Martin Simhandl, Group CFO, Vienna Insurance Group Insurance Market Trends Conference Vienna Insurance Group – Value Inspired Growth Investor Presentation 19 May 2015
Solvency I Need for regulatory modernization � Asset risk not tackled (i.e. stock market downturn of 2002) Limits of Solvency I � Does not sufficiently differentiate by insurers’ risk profiles � Solvency I calculation is not consistently applied in the EU � Greater transparency and creation of large multinational insurance players � Higher complexity, i.e. integration between insurance and banking Global Developments activities (turned out to be problematic in the financial crisis) � Occurrence of new risks and increased natural catastrophes � IT and innovations 2
Key milestones in the regulatory framework 1970’s – 2008 1970s 1997 - 2004 2005 2006 2007 2008 Solvency I Aim of reviewing old solvency requirements 1st EU Directive Solvency on solvency Regulation margins Solvency II Initiated in 2001 to reform Solvency I QIS 1 winter 05, published Mar 06 QIS 2 May-Jul 06, published Dec 06 QIS 1 - 4 QIS 3 Apr-Jul 07, published Nov 07 QIS 4 Apr-Jul 08, published Nov 08 IFRS Adoption of IFRS in Europe from 1 January 2005 MCEV principles MCEV published in 2008 Source: EIOPA, European Commission, Morgan Stanley, Oliver Wyman, VIG 3
Key milestones in the regulatory framework 2009 – 2016 2009 2010 - 2011 2012 2013 2014 2015 2016 Solvency II Directive EC adopted EC adopted Application of Framework 2013/58/EU Delegated act the 1st set of Solvency II Directive postponing implementing Solvency II regime Solvency (2009) on the application rules for Implementing financial date of Solvency II Regulations Regulation position of Solvency II insurance undertakings QIS 5 Aug-Nov 2010, published QIS 5 in April 2011 IASB issued an Exposure Draft of proposals for IFRS accounting for Insurance Contracts 4
Excursus: Differences Between Insurers and Banks Insurers’ business model proved to be resilient compared to banks TBD Key take-aways Insurers match assets with liabilities and are thus less exposed to systemic risk of maturity transformation (borrowing short to lend long) Insurers generally are cash collectors and therefore a stabilizing factor in liquidity crisis Insurers’ business model Insurers carry substantial lower positions in derivatives than banks The compulsory nature of some of insurers’ business, such as motor insurance, also provides insurers with revenue stability, despite difficult macro-economic conditions Source: Geneva Association, VIG 5
Excursus: Differences Between Insurers and Banks Banks’ balance sheets are significantly larger than insurers TBD Total assets ($bn) Insurers Banks � Insurance � Average assets are bank is 3,9x 976 2.676 Max Max largely larger than matched the average with long insurer 386 1.520 Average Average term liabilities 89 161 Min Min - 1.000 2.000 3.000 - 1.000 2.000 3.000 Sample size: 28 Sample size: 28 Source: Geneva Association - February 2013 publication, 2010 figures, Oliver Wyman Short term funding as a percentage of total assets (%) Insurers Banks � Insurers’ � Insurance short term are not 8,1% 38,5% Max Max funding are involved in significantly maturity lower % of Average 2,4% Average 15,7% transformati their overall on due to balance the sheet 6,1% Min Min 0,1% insurance business 0% 20% 40% 60% 0% 20% 40% 60% model Sample size: 26 Sample size: 28 Source: Geneva Association - February 2013 publication, 2010 figures, Oliver Wyman 6
Why EU initiated Solvency II? Aim was to ensure financial stability during difficult periods Difficult risk situations Solvency II risk based approach (e.g. Nat Cat, financial with three pillars shall ensure crises, etc.) financial stability 7
Stability – VIG demonstrated its resilience History of VIG dates back to 1824… 1 Well-proved business model 2 Conservative investments 3 Strong capital 4 Highly diversified group 8
1 Well-proven business model VIG’s strategic cornerstones Concentration on We are an insurer Austria and CEE Multi brand strategy Local and multi channel entrepreneurship distribution 9 9
2 Conservative investments How assets are management at the VIG Increase in the govies � focused on core European countries Quality Sustainability Weightings of Conservative � � financials in the real estate bond portfolio investments has been decreasing Diversification Conservative Developing further a high � quality mix of fixed income (bonds, loans) 10
3 Strong capital Focus on VIG’s shareholders’ equity (€mn) +6% 213 391 5,283 -201 -52 -34 4,967 Equity restated Profit for Currency AFS unrealised Dividend Other Equity as as of YE 2013 the period changes gains and payment of YE 2014 losses Strong Solvency 1 ratio of 247% 4,464 Available capital 700 Solvency 1 Ratio: Required capital 1,085 23 1,808 247% in FY2014 P&C Life Health 11
3 Strong capital (cont'd) Standard & Poor’s affirmed “A+” rating on VIG S&P views on VIG’s S&P views on VIG’s capital and positioning management and risk controls Capital Management and risk controls � “ Capital adequacy is excellent, exceeding � “ VIG's management and governance is our benchmark for the 'AAA' level in 2013. strong . This reflects the group's clear and VIG has strong financial flexibility, in our view, credible strategic planning and its thanks to the group's proven access to capital conservative financial management . We markets and comparably low financial regard VIG's liquidity as exceptional , owing leverage.” to the strength of available liquidity sources-- mainly premium income--and its liquid asset portfolio. VIG's enterprise risk management Positioning (ERM) is adequate with strong risk controls , in our opinion.” � “In our view, VIG has a very strong competitive position , mainly reflecting the group's leading positions in life and non- Resilient financial profile life insurance in Austria and CEE . We believe the group's multibrand policy, multiple � “The group ’ s strong risk controls showed distribution capabilities, and broad geographic their efficacy during the financial market VIG ’ s and business line diversity are strong market downturn when financial profile credentials.” stayed largely resilient to the negative effects of the turmoil.” Standard & Poor's 12
3 Strong capital (cont'd) Successful bond issue 2015: VIG placed EUR 400 million Rating of issuer � A+ (S&P), Outlook Stable Rating of issue � A- (S&P) Outstanding volume � EUR 400 million � EUR 100,000 Denomination � 100% Issue price � 3.75% p.a. until 01.03.2026 (inclusive), thereafter: 3M EURIBOR +3.939% p.a. Coupon � 31 years (2 March 2046) Maturity � By issuer for the first time on 2 March 2026 (First Call Date) and each following Redemption Interest Payment Date at their principal amount � Bonds may be redeemed prior to the First Call Date upon special events at any time Early redemption 13
4 Highly diversified group VIG with the most diversified network throughout the region Today: 25 Markets 1990: 3 Markets Client/talent base: 180mn people Client/talent base: 24mn people 19% market share in its core markets #4 #2 #1 #1 #1 #7 #1 #4 #4 #2 VIG Core markets 2006 2007 2008 2010 2011 2014 1990 1996 1999 2001/2002 2004 GE TR, AL EE, LV MD CZ, SK HU, PL, IT, LI, HR RO, BY SI ME BA MK LT DE BG, RS UA # Market position 14
4 Highly diversified group VIG with the most diversified network throughout the region #4 #1 #1 #1 #1 15
4 Highly diversified group (cont'd) Striking under-penetration in CEE shows potential 2,713 Annual premiums per capita (insurance density), in EUR 9x 1,954 Life 548 Non-life 399 351 272 275 212 123 88 75 59 Ø EU-15 AT Ø CEE CZ SK PL HR HU BG RO SR UA Source: Local insurance authorities; IMF; Swiss Re Sigma ; CEE: weighted average of CEE core markets; Data as of year-end 2013 16
How to cope with difficult environment? VIG is well-positioned against current challenging market conditions Challenging Well positioned market Vienna Insurance environment Group Debt crisis in Low exposure to risky Europe assets (i.e. GIIPS) Negative Cash Economical Prudent ALM impact of generation and political approach current low and robust instability interest earnings environment Limited GDP Sound growth diversification 17
Key milestones in the regulatory framework 2009 – 2016 2009 2010 - 2011 2012 2013 2014 2015 2016 Solvency II Directive EC adopted EC adopted Application of Framework 2013/58/EU Delegated act the 1st set of Solvency II Directive postponing implementing Solvency II regime Solvency (2009) on the application rules for Implementing financial date of Solvency II Regulations Regulation position of Solvency II insurance undertakings QIS 5 Aug - Nov 2010, published QIS 5 in April 2011 IASB issued an Exposure Draft of proposals for IFRS accounting for Insurance Contracts 18
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