Good morning, everybody. My name is Gianandrea Roberti. I'm Head of Investor Relations at Tryg. We published our full year results earlier on this morning, and I have here with me Morten Hübbe, our Group CEO, Barbara Plucnar Jensen , our Group CFO, and Johan Kirstein Brammer, our Group CCO. With these words, over to you, Morten.
Thank you, Gian, and good morning to all of you. We start on slide three with the financial highlights for the quarter and with a strong set of numbers for Q4. We report a Q4 technical result of DKK 1,689 million, which is an increase of 105% versus the reported Q4 of 2021, and an increase of 22% versus the pro forma figures. We also report an underlying claims ratio improvement of 80 basis points, clearly driven by the profitability initiatives of corporate and commercial. A combined ratio of 82.1% for Q4, which is, I believe, very strong for what is traditionally a weaker winter quarter. Investment of DKK 317 million for the quarter.
Clearly Q4 positively impacted by equity markets moving up after a difficult year, also for Q4, falling rates helping the fixed income returns. We're very pleased to pay out DKK 1.6 in dividend per share for Q4. Bear in mind, that is actually an increase of 49% compared to Q4 the year before, making the total dividend per share for the full year DKK 6.29. Very pleased to end the year at a solvency of 201, clearly supporting our future dividend outlook. If you turn to slide four with customer highlights, total customer satisfaction is unchanged at 85, despite a period of higher price increases. There is a lot of moving parts underneath.
We're very pleased to see that our front office area, so to speak, in private Denmark and claims Denmark improves to as high a level as 92%. Commercial Norway improved greatly from 73%- 76,% but still needs to improve further. We see that our individual customer touch point scores highly at around 92%, but we also see from the total measurement that we still have work to do to improve our end-to-end processes and to reach our target of 88% in total customer sat in 2024. On slide five, we show a full year waterfall. Clearly we usually always focus on the quarter, but the amount of changes in 2022 is so significant that we've chosen to show here also a full year view. You can see here a full year technical result of DKK 6.1 billion.
Actually, you should add the first quarter technical result of RSA, which would bring the full year to DKK 6.8 billion. That is an increase of 83% compared to 2021, and the reported technical result for that year of DKK 3.7 billion. It is an increase of 15% versus the pro forma figures. Clearly the increase of 83% to DKK 6.8 billion in technical result shows that we've become a significantly larger company, and the results reflect that in size. I also think importantly, if you look at the pie charts on the right, it shows that Sweden's contribution to the total technical result has moved from 8% in 2021 to 42% in technical result contribution in 2022. We are becoming a much more balanced portfolio between the countries.
If you dig into the notes on page 80 and 81 of the report, you can see that actually earnings outside Denmark have increased 187% from DKK 1.2 billion to DKK 3.5 billion, showing the new Scandinavian footprint. On Slide six, we show the composition of the technical result. On the left-hand side, we show that the retail business of private and commercial has clearly increased significantly with the addition of Trygg-Hansa Sweden and Codan Norway. You remember at the Capital Markets Day, we talked about the ambition to make the retail business a bigger part of our total top line. If you look at the data today, actually the business in private and commercial is now a staggering 90% of our total top line, which will result in more stability and higher returns.
Clearly a positive development in the portfolio composition. On the right-hand side, you see the technical result drivers. We see that as we have worked on and clearly stated in our strategy, the strong underlying improvement of performance comes from corporate and commercial and the profitability initiatives there. If you look at the private business. You can see that there is a significant impact from the change in travel insurance.
It's described in the notes in the annual report, but there is an unusual swing in the result of travel insurance. In 2021 it was unusually favorable due to COVID, our positive technical result in travel was DKK 350 million in 2021. In 2022, our technical result of travel insurance is - DKK 170 million. An unusually large swing. Clearly COVID and lockdown was the main driver of that unusual shift, and we have taken action to improve earnings in travel going forward. Over to you, Johan, on synergies.
Thank you so much, Morten. Let's turn to page 7 on the synergies. In Q4, we have produced synergies of DKK 104 million from the RSA acquisition, which brings us to a total of DKK 406 million for the full year. This is somewhat above the targeted DKK 350 million, which is a result of diligent planning and us being slightly ahead of schedule. The synergies have mainly been achieved through: One, FTEs, reduced marketing spend, and other administrative initiatives. Two, Tryg's strong procurement power, which has helped us lower claims costs. Three, the reduction of RSA group charges. The 2024 target of DKK 900 million is completely unchanged, even though we for 2022 are reporting higher than initially estimated synergies. It is entirely a phasing issue, not a target issue.
With that, if we turn to page 8 on shareholders' remuneration. We are, as Morten said, very pleased to report a Q4 dividend per share of DKK 1.6, and a full year dividend per share of DKK 6.29, which is some 46% higher than in 2021 thanks to the inclusion of the new businesses and the synergy realization I just mentioned. At the same time, we remind you that we are in the market with a DKK 5 billion buyback, of which two-third of this was carried through as per year-end 2022. I would also like to highlight our solvency position, which at Q4 is at 201. A solvency ratio at this level shows resilience, and it is supportive for continued strong capital repatriation plans.
As a reminder, we have important profitability targets, and we are not known for accumulating unnecessary cash. With that, if we turn to the next section on premiums and portfolio on page 10. The group premiums growth was 6.7% in Q4 in local currencies, once again, primarily driven by the private and commercial segment. In this slide, you can see that corporate is reporting a growth of 9.2%, but adjusting for portfolio transfer in Norway between commercial and corporate, the top line development would have been flat. Profitability remains key in our corporate business, currently pushed through reductions in our international exposures and pricing initiatives, and therefore developments are in line with our expectations. The private segment continues to report a healthy growth of 7.4%, driven both by organic growth and price adjustments to offset the inflation levels.
The commercial segment reported a growth of 4.1%, also helped by a good organic growth and price adjustments. Adjusted for the portfolio transfer I just mentioned between corporate and commercial in Norway, the growth for commercial would have been 7.4%. With that, let's turn to page 11 on pricing. We continue to monitor inflation developments very closely and work disciplined with the procurement lever to mitigate this development as well as the price lever to protect our book of business. The macroeconomic situation remains volatile, and therefore this has been an area of heightened focus for Tryg for some time. Price increases in private and commercial in 2022 for the main products were between 3%-10%, and Barbara will later on slide 15 give you a little bit more details about pricing and inflation.
Turning to page 12 on customer retention. Retention rates were more or less flat for our private business. In Denmark, we observed a slight reduction primarily related to single product customers in some partner agreements. In the commercial segments, we saw a slight drop reflecting some reaction to price increases. Overall retention levels remain at a very high level for the private and commercial segments, and this is very important for us and a key feature of our markets despite these challenging times. I'll pass it over to you, Barbara.
Thank you very much, Johan. Please turn to slide 14 for more input on the underlying claims ratio. The underlying claims ratio improved by 80 basis points for the group, driven by the profitability initiatives in commercial and corporate, offsetting a modest deterioration in private. The private underlying claims ratio deteriorated some 30 basis points with a continued adverse development in the travel insurance segment. We continue to expect improved underlying claims ratio in order to meet our 2024 targets. On slide 15, we address a topic which is very high on the agenda for everyone at the moment.
2022 has undeniably been a year showing the return of inflation, something which has more or less caused any attention for a long time. It is important to underline that claims inflation is not equivalent to headline CPI, as the components of the two are somewhat different. What has a larger impact on our re-repair costs is, of course, the wage inflation, and that remains the single most important item impacting claims inflation across all lines of business. In order to mitigate inflation, Tryg works diligently with procurement in order to offset the increased claims costs, and furthermore work with adjusting prices in order to mitigate the inflation that we do see in the claims area. On slide 16, we provide more details on large claims, weather claims, run-offs, and discounting.
Large claims ended at a level above normal for 2022, whereas weather claims were below normal in 2022. In Q4, large claims continued to be above normal, while weather claims were approximately at an expected, or what you could call a normal level for a 4th quarter. On the point of normal levels, I want to remind you of the fact that we have published updated expected levels for large and weather claims, which includes the new business in Codan Norway and Trygg-Hansa. The analyzed expectations for both types of claims are DKK 800 million per year. Regarding the discounting rate, this has obviously been impacted by higher interest rates. However, a model change in the workers' compensation reserves pattern has impacted both Q3 and Q4 discount rate for Tryg.
Adjusting for this technicality, the discount rate would have been very similar when looking at the last 2 quarters of the year. Run-offs were at 4.4% for Q4 and 4.1% for the full year, pretty much in line with the guidance for 2024 of a spread between 3%-5%. Please turn to slide 17. The expense ratio was 14.3% in the quarter and 14.1% for the full year 2022, which is in line with our guidance for 2024 of approximately 14%. The Q4 2021 level was slightly higher due to a lack of periodization between quarters at Trygg-Hansa. We are keen to invest in business development and in digitalization, and this will partly be financed through the cost synergies realized that Johan mentioned before.
Now please turn to slide 19 for an overview of our investments. Our total invested assets of DKK 63 billion are split between a free portfolio of DKK 18 billion and a matched portfolio of DKK 45 billion. We have applied this approach for a while and have no plans to change this. The asset mix is the same as previously. The insurance liabilities are matched by Nordic covered bonds, while the capital of the company is invested in different asset classes in order to reach an optimal risk-adjusted return. The risk appetite is low, and the asset allocation is diversified, as shown in the chart in the middle. On slide 20, you can find relevant details behind the investment result, which was a tale of two stories for the full year in Q4. The markets were extremely volatile throughout the year.
Equity markets dropped significantly in the first nine months, interest rates increased sharply, hitting our fixed income returns. In the Q4, this changed somewhat, a slightly improved macroeconomic outlook boosted equity returns and rates fell a bit in Q4. As a result, in Q4, both the free and the matched portfolio delivered a positive result, with Tryg's equity portfolio being up by 6%, the yield on the free portfolio overall was approximately 1.2%. The total investment return was DKK 317 million in Q4, including a minor adjustment from the RSA transaction. Tryg continues to pursue a low-risk approach to the investments, which is even more important considering the challenging macroeconomic picture. Please turn to page 21.
As Johan mentioned, Tryg reports a robust solvency ratio of 201% at the year-end 2022, a number which shows resilience and is up from 188% at the end of 2021. The movement in own funds is explained by a robust organic capital generation, which is above the cost of the dividend, combined with a reduction in intangible amortization from the RSA and Alka acquisitions. Own funds amount to a total of approximately DKK 16 billion at the end of the year. The solvency capital requirement fell slightly as a higher capital charge for equities was more or less offset by reduced exposure to properties, while the new Danish financial tax allows for a higher deferred tax element in the SCR model. All in all, the SCR is lower at the end of Q4 2022.
In general, the SCR should really not move much, which is, with the exception of large capital markets movement. The movement of our solvency ratio remains pretty simple to follow and forecast as it is primarily driven by profits and dividends. On slide 22, you see the capacity for additional Tier I and Tier II. Please remember that the Tier I capacity is linked to the overall Core Tier 1 equity, while the Tier II capacity is linked to the SCR of the company. Currently, Tryg has no plans to issue further debt. On slide 23, you see more details on the solvency ratio. As mentioned, at the end of the year, we are reporting 201, which is the highest level in the last two years. We are very pleased with this level of solvency after a very challenging year for capital markets.
Tryg is a dividend stock, we do not plan to build up capital, that we do not deem necessary to run the business and have ambitious profitability targets. The Q4 dividend as well as the full share buyback of DKK 5 billion have already been deducted in the solvency ratio of 201, even if we have only carried through approximately 2/3 of the share buyback at year-end. As usual, we show the sensitivity of the solvency ratio to market movements on slide 24, where you can see it remains low.
The biggest sensitivity we have is to its spread risk due to the fact that we continue to have a large amount of Nordic covered bonds on our balance sheet. The interest rate risk is low since the match portfolio is built up to match the insurance liability in the best possible way. With this, I will hand over to Morten to wrap up our update.
Thank you, Barbara. Continuing a few slides more on slide 25, we show a few important things to remember in 2023. I think one of them being that 2023 will be the first year when the acquired portfolios in Sweden and Norway will be included in a normal technical result for all four quarters, which of course will make our lives a lot simpler from a reporting point of view. Also important that we've almost finished booking the integration costs in the P&L. We have another DKK 300 million remaining, which we will book in the H1 of 2023, and after that, the P&L will be clean. Also bear in mind that we expect a tax rate of 23%.
We do see a higher Danish financial tax, but it is somewhat offset by higher earnings in Sweden, which is taxed by a lower Swedish tax rate. Then on page 26, we repeat our financial targets for 2024. Most important, the combined ratio at or below 82, the return on own funds at or above 25%. When we look at the 2024 target for technical result, it is clear that we've seen very positive tailwind from the higher interest rates resulting in the higher discounting. Bear in mind, we've also seen a very significant negative impact from Swedish krona and Norwegian krona and the currency exchange rates to Danish krona compared to what we had at the Capital Markets Day. It will, of course, be interesting to see how interest rates and discounting and currency develops between now and the end of 2024.
We also see, as mentioned, higher reinsurance prices that we need to handle in the years to come. Also very important that we confirm the synergies of DKK 900 million, and of course, very pleased as Johan Kirstein Brammer showed that we are slightly ahead of plan. That's always a good place to be. Of course, all of these initiatives and results result in very importantly, the DKK 17 billion-DKK 19 billion that we expect to give back to shareholders in ordinary dividends and buybacks between 2022 and 2024, which I think is a nice segue to our favorite slide on John D. Rockefeller. I think with that, we are ready to turn to your questions.
Thank you. To ask a question, please press 5 star on your telephone keypad. To withdraw your question, please press 5 star again. You'll have a brief pause while questions are being registered. The first question is from the line of Asbjørn Mørk from Danske Bank. Please go ahead. Your line will now be unmuted.
Thank you, good morning. A couple of questions from my side. Morten, if I may start on one of the last comments you had on the FX, effects currently. Obviously, you have around 60% of your technical profits stemming from Sweden and Norway, there's quite a sizable impact. I was actually wondering on, especially on the Swedish business, where you have around + SEK 10 billion in annual claims, if there is any imported in a claimed inflation that we should be worried about from this SEK deterioration we've seen in the last 1.5 years. Obviously, I guess, medical treatment, et cetera, there might be some of these claims that are related to non- expenses by nature. Any comment or any visibility there would be, highly appreciated. Thanks.
Yeah. Thanks, Asbjørn. I think the short answer is no. We have the premium in Swedish krona. We have the claims in Swedish krona. We don't see any significant currency impact on that. Of course, the main impact is when we see 11%-12% drop in the currency rate, and we have a significant technical result that is then transferred to Danish krona at a lower currency rate.
I think if we look across Sweden and Norway, where we've seen the most impact, but we handle that very diligently from FX on the claims. That is, for instance, when car parts are imported in Norway, for instance, at a currency exchange rate that has a negative impact, then we deal with that in the inflation and in the price increases. That is something we've done for many years. That is something that is very clearly monitored and not a challenge. That is where the impact is the largest.
Just add, Asbjørn, if you take a step back and look at the financial metrics for the Swedish entity in its own, you can actually see from the notes in the annual report that the Swedish asset is producing a combined ratio of 77.7, meaning that whatever inflation is imported is taken care of in Swedish krona. The Swedish business, including our previous Moderna business, is producing very solid combined ratios, still in line with what Trygg-Hansa was producing in the last 5 years before the acquisition.
Okay. Thanks a lot for that. A question on basically, you know, what we should expect throughout 2023 in communication around the synergy target for 2024, and also on the extraordinary capital distribution potential. The 201% solvency, I guess is the highest in many, many years at a Q4. I note what you said, Johan, that you are on par with the guidance for 2023, 2024 on the synergies, but it does look like you are a little bit ahead of the curve. Should we expect any updates on those two items throughout 2023?
Maybe I'll just answer your first question around the synergies and what communication to expect. I think you should expect us to communicate that we reiterate our targets of DKK 650 for 2023 and DKK 900 for 2024. Those targets remain firm. We are confident we'll deliver on that. Right now, you shouldn't expect us to update that number. We are simply ahead of plan. That being said, I think there is a notion of saying that we do see more synergies than the DKK 900 million that we have targeted. That's something that will come in a future strategy period we're working towards 2027. Within the timeframe we have laid out, the DKK 900 million is the number we will deliver.
I think, Asbjørn, if we remember the process with Alka, we ended off slightly higher than the full target for the synergy period for the 3 years. What we also saw was further synergies in the next couple of years after those targets at 3 years. We do expect, as you say, Johan, to see that in the Trygg-Hansa case as well, that there will be additional synergies after the 3-year period, which is only positive. That we're slightly ahead on the current targets of the DKK 900 million is also positive.
I think, Asbjørn , if I may answer your question on the on the capital repatriation, you're right, 201 is a strong and robust level. I think with all the changes taking place on on our results, given Trygg-Hansa being included and all of that, we are quite confident that this is a good level to embark on the further journey. As we've said before, from 2023, things are normalizing, and that is where at the end of the year, we will be looking at are there any possibilities for further repatriation? As you know, we don't want to accumulate unnecessary cash in the company, but very much want to to look after the shareholders of the group. I think it's fair to say the practice we used to have, in previous years before this acquisition, we will revert to, following 2023.
Okay. Then final question from my side on the reinsurance pricing and your renewals 1st of January on the corporate side. You expect 30 basis points headwind from reinsurance. Did you say how much you would expect to mitigate by 2024? If you can give a comment, maybe you did in the beginning and I missed it, I'm sorry if I did. Could you comment on your renewals 1st of January or if you haven't, could you give an update of that at least?
I think if I start with the reinsurance program, I think as everyone knows, the renewals for the 1st of January has been a hard market. In particular, in areas like CAT, where you have seen a significant number of large storms, that has definitely impacted both capacity and pricing in the reinsurance market. Obviously that also has an impact on our cost. We continuously work diligently with the exposures we have in the business.
Obviously the work we do in particular also in the corporate segment, should take out further volatility in our results going forward. Given this is a market move which is significant, obviously we cannot avoid having any impact ourselves. I think, let's see for 2024. For now we are focused on, of course, making sure that the additional cost of the reinsurance program for this year is being tackled, and then obviously to continue to work on the exposures that we have in the business, going forward.
I think it's fair to say, Asbjørn, that even before we started the reinsurance renewal, our expectation was that the expense for reinsurance for CAT would increase, and that the expense for property, for corporate and reinsuring that would increase. That was our plan before we went into the renewal, and that is what has been built into our expectations and into our pricing plans. I think it's fair to say, as you said, Barbara, that actually the price increase in reinsurance has been slightly higher than we planned. Of course, we will capture that with pricing.
We're very pleased that we've actually been reducing, as you said, our corporate property risk exposure. I think the reinsurance market is very clear on not wanting to reinsure large exotic property risks in the corporate segment. Most of it has been planned, and the slightly higher reinsurance prices we need to make sure we capture as well.
Importantly, Asbjørn, you might also want to ask about, you can say the remaining part of our program. I think it's good that we can confirm that, outside of, you can say CAT and property per risk, it is relatively unchanged, which is super important.
For instance, in our guarantee business, which uses quite significant amounts of reinsurance to keep the net risk very low, our conditions are very good and largely unchanged to the year before.
Yeah. Regarding the corporate renewal for 1st of January, I think it's fair to say that we are quite pleased to see how you can say that is looking. We don't have the full results yet, but it looks as if it has been a good and strong 1st of January renewal.
Yeah.
It's fair to assume that, the vast majority of the reinsurance price hikes were already anticipated and was part of the 1st January renewal for the corporate business?
Yeah, that is fair to assume.
That was very clear. Thanks a lot.
Thank you, Asbjørn .
The next question will be from the line of Jakob Brink from Nordea. Please go ahead. Your line now will be unmuted.
Thanks a lot. Good morning. Getting back to Asbjørn's first question on capital repatriation, please. I appreciate you don't want to say any numbers now, but just trying to get the math right. Just to be clear, when you look at a payout that you want to probably increase year after year, how should we look at the DKK 3.2 billion buyback that was carried out last year and the DKK 1.8 billion that you have left for 2023? Should that be included when I look at total payout smoothing or increasing year after year? Or should I only look at dividends plus extraordinary dividends?
I think, Jakob, it's fair to say that the share buyback is extraordinary. It was related to the sale of Codan Denmark to Alm. Brand. My thinking would probably be to put that aside and look at our dividend policy, related to the ordinary and extraordinary dividends as such. See the share buyback on the side, although it's of course, very important with the DKK 5 billion, then think of the dividends as we usually do.
I think it's fair to say, Jakob, that we were quite pleased with the model we were using prior to the acquisition, with a stable and growing ordinary dividend, and then using extraordinary dividend when the capital position would allow that. That is a model we are quite fond of and a model that we want to return to. That is our position.
Just talking about excess capital. Of course, you have not disclosed any target for capital, but if we would, for example, say it was 180%, then you have already around DKK 1.5 billion. Looking at consensus payout ratio for 2023, it's around 75% on ordinary, so that would leave another DKK 1.5 billion. Let's say these numbers are roughly correct, so you have DKK 3 billion excess capital at the end of 2023. How would you expect that to be paid out? Would you do that in, let's say 50% in 2023 and 50% the year after, where you also will generate excess capital, or will you do it in one go, or will it be even slower pace?
I think, Jakob, I think it's actually great that you're asking that question because it shows that we have a very strong solvency position, and it shows that our earnings growth is strong. That the extraordinary items for integration and restructuring are getting to leave our P&L impact for 2023 and 2024. Hopefully investment markets will normalize as well. I think we won't give you a solvency target. You can see the historical data showing that 201 is very high compared to where we came from.
That's positive for the dividend outlook. I also think you know us well enough to see that we don't like stop, go, and big, massive movements. We like gradual improvements over longer time. We won't change that fundamentally. As you know well enough, Jakob, that we're not going to confirm any speculation or calculation. We do like the topic, and we do like that we are in positive territory.
Fair enough. I understand. Just final on capital, the SCR was of course at a very low level. Is there any, I guess the symmetric adjustment went up quite materially in the quarter, so maybe not from that. Is there anything else that we should expect to give a headwind to the SCR or increase the SCR, everything else equal in the next year or so? Is there any expected changes?
I think, obviously there will always be minor tweaks like you've seen in 2022 with the other box, so to speak, where you have a slight impact of new taxes being introduced and so forth. I wouldn't think that you should expect any major items that will impact the SCR levels significantly. That I can't see ahead of me from here.
Okay. Thank you. Just a last one. On the operational side, of course, good to see the group combined underlying claims ratios are improving 80 basis points or so year-over-year. What should we when should we start to see the private lines improving again? I get you're raising prices more than inflation, maybe inflation seems to be coming off a little. Would it be fair to assume that maybe H2 of this year, we should start to see an improvement in the private lines, underlying claims ratio?
I think we can see that, had travel had less of a swing between 2021 and 2022, we would be very close to that territory already, Jacob. It's also fair to say that when we had the period of the COVID impact, of course, we adjusted for COVID when we assessed that period of time's underlying development. We didn't actually expect a swing in travel, for instance, to be as big as it was. I think we need to get that to a more normal, profitable level.
That's a fairly big negative swing impacting underlying for private. I think both with the synergies and the positive trend we have on pricing and improving the business, we want to get back to improvement territory, but we don't fix travel in two seconds. I wouldn't want to give you a precise timing on that, but just say that without the travel swing, we would roughly be there already.
Yeah. I think just to add on to that, Morten, just to give you the significance of the impact of travel. What we have seen in 20 22 is that we had 3x as many claims in 2022 than we did in 2021. Taking, of course, into account that COVID had a huge impact, it is still important to remember that the claims we saw in 2022 were 20% up compared to pre-COVID in 2019. Also in general, the average claim cost was somewhat higher because you saw that there was a huge backlog of people wanting to travel after a number of years of lockdown. You could argue that it has, to a very large degree, been extraordinary circumstances that we have been looking into between the years.
Okay. Very clear. Thanks a lot.
Thank you, Jacob. The next question will be from the line of Martin Gregers Birk from SEB. Please go ahead. Your line now will be unmuted.
Thank you so much. I guess my all my three questions, they go on, well, the more or less, topics that Asbjørn and Jakob also touched. Coming back to reinsurance, and the 30 basis points effect on 2023 combined ratio. I also see there that you guys increased your net retention levels by quite a lot. Just to get any, just to get a feeling of if you hadn't increased these net retention levels, what would the effect have been? Second of all, on reinsurance, what is the effect on SCR from doing this?
Maybe if I start, and then you can complement Barbara. I think it's fair to say that if you make a financial analysis of the data and the enlarged group, that would actually point to us taking even higher net retention rate levels than what we have. It's also fair to say that if you look at where the market, reinsurance market is today, there is higher demand than before. There is actually lower capacity than before because the high interest rates mean that more low capital is leaving the reinsurance market.
What that actually means is that if you try to force through lower net retention levels, you're just paying for it yourself. You're actually just exchanging money at the bottom. It wouldn't make sense to have lower net retention levels than what we have taken now. As I said, the size of the group would actually call for even higher net retention levels. We've chosen to be very conservative, while at the same time actually reducing our exposure in the more volatile, larger risks. All in all, very conservative from our side.
Yeah. I think actually, Martin, the way I would look at it would also be that we probably benefited from lower retention levels last year, because the group was not fully consolidated and everything else. The levels that we're looking at now are far more appropriate, to reflect the size of the business that we are. So nothing extraordinary in that space, I would think.
Okay. Just to follow up on that, and please help me, please remind me here, Barbara, because last year, I dare say, of course, the reinsurance program for Tryg Classic, including Alka, right? Then last year you also had the RSA reinsurance program for the Tryg Insurance side, right?
Yeah. For some parts, it was included from the start of the year. To take into account that we would only take over the business somewhat later. I think what we managed to get in place last year with the retention was, you can say, not fully reflecting the changes to our group. Now, where we are fully consolidated and we are one group, then the retention levels are fully in line with that change.
Okay. Then just, maybe just, staying on a topic of capital. What more can you guys do on capital? Are there any levers that you guys can pull here? I'm especially thinking about how much profit margin you guys include in your own funds.
Sorry, you broke up there, Martin. You were saying what related to the own funds?
Are there any levers you guys can pull, in terms of boosting your own funds? Now you say that there are no plans for additional issues, but here I'm also thinking about potential increases to the profit margin you guys include in own funds.
I think, you know as well, Martin, we have a pretty ambitious targets in order to deliver strong profitability. Of course, we will continue with that going forward. This should be seen as you can say, ordinary progress of the business. I don't see that we need to do anything, what could you call it? Overaggressive in terms of delivering short term. We're in the business for long term, stable, sustainable good results. That is the continued improvement of the business that we will focus very much on.
I think, Martin, there's always tweaking going on in the modeling. You know, we have, for instance, areas where we share risks with a partner, and we share profitability with a partner, where the capital modeling doesn't fully reflect the risk we share with the partner. In effect, we are saying that the risk is higher than it is, so the capital charge is larger than it should be. We have tweaks like that. Where we need to make sure does it make sense to change the modeling or is it too small a parameter to work with in the model? That's one example. Another example is that we're working more and more with the entire business organization about their dividend value add.
I think historically, capital was more something we would do centrally. The business people would understand less of that. We've educated all of the corporate organization to make stronger value adds to the dividend. Also, now we're educating the entire business organization on making sure that they understand what changes to their business makes, drives what dividend potential and drives what capital impacts. I think we will never stop educating and improving and tweaking to further improve our dividend potential and our capital position. That is going on all the time.
Okay. Thank you. Maybe just one final question. One of your large peers went out yesterday saying that they saw a major underlying deterioration in their division, commercial Norway. I guess in the conference call, there was they said a mid-sized property teams. What are you guys seeing in your corporate/industrial in Norway segment? Because I can't see anything in your numbers.
I think we're quite pleased with that question, Martin. Thanks for that. What we clearly see in our commercial and corporate business in Norway is that for the past 3 years or so, we've been very focused on improving profits. We've been very focused on improving pricing, and we've been very focused on moving down in exposure in terms of the size of the customers. As a result, we've seen a very strong development in profitability in both commercial Norway and corporate Norway. We see the opposite trend than the competitor you're describing. I think maybe that is a difference in strategy and a difference in focus that is paying off with a very positive development in commercial and corporate Norway in terms of profits.
Okay. Thank you so much.
Thank you, Martin. The next question will be from the line of [Gostav] from Equity. Please go ahead. Your line will now be unmuted.
Thank you. My first question is on integration costs. I was just wondering if the remaining DKK 300 million in integration costs that you have left for H1 this year, if we should expect that to be front-loaded, or if you can put any further words on that. My second question goes on the claims inflation in 2023 and possibly beyond. As well, you have the slide 15, and I appreciate that.
I also assume that over time, we should expect that some of your multi-year procurement agreements will be renegotiated at somewhat higher levels than currently. I was wondering if you expect that your procurement work can continue to keep your claims inflation level 15%-20% below the overall inflation, or if we should expect some further price increases beyond the normal price annexation in the coming years as well to mitigate this effect, if there is an effect at all?
Maybe I should start off with your first question around the remaining DKK 300 million in integration costs for the H1 this year. You're asking whether it's going to be front-loaded. I think you should expect it to be somewhat evenly distributed over the quarters. It is linked to some of the IT integration work we're doing, migrating customers, into our systems. Expect it to be somewhat flat over the quarters.
All right. Thank you.
I think in terms of the procurement renewals, I think just when looking at what we have renewed recently, I think it's important to state that in general, you can say the main products have been renewed at very strong levels. We see that, after a couple of years where capacity has been scarce in particular within building and, you can say, the craftsmen there, capacity is improving now, which puts a lower pressure on the prices that our partners are requiring in this space.
I think that last comment, Barbara, is really important because there's no doubt that if you go back just 6 months, getting hold of a carpenter or a plumber or someone to repair a building was really, really tricky. It is very clear, when you look at their order book at the moment that their customers are stopping the projects they thought they would initiate. You now have carpenters and plumbers and people repairing houses that have too little in their order book, which actually means that our certainty that our procurement agreements will work and our certainty that we can pull down the pressure on the repair cost as opposed to 6 months ago, is actually clearly improving because they have less work to do. I think we should have a positive outlook on that.
Okay. Thank you very much. Perhaps just one last question. You also had a slide on your customer satisfaction, which remains at the 85% in the quarter. You have the 2024 target of 88%. I think we've talked about this previously, that while you do have a target of 88 in customer satisfaction, but what you look at is mainly the retention rate, which is, yeah, or should be at least reflecting the customer satisfaction. In this quarter, you now saw a slight deterioration in the retention rate in private in Denmark and also a general deterioration in all countries in the commercial of approximately 0.5%. Do you have any explanation for this to drop or?
Yeah.
Is it a concern to you, or how should we think of this?
Actually, when we start a process that like we've done during 2022 of doing higher price increases in all segments, then we also build into our modeling an expected higher lapse ratio as a reaction to those price increases. Then we model and assume how much will the lapse increase. In most areas, we do A and B testing with the price changes we're doing to see what is the customer reaction. I think what we generally see is that the customer reaction and the lapse as a result of price increases is actually lower than we've modeled and lower than we've assumed, but is of course higher than previous periods where price increases were less significant. No, we're not worried about the very small reductions in retention rates.
They clearly stem from price increases, and the reactions are less than we expected and less than we planned. As you mentioned, Barbara, we do see particularly that the customers leaving are often single product customers. We see single product motor customers leaving. In Sweden, we see some single product customers in motor that came in through the aggregator channel when we were old, small Moderna in Sweden. We've stopped working with the aggregators. We increased prices for that segment, so it's only natural that they leave. In many ways, it's a healthy result of price increases for the right customers, and the impact is smaller than we have planned.
It's still relatively high level.
All right. Thanks.
In terms of retention. Yeah.
Yeah.
Yeah. That makes perfect sense. That's all from my side there for now.
Thank you, Gustav. The next question will be from the line of Jan Erik Gjerland from ABG. Please go ahead. Your line will now be unmuted.
Thank you for taking my questions as well. I have some questions from the premium side. You have mentioned this corporate headwind, and your exit in different areas throughout the world. For how long should we expect this headwind to continue? Should it make it to happen also into 2023, or should it start to be a gradual downtick and no headwind into 2024? That's my first question.
If I should just answer that question. I think the headwind you're referring to is our very explicit and specific down exposure towards international property and also its international liability. I think that's a journey that we're well advanced into. I think if you look into what we published at two-three, you can see that we're actually doing very good progress towards our 2024 targets on both international property and international liability. We are well into that journey. That is something you should expect to continue going forward towards the end of this strategy period in 2024.
Of course, the tricky part, Jan Erik, is that while we are reducing the exposures, as you explained, Johan, which drives the headwind, we are also reshaping our organization, and we are building up more direct distribution to smaller corporate customers. That is starting to have a small and positive impact with much, much lower risk exposure. I think the numbers are still quite small, to be honest. I think they will still be small in 2023. Hopefully towards 2024, we start to see that becoming more meaningful and starts to be more of a counterweight, to the headwind, that Johan explained.
Perfect. On the average pricing you mentioned on page 11, it seems like both Sweden for housing and motor in Denmark seems to have a low level of price adjustments. Could you shed some light into why it's so much lower than in Denmark and Norway, and also for the motor side in Denmark versus Sweden and Norway? That would be great.
I guess those two particular points probably have two quite distinctive reasons. If you take the Swedish versus Denmark and Norway, I think it's fair to say, and I think Morten alluded to that coming into this, that we have seen inflation picking up in Denmark and Norway ahead of Sweden. We also have seen it somewhat tailing off in Denmark and Norway. In October, we saw probably inflation seemed to reach a peak, whereas in Sweden, that peak has come after that. There's a little bit of timing here that we expected, and you'll also see that going into the pricing in as for the Swedish product coming into 2023.
As for the motor example, I think the best way to explain that is actually, as for motor, we are working very intensely with our procurement and our agreements with the suppliers, the car manufacturers and Not the car manufacturers, the repair shops. We have very strong procurement with the repair shops in Denmark, which is why the price increases has been less than what you'll see for property.
I guess also, Jan Erik, be aware of the timing difference, because when we decide and start a price increase process, it takes 12 months to hit all customers, another 12 months to earn it in the P&L. We have decided it. When you look at what is on slide 11, that is actually the blended price impact that has impacted the portfolio. There's a timing difference between the two.
What you have on page S-11 is the gross, written premium changes and not the.
I think we measure the impact that has already happened.
Yeah. Okay.
What we have initiated will not be in those numbers yet.
Okay. I see. Just two small questions on the claims side. I heard that small reinsurance companies have had problems with their reinsurance agreement around the travel and the COVID impact. Could you confirm or not confirm that you have had some similar issues with your reinsurance, COVID versus travel? It seems like some of the smaller ones have had written a wrong language versus the travel insurance and reinsurance. How has you been written? Is this the reason why you have a headwind on travel this year, or is it just that you have seen increased level of travel again versus last year?
Yeah. No, I think, it's important to state the fact that the travel impact we have seen is completely down to the patterns we have seen in travel. As we mentioned, you compare two quite extraordinary years, where 2021 has been heavily impacted by COVID, meaning very few travels. In 2022, you see the pickup that also has an impact in terms of, you can say the average kinds of travels, where people have been traveling more long haul, they have been traveling to more luxurious places and so forth.
You can say the average claim cost has increased compared to before. Bear in mind what I mentioned also in terms of the actual number of claims compared to pre-COVID. Whether small insurance companies have had issues with their reinsurance, I mean, I don't know what they have in their coverages, but it is not something that is impacting the numbers that you're looking at for us.
We have no impact from that, as you say, Barbara. I think that the way the reinsurance market works is you can often use a smaller reinsurer with lower pricing and slightly more dubious contract wording. We have a very strict and clear reinsurance policy that require that we stick to higher quality reinsurers, which means that we very seldomly have disputes or conflicts or disagreements on the coverage with our reinsurers. No, that's not been a topic for us.
Very clear. Thank you. Just on the frequency side, both Topdanmark and Intred gives two last days has shown us increased frequency versus previous year. What have you been your experience versus your 80 basis points improvement underlying for the group? Is that the 80% we should look at as being a net figure so that the gross is a much larger one and then frequency is inside that? Or how should we read that 80 basis points versus the frequency change done by your competitors?
I think it's a mixed picture depending on the country and the product you look at. We see products like travel, where actually both the frequency, as you explained, Barbara, is up. We see that also the average claim is up. We see that, for instance, break-ins that happens that impacts the content claims have been down for quite a while, but actually now in 2022, they are up to a level which is slightly higher than the pre-COVID level in 2019. We are seeing frequencies pick up in different areas. I don't think we're seeing big surprises in terms of frequencies. I think it's more a return to levels we saw pre-COVID.
If you fell in love with the, with the COVID levels, then you're looking at quite steep increases in several areas. We've been trying to model it and take out the COVID impact and see a return to pre-COVID period in, in most areas. We're continuing to be more focused on the average and the inflation, and making sure that the procurement and the pricing more than captures that. F requency so far is not really surprising us. Yeah.
Great. Just one more note on the discounting in the workers' compensation. I think you alluded to a little bit, Barbara. Could you please just explain? I didn't understand how that worked, discounting versus workers' compensation. Could you just shed some more light into that?
Absolutely. I know it's not straightforward, and it is one of these more technical points. You can say ongoing, we work with the assumptions in our reserving models, and there has been work ongoing for workers comp. You could say that the fact that we mention it now is because it's being implemented for Q4. If you look at the development in the interest rate levels, then it looks a little bit odd that we are actually up on discounting compared to Q3, where you should think that the reason for the uplift is simply stemming from this model update. If you look at the discounting impact on a comparable basis, that would probably have been around 2.7% compared as opposed to the 3% we have been reported, given you have the catch-up effect from the model update in the Q4.
Basically means if we had a practice of updating all models every single quarter, you would have seen that increase together with the interest rate increase. Instead of seeing it can fall where it ought to have been stable. It's more the frequency of the modeling update that is an impact, and that's what we're trying to explain.
Thank you. That's all from my side. Very clear.
Thank you, John. The next question will be from the line of Jimmy Fan from UBS. Please go ahead. Your line will now be unmuted.
Thanks for taking my question. My first question is on dividends. I guess if I look at the history that in the one of the last five years, you paid special, but before 2018, you were paying a sustainable level of extraordinary return. I guess my from now onwards in the going forwards, are you considering that you have the capacity to return to that policy of paying out more sustainable level of extraordinary payouts?
Thank you very much for the question, Jimmy. I think as we alluded to before, dividends in years of transformation like we've just been through in 2021 and 2022 has been a quite special journey. You can say it has been somewhat different. You see a step up in the ordinary dividends of 46%. If you look at 2021 to 2022, you see a share buyback of DKK 5 billion that we started in 2022. A number of extraordinary items. I think what you should reflect on is exactly like you point out. Leading up to the acquisition of RSA, we had a pattern where we were looking at, you can say, somewhat stable and increasing ordinary dividends on an annual basis.
On top of that, assessing if there is any headroom in order to pay out extraordinary dividend. That is exactly, you can say, the approach that we will continue from here, now that things are normalizing and you don't have all these extraordinary items that are impacting the full year results. Starting from 2023, obviously for the next quarter, we will report where the new quarterly dividend will be. Following the year, we will assess if there is any headroom for extraordinary dividends from there.
Thank you. Also on the topic of large losses, obviously, it has been over budget for a few quarters now. I guess considering the increase in the risk retention, from the re-insurance program also, as an offset, we're reducing these folders on the large corporates. How should we think about the run rate of large losses, heading into 2023? Should we expect that to stay higher than the DKK 20 million per quarter, in the near term?
I think basically when we put out expectations for the combined group, both for large losses and you can say weather claims, that is based on a number of years of experience. Obviously, you will have swings both when it comes to weather claims as well as large claims. On average, this would be our expected level. I agree that in terms of large claims, they were somewhat higher than expected in 2022. Counter to that, you've seen a lower level of weather claims in the year. Overall, it is still in line with our expectations. I think you should look at these guidance or this guidance we have given for the combined group to stand as it is.
Then you may add that internally, the way we monitor it is actually the exposure. Because the exposure tells us something about the likelihood of future large claims, as opposed to just the stochastics of what happens. Given the strategy we're carrying out in corporate, where, as you said, Johan, we're reducing the international liability exposure dramatically. We're reducing the international property exposure. We're also reducing the more European and Nordic high-end property exposure in corporate. All of that means that our exposure to larger claims longer term is reducing, quite clearly. So I would agree with you, Barbara, and just add that the exposure and thereby the future risk is reducing.
Okay, thanks. When do you think that you can reach a position that this exposure reduction is finished?
I think as Johan explained, exposure wise, we're really quite far, but I think the final program of getting to the portfolio mix we want in corporate will be by the end of this strategy period, meaning by the end of 2024. We're very pleased with the progress we've done, and we've really come quite far already.
Okay, thanks.
Sorry, Jimmy. Go on.
Yeah. I'm sorry, just on the target, on technical results is so you're aiming for DKK 7 billion-DKK 7.4 billion by next year. I guess now looking at the target versus when you set it, the interest rates and the discount rates on the technical result is now much higher than before. I guess versus 1 year ago to, considering the development and also now you are ahead of target on synergies, do you feel that you are more confident you can exceeding that target than perhaps, when you set that target?
I think it's fair to say that we're very pleased that the results for 2022 are so strong. We're very pleased that we are ahead of the curve on synergies. Clearly the tailwind and the help from discounting is very helpful. I think it's important to say that if we knew now for certain what would be the interest rates by the end of 2024 and what would be the currency exchange rates by the end of 2024, you could actually conceptually think about restating our targets for 2024. It's also fair to say that the movements in interest rates and currency rates that you shouldn't forget in 2022 have been very unusual.
I think it's also fair to say that those, both the interest rates and currency exchange rates could move further between now and 2024. This is an, I think, more volatile period than normal. We're very pleased with where the organic business is. We always like to get a tailwind, and if that tailwind persists towards the end of 2024, that will be great. I also think it is too early to say that now we have the interest rate level and the FX currency levels that will remain constant between now and the end of 2024.
Yeah. Thanks. Also on that synergy, given you are ahead of the target, is this from you are actually completing more internal projects than you expect? Or is it, you are actually realizing more synergies from the projects you have completed?
The way to look at it is that we're just ahead of the timing. We have a list, a very robust list of initiatives that we are executing to actually deliver the synergies, and we are a little bit ahead of schedule in actually implementing those changes into the business. I think that's the way to look at it. The catalog remains, but we are ahead of schedule.
Okay, that's all. Thank you.
We have time for one last question. Thank you, Jimmy. The last question will be from the line of Youdish Chicooree from Autonomous Research . Please go ahead. Your line will now be unmuted.
Good morning, everyone. I've got just one question, please. It's on claim inflation. Firstly, thank you for providing your expectation for 2023 on slide 15. I was just wondering how does these figures or estimates compare to trends you've seen in the Q4? I was wondering whether you had factored the possibility that inflation may have peaked and might be easing in the coming year, which is something that some of your peers have mentioned. If I could get your thoughts on that'd be very helpful. Thank you.
Yeah. I think, Youdish, one thing to bear in mind is obviously, what is the headline inflation that is being, reported and tracked, in the economies. Another thing is the cost of the repairs that actually feed into the claims cost that we end up having. That is something where we obviously look very much into how does, you can say the cost of labor, how do the raw material and other things that we use for repairing our, claims, actually develop. So if you look at the reported headline inflation numbers, you're right that if you look at Norway and Denmark, you saw for now at least a peak in October. In Sweden, you saw a later start on the inflation acceleration than you saw in Denmark and Norway.
That's also where the latest numbers reported in December are still continuing to go upwards in Sweden. We don't really know if they are getting to a peak point like Denmark and Norway look to be, or whether it will continue. Being very close to the individual components when assessing the claims cost, when looking at how to tie that into future pricing and so forth, is obviously something that we are very focused on in order to be able to mitigate what is not covered by our procurement agreements.
It will be interesting, Youdish , to see what happens in the new salary negotiations that would happen during 2023. It seems that the parties negotiating are reasonable. They're seeing that actually inflation seems to have peaked. They want to avoid recession as much as they can. I think there's a good likelihood that we get reasonable salary negotiation contracts. That's the next important question. I think we're pleased that we've seen the peak in Denmark and Norway, I should say, Barbara. That is, it is good to have passed the peak. I think your question was also have we built in that positive into our expectation? I think the short answer is no.
We're not in a hurry to build in any positive assumptions on inflation, but we are pleased to see that we're getting positive news from inflation. Very, very cautious and very clear, we want zero doubt that our claims procurement and our price increases should more than capture whatever claims inflation we see. We monitor it extremely detailed per country, per business segment, per product. That is the way we remain, but pleased to see that some of the areas have peaked.
Oh, great. Thank you very much for your answers.
As we are running out of time, I'll now hand it back to the speakers for any closing remarks.
Thank you. Thanks for all your good question. Investor Relations as always is attend for any follow-up. We'll speak to you soon. Thanks.