Earnings Call: Q1 2021

Apr 30, 2021

Good morning, and welcome to the investor presentation of EAS for the Q1 2021. Well, first to go through the highlights of the quarter. It was a good quarter with a return on equity in this for 3 months, 11.2 percent. Investment income, SEK 2,500,000,000 and return on with a return on investment of 5.8%, driven by the listed equity 17.6%. The investment portfolio has increased and is now SEK 42,000,000,000 Compared to the same quarter 2020, we see a turnover in earnings of SEK 4,000,000,000 and the profit in this quarter SEK 1,900,000,000. We have a strategy, clear strategy for the future and we think ahead and invest in the future. Last quarter, we introduced the driving indicator, Brkavisir, which is known in English as pay as you drive or pay how you drive. And at the time we published it, it was the most popular app in Iceland at that time. We now set a focus on life and critical illness insurance and we are changing the buying process of those as next digital project. It's good to be in a company with the courage to challenge the existing insurance world and change how insurance works, and we certainly are doing that. The highlights for the quarter, the premium, SEK 5,500,000,000 profit, I said earlier, SEK 1,900,000,000. Compound ratio, seasonal FX there, €108,000,000 return on investment, 5.8 percent return on equity in this 3 months 11.2% and the solvency ratio strong 1.45. In this income statement, you see the turnarounds where the total income increased by 50%. The claims incurred decreased by 20% and we also see a turnaround in the technical interest rates and exchange rate charge of technical provision compared to the same period last year. Given the profit for the period, NOK 1,900,000,000 compared to almost NOK2 1,000,000,000 plus last year. Looking at the premium, we see a small increase in non lab part, 3.9% increase in the life insurance part. But as mentioned earlier, the discontinued business, which is the closure of the foreign reassurance business we have talked about earlier, has almost a 0 premium according to our plan compared to SEK 60,000,000 premium last year. It's also worth to notice the development of the premium. And we see the decrease in the motor business, which is more or less due to the car rental business in the travel industry or tourism. And of course, this quarter compared to the same quarter 2020, where the COVID effect had not started. So we see a clear effect on that on the premium compared to the Q1 2020. Looking at the development of claims, we see the total claims decrease over the period. And it is worth notice on the claims ratio picture on the bottom left to have a quick view on the development of the quarter 2020 and now 2021. As we discussed and showed in our presentation for year 2020, We saw the effect in the Q1 2020 to be affected by the strengthening of the reserves and the runoff, negative runoff. We saw an effect in quarter 2 in 2020, more or less due to the COVID effect on the foreign reassurance or our discontinued business. The Q3 was more or less business as usual, but in the Q4, as we stated in the investor presentation for the year, was affected by a revised methodology on how the estimate is calculated. And it's good to see that the Q1 2021, you can see it's more or less stabilized, which is according to our plan. We see the increase in claims provision on the upper right picture going from SEK 17,600,000,000 at the year end 2019 to stabilize the level in SEK 20,500,000,000 to SEK 7,000,000,000 now. And the development of the claims ratio we see on the bottom right picture. We have 2 claims over SEK 50,000,000 in this period, affecting the claims ratio by 4.3%. The weather in Iceland was good in this quarter compared to the similar quarters last year's and the claims ratio or the underlying claim ratio for 2020 is 80.7%. Run offs in this quarter is on satisfactory level 0.8% and then the discontinued business affected claims ratio by 2.4%. Looking at the operation, we see the year combined ratio 12 months rolling. Of course, as I explained last year, we have seen we saw an increase in the compound ratio due to the working on the best estimate in claims reserves we did last year, but we according to our plan are seeing that 12 months rolling combined ratio going down according to our plans and expectation. Looking at operating expense, we see it on a level which we expected. It is worth notice that in Iceland the salary index has increased quite dramatically. Over 12 months, it's calculated up to 11%, but it's worth noticed that compared to the Q1 2020, we have 5 percent fewer employees. So the salary has increased not 11%, but approximately 1.7%. Of course, we were due to the release of Equivisir, we put a lot effort in the marketing side. So, but all in all, our expectation for the year regarding the expenses, to be on a similar kronor as it was last year, that holds. Looking at the balance sheet, this is the seasonal effects we see here. We see the technical provision increase and also the account receivable, but that is due to seasonal effects and it's expected as known to be lower in the coming months. Well, it's worth notice that we have changed our how we put our forecast for the business. We have set the forecast as amount at the year end. But now we have changed it and we are focused on the insurance part and make focus on that. But we exclude the we do not set out a forecast for our investment part. As a part of that, we have increased information on our investment. And I would like Arthur, Head of Investment to come up and go through that in more details. The floor is yours Arthur. Thank you, Halki. I will start off by talking about the income return on the Q1. It was a strong quarter for the company with $2,500,000,000 in investment income on the back of really strong Q4 of last year. The income was mainly driven by the listed equity part of the portfolio, 17.6% return, which is quite strong in absolute, but also in relative terms compared to the benchmark, it was the benchmark was up around 10%. The fixed income side was also strong. We saw rise in all classes, mainly munis. We saw a strong return there compared to an active income from the government bonds. So we have a positive effect on that and also strong returns on the other bonds, mainly corporate bonds, domestic and foreign. So all in all, a strong results for the listed part of the portfolio. Other equities were affected by increases in valuation. I can mention that Coripharma, Credit Suisse and Controllant as well as Alonoma, which we sold during the quarter. Asset allocation, the main changes there, we see a rise in the listed equity part, which is mainly due to price increases within the class. We were decreasing somewhat the other bonds, increasing common bonds and munis, but you have to take a fact also that we paid out dividend during the quarter and we were in buyback. So all in all, paying 2 crores roughly SEK 2,000,000,000. The return in the quarter, 5.8%, which is really strong, especially if you compare it to Q1 in 2020, when we were seeing the first effect of COVID and the cost that was down by 0.5%. As Elkie mentioned, we our plans to give more detail about the portfolio and here we see the investment assets, which we sold $42,000,000,000 all in all. We split it into fixed income and equities. The fixed income part is SEK 26,000,000,000 and the equity part is SEK 16,000,000,000. The duration of the fixed income portfolio is 3.1 years and the inflation and taxation of the domestic bonds is 52%. The main story of the quarter, we were decreasing the duration of the portfolio and we were increasing the inflation in taxation a little bit too hard to portfolio against increased inflation. And you can see that in the 10 largest holdings that the 2 largest fixed income holdings are inflation in tax funds. On the equity side, it's split up into list equities and other equities. The 10 largest equity holdings you can see on the right hand side of the slide, The main changes there we see Marr, a new company on the list. But what we are also doing now is we are giving more light on the other equity part of the portfolio and other equities are unlisted equities and also private equity funds. And you can see on the left hand side, the 5 largest holdings we have within the unlisted part and there you can see Cori Pharma and also amounts of each asset, maybe for Clarity and Control. And with this, we would like to shed more light on portfolio for investors to for themselves to calculate the changes in the markets and the fact it has on the company. Now the last slide I wanted to go over is we have mentioned this before. Our focus is very much on return on equity and large part of that is the equity ratio and the capital structure of the company. The company set out in Q2 in 2018 to manage the capital structure and decrease the equity ratio. We were at 35% at that point. But I'm happy to say we're down to 28.5% currently. Our target is 25% to 28%. So and within this period, we have paid SEK 8,000,000,000 to shareholders. Now asset allocation, as you can see from 2017 2020 we were decreasing our ownership in equities and increasing fixed income. But we saw opportunities in the listed equity space and we increased our shareholdings last year. And as you can see at the end of Q1, the portfolio split up roughly 61% in fixed income, 39% in equities. This has resulted in good returns on the investment and for shareholders. As you can see, the return on the portfolio was 14% last year and 5.8% in the 1st quarter. And lastly, I would like to emphasize what Helke has also mentioned that the investment portfolio is $42,000,000,000 and has never been this large before and we also show the amount we hold in equities and fixed income. And with this, we would like to emphasize that we have room within the company to pay out to shareholders and we can manage the market risk with, for example, decreasing equity holdings and increasing fixed income holdings. And with that, I would like to give it back to Helgi. Thank you, Arthur. Coming then to the solvency part. Solvency ratio is strong, 1.45 after they paid dividend and the buyback, which was in the Q1. The market risk is increased in this period and more or less due to the increase of the equity portfolio, but also due to the symmetric adjustment. But as Arndtner mentioned, there is a room and space to continue our buybacks and it's glad to say that yesterday the Board decided to apply for buyback of EUR 500,000,000, euros which is according to our plan for the year. So looking at the shareholders list, 56% pension funds and we see on the upper left picture, the payments to shareholder. And this year, we mentioned there the dividend by SEK 1,600,000,000 and buyback of €500,000,000 And in addition to that, we expect to see at the end of the second quarter the NOK 500,000,000 buyback, which was accepted in the report to apply to the authorities to start when the answer comes from the authorities. Well, as I also mentioned earlier, we have changed our how we set out our expectation for the year. We have until now look at the bottom line for the whole total business, but the business is volatile and we have decided to change the way we look at the outlook for the year. We now focus on the insurance part, I said an outlook in that to be 97% to 99% combined ratio. And as I mentioned earlier and Arndtavor talked about also, we are excited to set up more detailed information about our investment portfolio. So that is more in line with the way that to expect the profit for the year to calculate the investment part, but we set the outlook for the year on the combined ratio. It's of course worth mentioning that our goal and target for the combined ratio is 95% and the return on equity target is at least 50%. Well, looking ahead, on the investment side, if you look up the our net investment portfolio, you can see that the second quarter has a good start. We have applied for the UN BRI, 1st Icelandic insurance company, proud of that. We have increased information on our portfolio. And as I mentioned earlier, the Board decided yesterday to continue share buy to apply for buyback of SEK 500,000,000. On the operation part, we have put emphasis on the strategy management and we have a clear purpose, values, future vision and it is not only a triangle, but we use it in our management and how we approach project and prioritize them. And the area of focus we have set there and that is the way we believe we should work on and focus on to get for where we are heading for our future vision. Well, there is a change in the management team. Wacker is leaving up 3 very good years and we thank them a lot, but we are having a new peer with us, which we look very much forward. And also it's worth mentioning that we're changing the arrangement of the monthly information. We have decided to stop giving the monthly information on the compound ratio and investment returns that has proven to be given more uncertainty than not. And we are therefore aiming on having more information and discussion on our quarterly investor presentation. And we see higher than digital development with a clear goal, a clear agenda, changing how the insurance work and with the aim of decreasing claims and for not only for the company and our insurers, our customers, but also for society as a whole. With that, I would like to thank you for the time and hope you have a good day. Thank you.