Everyone, welcome to the Alm. Brand Interim Report for the Q3 of 2022. My name is Charlie, and I'll be coordinating the call today. You'll have the opportunity to ask a question at the end of the presentation. If you'd like to register a question, please press star followed by one on your telephone keypad. I'll now hand over to your host, Rasmus Nielsen, Chief Executive Officer, to begin. Rasmus, please go ahead.
Thank you. Good morning, and thank you for taking the time to join us on our call today on the Alm. Brand Group results for the Q3 of 2022. As usual, I have with me today our CFO, Andreas, and our IR team with Mads and Michael. As you all know, this morning we have published a consolidated set of numbers that includes Codan for the full quarter, and thereby we're able, for the first time, to present numbers that reflect a full quarter for the combined business of Alm. Brand and Codan, thus making it easier to do the like-for-like comparisons to previous quarters. Again, this has been a busy quarter with a lot of actions as we've been progressing on the integration alongside with overlooking and securing that all parts of the day-to-day business develops in line with our expectations.
On top of this, we have today announced that we have reduced headcounts by an additional 110 across the organization. Most of this is achieved over the last months by restraint in filling vacant position, thus allowing us to limit the number of layoffs. This is yet another step in shaping the business and trimming the cost base to secure strong, competitive and profitable business. To me, it is important that we stay on track and deliver on all the initiatives that we have communicated to you, and this is exactly what we are doing. Let's turn to slide two and kick off with our highlights. This quarter, we have succeeded in further growing our business while taking important steps in integrating Codan into the Alm. Brand Group. Alm. Brand has successfully maintained strong organic growth, just about 5% in both personal and commercial lines.
Further, at the same time, Codan has grown premiums well in especially bancassurance. As expected, we have seen the first round of positive effects from the synergy initiatives implemented back in June, and they are now flowing into our results with an immediate effect on net earnings in the third quarter. Included in numbers for Q3 are synergies of DKK 46 million on top of DKK 8 million in Q2, and we are therefore fine on track to meet the full year number of DKK 110 million as previously communicated. The development has been satisfactory with total claims broadly as expected, although there's been a lot of moving parts, including tailwind from higher interest rates that more or less has offset higher claims inflation.
The numbers shown show that most part of the business portfolio has performed well in the quarter, but they also show that large claims in Codan's commercial lines are volatile. Adding it all together, business is in good shape, and the technical result reflects a business that continues to develop satisfactory and a little ahead of our initial forecast. Therefore, we have already upgraded our guidance for the full year technical result back in October. Now I turn to slide three with our financial highlights. Non-life technical results, including Codan, adds up to DKK 370 million compared to DKK 170 million recorded in the Q3 of last year. I'm pleased with both how our business is performing with respect to growth in premiums and the ongoing programs to secure a realization of synergies and cost savings.
I also notice that the special situation around high inflation and high interest rates adds special dynamics to our business. Inflation has now been a theme for almost a year, and we have successfully navigated to offset or delay the full impact of higher prices. Surely, we are also seeing some of the effects from higher prices on energy and materials. However, we strongly believe that we are in a comfortable position as our indexation of premiums, coupled with selected price increases, are set to mitigate the inflation effect next year. Investment income was a loss of DKK 63 million.
Although this number is not at all as high as the number we reported back in Q2, then it's still a high amount compared to what we normally report, and reflects both the inclusion of the Codan investment portfolio and the fact that the financial markets have had yet another quarter with exceptional price and spread movements. However, we should recall that although the investment losses hit our business here now, then we fundamentally benefit from higher interest rates on our insurance business. Other costs amounted to DKK 13 million, with net headquarters costs fairly unchanged. Execution of the initiative to integrate Codan and realize synergies continues in line with our plans, and in this quarter, we have spent DKK 60 million to further progress on this.
Customer relationships and brand amount related to Codan will be amortized over 8-10 years, respectively, at an annual rate of DKK 360 million, i.e. DKK 90 million per quarter. This is, of course, a non-cash item, and please remember that this will have no effect on our dividend capacity going forward. Now please turn to slide five for the operational performance. As said, the group made a technical result of DKK 370 million in the third quarter.
The result from Alm. Brand was DKK 258 million against DKK 170 million last year, thus showing a positive development as underlying business develops fine, with claims benefiting from tailwind due to high interest rates, which compensates for claims inflation and high claims frequency. This quarter, both large claims and weather-related claims are lower compared to last year, which of course also adds to the profit. Lastly, Alm. Brand was able to reduce expenses as cost initiatives had an effect. However, in all fairness, it should be recalled that Alm. Brand last year had a one-off cost related to the recalibrating of our provisioning model of DKK 23 million. Even when taking that aside, the development this quarter adds to the positive trajectory of our results. Codan's technical result amounts to DKK 112 million.
Overall, this is a satisfactory number for the quarter, and as such, we are pleased with the development. We also acknowledge that the Codan business come with more volatility compared to what we have in Alm. Brand. A key action point for us will be to reduce volatility so that the business can produce stable net results with a high degree of predictability. Our investment strategy remains a conservative long-term strategy with respect to overall portfolio exposure. I will argue that this has been a quarter with an extraordinary development in the financial markets. Therefore, the gains that we had on our books back in mid-August was wiped away in the last half of the quarter. Please turn to slide six. Premium income grew organically in Alm. Brand by 5.1% in the quarter, i.e.
Keeping the high pace from the previous two quarters with equal contribution from both personal and commercial lines. We have talked about inflation for some time now, and clearly inflation has become more and more visible also in our numbers during the last two quarters. Although we have successfully implemented initiative in claims handling and procurement to offset this, then we are seeing claims inflation ticking up further. As the indexation of premiums this year is based on inflation last year, then increases in premiums have been lagging. Looking into the new year, we will expect that our regular indexation, which includes a significant hike from construction cost inflation and additional selective price increases on specific product categories, will allow us to catch up. Again, our profitability is more important than growth as such. Now please turn to slide seven.
Weather has generally been nice and mild, with no special events in late summer or in early autumn. Thus there has been only a very few weather-related claims across the group, totaling a modest one percentage point. Large claims, on the other hand, were somewhat to the high side and to some extent reflecting a more volatile nature of the acquired corporate business. Large claims in Alm. Brand were at a normal level of eight percentage point, but in Codan they jumped to 17 percentage point, partly driven by the large claims announced in connection with our Q2 report. Adding weather-related and large claims together gives a total of 10 percentage point in Alm. Brand, and the numbers for Codan add up to 17 percentage point, thus resulting in a group number of 14 percentage point. Now I turn to slide eight.
Here we have illustrated the bridge for the Alm. Brand combined ratio from last year to this year. The starting point back in Q3 last year was a reported number of 88.7%, and included in this was both tailwind from COVID-19 and headwind from changes in risk margin, here shown as the year-over-year delta. Adjusting for these allow us to compare Q3 this year with last year, which shows an improvement of 410 basis points. Some of this is due to lower large claims and lower weather-related claims. Bottom line is still that underlying performance is doing well despite claims inflation and increasing claims frequency as both cost reduction initiatives and tailwind from high interest rate level kick in. Codan had a combined ratio of 92.3% in the quarter.
This is on an overall level in line with our expectations prior to taking over the company. Personal lines are doing well overall, but commercial lines hit a combined ratio of around 100 this quarter. This is of course not sustainable. Adding Alm. Brand and Codan together leaves the group at a combined ratio of 87.3, and I think that this is a fine number given that we are in the early phase of joining the two companies and realizing the synergies. Now please turn to slide nine. For the personal lines, claims ratio for Alm. Brand was 67.6 against 62.9 same quarter last year, i.e. also this quarter somewhat higher as claims frequency has increased, partly because of the normalization after lapse of COVID-19 and average claims cost have increased due to inflation in especially materials and energy.
The expense ratio improved to 17.0, i.e. down a healthy 290 basis points relative to last year. Included in this is of course the effect of the synergy initiatives implemented back in June. In Codan business achieved a very satisfactory combined ratio of 80.6, reflecting a very low level of claims in the quarter. The expense ratio was 23.8, still high, but moving downwards compared to previous quarters supported by higher premiums. Please turn to slide 10 and commercial lines. Also for the commercial lines, the overall picture is that business is doing well. The combined ratio in Alm. Brand was 80, i.e. down 12 percentage points relative to last year and flat relative to a very good Q2 we had this year.
Also in commercial lines, we see claims inflation, but it should be noted that most of our benefit from high interest rates derive from the long-term long tail provisions that we do for claims in commercial lines included herein, for example, workers' compensation. The combined ratio in Codan was just above 100, and as mentioned before, this is affected by a high amount of large claims on cogeneration plants as well as traditional industrial production facilities and warehouses. We acknowledge that the steps taken over the last couple of years to reduce exposure to specific segments and the ongoing improvement, and we will continue, and for some parts of the portfolio, accelerate these initiatives to ensure an attractive combined ratio.
The expense ratio in the Alm. Brand has been relatively reduced by 140 basis points to 12.8%, reflecting both a very tight cost control and the effect of the implemented synergy initiatives. Codan expense ratio was at 14.2%, leading to a group total of 13.5% for commercial lines. Now please turn to slide 11. Here we have included a slide with our updated take on inflation. The overall situation remains pretty much unchanged, with claims inflation ticking up especially for building construction and auto repair. Not surprisingly, this is caused primarily by higher prices on materials, which have surged more than 13% year-on-year, driven by sharp increases in carpentry, joinery, and painting work.
So far, we have successfully mitigated some of this effect due to strong and valuable relationship with partners based on long-term contracts. Further, we now see indication of a slowdown in construction works, and this is everything else equal, a positive for the prices. Based on this, we foresee a total claims inflation of 4%-5% this year, somewhat higher for claims related to building damages, which will be around 7%, thus significantly lower than the overall inflation on construction costs. Now we conclude with some comments on synergies and investment before turning to the outlook for the year. Please go ahead, Andreas.
Thank you, Rasmus. Please turn to slide 13 for an update on synergies. An essential part of our investment case is, of course, that we each and every quarter deliver on the synergies that we have promised you, and thereby step by step add to your comfort in us reaching the full target. To make this happen, we invest a lot of resources in both detailing and validating all the plans that we have, and we do our utmost to continue to deliver on these plans. Back in August, we told you that we had identified and implemented initiatives that would get us to a total of DKK 110 million in synergies with a P&L effect for this year. This is still the case.
Our numbers for Q2 included a modest eight million in synergies, and the numbers for Q3 include an additional 46 million. Thus so far, we have a total of 54 million. The synergies that we will harvest in Q4 will be slightly higher and bring us to the total of 110 million. This is a strong number and ahead of the initial plan, but even more importantly is that the initiatives that we have already done will have a run rate of approximately 200 million in the years to come. We have an ambition of delivering on 240 million next year, so we are already now in a good position to meet this target. Now please turn to slide 14 for investments. After adding the Codan investment portfolio, our total portfolio has doubled.
Consequently, in absolute numbers, the investment result has increased. Thus, it makes sense to comment separately on this. The total investment portfolio now amounts to DKK 21.8 billion, split between a hedge portfolio of around DKK 15 billion and a free portfolio of around DKK 6.8 billion. Overall, we consider our investment strategy quite conservative, and it includes investment limits carefully designed to curb the impact of the investment on the investment result relative to the total result of our group. This quarter, the financial markets have had yet another negative development across most asset classes, and the net result for us is a loss of DKK 63 million.
We are of course not happy about this, but we think that the loss is manageable in a quarter where we make a technical result of DKK 370 million, meaning the loss in no way is jeopardizing the overall result of the group. Again, bear in mind that over time, our business will gain from a higher interest rate level in general. Now please turn to slide 16 for the outlook for the year 2022. Back in October, we upgraded our guidance for the technical result to from DKK 1.05 billion to DKK 1.1 billion, reflecting the positive effect from higher interest rates and the run-off result in Q3. Today we reiterate this guidance. For Nykredit, we now guide for a technical result of approximately DKK 800 million against previously DKK 750 million-DKK 800 million.
For Codan, we guide for a technical result of approximately DKK 275 million against previously DKK 225 million, both including synergies. Further, as a direct consequence of the development on financial markets, we now expect investment income to be a loss of DKK 350 million. This is a lot worse compared to our expectations in mid-August, where we were looking at a number around DKK 100 million in losses, but it reflects that the market volatility has been extreme and unusual in a period of time where inflation has further accelerated and interest rates have been hiked by central banks. Our guidance on group costs remain unchanged at a total of DKK 100 million.
It all together leads to a guidance on group pretax results for continuing activities of DKK 600 million-DKK 650 million against DKK 750 million-DKK 850 million three months ago. Our earnings guidance is based on an organic growth of 5%, meaning a slightly higher than assumed last quarter, thus adding to the positive trajectory we've seen in the first nine months. Also, we would expect combined ratio to be at 89, excluding any effect from one-offs for the remaining part of the year, and expense ratio of 18, reflecting a higher level of costs in Codan. Further, we are on track to harvest a DKK 110 million of synergies this year, and we expect to incur special costs related to the integration of Codan and restructuring of DKK 350 million.
On top of this, we'll have special costs relating to the carve-out of Alm. Brand's life business and our share of costs related to the bankruptcy of Gefion Insurance, in total DKK 80 million. Finally, we'll depreciate customer relations and brand over the next 8-10 years at a monthly rate of DKK 30 million, thus totaling around DKK 240 million this year. Just to be clear, this as well as restructuring costs will have no effect on dividend capacity for the years to come. With this, I conclude my presentation and hand over the word to our moderator. Thank you.
Thank you. If you wish to submit a question, please press star followed by one on your telephone keypad. If you'd like to withdraw your question, please press star followed by two. When preparing to ask a question, please ensure you're unmuted locally. As a reminder, that's star followed by one on your telephone keypad now. Our first question comes from Asbjørn Mørk of Danske Bank. Asbjørn, your line is open. Please go ahead.
Thank you. A couple of questions from my side. First on the inflation environment and your comments around compensating for inflation for next year. If you look at your slide 11, you're saying general claims inflation of 4%-5% this year. Obviously discounting has been quite a sizable tailwind, we're not really seeing in the numbers. You also say that basically inflation is offsetting that. Basically your wording around compensating for claims inflation for next year, is that going to be. How should we read that? Should it be. Is that 2023 in isolation, or is it sort of a combination of the 2022 and 2023?
Basically the things you have not been able to reprice fully yet, we will get back next year. We should expect you to reprice by around 2% higher than claims inflation next year to offset for the miss or the lack that we haven't seen so far this year. Is that how we should see it? How much can you actually do competitively in this competitive environment at the moment?
Thank you, Asbjørn. It's Andreas here. Let me try to answer that as clearly as possible. I think, well, you can say that we have been seeing inflation pick up in recent months, and that's what we're trying to communicate now that we are expecting for the full year 4%-5%. That doesn't mean that we've been met by 4%-5% in the numbers for or will be met by that in 2022. That's where the prices will basically end up at the end of 2022.
You can say that going into next year, we feel fully confident that we will be able to get compensation via both a very sound indexation and also a selected price hike that will sort of net we will be able to mitigate the effects from claims inflation in 2023. On top of that, you could say that we do see in the numbers a positive from interest rates and discounting, and that will have also a positive effect next year. Does that? I hope that answers the question.
Well, maybe if I ask it a little bit differently. If I look at your pro forma numbers of the group, your underlying claims ratio is up 90 basis points year-over-year. Obviously there's no COVID-19 adjustment for Codan. So that's of course one thing, but nevertheless, there seems to be a deterioration despite your higher rates benefiting you significantly with discounting rates. I guess the true underlying is worse. My question was more when you say compensate for next year, will that also include sort of the repricing that has not had a full effect for this year, but will come through in 2023?
I would say answer that shortly, yes. That's what we mean. Maybe just a short comment on underlying loss ratios, because you are right. Now I'm talking into realized numbers we've had in the quarter, both in Alm. Brand Forsikring and in Codan and as a group as such. You are right to conclude that when you look at the numbers, the underlying loss ratio in reality has deteriorated a bit due to both claims inflation is beginning to pick up also with effect in 2022. That's a part of it. Another part of it is also, as we do mention in our report, that we are seeing also somewhat higher frequencies in small claims.
How much of that is structural is still to be seen. We have seen a slight pickup in small claims in this quarter also compared also when we adjust for COVID on the administration side. On Codan side, as you mentioned yourself, it's a bit harder to know exactly. They haven't estimated the COVID effect historically, but I would say that a significant part of the tick up in frequency is caused by COVID on that side. That does not change the fact that we have a slight observation we need to be very focused on going forward.
All right. Then on your cost and I'm sorry, it's gonna be a couple of questions in one, but basically just first of all, look at the Codan cost base down quite significantly in Q3. You talked about high costs in Q1 and Q2 as being temporary, but obviously it seems like bancassurance is still having a pretty good Q3. It's a little bit of comment on that. Basically it sounds like the cost ratio across both personal and commercial and both Codan and own brand is coming down. I'm aware of the one-off last year, but still also underlying it looks moving in the right direction. The question relates to the fact that you obviously have the synergies coming through to some extent.
If I look at the cost improvements in Alm. Brand and Codan combined, the DKK 43 million you're realizing synergies of DKK 46 million. I guess there's also an underlying cost inflation, not only to your claim side, but to your operating costs, wages, IT licenses, et cetera. Maybe if you could just split that up a bit and say how much is actually the gross cost headwinds that you're seeing from inflation and how much, or is this actually the true delivery on the underlying cost side and not just from realized synergies?
Yes, I can get a little bit into that, Asbjørn . You are right that we feel that the cost in Codan is pretty much under control. That's also why we did this initiative with the 110 FTEs, which are very much linked to the Codan. We need to ensure that the Codan is getting right into 2023. That's why we did this exercise this week. When you look at the Codan cost side now, you're right, it is lower than we had talked about before, and we are happy for that. At the same time we are keeping the top line, especially in the bancassurance, which we are really very pleased for.
We're quite happy about that. Of course, we have some work to continue on. Codan as such is still on a higher cost level than own brand just in the basics with our synergies, and that we will cater for going forward. Of course, you have the whole inflation discussion next year with the wage increases and all that. That of course we are taking into account looking into the budget for 2023. We will get back to that when we come up with the guidance for 2023.
Is the 110 redundancies that you announced today, are they part of the very high cost base that Codan had in Q1 and Q2 this year?
Yes. You can say that. Codan came in a bit higher than we actually expected when we start looking into the figures more than a year ago. That's why we are taking necessary steps here to align the cost in order to get where actually our starting point is.
Maybe just a comment. I mean, the cost base reflects reductions in the whole group, especially across staff functions. It's not only an effect you will see in Codan, you'll see it across the group. As we've also commented on with a tilt towards especially bancassurance in Codan.
If you look at the overall picture, it's smaller things in the broader picture, so we just need to take action now. That's it.
Just the cost, absolute cost level in Codan is down DKK 100 million quarter-over-quarter. It's a quite sizable number.
Yeah, some of that, Asbjørn, has to do with the fact that they are front loaded in their investments. That's also the fact that the way that Codan historically have done their accounts, they have the full partnership costs. They have that in Q1, where a lot of renewals are. We're looking into how we'll be doing that in terms of our accounts, but that means that Q1 is also a heavier quarter than the rest of the quarters because of that effect.
Okay. That's clear. A final question from my side. Rasmus, you said that your aim is to reduce volatility in Codan ahead. Considering the large claims that you had, Q1 was wind turbines, Q2 was solar panels in the U.S.. Now Q3 seems to be more like a fire claim issue for the Danish business. How will you lower that volatility? Is it only gonna be future underwriting? Is it gonna be reinsurance? Is it gonna be changes to the geographic setup of your business?
I would say, Asbjørn, it will be a bit of everything. Also, you know, focused management leadership together with underwriting, all the things you manage, we have focused on and working on each single day. Here in Q3, we had three large fires. You know, that happens now and then. But of course, it should not happen each quarter. That's how it is. One thing we will work on is we'll get back on that in the capital market update. One thing we will work on, and we do work on, is that Codan will take smaller portions in the larger areas.
Individual contracts. That is what they have worked on in Codan for some years now, and we definitely continue that work.
All right. Very clear. Thanks a lot.
Thank you. Our next question comes from Jakob Brink of Nordea. Jakob, your line is open. Please go ahead.
Thanks a lot, and good morning. I would like to go back to Codan, please. If we take your implicit guidance for when you reported Q2 for Codan to DKK 225, we deduct the DKK 90 million that you already reported in Q2, and then the synergies that were allocated to, no, just take out the DKK 90 million. Then we get to around DKK 67 million per quarter in Q3 and Q4. I just 225 less 90 divided by two, and it came out at 112. Could you maybe? What went better than you expected? Because looking at large claims in commercial Codan, that doesn't look very good. What exactly went so much better?
Yeah. Let me try to comment on that. You're right that large claims are above where we would expect them to be. Keep in mind that some of that was also included in our guidance in August of DKK 225, where we had this single large claim we also commented on coming out there. Apart from that, you're right that what has so to say surprised us is the overall loss ratio on small claims. They have a sound development at least compared to where we were seeing it. That is most of the improvement.
As you can see also in the quarter that you have, Codan personal lines coming out with a very strong combined ratio of 80%, and that's also a bit below where we had them in our expectations. That's the reason for that.
Okay.
Jakob, I'm going to add that as well, Mads from IR that, of course—I mean, when we increased the guidance, we also took in the run-off from Codan for Q3.
Okay. Yeah. That's clear.
I mean, we did on October 13, the DKK 37 million one-off gains came into the technical result for Codan.
That's clear.
Yeah.
Okay. Makes sense.
It's not that different. You can say that it is mostly run-offs, but and then you have the two other effects, moving in opposite directions.
Yeah. Okay. Going on with Codan and just the still then, which is pretty unchanged from Q2, but the implicit guidance for the Q4 , again, if we have DKK 275 million, we deduct what you booked in Q3 and the DKK 90 million from Q2. Also we take out the synergies from Q3 and also what you then is expecting giving you DKK 110 million for the whole year. So what is left for sort of true underlying Codan? It looks to be a combined ratio of around 97% in Q4. Why that high? Is that due to seasonality or is it you being cautious or is something, is there some one-offs or why is it that high?
It is, I would say it is somewhat to do with seasonality. Especially you can say, large claims have a certain seasonality where they would typically tilt towards being a bit higher in Q4. That's also what you would see if you go back in Codan numbers historically. There is probably also, given the quarter we just delivered and the last earnings picture we also had there, we felt that it was good to be at least on the conservative side compared to where we were previously.
Okay. It's just also we have talked.
Sorry. Also a note on, I mean, when you calculate, I mean, when we do it DKK 25 million at a time, then actually two percentage points, I mean, that's almost the entire, I mean, entire amounts we change it by. It's perhaps a bit, I mean, if you are, I mean, making it just a little bit conservative, then it's easily explained by, I mean, doing it in buckets of DKK 25 million.
Yeah.
It becomes very sensitive at these small, bits.
I see. Okay. On the personal lines and Asbjørn's question before. Just trying to split up the cost between the different items that you like you said, and I asked with the front-loaded partnership costs. Of course, that was the same last year. Trying to do sort of taking out partnership cost also from the H1 last year and then taking out one-off cost and other from reported cost, there was a quite significant increase in the residual or underlying cost in the H2 of 2021 compared to the H1 of 2021. Now, of course, the split between H1 and H2 on partnership costs should be the same this year. As you said, it's front-loaded.
Given what you reported now with a fairly big decline in reported cost in Codan private, it looks as if the second half year underlying cost of sort of the residual cost is not really gonna increase. What has happened, or was there something there to be aware of last year? Or, yeah.
I think when you look at cost ratios, at least, you should keep in mind that, I mean, they were also in 2021 ramping up significantly in terms of staffing. They have the partnership effect as you're trying to sort of do like for like, and that's fair enough. They were ramping up a lot, both in staff and IT investments and that the mechanics are that we're only now truly in the previous quarter and this quarter starting to see premiums come in at a very sound growth levels. You can say that's at least an effect that they really didn't see the premiums in the books in any full effect last year.
It's taken a bit of time for us to get clarity on this. What we've done now is that we have tried to scale this to the business that is actually being delivered also in terms of costs. Now I think we're approaching the levels that we will see in a normal quarter without these special partnership costs in the numbers.
I guess all the 110 reductions or redundancies you did, which is not only Codan, but I understand that some part of it is not in the Q3 numbers. What is sort of, I guess, as you say, you have the premiums that are lagging the costs, so they are starting to come in now. Are they fully in? As you said, is it right sized? And then of course you're even taking out further FTEs. Where on that cost ratio trajectory are we? Are we, I guess we peak, but is
Yeah, just a quick comment, Jakob, just to, you know, we split all costs in the group also in Codan. So you can say that some of the overall reductions that have been also in staffing in our staff functions are also sort of benefiting Privatsikring in Q4, so in Q3, sorry. So the total DKK 54 million we're delivering on the group, a sound part of that is actually also coming down to Privatsikring even though we actually didn't touch the bancassurance that much in the first round. It was mostly dual functions in staffing.
I think you should keep that in mind also when you look at that's also helping the picture, so to say, overall picture in the personal lines in Codan.
Okay. But is it possible for you to maybe, I'm a bit confused with all these back and forth, but so what is Q1 and Q2 expense ratio Codan private was very high. This quarter was quite good. Is there more to go or what is sort of the run rate we should be looking at going forward?
We need to see a further improvement in costs in Codan personal lines going forward. Some of that. Now we did something today which will help that picture, also tilted towards that segment, but also across the rest of the group. We need to be able to deliver on that, and then we need to deliver on the overall synergies. We also have plans to help improve also personal lines Codan going forward.
Okay. Still improvement from the nine-month level and then synergies on top.
Yeah.
That's what, yeah. Okay. On the inflation, 4%-5% might sound fairly, pretty much in line with what we have heard from other companies, maybe a bit higher. Seven percent I think sounds somewhat higher. I think it's only GF Forsikring that is up at these levels. Also looking at the construction price index for Denmark, that might be around 7%, but obviously that has 75% materials and 25% labor and you're the other way around. The way I see it, market inflation is only around 5% on house. I guess you have procurement that even though it's not the best in Alm. Brand maybe, but will be, it's still a bit strange that it's higher inflation than market inflation or?
Jakob, I think, I mean, when you have to say, when we say 4%-5%, it's where we see the year end. I mean, when we weigh that in. That is, I mean, it's countered by a quite healthy indexation we did by the start of the year. If you're talking net effects here, it's a quite low net effect you're looking into of the.
I actually mean why was your absolute inflation higher than the market inflation?
Yeah.
That I don't figure.
Where was that, the 7% you mentioned?
No, but didn't you say in your slides, didn't it say four-five, and then didn't it say house seven? Did I read wrong?
Up to seven for some of the claims, I guess. It's for some of them. I guess that is the number that we think we could end up with in Q4 without being sure. We are also taking a conservative view on this area as well.
Yeah, because I think Tryg and Topdanmark are around 3%-4%, so 7% sounds quite high.
Is that for the year or for the end of the year?
I think 3%-4% sounds low if we're talking building costs in total. I'm not sure where maybe we are. Yeah.
It's fixed price agreement. Okay, let's take it. We can take it tomorrow. Okay.
Because wages.
And then just-
I'm sorry. Wages themselves are probably moving at around 3%-4%. We will take it tomorrow, Jakob, if..
Yeah, let's do that. We can take it tomorrow. Then maybe just a final one from my side. The price increases. As you've been, also, you basically have the opportunity to do quite massive indexations on the house product on 1st of January. Are you gonna do that or your competitors are obviously not because they're using the salary index? Have you decided how far you can go above competition without ruining market share pace?
Yeah. In general, I would say we will be taking advantage of the opportunity we have in indexation. We are also obviously looking at the specific segments and specific customer groups and also weighing out at least how much do we need to do on top of that in you know the segments. When certain segments and customer groups are hit by very high indexes, we obviously take that into account deciding on the overall prices, price increases they will have. You will expect to see a sound effect or a high overall effect from indexation, especially in the Alm. Brand Forsikring part of the group.
Okay. Thank you.
Thank you. As a reminder, if you wish to submit a question, please press star followed by one on your telephone keypad now. Our next question comes from Martin Birk of SEB. Martin, your line is open. Please go ahead.
Thank you. Perhaps just a couple of follow-ups on what we've always already discussed. Maybe first question on premium growth, now that we're talking 2023 already. One of your peers is also referring to a workers' comp index which will be dropping significantly next year. I wonder sort of the bits and pieces whether 5% next is still gonna be sustainable level or should we look higher or lower, what do you think?
Yeah, I can say you're right that as such the workers' compensation index will, it seems like it will decrease. We're taking that into account, of course, when we look into 2023.
Okay. You're not willing to give any more color on it?
No, I think we should wait with that.
Okay. Perhaps also coming back on costs, if I calculate correctly, reaching 18% for the full year, that also is insinuating quite a pickup in your expenditure through Q3 and Q4 going into Q4. What is the reason for that?
That is at least not the intention, Martin, that our basic cost will increase in Q4. I think it's the simple math of having Codan in with a full quarter in Q4.
Okay. Final question on net investments. Following the market setback in Q3, what kind of running yields are you guys targeting now?
Yeah. I would say putting it very roughly, but something like 3% running yield on our free portfolio. Yeah. You can do the math, but we have around DKK 6 billion, maybe above, a bit above that comes to just below, maybe around DKK 200 million in running yields on the free portfolio. As you are aware, we are aiming to match the rest as closely as possible.
Okay. Okay, very clear. That was it from my side.
Thank you, Martin.
Thank you. As a final reminder, if you wish to submit a question, please press star followed by one on your telephone keypad now. At this time, we currently have no further questions, so I'll hand back over to Rasmus Nielsen for any closing remarks.
Yeah. Thank you for listening, and thank you for the good questions and all that. Take care.
Thank you.