Earnings Call: Q2 2021

Aug 19, 2021

Good morning and I would like to welcome you to the Investor Presentation for Lease in Quarter 2 in year 2021. We start by looking at the highlights for the quarter. We had a very good investment results, one of the best since listing and a return of 6% on the investment and the leading to the investment income of SEK 2,600,000,000 in the quarter. We are proud to be the 1st insurance company to be part of the UN PRI this quarter. And on the insurance part, we see a strong turnover in earnings. We have strong underlying insurance business in the quarter. We have finalized the implementation of the new reserve process and we go better through that in more details later in this presentation. We have a profit of ISK 2,800,000,000 before tax, which gives a 14.4 percent return on equity in the quarter. The common ratio is according to our plan, 95% of revenue. In our digital journey, we are very proud of the steps we have been taking and as a reward for our work there, we are proud to have received the award for the Rokoviciv, the pay as you drive project, which we have been offering part of this year. We are still working hard on our particular journey, and we are now transforming and changing the process of purchasing life and critical illness insurance, an important part of our business. And also, we are proud to have implemented in this quarter huge changes in the comprehensive insurance for car haul, which now is the best protection available in the Icelandic market. We're looking at the highlights for the quarter. The premium CHF 5,600,000,000 the profit, as said earlier, CHF 2,600,000,000 combined ratio, 95.3, comparing to 103.5% last year. Return on investment, 6%, return on equity, 14 point 4% and the solvency ratio strong 1.58. Looking at the 6 months, we have a premium of CHF 11.69 in the period, profit of CHF 4.5, a turnover of CHF 5.5000000000 quarter to quarter, combined ratio CHF 101.6, return on investment CHF 11.8 and the return on equity for this period 25.5%. Looking at the income statement, the highlights there and to point out eventually is the claims incurred. They are decreasing over the period, but it's also worth mentioning that the reinsurance here there has increased due to one big claim of SEK 500,000,000 reported in this quarter, but that claim was fully reinsured. So it has a limited effect on our bottom line, but it increased the reinsurance share of claims in this quarter. Technical interest rates and the exchange rate, change of technical provision has changed over the period. This quarter, the investment has been increasing compared to a decrease on the same period last year. Operating expense is on the same level according to our plans. And the bottom line, they are SEK 2,600,000,000 and a change over the 6 months or from minus SEK 1,000,000,000 to plus SEK 4,500,000,000, percent, a change of €5,500,000,000 At the bottom we see the ratios, return on equity, €14,400,000,000 percent, combined ratio 95.3 percent and the basic and diluted earnings per share 1.4 percent this quarter. Well, looking at the premium in the quarter, we see an increase there. The discontinued business is smaller than compared to the last year according to our plan. It is a runoff of the foreign reinsurance business, which we have discussed earlier about. But it's good to see the increase in the non life and life insurance premium. We see the increase in the non life is driven by motor insurance, mainly two reasons, we believe. The tourism has increased in Iceland and the car rental cars have the premium from that business has increased, but also we have seen an increase in the motor due to our product, Rokovic, the payer should drive product. So we have an increase more or less due to those two reasons. At the bottom right picture, we see premium development over the period compared to the same quarter last year, where we have where we see this continued business has a decrease of SEK 190,000,000. Tourism is rising in Iceland. It's not come to a full effect, but we see in our booked premium this quarter that we see a continued increase in that segment. So we see a natural development in the premium according to our plan. We're looking at the development of claims. It's worth mentioning that the claim provisions have increased by SEK 3,000,000,000 over 18 month period. And we stated here that the implementation of the new process has now been completed, which has been a journey for almost 18 months. It impacted this quarter by 4.8%, which is SEK 272,000,000 and without that the combined ratio would have been 90.5%. We also see in this period, this quarter, the development of the claims in the bottom left picture, where we see the claims over SEK 50,000,000 is 0. As said earlier, the 500,000,000 claims reported in this quarter was fully reinsured, so it has limited effort on the bottom line. Reserve methodology is 3.7% taken in this quarter And the run off of 4.8% is our estimate of the run off for the year. And of course, this can be comparing to this 1 quarter premium high, but on the annual level it is within our expectation. The outlook for the year is unchanged. So we have stated that the combat ratio is estimated to be down at level 97% to 99%. Looking at the operation, of course, the compound ratio, 12 months rolling, increased the last year due to the war and the effect of the claims reserves on the business, but now has started to decrease according to our plans. Operating expenses, we have been able to hold back on the same level in kroner, which is good, especially looking at the salary, which have increased almost 10% year to year in Iceland. On the bottom, we see the operating segments, where we see it now both the insurance part and the financial operation on a positive level, which is according to our expectation. The balance sheet has seasonal changes more or less, but again the reinsurance assets has increased due to this their part in these 3 big claims. But other segments and parts are more or less due to some seasonal changes. Worth mentioning the equity ratio, which has increased due to the profit over the period. Well, as we see here, our assets has increased. The investment income was higher in this period. So I would like to give Arthur, the help of investment, to go in more detail in the investment return on this quarter. Thank you, Halki. Looking at the results for Q2, they were quite strong with IASK 2,600,000,000 in investment income, 6% return on the back of quite strong Q1 full year, mainly driven by listed equities, SEK 1,600,000,000 from that asset class returning 14.4%, which is quite strong compared to the market. We are seeing positive results from government bonds. So it's been quite negative over the past quarters. This is a good result. But perhaps the main news for this quarter were increase in assets on the other equity side. We're seeing a positive return from few of our unlisted securities, for example, Kontrola, Kerisits and Olkaren. But we had the negative results from 1 of the assets, Millbrook 105, which decreased by €180,000,000 so all in all, €640,000,000 from other equities. The main changes in the quarter, we are decreasing our assets in listed equities and moving more into common bonds and other equities are increasing because of increases in price. So all in all, very strong quarter, 6% compared to 4.4% in 2020. And looking at the 1st 6 months of the year, the return on investments is 11.8%, which is really strong, mainly driven again by listed equities. We've had really strong equity market in Iceland, But also looking at the return, 34.5% is quite strong compared to the benchmark and the market as a whole. So, our strategy in that asset class has been returning quite nicely. Funds asset classes, government bonds and other funds have been returning good results. Our focus on foreign credit in other funds have been giving us positive results. But as I stated before, return from other equities were quite strong, mainly in the second quarter. On the year until end of June, we have 22.2% return from that asset class And we are giving investors a little bit insight into our portfolio there, what companies we own and when we invested in them. And we have seen a few of the names on the slide. There's a small name 2 thirds of our unlisted equity part and many interesting names there. Few of them have actually gone public and we are looking to seeing more of them going public, both in Iceland or other markets in the near future. So, really strong 1st 6 months of the year with SEK 5,000,000,000 in investment future. Now looking at the assets as a whole, we split it up into fixed income and equities. Our portfolio is SEK 44,000,000,000, never been bigger. SEK 27,000,000,000 is in fixed income. The duration of the fixed income part is pretty much similar to end of Q1 for 3.2 years. Main changes we are doing this in the second quarter, we were decreasing the indexation of the domestic bond part, taking it down from 52% to 42% and we can see that change in the 10 largest fixed income holdings. So a little bit decreasing the indexation of the portfolio as a whole. And looking at the equity part, SEK 17,000,000,000, 73% in listed shares. And mainly, we have been decreasing some of our positions in second quarter. And we can see that, for example, in our AdiAm Steak, Siemens and Festive. We are also giving on the slide the value of our 5 biggest unlisted holdings and there you can see Coripharma, Control and Fattening, which is a company that holds our Blue Lagoon shares, Kerchits and El Kerin. So $44,000,000,000 our investment assets have never been bigger. So with that, I will turn it back to Helgi. Thank you. Thank you, Artur. Well, looking at the Solvency, it's quite strong, 1 point 58. The owned funds increased due to profit, but it decreased due to the share buyback in Q2 and the remaining at that point, but includes the whole share buyback of SEK 1,600,000,000 for the whole year. So a very strong solvency ratio of 1.58. Looking at the shareholder slide, we see the changes from 2020 to 2021, where we did not pay anything to the shareholders in 2020, but this year we have paid dividend of SEK 1,600,000,000 and also the buybacks of SEK 1,600,000,000 leading to the 11.6% number in the upper left picture. It's worth noting 2 things on this slide. Our own shares are 5%, seeing in the of the 10 largest shareholders list and also that we have our foreign funds coming in, even though it's a small part compared to what it was like over 1 year ago, but we have seen a little change there and we have a 0.5% of foreign tons. A good development there. Well, Lundgrenkaf is sustainability. This is important part of our business and we are working both internally and externally on implementing that in all of our processes within the company and culture. Of course, the insurance business is mainly driven by 2 factors, the investment part and the insurance part. And we are proud to be the 1st insurance company to be part of the UN PRI this quarter, but also we know our responsibility to work on prevention program and preventing claims. And the goals we have of these many goals working on in this area, we work specifically on the number 3 and 3.6, where it is to decrease number of accident and death accident. So, we have put a lot of effort and work implementing the sustainability within our work, both investment part and the insurance part, but also within the culture of the company. And we know our responsibility there and we are aware of what we can do and we like to be more efficient on that and hope to be able to show you more of this work in the near future. Well, looking ahead, we are on full swing. The investments in this quarter has started very good. We have interesting and challenging time ahead of us in the investment part, all the unlisted shares, which Arclor just recently talked about. We have a low investment environment. We have a high equity share. So we have a lot of interesting challenges ahead, but the Q3 starts very good. We have changes in our operations, new Managing Director of Operations has started this quarter. We have a lot put a lot of effort and work in the insurance, changes made in the hull insurance, car insurance, which we have now the best insurance in the market. And on our digital platform, we are still taking huge steps and always looking at the same thing. The observation and how our customers are taking this, looking at their experience and talking to them, but also to making our process more effective, which is of course the main reason, one of the main reasons why we are able to hold the salary on the same level year to year. Also as mentioned earlier, we have changed the life and critical illness insurances and we are proud we will be proud and looking forward to announce that in the next couple of weeks. So a lot of things going on and we are looking promising on next quarter and next year's in our business. The outlook for the year, this slide is unchanged from last quarter. We still aim to have the combined ratio of 97.99 percent for this year, but we stated that our goal for the future is to be low under the 95% compound ratio level and the return on equity of at least 15%. To summarize this up, strong quarter, good investment income, huge turnover on the insurance part, with a lot of affected work and going on in company, GEMCO is a huge project for the future, which we can build upon. Thank you for today and I hope you have a good day.