© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
All right. We will start now and welcome to the release of Protector's results. I have with me Bjarte, he is Chief Underwriter for Public Sector in U.K., has been part of the U.K. project since before we started and lived there in Manchester with the team there. So Bjarte will support me. I'll take care of quarter 1, Bjarte will support me on some quarter 2 figures, since we're well into April. And we have realized that the pictures on the slide there are old for both of us, as we'll update that for next time. Bjarte will come in later on.First, our DNA, our culture, we had a session as always with the employees this morning and the focus was to encourage development of the term best-in-class decision-making has been focused over time. Now we have put some structure to it. One part is about enabling everyone to make decisions, learning from mistakes. The other part is about the quality of the decisions we make, some theory, level of expertise, the relative experience.So considering those two elements and also removal of errors through bias and noise, where we use some experience from the investment department and some theory around the decision-making. So that's our cultural agenda, our focus at the moment. And that's important in order to create these results.So new for the quarter is that IFRS is fully implemented. So there are new figures, new terms, and we are still training. So this is new to us as well, will be new to many of you. But I think the most important change is on the discounting. So the reserves are discounted now. And the figures you see here, NOK 93.2 million is comparable to NOK 95.6 million, which was quarter 1 last year. They are both discounted. They both have a security margin, which is the two elements that are different from previously.In quarter 1, 2023, the effect -- the combined effect of those two is about 2 percentage points. So it's 2 percentage points lower than what it would have been if it was reported on the Norwegian GAAP as previously. But then there is the element that is a bit more complicated, lots of factors in it, but to explain where that discounting ends up. And that's an estimation. So our actuaries will estimate what the risk-free return will be on our reserves for the next quarter. And then when that quarter is finished, then we have earned that return. So then the return ends up as a negative figure on the investment results and that's not 100% true because there are factors in there. There are some elements that are not simply that logic.But mainly, that's the way you should look at it. What you also see here is that the total investment return on the screen is different from the total investment return in the bullets. So NOK 661 million is different from NOK 635 million. That's about the discontinued business. So the difference there is the discontinuous business. And other than that, the big news for this quarter, which is really not this quarter, it's 1st of April and quarter 2 is the growth in U.K. where 1st of April is a significant date.So then I think I'll go into the realities below these figures. And on the profitability side, on the loss ratios, you see a few different things. Norway, Sweden look very similar to last year. So these are comparable figures again. They're discounted. Discount rate is obviously a bit different last year from now, but they look very similar.The realities below these figures are different. So last quarter last year, quarter 1, property was poor, and motor was good. This quarter, it's the opposite. So in Sweden and Denmark, property is -- Sweden and Norway, I mean, sorry, property is very good, and motor is poor. And that could be concerning because that could be luck and the lack of large losses.And to a certain extent, we are curious to understand further what's going on the motor side, but there are some elements that are one-off. One is explained in the runoff. So there in quarter 1, 2022, we had runoff gains. A lot of it came from motor. In '23, we have runoff losses. A lot of it comes from motor. So that's one element, which is fairly large and is more or less a one-off. It's not about underlying realities. Then there are some effects from the winter in Sweden and Norway. Exactly what that effect is we need to look further into. But it is a significant part of it.And then there are some medium-sized losses that are -- can be more of a coincidence, but they can also be affected by inflation. So inflation is the x. Inflation is the uncertainty. That's where we need to find out what the effect is and what we can do something about. And that's the good thing. Sweden, Norway Motor is very short tail. And having a poor first quarter is also means that we'll have poor loss histories to show to our clients and a better possibility to increase prices. So this is correctable, but large parts of it is not about underlying realities.I forgot to say that when we are physically present together, let's have questions along the way so that we get a dialogue. So if you have questions, raise your hand. And then since we are streaming, I will repeat the question. That's also a test, did I understand it? And then I'll answer it.The next one is Denmark, which also looks fairly similar on the net level here. But what you can see is the poor, very poor gross figure. So most of what's going on here is a continuation of reserve losses on workers' comp, which is a product we don't sell stand-alone anymore and which is a product we increase prices on where we have it together with other products.In the U.K., we have a very large difference between net and gross. So there's a big large loss impact on the gross figures. But most of it is reinsured. And on the net side, the figure is very strong, but you should normalize it by increasing its somewhat due to lack of large losses on the property side. So the combined ratio, the underlying reality is not 80%, 80% is slightly higher. This is just a different way of presenting the realities. But what I can comment on here is that the large loss share in quarter 1, 2023 at 1% is 8.1 percentage points lower than what it was in quarter 1, 2022.And then you have the opposite adjustment effect from the reserve losses situation we have this quarter compared to the gains we had in '22. So that's 6.2 percentage points. Yes, Hakon.
I have one question on the difference between gross versus net and also combine that with what was happening in terms of reinsurance. My impression is that you have been quite happy with the renewals on the reinsurance side. And also this time, we are earning a lot from the reinsurance agreements that you have, you fear that when these contracts are up for renewal that you have to pay more for reinsurance without impacting your [indiscernible].
Good question. So the question is about the difference between gross and net and the potential reinsurance impact of that loss that we have on the reinsurance side, right?
Exactly.
So the big loss on the reinsurance side is related to other products than where the reinsurance market has been very hard in -- during 2022 and the renewal '23, which is property and in particular on the cat side. So this is related to an area, mostly an area where we've said that we've paid too much for a long time. And these type of losses they are expected, and there is a reason why we pay that much. So it's U.K. related, not property. I don't think this will have a big impact on the renewals for '24.Okay. Then over to the growth side. So we released the 1st of January Nordic figures at 17% local currency growth when we presented the quarter 4 figures. And what you can see here is that 21% is where we ended up in quarter 1, meaning that February and March have been strong months. And most of that additional growth is U.K. related, but Sweden and Norway have also contributed further to that growth. So we're winning clients and renewing at good levels also in Sweden and Denmark. There are some technicalities in Denmark that drives that figure down. It was higher for 1st of January. It does not represent the underlying growth realities in Denmark. So that's more technicalities.And then basically, our renewals they still include price increases that we see countering or mitigating claims inflation. So we still managed to get price increases through at appropriate levels. That goes throughout the different markets. And there are new sales opportunities. So that's the situation in quarter 1. And the most important element here is what Bjarte will say a few more words about because, obviously, the GBP 72 million figure on U.K. public sector growth is very large and need some further explanation. So welcome, Bjarte.
Thank you, Henrik. So I want to provide a bit more detail behind the GBP 72 million figure. As you can see, property is the largest line of business, and this is also where we see the most volume. The growth is a result of both the renewals and the new sales.In relation to renewals, we lose a few clients. On top of that, we apply appropriate inflationary adjustments, and we target poor performers with rate corrective actions. On the new sales arena, we observed that clients out to tender are achieving less favorable terms than they did previously. More on that later.I want to go a bit back to the GBP 72 million figure and say growth volatility should be expected. As an example, roughly 1/3 of the new sales have been underwritten on so-called 1-year deals. Normally, this is closer to 5%.So public sector and housing, large core segments for Protector. During our 2015 market study, public sector and housing was identified as large and attractive segments for Protector, a good fit for our model. And it is a large segment, but the number of clients is finite.As an example, there are only that many local authorities, and these local authorities will tender their portfolios of insurance roughly every 5 years. To us, this means that we quote about GBP 90 million per year. And the 1st of April is the most important date. Roughly 50% of the gross written premium incept on this date.Other important dates are 1/7 and 1/10. The market has been in the state of hardening for a few years. Many reasons for this. A few examples are the hardening reinsurance market, especially in relation to the nat cat property insurance. On top of that, there's poor profitability, inflationary pressures and uncertainty. The table top right is a bit of an illustration between the soft and the hard market. And I would say that the team in the U.K. have worked very hard to get to this point. To us, it doesn't really matter when the growth is.Remember, these are the same clients that we see time and time again in some form of interval, and it doesn't really matter when we win them. The most important part is that we win them on profitable rates. Personally, I could have expected this to have happened a bit sooner, but the market cycle is hard to predict. We have a consistent underwriting methodology that we improve continuously, small steps improvements.At the same time, we have respect for the fact that we have high growth this quarter. We have recruited and prepared a team, worked on organization and the claims handling operation have gotten some assistance from external parties.In Protector, we say that we want to be a top 3 player in the segments we're in. And that's basically where we are now in public sector and housing. We are here to stay. We are patient. And again, remember, we will see the same types of clients and the actual -- the exact same clients time and time again. I think a good target for the team might be to go for a top 2 position going forward. Thank you.
Thank you, Bjarte.
Thank you. There's a question.
I do have a question to Bjarte. First, congratulation with a fantastic achievement on this day. It's a -- I tried to figure out and I think it's close to NOK 1 billion or not far away at least. My question is on the kind of main competitors who are losing a lot or withdrawing from the market. So can you talk a little bit more about where do you take it from?
Yes. We have to repeat the question.
I can repeat the first part because that's difficult for you. Congratulations. On a very good 1st of April. Then the question was about the competitors and any named competitors that are losing a lot when we are winning a lot.
Yes.
I think my response would be that there is a certain change in appetite from some players and other players have reduced their appetite drastically. And that is really what's driving it.
And so the market leader, Zurich Municipal, they have changed their appetite. It's different. And then at least one of the smaller, a couple of the smaller ones depending on what segment, whether it is local authorities, public sector or housing associations are basically not in the market, whether left the market or they don't have capacity anymore from reinsurers, which is also something we mentioned could happen in the last presentation. Any more questions to Bjarte? No? Thank you, Bjarte.I'm impressed by the discipline. One thing that Bjarte didn't mention is that in the early years here, there are parts of these segments where we haven't won anything. So we have 0% hit rate on certain parts of this, and that's a discipline on price. So price has been too low, and then applying basically the same underwriting methodology. That happens. So it's a market that changes. It's market behavior that changes. And this is the result of it.So remember that we see this as a challenge operationally. However, it's possible to -- it's possible to do claims handling outsourced, especially when we can use the same claims handling companies that they've had previously, the clients and in the short term and then in-source it. But in general, this is more like Bjarte said, it could have happened earlier. It could happen over time. Now it happened a bit in one lump. That's how we see it.Okay. I won't comment a lot here because the only difference here from what I've said previously is the cost side and there is nothing special on the cost. We are growing a lot at the moment, and cutting costs to the bonus is not really the focus. Efficiency is our focus.So then over to the investment side, which is obviously, as you've seen, very strong, both absolute and relative in the quarter, and it's been sold for many quarters now. On the equity side, basically, what we should think is that we've eaten a lot of the future expected earnings here. So Dag Marius and the team are working hard to find new opportunities one quarter is short as we know, but it's a very strong return on the equity side in quarter 1.I think the most important part to focus on here is on the bond side, where you can see that the yield is still very high, but it is down from what it was year-end 2022. That is basically only risk reduction. So you can see the spread difference from year-end to now and the credit duration going down, and it's the high-yield portfolio that drives it.So a good situation, but like Dag Marius likes to say, a bit of crisis because future earnings have gone down. So you see 30% to 24% on the equity side here. And net sales in the quarter have been larger than in a long time on the equity side. Any questions on investments?And we'll continue. These are a lot of new terms. And as I said, we are not 100% familiar with all these terms yet. We think we understand what they mean. But this is how the figures will be presented previously. I've said something about the largest effect of the new principles. And other than that, it's about terms, it's about netting some lines and looking at it in a different way. So let's get used to it, all of us, and then we'll get better together, I think.On the capital side, it's fairly simple on the solvency side, where the requirements they grow with growth on the investment portfolio and growth on the insurance side. So the composition is exactly the same, and we earn some money that increases the capital. So that's how that looks. And here's the composition of it. Then we're back to the summary where obviously, the dividend is not mentioned. So now we've been through the capital side, so to knock dividend in the quarter. And then we're open for more questions. Hakon?
What do you think about a combined ratio targets going forward given the new reporting structure on the IFRS 17? You talked about the benefit of around 2 percentage points on the combined ratio? Is that [indiscernible[
So the question is, how should we think about the long-term targets for profitability relative to the new accounting principles. And we're also thinking about that. So we have not set, we have not adjusted the target, but it's not that simple. That was the effect in quarter 1. And it's very dependent on the interest rate, and that's not our expertise to predict the interest rate development. But we will come back with a -- come back with something more on how the long-term targets should be affected. And when we come back with that, we'll also come back with a more in-depth view on the profitability in total and relative to the market expectation -- market conditions. So --
[indiscernible]
So the security margin is the other element, which goes the opposite direction. So then you add something on to the reserves. But the total effect in quarter 1 was 2 percentage points and obviously much smaller in quarter 1, 2022 because of the interest rate. So I think that what we need to do is to see this over a longer period, and then we'll come back with that. It is -- it should be lower right now. But over time, we also need to understand the effects of those two elements there, security margin. So we're not done with it.
Question back to U.K. So it's very good to walkthrough on the update on the public sector. Could you give a comment on the competitive position of Protector in the commercial sector, which is not about reinforcement but other things, that's all.
Yes. So the growth in quarter 1 from U.K. is obviously a combination between public sector and commercial sector. And the underlying realities on the growth side, they continue not from quarter 4 levels on the commercial sector, but higher than we had in quarter 3. So it's a good in certain segments. But as you know and understand the U.K. commercial sector is large, and there are lots of subsegments. The one area where we have won very little business previously, motor, commercial sector has picked up somewhat. So there, the competitive situation is slightly better than previously.
And number one is it any new development on other countries outside of where we are today because we have previously commented a little bit about the early preparation, so potentially 3 points. So any news on that development?
So the question is about which I forgot to repeat the last question, I guess. Question is about development in potential new markets. And the Spanish market, I did mention that we had some negative factors in the research in the quarter 4 presentation, and that has developed further. So Spain is now on pause or stopped as an opportunity for now. And we're looking further into Germany and France, which were the next ones on the list.And in that research, we see that there are some positive elements relative to the learnings and the negative learnings we had in Spain. So we're working on it. It has a lot of energy and a lot of learning to look at new markets, even though we don't have any hurry to go into a potential new markets that is -- we have a lot of potential in existing markets, as you can see. But it is a project that is interesting for the organization and also something that can have a benefit to the existing market. So we're working on it. Further questions?And then I think that those of you who would have to prioritize between this and something within [indiscernible], which I think would have been easy, but you don't have to prioritize. You have time to get over there. So thank you.
Thank you.