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Edited Transcript of UQA.VA earnings conference call or presentation 20-Nov-19 1:00pm GMT

Q3 2019 UNIQA Insurance Group AG Earnings Call

Vienna Nov 25, 2019 (Thomson StreetEvents) -- Edited Transcript of UNIQA Insurance Group AG earnings conference call or presentation Wednesday, November 20, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andreas Brandstetter

UNIQA Insurance Group AG - Chairman of the Management Board, CEO & CIO

* Kurt Svoboda

UNIQA Insurance Group AG - Member of the Management Board, CFO & Chief Risk Officer

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Conference Call Participants

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* Oliver Simkovic

Raiffeisen CENTROBANK AG, Research Division - Research Analyst

* Patrick Noel

* Thomas Unger

Erste Group Bank AG, Research Division - Analyst

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Presentation

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Operator [1]

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Good afternoon, and welcome to the UNIQA Group results the first to third quarter 2019 call, hosted by Andreas Brandstetter, CEO; and Kurt Svoboda, CFO/CRO. My name is Kevin, and I'll be your coordinator for today's conference. (Operator Instructions)

I'm now handing you over to Andreas Brandstetter, CEO, to begin today's conference. Please go ahead.

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Andreas Brandstetter, UNIQA Insurance Group AG - Chairman of the Management Board, CEO & CIO [2]

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Hello, ladies and gentlemen. Thank you for joining us and for dedicating your time for the 9 months results of UNIQA. I may start on Page 4 of the agenda and give you some background information of the solid 9 months 2019 and for our robust earnings before taxes.

As you can see, we have a slight increase of gross written premiums, 1.3%, mainly driven by strong growth in the P&C business, around 2.6%; and by health, which is up to 4.6%, while in the same tradition as we saw in Q1 and Q2 of this year, we see a decrease in the life business given the current market situation of minus 3.7%.

As far as net investment income is concerned, we see a positive development. We experienced some tailwinds from capital markets. Please have in mind that, of course, here, in the result of 2018, we had the one-off gain of the sale of the Casinos Austria stake, which happened in Q1 2018, leading to an extraordinary income of EUR 47 million.

A strong increase of operating expenses by 7%, mainly driven by the DAC amortization in the Austrian life business, up also by higher admin costs. You know that now for the third year in a row, we are pushing our UIP platform, UNIQA Insurance Platform, which also finds its results in the operating expenses and in the cost ratio.

A very positive insurance technical result, and most of all, a very favorable development on the side of the combined ratio. If you look, 95.9% is a clear improvement compared to the first 9 months of 2018 and deferred on -- I mean, Kurt is going to lead you through the results more in detail. We see that the claims ratio is down to 64.5%. We see that, obviously, we made some really relevant progress as far as the underwriting discipline and the underwriting result of the P&C business is concerned.

Overall, as mentioned before, this leads to a slight increase of the earnings before tax from around EUR 210 million up to EUR 214.7 million mainly, as I mentioned before, due to a clearly improved underwriting, and this, despite higher costs.

As far as the results in detail are concerned, I may hand you over to Kurt.

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Kurt Svoboda, UNIQA Insurance Group AG - Member of the Management Board, CFO & Chief Risk Officer [3]

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Ladies and gentlemen, welcome to UNIQA's third quarter call. I am gone on Page 7 on the growth. We see a good growth for the group of 1.3%, coming predominantly from the P&C business, which is certainly driven by the focus that we have. We have a tremendously solid growth in Austria by 3.5% coming especially from retail business and in here from a good development in the motor business. Also, in the international business operated by some -- we have in some countries double-digit growth, due to our reduced floating activities that we have, the -- shown results in the P&L is 0.7% after ninth month.

Quite good positioning ongoing in the health market in Austria. So in that case, we keep on track from -- that what we reported in the half year, good positioning as well in outpatient as in inpatient development.

Life business, the position that weakens a little bit our general growth story after 9 months. As we know that we have more outflows than inflows, the new business is okay. But as we have at the moment more than EUR 300 million premium outgoing, this leads to the negative development on the life side. All in all, with the development on the revenue side after 9 months, we are satisfied.

About costs on Page #8, we had -- Andrea's talked about the development of the deferred acquisition costs, a position that UNIQA balances out of the situation that we switched to IFRS before 2000. The counterposition is on the mathematical reserves. The deferred acquisition costs are increasing because the patterns, the depreciations are shorter, and therefore, we have more to depreciate out of less business and the low yield environment. The impact on EBT side is much more smaller than the impact on the cost side, and therefore, we have on that case not a big impact on the EBT side.

I'll talk about combined ratio, additional information to a solid development on the single first quarter, Page #9. 93% combined ratio on group level, including that we could save some buffers also for the upcoming months coming from a very solid development on the base claims, base claims UNIQA defines as claims lower than EUR 500,000. In that case, we have 52% on claims ratio. On the other hand, we have some higher weather-related claims from summer, and this leads to adverse situation on the nat cat side. So far, additionally, I can tell you that the existing snow pressure and the rain in Carinthia or in Styria doesn't hit our results for 2019 in a worth mentioning level.

No news on the health side and on the life side. So that's what we've talked about in the last calls. And this leads me to the situation on the investment activities, Page #13, with a rather stable development on the investment result after 9 months. No special impacts on the impairment side or on the realization side. We achieved after 9 months a new money yield of 2.8% in total with EUR 2.6 billion of investments that we took in that period.

So far, my information to the quarter 3 results, and for outlook and for information, I hand it back to Andreas.

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Andreas Brandstetter, UNIQA Insurance Group AG - Chairman of the Management Board, CEO & CIO [4]

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Thank you, Kurt. As far as the full year '19 is concerned, we may confirm our outlook saying that adjusted for the one-off gain on sale of the Casinos in previous year, 2018, we think that our EBT will increase. So we confirm our outlook because we expect still a slighter increase of the gross written premium, maybe the same amount as we experienced in the first 9 months of this year, mainly driven again by the P&C and the health business. We think that combined ratio will improve compared to full year 2018. And of course, yes, our net investment results will decrease compared to the full year of 2018.

Additional information which (inaudible) that starting with 2020, we already will begin to establish the structural requirements needed to implement our new strategy that entitle UNIQA 3.0, which you can expect to be communicated during quarter 2 of 2020, most probably in the second half of the quarter 2020.

In order to achieve it, the 3 larger insurance companies based here in Vienna, the listed UNIQA Insurance Group as well as its 2 subsidiaries, UNIQA Austria, which is our largest daughter company, plus UNIQA International, will be merged into one company. Of course, everything is subject to regulatory approval.

We think it's the right step in times of increasing pressure from the interest rate, technological changes, and most of all, completely different customer behavior to act in a much more customer-orientated but also leaner way.

Management board, which already was reduced in 2016 from around 20 people, 20-plus people, down to currently 11, is once again to be downsized to 9 members under the new company's target structure, where we think it will be materialized in autumn 2020. This is just additional information as a kind of prerequisite for establishing our new strategy program, UNIQA 3.0.

Thank you for listening, and we are happy to answer your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We do have a question. Our first question comes from the line of Oliver Simkovic from RCB.

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Oliver Simkovic, Raiffeisen CENTROBANK AG, Research Division - Research Analyst [2]

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I have 2 questions. The first one is regarding the development in the Czech Republic concerning a potential insurance tax on insurance provisions. Do you already maybe know the impact that would have on you? And also how you would potentially account for it? Would it go through a P&L? Or would it be recorded directly in equity maybe?

And the second question is regarding the solvency ratio. So you include the solvency ratio after the first half in the presentation. Now the interest rate environment has our interest rates decreased even further, do you maybe have an indication on where it would stand now?

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Kurt Svoboda, UNIQA Insurance Group AG - Member of the Management Board, CFO & Chief Risk Officer [3]

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Yes. Thank you, Mr. Simkovic. First question, thank you. The tax in Czech Republic is certainly a topic that we have on the table. So far, we have our discussions with the auditors. It seems that this is not a topic for 2019, so that this is impacting 2020 results. We see this as a tax amount and not via equity, so it will decrease the result after tax in Czech Republic. We are discussing with the auditor if it is possible to have a provision in 2019, but so far, we have no final conclusion, and in that case also, what the market is doing result-wise or an amount that we are talking about. So far, it will be too early because it's not clear what the government will finally decide. But it's around close to EUR 8 million to EUR 10 million, which is an estimation so far but not the final amount.

Second question was regarding Solvency II position. We have Solvency II position on a comparable basis of half year of 203%, 2-0-3. This was caused by the further decrease of the interest rates of the euro spot, 10 years, for example, first time on a negative path. And as our spread and interest sensitivity in the health business is known, and for us, part of our risk strategy, this decrease was estimated by end of October.

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Operator [4]

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(Operator Instructions) Our next question comes from the line of Thomas Unger from Erste Group.

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Thomas Unger, Erste Group Bank AG, Research Division - Analyst [5]

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Just on the P&C combined ratio, clearly, a very low figure in Q2 -- Q3, I'm sorry. And if you look at the claims ratio and the cost ratio separately, how much of the improvement that we've seen in the quarter is here to stay? What part is sustainable for each of these ratios? And then secondly, on the simplification of the group structure, what benefits do you expect? And how quickly do you expect those to be realized?

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Kurt Svoboda, UNIQA Insurance Group AG - Member of the Management Board, CFO & Chief Risk Officer [6]

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Yes, Mr. Unger. Good -- starting with the first question, we had a good cost ratio in comparison to the previous quarters by 29.4%. I would say that we have as a target a cost ratio by 30% on a stand-alone basis for Q4. This should be the next part of sustainability.

On the claims side, I guess the fourth quarter is always impacted by some weather-related claims as we see now in Carinthia. We have to take into consideration that our base claim ratio is 52%, highly below the level of the previous quarters. So I would say if we add 50 basis points, then we are on that level what we see as a sustainable basis for the upcoming quarters.

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Andreas Brandstetter, UNIQA Insurance Group AG - Chairman of the Management Board, CEO & CIO [7]

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About the structure, Mr. Unger, to be clear, as mentioned, due to all legal requirements, which has to have to be fulfilled, we expect that the realization will take place somewhere in, I would say, Q4 2020. We again do it as a kind of prerequisite. Can we give you a kind of exact number, let's say, how much costs we can say, how more efficient we can be, not now. This will be a part of our communication during Q2 2020. But it's clear, we do it out of 2 reasons. First, to react in a better way on the increasing pressure, as mentioned before, from market side, from customer behavior and all those disruption -- disruptive innovations because we think we have to fulfill much better needs of our customer; and second, yes, of course, to be faster and leaner and more efficient.

Do you see any kind -- do we see any kind of positive impacts already in the year 2020? Most probably not, but of course, in 2021, how clear and for sure how strong those positive impacts will be and when exactly they will materialize, we will tell you in Q2 2020.

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Operator [8]

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(Operator Instructions) Our next question comes from Patrick Noel from Aviva Investors.

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Patrick Noel, [9]

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I have a question about your forecast for 2019. You said that we will have an improvement of the earning before tax adjusted for the nonrecurring effect of the sale of the interest in Casinos Austria. But will you consider also the capital gains you realized this year because -- so last year, there was a capital gains of EUR 47 million. But this year, there is also a capital gains on real estate of around EUR 45 million, if I remember well, so it would be necessarily considerable.

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Kurt Svoboda, UNIQA Insurance Group AG - Member of the Management Board, CFO & Chief Risk Officer [10]

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This is Kurt speaking. These real estate gains are part of our plans because we have the majority of our real estate in the life business, and therefore, we need this for the outgoing premiums and for the repayment of the policies for the profit participation. And out of that, we do not see this as a realization that goes directly to the result, and we stick to the forecast that Andreas mentioned in his speech.

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Operator [11]

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There are no further questions, so I will now hand back to Andreas Brandstetter for concluding remarks.

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Andreas Brandstetter, UNIQA Insurance Group AG - Chairman of the Management Board, CEO & CIO [12]

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Thanks a lot for your interest, and have a good day. Thank you. Bye-bye.

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Operator [13]

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Thank you for joining today's conference call. You may now disconnect your lines. Speakers, please stay connected.