Report

Helvetia delivered net premiums written on a similar level as in 2021 with CHF 10.1bn (-0.3%) in FY-22. This was less than analysts anticipated. Business volume including deposits received dropped by 1.1% to CHF 11.1bn, but was actually positive after currency effects, growing by 2.6% yoy. Gross premiums from its life business (-8.0%) and deposits (-24.9%) received had a negative impact on business development, whereas gross premiums from its largest business non-life increased by 4.6%. As the markets turned sour Helvetia's operating income was also affected negatively as investments and investments for policyholders turned negative. Thus, operating income fell by 17.5% to CHF 10.4bn in FY-22 and was 4.5% below estimates. Yet on a net income basis the result was actually higher than in 2021, going up by 15.6% to CHF 614m and FY-22 EPS to CHF 10.60. Both were significantly better than expected, also due to a one-off gain from the sale of its Spanish life insurance company Sa Nostra Vida, as EPS is 7.9% ahead of consensus estimates. As a result, return on equity also improved from 10.3% to 11.0%. The net combined ratio improved during FY-22 from 94.8% to 94.7%. Helvetia continues to be well capitalized with a SST ratio of 300% at the end of 2022. The management intends to use the high capitalization for future growth initiatives, like increasing its footprint in Spain. The fee business, a key to its 2025 strategy, contributed 5% to the company's result. Moreover, Helvetia increased its holding in Caser from 70% to 80%. Based on the higher-than-expected net income and strong capitalization, the board proposes a dividend per share of CHF 5.90, an increase of 40 rappen over the previous year's DPS. In addition, the company upgraded its dividend target for its strategy 2025, increasing the expected cumulative amount to CHF 1.65bn from CHF 1.5bn by the end of the strategy cycle. 

By business activity, the Life business had to deal with lower net premiums written, falling by 8.0% to CHF 3.8bn, the drop was less profound in constant currency (cc) terms with -7.3%. The company intends to focus on capital-efficient business, accepting lower overall volume in return for efficiency. Operating income dropped even more significantly due to the negative effects from the market correction in 2022. Operating income came down by 36.7% to CHF 3.9bn. However, mainly due to a change in reserves profit was actually higher in 2022, as it went up by 38.0% to CHF 420m. Within the non-life business the picture was quite the opposite from top to bottom. Net premiums written went up by 4.1% to CHF 6.1bn (+9.4% cc) and operating profit went up to by 0.8% to CHF 6.0bn. On the other hand profit fell by 25.6% to CHF 290m as expenses grew disproportionally. 

Region-wise Helvetia had to deal with lower net premiums in Europe, where they fell by 7.8% to CHF 3.7bn, whereas they were pretty much at the same level as in 2021 at CHF 4.4bn in Switzerland. Overall, net premiums written fell in all regions within Europe, the most in Italy and Germany. Net profit for Europe and Switzerland was more positive, going up by 37.0% to CHF 269m in Europe, while growth was flat in Switzerland, leading to profit of CHF 419m. Net profit within Italy and Germany fell, with Italy barely being positive. On the other hand the Spanish business, was driving the positive profit development, more than doubling its profit.

Valuation

Helvetia currently trades at 11.9x P/E 23E, in line with its 5-year historical average of 11.9x and in line with the MSCI Switzerland Insurance Index (11.9x). On a 2023E P/B basis, the stock is trading at 1.3x, above its 5-year average of 1.0x and below the MSCI Switzerland Insurance Index (2.0x). 

Conclusion

A higher-than-expected dividend per share and higher anticipated cumulative amount being paid out by 2025, in addition to its high capitalization, will be perceived quite favorably by investors. While growth was more moderated than analysts expected, we like the fact that the company prioritises more efficient business over volume within the life division. We confirm our buy recommendation.