Good morning everybody. My name is Gianandrea Roberti. I'm Head of Investor Relations at Tryg. We published our Q3 results earlier this morning, and I have here with me Johan Kirstein Brammer, Group CEO, Barbara Plucnar Jensen, Group CFO, and Mikael Kärrsten, Group CTO to present the report. I would just like to remind everybody to ask one question at a time to allow the highest number of question from participants. With these words, over to you, Johan.
Thanks a lot and I will kick straight into it on page three. Tryg is reporting a DKK 1.513 billion insurance service result with significantly higher than normal weather and large claims. Weather claims, in particular, were the highest on a net basis in the last 15 years, totaling DKK 611 million, or around DKK 450 million higher than an average expected Q3. The storm called Hans hit Scandinavia, causing damages for approximately DKK 300 million. We had different cloud bursts, plus a smaller storm and other events impacting Scandinavian travelers in southern Europe, adding to a difficult summer. When normalizing the quarters for expected large and weather claims, the Q3 2023 is indeed up around DKK 150 million versus last year.
While the headline combined ratio at 83.8 was impacted by the Q3 weather situation, the underlying claims ratio for the group continued to improve by 50 basis points, broadly similar to the last quarters. Commercial and Corporate profitability initiatives offset a small deterioration in the Private segment, in line with the previous quarters. The overall investment result was a positive of DKK 265 million, helped by a good result in the match portfolio in a difficult quarter. The market generally sold off risky assets after an additional rate hike from the ECB in September, and it is worthwhile to notice that Tryg has cut a quarter of its equity exposure during Q3, reinforcing our low-risk approach to investment activities. We are paying a DKK 1.85 dividend per share in Q3, in line with Q2, up 17% year on year.
On top, we are launching an extraordinary buyback, supported by a healthy solvency ratio of 194 at the end of the quarter. The strong solvency and robust organic capital generation are supportive of the extraordinary buyback. Please note that the 194 solvency ratio already deducts the dividend and the buyback. With that, I'm turning to page four on the customer highlights for the quarter. Focus on customers remain paramount, and therefore we continue to work with all aspects of the customer journey. This regards touchpoints, processes, and relationship-driven elements, and in this particular quarter, customers did experience longer waiting time than usual due to extraordinary weather-related events, as mentioned.
These events gave Tryg the opportunity to show our customers that we are there to help and guide them safely when the unexpected happens, which has contributed to a continued high level of customer satisfaction in the quarter. With that, I'm turning to page five, and in this slide we show the group insurance service result walk from the reported level in Q3 last year. On the positives, we note the higher interest rates and improved underlying performance, good premiums growth, and a slightly higher run-off result. On the negatives, we note significantly higher weather claims and the impact from currencies in SEK and NOK, totaling approximately DKK 100 million in Q3. We also show the reported ISR for the three business divisions, where the primary explanation of the differences in the segments are weather claims and runoffs.
A comment previously made, yet important to reiterate, is the fact that the group has a significantly more balanced earnings profile following the acquisition of RSA Scandinavia with three very strong legs in the three Scandinavian markets. With that, I move to the following page six on the RSA synergies. Tryg reports DKK 80 million of synergies in Q3, bringing the accumulated total to DKK 627 million out of the targeted DKK 650 million in 2023 and DKK 900 million next year. Approximately 30% of this quarter's synergies stem from expenses, almost 50% from claims and procurement and the remaining 20% from commercial activities. A significant focus on procurement in Sweden has resulted in improved terms with many of our suppliers and in addition to that, an increased use of recycled parts are actually yielding good savings.
In claims, improved internal processes and further education of claims handling teams has resulted in increased efficiency in areas like fraud and recourse. The Commercial synergies were driven by strong performance on cross-selling of Moderna's niche products and upselling on Trygg-Hansa products and coverages, but was also indeed impacted by continued price increases, predominantly in the Corporate segment. With that, we're changing gears and going into this insurance revenue and portfolio and I'm turning to page eight. Tryg reports a top-line growth of 4.4%, or around 5% adjusted for repricing and conversion in Norway and Sweden as part of the RSA transaction. Growth was predominantly driven by Private and Commercial segments and mostly attributed to price increases to mitigate the ongoing claims inflation. We continue to have a strong focus on profitability, and we are pricing accordingly.
The Private segment reported a top-line growth of 5%, predominantly driven by price adjustments. We have, as you know, been converting the Moderna portfolio in Sweden into Trygg-Hansa and converting Codan Norway's portfolio to Tryg in Norway, and adjusted for this, growth was approximately 6% in Private. The Commercial segment had a good top line growth of 4.1%, predominantly driven by price adjustments. The reclassification of portfolio continued to have an impact on the growth figures, and adjusted for this, the growth would have been approximately 5%. The Corporate segment had a modest top line growth of 1% and somewhat impacted by reclassification also. Adjusted for this, growth was approximately -1%, which is in line with expectations.
We are repricing as well as reducing exposures to certain parts of the corporate business, in particular international property and liability, which is the predominant reason for the lower growth. With that, I turn to page nine. We continue to monitor inflation developments very diligently and we work with procurement to mitigate inflation, as well as continuing to reprice to reach our targets. Leaving aside the general inflationary situation, adverse currency developments in Sweden and Norway have an impact, and in particular, on imported mobile spare parts. Price adjustments are roughly 4%-6% for the different lines of business across countries and it is worth highlighting that these graphs on this slide display the impact on earned premiums. This means that the full impact on price adjustments in general will take 12-24 months.
When we go to page 10 on customer retention, the retention levels are in line with recent quarters. We generally see a slight drop in retention for Private compared to the same period last year, and a stable retention level in Commercial. This follows our focus on mitigating inflation through price adjustments. The development is in line with expectations and in line with our experience from previous periods where there was a need for price adjustments. We see the highest impact of our price adjustments within the segment of one-product customers, which are in general the more price-sensitive and tend to change more often insurance provider. In that context, it is worth mentioning that customers with one product in general are the least profitable segments. With that, I turn to page 11, which is a more strategic overview of the rebalancing of the corporate portfolio.
At the Capital Market Day in November 2021, we announced a rebalancing of the corporate portfolio with a target to reduce the exposure to properties outside the Nordics by 50% and to U.S. liability by 50%, by 70%. It's important to remember that the exposure to U.S. liability was low as a starting point but we are pleased to share that we have achieved these targets as per Q3 2023. Our overall ambition is to have a corporate business that is probably slightly smaller but more long-term profitable, with less large claims volatility, and we are moving in this direction. Despite CMD targets being achieved ahead of time, there's ample room to continue this journey.
As a reminder we have a combined ratio target of 90% for the Corporate segment, with much more - much lower run-off contribution compared to the previous periods. With that, I'll finalize this section. I'll hand it over to you Mike.
Thank you Johan and we move on to slide number 13. As Johan mentioned, the group underlying claims ratio improved by 50 basis points, broadly in line with previous experience. The improvement is driven by Commercial and Corporate segments, while there is a modest worsening in the Private segment of 30 basis points. The deterioration in Private is mainly coming from increased claims costs for automobile spare parts, in particular in Norway and Sweden where negative currency development have added to inflation. We continue to expect an improved underlying claims ratio moving into 2024, which will support the profitability targets of DKK 7.2 billion-DKK 7.6 billion insurance service result and a combined ratio at or below 82. Moving on to slide 14.
Q3 has been an extraordinary quarter when it comes to both, weather claims cost, but also the number of weather events we have experienced. In addition to the financial consequences, this has caused a lot of operational pressure to our claims departments, where they have been handled in a great way and helping customers in difficult times. The main weather event was Storm Hans that hit Scandinavia in August, resulting in total claims cost of approximately DKK 300 million. In addition, several cloudburst storms, and storms were recorded during the quarter, and Scandinavian travelers were hit by hailstorms in Southern Europe. In total, our weather event claims cost in Q3 is DKK 611 million, which is roughly DKK 450 million more than expected. Moving on to slide 15.
Having experienced a quarter like this, it's natural to ask ourselves, is this a new normal when it comes to weather? But this is an area where we need to look at the development over a longer time series. We expect DKK 800 million of weather claims annually and we should remind ourselves that weather claims are not normally distributed, but rather the typical year would be below the forecast and some of the observations will be clearly higher. Looking at our weather claims during the last 15 years on a quarterly basis, first from a gross perspective which is the graph on top, we can see that Q3 is the third most expensive quarter during this period. However, when looking at the net development, i.e., after reinsurance, which is the bottom graph, this quarter is clearly the most expensive that we have experienced.
This is partly due to our own choice of increasing the cat reinsurance retention for a single event, which we've done over time as we've become a bigger group, but it's mainly due to the fact of having such high number of weather events in a single quarter. All in all, we continue to be comfortable with our weather claims expectation, but obviously this is something that we follow closely, not only looking at historical numbers, but also factoring in future development using both internal models and external input. It's also important to stress that we run a relatively short-tail business in terms of cat exposure, and if needed, we can adjust prices relatively quickly to factor in those changes. Turning to slide 16. Mitigating claims inflation continues to be a top priority for us.
We can see official statistics of inflation coming down but from high levels, and it's too early to draw any conclusions, and we continue to mitigate inflation with price increases. We introduced this slide in the previous quarter to particularly illustrate the impact from currency on the automobile spare parts. In last quarter, the average claims cost for windshields and spare parts increased with 9% in Sweden and Denmark, and in this quarter we see an increase of 11%. We continue to benefit from our procurement agreements and reprice to mitigate the inflation driven by adverse claims, and currency development. Turning to slide 17. In this slide, we comment as usual on the overall level of large and weather claims, the run-off result, and the level of the discount rate.
As stated before, it's been a quarter with weather claims way above our expected level of DKK 160 million, instead totaling over DKK 600 million. Large claims were also higher than normal at DKK 292 million, driven from normal volatility and no particular large claims standing out. For both large and weather claims, that means that this is a challenging year for us, in our volatile items, where we now have exceeded our annual expected levels. Having said this, we stand firm on our annual guidance for weather and large claims at DKK 800 million for the respective items but needless to say, we stress our customer pricing from these events and run full re-underwriting processes where needed.
The run-off result was 3.3% in the quarter, slightly higher than the comparison quarter in 2022, and in line with the guidance of run-off between 3%-5%. Finally, the discount rate was 3.4%, a move upwards of 60 basis points from Q2, partly driven by slightly higher interest rates, but also by a change in the expected cash flow for claims payments. By that, I turn over to you Barbara.
Thank you very much, Mike. Now please turn to slide 18 for details on the expense ratio. The expense ratio was 13.3%, and hence at a slightly lower level than our IFRS 17 updated CMD target of 13.5%. As a reminder, the 13.5% target was half a percentage point lower than the original target of 14%, due to the reallocation of educational and development costs from the insurance operating expenses to other income and costs line. The expense ratio was supported by RSA synergies of DKK 25 million related to admin and distribution. It's important to note that the FTE reduction from the recently announced reorganization will not be reflected in the figures for Q3, as these numbers are based on the payroll for September.
Tryg has a strong focus on the expense level, as this provides a competitive advantage supporting our market position. Please turn to slide 20 for an update on our investments. The slide shows our total invested assets of 60 billion DKK which we split in a match portfolio of 43 billion DKK and a free portfolio of 17 billion DKK. In Q3, we have adjusted our asset allocation in the free portfolio. We have reduced our exposures to equities by 25% from approximately 3.5 billion DKK to 2.6 billion DKK, or equal to a reduction from approximately 20% to 15% of the free portfolio. At the same time we have increased our fixed income allocation by these assets. This has reduced the SCR significantly, which I will come back to later in the solvency section.
The remaining asset classes are broadly unchanged but by these adjustments, we have reinforced our low-risk approach to investments. Now please turn to slide 21. In Q3, the free portfolio has delivered a small negative loss of DKK 26 million. The last two weeks of September were challenging for more risky assets, following another ECB interest rate hike, which resulted in a sell-off in the market of equities, properties, and corporate bonds. The match portfolio delivered a robust result, partly helped by narrowing covered bond spreads in Sweden and Norway, but also by the recurrent booking on the interest on premium provisions of approximately DKK 100 million. An item which under IFRS 4 was called technical interest and was booked in the technical result.
Other financial income and expenses was positively impacted, among other things, by a DKK 59 million gain on the inflation swap, and furthermore, by a positive DKK 30 million of exchange rate adjustments on the balance sheet items. Ordinarily, you should consider the other financial income and expenses around the level of DKK 80 million-DKK 90 million. Now please turn to slide 22 for solvency. The solvency ratio was 194 at the end of the quarter, a very healthy level, especially when taking into consideration that both the dividend and the buybacks are already deducted in this number. Own funds were primarily positive, positively impacted by the operating earnings and the higher value of the subordinated loans. This is currency-driven while the dividend and the buyback had a negative impact.
The solvency capital requirement reduced, driven by a significantly lower market risk, partly offset by an increased capital charge for underwriting and reserves risk. Again, currency-driven, as well as an update of different parameters in the internal model following our annual review. As mentioned under investments, Tryg had reduced the equity exposure in the free portfolio by approximately DKK 900 million, which reduces the SCR by more than DKK 300 million due to a reduced market risk, all else being equal. Additionally, the exposure to other assets attracting high capital charges such as cat bonds, were also reduced. Now please turn to slide 23. We consider a solvency ratio of 194 as very robust, in particular when looking at the historical levels.
As a reminder, as I just mentioned before, the 194 has already deducted the impact of the quarterly dividend and the extraordinary buybacks that we have launched earlier today. In general, we continue to expect movements in the solvency ratio to be primarily driven by the organic generation of capital and the capital distribution to shareholders. Movements in our solvency ratio should continue to be relatively simple to follow. Please turn to slide 24. The solvency sensitivities are similar to what we have shown previously, hence nothing has changed much here. Covered bonds are by far our largest asset class, and therefore it should not be a surprise that the solvency ratio displays the biggest sensitivity to covered bond spreads. This is completely unchanged. Our solvency ratio continues to display low sensitivity to capital market movements. With this, I'd like to hand back to you, Johan.
Thank you, Barbara. I think in the next section, we found it prudent to cycle back to the organizational changes and strategic adjustments we made previously this quarter. So if you turn to page 26 in the deck. On September 27th, we announced a number of strategic and organizational changes to ensure a strong setup and better prepare us for our next strategy period. Firstly, we decided to merge our Commercial and Corporate business units in Denmark and Norway, which is in line with the organizational setup we already have in Sweden. We believe this to be a natural next step after Corporate has been working diligently on reducing exposures to large international customers. We do see a lot of synergies in merging these two organizations increasing our presence close to home markets and push for an overall increased profitability.
Secondly, we decided to adjust the Swedish organization using the same setup we have in Denmark and Norway. Each business unit in Sweden now reports directly to the executive board which supports decisions based on strong local empowerment. And finally we decided to implement a variety of organizational changes and scale benefits to create a more efficient group, supporting our financial targets for 2024 in an increasingly volatile macro environment while at the same time making it possible to invest in new initiatives to prepare Tryg for the future. As a consequence, we amongst other things, had to say goodbye to 250-270 skilled employees. And with that I move into the final section on financial targets on page 28. On this slide, we are repeating here our 2024 targets as shown previously.
To have no confusion, this slide is 100% identical to what we showed you as per Q2. The message remains the same. Since the launch of our strategy in November 2021, the world has changed, interest rates have moved up significantly, upwards following a big inflation spike, and Norwegian and Swedish currency have dropped substantially. Additionally reinsurance prices were higher in 2023 versus 2022. To sum it all up, there are some positives, there are some negatives as mentioned many times before, but the target range remains rock solid. With that, I turn to page 29. Not much new to be commented upon this slide. I should probably just mention briefly that the line other income and costs should be seen between DKK 350 and DKK 370 per quarter starting Q4.
This would be a normalization as we have ended all integration costs related to RSA Scandinavia as per Q2, and we have booked DKK 180 million of restructuring costs related to the layoffs of the 250-270 employees now in Q3, as previously communicated. Turning to page 30. All financial targets for 2024 are repeated and as you may have noticed, we have also sent out an announcement for our 2024 Capital Market Day which will be in London on December 4 next year and we look very much forward to seeing all of you there. And with that, I'll turn to page 31, our favorite slide, where we conclude our presentation with the favorite quote from Rockefeller, particularly appropriate in a day where we sent back almost DKK 2.2 billion to our shareholders.
With that, I'll give the word back to you, Gianandrea.
Operator, we are waiting for questions.
Thank you. We will now start the question and answer session. If you do wish to ask a question, please press five star on your telephone keypad. If you wish to withdraw it, you may do so by pressing five star again. Please respect only one question per participant, and afterwards, you can reenter the queue for another one. There'll be a brief pause while questions are being registered. The first question will be from the line of Asbjørn Mørk from Danske Bank. Your line now be unmuted.
Yes. Hi, good morning. I'll limit myself to one question as requested. Let's call that capital allocation. There's been a lot of media buzz last week about the potential M&A. Just curious to hear your thoughts around how you see yourself on the M&A front at this stage, in terms of geography, size, whether you would consider moving outside of your current home markets in sort of especially in these areas where you might think you have a, an edge. And speaking of capital allocation, and with the DKK 900 million decline in your equity exposure, the free portfolio, a little bit curious about the futures, w hy you're not selling the equities? Why are you buying futures?
But also considering at least in my math, that you're making 9% return on own funds, on equity investments in your free portfolio, and now you're selling down. Is that also a financial target we should expect for any future M&A, that you need to make double-digit return on investments for anything you might allocate capital for on the M&A front? Thanks.
Thanks for that question Asbjørn, and it actually sounded a little bit like two or three questions. But we too, in Tryg, I'll start with your first question. I had a feeling we would hit upon that topic today also, and we in Tryg have of course noticed our name being mentioned in connection with speculations around the possible acquisitions of Aviva. And as you know, in Tryg, we do not comment on rumors and speculation. That is not new, and it would not be a sustainable strategy. I'm sure you can sympathize with that. But I would like to take this occasion to reiterate our position and strategy around our geographical footprint. Our strategy is very firm on being a leading non-life insurance company in Scandinavia.
We believe in this market, we can add a lot of value for our customers and for our shareholders in our home markets, Denmark, Norway, and Sweden, where the markets have different characteristics compared to many other non-life markets in the world. Just a couple of years, I think we're going to get back to that in a minute. We, a couple of years ago, our shareholders subscribed to a DKK 37 billion rights issue, one of the largest equity capital market transactions in Northern Europe, to fund the acquisition of RSA Scandinavia. We are still working to produce the promised synergies from that transaction. We have delivered, as communicated today, DKK 627 million out of the DKK 650 million targeted for this year and out of the DKK 900 million targeted for next year. So clearly, we still have some work ahead of us.
Additionally, maybe that comes back to your point on capital allocation. We have always been careful with the way we use our capital. We are returning to our shareholders today almost DKK 1.2 billion in ordinary dividend. We are also launching a DKK 1 billion extraordinary buyback, and I think this should reinforce our credentials, that we do not sit on excess capital or contemplate to use our capital in ventures not aligned with our current strategy. I hope that is a clear answer to your question, Asbjørn.
If I pick up your question around the equities exposure, I would just say that as we have discussed before, we always have a good look at the profile on our free portfolio. It is where we would like to be low risk. I think the move that we have actually taken down the exposure to equities is exactly in line with reinforcing that appetite for low risk. You could ask, "So, why do we do it by the use of futures and not the outright position?" See that as a temporary position, as this is, you can say a position that we will move forward in the long run as well.
So what I would focus on, Asbjørn, is that we have reduced the equities part of the free portfolio from 20%-15% by these approximately DKK 900 million. Very much driven from the higher volatility we have seen in markets in recent years. You can see just today, quarter-on-quarter, we have almost DKK 500 million in difference given the investment result. And as we are focusing on you can say taking down the volatility across the board, this is just a natural next step in that context. You could draw the link: is this back to do we allocate capital elsewhere, like the M&A?
But I would say, don't - don't draw that conclusion for the background of, of what we have done on the equities exposures in this quarter.
Okay. It's just, just to be clear: so basically, you would not consider moving outside the geographical market in sort of areas like personal accident, which you have a lot of experience with, with Tryg, and so that was not something you would see going forward?
I think the best way to say it, our strategic focus is Scandinavia.
Okay, very clear. Thank you.
Thank you, Asbjørn . The next question will be from the line of Youdish Chicooree from Autonomous Research. Your line is now being unmuted.
Good morning, everyone. I'll stick with one question, actually on capital returns. Well, I don't want to sound too greedy but if your solvency capital position is as strong come January when you report full year results, will further extraordinary returns still be under consideration or do we have to wait till the buyback announced today completes to have that discussion? Thank you.
Well, thank you very much, Youdish. I think when looking at what we announced today, we have our ordinary dividends of the DKK 1.85 dividend per share, and then we launched the share buyback. Looking back at what we promised at our Capital Markets Day back in 2021, we were alluding to a range between DKK 17-19 billion of dividends over the period. We have already done the share buyback. You know what we have paid back in ordinary dividends in the previous years. So I would say what we are returning now is very much to continue to deliver on the promises that we made and what you should expect in terms of dividend at this point in time.
We're comfortable with the level around these 194 and we also think that it's a good time to actually go back to the market with the share buyback. It is a different way of returning capital to our shareholders. For a number of years, we have been doing extraordinary dividend payments but we think that it is the right thing to return it as a share buyback at this point in time with high interest rate levels, et cetera. So I think consider it to be very much in line with the promises we have made on the dividend distribution back at the CMD.
Oh, okay, thank you. I've got a follow-up question but I guess I'll join the queue later on. Thank you.
Yes.
Thank you, Youdish. The next question will be from the line of Jakob Brink from Nordea. Your line now will be unmuted.
Thanks a lot, and good morning. I'll continue on the same topic, actually. So roughly, I mean, you said, Barbara, that let's say around DKK 350 million is the SCR reduction from the equity risk reduction in this quarter times the solvency ratio of around two. So that's DKK 700 million capital release or 70% of the buyback, which I guess was not part of the original DKK 17-19 billion plan. So, and also I see the buyback is supposed to end late January, just after your Q4 report. So why would we not think that you would do a follow-up buyback or dividend in connection with the full year report?
Well, thank you for that question, Jacob. If we look at the timing of carrying through a share buyback, we have just done the DKK 5 billion share buyback, following the proceeds from the sale of Codan Denmark. And the time frame is both based on, you can say, the timing that we could see that it takes to buy back DKK 1 billion. And also, there's a technical detail in terms of us canceling the shares at the AGM in March. That's approximately the timing that we need to finalize the share buyback program in order to be able to do so in March next year. So very simple reasons for doing that.
When looking at the capital markets promise of DKK 17 billion-DKK 19 billion, as mentioned, we had the DKK 5 billion share buyback and the trajectory for the ordinary, dividends. And I think, the fact that we are returning it as a share buyback is, is a question of, of considerations around what is the right thing to do at a given time. It can be extraordinary dividends, it can be a share buyback, and we would allow ourselves to be able to have the flexibility to decide, at a given time how we distribute, you can say, the extra capital to our investors, choosing one or the other.
Sure. I think that was actually not my question, how you distribute it. It was more - s o 70% of the buyback you announced today is financed by something which I'm sure you did not have on your radar back at the CMD last time. So why should we not expect you to do more capital releases after the Q4 report?
I think we allow ourselves to always look at what is a comfortable level for us to repatriate capital. And obviously, we will have conversations about that, I guess, over the coming 12 months as well.
Okay. We'll have to see. Thanks a lot.
Yes.
Thank you, Jakob. The next question will be from the line of Tryfonas Spyrou from Berenberg. Please go ahead. Your line now be unmuted.
Oh, hi. Hi there. I have a question on the weather losses. So it looks like Storm Hans cost you around DKK 300 million, which is roughly the retention point, I think, on the insurance. I think it's somewhat higher than sort of anticipated. So I just wanted to understand if there's anything there to note. And then as a follow-up, I guess, am I right to say that you have an aggregate reinsurance program that would capture any additional large weather losses to come potentially in Q4? So that was my question. Thank you.
Thank you. I'll see if I can answer those weather-related questions. I think first of all, on the Storm Hans losses of approximately DKK 300 million, I mean, you're fully correct. We have a net retention, which is actually equal to that sum. So the movement in those losses, where we actually don't expect much movement, can be further limited by our reinsurance program. Having said that, it's also important to note that the Storm Hans was going on for a relatively long period of time, which is also a factor when looking at what we can factor in, in the different reinsurance programs. And then I think the second question, so what about sort of potential future weather events?
I mean the protection that we're having is on an event basis. In addition to that, we have some things that are limiting the volatility on the sideways cover. But I mean, all in all, our exposure is the same one and the one we're comfortable with when it comes to potential weather losses going forward.
Okay. And maybe I'll come back to this later. Thank you.
Thank you, Tryfonas. The next question will be from the line of Vinit Malhotra from Mediobanca. Please go ahead. Your line will now be unmuted.
Yes, good morning. Thank you very much. So my question is just on the continuing inflation in Sweden and Norway, and a related topic is how to increase compliance of using procurement partners there. Now, could you just shed some light on any plans you might have on that topic? Because I think, I think this, the compliance rate there, for you is about 60-odd%, whereas a bit higher for some of your peers from recent data. Could you just comment a bit about this or overall strategy of managing inflation in those markets? Thank you.
Yes. So I mean, you're fully correct. Inflation is a top focus for us, and not least in Norway and Sweden, where both that we alluded to earlier, we also have a currency impact coming into that. But you're right. I mean, one factor that we are trying to push as much as possible, which is also part of our synergies program, is making sure that we have as high as possible sort of rate of using our preferred partners. And yes, we do think that there is a potential to increase that.
It's part of our synergies program and especially when it comes to the motor part, that is where one area where we have a little bit of room for improvement. But this is very much sort of down to normal business for us and making sure that we limit the inflation as much as possible.
Yeah, and if I may add on that. If you look at the procurement agreements that we have for many of the spare parts in motor, it is also where they allow for a well-negotiated discount. But obviously, as the base price moves, given the weaker currency, that will have an impact on the total cost. So you just need to have that factored in.
Okay. Thank you very much.
Thank you, Vinit. The next question will be from the line of Faizan Lakhani from HSBC. Your line now will be unmuted.
Hi there. I had a question on the impact of FX. So when I look at your slide 5, where you sort of have the normalized level, and then you have a drive on FX, is there any implications of weaker FX coming through the underlying, or do you strip that out? And I guess sort of a connection to that question is: How is the underlying developing across 3 different territories, and are there any differences within the 3?
Sorry, I didn't get the last part. The difference between which three?
Between the different countries, so Norway, Sweden, and Denmark, what the underlying development is within the three different countries itself?
Okay. Yeah. So if I start with the FX, that is not factored in or has an impact on the underlying in any meaningful way. The details in between the development in the three countries, I'm not sure that we typically disclose. We're focused on how we work with our underlying across the segments and across the lines of business. And there you can see that there is a different movement in the Private segment as opposed to the overall group, given what is the consequences of the price increases in Commercial and Corporate. So distinction between segments, distinction between lines of businesses, but we don't give out details on geographies as such.
I guess the reason why I ask is because the implication that FX are well understood on the top line, but what's not clear to me is the implications of the weaker FX coming through into the claims experience, and where do we actually capture that? Because I know you mentioned in private, you've seen deterioration due to higher claim costs, but it's not... It's hard to work out what's going on on the claims side as well from the FX, and so I want to understand that a bit better, really.
But I think just coming back to the question that Vinit just asked, you will have imported inflation when it comes to, in particular, the spare parts on motor in Norway and Sweden, given the nature of the procurement agreements that we have there, where it is centered around a fixed discount that doesn't factor in the baseline movements.
Okay. Okay. All right. Thank you.
Thank you, Faizan. The next question will be from the line of Jan Erik Gjerland from ABG. Your line now will be unmuted.
Thank you for taking my questions as well. I have a question back to the capital distribution again, and you alluded a little bit to Barbara when it comes to buybacks and, and dividend per share. How should we read your thinking about this, pick up in, in the Q4 dividend per share versus this buyback. Is this sort of the, this buyback tool a, a sort of a, way to get ahead of, of the dividend per share increase in Q4? Or - or how should we think about that versus what other analyst talks about when they also potentially buybacks program after this DKK 1 billion? Is it so that you should still expect a, a pickup in the dividend for Q4, or is this done canceling this out? Thank you.
Yeah, thank you very much. No, I think basically I've seen it in, in some of the reports, but what we have been doing in the past is, when we come out with the Q1, ordinary dividends, that is basically, the, the grounds for how we will pay out, the quarterly dividends every quarter in, in that particular calendar year. Then historically, we have been assessing at year-end, so when coming out with the, Q4 or full year results, if there is any headroom for additional capital returns.
As mentioned, in this particular quarter, we have seen that, the levels of our solvency and, and, also taking into account the, the well-progressed integration of the, of the business, we have assessed that this is the timing for us to return, extra capital to our shareholders this year.
Okay. So we should not expect anything more in the Q4 this time around then, is your message?
I think let's enjoy or be happy about the fact that we are doing a share buyback on top of the ordinary dividend in this particular quarter.
Indeed. Thank you.
Thank you, Jan. The next question will be from the line of Martin Gregers Birk from SEB. Your line will now be unmuted.
Thank you so much. Perhaps coming back to the company announcement that you guys sent out, I guess it was some weeks ago, in relation to your organizational changes. Could you please motivate it? And why was this costing shareholders DKK 180 million? I guess many of the steps you are taking seems to be a natural progression of your business and why isn't that just included in the restructuring costs you took up front in connection with the RSA transaction? Thank you.
Thanks Martin for that question. I think to put it very clearly, right? The world has changed quite a lot since November 21, 2021, where we announced our recent Capital Market Day. The macroeconomic picture the general business environment has changed quite significantly, and it is more challenging today than it was back then. Therefore, we are reducing the number of staff by between 250 and 270. That is linked to the DKK 180 million that we are putting aside for that. We're doing it through because of the merge between commercial and corporate, and also because of the alignment of the Swedish organization.
I think having become a larger group, we must continuously ensure that we use and leverage our size and scale, and we use it in the most efficient manner, even and especially in navigating a challenging macro environment. So, you know, by doing this, we are firmly repeating our financial guidance for 2024, and we are also paving the way for the next strategy period towards 2027. So I think this is a natural extension of the fact that the macroeconomic environment has changed. We are adapting to that, paving the way for firm 2024 targets, but also for the future strategy periods. I think this is a natural progression of things changing around us.
Yeah and if I may add, Johan, I think also we've shown today the development on our corporate segment, which was a strategic priority in our Capital Market Day strategy. We are done with some significant parts, already a year in advance, and I think the inspiration we have got from from the new business that we have acquired, sort of, gives us comfort that it's the right move to put together the commercial and the corporate teams in Denmark and Norway. So it's very much progressing along the strategic direction we set out a few years back. So that is what we are carrying through, what we announced a few weeks back.
Okay. Thank you.
Thank you, Martin. As a reminder, please press five star to ask a question. The next question will be a follow-up from the line of Youdish from Autonomous Research. Your line will now be unmuted.
Hi there. Yeah, just a question on capital allocation benefit by reducing you -
Sorry Youdish, we can't hear you. I think there's a problem with your line. Can you turn on the volume or, or something?
Sounds like a headset issue.
I will just advance to the next question here. The next one will be Tryfonas and it's also a follow-up. Please go ahead. Your line now be unmuted.
Oh, hi. It's just a question on pricing in Sweden. It looks like it's tracking well below the likes of Norway and even Denmark, while inflation in Sweden is actually the highest between the three countries. So, and clearly, you said you're raising prices, but I was just wondering, can you maybe share some additional color on why is that the case, and should we expect more to come in Sweden? That was my question. Thank you.
Thank you. I think you, you're referring to slide number 9, which is in the deck. And I think first of all, it's important to note here that these are average prices in nominal terms. It's not rate... and there are some risk mix changes, in particular for Sweden, as for instance, in the property and casualty segment, in personal lines, we are signing more new business, which is on sort of risk, less risky apartments and a little bit less on more risky builders, et cetera. So actually, you shouldn't make the conclusion that Sweden is lagging when it comes to price increases.
I think it's actually sort of the other way around, that we're very diligent in our pricing, also when it comes to Sweden, fully mitigating for the inflation that we're seeing.
Okay. And in terms of the car then, the motor pricing that also looks like it's not as high in Norway. And again, you have similar sort of drag from FX effects there and the inflation. So, is anything you can share on the motor side?
Yeah. So I, I didn't catch the first part of the question. Can you just repeat that?
So on the motor side, it looks like it's similar dynamic, and pricing is rising much less than Norway. But you still have the same headwinds as Norway, so effects and the inflation there. So is there any reason why pricing is sort of not as high as Norway in Sweden, in motor?
Yes. So one particular one for especially for the Norwegian market is that our share in new cars is much higher relative to the other markets, Sweden included, given the fact that we have the Enter brand in Norway, which is very much focused on new car sales. So the fact that we are pricing have higher rate increases in Norway is very much related to that. And then sort of on top of that, the same comment goes, as I said, for the house insurance in Sweden, that motor price increases is very much sort of in line or slightly above the inflation, and we continue to be very diligent on that.
Very helpful. Thanks.
Thank you, Tryfonas. The next question will be a follow-up from the line of Asbjørn from Danske Bank. Your line now will be unmuted.
Yes hi, just to follow up on the, on the free portfolio equity exposure, just perhaps to make sure I understood, what you said, previously. So basically, the reason you're using futures is because you want to have the flexibility and, and actually reverse the, the decline that you've made in Q3 at some point. Was that, was that correctly understood? Hence, we should expect you to allocate more capital to the equity exposure in the free portfolio going forward, or, or did I misunderstand your... you there?
Yeah, I might not have expressed myself clearly, yeah. And I'm glad you asked the question because it's actually the opposite. We have used futures in this particular quarter because we wanted to have this downscaling of the exposure to equities, given, as I said, the long time of volatility. This is to be considered a permanent reduction. And it's just a question of operationalizing our intents, and that's why we used futures. So it will be put into the outright positions as we speak. So you can say it's just a question of a temporary use of futures to have the right exposure, and then it's the operationalization, that's a difficult word, which will take place. But consider the position in less exposure to equities to be permanent from here.
What about going forward? I guess with the DKK 2.5 billion still remaining, that still ties in quite a lot of capital. I guess your shareholders would, I guess they're showing you today that they prefer you to do buybacks and send out the capital to, to shareholders instead. So, so is that something we should expect for the next, let's say, 6-12 months, to actually remove all the equity exposure and send back, capital to shareholders?
Mm-hmm. I think it's an interesting thought. As always, we look at the asset allocation across our full free portfolio, and when looking again at history, equities have actually contributed with nice yields also in the past. So we continuously monitor what is the right risk profile, what is the right yield profile on our free portfolio. But as such, we like to have low risk across the board. But there is also some value in having the asset allocation. As you know, we have ranges that we can move within, in our investment policy, and once a year, we always go in and look at the overall investment policy and what we would like to have as the more strategic direction for the coming year. So we assess this on a recurring basis.
Okay, thanks.
Thank you.
All right. Perfectly clear. Thanks. No, can I take another question?
Yes. Now that you ask so nicely.
Okay.
Yeah.
Just a final one, but on the slight increase on the weather claims. I understand what you're saying, that, that weather is difficult to predict. It's just, considering that you also have, changed your, your, retention levels, to mitigate some of the reinsurance price increases going into 2023. Just wondering whether, or adding, sort of climate changes to this equation, do you see a risk on your DKK 800 million filings going forward or as normalized weather claims?
I think when it comes to climate and weather claims, it is really important to sort of make the difference between sort of what is trend and what is volatility. And here we're trying to clearly say that we have a lot of volatility when it comes to weather claims, which we tried to illustrate in the slide that we showed earlier. I mean, obviously, in addition to that, there is a big sort of both debate in society and a lot of research going on when it comes to the trend. Obviously, we are following that extremely closely.
We are sort of working with some of the external expertise in that in order to understand it as good as possible and to factor that in into our underwriting and pricing and also our product management. So that's very much sort of a standard part of what we do here and now and going forward.
Asbjørn, just to add to that, I totally agree with Mike, but you know, bear in mind we are a short-tail P&C company, so should these assumptions change, it shouldn't take us too long to integrate that into our tariffs and products. So when we feel comfortable with the level for now, should it change, we feel comfortable we can push that through.
All right. Very clear. Thanks a lot.
Thank you, Asbjørn. The next question will be a follow-up from the line of Vinit from Mediobanca. Your line now will be unmuted.
Yes, thank you for the opportunity. Just literally, a follow up from Asbjørn's question just now. The large losses also, you know, have been now two years running above likely. I mean, last year was above the target or guidance, DKK 800, and this year is likely to end up higher, too. I'm just wondering, and you said you retained it for the future. I'm assuming that you can just confirm that there is no patterns you're observing in these claims, but is there any risk that you see that this is because of inflation, or is it because of something else happening, because of the portfolio acquisition of RSA or, or something else that. Just want to understand what are the risks to keeping that DKK 800 in the future years? Thank you.
Thanks for that question. I mean, if we look at our large losses, both this year and last year, I mean, we can see that there are no particular patterns in that. It's not a new business. It's customer relationships that we have had for a long period of time. We can see that there is a bit of an overrepresentation of Swedish large claims in that, but also when looking at sort of the Trygg-Hansa book for the last 5, 10, 20 years, I mean, this is very much sort of something that's again is volatile and coming from customers that's been in the book for a long period of time.
So there is nothing standing out, nothing sort of particular in that, but obviously, we do sort of the full analysis, taking the necessary actions in re-underwriting particular customers, which is the standard way of sort of learning from these large losses. And that's ongoing, but we see no reason for changing our position on the DKK 800 million as communicated before.
Mm-hmm. And I think just taking into account the large claim that we had in Q2, that alone has a huge impact on the full year number, so.
Yes. Thank you very much.
Thank you, Vinit. The next question will be a follow-up from the line of Faizan from HSBC. Your line now will be unmuted.
Hi there. If I can ask two questions. One is sort of just a reiteration of what people have asked already. And it's coming back to the capital returns. Just, I guess asking the question differently, what is your policy in terms of capital return? What are the drivers? What are the sort of the key points that, you know, dictate that you to return excess capital return? 'Cause you've been above the 190% solvency ratio for some time now. You're still above that level. Just help me to sort of understand what that conversation looks like internally and what the trigger point is. The second question is, you point out deterioration in private from motor, but nothing has been mentioned on travel.
Can we assume that the issues on travel, at least year-on-year, have stabilized? Thank you.
Yeah. Maybe I can start with the second question. So, you - you're absolutely correct. We haven't mentioned travel, and for exactly that reason, that the situation has stabilized. We have driven quite some initiatives towards the travel segment, so we see a level which is sort of unchanged relative to a year back. Having said that, we continue to see the positive momentum coming in into the P&L, where we do expect sort of positive movements going forward.
Okay. Thank you.
Yes and if I should answer the one on the capital return and the triggers for how we decide what to pay out, I think as a standing principle, we say that we would like to return between 60%-90% of our operating profits in terms of capital to shareholders. We always look at how comfortable are we with the capital position, taking into account that we have just taken on board a relatively large new business given the RSA transaction. You have seen in the last couple of years a number of one-off items, integration cost, et cetera, et cetera, hitting our numbers. We have had a 2022, where only three quarters were on a fully consolidated basis.
I think all of that taken into account, we have allowed ourselves to be comfortable with, you can say, the more long-term outlook for the capital position. That's also where we are today. We can see that we are continuing to have a strong capital position, and hence, we return the funds in the DKK 1 billion share buyback. So coming back to what are the triggers? Well, the starting point is looking at the promise we have given around the 60%-90% of operating profits, and then, taking into account how does overall considerations around volatility and business investments, et cetera, look in order for us to assess the solvency position.
I guess just to add to that, I think in general, taking a step back from some of the questions we've just had in this session, we like to be a stable and predictable company. We'd like that to be predictable, both in our strategic focus but also to have some sort of stability around our solvency position. So you shouldn't expect big swings from us. If we do changes, we'll do it gradually, and I think that's what you're seeing today.
Mm-hmm. Sure. Appreciate that. Thank you.
Thank you very much to all of you for the good dialogue and the good question. As always, investor relations will be around to follow up on anything you may have. Yes, thanks a lot again and we'll speak to you soon.