Good morning, everyone, and welcome to the Alm. Brand Q1 2024 Earnings Call. After today's presentation, we will begin the Q&A session. To register a question, please press star, followed by one on your telephone keypad. To withdraw your question, please press star, followed by two. And with that, I'll hand over to Rasmus Werner Nielsen, CEO. Please go ahead.
Thank you. Good morning and welcome. As I said, I'm Rasmus Werner Nielsen at Alm. Brand. I have with me today our CFO, Andreas Ruben Madsen, and our Head of IR, Mads Thinggaard. This morning we published our interim report for the third quarter, and as usual, I will walk you through the operating highlights, and then Andreas will comment on the financials. Overall, I'm quite pleased with our results for Q1, where we delivered a solid improvement in our insurance service result despite higher weather-related claims, with an underlying improvement kicking in as a result of harvested synergies and repricing initiatives. Please turn to slide 2 and some of the headlines for our business in the first months of the year.
As mentioned before, I'm pleased with the overall financial performance in a satisfactory Q1, where we continue to build on the improvements we made in Commercial Lines during 2023 while turning the Personal Lines' profitability around with price increases to battle increases in motor frequency. Overall, we improve underlying claims by one percentage point due to the profitability initiatives. Our growth is standing out in the quarter, and especially I see a bright spot on our growth in Personal Lines of almost 9% year-on-year. We do take quite a bit of market shares in Personal Lines with our strong bank partnerships as a driver. Synergies are kicking in just as we planned, and currently we see good momentum for claims synergies. Overall, synergies drove our underlying loss ratio one percentage point down in Q1 2024 year-on-year, while helping the cost ratio a bit as well.
We keep a strong cost focus these days to safeguard that synergies are not eaten by general increases in costs. Now I'll turn to slide 3 with our financial highlights. Insurance revenue grew above DKK 3 billion in the quarter, with a very satisfactory growth in the quarter driven by personal lines, as mentioned before. The technical result was DKK 295 million compared to DKK 205 million last year. We view this as a good start to the year, also considering high weather-related claims and costs still being front-loaded in Q1 to some extent. Investment income in Q1 was a satisfactory profit of DKK 167 million. This relates to the free portfolio as well as the interest hedging of our technical provisions. Now let us continue on slide 5. As said, the group made a technical result of DKK 295 million in the quarter.
The insurance service result from commercial lines was DKK 218 million against DKK 94 million last year as underlying claim improvements continued to kick in and last claims dropped significantly. Our energy business had a new strong quarter as well and are now counting five strong quarters in a row. In personal lines, we had a drop in the insurance service result to DKK 77 million from DKK 111 million last year despite underlying improvements. This was primarily due to high weather-related claims and lower runoff gains. Now please turn to slide 6. Insurance revenue grew by almost 6% in the quarter compared to 3% last quarter, and we are very pleased with the growth acceleration. In personal lines, we are clearly taking market share on top of indexation, and the price increases we do. We do consider an almost 9% growth in personal lines a quite bright spot in our report.
In commercial lines, we are seeing an acceptable premium growth of 3%. Now moving on to slide 7 and the claims ratio. The Q1 claims ratio was down 170 basis points year-over-year in a quarter with higher weather-related claims but also much lower large claims than in Q1 last year. Runoff gains this year were lower as well. The underlying claims ratio improved by 300 basis points year-over-year driven by commercial lines but also with underlying claim improvements in personal lines. Moving to an undiscounted basis adjusted for a writeback of a sector bankruptcy, helping 110 basis points in Q1. This year we see a 119-basis point improvement in underlying claims year-over-year. Now please turn to slide 8.
Despite a significant drop in the cost ratio in personal lines in Q1 as well as a drop in underlying claims, the combined ratio in personal lines increased to 94.4 due to higher weather-related claims and lower runoff gains this year. Increases in motor frequency is playing into the development in the segment as well, where we are handling this with price increases. Please turn to slide 9 and the commercial lines. We continue to see strong underlying improvements in our commercial segment related to better underwriting, changed exposure, and profitability initiatives. At the same time, large claims took a huge drop in Q1, helping an improvement in combined ratio to 86.6 from 94.1 last year. We had a flattish development in our cost ratio this quarter, not that different from our plans.
With these comments, I will now hand over the word to Andreas, who will walk us through the synergies, investments, and guidance.
Thank you, Rasmus. Please turn now to slide 11 for an update on synergies. We had a nice jump up in harvested synergies in Q1 2024 of DKK 98 million from DKK 75 million in Q4 2023. This implies a DKK 41 million uptick in synergies year-on-year, improving our underlying claims ratio with one percentage point and our cost ratios with 0.2 percentage points year-on-year. The synergy uptick is currently concentrated around the claim side. We remain confident that the synergies for the full year will add the DKK 450 million that we had previously stated. And now I turn to slide 12 and our investment results. We made a net investment result of DKK 167 million, with the largest part coming from our free portfolio. Financial markets were, in general, positive in Q1, also leaving us with a nice return on our listed shares.
We maintain a conservative approach regarding our investments. Now finally, please turn to slide 14 for the outlook for 2024. Our guidance for the year is an insurance service result excluding runoffs for the remaining quarters of DKK 1.4 billion-DKK 1.6 billion, including expected synergies of a total of DKK 450 million. The expectation is based on continued growth in the group's insurance revenue across the various customer segments, supported by the annual indexation of the premium level and individual premium adjustments. The cost ratio is expected to be in the range of 17% to 17.5%, and combined ratio excluding the runoff result for the remainder of the year is expected to be 87% to 89%. We now guide for an investment result of around DKK 350 million compared to DKK 250 million previously. For other activities, we still guide a deficit of around DKK 125 million.
As such, group profit excluding special costs is now expected to be DKK 1.63 to 1.83 billion before tax. This is an upgrade of DKK 100 million due to the strong investment result in the first quarter of this year. In addition, we guide for special costs in the range of DKK 200 to 250 million for the integration of Codan and realization of synergies. And lastly, depreciation on intangible assets is expected to affect the income statement by approximately DKK 360 million. And with this, I conclude our presentation and hand over the word to our moderator. Thank you.
Thank you. We will now begin today's Q&A session. To register a question today, please press star, followed by one on your telephone keypad. To withdraw your question, please press star, followed by two. Our first question comes from Asbjørn Mørk from Danske Bank. Your line is now open. Please go ahead.
Yes. Hi. Good morning and congratulations on the solid Q1 report. A couple of questions from me. First, if I may, on the sort of underlying trends in the private business. Is there 70 basis points improvement versus Q1 2023? And if I look back at Q1 2023, we had quite a lot of weather spillover claims hitting your underlying claims ratio in that quarter. So just wondering if you could sort of separate the hot and the cold water a bit here and see what would you see sort of as a true underlying improvement in the private division in Q1. Are we sort of past have we turned the corner when it comes to sort of looking at more sustainable improvements to your underlying claims ratio for the private segment?
Yes. Thank you, Asbjørn. This is Andreas. I'll try to give some more flavor to personal lines' underlying ratios. Overall, you remember correctly that we had some effects spillover into the underlying Q1, so in 2023, where we had a pickup due to these weather-related effects. I think it's safe to say that at least we have seen some of the same tendencies in this quarter of 2024, having both a lot of precipitation but also the snowstorm and wintry and slippery roads. So there is some effect also in this quarter. And on the other side, we also see auto frequency picking up further for us as it has been for the sector in general in the quarter of this year. So, I think we're actually quite satisfied that we do see an improvement of the 70 basis points given those facts.
We're also very observant that even though we see the effects now, and that's why we actually see the improvement of the quite significant price increases we're putting through, we're still observant that we might need to do further as we progress through the year. For now, we're happy with where we are.
All right. That's clear. Now that you mentioned motor frequencies, one of your competitors was out earlier in Q1 and saying that they saw 10% motor frequencies in Denmark, of which 6-ish% were weather. There was a changed sort of risk mix, which caused some sort of underlying improvement or increase as well. But then you said that the true underlying like-for-like was more like 1% on motor frequencies. You mentioned it as well now and also in the report. But do you sort of recognize that 1% true underlying motor frequency, hence sort of under control if we adjust for weather and change the customer coverage, etc.?
Maybe attacking it from a bit of a different angle, I would say that we're not seeing a 10% uptick in frequency compared to last year. We're probably just above half of that in terms of overall frequency. So I think we're not fully there, but somewhere between, let's say, at least north of a half percentage points in the underlying would come from this pickup in auto frequency this quarter.
Okay. Fair enough. That's fair enough. Then if I may, on the Energy division, so now that you mentioned yourself five solid quarters in a row, first, if I look at the 70.4 Combined Ratio for Q1, could you sort of where do you see sort of the underlying trends? If we leave aside stochastic movements, the underlying Combined Ratio for the segment in Q1 relative to the 83 target for next year, that would be helpful. And then if you can give us a little bit of an update on where you are in the process of the strategic decisions you want to make at some point on whether you should have this asset or not.
Okay. I think I can start on the first part, and then Rasmus will handle the second part of the question. But a few comments on the results we have for energy. We have another strong quarter in Q1. We see that being driven by both a lower large claims frequency and also an underlying improvement somewhere in the lines of what we're seeing in general in commercial. So we're seeing both effects come through this quarter. We also have some prior year gains. So something like around just above 10 percentage points in combined terms is prior year. But as I've mentioned before, I think that should not be fully, let's say, discredited because that also shows that we are prudent in our reserving also going into last year, where we had a solid full year.
But all in all, we see it we still see it, I mean, fairly below the structural level, so to say. We're probably confident now that we are somewhere around the combined 90, maybe even a bit below there. But we're not saying this is the new normal yet. We're confident that as we progress through the year, we would expect to gain further confidence. And we're still firmly confident with the 83 we have as our target.
Yeah. In terms of the strategic review you asked about, Asbjørn, we are still working on it, but you should not expect any decisions announced before end of H1, before the summer holiday.
Okay. That's very clear. Final question from my side, if I may, on the solvency and capital distribution, do you print 193 as a solvency ratio in Q1 if I adjust for the remaining restructuring costs? I get to a number around 188. You're still quite above your 170 target, and we're quite early in the year, so you're going to make quite a lot of profits going forward. I was just wondering, could you give us a little bit more flavor on capital distribution and your plans throughout 2024? Should we expect additional buybacks sort of to be announced during the year, and to what extent would that be depending on a potential, let's say, sale of Energy or other measures?
So I mean, should we expect an ongoing addition to the buyback, or should we expect some sort of major news before we get more unless before the annual report for 2024?
Okay. Andreas, let me try to answer that. I agree with your statement that we have a very solid solvency position now, and we have a firm, let's say, firm capital buffer to where we need to be, also in regards to our 170% long-term target. We believe that this is still too early in the year to be talking about buybacks. But I mean, at least we've gained some confidence and likelihood that as we progress, I think that could come into play somewhere towards the end of the year. And in that statement, I'm talking about, let's say, the business-as-usual scenario that we would normally have throughout a normal year. If there was to be any other, let's say, significant impact to our capital, we would have to evaluate what would make most sense in those specific situations.
I think that's too difficult to answer in general for that.
All right. That's very helpful. Thanks a lot.
As a reminder, if you would like to ask a question on today's call, please press Start, followed by one on your telephone keypad. To withdraw your question, please press Start, followed by two. Our next question today comes from Martin Birk from SEB. Your line is now open. Please proceed.
Thank you. Just to start off with perhaps a small question, reporting an expense ratio of 19.1%. And given that I know you guide for 17.5% to 17%, but assuming that you need to land at 16% next year, I would also expect you to come in sort of the low-17% range for this year. And then just isn't 19.1%, isn't that a tad high for Q1 given where you want to be by year-end? That would be my first question.
Hi Martin. Andreas here. Let me try to add some clarity on that. As we talked, we commented very briefly during my statements earlier. Actually, if you look at the synergies we have in the numbers for administrative costs, they're quite low compared to the delta we're putting into Q1 this year. So that's one fact, just to state that. That's around 0.2% in cost ratio terms coming from actual administrative cost synergies. And you should also remember that we are quite cost-heavy in Q1. So we're actually coming down just below 1 percentage point for Q1. So I think that's also created by the things we did in the end of the year to maintain the right traction in costs going forward towards our targets both for this year and next year.
I think the short answer is this is very much in line with where we expect and need to be given our current year guidance.
Okay. I guess I just hope that I'm well aware of the favorable cycling dynamics in Q. Perhaps just hopes that you would have been a little lower. But anyways, then onto a strategic question. I guess we've talked a lot about your foundation's role in Alm. Brand. And just before Easter, they sent out a new purpose. And it seems like they're only willing to support you guys with 25% of the dividends that we receive from you guys. Isn't that a disappointment? And doesn't that leave any form of customer dividends way out in the distant future?
Yeah. I can answer that, Martin. You're right. The foundation came out with their policy about their holdings in us. But I will instead focus on the opportunities. I think we have a good opportunity here, and we can get support we never had from before from the foundation. And basically, it's, of course, up to the foundation to choose how they will support us. It's not up to us. So we are very happy with the help we can get now. The thing here is that we should definitely find out exactly how and what to do with the help they are providing. As we said before, the help will still be too small to have a proper discount in the policies. There's not enough room for that anyway.
So we'll find other ways to attract and keep our customers for the benefit of the shareholders and the foundation in the longer run. So we definitely have a way to go. And then there are other 25% from what they call philanthropy, which some of what needs to be linked into their members, which is our customers as well. So I see it as a bit more than 25%. And then I think the important thing is also that the remaining 50% is in order for them to consolidate should we need the money on a rough day or if other opportunities will come our way.
Can you please help me enlighten me on why they want to become a financial holding company and why they need to consolidate their so-called economics when they could choose to stay below the 50%, and they could probably support you with something like DKK 650 million or DKK 700 million a year. And now it looks like it's going to be more than, now it looks like it's going to be in the DKK 200 million range.
Martin, I cannot really comment on that. It's up to the foundation to answer that.
Hasn't there been any dialogue between you and the foundation on its purpose?
As I said, they are providing now their own policies, their own business, which is not linked directly into our business as it's been somewhat in the past. It's new times also for the foundation.
Okay. All right. Thank you.
We now have a follow-up question from Asbjørn Mørk from Danske Bank. Your line is now open. Please go ahead.
Yes. Hi. I just had a follow-up on the energy business. So basically, if I look at the actual combined ratio you print in Q1, the 70.4, and I guess the fact that you've been on quite low combined ratios also during 2023, and you say that you're maybe on an underlying close to 90, which obviously should improve to 83 next year. Basically, my question is, who would we sort of expect you to actually print in combined ratio next year? Because it seems like you are running on a reported basis quite a lot below, which I guess you're also saying is due to some runoff gains from your conservative reserving, etc. But is it fair to assume that your actual combined ratio next year would be quite a lot below 83 if you're able to sort of structurally improve the business to 83?
Asbjørn, I can answer that. No. I mean, what I was trying to explain is that I think and I think this is a general comment. Maybe let me add that, that we should remember, even though we are very happy and satisfied that we now have five sound quarters. But that being said, it is still a business where you can have large claims, and they can fluctuate in when the timing of these claims. We look at things where we try to filter that out. We have reviews as we go through the year to look to what our forward-looking loss ratio expectations are. And those are aligned with the statements I made, that we see this business for now running at somewhere, let's say, just below 90 in a structural sense. But we also expect that that will improve to the 83.
You shouldn't for now calculate anything below that.
Asbjørn Mørk, if I may add, I mean, if you look at, I mean, at our improvement in the underlying loss ratio last year, we had an improvement of around 10 percentage point per quarter year-over-year running through the year. And as Andreas said before, it's now down to a 5% year-over-year improvement. So we are, I mean, we are seeing perhaps a bit of less strong improvement now than we did last year. And then with large claims having another normal level, I mean, we would expect the combined ratio to tick a bit up in the remaining quarters.
But I guess if we go back to your capital markets update, 1.5 years ago, you talked a lot about the line risk and how you would sort of change the strategy towards the energy segment. I guess if you deliver in the 83 with a better risk management, I guess it would be fair to assume that the actual combined ratio in a normal year, and then I fully understand that there could be outlier years, and we could see this over the cycle. But I guess it would be fair to assume that the reported combined ratio could come in somewhat below the 83 if you're structurally at 83 underlying.
I mean, I don't know if I understand you correctly, Asbjørn, but the 83 is an expectation. That's the base expectation over a longer cycle for the business as a so-called structural level. Then you can both come in above that or below that. But I think, yeah, there's nothing in what we're seeing for now that should change anything from the targets that we made in the Capital Markets Day originally. So we're happy with the results, but we also just encourage to still keep in mind that we will have some quarters with less good underwriting results. They will come, and on an average, we are not currently trading at our long-term average.
All right. Thanks a lot.
Our next question, it comes from Jan Erik Gjerland from ABG Sundal Collier. Your line is now open. Please proceed.
Thank you. Thank you for my question as well. When it comes to premium growth, could you shed some light into what to expect for this year when it comes to both this indexation and especially any price hikes above your sort of indexation and what you see from both the different kind of lines if you have any differences in Alm. Brand, Codan, and the pre-Codan brands? That would help us a lot. Thank you.
Yes, Jan Erik. I'll try to answer that. We had a very sound top-line growth in Q1, as mentioned, very much driven by personal lines. I think one factor we should just mention is that we did have one more day in the quarter than we did in the quarter in 2023. That actually means one percentage point you should expect to take out if this was, let's say, our current momentum. So I still think Q1 is probably above where we see it structurally for the full year, but somewhere along those lines, I think we would expect to see. And that would still be also just to clarify that, that will be probably also primarily driven by personal lines and with a more moderate growth in commercial. And again, as we've said sometimes with commercial and in general, we don't guide on the top-line growth.
That is also because we do with the business we run, we can see large single exposures exit or enter, for that matter, in the commercial lines business, and that can drive quite a bit of premium changes for us. That's just to have that in mind also.
Okay. Thank you for that. When it comes to the expectation of if you look at your energy business, it seems like you're well ahead of expectations. Is it so that it's been more benign or less volatile this quarter? Could you shed some light into what really happened and what was the driver behind this sort of this quarter improvement or this quarter good combined ratio?
I think, Jan Erik, that in general, with the volatility inherent to the business to some extent, yeah, I think it's hard to comment on the exact dynamics around single quarters. But if I was to comment on the general improvement we have seen in the last now 5 quarters, at least a significant part of that is a structural drive from somewhere where we started probably around the combined 100 when we took over this business and have now brought it down to, let's say, just below combined 90 or around combined 90. And that has been driven by a continuous focus on a better segmentation, a better smaller line sizes, more diverse portfolio, and also being vigilant on not writing new business at prices that we don't find profitable. So it's been a prune-and-improve strategy so far, and that's the effect that we're seeing on average.
And then that being said, you can see then there will be some volatility driving the nature of the single quarters.
So, it's more about pruning rather than you're observing rather than the back book as such, if I understood you correctly, which would be helpful for us.
It's the last part, Jan Erik. Could you repeat the last part, Jan Erik?
No, it's more about pruning rather than the back book. So, the new business you've written on is sort of better than what you have on your back book is what you really allude to, Andreas , isn't it?
As we move along, some projects exit and some projects enter, and we're simply seeing a better mix as we go along.
Are you less keen to take on these project developments and then it's more keen to do insurance as they are running? Is that a change of appetite, or how should we think about it?
No, it's Rasmus here. No, I think our appetite is still high. Of course, we are spending quite a lot of time on evaluating also on time management, which projects should we enter into. A fact of that is that old projects seem now to be bigger. That means the line sizes we are taking are also becoming bigger. That means, I think, the view from, of course, the department, but also the underwriters, but also for us as management, we sit together more frequently and evaluate where should we enter and what should we not enter in.
Okay. Just finally, if I may, the solvency situation, the solvency need for the energy business, have you ever given us any update on that, or is that a hidden calculation for us?
I think I've been forced with my arm behind my back a couple of times. I've said something along the lines that I think one statement is that the energy business is treated as in the standard models. That's one factor, which also means that with the current regime, it's not too high in SCR. I think something along the lines of between 35% to 45% of premiums is a rough estimate.
Okay. Great tip. Thanks a lot for your time.
Thank you.
We now have a further follow-up question from Asbjørn Mørk. Your line is now open. Please proceed.
Yes. Hi. It's just a very brief one on your runoff gains. So quite low here in Q1. I saw what you wrote in the report about the building-related claims, but they have been quite volatile the last couple of quarters, your runoffs. So I just wanted to give a little bit of flavor on what level we should expect going forward.
Yeah, I can answer that. Yes, I think, well, we had 4% one quarter, and now, yes, unfortunately, we had a more flat development this time around. This is in no way something we see as structural. We still have the same long-term expectation on average around 2% points. But on a quarterly basis, it will fluctuate a bit, and that's also why we don't guide for it in the current year.
All right. Thanks a lot.
We have no further questions in the queue at this time, so I'll now hand back over to Rasmus Werner Nielsen for any closing remarks.
Yeah, thank you for listening in, and thank you for the good questions. Have a nice day.
That concludes today's call. You may now disconnect your line.