6M 2023 VIG Transcript Teleconference

Operator

We have the first question from Bhavin Rathod with HSBC.

Please go ahead.

Bhavin Rathod

Hello, good afternoon. I have three questions from my side. The

first one would be on your reported combined ratio of 94.0% at

first half of 2023. I would appreciate if you could provide any

more granularities, as in how should we look at this combined

ratio on a normalised basis, i.e. adjusting for the higher

discounting impact at 1H 23, which I presume would have been

more meaningful at this semester versus the previous semester?

Just trying to make a comparison between 1H 23 versus 1H 22,

how should we think of this increase on a normalised basis?

The second one would be on Poland. Can you talk about what

are your strategies to contain this higher combined ratio that we

are seeing, particularly in the MTPL market and how are you

looking at this business in particular?

Third and the last one would be on the CSM release that is

coming at EUR 337 million at the first half. Now looking at the

ratio, this comes out to be somewhere around more than 5% and

looks stronger than what you had on a run rate basis versus full-

year 2022. Can you tell us how should we think of this release

ratio going forward? Should we take the 5% normalised release

going forward, i.e. 10% on an annualised basis going forward,

as the normalised release from the stock of your CSM? Thank

you so much.

Liane Hirner

Thank you for your questions. I will start with the first question

regarding the combined ratio. As I already explained, the net

combined ratio is impacted by the consideration of higher claims

volatilities in the liability for incurred claims. For example, in the

reporting segment Austria, this is the main reason. In Czech

Republic, for example, 50% is related to this consideration of

higher claims volatilities, the other 50% are related to

commission accruals, which positively affected last year's result.

This is more or less the explanation. I would also like to add that

last year our focus was on IFRS 4 numbers, and this is just the

comparative period under the new regime. For steering

purposes, the focus was on different numbers. Now I would like

to hand over to Roland, he will explain in more detail the elevated

combined ratio in Poland and the impact.

Roland Goldsteiner

For Poland, we experienced, especially in the first half-year of

2023, a very soft car market there regarding the tariffs, which

means that because of our not leading market position there, we

were not able to pass on all these effects which we have

experienced in the cost increase this year in Poland, especially

from the inflationary environment there. This means not only in

the cost ratio, but also in the claims ratio due to spare parts and

other repair index costs. This is something we've experienced in

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this year, we are working hard to improve the situation there, but

we expect such development until the end of this year. Maybe to

not such a big extent, but the tendency is, this year, not really

good in the car market in Poland.

Liane Hirner

For the third question regarding CSM release, I would like to

remind you that we have in our half-year financial report on page

45 also further details on the CSM development, but I would like

to hand over to Werner Matula, our Chief Actuary, and he will

explain the developments with reference to this information on

page 45 of our half-year report.

Werner Matula

If I understood your question right, you were asking whether the

CSM release, currently we are showing EUR 337 million, how

would this look in the future and what would be a normalised

ratio compared to the level of the CSM? In terms of the

mechanics, one needs to consider that the CSM is not released

linearly, but it is flattening. The data that Liane was referring to,

will show you that roughly EUR 40 to 50 million less CSM release

in the next four to five years will happen on the portfolio in force.

Obviously, the release is then also depending on the new

business written in the future years and potential adjustments to

the CSM with changes in estimates or changes in the variable

fee, depending, for example, on interest rates. But it is important

that the CSM release is, from a portfolio perspective, rather

slowing down. I hope this explains the mechanics. The table in

the financial statement should help you to understand this better.

Bhavin Rathod

Yes, it does. Thank you so much.

Operator

We have the next question from Thomas Unger with Erste

Group. Please go ahead.

Thomas Unger

Hi, good afternoon. Thank you very much for taking my

questions. You touched on the extreme weather events in your

presentation. Is there any level of expected claims that you could

give us for the summer events, July and August, especially in

Austria? Clearly you outline it also in the outlook, what impact

would you assume for profitability in Q3 or the second half in

general?

Then also, you mentioned that you will be updating your dividend

policy. Is there anything you could say about how you expect the

dividends to be calibrated in the future? Do you anticipate a

growth of the absolute dividend number per share alongside the

earnings growth or you'll be looking at a certain pay-out ratio?

Maybe two more questions regarding your P&L and how you

present it, and how the investment result, obviously there is quite

a fluctuation this year versus last. Is there any normalised level

that you anticipate going forward? Also, I would like some more

explanation on the other income and expenses line, which more

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than doubled year-on-year, in the first half of 2023 it was up to a

negative EUR 269 million, if you could just explain what's behind

those numbers? Thank you.

Liane Hirner

Thank you, Thomas, for your questions. First question was

regarding extreme weather events, events which are taking

place currently. As we all know, in the last days we had ongoing

extreme weather events and currently we are not in the position

to give you any numbers, so we have to wait for that. Sorry for

not being able to provide you with concrete numbers on that, it's

just too early.

Then regarding the dividend policy. The dividend policy is under

review currently and, as I explained already during my

presentation, we saw volatility which has derived from the

changes in the interest rate environment, especially in the last

one-and-a-half years. We are reviewing all the mechanics and

we will come back on that as soon as possible. But let me

emphasise again that the participation of our shareholders in our

success is really a high priority for us. I would also like to remind

you that since 1994 we paid dividends in each and every year,

so this is, for the moment, all I can say.

Regarding the P&L investment result. That is quite a different

presentation to what we have seen in previous years, also the

net investment result is highly impacted by the interest rate

changes and capital market volatilities. It is really not possible

currently to evaluate and normalise the result in this respect. We

really hope that the interest rate environment will remain stable

in the upcoming period, so we will have more experience on that.

Maybe Roland wants to add something, also to the other income,

I hand over to Roland.

Roland Goldsteiner

Thank you. Regarding the normalised financial result

contribution to total profit before taxes, it is more difficult

according to IFRS 9 compared to IAS 39, due to the fact that we

have much more investments classified as fair value through

P&L compared to the other previous regime. This is an effect

which is normally counter balanced by the technical result here,

which is mostly true for the VFA modelling, but not so much for

the GMM modelling. We have, due to the changes in the interest

rate environment, more volatility, especially in the financial

result, and what contributed at the end of the day to the profit

before taxes.

Regarding your question the development of the other income

and expenses line of the P&L. Here you can see mostly two

effects. One is a very common effect, we have here some foreign

exchange changes, like under the previous regime, it was also

shown here. The bigger effect here is that we have much bigger

consolidation differences from all the group insurance contracts

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and so on. Here is the net position out of this. But just to give you

an indication what does that mean for the total PBT: Actually,

nothing, because all the changes I'm talking about are

counterbalanced by the changes in other lines of the P&L. This

is not an effect which we can say is isolated.

Liane Hirner

I hope this answered your questions.

Thomas Unger

Yes, thank you, absolutely. Appreciate the answers.

Operator

The next question is from the line of Rok Stibric with Raiffeisen

Bank International. Please go ahead.

Rok Stibric

Hi, good afternoon and thank you for taking my question. Much

has been already said, therefore I have only one. It is related to

the investment portfolio performance. Is there any chance that

you could share with us your current running yield and the

reinvestment yield? Thank you.

Liane Hirner

Thank you for your question. I can share that, of course, with

you. The new investment yield until June 2023, average new

investment yield was 5.5%. This compares to 4.2% at the year-

end 2022 for the whole group. Does this answer your question?

Rok Stibric

Yes, thank you very much.

Liane Hirner

You're welcome.

Operator

We have a follow-up question from Bhavin Rathod with HSBC.

Please go ahead.

Bhavin Rathod

Hey, sorry, can I just have one quick follow-up on your combined

ratio again? Under your previous accounting IFRS 4, the

normalised expected combined ratio for the group was

somewhere around below 95% or 94%. Now when I look at your

first half 2022 reported combined ratio under IFRS 17, that is

reported at close to 90.6% vis-à-vis 94% that was reported under

IFRS 4. The question really is, under the new accounting, should

we think a ratio close to 90% at the normalised level of combined

ratio that the group would be aiming at going forward? That

would be the only question that I have.

Liane Hirner

We do not give a target on the combined ratio. Below 95% was

the target of the IFRS 4 steering. This is now finished and we

currently do not have new targets for the combined ratio already

for the new accounting regime, so this is under review.

Roland Goldsteiner

Let me add, the effects we are talking about, for example in

Czech Republic, the one-off effect which derives from the

transition, this is the one-off effect which we had experienced in

IFRS 17, but not in the old regime. The difference of the 4

percentage points you are talking about cannot be fully

translated to a new guidance here.

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