Earnings Call: Q1 2021

May 6, 2021

Welcome to the Almgren Interim Report First Quarter of 2021. For the first part of this call, all participants will be in listen only mode And afterwards, there'll be a question and answer session. Today, I'm pleased to present Rasmus Leiner Nielsen. Speaker, please begin. Good morning, and thank you for taking the time to join us on this call on the Ambranch results for the Q1 of 2021. I'm here with Our CFO, Andreas and Head of IR, Michael. Let me begin by stating that I'm satisfied with the result We have announced today both in terms of the earnings that we have made and the progress that we have achieved in the 1st 3 months of the year Related to further improving the core of our business and building a company fit for the future. Please turn to Slide 2. As you well know, following the structural changes that we made to our business last year, our focus this year is to make the core of our business more efficient, I. E. Streamlining the operational processes and to meet more customers. However, COVID-nineteen still influenced our business. We knew this when we announced our full results back in February, so no surprise here. The partial lockdown of society and the general lower level of activity have provided both tailwind and headwind to our business. Claims has been lower on several key insurance products, Which has benefited our technical result. The flip side on the coin has been that we have not been able to meet as many customers as we would have liked to, which has temporarily reduced the premiums growth. Aside from this, we have achieved a positive result from our investment portfolio as Financial Markets has continued to perform well. Also, we have invested a huge amount of time and resources in building and implementing the digital solutions And internal processes to cater for the partnerships with both Sufang and Volkswagen Center of Finance, Denmark. We are making the progress that we have planned for and are reaching the milestones that we have defined in our rollout plans. Both partnerships are now live, And we expect them to contribute meaningful to our overall premium growth, both this year and the years to come. For the next quarters, 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 I identify what we can do better on claims handling, procurement and customer servicing. All of this will lead to Albrand delivering on the financial targets in 2022 as communicated to the stock market back in early 2020. Please turn to Slide 3. The group made a pretax profit of DKK137 1,000,000 In the Q1 of the year against €41,000,000 in the Q1 of 2020. The underlying numbers are pretty much in line with our internal forecasts And including herein our cost and investments in our partnerships to get them up and running. These costs are under control, they develop in line with our expectations, and they are, of course, somewhat front end loaded, and all the benefits will follow in the quarters to come. Further, again, this quarter, the result includes a positive earnings impact from the COVID-nineteen, in line with our expectations. But looking into Q2 and beyond, we foresee that we are now getting back to a more normalized activity level with only marginal effects from the COVID-nineteen On the claims experience level, cold weather in the Q1 of the year has kept weather related claims at a very low level. But contrary to this, we have seen a quarter with a high frequency of major claims, and the combined effect of these two claims experiences I speak somewhat to the high side. Run offs has been close to 0. I will get back to that later. And investments result Has been good and thus very different from what we saw a year ago. All in all, I think this has been a quarter where we have demonstrated That we are advancing steadily on all the factors that we can influence. And then there are a few factors that structure it regardless of what we do. This is the nature of an insurance company. We have paid out dividend for both the financial year 2020 2019 this year. Some of these amounts to SEK 7 per share, which come on top of the extraordinary dividend payment of SEK 8 per share back in January following the divestment of our bank. Following this, our sales and CV ratio remains high and is currently at 3 60% in the group. And finally, after the positive development in Q1, we feel comfortable in increasing the full year guidance, Which we increased with EUR 50,000,000. I will get back to that on the end of my presentation. Now please turn to Slide 5. The non DAC business made a pretax profit of 100 and €38,000,000 in the Q1 of the year, which comprises a satisfactory technical result of €109,000,000 And a positive investment result of €29,000,000 The technical result benefited from a good development in underlying business As well as a favorable development in weather related claims, also with the COVID-nineteen pandemic And the subsequent lower activity in general had a direct cost to the impact on earnings of an estimated €30,000,000 just like we expected. However, on the negative side, we had a somewhat higher than expected frequency of major claims, and this happens from time to time. And the runoff result was close to 0 as true claims related to workers' compensations wiped away an otherwise positive result. The positive observation, of course, being that run offs are generally defined and the negative impact can be isolated to a special and rare situation. This case, the 2 claims are workers' compensation with a total cost in excess of CHF 20,000,000 Our investment strategy is a long term strategy with respect to overall portfolio exposure. And consequently, we have profited from the continued positive development on the financial markets. Please turn to Slide 6. Premium income grew by 0.5% in the quarter, I. E, less than we have seen in the previous quarters, But only a bit lower than our budget for Q1, as expected COVID-nineteen reduced our ability to reach out to customers, Which affected the development in premium inflow. This has not only been the situation in Q1, but also back in Q4 2020, Which has had a spillover effect on the realized numbers in the Q1 of 2021. Further soft sales of new cars and generally fierce Competition in the motor insurance space has also affected growth. Especially when we look at the numbers for private customers, The development has been subdued, and this is, of course, something that caused by action. But now we are looking into a reopening of the society And return to more meetings with our customers. On top of this, our partnerships with both ZULPA and Volkswagen Semmel Group are up and running. And I'm confident that this coupled with various price initiatives will get us back on budget. And just to be clear about this, Our main focus is to make sure that we grow in a profitable way. So there will be some of the fierce price competition in the market that we will be back away from. The claims ratio, excluding run up gains, was 74.3% against 74.7% in the Q1 of Last year, including in this is one off positive effect from fewer claims in the quarters due to the COVID-nineteen situation And a positive effect from fewer weather related claims but on the other hand, a negative effect from higher costs stemming from major claims. The expense rate was 17.8%. These effects from the cost savings program Continue to materialize but are set off by startup costs related to the partnerships. And all in all, this leads to a combined ratio, excluding run off gains, of $92,200,000 compared to $92,300,000 in the Q1 last year. Livana's results amounted to a gain of $2,000,000 Which corresponds to 0.1 percentage points against a gain of 1.9 percentage points in the Q1 of last year. As mentioned, We had 2 cases on workers' compensation that were somewhat higher compared to what we normally see, each of them being above €10,000,000 range. Aside from those, the runoff result was pretty much in line with what we would expect. The combined ratio, including runoff gains, amounted to 92.1. And now please turn to Slide 8. For the weather related claims, we have seen a very favorable development in the Q1. Despite cold weather and some snow, these claims amounted only to SEK 7,000,000 against SEK 54,000,000 in the Q1 of last year. The major claims, however, more than doubled to €170,000,000 against €51,000,000 in the last year's quarter. Adding these two together, total claims amounted to 124 against a more moderate level of 105 in Q1 of last year. And now please turn to Slide 9. For the private segment, the claims ratio was down 1.9 percentage points in the first quarter against Q1 last year. In the quarter, we have seen restrictions and social distancing having a direct impact on general activity And the number of accidents. And like especially in Q2 and Q4 last year, this can be seen in the numbers. Run off gains amounted to a decent 0.8 percent but modest compared to the previous year. And lastly, the expense ratio ticked up But lower than expected as cost in Q1 includes funding the start up of the new partnerships. Please turn to Slide 10. For the commercial customers, the combined ratio increased to 97.6%, I. E. Significantly higher than in the Q1 of 2020. The key driver here was a sharp increase in the major claims, which tripled to 14.4 percentage points. However, this was partly offset by a lower level of weather related claims. Through 2020, we have reviewed our portfolio of corporate customers And have found that some are paying too low a premium relative to the expected risk profile. Consequently, throughout 2021, We will adjust the price of several of these policies. And on a separate note, we now see an increasing cost inflation In relation to insurance claims as prices for both works and building materials are going up. The expense ratio amounted to a satisfactory 16.2 percent, this is in line with our expectations. And now please turn to the Life business on Slide 12. Pre tax profit for the Q1 of 2021 amounted to $21,000,000 against $32,000,000 in the Q1 of last year. The technical result amounted to €27,000,000 and reflects a continued satisfactory expense and risk result, which amounted to €12,000,000 On the negative side, the investment result came in at a loss of €6,000,000 as interest rates on our bond portfolio increased. The bonus rate increased by 180 basis points to 17% as higher interest rate had a positive effect on the life insurance provisions That exceeded the losses on the investment portfolio for the policyholders. Please turn to Slide 13. Premiums totaled €426,000,000 in the quarter and were made up by €246,000,000 in regular premiums and €180,000,000 In single premiums, the development was flat for the quarter relative to the Q1 of last year, well below our medium term target, but partly explainable by the special situation around COVID-nineteen. All this is in line with our expectations, And we forecast growth to pick up nicely in the quarters to come. For 2021, we have announced a customer rate of 3% for new customers. The FSA has announced a regulatory change to the minimum technical rate of interest rate to minus 0.5% with effect from July 1, 2021, and we will have a setup in place so that we also, in the future, can cater for customers They prefer our value proposition. And then, Ken, please turn to Slide 15 for the outlook for 2021. Based on the development that we have had in the Q1, that is a very few weather related claims as well as the positive investment return, We increased our full year guidance by €50,000,000 This means that we now guide for a full year pretax result in the range of €650,000,000 to €700,000,000 which is the sum of an expected pretax profit in non IFRS 625,000,000 A pension of €100,000,000 and net accrued cost of €50,000,000 As I also stated back in February, Our guidance assumes that the direct positive effects from COVID-nineteen on claims frequency is expected to be lower. We have had tailwind in the Q1, but looking into the rest of the year, we believe things will normalize. Secondly, for both major claims and weather related claims, We budget for something close to normal in the rest of the year, I. E. Around 3% for weather related and 7% for major claims. And thirdly, we expect only a modest investment result in the remainder of the year. Lastly, as usual, we do not include Brundage results in our guidance. Just to be clear, we still guide for top line growth in non life of more than 3% and the growth in vegetable premiums in life of 3% to 4%. Both will be challenging, and we will, at the same time, keep firm focus on profitability. First of the cost rate in Non Life is expected to pick up And we compared to last year to between 17% 17.5%. And regardless of this combined ratio, is now expected to be around €89,000,000 thus reflecting the increase in our earnings guidance. We are comfortable about the development I see no changes to the financial targets for 2022, with costs around 16% and combined ratio in a normalized world with no COVID-nineteen around 'nineteen. In total, our guidance reflects a business with all major parts moving as we would like them to. With this, I conclude my presentation and hand over the word to our moderator. Thank you. Thank Our first question is from Peer Gymburg of SEB. Please go ahead. Your line is open. Yes. Thank you. I will start what might be a bit nitty gritty area. The VA adjustments up 23 basis points in the quarter. You stated that the Danish mortgage points are not seeing the same spread widening. What's your investment benefit isolated from the 23 basis point? And where has the date been lost again this quarter? Hi, Pierre. This is Andreas speaking. We have In the round numbers, we have, I would say, a net positive from the Match portfolio in the level around plus CHF 15,000,000. And with the VA adjustment we've seen, that is in line with what we would expect Because we have the ambition to basically match the liabilities in a way that the amount of credit and mortgage bonds And that's compared to the underlying risk on the liabilities. And so that's very much in line with what we would have expected. You're saying that the impact of 23 basis points from the VA, if I understood you correctly, that was €15,000,000 only. Is that correct? Yes. In that ballpark, on the Met portfolio. And then we also have an unrisk Portfolio where there are it's mainly consists of short mortgage funds. And in the quarter we've seen with both a widening of spreads and an increase in interest rates, we obviously have A loss on that part of our portfolio. So you could say that those two effects would basically Match in levels and then we have a positive from the equities increase. Yes. That, of course, can be seen that you are disclosing. Let me rephrase the question again. 23 basis point increase in the discounting curve, Everything else being equal, how big would your gain be from that? Forget about the asset side, only the liability side. The liability size would be about €40,000,000 €40,000,000 only? Is that a significantly smaller amount than what you have communicated previously? No, I thought, I know that's in line what we've communicated previously. We have an interest rate risk of under liabilities in the level €2,000,000 per basis points. Okay. My second question On the growth in P and C, you had 0.4% growth in the Q1. You We still guide to more than 3% growth for the full year. This must imply that I assume Q2, you more or less know the numbers By now, as those premiums have been written and you need to earn them first, are you seeing Very quick pickup in the second quarter, does this imply that we should see second half growth approaching 5%? Hi, Pierre. Tasos here. When we guided in February, we knew The Q1 will be challenging, and it's actually also in our internal numbers. We are a bit below, as you were saying, Also a bit below our own expectations. But now with the opening and that we have our people out on the roads Discussing with customers again, we are positive towards the 3% for the full year. And also with Semler coming in now, we have Superbahn working very good. So We are still in a positive sentiment around the growth for the full year. So we should not expect Are you sure it'd be that far from the full year growth when we look at Q2? Or will you also be clearly behind in Q2 As we seem to believe that you will be after Q1. The growth will pick up in Q2, but it will not outline the expected growth On 3% that we did not have for Q1. That will cover But is it realistic that you will be Anywhere close to 3% for Q2. I mean, you will have a significant you'll be sick significantly behind going into the second half? Yes, it is realistic. That's realistic. Okay, interesting. Then maybe a bit of a nitty gritty question. If I look at the movements in the interest groups in life, can you explain what has happened? The high interest group is down quite materially. Also the half the one, the half percent interest group is quite is down quite materially This quarter, looks like you have had a quite significant downflow of high guarantee business. Yes. My immediate answer to that would be that we haven't seen a large upward. I would say It would be explained by is it the asset under management you're referring to or That's the only number you gave us. So What we need to refer to. I would say it's the interest rate increase and the adverse impact it has had on the asset side you see there. It's not it doesn't represent an outflow from the underlying customers. So the Group 3 is down from €1,900,000,000 to €1,400,000,000 That's solely driven by losses on the bond portfolio? Mainly, yes. Okay. Interesting. Thank you. Thank you. Our next question is from Espian Merck of Danske Bank. Please go ahead. Your line is open. Yes. Hi. Thanks. Thanks for taking my questions. One question relating to your guidance For the full year and the €50,000,000 upgrade, if I understood you correctly, Rasmus, you said you had €30,000,000 of COVID-nineteen Benefits which were largely as expected. But I also think you recall at the Q4 numbers, I believe you said you hadn't included COVID-nineteen in your guidance. So just a bit clarity on whether the $50,000,000 upgrade So is that impacted by the €30,000,000 of COVID-nineteen? Or is that not included in that guidance upgrade? It's not included in that Guidance I've created is primarily due to the weather related claims and the financial Okay. So when you say €30,000,000 as expected, that was not referring to the guidance, but just What you had in your internal quarter? Yes, that was included in our guidance for the full year, yes, at that time. Sorry, I missed can you rephrase the question here? I missed you. Yes, sure. The initial guidance of $575,000,000 for non life For this year, does that include $30,000,000 of COVID-nineteen benefits for Q1? Or is that something that Was not included at that time in the guidance? It was included in at that time. Okay. All right. Okay. I think you said something differently at Q4. But anyway, okay. So it was included in the $575,000,000 Got it. Is it possible, Because when I look at the 3% impact or the €30,000,000 impact, sorry, Is it possible to split that between private and corporate? Well, we could say that most of it is in private. We don't have the exact split today. Most is in part. Okay, fair enough. And then the final question from my side. A little bit back to Peer's question on the growth, which I guess needs to be quite intense in Q2 and Q3 and Q4. But you also said, Rasmus, that you would back away from areas where competition is tough, which I guess is in some of the private areas, If I understood you correctly also on the presentation. So what are the areas where you think competition is less intense and where you expect to outgrow more Then in those more competitive intense areas? Yes. I think the intense areas is definitely in the auto the insurance part, we see very high price or low price competition at the moment. Of course, we need to have profitable growth. So some of the things we will simply back off from. We have in the accident part, I think we have a possibility to increase prices. We have very good business there And it's still coming in. It's a good product we have. So there are ups and downs, And there are definitely segments to work with also in the private side. But isn't also exactly one of those areas Where you expect to grow with the new distribution agreements? Yes. The auto you're right. The auto industry is there. And with these new partnerships we have, we have good prices. But here, the price is something more than The product is something more than just the price, it's also the service. And it's combined into this ecosystem Of servicing, so I would say price is one thing, but it's maybe a second priority or even a third priority for the customers. But there are so many other benefits of having the insurance product combined with the services that Semler Group is providing. So we don't expect that to be of course, there will be some competition on that product as well. But there are many other things we can play on providing that product. And when we have these new customers into our house, We are allowed to contact them with all the other products we have. So it is really a partnership we expect a lot from. All right. Then on Life, on your growth, which of course is quite low in Q1, but you're right in the report that You expect that to pick up in Q2 with the deals that you've already made in Q1. So I mean, I was just wondering how certain are you about the growth Potential here given the guaranteed products and as you also alluded to the FSA's new guaranteed maximum guaranteed rate or whatever you Paul, in these negative rate environments, is there a risk that you might be too optimistic about the growth opportunities, maybe not for Q2 but midterm? I would say we actually had quite a good growth in Q1, but we also had that last year in Q1. So we are satisfied. We have a very good beginning, and we see the 3% in the deposit interest rate is very attractive to other customers. So funds are moving in our direction. So I expect us to be able to deliver on 3% to 4% by the end of the year, yes. All right. Thanks a lot. Thank you. Our next question is from Martin Gravenberg of Carnegie. Please go ahead. Your line is open. Thank you so much. Just coming back to where Aspen left. If I go to your Q4 transcript, I guess The COVID-nineteen effect in Q1 was not supposed to be 30,000,000. It was supposed to be somewhere around 50,000,000 So what happened to that? And what kind of COVID-nineteen effects have you included in your guidance for 3 remaining quarters. And then on your guidance, I guess if you sort of Due to other calculation, it signals that the coming 3 quarters are going to be fairly strong. But how should we Think about that and what sort of what are building blocks to reach your P and C guidance in here? I hope you arrived that the coming quarters will be very strong. No, we guided around SEK 50,000,000 in The 2019 effect for the 2021, 30 of them is due to Q1 and it's actually also what we're seeing in the figures. And 10 to 20 is in Q2. And of course, there is left to see what will happen. But at least I can say what from what we have seen In draft version for April, of course, there are some still some COVID-nineteen effects floating into the numbers. And then we hope Then the opening up of society will normalize these levels. But wasn't the 50 the 50 was only supposed to be for Q1. And then I guess there was some saying, I don't know if I talked to you or where I heard it, There was some saying around that COVID-nineteen ends at Easter, and that's why we only guide for COVID-nineteen effect in Q1 of EUR 50,000,000. I think we guided, at least I hope, it was said that it was €30,000,000 for Q1 And the rest will be for you, too. But I must say, I cannot remember how specific it was, but at least it was 5th June total for the year. Okay. Okay. All right. And then on to the remaining three quarters? Yes. We expect and we also see a more normalized level In the claims frequencies, things are starting to be more normalized. And as we saw last year, when Moving from September into October, very quickly, we'll pick up into a normalized level on claims frequency. So that I actually also expect here At the end of May moving into June when the society is reopening. So we still have I think what we have guided, the 10% to 20% will not be far from reality in Q2. And then it's difficult, of course, to say, but I will expect them to be more normalized as of the year. Okay. Okay. All right. That was all from my side. Thank you, Martin. We have another question from Perk Van Berg of SEB. Please go ahead. Yes. Just Just a follow-up. You addressed yourself inflation and construction cost. When talking to people working within the Structures sector, seems like material costs are skyrocketing, if they even are able to get materials at the moment. What have you put into your guidance regarding claims inflation in the remaining part of this year? You're right, Pierre. We are looking into, at least, the first signs of costs On claims to increase, it could be both on rates the hourly rates or it could be for building materials. But it's still I think it's too early to say what the effect will be, and we have actually not put anything into our guidance yet. But it's just to raise a flag that there are something we need to follow very closely also with what you were saying that it's difficult to get Building materials and things like that. But for the moment being, we have not put anything into our guidance. We have another question from Martin Gregors Burke of Carnegie. Please go ahead. Thank you. Just coming back, and I guess this was actually also a follow-up to Peer's question. On the deterioration that you see in your underlying combined ratio this quarter, I guess some of it can be linked to, namely, a pickup Materials, waste and place within construction, etcetera. But I guess also part of it is going to be linked To the investments that you guys make in your partnerships, is that something that we should expect that would go away from the next quarter? Or How should we sort of think about this deterioration in your underlying combined ratio? I think the cost side will normalize in Q2. We have had this small effect exactly as expected in Q1. But now we are live We are live with both Sultbank and Sempra. These start up costs will not come back in Q2. In terms of the building materials and all that, we still need to see what is happening. There can be still a pickup in Q2 and even Q3, maybe even Q4, If the whole building market in Denmark heats further up, but it is a little bit we are looking to this very carefully To see how things will affect us. But on the cost side, we are fully in control. Okay. Thank you. Thank you. There are no further questions at this time. So I'll hand back over to our speakers. Thank you very much for listening and taking your time to our results. Yes. We'll talk about we'll talk with you later. Thank you.