Welcome to the Alm. Brand Annual Report 2019. For the first part of this call, all participants will be in a listen-only mode, and afterwards there will be a question and answer session. Today, I am pleased to present Acting CEO, Rasmus Werner Nielsen. Peter, please begin.
Thank you. Good morning, and thank you for taking the time to join me on this call at the Alm. Brand full results for 2019. I'm here today with the Head of Investor Relations, Lars Holm, and Senior Investor Relations Officer, Mikael Bo Larsen. We have this morning announced our results, and I will of course guide us through these, but more importantly, we have also announced major changes to our company and our strategic agenda, which will define the roadmap for our future development. I'm very excited about this, and therefore, I will spend a fair part of this presentation giving you some insights into our new plan. First, please turn to slide two, where I will comment on the Q4 and the full year. The last quarter of the year was satisfactory with ordinary profit before tax of DKK 152 million.
The quarter was a mix of better than expected earnings in the underlying business in non-life, a loss from run-offs on target earnings from life and on target, but including some one-offs earnings in the bank, and not to forget, severance paid to our former CEO. All in all, this is a significantly better quarter versus the same period last year. As a consequence, full year ordinary pre-tax profit amounts to DKK 684 million, which is in line with our guidance of between DKK 625 million and DKK 725 million. In the three months that have passed since we announced our Q3 report and our commitment to review our strategy, we have indeed spent time and resources analyzing various options and scenarios on how to improve our earnings. We are rewriting part of our DNA, and in doing so, we present a guidance for 2020 that represents a significant improvement in like for like earnings.
In addition, we present new ambitions for 2022 that we will work towards in the coming years. Please turn to the next slide. We have today announced several initiatives that effectively address how we conduct our business within the strategic framework of our company, including all of our three business areas, non-life, life, and banking. The initiatives can be divided into four headlines as shown on this slide. First, the structure. This is about how we organize ourselves with a clear focus on how we best meet our customers. Second is the cost. What organization do we need in order to ensure that we're able to deliver top quality services to our customers?
We have profitable growth, or in other words, striking the right balance between, on the one side, growing premiums and business volume, and on the other, being disciplined on pricing and ensuring that we do not compromise earnings. Finally, ambitious target setting. We have defined clear and detailed targets to allow our investors and other stakeholders to have full insight into what kind of potential we aim for. Section one and two, the structure and the cost path we have executed on this morning, thus, most of this will have immediate effect, and I will go into details on this in a moment. Section three and four, the profitable growth and the targets are on how we develop our business in the time to come. Turning into slide four.
In order to ensure that we are best positioned to meet our customers with our offerings and value propositions within non-life, life, and banking, we change our organization. We have now established an organization that is much more oriented towards the customers. An organization that will be responsible for the total value proposition towards the segments across non-life, life and banking. We break down the traditional silo thinking that has hindered efficient execution of our strategy. Going forward, we strive for seamless cooperation between sales, advisors, pricing, and support teams, who together will deliver our services and products to the customers. At the end of the day, this is about creating a new structure that extends towards the future. We want a more agile organization, which our customers will benefit from. Reshaping our structure is key to our strategy and success. Now please turn into slide five.
Profitability in Alm. Brand is not where I want it to be. The short answer to this is to either increase income or lower cost, or a combination of both. Over the last months, we have analyzed and examined various what if scenarios, and we have reached the conclusion that we need to effectively address the cost base of the company in order to produce a meaningful improvement of our profitability. Consequently, we have today announced that we are reducing our headcount with 120 employees out of a group total of approximately 1,800. The layoffs are primarily affecting our headquarter and the bank, and the employees we have dismissed have all been informed this morning.
This is by no means very pleasant, but this is a necessary decision in order to preserve and develop the company, and a necessary decision in order to allow ourselves to take control of the future of Alm. Brand. Total one-off restructuring charges amounts to DKK 85 million. They are included in the 2019 result. On top of this, we do a DKK 30 million non-cash write-down of IT assets relating to Bankdata capital market programme, so that we can start from afresh in the new year. The annual savings on the layoffs going forward will be DKK 100 million. Please go to the next slide. With today's announcement, we increase our ambitions for Alm. Brand, as I truly believe we can do better than achieved in the past. Alm.
Brand is able to offer full scale financial services across all financial needs, something none of our competitors can do to the same extent as we can. We know our customers value this, which is highlighted by the fact that more than half of the bank's almost 4,000 new customers in 2019 came from the non-life insurance business. With the new organization, we expect to accelerate even further going forward, thus making us able to grow top line in each of our business areas. At the same time, we continue to invest in digital solutions that will make our customers' daily life easier. However, we want to stress today that we will never let growth jeopardize profitability. Profitability will be number one in how we prioritize, and hence, if we're not able to get the income we expect, we will adjust our costs accordingly.
Now please turn to slide seven. Everything I've told you so far, of course, needs to lead to something tangible. One of the cornerstones in what we are doing to successfully reach our ambitions and to unlock the full potential of our strategy, is to make sure everybody knows exactly what to do and how to best add value for the customers and our company. All this transforms into specific targets for each of our business units. I will walk you through those at the end of my presentation. On this slide, I will only highlight that an important part of this transformation is to replace some of the earnings that we have had in the past with an income stream that continues, that recurs, and thus represents a better quality of earnings.
It is of course, especially the reversals of write-downs in banking and the run-offs gains in non-life that we forecast will be at a lower level. With a lower cost base and adding less volatile income sources, we will push total earnings in the right direction. Now I will turn to the numbers that we have made in 2019. Please turn to slide eight. group profit before tax amounted to DKK 684 million in 2019, excluding one-off charges of DKK 150 million. If we take a glance at the ordinary profit in non-life, life, and banking only, this is split as shown in the upper pie chart, with banking accounting for 9%. A similar breakdown of the restructuring charges reversals reveals that banking accounts for 30% of this.
I fully acknowledge that this can be viewed in various ways, but we do believe that we have struck a fair and meaningful balance between the various cost components that we address. Overall, development in 2019 was satisfactory relative to the guidance we have provided throughout the year. Growth has been moderate, perhaps a little soft compared to our expectations, and low interest rates have provided some headwind. Regardless of this, we are seeing healthy underlying business performance with combined ratio excluding run-off gains of 90.8%, marginally lower than our expectations of 91%-92%. Return on equity is close to 15% before tax, which is decent, but again, this is expected to improve as we progress on our initiatives. Now please turn to slide 10. The non-life business made a pre-tax profit of DKK 607 million in the full year of 2019.
This is in line with our expectation, but it also reflects that the run-offs results, although positive, is shrinking compared to previous years and thus in line with our previous communication. The technical result amounted to DKK 570 million and several factors influenced this. First and foremost, our underlying performance improved. Major claims and weather-related claims was both on the low side following a year with favorable weather that although being very rainy, did not include any severe storms. Investment income improved. After the losses we had in late 2018 on the back of the setback in share prices, the market has rebounded in 2019, which has produced a net profit of DKK 37 million. This includes a negative DKK 25 million adjustment in the VA interest rate in the beginning of 2019. I have mentioned the interest rates before, and now I do it again.
The low level have a direct impact on the technical provision for claims. We estimate a total negative impact on the combined ratio of approximately 1.4% for the full year. Lastly, our cost ratio on both private and customers is up a little as we continue to invest in digital solution. Please go to next slide. The underlying combined ratio was stable at 82.6%. Included in this is the headwind from the lower discount rate. The underlying claims ratio has been stable throughout the year with a marginal increase in Q4, for the full year at par with last year. The combined ratio including runoff gains at 1.4%, amounted to 90.8%. As mentioned before, a positive development in the underlying business. In Q4 we had a quarter with negative runoffs results. This is new.
We have seen a change in how the labor market insurance have ruled in a number of cases, which has led to somewhat higher compensation compared to what we have previously forecasted. We monitor the situation closely and will change the premium prices if necessary. All in all, we have had both positive and negative deviations from what we would expect from a normal year. In total, we believe the non-life business had a satisfactory year. Please turn to slide 12. Just an additional comment on major and weather related claims. Both are below the normal range. As mentioned in the Q3 call, we experienced some heavy rain and cloudburst in August and September, and this time I will add that the rest of the year has been rainy but with no serious storms.
Seen from an insurance company, actually a couple of decent months and apart from comparisons being extremely low in Q4 2018, nothing really to comment about. Likewise for the major claims with numbers reflecting an average year a little to the positive side. Please turn to the next slide. We are now on slide 13. The headline is growth in premiums. Premium income grew by 1.7% and as such in line with what we witnessed for the first nine months of the year. Our premium income portfolio is split between private and commercial customers almost 50/50, and for especially the private customers we obtained premium income increases short of our expectations, partly explained by a very competitive environment. The numbers are just short of 1% premium income growth for the private segment and 2.6% for the commercial customers.
The latter have improved following targeted adjustment to a specific part of the portfolio where claims has been high compared to premiums. Not forgetting negative discount rates have had an effect, although little, on growth in premiums. On both private and corporate customers, we are working on having only one set of policies per product and at the same time letting the price reflect the risk. Now please turn to next slide, the private customers. The combined ratio for the private customers was a satisfactory 87.2%, which reflects both a stable claims ratio development and a flat cost development. Included in the number is a favorable development in both weather related and major claims, which in total had a cost of DKK 100 million as in 2018. All in all, weather related and major claims affected combined ratio with only 3.7%.
Runoff result was positive with DKK 91 million which corresponds to 3.4%, i.e., flat-ish compared to last year and still representing a notable contribution to overall earnings. Please turn to the commercial customers. For the commercial customers, we have combined ratio rising to 91.6%, which is caused by significant changes in runoff results. We have seen positive '18 numbers on 3.9% turning into a negative '19 number of 0.5%, i.e., a drop of more than four percentage point, which relates both to the before mentioned change in ruling at the labor market insurance and a number of cases relating to liability insurance on personal injuries. Also, I mentioned back in Q3, the claims ratio have gone up and is now at 76%. That is an increase of close to five percentage points, partly driven by increases in claim expenses on building insurance, and part of this being claims on concealed pipework.
The expense ratio is up a little to 15.6%, partly driven by investments in digital solutions. As a result of all this, the technical result dropped to DKK 224 million to compare to DKK 351 million in 2018. Surely our new organization will look into how to navigate to improve this here. I will move on with life insurance. Pre-tax profit for full year 2019 amounted to DKK 96 million, which is both satisfactory and in line with our expectations. I'm happy to notice that the business volume of this business continues to grow, and we now hold investment assets on behalf of our policyholders of more than DKK 16 billion, reflecting both inflow on new contributions and a solid investment return of 9.3% before pension return tax.
The total bonus rate has rebounded in the Q4 from 11.4- 16.1. Although lower than the 18.6 at the year start, this figure still represents a strong level which allow us to offer competitive interest rates to our customers. Please turn to next slide. The total amount of pension contribution into the Alm. Brand Group is the sum of inflow to life insurance and inflow to pension schemes within the bank. Life saw pension contribution of DKK 1.8 billion, which was made up of regular premiums of DKK 800 million and single premiums of around DKK 1 billion. Growth in the regular premiums was 4.7%. Although we are now up with 20% over a three-year period, we would still like to accelerate a little more on this. As seen in previous quarters, growth in regular premiums is driven by the corporate segment.
Single payments were down from a very high level in 2018, still at the right side of DKK 1 billion. Contributions into pension schemes within banking also added more than DKK 1 billion, reflecting a continuous strong focus on this. All in all, pension contributions into the group amounted to almost DKK 3 billion, which is very satisfying. I turn into banking. Profit before tax increased to DKK 67 million, as such, the bank produced earnings in line with our expectations of DKK 50 million-DKK 70 million. However, on this slide, we have done a breakdown of the bank's profit. Core earnings increased to DKK 84 million, driven by strong growth in trading income relating to handling customers' remortgaging activity, and a stable interest margin on bank lending.
The income side also include a significant reversal of write-downs, and although this is good news for both our customers and the bank, then this is of course not a sustainable income that we can base our bank on. Our vast deposit surplus that runs at around DKK 5.8 billion, i.e., further up compared to end of Q3, has cost us dearly. In our numbers for 2019, is an investment portfolio loss of DKK 60 million. Lastly, reported profit is affected by the depreciation of the value of customer relationships from the acquisitions of the retail banking activities from Saxo Bank. All in all, the result is made up by a number of elements that we would like not to have in our P&L statement. As mentioned in the beginning of my presentation, we are doing major changes on group level.
Also important for the bank is that we have already made significant initiatives on pricing, with introducing new account fees and charging negative interest rates on deposits above DKK 750,000 made by private customers, which will have an isolated effect of approximately DKK 40 million. In addition, cost initiatives around DKK 20 million was already in place before today's restructuring. This means that with today's announcement and the initiatives already taken during the Q4 of 2019, we have made initiatives that in total should benefit the bank's earnings by some DKK 90 million on an annual basis. Thus, to make sure you get me right, don't add DKK 90 million to the 2019 result when you forecast 2020. The DKK 75 million we had in reversal of write-downs will not come back this year, which is why we guide DKK 100 million before tax in 2020.
A tough figure, with a more reliable income and cost, including DKK 37 million in write-down on customer relationships. Please turn into the next slide, the business volume. The business volume within the bank continues to grow. The business volume has grown by DKK 1.6 billion compared to a year ago and is now at DKK 22.8 billion. The growth reflects an increase in mortgage lending in total and is a result of both new customers coming into the bank and remortgaging by existing customers, which unfortunately sometimes is combined with repayment of bank loans. Bank lending is flat at DKK 5 billion, but behind this number is a huge activity with almost one fifth of the loan portfolio being turned over during the year. Leasing is a very stable business for us.
Although we have seen a tendency that more car importers offer leasing arrangements directly to the retail customers, which is changing the dynamics in the markets. Still, we see growth in the corporate leasing market, thus allowing us to keep business volume and earnings stable. The outlook for the year 2020. Our guidance for 2020 is that we expect a consolidated ordinary pretax profit of DKK 650 million-DKK 700 million, excluding one-off results in non-life. This is equal to a like-for-like increase of the result of approximately DKK 150 million or close to 30%. As usual, we provide our guidance on each business area. For non-life, we expect pretax profit of DKK 525 million based on a combination ratio of approximately 9:1, which reflect continued improvements in underlying business and an average ratio of major and weather-related claims. For life, we expect pretax profit of DKK 100 million.
Again, a lot of transparency and predictability on this one, but also a result that reflects the very efficient way we handle our life business. For banking, we also guide a pre-tax profit of DKK 100 million after DKK 32 million of write-downs of customer relationships. This is driven by cost savings of DKK 50 million and the immediate increase in interest income and provisions of DKK 40 million. Other area, IG prem area, headquarter cost will bounce back to a little lower than the normal level to DKK 60 million, reflecting no extraordinary items expected here. Now please turn to next slide. On this slide, I will walk you through the expected earnings development from 2019- 2020. The 2019 pre-tax profit before extraordinary items added up to DKK 684 million, and subtracting DKK 85 million in restructuring charges and DKK 30 million in write-downs leave us with a reported profit of DKK 569 million before tax.
If I step back for a moment, the DKK 684 million on ordinary profits includes DKK 77 million in run-up gains and DKK 75 million in reversal of write-downs, i.e., a total of DKK 152 million. You can argue about how much of this will be recurring profit, you may look at it as a conservatory way and state that this at least represents a volatile earnings stream. If this is our assumption, our base earnings is DKK 532 million, it is this number that we want to grow from looking into this year. You might even argue that the DKK 532 million has been earned in a year with favorable weather condition and also relatively low major claims as well as some extraordinary income from remortgaging in the bank, which will leave you with a lower number on a normalized earnings in the business we used to have.
With the measures we are taking, we expect immediate effect from our restructuring of DKK 100 million, and we expect underlying business to develop, i.e., organic growth and price initiatives to be around DKK 50 million to DKK 75 million. A like-for-like comparison will increase our profit before tax with more than DKK 150 million. This is ambitious. We are confident. Now please into the last slide. As previously stated, we have announced new financial targets today. Targets that will reach into 2022. We believe the targets are ambitious and represents a significant step up in our profit. The message from the board of directors has been crystal clear since the change of management. We need to do better. The new target is a result of this request. Today's change of our organization, including restructuring charges, will pave some of the way for the targets to be achieved.
However, we are fully aware that we still have a lot of work ahead of us in order to succeed. Non-life is set to grow premiums income by 3% annually while reducing combined ratio to 90%. This involves increased approach to pricing, and we will have to choose then price and profitability is the most important. Further, we want to reduce the cost ratio to 16%, and this implies working actively with a broad range of our cost components. The life business is set to grow regular pension contribution with 7% annually, and this will involve both continuous progress on the corporate segment as well as increase in inflow for group customers. For the Bank, we know this is a big focus area for all of you. We clearly see Banking as an important part of our future offerings to the customers.
This is something that distinguish us from our competitors. However, we no longer accept this business area to yield a unsatisfactory return on the capital employed. With a target of minimum 10% before tax and depreciation of customer relations by end of 2022, we believe we have set an ambitious goal for ourselves and a proper minimum level of return for our shareholders. An important message is that if we cannot deliver on 10%, then we need to do something better. Historical, we have been a high dividend paying stock, and this will continue. We only want to set aside capital for growing the business and/or any change to our capital requirements. Rest, which will be at least 70%, will be paid to our shareholders. We believe that a simple payout ratio instead of our previous model will increase the transparency around this, which is important to us.
It will not be easy to achieve this, and it will be the ultimate test for our new organization. However, I think nothing is less than acceptable. Again, if our plan for high income comes short, then we will revisit our setup and look into our cost base. With this, I conclude my presentation and hand over the word to our moderator. Thank you.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. Please hold until we have the first question. We have a first question from Asbjørn Mørk from Danske Bank. Sir, please go ahead.
Yes. Good morning. A couple of questions from my side. First, maybe a high level question, but now you've spent a couple of months on the strategy. What have been your mandate from the beginning? Have everything been in play, or has the structure of the Alm. Brand Group sort of been fixed from the beginning, so this is what you've been working with? Could you just elaborate a bit on that? Thanks.
Yeah. Hi, Asbjørn. Yes, I can do that. The mandate was a very clear mandate from the board. That I had to revisit our plan within the current strategy. You can say within the current strategy, everything was open.
That means just hypothetically, you did not have a mandate to, for instance, sell the bank if you did not see it as a core part of the group.
We have announced this plan today. We see the bank as an important part of our future strategy also.
Okay. That's helpful. I need to go to the bank because I think that, as you also said, is going to be a focus point on questions today. First, if I look at the outlook from here, I acknowledge the DKK 40 million and the DKK 50 million you mentioned, going into 2020 as high income and lower cost. If you're going to cut quite a lot of FTEs, and if I do the backtracking, it sounds like 60% of your restructuring will be within the bank. How are you able to take out more than 70 FTEs in the bank and still grow earnings at the same time? It seems a bit ambitious to me.
Yeah. It's a good question, Asbjørn. We only cut 30% of the DKK 100 million is connected to the bank, and then we had already beforehand cut DKK 20 million in cost in the bank, it be IT and also some staff there. In total it's DKK 50 million, but it is only the DKK 30 million that are connecting what we do this morning. Then you have the DKK 40 million in income growth also. In total, this adds up to DKK 90 million.
How much has been, you can say, extraordinary income during 2019 from the remortgaging?
I think we would say DKK 10 million-DKK 20 million is what we account for. If you normalize a normal banking year, you are around DKK zero-DKK minus 10. When you add up the DKK 90, I think we get quite close to DKK 100.
If you need to deliver more than 10% pre-tax ROE analysis before intangible impairments. We need to look at this number growing to almost DKK 200 million by 2022. If this does not materialize, you said if we can't make 10%, we need to do something else. Does this mean because the 10% has been mentioned also by your predecessors a couple of times, does this means that you're not able to deliver 10%, then the bank is not necessarily part of the core setup?
We firmly believe that we can deliver the 10% with the plan we have. You are right, Asbjørn, that we still have to do something during this year and next year in order to reach the DKK 200 million. At the moment, we definitely think we can do that with the new setup we have.
Okay. The final question on the bank. We had the FSA report last week, where they basically stated that they did not find the core earnings satisfying for an ongoing business. How have your discussions been with them around the announcement that you came with today? I guess my question is, are they satisfied? Will they be satisfied with what you're doing today?
We have not discussed today's announcement with the FSA yet. I would say that the FSA visited us in August and September, and they found, you can say, almost what we knew and what you knew, Asbjørn. With this plan, we are trying to answer some of this.
Okay. If I may go to non-life then and your targets for 2022. The 3% premium growth per year going forward, do you expect that this means you will have to take market shares, or do you think this is going to be growth in line with the market?
No, we announced 3% as a bit over the, you can say, the normal increase in index. We expect to take back some market share.
How will you do that?
That is exactly why we turn our organization to focus more on the segments instead of the three old silos. We expect this new model, we will be able to meet the customer much better than we have done before, working as one unit, creating one value proposition for the customer.
It's just that to me it sounds a bit peculiar that you will take market shares and be more disciplined on pricing at the same time while you have a distribution that all things equal is less strong than your peers. Maybe that's the glass half empty look at it.
Yeah, maybe it is.
Okay, fair enough. All right. That's all from my side. Thanks a lot.
Thank you, Asbjørn.
Thank you. We have a next question from Per Grønborg from SEB. Sir, please go ahead.
Yes, hello. Still a couple of questions from my side. First of all, back to the DKK 100 million in cost program, DKK 30 million is coming from the bank. You are talking about reducing the cost ratio in P&C by 1.4%. I guess that's the remaining DKK 70 million that is coming from that side. Is that correct?
No, there's also some in the life and some on group level as well.
Okay. Can you split up where the DKK 100 million is coming from?
Yeah, I would say the 60% is non-life, and then you have 30% in bank, and the rest is between life and other.
When you are taking down your cost level, excluding claims handling cost in the P&C company, still you expect to sell more than you have been doing up until now. You addressed that also on Asbjørn's question. It looks like you are taking down your sales force, both in banking, both in P&C. You believe that by unifying, they will unified be able to sell significantly more despite that they are significantly fewer people.
It's a good question. We are actually taking off people in the back-office functions primarily. We are merging back-office functions within the three old silos, and in doing so, we are able to take out some costs.
Okay.
It's not the customer, you can say, employees we're taking off.
Okay. On the cost of DKK 100 million, I assume, are you or will you be out announcing a major layoff this week?
No, we have done it this morning. This morning we have taken out-
You did it this morning, okay. You're saying DKK 100 million, that's the effect you'll get already in 2020?
Yes.
I will assume that the first is that at least one month they will still be on the payroll until they go into the restructuring part.
We will have a full year effect in 2020 of DKK 100 million.
There will be an additional smaller effect next year, I guess.
Yes.
Okay. Perfect. That one we have done. On the FSA report, you say that this was more or less as expected. I'm sorry, I read it quite differently. I read the FSA addressing massive slacks in the admin routines in the bank, basically in all areas. I could imagine fixing this must be pretty costly, getting these resources in. They basically said that you were way behind on AML, that you were having significant problems in your credit management, et cetera.
I think I answered the question before was on the income and bottom line in the bank, and that we fully knew. The other four issues more around our procedures, especially in credit, we have discussed a lot. There are some major issues and some a little bit minor issues, but all in all, it will be handled within the line organization we have today. It's not about hiring a lot of people fixing this. It's not at all about that, but it's about getting things fixed and cleaned up within the organization we have. It is not good enough. That is how it is.
Okay, that's pretty obvious that it wasn't good enough. It just looked like this was something. You are basically believing that even with the cut down you're doing in back office, you will be able to handle the issues brought up by the FSA?
Yes.
I assume you have known the key conclusions for some months before the rest of us got to know what was in the conclusions.
You're right about that.
Yeah. One final issue, comment. You're talking about 7% growth in life. It's probably not that important to the big picture, but this is growth within the with profit product. Isn't that a quite ambitious target to set in a market where people clearly are moving to the market-based unit, link-based products, which in your case is on the balance sheet of the bank and not on the balance sheet of the life company?
You have a good point there, Per. We are of course looking into this. At the moment, we made 8.8% in growth in 2018 and almost 5% in 2019. We expect that we with some hard work can do that. Of course, how the interest rate changes, we do not know at the moment, and that will most likely have an effect on this.
Yes, of course. That was the final one for me. Thank you.
Thank you.
Thank you. We have another question from Asbjørn Mørk from Deutsche Bank. Sir, please go ahead.
It's just a follow-up question from me on the runoffs in Q4 non-life, so the negative or the runoff losses. You mentioned the labor market insurance. I just wanted your thoughts on whether you see this as a one-off or whether you think there is a risk that you might be under-provisioned here, and that we should see a risk here going forward? Then if I may add on top of that question, what kind of runoff level do you expect in 2022?
Good question, Asbjørn. What we have seen is lately, and for some time, that this labor market, that the government are asking for some higher percentages when they come with their conclusions on the single person. I don't think it's a one-off we are looking into, but we don't know yet. We will have to discuss that within the insurance community how to work on this going forward. We need to have a look at this during the next quarters to see the development.
Maybe, this is Lars to Asbjørn, maybe I could add. We don't expect negative runoff from this going in 2020, but it's going to most definitely have a negative impact on our combined ratio, but that's included in our guidance.
Okay. If we look at 2022, does this mean we should expect 2% runoff rather than 3.5%, or how would you look at that?
You should definitely think about 2% instead of three and a half.
Okay. Thank you.
Maybe between one and two, actually. As we have said for some quarters now, unfortunately.
All right. Thanks a lot.
Thank you. We have another question from Per Grønborg from SEB. Sir, please go ahead.
Yes, it's Per again. I just forgot one thing. The improvement in the bank, DKK 40 million, can you split out how much are you actually getting from negative rates on retail deposits?
Yeah. I would say the negative rates are around 10.
Okay.
We're putting some, yeah, that is around 10.
The DKK 30 million in fee hikes.
Yeah.
That will take you closing the gap up to peers, or it seems like pretty much in the light of the quite modest size of your bank.
Yeah. Maybe I'll also add, Per, we are also raising some lending rates on some clients, and actually that's in our impression is actually making us on par with peers.
Okay.
On the fee side.
Okay. It's also other prices, it's not only fees.
Yeah.
Okay. It sounds much more reasonable. Thank you.
Bye.
Thank you. We have no more question for the moment.