Large insurance company with EUR 5.2 billion in premiums says it might restrain its business in Romania due to political tensions

Aurel Dragan 28/08/2018 | 09:57

Vienna Insurance Group recorded a rise in premiums by 3.6 percent to around EUR 5.2 billion in the first half of the year, with a profit before taxes up by 5.5 percent to EUR 233 million.

“Stable, reliable and fit for the future is a brief summary of our goals. We have achieved a very stable upward development for two and a half years. The steady improvement in key figures shows we are reliable and the targets originally planned for 2019 have already been brought forward to this year. We are systematically using our “Agenda 2020” management programme to remain fit for the future. In addition to this year’s focus on expanding bank distribution, the “Agenda 2020” programme is also currently looking at increasing data by processing using artificial intelligence. In this respect, new project in Poland has just been started”, summarised Elisabeth Stadler, General Manager of Vienna Insurance Group, at the end of the first half of 2018.

Significant increase in premiums as a group

VIG generated EUR 5,150.3 million in Group Premiums, representing an increase of +3.6 percent compared to the previous year. Excluding a further decline in the single-premium life business, the increase was a solid +5.7 percent. All of VIG’s business segments have contributed to the significant increase in premiums. Similarly, except for single-premium life insurance, premiums have increased in all lines of business, especially in non-life and health insurance. Poland, in particular, achieved very well satisfying double-digit growth in non-life business. The Baltic States recorded + 18.8 percent increase in total premium volume. This was the result of generally very positive performance in all lines of business, especially motor insurance. Croatia (+18.3 percent) and Serbia (+11.6 percent), which belong to the remaining CEE segment, also recorded double-digit growth rates. Premium volume increased to EUR 2,170 million in Austria, despite the continued restrictive underwriting policy in single-premium business. When adjusted for single premium business, premiums increased by +1.3 percent.

The Group result (before taxes) increased by +5.5 percent compared to the previous year to EUR 232.7 million. The increase was mainly due to improvements in the combined ratio and financial result. Contributions from the Czech Republic, Hungary and Serbia largely accounted for the significant increase in the result in the first half of 2018. In Romania, the current market trend and political tension situation has prompted the management to review the planning data for future developments. Based on VIG’s well-known conservative valuation practices, a goodwill impairment of about EUR 50 million was recognized for the Romanian companies. Without the impairment, the result would have increased by + 20.7 percent in Romania. Overall, the operating profitability of the Group remains at an excellent level.

Combined ratio and other key figures improved

The Group combined ratio after reinsurance (excluding investment income) recorded another significant improvement to 96.3 percent. Positive developments came from Austria (95.3 percent), the Czech Republic (94.6 percent), Poland (94.1 percent), Romania (98.6 percent) and Bulgaria (97.2 percent).

“In Romania, the current market evolution and the tense political situation have led the management to revise the estimates for future developments. Based on VIG’s well-known conservative valuation practices, a company’s goodwill was depreciated by approximately EUR 50 million Excluding goodwill depreciation, the profit of operations in Romania would have increased by 20.7 percent. Overall, the Group’s ability to achieve operating profit remains at an excellent level,” the press relese said.

The financial result reached a value of EUR 511.3 million for the first half of 2018, a +4.7 percent increase over the previous year. This increase was impacted by the sale of the stake in S IMMO AG and larger realised gains from investment funds in the Czech Republic.

Group investments including cash and cash equivalents equalled EUR 37.4 billion as of 30 June 2018, unchanged form the end of 2017.

The solvency ratio of the VIG Group was at an excellent 222 percent at the end of the first half of 2018 (end of 2017: 220 percent).

“The results for the first half of 2018 make us very confident about the further course of business for the remainder of the year. Our confidence is underpinned by the continuation of significantly higher economic growth in the CEE region as compared to the EU15 countries, as a higher standard of living is accompanied by an increase in the need for insurance. We, therefore, expect a premium volume of EUR 9.5 billion and a result (before taxes) in the range of EUR 450 to 470 million in total for 2018,” stated Stadler, maintaining the previously announced targets.

Expansion of bank distribution on course

The focus of the “Agenda 2020” programme in 2018 is primarily on expanding bank distribution, and many measures have already been initiated. One of these was an extension of the existing cooperation agreement to 2033, which was signed with our distribution partner Erste Group in mid-May 2018. “We continue to be on schedule with the implementation of the mergers between our bank insurance companies and our local all-line insurers. Hungary, Slovakia and Croatia have been completed. The merger agreement between Sparkassen Versicherung and Wiener Städtische was signed in mid-June 2018. Approval by the Austrian supervisory authority is still outstanding. We expect to be able to complete the merger in autumn 2018. The final merger in the Czech Republic should also have been initiated or completed by the end of 2018”, explained Elisabeth Stadler.

At the end of July 2018, VIG began the second round of the internal Group “VIG Xelerate” programme aimed to promote the digital transformation. VIG Group companies can submit their projects for the programme until the end of October 2018. Award-winning projects will receive financial support if they can demonstrate, among other things, innovation in their local market and relevance in terms of applicability for other VIG companies. They must also be able to show an improvement in financial terms.

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