Vienna Insurance Group Value Inspired Growth Investor Presentation - - PowerPoint PPT Presentation

Vienna Insurance Group – Value Inspired Growth Investor Presentation

19 May 2015

Martin Simhandl, Group CFO, Vienna Insurance Group Insurance Market Trends Conference

Limits of Solvency I

Asset risk not tackled (i.e. stock market downturn of 2002) Does not sufficiently differentiate by insurers’ risk profiles Solvency I calculation is not consistently applied in the EU

Global Developments

Greater transparency and creation of large multinational insurance

players

Higher complexity, i.e. integration between insurance and banking

activities (turned out to be problematic in the financial crisis)

Occurrence of new risks and increased natural catastrophes IT and innovations

Solvency I

Need for regulatory modernization

2

Key milestones in the regulatory framework

1970’s – 2008

3

Solvency Regulation QIS 1 - 4 1970s

1st EU Directive

• n solvency

margins Aim of reviewing old solvency requirements Initiated in 2001 to reform Solvency I Solvency I Solvency II

1997 - 2004 2005 2007 2006 2008

QIS 1 winter 05, published Mar 06 QIS 2 May-Jul 06, published Dec 06 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

MCEV principles published in 2008

Source: EIOPA, European Commission, Morgan Stanley, Oliver Wyman, VIG

Key milestones in the regulatory framework

2009 – 2016

4

Solvency Regulation 2009 2010 - 2011

IASB issued an Exposure Draft of proposals for accounting for Insurance Contracts

2013 2015 2014 2016

Directive 2013/58/EU postponing application date of Solvency II EC adopted Delegated act implementing rules for Solvency II EC adopted the 1st set of Solvency II Implementing Regulations Application of Solvency II regime

QIS 5 IFRS

Solvency II Framework Directive (2009) on the financial position of insurance undertakings

2012

QIS 5 Aug-Nov 2010, published in April 2011

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 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

Insurers’ business model

Excursus: Differences Between Insurers and Banks

Insurers’ business model proved to be resilient compared to banks

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TBD

Average

bank is 3,9x larger than the average insurer

Insurers’

short term funding are significantly lower % of their overall balance sheet

Total assets ($bn)

Source: Geneva Association - February 2013 publication, 2010 figures, Oliver Wyman

89 386 976

• 1.000

2.000 3.000 Min Average Max 2.676 1.520 161

• 1.000

2.000 3.000 Min Average Max

Insurers Banks

Insurance

assets are largely matched with long term liabilities

Insurance

are not involved in maturity transformati

• n due to

the insurance business model

Banks Insurers

Sample size: 28 Source: Geneva Association - February 2013 publication, 2010 figures, Oliver Wyman Sample size: 28

0,1% 2,4% 8,1% 0% 20% 40% 60% Min Average Max 38,5% 15,7% 6,1% 0% 20% 40% 60% Min Average Max

Sample size: 26 Sample size: 28

Short term funding as a percentage of total assets (%)

Excursus: Differences Between Insurers and Banks

Banks’ balance sheets are significantly larger than insurers

6

Why EU initiated Solvency II?

Aim was to ensure financial stability during difficult periods

Difficult risk situations (e.g. Nat Cat, financial crises, etc.) Solvency II risk based approach with three pillars shall ensure financial stability

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Stability – VIG demonstrated its resilience

History of VIG dates back to 1824… Well-proved business model Conservative investments Strong capital Highly diversified group 1 2 3 4

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Local entrepreneurship Concentration on Austria and CEE

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We are an insurer Multi brand strategy and multi channel distribution

Well-proven business model

VIG’s strategic cornerstones 1

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• Increase in the govies

focused on core European countries

• Weightings of

financials in the bond portfolio has been decreasing

• Developing

further a high quality mix of fixed income (bonds, loans)

• Conservative

real estate investments Quality Diversification Sustainability Conservative

Conservative investments

How assets are management at the VIG 2

10

(€mn) Strong Solvency 1 ratio of 247%

213 391 Profit for the period Equity restated as of YE 2013 4,967 +6% Equity as

• f YE 2014

5,283 Other

• 34

Dividend payment

• 201

AFS unrealised gains and losses Currency changes

• 52

4,464 Available capital 700 P&C Required capital Life Health 1,808 1,085 23

Solvency 1 Ratio: 247% in FY2014

Strong capital

3 Focus on VIG’s shareholders’ equity

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Strong capital (cont'd)

3

12

Capital

“Capital adequacy is excellent, exceeding

• ur benchmark for the 'AAA' level in 2013.

VIG has strong financial flexibility, in our view, thanks to the group's proven access to capital markets and comparably low financial leverage.” Positioning

“In

• ur

view, VIG has a very strong competitive position, mainly reflecting the group's leading positions in life and non- life insurance in Austria and CEE. We believe the group's multibrand policy, multiple distribution capabilities, and broad geographic and business line diversity are strong market credentials.” S&P views on VIG’s management and risk controls S&P views on VIG’s capital and positioning Management and risk controls

“VIG's management and governance is

• strong. This reflects the group's clear and

credible strategic planning and its conservative financial management. We regard VIG's liquidity as exceptional, owing to the strength of available liquidity sources-- mainly premium income--and its liquid asset

• portfolio. VIG's enterprise risk management

(ERM) is adequate with strong risk controls, in our opinion.” Resilient financial profile

“The group’s strong risk controls showed

their efficacy during the financial market downturn when VIG’s financial profile stayed largely resilient to the negative effects

• f the turmoil.”

Standard & Poor's

Standard & Poor’s affirmed “A+” rating on VIG

Strong capital (cont'd)

3

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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

Denomination Issue price

EUR 100,000 100%

Coupon Maturity Redemption

3.75% p.a. until 01.03.2026 (inclusive), thereafter: 3M EURIBOR +3.939% p.a. 31 years (2 March 2046) By issuer for the first time on 2 March 2026 (First Call Date) and each following

Interest Payment Date at their principal amount Early redemption

Bonds may be redeemed prior to the First Call Date upon special events at any time

1990 CZ, SK DE 1996 1999 HU, PL, IT, LI, HR 2001/2002 RO, BY BG, RS 2004 SI UA 2006 GE 2007 2008 2010 2011 2014 TR, AL MK EE, LV LT ME BA MD

VIG Core markets

1990: 3 Markets Client/talent base: 24mn people Today: 25 Markets Client/talent base: 180mn people 19% market share in its core markets

Highly diversified group

VIG with the most diversified network throughout the region 4

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#1 #1 #1 #1 #4 #7 #2 #2 #4 #4

# Market position

Highly diversified group

VIG with the most diversified network throughout the region 4

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#1 #1 #1 #1 #4

BG 123 HU 275 HR 272 PL 351 SK 399 CZ 548 Ø CEE 212 AT 1,954 Ø EU-15 2,713 9x Non-life Life UA 59 SR 75 RO 88

Annual premiums per capita (insurance density), in EUR

Source: Local insurance authorities; IMF; Swiss Re Sigma ; CEE: weighted average of CEE core markets; Data as of year-end 2013

Striking under-penetration in CEE shows potential

Highly diversified group (cont'd)

4

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Debt crisis in Europe Economical and political instability Limited GDP growth Negative impact of current low interest environment Low exposure to risky assets (i.e. GIIPS) Cash generation and robust earnings Sound diversification Prudent ALM approach

How to cope with difficult environment?

Challenging market environment Well positioned Vienna Insurance Group

VIG is well-positioned against current challenging market conditions

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Key milestones in the regulatory framework

2009 – 2016

18

Solvency Regulation 2009 2010 - 2011

IASB issued an Exposure Draft of proposals for accounting for Insurance Contracts

2013 2015 2014 2016

Directive 2013/58/EU postponing application date of Solvency II EC adopted Delegated act implementing rules for Solvency II EC adopted the 1st set of Solvency II Implementing Regulations Application of Solvency II regime

QIS 5 IFRS

Solvency II Framework Directive (2009) on the financial position of insurance undertakings

2012

QIS 5 Aug - Nov 2010, published in April 2011

Calculation of Minimum Capital (MCR)

Solvency II

Own Risk and Solvency Assessment (ORSA)

• Report on Solvency

II and Financial Stability for supervisory and public

• Market discipline
• Market Risk
• Underwriting Risk
• Credit Risk
• Operational Risk
• ....

Calculation of Solvency Capital (SCR) Supervisory Review Process

Quantitative Requirements

Pillar 2 Pillar 1 Pillar 3

Qualitative Requirements Transparency & Disclosure

• System of

Governance

• Effective Risk

Management System

• Organisation and

Processes

• ...

Solvency II at a glance

Risk based approach with three-pillars

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20

Pillar I – Overview

Planned partial Internal Model of VIG – Non-Life and Property

20 AT AT, CZ, SK, PL, RO

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• 1 month preparation
• 3,5 month for solo calculation
• 1 month group aggregation
• Detailed Deadlines for all

calculation areas (Assets, Life, Non-Life, IGT, CPD, etc…)

• Definition of responsible

persons within the Group

• Up to 20 persons involved on

Group level

Plan for SCR calculation - valulation date 2013/06/30

• Over 50

subprocesses and deliverables are to be fulfilled by solo and group Corresponding Deadlines communicated to solo entities

Pillar I – Aggregation

VIG’s SCR calculations

21

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Internal Control System Risk Policies Risk Bearing Capacity Key Functions Outsourcing Fit & Proper ORSA Risk Inventory Processes_____ Governance Business Continuity Risk Strategy

… …

Pillar II – Implementation Plan

Focus on Pillar II

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Asset management Reinsurance Reporting IT Calculation of EV Calculation of Solvency

VIG group steering

Group guidelines followed by all of our companies Selecting the right people is key Best risk mitigation given by accountable managers

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Disclosure (to public) Reporting (to supervisor)

■ Solvency and Financial Condition Report

(SFCR)

■ Quantitative Reporting Templates (QRT) ■ Regular Supervisory Reporting (RSR) ■ Quantitative Reporting Templates (QRT)

+ ad hoc reporting

RSR

■ Audience: Supervisory

authority

■ Extent: Similar to SFCR,

more in depth

■ Content: ■ Plan data, primarily

upcoming periods;

■ Includes confidential

details SFCR ■ Audience: Public and supervisory authority ■ Extent: 5-6 Chapters ■ Content: ■ Historical data ■ Primarily the last reporting period QRT

■ Audience: Supervisory

authority, part. Public

■ Extent: Approx. 134 Excel-

documents

■ Content: ■ Quantitative information

regarding balance sheet

■ Own funds, solvency

capital requirement and variation analysis Qualitative Reporting Quantitative Reporting

Pillar III

Solvency II reporting

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Data processing Data entry Information Broadcasting Reporting

• Collection,

Compilation and Delivery of SII QRT- Reporting Data

• Data Validation, Calculation/

Aggregation, Master Data Management, Data Quality Management RE COA TP RC IGT Assets OFFBS SCR MCR

…

• Formatted QRT

Reporting

• Ad hoc Reporting
• Monitoring
• Delivery of

QRT Reports

Pillar III

Solvency II reporting

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Supervisory authority

Solvency II application is approaching

VIG is well prepared for the Solvency II project

VIG is well prepared for Solvency II

Calculation in place Consultations in Colleges Uniform guidelines Work on partial internal model for nonlife business Reporting implemented Work on partial internal model for real estate investments

✓ ✓ ✓ ✓ ✓ ✓

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