2023 Preliminary Results VIG Transcript Teleconference

Operator

And the first question comes from Bhavin Rathod from HSBC.

Please, go ahead.

Bhavin Rathod

Hello, good afternoon, thank you for taking my questions.

Congratulations on the excellent results. I have three from my

side. The first one would be on your PBT guidance for 2024. It

would be very helpful if you could provide more granularity as to

which regions or geographies you expect to provide this

incremental growth in 2024.

The second one would be on the combined ratio of 92.6% that

you reported in 2023, just trying to better understand how should

we now think about the normalised level of combined ratio for

VIG, given the fact that we have seen this 92.5% level of

combined ratio for the last two years. Should we expect an

improvement going forward from here on?

And the last one would be on Poland. Poland appeared to be

one of the challenging markets in terms of the MTPL rates. It

would be helpful if you could provide more colour, as in what kind

of dynamics you are seeing hereon. Are you seeing any

improvement in the MTPL rating cycle? Yes, those are the three

questions that I have, thank you.

Hartwig Löger

Thank you for your question, I will take question number one and

three from my side, and I will ask, then, Peter Höfinger to answer

the question on the combined ratio. Maybe to go a little bit

deeper in the expectation of the aim and ambition for 2024. I

think, on the one side, I would split it up into targeted growth this

year, 2024, which is based, as I mentioned, on the expectation

also of GDP growth on a higher level in our core markets. But

especially I would also touch on the topic of our strategic

partnership with Erste. Overall, the Erste Group itself decided to

give a clear target of increase, over the next two, three years,

income out of insurance commission up to a level of plus 50%.

And this is a common agreement we also have on the basis that

there, especially in non-life, will be a strong potential also in

growth besides the important and successful life activities.

Going on, we see that in most of our countries we have a clear

target also to take the potential of non-life also in the new form

of digital insurance and platform activities. So there is a growth

path we clearly defined over the next time, and also in 2024. And

it was also mentioned before, by Peter Höfinger in the results of

2023, there is still potential, especially in the health business,

where we also see the chance, over the markets, including

Austria, also to strengthen our position there.

Also important, on the side of efficiency and costs, there is a

clear target, for example I mentioned, from my side also, under

the topic of cooperation. We, for example, are now in Poland

merging non-life companies, and we will merge Wiener and

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Compensa non-life, and out of that there is also the situation that

out of three life companies we will merge to one. So there will

remain two non-life companies, InterRisk and Compensa non-

life, and also one life company.

And here, we see that there are also effects we will take in the

results of our group. And I also mentioned in the strategic

initiatives of VIG 25, there are clear activities also to strengthen

the efficiency and increase efficiency in automatisation, for

example in claims handling there are a lot of activities in the

group companies also to work on that.

I'll take now the question number three regarding Poland. Yes,

you are right, there in Poland we have the situation that there is

a soft market. It is not easy at the moment, especially in motor

TPL, to increase at a high level the premium. Besides that, we

are clear that there will be also the need of more a technical

approach in segmenting on the market side to the premium, their

activities now including and also guiding the merger activities,

but there are also initiatives which will work up a positive impact.

We see in 2023, a strong growth in non-life beside motor TPL.

And so this is also showing us that there is potential also in a

positive form for Poland. All over, as you see, the merger which

I think, on a technical basis, is fixed in 2024, in the second half,

this will bring up our basis results coming from Poland, and we

are fostering our activities there. As I marked it before on the

map, we can see that there's a clear target also to take the

potential we have on the Polish markets for the next years. And

I will hand over to Peter to answer the question on the combined

ratio.

Peter Höfinger

Thank you for your question on the combined ratio. I think we

have to look at various aspects in answering this question. One

topic, and I mentioned it in the presentation, you can see, even

though we had significantly higher weather-related claims in the

year 2023, we were able to keep a stable combined ratio. This

could imply that there is potential for further improvement in our

claims ratio in the years to come. On the other hand, I think we

will also have to leathat weather-related claims become more

and more out of our ordinary business, due to certain climate-

change effects.

The other topic is the cost ratio, and having more than 50

insurance companies in our portfolio, and we also have medium-

sized and smaller insurance companies, they should benefit in

the years to come by economies of scale effects, so therefore

our cost ratio over the time should go further down, which is a

clear improvement which we will see in the years to come in our

combined ratio.

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The third effect is the higher volatility which we experience out

of IFRS 17, and therefore the correlation of interest rates to

discounting, and therefore impacts on the combined ratio. So, I

hope that I somehow could give you a flavour of an answer.

Bhavin Rathod

Very clear, thank you so much for the elaborate answers.

Operator

And the next question comes from Thomas Unger from Erste

Group. Please, go ahead.

Thomas Unger

Good afternoon, thank you very much also for taking my

question, and thank you for the presentation. I would like to come

back to your PBT guidance for 2024, and I would ask for another

angle. You're guiding 825 to 875 million for 2024, and if I take

out the adjustments, the one-offs, that you had in 2023, you

basically were, in 2023, at the top end of the 2024 guidance. So

essentially I'm trying to ask, is there a degree of conservatism

built into your forecast, or do you anticipate a worsening of any

of the main P&L lines in 2024? So that would be my first

question.

Then, secondly, on your solvency ratio, that declined quite

significantly in Q4, I believe in Q3 you reported a ratio of above

300%, can you explain the factors that affected the ratio in Q4?

And maybe also the M&A activities have an impact here?

And then lastly, I'd like to ask, on the CSM, how you feel about

the ratio between the releases and the new business, and how

you see that, going forward? And then also on the new business

margin life-health, that increased, as you mentioned in the

presentation, from 5.8% to 8.9%, very substantially, and what

were the drivers here? And where do you expect that to settle in

2024 and beyond? Thank you.

Liane Hirner

Thank you, Thomas. Excellent question regarding the PBT

guidance. As you know, and as we have always told in the past,

we have a generally more conservative approach, and we had,

in the past years, always adjustments, so there is, I would say,

an over-conservatism included in this number. But there is no

specific reason that some lines of business would not perform or

not increase as expected. So this would be my answer for the

first question. Second question, Solvency II ratio in Q4, the

decrease is only related to the interest rate curve which

decreased in Q4. And for the CSM, I'll hand over to our chief

actuary, Werner Matula

Werner Matula

Thank you very much, good afternoon as well. Let me first

comment on the new business margin. Well noted the

profitability went up significantly to close to 9%. In terms of

drivers, this was indeed a business driver. We had significant

improvement in both pricing of business sold in the last year, as

well as volumes sold in the profitable lines of business, in

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particular coming very much from the Czech Republic. A little bit

of effect as well from other valuation parameters, but I would

consider them minor. Whether this is a lever that will be

sustainable looking forward, hard to say because it always

depends on the business being sold in the particular year.

In terms of the sustainability of the CSM, we already see in 2023

an improvement here on the life and health CSM. Net CSM is

slightly above 60% now, and it was even below 50% previously.

Of course, we know the issue, the release of the transition CSM

is stronger than the new business that we build, but as well there

are other factors, being the changes in variable fee, being the

other changes in the CSM development which are factoring in.

And as we see the more profitable new business we are building,

the better we are working against losing CSM, and the CSM has

been stable also in an environment where interest rates went

down in 2023. We are very confident on maintaining the

profitability also for the future.

Thomas Unger

Super, thank you very much.

Operator

As a reminder, anyone who wishes to ask a question may press

star followed by one at this time. It seems like there are no further

questions, so I will hand back to Nina for any closing remarks.

Nina Higatzberger-Schwarz

Thank you for listening in and for your questions. We will release

the annual and sustainability report on 24th April. If there are any

specific questions or data that you require, please feel free to get

in touch with investor relations who will try to help. And the next

scheduled event is going to be the annual general meeting to be

held on 24th of May. Thank you and have a good afternoon.