Earnings Call: Q4 2020

Feb 11, 2021

afternoon, everyone, and welcome. My name is Lars Hotten from Investor Relations in Aminibarn, and I'm sitting here together with CEO, Lars von Svearnar Nielsen and Senior IR Officer, Mikael Bollasen, and we are ready to present to you our Q4 results for 2020. As always, we are going to make a short presentation of the results. And then afterwards, we will be ready to answer any questions you may have. And with this short introduction, I will leave the floor to you, Wattenberg. Thank you, Lars. Good afternoon and thank you for taking the time to join us on this call on the AMP branch results for the full year of 2020. Personally, I'm very satisfied with the results that we have delivered and the progress we have done in the past year. In a year heavily influenced by COVID-nineteen, we are taking important steps in transforming our company. Now Amdbrand is in a much better position to cope with the challenges that we see ahead of us. In our update today, I will start with a recap of the full year and then I will focus on what we have achieved in the past quarters. Please turn to Slide two. For us in Brands, 2020 has been a year of execution. This is important because when COVID-nineteen changed the world, we had already made the first changes to Allent Brands in January with the creation of a new organization to better meet our customers. And with this, a reduction in headcounts, which cut our costs by 100,000,000 on an annual basis. So when entering into the lockdown period and the more challenging business climate, we had a good starting point that allowed us to navigate successfully and assist our customers whenever they needed it. As a result, our underlying business has performed well and on top of this we have made good investment results as financial markets have had a generally strong development after the last dip during March. It was also a top priority to find a good solution for our banking activities and with the sale and subsequent formation of a partnership with Supak, I believe we have achieved a win win solution. A solution that not only has freed up capital management resources but has also created a stronger distribution for our insurance products. Looking into the year to come, our focus will be to make sure that we are able to execute and create excellence in our core functions. We will revisit the full value chain and identify whatever we can do to be better on claims handling, procurement and customer servicing. And we will ensure that we we will meet a lot more customers. 2021 will, in some respect, be a special year in terms of investing in the future. The new partnerships that we have entered into with both Volkswagen Semler and Supak will be backed by start up costs to create a strong, digital and meaningful value proposition to our customers. Please turn to Slide three. While the impact of COVID-nineteen on our financial results has been significant, All our businesses have delivered improved underlying performance and execution on their strategic objectives. Our full year pretax earnings amounted to $824,000,000 compared to our guidance of NOK700 million to NOK750 million, excluding runoff results for the last quarter. In all fairness, it should be noted that the general positive development has been supported by favorable weather conditions, few major claims, reduced activities and therefore fewer claims in general as well as a very positive investment result. However, putting this aside, the changes that we made early in the year have generated the operational improvement that we expected. Bottom line, the strong results and our strong balance sheet allow us to pay out the old earnings after tax, which translates into a dividend of NOK4 per share. On top of this, the Board also proposes to pay out the postponed dividend from 2019, that is DKK3 per share, which means that the total dividend will amount to DKK7 per share. And of course, we should not forget that we, back in early January, paid out an extraordinary dividend of DKK8 per share following the sale of the bank. Please turn to Slide five. The Non Life business made a pretax profit of $311,000,000 in the fourth quarter of the year, driven by an extraordinary strong technical result of NOK $237,000,000 and a positive investment result of million. The technical result benefited from a good development in underlying business as well as favorable development in both weather related and major claims, but also from fewer claims because of lower activity during the lockdown due to COVID-nineteen, which have added around 45,000,000 to our results. All in all, 2020 has shown a very positive development with a lot of tailwind. We are pleased that this has been the case, but we also acknowledge that the nature of our business is that this will not necessarily be the case every year. Our investment strategy is a long term strategy with respect to overall portfolio exposure and consequently we have profited from the continued positive development in both equity and bond markets. Moving to slide six. Premium income grew by 1.5% in the quarter, I. E, in line with what we have experienced in the previous quarters. For the full year, growth totaled 2%, which is somewhat lower than we forecasted. And to some extent, this is the flip side of the general lower activity following the COVID-nineteen lockdowns. In general, we are seeing customers being relatively more hesitant in signing up for new insurances and in doing more business. The claims ratio excluding run up gains was 67.7 against 73 in the 2019. Including this is a one off positive effect from fewer claims in the quarter of 3.3% points due to the COVID-nineteen situation. The expense rate was 16.8%, slightly down from 17 in the fourth quarter last year due to the effects from the cost savings program was set off by start up costs related to the partnerships. And all in all, this leads to a combined ratio excluding run off gains of 84.5 which is well ahead of our expectations. The runoff result amounted to a gain of DKK24 million, which corresponds to 1.7 percentage points against a loss of 2.9 percentage points in the fourth quarter last year. On this, we have seen positive results from especially accident and motor insurance. The combined ratio, including runoff gains, amounted to 82.8. And now please turn to Slide eight. Both from Asia and weather related claims, we have seen a very favorable development in the fourth quarter. In total, these claims amounted to only million in the quarter against SEK109 million in the fourth quarter last year. Compared to previous quarters, this is a relatively low level and we would expect a return to a more normalized level going forward. And then on Slide nine, the overall improvement in combined ratio filters down on both the private and commercial segments. For the private segment, the claims ratio was down 4.8 percentage points in the quarter against fourth quarter last year. In most of the quarter, we have seen restrictions and social distancing having a direct impact on general activity and the number of accidents. And similar to especially Q2, this can be seen in the numbers. Run off gains amounted to 5.8%, which is satisfactory and the expense ratio ticked up as we start allocating costs to fund the start up of the new partnerships. Please turn to slide 10. For the commercial customers, the combined ratios improved to 89.7%, I. Significantly lower than the fourth quarter last year. The key driver here was a reduction of 8.8 percentage points in the claims ratio driven by lower weather related and major claims, but also claims on consents and real estate. Also here, the latter effects are partly due to the situation about COVID-nineteen. The expense ratio amounted to a satisfactory level of 14.7%. Now please turn to the Life business on Slide 12. Pretax profit for the 2020 amounted to million, which led to a full year result of CHF112 million against million last year. The result reflects a continued satisfactory development in the expense and risk result which amounted to CHF11 million as well as an improved interest result of CHF12 million against CHF7 million in the fourth quarter last year. The technical result then amounted to CHF21 million. The return on the policyholder's investment assets was 2.6% in quarter and full year returns totaled 5.8%. The bonus rate is at 15.2%, which, in the current economic environment is still seen at a satisfactory level. And then on Slide 13. Premiums totaled million in the quarter and is up by SEK222 million in regular premiums and SEK174 million in single premiums. The development in the last quarter of the year relative to fourth quarter last year was slightly down and for the full year growth was 2%, being below our medium term target but partly explainable by the suspicious situation around COVID-nineteen and to some extent also by customers having a preference for market return products. In 2021, we have announced a customer rate of 3% for new customers. And regardless of any regulatory changes imposed by the FSA, we will have a setup that also in the future will cater for customers that prefer our value proposition. And then please turn to Slide 15 for the outlook for 2021. We guide for a full year pretax result in the range of CHF600 million to CHF650 million, which is the sum of an expected pretax profit in Non Life of CHF575 million and pension of CHF100 million. This year nothing for the bank and net accrued cost of 50,000,000. Our guidance is based on the fact that a number of positive factors which we saw in the 2020 numbers will not repeat themselves in 2021. First and foremost, the diabetic product to reflect from COVID-nineteen on claims frequency is expected to be lower. We believe that we will have tailwinds in the first quarter, but after that we think and we also hope that things will be normalized. Secondly, for both major claims and weather related claims, we budget for something close to normal. And thirdly, we anticipate only a modest investment result. Further, as you know, after the sale of the bank, we had a pool of costs that used to be allocated to the bank and the remaining part of these will be allocated in the non life in 2021. Superbank will pay some of these in 2021 for services received and this is included in our numbers. And lastly, as usual, we never include products result in our guidance. I think there's two key numbers that you should notice in this guidance. Cost rate in non life is expected to peak up a bit this year to be between 1717.5%. But regardless of this, the combined ratio is expected to be around 19%. We are comfortable about this. I see no changes in the financial targets for 2022, with cost rate around 16% and combined ratio in a normalized world with no COVID-nineteen around 2019. In total, our guidance reflects a business with all major parts moving as we would like it to. And for us, 2021 is all about execution. And with this, I conclude my presentation and hand over the word to our moderator. Thank you. Thank you. Our first question comes from the line of Astron Merck from Danske Bank. I have a couple. One relating to your nonlife guidance for 2021. So, Rasmus, just to be sure I understood it correctly. So, basically, Citibank will compensate you the full 50 to 75,000,000 for 2021. And then next year, that will be more or less neutral as well because you will be able to take out those costs, but Superburn will not compensate you. So the net net is going to be around zero this year and, I guess, around zero for 2022. Was that correctly understood? Yes, that is correct. It's almost neutral this year. And of we have an effort to do it throughout this year in order to have a zero effect next year. All right. And then just to clarify on the COVID-nineteen effects. If I understand you correct, you have included some estimated tailwind for q one and then headwinds from q two to q four. So just you could add some numbers to that. What is the sort of the the tailwind you expect to get in q one? And what is the full year effect that you expect for 2021? Yes. I would say the numbers we have seen in Q4, the 45,000,000 is more or less what we have included in Q1 for 2021. And then I would say after that is normalized, Neither head will or tailwind. Okay. So you expect the same tailwinds in '20 in q two to q four as you as the the tailwinds you had in in in 2020, basically? No. No. No. No. No. We do not expect any COVID nineteen effects in in q two, q three, and q four. It's normalized level without corona. Okay. So in your guidance, if I take your no. It's just to give you You have a 45,000,000 in q one, and then, basically, I guess, q two, q three, q four will have a headwind versus 2020 where you have the the the tailwinds. So net net, I guess, in your guidance, you have a net headwind for 2021. Is that correct? Yeah. Yeah. You're right about that. Okay. Okay. Thanks. Okay. Alright. That was that was my first question. Then then basing on the cost ratio, so so you're saying that the cost ratio should come down to 16% from the seventeen, seventeen and a half, but then you still say that 90 is sort of the combined ratio level going forward. So so does that mean you you you don't expect you basically expect that the cost benefits to in the next couple of years, you will you will lose that in competition on on the claims side? I would say no. What what we discussed here is is is is twenty twenty two. And here we say that it it's it's rather ambitious that we move from 70 to 70 and a half to 16. It will take an effort, of course, but but we think we can we can get there. And then we still have to see how how everything will develop throughout '21 with corona and all that, but we still guide for 90 as the combined ratio. Yes. Okay. But I guess lower cost, mean, there's no reason why you wouldn't I mean, why your claims ratio should be impacted in an upwards trend from from your lower cost? No. You're right about that, but there's also an element of competition here that we will have to take into account. Sure. Okay. On these new partnerships, what is the combined ratio on your new clients versus your current clients? Is there a big difference there? No. Would say, in general, we provide the same products as we have on the shelves today with the same combined ratio. There's nothing different. Of course, there's a start up cost for the two strategic partnerships. But if you exclude that, then it's pretty much the same business as we have today. Okay. Fair enough. And then on life, if I look at your growth this year, of course, there's good reasons why it wasn't as good as it could have been. But then you also mentioned the base rate adjustments from the FSA, the whole low rate environment that we're in, and I guess the fact that Unit Linked is going to be more and more through Citibank. So was just wondering what should we really expect? Are you still so positive on the top line for the next couple of years? Or should we maybe moderate our expectations a bit here? And is life really a part of the long term Aon brand setup? That was a lot of questions, Cesky. No. Are life is still a part of our business for sure. It's very profitable, and it's good business. And and for many of our customers, especially the the smaller corporates, they really like this value proposition we have. So that is for sure we'll continue with that. And as you see, we for some years, we have said that we aim for 7% as top line growth for 2022, and that has been a little bit too positive. We have known that for a period. So now we change it to three to 4% in twenty twenty one and four percent to five percent '22. And I think we really think that we should be able to achieve that going forward. Looking further than '22, I cannot really say anything about now. All right. Fair enough. Then a final question from my side on your dividend and capital. First, on the dividends, have you been in dialogue with the FSA about the SEK four and SEK three? And if you have, what has sort of been their arguments and how they look at that? And then secondly, on the solvency, you mentioned the plus 300% solvency here in Q4. I guess it doesn't say that much given your setup and your own capital targets or at least your former capital targets. So I just wondering, since you have sort of officially at least abandoned those financial targets, should we look more at the solvency ratio going forward, or should we look more at the old capital targets that you had or the way that you looked at capital back then? Or how should we really look at the 300% solvency? Yes. I can comment on that. First, to take the first question about our dividends, We have we have issued this about giving 3 and 4 crowns for '19 and '20. And I think it's very much in line with what we have communicated and promised before. We have this issue about giving at least 70% of our profit after tax. So so I think I think our shareholders, they should know what to expect. We have not been in any contact with with FSA. We did not even do that in after our announcement in January. And I think we are very well in well inside the proposition that we should do this carefully and we should be very well capitalized afterwards. And I think your second question is actually that we are very well capitalized. So we see no reason for having this discussion with the FSA. Then we come to the next question that maybe are we not only well, but also more capitalized. We have we have our own capital capital targets, And and and the dividends we provide today, it's simply meeting these targets and nothing more. So so having this 313% as a solvency rate is, of course, high. We know that, but it is within our targets, and and that's that's how it is. We know it's it's conservative. It's been that for for years. And not knowing what will happen out in in society, we keep that at least for the moment being. Yeah. I mean, I I fully agree that you're very well capitalized. I think there's a lot of financial companies that are very well capitalized but still having to hold back a bit on on the dividends. But my my my question on that was more that if a little bit at least what the FSA has said, and I'm I'm aware that you're not a a bank. Right? But but at least they have said that that the payout should be below the normal range. And I guess yours would be 70 to a 100%. So so paying out a 100 is not really doing what the FSA is is saying. So I was just wondering whether you would be afraid of basically crossing the line here or or whether you're super confident that they would not have any issues at all. I don't know what they're thinking. So, of course, I cannot be super confident. But I think we if if you take Introsyn, I think we we we pay out a 100%. And and looking into our capital situation also compared to others, I think we are very well capitalized. Also meeting all the all type kinds of hard risk scenarios. So so I would be be surprised if we receive any comments on the FSA. Alright. Thanks a lot. That was all from my side. Thanks. Thank you, Esther. And the next question comes from the line of Hirsch Grondahl from SEB. I think there might be one or two questions left from my side. First of all, the risk allowance in Life 2021, any changes to where it was in '20? No. It has no changes, bro. Why not? You knew that question would come as an extra. But we we have looked at at yeah. We think this is the right level for us to be still be competitive. I know we will we are not seeing that many competitors having the same product. I suggest you would reply to that. But but we think this is the right level for us to, yeah, to compete. And then you can say we have actually increased it both in '19 20 a bit, but I think we should be also a little bit concerned about the customers. What about the cost for managing your assets now? I assume it's moved to a third party after you did it in house beforehand. Is that cheaper or more expensive? For for nonlife insurance, it's slightly cheaper. So so we save some money, including our investment results for nonlife by this new contract that we have made in terms of asset management. About the Life? Yeah. For Life, it's to the benefit of the customers. And even though you don't think you can justify taking out a higher management fee? Up at the moment. Up at the moment? Okay. Let's see what happens. My second and final and final question is on the the extra the cost over one that they will be booked in P and C but will be paid by Sudbank. Is this a one off payment Sudbank is doing only for 2021? And what are they paying for? Or why shouldn't they continue to make that payment also 2022, 2023? Yeah. I can take a look. It's good you're asking this question. We have we have our own cost after selling the bank of between 50 and and 75,000,000 Danish, And those we have in our books. But then we have services through Subbank. You know, we have to make sure systems are running and and stuff like that throughout until time of conversion, is due in September. So there, have made a contract with SUBAR that we'll do business on their behalf. And these two amounts more or less add up in 2021. And then, of course, when we reach September, they will not have to pay anything more, maybe a little bit for rent here and there where they use our premises. But moving into 2022, I would not guess there will be any big arrangement which should start paying for our services. And hopefully, we will be able to take down this 50,000,000 to €75,000,000 the last part of the big cost from the banking activities. So there should basically be a net positive impact on this in the first half, and then that's leveling out towards the or that will then turn into a net negative towards the end of the year. Is that fair to say? Yes. Because the payment for Citibank will only be threefour of the year, and then but our cost will be predominantly yes, so that will be a slight positive impact in the first half and then a slight negative in the second half, but it's minor. Yes. That's the timing. Was what I have said on my side. Thank you. Thank you, Peter. And we have one more question from the line of Martin Klagespeert from Carnegie. Please go ahead. Thank you. A couple of questions from my side. The first one on premium growth. You say above 3% premium growth this year. I guess the number should have been 4%. What is making you confident in maintaining the May 2022 target given that you are already behind the curve? That was a very direct question. No. We are very we are quite confident in the 3%. Of course, we we need to be a little bit aware of what is happening with the COVID nineteen. That is, of course, an impact that that that can cater for for a lower amount. But for the moment being, we we have a very, very good start with the super. Lots of customers coming in from that point of view with a quick start, much quicker than we anticipated actually in our budget. And then and then, of course, on the flip side is is the corona situation in in current corona situation. So so we need to struggle, I think, to reach the three percent this year, but I'm still confident that we will do it. And then you ask for the 5%, and I have really big expectations for also Sultan, but especially also for for the similar group coming in. And then, of course, we we we should be able to to do even better in our core business throughout throughout '20, so that will have a '21, that will have an impact in 2022. As you all know, we are working towards core business and improving all our core activities. From these improvements, I also expect things on the top line. Okay. But but so if if we look at at the numbers that your peers have provided, it doesn't really seem like their premium growth is is so affected by by corona. And now you guys have addressed the situation, I guess, for well over three quarters now. Why do you think in particular that that you are so affected on your premium growth development from this COVID nineteen situation? And what are you doing different from from peers, basically? I don't know if we are so affected. We we aim for three, and we ended up at two. So so it's not a a disaster or anything, but but it's a it is a fact that the the way we are doing business with the with the with the salespeople driving out to customers is maybe a little bit different from what the others are doing. Maybe you can even say more old fashioned, but still it's the best source of say we have at the moment. So so there are things to to look into, which is maybe not totally comparable to others. Okay. Very clear. If we move on to to runoff gains, two question on that. Q four q four in your commercial lines, you booked runoff losses for three q fours in a row. Any particular reason? Yeah. It's due to workers' comp. Okay. Sales So that's the main reason for that. Just to say, it it is it is a thing that's a a bit variable. I would say some quarters is is a little bit up, and some, it's a little bit down. But what we intend to show here is is the, you can say, the reality and not just keeping it flat. Okay. Okay. And then and then going forward, I mean, now you don't guide for for run off games. But if you were in my chair, what number should we pencil in? I will look very much into the 20 number. Okay. Alright. Very clear. And then then maybe on before we leave before we leave the nonlife, then maybe back to to Esperan's question. Given that you deliver 90 combined ratio this year, you also expect to deliver 90 combined ratio next year, but expense ratio is set to be one to 1.5 percentage point lower. I mean, doesn't it seem I mean, you guys are not in a normalized world, you're not gonna give up 100 to a 150 basis points in competition on your on your on your claims side. Could you maybe put a bit more color on that? Yeah. But but as we also said, this year, it's gonna be positive affected by COVID nineteen of around one percentage point, but the same level as in q four, so forty five, fifty million. So so and that's not gonna have at least that's not our expectation for '22. So that's the main part of of your calculation there. Then there's normalized interest rate level as well. Yeah. Just maybe that's a one percent point. Yeah. And you guys don't factor in any improvements in underlying combined ratio? But Well well well, of course, we aim for that, and that's why we also said that our 2022 targets are below 90, and that's not the case. So so so let me Okay. Further than Alright. Then then then final question on also back to to solvency ratio three seventeen after the the deduction of your total DPS of 15 as far as I understand it. I mean, clearly, that's that's to the to the very high side. But sort of going forward, what solvency ratio would be your targeted solvency ratio? Are we looking at two twenty five? Or would say it will be an outcome of what we pay out in in the in dividend. And that for the moment being, our dividend policy is 70% of the annual profit after tax. So so I do not expect any major changes right now. We we have to see what is happening throughout the 2021, and then we can discuss it in the end of year. Okay. But, I mean, I I guess this is I guess this is the sort of the lowest that you're gonna be in in 2021. And from here on, you could probably gonna build on excess excess capital from here on, and your solvency ratio will increase. But when we think about excess capital, I mean, there must be sort of you must have a targeted or management floor that we should should look after. I'm interested in that part. But but but where we are at the moment is very, very close to our management floor, and that is because we are providing for these two hundred years accidents both in the nonlife and in life. And as we have this very, you can say, very stressed scenario, then it takes off catch. So so that is that is why we are at the where we are. So so in order to get lower, it would need to decrease the two hundred years scenario. And and and this has been the case for many years in in in brand, and this is what the the board at the moment wish. And then we will, of course, take up this discussion, but I also think that we need to remember that things can change out there. We we are an insurance company, and we need to be sure that we can also cater for tomorrow. But but but that being said, then we know we are concerned. And as there are no further questions, I'll hand it back to the speakers for closing remarks. Thank you, and thank you, Martin, and thank you for all the good questions. Thank you for listening in, and I hope you have a good day. Bye.