Since the turn of the year, early economic indicators have been suggesting a positive start for the entire eurozone and the Austrian economy for 2018. Economists generally assume that the solid economic performance will persist throughout the entire year. The macroeconomic environment also remains very positive in Central and Eastern Europe. GDP in the region (excluding Russia) is expected to grow by 3.8 per cent in 2018. The financial markets should generally continue to benefit from a positive economic environment. The European Central Bank is pursuing a slow and gradual normalisation in its monetary policy. A regular cycle of interest rate rises is not expected to start before 2019. UNIQA does not expect any significant rise in the general interest rate level in the eurozone.
Outlook for the insurance industry
According to forecasts by the Austrian Insurance Association, total premium revenues in Austria are expected to increase again by 1.2 per cent to around €17.3 billion in 2018. Growth of 2.4 per cent is forecast for property insurance here; personal insurance will only grow by 0.2 per cent. Life insurance is restricting performance with a decline, particularly in the area of single premiums (–6.6 per cent), although this is significantly less than in 2017. The strongest growth is expected in the comprehensive motor insurance line at 3.9 per cent.
The sustained positive economic performance in Central and Eastern Europe is expected also to lead to higher incomes over the next few years and to increased consumer spending by households. The fact that the insurance industry still needs to catch up in CEE is reflected in the so-called insurance density (per capita expenditures on insurance products). In Ukraine, per capita insurance spending is just €30; in the countries of Southeastern Europe this number is around €130, and in Central Europe it is around €360. In comparison, the insurance density in Austria is just under €2,000 and is over €2,200 for the EU as a whole.
UNIQA expects long-term growth dynamism in the CEE markets and therefore a considerably more dynamic performance in the insurance industry in Eastern Europe compared with the markets of Western Europe and Austria, including for 2018.
The outlook for the UNIQA Group for 2018 is subject to the following assumptions:
- The global economic upturn will persist, the Austrian national economy will further improve its economic performance, and CEE will also continue to benefit from the economic headwind. GDP growth in Austria will be 2.4 per cent and in CEE (excluding Russia) about 3.8 per cent in accordance with current forecasts in 2018.
- The ECB’s monetary policy will also remain decidedly loose in 2018, with a return to normality only expected in the medium term. UNIQA therefore expects a moderate rise in the general interest rate level in the eurozone.
- No major disruptions occur on the capital markets.
- There are no drastic finance policy-related, regulatory or legal interventions.
- Damages from natural disasters remain within the average of previous years.
Changes in premiums and income position
UNIQA expects a moderate fall in total premium volumes of around 1 per cent for 2018. Premium growth of around 2 per cent is expected in property and casualty insurance in 2018. In line with the long-term trend, UNIQA also anticipates growth of more than 3 per cent in health insurance, driven primarily by business in Austria. In contrast with this a decline is expected in life insurance. The deliberate reduction in single premium business in particular, especially in CEE, along with the persistent decline in classic life insurance in Austria, will result in a fall in premiums of more than 5 per cent in this segment.
In 2016, UNIQA began the largest investment programme in the Company’s history, and is investing around €500 million in redesigning the business model and developing the required staff competencies and necessary IT systems. This significant investment in the future will continue to impact earnings before taxes in the 2018 financial year.
With respect to investment income, UNIQA expects no further fall for 2018 as compared with 2017, since the effects of the low interest rates are already largely reflected in the fall in capital earnings over recent years.
UNIQA aims to improve the combined ratio (after reinsurance) further in 2018 as compared with 2017. Increased profitability in the core technical business for property and casualty insurance should provide the basis for this.
Overall, UNIQA is expecting an improvement in earnings before taxes once again for the 2018 financial year.
UNIQA also intends to continue increasing its annual distribution per share over the next few years as part of a progressive dividend policy.