VIG evaluates KPIs and dividend policy following IFRS 17/9 volatility

Pardon the Interruption

This article is just an example of the content available to mallowstreet members.

On average over 150 pieces of new content are published from across the industry per month on mallowstreet. Members get access to the latest developments, industry views and a range of in-depth research.

All the content on mallowstreet is accredited for CPD by the PMI and is available to trustees for free.

Vienna Insurance Group is currently reviewing the objectives for the financial performance indicators and the dividend policy following volatility expected from the new accounting standards IFRS 17 and 9.

Chief financial officer Liane Hirner said the half-year results under the new standards, which have been applicable since 1 January this year, show “the expected increased volatility of results in relation to the changes in interest rate environment”.

Insurance service revenue, the new KPI under IFRS 17 replacing gross premiums, increased by 13.7% year-on-year to €5.4bn (£4.6bn) in the first six months of 2023 due to increase in premiums in non-life business, as well as higher contractual service margin in longer-term contracts. The CSM is a future profit that is amortised over the lifetime of a contract. 

Net investment result also improved to €233.4m in H1 compared with €149.1m losses in the same period last year, but VIG stressed that last year it was impacted by investments in Russian bonds. 

As of 31 December 2022, the group held €165.6m in Russian government and corporate bonds but made a profit of €20.3m in the first half of 2023 from selling them. Changing interest rates also improved the investment result. 

The group’s combined ratio – an indicator to measure profitability of an insurer’s property and casualty business – deteriorated to 94%, compared with 90.6% in H1 2022, primarily due to the consideration of higher claims volatilities in the liability for incurred claims under IFRS 17. In addition, with the application of IFRS 17, the method to determine the net combined ratio has changed by removing reinsurance considerations in the calculation, said VIG.

Hirner said the firm could not predict the ‘normalised’ level of the results going forward due to changes in interest rates and capital market volatility but told analysts on Wednesday: “It's really not possible currently to evaluate in a normalised result in this respect. We really hope that the interest rate environment will remain stable in the upcoming [reporting] period.”

VIG anticipates a weak macroeconomic environment and volatile capital markets going forward and for 2023 as a whole. 

“The considerable number of uncertainties limits the ability to predict our business performance for the second half of 2023. Results are likely to be dampened due to the severe weather events this summer and the probability for further extreme weather,” said VIG’s new chief executive, former Austrian finance minister Hartwig Löger.

The insurer expects profit before taxes in a range of €700m to €750m for 2023.

Have the new accounting standards brought volatility in your results? 

More from mallowstreet