Elisabeth Stadler: Economic growth is slowing down for the time being due to the influences that you have mentioned like the war, inflation but also supply chain problems and shortage of resources. At present, it is very difficult to make estimates about growth opportunities, because there are far too many influencing factors. A very negative factor is the high inflation, which is currently in double digits in most countries and clouds growth prospects because it reduces people's real incomes. This affects purchasing power, and we could also feel this as an insurance company in the form of less demand for insurance products. We will probably still be confronted with elevated inflation in 2023. However, we must generally assume that the catching-up process of CEE with Western Europe will slow down in the near future.
I dare not predict when we will return to the situation we had before the pandemic, when the rule was that economic growth in the CESEE region was on average at least twice as high as in Western Europe. But I am convinced that we will find this situation again, because there is still a lot of growth potential in this region, also for insurance companies. Insurance penetration in CEE is on average less than one tenth of that in Western Europe.
XPRIMM: Despite the challenging economic conditions in 2022, VIG ended the first half of the year with remarkable results. Please give us your comments on the main achievements of the Group.
E.S.: We are very satisfied with our results in a very challenging time. All these influences we have mentioned before also apply to the insurance industry and dampening the economic outlook. Despite this overall situation VIG Group continues to demonstrate very strong resilience, which is once again manifested in improved key figures. The success of our Group is built on a long-term oriented and broadly diversified business model, which shows its strengths especially in particularly challenging phases. Also, digitalization plays a very important role. We have the great advantage that in many of our markets digital literacy is considerably higher than in Austria for example, and we have launched most innovative projects in CEE.
XPRIMM: In March 2022, VIG has finally closed the acquisition of the Aegon companies in Hungary, the biggest part of the takeover of the Aegon business in Central and Eastern Europe (Hungary, Poland, Romania and Turkey). How would you comment the importance of this large acquisition?
E.S.: The successful acquisition of Aegon's CEE business is an important step in our strategic goal of consolidating our position as the leading insurance group in CEE, while at the same time taking advantage of new opportunities in the pension fund business and asset management. These are both business areas in which we still see great potential and opportunities for the VIG Group and which we would like to expand as part of our 'VIG 25' strategy program.
It is our goal to be among the top 3 in the CEE markets by the end of 2025. Through the acquisition of the Hungarian Aegon companies, we have not only achieved the goal of being among the top 3 in Hungary by the end of 2025, but we are now even the market leader. In addition to Austria, we are now the market leader in our immediate neighbors Slovakia, Czechia and Hungary. Following the acquisition of the entire Central and Eastern European business of the Dutch Aegon Group, VIG gains companies in Hungary, Turkey, Poland and Romania with an insurance premium volume of EUR 640 million, around 2,600 employees and over 4.5 million new customers.
XPRIMM: VIG Group places a special focus on its ESG activities and shows a lot of concern for affordable and sustainable housing, green and social projects etc. Please give us some details on VIG's latest initiatives in this area.
E.S.: Sustainability and the pursuit and implementation of ESG goals for society, customers and employees form one of the three Group goals under the VIG 25 strategy program.
We implement numerous measures in all ESG areas, and the social aspect is also very important to us. In the environment area, we gradually increase our investments in renewable energies and green bonds. Since 2018, we have increased the share of green bonds more than six-fold and had around EUR 440 million in our portfolio at the end of 2021.
In the previous year, we were the first insurance company in Europe to issue a benchmark sustainability bond in the amount of half a billion euros, 80% of which we use for investments in green assets and 20% in social assets. Regarding social engagement we are engaged in supporting affordable housing. Rising housing costs are a concern for many people. Experts now describe affordable housing as the social issue of the 21st century. Our latest commitment to affordable housing is our investment in the Austrian start-up Gropyus. Based in Vienna, the company designs, builds and manages buildings with a focus on sustainable materials, particularly wood. Automation and digitalization reduce manufacturing costs to achieve the goal of providing sustainable and affordable housing for all. A goal we are happy to share with our participation. Gropyus currently operates in Germany, Austria and Switzerland. As part of the VIG investment, the activities are to be expanded to other countries in the CEE region.
We are also gradually withdrawing from the coal energy sector. We defined tight criteria for direct investments in coal in our climate change strategy in 2019. We are fully on track in terms of phasing out investments from the portfolio prior to the introduction of the climate change strategy that do not meet our exclusion criteria. By the end of 2025, 57% of these investments will have been eliminated, a further 38% by the end of 2030, and by the end of 2035 at the latest, these investments will be completely out of the portfolio. In the investment area, 98.5% of our total investments of the existing exposure already meet the current exclusion criteria. Since May 2019, no new insurance contracts have been concluded for coal-fired power plants or mines either. In relation to the total number of corporate customers, our customers with coal risks now account for less than 0.1%. From this very low level, we have reduced coal risks by 74% since 2019 and this trend will continue.
XPRIMM: Apart from the economic crisis it generated, the war in Ukraine has also caused a huge humanitarian crisis. How did VIG cope with the situation in Ukraine, both in business terms and humanitarian ones?
E.S.: We have been represented in Ukraine since 2004 by three companies that generate a premium volume of around EUR 100 million in 2021. We are number 3 on the market. In relation to the total premium volume of 11 billion euros, the share is small, but before the war we have defined Ukraine as a market with disproportionate market growth. Currently, our three Ukrainian companies have almost fully taken up business operations. Our Ukrainian colleagues are very committed and are now maintaining business operations again. Even employees, some of whom have fled with their family members, are working from abroad with their laptops and want to be there for the company and the customers. We have great respect for the loyalty and commitment of our Ukrainian colleagues.
This allows us to make the best possible use of the potential in the insurance business, but above all to be there for our customers. At the moment, however, our focus is not on the economic aspect but on the human aspect and the situation for our approximately 1,400 employees. Immediately after the war began, we started coordinated aid and support activities within the Group, especially in the countries neighboring Ukraine.
Our companies organized and equipped apartments for employees and their families. We were thus able to provide housing for more than 500 people. We initiated the "VIG Family Fund" with a basic endowment of 5 million Euro. Our companies and employees have paid into this fund and currently we have about 7 million Euro to provide direct support to affected families of our Ukrainian companies for the reconstruction of destroyed apartments and houses, as well as for personal hardship caused by the war.
XPRIMM: At the 2022 edition of the Rendez-Vous de Septembre, it was often talked about the decreasing appetite of reinsurers for Nat Cat and the expected increase in reinsurance rates for this line of risks. What impact may have such a development on the rather large Nat Cat insurance gap in the CEE region?
E.S.: The topic of Nat Cat will undoubtedly occupy us intensively in the coming years, especially since the failure of climate protection measures is seen as the greatest risk of the next 10 years according to the current Global Risk Report. Reinsurers are looking very closely at the impact of climate change on their own business models and are warning of the increase in secondary natural hazards, such as drought, forest fires and floods. For the CEE region, drought and floods in particular are seen as major risks. Losses from secondary natural catastrophes have increased significantly more than losses from hurricanes and earthquakes in recent years, taking up around 70 percent of insured natural catastrophe losses worldwide in 2021. The goal should be to expand the limits of insurability under the conditions of climate change impacts also for the CEE region. This includes insurance coverages that are even more adapted to local weather conditions in a region. We will therefore have to invest a great deal in data mining and expanding IT systems in order to model risks even more accurately, precisely and locally. But the fact is that increasing natural disaster losses are causing insurance premiums to rise.
XPRIMM: Next year your last mandate at the helm of the Vienna Insurance Group will end. What lessons have you learned in the years you led the insurance Group with the largest presence in the CEE?
E.S.: The task of managing the largest insurance group in Central and Eastern Europe is a particularly exciting challenge, especially a listed company, where the capital market and its immediate reactions have to be taken into account in all the considerations, statements and actions. I also see our broad, diverse setup as a big advantage. This diversity of ideas and different cultures is incredibly inspiring and makes my job really varied. I am convinced that diversity contributes to the economic success of a company. Our broad diversification across a large number of markets and brands enables us to remain stable even in crisis situations. The more diversely I am positioned, the easier it is to offset turbulence in individual markets or at individual companies by the overall result. We have now also noticed and benefited from this during the pandemic. Very special for me is also the very high level of solidarity within our group and a strong sense of responsibility towards its stakeholders which is now again topically shown by the war in the Ukraine.
Interview conducted by Daniela Ghetu
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