Since the turn of the year, early economic indicators have been suggesting a positive start for the Austrian economy and the entire eurozone for 2017. In general, economists continue to assume a constant expansion of domestic demand in the eurozone. Political events in 2017 – especially the presidential elections in France in April and the German Bundestag elections in the autumn – remained in the focus of financial investors. In the core countries of Central and Eastern Europe, the insurance sectors continue to be supported by solid overall economic development. Ukraine and Russia are seeing macroeconomic stabilisation and a slow recovery. The recovery on the commodities markets led to the beginnings of an increase in the inflation rate in many countries. The European Central Bank is expected to maintain its loose monetary policy over a longer period of time. UNIQA is therefore adjusting to a very low general interest rate environment in Europe which will last even longer.
Outlook for the insurance business
According to initial estimates, total premium volume in the Austrian insurance market will amount to about €17.1 billion in 2017. This corresponds to a decrease of 0.6 per cent in comparison with 2016. The anticipated decrease in single premiums in life insurance exercises a major influence here. According to initial forecasts, property and casualty insurance will again experience growth of 1.7 per cent to €9.0 billion in 2017. Premium growth of 3.0 per cent to €2.1 billion is being forecasted in the health insurance line for 2017. In life insurance, an overall reduction of about 5.1 per cent to €6.0 billion is expected in 2017.
The increasing improvement of the economic situation in CEE should lead in the coming years to higher income, more prosperity in private households and growing consumer spending. This goes hand-in-hand with increasing demand for insurance solutions. Many of the region’s populace remain uninsured or very underinsured. Therefore, it also presents an opportunity to introduce optimised insurance solutions to existing customers. The fact that the insurance industry still needs to catch up is reflected in the so-called insurance density (per capita expenditures on insurance products). In Ukraine, for example, per capita insurance spending is just €30; in the countries of Southeastern Europe this number is around €120, and in Central Europe it is around €360. In comparison, the insurance density in Western Europe is over €2,200.
UNIQA therefore expects more dynamic growth in the CEE insurance industry than in Austria in 2017.
The outlook for the UNIQA Group is subject to the following assumptions:
- The global economic recovery continues. This means that economic growth in Austria and CEE remains positive in 2017, with GDP growth in Austria estimated at 1.5 per cent and in CEE (without Russia) at about 3 per cent.
- The ECB remains loyal to its well-trodden path of extremely loose monetary policy. As a consequence, yields for bonds of all kinds will remain artificially low. UNIQA therefore does not expect any noteworthy rise in the overall interest level in Europe.
- No major disruptions occur on the capital markets.
- There are no drastic finance policy-related or regulatory interventions.
- Damages from natural disasters remain within the average of previous years.
Premium development and earnings position
Premiums written in the Group fell by 3.1 per cent in the 2016 financial year. The main reason for this change was the intentional reduction in single premium business in the life insurance line in Austria. This development will not occur again in this form in 2017. UNIQA is therefore expecting overall growth of slightly more than 1 per cent in premiums written this year.
Premium growth of more than 2 per cent is expected in property and casualty insurance in 2017, driven by Austria and CEE. In line with a long-term trend, UNIQA is anticipating growth of more than 3 per cent in health insurance, primarily attributable to business in Austria. In contrast, a moderate decline in premiums of about 2 per cent is expected in life insurance due to a low-interest environment that creates restrained demand.
UNIQA has launched the biggest innovation programme in its corporate history in 2016 and will be investing around €500 million over the next few years in “re-designing” its business model, establishing the staff expertise required for this and investing in the IT systems required. This significant investment in the future will impact earnings before taxes in the 2017 financial year to a similar extent as in the previous year. In addition, a further decrease in net investment income is to be expected as a consequence of the continuing low interest rate. However, the capital earnings will not go down as much as they did in 2016.
Conversely, UNIQA is striving to improve the combined ratio (after reinsurance) to 97.5 per cent. This means increasing profitability for the actuarial core business in property and casualty insurance.
Overall, UNIQA is expecting a slight improvement in earnings before taxes for the 2017 financial year.
Despite ongoing investments and challenging low-interest environment, UNIQA intends to continue increasing its annual distribution per share over the next few years as part of a progressive dividend policy.