Monetary policies aimed to reviving Europe's flagging economy are causing pain for Vienna Insurance Group (VIG). Peter Hagen, the chief executive of Austria's largest insurer, said in a news conference, "The financial result could go down by a triple-digit million euro amount," and profits from its core business might not be able to compensate for this.
"Quantitative easing hits us hard because we think it leads to an artificial decline in interest rates and we have clearly lower yields on new bond investments this year than last year," Reuters reported him as saying.
But VIG will continue to follow a conservative investment strategy and not take riskier bets, Hagen said. Income, including the results from minority stakes in companies, fell 9% to €1.12bn ($1.18bn) in 2014.
Profit before tax at the group level rebounded 46% last year to €518.4m, despite flat premiums and write-downs of €79m on Heta Asset Resolution, the "bad bank" set up to deal with the collapse of stricken lender Hypo Alpe Adria (see IAR, 28 July 2014, Vienna Insurance faces €50m hit from Hypo Alpe wind-down).
VIG invested in the Heta bonds because there was the state of Carinthia guarantee, which meant that they were virtually gilt-edged securities, commented Hagen. "It was anything but speculative that we took the paper. To speak of speculation hurts me almost more than the €79m," Hagen complained.