Vienna Insurance Q2 Profit Drops 8.6% on Low Interest Rates in Region

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Vienna Insurance Group AG, eastern Europe’s biggest insurer, said profit in the second quarter declined 8.6 percent as low interest rates in the region pushed down returns on its investments.

Net income in the three months to June dropped to 93.7 million euros [$105.5 million] from 102.6 million euros [$115.6 million] a year earlier, the company, based in the Austrian capital, said in a statement. That compared to the 93.9 million-euro average estimate of five analysts surveyed by Bloomberg. The insurer’s financial result, or income from investments, slid by 13 percent, and it set aside reserves for possible job reductions.

“The low interest rate environment that has been mentioned previously a number of times led to a significant drop in our financial result,” Chief Executive Officer Peter Hagen said in the company’s quarterly report. “We expect the low level of interest rates to continue affecting our result. We will, however, do everything possible in this challenging environment to further increase our underwriting result.”

Vienna Insurance has warned of “substantial” effects on its investments due to record low yields after the European Central Bank embarked on a bond-buying program that had pushed rates on some government debt to negative.

The company said in May that its financial result may fall by “three-digit million euros” this year from 1.12 billion euros [$1.3 billion] in 2014. Analysts still expect full-year pretax profit to reach 538 million euros [$606 million].

The shares rose 1.4 percent to at 28.14 euros on Monday, valuing the company at 3.6 billion euros [$4.1 billion]. Vienna Insurance has dropped 24 percent this year, the second-worst performance in the 35-member Bloomberg Europe 500 Insurance Index, which is little changed.