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The Vaudoise Assurances group is firmly on course

The insurance company maintains its ambitious goals despite the uncertain economic context and the decline in the financial markets. Update on the situation with its CEO, Jean-Daniel Laffely.

The Vaudoise Assurances group continues to develop in line with its strategic objectives for the period 2020-2022. It completes and maintains its strategic goals for 2023-2025. Its digital transformation is taking its course. Interview with CEO, Jean-Daniel Laffely.

What are the dynamics of the group in relation to its goals?

La Vaudoise is above its targets for 2022 in terms of the development of premiums. As for profitability, it is necessary to qualify according to the branches. We are well in line with regard to personal injury insurance, i.e. health and accident insurance for companies, with a combined ratio (note: ratio between damages and costs in relation to premiums) of less than 100%.

In the wealth industry, the combined ratio target of 90% is ambitious and may be more difficult to achieve because it depends on possible large year-end losses and the increase in the cost of benefits associated with inflationary pressures in some cases. areas. We also see that the reinsurance market is becoming tighter in relation to covering the risk of natural disasters.

In life insurance, the review of the product range that began in 2015 continues to bear fruit, combined with an intensification of pension advice. The rise in interest rates will also give us the opportunity to reintroduce more guarantees in our solutions.

Inflation will not be without impact on costs and premiums…

Costs are increasing, especially in the construction sector, with an increase in the cost of related raw materials; this is also a phenomenon seen in the motor insurance industry.

In life products, in particular, we have built up reserves for interest guarantees of more than 400 million francs, which are not part of our equity capital.

We benefit from indexation mechanisms for home insurance. These are not found in the motor vehicle industry. However, we carry out regular price revisions without forgetting the car catalog value. For non-life insurance, the impact will be felt mainly in 2024, based on payroll for 2023, which should partly reflect inflation in 2022 depending on the sector of activity.

You stated in the first half of the year that the liability industry was a very competitive market. What is your behavior there?

We maintain a cautious stance on risk underwriting. Profitability continues to be generally good and in line with our objectives.

What about capital investments with rising interest rates?

A pendulum effect takes place after the extraordinary year 2021. This pushes down the level of our equity capital, as the half-year accounts show, but we remain very well capitalized and our SST rate remains at the same level as at the end of 2021. on the other hand, the effect on equity is less than for companies using IFRS standards, since bonds and other fixed-income securities are estimated using the straight-line method of amortization of costs, according to the accounting standards Swiss GAAP RPC, which presents a “true and fair view” taking into account provisions on rate guarantees.

Only variable income securities, namely stocks, private equity and hedge funds, are recorded at their market value if they have a listing. These elements are influenced by the current situation on the financial markets.

In real estate, an increase in discount rates should affect the market value of this type of asset. However, Vaudoise has large latent reserves in real estate, included in equity, and we could have natural protection with the possible increase in rent linked to the increase in benchmark interest rates and the CPI index.

Finally, higher interest rates have a positive impact on reinvestment. Given the decline in financial markets, it is therefore a matter of more complex balance sheet management during the current year, especially and likely in the years ahead with the application of a “hold to maturity” philosophy for fixed income securities. However, the rise in interest rates will promote value creation for the insurance companies in the medium/long term.

Vaudoise’s stock market capitalization represents just over half of the published equity at the end of June 2022. This appears to be grossly undervalued. The economic value is significantly higher…

Historically, the market value has corresponded to almost one time equity capital. In addition, the SST solvency rate far exceeds 300%. Other factors affect the share price, such as dividends, liquidity and the level of coverage by financial analysts. The analysis of the balance sheet shows that Vaudoise is heavily capitalized. In life products, in particular, we have built up reserves for interest guarantees of more than 400 million francs, which are not part of our equity capital.

Shared cars will continue to grow, but will probably not dethrone the classic models.

Isn’t the pursuit of the mutualist strategy of redistributing profits to policyholders precisely a handicap in this regard?

Vaudoise Assurances Holding transfers approximately two-thirds of its profits to Mutuelle and to customers, i.e. in relation to the share of the capital. Our goal is to tend to increase the distribution rate of net profit to shareholders towards 50%. The fact that we are also redistributing another share to policyholders forces us to remain disciplined.

But the criticism is that co-operative or mutual insurance companies are more aggressive in relation to growth and prices. What about Vaudoise?

Our status may allow us to reduce our combined ratio by a few percentage points. But we don’t. Our prices are no more aggressive than our competitors.

What development are you aiming for with costs and fees?

Our goal is to eventually reach 15% of the group’s net profit. Both Berninvest, which we own 100%, and Procimmo Groupe, in which we have a strategic ownership stake of 20%, are experiencing significant internal growth and are developing positively. We are aware of other market opportunities in this area. Vaudoise is also developing a property fund for pension funds, which should be on the market by the end of 2022.

Where are you with the simplification of processes, services and products?

Vaudoise is in the midst of a digital transformation, with a revision of its fundamental architectural base and solutions that will allow us to increase our service to our customers. It is a process in development over several years between now and 2025, with a simplification of processes and products. This approach is reinforced by a strong investment in people skills and technology, especially in the cloud.

It is a big challenge for both our industry and us in relation to insuretech, which are startups that use technology to revolutionize or at least change the insurance industry. We must therefore innovate while promoting our strengths in terms of access to customers and capitalization. We strengthen our relationships with customers as well as our B2B2C activities and collaborations. And this as part of an omnichannel strategy, at the same gross price for the customer, regardless of the channel.

How are your ecosystems developing?

These activities allow us to expand our services both to existing customers and to new customers. In particular through our Corporate Health Services service, which provides a comprehensive approach to handling sickness and accident cases in a company. It is a way of seizing market opportunities while acquiring additional know-how. The mortgage ecosystem allows us to improve mortgage volume and perform insurance cross-selling. We reduce our balance sheet by selling mortgages through our partnership with Valiant Bank and CredEx, one of the leaders in real estate financing in Switzerland. We also think about the “niche” formed by animal insurance through Animalia and Epona. And where we record a turnover of more than 30 million francs.

Vaudoise is also committed to tomorrow’s mobility. What is your view on this market?

We are following this development very closely. Shared cars will continue to grow, but will probably not dethrone the classic models.

We can expect a decrease in car ownership in the cities, but without a decrease in premiums and marginally in the number of vehicles in circulation thanks to the increase in the population of Switzerland.

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