Good morning or good afternoon all, and welcome to the Alm. Brand Q2 2024 Earnings Call. My name is Adam, and I'll be your operator today. If you'd like to ask a question at the Q&A portion of today's call, you may do so by pressing star followed by one on your telephone keypad. I will now hand over to CEO, Rasmus Werner Nielsen, to begin. So Rasmus, please go ahead when you are ready.
Good morning, and welcome to Alm. Brand Group's Q2 of 2024 conference call. With me today, I, as usual, have our CFO, Andreas Ruben Madsen, and our head of IR, Mads Thinggaard. This morning, we published our interim report for the Q2. I will walk you through the operating highlights, as well as our divestment, our Energy and Marine business announced on July first. In the end, Andreas will comment on the financials. Overall, our view of our results for Q2 is acceptable, given the headwind we have on large claims and increasing motor claims in the Danish market in general. And just to be clear, the development on motor claims does call for additional profitability initiatives from our side. On a positive note, I'm very pleased with our continued momentum on premium growth in Q2, as well as increasing synergies kicking in.
Let's now look at the highlights. Please turn to slide 2 and some of the headlines for our business in the Q2 of the year. As mentioned before, our view of our results for Q2 is acceptable, given the headwind we have on large claims and the increasing motor claims in the Danish market in general. While motor frequency has been increasing for many quarters, we are now seeing higher average repair costs related to motor claims, which leads to a rise in our expenses for motor claims. This calls for even more profitability initiatives. Our growth is standing out again in the quarter, and especially I see a bright spot on our growth in the personal lines of 7.3% year-over-year.
We do take quite a bit of market share in personal lines with our strong partnerships, bank partnerships as a driver. Synergies are kicking in as we planned, and currently we see good momentum for claims synergies. Overall, synergies reduced our underlying loss ratio by more than 1 percentage point in the Q2 of 2024 year-over-year, while helping the cost ratio a bit as well. We keep a strong cost focus these days to safeguard the synergies are not eaten by general increases in costs. Based on our satisfactory results for the first half of 2024 and a strong capital position, we announced a new share buyback program this morning of DKK 150 million. This should be seen as part of the payout ratio for 2024. In general, we have a keen focus on returning capital to our shareholders.
Now I turn to slide three with our financial highlights. Insurance revenue for our continuing business grew about DKK 2.7 billion in the quarter, with a very satisfactory growth driven by personal lines, as mentioned before. Insurance service result for our continuing business was DKK 312 million, compared to DKK 425 million in Q2 last year. And remember, Q2 2023 benefited from a very terrible claims experience. Investment income in Q2 was a profit of DKK 65 million, which mostly relate to income in our free portfolio. I will comment on our divestment in, of Energy and Marine shortly. On this slide, you can see that our discontinued business made a loss after tax of DKK 89 million in Q2, which is primarily related to revaluations of a few old claims from before we took over Codan in 2022.
In particular, the adverse development relates to a single offshore wind project dating many years back. This is highly atypical even for this book. Now, if you turn to slide five, I will focus a bit on the divestment of our energy and marine business to the Norwegian insurer, Gard, announced on July first. I'm very pleased with this transaction, as it puts our energy and marine business, as well as our people working in the business, into the hands of a better long-term owner than us. Today, we have a strong position with the market for insuring wind turbines globally, but we believe this market is set for a heavy expansion in the coming years, and we do not have the risk appetite for matching this.
With the divestment, we are freeing up capital, which together with the cash payment, amounts to a planned distribution of DKK 1.6 billion to our shareholders after completion of the deal. At the same time, we are also freeing up management time to focus on our new position as the only large insurance company with a pure focus on Danish customers. We also see that the investment lead to a less risk for volatility in large claims ahead. I will just run shortly with slide 6, that shows the transformation history since I took over as the CEO, end of 2019. It has certainly been an exciting journey to first refocus our company to a purely non-life insurance company by selling our bank and life company.
Then we doubled in size by buying Codan Denmark, and now we are divesting the globally oriented energy and marine business of Codan to refocus our business to Denmark. We will now put a keen focus on how we can use our new scale in the Danish market for the non-life insurance to harvest efficiency gains for many years ahead, while gaining even more ground in the Danish market. And now, let's continue on slide 9. The group made a technical result of DKK 312 million in the quarter. Insurance service result from personal lines was DKK 276 million against DKK 161 million last year, as premiums grew and the cost ratio was reduced. The run-off gains in this quarter was a part of the improvement in personal lines as well.
In commercial lines, we had a drop in the insurance service result to DKK 36 million from DKK 264 million last year, driven by very high large claims and much lower run-off gains. Underlying claims were also a headwind in the quarter, driven by motor and workers' compensation. Please turn to slide 10. Insurance revenue grew by 5.3% in the quarter, compared to 5.6% last quarter, and we are very pleased to see the high growth level from Q1 continue into Q2. In personal lines, we are clearly taking market share on top of indexation and the price increases we do. We do consider 7.3% growth in personal lines a quite bright spot in our report. In commercial lines, we are seeing an acceptable premium growth of 3.3%.
Moving on to slide 11 and the claims ratio. In Q2, the claims ratio were up 600 basis points year-over-year in Q2, with 480 basis points higher large, large claims than Q2 last year. The underlying claims ratio increased by 210 basis points year-over-year, driven by higher motor claims and general headwind on small claims. Commercial Lines were also negatively impacted by Workers' Compensation. Moving to an undiscounted basis, we see a 170 basis point increase in the underlying claims year-over-year. We do see this development calls for further profitability initiatives. Now turn to slide 12. Combined ratio in Personal Lines dropped to 80.2 in Q2 from 87.6 last year.
The drop was due to a lower cost percentage, but also helped relatively by higher run-off gains. Underlying claims in personal lines was flat year-over-year, which is more than acceptable given the strong headwind on motor in this quarter. Please turn to slide 13 and the commercial lines. Combined ratio of commercial lines was an adverse development in Q2, growing to 97.3, which is clearly unacceptable in the long run. However, Q2 was impacted by very high large claims, which will vary over time, while run-off gains were quite low compared to last year. We are looking into how to handle the Q2 increase in underlying claims in commercial lines of around 4%, while we cannot entirely rule out a spillover from the above 8% reduction in underlying claims in commercial lines in last quarter.
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 to slide 15 for an update on synergies. We had an increase in harvested synergies in Q2 2024 to DKK 106 million from DKK 62 million in Q2 2023. This implies a DKK 44 million uptick in synergies year-over-year, improving our underlying claims ratio with 1.3 percentage points and reducing our cost ratio by 0.3 percentage points year-over-year. The synergy uptick is currently concentrated especially on the claims side. We remain confident that the synergies for the full year will add to the DKK 450 million that we've stated. And now I move to slide 16 and the investment result. We made a net investment result of DKK 65 million, with the largest part stemming from our free portfolio.
Financial markets were volatile in Q2, but leaving us with a decent return, mostly related to our bond portfolio. We maintain a conservative stance regarding our investments, but we are changing our portfolio a bit in order to get a higher expected return. And now, finally, please turn to slide 18 for the outlook for 2024. First, I will state our guidance for continuing business, which is unchanged relative to our company announcement from July 1st, relating to the divestment of Energy and Marine. We guide for an Insurance service result in 2024, excluding run-off for the remaining quarters of DKK 1.15 billion-DKK 1.35 billion. This includes expected synergies of a total of DKK 450 million.
The cost ratio is expected to be in the range of 18%-18.5%, and the combined ratio, excluding run-off, for the remainder of the year, is expected to be 88%-90%. We guide for an investment result of around DKK 400 million, and for other activities, we guide a deficit of around DKK 125 million. Group profit, excluding special costs, is expected to be DKK 1.43 billion-DKK 1.63 billion before tax. We guide for special costs in the range of DKK 200 million-DKK 250 million for the integration of Codan and the realization of synergies.
Then coming to effects from discontinued business, our guidance for depreciation on intangible assets drops to DKK 350 million in 2024 from DKK 360 million, while the results of discontinued business after tax drops to zero from DKK 75 million before. This relates to a few old energy claims of Codan. And with this, I conclude my presentation and hand over the word to our moderator. Thank you.
Thank you. As a reminder, if you'd like to ask a question today, please press star followed by one on your telephone keypad now to enter the queue. When preparing to ask a question, please ensure you are unmuted locally. Our first question comes from Martin Stranberg from SEB. Martin, your line is open. Please go ahead.
Thank you so much. Perhaps starting on premiums. The prior premiums are growing quite nicely. And then, corporate premiums are still hovering somewhere below that. Do you see that there are any lag effects on the corporate or how should we expect that? That'll be my first question. Then the second question is gonna be on your technical profitability quarter. We see sort of a switch around Q and Q between private and also commercial. Could you please elaborate on that? And then please also take into the context of take motor and workers' comp into the context. And then finally, maybe sort of a more bigger picture question, I guess, Rasmus, you also had a slide on it in your presentation.
I guess your tenure as a CEO, you have sort of kicked up a lot of dust, and now that dust appears to be settling. Is this the book that you want? And then, given sort of your history as a CEO, are you able to sort of sit still and execute quarter after quarter? Thanks.
Yeah. Thank you, Martin. Maybe I can start with the first, and I'll also take the last one after, and Andreas can take the middle one. In terms of our growth in premiums, first of all, we are also taking the history into account. We are very happy with the development we see in the Personal Lines with a growth of 8%. We are definitely taking some market shares, and at the same time, we are keeping the underlying claims ratio at a stable level. So I think that is, as said, that is the bright spot, and we are very happy with that.
In terms of commercial lines, we still have growth, but as we have said for some periods, growth is not necessarily the most important part in commercial line, it's more the profits here that are important for us. And we are definitely working on that, and I think we will, Andreas will come back to that now with what we see in commercial lines at the moment. But as such, growth in commercial is not the most important issue for us.
Yeah, I can elaborate a bit on our technical profits for Q2 and also the trend we're seeing coming out of Q1. On overall profitability as we've gone through, Commercial this time around has a bit of headwind in large claims, which are higher than we'd expect for a normal quarter. That being said, I think I'll dive into what you guys are probably most interested in, and what we are also most focused on, being that on top of that, we also do see some deterioration of the underlying profitability in Commercial Lines.
I think, if we look at it over the full half year, we should keep in mind that we did have an extremely strong quarter in Q1, and there will be, let's say, some fluctuations. I think we had a bit of headwind in commercial, also, stemming from the fact that we didn't have... I mean, we've, as we mentioned before, especially motor and workers' comp are the main issues, motor being the main issue. And then we didn't really have any tailwind, so to say, on the rest of also the underlying business in commercial.
While we don't see the tick up, we see Q and Q or year-over-year, as structural, we do see that there is some of this that is structural. We've seen both in private and commercial across the motor book, especially the average claims are also beginning to rise on top of the frequency issue we already had. And I think the main point for us is that we see a need to do further profitability initiatives. And as we saw last year, where we had the most needs in private, we can be satisfied that we see the effects from that coming as we planned.
I think it's gonna be the same run-off this time in commercial. We'll have to start doing more on commercial prices, prices being the main effect. I can mention that we've already done things both in terms of the pricing for our new business, and we are also doing more and will be doing more in terms of getting the price right for the risk on the book as well. So we are not too worried going ahead, but it will take some extra work from us.
Yeah, and then, Martin, maybe to your last question or comment, maybe it was thank you for the comments about the dust. We are, at least we have done quite a lot, as you say, the last years. And I think with the transaction of Energy and Marine, which we just have to remember came in with the Codan transaction two years ago, and we have proved that, I think actually we got a quite good quite nice price for that as well. I think we now have a purely Danish non-life company, and that is the only purely Danish non-life company we have in Denmark after the transaction of [audio distortion] and If. And I'm quite sure we will be able to benefit from that.
From my point of view, it's most important that we are still a top three player. You see, we are all been waiting on this transaction with If and Top, so it's not really a big surprise. We do have scale. We've got scale with Codan, which is of utmost important. And then I think we have a quite far distance down to the smaller insurance company owned by foundations, and-
... when you look at them, they will definitely have a tough time going forward as they don't have scale as such. So I think there are still many things to do in the Danish market. Maybe they will be less structured. It is also not that common that a company like us do four transaction over DKK 1 billion in four years. But we have many things to do still. And I think we have shown that we can execute on growth. We also shown that we can execute on cost, and I think these two things in combination will be the trigger going forward in gaining market shares in the Danish market.
So, should I understand that as there is still quite a good appetite for inorganic growth, or how should I interpret that?
Yeah, I think the way you see it, that what we see our growth in the personal lines. I definitely think we will be able to continue. And that will be the goal going forward.
Organic growth, not inorganic.
Organic growth, yes.
Okay, thanks.
The next question comes from Asbjørn Mørk from Danske Bank. Asbjørn, your line is open. Please go ahead.
Yes. Hi, and good morning. A couple of questions from my side as well that haven't been asked yet. One is gonna be a little bit more for clarity on the severity of the average claim trends in motor, both in private and corporate. I guess you've been, like your peers, been surprised by the frequency trends, but could you just elaborate a little bit more, what is it that have sort of surprised you on the average claim side? I guess you were expecting inflation and work pricing for inflation also on the wage part and I guess imported spare parts and cars. So just a little bit of flavor that would be interesting. Then a question on your private growth, which obviously comes in very strong.
Is there sort of a trade-off at the moment? Because you're, I could imagine, growing quite significantly in your bank distribution. Is there a trade-off here between the growth that we're seeing and the underlying claims trend? So you are probably pricing at a little bit of a discount or that we know the new clients have a higher claims ratio. Is that also what is sort of delivering sort of the lack of an improvement in the underlying claims ratio in Q2? That would be my second question. And then my last question would be on the discontinued operations, the old claims and adjustments we saw here in Q2. Is there a risk we could see something similar the next couple of quarters until the deal closes?
Could this also have a potential impact on the sales price, or is that fixed at this stage? Thank you.
Yeah. Hi, Asbjørn. I'll start out with average claims on motor. I think you say what surprised us, I think what... You know, it's been, I think the whole market has been sort of working out what are the structural levels of frequency we should expect. That's been the first sort of difficult question we've all been sort of aiming for to understand. I wouldn't say that it necessarily is surprising as such, but I think the effect that we're seeing on average claims prices is a lagged effect, somewhat coming from that frequency uptick.
And I think it has, for this reason, been quite difficult for us and others to fully gauge what the effect would be, also even before we maybe had a better understanding of the frequency levels. But what we are seeing is simply that when the whole sector needs spare parts, the whole sector needs repair hours with mechanics and so forth, that sort of sector, you know, push is driving up prices for our repairs. And I think that is something we see, and our peers see the same thing. So, and the short answer to how to solve this is that it- we will need to do further prices.
That will be the main driver for us getting the right balance again, and we're confident we will get that right, with some lag. But we'll start doing that even more, and have started, as we've seen these average claims come up. And then on the private growth, are there any trade-offs going towards our underlying claims? I would say, in general, that is not a factor we see.
It's true that we would see, on average, in general, new business being slightly less profitable than the first years, both from the fact that there's cost to bring the business in, and there is also a typical average trend from older insurance portfolios being more profitable. But we're not seeing this in any structural level. If you look at what we're getting in our partnerships compared to what we're getting from the rest of the business. So this is not a main factor for us. The main factor for our underlying loss ratios is back to motor in particular, and some of the themes I just talked into previously also. So that is what's driving it.
For now, I think, as we mentioned before, we're actually satisfied that we're able to be flattish year-over-year in the quarter and actually have a slight drop in the average or in the underlying loss ratio for personal lines, which shows that we've been getting the profitability we were aiming for. And just to give you maybe also a size, a scale idea, we have been doing most on private, maybe a factor of 3-4 in terms of magnitude to what we've been doing in commercial lines. And that is the factor we need to balance out now to get it right also in especially commercial lines. And then the last question regarding the discontinued operations.
I think it's fair to say that we've seen some quite extraordinary movements related to a few very old claims relating to a few very old projects. And even for this book, this is highly extraordinary and not something that you would see very often. And I see there's no sort of expectation to see this going forward. We see them as unfortunate one-offs. And that being said, also, there's no sort of impact in terms of the price in what trading we have or what reserve development we have in the period that we still own the business.
So this is a risk that we have for now, and that's how it is. But we don't see anything structural going forward from the unfortunate events we've seen this quarter.
All right. That was very clear. Thanks a lot.
The next question comes from Mathias Nielsen from Nordea. Mathias, your line is open. Please go ahead.
Thanks a lot. So my first question will be on the same topic as some of the others has touched upon. And I know that in the report you say some of which have already been initiated on initiatives for the commercial line. So the first questions would be on, like, why not all of them? Is that because of the big renewal date being the first of January, or how should we think about that? And then secondly, you don't really write something about initiatives on personal lines. Should we expect anything on top of the ordinary price increases on personal lines as well?
And then, on my last question on the buyback, it's of course, nice to see something now, but should we expect that this could be raised, in connection with the Q3 results if we see no negative surprises on the underlying performance and investment front?
Yeah. Let me try to walk you through that. We've had initiatives going both in personal lines and commercial lines as profitability. I just mentioned the scale before. When I say that, that we'll need to do more, some of it is obviously timing, and you're right, that, that especially, the two big renewals are first of October and first of January, for a lot of the commercial business, especially the larger commercial clients and the broker driven clients. So there is obviously a timing thing here where some of it will be in front of us.
And that being said, I also think that we have we've spent time, especially during this quarter, sort of diving into it, and it's always it's always sort of it's a delicate thing to do pricing also when you're doing it across a book, which I mean, we know that motor is an issue, but motor is not the only part of this. We also mentioned workers' comp as a theme, and there are also other lines. So getting the right balance, sort of retaining the customers we want to retain with overall profitability, which makes sense, and getting that through, and getting it through just takes some time. So that's why we still have some of this in front of us.
And personal lines has been, in terms of magnitude, the primary, sort of, yeah, that's where we've done most until now. But we'll also be needing to do more in personal lines, going forward. And that is especially due to the, a lot of the things that have been rolling into this year and have been going on now throughout this year; they have mostly been, you know, driven by the effects that we saw coming from frequency, and we still need to catch up with what we're now also seeing on average claims. But we're confident we'll get there in time.
And then in terms of buyback, obviously, we can't, we can't do any guarantees in looking forward, but, but our overall thinking is that now we do, we have, we have a sensible profit for the full year, or half year, sorry, and, and we have a comfortable capital position, so we, we feel that we are in a good place to start this out now. If we have a sensible, you know, a sensible Q3 and, and, and a Q4, we, we, we very well may increase this also going forward. That depends on how the rest of the year goes. So but we're very comfortable with the levels that we've been able to put into play now.
Thank you. That was, that was very clear. Maybe a short follow-up, like, have you seen any positive or negative surprise in Q3 so far?
Nothing major, no.
Thanks.
No further questions at this time. But as a reminder, that's star followed by one on your telephone keypad. We have a question from Jan Erik Gjerland from ABG. Jan Erik, your line is open. Please go ahead.
Thank you. Just one follow-up on the discontinued operation. Was this all of these sort of old project found in the sort of the process of selling it, so the buyer really wanted not to have it, or did you really find it yourself? That's the first one. And what kind of run-off loss are we talking about? Is it DKK 150 million or is it DKK 50 million? Thank you.
... Yeah. Hi, Jan Erik. Well, it's, it's, it has nothing to do at all with the process we've had in terms of selling the business. There's nothing, no relation to the timing of, of this going into that. It is, in actuality, and I can't go into too, too much detail here, as we'd ever do in terms of single customers or claims. But it is a single project, especially, and which, which has driven a lot of this. And I would say, to answer your question, then, that, that it's closer to 150 at least, than it is to 50.
So a lot of this is prior year claims which have had an adverse development, and we see them as highly extraordinary, and in no way, just to repeat that, in no way related to the process we've had with selling the business.
Okay, I see. On the price increases, both on the personal lines, on the commercial lines, could you shed some more light into how much you really hiked your prices in the personal line? And really when you have done it, so we can understand what kind of magnitude you have behind you versus in front of you. And also, on the commercial side, the price steps you're thinking about. Did you do anything last year on the motor side, or is this all coming now into going forward from the first of October renewal and the first of January renewal?
Yeah, Jan Erik, let me try to walk through that. Well, we in terms of the magnitude of price increases, both in personal lines and in commercial lines. A rough number in terms of the new business, we're looking at something like at least, you know, in the vicinity of 10% on motor, depending on when we're talking of the timing. But we have hiked that continuously, as we've gone forward for the new business. And then, if you look at. It's a bit, you know, for the book as such, we have more of a portfolio approach, and our approach is very much driven by looking at the total customer, also profitability, not only single lines.
Mm.
So we have definitely seen customers seeing very significant double-digit price increases in both personal lines and commercial lines, targeting the, you know, the, the portion of the overall book, which is least profitable. So but, so in new business, maybe roughly, around the 10% mark, at least for motor. And commercial lines, it's not that we haven't been doing things in commercial lines. We are always doing things where it needs to be done. It's just question of the magnitude of what's needed.
The things we have overall in place running in commercial lines is not—it's not enough now as we see both motor come in and also the workers' comp as we see at least some of that also being structural, and we'll need to do more to do that. So it's a question of you know increasing the overall size of the initiatives. We have been doing stuff all along.
Okay. Just one question on the sort of larger claims you had. It sounded like it was in property for commercial side. It's hard to say anything is one-off in insurance, but what kind of. Is that kind of a frequency issue, or is it just that you were sort of had bad luck this quarter versus where we have been thinking? So how much of that total property losses this quarter was more a nothing that really would stand out in the next quarters to come? If you look at the long-term trend, these sort of losses come and go.
But if you look at it in this time, how many percentage points of the commercial line combined ratio is this talking about then, or underlying claims ratio?
Yeah, you can say in terms of the large claims, you can always say talk about luck and unluck, but I think the name of the business is that we have large claims now and then. And we had some quarters without too many in commercial, and now this quarter, we had a few more than normal, you can say, than expected.
Mm.
I think it's more or less about that. It's a, you can say we call it small or large claims, and it's very much connected to small fires and things like that. So it's nothing fundamental or anything else like that. It's just you can say in that way, it's just stochastic or unlucky, as you can mean it.
Okay.
Hi, Jan Erik.
Yeah.
Just with a follow-up on... I mean, now we have, I mean, looking at the continuing business where we remove the Energy and Marine segment, we of course have a bit of change in what we see as a structural level for large or major claims.
Mm.
So now we see a level ahead of around 7% for the group, and that would translate into 12%-13% for the commercial lines. So we are seeing, I mean, a 4% higher large loss level in this quarter than we would normally expect. So there's really no changes as such structurally.
Mm, mm. Thank you. Could I just have one follow-up on the investment side? You mentioned that you were sort of trying to find to turn the portfolio a little bit so you can have a higher expected return. What do you mean with that? Would you take more risk, or would you just change the portfolio, or would you look for other investments?
Yeah. We've... This is something we actually been working on for continuously over the last years. But it's a long game, and that's because what we're doing mainly in investments is we do not wish to introduce, you know, a substantial amount of extra volatility in the book. So what we're looking to do is primarily harvest illiquidity premia from doing more illiquid investments,
Mm
... targeting, in that respect, very, very safe, you know, with—with low credit risk, and simple products, but where you are able still to harvest some premia on the liquid side. And as we see more of that actually being committed slowly, but over time, we do see a better mix, and that's the main strategy we're working for. We don't want to introduce too much volatility, so that's the way we're working at it.
Okay, very clear. Thank you for your answers.
We have no further questions, so I'll hand it back to Rasmus for some concluding remarks.
Yeah. Thank you, and thank you all for this question, and I wish you all a nice day. Thank you.
This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.