»... OUR MANY COMPANIES AND DISTRIBUTION CHANNELS FOLLOW A SINGLE SUSTAINABLE STRATEGY «

General Manager Dr. Günter Geyer (photo)

WE ARE ONE

20 years after our CEE market entry, we are now number 1 in many markets there. In 1990, we were one of the first insurance companies that dared set foot across the fallen Iron Curtain. In 2010, we have achieved success in 24 markets. We use our leading position in the CEE region to create sustainable value for the future, based on the four cornerstones of people, financial strength, region and best solutions.

The new Group structure established in 2010 set our course for the future. Since August 2010, the Vienna Insurance Group holding company has been responsible for Group management in Austria and in Central and Eastern Europe. It is also responsible for international reinsurance and international direct insurance for corporate customers. This modern, forward-looking management structure will allow us to continue asserting our leadership in the future, as it allows us to structure our market activities even more efficiently. At the same time, we mobilise the full strength of our Group, and take advantage of growth opportunities and synergies. This will strengthen our already excellent position, so that we may continue to say:
WE ARE ONE!

Signature Gen. Dir. Dr. Günter Geyer (signature)

General Manager Dr. Günter Geyer

Interview with General Manager Dr. Geyer

An interview with General Manager Dr. Günter Geyer,
Chairman of the Managing Board of the Vienna Insurance Group.

Dr. Geyer, the motto of this annual report is “We are one”. A strong message, isn’t it?

Geyer: First of all, this statement stresses our commitment to leadership in our markets. 20 years after our decision to expand across the Austrian border into the CEE region, we are now the clear number 1 in many markets there. But at the same time, we need to mention that in spite of the diversity of our subsidiaries and brands, we are a highly integrated Group with relatively lean management and a shared commitment to quality. In short, our many companies and distribution channels follow a single successful, sustainable strategy.

Our commitment to leadership manifests in a number of ways. The most important are our efforts to do our best for our customers. By “customer”, I mean two groups in this case. On the one hand, our customers in the true sense of the word, to whom we offer security, whose needs we understand, and whom we provide with excellent advice and service. On the other hand, however, our brokers, agents and employees are also highly important customers and intermediaries, and we are also deeply committed to serving them.

Why has VIG had such a history of success in Central and Eastern Europe? What can you do that others cannot?

Geyer: Our success in moving up from being a small player in the European context to a leader in the CEE region is mainly due to the fact that we placed enormous emphasis on the CEE region, on customer orientation, and on distribution channels. This is not different from what we did so successfully in Austria before, namely, commit ourselves to providing excellent service that perfectly satisfies the needs of our customers, and continuously adapt the structure to the market’s requirements. This is where another of our principles also comes into play. We rely on local management that knows the market and its customers and is thus quick to react to new requirements.

General Manager Dr. Günter Geyer (photo)

We also feel that our multi-brand strategy gives us a further advantage. It allows us to address a wide variety of customer groups and benefit from the simultaneous use of multiple distribution channels. We have the most distribution partners in Austria, and are now a leader in this respect in the CEE region as well. Having our own field staff and insurance agents working in each of these markets for our brands gives us access to customers. And this is essential for the active sale of our products. This is particularly important in the CEE region, because the market there is much less developed than, for example, in Austria. Our task there is not just to approach new customers, but to make them aware of why they need insurance. This requires personal service at the individual level.

Systematic innovation and a continuous exchange of know-how within the Group are another reason for our success. As an early mover, our Company has a tradition of identifying new trends and needs and converting this knowledge into innovative products. Nursing care provisions are just one example. In this case, Wiener Städtische was the first to offer an insurance solution in Austria. We typically take products from Austria, which is our most highly developed market, and gradually introduce them into other markets, or adapt them to these markets. Motor vehicle legal expenses insurance is one of these best practices examples. As one of the largest motor vehicle insurers in the region, this previously unknown product offers great cross-selling potential, and allows us to give our customers another tool for acquiring security.

The demerger of VIG and Wiener Städtische in 2010 fundamentally changed the structure of the Group. What does this mean for VIG?

Geyer: It means that we now have a modern and efficient management structure that will allow us to continue asserting our leadership in coming years. We grew very quickly in a very short period of time, with the number of Group companies more than doubling in the last six to seven years. This also significantly increased the need for integration and management, and in the end made a clear division of responsibilities necessary. Wiener Städtische can now concentrate fully on its business operations in Austria, while the holding company devotes itself more to management and assumes responsibility for international reinsurance and international direct insurance for corporate customers. The core responsibilities of the holding company also include standardising IT systems and risk management, which is of the utmost importance in our sector in particular. Working together as partners remains a top priority, even with this new organisational structure.

Have all internal functions been centralised now?

Geyer: By no means. In fact, we place great importance on maintaining the regional nature of our Group and the customer proximity this brings in all of our markets. As a result, integration proceeds in stages within VIG, first in the individual countries themselves and then in the Group as a whole where this makes sense, while at all times working together and valuing each other as partners. On the other hand, of course, the holding company was also able to develop a new area of strength in the corporate customer segment by offering centralised service to large companies operating in more than one market, while at the same time naturally involving the local Group companies concerned.

In addition, the fact that our new structure has made Group management positions available to management in the CEE region also shows the importance of our new markets. Indeed, we are now generating more than half of our business in the CEE region, and this will be increasingly reflected in the management culture leading our Group in the future. We were previously limited in our ability to do this, because positions in the Group management were also tied to management responsibilities for the Austrian business.

General Manager Dr. Günter Geyer (photo)

Does this also result in changes for the shareholders?

Geyer: There are no direct changes. As before, the VIG share continues to represent an interest in the Group as a whole. The shareholders do, however, indirectly benefit from the increased efficiency of the Group. The restructuring was also very positively received by investors, as we learned in our discussions with them.

The figures show that 2010 was another successful year for VIG. Are you satisfied with the results? The last few years were also difficult for insurance companies.

Geyer: We continued to grow in 2010, which means that our strategy continued to be successful. Premium volume rose by approximately 7%, and our profit before taxes even rose by approximately 15%, in spite of enormous charges due to natural catastrophes. This shows the positive effects of the efficiency enhancement programme that was begun in 2009, although we also benefited from considerably better performance in financial markets than in previous years. The combined ratio was approximately 98% in 2010. This simply means that we continue to follow our successful path – or in other words, to make profits – in the insurance business itself, that is, without including financial income. Based on this highly satisfying performance, we are proposing to the 2010 Annual General Meeting that the dividend be raised by approximately 11% to EUR 1.00 per share.

What factors had the greatest effect? You have already mentioned natural catastrophes. On the other hand, the insurance industry benefited from the trend towards retirement provisions.

Geyer: It is true that we were hit strongly by weather-related events, such as flooding, snow loading and hail. In addition, it was precisely our three largest markets, Austria, the Czech Republic and Poland, that were affected. Non-life insurance has, on the whole, grown somewhat more slowly. This is due to price competition, which always increases significantly during crises. In addition, due to the economic situation, fewer goods that are typically insured, such as company automobiles and homes, are being produced overall. This is in contrast to life insurance, which grew significantly in 2010, and even exceeded our expectations.

What other highlights did last year offer?

Geyer: The growth momentum coming from our Sparkassen Versicherung companies was once again very positive in 2010. This reconfirms the wisdom of the strategic decision we made in 2008 to acquire these companies as a basis for a comprehensive mutual sales agreement with the Erste Group. This cooperation was further intensified in 2010, and is also being expanded in the current year to markets such as Macedonia and Montenegro.

We also continued our expansion by i.e. acquiring the remaining minority interest in TBIH, which operates in Turkey, Georgia and Ukraine. At the same time, we declared Ukraine to be one of our core markets, as we feel this market offers substantial future potential. We have now established ourselves as one of the leading insurance companies with the general public there. We also acquired another insurance company in Albania in 2010, thereby strengthening our position considerably.

After 20 years of successful growth, what is your strategy for future years?

Geyer: Our strategy is definitely aimed at further growth, and is earnings-oriented. This is primarily based on the convergence process in the CEE region, but also in Austria, which still lies below the Western European standard in life insurance, for example. Personal retirement provisions are also becoming increasingly more significant here.

The CEE region is showing precisely the same sequence of developments that Austria experienced in the 1970s and 1980s. As prosperity increases, the need for insurance increases, beginning in the area of property insurance. This is followed in stages by savings and retirement provision products. One could say that the situation in most CEE countries is similar to that of Austria some time ago, and they therefore have a period of dynamic growth ahead of them. We want to benefit from this by targeting the market with new products that truly address customer needs.

At this point, I would once again like to stress that we are optimally set up in terms of distribution, and adjust our structure continuously to meet current needs.

Does this mean that your primary focus will continue to be on the CEE region?

Geyer: Absolutely, our regional orientation will remain unchanged. We were very pleased that last year, in particular, showed that we were correct to move into the CEE region, as the countries in this region are once again showing growth rates far above those achieved by many countries in Western Europe. Although growth in the CEE region may not be quite as dynamic as before the crisis, most economic analyses predict that it will once again be considerably higher than in Western Europe. The end-of-the-world scenarios that many predicted prematurely have not proven to be correct. Quite the contrary.

What are you doing to strengthen and, where possible, expand your leading position for the future?

Geyer: As I mentioned previously, we are focusing on innovative products and effective distribution channels to further expand our business. A third factor is financial strength, which is also important for future challenges that will affect the insurance sector as a whole. I’m thinking primarily of the new capital requirements under Solvency II. The fact that we currently satisfy existing requirements by more than 200% certainly makes us one of the most financially sound insurance companies in Europe. We nevertheless intend to expand our capital base further. This is also a very important point for customers, since security is exactly what they expect from us.

Quality advice and service require professional employees. What are you focusing on here?

Geyer: Developing talented employees and making the Group transparent to employees by using a highly flexible international exchange programme are particularly important to us. We want to expand our management resources in this way to ensure that we can act effectively when needed. Of course, this is not limited solely to executives, but applies to employees in a wide range of positions. Their qualifications, expertise and dedication to their work are of great importance to us. The success we have achieved is due to our employees, and I would like to take this opportunity to express my heartfelt thanks to them.

What answer do you give investors who ask whether they should invest in your shares?

Geyer: Investors who accompany us along the way are investing in high stability, long-term thinking and sustainable growth. Financial strength and steady growth in earnings and value are our top priorities, and are intended to benefit our customers, employees and shareholders. We remain true to our principles and strategies, which makes us predictable and attractive for investors. We are therefore definitely the correct choice for investors who have a long-term perspective and are looking for growth and stability.

And finally, what are your expectations for 2011?

Geyer: We expect no significant change in momentum in 2011, because the insurance business traditionally lags somewhat behind the general economic cycle. This means that we expect premium volume growth to be in the low percentage range again. Further efficiency increases and, hopefully, lower charges due to natural events should allow profits to grow noticeably faster than premiums once again. This will be accompanied and supported by steady expansion of our market position and intensive market cultivation, especially in the CEE region. In other words, we are committed to continuing our systematic and dedicated pursuit of profitable growth. That is our promise.

Thank you for the interview.