Hello, and welcome to the Gjensidige's Q2 2024 results presentation. My name is Laura, and I will be your coordinator for today's event. Please note, this call is being recorded, and for the duration of the call, your lines will be on listen-only mode. However, you will have the opportunity to ask questions at the end of the call, and this can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero, and you will be connected to an operator. I will now hand you over to your host, Mitra Hagen Negård, Head of Investor Relations, to begin today's conference. Thank you.
Thank you, operator. Good morning, everyone, and welcome to the second quarter presentation of Gjensidige. My name is Mitra Negård, and I'm head of Investor Relations. As always, we will start with our CEO, who will give you the highlights of the quarter, followed by our CFO, Jostein Amdal, who will go through the numbers in further detail. We have plenty of time for a Q&A afterwards. Geir, please.
Thank you, Mitra, and good morning, everyone. We have put behind us a quarter with high claims in Norway. I will revert on how this has impacted our results and what we are doing to mitigate the impact on our profitability going forward. Now, let us turn over to page 2 for comments about the second quarter results. The profit before tax was NOK 1,830 million, an increase from NOK 1,334 million. The general insurance service result was NOK 1,434 million. This result includes a positive impact of NOK 402 million from a change in the risk adjustment. The strong growth momentum continued in this quarter, with insurance revenue increasing by almost 10%. Insurance service results decreased, mainly due to higher motor and property insurance claims in Norway.
Adverse claims in the first quarter also impacted results negatively. Our investments generate returns of NOK 540 million, and the analyzed return on equity was 20.2%. Jostein will revert with more detailed comments on the results for the quarter. A few words about property insurance on page three. The significant increase in property claims in the second quarter for private and commercial in Norway was due to fires. As mentioned earlier, property insurance is different from motor in the sense that claims frequency is much more volatile in nature, being more exposed to weather and stochastic factors, such as fires. While we see a long-term decreasing trend in fires, water damage is rising due to climate changes. We will continue to develop relevant insurance solutions with incentives for loss prevention.
The insurance industry is engaged in fruitful discussions and share valuable knowledge with municipalities to prevent losses. To this end, the recent parliamentary notice in Norway is very encouraging, proposing extensive measures to prevent weather-related losses. These include physical measures as well as mapping, planning, monitoring, and alerts. In terms of claims inflation, we expect to remain in the 5%-7% range for the next 12-18 months. We have increased prices over several years to take account of not only claims inflation, but also more frequent weather events. The implemented measures so far will raise average prices for more than 9% by year-end, and this will increase further due to ongoing pricing measures, gradually improving profitability. So over to page four. We have seen continued increase in claims for motor in Norway this quarter.
As you can see on this slide, motor claims frequency in Private Norway was up 5.8%. Repair costs have developed as expected, which, together with a higher share of more expensive type of losses, has resulted in higher claim severity. Our analysis points to several reasons for the rising inline claim frequency and claim severity in Norway. The growth in the vehicle fleet, with an influx of wider, longer, and heavier vehicles with more horsepower, is one of the most important factors. The post-pandemic rebound in driving has also contributed to higher traffic density. Economic growth and high inflation, partly driven by the weak Norwegian kroner, have also impacted claims. We expect claims inflation for private motor in Norway to remain at around 7% throughout 2024, gradually declining towards 4% over the next 12-18 months.
Other factors, such as weather conditions and modern cars with touch screens, have also impacted claims, in addition to the level of deductibles and bonus programs. We expect these factors to impact claims going forward, both in terms of short-term volatility and as long-term trends. Our prices shall reflect the expected long-term trend impact on claims. As you can see on this slide, we have continued to put through significant price increases. The implemented measures will increase average premiums by more than 13% this year. This will increase further due to ongoing pricing measures, with the level of price changes being brought to 17.5% from July. We are fully committed to improve profitability, meaning that we are willing to sacrifice some volume to achieve this, if necessary.
We will continue to strengthen, strengthen pricing measures and adjust terms and conditions to ensure that increase, that the increase in claims is mitigated. So far, we have been able to do this without any negative impact on churn. This is a proof of our strong brand and position in this important market. Our significant measures will gradually improve profitability as policies are renewed and premium earned. Moving to page five. I'm very pleased with the continued strong growth momentum in Private Norway. Retention remains very high, despite the significant pricing measures. Our recent top ranking among general insurance companies in the Norwegian Business School survey on customer satisfaction and loyalty is very encouraging. The new core IT system for Private Denmark is working well and supports sales activities. Revenues have increased strongly, but organically, both organically and with the contribution from PenSam, and customer retention is improving.
Our new agency partner, FOMO in Denmark, will further strengthen our position in the Danish private segment. Growth in commercial in Norway continues to be strong. The July renewals have gone well so far. Customer retention is high, and our market share has increased, passing 31% in the first quarter. I'm very pleased with this, having in mind that we are prioritizing profit before growth. Growth in Denmark is also strong, with organic growth supported by the Sønderjysk portfolio. Sweden is progressing well, with profitable growth and continued improvements in operations, particularly for claims processes through digitalization and automation. We will continue our efforts to increase profitability going forward through improving risk selection and implementing pricing and cost efficiency measures. Our Baltic business showed strong growth and continued improvement in profitability, driven by tariff improvements, portfolio pruning, and enhanced operational efficiency. Over to page six.
I have made a few changes in our group management team. After 18 years in Gjensidige, Aysegül Cin has decided to seek opportunities outside the group. She will be replaced by Vivi Kofod from the nineteenth of August. Vivi has extensive experience from our industry, and she has held various positions in Gjensidige, in Denmark, Sweden, and the Baltics. She is currently responsible for digital marketing and CRM in Private. Vivi will be a strong contribution to the management team. Other changes to be mentioned are the strategy, M&A, and group development, which are now part of the CFO division. This sustainable department is organized in analysis, product, and price, and communication, brand, and sponsorship are now part of our people and communication division. I'm very pleased with having a strong and very competent management team to run our operation.
The management team is highly committed to improve profitability and do what's necessary on pricing, risk selection, and cost efficiency. Turning to page 7 and our unique customer dividend model, which is an important retention tool. The customer dividend model, together with our ESG measures and Gjensidige's ambitions to promote a safer and better society, strengthen Gjensidige's important role in Norway. For the 16th time since 2008, the foundation has distributed its share of regular dividends from Gjensidige to our general insurance customers in Norway. This year, 890,000 customers will receive a total of NOK 2.5 billion, corresponding to 11.1% of the premiums paid in 2023. Over to page 8 and a few words about our product innovation.
Our SME customers in Norway are offered a new cyber insurance product with a more comprehensive assistance than earlier, including services such as technical and legal investigations, monitoring, and media and crisis management. We have also launched a new legal insurance for covering, among other, legal advice and assistance in the event of a dispute. In Denmark, we have launched a new bundle insurance concept for the young, and an insurance concept related to violence and threats of work for certain occupational groups. These are examples of how we continuously work to further develop our offerings to the SME segment and to strengthen our competitiveness in Denmark. Over to page nine. We continue to take important steps towards delivering on our strong sustainability ambitions... and it is very encouraging that our efforts are recognized.
Most recently, in the year's top ranking among all insurance companies in Norway in this year's sustainability survey conducted by Norwegian Business School. With that, I'll leave the virtual stand to present the second quarter results in more detail.
Thank you, Geir, and good morning, everybody. I will start on page 11. As Geir mentioned, we delivered a profit of NOK 1,830 million in the second quarter. I'm very pleased that we continue to deliver strong revenue growth. The insurance service result this quarter includes a positive impact of NOK 402 million from a change in the risk adjustment under IFRS 17. We calibrated the percentile on liabilities in connection with our annual assessment to better reflect our loss ratio target and cost of equity. The insurance service result was negatively impacted by rising claims, in particular for motor insurance and property insurance for private and commercial in Norway. The result in Denmark also reflected this development, with weaker profitability for motor insurance across both segments and property insurance in private.
Adverse development in claims for private and commercial in the first quarter of 2024 also contributed with 2 percentage points to the deterioration of the underlying frequency loss ratio for the group in the second quarter. We are closely monitoring the development in claims, tracking all relevant factors. Prices are adjusted swiftly and implemented on an ongoing basis, and with our solid analytical capabilities and strong market position, I am confident that we will improve profitability. I'm encouraged by the progress in both Sweden and the Baltics. The insurance service results increased, reflecting good top-line growth, improvement in the underlying frequency loss ratio, and enhanced cost efficiency. Our pension segment reported an increased profit compared to last year, reflecting a higher net finance income.
The development in other items reflects a higher result for mobility services, which was offset by higher interest rates, interest expenses, and subordinated loans, and increased amortization related to the Falck acquisitions last year. Turning over to page 12. Our strong growth continued in the second quarter, with insurance revenues for the group increasing by 10% in local currency. Growth in private was driven by both Norway and Denmark. The increase in Norway mainly reflects price increases, especially for motor. Market shares remained broadly stable. The revenue growth in Denmark was strong, driven by price increases for all the main products and some volume growth. PenSam also contributed to the growth, but even excluding this, the growth in Denmark was 9.7%. Revenues for commercial continued to rise significantly, driven by both our Norwegian and Danish portfolios.
The strong growth in Norway was driven by price increases for all products, solid renewals, and volume growth for motor. I'm very pleased that our market shares have increased while implementing such strong price increases. Growth in Denmark was driven by price increases for all products and higher volumes, resulting in an organic growth of 11.3%. The portfolio from Sønderjysk Forsikring contributed another 4.3 percentage points in growth in Denmark. The growth in Sweden was driven by price increases in the private and commercial portfolios. Adjusted for a premium correction made in the fourth quarter last year, growth measured in local currency was 4.5%. The strong revenue growth in the Baltics continued this quarter, driven by price increases in all the main product lines. Turning over to page 13. The group's loss ratio increased by 2.7 percentage points.
Excluding the NOK 402 million change in the risk adjustment I explained earlier, the loss ratio was up 6.8 percentage points. This was mainly driven by a higher underlying frequency loss ratio in private and commercial. Adverse development in claims in the first quarter of 2024 for private and commercial in Norway also contributed with approximately 2 percentage points. As mentioned, we are implementing targeted pricing measures to improve profitability. We are confident about the strong trajectory for revenues and expect improved profitability. Quarterly year-on-year comparisons may, as we have seen several times, be impacted by volatility in claims frequency and severity in the short term. Let's turn to page 14. Our group cost ratio improved by 0.4 percentage points, mainly due to efficiency measures and growth in insurance revenue.
Including the Baltics, our cost ratio improved by 0.4 percentage points to 12.5%. The cost ratio in Norway came further down this quarter, thanks to efficiency measures and higher insurance revenue. The private and commercial portfolios in Denmark showed a higher cost ratio, mainly driven by higher IT expenses. PenSam and the Sønderjysk Forsikring portfolio also contributed to a higher cost ratio. The cost ratio in Sweden improved due to increased insurance revenue and cost efficiency measures. The Baltics also showed a decrease in the cost ratio due to higher insurance revenue and good cost discipline. We have a dedicated focus on operational efficiency and will continue to put strong efforts into maintaining a competitive cost level. Over to slide 15 for comments on our pension operations.
Our pre-tax profit, adjusted for the change in the contractual service margin, was NOK 386 million, significantly up compared with the second quarter last year. We calibrated the percentile on liabilities for pension, similar to what we did for general insurance, resulting in a positive impact on the pension business, insurance result and CSM. The insurance result was down when excluding the impact from the change in risk adjustment and positive effects from model changes last year. The underlying development is positive. However, the reported results show a negative development due to losses on onerous contracts being recognized immediately and profitable contracts being recognized over time. Net finance income improved, driven by a higher interest level, rate level than last year, and moderate interest rate changes in the quarter compared to the same period last year.
Administration and management fees increased, driven by growth in the number of occupational members and assets under management. Results for our unit-linked business decreased due to a change in allocation of costs from our pension life business and a higher headcount. Assets under management rose to NOK 79 billion. Moving on to the investment portfolio, page 16. Our investment portfolio generated positive returns for all asset classes. The match portfolio, net of unwinding and the impact of changes in financial assumptions, returned 60 basis points, reflecting lower credit spreads and the fact that the investments did not fully match the accounting-based technical provisions. The free portfolio returned 50 basis points this quarter, reflecting positive returns from higher running yields and positive equity markets, whereas an increase in interest rates during the quarter had a negative impact on the results. The risk in our portfolio was broadly unchanged from the first quarter.
We have a balanced portfolio and solid fixed income investments, with a large majority having an investment grade rating. A few words on the latest development of our operational targets on slide 17. Customer satisfaction is at a very high level and confirms that our products and services are meeting or even exceeding the expectations of our customers, particularly in Norway. We will continue to seek further improvement in all markets. Our customer retention in Norway remained at a high level, both for private and commercial customers. Outside Norway, retention improved, driven by Denmark. Digitalization and automation are key measures to maintain high cost efficiency, with effect on both the cost and claims ratios. Our digital distribution index improved by 5.5% in the first half this year, driven by all three parameters: digital sales, digital customers, and digital service.
Later this year, we will start reporting on a new metric, distribution efficiency. Digital claims reporting increased this quarter, driven by Norway and the Baltics. Automated claims processing in Norway also increased. Over to page 18. We had a solvency ratio of 170% at the end of the second quarter, down seven percentage points from Q1. Solvency operating earnings and returns from the free portfolio contributed positively to eligible own funds, while the final dividend reduced eligible own funds. Bear in mind that the positive impact on the change in risk adjustment for general insurance and the pension business do not have any solvency effect. The capital requirement increased by approximately NOK 0.3 billion, with the main driver being higher underwriting risk due to growth. As you know, the approved version of our partially internal model differs from our own model.
The differences lie in the calibration of certain important parameters in the model, including the storm modeling. We sent an application to the Norwegian FSA on the storm model earlier this year. We are in close dialogue regarding additional documentation, and we will continue to have a dialogue on the remaining differences between our own and the approved model. If all differences get approved, the cap requirement will be reduced by another NOK 2.7 billion. I'll now hand the word back to Geir.
To sum up on page 19, we continue to have a very strong growth momentum, and our capital position is solid. The second quarter result was significantly impacted by high claims in Norway. The result in the first half this year will challenge our ability to deliver on our combined ratio target for 2024. Together with my management team, I'm fully committed to improve profitability. The increase in claims is being met with significant and targeted pricing measures. We will improve the combined ratio for the group and the underlying frequency loss ratio for private and commercial over time. And let me be clear, we maintain all the financial targets for 2025 and 2026. And with that, we will now open the Q&A session of this presentation.
Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. We kindly ask you to ask one question per person at a time. Thank you. We will now take our first question from Tryfonas Spyrou of Berenberg. Your line is open, please go ahead.
Oh, hi. Hi there, morning. I guess the question would be, maybe for you, Jostein. On your transition to IFRS 17, you mentioned 85th percentile you want to be at in risk adjustment, and that is slightly sort of aligned with your cost of equity. I guess, how has your estimated cost of equity changed now, and what is actually driving the change? I would have thought the cost of equity should be higher, not lower, given where interest rates are versus then. And just conceptually, on the adjustment on the claims chain and all the volatility, I was intrigued by the timing. On the surface, it looks like there's less prudence in the reserves, and a few, well, you perhaps make more. And then the other one is on motor in Norway.
If you can just clarify the comment you made on the fleet. Are these mainly electric cars in the fleet? It appears to have been a step up in new car sales, electric new car sales in 2023 due to change in tax in Norway. Can you please comment whether your market share also sort of saw the step up in terms of your business mix, and whether this could be one of the drivers behind the step up in frequency of claims? That's my two questions. Thank you.
Thank you, Jostein. The change in the risk adjustment is something we do once a year, typically, based on updated models and assessment of both the solvency targets and the cost of equity versus the risk-free rate. Normally it would not be. I think the change this quarter is probably slightly more than normal, or this year is slightly more than normal. It's a combination of reduced solvency rate to target last year, model updates at the end of 2023 going into 2024, and the difference between the cost of equity and the relevant risk-free rate.
And then, this is behind the change in the confidence level, from 85% to 80% of the probability distribution for the tail, the claims reserve in old terms. That was the first one. The second one on the electrical cars, whether our market share has increased, if I understood you correctly, was the first part of your question. And that's, I think we have a good market position. We are pricing electrical cars as we do other cars in the same profitability targets. There's no difference there. And market shares are overall broadly stable in the car markets in Norway, at least for us.
Can you just clarify? There's been a step up in new car sales in terms of electric vehicles in 2023. So if you have stable market share, that means you have structurally higher, sort of, insured cars when it comes to electric vehicles. So can that step up be, obviously, these vehicles have been associated with higher claims frequency and severity. Can that be... Is that a key driver of what you saw over the last year and what you're seeing now in your view? Thank you.
Yeah. We are not more exposed to EVs than other more traditional cars. Market share is approximately 25.6% when it comes to both EVs and traditional cars. If you go into the reasons or the drivers behind higher claims when it comes to motor in Norway, I think you can go back to slide four. It's not definitely not the introduction of EVs and the higher sales of EVs. It's more on the types of vehicles we are seeing at the moment. They are broader, they are longer, they're more touch screens and so on, and the driving pattern and driving behavior have been changed over time.
And what we are doing going forward is do all the repricing based on the level we are seeing at the moment and that kind of development. And we don't expect the frequency to go down and the severity to go down. So we are doing all the repricing based on the pattern we are seeing at the moment.
Okay, thank you.
Thank you. We'll now take our next question from Freya Kong of Bank of America. Your line is open, please go ahead.
Hi, thank you. I guess my question is, where has your claims experience year to date continued to negatively surprise versus your own expectations, given you've essentially revised down your Q1 figures? Is this more on the frequency or the severity side, or both? Because to me, it seems like the main difference versus Q1 was perhaps the more fires and property in Q2. And then just following up on this, do you think keeping an unchanged outlook for claims inflation in Norway, motor, and property is prudent given the experience we've seen so far?
Yes, you see from, I think, our two slides on property and motor in Private Norway would be helpful in seeing the changes in the, or what, or the claims experience, what it has been. And, I think the previous quarter, we reported a 5% underlying increase in frequency from Q1, and now we report a 5.8 increase in underlying frequency from Q2. So it means there has been a small step up in the change of the frequency development on private cars in Norway. And that is an underlying, there's no weather effect. On the Property side, we see a fairly high increase in frequency.
We think this is more volatile, so this is not so much a trend in our minds. I think on the combination of how this plays out into the next two quarters, we have seen claims inflation very much in line with what we have told you. It's within these improved that we have given you, and we think the claims inflation picture going forward for property, 5%-7% is prudent, and around 7% for motor is also prudent as a claims inflation picture. If you look at our pricing measures, that takes into account the effect of increased frequency and the type of claims we've seen.
We are, as you see from these slides, pricing up much more than the expected claims inflation.
Okay, thank you.
Thank you. As a reminder, once again, we kindly ask you to ask one question per person at a time. Thank you, and we'll now move on to our next question from Alex Evans of Citi. Your line is open, please go ahead.
... Hi, thanks for taking my questions. Firstly, just a clarification. I think you previously had the target of Norwegian private lines underlying improvement at some point in 2Q and 3Q. Is that no longer the case? And then secondly, just on the movement in risk adjustment, your previous sort of, run rate of reserve releases was about 2%. Is it possible to give any color what you think the movement in the risk adjustment means for, for that now? Thanks.
Okay, taking the first one. We are strong and committed to improve our profitability. The combined ratio for the group, underlying frequency loss ratio for private and commercial will improve over time due to the significant ongoing pricing measures, and the disciplined prioritization of profits over volume. And as you know, quarterly comparison may be impacted by volatility in claims frequency and severity. But if you look at the July renewals for motor in private Norway, the prices billed are increased by 17.5%. And if you look at the average number when it comes to premiums for motor in Norway, last year, the average premium increased by 7.7%. And for this year, we expect the prices to increase by 13% on average.
In addition to that, as I told, we are increasing the prices further, going forward. So, renewals from July will have price increases on 17.5%. These are significant price increases and will improve profitability, and we are fully committed to do that going forward. Excuse me, just to repeat a bit on the risk adjustment question, please. Follow up a bit there.
So, I mean, historically, you've had reserve releases of 2%. You're obviously moving down and being less prudent in that. Is it possible to give us any sort of quantification of where you think reserve releases on an ongoing basis sit now?
Oh, sorry. Sorry, that's the and the reserve releases are of course related to the risk adjustment. I'm sorry, I misread you there. Now, that, on the reserve release side, I think what we are telling you is as before, that we do not guide on any reserve releases, and just point to what it has historically been, excluding these five years of communicated specific reserve releases that we took out, that NOK 1 billion a year. If you look back at the history, it's around 1%, 1%-2% a year. This quarter was 1%, I think, and we don't have a specific target for that.
Thank you. We'll now take our next question from Ulrik Zürcher of Nordea. Your line is open. Please go ahead.
Yeah, thank you. I was just wondering, have your ... You previously said you expected around, you know, 12%-13% claims inflation using, for motor in Norway, using 2022 as a base, and then 5% increase in claims frequency over, again, over two years. Have any of those components changed for you now? And then just secondly, if you might, a short one, is like, is it possible to quantify the surprise on property in private and commercial Norway? Because, like, I mean, the surprise to expectations are very big.
The two-year figures for the claims inflation, I mean, two years, around 12%, claims inflation, that stands as it is. As I said in the previous question, the claims frequency has now developed a bit higher than we said in the previous quarter. So there is some increase there, and we see that as an underlying, so it means there is not as a trend, and we're taking that as a basis for going further. On the property side, as I said, there is quarterly volatility. That means that, you know, each and every quarter, especially the number of fires or weather-related events, can be very volatile. And we've seen around 8% increase in the number of claims compared to Q2 last year.
It's hard to tell whether any of these are actually the normal, but the increase is at least very significant. We take that into account when we estimate prices or the need for prices going forward. We are prudent, we feel, in taking account that there might be a prolongation of this frequency number.
Yeah, but on the property side, because what makes it a bit difficult to see for us is that there is also an increase in severity.
Yeah.
So, like, how much did this cost you versus expectations or something like that? Is it possible to say?
I think I'll refrain from kind of estimating that number. But given the volatility in trend, there is in the number of claims, there is also volatility in the type of claims from each and every quarter. And fires are typically more costly than other types of property claims. If you have a high increase in fires, as we talked about, in this slide, that means also the average claim is typically much higher than yeah, the average of all the whole portfolio or type of claims.
... Okay, but, but it's fair to say that property was what had the big effect this quarter, not, not motor. It's up a little bit, I know, on frequency, but doesn't seem that much.
I think both are drivers of the results of this quarter, Ulrik.
Okay.
Ulrik, if you look at the both-
Yeah.
If you look at the slide, at slide three, at the bottom, on the right side, you see incurred revenues for rolling twelve months for property private normal, and you see incurred claims, rolling twelve months. And you see, if you compare this figure to the motor figure on the next page, you see that on incurred-
Mm.
-claim, even though it's rolling twelve months, it's quite volatile. That's due to fires and due to motor claims, and it's much more volatile quarter to quarter.
Yeah, that's where I had my statement from, that it looks the property was the big surprise. But, yeah. Thank you.
Yeah, thanks.
Thank you, and we'll now take our next question from Jan Erik of ABG. Your line is open. Please go ahead.
Thank you for taking my question as well. When, when it comes to page 3 and 4, on, on the, the, incurred claims changes going forward, it looks like at least on, on your property side, that you have a, a nice downtake into the second half, and then, of course, you, you price in line more with inflation, so it's not going that fast upwards. Should we expect property to be sort of the winner in the second half of this year, since you had tough comparison from Q3 last year with the, the flooding homes, et cetera, and, and the, the tough winter?
So it means that your—the frequency and the severity, you don't expect to come back in the second half of this year, while on motor, you actually expect severity and frequency to stay high, and now you actually start to price that into your pricing for motor. Is that fair to assume that that is what you're looking at?
Okay, Jan Erik, it's very difficult to comment on that and be precise on that. But if you look at the actual claims inflation last year, 4%, and if you look at all the pricing measures in place now for property, what have we done and what we are doing at the moment, you see that expected price increases and average premium for 2024 is 9%. But if you look at the pricing measures and the renewals now in July, the prices are up by 15.5%, which is a significant price increase and definitely very much above what we see on the inflation side.
Can I also ask then, have you sort of changed your repair cost agreements with the suppliers in any way, which has surprised you negatively versus your expectations due to the high inflation in the past, so that those kind of agreements have hit you extra this quarter? Or, when does these agreements being negotiated?
We have many different types of agreements, both on the property side and the motor side. They are renewed on an ongoing basis, I would say, but we are not doing all the renewals of these agreements in one single quarter. That's an ongoing negotiations and agreement that we work on continuously, I would say. Yeah.
There has been no negative surprises in the renewals that we have had so far on, or over the last quarter, I think, on these agreements.
Okay. Thank you. I will go back to you then.
Thank you. We'll take our next question from Vegard Toverud of Pareto Securities. Your line is open. Please go ahead.
Yes, good morning. I wondered if you could comment a little more on how the claims impact from Q1 came into the Q2 numbers. Also, if there's any difference here between commercial and private lines, and also if this in any way have impacted the frequency numbers you have helpfully commented on, on page 3 and 4. Thank you.
Yeah, good question. It has hit both private and commercial in Norway, I would say approximately in the same range, actually slightly more on the commercial side than the private side. It has been a combination of late reporting of claims due to the, what we would call the Easter effect, where there were a lot of holidays just around the turning from Q1 to Q2, and an increase in already reported claims. It is something we are used to, that there is some kind of volatility between quarters in terms of claim sizes, but maybe slightly more now than typical. It is...
It has an effect, a slight effect on the underlying frequency loss ratio of both private and commercial Norway in the second quarter. Given that it's both the number of claims and size of claims, it's a bit hard to distinguish the effect on the frequency number and the average claim as such, and we haven't really done that exercise.
... But this has a somewhat some effect on both of those, of course, given that this has affected the underlying frequency loss ratio.
So thank you. That's, that's helpful. Just to try to dig into it slightly more. You mirror comments from a competitor which reported also last week and commented on the same effects. So the reason why these claims are then adjusted upwards, is that due to strains in or bottlenecks in some part of the total claims handling business for Norway? For instance, in estimation of all the claims, et cetera. I'm just trying to understand why this seems to be an industry issue in the first half of this year.
I think it's a complex set of reasons behind that change. And I also noted that the other companies have seen the same, although I think that was mainly comments made for Denmark. I think from at least the comments I saw. But it's seen across the industry, and I think it's a strain on not necessarily the insurance companies' claims organizations, but all the total supply network that kind of actually physically do the repairs here. Based on a very large number of claims that we talked about.
First, second half of 2023, and then a harsh winter that we reported on in the first quarter, which has made, you know, the overall strain on the kind of value chain we call around fixing claims that has strained that to increases. I think that is probably the main reason behind this.
Okay, thank you.
Thank you. We'll now take our next question from Håkon Astrup of DNB Markets. Your line is open, please go ahead.
Good morning, and thanks for taking the questions. My question will be on the churn in private Norway. So, so far, very limited impact from the price increases, but you're now ramping up the price increases, if I understand you correctly. So end of 2024, price increases will be above 15%, both in private motor and property. So do you expect that to have any impact on churn? And if churn increases, will this impact your behavior?
Mm-hmm. Thank you, Håkon. The retention number is still high, both in private and commercial segments, especially in Norway. We have just, you know, the customer dividend model. We have just paid out the customer dividends as well, which we know have a very positive impact on on loyalty and customer satisfaction. With this background, I am confident that we will come through all the price increases we are doing at the moment with good and high retention levels. We are prioritizing profit before growth. And if it's -- we see that the churn somewhat will increase for some time, we are still confident that this is the question right thing to do, and we will do all...
Have all the measures planned will be implemented regarding risk selection, pricing measures, changes when it comes to terms and conditions, to improve the profitability and make sure that we reach, we reach all the financial targets for 2025 and 2026. But saying that, the customer satisfaction and loyalty is at very high numbers in Norway, and we have a very good situation to do all the repricing measures we are doing at the moment.
Thank you, and that was very clear.
Thank you, and we'll take our next question from Faizan Lakhani at HSBC. Your line is open. Please go ahead.
Hi there. Thank you for taking my questions. The first one is on the chart that you show with the property, sort of long-term trend and how that develops. It appears that your, you know, prior to 2019 or COVID, it was sort of still above where it is right now, and yet you're expecting to drop down to maybe sort of the trend line from 2022. I can understand some of that may be the structural decrease in fires, but that sounds quite a punchy sort of reduction in this. Are you comfortable with your incurred claims trends that you're forecasting in property? The second question is sort of a, sort of big picture question on the fact that you've maintained your 2026 target of a combined ratio of a sub-82%.
If I look at where your starting point is today, 88.9%, you take away 3% for weather, you're at 86%. You've earmarked something like eight hundred million kroner worth of claims efficiencies. Could you sort of guide in terms of how much the claims efficiencies have come through? How much of the benefit deductible has already come through? How much more is set to come? And realistically, how much can you bridge via sort of pricing actions to get to that 82% combined ratio guidance that you have for 2026? Thank you.
I think the most important thing here to take into account is that we have-
... at 12-month policies, we are renewing prices now, or renewing policies, sorry, now at a rate of more than 15% in private property in Norway. And we believe that is enough, given our kind of short-term forecast for short term, meaning 12-18 months. If we see that this is not enough, we will take necessary measures or actions to correct that, which will lead to a good profit or the target profit levels more than 18 months further down. So I think I'm, as I said on the previous question, there is high volatility around property claims. We've kind of assessed what where we think we are here, and that is included in our forecasts.
If we are not correct about that, we will change the measures and be able to do that fairly quickly. In terms of the longer term picture, 2026, there is really not that much in what we see now that kind of is a negative towards that target. We have been running fairly high price increases all through the last 12 months. We are stepping it up now. We haven't seen an increase in churn. The retention rates are more or less the same, actually quite high. And that actually is a positive for the longer term profitability for the company. And of course, related to churn, this is also a question of kind of how the overall market reacts to these high claims numbers.
That is something we will learn over time.
Sorry, just part of that question was how much of the claims efficiency that you laid out?
Yeah.
How much have you actually achieved so far towards your?
Yeah.
Towards your 2026 target already?
Yeah. Sorry, I forgot that part. Well, it's of the 800 we announced at the Capital Markets Day, very small amount is now still realized, and we'll. I think we're planning an update on the progress there at some time, but not today.
Okay. Thank you very much.
Thank you. We'll now take our next question from Thomas Svendsen of SEB. Your line is open. Please go ahead.
Yes, good morning. A question on the dividend policy, because if we look at the EPS, first half this year, and adjust it for the change in risk adjustment, you are far behind last year. So how important is it to keep the dividend and not cut it from one year to another?
Yeah. We maintain our dividend policy. We are, as we have told before, the floor on the dividend per share was set last year with NOK 8.75. And when we said the dividend policy is maintained, that's our background also for doing all the assessments going forward. But it hasn't changed due to the results we have seen in the first and second quarter.
Okay. And second question on the claims frequency in motor, because it seems like the tone has changed a little bit from optimism last quarter. So how sure can we be that it's actually not increasing further amid increased economic activity in Norway?
We are not satisfied with the results in the second quarter, but all necessary actions have been taken. Repricing is at an extraordinary level. July renewals, price increases at 17.5%, for motor private Norway. All the financial targets for 2025 and 2026 are maintained, and I'm very committed to improve profitability and do what's necessary on pricing, risk selection, and cost efficiency going forward.
Okay, thank you.
Thank you. We'll now take our next question from Hans Rettedal Christiansen of Danske Bank. Your line is open. Please go ahead.
Yes, thank you for taking the question. So I was just wondering on the, on your communication, where in Q1 you said that you expect improved underlying frequency loss ratio year-on-year for private Norway during the next two quarters. And given that it didn't happen this quarter, do you still stick with that statement for the next quarter, so in Q3?
Yeah. No, I mean, we are strongly committed to improve profitability. That's the main point there. With the measures that we have in place, as Geir commented in his presentation, we will improve profitability over time, but quarterly profits or quarterly comparisons may be impacted by volatility in claims frequency and severity, and the financial targets for 2025 and 2026 then.
Okay. And then I just have a follow-up to that. I guess you have touched upon it previously as well, but on the chart in the lower left, right-hand corner on page 3, on the property claims inflation, if you compare that chart to what you reported in Q1, I mean, there hasn't been any change in sort of the illustrative effect, whereas in the motor chart, I guess you've kind of picked up the incurred claims. So how should I, how should we think about that compared to the results that you've given this quarter, and especially then on property, which seems to be sort of bang in line with what you were expecting in Q1?
As I commented on the frequency of motor, it's 8% higher than the frequency in Q2. There is a lot of volatility from quarter to quarter on the number of claims and then claims mix or the type of claims that you have in property, whether it's fires or water leakages or whatever it is. Whereas you say that the increase in frequency in motor of 5.8% compared to Q2 2020, up from 5% in the comment previous quarter, we say that is trend, whereas the property is more in the short term, it is dominated by volatility in number of type of claims.
Yeah, for property, we have seen a high number of fires than we have seen before, which is, has to be stochastic. The long-term trend when it comes to fires are decreasing, which we have seen over many, many years due to many, many different types of prevention measures in place.
Okay, but is it just because the chart hasn't actually changed quarter-on-quarter, so is it then the severity component that has changed quarter-on-quarter?
The frequency has changed 8% compared to the same quarter of last year. I mean, we didn't have actually as part of the first quarter. But I mean, and that's then what we've seen in the second quarter is a lot of fires, and they are more costly. So then, and that's why I'm saying it's a bit careful of reading and trend into the claims frequency numbers quarter by quarter on property, because there is so much volatility there.
Okay. Thank you very much.
Thank you. We'll now take our next question from Youdish Chicooree at Autonomous Research. Your line is open, please go ahead.
Good morning, everyone. I've got two questions, please. The first question is on, on, on your price increases and, and your financial targets for 2025. I mean, there is a significant step up in your price increases from July. Now, as you said earlier, it's gonna take you 12 months to work through your renewal book, and there's potentially another 12 months before you fully earn through those price increases. So what gives you confidence that you can hit your combined ratio target for 2025? That, that's my first question, please. Thank you.
The targets are unchanged there, and that is because we believe we'll reach them. The pricing measures we are taking now are... I mean, we started stepping up price increases in the second quarter of last year, and we talked quite a lot about that, and that was especially for motor. And then we've gradually them, and we're stepping up one more time now. We're talking about a 13% increase in the average price for a car within our stock at the end of this year. And that will continue to increase given the 7.5% rate of change now from July. So I think we'll be—we believe we'll be able to price. Of course, you can never be sure, and if we are surprised negatively, we'll continue to adjust our measures.
Yeah, if you look at the price increase for motor and add the price increases we did last year, with the price increases we already have done this year, you see that the average premium increased by approximately 22% over two years. In addition, the repricing levels we are having in the market at the moment is even higher. So, this is definitely our measures that have a strong impact on our ability to reach the financial target for 2025 and give a very good also trend when we're reaching the new target for 2026.
Okay. All right. Thank you. And my last question is on the frequency loss ratio. I mean, in terms of the change year on year, you've told, you've told us that, two points is from, you know, some late reporting from Q1. Of the remainder, are you able to help us, you know, like, split the 3.6 increase between what you would call these, you know, bad luck in terms of property claims, stochastic claims, and what is actually the end, the motor component, please?
No, I think we just bear in mind that motor is around 40% of the overall private Norway book, and-
Okay.
So it's very important to have the heat there. That's correct. And the second-largest product is property, which is a bit more volatile from quarter to quarter. I think that's the guidance I can give you there.
All right. Okay, thank you very much.
Thank you. Once again, kindly be reminded to ask one question per person at a time. Thank you. We'll now move on to our next question from Johan Ström of Carnegie. Your line is open. Please go ahead.
Thank you. So I'm wondering if you see any changes in the customer behavior in terms of coverage. I mean, after all these price hikes, which are well above inflation, insurance have become fairly costly. So are you seeing any customers reducing the coverage? Thank you.
Yeah, thank you, Johan. We haven't seen any changes in the retention level during the last quarter. And we are spending more time with customers during the last three, four quarters due to the high inflation numbers we are facing and the more stressful economic situation for households. But we haven't seen any negative top line development due to the high price increases and changes in the insurance sums and change in insurance plans.
Okay, thank you.
Thank you. We'll now take our next question from Michele Ballatore of KBW. Your line is open, please go ahead.
Yes, thank you for taking my question. I will go back to slide 4, I mean, which is an interesting slide in terms of the long-term trends in the claims development in motor. My question is, I guess, around do you see the same trends emerging, the same structural trends emerging also in Denmark and Sweden, or are these countries different to some extent? Can you maybe clarify and give more color on that? Thank you.
It's an interesting debate, really, because we've seen also industry-wide numbers from in Denmark. They're talking about an increase in the claims frequency motor also there. We've seen a slight increase, but we'd ascribe that quite a lot to weather-related effects, especially in the very early 2024, rather than an underlying trend in the same way as we've seen in Norway. So I guess the answer to your question is, with much less of a trend in Denmark. And the same really goes for Sweden. We don't quite see the same trend in Sweden, but bear in mind that our portfolio in Sweden is much smaller, so maybe we're not the best one to catch that trend. Whereas we have quite good visibility in both Denmark and Norway.
And when it comes to all the other elements, driving behavior, terms and conditions?
I think many of the factors are not especially typical for Norway. When it comes to types of vehicles, the type and traffic density. When it comes to driving behavior, attention, it's then probably seeing the similarities across the Nordics due to the vehicle fleet in the different markets. The main distinguishing factor is probably the amount of electric vehicles in Norway, which is much higher than in the two neighboring countries. But if you look at the new sales now in Denmark, of course, you see that EV are dominating there as well. Not as much as in Norway, but still increasing rapidly.
Thank you.
Thank you. And we'll now take our next question from Vinit Malhotra of Mediobanca. Your line is open, please go ahead.
Yes, good morning. Thank you. So my 1 question on slide 3, please, on property in Norway. Could you just say something more, 1 level more about the measures being taken to reduce exposure to fire risk, fires? Is it that you're increasing far more for a certain class of business within property or something there to, you know, suggest why this, this problem of fires should go away in the near term? And also, if I can, for I know we are only allowed 1 question, but on property, this deductibles, could you give us an example? Because, you know, property deductibles will be differently treated by customers than motor deductibles, where sometimes people might or might not make a claim, but in property, they probably will still make a claim.
So I'm just curious on these two topics, but, I'm happy to wait later as well. But thank you.
The trend on fires is actually a long-term reduction in the fires. You really just take the number of fires in private property in Norway for the last 10 years and just smoothen that curve. It's a clear downward trend. That's why we in a way think that this is a volatility issue in the second quarter, and not as much a problem as water damages, which are more susceptible to climate-related changes. There are kind of no new measures for to reduce fires, because these measures are really taken. What we're talking about for private property is mainly pricing on the to fix or to compensate for this the claims we've seen.
And I agree with you, the deductible on property is more; it takes down the average claim size by a small amount. The increase in deductible doesn't quite change the frequency as such on the housing, but it might have an effect if you change the deductible on small ticket policies like contents and so on. But the main measure we are taking here, both for property and motor, is pricing measures. But saying that, we have a very comprehensive risk selection and risk assessment procedure when it comes to property and both the kind of building, type of building, the types of material used, and so on, to help us with the risk selection and the pricing as well, due to higher exposure.
Okay, thank you very much.
Thank you. We'll now take our next question from Tryfonas Spyrou. Your line is open, please go ahead.
Oh, hi there. Just maybe one more on the property. Can you maybe, and I know you've probably touched on this a little bit, but, you know, the trend between, you know, during COVID 2020, 2023, the structural sort of, you know, Covid-adjusted opening up on revenue versus claims. Can you maybe elaborate a little bit more on what was the key driver behind that? And why, why do you think comfortable that, that, you know, that we're not gonna revert back to the mean, which looks like, you know, the claims have been structurally higher than what you show on slide three? Maybe just as a follow-up to Vinit's question earlier. Thank you so much.
I think, claims inflation, also the average claims size will gradually go up, and then I think that has been in line with what we guided, 5%-7%. Somewhat volatile for the material side for a certain period, but that's kind of quite down now. And the main driver being the wage or labor cost part of the claims picture. And as I said, you know, the number of claims and some of the composition of the type of claims will be a bit volatile over time, related to fires, weather there are some weather-related events like we had in the first quarter.
So there will be some volatility there, but yeah, I think the main long-term driver will be the average claim size over the claims inflation related to property.
Can I ask on the commercial side, are you seeing similar trends as the curves, the graphs on slide 3 and 4, on property and motor? Is that similar trend on the commercial side?
I think we've seen some similar trends on the motor side, for commercial motor. As commercial motor is much more different types of motor vehicles from large trucks to car fleets. But if you kind of cars that basically are on the same type as we have in the private sector, say fleets, taxis and so on, there's a fairly similar claims pattern developing. Fires is much more volatile in- it's even more volatile within commercial because fires there can be much more different in size than the private property.
Great, thank you.
I don't see no trend in the amount of or number of fires in commercial.
Thank you. And we'll now take our next question from Freya Kong of Bank of America. Please go ahead.
Hi, thanks. Can I just ask what the priorities for your new EVP of claims will be when she starts? Do you think the issues that you've seen are, I guess, more broad-based across the market? Is everyone being negatively surprised in frequency, or do you see something in your systems that needs to be improved to catch these issues sooner, or rather better anticipate? Thank you.
I think I'll just remind of the priorities we've set for them. First of all, we have announced a claims program, and we will step into the requirements we had on Aysegül as in her role to deliver on that program. Also, we have behind us. Look, starting from, say, in August last year, and large, very high inflow of claims, which has led to an increased backlog compared to what was normal. We worked hard to bring that backlog down, come quite a far, but there is still some more to be done, and we will. We'll also focus on that.
Of course, a high quality claims process is important both for the customer's satisfaction, that we deliver on their target, and to keep the claims cost under control. And both of these things will be on top of our priority list.
Thank you.
Thank you. We'll now move on to our next follow-up question from Jan Erik Gjerland of ABG. Please go ahead.
Thank you for taking my follow-up. Just taking Håkon's retention question back in time here. So how will you differ between the customers when it comes to hikes, price hikes? Will most of them get a sort of or the better clients being in the lower end, and those who are least profitability get a much higher level, so you try to price them out to your book? Or how should we look at your sort of repricing versus the different kind of client types or profitability or clients, please?
Yeah. If you look at our private segment, we do have different customer groups by the kind of profitability or customer score, as we call them.
... some many different types of groups, depending on the level of profitability per customer. We are doing all the price increases to all the groups. Of course, higher for the type of customers that are less profitable. But even though, even the more profitable customers are getting quite high price hike, going forward, I would say. So, definitely about 10% per customer, going forward as well, and even quite much higher than that as well.
Isn't it the risk that you actually then push them away because they will get a more decent offer somewhere else?
Well, we do have experience based on what kind of price hikes each single customer can manage. And due to the high, high level of satisfaction, which we know per customer group, and dependent on how profitable the customer is, also. So we are confident that all the price hikes we are doing at the moment will put us in a position where the retention rate still will be high and approximately at the same level we are seeing at the moment.
Okay, thank you.
Thank you, and we'll now take our next follow-up from Faizan Lakhani of HSBC. Please go ahead.
Hi there. I know this was covered last quarter, but I just wanted to sort of catch up on again, is the fact that you've increased your large loss budget by more than 20%, yet you didn't change your combined ratio target. Implicitly, I would assume that means mechanically, you're forecasting a better underlying frequency loss ratio going forward. Can you maybe just help bridge how that works? Thank you.
Again, I think the correct assumption is that, you know, in the total claims forecast is taken into account when we estimate the combined ratio or how to reach the combined ratio target. And the pricing measures we do will compensate for the both, the expected development and the underlying frequency loss ratio and the large claims budget or forecast, if you like. And we appreciate that, you know, this large claims number is especially volatile over time. But on average, we'll have that included in the pricing on the different products.
Okay. So you need to affect, which is one point more in the combined ratio via pricing to hit the targets, if that's my understanding correctly?
Yeah. Okay. Yeah.
Thank you very much.
Thank you. There are no further questions in queue. I will now hand it back to Mitra for closing remarks.
Thank you. Thank you everyone, for lots of good questions as always. We will be participating in roadshow meetings and conferences, and group investor meetings organized by brokers in August and September. These meetings will be held in Oslo, London, Stockholm and Frankfurt. Have a look at our financial calendar on our website for more details. With that, thank you for your attention and have a nice day and a lovely summer.
This concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.