Earnings Call: Q3 2021

Oct 21, 2021

Good morning, and I'd like to welcome you to the Investor Presentation of Q3 2020 of Wiese. First, the highlights of the quarter. Overall, it was a very good quarter for the company. Investment income are ISK 2,000,000,000 and a 4.5 nominal return on investment. And we have a 60.2 return since the beginning of the year. It's equity, listed and unlisted, who gives us strong results for the quarter. And it's also worth mentioning that we have decided Board has decided to start share buyback of around SEK 1,000,000,000 to the end of the year. This, of course, still need to approve by the regulatory part. It's good to see the insurance being on a very positive side, compound ratio of 90.5% in the quarter, strong underwriting result, same ratio of 68.6, the lowest in 3 years. We are aiming on simplifying processes, chasing how insurance works and simply setting out a better insurance. And we have been focusing on several insurance regarding that. And the newest one is the critical illness and life insurance, where we have made huge improvement in the process, which I will mention later in this presentation. It's also good to see how the development of the driving behavior for those who are using Orkavisir, and we see great improving of driving for those who are using this app. And we continue our development of Erkowisser, where we now have included in the app some kind of competition where we can compete who is the best driver within the group. We choose to deliver which we choose to compete within our family, for example. Full highlights for the quarter. The premium, NOK 5,900,000,000, profit of NOK 2.2 percent, an increase of 1.2 percent compared to last year. Combined ratio, 19.5 percent, as said earlier, return on investment 4.5 percent and return on equity 12.1% in this quarter, giving annualized 45% return on equity. Looking at the 9 months, we see an increase in the premium as well, SEK 6,700,000,000 profit comparing to a €15,000,000 loss for the 1st 9 months 2020. Combined ratio according to our plan and estimate, 97.7 percent return on net investment, 16.2 and return on equity EUR 36.6 over this 9 months. The income statement shows development, which we see in premium and earnings. The premium increasing by 3.8%. Investment income increased as well over the period. Claims incurred decreased. And it's also worth mentioning the technical interest rates and the exchange rate changes of technical provision, where we have a difference of SEK 962 1,000,000 comparing to the last year due to the increase of interest rate in Iceland in this period compared to a decrease last year. Overall, a good result. A profit for the quarter, NOK 2,200,000,000 and for NOK 9,006 700,000,000. We have here an overview of premium. Worth noting that this continued business is more or less out of the premium. So it's very limited. We see the development of premium within the Non Life part, driven by Motor maturity by Motor being the traveling business coming back, car rentals, etcetera. And also, we see an increase in occupancy, which is gives the result there we see. It's also worth noticing that the booked premium has increased by 6%, while the net premium for the period is increasing by 5% in the insurance part, leading to the fact that we see a strong premium increase in the coming months and quarters. The business is driven by data. It is necessary to use the data to estimate the future. But what we have been doing a lot for some years now and we have been testing is finding out which customers have more probability of having fewer claims in the coming period. Of course, we can never be sure what will happen. Customers with no claim for many years can claims tomorrow or next day, but we can use the data to estimate the probability of a claim to incur based on the data we have in the company. And it's good to see that the work we have been doing within the company shows that the group of A customers, which we show in the bottom right pictures, which is the most profitable customer groups, has increased over 2 years by 8.5%. Of course, one of the main driver for getting the insurance business having more profit within our business. And of course, in line with our future vision of decreasing claims and working with our customer on our prematches program. Well, the development of claims, this is kind of pictures showing that this quarter was relatively good. It has no big surprises and the claims ratio is 68.6% and has not been lower for 3 years. Irlenox are in good shape and according to our plans. And it's worth noticing the picture on the right where we show how we have how the change has been in digital claims handling. We started the journey in 2018. And of course, COVID gave it a huge had a huge impact on that. Well, but it's becoming quite of a large part of how customers report their claims to the company. And we are still working on optimization on these processes, and we have been focusing on the processes on those who have the most frequent claims like home contents claims, Cascaux, non work accident and travel claims. Of course, we have a lot of internal inspections on such a process, but this is something that has given us a good result at Cobhorst, and we are focusing on doing more work in this area in the future. Well, looking at the operation, we see the combined ratio is decreasing, which is in line with our estimate. Of course, the last 18 or 20 months has been affected by what we have had on the claims reserves, which we have gone through thoroughly for some quarters now. But we see that coming to an end and we have this development of increasing of the compound ratio for the next quarter and according to our expectation. The operating expense for this quarter is slow, but it is worth mentioning that this, in general, the 3rd quarter is seasonal low low based on how people take summer holidays and etcetera here in Iceland. But this is according to our plan, and it's also worth mentioning what was said last time that salaries has been on the same krona level this year comparing to last year, which is in line with our expectation. Well, here we see the balance sheet. It's more or less seasonal changes. We see that compared to the same period last year, we see the increase in claims provision, which we have stated earlier and the premium reserves. Of course, the equity ratio has increased due to the earnings we have had for this season. But it's also worth noting that the total equity and liabilities of SEK 60,700,000,000. Investment part plays a huge role in an insurance company like ours. And the last quarters has the investment that had an effect on our bottom line. And I would like Arnaud comment and go over the investment part of this quarter. Thanks, Helgi. As Helgi mentioned, the quarter was quite strong in investments. We had EUR 2,000,000,000 in investment income in the quarter. Since the Q4 in a row, we reached above EUR 2,000,000,000 in investment income. The return was 4.5%, mostly driven by investments in equities listed and unlisted. The changes in the allocation of the portfolio isn't that much. We see a little bit rise in unlisted and listed equities, but fixed income parts are quite unchanged during the Q3. So all in all, really strong quarter by 4.5% return compared to 2.9% last year. Now if you look at the 1st 9 months of the year, see that we have SEK 7,000,000,000 in investment income, gives up to 16.2 percent in return investments, which is really strong. And as I stated before, it's mostly driven by listed and unlisted equities or other equities. Listed equities returned EUR 4,400,000,000 during this period, which is 45% return, which is quite strong compared to returns in the market, index and comparable funds. Unlisted part unless the equity part has been rising over the past 2 quarters and we see 41% return on that asset class or EUR 1,500,000,000. The fixed income part is returning roughly SEK 1,000,000,000 during the period, which is quite good to see in a rising interest rate environment. So we're quite happy with seeing positive numbers, for example, from common funds and munis. The investment portfolio is SEK 46,000,000,000, has never been larger. And as you can see on the slide, right hand slide, part of the slide is going off from €35,000,000,000 to €46,000,000,000 over the past couple of years and has never been captured. Now lastly, look at the portfolio, how we're positioned into 4th quarter. The main changes we've been doing with the portfolio is increasing the inflation, indexation of the portfolio going from 42% to 48%. And we can see that in the largest fixed income holdings, the 2 largest are inflation indexed bonds. Our foreign part is 14% 15% of the fixed income portfolio and it's hedged against the ISK. And duration is roughly unchanged. It was 3.2 years at the end of second quarter and is 3.4 years now. Looking at the equity holdings, they are SEK 18,000,000,000. We've been decreasing some of our assets in the listed space. New names in the list are Breme and Kaltelon and the name that was at the end of Q2, Marel has dropped down from top 10. We saw a large increase in value of our unlisted part, as I mentioned before, mostly driven by Controlent. And you can see that the largest unlisted equity is our stake in Controlent, earns up to SEK1 1,000,000,000 and we increased the value of that asset during the quarter. Other dimension, Kvaerner, which is basically Plurla Kum, it was the value of that asset was increased as well and that those two assets drove the performance of the unlisted part during the Q3. So investment assets, EUR 46,000,000,000 have been larger. And with that, I will give it back to Helki. Thank you, Bart Lor. Well, looking at the solvency. Solvency ratio is 1.68 percent within the limit of 1.7 percent, which we have stated as a limit for the company. It's worth mentioning again that we there has been made decision in the quarter to set up a payback plan, which takes this solvency ratio down to 1.6. Of course, this still need to be approved by the authorities, but this takes the solvency ratio down to 1.6. The own funds increase from the profit and the changes in this SCR increased are made from the market risk, which is based on the increase in the investment part of the portfolio. So we have set up on the payment. We see the payment for sales listing 2019 14, where it has been paid out SEK 19,000,000,000 almost. And we have set out in 2021, we have added the proposed share buybacks of these 50,000,000 shares, which leads to the fact that if that will be affected and then finalized in the end of the year, we will have this 50.4% for this year 2021. Well, a little bit about our business and work within the company. We have set a focus on the sustainability part, not only as a guiding principle, but also work it and set it as a part of our DNA. We have decided to couple offset the operation and working with Natural Capital Partners on that. It's very good to see how the development of those who are using Orkovicir, how the development of driving behavior increase, which is a core fits directly to the sustainable development goals 3.6 of focusing on reducing car accidents. We have put a lot of effort on the market campaign, let safety fit. And this also is important milestone we had in this quarter where we have eliminated the gender pay gap. A few words on that, because equality is a decision. That is not something that happens overnight, but it is due to a long work in this area within the company, where back to 2,001, we had the first equality policy. Since then, we have been working a lot on this issue. And it's good to see that in this quarter, we saw the gender pay gap on 0 and a little under the line, which in our opinion shows that we have eliminated this gap. Huge milestone we have received and worth mentioning. On the business side, we have set an effort in this quarter on having on live and critical in this insurance, where we have automated the process on risk assessment. We have also made the critical illness part a better cover. And now it's possible to buy these insurers in a few minutes instead of many days and filling out many, many papers on land writing. A huge step in this important area of our business. And it's not only on the life and critical illness. Insurance, we have taken steps. We have taken these steps regarding local resource mentioned earlier. We have taken the steps in the comprehensive insurance of Casko, where we simply believe that we have the best cover in Iceland and also on the property insurance. A lot of work done in this area for the last few months. At the end, I would like to state the unchanged outlook for the year, where we expected the compound ratio to be between 97% 99%. But at the same time, we say that the future objective for our company is that the compound ratio is under 95% and return on equity, at least 15%. With that, I thank you for listening and hope you have a good day. Thank you.