Dear ladies and gentlemen, dear shareholders,
We had carefully calculated multiple scenarios prior to the decision last April to communicate a profit warning as well as the lack of a dividend for the 2020 financial year due to Covid-19. Although we had correctly included all potentially burdensome effects, we did underestimate the strength of our core business.
Earnings exceed expectations and allow for a dividend
As a result, the past financial year not only went much better economically than expected at the time, but we were even able to absorb a number of one-off special charges in this extraordinary transformation year:
- €99 million in restructuring provisions as a basis for reducing our future cost base
- €39 million for one-off integration costs from the AXA acquisition
- €106 million for impairments of goodwill in CEE
“... the past financial year was much better from an economic point of view than expected thanks to the strength of our core business ...”
The earnings before taxes of €57 million reported after deduction of these three one-off special charges totalling €244 million means that we can propose a dividend for financial year 2020 to the Annual General Meeting on 31 May 2021 after all, contrary to our original forecast of April 2020: just as in the previous financial year, this will once again amount to 18 cents per share.
Premiums rise by 3.6 per cent
Covid-19 put a significant brake on our new business, particularly between April and June 2020, since many Europeans were concerned with other matters than buying insurance. It was often not possible for our customer service managers to meet existing or potential clients physically. The branches at our most important strategic partner the Raiffeisen Banking Group were also partially closed and reported heavy reductions in customer traffic.
The premium growth reported of 3.6 per cent was therefore significantly above our expectations. Minus the premium income of €212 million from the newly acquired AXA companies in Poland, the Czech Republic and Slovakia which were consolidated for the first time in the fourth quarter of 2020, we only recorded a slight decline of 0.4 per cent overall, despite the huge reduction in new business already stated for the second quarter. We are proud of the achievements of our colleagues in sales and customer service:
- In Austria we recorded growth of a satisfactory 1.0 per cent.
- We grew by 9.2 per cent internationally once the newly acquired AXA companies are included. Excluding AXA, we recorded a decline of 4.3 per cent, primarily due to the significantly lower production volume in the cooperation arrangements with Raiffeisen Bank International. This decline in CEE amounts to just 0.7 per cent once adjusted for currency differences.
We have maintained our customer base of approximately ten million customers (excluding AXA). Once we factor in the customers from the newly acquired companies, we are already at more than 15 million customers. Lapses and cancellations were within normal limits despite Covid-19. At 75 per cent, our aided brand awareness in Austria remains at the top, and with a few local exceptions in the motor vehicle business, we were able to keep our prices largely unchanged in a difficult environment.
Improved loss and benefit ratios
We paid €42 million more for storm damage in property and casualty insurance in 2020 than in the previous year, with charges from major claims also high, and we earmarked around €70 million for payments related to Covid-19, primarily for business interruption. Since the welcome trend of falling motor vehicle “basic damage” has continued in 2020, the loss ratio has fallen to a very healthy 63.2 per cent despite these charges (2019: 64.2 per cent).
The benefit ratio in health insurance fell by 2.7 percentage points to 82.8 per cent, and by 1.4 percentage points in life insurance to 92.6 per cent despite one-off expenses of €23 million. The excess mortality rates due to Covid-19 that became apparent in Austria towards the end of the year are not (yet) reflected in our portfolio.
Our costs rose by 11.3 per cent, which is significantly higher than the premiums written (+3.6 per cent). Excluding the restructuring expenses and integration costs stated above totalling €137 million, which have nothing to do with ongoing operations, the increase (due to continued high investments in IT and strategic projects) amounts to 2.6 per cent. Strict cost management and consistent reduction of the cost ratio therefore are a particular priority for us within the scope of our new “UNIQA 3.0 – Seeding the Future” strategic programme.
“... once we factor in the newly acquired companies from AXA, we are already at more than 15 million customers ...”
High levels of stability in operations and IT
Despite Covid-19 and the associated factor of most colleagues working from home, Operations and IT in Austria recorded high levels of stability last year.
Apart from the rapid implementation of home working for our back office colleagues in March, IT strengthened its governance and security and also went live with new front-end systems, in parallel with its support for the construction of the new UNIQA Insurance Platform (UIP) core system. Operations was successful in meeting our service levels: the only backlogs in service were the very high number of customer requests for business interruption services that were received at the same time due to the lockdown.
In CEE, the focus for both Operations and IT was on preparations for the integration of the AXA companies into our core markets of Poland, the Czech Republic and Slovakia.
Declining capital earnings and solvency ratio
Net investment income of €505 million was 14 per cent or €80 million below the previous year’s figure. The two main reasons for this are the sales of properties not completed in 2020 (2019: €45 million in extraordinary income) and impairments for participations, shares, equity funds and fixed-income securities (€34 million). The average return on our new investments (around €3 billion) decreased significantly from 2.8 per cent to 2.07 per cent.
From a value of 221 per cent at 2019 year end, our regulatory capital requirement ratio under Solvency II fell noticeably year-on-year to 170 per cent: around 20 percentage points of this decline are due to the general decline in interest rates in 2020, about 30 percentage points originate from the newly acquired AXA companies.
“... our new ‘UNIQA 3.0 – Seeding the Future’ strategic programme represents our powerful and optimistic response to the major megatrends in our industry ...”
Accounting and company management
- IFRS 17 and IFRS 9 will be introduced in less than two years, i.e. in January 2023. With total expenditure of more than €50 million, this major project is not only a cost and resource-intensive one, but it also fundamentally changes the way we manage our business due to new interdependencies, even greater consideration of long-term value drivers and a view of business performance focused on the future and on investors. We have therefore made this topic a particular priority in training courses for management and the Supervisory Board.
- As reported, the Austrian Financial Reporting Enforcement Panel (OePR) conducted an enforcement review in 2020 of our 2019 annual financial report and the 2019 and 2020 half-year financial reports. While there were no findings in most of the audit areas, the analysis of the impairment tests for the goodwill in Romania and Bulgaria showed that the growth assumptions and discount rates used by us did not comply with IFRS requirements in some cases. This resulted in subsequent impairment of goodwill in Romania and Bulgaria to the value of €55 million. The corresponding adjustment was made as an error correction to the 2019 annual results in accordance with IAS 8 and had no impact on the 2020 results. We notified the capital market of this by way of an ad hoc announcement.
UNIQA 3.0 – Seeding the Future
Our new strategic programme which we unveiled in November and which runs from 2021 to 2025 represents our powerful and optimistic response to the four major megatrends in our industry: low interest rates and economic power shifts, demographic and social changes, innovation and digitalisation, as well as climate change and sustainability.
“... UNIQA 3.0 is an attractive option for our investors ...”
We have therefore been managing the classic insurance business based on a particularly lean Group structure in all our markets according to the three customer groups Retail, Corporate and Banking since January 2020. The overriding principle is a radical focus on the customer with a significant reduction in the cost ratio at the same time.
We are driving innovation in disruptive business models that are consciously outside the classic insurance business through our digital “low-cost carrier” CHERRISK and in our corporate health start-up SanusX.
Dear Shareholders, “UNIQA 3.0 – Seeding the Future” is an attractive strategic programme for our investors. Average annual premium growth of 3 per cent, a significant reduction in the expense ratio to approximately 25 per cent and a reduction in the combined ratio to a net 93 per cent enable a return on equity of between 8 and 10 per cent. We want to return the dividend per share to pre-coronavirus levels and increase it once again each year – at a payout ratio of between 50 and 60 per cent in each case. The regulatory solvency ratio should be well above 170 per cent every year, and we plan to reduce our leverage ratio from the current level of around 42 per cent to well below 35 per cent.
The difficult transformation year 2020 proved how strong our core business is across Europe. We are building on this with UNIQA 3.0 and driving forward decisively with further developments in our corporate Group. On behalf of all UNIQA employees, I would like to thank you for your interest in our work and for your trust, and I am very confident that we will justify this in the first year of our new “UNIQA 3.0 – Seeding the Future” strategic programme.
Vienna, April 2020
on behalf of the Group Executive Board