Earnings Call: H1 2021

Aug 19, 2021

Hello, and welcome to the Unica Group Results of the First Half Year twenty twenty one. My name is Jess, and I'll be your coordinator for today's event. For the duration of the call, your lines will be on listen only. However, there will be the opportunity to ask questions. I will now hand you over to your host, Mr. Kurt Svoboda, to begin today's call. Thank you. Thank you, and warm welcome to all the participants in the call for Omega's 6 months 'twenty one results. I'm referring to the presentation, which is available via the Unica website and I'll be on Page 5. I'll be an overview to a very satisfying result for the 1st 6 months of the year 'twenty one. Starting with the snapshot, what jumps to the eye is 70% growth on the gross premium written, of course, influenced by the situation that the integration of the former AXA Companies are now to a full extent done. The organic growth, which is stated here, was about 2% in Austria but also in the international business, where without AXA, a very comfortable organic growth in the 1st six months. Cost and the ratio decreased. Of course, it's a part of our cost program that is that was announced also during the Capital Markets Day. And of course, especially in the CE regions, after the integration, the greatest cost savings are to come in the Q2 and then in the year 2022. We had a nice quarter on the investment side, coming from no significant impairments in the whole portfolio of more than €20,000,000,000 a good result from current income and carrying forward the gains that we realized in the Q1 out of the change in our strategy on the equity portfolio. A combined ratio with 92.6 percent is outstanding and much below our long term target. Of course, influence from certain effects like COVID, less mobility. On the other hand, I don't talk about this then in the section on the comment later, also this year by the flooding which took place in the first half year. The strong technical result leading to a nice double digit ROE, a solvency ratio stable close to the 200. And for us, therefore, the main challenge is to continue this good work after the 1st 6 months and to focus on our long term target that we presented to you with a new strategy of Omega 3.0. Not to forget, looking on Page number 5, investment yields is 2.7 percentage points, which is much above the average guaranteed interest that the company has to cover for the life business in Austria, which is around 2 point 3%. Page number 6, we talked about the nice annualized ROE, about 10.1%. And of course, due to this good result, also earnings per share increased rapidly. Group results. Jumping to Page number 8 and looking a little bit on the revenue side. So the growth came out of several channels. First of all, the corporate business in Austria, where we took certain measurements on the pricing, on the portfolio sanitation, has a quite nice growth. Also, the banking channel in Austria with Raiffeisen is growing steadily. And the large business, of course, still moderate demand on that level, but the shrinking portfolio is less than 1%, and this is good because we are here in a situation with the new product and also with the new IT that we're implementing and these new products that we're preparing. You see also here a little bit of a, I wouldn't say, a light in the tunnel, but a stabilization on and in the portfolio. International business was focusing on the transferring of the former AXA business into our books and not losing too much clients and partners, which we achieved, and therefore, a nice growth in that respect. And don't forget that with the Russian portfolio, where we have a good growth over here, negative FX effect, a little bit deteriorated to growth. So therefore, a very comfortable and good growth that we can report after 6 months. Next page about the cost ratio. Looking on the absolute amount, it's a little bit misleading because in the year 2020, AXA, of course, is not included, and therefore, it gives a little bit of a different picture. But if you look together on the cost ratio, which is 26.9%, it's a quite good development, which we are satisfying. What are the reasons for that? So A, part the first part of the cost cutting program is visible. B, we have also the synergies on the integration of AXA included here. So around 50% of that what we expect for the year 2021 is already included in the first half year. If you take into consideration that spending for the integration costs like branding, marketing, consultancy and stuff like that is to fully extend covered in the first half year, in that case, we are also satisfying with the integration synergies. Also to talk about the integration of AXA here. So what I can report is that we achieved the last agreement from the National Bank in Czech Republic by end of August. So also with this, we can report that the integration of AXA is also formally and from a financial perspective agreed and with the end of August done. Combined ratio on the next slide, 92.6% is certainly all time low for the Oonk Group. What's behind? Behind is a besides the good turbine on the cost side also has very strong underwriting result on the so called the main business. Included in this combined ratio is around €100,000,000 gross and €45,000,000 net effect of floodings in the first half year. So the June flooding is included in that respect from Austria, Czech Republic and a little bit Poland. The reinsurance is included also in that respect. And with this, we have also covered the most impressive slaven in the last 15 years within Unica Group. COVID-nineteen, of course, also in the Q2 gave a little bit of a backwind. So we can expect around 2% of this coverage ratio is a COVID impact coming from less mobility, coming from lower frequencies, especially on the motor business. And this is the thing that is, for us, not that sustainable for the next year. But even taking into consideration this and excluding the high impact from the flooding, the technical ratio of Uyghur is in a very, very good development. Health business, the next page. We are back on our underlying long term trends to grow in Austria, somewhere between 2% 3%. Of course, due to the integration of the cumaxa business, we'll post here a little bit higher growth this year. From a technical perspective, we see that the demand for medical treatment is a little bit lower than it was in the previous years. We cautiously reserved for that. But on the other hand, we believe still that this comes back and is at least in the next years that these treatments have to be covered. On the life visit, Page 13, I talk about the relatively stable development in Austria, a bit trended in the EU region, where unit linked and especially in the former AXA countries, this business is growing. New business margin has recovered out, of course, a little bit of higher interest rates. So stabilization in the Life business can be reported. Page 14, net investment income. I talked about this in the snapshot picture. So the €307,000,000 is a strong investment result driven by less impairments than last year. The equity and the fixed income side, we took gains from the Q1 with us. And it is also some increased current income after 6 months. No major gain to be reported from the real estate side. Here, a stable development we can go for. This brings me on my our last Page 16 to the outlook. So I think you have already read and you're informed about our ad hoc release where we increased our guidance for this year. And we see good results and also taking into consideration that floodings and regional storms and hailstorms are impacting the results, we are confident to reach this target. And with this, I want to end my speech and looking forward to take your questions now. Thank you. You. And the first question comes from the line of Thomas Unger from Oster Group. Please go ahead. Yes. Hello. Good afternoon. Thank you very much for taking my question and also for the presentation. My first question would right away relate to the end of the presentation, your outlook. Do you see it as very cautious now? You've achieved the $260,000,000 earnings before tax in the first half and the guidance is for $330,000,000 to $350,000,000 And taking into account what you said also for the operating costs that the benefits should be coming through from the efficiency gains in the second half. Do you anticipate any nonrecurring effects for the end of the year Q4 or anything else? That will be my first question. The second question would relate to the reserves booked last year for COVID related claims. Where does that stand now? Have you used it? Or have you released any of it in the first half or in Q2? And what do you anticipate for the second half from that? And then also, you talked about the nat cat impact in June, but what do you anticipate from the summer events from the floodings in July, especially? Do you have an estimate already for what the impact on weaker net and gross could be? Thank you. Thank you, Thomas. So starting with the first question. Yes, firstly, it looks like there is a little bit of a cautious outlook planning. If you take EUR260 after 6 months, why not double this after 12 months? What we anticipated, Thomas, is on the one hand that we do not calculate with further non impairments in the next 6 months. I think from that perspective, we have calculated that some impairments can come in the middle term, equity side or fixed income side or corporate bond side comes. Secondly is the topic of Unica always has a seasonality in the cost situation. So the Q1 is the strongest quarter with the cost. This comes from many project calculations, from many invoicing in the first in the Q4. So this is also a topic that you can see on our balance sheet. And the last one is a little bit coming to that what you asked in your first question. We are cautious because we see that the development on climate is changing rapidly, and this will also have an impact on the claims side. And we believe that especially these regional hailstorms and floodings that they also lead to a gross is net result. And with this, we calculate an impact also in the Q2, which led us then to this €330,000,000 to €350,000,000 from that perspective. Second question, Thomas, was on reserves that we built on COVID. I guess you referred to the health business. And with this, I can tell you that we did not release a sense. So either we reserve the dictionary from that perspective and also the P and C business, we took aside a little bit for the COVID impact for the next month. Last question is about the last quarter. Let me jump in here. I think Thomas referred to the reserve which we are building last year for the business interruption cases. So the EUR 70,000,000 net negative effect on the P and L last year. Is that correct, Thomas? Right, right. The €70,000,000 at the end of last year, yes. Okay. Sorry for misunderstanding. From that, the half of this is released, half of this is still there because we have to wait until we have all these claims filed with the customers. So 50% is released, 50% is still open. Thank you. And the first question about the Nat Cat in June and the floodings in the summer rains, and this is exactly what I stated in the first under Thomas. We see that these floodings last week, this week, in July, these are so called singly rents on a local perspective, reinsurance only internally or mostly internally. And with this, we are cautious in planning. So far, we have no numbers, but it is still a double digit amount that we expect here to pay. Thank you very much. The next question comes from the line of Cynthia Chung from Insurance Please go ahead. Hi, thanks for having me. Three questions, if I may. The first question, congratulations on the profits, which quadrupled, so that's a very good result. Just wanted to know why your consolidated net profit quadrupled to RMB171 1,000,000. I can see you enjoyed positive impacts on multiple fronts. So for example, higher investment result, lower costs and successful integration with excess previous businesses. But do you see a single major factor behind this profit hike? Or is it the result of multiple factors? So that's question 1. Question 2, you just mentioned about the flat cost. You said you don't have numbers yet, but you said it's double digit. Could I just check with you whether you meant double digit €1,000,000? And thirdly, back to the cost, I just wanted to know if you have any recent update about cost in IFRS 17 program. I know that cost it has been costing a lot from insurance. So I just wanted to see if you have any updated figures in terms of the accounting standard. So I'll start with question number 2. Regarding, look, as these events are something between coming, I would say, each week, we are, at the moment, not in a position to give you a complete number in terms of what does this mean for a gross net basis. And when I say a double digit amount, it's somewhere around €50,000,000 which I expect to be that this will come for this summer flooding in July August. Anyhow, this is calculated in the outlook that we announced several weeks ago. 3rd question about IFRS 917. Look, we are at the moment in a position that we can say the project itself is at uniqum in a quite good shape. We are preparing for a dry run in this year, in the second half of the year, where we see them the first results. In terms of a budget and in terms of a cost perspective, please allow me to say, as this project is running and we have not calculated and invoiced all the things, I cannot give you a whole amount. What I can tell you is that, generally, I expect the whole project to be finished then in 2023 it will be around 2x to 2x the costs of Solvency II implementation that we had. And Solvency II implementation was of around €25,000,000 for Unica. For the first question, sorry, there was a little bit of a noise in the line. I just understood that you are talking and that you have been questioning about the consolidated profit. But honestly speaking, I did not get technically the exact question. So could you repeat it again? And help me to then understand further. So I just want to say congratulations on the good result. It has quadrupled to EUR 171,000,000. So I just wonder what's the single major factor behind this increase. I can see that positive result on multiple fronts like better investment results, better higher premium, lower cost. But just wanted to see if we can pick a single major factor behind this profit hike. Yes. Okay, good. No, there is not a single major effect. There is not a one off effect, and there is not a major impact from that respect. So we have a so as you stated, we have a good growth that is our plan and better than in previous times. We had a good technical development in the P and C business and in the Health business and the stable business in Life business. We have no outstanding impairments in the investment result. And we have also, for example, I call it now technical and balance sheet management, no major effects. So a stable, constant, good development in this second quarter that led to this EUR 2 16,000,000 result. Thank you so much. The next question comes from the line of Michael Haid from Commerzbank. Please go ahead. Thank you very much. Good afternoon to everyone. I have two questions. First, on P and C, you showed good growth. You mentioned price increases in the corporate business. Can you maybe provide a breakdown of the growth of the premiums in P and C into what are price increases, what is volume and what is the first time consolidation impact of from AXA CEE? And second question, given the flood losses we have seen in the Q2 and also in the Q2 of your reinsurance protection program you have in place? These are my 2 questions. Thank you. Okay, Michael. Tough question for P and C side, growth, price and AXA. Let me answer the question like that, and details tend to come from our Investor Relations department because I have not in mind and in front of me the exact numbers. I can tell you that the growth without AXA was in Austria. Generally, the growth is a little bit more than 2%, first thing. And these 2%, Michael, you can assume around 80% is coming from real growth and 20% is coming from pricing, yes? So this is the first answer I give you. 2nd answer I can give you is international wise, the growth without AXA is about also here 3.5% to 4% in P and C. And maybe you remember that we are also sanitizing here, Romania, for example, Hungary, for example, that means less growth for higher profit. And the AXA impact, out of that, this will be then delivered by the Investor Relations department because I cannot now distinguish between the AXA and non AXA business in that respect. Second question, Michael, about the flood and the reinsurance program. The reinsurance program of Unica in the NatCat is like the following. We have a so called 4 layer reinsurance coverage. That means the priority is €15,000,000 plus €15,000,000 That means €15,000,000 coverage plus a €15,000,000 annual accretive deductible leading to a €30,000,000 level. And then the first layer is about €60,000,000 the second layer about €100,000,000 the 3rd, €125,000,000 to €450,000,000 and the last one about €100,000,000 So that means we have a coverage of €565,000,000 euros for a worst case. And this is, on the one hand, and we have it for all Europe. I mean, no distinguish between Austria and not Austria. So this is the coverage of Unital's net class XL. Thank you very much for this detailed answer. And the next question comes from the line of Robert Montagu from Wells Fargo. Please go ahead. Good afternoon. Thank you for taking my question. One very simple one. Can you comment on what are the main drivers behind movement in the solvency ratio from 170% at the start of the year to 198% now? Main drivers are increasing interest rates. 2nd is profitability increase in life and in P and C. And third thing is a little bit of increase in the own funds coming from Slovak and OCR. Great. Thank you very much. There are no further questions in the queue. So I'll hand the call back to your host for some closing remarks. Yes. Thank you very much for joining Unke's half year result 2021. I wish you a successful remaining day. Stay healthy, and thanks for participating. Thank you for joining today's call. You may now disconnect your lines.