bonus payment for the year 2020 to the management team of the UNIQA Group.

One last thing. We touched a few times the AXA acquisition. The signing had been happening in February this year. As mentioned, we expect the closing in Q4 of 2020. We are in heavy contacts with regulators in Poland, in Czech and Slovakia and in Brussels to fulfill all the necessary legal requirements. So everything is going on. But there will be no significant impact yet in the year 2020, maybe just some parts of the Q4 result, but we will not see too much in our P&L and in our KPIs of this acquisition.

So this is was in a nutshell. Thank you so much for your time. And Kurt and me are very happy to answer now all your questions. Thank you.

[Operator]

[Operator Instructions] The first question comes from Thomas Unger from Erste Group.

[Thomas Unger, analyst]

Just two regarding the outlook. First of all, if you could maybe elaborate a bit more on the premiums development that you expect especially in P&C? And what are the new volumes now? And what do you assume for the coming quarters? And then also on operating expenses, what can we expect for 2020? And then on the Q1 results, in health insurance, the technical result was quite weak, although the investment income was about at the same level of the previous year. Could you explain that decline in the insurance technical results in health insurance, please? And then lastly, also the other nontechnical, which included the substantial negative valuation effects due to FX movements. Was there anything positive in those other nontechnical results that partially or nearly fully offset these FX movements?

[Andreas Brandstetter, executive]

Thank you, Mr. Unger, Andreas is speaking. Before Kurt is going to take over your question #4 and your question #3, let me come back to your first Q. The one was about the costs and the second about the premium. Starting with the premium and the outlook. As I mentioned before, no really heavy hit. I mean frankly spoken, no hit at all in Q1 results. But as mentioned before, in Q2, we saw already in April in some lines of business a decrease of up to 75% as far as the new business, but don't talk about the portfolio and talk about the new business is concerned. The strongest hit, of course, no big surprise happened in the motor business. Everything about car business really showed a sharp decrease, especially in Austria, but not only. An excellent insurance but also Life and health insurance. What we see now by the figures from May shows a positive trend, meaning there is still a decrease in the new business, but not as strong as we saw it in April. Now if you ask us okay, what does this mean for the whole year, really, frankly spoken, I have to repeat my message from before, it's so difficult to -- it's so really difficult to estimate and to give really clear guidance.

But what we know for sure it will be not possible to catch up everything what we lost till so far in the last couple of weeks, okay. So I'm sorry that I cannot be more clear on this, but we are just sure that we will see a reduction of gross written premium the whole year. Interesting wise, still today, the decrease in premium, what we saw in April, is much stronger in Austria than in CEE, okay, which also might be aligned to the nature of the business because we have much less personal lines business in CEE than in Austria. But also here, too early to say a small first guess might be that Austria will be hit more by this premium reduction than Eastern Europe, but let's see, let's be cautious. About the costs, in addition to what Kurt said. And you're right, I mean, we'll see some positive impacts on the cost side. Just the effect that we will pay no bonuses for the management team for this year, will give us a release of up to EUR 25 million. We have no new events, we have no travel expenses. So there's some really positive effects, which we do not see all yet in the results and the costs side in Q1. If you ask for a dimension to be on the cautious side, we expect at least the positive impact because of COVID-19 only by around EUR 35 million, EUR 35 million in the full year 2020. On the other hand, we do not know what COVID-19 might bring, it will with the second wave, with the third wave, which would require maybe for additional investments from our side. I got no idea of hardware, software for our people being at home. But overall, we expect some really relevant, very relevant positive developments on the core side only in this year. And where I did not mention yet, but what we told to you is that if everything remains, let's say, predictable, we would like to come back to you in Q4, most probably in November with an outlook about UNIQA 3.0, our new strategy program for the next 5 years up to 2025. And there will be what absolute key topic will be the cost development of the group because if you look in our cost ratio, management is totally aware, it's absolutely too high. We will not stop our investments in digitization. We are not going to stop our investments in IT. On the contrary, we will push it. But as far as the so-called, call it, the basic insurance business is concerned, the daily business, this really provides a strong reduction on the cost side.

I hope this answered at least your first 2 questions. And as far as the second -- the third and the fourth is concerned, I may hand it over to Kurt.

[Kurt Svoboda, executive]

Yes. Q1, the health result. Talking about -- Q1 health result, it's deteriorated by 2 effects. The one is that, of course, from the costs that we have been allocating in the first quarter, a part of that is hitting also the profitability on the health side. So this is one root cause. The second one is that we put a significant amount of EUR 8 million in comparison to the last quarter, where it was just EUR 2 million for the profit participation in the health business. So we took the chance to make the full amount for that in Q1. Regarding your fourth question about the other nontechnical results, if there are any positive effects in this P&L position. If you look on Page #5, you see that the other nontechnical result is EUR 29.3 million. Out of that, the mitigation of the asset side is EUR 28 million. So I would say the rest is not significant, just EUR 1 million. Other nontechnical result is everything around minor topics, not covering the insurance business. So the clear answer is that there are no significant positive effects in this position, neither in the international segment nor in the Austrian nor in the group segment.

[Operator]

The next question comes from Michael Haid from Commerzbank.

[Michael Haid, analyst]

Three questions, if I may. First, on motor insurance, can you talk a little bit about your claims experience in motor insurance in the first quarter this year? I assume you experienced some lower frequency as in this lockdown period. People were much less driving. Can you quantify your loss experience in motor and say a little bit about what you expect with respect to how much you have to pass on -- of this lower claims experience to your customers by means of premium refunds or premium rebates.

Second question, can you talk a little bit about the new business experience in April? We are halfway through the second quarter. If I understood you correctly, you expect material declines in premiums also from motor insurance. This is a little bit surprising to me as -- even though people are less driving, they still need car insurance.

And last question on the dividend. I'm a little bit puzzled by your statement regarding the dividend for 2020, which you already made before, asked bluntly, why did you make such a statement about the dividend for 2020, which you pay in 2020, so early in 2020.

[Andreas Brandstetter, executive]

Okay. Thank you very much, it is Andreas speaking again. Starting with your first question asked on motor claims. We expect for the whole year, but this is the position of today, a kind of positive impact of around EUR 30 million to EUR 40 million. This is as I mentioned today, in the second part of May, coming from motor business and maybe even accident business, okay? So when I talked before about the potential maximum hit by around EUR 150 million on the whole year 2020 coming from COVID-19 there might be some relevant positive counter effect coming from the motor business and accident because, as mentioned before, as you were aware, people didn't drive that much, especially in the whole 4 weeks of April, and also less than usually in the first half of May. So this is one effect.

When you asked about the situation, the development in the premium side, on the growth side, then as I said before, yes, clear, we saw a sharp decline in April, but then it got much better rather than May. Do we see a May more or less like a kind of normal May, where you normally sell a lot of new tariffs and policies on the motor side, on the mobility side, not at all by way of this, but this strong decrease that we saw in April, we did not see anymore. Let's see how June develops, and maybe there is a kind of catch-up potential. But having said this, the overall development in motor might be favorable, might be positive. But the claims, which we see on the rest of the business, especially in the rest of the non-Life business in Austria coming from business interruption coming from the fact that events which UNIQA has been ensuring did not take place, meaning we have to deliver our payments. This will lead to a very high hit of the -- of our claims situation. Yes. So having said this, the summary is the positive effect, which you will see most probably on the motor business, will be dominated by a very strong hit in the rest of the non-Life business. This is the assumption of today, and this is very heavy driven by the Austrian business because those kind of products, especially as business eruption is concerned, we mainly have been selling in Austria.

Your last comment about the dividend. Well, this is a statement where we decided after having checked all our different scenarios, provided by our crisis team and heavily supported by also a lot of external sources at the end of March and the first half of April, saying whatever scenario we are calculating, whatever scenario shows, a, a decrease on the premium side in the year 2020 shows, b, a higher push and a higher burden on the insurance technical side due to the reasons which I mentioned and shows, c, a lot of uncertainty on the claim on the capital markets side, on the asset management. To all those effects, if you combine them, and if you calculate them, if you think it's slow, maybe for us, very clear, that this will be a very extraordinary, very special like what unusual year 2020, and this led us to a decision already stating now where clearly that it might be a year with a negative profit before tax and second year, where we will not pay dividend. Was it too early? Well it might be. I think we have been one of the earliest or maybe the earliest company in Europe doing so on the insurance side, might be. On the other hand, I think it was very clear and important for us to give you a clear guidance, not only on the result and the dividend in 2019 but also on the outlook for 2020. Not knowing if this is something which helps you to understand our decision, but this is the background trend.

[Operator]

We have no further questions, so I'll hand you back to your host.

[Andreas Brandstetter, executive]

Okay. If there are no further questions, we thank you very much for your interest, and wish you a good Friday, and have a nice weekend. Thank you so much.

[Operator]

Thank you for joining today's call. You may now disconnect. Hosts, please stay on the line or wait for further instructions.