Preserving strong solvency and focusing on margin management are two key areas for the group, according to CFO Annelis Lüscher Hämmerli.
Profitable growth and strong and sustainable capitalization will support future dividend growth for the Helvetia insurance group. The latter is strengthening its positions in Switzerland and Europe, as well as in selective and secure online niches with Smile. Interview with Annelis Lüscher Hämmerli, CFO of the St. Gallen.
Is Helvetia still on track to meet its 20.25 targets, given a tougher economic and geopolitical context than in 2021?
The group remains in line with its objectives until 2025, i.e. a return on equity of around 8% to 11%, a combined ratio (note: management expenses and claims costs in relation to premiums) net from 92% to 94% in non-life business, a margin on new business in life insurance and pension insurance of between 2% and 3%, as well as commission and service income of over 350 million francs.
What is the impact of inflation on the group’s balance sheet and costs?
An increase in interest rates is favorable for us from an economic point of view, as it allows balance sheet capital to be reinvested at higher yields. Helvetia is also increasing its efficiency, aiming to achieve savings of 100 million francs by 2025. 39 million were already achieved last year. We are constantly adapting to maintain our margins. Acting simultaneously on income, on the quality of the profitability of insurance premiums collected and on costs. And paying particular attention to the evolution of inflation and natural disasters.
A large part of the group’s real estate assets are located in Switzerland and consist mainly of residences, a market in which supply and demand play a role in addition to interest rates.
The group’s SST (Swiss Solvency Test) solvency margin was 1It’s January 2022 by 260% compared to 193% a year earlier. Is it holding up well in the current context?
It is the case. The rise in interest rates is very positive with regard to bond investments and other fixed-income securities, while guarantees and the technical interest rate have been gradually decreasing in the life and pension businesses. On the other hand, the effect is negative for stocks and other related investments. In addition, stability reflects investments in real estate. A large part of the group’s real estate assets are located in Switzerland and consist mainly of residences, a market in which supply and demand play a role in addition to interest rates.
SST rates of 275% on life and 321% on non-life, as well as a venture capital of 11.7 billion francs at the beginning of 2022, suggest that Helvetia is heavily overcapitalised…
Maintaining a safety margin in this area is necessary, particularly with institutional clients. Because they must have confidence in an insurer’s ability to provide financial security and be able to cover large claims. Current problems, namely inflation, disruptions in supply circuits, including energy, the war in Ukraine and the risk of recession, call for the maintenance of a robust solvency.
Helvetia aims for attractive and stable dividend payments. What about share buybacks?
The main objective is to pay a sustainable dividend each year, the absolute value of which increases or is at least stable. Helvetia maintains a strong economic capacity to pay dividends. This capacity amounted to FF 0.8 billion in 1It’s January 2022. As for the share buyback, it is an alternative that we must compare with others in terms of organic growth or external growth. Our objective is to allocate capital in the best possible way, in order to obtain the best risk-return.
Special lines and active reinsurance are also proving attractive in markets that continue to harden.
In this sense, is the acquisition of the insurance company Caser in Spain a good investment?
We pay a reasonable price: once the net asset value, so no goodwill. In addition, Caser has excellent management, while at the same time it has good pricing power (note: pricing power), like Helvetia in Switzerland. This acquisition made it possible to strengthen the group’s position in Spain and to become one of the “top ten” in this market. Our acquisition strategy has not changed. We remain open to opportunities in our various markets, including Germany, Italy and Austria, but in a targeted and disciplined way. Helvetia is also interested in acquiring know-how, that is, taking on teams of specialists, namely in the areas of active reinsurance and specialty or tailor-made insurance (specialty markets), which include other engineering, transport and art segments.
What are the best opportunities for organic growth right now?
Smile direct online insurance in Switzerland and the B2B2C business are two promising areas. Special lines and active reinsurance are also proving attractive in markets that continue to harden. And they have similar cycles. Our specialty markets business, niche par excellence, namely in France where Helvetia is the second largest insurance company in the maritime and transport sector, is characterized by a good geographical diversification; which is beneficial from the point of view of economic solvency.
You want to multiply the online insurance offer using Smile’s digital business model. Why Austria after Switzerland?
The internationalization of Smile, which has become a lifestyle brand, must be carried out profitably in Europe, aiming at a leadership position. But Austria is a market that we consider less intense in terms of online competition than Germany, for example. We want to grow with this business model but in a disciplined way. Remembering that Smile’s net combined ratio in Switzerland reached almost 90% on average in the 2016-2021 period.